Document:

Unassociated Document

    EXHIBIT
10.4

    

    SUBSIDIARY
GUARANTEE

    

    SUBSIDIARY
GUARANTEE, dated as of May 14, 2008 (this “Guarantee”), made by
Lifeline Cell Technology, LLC, a California limited liability company
(“Lifeline”), and International Stem Cell Corporation, a California corporation
(together with Lifeline and any other entity that may become a party hereto as
provided herein, individually and collectively, the “Guarantor”, and
together with the Company (as defined below), the “Debtors”), in favor
of the purchaser (including such purchaser’s successors, transferees and
assigns, the “Purchaser”) signatory
to the Purchase Agreement (as defined below).

     

    

    W
I T N E S S E T H:

    

    WHEREAS,
pursuant to that certain Securities Purchase Agreement (“Purchase Agreement”)
dated as of May 14, 2008 by and between International Stem Cell Corporation, a
Delaware corporation (the “Company”), and the
Purchaser, the Company has agreed to sell and issue to the Purchaser, and the
Purchaser has agreed to purchase from the Company the Company’s OID Senior
Secured Convertible Note (the “Note”), subject to
the terms and conditions set forth therein;

    

    WHEREAS,
each Guarantor is a direct or indirect Subsidiary of the Company, and as a
condition to the Closing of the transactions contemplated by the Purchase
Agreement, and in order to induce the Purchaser to enter into and consummate the
transactions contemplated by the Purchase Agreement (including without
limitation purchasing the Note and making the loans evidenced thereby), the
Company has agreed that the Guarantor would guaranty the Company’s obligations
under the Note, Purchase Agreement and other Transaction Documents in accordance
with the terms set forth in this Guarantee, the Note, the Purchase Agreement and
other Transaction Documents; and

    

    WHEREAS, each Guarantor will directly
benefit from the extension of credit to the Company represented by the issuance
of the Note;

    

    NOW,
THEREFORE, in consideration of the premises and to induce the Purchaser to enter
into the applicable Purchase Agreement and to carry out the transactions
contemplated thereby, each Guarantor hereby agrees with the Purchaser as
follows:

    

    1. Definitions. Unless
otherwise defined herein, initially capitalized terms defined in the Purchase
Agreement and used herein shall have the meanings given to them in the Purchase
Agreement.  The words “hereof,” “herein,” “hereto” and “hereunder” and
words of similar import when used in this Guarantee shall refer to this
Guarantee as a whole and not to any particular provision of this Guarantee, and
Section and Schedule references are to this Guarantee unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.  The
following terms shall have the following meanings:

    

    “Guarantee” means this
Subsidiary Guarantee, as the same may be amended, supplemented or otherwise
modified from time to time.

    

    
      
         

      

      
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    “Obligations” means,
in addition to all other costs and expenses of collection incurred by Purchaser
in enforcing any of such Obligations and/or this Guarantee, all of the
liabilities and obligations (primary, secondary, direct, contingent, sole, joint
or several) due or to become due, or that are now or may be hereafter contracted
or acquired, or owing, of any Debtor to the Purchaser, including without
limitation all obligations under the Purchase Agreement, the Note, the Warrants,
this Guarantee and any other instruments, agreements or other documents executed
and/or delivered in connection herewith or therewith, in each case, whether now
or hereafter existing, voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from any of the Purchaser as a
preference, fraudulent transfer or otherwise, as such obligations may be
amended, supplemented, converted, extended or modified from time to
time.  Without limiting the generality of the foregoing, the term
“Obligations” shall include without limitation: (i) principal of, and interest
on, the Note and the loans extended pursuant thereto; (ii) any and all other
fees, indemnities, costs, obligations and liabilities of the Debtors from time
to time under or in connection with the Purchase Agreement, the Note, the
Warrants, this Guarantee and any other instruments, agreements or other
documents executed and/or delivered in connection herewith or therewith; and
(iii) all amounts (including but not limited to post-petition interest) in
respect of the foregoing that would be payable but for the fact that the
obligations to pay such amounts are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving any
Debtor.

    

    2. Guarantee.

    

    (a) Guarantee.

    

    (i) The
Guarantor hereby, jointly and severally, absolutely, unconditionally and
irrevocably, guarantees to the Purchaser and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Company when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.  The Guarantor’s
liability under this Guarantee shall be unlimited, open and continuous for so
long as this Guarantee remains in force.  For clarification, each
Guarantor’s liability under this Guarantee shall be joint and
several.

    

    (ii) Anything
herein or in any other Transaction Document to the contrary notwithstanding, the
maximum liability of Guarantor hereunder and under the other Transaction
Documents shall in no event exceed the amount which can be guaranteed by the
Guarantor under applicable federal and state laws, including laws relating to
the insolvency of debtors, fraudulent conveyance or transfer or laws affecting
the rights of creditors generally (after giving effect to the right of
contribution set forth in Section 2(b)).

    

    (iii) Guarantor
agrees that the Obligations may at any time and from time to time exceed the
amount of the liability of the Guarantor hereunder without impairing the
guarantee contained in this Section 2 or affecting the rights and remedies of
the Purchaser hereunder.

     

    
      
         

      

      
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    (iv) The
guarantee contained in this Section 2 shall remain in full force and effect
until all the Obligations and the obligations of Guarantor under the guarantee
contained in this Section 2 shall have been satisfied by payment in
full.

    

    (v) No
payment made by the Company, the Guarantor, any other guarantor or any other
Person or received or collected by the Purchaser from the Company, the
Guarantor, any other guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of the Guarantor
hereunder which shall, notwithstanding any such payment (other than any payment
made by the Guarantor in respect of the Obligations or any payment received or
collected from the Guarantor in respect of the Obligations), remain liable for
the Obligations up to the maximum liability of the Guarantor hereunder until the
Obligations are paid in full.

    

    (vi) Notwithstanding
anything to the contrary in this Guarantee, with respect to any defaulted
non-monetary Obligations the specific performance of which by the Guarantor is
not reasonably possible (e.g. the issuance of the Company's Common Stock), the
Guarantor shall only be liable for making the Purchaser whole on a monetary
basis for the Company's failure to perform such Obligations in accordance with
the Transaction Documents.

    

    (b) Right of
Contribution.  Guarantor hereby agrees that to the extent that
a Guarantor shall have paid more than its proportionate share of any payment
made hereunder, the Guarantor shall be entitled to seek and receive contribution
from and against any other Guarantor hereunder which has not paid its
proportionate share of such payment.  Guarantor's right of
contribution shall be subject to the terms and conditions of Section
2(c).  The provisions of this Section 2(b) shall in no respect limit
the obligations and liabilities of the Guarantor to the Purchaser, and Guarantor
shall remain liable to the Purchaser for the full amount guaranteed by the
Guarantor hereunder.

    

    (c) No
Subrogation.  Notwithstanding any payment made by the Guarantor
hereunder or any set-off or application of funds of the Guarantor by the
Purchaser, no Guarantor shall be entitled to be subrogated to any of the rights
of the Purchaser against the Company or any other Guarantor or any collateral
security or guarantee or right of offset held by the Purchaser for the payment
of the Obligations, nor shall the Guarantor seek or be entitled to seek any
contribution or reimbursement from the Company or any other Guarantor in respect
of payments made by the Guarantor hereunder, until all amounts owing to the
Purchaser by the Company on account of the Obligations are paid in
full.  If any amount shall be paid to the Guarantor on account of such
subrogation rights at any time when all of the Obligations have not been paid in
full, such amount shall be held by the Guarantor in trust for the Purchaser,
segregated from other funds of the Guarantor, and shall, promptly following
receipt by the Guarantor, be turned over to the Purchaser in the exact form
received by the Guarantor (duly indorsed by the Guarantor to the Purchaser, if
required), to be applied against the Obligations, whether matured or unmatured,
in such order as the Purchaser may determine.

     

    
      
         

      

      
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    (d) Amendments, Etc. With
Respect to the Obligations.  Guarantor shall remain obligated
hereunder notwithstanding that, without any reservation of rights against the
Guarantor and without notice to or further assent by the Guarantor, any demand
for payment of any of the Obligations made by the Purchaser may be rescinded by
the Purchaser and any of the Obligations continued, and the Obligations, or the
liability of any other Person upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Purchaser, and
the Purchase Agreement, the Note and the other Transaction Documents and any
other documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Purchaser may
deem advisable from time to time, and any collateral security, guarantee or
right of offset at any time held by the Purchaser for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. The
Purchaser shall have no obligation to protect, secure, perfect or insure any
Lien at any time held by them as security for the Obligations or for the
guarantee contained in this Section 2 or any property subject
thereto.

    

    (e) Guarantee Absolute and
Unconditional.  Guarantor waives any and all notice of the
creation, renewal, extension or accrual of any of the Obligations and notice of
or proof of reliance by the Purchaser upon the guarantee contained in this
Section 2 or acceptance of the guarantee contained in this Section 2; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in this Section 2; and all dealings between the
Company and the Guarantor, on the one hand, and the Purchaser, on the other
hand, likewise shall be conclusively presumed to have been had or consummated in
reliance upon the guarantee contained in this Section 2.  Guarantor
waives, to the fullest extent permitted by law, diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Company or the Guarantor with respect to the Obligations.  Guarantor
understands and agrees that the guarantee contained in this Section 2 shall be
construed as a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity or enforceability of the Purchase Agreement,
the Note or any other Transaction Document, any of the Obligations or any other
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Purchaser, (b) any defense,
set-off or counterclaim (other than a defense of payment and performance in full
of the Obligations) which may at any time be available to or be asserted by the
Company or any other Person against the Purchaser, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of the Company or the
Guarantor) which constitutes, or might be construed to constitute, an equitable
or legal discharge of the Company for the Obligations, or of the Guarantor under
the guarantee contained in this Section 2, in bankruptcy or in any other
instance. When making any demand hereunder or otherwise pursuing its rights and
remedies hereunder against the Guarantor, the Purchaser may, but shall be under
no obligation to, make a similar demand on or otherwise pursue such rights and
remedies as they may have against the Company, any other Guarantor or any other
Person or against any collateral security or guarantee for the Obligations or
any right of offset with respect thereto, and any failure by the Purchaser to
make any such demand, to pursue such other rights or remedies or to collect any
payments from the Company, any other Guarantor or any other Person or to realize
upon any such collateral security or guarantee or to exercise any such right of
offset, or any release of the Company, any other Guarantor or any other Person
or any such collateral security, guarantee or right of offset, shall not relieve
the Guarantor of any obligation or liability hereunder, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Purchaser against the Guarantor.  For the
purposes hereof, “demand” shall include without limitation the commencement and
continuance of any legal proceedings.

