Document:

INTEGRAMED AMERICA, INC.

                        2007 LONG-TERM COMPENSATION PLAN

         The purpose of the IntegraMed America, Inc. 2007 Long-Term Compensation
Plan (the "Plan") is to provide designated employees of IntegraMed America
Inc.(the "Company") and its subsidiaries, members of the Board of Directors,
agents of , consultants to , independent contractors of and key advisors to the
Company with the opportunity to receive grants of incentive stock options,
non-qualified stock options and restricted stock. The Company believes that the
Plan will encourage the participants to contribute materially to the growth of
the Company, thereby benefiting the Company's shareholders, and will align the
economic interests of the participants with those of the shareholders.

         1.    Administration

         1.1   Committee. The Plan shall be administered  and interpreted by the
Compensation Committee of the Board of Directors.

         1.2 Committee Authority. The Committee shall have the sole authority to
(i) determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable restriction period, and (iv) deal with any other
matters arising under the Plan.

         1.3 Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.

         2. Grants Awards under the Plan may consist of incentive stock options
as described in Section 5 ("Incentive Stock Options"), non-qualified stock
options as described in Section 5 ("Non-qualified Stock Options")(Incentive
Stock Options and Non-qualified Stock Options are collectively referred to
herein as "Options"), and restricted stock as described in Section 6
("Restricted Stock")(Incentive Stock Options, Non-Qualified Stock Options and
Restricted Stock are collectively referred to herein as "Grants"). All Grants
shall be subject to the terms and conditions set forth herein and to such other
terms and conditions consistent with this Plan as the Committee deems
appropriate and as are specified in writing by the Committee to the individual
in a grant instrument (the "Grant Instrument") or an amendment to the Grant
Instrument. The Committee shall approve the basic form and provisions of each
Grant Instrument. Grants under a particular Section of the Plan need not be
uniform as among the Grantees.
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         3.    Term of Plan/Shares Subject to the Plan

         3.1 Term. The Plan shall terminate on such date as is 10 years from the
date the stockholders approve the Plan, except with respect to awards then
outstanding. After such date no further awards shall granted under the Plan.

         3.2 Shares Authorized. Effective upon ratification and approval of the
Plan by the Company's Stockholders at the 2007 Annual Meeting of the Company's
Stockholders, subject to the adjustment specified below, the aggregate number of
shares of common stock of the Company, $.01 par value ("Company Stock") that may
be issued or transferred under the Plan is 500,000 shares. The maximum aggregate
number of shares of Company Stock that shall be subject to Grants made under the
Plan to any individual during any calendar year shall be 50,000 shares. The
shares may be authorized but unissued shares of Company Stock or reacquired
shares of Company Stock, including shares purchased by the Company on the open
market for purposes of the Plan. If and to the extent any shares of Restricted
Stock are forfeited, the shares subject to such Grants shall again be available
for purposes of the Plan.

         3.3 Adjustments. If there is any change in the number or kind of shares
of Company Stock outstanding (i) by reason of a stock dividend, spin-off,
recapitalization, stock split or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spin-off or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants
shall be appropriately adjusted by the Committee to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares of
Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that any
fractional shares resulting from such adjustment shall be eliminated by rounding
any portion of a share equal to .5 or greater up, and any portion of a share
equal to less than .5 down, in each case to the nearest whole number. Any
adjustments determined by the Committee shall be final, binding and conclusive.

         4.    Eligibility for Participation

         4.1 Eligible Persons. All employees of the Company and its
subsidiaries, including employees who are officers or members of the Board,
individuals to whom an offer of employment has been extended , members of the
Board , agents of , consultants to, independent contractors of, and key advisors
to the Company (collectively referred to herein as "Grantees") shall be eligible
to participate in the Plan.

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         4.2 Selection of Grantees. The Committee shall select the Grantees to
receive Grants and shall determine the number of shares of Company Stock subject
to a particular Grant in such manner as the Committee determines.

         5.    Granting of Options.

         5.1 Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Grantees.

         5.2   Type of Option and Price.

               5.2.1 The Committee may grant Incentive Stock Options that are
               intended to qualify as "incentive stock options" within the
               meaning of section 422 of the Internal Revenue Code of 1986, as
               amended and related Treasury Regulations (the "Code"),
               Nonqualified Stock Options that are not intended so to qualify,
               or any combination of Incentive Stock Options and Nonqualified
               Stock Options, all in accordance with the terms and conditions
               set forth herein. Incentive Stock Options may be granted only to
               employees. Nonqualified Stock Options may be granted to
               employees, directors, agents, independent contractors and key
               advisors.

               5.2.2 The purchase price (the "Exercise Price") of Company Stock
               subject to an Option shall be determined by the Committee and may
               be equal to, greater than, or less than the Fair Market Value (as
               defined below) of a share of Company Stock on the date the Option
               is granted, provided, however, that (i) the Exercise Price of an
               Incentive Stock Option shall be equal to, or greater than, the
               Fair Market Value of a share of Company Stock on the date the
               Incentive Stock Option is granted and (ii) an Incentive Stock
               Option may not be granted to an Employee who, at the time of
               grant, owns stock possessing more than 10% of the total combined
               voting power of all classes of stock of the Company or any parent
               or subsidiary of the Company, unless the Exercise Price per share
               is not less than 110% of the Fair Market Value of Company Stock
               on the date of grant.

               5.2.3 If the Company Stock is publicly traded, then, except as
               otherwise determined by the Committee, the following rules
               regarding the determination of Fair Market Value per share apply:

               (i) if the principal trading market for the Company Stock is a
               national securities exchange or The Nasdaq National Market, the
               mean between the highest and lowest quoted selling prices on the
               relevant date or (if there were no trades on that date) the
               latest preceding date upon which a sale was reported, or

               (ii) if the Company Stock is not principally traded on such
               exchange or market, the mean between the last reported "bid" and
               "asked" prices of Company Stock on the relevant date, as reported
               on The Nasdaq National Market or as reported in a customary
               financial reporting service, as applicable and as the Committee
               determines. If the Company Stock is not publicly traded or, if

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               publicly traded, is not subject to reported transactions or "bid"
               or "asked" quotations as set forth above, the Fair Market Value
               per share shall be as determined by the Committee.

         5.3 Option Term. The Committee shall determine the term of each Option.
The term of any Option shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company, or any parent or subsidiary
of the Company, may not have a term that exceeds five years from the date of
grant.

         5.4   Exercisability of Options.

               5.4.1 Options shall become exercisable in accordance with such
               terms and conditions, consistent with the Plan, as may be
               determined by the Committee and specified in the Grant Instrument
               or an amendment to the Grant Instrument. The Committee may
               accelerate the exercisability of any or all outstanding Options
               at any time for any reason.

               5.4.2 Notwithstanding the foregoing, the Option may, but need
               not, include a provision whereby the Grantee may elect at any
               time to exercise the Option as to any part or all of the shares
               subject to the Option prior to the full vesting of the Option.
               Any unvested shares so purchased shall be subject to a repurchase
               right in favor of the Company, with the repurchase price to be
               equal to the original purchase price, and any other restrictions
               the Committee determines to be appropriate.

         5.5   Termination of Employment, Disability or Death.

               5.5.1 Except as provided below, an Option may only be exercised
               while the Grantee is employed by, member of the Board, agent of,
               consultant to, independent contractor of or key advisor to the
               Company. In the event that a Grantee's status changes for any
               reason other than a "disability," death or "termination for
               cause," any Option which is otherwise exercisable by the Grantee
               shall terminate unless exercised within 90 days after the date on
               which the Grantee ceases to be employed by the Company (or within
               such other period of time as may be specified by the Committee),
               but in any event no later than the date of expiration of the
               Option term. Any of the Grantee's Options that are not otherwise
               exercisable as of the date on which the Grantee ceases to be
               employed by the Company shall terminate as of such date.

               5.5.2 In the event the Grantee ceases to be employed by the
               Company on account of a "termination for cause" by the Company,
               any Option held by the Grantee shall terminate as of the date the
               Grantee ceases to be employed by the Company.

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               5.5.3 In the event the Grantee ceases to be employed by the
               Company because the Grantee is "disabled," any Option which is
               otherwise exercisable by the Grantee shall terminate unless
               exercised within one year after the date on which the Grantee
               ceases to be employed by the Company (or within such other period
               of time as may be specified by the Committee), but in any event
               no later than the date of expiration of the Option term. Any of
               the Grantee's Options which are not otherwise exercisable as of
               the date on which the Grantee ceases to be employed by the
               Company shall terminate as of such date.

               5.5.4 If the Grantee dies while employed by the Company or within
               90 days after the date on which the Grantee ceases to be employed
               on account of a termination of employment specified in Section
               5.5.1 above (or within such other period of time as may be
               specified by the Committee), any Option that is otherwise
               exercisable by the Grantee shall terminate unless exercised
               within one year after the date on which the Grantee ceases to be
               employed by the Company (or within such other period of time as
               may be specified by the Committee), but in any event no later
               than the date of expiration of the Option term. Any of the
               Grantee's Options that are not otherwise exercisable as of the
               date on which the Grantee ceases to be employed by the Company
               shall terminate as of such date.

               5.5.5  For purposes of Sections 5.5 and 6:

               (i) "Company," when used in the phrase "employed by the Company,"
               shall mean the Company and its parent, subsidiary corporations,
               and any business venture in which the Company has a significant
               interest.

               (ii) "Employed by the Company" shall mean employment or service
               as an Employee of IntegraMed America, Inc. or any subsidiary or
               business venture in which the Company has a significant interest,
               Key Advisor, or member of the Board (so that, for purposes of
               exercising Options, and satisfying conditions with respect to
               Restricted Stock, a Grantee shall not be considered to have
               terminated employment or service until the Grantee ceases to be
               an Employee of IntegraMed America, Inc. or any subsidiary or
               business venture in which the Company has a significant interest,
               or member of the Board), unless the Committee determines
               otherwise. The Committee's determination as to a participant's
               employment or other provision of services, termination of
               employment or cessation of the provision of services, leave of
               absence, or reemployment shall be conclusive on all persons
               unless determined to be incorrect.

               (iii) "Disability" shall mean a Grantee's becoming disabled
               within the meaning of section 22(e)(3) of the Code.

