S-1

As filed with the Securities and Exchange Commission on May 9, 2008

Registration No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

ALDAGEN, INC.

(Exact name of registrant as specified in its charter)

Delaware	2836	56-2185054
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

2810 Meridian Parkway, Suite 148

Durham, NC 27713

(919) 484-2571

(Address, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)

W. Thomas Amick

Chief Executive Officer

2810 Meridian Parkway, Suite 148

Durham, NC 27713

(919) 484-2571

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Brent B. Siler, Esq. Christian E. Plaza, Esq. Darren K. DeStefano, Esq. Brian F. Leaf, Esq. Cooley Godward Kronish LLP One Freedom Square, Reston Town Center 11951 Freedom Drive Reston, VA 20190-5656 (703) 456-8000 David E. Redlick, Esq. Stuart R. Nayman, Esq. Wilmer Cutler Pickering Hale and Dorr LLP 399 Park Avenue New York, NY 10022 (212) 230-8800

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering.  ¨

CALCULATION OF REGISTRATION FEE

Title of Securities being Registered	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee
Common Stock, $0.001 par value per share	$80,500,000	$3,163.65

(1) In accordance with Rule 457(o) under the Securities Act of 1933, as amended, the number of shares being registered and the proposed maximum offering price per share are not included in this table.

(2) Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 under the Securities Exchange Act of 1934. (Check one):

Large Accelerated Filer  ¨ Accelerated Filer  ¨ Non-accelerated Filer  x Smaller Reporting Company  ¨

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated May 9, 2008

Prospectus

             shares

Common stock

We are offering              shares of our common stock. This is our initial public offering and no public market exists for our shares. We anticipate that the initial public offering price will be between $             and $             per share.

We have applied to have our common stock listed on The NASDAQ Global Market under the symbol “ALDH.”

Investing in the common stock involves risks. See “ Risk Factors” beginning on page 9.

Price $             per share

	Price to public	Underwriting discounts and commissions	Proceeds to company before expenses
Per share	$	$	$
Total	$	$	$

We have granted the underwriters a 30-day option to purchase up to an additional              shares of common stock to cover over-allotments, if any.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on                     , 2008.

Cowen and Company	Wachovia Securities
Pacific Growth Equities, LLC

The date of this prospectus is                     , 2008.

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	9
Special Note Regarding Forward-Looking Statements	33
Use of Proceeds	35
Dividend Policy	35
Capitalization	36
Dilution	38
Selected Financial Data	40
Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Business	55
Management	84
Executive Compensation	90
Certain Relationships and Related Party Transactions	104
Principal Stockholders	108
Description of Capital Stock	112
Shares Eligible for Future Sale	117
Underwriting	120
Legal Matters	125
Experts	125
Where You Can Find Additional Information	125
Index to Financial Statements	F-1

You should rely only on the information contained in this prospectus and any related free writing prospectus we may authorize to be delivered to you. We have not, and the underwriters have not, authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither this prospectus nor any related free writing prospectus is an offer to sell, nor are they seeking an offer to buy, these securities in any state where the offer or solicitation is not permitted. The information contained in this prospectus is complete and accurate as of the date on the front cover of this prospectus, but information may have changed since that date.

PROSPECTUS SUMMARY

The items in the following summary are described in more detail later in this prospectus. This summary does not contain all of the information you should consider. Before investing in our common stock, you should read the entire prospectus carefully, including the “Risk Factors” beginning on page 9 and the financial statements and related notes beginning on page F-1. Unless the context indicates otherwise, as used in this prospectus, the terms “Aldagen,” “our company,” “we,” “us” and “our” refer to Aldagen, Inc.

Overview

We are a biopharmaceutical company developing proprietary regenerative cell therapies that target significant unmet medical needs. We have four product candidates in clinical trials. Our most advanced product candidate is ALD-101. We are currently conducting a pivotal Phase 3 clinical trial of ALD-101 to evaluate its efficacy in improving umbilical cord blood transplants used to treat inherited metabolic diseases in pediatric patients. We are also conducting or supporting Phase 1 or Phase 1/2 clinical trials of three other product candidates:

• ALD-151 to improve umbilical cord blood transplants used for the treatment of leukemia;

• ALD-301 to treat critical limb ischemia; and

• ALD-201 to treat ischemic heart failure.

Our product candidates consist of specific populations of adult stem cells that we isolate using our proprietary technology. Stem cells are cells within the human body that have the potential to develop, or differentiate, into other types of cells with individual characteristics and specific functions. Stem cells found in blood, tissues or organs are referred to as adult stem cells. In preclinical studies conducted by leading research institutions and academic centers, adult stem cells expressing high levels of an enzyme known as aldehyde dehydrogenase, or ALDH, exhibited a variety of activities that we believe may promote the regeneration of multiple types of cells and tissues. We have developed a proprietary technology that allows us to isolate adult stem cells that express high levels of ALDH, which we refer to as ALDH-bright, or ALDH^br, cells. We believe that the ALDH^br stem cell populations we produce may have a variety of therapeutic uses.

Our Product Candidates

We are developing ALD-101 and ALD-151 to improve umbilical cord blood transplants. We are developing ALD-301 and ALD-201 to treat cardiovascular diseases.