     

    
      
         

      

      
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    (f) Reinstatement.  The
guarantee contained in this Section 2 shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Purchaser upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Company or the Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Company or the Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been
made.

    

    (g) Payments.  Guarantor
hereby guarantees that payments hereunder will be paid to the Purchaser without
set-off or counterclaim in U.S. dollars at the address set forth or referred to
in the Purchase Agreement.

    

    3. Representations and
Warranties. Guarantor hereby makes the following representations and
warranties to the Purchaser as of the date hereof:

    

    (a) Organization and
Qualification. The Guarantor is an entity, duly organized, validly
existing and in good standing under the laws of the applicable jurisdiction set
forth on Schedule 1, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Guarantor has no subsidiaries other than those identified as such on the
Disclosure Schedules to the Purchase Agreement.  The Guarantor is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not, individually or
in the aggregate, (x) adversely affect the legality, validity or enforceability
of any of this Guaranty in any material respect, (y) have a material adverse
effect on the results of operations, assets, prospects, or financial condition
of the Guarantor, or (z) adversely impair in any material respect the
Guarantor's ability to perform fully on a timely basis its obligations under
this Guaranty (a “Material Adverse
Effect”).

    

    (b) Authorization;
Enforcement.  The Guarantor has the requisite power and
authority to enter into and to consummate the transactions contemplated by this
Guaranty, and otherwise to carry out its obligations hereunder.  The
execution and delivery of this Guaranty by the Guarantor and the consummation by
it of the transactions contemplated hereby have been duly authorized by all
requisite action on the part of the Guarantor.  This Guaranty has been
duly executed and delivered by the Guarantor and constitutes the legal, valid
and binding obligation of the Guarantor enforceable against the Guarantor in
accordance with its terms.

     

    
      
         

      

      
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    (c) No Conflicts. The
execution, delivery and performance of this Guaranty by the Guarantor and the
consummation by the Guarantor of the transactions contemplated thereby do not
and will not (i) conflict with or violate any provision of its Articles of
Organization or Operating Agreement or (ii) conflict with, constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Guarantor
is a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Guarantor is subject (including federal and state
securities laws and regulations), or by which any material property or asset of
the Guarantor is bound or affected, except in the case of each of clauses (ii)
and (iii) such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not, individually or in the aggregate,
have or result in a Material Adverse Effect.  The business of the
Guarantor is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations which,
individually or in the aggregate, do not have a Material Adverse
Effect.

    

    (d) Consents and
Approvals.  The Guarantor is not required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other federal, state, local, foreign or other governmental
authority or other person in connection with the execution, delivery and
performance by the Guarantor of this Guaranty.

    

    (e) Purchase
Agreement.  The representations and warranties of the Company
set forth in the Purchase Agreement as they relate to the Guarantor, each of
which is hereby incorporated herein by reference, are true and correct as of
each time such representations are deemed to be made pursuant to the Purchase
Agreement, and the Purchaser shall be entitled to rely on each of them as if
they were fully set forth herein, provided that each reference in each such
representation and warranty to the Company's knowledge shall, for the purposes
of this Section 3, be deemed to be a reference to the Guarantor's
knowledge.

    

    (f) Company’s
Request.  This Guarantee is executed at the Company’s request
and not at the request of the Purchaser.

    

    (g) Obtaining Company
Information.  The Guarantor has established adequate means of
obtaining from the Company on a continuing basis information regarding the
Company’s financial condition.

    

    (h) Solvency.  As
of the date hereof and after giving effect to the transactions contemplated
hereby (a) the property of the Guarantor, at a fair valuation, will exceed its
debt; (b) the capital of the Guarantor will not be unreasonably small to conduct
its business; (c) the Guarantor will not have incurred debts, or have intended
to incur debts, beyond its ability to pay such debts as they mature; and (d) the
present fair salable value of the assets of the Guarantor will be greater than
the amount that will be required to pay its probable liabilities (including
debts) as they become absolute and matured.  For purposes of this
subsection (i), “debt” means any liability on a claim, and “claim” means (i) the
right to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, undisputed, legal,
equitable, secured or unsecured, or (ii) the right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, undisputed, secured or unsecured.

     

    
      
         

      

      
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    4. Covenants.

    

    (a) Actions.  Guarantor
covenants and agrees with the Purchaser that, from and after the date of this
Guarantee until the Obligations shall have been paid in full, the Guarantor
shall take, and/or shall refrain from taking, as the case may be, each
commercially reasonable action that is necessary to be taken or not taken, as
the case may be, so that no Event of Default is caused by the failure to take
such action or to refrain from taking such action by the Guarantor.

    

    (b) Insurance.  So
long as the Note remains outstanding, the Guarantor shall have in full force and
effect (a) insurance reasonably believed by the Guarantor to be adequate on all
assets and activities, covering property damage and loss of income by fire or
other casualty, and (b) insurance reasonably believed to be adequate protection
against all liabilities, claims and risks against which it is customary for
companies similarly situated as the Guarantor to insure.

    

    (c) Compliance with
Laws.  So long as the Note remains outstanding, Guarantor will
use reasonable efforts to comply with all applicable laws, rules, regulations,
orders and decrees of all governmental authorities, except to the extent
non-compliance (in one instance or in the aggregate) would not have a Material
Adverse Effect.

    

    (d) Corporate Existence; Merger
and Consolidation.  So long as the Note remains outstanding,
the Guarantor shall maintain their corporate existence.  The Guarantor
shall not consolidate with or merge with or into, or convey, transfer or lease
all or substantially all its assets to, any Person, except to the same extent
that the Company is so permitted, and in accordance with the same provisions
applicable to the Company, in the Purchase Agreement or the Note (with the
assumption of obligations applying to the assumption of the obligations under
this Guarantee).

    

    (e) Taxes.  The
Guarantor shall pay, and shall cause each of its subsidiaries to pay, prior to
delinquency, all material taxes, assessments, and governmental levies except
such as are contested in good faith and by appropriate proceedings or where the
failure to effect such payment is not adverse in any material respect to the
Guarantor or the Purchaser.

    

    (f) Stay, Extension and Usury
Laws.  The Guarantor covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Guarantee; and the Guarantor (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any right herein granted to
the Purchaser, but shall suffer and permit the execution of every such right as
though no such law has been enacted.

     

    
      
         

      

      
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    (g) Negative
Covenants.  So long as any of the Obligations are outstanding,
unless the Purchaser shall otherwise consent in writing, Guarantor will not
directly or indirectly on or after the date of this Guarantee:

    

    i. other than Permitted Indebtedness (as defined in the
Note), enter into,
create, incur, assume or suffer to exist any indebtedness for borrowed money of
any kind, including but not limited to, a guarantee, on or with respect to any
of its property or assets now owned or hereafter acquired or any interest therein or any income or profits
therefrom;

    

    ii. other than Permitted Liens (as defined in the Note), enter into,
create, incur, assume or suffer to exist any liens of any kind, on or with
respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or
profits therefrom;

    

    iii. amend its certificate of incorporation, bylaws or other
charter documents so as to adversely affect any rights of the Purchaser
hereunder;

    

    iv. repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de
minimis number of shares of its securities or debt obligations;

    

    v. repay,
repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness,
other than regularly scheduled principal and interest payments as such terms are
in effect as of the Closing Date (subject to clause (vi) below);

    

    vi. repay,
repurchase or offer to repay, repurchase or otherwise acquire any indebtedness
to any current or former employees, officers or directors of the Guarantor or
Company or such current or former employees’, officers’ or directors’
affiliates, including without limitation any loans from or management fees
payable to William B. Adams or Kenneth C. Aldrich or their affiliates, except
for repayment to Kenneth C. Aldrich of loans made by him to the Company since
January 1, 2008, not to exceed $150,000 (in the aggregate together with payments
made by the Company);

    

    vii. pay cash
dividends or distributions on any equity securities of the
Guarantor;

    

    viii. enter
into any transaction with any Affiliate of the Guarantor which would be required
to be disclosed in any public filing of the Company with the Commission, unless
such transaction is made on an arm’s-length basis and expressly approved by a
majority of the disinterested directors of the Company (even if less than a
quorum otherwise required for board approval); or

    

    ix. enter
into any agreement with respect to any of the foregoing;

    

    provided, however,
that the Guarantor shall not be prohibited from undertaking any of the actions
described above that the Company is
permitted to undertake pursuant to the terms of the Purchase Agreement,
Note
and any and all other agreements or other documents entered into in connection
with the financings contemplated by the Purchase Agreement.

     

    
      
         

      

      
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    5. Miscellaneous.

    

    (a) Amendments in
Writing.   None of the terms or provisions of this
Guarantee may be waived, amended, supplemented or otherwise modified except in
writing by the Purchaser.

    

    (b) Notices.  All
notices, requests and demands to or upon the Purchaser or the Guarantor
hereunder shall be effected in the manner provided for in the Purchase
Agreement, provided that any such notice, request or demand to or upon the
Guarantor shall be addressed to the Guarantor at its notice address set forth on
Schedule
1.

    

    (c) No Waiver by Course of
Conduct; Cumulative Remedies. The Purchaser shall not by any act (except
by a written instrument pursuant to Section 5(a)), delay, indulgence, omission
or otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any default under the Transaction Documents or Event of
Default.  No failure to exercise, nor any delay in exercising, on the
part of the Purchaser any right, power or privilege hereunder shall operate as a
waiver thereof.  No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  A waiver by the
Purchaser of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Purchaser would otherwise
have on any future occasion.  The rights and remedies provided herein
are cumulative, may be exercised singly or concurrently and are not exclusive of
any other rights or remedies provided by law.

    

    (d) Enforcement Expenses;
Indemnification.

    

    (i) Guarantor
agrees to pay, or reimburse the Purchaser for, all costs and expenses incurred
in collecting against the Guarantor under the guarantee contained in Section 2
or otherwise enforcing or preserving any rights under this Guarantee and the
other Transaction Documents to which the Guarantor is a party, including without
limitation the reasonable fees and disbursements of counsel to the
Purchaser.

    

    (ii) Guarantor
agrees to pay, and to save the Purchaser harmless from, any and all liabilities
with respect to, or resulting from any delay in paying, any and all stamp,
excise, sales or other taxes which may be payable or determined to be payable in
connection with any of the transactions contemplated by this
Guarantee.