               (iv) "Termination for cause" shall mean the determination of the
               Committee that any one or more of the following events has
               occurred:

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               (A) the Grantee's conviction of any act which constitutes a
               felony under applicable federal or state law, either in
               connection with the performance of the Grantee's obligations on
               behalf of the Company or which affects the Grantee's ability to
               perform his or her obligations as an employee, board member or
               advisor of the Company or under any employment agreement,
               non-competition agreement, confidentiality agreement or like
               agreement or covenant between the Grantee and the Company (any
               such agreement or covenant being herein referred to as an
               "Employment Agreement");

               (B) the Grantee's willful misconduct in connection with the
               performance of his or her duties and responsibilities as an
               employee, board member or advisor of the Company or under any
               Employment Agreement, which willful misconduct is not cured by
               the Grantee within 10 days of his or her receipt of written
               notice thereof from the Committee;

               (C) the Grantee's commission of an act of embezzlement, fraud or
               dishonesty which results in a loss, damage or injury to the
               Company;

               (D) the Grantee's substantial and continuing neglect, gross
               negligence or inattention in the performance of his or her duties
               as an employee, board member or advisor of the Company or under
               any Employment Agreement which is not cured by the Grantee within
               10 days of his or her receipt of written notice thereof from the
               Committee;

               (E) the Grantee's unauthorized use or disclosure or any trade
               secret or confidential information of the Company which adversely
               affects the business of the Company, provided that any disclosure
               of any trade secret or confidential information of the Company to
               a third party in the ordinary course of business who signs a
               confidentiality agreement shall not be deemed a breach of this
               subparagraph;

               (F) the Grantee's material breach of any of the provisions of any
               Employment Agreement, which material breach is not cured by the
               Grantee within 10 days of his or her receipt of a written notice
               from the Company specifying such material breach; or

               (G) the Grantee has voluntarily terminated his or her employment
               or service with the Company and breaches his or her
               non-competition agreement with the Company.

         5.6 Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company with payment of the Exercise Price. The Grantee shall pay the
Exercise Price for an Option as specified by the Committee:

               5.6.1  in cash; or

               5.6.2 by delivering shares of Company Stock owned by the Grantee
               for the period necessary to avoid a charge to the Company's
               earnings for financial reporting purposes (including Company
               Stock acquired in connection with the exercise of an Option,
               subject to such restrictions as the Committee deems appropriate)
               and having a Fair Market Value on the date of exercise equal to
               the Exercise Price; or

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               5.6.3 by payment through a broker in accordance with procedures
               permitted by Regulation T of the Federal Reserve Board; or

               5.6.4     by such other method of payment as the  Committee  may
               approve.

         Shares of Company Stock used to exercise an Option shall have been held
by the Grantee for the requisite period of time to avoid adverse accounting
consequences to the Company with respect to the Option. The Grantee shall pay
the Exercise Price and the amount of any withholding tax due (pursuant to
Section 7) at the time of exercise.

         5.7 Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that if the aggregate Fair Market Value of the stock on the date
of the grant with respect to which Incentive Stock Options are exercisable for
the first time by a Grantee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an Employee of the Company or a parent or subsidiary (within the meaning
of section 424(f) of the Code). No Incentive Stock Option shall be exercisable
sooner than one year from the date of grant.

         6. Restricted Stock Grants. The Committee may issue or transfer shares
of Company Stock to a Grantee under a Grant of Restricted Stock upon such terms
as the Committee deems appropriate. The following provisions are applicable to
Restricted Stock:

         6.1 General Requirements. Shares of Company Stock issued or transferred
pursuant to Restricted Stock Grants may be issued or transferred for no
consideration, as determined by the Committee. The Committee may establish
conditions under which restrictions on shares of Restricted Stock shall lapse
over a period of time or according to such other criteria as the Committee deems
appropriate. The period of time during which the Restricted Stock will remain
subject to restrictions will be designated in the Grant Instrument as the
"Restriction Period."

         6.2 Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a Restricted
Stock Grant and the restrictions applicable to such shares.

         6.3 Requirement of Relationship. If the Grantee ceases to be employed
by, a member of the Board, an agent of, consultant to, independent contractor
to, or key advisors to the Company other than for reasons of death or permanent
disability during a period designated in the Grant Instrument as the Restriction
Period, or if other specified conditions are not met, the Restricted Stock Grant
shall terminate as to all shares covered by the Grant as to which the
restrictions have not lapsed, and those shares of Company Stock must be
immediately returned to the Company. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.

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         6.4 Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 7. Each certificate for a share of Restricted Stock shall
contain a legend giving appropriate notice of the restrictions in the Grant. The
Grantee shall be entitled to have the legend removed from the stock certificate
covering the shares subject to restrictions when all restrictions on such shares
have lapsed. The Committee may determine that the Company will not issue
certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed. The certificates shall bear, among other required legends, the following
legend:

         "The transferability of this certificate and the shares of stock
         represented hereby are subject to the terms and conditions (including,
         without limitation, forfeiture events) contained in the IntegraMed
         America, Inc. 2007 Long-Term Compensation Plan and an Award Agreement
         entered into between the registered owner hereof and IntegraMed
         America, Inc. Copies of such Plan and Award Agreement are on file in
         the office of the Secretary of IntegraMed America, Inc., Two
         Manhattanville Road, Purchase, New York 10577. IntegraMed America, Inc.
         will furnish to the record holder of the certificate, without charge
         and upon written request at its principal place of business, a copy of
         such Plan and Award Agreement. IntegraMed America, Inc. reserves the
         right to refuse to record the transfer of this certificate until all
         such restrictions are satisfied, all such terms are complied with and
         all such conditions are satisfied."

         6.5 Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.

         6.6 Lapse of Restrictions. All restrictions imposed on Restricted Stock
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.

         7.    Withholding of Taxes

         7.1 Required Withholding. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Company may require the Grantee or other person receiving such
shares to pay to the Company the amount of any such taxes that the Company is
required to withhold with respect to such Grants, or the Company may deduct from
other wages paid by the Company the amount of any withholding taxes due with
respect to such Grants.

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<PAGE>

         7.2 Election to Withhold Shares. If the Committee so permits, a Grantee
may elect to satisfy the Company's income tax withholding obligation with
respect to an Option or Restricted Stock Grant by having shares withheld up to
an amount that does not exceed the Grantee's maximum marginal tax rate for
federal (including FICA), state and local tax liabilities. The election must be
in a form and manner prescribed by the Committee and shall be subject to the
prior approval of the Committee.

         8.    Transferability of Grants

         8.1. Non-transferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Committee, pursuant to a domestic
relations order (as defined under the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.

         8.2 Transfer of Non-qualified Stock Options. Notwithstanding the
foregoing, the Committee may provide, in a Grant Instrument, that a Grantee may
transfer Non-qualified Stock Options to family members or other persons or
entities according to such terms as the Committee may determine; provided that
the Grantee receives no consideration for the transfer of a Non-qualified Stock
Option and the transferred Non-qualified Stock Option shall continue to be
subject to the same terms and conditions as were applicable to the Non-qualified
Option immediately before the transfer.

         9.    Reorganization of the Company.

         9.1 Reorganization. As used herein, a "Reorganization" shall be deemed
to have occurred if the shareholders of the Company approve (or, if shareholder
approval is not required, the Board approves) an agreement providing for (i) the
merger or consolidation of the Company with another corporation where the
shareholders of the Company, immediately prior to the merger or consolidation,
will not beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to more than 50% of all votes to which all
shareholders of the surviving corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote), (ii) the sale or other disposition of all
or substantially all of the assets of the Company, or (iii) a liquidation or
dissolution of the Company.

         9.2 Assumption of Grants. Upon a Reorganization where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
that are not exercised shall be assumed by, or replaced with comparable options
or rights by, the surviving corporation.

         9.3 Other Alternatives. Notwithstanding the foregoing, in the event of
a Reorganization, the Committee may take one or both of the following actions:
the Committee may (i) require that Grantees surrender their outstanding Options
in exchange for a payment by the Company, in cash or Company Stock as determined
by the Committee, in an amount equal to the amount by which the then Fair Market
Value of the shares of Company Stock subject to the Grantee's unexercised

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Options exceeds the Exercise Price of the Options, or (ii) after giving Grantees
an opportunity to exercise their outstanding Options, terminate any or all
unexercised Options at such time as the Committee deems appropriate. Such
surrender or termination shall take place as of the date of the Reorganization
or such other date as the Committee may specify.

         9.4 Limitations. Notwithstanding anything in the Plan to the contrary,
in the event of a Reorganization, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (b) above) that would make the Reorganization ineligible
for pooling of interests accounting treatment or that would make the
Reorganization ineligible for desired tax treatment if, in the absence of such
right, the Reorganization would qualify for such treatment and the Company
intends to use such treatment with respect to the Reorganization.

                                 Page 10 of 15
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         10.    Change of Control of the Company.

         10.1 As used herein, a "Change of Control" shall be deemed to have
occurred if.

                10.1.1 Any "person" (as such term is used in Sections 13(d) and
                14(d) of the Exchange Act) becomes a "beneficial owner" (as
                defined in Rule 13d- 3 under the Exchange Act), directly or
                indirectly, of securities of the Company representing a majority
                of the voting power of the then outstanding securities of the
                Company except where the acquisition is approved by the Board;
                or

                10.1.2 Any person has commenced a tender offer or exchange offer
                for a majority of the voting power of the then outstanding
                shares of the Company.

         10.2 Notice and Acceleration. Unless the Committee determines
otherwise, a Change of Control shall result in the acceleration of the vesting
of outstanding Options and the removal of restrictions and conditions on
outstanding Restricted Stock Grants.

         10.3 Other Alternatives. Notwithstanding the foregoing, in the event of
a Change in Control, the Committee may take one or both the following actions:
the Committee may (i) require that Grantees surrender their outstanding Options
in exchange for a payment by the Company, in cash or Company Stock as determined
by the Committee, in an amount equal to the amount by which the then Fair Market
Value of the shares of Company Stock subject to the Grantee's unexercised
Options exceed the Exercise Price of the Options, or (ii) giving Grantees an
opportunity to exercise their outstanding Options, terminate any or all
unexercised Options at such time as the Committee deems appropriate. Such
surrender or termination shall take place as of the date of the Change of
Control or such other date as the Committee may specify.

         10.4 Limitations. Notwithstanding anything in the Plan to the contrary,
in the event of a Change of Control, the Committee shall not have the right to
take any actions described in the Plan (including without limitation actions
described in Section 10.3 above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.

         11.    Requirements for Issuance or Transfer of Shares

         11.1 Shareholder's Agreement. The Committee may require that a Grantee
execute a shareholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan.

         11.2 Limitations on Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder unless and
until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee

                                 Page 11 of 15
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hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.

         12.    Amendment, Suspension and Termination of the Plan

         12.1   Amendment.The Board may amend,  suspend or terminate the Plan at
any time.

         12.2 Termination of Plan. The Plan shall terminate on the date
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board with the
approval of the shareholders.

         12.3 Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents. The termination of
the Plan shall not impair the power and authority of the Committee with respect
to an outstanding Grant. Whether or not the Plan has terminated, an outstanding
Grant may be terminated or amended in accordance with the Plan or may be amended
by agreement of the Company and the Grantee consistent with the Plan.

         12.4 Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.

         13. Rights of Grantees. Nothing in this Plan shall entitle any Grantee
or other person to any claim or right to be granted a Grant under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any individual any rights to be retained by or in the employ of the Company or
any other employment rights.