ALD-101 to Improve Cord Blood Transplants Used to Treat Pediatric Inherited Metabolic Diseases

ALD-101 is our most advanced product candidate. In March 2008, we began enrolling patients in a pivotal Phase 3 clinical trial of ALD-101 to evaluate its efficacy in improving transplants of umbilical cord blood, or cord blood, used to treat inherited metabolic diseases in pediatric patients. In a cord blood transplant, cord blood of a known type is obtained from a donor bank and then infused into the patient. Cord blood transplantation is commonly used to treat children with inherited metabolic diseases, including Krabbe syndrome, metachromatic leukodystrophy, Hurler syndrome and adrenoleukodystrophy. These diseases are progressive, degenerative and often fatal. In many cases, the only treatment available to these patients is a transplant of blood-forming, or hematopoietic, stem cells found in cord blood or bone marrow. While the preferred source for a hematopoietic stem cell transplant is type-matched bone marrow from a donor who is a close relative of the patient, when such a match cannot be located quickly, a type-matched cord blood transplant may be used instead.

Prior to a cord blood transplant, the patient undergoes a treatment regimen that destroys the patient’s bone marrow cells. As a result, the patient has fewer platelets, which are cell fragments that circulate in the blood and

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promote blood clotting, and neutrophils, which are white blood cells that protect against infections. Following the cord blood transplant, new platelets and neutrophils are produced over time from the stem cells contained in the donated cord blood. During this process, known as engraftment, the donated blood stem cells establish themselves in the patient, begin to divide and then differentiate to form new blood cells, including platelets and neutrophils. Engraftment time is generally measured as the period of time required to re-establish specific levels of platelets and neutrophils circulating in the patient’s bloodstream. Neutrophil engraftment typically takes several weeks, and platelet engraftment can take several months. Following the transplant, while platelet and neutrophil levels are depressed, there is significant risk of life-threatening infections, bleeding and transfusion-related reactions. We believe that a reduction in engraftment times could reduce these risks associated with cord blood transplants and decrease the length and cost of the related hospital stay, which is a significant component of the overall cost of treatment for these patients.

ALD-101 is the population of ALDH ^br stem cells we produce from a portion of a cord blood unit using our proprietary technology. ALD-101 is infused into the patient shortly after the transplant of the remaining portion of the cord blood unit. In an ongoing Phase 1 clinical trial of ALD-101, we observed a statistically significant reduction in the time to platelet and neutrophil engraftment in patients receiving ALD-101 following their cord blood transplant, as compared to similar patients who had received a cord blood transplant without ALD-101 in an earlier independent clinical trial. Our pivotal Phase 3 clinical trial of ALD-101 is designed to further evaluate its ability to accelerate engraftment following cord blood transplants in pediatric patients with inherited metabolic diseases. We expect to complete enrollment of this trial in the second half of 2009 and to receive the results of the trial in the first half of 2010.

ALD-151 to Improve Cord Blood Transplants Used to Treat Leukemia

Investigators are currently enrolling patients in a Phase 1 clinical trial of ALD-151 to evaluate its safety and potential efficacy in improving cord blood transplants for the treatment of leukemia in pediatric patients.

A single cord blood unit typically contains a sufficient number of hematopoietic stem cells to treat a patient weighing less than approximately 90 pounds. To provide larger patients with a higher hematopoietic stem cell dose than would be available in a single cord blood unit, some clinicians transplant two full cord blood units, each from a different donor. However, transplanting cord blood from multiple donors in the same treatment may increase the risk of complications. ALD-151 presents another approach to increasing the dose of stem cells from a cord blood transplant for larger patients, including adults. ALD-151, when administered in conjunction with a full-unit cord blood transplant, can provide a larger dose of hematopoietic stem cells than would be available in a transplant from a single cord blood unit, while reducing the risk of complications.

ALD-151 is the population of ALDH^br stem cells we produce from a full cord blood unit using our proprietary technology. ALD-151 is infused into the patient shortly after the transplant of a separate, full cord blood unit. To date, investigators have treated five of the six to 10 patients we expect to enroll in this trial, which is designed to evaluate the safety and potential efficacy of ALD-151 in accelerating engraftment in pediatric patients undergoing cord blood transplants for the treatment of leukemia. We expect that the results of this clinical trial will be available in the first quarter of 2009. If the results of this clinical trial are positive, we plan to conduct additional clinical trials of ALD-151 in adult leukemia patients undergoing cord blood transplants.

ALD-301 to Treat Critical Limb Ischemia

We have completed enrollment of a 21-patient Phase 1/2 clinical trial of ALD-301 to assess its safety and potential efficacy as a treatment for patients with advanced critical limb ischemia. Critical limb ischemia is a condition characterized by significant impairment of blood flow to the legs and feet caused by a blockage of the arteries.

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Patients with severe cases of critical limb ischemia may experience persistent pain in their lower extremities and may also suffer from severe tissue damage in the affected area. There are no drugs currently approved by the United States Food and Drug Administration, or FDA, for the treatment of this condition. For advanced critical limb ischemia patients with no other therapeutic options for improving blood flow, amputation of the affected limb is often the only available clinical option.

ALD-301 is the population of ALDH^br stem cells we produce using our proprietary technology to sort a specified quantity of bone marrow collected from the patient receiving the therapy. ALD-301 is injected into the patient’s leg muscle. In February 2008, we performed an interim analysis of the data from our Phase 1/2 clinical trial. Our efficacy analysis included only those patients who had completed their 12-week assessments. Our safety analysis included all available safety data, regardless of whether the patient had completed his or her 12-week assessment. Four patients in the ALD-301 treatment group had efficacy data available at 12 weeks, while a total of seven were analyzed for safety. Six patients in the unsorted bone marrow group had efficacy data available, while a total of seven of these patients were analyzed for safety. ALD-301 was well tolerated by the patients treated with it. In addition, we believe that the interim data provide initial evidence of potential therapeutic benefit of ALD-301. We expect the final results of our Phase 1/2 clinical trial to be available in the third quarter of 2008.

