Document:

exv4w34

EXHIBIT 4.34

Third Amendment 

To The

Savings & Profit Sharing Plan for Employees of

First Interstate BancSystem, Inc.

     1. Recitals. Section 12.1 of the Savings & Profit Sharing Plan for Employees of First
Interstate BancSystem, Inc. (the “Plan”) gives First Interstate BancSystem, Inc. (the “Plan
Sponsor”) the right to amend the Plan at any time. On July 26, 2006, the Board of Directors of the
Plan Sponsor delegated authority to the First Interstate BancSystem, Inc. Benefits Committee (the
“Committee”) to amend the Plan to modify or add provisions relating to the immediate or delayed
inclusion or exclusion of employees acquired or disposed of in any corporate acquisition,
reorganization or similar transaction involving FIBS or any of its subsidiaries. The Committee
hereby amends the Plan to grant service credit under the Plan to employees of affiliated entities
located in South Dakota.

     2. Amendment of Plan. The following Amendment to the Plan is adopted effective as of
the Closing as that term is defined in Section 6.1 of the Stock Purchase Agreement between the Plan
Sponsor and First Western Bancorp, Inc. dated September 18, 2007.

     (A) Section 3.2 of the Plan shall be amended by adding the following as the last paragraph
thereof:

In the case of Employees who were employed by First Western Bank Sturgis, Sturgis,
South Dakota, First Western Bank, Wall, South Dakota or First Western Data, Inc. on
the date in which all of the issued and outstanding common stock and other equity
interests in such entities were acquired by the Company, Eligibility Service shall
include Hours of Service performed for First Western Bank Sturgis, Sturgis, South
Dakota, First Western Bank, Wall, South Dakota or First Western Data, Inc.,
whichever is applicable, prior to such date.

     (B) Section 5.3 shall be amended by adding a new subsection (e) to read in its entirety as
follows:

	 	(e)	 	In the case of Employees who were employed by First Western
Bank Sturgis, Sturgis, South Dakota, First Western Bank, Wall, South Dakota or
First Western Data, Inc. on the date in which all of the issued and outstanding
common stock and other equity interests in such entities were acquired by the
Company, Vesting Service shall include all years of service performed for First
Western Bank Sturgis, Sturgis, South Dakota, First Western Bank, Wall, South
Dakota or First Western Data, Inc., whichever is applicable, prior to such
date.

     3. Other Provisions. All other provisions of the Plan shall remain unamended and in
full force.

	 	 	 	 	 
	 	 	 
	 	                                              /s/  LYLE R. KNIGHT
 	 
	 	Lyle R. Knight, Benefits Committee Chair 	 
	 	Date: 1-10-08 	 
	 

			
	 	 	 
	Third Amendment to the
Savings & Profit Sharing Plan for Employees of First Interstate BancSystem, Inc.
	 	01/2008
	Prepared by Holland & Hart LLP
	 	1EX-10.1

	 	 	 	 	 

Exhibit 10.1 Resolution of the Board of Directors adopted August 12, 2008.

     WHEREAS, the Board of Directors wishes to amend, clarify and restate the fees paid to
non-employee Directors; and to also recognize that, from time to time, directors have been, and
will be, requested to conduct specific assignments on behalf of, and beneficial to, the Corporation
which involve their expertise and an expenditure of their time beyond the expected scope of their
duties as a member of the Board of Directors,

Now, therefore, be it

     RESOLVED, that non-employee Directors shall be entitled to receive a retainer at the rate of
$10,000 per annum, payable $2,500 quarterly; and be it

     FURTHER RESOLVED, that a non-employee Director who is also elected Chairman of the Board of
Directors shall be entitled to receive an additional retainer at the rate of $10,000 per annum,
also payable quarterly; and be it

     FURTHER RESOLVED, that each non-employee Director is entitled to receive a meeting fee of
$1,000 for each regular meeting of the Board of Directors attended in person or by teleconference;
a meeting fee of $200 for each teleconference board or committee meeting attended; and a meeting
fee of $200 for attendance at any committee meeting which is held on a day other than the day of a
Board meeting; and be it

     FURTHER RESOLVED, that if any non-employee Director is requested by the Chairman of the Board
or the President and Chief Executive Officer to undertake an assignment on behalf of the Board
which is beyond the expected scope of responsibility as a member of the Board, and in furtherance
of the business of the Corporation, such Director shall be entitled to $1,000 for each day spent on
such assignment; and be it

     FURTHER RESOLVED, that with respect to any such special assignment, the Board member shall
account for his or her time and make such report to the Board as requested; and be it

     FURTHER RESOLVED, that non-employee Directors shall be entitled to reimbursement for their
reasonable out of pocket expenses, upon request and presentation of documentation, incurred in
connection with attendance at a Board or committee meeting or in connection with the completion of
an assignment undertaken on behalf of the Board; and be it

     FURTHER RESOLVED, that these resolutions shall continue in full force and effect until
modified or rescinded by this or any future Board of Directors of the Corporation..iscc_8k-ex1001.htm

    Exhibit
10.1

    

    NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.