         14. No Fractional Shares. No fractional shares of Company Stock shall
be issued or delivered pursuant to the Plan or any Grant. The Committee shall
determine whether cash, other awards or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.

         15. Headings. Section headings are for reference only. In the event of
a conflict between a title and the content of a Section, the content of the
Section shall control.

         16. Miscellaneous.

                                 Page 12 of 15
<PAGE>

         16.1 Compliance with Law. The Plan and the obligations of the Company
to issue or transfer shares of Company Stock under Grants shall be subject to
all applicable laws and to approvals by any governmental or regulatory agency as
may be required. With respect to persons subject to section 16 of the Exchange
Act, it is the intent of the Company that the Plan and all transactions under
the Plan comply with all applicable provisions of Rule 16b-3 or its successors
under the Exchange Act. The Committee may revoke any Grant if it is contrary to
law or modify a Grant to bring it into compliance with any valid and mandatory
government regulation. The Committee may also adopt rules regarding the
withholding of taxes on payments to Grantees. The Committee may, in its sole
discretion, agree to limit its authority under this Section.

         16.2 No Right to Employment. Neither the adoption of the Plan, the
granting of any Grant, nor the execution of any Grant Instrument, shall confer
upon any employee of the Company or any Subsidiary any right to continued
employment with the Company or any Subsidiary, as the case may be, nor shall it
interfere in any way with the right, if any, of the Company or any Subsidiary to
terminate the employment of any employee at any time for any reason.

         16.3 Unfunded Plan. The Plan shall be unfunded and the Company shall
not be required to segregate any assets in connection with any Grants under the
Plan. Any liability of the Company to any person with respect to any Grant under
the Plan or any Grant Instrument shall be based solely upon the contractual
obligations that may be created as a result of the Plan or any such Grant
Instrument. No such obligation of the Company shall be deemed to be secured by
any pledge of, encumbrance on, or other interest in, any property or asset of
the Company or any Subsidiary. Nothing contained in the Plan or any Grant
Instrument shall be construed as creating in respect of any Grantee (or
beneficiary thereof or any other person) any equity or other interest of any
kind in any assets of the Company or any Subsidiary or creating a trust of any
kind or a fiduciary relationship of any kind between the Company, any Subsidiary
and/or any such Grantee, any beneficiary thereof or any other person.

         16.4 Other Company Benefit and Compensation Programs. Payments and
other benefits received by a Grantee under a Grant made pursuant to the Plan
shall not be deemed a part of a Grantee's compensation for purposes of the
determination of benefits under any other employee welfare or benefit plans or
arrangements, if any, provided by the Company or any Subsidiary unless expressly
provided in such other plans or arrangements, or except where the Committee
expressly determines in writing that inclusion of a Grant or portion of a Grant
should be included to reflect accurately competitive compensation practices or
to recognize that a Grant has been made in lieu of a portion of competitive
annual base salary or other cash compensation. Grants under the Plan may be made
in addition to, in combination with, or as alternatives to, grants, awards or
payments under any other plans or arrangements of the Company or its
Subsidiaries. The existence of the Plan notwithstanding, the Company or any
Subsidiary may adopt such other compensation plans or programs and additional
compensation arrangements as it deems necessary to attract, retain and motivate
employees.

         16.5 Listing, Registration and Other Legal Compliance. No Grants or
shares of the Company Stock shall be required to be issued or granted under the
Plan unless legal counsel for the Company shall be satisfied that such issuance
or grant will be in compliance with all applicable federal and state securities
laws and regulations and any other applicable laws or regulations. The Committee

                                 Page 13 of 15
<PAGE>

may require, as a condition of any payment or share issuance, that certain
agreements, undertakings, representations, certificates, and/or information, as
the Committee may deem necessary or advisable, be executed or provided to the
Company to assure compliance with all such applicable laws or regulations.
Certificates for shares of the Restricted Shares and/ or Common Stock delivered
under the Plan may be subject to such stock-transfer orders and such other
restrictions as the Committee may deem advisable under the rules, regulations,
or other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Common Stock is then listed, and any applicable federal
or state securities law. In addition, if, at any time specified herein (or in
any Grant Instrument or otherwise) for (a) the making of any Award, or the
making of any determination, (b) the issuance or other distribution of
Restricted Shares and/ or Common Stock, or (c ) the payment of amounts to or
through a Participant with respect to any Grant, any law, rule, regulation or
other requirement of any governmental authority or agency shall require either
the Company, any Subsidiary or any Participant (or any estate, designated
beneficiary or other legal representative thereof) to take any action in
connection with any such determination, any such shares to be issued or
distributed, any such payment, or the making of any such determination, as the
case may be, shall be deferred until such required action is taken. With respect
to persons subject to Section 16 of the Exchange Act, transactions under the
Plan are intended to comply with all applicable conditions of Rule 16b-3
promulgated under the Exchange Act.

         16.6 Grant Instrument. Each Participant receiving a Grant under the
Plan shall enter into a Grant Instrument with the Company in a form specified by
the Committee. Each such Participant shall agree to the restrictions, terms and
conditions of the Grant set forth therein and in the Plan.

         16.7 Designation of Beneficiary. Each Grantee to whom a Grant has been
made under the Plan may designate a beneficiary or beneficiaries to exercise any
Option or to receive any payment which under the terms of the Plan and the
relevant Grant Instrument may become exercisable or payable on or after the
Grantee's death. At any time, and from time to time, any such designation may be
changed or cancelled by the Grantee without the consent of any such beneficiary.
Any such designation, change or cancellation must be on a form provided for that
purpose by the Committee and shall not be effective until received by the
Committee or individual designated by the Committee. If no beneficiary has been
designated by a deceased Grantee, or if the designated beneficiaries have
predeceased the Grantee, the beneficiary shall be the Grantee's estate. If the
Grantee designates more than one beneficiary, any payments under the Plan to
such beneficiaries shall be made in equal shares unless the Grantee has
expressly designated otherwise, in which case the payments shall be made in the
shares designated by the Grantee.

                                 Page 14 of 15
<PAGE>

         16.8 Leaves of Absence/Transfers. The Committee shall have the power to
promulgate rules and regulations and to make determinations, as it deems
appropriate, under the Plan in respect of any leave of absence from the Company
or any Subsidiary granted to a Grantee. Without limiting the generality of the
foregoing, the Committee may determine whether any such leave of absence shall
be treated as if the Grantee has terminated employment with the Company or any
such Subsidiary. If a Grantee transfers within the Company, or to or from any
Subsidiary, such Grantee shall not be deemed to have terminated employment as a
result of such transfers.

         16.9 Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall exclusively
be governed by and determined in accordance with the law of the State of New
York.

         16.10 Effective Date of the Plan Subject to the approval of the
Company's shareholders, the Plan shall be effective on May 15, 2007.

                                 Page 15 of 15exv10w37

 

Exhibit 10.37

 

PROGENITOR CELL THERAPY, LLC

NOTE PURCHASE AGREEMENT

Dated as of December 3, 2007

with

STEMCELLS, INC.

 

 

TABLE OF CONTENTS

Page

	 	 	 	 	 
	1. Definitions; Certain Rules of Construction
	 	 	1	 
	 
	 	 	 	 
	2. Purchase and Sale of the Notes 
	 	 	4	 
	2.1. Initial Issuance
	 	 	4	 
	2.2. Additional Issuance
	 	 	4	 
	 
	 	 	 	 
	3. Interest 
	 	 	5	 
	3.1. Interest
	 	 	5	 
	 
	 	 	 	 
	4. Payment 
	 	 	5	 
	4.1. Payment at Maturity
	 	 	5	 
	 
	 	 	 	 
	5. Conditions to Issuance of Notes
	 	 	6	 
	5.1. Representations and Warranties, No Default, Material Adverse Change
	 	 	6	 
	5.2. Note
	 	 	6	 
	5.3. Legal Opinion
	 	 	6	 
	5.4. Security Agreement
	 	 	6	 
	5.5. Perfection of Security
	 	 	6	 
	5.6. Proper Proceedings
	 	 	6	 
	5.7. Legality, etc
	 	 	6	 
	5.8. General
	 	 	6	 
	 
	 	 	 	 
	6. General Covenants
	 	 	7	 
	6.1. Conduct of Business
	 	 	7	 
	6.2. Payment of Taxes and Other Amounts
	 	 	7	 
	6.3. Compliance with Laws
	 	 	7	 
	6.4. Insurance 
	 	 	7	 
	6.5. Financial Statements and Reports 
	 	 	7	 
	6.6. Indebtedness and Liens
	 	 	9	 
	6.7. Capital Expenditures
	 	 	10	 
	6.8. Distributions
	 	 	10	 
	6.9. Investments and Acquisitions
	 	 	10	 

- i -

 

	 	 	 	 	 
	6.10. Merger; Sale of Assets; Share Issuance
	 	 	10	 
	6.11. Transactions with Affiliates
	 	 	10	 
	 
	 	 	 	 
	7. Representations and Warranties
	 	 	10	 
	7.1. Organization and Business
	 	 	10	 
	7.2. Financial Statements and Other Information
	 	 	11	 
	7.3. Changes in Condition
	 	 	11	 
	7.4. Litigation
	 	 	11	 
	7.5. No Legal Obstacle to Agreements
	 	 	11	 
	7.6. Taxes
	 	 	12	 
	7.7. Ownership Of Property; Liens; Investments 
	 	 	12	 
	7.8. Environmental Compliance
	 	 	13	 
	7.9. Insurance
	 	 	13	 
	7.10. ERISA Compliance
	 	 	13	 
	7.11. Disclosure
	 	 	14	 
	7.12. Compliance with Laws
	 	 	14	 
	7.13. Intellectual Property; Licenses, Etc
	 	 	14	 
	7.14. Deposit Accounts, Securities Accounts
	 	 	14	 
	7.15. Trade Relations
	 	 	14	 
	 
	 	 	 	 
	8. Defaults 
	 	 	15	 
	8.1. Events of Default
	 	 	15	 
	8.2. Certain Actions Following an Event of Default
	 	 	16	 
	8.3. Waivers
	 	 	17	 
	 
	 	 	 	 
	9. Expenses; Indemnity 
	 	 	17	 
	9.1. Expenses
	 	 	17	 
	9.2. General Indemnity
	 	 	18	 
	 
	10. Successors and Assigns
	 	 	18	 
	 
	11. Notices
	 	 	18	 
	 
	12. Course of Dealing, Amendments and Waivers
	 	 	19	 
	 
	13. Venue; Service of Process; Certain Waivers
	 	 	19	 

- ii -

 

	 	 	 	 	 
	14. WAIVER OF JURY TRIAL
	 	 	20	 
	 
	15. General
	 	 	20	 

- iii -

 

EXHIBITS

	 	 	 	 	 
	2

	 	-
	 	Form of Note
	2.2.5

	 	-
	 	Form of Guaranty
	5.4

	 	-
	 	Security Agreement
	6.6

	 	-
	 	Existing Indebtedness and Liens
	7.1

	 	-
	 	Subsidiaries
	7.7.2

	 	-
	 	Owned Real Property
	7.7.3

	 	-
	 	Leased Real Property
	7.7.6

	 	-
	 	Investments
	7.13

	 	-
	 	IP Rights
	7.14

	 	-
	 	Deposit and Security Accounts

- i -

 

PROGENITOR CELL THERAPY, LLC

NOTE PURCHASE AGREEMENT

     This Agreement, dated as of December 3, 2007, is between Progenitor Cell Therapy LLC, a
Delaware limited liability company (the “Company”), and StemCells, Inc., a Delaware
corporation (the “Purchaser”). The parties agree as follows:

1. Definitions; Certain Rules of Construction. Except as the context otherwise explicitly
requires, (a) the capitalized term “Section” refers to sections of this Agreement, (b) the
capitalized term “Exhibit” refers to exhibits to this Agreement, (c) references to “$” and
“Dollars” are to United States dollars, and (d) the word “including” shall be construed as
“including without limitation”, (e) accounting terms not otherwise defined herein have the meaning
provided under GAAP, (f) references to a particular statute or regulation include all rules and
regulations thereunder and any successor statute, regulation or rules, in each case as from time to
time in effect, and (g) references to a particular Person include such Person’s successors and
assigns to the extent not prohibited by this Agreement and the other Note Documents.