    

    (iii) Guarantor
agrees to pay, and to save the Purchaser harmless from, any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Guarantee to the extent the Company would be required to do so pursuant to the
Purchase Agreement.

     

    
      
         

      

      
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    (iv) The
agreements in this Section shall survive repayment of the Obligations and all
other amounts payable under the Purchase Agreement, the Note and the other
Transaction Documents.

    

    (e) Successor and
Assigns. This Guarantee shall be binding upon the successors and assigns
of Guarantor and shall inure to the benefit of the Purchaser and their
respective successors and assigns; provided that no Guarantor may assign,
transfer or delegate any of its rights or obligations under this Guarantee
without the prior written consent of the Purchaser.

    

    (f) Set-Off.  Guarantor
hereby irrevocably authorizes the Purchaser at any time and from time to time
while an Event of Default under any of the Transaction Documents shall have
occurred and be continuing, without notice to the Guarantor or any other
guarantor, any such notice being expressly waived by Guarantor, to set-off and
appropriate and apply any and all deposits, credits, indebtedness or claims, in
any currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by the Purchaser to or for the
credit or the account of the Guarantor, or any part thereof in such amounts as
the Purchaser may elect, against and on account of the obligations and
liabilities of the Guarantor to the Purchaser hereunder and claims of every
nature and description of the Purchaser against the Guarantor, in any currency,
whether arising hereunder, under the Purchase Agreement, any other Transaction
Document or otherwise, as the Purchaser may elect, whether or not the Purchaser
have made any demand for payment and although such obligations, liabilities and
claims may be contingent or unmatured.  The Purchaser shall notify the
Guarantor promptly of any such set-off and the application made by the Purchaser
of the proceeds thereof, provided that the failure to give such notice shall not
affect the validity of such set-off and application.  The rights of
the Purchaser under this Section are in addition to other rights and remedies
(including without limitation other rights of set-off) which the Purchaser may
have.

    

    (g) Counterparts.  This
Guarantee may be executed by one or more of the parties to this Guarantee on any
number of separate counterparts (including by fax or PDF), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.

    

    (h) Severability.  Any
provision of this Guarantee which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

    

    (i) Section
Headings.  The Section headings used in this Guarantee are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.

    

    (j) Integration.  This
Guarantee and the other Transaction Documents represent the agreement of the
Guarantor and the Purchaser with respect to the subject matter hereof and
thereof, and there are no promises, undertakings, representations or warranties
by the Purchaser relative to subject matter hereof and thereof not expressly set
forth or referred to herein or in the other Transaction Documents.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    
 

    (k) Governing
Law.  This guarantee shall be governed by, and construed and
interpreted in accordance with, the law of the state of California without
regard to any principles of conflicts of laws.

    

    (l) Submission to
Jurisdictional; Waiver. Guarantor hereby irrevocably
and unconditionally:

    

    (i) submits
for itself and its property in any legal action or proceeding relating to this
Guarantee and the other Transaction Documents to which it is a party, or for
recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of California,
located in San Diego, California, the courts of the United States of America
located in San Diego, California, and appellate courts from any
thereof;

    

    (ii) consents
that any such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;

    

    (iii) agrees
that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to the Guarantor at its address referred
to in Schedule 1 below or at such other address of which the Purchaser shall
have been notified pursuant thereto;

    

    (iv) agrees
that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other
jurisdiction; and

    

    (v) waives,
to the maximum extent not prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to in this Section any
special, exemplary, punitive or consequential damages.

    

    (m) Acknowledgements.  Guarantor
hereby acknowledges that:

    

    (i) it has
been advised by counsel in the negotiation, execution and delivery of this
Guarantee and the other Transaction Documents to which it is a
party;

    

    (ii) the
Purchaser have no fiduciary relationship with or duty to the Guarantor arising
out of or in connection with this Guarantee or any of the other Transaction
Documents, and the relationship between the Guarantor, on the one hand, and the
Purchaser, on the other hand, in connection herewith or therewith is solely that
of debtor and creditor; and

    

    (iii) no joint
venture is created hereby or by the other Transaction Documents or otherwise
exists by virtue of the transactions contemplated hereby between the Guarantor
and the Purchaser.

     

    
      
         

      

      
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    (n) Release of Guarantor.
Subject to Section 2, Guarantor will be released from all liability hereunder
concurrently with the repayment in full of all amounts owed under the Purchase
Agreement, the Note and the other Transaction Documents.

    

    (o) Seniority. The
Obligations of the Guarantor hereunder rank senior in priority to any other
Indebtedness (as defined in the Purchase Agreement) of the
Guarantor.

    

    (p) Waiver of Jury
Trial.  GUARANTOR AND, BY ACCEPTANCE OF THE BENEFITS HEREOF,
THE PURCHASER, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE AND FOR ANY COUNTERCLAIM
THEREIN.

    

    (q) Security.  The
Obligations and Guarantor’s obligations hereunder and under the other
Transaction Documents are secured by the assets of the Guarantor pursuant to the
terms of the Security Documents.

    

    

    *****************

     

    
      
         

      

      
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    IN
WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered as of the date first above written.

    
    

    

    LIFELINE
CELL TECHNOLOGY, LLC

    

    

    By: /s/ Kenneth C. Aldrich            

    Name:

    Title:   Managing
Member

    

    

    INTERNATIONAL STEM CELL
CORPORATION, a California corporation

    

    

    By: /s/ Kenneth C. Aldrich            

    

    Name:  Kenneth
C. Aldrich

    Title:  Chief
Executive Officer

    

    
      
         

      

      
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    SCHEDULE
1

    

    GUARANTOR

    

                      The
following are the names, notice addresses, jurisdiction of organization and
percentage ownership of Guarantor by the Company.

    

    

    
      	
              NAME

            	
              ADDRESS
      FOR NOTICE

            	
              JURISDICTION
      OF INCORPORATION

            	
              PERCENTAGE
      OWNED BY COMPANY

            
	
              International
      Stem Cell Corporation

            	
              2595
      Jason Court

              Oceanside,
      CA 92056

            	
              California

            	
              100%
      owned by Company

            
	
              Lifeline
      Cell Technology, LLC

            	
              2595
      Jason Court

              Oceanside,
      CA 92056

            	
              California

            	
              100%
      owned by International Stem Cell Corporation, a California
      corporation

            

    

    

    

     

     

     

    14Unassociated Document

    EXHIBIT
10.5

    

    SECURITY
AGREEMENT

    

                  This
SECURITY AGREEMENT, dated as of May 14, 2008 (this “Agreement”),
is among International Stem Cell Corporation, a Delaware corporation (the
“Company”), International
Stem Cell Corporation, a California corporation and wholly owned Subsidiary of
the Company (“ISC California”), Lifeline Cell Technology, LLC, a California
limited liability company and wholly owned Subsidiary of the ISC
California (“Lifeline”), all
of the other direct and indirect Subsidiaries of the Company (ISC
California, Lifeline and such Subsidiaries, the
“Guarantors”, and together with the Company, the “Debtors”), and the
holder, signatory hereto, of the Company’s OID Senior Secured Convertible
Note issued or to be issued in the original aggregate principal amount of
up to $1,000,000 (the “Note”) pursuant to
the Purchase Agreement (as defined below) (together with its endorsees,
transferees and assigns, the “Secured Parties”, and
each individually, a “Secured
Party”).

    

    W
I T N E S S E T H:

    

                  WHEREAS,
pursuant to that certain Securities Purchase Agreement dated on or about the
date hereof between the Debtor and the Secured Parties (the “Purchase Agreement”),
the Secured Parties have severally agreed to extend the loans to the Debtor
evidenced by the Note;

    

                  WHEREAS,
pursuant to that certain Subsidiary Guarantee, dated as of the date hereof
(“Guarantee”), the Guarantors have jointly and severally agreed to
guarantee and act as surety for payment of the Note;

    

                  WHEREAS,
in order to induce the Secured Parties to extend the loans evidenced by the
Note, each Debtor has agreed to execute and deliver to the Secured Parties this
Agreement and to grant the Secured Parties a security interest in certain
property of such Debtor to secure the prompt payment, performance and discharge
in full of all of the Company’s obligations under the Note and other
Transaction Documents and the Guarantors’ obligations under the Guarantee;
and

    

    WHEREAS, the rights of each Secured
Party hereunder shall be pari passu with each other
Secured Party and enforced through the agent for the Secured Parties appointed
pursuant to Section 18 hereunder;

    

                  NOW,
THEREFORE, in consideration of the agreements herein contained and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:

    

    1.           Certain Definitions. As used
in this Agreement, the following terms shall have the meanings set forth in this
Section 1.  Terms used but not otherwise defined in this Agreement
that are defined in Article 9 of the UCC (such as “proceeds”) shall have the
respective meanings given such terms in Article 9 of the UCC.

    

    
      
         

      

      
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    (i)         “Collateral” means the
collateral in which the Secured Parties are granted a security interest by this
Agreement and which shall include all the Debtors’ Patents, whether
presently owned or existing or hereafter acquired or coming into existence,
wherever situated, and all additions and accessions thereto and all
substitutions and replacements thereof, and all proceeds, profits, products and
accounts thereof, including without limitation all proceeds from the sale or
transfer of the Collateral and of insurance or under any indemnity, warranty or
guaranty covering the same (whether or not the Secured Party is the loss payee
thereof) and of any tort claims in connection therewith, and all files, records,
books of account, business papers, and computer programs, including without
limitation and all
files, records, books, ledger cards, correspondence, computer programs, tapes,
disks, digital storage  media and related data processing software
that at any time evidence or contain information relating to any of the Patents
or are otherwise necessary or helpful in the collection thereof or realization
thereupon;

    

    (b)           “Obligations” means
all of the liabilities and obligations (primary, secondary, direct,
contingent, sole, joint or several) due or to become due, or that are now or may
be hereafter contracted or acquired, or owing to, of any Debtor to the Secured
Parties either (i) under this Agreement, the Note, the Guarantee, the other
Transaction Documents and any other instruments, agreements or other documents
executed and/or delivered in connection herewith or therewith (other than
the Warrants (as defined in the Purchase Agreement)), or (ii) related to any
other liabilities or obligations associated with any indebtedness for borrowed
money from any Secured Party to any Debtor, in each case, whether now or
hereafter existing, voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, whether or not jointly owed with others,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred, and all or any portion of such obligations or
liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from any of the Secured Parties as a
preference, fraudulent transfer or otherwise as such obligations may be
amended, supplemented, converted, extended or modified from time to
time.  Without limiting the generality of the foregoing, the term
“Obligations” shall include, without limitation: (i) principal of and interest
on the Note and the loans extended pursuant thereto; (ii) any and all other
fees, indemnities, costs, obligations and liabilities of the Debtors from time
to time under or in connection with this Agreement, the Note, the
Guarantee, the other Transaction Documents and any other instruments,
agreements or other documents executed and/or delivered in connection herewith
or therewith (other than the Warrants); and (iii) all amounts (including
but not limited to post-petition interest) in respect of the foregoing that
would be payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Debtor.