    

    Original
Issue Date: August 15, 2008

    Original
Conversion Price (subject to adjustment herein): $0.50

    

    $350,000

    

    INTERNATIONAL
STEM CELL CORPORATION

    MULTIPLE
ADVANCE CONVERTIBLE NOTE

    

    THIS NOTE is the duly authorized and
validly issued Multiple Advance Convertible Note of International Stem Cell
Corporation, a Delaware corporation (the “Company”), having its
principal place of business 2595 Jason Court, Oceanside, CA 92056, designated as
its Multiple Advance Convertible Note (the “Note” or this “Note”
herein).

    

    FOR VALUE
RECEIVED, on or before January 31, 2009 (the “Maturity Date”) the
Company promises to pay to YKA PARTNERS, LTD. or its registered assigns (the
“Holder”), the
principal sum of $350,000 (or such lesser sum as may have been advanced and
remain outstanding hereunder), and to pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Note at the
rate of 8% per annum from the date of advance to the date of
repayment,  all in accordance with the provisions hereof.

    

    This Note
is subject to the following additional provisions:

    

    Section
1.      Definitions.  For
the purposes hereof, in addition to the terms defined elsewhere in this Note (a)
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Purchase Agreement and (b) the following terms shall have the following
meanings:

    

    “Alternate
Consideration” shall have the meaning set forth in Section
5(e).

    

    “Bankruptcy Event”
means any of the following events: (a) the Company or any Significant Subsidiary
(as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a
case or other proceeding under any bankruptcy, reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction relating to the Company or any Significant
Subsidiary thereof; (b) there is commenced against the Company or any
Significant Subsidiary thereof any such case or proceeding that is not dismissed
within 60 days after commencement; (c) the Company or any Significant Subsidiary
thereof is adjudicated insolvent or bankrupt or any order of relief or other
order approving any such case or proceeding is entered; (d) the Company or any
Significant Subsidiary thereof suffers any appointment of any custodian or the
like for it or any substantial part of its property that is not discharged or
stayed within 60 calendar days after such appointment; (e) the Company or any
Significant Subsidiary thereof makes a general assignment for the benefit of
creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any Significant Subsidiary
thereof, by any act or failure to act, expressly indicates its consent to,
approval of or acquiescence in any of the foregoing or takes any corporate or
other action for the purpose of effecting any of the foregoing.

    
      
         

      

      
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    “Base Conversion
Price” shall have the meaning set forth in Section 5(b).

    

    “Business Day” means
any day except any Saturday, any Sunday, any day which shall be a federal legal
holiday in the United States or any day on which banking institutions in the
State of California are authorized or required by law or other governmental
action to close.

    

    “Buy-In” shall have
the meaning set forth in Section 4(d)(v).

    

    “California Courts”
shall have the meaning set forth in Section 9(d).

    

    “Change of Control
Transaction” means the occurrence after the date hereof of any of (i) an
acquisition after the date hereof by an individual or legal entity or “group”
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company (other than by means of conversion or exercise
of this Note and the Securities issued together with this Note)  or
(ii) the Company merges into or consolidates with any other Person, or any
Person merges into or consolidates with the Company and, after giving effect to
such transaction, the stockholders of the Company immediately prior to such
transaction own less than 66% of the aggregate voting power of the Company or
the successor entity of such transaction, or (iii) the Company sells or
transfers all or substantially all of its assets to another Person and the
stockholders of the Company immediately prior to such transaction own less than
66% of the aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement at one time or within a three year period of
more than one-half of the members of the Company’s board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), or (v) the execution by the Company of an agreement
to which the Company  is a party or by which it is bound, providing
for any of the events set forth in clauses (i) through (iv) above.

    

    
      
         

      

      
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    “Conversion Date”
shall have the meaning set forth in Section 4(a).

    

    “Conversion Price”
shall have the meaning set forth in Section 4(b).

    

    “Conversion Shares”
means, collectively, the shares of Common Stock issued or issuable upon
conversion or redemption of this Note in accordance with the terms hereof,
including without limitation shares of Common Stock issued or issuable as
interest hereunder or as damages under the Transaction Documents.

    

    “Note Register” shall
have the meaning set forth in Section 2(c).

    

    “Dilutive Issuance”
shall have the meaning set forth in Section 5(b).

    

    “Dilutive Issuance
Notice” shall have the meaning set forth in Section 5(b).