     “Additional Issuance” is defined in Section 2.2.

     “Applicable Rate” means on any date, (a) 5% per annum,

     or (b) 14% per annum effective after the occurrence and continuance of an Event of
Default until such Event of Default is no longer continuing.

     “Bankruptcy Code” means Title 11 of the United States Code (or any successor statute)
and the rules and regulations thereunder, all as from time to time in effect.

     “Business Day” means any day other than a Saturday, a Sunday or a day on which on
which commercial banks in New York City are required or authorized to be closed.

     “Capital Expenditures” means, with respect to any Person, all expenditures by the
expenditure of cash or the incurrence of indebtedness by such Person during any measuring period
for any fixed assets or improvements or for replacements, substitutions or additions thereto that
have a useful life of more than one year and that are required to be capitalized under GAAP net of
any insurance or sale proceeds received by the Company in connection with any sale or loss of
similar assets during such period.

     “Closing Date” means December 3, 2007.

     “Default” means any Event of Default and any event or condition which with the passage
of time or giving of notice, or both, would become an Event of Default.

     “Environmental Laws” means any applicable federal, state, local and foreign statutes,
laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants,

 - 1 - 

 

franchises, licenses, agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the environment, including but
not limited to those related to Hazardous Substances or wastes, air emissions and discharges to
waste or public systems.

     “ERISA” means the Employee Retirement Income Security Act of 1974, amended from time
to time.

     “ERISA Affiliate” means any trade or business (whether or not incorporated) under
common control with the Company within the meaning of Section 414(b) or (c) of the Internal Revenue
Code (and Sections 414(m) and (o) of the Internal Revenue Code for purposes of provisions relating
to Section 412 of the Internal Revenue Code).

     “ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a
withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of
ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2)
of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e)
of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a
Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing
of a notice of intent to terminate, the treatment of a Plan amendment as a termination under
Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a
Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any
Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA,
other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company
or any ERISA Affiliate.

     “Event of Default” is defined in Section 8.1.

     “Final Maturity Date” means the date that is 240 days after the Closing Date.

     “GAAP” means generally accepted accounting principles as from time to time in effect,
including the statements and interpretations of the United States Financial Accounting Standards
Board, consistently followed.

     “Guarantors” means any Person that is signatory to the Guaranty.

     “Guaranty” is defined in Section 2.2.5.

     “Hazardous Substance” means any material, substance or waste characterized as
hazardous or toxic under Environmental Laws, including any “hazardous substance” as defined in 42
U.S.C. § 9601(14), oil, gasoline and any other petroleum-based substance.

     “Indemnified Party” is defined in Section 9.2.

 - 2 - 

 

     “Margin Stock” means “margin stock” within the meaning of Regulations T, U or X of the
Board of Governors of the Federal Reserve System.

     “Material Adverse Change” means a material adverse change in the business, operations,
assets, financial condition or income of the Company.

     “Multiemployer Plan” means any employee benefit plan of the type described in Section
4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes or is obligated to make
contributions, or during the preceding five plan years, has made or been obligated to make
contributions.

     “Net Income” means, for any period, the net income (or loss) of the Company,
determined in accordance with GAAP on a consolidated basis; provided, however, that
Net Income shall not include extraordinary and non-recurring gains and losses.

     “Note” means a note issued hereunder, including the promissory note issued on the
Closing Date and the promissory note issued on the Supplemental Closing Date, each in the form
attached hereto as Exhibit 2.

     “Note Documents” means:

     (a) this Agreement, the Security Agreement, each Guaranty and the Notes, each as
from time to time in effect; and

     (b) any other present or future agreement or instrument from time to time entered
into by the Purchaser, on one hand, and the Company on the other hand, relating to,
amending or modifying this Agreement or any other Note Document referred to above or
which is stated to be a Note Document, each as from time to time in effect.

     “Note Obligations” means all present and future liabilities, obligations and
indebtedness of the Company under or in connection with this Agreement, the Notes or any other Note
Document, including obligations in respect of principal, interest and other fees, charges,
indemnities and expenses from time to time owing hereunder or under any other Note Document.

     “PBGC” means the Pension Benefit Guaranty Corporation.

     “Pension Plan” means any “employee pension benefit plan” (as such term is defined in
Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and
is sponsored or maintained by the Company or any ERISA Affiliate or to which the Company or any
ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple
employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time
during the immediately preceding five plan years.

 - 3 - 

 

     “Person” means any present or future natural person or any corporation, association,
partnership, joint venture, limited liability company, business trust, trust, organization,
business, individual or government or any governmental agency or political subdivision thereof.

     “Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of
ERISA) established by the Company or, with respect to any such plan that is subject to Section 412
of the Code or Title IV of ERISA, any ERISA Affiliate.

     “Reportable Event” means any of the events set forth in Section 4043(c) of ERISA,
other than events for which the thirty (30) day notice period has been waived.

     “Security Agreement” is defined in Section 5.5.

     “Subsidiary” means any Person of which the Company (or other specified Person) shall
at the time, directly or indirectly through one or more of its Subsidiaries, (a) own more than 50%
of the outstanding capital stock (or other shares of beneficial interest) entitled to vote
generally, (b) hold more than 50% of the partnership, joint venture or similar interests or (c) be
a general partner or joint venturer.

     “Supplemental Closing Date” shall mean the date on which a Note is issued and sold
pursuant to the Additional Issuance.

     “Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities
under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets,
determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section
412 of the Internal Revenue Code for the applicable plan year.

2. Purchase and Sale of the Notes.

     2.1. Initial Issuance. Subject to the terms and conditions of this Agreement and on
the basis of the representations and warranties set forth herein, the Company hereby agrees to sell
to the Purchaser, and by its acceptance hereof, the Purchaser agrees to purchase from the Company,
on the Closing Date, a Note in the principal amount of One Million and No/100ths Dollars
($1,000,000.00).

     2.2. Additional Issuance. Subject to the terms and conditions of this Agreement and
on the basis of the representations and warranties set forth herein, until the Final Maturity Date,
the Company may sell to the Purchaser, and the Purchaser agrees to purchase from the Company, in no
more than one additional issuance (the “Additional Issuance”), a Note in the principal
amount of Two Million Eight Hundred Thousand Dollars and No/100ths Dollars ($2,800,000.00). Any
purchase and sale of a Note pursuant to this Section 2.2 will be preconditioned upon the
satisfaction of the following conditions, which preconditions may only be waived or amended by the
Purchaser in a signed writing:

 - 4 - 

 

     2.2.1. immediately before and after such Additional Issuance, no Default or Event of
Default shall have occurred and be continuing or is reasonably likely to occur as a result
of the Additional Issuance;

     2.2.2. the representations and warranties contained in Section 7 hereof and in the
other Note Documents shall be true and correct as of the Supplemental Closing Date in all
material respects after giving effect to the transactions contemplated herein on such
Supplemental Closing Date (except that such materiality qualifier shall not be applicable to
any representations and warranties that already are qualified or modified by materiality in
the text thereof), provided that, (i) to the extent that such representations and warranties
relate to a specific earlier date, such representations and warranties shall be true and
correct as of such earlier date, and (ii) to the extent exceptions to such representations
and warranties (or changes to schedules, as applicable) have been disclosed in writing to
the Purchaser and have been approved in writing by the Purchaser, such warranties shall be
qualified by such exceptions;

     2.2.3. no Material Adverse Change shall have occurred since the Closing Date or is
reasonably expected to occur;

     2.2.4. The Purchaser shall have received fully executed account control agreements with
respect to any accounts maintained by the Company with the financial institutions listed on
Exhibit 7.14, in form and substance reasonably satisfactory to the Purchaser;

     2.2.5. The Purchaser shall have received one or more duly executed Guaranties
acceptable to Purchaser, each in substantially the form of Exhibit 2.2.7 (each a
“Guaranty”), signed by members of the Company that are satisfactory to the
Purchaser, it being agreed that Guaranties signed by any group of Persons with an aggregate
net worth of at least $15,000,000 (excluding such Persons’ membership interests in the
Company) shall be satisfactory to Purchaser for purposes of this section 2.2.7; and

     2.2.6. On the Supplemental Closing Date, the Company shall have executed a Note in the
amount of two million eight hundred thousand dollars ($2,800,000.00), and delivered it to
the Purchaser.

3. Interest.

     3.1. Interest. The Notes shall bear interest (computed on the basis of a 360-day year
consisting of twelve 30-day months), on the principal amount hereof from time to time unpaid, to
and including the maturity hereof and repayment of all sums due hereunder, at a rate equal to the
Applicable Rate.

4. Payment.

     4.1. Payment at Maturity. On the Final Maturity Date, the Company will pay to the
Purchaser an amount equal to the principal amount then outstanding on the Notes, together with

 - 5 - 

 

all accrued interest thereon and all other Note Obligations then outstanding. The Company
may not prepay all or any portion of the Notes prior to the Final Maturity Date.

5. Conditions to Issuance of Notes. The obligation of the Purchaser to purchase the Notes
shall be subject to the satisfaction, on or before the Closing Date, of the following conditions:

     5.1. Representations and Warranties, No Default, Material Adverse Change. The
representations and warranties contained in Section 7 shall be true and correct on and as of the
Closing Date; and no Default shall exist on the Closing Date prior to or immediately after giving
effect to issuance of the Note.

     5.2. Note. On the Closing Date, the Company shall have executed a Note in the amount
of one million dollars ($1,000,000.00) and delivered it to the Purchaser.