ALD-201 to Treat Ischemic Heart Failure

Investigators are currently enrolling patients in a Phase 1 clinical trial of ALD-201 to assess its safety and potential efficacy as a treatment for ischemic heart failure. Ischemic heart failure is caused by an obstruction of the arteries feeding blood to the heart tissue. The resulting damage to the heart muscle reduces the heart’s ability to pump blood efficiently to the rest of the body. Once ischemic heart failure patients have exhausted all potential options for restoring blood supply to the heart, their only other option is a heart transplant.

ALD-201 is the population of ALDH^br stem cells we produce using our proprietary technology to sort a specified quantity of bone marrow collected from the patient receiving the therapy. ALD-201 is injected directly into the patient’s heart muscle. This procedure is currently performed using a specialized catheter. To date, investigators have treated 18 of the 20 patients we expect to enroll in this Phase 1 clinical trial. We expect that results of this clinical trial will be available in the fourth quarter of 2008.

Our ALDH^br Technology

Our proprietary technology represents a novel approach to isolating adult stem cells for therapy. We believe that the ALDH^br stem cell populations produced using our technology have several potential advantages, including:

• our ALDH^br cell populations may have a variety of therapeutic uses;

• our ALDH^br cell populations include a diverse, or heterogeneous, mix of stem cell types, which we believe may promote tissue repair in a variety of ways;

• our technology produces stem cell populations that are well characterized, meaning that each population produced has a high level of purity and a consistent set of physical and chemical characteristics; and

• our technology allows for the rapid production of the ALDH^br cell populations and their administration to the patient without requiring time-consuming manipulation, such as cell culturing or expansion of the size of the cell populations.

Our Business Strategy

Our goal is to become a fully integrated biopharmaceutical company focused on the development, manufacturing and commercialization of regenerative cell therapies that address disease areas with significant unmet medical needs and commercial potential. To achieve this goal, we are pursuing the following strategies:

• continue to advance our product candidates through clinical trials;

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• commercialize our cord blood transplant product candidates with an internal sales force;

• selectively pursue strategic collaborations for the development and commercialization of some of our product candidates;

• expand and enhance our manufacturing capabilities; and

• develop new product candidates to target additional indications based on our technology.

Risks Related to our Business

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus immediately following this prospectus summary. For example, we expect to continue to incur substantial losses for the foreseeable future, and we may never achieve or maintain profitability. We may not receive necessary regulatory approvals for any of our product candidates and may not generate sufficient revenues to continue our business operations. The FDA has raised specific concerns about our use of a historical control as part of the clinical trials of our most advanced product candidate, and we may be required to conduct additional clinical trials at our expense in order to address the FDA’s concerns before we can obtain regulatory approval. We may need substantial additional funding and may be unable to raise capital when needed. Clinical trials of our product candidates may fail to demonstrate safety and efficacy to the FDA’s satisfaction or may not otherwise produce positive results. Our product candidates are based on novel stem cell technologies that are inherently risky, and they may not be understood or accepted by the marketplace. We have only limited experience manufacturing our product candidates and we may not be able to manufacture our product candidates efficiently or in quantities sufficient for commercial sale. Our patent position might not adequately protect our product candidates or any future products, which could allow others to compete against us more directly. We face substantial competition in our industry, which may result in others discovering, developing or commercializing products before or more successfully than we do.

Corporate Information

We were incorporated in Delaware in March 2000 under the name StemCo Biomedical, Inc. In November 2005, we changed our corporate name to Aldagen, Inc. Our principal executive office is located at 2810 Meridian Parkway, Suite 148, Durham, North Carolina 27713. Our telephone number is (919) 484-2571. Our website address is www.aldagen.com. Information contained in, or accessible through, our website does not constitute a part of, and is not incorporated into, this prospectus.

We use Aldagen^®, ALDEFLUOR^®, ALDECOUNT^®, Aldesorter^TM and the Aldagen logo as trademarks and service marks in the United States. All other trademarks or trade names referred to in this prospectus are the property of their respective owners.

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these industry publications and third party research, surveys and studies are reliable, we have not independently verified such data.

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The Offering

Common stock offered by us             shares

Common stock to be outstanding after this offering             shares

Over-allotment option             shares

Use of proceeds We estimate that the net proceeds from our sale of shares of common stock in this offering will be approximately $            million, or approximately $            million if the underwriters exercise their over-allotment option in full, based upon an assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We currently expect to use the net proceeds from this offering as follows:

• approximately $             million to continue and expand our research and development activities, including clinical trials of our product candidates and further development of our product pipeline;

• approximately $             million to improve our manufacturing processes and to increase our manufacturing capacity as demand increases;

• approximately $             million to commercialize any of our product candidates that receive regulatory marketing approval; and

• the balance for other general corporate purposes, including general and administrative expenses and working capital.

These estimates are subject to change. See “Use of Proceeds.”

Proposed NASDAQ Global Market symbol ALDH

The number of shares of our common stock that will be outstanding immediately after this offering is based on 3,619,747 shares of common stock outstanding as of April 30, 2008, and excludes:

• 5,996,472 shares of our common stock issuable upon the exercise of stock options outstanding under our 2000 stock option plan as of April 30, 2008, at a weighted-average exercise price of $0.27 per share;

• 1,771,370 shares of our common stock issuable upon the exercise of outstanding warrants as of April 30, 2008, at a weighted-average exercise price of $0.79 per share; and

•             shares of our common stock to be reserved for future issuance under our equity incentive plans following this offering.

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Except as otherwise indicated herein, all information in this prospectus, including the number of shares that will be outstanding after this offering, assumes or gives effect to:

• a         -for-        reverse stock split of our common stock that we expect to complete prior to the closing of this offering;

• the issuance of 26,285 shares of Series B convertible preferred stock upon the exercise of warrants that would otherwise expire immediately prior to the closing of this offering;

• the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 59,288,071 shares of our common stock, which will occur automatically upon the closing of this offering; and

• no exercise of the underwriters’ over-allotment option.