    

    “Event of Default” shall have the
meaning set forth in Section 8.

    

    “Fundamental
Transaction” shall have the meaning set forth in Section
5(e).

    

    “Late Fees” shall have
the meaning set forth in Section 2.

    

    “Mandatory Default
Amount”  means the sum of (i) the greater of (A) 125% of the
outstanding principal amount of this Note, plus 100% of accrued and unpaid
interest hereon, or (B) the outstanding principal amount of this Note, plus all
accrued and unpaid interest hereon, divided by the Conversion Price on the date
the Mandatory Default Amount is either (a) demanded (if demand or notice is
required to create an Event of Default) or otherwise due or (b) paid in full,
whichever has a lower price, multiplied by the VWAP on the date the Mandatory
Default Amount is either (x) demanded or otherwise due or (y) paid in full,
whichever has a higher VWAP, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Note; provided, however, that any
portion of the Mandatory Default Amount in excess of 125% of the outstanding
principal amount of this Note plus 100% of accrued and unpaid interest hereon,
may, at the option of the Company, be paid in Common Stock of the Company at the
VWAP price on the date the Mandatory Default Amount is either (x) demanded or
otherwise due or (y) paid in full, whichever has a higher VWAP.

    

    “MFN Transaction”
means a transaction in which the Company issues or sells any securities to an
investor in one or a series of related capital raising transactions which grants
to such investor the right to receive additional securities or better terms
based in some manner upon future sales or issuances of Common Stock or Common
Stock Equivalents on terms more favorable than those granted to such investor in
such capital raising transaction(s).

    

    “Notice of Conversion”
shall have the meaning set forth in Section 4(a).

    

    “Original Issue Date”
means the date of the issuance of this Note, regardless of any transfers of any
Note and regardless of the number of instruments which may be issued to evidence
this Note.

    
      
         

      

      
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    “Permitted
Indebtedness” means (a) the indebtedness evidenced by the Note, (b) the
Indebtedness existing on the Closing Date provided that the terms of any such
Indebtedness have not been changed from the terms existing on the Closing Date,
(c) lease obligations and purchase money indebtedness of up to $100,000, in the
aggregate, incurred in connection with the acquisition of capital assets and
lease obligations with respect to newly acquired or leased assets, and (d)
indebtedness that (i) is expressly subordinate to the Note pursuant to a written
subordination agreement with the Purchasers that is acceptable to each Purchaser
in its sole and absolute discretion and (ii) matures at a date later than the
Maturity Date.

    

    “Permitted Lien” means
the individual and collective reference to the following: (a) Liens for taxes,
assessments and other governmental charges or levies not yet due or Liens for
taxes, assessments and other governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Company) have been established in
accordance with GAAP; (b) Liens imposed by law which were incurred in the
ordinary course of the Company’s business, such as carriers’, warehousemen’s and
mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in
the ordinary course of the Company’s business, and which (x) do not individually
or in the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of the
Company and its consolidated Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the property or
asset subject to such Lien; (c) Liens incurred in connection with Permitted
Indebtedness under clauses (a) and (c) thereunder, provided that such Liens are
not secured by assets of the Company or its Subsidiaries other than the assets
so acquired or leased; and (d) licenses of intellectual property granted to
third parties for fair value in the ordinary course of business that could not
result in a legal transfer of title of the licensed property.

     

    “Registration
Statement” means an effective registration statement under the Securities
Act that registers the resale of all Conversion Shares of the Holder, names the
Holder as a “selling stockholder” therein, and contains a current prospectus not
subject to any blackout, suspension or stop order.

    

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

    

    “Share Delivery Date”
shall have the meaning set forth in Section 4(d).

    

    “Subsidiary” shall
have the meaning set forth in the Purchase Agreement.

    

    “Trading Day” means a
day on which the principal Trading Market is open for business.

    

    “Trading Market” means
the following markets or exchanges on which the Common Stock is listed or quoted
for trading on the date in question: the American Stock Exchange, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board.

    
      
         

      

      
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    “Variable Rate
Transaction” means a transaction in which the Company issues or sells (i)
any debt or equity securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (A) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price that is
subject to being reset at some future date after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a
future determined price.  For clarification, “Variable Rate
Transaction” does not include a firm commitment underwritten fixed price public
offering (which price may reflect a discount to the market price).

    

    “VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from
9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b) if
the Common Stock is not then quoted for trading on the OTC Bulletin Board and if
prices for the Common Stock are then reported in the “Pink Sheets” published by
Pink Sheets, LLC (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share of the
Common Stock so reported; or (c) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected in
good faith by the Holder and reasonably acceptable to the Company.