     5.3. Legal Opinion. On the initial Closing Date the Purchaser shall have received
from Epstein, Becker, Green, P.C., counsel for the Company, its opinion with respect to the
transactions contemplated by the Note Documents, which opinion shall be satisfactory to the
Purchaser.

     5.4. Security Agreement. The Company shall have duly authorized, executed and
delivered to the Purchaser a Security Agreement in substantially the form of Exhibit 5.4 (the
“Security Agreement”).

     5.5. Perfection of Security. The Company shall have duly authorized, executed,
acknowledged, delivered, filed, registered and recorded such security agreements, notices,
financing statements and other instruments as the Purchaser may have reasonably requested in order
to perfect the liens purported or required pursuant to the Note Documents to be created in the
Collateral (as defined in the Security Agreement) and shall have paid all filing or recording fees
or taxes required to be paid in connection therewith, including any recording, mortgage,
documentary, transfer or intangible taxes.

     5.6. Proper Proceedings. This Agreement, each other Note Document and the
transactions contemplated hereby and thereby shall have been authorized by all necessary
proceedings of the Company. All necessary consents, approvals and authorizations of any
governmental or administrative agency or any other Person of any of the transactions contemplated
hereby or by any other Note Document shall have been obtained and shall be in full force and
effect.

     5.7. Legality, etc. The issuance of the Notes shall not (a) subject the Purchaser to
any penalty or special tax or (b) be prohibited by any law or governmental order or regulation
applicable to the Purchaser.

     5.8. General. All instruments, and legal and corporate proceedings, in connection
with the transactions contemplated by this Agreement and each other Note Document shall be
satisfactory in form and substance to the Purchaser, and the Purchaser shall have received copies
of all documents, including records of corporate proceedings, which the Purchaser may have

- 6 -

 

reasonably requested in connection therewith, such documents where appropriate to be certified
by proper corporate or governmental authorities.

     6. General Covenants. The Company covenants that, until all of the Note Obligations shall
have been paid in full and until the Purchaser’s commitment to extend credit under this Agreement
and any other Note Document shall have been terminated, the Company will comply with the following
provisions:

     6.1. Conduct of Business. The Company shall, and shall cause its Subsidiaries to,
engage only in the business engaged in by the Company and its Subsidiaries on the Closing Date and
activities reasonably related, incidental or complementary thereto.

     6.2. Payment of Taxes and Other Amounts. The Company will, and will cause each of its
Subsidiaries to, pay (a) all taxes, assessments and governmental charges imposed upon it or upon
its property and (b) all accounts payable in conformity with customary trade terms, in each case
unless the validity or amount thereof is being contested in good faith by appropriate proceedings,
and the Company (or its Subsidiary, as applicable) has established adequate reserves in accordance
with GAAP.

     6.3. Compliance with Laws. The Company will, and will cause each of its Subsidiaries
to, comply with all applicable laws, rules, regulations and orders, and duly observe all valid
requirements of governmental authorities, except where failure so to comply would not result, and
would not create a material risk of resulting, in a Material Adverse Change. Neither the Company
nor any of its Subsidiaries will own any Margin Stock.

     6.4. Insurance.

     6.4.1. Property Insurance. The Company shall, and shall cause each of its
Subsidiaries to, keep its assets which are of an insurable character insured by financially
sound and reputable insurers against theft and fraud and against loss or damage by fire,
explosion and hazards insured against by extended coverage to the extent, in amounts and
with deductibles at least as favorable as those maintained by the Company as of the Closing
Date.

     6.4.2. Liability Insurance. The Company shall, and shall cause each of its
Subsidiaries to, maintain with financially sound and reputable insurers insurance against
liability for hazards, risks and liability to persons and property to the extent, in amounts
and with deductibles at least as favorable as those generally maintained by the Company as
of the Closing Date; provided, however, that it may effect workers’
compensation insurance or similar coverage with respect to operations in any particular
state or other jurisdiction through an insurance fund operated by such state or jurisdiction
or by meeting the self-insurance requirements of such state or jurisdiction.

6.5. Financial Statements and Reports.

- 7 -

 

     6.5.1. Annual Reports. The Company shall furnish to the Purchaser within 150
days after the end of each fiscal year, the consolidated balance sheet of the Company as of
the end of such fiscal year, the consolidated statements of cash flows of the Company for
such fiscal year and comparative figures for the immediately preceding fiscal year, all
accompanied by:

     (a) Reports of Pricewaterhouse Coopers (or, if they cease to be auditors of the
Company and its Subsidiaries, other independent certified public accountants of
recognized national standing reasonably satisfactory to the Purchaser), containing no
material qualification, to the effect that they have audited the foregoing financial
statements in accordance with GAAP and that such financial statements present fairly,
in all material respects, the financial position of the Company at the dates thereof
and the results of its operations for the periods covered thereby in conformity with
GAAP.

     (b) A certificate of the Company to the effect that the Company has no knowledge
of any Default, or if the Company has such knowledge, specifying such Default and the
nature thereof, and what action the Company has taken, is taking or proposes to take
with respect thereto.

     6.5.2. Quarterly Reports. The Company shall furnish to the Purchaser, within
45 days after the end of each fiscal quarter of the Company (including, for the avoidance of
doubt, the fourth fiscal quarter), the internally prepared consolidated balance sheet of the
Company as of the end of such fiscal quarter, the consolidated statements of cash flows of
the Company for such fiscal quarter and for the portion of the fiscal year then ended and
comparative figures for the same period in the preceding fiscal year, all accompanied by:

     (a) A certificate of the Company to the effect that such financial statements have
been prepared in accordance with GAAP and present fairly, in all material respects, the
financial position of the Company at the dates thereof and the results of its
operations for the periods covered thereby, subject only to normal year-end audit
adjustments and the addition of footnotes.

     (b) A certificate of the Company to the effect that the Company has no knowledge
of any Default, or if the Company has such knowledge, specifying such Default and the
nature thereof and what action the Company has taken, is taking or proposes to take
with respect thereto.

     6.5.3. Monthly Reports. The Company shall furnish to the Purchaser, within 20
days after the end of each fiscal month of the Company (including, for the avoidance of
doubt, for each fiscal month ending on the date that is also the end of a fiscal quarter or
the fiscal year), the internally prepared consolidated balance sheet of the Company as of
the end of such fiscal month, the consolidated statements of cash flows of the Company for
such fiscal month and for the portion of the fiscal year then ended and comparative figures
for the same period in the preceding fiscal year, all accompanied by:

- 8 -

 

     (a) A certificate of the Company to the effect that such financial statements have
been prepared in accordance with GAAP and present fairly, in all material respects, the
financial position of the Company at the dates thereof and the results of its
operations for the periods covered thereby, subject only to normal year-end audit
adjustments and the addition of footnotes.

     (b) A certificate of the Company to the effect that the Company has no knowledge
of any Default, or if the Company has such knowledge, specifying such Default and the
nature thereof and what action the Company has taken, is taking or proposes to take
with respect thereto.

     6.5.4. Notice of Litigation, Defaults, etc. The Company shall promptly furnish
to the Purchaser notice of any litigation or any administrative or arbitration proceeding
(a) which creates a reasonable risk of resulting, after giving effect to any applicable
insurance, in the payment by the Company of more than $100,000 or (b) which results, or
creates a reasonable risk of resulting, in a Material Adverse Change. Promptly upon
acquiring knowledge thereof, the Company shall notify the Purchaser of the existence of any
Default or Material Adverse Change, specifying the nature thereof and what action the
Company has taken, is taking or proposes to take with respect thereto.

     6.5.5. Other Information. From time to time at reasonable intervals upon
written request of any authorized officer of the Purchaser, the Company shall furnish to the
Purchaser such other information regarding the business, assets, financial condition, income
or prospects of the Company as such officer may reasonably request, including copies of all
tax returns, licenses, agreements, leases and instruments to which the Company is party.
The Purchaser’s authorized officers and representatives shall have the right during normal
business hours upon reasonable notice and at reasonable intervals to examine the books and
records of the Company for the purpose of ascertaining compliance with or obtaining
enforcement of this Agreement or any other Note Document.

     6.6. Indebtedness and Liens. Neither the Company nor any of its Subsidiaries will:

     (a) create, incur or otherwise become or remain liable with respect to, any
indebtedness for borrowed money, evidenced by notes or other instruments or for the
deferred purchase price of goods or services, other than (i) the Note Obligations, (ii)
the Company’s presently existing indebtedness (including committed lease facilities)
listed on Exhibit 6.6, (iii) unsecured indebtedness incurred in the ordinary course of
business not exceeding $35,000 in the aggregate, and (iv) trade accounts payable in the
ordinary course of business.

     (b) create or incur or permit to exist any consensual lien, charge, mortgage,
pledge or other security interest of any kind upon any of its property or assets of any
character, whether now owned or hereafter acquired, other than (i) liens securing the
Note Obligations, (ii) purchase money liens and capitalized leases incurred in the
ordinary course of business, (iii) deposits or pledges made in connection with, or to

- 9 -

 

secure payment of, indemnity, performance or similar bonds in the ordinary course
of business, and (iv) presently existing liens listed on Exhibit 6.6.

     6.7. Capital Expenditures. Other than Capital Expenditures financed with the proceeds
of the Notes, neither the Company nor any of its Subsidiaries will make Capital Expenditures
(including expenditures for fixed assets, leases, maintenance, or repairs capitalized or required,
in accordance with GAAP consistently applied, to be capitalized on the Company’s books by purchase,
lease-purchase agreement, option or otherwise) in a total amount that exceed $250,000 in the
aggregate.

     6.8. Distributions. Neither the Company nor any of its Subsidiaries shall pay any
direct or indirect dividend or other distribution of any kind in respect of, or purchase or redeem,
any of its shares of capital stock or membership interests (other than distributions to the Company
from any of its Subsidiaries).

     6.9. Investments and Acquisitions. Neither the Company nor any of its Subsidiaries
shall make any investments in capital stock, partnership or membership interests or loans, or
purchase or otherwise acquire any business or assets outside the ordinary course of business.

     6.10. Merger; Sale of Assets; Share Issuance. Neither the Company nor any of its
Subsidiaries shall become a party to any merger or consolidation, or in a single transaction or
series of related transactions sell, lease or otherwise dispose of a material amount of its assets
(except that wholly owned Subsidiaries of the Company may be merged or liquidated into the Company
or one or more of its wholly owned Subsidiaries), or issue any capital stock or membership
interests or rights to acquire capital stock or membership interests.

     6.11. Transactions with Affiliates. The Company will not, and will not permit any of
its Subsidiaries to, consent to, enter into any transaction with any affiliate other than
transactions that are on fair and reasonable terms that are no less favorable to the Company or its
Subsidiary than would be obtained in a comparable arm’s length transaction with a Person not an
Affiliate of the Company or its Subsidiaries.