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Summary Financial Data

The following tables summarize our financial data. We have derived the following summary of our statement of operations data for the years ended December 31, 2005, 2006 and 2007 and for the period from March 3, 2000 (inception) through December 31, 2007, and balance sheet data as of December 31, 2007, from our audited financial statements appearing later in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the summary of our financial data set forth below together with our financial statements and the related notes to those statements, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing later in this prospectus.

Note 2 to our financial statements explains the method we used to compute basic and diluted net loss per share allocable to common stockholders and pro forma basic and diluted net loss per share.

We have presented the summary balance sheet data as of December 31, 2007:

• on an actual basis;

• on a pro forma basis to give effect to:

• our issuance of 17,636,655 shares of Series C-1 convertible preferred stock in April 2008 and our receipt of $18.3 million in cash proceeds from that issuance;

• our issuance of 26,285 shares of our Series B convertible preferred stock prior to the closing of this offering upon the exercise for cash of warrants that would otherwise expire upon the closing of this offering and our receipt of an aggregate of $26,285 in proceeds from those exercises;

• the conversion of all then outstanding shares of our convertible preferred stock, including the Series C-1 convertible preferred stock we issued in April 2008 and the Series B convertible preferred stock we expect to issue upon the exercise of warrants prior to the closing of this offering, into an aggregate of 59,288,071 shares of our common stock, which will occur automatically upon the closing of this offering; and

• the reclassification of the preferred stock warrant liability to additional paid-in capital upon conversion of warrants to purchase convertible preferred stock into warrants to purchase common stock; and

• on a pro forma as adjusted basis to give further effect to our sale of             shares of common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease each of cash and cash equivalents, working capital, total assets and total stockholders’ equity on a pro forma as adjusted basis by approximately $            , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information presented in the summary balance sheet data is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing.

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	Year Ended December 31,									Period from March 3, 2000 (inception) through December 31, 2007
	2005			2006			2007
	(In thousands, except share and per share data)
Statement of Operations Data:
Revenues	$	59		$	105		$	211		$	629
Operating expenses:
Cost of product sales		18			46			75			183
Research and development		2,846			3,239			4,842			21,559
Selling, general and administrative		1,120			1,058			1,761			8,172
Total operating expenses		3,984			4,343			6,678			29,914
Loss from operations		(3,925	)		(4,238	)		(6,467	)		(29,285	)
Total other expense		(1,739	)		(1,538	)		(234	)		(3,853	)
Cumulative effect of change in accounting principle		(1,470	)		—			—			(1,470	)
Net loss		(7,134	)		(5,776	)		(6,701	)		(34,608	)
Accretion of redeemable convertible preferred stock		(1,214	)		(1,223	)		(2,120	)		(7,381	)
Gain on exchange of redeemable convertible preferred stock and beneficial conversion feature		—			14,518			—			14,390
Net (loss) income attributable to common stockholders		(8,348	)		7,519			(8,821	)	$	(27,599	)
Income allocable to preferred stockholders		—			(5,621	)		—
Net (loss) income allocable to common stockholders	$	(8,348	)	$	1,898		$	(8,821	)
Basic net (loss) income per share allocable to common stockholders	$	(2.72	)	$	0.56		$	(2.53	)
Diluted net (loss) income per share allocable to common stockholders	$	(2.72	)	$	0.32		$	(2.53	)
Shares used to compute basic net (loss) income per share allocable to common stockholders		3,065,795			3,411,000			3,487,396
Shares used to compute diluted net (loss) income per share allocable to common stockholders		3,065,795			5,918,171			3,487,396
Pro forma net loss per share—basic and diluted							$	(0.23	)
Pro forma weighted-average shares outstanding—basic and diluted								38,005,249

	As of December 31, 2007
	Actual			Pro forma			Pro forma as adjusted
	(In thousands)
Balance Sheet Data:
Cash and cash equivalents	$	7,513		$	25,881		$
Working capital		6,282			24,650
Total assets		8,710			27,078
Preferred stock warrant liability		773			—
Notes payable, including current portion		3,240			3,240
Redeemable convertible preferred stock		28,293			—
Additional paid-in capital		—			47,395
Deficit accumulated during the development stage		(25,093	)		(25,093	)
Total stockholders’ (deficit) equity		(25,089	)		22,365

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information included in this prospectus, before you decide to purchase shares of our common stock. If any of the following risks actually occurs, they may harm our business, prospects, financial condition and operating results. As a result, the trading price of our common stock could decline and you could lose part or all of your investment.

Risks Related To Our Business

We have incurred significant losses since our inception. We expect to continue to incur losses for the foreseeable future and may never achieve or maintain profitability.

We have incurred losses in each year since our inception and expect to continue to experience losses over the next several years. Our net loss was $6.7 million in 2007. As of December 31, 2007, we had a deficit accumulated during the development stage of $25.1 million. To date, we have financed our operations primarily through a combination of privately placed convertible preferred stock sales, convertible promissory notes, bank financing, capital lease agreements for the purchase of equipment and, during 2002 and 2003, research and development grants from governmental authorities. Our losses have resulted principally from costs incurred in our research and development programs and from our general and administrative expenses. We have devoted substantially all of our time, money and efforts to the research and development of ALD-101, ALD-151, ALD-301, and ALD-201. We have not completed development of any of our product candidates. ALDEFLUOR and ALDECOUNT are our only commercially available products, and they are available only for research or diagnostic use. We have not received a significant amount of revenue from sales of ALDEFLUOR and ALDECOUNT, and we do not anticipate significant sales from these products in the future. Because of the numerous risks associated with drug development, we are unable to predict whether our development efforts will be successful.