    

    (c)           “Patents” means the
Debtors’ patents and patent applications, including without limitation the
patents and patent applications listed on Schedule E hereto and all
continuations, divisionals, provisionals, continuations in part, or reissues of
applications related to patents thereon, and (i) all renewals thereof, (ii) all
income, royalties, damages and payments now and hereafter due and/or payable
under and with respect thereto, subject to payment to any co-owner or inventor
of its, his or her share thereof, including without limitation payments under
all licenses entered into in connection therewith and damages and payments for
past or future infringements or dilutions thereof, (iii) the right to sue for
past, present and future infringements thereof, and (iv) all of the Grantor’s
rights corresponding thereto throughout the world.  For clarification,
“Patents” does not include any patents which are currently owned by, and
licensed by one or more of the Debtors from, Advanced Cell Technology, Inc., a
Delaware corporation.

    

    
      
         

      

      
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    (d)           “Organizational
Documents” means with respect to any Debtor, the documents by which such
Debtor was organized (such as a certificate of incorporation, certificate of
limited partnership or articles of organization, and including without
limitation any certificates of designation for preferred stock or other
forms of preferred equity) and which relate to the internal governance of such
Debtor (such as bylaws, a partnership agreement or an operating, limited
liability or members agreement).

    

    (e)           “Transaction
Documents” shall have the meaning ascribed to such term in the
Purchase Agreement.

    

    (f)           “UCC” means the
Uniform Commercial Code of the State of New York and/or any other applicable law
of any state or states which has jurisdiction with respect to all, or any
portion of, the Collateral or this Agreement from time to time.  It is
the intent of the parties that defined terms in the UCC should be construed in
their broadest sense so that the term “Collateral” will be construed in its
broadest sense.  Accordingly if there are, from time to time, changes
to defined terms in the UCC that broaden the definitions, they are
incorporated herein and if existing definitions in the UCC are broader than the
amended definitions, the existing ones shall be controlling.

    

    2.           Grant of Security Interest in Collateral. As an
inducement for the Secured Parties to extend the loans as evidenced by the Note
and to secure the complete and timely payment, performance and discharge in
full, as the case may be, of all of the Obligations, each Debtor hereby
unconditionally and irrevocably pledges, grants and hypothecates to the Secured
Parties a first priority security interest in and to, a lien upon and a right of
set-off against all of their respective right, title and interest of whatsoever
kind and nature in and to, the Collateral (a “Security Interest”
and, collectively, the “Security
Interests”).

    

    3.           Delivery of Patent Filings.  Contemporaneously or prior to the execution
of this Agreement, each Debtor shall deliver or cause to be delivered to the
Agent copies of all Patents (issued and
applied for).

    

    4.           Representations, Warranties, Covenants and
Agreements of the Debtors. Except as set forth under the corresponding
section of the disclosure schedules delivered to the Secured Parties
concurrently herewith (the “Disclosure
Schedules”), which Disclosure Schedules shall be deemed a part hereof,
each Debtor represents and warrants to, and covenants and agrees with, the
Secured Parties as follows:

    

    (a)           Each
Debtor has the requisite corporate, partnership, limited liability company or
other power and authority to enter into this Agreement and otherwise to carry
out its obligations hereunder.  The execution, delivery and performance by
each Debtor of this Agreement and the filings contemplated therein have been
duly authorized by all necessary action on the part of such Debtor and no
further action is required by such Debtor.  This Agreement has been
duly executed by each Debtor.  This Agreement constitutes the legal,
valid and binding obligation of each Debtor, enforceable against each Debtor in
accordance with its terms.

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    (b)           The
Debtors have no place of business or offices where their respective books of
account and records are kept (other than temporarily at the offices of its
attorneys or accountants) or places where Collateral is stored or located,
except as set forth on Schedule A attached
hereto.  Except as disclosed on Schedule A, none of
such Collateral is in the possession of any consignee, bailee, warehouseman,
agent or processor.

    

    (c)           The
Debtors are the sole owner of the Collateral, free and clear of any liens,
security interests, encumbrances, rights or claims, and are fully authorized to
grant the Security Interests.  There is not on file in any
governmental or regulatory authority, agency or recording office an effective
financing statement, security agreement, license or transfer or any notice of
any of the foregoing (other than those that will be filed in favor of the
Secured Parties pursuant to this Agreement) covering or affecting any of the
Collateral.  As long as this Agreement shall be in effect, the Debtors
shall not execute and shall not knowingly permit to be on file in any such
office or agency any other financing statement or other document or instrument
(except to the extent filed or recorded in favor of the Secured Parties pursuant
to the terms of this Agreement).

    

    (d)           No
written claim has been received that any Collateral or Debtor's use of any
Collateral violates the rights of any third party. There has been no
adverse decision to any Debtor's claim of ownership rights in or exclusive
rights to use the Collateral in any jurisdiction or to any Debtor's right to
keep and maintain such Collateral in full force and effect, and there is no
proceeding involving said rights pending or, to the best knowledge of any
Debtor, threatened before any court, judicial body, administrative or regulatory
agency, arbitrator or other governmental authority.

    

    (e)           Each
Debtor shall at all times maintain its books of account and records relating to
the Collateral at its principal place of business and its Collateral at the
locations set forth on Schedule A attached
hereto and may not relocate such books of account and records or tangible
Collateral unless it delivers to the Secured Parties at least 30 days prior to
such relocation (i) written notice of such relocation and the new location
thereof (which must be within the United States) and (ii) evidence that
appropriate financing statements under the UCC and other necessary documents
have been filed and recorded and other steps have been taken to perfect the
Security Interests to create in favor of the Secured Parties a valid, perfected
and continuing first priority lien in all the Collateral.

    

    (f)           This
Agreement creates in favor of the Secured Parties a valid security interest
in the Collateral, subject only to Permitted Liens (as defined in the Note)
securing the payment and performance of the Obligations.  Upon making
the filings described in the immediately following paragraph, all security
interests created hereunder in any Collateral which may be perfected by filing
Uniform Commercial Code financing statements shall have been duly
perfected.  Except for the filing of the Uniform Commercial Code
financing statements referred to in the immediately following paragraph and the
recordation of the Intellectual Property Security Agreement (as defined below)
with the United States Patent and Trademark Office, no further action is necessary to create,
perfect or protect the security interests created hereunder.  Without
limiting the generality of the foregoing, except for the execution and delivery
of this Agreement by all (100%) of the Secured Parties, the filing of said
financing statements and the recordation of said Intellectual Property Security
Agreement, no consent of any third parties and no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for (i) the execution, delivery and performance of
this Agreement, (ii) the creation or perfection of the Security Interests
created hereunder in the Collateral, or (iii) the enforcement of the rights of
the Agent and the Secured Parties hereunder.

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (g)           The
Debtor hereby authorizes the Agent to file one or more financing statements
under the UCC, with respect to the Security Interests, with the proper filing
and recording agencies in any jurisdiction deemed proper by it.

    

    (h)           The
execution, delivery and performance of this Agreement by the Debtors does not
(i) violate any of the provisions of any Organizational Documents of any Debtor
or any judgment, decree, order or award of any court, governmental body or
arbitrator or any applicable law, rule or regulation applicable to any Debtor or
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing any Debtor's debt or otherwise) or other understanding to
which any Debtor is a party or by which any property or asset of any Debtor is
bound or affected.  All required consents (including without
limitation from stockholders or creditors of any Debtor) necessary for any
Debtor to enter into and perform its obligations hereunder have been
obtained.

    

    (i)           Until
this Agreement and the Security Interest hereunder shall be terminated pursuant
to the terms hereof, each Debtor shall at all times maintain in favor of the
Secured Parties the liens and Security Interests provided for hereunder as valid
and perfected first priority liens and security interests in all the
Collateral.  Each Debtor hereby agrees to defend the same against the
claims of any and all persons and entities.  Each Debtor shall safeguard
and protect all Collateral for the account of the Secured Parties.  At
the request of the Agent, each Debtor will sign and deliver to the Agent on
behalf of the Secured Parties at any time or from time to time one or more
financing statements pursuant to the UCC in form reasonably satisfactory to the
Agent and will pay the cost of filing the same in all public offices wherever
filing is, or is deemed by the Agent to be, necessary or desirable to effect the
rights and obligations provided for herein.  Without limiting the
generality of the foregoing, each Debtor shall pay all fees, taxes and other
amounts necessary to maintain the Collateral and the Security Interests
hereunder, and each Debtor shall obtain and furnish to the Agent from time to
time, upon demand, such releases and/or subordinations of claims and liens which
may be required to maintain the priority of the Security Interests
hereunder.

    

    (j)           No
Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise
dispose of any of the Collateral (except for licenses granted by a Debtor in its
ordinary course of business) without the prior written consent of all the
Secured Parties.

    

    (k)           Each
Debtor shall promptly, but no later than ten (10) days after obtaining knowledge
thereof, advise the Secured Parties, through the Agent, in sufficient
detail of any change in the Collateral and of the occurrence of any event which
would have a material adverse effect on the value of the Collateral or on the
Secured Parties’ security interest therein.

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (l)           Each
Debtor shall promptly execute and deliver to the Agent such further deeds,
mortgages, assignments, security agreements, financing statements or other
instruments, documents, certificates and assurances and take such further action
as the Agent may from time to time request and may in its sole discretion deem
necessary to perfect, protect or enforce the Secured Parties’ security interest
in the Collateral including without limitation, if applicable, the execution and
delivery of a separate security agreement with respect to each Debtor’s Patents
(“Intellectual
Property Security Agreement”) in which the Secured Parties have been
granted a security interest hereunder, substantially in a form reasonably
acceptable to the Agent, which Intellectual Property Security Agreement, other
than as stated therein, shall be subject to all of the terms and conditions
hereof.