     6.12. Deposit and Bank Accounts. The Company shall keep all its bank and deposit
accounts and securities accounts only with the financial institutions listed on Exhibit 7.14.

7. Representations and Warranties. In order to induce the Purchaser to extend credit to
the Company hereunder, the Company represents and warrants that:

     7.1. Organization and Business. The Company is a duly organized and validly existing
limited liability company, in good standing under the laws of the State of Delaware, with all power
and authority necessary (a) to enter into and perform this Agreement and each other Note Document
to which it is party, and (b) to own its properties and carry on the business now conducted or
proposed to be conducted by it. The Company has taken all corporate action required to execute,
deliver and perform this Agreement and each other Note Document to which it is a party. Copies of
the articles of organization and operating agreement of the Company have

- 10 -

 

been previously delivered to the Purchaser and are correct and complete. The Company has no
Subsidiaries other than those listed on Exhibit 7.1.

     7.2. Financial Statements and Other Information. The Company has previously furnished
to the Purchaser copies of (a) the consolidated balance sheets of the Company as of December 31 in
2006, 2005, and 2004, and the related consolidated statement of cash flows for the fiscal years of
the Company then ended, accompanied by the review of the Company’s accountants and (b) the
consolidated balance sheet of the company as of [September 30], 2007 and the related statements of
operations for portion of the fiscal year then ended. The financial statements (including the
notes thereto) referred to in the preceding sentence have been prepared in accordance with GAAP and
fairly present in all material respects the financial condition of the Persons covered thereby at
the dates thereof and the results of their operations for the periods covered thereby, subject to
the case of interim statements only to normal year-end audit adjustments and the addition of
footnotes.

     7.3. Changes in Condition. No Material Adverse Change has occurred since December 31,
2006.

     7.4. Litigation. No litigation, at law or in equity, or any proceeding before any
federal, state, provincial or municipal court, board or other governmental or administrative agency
or any arbitrator is pending or to the knowledge of the Company threatened which may reasonably
involve any material risk of any final judgment or liability not adequately covered by insurance or
which is otherwise reasonably likely to result in any Material Adverse Change. Other than as
disclosed in the financial statements, no judgment, decree, or order of any federal, state,
provincial or municipal court, board or other governmental or administrative agency or arbitrator
has been issued against the Company which has resulted, or creates a material risk of resulting, in
any Material Adverse Change.

     7.5. No Legal Obstacle to Agreements. Neither the execution and delivery of this
Agreement or any other Note Document, nor the making of any borrowings hereunder, nor the
consummation of any transaction referred to in or contemplated by this Agreement or any other Note
Document, nor the fulfillment of the terms hereof or thereof or of any other agreement, instrument,
deed or lease referred to in this Agreement or any other Note Document, has constituted or resulted
in or will constitute or result in:

     (a) any breach or termination of the provisions of any agreement, instrument, deed
or lease to which the Company is a party or by which it is bound, or of the articles of
organization or the operating agreement of the Company;

     (b) the violation of any law, statute, judgment, decree or governmental order,
rule or regulation applicable to the Company;

     (c) the creation under any agreement, instrument, deed or lease of any lien upon
any of the assets of the Company; or

- 11 -

 

     (d) any redemption, retirement or other repurchase obligation of the Company under
any charter, operating agreement, agreement, instrument, deed or lease.

No approval, authorization or other action by, or declaration to or filing with, any governmental
or administrative authority or any other Person is required to be obtained or made by the Company
in connection with the execution, delivery and performance of this Agreement or any other Note
Document, the transactions contemplated hereby or thereby or the making of any borrowing by the
Company hereunder.

     7.6. Taxes. The Company has filed (or obtained extensions to file) required tax
returns and paid taxes due except such taxes as are being contested in good faith and as to which
adequate reserves have been set aside in conformity with GAAP.

     7.7. Ownership Of Property; Liens; Investments.

     7.7.1. Ownership of Property. The Company and each of its Subsidiaries has
good record and marketable title in fee simple to, or valid leasehold interests in, all real
property necessary or used in the ordinary conduct of its business.

     7.7.2. Exhibit 7.7.2 sets forth a complete and accurate list of all real property owned
by the Company and each of its Subsidiaries, showing as of the Closing Date the street
address, county or other relevant jurisdiction, state, record owner and book value thereof.
The Company and each of its Subsidiaries has good, marketable and insurable fee simple title
to the real property owned by the Company or such Subsidiary, free and clear of all liens,
other than liens created or permitted by the Note Documents.

     7.7.3. Exhibit 7.7.3 sets forth a complete and accurate list of all leases of real
property under which the Company or any Subsidiary of the Company is the lessee, showing as
of the Closing Date the street address, county or other relevant jurisdiction, state,
lessor, lessee and expiration date. To the Company’s knowledge, each such lease is the
legal, valid and binding obligation of the lessor thereof, enforceable against such lessor
in accordance with its terms.

     7.7.4. Neither the Company nor any Subsidiary is a lessor of any real property.

     7.7.5. Liens. Exhibit 6.6 sets forth a complete and accurate list of all
liens, charges, mortgages, pledges or other security interests of any kind on the property
or assets of the Company and each of its Subsidiaries, showing as of the Closing Date the
lienholder thereof, the principal amount of the obligations secured thereby and the property
or assets of the Company or such Subsidiary subject thereto.

     7.7.6. Investments. Exhibit 7.7.6 sets forth a complete and accurate list of
all investments held by the Company or any Subsidiary of the Company on the Closing Date,
showing as of the Closing Date the amount, obligor or issuer and maturity, if any, thereof.

- 12 -

 

     7.8. Environmental Compliance. The Company and each of its Subsidiaries has operated
and operates its business in material compliance with all Environmental Laws, and has not violated
and is not in violation of, or liable under, any Environmental Law. There has not been, and there
is not (a) any release or threat of release of any Hazardous Substance into the environment on or
from any real property currently or previously leased in connection with the operation of such
business or (b) any manufacturing, refinement, transportation, importation, use or processing of
any Hazardous Substance on or from, any real property currently or previously leased in connection
with the operation of such business which, individually or in the aggregate, would reasonably be
expected to result in losses or liabilities exceeding $50,000. To the Company’s knowledge, no
Hazardous Substances of, or generated with respect to the operation of such business at, the
Company or its Subsidiaries’ places of business have been disposed of or come to rest at any site
that has been included in any published federal, state or local “Superfund” site list or any other
list of hazardous or toxic waste sites requiring, by any state or locality, investigation or
remediation. There currently is not, any underground storage tank, landfill, surface impoundment
or disposal area located on or, except for in compliance with Environmental Law, any
polychlorinated biphenyls (“PCBs”) or PCB-containing equipment used, treated or stored on,
or any “hazardous waste” (as defined by the federal Resource Conservation and Recovery Act or any
comparable state or local law) used, treated, contained or stored on, any real estate or real
property leased in connection with the operation of such business.

     7.9. Insurance. The properties of the Company and its Subsidiaries are insured with
financially sound and reputable insurance companies in such amounts, with such deductibles and
covering such risks as are customarily carried by companies engaged in similar businesses and
owning similar properties in localities where the Company or the applicable Subsidiary operates.

     7.10. ERISA Compliance. Each Plan has been operated in compliance with all applicable
laws except where failure to so operate the Plans could not in the aggregate have a Material
Adverse Change. The Company and each ERISA Affiliate have made all required contributions to each
Plan subject to Section 412 of the Internal Revenue Code, and no application for a funding waiver
or an extension of any amortization period pursuant to Section 412 of the Internal Revenue Code has
been made with respect to any Plan. There are no pending or, to the best of the Company’s
knowledge, threatened claims, actions or lawsuits, or action by any governmental authority, with
respect to any Plan that could reasonably be expected to have a Material Adverse Change. To the
best of the Company’s knowledge, there has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be
expected to result in a Material Adverse Change.

     7.10.1. (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no
Pension Plan has any Unfunded Pension Liability; (iii) neither the Company nor any ERISA
Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of
ERISA with respect to any Pension Plan (other than premiums due and not delinquent under
Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which, with the giving
of notice under Section 4219 of ERISA, would result in

- 13 -

 

such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.

     7.11. Disclosure. The Company has disclosed to the Purchaser all agreements,
instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject,
and all other matters known to it, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Change. No report, financial statement, certificate or
other information furnished (whether in writing or orally) by or on behalf of the Company to
Purchaser in connection with the transactions contemplated hereby and the negotiation of this
Agreement or delivered hereunder or under any other Note Document (in each case as modified or
supplemented by other information so furnished) contains any material misstatement of fact or omits
to state any material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

     7.12. Compliance with Laws. The Company and each Subsidiary thereof is in compliance
in all material respects with the requirements of all applicable laws, rules, regulations and
orders, writs, injunctions and decrees applicable to it or to its properties.

     7.13. Intellectual Property; Licenses, Etc. The Company and each of its Subsidiaries
owns, or possess the right to use, all of the trademarks, service marks, trade names, copyrights,
patents, patent rights, franchises, licenses and other intellectual property rights (collectively,
“IP Rights”) that are reasonably necessary for the operation of their respective
businesses, and Exhibit 7.13 sets forth a complete and accurate list of all such IP Rights owned or
used by the Company and each of its Subsidiaries. To the best of the Company’s knowledge, no
slogan or other advertising device, product, process, method, substance, part or other material now
employed, or now contemplated to be employed, by the Company or any of its Subsidiaries infringes
upon any rights held by any other Person, except for such claims and infringements that,
individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Change. No claim or litigation regarding any of the foregoing is pending or, to the best knowledge
of the Company, threatened.

     7.14. Deposit Accounts, Securities Accounts. Exhibit 7.14 provides a true and
accurate list of all deposit and securities accounts maintained by the Company, including with
respect to each such account (a) the name and address of the applicable depositary bank and (b) the
account number of such account.

     7.15. Trade Relations. There exists no actual, or to the knowledge of the Company,
threatened termination, cancellation or limitation of, or any adverse modification or change in,
the business relationship of any of the Company, any of its Subsidiaries, or their business with
any material supplier or with any of its ten largest customers (including any material reduction in
the rate or amount of sales to such customers or amounts sold by such suppliers) and there exists
no present condition or state of facts or circumstances that would reasonably be expected to have a
Material Adverse Change on the condition of the Company or its Subsidiaries taken as a whole or
prevent the Company or its Subsidiaries taken as a whole from conducting their business after

- 14 -

 

the consummation of this Agreement and the transactions related thereto, in substantially the
same manner in which such business has heretofore been conducted.

8. Defaults.

     8.1. Events of Default. The following events are herein referred to as “Events of
Default”:

     8.1.1. Payment. The Company shall fail to make any payment in respect of: (a)
any fee on or in respect of any of the Note Obligations owed by it as the same shall become
due and payable, and such failure shall continue for a period of three days, or (b)
principal or interest of any of the Note Obligations owed by it as the same shall become
due, whether at maturity or by acceleration or otherwise.