    

    Section
2.     Default
Interest.  All overdue accrued and unpaid interest to be paid
hereunder shall entail a late fee at an interest rate equal to the lesser of 12%
per annum or the maximum rate permitted by applicable law (“Late Fees”) which
shall accrue daily from the date such interest is due hereunder through and
including the date of actual payment in full.

    

    Section
3.       Multiple  Advance
Note.

    

    a)           Initial Advance. The
initial amount outstanding under this note as of August 15, 2008 is
$282,775.

    

    b)           Subsequent
Advances.  From time to time, at the discretion of Holder,
Holder may make additional advances under this Note so long as at the time of
such advances the aggregate indebtedness hereunder, including accrued but unpaid
interest to the date of such advance, does not exceed $350,000. Any such advance
shall be governed by the terms of this Note. Holder shall no obligation to make
any such advance, but shall do so or not do so solely in its
discretion.

     

    c)           Repayment and
Re-lending.   The Company may from time to time repay all
or any portion of this Note.  Any such repayment shall be first
applied to accrued but unpaid interest and the balance to
principle.  If Holder subsequently elects to again loan funds to the
Company hereunder, any such additional lending shall be deemed to be a loan made
hereunder and treated as a Subsequent Advance subject to the terms of this
Note.

    
      
         

      

      
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    d)           Books and
Records.  The Company shall at all times maintain books and
records showing the amount of advances and repayments made hereunder and the
amount of accrued interest due under this Note and make such records available
to Holder upon demand.

    

    Section
4.      Conversion.

    

    a)           Voluntary Conversion.
At any time after the Original Issue Date until this Note is no longer
outstanding, this Note shall be convertible, in whole or in part, into shares of
Common Stock at the option of the Holder, at any time and from time to time
(subject to the conversion limitations set forth in Section 4(c)
hereof).  The Holder shall effect conversions by delivering to the
Company a Notice of Conversion, the form of which is attached hereto as Annex A (a “Notice of
Conversion”), specifying therein the principal amount of this Note to be
converted and the date on which such conversion shall be effected (such date,
the “Conversion
Date”).  If no Conversion Date is specified in a Notice of
Conversion, the Conversion Date shall be the date that such Notice of Conversion
is deemed delivered hereunder.  To effect conversions hereunder, the
Holder shall not be required to physically surrender this Note to the Company
unless the entire principal amount of this Note, plus all accrued and unpaid
interest thereon, has been so converted. Conversions hereunder shall have the
effect of lowering the outstanding principal amount of this Note in an amount
equal to the applicable conversion.  The Holder and the Company shall
maintain records showing the principal amount(s) converted and the date of such
conversion(s).  In the event of any dispute or discrepancy, the
records of the Holder shall be controlling and determinative in the absence of
manifest error. The Holder, and any assignee by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Note, the unpaid and unconverted
principal amount of this Note may be less than the amount stated on the face
hereof.

    

    b)           Conversion
Price.  The conversion price shall be equal to $0.50, subject to adjustment
herein (the “Conversion
Price”).

    

    

    
      	
               
      

            	
              c)

            	
              Mechanics of
      Conversion.

            

    

    

    i.           Conversion Shares Issuable
Upon Conversion of Principal Amount.  The number of Conversion
Shares issuable upon a conversion hereunder shall be determined by the quotient
obtained by dividing (x) the outstanding principal amount of this Note to be
converted plus any accrued but unpaid interest thereon, by (y) the Conversion
Price.

     

    ii.           Delivery of Certificate Upon
Conversion. Not later than three Trading Days after each Conversion Date
(the “Share Delivery
Date”), the Company shall deliver, or cause to be delivered, to the
Holder a certificate or certificates representing the number of Conversion
Shares being acquired upon the conversion of this Note which, if required to be
issued without legends in accordance with the Securities Purchase Agreement,
shall be free of restrictive legends and trading restrictions (other than those
which may then be required by the Purchase Agreement) provided that the Share
Delivery Date shall be tolled by one day for each day in which the Holder fails
to deliver any reasonably required certifications to document compliance with
Rule 144.  On or after the date on which the Holder may sell the
Conversion Shares pursuant to Rule 144, the Company shall use its best efforts
to deliver any certificate(s) or shares required to be delivered by the Company
under this Section 4 electronically through the Depository Trust Company or
another established clearing corporation performing similar
functions.

    
      
         

      

      
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    iii.           Failure to Deliver
Certificates.  If in the case of any Notice of Conversion such
certificate(s) or shares are not delivered to or as directed by the applicable
Holder by the third Trading Day after the Conversion Date, the Holder shall be
entitled to elect by written notice to the Company at any time on or before its
receipt of such certificate or certificates, to rescind such Conversion, in
which event the Company shall promptly return to the Holder any original Note
delivered to the Company and the Holder shall promptly return to the Company the
Common Stock certificates representing the principal amount of this Note
unsuccessfully tendered for conversion to the Company.