    

    (m)           Each
Debtor shall permit the Agent and its representatives and agents to inspect the
Collateral during normal business hours and upon reasonable prior notice, and to
make copies of records pertaining to the Collateral as may be reasonably
requested by the Agent from time to time.

    

    (n)           Each
Debtor shall take all steps reasonably necessary to diligently pursue and seek
to preserve, enforce and collect any rights, claims, causes of action and
accounts receivable in respect of the Collateral.

    

    (o)           Each
Debtor shall promptly notify the Secured Parties in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied against any Collateral and of any other information received by such
Debtor that may materially affect the value of the Collateral, the Security
Interests or the rights and remedies of the Secured Parties
hereunder.

    

    (p)           All
information heretofore, herein or hereafter supplied to the Secured Parties by
or on behalf of any Debtor with respect to the Collateral is and will be
accurate and complete in all material respects as of the date
furnished.

    

    (q)           No
Debtor will change its name, type of organization, jurisdiction of organization,
organizational identification number (if it has one), legal or corporate
structure, or identity, or add any new fictitious name unless it provides at
least 30 days prior written notice to the Secured Parties of such change and, at
the time of such written notification, such Debtor provides any financing
statements necessary to perfect and continue the perfection of the Security
Interests granted and evidenced by this Agreement.

    

    (r)           No
Debtor may relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to the Secured Parties and
so long as, at the time of such written notification, such Debtor provides any
financing statements necessary to perfect and continue the perfection of the
Security Interests granted and evidenced by this Agreement.

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    (s)           Each
Debtor was organized and remains organized solely under the laws of the state
set forth next to such Debtor’s name in Schedule C attached
hereto, which Schedule
C sets forth each Debtor’s organizational identification number or, if
any Debtor does not have one, states that one does not exist, and identifies the
type of organization such entity is.

    

    (t)           (i)
The actual name of each Debtor is the name set forth in Schedule C attached
hereto; (ii) no Debtor has any trade names except as set forth on Schedule D attached
hereto; (iii) no Debtor has used any name other than that stated in the preamble
hereto or as set forth on Schedule D for the
preceding five years; and (iv) no entity has merged into any Debtor or been
acquired by any Debtor within the past five years except as set forth on Schedule
D.

    

    (u)           Each
Debtor shall cause each subsidiary of such
Debtor to immediately become a party hereto (an “Additional Debtor”),
by executing and delivering an Additional Debtor Joinder in substantially the
form of Annex A
attached hereto and comply with the provisions hereof applicable to the
Debtors.  Concurrent therewith, the Additional Debtor shall deliver
replacement schedules for, or supplements to all other Schedules to (or referred
to in) this Agreement, as applicable, which replacement schedules shall
supersede, or supplements shall modify, the Schedules then in
effect.  The Additional Debtor shall also deliver such opinions of
counsel, authorizing resolutions, good standing certificates, incumbency
certificates, organizational documents, financing statements and other
information and documentation as the Agent may reasonably
request.  Upon delivery of the foregoing to the Agent, the Additional
Debtor shall be and become a party to this Agreement with the same rights and
obligations as the Debtors, for all purposes hereof as fully and to the same
extent as if it were an original signatory hereto and shall be deemed to have
made the representations, warranties and covenants set forth herein as of the
date of execution and delivery of such Additional Debtor Joinder, and all
references herein to the “Debtors” shall be deemed to include each Additional
Debtor.

    

    (v)           Without
limiting the generality of the other obligations of the Debtors hereunder, each
Debtor shall promptly (i) cause the security interest contemplated hereby with
respect to all Patents to be duly recorded at United States Patent and
Trademark Office, and (iii) give the Agent notice whenever it acquires (whether
absolutely or by license) or creates any additional Patents.

    

    (w)           Each
Debtor will from time to time, at the joint and several expense of the Debtors,
promptly execute and deliver all such further instruments and documents, and
take all such further action as may be necessary or desirable, or as the Agent
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Secured Parties to
exercise and enforce their rights and remedies hereunder and with respect to any
Collateral or to otherwise carry out the purposes of this
Agreement.

    

    (x)           Schedule E attached
hereto lists all of the Patents (issued and applied for) owned by any of the
Debtors as of the date hereof.  All material Patents of the Debtors
have been duly recorded at the United States Patent and Trademark
Office.

    

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    5.           Defaults. The following events
shall be “Events of
Default”:

    

    (a)           The
occurrence of an Event of Default (as defined in the Note) under the
Note;

    

    (b)           Any
representation or warranty of any Debtor in this Agreement shall prove to have
been incorrect in any material respect when made;

    

    (c)           The
failure by any Debtor to observe or perform any of its obligations hereunder for
five (5) business days after delivery to such Debtor of notice of such failure
by or on behalf of a Secured Party unless such default is capable of cure but
cannot be cured within such time frame and such Debtor is using best efforts to
cure same in a timely fashion; or

    

    (d)           If
any material provision of this Agreement shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall be
contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by
any governmental authority having jurisdiction over any Debtor, seeking to
establish the invalidity or unenforceability thereof, or any Debtor shall deny
that any Debtor has any material liability or obligation purported to be created
under this Agreement.

    

    6.           Duty to Hold in Trust.  Upon the
occurrence of any Event of Default and at any time thereafter, each Debtor
shall, upon receipt of any revenue, income,
dividend, interest or other sums subject to the Security Interests,
whether payable pursuant to the Note or otherwise, or of any check, draft, note,
trade acceptance or other instrument evidencing an obligation to pay any such
sum, hold the same in trust for the Secured Parties and shall forthwith endorse
and transfer any such sums or instruments, or both, to the Secured Parties,
pro-rata in proportion to their respective then-currently outstanding principal
amount of the Note for application to the satisfaction of the
Obligations. If any Debtor shall become
entitled to receive or shall receive any securities or other property, such
Debtor agrees to (i) accept the same as the agent of the Secured Parties;
(ii) hold the same in trust on behalf of
and for the benefit of the Secured Parties; and (iii) deliver any and all
certificates or instruments evidencing the same to the Agent on or
before the close of business on the fifth business day following the
receipt thereof by such Debtor, in the
exact form received, to be held by the
Agent subject to the terms of this
Agreement as Collateral.

    

    7.           Rights and Remedies Upon
Default.

    

    (a)           Upon
the occurrence of any Event of Default and at any time thereafter, the Secured
Parties, acting through the Agent, shall have the right to exercise all of the
remedies conferred hereunder and under the Note and other Transaction Documents,
and the Secured Parties, acting through the Agent, shall have all the rights and
remedies of a secured party under the UCC.  Without limitation, the
Agent, for the benefit of the Secured Parties, shall have the following rights
and powers:

    

    (i)         The
Agent shall have the right to take possession of the Collateral and, for that
purpose, enter, with the aid and assistance of any person, any premises where
the Collateral, or any part thereof, is or may be placed and remove the same,
and each Debtor shall assemble the Collateral and make it available to the Agent
at places which the Agent shall reasonably select, whether at such Debtor's
premises or elsewhere, and make available to the Agent, without rent, all of
such Debtor’s respective premises and facilities for the purpose of the Agent
taking possession of, removing or putting the Collateral in saleable or
disposable form.

    

    
      
         

      

      
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    (ii)         Upon notice to the Debtors by the Agent, all
rights of each Debtor to exercise the voting and other consensual rights which
it would otherwise be entitled to exercise and all rights of each Debtor to
receive the dividends and interest which it
would otherwise be authorized to receive and retain, shall
cease.  Upon such notice, the
Agent shall have the right to
receive, for the benefit of the Secured
Parties, any interest, cash dividends or
other payments on the Collateral and, at the option of the Agent, to
exercise in such Agent’s discretion all voting rights pertaining
thereto.  Without limiting the generality of the foregoing,
the Agent shall have the right (but not the obligation) to
exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including without limitation to vote and/or to
exchange, at its sole discretion, any or all of the Collateral in connection
with a merger, reorganization, consolidation, recapitalization or other
readjustment concerning or involving the
Collateral or any Debtor or any of its direct or indirect
subsidiaries.

    

    (iii)           The
Agent shall have the right to operate the business of each Debtor using the
Collateral and shall have the right to assign, sell, lease or otherwise dispose
of and deliver all or any part of the Collateral, at public or private sale or
otherwise, either with or without special conditions or stipulations, for cash
or on credit or for future delivery, in such parcel or parcels and at such time
or times and at such place or places, and upon such terms and conditions as the
Agent may deem commercially reasonable, all without (except as shall be required
by applicable statute and cannot be waived) advertisement or demand upon or
notice to any Debtor or right of redemption of a Debtor, which are hereby
expressly waived.  Upon each such sale, lease, assignment or other
transfer of Collateral, the Agent, for the benefit of the Secured Parties, may,
unless prohibited by applicable law which cannot be waived, purchase all or any
part of the Collateral being sold, free from and discharged of all trusts,
claims, right of redemption and equities of any Debtor, which are hereby waived
and released.

    

    (iv)         The
Agent shall have the right (but not the obligation) to notify any account
debtors and any obligors under instruments or accounts to make payments directly
to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’
rights against such account debtors and obligors.

    

    (v)         The
Agent, for the benefit of the Secured Parties, may (but is not obligated to)
direct any financial intermediary or any other person or entity holding any
investment property to transfer the same to the Agent, on behalf of the Secured
Parties, or its designee.

    

    (vi)         The
Agent may (but is not obligated to) transfer any or all Patents registered in
the name of any Debtor at the United States Patent and Trademark Office and/or
Copyright Office into the name of the Secured Parties or any designee or any
purchaser of any Collateral.

    

    
      
         

      

      
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    (b)           The Agent shall
comply with any applicable law in
connection with a disposition of Collateral and such compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.  The Agent may sell the Collateral without giving any
warranties and may specifically disclaim such
warranties.  If the Agent sells any of the Collateral on credit, the
Debtors will only be credited with payments actually made by the
purchaser.  In addition, each Debtor waives any and all rights that it
may have to a judicial hearing in advance of the enforcement of any of the
Agent’s rights and remedies hereunder, including without
limitation the Agent’s right following an Event of Default to take immediate
possession of the Collateral and to exercise its rights and remedies with respect thereto.

     

    (c)           For the purpose of enabling the Agent to further
exercise rights and remedies under this Section 8 or elsewhere provided by
agreement or applicable law, each Debtor hereby grants to the Agent, for the
benefit of the Agent and the Secured
Parties, an irrevocable, nonexclusive license (exercisable without payment of
royalty or other compensation to such Debtor) to use, license or sublicense
following an Event of Default, any Patents now owned
or hereafter acquired by such Debtor, and
wherever the same may be located, and including in such license access to all
media in which any of the licensed items may be recorded or stored and to all
computer software and programs used for the compilation or printout
thereof.