We expect to continue to incur significant operating expenses and anticipate that our expenses and losses will increase in the foreseeable future as we seek to:

• complete our pivotal Phase 3 clinical trial of ALD-101;

• complete the Phase 1 or Phase 1/2 clinical trials of ALD-151, ALD-301, and ALD-201 and initiate additional clinical trials if supported by the results of these trials;

• gain regulatory approvals for our product candidates that successfully complete clinical trials;

• expand our manufacturing capabilities and capacity;

• maintain, expand and protect our intellectual property portfolio;

• establish a sales and marketing infrastructure to commercialize selected products for which we may obtain regulatory approval;

• hire additional clinical, quality control, scientific and management personnel; and

• add operational, financial, accounting, facilities engineering and information systems personnel, consistent with expanding our operations and our status as a public company.

To become and remain profitable, we must succeed in developing and eventually commercializing products with significant market potential. This will require us to be successful in a range of challenging activities, including successfully completing preclinical testing and clinical trials of our product candidates, obtaining regulatory approval for our product candidates and manufacturing, marketing and selling any products for which we may obtain regulatory approval. We are only in the preliminary stages of many of these activities. We may never succeed in these activities and may never generate revenues that are significant or large enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the market price of our

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common stock and could impair our ability to raise capital, expand our business or continue our operations. A decline in the market price of our common stock could also cause you to lose all or a part of your investment.

We may need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts.

We are a development stage company and, with the exception of ALDEFLUOR and ALDECOUNT, have no commercial products. All of our product candidates are still being developed, and all but ALD-101 are in early stages of clinical development. Our product candidates will require significant additional clinical development and additional investment before they can be commercialized. We anticipate that ALD-101 will not be commercially available for several years, if at all.

We expect that our research and development expenses will continue to increase in connection with our ongoing activities, particularly as we continue our pivotal Phase 3 clinical trial of ALD-101 and commence additional clinical trials of ALD-151, ALD-301 and ALD-201 if the ongoing Phase 1 or Phase 1/2 clinical trials of these product candidates yield promising results. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales and marketing. We may need substantial additional funding and may be unable to raise capital when needed or on attractive terms, which would force us to delay, reduce or eliminate our research and development programs or commercialization efforts. We cannot assure you that our plans will not change or that changed circumstances will not result in the depletion of our capital resources more rapidly than we currently anticipate.

Our future capital requirements will depend on many factors, including:

• the scope, progress and results of our research and preclinical development programs;

• the scope, progress, results, costs, timing and outcomes of the clinical trials of our product candidates;

• the timing of and the costs involved in obtaining regulatory approvals for our product candidates, a process which could be particularly lengthy or complex given the FDA’s limited experience with marketing approval for therapeutics using adult stem cells;

• the costs of building, operating and enhancing our manufacturing facilities and capabilities to support our clinical activities and, if our product candidates are approved, our commercialization activities;

• the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities;

• revenues received from sales of our product candidates, if approved by the FDA;

• the costs of additional general and administrative personnel, including accounting and finance, legal and human resources employees, as a result of becoming a public company; and

• the costs of developing our anticipated internal sales, marketing and distribution capabilities.

As a result of these factors, we may need or choose to seek additional funding following this offering. We would likely seek such funding through public or private financings or some combination of the two. We might also seek funding through collaborative arrangements if we determine them to be necessary or appropriate. Additional funding may not be available to us on acceptable terms, or at all. If we obtain capital through collaborative arrangements, these arrangements could require us to relinquish rights to our technology or product candidates and could result in our receiving only a portion of the revenues associated with the partnered product. If we raise capital through the sale of equity, or securities convertible into equity, it would result in dilution to our then existing stockholders. If we raise additional capital through the incurrence of indebtedness, we would likely become subject to covenants restricting our business activities, and holders of debt instruments would have rights and privileges senior to those of our equity investors. In addition, servicing the interest and principal repayment obligations under debt facilities could divert funds that would otherwise be available to support research and development, clinical or commercialization activities.

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If we are unable to obtain adequate financing on a timely basis, we may be required to delay, reduce or eliminate one or more of our product development programs.

Our operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

Our operations to date have primarily been limited to organizing and staffing our company, developing and securing our technology and undertaking or funding preclinical studies and clinical trials of our product candidates, ALD-101, ALD-151, ALD-301 and ALD-201. We have not yet demonstrated our ability to successfully complete large-scale, pivotal clinical trials, obtain regulatory approvals, manufacture a commercial scale product to the satisfaction of the FDA, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, it may be difficult for you to make any predictions about our future success or viability.

If we are not able to retain and recruit qualified management and scientific personnel, we may fail in developing or commercializing our technologies and product candidates.

Our future success depends to a significant extent on the skills, experience and efforts of our scientific and management teams, including W. Thomas Amick, our chief executive officer, Edward Field, our president and chief operating officer, Dr. Andrew Balber, our chief scientific officer, David Carberry, our chief financial officer, and Dr. Laurence Keller, our chief medical officer. The loss of any or all of these individuals could harm our business and might significantly delay or prevent the achievement of research, development or business objectives. We have entered into an employment agreement with Mr. Amick with an undefined term and offer letters with our other executives. The existence of an employment agreement or offer letter does not, however, guarantee retention of these employees, and we may not be able to retain those individuals for the duration of or beyond the end of their respective terms. We do not maintain “key person” insurance on any of our management personnel.

Recruiting and retaining qualified scientific and clinical personnel and, if our products are approved, sales and marketing personnel, will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms, given the competition among numerous pharmaceutical and biotechnology companies for similarly skilled personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on outside advisors and key clinical investigators who assist us in formulating our research and development and clinical strategy. A loss of any of these advisors or investigators could compromise our ability to pursue our strategy.