    

    iv.           Obligation Absolute; Partial
Liquidated Damages.  The Company’s obligations to issue and
deliver the Conversion Shares upon conversion of this Note in accordance with
the terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of such Conversion Shares; provided, however, that such
delivery shall not operate as a waiver by the Company of any such action the
Company may have against the Holder.  In the event the Holder of this
Note shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or anyone associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless an injunction from a
court, on notice to Holder, restraining and or enjoining conversion of all or
part of this Note shall have been sought and obtained, and the Company posts a
surety bond for the benefit of the Holder in the amount of 150% of the
outstanding principal amount of this Note, which is subject to the injunction,
which bond shall remain in effect until the completion of arbitration/litigation
of the underlying dispute and the proceeds of which shall be payable to the
Holder to the extent it obtains judgment.  In the absence of such
injunction, the Company shall issue Conversion Shares or, if applicable, cash,
upon a properly noticed conversion.  If the Company fails for any
reason to deliver to the Holder such certificate(s) or shares pursuant to
Section 4(d)(ii) by the third Trading Day after the Share Delivery Date, the
Company shall pay to the Holder, in cash, as liquidated damages and not as a
penalty, for each $1000 of principal amount being converted, $10 per Trading Day
(increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such second
Trading Day after the Share Delivery Date until such certificates are
delivered.  Nothing herein shall limit a Holder’s right to pursue
actual damages or declare an Event of Default pursuant to Section 8 hereof for
the Company’s failure to deliver Conversion Shares within the period specified
herein and the Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.  The exercise of any
such rights shall not prohibit the Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.

    
      
         

      

      
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    v.           Reservation of Shares
Issuable Upon Conversion. The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued shares of Common
Stock for the sole purpose of issuance upon conversion of this Note and payment
of interest on this Note, each as herein provided, free from preemptive rights
or any other actual contingent purchase rights of Persons other than the Holder,
not less than such aggregate number of shares of the Common Stock as shall
(subject to the terms and conditions set forth in the Purchase Agreement) be
issuable (taking into account the adjustments of Section 5) upon the conversion
of the outstanding principal amount of this Note and payment of interest
hereunder.  The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable and, if the Registration Statement is then
effective under the Securities Act, shall be registered for public sale in
accordance with such Registration Statement.

    

    vi.           Fractional Shares. No
fractional shares or scrip representing fractional shares shall be issued upon
the conversion of this Note.  As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such conversion, the Company
shall at its election, either pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Conversion Price
or round up to the next whole share.

    

    vii.           Transfer
Taxes.  The issuance of certificates for shares of the Common
Stock on conversion of this Note shall be made without charge to the Holder
hereof for any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificates, provided that the Company shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in
a name other than that of the Holder of this Note and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.

    
      
         

      

      
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    Section
5.    Certain
Adjustments.

    

    a)           Stock Dividends and Stock
Splits.  If the Company, at any time while this Note is
outstanding: (A) pays a stock dividend or otherwise makes a distribution or
distributions payable in shares of Common Stock on shares of Common Stock or any
Common Stock Equivalents (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company upon conversion of, or payment of
interest on, this Note); (B) subdivides outstanding shares of Common Stock into
a larger number of shares; (C) combines (including by way of a reverse stock
split) outstanding shares of Common Stock into a smaller number of shares; or
(D) issues, in the event of a reclassification of shares of the Common Stock,
any shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding any treasury shares of the Company) outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such
event.  Any adjustment made pursuant to this Section shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.

    

    b)           Subsequent Equity
Sales.  If, at any time while this Note is outstanding, the
Company or any Subsidiary, as applicable, sells or grants any option to purchase
or sells or grants any right to reprice, or otherwise disposes of or issues (or
announces any sale, grant or any option to purchase or other disposition), any
Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common Stock at an effective price per share that is lower than the then
Conversion Price (such lower price, the “Base Conversion
Price” and such issuances, collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an effective
price per share that is lower than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price on such date of the
Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price.  Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued.  Notwithstanding the
foregoing, no adjustment will be made under this Section 5(b) in respect of an
Exempt Issuance.  If the Company enters into a Variable Rate
Transaction or MFN Transaction, the Company shall be deemed to have issued
Common Stock or Common Stock Equivalents at the lowest possible conversion price
at which such securities may be converted or exercised. The Company shall notify
the Holder in writing, no later than 2 Business Day following the issuance of
any Common Stock or Common Stock Equivalents subject to this Section 5(b),
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“Dilutive Issuance
Notice”).  For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon
the occurrence of any Dilutive Issuance, the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the
date of such Dilutive Issuance, regardless of whether the Holder accurately
refers to the Base Conversion Price in the Notice of Conversion.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    c)           Subsequent Rights
Offerings.  If the Company, at any time while the Note is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to Holders) entitling them to subscribe for or purchase shares of
Common Stock at a price per share that is lower than the VWAP on the record date
referenced below, then the Conversion Price shall be multiplied by a fraction of
which the denominator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of the Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares
issued (assuming delivery to the Company in full of all consideration payable
upon exercise of such rights, options or warrants) would purchase at such
VWAP.  Such adjustment shall be made whenever such rights or warrants
are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.