     8.1.2. Covenant Compliance. The Company shall fail to perform or observe any
of the other provisions of the Note Documents required to be performed or complied with by
it and such failure continues for a period of five days.

     8.1.3. Representations and Warranties. Any representation or warranty of or
with respect to the Company in, pursuant to or in connection with this Agreement or any
other Note Document, or in any certificate, notice, financial statement or other report
furnished to the Purchaser in connection therewith, shall be materially false on the date as
of which it was made.

     8.1.4. Cross-Default. A default shall exist under (i) any instrument or
agreement between the Company and the Purchaser or (ii) any instrument or agreement of the
Company under which indebtedness of $100,000 or more is outstanding and, by reason of such
default, the holder or holders of such indebtedness would be permitted under the terms of
such instrument or agreement to accelerate the maturity of such indebtedness.

     8.1.5. Judgments. A final judgment (a) which, together with other outstanding
final judgments against the Company, exceeds an aggregate of $100,000 in excess of
applicable insurance coverage shall be rendered against the Company, or (b) which grants
injunctive relief that results, or creates a material risk of resulting, in a Material
Adverse Change and in either case if (i) within 60 days after entry thereof, such judgment
shall not have been discharged or execution thereof stayed pending appeal or (ii) within 60
days after the expiration of any such stay, such judgment shall not have been discharged.

     8.1.6. Material Adverse Change. A Material Adverse Change occurs that
jeopardizes the Company’s ability to discharge its obligations to the Purchaser under this
Agreement, the Notes or any other Note Document.

     8.1.7. Change in Control, Sale of Shares.

     (a) Dr. and Mrs. Andrew L. Pecora, Dr. and Mrs. Robert A. Preti and William J.
Montgoris (for Hackensack University Medical Center) shall collectively

- 15 -

 

(i) cease to own, directly or through wholly owned Subsidiaries, in the aggregate
beneficially and of record, at least 53.6% of the voting membership interests of the
Company (ii) or cease to have the right to control the Board of Managers of the
Company; or

     (b) Andrew Pecora and Robert Preti shall cease to be actively engaged in the
management of the Company; or

     (c) the Company shall initiate any action to dissolve, liquidate or otherwise
terminate its existence.

     8.1.8. Bankruptcy. The Company shall:

     (a) commence a voluntary case under the Bankruptcy Code or authorize, by
appropriate proceedings of its board of directors or other governing body, the
commencement of such a voluntary case;

     (b) have filed against it a petition commencing an involuntary case under the
Bankruptcy Code which shall not have been dismissed within 60 days after the date on
which such petition is filed; or file an answer or other pleading within such 60-day
period admitting or failing to deny the material allegations of such a petition or
seeking, consenting to or acquiescing in the relief therein provided;

     (c) have entered against it an order for relief in any involuntary case commenced
under the Bankruptcy Code;

     (d) seek relief as a debtor under any applicable law, other than the Bankruptcy
Code, of any jurisdiction relating to the liquidation or reorganization of debtors or
to the modification or alteration of the rights of creditors, or consent to or
acquiesce in such relief;

     (e) have entered against it an order by a court of competent jurisdiction
(i) finding it to be bankrupt or insolvent, (ii) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of its creditors or
(iii) assuming custody of, or appointing a receiver or other custodian for, all or a
substantial portion of its property; or

     (f) make a general assignment for the benefit of, or enter into a composition
with, its creditors, or appoint, or consent to the appointment of, or suffer to exist a
receiver or other custodian for, all or a substantial portion of its property.

  8.1.9. Any Guarantor becomes the subject of an insolvency proceeding.

     8.2. Certain Actions Following an Event of Default. If any one or more Events of
Default shall occur and be continuing, then in each and every such case:

- 16 -

 

     8.2.1. Acceleration. Upon notice by the Purchaser to the Company, the Note
Obligations shall become immediately due and payable.

     8.2.2. Exercise of Rights. The Purchaser may proceed to protect and enforce
its rights by suit in equity, action at law and/or other appropriate proceeding, either for
specific performance of any covenant or condition contained in this Agreement or any other
Note Document.

     8.2.3. Bankruptcy Default. Upon the occurrence of an Event of Default under
Section 8.1.8, the unpaid balance of the Note Obligations shall automatically become
immediately due and payable.

     8.2.4. Setoff. The Purchaser may offset and apply toward the payment of such
balance or part thereof (and/or toward the curing of any Event of Default) any indebtedness
from the Purchaser to the Company, regardless of the adequacy of any security for the Note
Obligations, and the Purchaser shall have no duty to determine the adequacy of any such
security in connection with any such offset.

     8.2.5. Cumulative Remedies. To the extent not prohibited by applicable law
which cannot be waived, all of the Purchaser’s rights hereunder and under each other Note
Document shall be cumulative.

     8.3. Waivers. The Company hereby waives to the extent not prohibited by applicable
law:

     (a) all presentments, demands for performance, notices of nonperformance (except
to the extent required by the provisions of this Agreement or any other Note Document),
protests, notices of protest and notices of dishonor;

     (b) any requirement of diligence or promptness on the part of the Purchaser in the
enforcement of its rights under this Agreement, the Notes or any other Note Document;
and

     (c) any and all notices of every kind and description which may be required to be
given by any statute or rule of law.

9. Expenses; Indemnity.

     9.1. Expenses. The Company and the Purchaser shall each pay its own expenses in
connection with the preparation of this Agreement and the other Note Documents and the transactions
contemplated hereby. The Company will pay: (a)  all transfer and documentary stamp and similar
taxes at any time payable in respect of this Agreement or the Note Obligations; and (b) all other
reasonable expenses incurred by the Purchaser in connection with the enforcement of any rights
hereunder or under any other Note Document upon the occurrence and during the continuance of a
Default, including costs of collection and reasonable attorneys’ fees and expenses.

- 17 -

 

     9.2. General Indemnity. The Company shall indemnify the Purchaser and each of the
Purchaser’s directors, officers, employees, agents, attorneys, accountants, consultants and each
Person, if any, who controls the Purchaser (the Purchaser and each of such directors, officers,
employees, agents, attorneys, accountants, consultants and control Persons is referred to as an
“Indemnified Party”) and hold each of them harmless from and against any and all claims,
damages, liabilities and reasonable expenses (including reasonable fees and disbursements of
counsel with whom any Indemnified Party may consult in connection therewith and all reasonable
expenses of litigation or preparation therefor) which any Indemnified Party may incur or which may
be asserted against any Indemnified Party in connection with (a) the Indemnified Party’s compliance
with or contest of any subpoena or other process issued against it in any proceeding involving the
Company or any of its Subsidiaries or their affiliates, (b) any litigation or investigation
involving the Company, any of its Subsidiaries or their affiliates, or any officer, director or
employee thereof, (c) the existence or exercise of any security rights with respect to the
collateral under the Note Documents, or (d) this Agreement, any other Note Document or any
transaction contemplated hereby or thereby; provided, however, that the foregoing
indemnity shall not apply to litigation commenced by the Company against the Purchaser which seeks
enforcement of any of the rights of the Company hereunder or under any other Note Document and is
determined adversely to the Purchaser in a final nonappealable judgment or to the extent such
claims, damages, liabilities and expenses result from the Indemnified Party’s own gross negligence
or willful misconduct.

10. Successors and Assigns. Neither the Company nor the Purchaser may assign its rights
or obligations under this Agreement under any circumstances without the prior written consent of
the other party.

11. Notices. Except as otherwise specified in this Agreement, any notice required to be
given pursuant to any Note Document shall be given in writing. Any notice, demand or other
communication in connection with any Note Document shall be deemed to be given if given in writing
(including telex, telecopy (confirmed by telephone or writing) or similar teletransmission)
addressed as provided below (or to the addressee at such other address as the addressee shall have
specified by notice actually received by the addressor), and if either (a) actually delivered in
fully legible form to such address (evidenced in the case of a telex by receipt of the correct
answer back) or (b) in the case of a letter, five days shall have elapsed after the same shall have
been deposited in the United States mails, with first-class postage prepaid and registered or
certified.

     If to the Company, to it at the following address:

Progenitor Cell Therapy, LLC

21 Main Street, Court Plaza South

East Wing, Suite 304

Hackensack, New Jersey 07601

Telephone: 201-883-5314

Fax: 201-883-1409

Attention: Chief Business Officer

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     If to the Purchaser, to it at the following address:

StemCells, Inc.

3155 Porter Drive

Palo Alto, California 94304

Telephone: (650) 475-3100

Fax: (650) 475-3129

Attention: Chief Executive Officer and General Counsel

12. Course of Dealing, Amendments and Waivers. No course of dealing between the Purchaser
and the Company or any affiliate of the Company shall operate as a waiver of any of the Purchaser’s
rights under this Agreement or any other Note Document or with respect to the Note Obligations. No
delay or omission on the part of the Purchaser in exercising any right under this Agreement or any
other Note Document or with respect to the Note Obligations shall operate as a waiver of such right
or any other right hereunder or thereunder. A waiver on any one occasion shall not be construed as
a bar to or waiver of any right or remedy on any future occasion. No waiver, consent or amendment
with respect to this Agreement or any other Note Document shall be binding unless it is in writing
and signed by the Purchaser.

13. Venue; Service of Process; Certain Waivers. Each of the Company and the Purchaser:

     (a) Irrevocably submits to the nonexclusive jurisdiction of the state courts of
the State of California and to the nonexclusive jurisdiction of the United States
District Court for the Northern District of California for the purpose of any suit,
action or other proceeding arising out of or based upon this Agreement or any other
Note Document or the subject matter hereof or thereof;

     (b) Waives to the extent not prohibited by applicable law that cannot be waived,
and agrees not to assert, by way of motion, as a defense or otherwise, in any such
proceeding brought in any of the above-named courts, any claim that it is not subject
personally to the jurisdiction of such court, that its property is exempt or immune
from attachment or execution, that such proceeding is brought in an inconvenient forum,
that the venue of such proceeding is improper, or that this Agreement or any other Note
Document, or the subject matter hereof or thereof, may not be enforced in or by such
court;

     (c) Agrees that service of process by registered or certified mail, return receipt
requested, at its address specified in or pursuant to Section 11 shall constitute
sufficient notice; and

     (d) Waives to the extent not prohibited by applicable law that cannot be waived
any right it may have to claim or recover in any such proceeding any special,
exemplary, punitive or consequential damages.

- 19 -

 

14. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT CANNOT BE
WAIVED, EACH OF THE COMPANY AND THE PURCHASER WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT
(WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT
OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER NOTE DOCUMENT OR THE
SUBJECT MATTER HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS
OF THE PURCHASER OR THE COMPANY IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Either the Purchaser or
the Company may file an original counterpart or a copy of this Agreement with any court as written
evidence of the consent of the Company and the Purchaser to the waiver of their rights to trial by
jury.