Risks Related to the Development of Our Product Candidates

If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

Before obtaining regulatory approval for the sale of our product candidates, we must conduct, at our own expense, extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more of our clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive regulatory approval or commercialize our product candidates, including:

• regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

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• clinical trials of our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs that we expect to be promising;

• the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of these clinical trials at a higher rate than we anticipate;

• our third party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner or at all;

• we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;

• regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

• the cost of clinical trials of our product candidates may be greater than we anticipate;

• the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

• our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators to halt or terminate the trials.

The FDA placed a clinical hold on the Phase 1 clinical trial of ALD-201 in March 2008 after a patient experienced a ventricular arrhythmia during the injection procedure. The arrhythmia stabilized and the procedure continued without further incident. Because this patient had a history of arrhythmia, the FDA expressed concerns that patients enrolled in this trial who are at risk for ventricular arrhythmia would be at higher risk for adverse effects resulting from catheter manipulation or injections into their heart muscle. Accordingly, the FDA requested an expansion of the exclusion criteria for the trial. The clinical trial protocol for ALD-201 was modified to address the FDA’s concerns, and the FDA removed the clinical hold in April 2008. We cannot assure you, however, that there will not be additional safety concerns relating to this or any of our other clinical trials prior to their completion.

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive, or if there are safety concerns, we may:

• be delayed in obtaining marketing approval for our product candidates;

• not be able to obtain marketing approval;

• obtain approval for indications that are not as broad as intended;

• have the product removed from the market after obtaining marketing approval;

• be subject to additional post-marketing testing requirements; or

• be subject to restrictions on how the product is distributed or used.

Our product development costs will also increase if we experience delays in testing or approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to commercialize our product candidates and may harm our business and results of operations.

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If the FDA concludes that our use of a historical control as the comparator for the pivotal Phase 3 clinical trial of ALD-101 is not adequate, regulatory approval of ALD-101 could be prevented or delayed, which would negatively affect our business.

We began enrolling patients in a pivotal Phase 3 clinical trial of our most advanced product candidate, ALD-101, in March 2008 in pediatric patients receiving cord blood transplants for the treatment of inherited metabolic diseases. We must complete clinical trials to the FDA’s satisfaction before the FDA will agree to review any biologics license application, or BLA, that we submit to the FDA for marketing approval of ALD-101. Our pivotal Phase 3 clinical trial alone may not be sufficient for approval of a BLA. We plan to compare the results of our pivotal Phase 3 clinical trial of ALD-101 to results from a historical control group of patients who received cord blood transplants for the same inherited metabolic diseases during the Cord Blood Transplantation, or COBLT, trial. Although the FDA has informed us that it will take into consideration the small number of patients with inherited metabolic diseases available for evaluation in a clinical trial, they have recommended that we seriously consider conducting a clinical trial with a concurrent control arm or a case-match historical control trial rather than using the historical control of the COBLT trial. A case-match historical control trial would involve seeking specific cases in historical databases that match a variety of clinical characteristics similar to those of the patients being studied in our trial that could serve as the control comparator for our trial. In our discussions with the FDA, they have expressed major reservations regarding use of a historical control for this trial and have noted that the acceptability of the COBLT trial as a historical control in particular is unclear as a basis for approval. The FDA has stated that time to engraftment in the COBLT trial was longer than in other published studies and they asked us to comment on this discrepancy. This concern raises the possibility that the FDA may view a comparison of our results to the COBLT trial as overstating the potential efficacy of ALD-101. In our response to the FDA, we reviewed the published studies they cited and concluded that, in each case, either the study was not comparable to the COBLT trial or there were unrelated reasons for the shorter engraftment times. However, the FDA may ultimately disagree with our view.

If we complete our pivotal Phase 3 clinical trial of ALD-101 using this historical control, the FDA may conclude that this study design is not adequate to approve ALD-101 for commercialization and may require us to conduct additional clinical trials of ALD-101 using a concurrent control or case-match historical control group. This could significantly increase the cost and time required to complete our trials involving ALD-101 and would substantially delay, or could prevent, any potential marketing approval for ALD-101.

Our ability to secure FDA approval to commercialize ALD-101 will depend upon separate licensure by the FDA of cord blood to treat inherited metabolic diseases.

Our ability to obtain marketing approval for ALD-101, our most advanced product candidate, depends on the separate approval by the FDA of umbilical cord blood for use in patients with inherited metabolic diseases. Cord blood banks can currently supply cord blood units to clinical investigators operating under an Investigational New Drug, or IND, exemption from the FDA for patients faced with a life-threatening illness who need a cord blood transplant. Unless cord blood units are licensed for use by the FDA, only clinical investigators operating under an IND may use cord blood. The FDA has issued draft guidance and solicited comments on a proposal to establish a process for submitting a BLA seeking clearance to manufacture such units for the treatment of blood cancers, such as leukemia. In addition, the FDA is reviewing comments and data submitted by the clinical community as it considers whether to expand its guidance to include the use of cord blood to treat some inherited metabolic diseases, such as those that ALD-101 targets. We cannot predict whether or when the FDA will finalize its guidance document, any entity will submit or obtain approval of a BLA for the use of cord blood to treat inherited metabolic diseases, or the FDA might grant licensure of cord blood to treat inherited metabolic diseases. Absent such licensure, we may not be able to commercialize ALD-101, which would delay and diminish our ability to generate product revenues.

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Development of our product candidates is subject to significant uncertainty because each is derived from source material that is inherently variable.