    

    d)           Pro Rata
Distributions. If the Company, at any time while this Note is
outstanding, distributes to all holders of Common Stock (and not to the Holders)
evidences of its indebtedness or assets (including cash and cash dividends) or
rights or warrants to subscribe for or purchase any security (other than the
Common Stock, which shall be subject to Section 5(b)), then in each such case
the Conversion Price shall be adjusted by multiplying such Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to 1 outstanding share of the Common
Stock as determined by the Board of Directors of the Company in good
faith.  In either case the adjustments shall be described in a
statement delivered to the Holder describing the portion of assets or evidences
of indebtedness so distributed or such subscription rights applicable to 1 share
of Common Stock.  Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    e)           Fundamental
Transaction. If, at any time while this Note is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its
assets in one transaction or a series of related transactions, (C) any tender
offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, cash or property, or (D) the Company effects
any reclassification of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property (in any such case, a “Fundamental
Transaction”), then, upon any subsequent conversion of this Note, the
Holder shall have the right to receive, for each Conversion Share that would
have been issuable upon such conversion immediately prior to the occurrence of
such Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of 1 share of Common Stock (the “Alternate
Consideration”).  For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of 1 share of Common Stock in such Fundamental Transaction,
and the Company shall apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the relative value of any
different components of the Alternate Consideration.  If holders of
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of this
Note following such Fundamental Transaction.  To the extent necessary
to effectuate the foregoing provisions, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a new
Note consistent with the foregoing provisions and evidencing the Holder’s right
to convert such Note into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this Section 5(e) and insuring that this Note (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.

    

    f)           Calculations.  All
calculations under this Section 5 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be.  For purposes of this
Section 5, the number of shares of Common Stock deemed to be issued and
outstanding as of a given date shall be the sum of the number of shares of
Common Stock (excluding any treasury shares of the Company) issued and
outstanding.

    

    g)           Notice to the
Holder.

    

    i.           Adjustment to Conversion
Price.  Whenever the Conversion Price is adjusted pursuant to
any provision of this Section 5, the Company shall promptly deliver to each
Holder a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment.

    

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    ii.           Notice to Allow Conversion
by Holder.  If (A) the Company shall declare a dividend (or any
other distribution in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common
Stock of rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Note, and shall cause
to be delivered to the Holder at its last address as it shall appear upon the
Note Register, at least 20 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, provided that the failure to deliver such
notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such
notice.  The Holder is entitled to convert this Note during the 20-day
period commencing on the date of such notice through the effective date of the
event triggering such notice.

    

    Section
6.     
 Prepayment/Redemption.  The Company may prepay this Note in whole
or in part upon at least ten (10) Business
Days prior written notice to the
Holder, which notice shall specify the date
of prepayment and the amount of principal being repaid, provided that the Holder may convert such amount of principal
being repaid in accordance with the terms hereof at any time prior to actual
receipt of payment.

    

    Section
7.      Negative Covenants.
As long as any portion of this Note remains outstanding, unless the Holder shall
have otherwise given prior written consent, the Company shall not, and shall not
permit any of its subsidiaries (whether or not a Subsidiary on the Original
Issue Date) to, directly or indirectly:

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    

    

    a)           amend its charter documents, including, without
limitation, its certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the Holder;

    

    b)           repay,
repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of
shares of its Common Stock or Common Stock Equivalents other than as to (a) the
Conversion Shares or Warrant Shares as permitted or required under the
Transaction Documents and (b) repurchases of Common Stock or Common Stock
Equivalents of departing employees of the Company, provided that such
repurchases shall not exceed an aggregate of $100,000 for all officers and
directors during the term of this Note;

    

    c)           pay cash dividends or distributions on any equity
securities of the Company;

    

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

    

    e)           enter into any agreement with respect
to any of the foregoing.

    

    Section
8.      Events of
Default.