    

    8.           Inter
Secured Party Rights; Transaction/Applications of Proceeds.

    

    (a)           If
an Event of Default occurs and any party hereto collects proceeds pursuant to
its rights under any Obligations, the Agent shall be immediately notified and
such payment shall be shared with all of the other Secured Parties as set forth
above. Notwithstanding
anything to the contrary contained in the Purchase Agreement or any document
executed in connection with the Obligations and irrespective of: (i) the time,
order or method of attachment or perfection of the security interests created in
favor of Secured Parties; (ii) the time or order of filing or recording of
financing statements or other documents filed or recorded to perfect security
interests in any Collateral; (iii) anything contained in any filing or agreement
to which any Secured Party now or hereafter may be a party; and (iv) the rules
for determining perfection or priority under the Uniform Commercial Code or any
other law governing the relative priorities of secured creditors, each of the
Secured Parties acknowledges that (x) all other Secured Parties have a valid
security interest in the Collateral and (y) the security interests of the
Secured Parties in any Collateral pursuant to any outstanding Obligations shall
be pari passu with each other
and enforced pursuant to the terms of this Agreement through the Agent. 
Each Secured Party, severally and not jointly with the other Secured Parties,
shall indemnify, defend, and hold harmless the other Secured Parties against and
in respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries, and deficiencies, including interest,
penalties, and reasonable professional and attorneys’ fees, including those
arising from settlement negotiations, that the other Secured Parties shall incur
or suffer, which arise, result from, or relate to a breach of, or failure by
such Secured Party to perform under this Agreement.

    

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    (b)           The
proceeds of any such sale, lease or other disposition of the Collateral
hereunder or from payments made on account of any insurance policy insuring any
portion of the Collateral shall be applied first, to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like
(including without limitation any taxes, fees and other costs incurred in
connection therewith) of the Collateral, then to the reasonable attorneys’ fees
and expenses incurred by the Agent in enforcing the Secured Parties’ rights
hereunder and in connection with collecting, storing and disposing of the
Collateral, then to satisfaction of the Obligations, and then to the payment of
any other amounts required by applicable law.  If, upon the sale, license
or other disposition of the Collateral, the proceeds thereof are insufficient to
pay all amounts to which the Secured Parties are legally entitled, the Debtors
will be liable for the deficiency, together with interest thereon, at the rate
of 24% per annum or the lesser amount permitted by applicable law (the “Default
Rate”), and the
reasonable fees of any attorneys employed by the Secured Parties to collect such
deficiency.  To the extent permitted by applicable law, each Debtor
waives all claims, damages and demands against the Secured Parties arising out
of the repossession, removal, retention or sale of the Collateral, unless due
solely to the gross negligence or willful misconduct of the Secured Parties as
determined by a final judgment (not subject to further appeal) of a court of
competent jurisdiction.

    

    9.           Costs and Expenses. Each
Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses
incurred in connection with any filing required hereunder, including without
limitation any financing statements pursuant to the UCC, continuation
statements, partial releases and/or termination statements related thereto or
any expenses of any searches reasonably required by the Agent.  The
Debtors shall also pay all other claims and charges which in the reasonable
opinion of the Agent are reasonably likely to prejudice, imperil or otherwise
affect the Collateral or the Security Interests therein.  The Debtors
will also, upon demand, pay to the Agent the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Agent, for the benefit of the Secured Parties, may
incur in connection with (i) the enforcement of this Agreement, (ii) the sale
of, collection from, or other realization upon, any of the Collateral, or (iii)
the exercise or enforcement of any of the rights of the Secured Parties under
the Note.  Until so paid, any fees payable hereunder shall be added to the
principal amount of the Note and shall bear interest at the Default
Rate.

    

    10.           Responsibility for Collateral.
The Debtors assume all liabilities and responsibility in connection with all
Collateral, and the Obligations shall in no way be affected or diminished by
reason of the loss, destruction, damage or theft of any of the Collateral or its
unavailability for any reason.  Without limiting the generality of the
foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either
before or after an Event of Default) to collect any amounts in respect of the
Collateral or to preserve any rights relating to the Collateral, or (ii) has any
obligation to clean-up or otherwise prepare the Collateral for sale, and (b)
each Debtor shall remain obligated and liable under each contract or agreement
included in the Collateral to be observed or performed by such Debtor
thereunder.  Neither the Agent nor any Secured Party shall have any
obligation or liability under any such contract or agreement by reason of or
arising out of this Agreement or the receipt by the Agent or any Secured Party
of any payment relating to any of the Collateral, nor shall the Agent or any
Secured Party be obligated in any manner to perform any of the obligations of
any Debtor under or pursuant to any such contract or agreement, to make inquiry
as to the nature or sufficiency of any payment received by the Agent or any
Secured Party in respect of the Collateral or as to the sufficiency of any
performance by any party under any such contract or agreement, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to the Agent or to which the
Agent or any Secured Party may be entitled at any time or times.

    

    
      
         

      

      
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    11.           Security Interests Absolute. All rights of the
Secured Parties and all obligations of the Debtors hereunder, shall be absolute
and unconditional, irrespective of: (a) any lack of validity or enforceability
of this Agreement, the Note, any other Transaction Documents or any agreement
entered into in connection with the foregoing, or any portion hereof or thereof;
(b) any change in the time, manner or place of payment or performance of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Note, any other
Transaction Documents or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guarantee, or any other security, for all or any of the
Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which might
otherwise constitute any legal or equitable defense available to a Debtor, or a
discharge of all or any part of the Security Interests granted
hereby.  Until the Obligations shall have been paid and performed in
full, the rights of the Secured Parties shall continue even if the Obligations
are barred for any reason, including without limitation the running of the
statute of limitations or bankruptcy.  Each Debtor expressly waives
presentment, protest, notice of protest, demand, notice of nonpayment and demand
for performance.  In the event that at any time any transfer of any
Collateral or any payment received by the Secured Parties hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or insolvency
laws of the United States, or shall be deemed to be otherwise due to any party
other than the Secured Parties, then, in any such event, each Debtor’s
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof.  Each Debtor
waives all right to require the Secured Parties to proceed against any other
person or entity or to apply any Collateral
which the Secured Parties may hold at any time, or to marshal assets, or to
pursue any other remedy.  Each Debtor waives any defense arising by reason
of the application of the statute of limitations to any obligation secured
hereby.

    

    12.           Term of Agreement. This
Agreement and the Security Interests shall terminate, automatically and without any action on the part of
the Agent or Secured Parties, on the date on which all payments under the
Note have been indefeasibly paid in full and all other Obligations have been
paid or discharged; provided, however, that all indemnities of the parties
hereto contained in this Agreement (including without limitation Annex B hereto) shall
survive and remain operative and in full force and effect regardless of the
termination of this Agreement.  The
Agent and Secured Parties shall, at
Debtor’s request and
expense, take any and all action required
to discharge any and all security interests and release to Debtor any and all Collateral in the Agent’s or Secured
Parties’ possession or control.  The Secured Parties
hereby agree that the Debtor shall have the right to take all necessary action
to cause the termination and release of all security interests granted
hereunder upon termination of this
Agreement.

    

    
      
         

      

      
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    13.           Power of Attorney; Further
Assurances.

    

    (a)           Each
Debtor authorizes the Agent, and does hereby make, constitute and appoint the
Agent and its officers, agents, successors or assigns with full power of
substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in
the name of the Agent or such Debtor, to, after the occurrence and during the
continuance of an Event of Default, (i) endorse any note, checks, drafts, money
orders or other instruments of payment (including payments payable under or in
respect of any policy of insurance) in respect of the Collateral that may come
into possession of the Agent; (ii) sign and endorse any financing statement
pursuant to the UCC or any invoice, freight or express bill, bill of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts, and other documents
relating to the Collateral; (iii) pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or
threatened against the Collateral; (iv) demand, collect, receive, compromise,
settle and sue for monies due in respect of the Collateral; (v) transfer any
Patents or provide licenses respecting any Patents; and (vi) generally, at the
option of the Agent, and at the expense of the Debtors, at any time, or from
time to time, execute and deliver any and all documents and instruments and do
all acts and things which the Agent deems necessary to protect, preserve and
realize upon the Collateral and the Security Interests granted therein in order
to effect the intent of this Agreement, the Note and other Transaction
Documents all as fully and effectually as the Debtors might or could do; and
each Debtor hereby ratifies all that said attorney shall lawfully do or cause to
be done by virtue hereof.  This power of attorney is coupled with an
interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations shall be outstanding.  The designation set forth herein shall be deemed to
amend and supersede any inconsistent provision in the Organizational Documents
or other documents or agreements to which any Debtor is subject or to which any
Debtor is a party.  Without limiting the generality of the
foregoing, after the occurrence and during the continuance of an Event of
Default, each Secured Party is specifically authorized to execute and file any
applications for or instruments of transfer and assignment of any Patents with
the United States Patent and Trademark Office.

    

    (b)           On
a continuing basis, each Debtor will make, execute, acknowledge, deliver, file
and record, as the case may be, with the proper filing and recording agencies in
any jurisdiction, including without limitation the jurisdictions indicated on
Schedule B
attached hereto, all such instruments, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested by the
Agent, to perfect the Security Interests granted hereunder and otherwise to
carry out the intent and purposes of this Agreement, or for assuring and
confirming to the Agent the grant or perfection of a perfected security interest
in all the Collateral under the UCC.

    

    (c)           Each
Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact,
with full authority in the place and instead of such Debtor and in the name of
such Debtor, from time to time in the Agent’s discretion, to take any action and
to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including the filing, in its sole
discretion, of one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of such Debtor
where permitted by law, which financing statements may (but need not) describe
the Collateral as “all assets” or “all personal property” or words of like
import, and ratifies all such actions taken by the Agent.  This power
of attorney is coupled with an interest and shall be irrevocable for the term of
this Agreement.

    

    
      
         

      

      
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    14.           Notices. All notices,
requests, demands and other communications hereunder shall be subject to the
notice provision of the Purchase Agreement.

    

    15.           Other Security. To the extent
that the Obligations are now or hereafter secured by property other than the
Collateral or by the guarantee, endorsement or property of any other person,
firm, corporation or other entity, then the Agent shall have the right, in its
sole discretion, to pursue, relinquish, subordinate, modify or take any other
action with respect thereto, without in any way modifying or affecting any of
the Secured Parties’ rights and remedies hereunder.