The number of ALDH^br cells in bone marrow varies from patient to patient. Furthermore, although the minimum number of ALDH^br cells in a banked cord blood unit is controlled by screening standards, there are differences in the number of ALDH^br cells that can be produced from each cord blood unit. This inherent variability may adversely affect our ability to manufacture our products in two ways. First, each cord blood unit or bone marrow collection that we receive and process will yield a different number of ALDH^br cells. As a result, we may not be able to consistently produce a product with a sufficient number of ALDH^br cells for every patient. Accordingly, we may not be able to treat all patients effectively, or we will have to find other ways to increase the yield of ALDH^br cells. If we have to change our manufacturing methods, we may have to perform additional clinical trials. Second, variability in the source material for our product candidates, such as cord blood or bone marrow, may cause variability in the composition of other cells besides the ALDH^br cells in our product candidates. Such variability in composition or purity could adversely affect our ability to establish acceptable release specifications and the development and regulatory approval process for our product candidates may be delayed.

The results of preclinical studies may not correlate with the results of human clinical trials. In addition, early stage clinical trial results do not ensure success in later stage clinical trials, and interim trial results are not necessarily predictive of final trial results.

To date, we have not completed the development of any products through regulatory approval. While we and others have analyzed the potential of our product candidates in preclinical studies with animals, ALD-101 has only been evaluated in a Phase 1 clinical trial, and each of our other product candidates is currently being evaluated in a Phase 1 or Phase 1/2 clinical trial. The results of preclinical studies evaluating our product candidates in animals may not be predictive of results in clinical trials involving humans, and the outcomes of preclinical studies in animals and early clinical trials may not be predictive of the success of later clinical trials. The final safety and efficacy data from our pivotal Phase 3 clinical trial of ALD-101, which will be based on 40 patients, may be less favorable than the data observed to date in the Phase 1 clinical trial of ALD-101, which was based on 24 patients. In addition, the determination of statistical significance of our pivotal Phase 3 clinical trial of ALD-101 will require the application of more rigorous statistical procedures than we used to determine statistical significance in the Phase 1 clinical trial of ALD-101. Furthermore, interim results of a clinical trial do not necessarily predict final results. For example, the interim results to date in our Phase 1/2 clinical trial of ALD-301 are based on data from 10 patients, only four of whom were treated with ALD-301. This trial is still ongoing, and the final results of this trial may be different from those suggested by our interim analysis. We cannot assure you that the clinical trials of any of our product candidates will ultimately be successful. New information regarding the safety and efficacy of our product candidates that may be less favorable than the data observed to date may arise from our continuing analysis of the data.

We may experience delays in enrolling patients in clinical trials of our product candidates, which could delay or prevent the receipt of necessary regulatory approvals.

We may not be able to initiate or continue clinical trials of our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in the clinical trials required by the FDA or other regulatory authorities. We may also be unable to engage a sufficient number of clinical trial sites to conduct our trials. For example, in our clinical development of ALD-101 for use in pediatric patients with inherited metabolic diseases, we may experience delays in enrollment in our pivotal Phase 3 clinical trial as a result of the small number of patients with these diseases and the small number of centers that treat these patients. The challenge of enrolling patients will become more difficult if we are required by the FDA or a similar regulatory agency outside the United States to conduct a trial on a larger population than we currently anticipate. In that event, we might be required to seek patients to participate in our trials from Europe or other foreign jurisdictions, which could raise regulatory uncertainties and increase our clinical trial costs.

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We and our investigators may also face challenges in convincing patients to participate in our clinical trials due to the novelty of our stem cell-based therapies, particularly for the trials of ALD-301 and ALD-201. Some patients may have concerns regarding stem cells that may negatively affect their perception of our therapies and their decision to enroll in our trials. Furthermore, patients suffering from diseases within our target indications may enroll in competing clinical trials, which could negatively affect our ability to complete enrollment of our trials. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, and our inability to enroll a sufficient number of patients for any of our current or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.

We are subject to numerous risks associated with seeking regulatory approval of ALD-201 pursuant to a protocol that requires the use of a medical device that has not received, and may never receive, regulatory approval in the United States. The catheter system we intend to use in connection with the development of ALD-201 is owned by an unaffiliated third party.

Our investigators are currently conducting a clinical trial of ALD-201 under a protocol that requires participating clinical investigators to deliver ALD-201 or a placebo, as the case may be, to enrolled patients using a specialized NOGA Cardiac Navigation System and MyoStar™ injection catheter, which we collectively refer to as the MyoStar system. The MyoStar system has been developed by Biosense Webster, a subsidiary of Johnson & Johnson. We believe that the FDA would regulate ALD-201 and the catheter delivery system as a combination product consisting of a therapeutic agent and a device. Accordingly, the commercial deployment of ALD-201 is likely to be dependent upon the MyoStar system or another catheter system securing regulatory approval for use with ALD-201. Neither the MyoStar system nor any other similar catheter system has received regulatory approval or is commercially available in the United States for this use. Therefore, the MyoStar system may currently only be used to administer ALD-201 under investigational protocols. Even if the MyoStar system is approved as an independent device, we believe that it would have to be re-evaluated with ALD-201 in clinical trials as a combination product. Notwithstanding our investment of considerable resources in the development and testing of ALD-201 using the MyoStar system, the MyoStar system may never receive the regulatory approvals that would allow for its commercial use in combination with ALD-201.