    

    a)           “Event of Default”
means, wherever used herein, any of the following events (whatever the reason
for such event and whether such event shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):

    

    i.           any default in the payment of (A) the principal amount of any Note or (B) interest,
liquidated damages and other amounts owing to a Holder on
any Note, as and when
the same shall become due and payable (whether on a Conversion Date or the
Maturity Date or by acceleration or otherwise) which default, solely in the case
of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;

    

    ii.           the
Company shall fail to observe or perform any other covenant or agreement
contained in the Note (other than a breach by the Company of its obligations to
deliver shares of Common Stock to the Holder upon conversion, which breach is
addressed in clause (x) below) which failure is not cured, if possible to cure,
within the earlier to occur of (A) 5 Trading Days after notice of such failure
sent by the Holder or by any other Holder and (B) 10 Trading Days after the
Company has become or should have become aware of such failure;

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    

    iii.           a
default or event of default (subject to any grace or cure period provided in the
applicable agreement, document or instrument) shall occur under any other
material agreement, lease, document or instrument to which the Company or any
Subsidiary is obligated.

     

    iv.           any
representation or warranty made in this Note, any written statement pursuant
hereto or thereto or any other report, financial statement or certificate made
or delivered to the Holder or any other Holder shall be untrue or incorrect in
any material respect as of the date when made or deemed made;

    

    v.           the
Company or any Significant Subsidiary shall be subject to a Bankruptcy
Event;

    

    vi.           the
Company or any Subsidiary shall default on any of its obligations under any
mortgage, credit agreement or other facility, indenture agreement, factoring
agreement or other instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement that (a) involves an
obligation greater than $50,000, whether such indebtedness now exists or shall
hereafter be created, and (b) results in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise become
due and payable;

    

    vii.           if
the Common Stock shall not be listed or quoted for trading on OTC Bulletin Board
or another Trading Market and shall not resume listing or quotation for trading
thereon within five Trading Days;

    

    viii.           the
Company shall be a party to any Change of Control Transaction or Fundamental
Transaction or shall agree to sell or dispose of all or substantially all of its
assets in one transaction or a series of related transactions (whether or not
such sale would constitute a Change of Control Transaction);

    

    ix.           if
the Company is not subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act or, subject to permitted extensions, has failed to file all
reports required to be filed thereunder during the then preceding 12 months (or
such shorter period that the Company was required to file such
reports);

    

    x.           the
Company shall fail for any reason to deliver certificates to a Holder prior to
the fifth Trading Day after a Conversion Date pursuant to Section 4(d) or the
Company shall provide at any time notice to the Holder, including by way of
public announcement, of the Company’s intention to not honor requests for
conversions of this Note in accordance with the terms hereof; or

    

    xi.           any
monetary judgment, writ or similar final process shall be entered or filed
against the Company, any subsidiary or any of their respective property or other
assets for more than $50,000, and such judgment, writ or similar final process
shall remain unvacated, unbonded or unstayed for a period of 45 calendar
days.

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    

    b)           Remedies Upon Event of
Default. If any Event of Default occurs, the outstanding principal amount
of this Note, plus accrued but unpaid interest, liquidated damages and other
amounts owing in respect thereof through the date of acceleration, shall become,
at the Holder’s election, immediately due and payable in cash at the Mandatory
Default Amount.  After the occurrence and during the continuance of
any Event of Default, the interest rate on this Note shall accrue at an interest
rate equal to the lesser of 12% per annum or the maximum rate permitted under
applicable law.  Upon the payment in full of the Mandatory Default
Amount, the Holder shall promptly surrender this Note to or as directed by the
Company.  In connection with such acceleration described herein, the
Holder need not provide, and the Company hereby waives, any presentment, demand,
protest or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable
law.  Such acceleration may be rescinded and annulled by Holder at any
time prior to payment hereunder and the Holder shall have all rights as a holder
of the Note until such time, if any, as the Holder receives full payment
pursuant to this Section 8(b).  No such rescission or annulment shall
affect any subsequent Event of Default or impair any right consequent
thereon.

    

    Section
9.     Miscellaneous.

    

    a)           Notices.  Any
and all notices or other communications or deliveries to be provided by the
Holder hereunder, including, without limitation, any Notice of Conversion, shall
be in writing and delivered personally, by facsimile, or sent by a nationally
recognized overnight courier service, addressed to the Company, at the address
set forth above, or such other facsimile number or address as the Company may
specify for such purpose by notice to the Holder delivered in accordance with
this Section 9.  Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, or sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile number or address of
the Holder appearing on the books of the Company, or if no such facsimile number
or address appears, at the principal place of business of the
Holder.  Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section 9 prior to 5:30 p.m. (Los Angeles
Time), (ii) the date immediately following the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section 9 between 5:30 p.m. (Los Angeles Time) and 11:59 p.m.
(Los Angeles Time) on any date, (iii) the second Business Day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given.  The address for such notices and communications shall be as
set forth on the signature pages attached to the Purchase
Agreement.