    

    16.           Appointment of Agent. The
Secured Parties hereby appoint Gemini Strategies, LLC or its appointed
agent to act as their agent (“Gemini” or
“Agent”) for
purposes of exercising any and all rights and remedies of the Secured Parties
hereunder. Such appointment shall continue until revoked in writing by the
Secured Parties, at which time the Secured
Parties shall appoint a new Agent.  The Agent shall have the
rights, responsibilities and immunities set forth in Annex B
hereto.

    
 

    17.           Miscellaneous.

    

    (a)           No
course of dealing between the Debtors and the Secured Parties, nor any failure
to exercise, nor any delay in exercising, on the part of the Secured Parties,
any right, power or privilege hereunder or under the Note shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.

    

    (b)           All
of the rights and remedies of the Secured Parties with respect to the
Collateral, whether established hereby or by the Note or by any other
agreements, instruments or documents or by law, shall be cumulative and may be
exercised singly or concurrently.

    

    (c)           This
Agreement, together with the exhibits and schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into this
Agreement and the exhibits and schedules hereto.  No provision of this
Agreement may be waived, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Debtors and the Secured
Parties or, in the case of a waiver, by the party against whom enforcement of
any such waived provision is sought.

    

    (d)           If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction.  It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.

    

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    (e)           No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any subsequent default or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such
right.

    

    (f)           This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.  The Company and the
Guarantors may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Secured Party (other than by
merger).  Any Secured Party may assign any or all of its rights under
this Agreement to any Person to whom such Secured Party assigns or transfers any
Securities, provided such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions of this Agreement that apply to
the “Secured Parties.”

    

    (g)           Each
party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.

    

    (h)           All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of California, without regard to the
principles of conflicts of law thereof.  Each Debtor agrees that all
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and the Note (whether brought
against a party hereto or its respective affiliates, directors, officers,
shareholders, partners, members, employees or agents) shall be commenced
exclusively in the state and federal courts sitting in San Diego County,
California.  Each Debtor hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in San Diego County,
California for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any proceeding, any claim
that it is not personally subject to the jurisdiction of any such court or that
such proceeding is improper.  Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. 
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.  Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby.  If any party shall
commence a proceeding to enforce any provisions of this Agreement, then the
prevailing party in such proceeding shall be reimbursed by the other party for
its reasonable attorney’s fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such proceeding.

    

    
      
         

      

      
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    (i)           This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement.  In the event that any
signature is delivered by facsimile transmission or e-mail
transmission, such signature shall create a valid binding obligation of the
party executing the same (or on whose behalf such signature is executed) with
the same force and effect as if such facsimile signature were the original
thereof.

    

    (j)           All
Debtors (including without limitation any Additional Debtor joined hereto) shall
be jointly and severally be liable for the obligations of each Debtor to the
Secured Parties hereunder.

    

    (k)           Each
Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured
Parties and their respective partners, members, shareholders, officers,
directors, employees and agents (and any other persons with other titles that
have similar functions) (collectively, “Indemnitees”) from
and against any and all losses, claims, liabilities, damages, penalties, suits,
costs and expenses, of any kind or nature, (including fees relating to the cost
of investigating and defending any of the foregoing) imposed on, incurred by or
asserted against such Indemnitee in any way related to or arising from or
alleged to arise from this Agreement or the Collateral, except any such losses,
claims, liabilities, damages, penalties, suits, costs and expenses which result
from any violation of the terms or provisions of this Agreement or the
agreements underlying the Obligations or the negligence or willful misconduct of
the Indemnitee.  This indemnification provision is in addition to, and
not in limitation of, any other indemnification provision in the Note, the
Purchase Agreement or any other agreement, instrument or other document executed
or delivered in connection herewith or therewith.

    

    (l)           Nothing in this Agreement shall be construed to subject
the Agent or any Secured Party to liability as a partner
or member in or of
any Debtor or any of its direct or
indirect subsidiaries, nor shall
the Agent or any Secured Party be deemed to have assumed any
obligations under any partnership agreement or limited liability company
agreement, as applicable, of any such Debtor or any of its direct or
indirect subsidiaries or otherwise, unless
and until any such Secured Party exercises its right to be substituted for such
Debtor as a partner or member, as applicable, pursuant
hereto.

    

    (m)           To the extent that the grant of the security interest in
the Collateral and the enforcement of the terms hereof require the consent, approval or action of any
partner or member, as applicable, of any Debtor or any direct or indirect
subsidiary of any Debtor or compliance with any provisions of any of the
Organizational Documents, the Debtors hereby grant such consent and
approval and waive any such noncompliance with the terms of said
documents.

    

    [SIGNATURE
PAGES FOLLOW]

    

    

     IN
WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
be duly executed on the day and year first above written.

    

    

    
      	
              INTERNATIONAL STEM CELL
      CORPORATION, a Delaware corporation

               

               

              By:
      /s/ Kenneth C.
      Aldrich                                               
      

              Name:
      Kenneth C. Aldrich

              Title:
      Chief Executive Officer

               

            
	
               

              INTERNATIONAL STEM CELL
      CORPORATION, a California corporation

               

               

              By:
      /s/ Kenneth C.
      Aldrich                                               
      

              Name:
      Kenneth C. Aldrich

              Title:
      Chief Executive Officer

               

            
	 
      
	
               

              LIFELINE CELL TECHNOLOGY, LLC a
      California limited liability company

               

               By: /s/ Kenneth C.
      Aldrich                                              
      

              Name:
      Kenneth C. Aldrich

              Title:  Managing
      Member

               

            
	 
      

    

    

    

    

    

    

    

    

    [SIGNATURE
PAGE OF HOLDERS FOLLOWS]

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    [SIGNATURE
PAGE OF HOLDERS TO ISCO SECURITY AGREEMENT]

    

    

    
      	 
      
	
              GEMINI
      MASTER FUND, LTD.

              By:
      GEMINI STRATEGIES, LLC, as investment manager

               

               

              By:
      /s/ Steven
      Winters                                    
      

              Name:  Steven
      Winters

              Title:  Managing
      Member

              GEMINI STRATEGIES, LLC,
      as Agent

               

               

              By:
      /s/ Steven
      Winters                                          
      

              Name:  Steven
      Winters

              Title:  Managing
      Member

               

            

    

    

    

    

    

    

    

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    

    SCHEDULE
A

    

    Principal Place of
Business of
Debtors:

    

    The
Debtors’ books of account and records are kept at 2595 Jason Court

    Oceanside,
CA 92056.  The Company leases this facility, as a tenant.

    

    Locations Where Collateral
is Located or Stored:

    

    2595
Jason Court

    Oceanside,
CA 92056

    

    

    

    

    SCHEDULE
B

    Recording
Jurisdictions

    

    
      	
              Debtor

               

            	
              Filing
      Jurisdiction

            
	
              International
      Stem Cell Corporation

            	
              Delaware

            
	
              International
      Stem Cell Corporation

            	
              California

            
	
              Lifeline
      Cell Technology, LLC

            	
              California

            

    

    

    

    SCHEDULE
C

    Legal Names, Organizational Jurisdictions and Identification
Numbers

    

    
      	
              Name

            	
              Entity
      Type

            	
              Jurisdiction

            	
              ID
      Number

            	
              Address

            
	
              International
      Stem Cell Corporation

            	
              Corporation

            	
              Delaware

            	
              Fed
      20-4494098

              Del
      3981766

            	
              2595
      Jason Court Oceanside, CA 92056

            
	
              International
      Stem Cell Corporation

            	
              Corporation

            	
              California

            	
              Fed
      20-5167590

              Cal
      C 2884854

            	
              2595
      Jason Court Oceanside, CA 92056

            
	
              Lifeline
      Cell Technology, LLC

            	
              Limited
      Liability Company

            	
              California

            	
              Fed
      95-4870407

              Cal
      2001123310022

            	
              2595
      Jason Court Oceanside, CA 92056

            

    

    

    

    

    SCHEDULE
D

    Names; Mergers and
Acquisitions

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    SCHEDULE
E

    Patents

    

    

    

    PATENTS OWNED BY: Lifeline
Cell Technology, LLC, a California limited liability
company:

    

    
      	
              Alternative
      ID

            	
              Short
      Title

            	
              Country

            	
              Status

            	
              Application
      No

            	
              Application
      Date

            	
              Inventors

            
	
              ISCC1110/US/3

            	
              Parthenogenic
      Activation of Human Oocytes for the production of human embryonic stem
      cells

            	
              United
      States of America

            	
              Pending

            	
              11/505,260

            	
              Aug-15-2006

            	
              Revazova
      Elena, Pryzhkova Marina V., Kuzmichev Leonid N., Janus
    Jeffrey

            
	
              ISCC1120/US/1

            	
              Cell
      Culture Medium Container Assembly

            	
              United
      States of America

            	
              Pending

            	
              11/634,448

            	
              Dec-05-2006

            	
              Janus
      Jeffrey

            
	
              ISCC1120/WO/1

            	
              Cell
      Culture Medium Container Assembly

            	
              PCT

            	
              Pending

            	
              PCT/US2006/046607

            	
              Dec-05-2006

            	
              Janus
      Jeffrey

            
	
              ISCC1130/WO/1

            	
              Synthetic
      Lens from Retinal Stem Cells

            	
              PCT

            	
              Pending

            	
              PCT/US2006/41134

            	
              Oct-19-2006

            	
              Kelleher-Andersson
      Judy, Janus Jeffrey, Hammond Jeremy

            

    

    

    PATENTS OWNED BY:
International Stem Cell Corporation, a California
corporation:

    

    
      	
              Alternative
      ID

            	
              Short
      Title

            	
              Country

            	
              Status

            	
              Application
      No

            	
              Application
      Date

            	
              Inventors

            
	
              ISCC1130/US/1

            	
              Synthetic
      cornea from Retinal Stem Cells

            	
              United
      States of America

            	
              Pending

            	
              11/584,412

            	
              Oct-19-2006

            	
              Kelleher-Andersson
      Judy, Hammond Jeremy

            
	
              ISCC1140/US/1

            	
              Use
      of recipient endothelial cells for faster vascularization of tissue and
      tissue-engineered constructions transplants

            	
              United
      States of America

            	
              Pending

            	
              10/233,005

            	
              Aug-30-2002

            	
              Revazova
      Elena, Bryzgalov I., IVANOV ATANOV, Sebastian J., Keller G., Sorokina Lu.,
      WATSON JEFF