15. General. All covenants, agreements, representations and warranties made in this
Agreement or any other Note Document or in certificates delivered pursuant hereto or thereto shall
be deemed to have been material and relied on by the Purchaser, notwithstanding any investigation
made by the Purchaser, and shall survive the execution and delivery to the Purchaser hereof and
thereof. The invalidity or unenforceability of any provision hereof shall not affect the validity
or enforceability of any other provision hereof, and any invalid or unenforceable provision shall
be modified so as to be enforced to the maximum extent of its validity or enforceability. The
headings in this Agreement are for convenience of reference only and shall not limit, alter or
otherwise affect the meaning hereof. This Agreement and the other Note Documents constitute the
entire understanding of the parties with respect to the subject matter hereof and thereof and
supersede all prior and current understandings and agreements, whether written or oral. This
Agreement may be executed in any number of counterparts which together shall constitute one
instrument. This Agreement shall be governed by and construed in accordance with the laws (other
than the conflict of laws rules) of the State of Delaware.

[The Remainder Of This Page Is Intentionally Blank]

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     Each of the undersigned has caused this Note Purchase Agreement to be executed and delivered
by its duly authorized officer as of the date first above written.

	 	 	 	 	 
	 	PROGENITOR CELL THERAPY, LLC

 	 
	 	By  	/s/ Andrew L. Pecora
 	 
	 	 	Name:  	Andrew L. Pecora 	 
	 	 	Title:  	Chief Executive Officer 	 
	 
	 	STEMCELLS, INC.

 	 
	 	By  	/s/ Martin McGlynn
 	 
	 	 	Name:  	Martin McGlynn 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 

- 21 -

 

EXHIBIT 2

PROGENITOR CELL THERAPY LLC

FORM OF SECURED NOTE

			
	     N-	 	 
	 	 	 
	     $                    
	 	                    , 200_

     FOR VALUE RECEIVED, the undersigned, PROGENITOR CELL THERAPY LLC, a Delaware limited liability
company (the “Company”), hereby promises to pay STEMCELLS, INC. (the “Purchaser”),
on the Final Maturity Date (as defined in the Note Purchase Agreement), or upon earlier
acceleration, the lesser of                      Dollars ($                    ) or the aggregate unpaid
principal amount of the loan made by the Purchaser to the Company pursuant to the Note Purchase
Agreement referred to below. The Company promises to pay interest on the outstanding principal
amount of this Note and the interest rate specified and as computed in the Note Purchase Agreement.

     This Note (i) is entitled to the benefits and subject to the terms set forth in the Note
Purchase Agreement between the Company and the Purchaser dated as of December 3, 2007 (the
“Note Purchase Agreement”), (ii) constitutes a Note Obligation under the Note Purchase
Agreement, and (iii) is secured by and entitled to the benefits of Security Agreement and the other
Note Documents referred to in the Note Purchase Agreement. Capitalized terms used but not defined
herein have the meanings provided in the Note Purchase Agreement.

     In case an Event of Default shall occur and be continuing, the entire principal of this Note
may become or be declared due and payable in the manner and with the effect provided in the Note
Purchase Agreement.

     This Note shall be governed by and construed in accordance with the laws (other than the
conflict of laws rules) of the State of Delaware.

     The parties hereto, including the Company and all guarantors and endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, except as specifically otherwise
provided in the Note Purchase Agreement, and assent to extensions of time of payment, or
forbearance or other indulgence without notice.

	 	 	 	 	 
	 	Progenitor Cell Therapy LLC

 	 
	 	By  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

 

 

EXHIBIT 5.4

SECURITY AGREEMENT

     This Agreement, dated as of December ___, 2007, is between Progenitor Cell Therapy LLC, a
Delaware limited liability company (the “Company”), and StemCells, Inc. (the
“Purchaser”). The parties agree as follows:

Security.

     Note Purchase Agreement. The Company and the Purchaser are parties to that certain
Note Purchase Agreement (the “Note Purchase Agreement”), dated as of December 3, 2007,
whereby the Company has agreed to issue to the Purchaser, and the Purchaser has agreed to purchase
from the Company, the Company’s Notes in the principal amount of up to $3,800,000.00.

     Grant of Collateral. As security for the payment and performance of the Note
Obligations (as defined in the Note Purchase Agreement) (the “Secured Obligations”), the
Company hereby creates and grants a security interest in favor of the Purchaser in all of the
Company’s right, title and interest in and to (but none of its obligations or liabilities with
respect to) the items and types of present and future property described below in this Section 1.1,
whether now owned or hereafter acquired:

Accounts, cash, cash equivalents, deposit accounts, documents (which, for
the avoidance of doubt, shall not include ownership interests of the Company
in its Subsidiaries), instruments, chattel paper (each as defined in the
Uniform Commercial Code as in effect in the State of Delaware) and proceeds
and products of the foregoing (all of the above being included in the term
“Collateral”).

     Perfection of Collateral. Upon the Purchaser’s reasonable request from time to time,
the Company will, and hereby authorizes the Purchaser on the Company’s behalf to, execute and
deliver, and file and record in the proper filing and recording places, all such instruments,
including Uniform Commercial Code financing statements covering the Collateral, control statements,
cash agency agreements, documents providing for direct collection of accounts receivable and take
all such other action, as the Purchaser deems reasonably necessary for perfecting or otherwise
confirming to it its security interest in the Collateral.

     No Liens or Dispositions. Other than liens permitted by section 6.6(b) of the Note
Purchase Agreement, all Collateral shall be free and clear of any liens and restrictions on the
transfer thereof, except for nonconsensual liens imposed by law and liens and restrictions on
transfer approved by the Purchaser in writing. Except with the Purchaser’s consent, the Company
will not sell, lease or otherwise dispose of any of the Collateral or modify or terminate any
contracts or contractual rights included in the Collateral, except in each case in the ordinary
course of business, consistent with past practice and on arm’s length terms.

 

 

Right to Realize upon Collateral. Except to the extent prohibited by applicable law that
cannot be waived, this Section shall govern the Purchaser’s rights to realize upon the Collateral
after the occurrence of an Event of Default (as defined in the Note Purchase Agreement). The
provisions of this Section are in addition to any rights and remedies available at law or in
equity.

     Assembly of Collateral; Receiver. The Company shall, upon the Purchaser’s request,
assemble the Collateral and otherwise make it available to the Purchaser. The Purchaser may have a
receiver appointed for all or any portion of the Company’s assets or business which constitutes the
Collateral in order to manage, protect, preserve, sell and otherwise dispose of all or any portion
of the Collateral.

     Waiver. To the extent it may lawfully do so, the Company waives and relinquishes the
benefit and advantage of, and covenants not to assert against the Purchaser, any valuation, stay,
appraisement, extension, redemption or similar laws now or hereafter existing which, but for this
provision, might be applicable to the sale of any Collateral made under the judgment, order or
decree of any court, or privately under the power of sale conferred by this Agreement, or
otherwise.

     Foreclosure Sale. All or any part of the Collateral may be sold for cash or other
value in any number of lots at public or private sale, without demand, advertisement or notice;
provided, however, that unless the Collateral to be sold threatens to decline
speedily in value or is of a type customarily sold on a recognized market, the Purchaser shall give
the Company 5 days’ prior written notice of the time and place of any public sale, or the time
after which a private sale may be made, which notice each of the Company and the Purchaser agrees
to be reasonable. At any sale or sales of Collateral, the Purchaser or any of its assigns may bid
for and purchase all or any part of the property and rights so sold and may use all or any portion
of the Secured Obligations owed to the Purchaser as payment for the property or rights so
purchased, all without further accountability to the Company, except for the proceeds of such sale
or sales pursuant to Section 2.4(c).

     Application of Proceeds. The proceeds of all sales and collections in respect of any
Collateral or other assets of the Company, all funds collected from the Company and any cash
contained in the Collateral, the application of which is not otherwise specifically provided for
herein, shall be applied as follows:

     First, to the payment of the costs and expenses of such sales and collections, the
reasonable expenses of the Purchaser and the reasonable fees and expenses of its counsel;

     Second, any surplus then remaining to the payment of the Secured Obligations in such
order and manner as the Purchaser may in its reasonable discretion determine; and

     Third, any surplus then remaining shall be paid to the Company, subject, however, to
the rights of the holder of any then existing lien for which the Purchaser has received a
proper demand for proceeds prior to making such payment to the Company.

-2

 

Custody of Collateral. Except as provided by applicable law that cannot be waived, the
Purchaser will have no duty as to the custody and protection of the Collateral, the collection of
any part thereof or of any income thereon or the preservation or exercise of any rights pertaining
thereto, including rights against prior parties.

Reimbursement of Expenses. The Company shall promptly pay on demand all reasonable
expenses of the Purchaser (including reasonable attorney fees and expenses) in connection with,
operations hereunder and enforcement and collection hereof, whether before or after bankruptcy or
similar proceedings (and whether or not allowed as a claim therein).

General. This Agreement is a Note Document (as defined in the Note Purchase Agreement) and
is entitled to all the benefits and subject to all the requirements of any provision in the Note
Purchase Agreement or any other Note Documents that is made generally applicable to all Note
Documents (including, without limitation sections 9 (Expenses; Indemnity), 11 (Notices), 12 (Course
of Dealing, Amendments and Waivers), 13 (Venue, Service of Process, Certain Waivers) and 14 (Waiver
of Jury Trial) of the Note Purchase Agreement). This Agreement shall bind and inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that the Company may not assign its rights or obligations hereunder without the
prior written consent of the Purchaser. The invalidity or unenforceability of any provision hereof
shall not affect the validity or enforceability of any other provision hereof, and any invalid or
unenforceable provision shall be modified so as to be enforceable to the maximum extent of its
validity or enforceability. The headings in this Agreement are for convenience of reference only
and shall not limit, alter or otherwise affect the meaning hereof. This Agreement constitutes the
entire understanding of the parties with respect to the subject matter hereof and supersedes all
prior and current understandings and agreements, whether written or oral. This Agreement and all
actions in connection herewith shall be governed by and construed in accordance with the laws
(other than the conflict of laws rules) of the State of Delaware, except as may be required by the
Uniform Commercial Code of other jurisdictions with respect to matters involving the perfection of
the Purchaser’s lien on the Collateral located in such other jurisdictions.

     Each of the undersigned has caused this Agreement to be executed and delivered by its duly
authorized officer as of the date first written above.

[The Remainder of this Page is Intentionally Blank]

-3

 

	 	 	 	 	 
	 	PROGENITOR CELL THERAPY, LLC

 	 
	 	By  	
 	 
	 	 	Name:  	Andrew L. Pecora 	 
	 	 	Title:  	Chief Executive Officer 	 
	 
	 	STEMCELLS, INC.

 	 
	 	By  	
 	 
	 	 	Name:  	Martin McGlynn 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 

Signature Page to Security Agreement

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