    

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    b)           Absolute Obligation.
Except as expressly provided herein, no provision of this Note shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of, liquidated damages and accrued interest, as applicable, on
this Note at the time, place, and rate, and in the coin or currency, herein
prescribed.  This Note is a direct debt obligation of the Company.

    

    c)           Lost or Mutilated
Note.  If this Note shall be mutilated, lost, stolen or
destroyed, the Company shall execute and deliver, in exchange and substitution
for and upon cancellation of a mutilated Note, or in lieu of or in substitution
for a lost, stolen or destroyed Note, a new Note for the principal amount of
this Note so mutilated, lost, stolen or destroyed, but only upon receipt of
evidence of such loss, theft or destruction of such Note, and of the ownership
hereof, reasonably satisfactory to the Company.

    

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

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    

    e)           Waiver.  Any
waiver by the Company or the Holder of a breach of any provision of this Note
shall not operate as or be construed to be a waiver of any other breach of such
provision or of any breach of any other provision of this Note.  The
failure of the Company or the Holder to insist upon strict adherence to any term
of this Note on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Note.  Any waiver by the Company
or the Holder must be in writing.

    

    f)           Severability.  If
any provision of this Note is invalid, illegal or unenforceable, the balance of
this Note shall remain in effect, and if any provision is inapplicable to any
Person or circumstance, it shall nevertheless remain applicable to all other
Persons and circumstances.  If it shall be found that any interest or
other amount deemed interest due hereunder violates the applicable law governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable law.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Note as contemplated herein, wherever enacted,
now or at any time hereafter in force, or which may affect the covenants or the
performance of this indenture, and the Company (to the extent it may lawfully do
so) hereby expressly waives all benefits or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impeded
the execution of any power herein granted to the Holder, but will suffer and
permit the execution of every such as though no such law has been
enacted.

    

    g)           Next Business
Day.  Whenever any payment or other obligation hereunder shall
be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day.

    

    h)           Headings.  The
headings contained herein are for convenience only, do not constitute a part of
this Note and shall not be deemed to limit or affect any of the provisions
hereof.

    

    i)           Assumption.  Any
successor to the Company or any surviving entity in a Fundamental Transaction
shall (i) assume, prior to such Fundamental Transaction, all of the obligations
of the Company under this Note and the other Transaction Documents pursuant to
written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) and (ii) issue to the
Holder a new Note of such successor entity evidenced by a written instrument
substantially similar in form and substance to this Note, including, without
limitation, having a principal amount and interest rate equal to the principal
amount and the interest rate of this Note and having similar ranking to this
Note, which shall be satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed).  The provisions of this Section 9(i)
shall apply similarly and equally to successive Fundamental Transactions and
shall be applied without regard to any limitations of this Note.

    

    

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

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    

    IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly
authorized officer as of the date first above indicated.

    

    

    
      	
              INTERNATIONAL
      STEM CELL CORPORATION

               

               

            
	
              By: /s/ Jeffrey
      Janus                                                   
      

              Name:
      Jeffrey Janus

              Title:
      President

              Facsimile
      No. for delivery of Notices: 760-940-6387

            
	 
      
	 
      

    

    

     

     

     

     

     

    
 

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    ANNEX
A

    

    NOTICE
OF CONVERSION

    

    

    The
undersigned hereby elects to convert principal under the Multiple Advance
Convertible Note due January 31, 2009 of INTERNATIONAL STEM CELL CORPORATION, a
Delaware corporation (the Company”), into
shares of common stock (the “Common Stock”), of
the Company according to the conditions hereof, as of the date written
below.  If shares of Common Stock are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates and
opinions as reasonably requested by the Company in accordance
therewith.  No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any.

    

    By the delivery of this Notice of
Conversion the undersigned represents and warrants to the Company that its
ownership of the Common Stock does not exceed the amounts specified under
Section 4 of this Note, as determined in accordance with Section 13(d) of the
Exchange Act.

    

    The undersigned agrees to comply with
the prospectus delivery requirements under the applicable securities laws in
connection with any transfer of the aforesaid shares of Common Stock pursuant to
any prospectus.

    

    

       

      
        	 	      
                Conversion
      calculations:

                Date
      to Effect Conversion: _____________________________________

                

                Principal
      Amount of Note to be Converted:
      ________________________

                

                Interest
      Accrued on Account

                of
      Conversion at Issue: 
      _______________________________________

                

                Number
      of shares of Common Stock
      to be issued:____________________

                
_________________________________________________________

                 

                Signature:
      _________________________________________________

                

                Name:
      ____________________________________________________

                

                Address
      for Delivery of Common Stock Certificates: 
      _________________

                _________________________________________________________
__________________________________________________________

                
 Or

                

                DWAC
      Instructions:

                

                Broker
      No:                                                      

                Account
      No:                                                   

              

      

       

    

     

     

    19

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