            
	
              ISCC1150/US/1

            	
              Patient-
      specific stem cell lines derived from human parthenogenetic
      blastocysts

            	
              United
      States of America

            	
              Pending

            	
              12/082,028

            	
              Apr-07-2008

            	
              Revazova
      Elena, Pryzhkova Marina V., Kuzmichev Leonid N., Janus
    Jeffrey

            
	
              ISCC1150/WO/1

            	
              Patient-
      specific stem cell lines derived from human parthenogenetic
      blastocysts

            	
              PCT

            	
              Pending

            	
              PCT/US2008/004529

            	
              Apr-07-2008

            	
              Revazova
      Elena, Pryzhkova Marina V., Kuzmichev Leonid N., Janus
    Jeffrey

            
	
              ISCC1160/US

            	
              Specific
      Antibody Repression of the Cellular Signaling Pathways for Stem Cells
      Differentiation

            	
              United
      States of America

            	
              Pending

            	
              60/983,049

            	
              Oct-26-2007

            	
              Turovets
      Nickolai, Revazova Elena, Agapova
Larisa

            

    

    

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    ANNEX
A

    to

    SECURITY AGREEMENT

    

    
      	
               
      

            	
              FORM
      OF ADDITIONAL DEBTOR JOINDER

            

    

    

    Security
Agreement dated as of May 14, 2008 made by

    International
Stem Cell Corporation

    and its
subsidiaries party thereto from time to time, as Debtors

    to and in
favor of

    the
Secured Parties identified therein (the “Security
Agreement”)

    

               Reference
is made to the Security Agreement as defined above; capitalized terms used
herein and not otherwise defined herein shall have the meanings given to such
terms in, or by reference in, the Security Agreement.

    

               The
undersigned hereby agrees that upon delivery of this Additional Debtor Joinder
to the Secured Parties referred to above (or the Agent on their behalf), the
undersigned shall (a) be an Additional Debtor under the Security Agreement, (b)
have all the rights and obligations of the Debtors under the Security Agreement
as fully and to the same extent as if the undersigned was an original signatory
thereto, and (c) be deemed to have made the representations and warranties set
forth therein as of the date of execution and delivery of this Additional Debtor
Joinder.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN
THE COLLATERAL OWNED BY IT AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND
ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH
THEREIN.

    

               Attached
hereto are supplemental and/or replacement Schedules to the Security Agreement,
as applicable. An executed copy of this Joinder shall be delivered to the
Secured Parties (or the Agent on their behalf), and the Secured Parties may rely
on the matters set forth herein on or after the date hereof.  This
Joinder shall not be modified, amended or terminated without the prior written
consent of the Secured Parties.

    

               IN
WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the
name and on behalf of the undersigned.

    

    
      	 
      	
              [Name
      of Additional Debtor]

            
	 
      	 
      
	 
      	
              By:
      ________________________

            
	 
      	
              Name:

            
	 
      	
              Title:

            
	 
      	
              Address:

            

    

    Dated:

    
      
         

      

      
        A-1

        
          

        

      

      
         

      

    

    ANNEX
B

    to

    SECURITY AGREEMENT

    

    THE
AGENT

    

                          1.  Appointment. The Secured Parties
(all capitalized terms used herein and not otherwise defined shall have the
respective meanings provided in the Security Agreement to which this Annex B is
attached (the "Agreement")), by
their acceptance of the benefits of the Agreement, hereby designate Gemini
Strategies, LLC (“Gemini” or
“Agent”) as the
Agent to act as specified herein and in the Agreement.  Each Secured
Party shall be deemed irrevocably to authorize the Agent to take such action on
its behalf under the provisions of the Agreement and any other Transaction
Document (as such term is defined in the Note) and to exercise such powers and
to perform such duties hereunder and thereunder as are specifically delegated to
or required of the Agent by the terms hereof and thereof and such other powers
as are reasonably incidental thereto.  The Agent may perform any of
its duties hereunder by or through its agents or employees.

    

                          2.
Nature of Duties.  The Agent shall
have no duties or responsibilities except those expressly set forth in the
Agreement.  Neither the Agent nor any of its partners, members,
shareholders, officers, directors, employees or agents shall be liable for any
action taken or omitted by it as such under the Agreement or hereunder or in
connection herewith or therewith, be responsible for the consequence of any
oversight or error of judgment or answerable for any loss, unless caused solely
by its or their gross negligence or willful misconduct as determined by a final
judgment (not subject to further appeal) of a court of competent
jurisdiction.  The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of the Agreement or
any other Transaction Document a fiduciary relationship in respect of any Debtor
or any Secured Party; and nothing in the Agreement or any other Transaction
Document, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of the Agreement or any other
Transaction Document except as expressly set forth herein and
therein.

    

                          3.
Lack of Reliance on the
Agent.  Independently and without reliance upon the Agent, each
Secured Party, to the extent it deems appropriate, has made and shall continue
to make (i) its own independent investigation of the financial condition and
affairs of the Company and its subsidiaries in connection with such Secured
Party’s investment in the Debtors, the creation and continuance of the
Obligations, the transactions contemplated by the Transaction Documents, and the
taking or not taking of any action in connection therewith, and (ii) its own
appraisal of the creditworthiness of the Company and its subsidiaries, and of
the value of the Collateral from time to time, and the Agent shall have no duty
or responsibility, either initially or on a continuing basis, to provide any
Secured Party with any credit, market or other information with respect thereto,
whether coming into its possession before any Obligations are incurred or at any
time or times thereafter.  The Agent shall not be responsible to the
Debtors or any Secured Party for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith, or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, collectability, priority or
sufficiency of the Agreement or any other Transaction Document, or for the
financial condition of the Debtors or the value of any of the Collateral, or be
required to make any inquiry concerning either the performance or observance of
any of the terms, provisions or conditions of the Agreement or any other
Transaction Document, or the financial condition of the Debtors, or the value of
any of the Collateral, or the existence or possible existence of any default or
Event of Default under the Agreement, the Note or any of the other Transaction
Documents.

    

    
      
         

      

      
        B-1

        
          

        

      

      
         

      

    

                          4.
Certain Rights of the
Agent.  The Agent shall have the right to take any action with
respect to the Collateral, on behalf of all of the Secured
Parties.  To the extent practical, the Agent shall request
instructions from the Secured Parties with respect to any material act or action
(including failure to act) in connection with the Agreement or any other
Transaction Document, and shall be entitled to act or refrain from acting in
accordance with the instructions of Secured Parties; if such instructions are
not provided despite the Agent’s request therefor, the Agent shall be entitled
to refrain from such act or taking such action, and if such action is taken,
shall be entitled to appropriate indemnification from the Secured Parties in
respect of actions to be taken by the Agent; and the Agent shall not incur
liability to any person or entity by reason of so refraining.  Without
limiting the foregoing, (a) no Secured Party shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting hereunder in accordance with the terms of the Agreement or any other
Transaction Document, and the Debtors shall have no right to question or
challenge the authority of, or the instructions given to, the Agent pursuant to
the foregoing, and (b) the Agent shall not be required to take any action which
the Agent believes (i) could reasonably be expected to expose it to personal
liability or (ii) is contrary to this Agreement, the Transaction Documents or
applicable law.

    

                          5.  Reliance.  The Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, radiogram, order or other document or telephone
message signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to the Agreement and the other Transaction
Documents and its duties thereunder, upon advice of counsel selected by it, and
upon all other matters pertaining to this Agreement and the other Transaction
Documents and its duties thereunder, upon advice of other experts selected by
it. Anything to the contrary notwithstanding, the Agent shall have no
obligation whatsoever to any Secured Party to assure that the Collateral exists
or is owned by the Debtors or is cared for, protected or insured or that the
liens granted pursuant to the Agreement have been properly or sufficiently or
lawfully created, perfected, or enforced or are entitled to any particular
priority.

    

                          6.  Indemnification.  To the extent
that the Agent is not reimbursed and indemnified by the Debtors, the Secured
Parties will jointly and severally reimburse and indemnify the Agent from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in performing its duties hereunder or under the Agreement or any other
Transaction Document, or in any way relating to or arising out of the Agreement
or any other Transaction Document except for those determined by a final
judgment (not subject to further appeal) of a court of competent jurisdiction to
have resulted solely from the Agent's own gross negligence or willful
misconduct.  Prior to taking any action hereunder as Agent, the Agent
may require each Secured Party to deposit with it sufficient sums as it
determines in good faith is necessary to protect the Agent for costs and
expenses associated with taking such action.

    

    
      
         

      

      
        B-2

        
          

        

      

      
         

      

    

                          7.  Resignation by the Agent.

    

    (a)           The
Agent may resign from the performance of all its functions and duties under the
Agreement and the other Transaction Documents at any time by giving 30 days'
prior written notice (as provided in the Agreement) to the Debtors and the
Secured Parties.  Such resignation shall take effect upon the
appointment of a successor Agent pursuant to clauses (b) and (c)
below.

    

    (b)           Upon
any such notice of resignation, the Secured Parties shall appoint a successor
Agent hereunder.

    

    (c)           If
a successor Agent shall not have been so appointed within said 30-day period,
the Agent shall then appoint a successor Agent who shall serve as Agent until
such time, if any, as the Secured Parties appoint a successor Agent as provided
above.  If a successor Agent has not been appointed within such 30-day
period, the Agent may petition any court of competent jurisdiction or may
interplead the Debtors and the Secured Parties in a proceeding for the
appointment of a successor Agent, and all fees, including, but not limited to,
extraordinary fees associated with the filing of interpleader and expenses
associated therewith, shall be payable by the Debtors on demand.

    

    (d)           Upon
the acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and the retiring
Agent shall be discharged from its duties and obligations under the
Agreement.  After any retiring Agent’s resignation or removal hereunder as
Agent, the provisions of the Agreement including this Annex B shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent.

    

                          8.  Rights with respect to
Collateral.  Each Secured
Party agrees with all other Secured Parties and the Agent (i) that it shall not,
and shall not attempt to, exercise any rights with respect to its security
interest in the Collateral, whether pursuant to any other agreement or otherwise
(other than pursuant to this Agreement), or take or institute any action against
the Agent or any of the other Secured Parties in respect of the Collateral or
its rights hereunder (other than any such action arising from the breach of this
Agreement) and (ii) that such Secured Party has no other rights with respect to
the Collateral other than as set forth in this Agreement and the other
Transaction Documents.

    

    

    B-3

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