We are not affiliated with Biosense Webster or any other Johnson & Johnson company. We currently have no right to control the development, clinical testing or refinement of the MyoStar system. Biosense Webster currently has the right to make decisions without consulting with us or considering our views. These decisions could directly or indirectly compromise our ability to secure regulatory approval of ALD-201. These decisions include:

• the terms and conditions under which the MyoStar system will be made available for use to trial investigators, or at all;

• the terms and conditions under which the diagnostic consoles that are part of the NOGA Cardiac Navigation System will be made available for use to trial investigators, if at all;

• the modification of the MyoStar system or any of its components and its protocol for use as a result of information obtained during trials;

• the license or sale of MyoStar system-related intellectual property to a third party, potentially including our competitors;

• the use of the MyoStar system or any of its components in conjunction with clinical therapies other than ours;

• the suspension or abandonment of other clinical trials involving the MyoStar system; and

• the suspension or abandonment of efforts to obtain FDA approval or clearance.

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The unavailability of the MyoStar system, for any reason, would have a material adverse effect on our ALD-201 product development and commercialization efforts as we would be unable to recover the time and money expended prior to such determination of unavailability. Although there are other available catheter systems in the marketplace, we have not evaluated their costs or safety and effectiveness, or whether ALD-201 would be compatible with such catheter systems. Moreover, such catheters may never receive regulatory approvals that would allow for their commercial use in a combination product with ALD-201.

We rely on research institutions and treatment centers to conduct and oversee our clinical trials and, in some cases, to maintain regulatory files for our product candidates. If we are not able to secure and maintain agreements with suitable research institutions or treatment centers on acceptable terms to conduct or oversee our clinical trials, or if these institutions do not perform as required, we may not be able to obtain regulatory approval for, or commercialize, our product candidates.

The IND for the Phase 1 clinical trial of ALD-201 is held by a third-party research institution rather than by us, as is the IND under which the Phase 1 clinical trial of ALD-101 was conducted and the Phase 1 clinical trial of ALD-151 is proceeding. As a result, we may have limited or no control over interactions with the FDA regarding trials conducted under these INDs. In the clinical trials for which a research institution holds the IND, we rely on the institution to conduct these clinical trials and correspond with the FDA. For our pivotal Phase 3 clinical trial of ALD-101 and our Phase 1/2 clinical trial of ALD-301, we hold the IND and rely on additional entities, such as treatment centers or medical practices, to conduct our clinical trials. Our reliance upon research institutions, hospitals and clinics provides us with less control over the timing and cost of clinical trials and the ability to recruit subjects. If we are unable to enter into and maintain agreements with these entities on acceptable terms, or if any engagement is terminated, we may be unable to enroll patients on a timely basis or otherwise conduct our clinical trials in the manner we anticipate.

In addition, there is no guarantee that these entities or any other third parties upon which we rely for administration and conduct of clinical trials of our product candidates will devote adequate time and resources to the clinical trials or perform as required by contract or in accordance with regulatory requirements. If these third parties fail to meet expected deadlines, fail to adhere to the clinical protocols or fail to act in accordance with regulatory requirements, or if they otherwise perform in a substandard manner, clinical trials of our product candidates may be extended, delayed or terminated, and as a result we may not be able to commercialize our product candidates.

If the potential of our product candidates to address the indications we are pursuing is not realized and we are unable to demonstrate in clinical trials that our product candidates are safe and effective for those indications, the value of our technology and our development programs could be significantly reduced.

We are currently exploring the potential of our product candidates to address their targeted indications. We have not proven in clinical trials that our product candidates will be safe and effective for the indications for which we intend to seek approval. Our product candidates are susceptible to various risks, including undesirable and unintended side effects, inadequate therapeutic efficacy or other characteristics that may prevent or limit their marketing approval or commercial use. We have not treated a sufficient number of patients to allow us to evaluate the most frequent or most serious adverse events that could occur with our product candidates. Any undesirable side effects that might be caused by our product candidates could interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications. We could also be required to change the manner in which a product candidate must be administered, which could require us to conduct additional clinical trials. If the potential of our product candidates is not realized, whether as a result of unintended consequences or otherwise, the value of our technology and our development programs could be significantly reduced.

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Risks Related to the Commercialization of Our Product Candidates

Our product candidates are based on novel stem cell technologies that are inherently risky and may not be understood or accepted by the marketplace.

We are subject to the risks of failure inherent in the development and commercialization of therapeutic products based on new technologies. The novel nature of our therapeutics based on adult stem cells creates significant challenges with regards to product development and optimization, manufacturing, government regulation, third-party reimbursement and market acceptance. For example, the FDA has relatively limited experience approving and regulating therapies based on adult stem cells.

Even if we successfully develop and obtain regulatory approval for our product candidates, the market may not understand or accept them, which could adversely affect our future sales. We are developing product candidates that are new treatments. Our future success depends, in part, upon a small number of practitioners who serve as key industry thought leaders. If these parties have or develop a negative perception of our company or our product candidates, our potential for commercial success could be harmed.

The degree of market acceptance of any of our product candidates will depend on a number of factors, including:

• the clinical safety and effectiveness of our product candidates, the availability of alternative treatments and the perceived advantages of our product candidates over alternative treatments;

• the relative convenience and ease of administration of our product candidates;

• our ability to separate our product candidates, which are based on adult stem cells, from the ethical and political controversies associated with stem cell drug candidates derived from human embryonic or fetal tissue;

• ethical concerns that may arise regarding our commercial use of donated stem cells or donated human tissue of any kind, including adult stem cells, adult bone marrow and other adult tissues, in the manufacture of our product candidates;

• the frequency and severity of adverse events or other undesirable side effects involving our product candidates or the products or product candidates of others that are stem cell-based; and

• the cost of our products, the reimbursement policies of government and third-party payors and our ability to obtain sufficient third-party coverage or reimbursement.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

Our industry is subject to rapid and intense technological change. We face, and will continue to face, intense competition from pharmaceutical, biopharmaceutical and biotechnology companies, as well as numerous academic and research institutions and governmental agencies engaged in drug discovery activities or funding, both in the United States and abroad. Some of these competitors are pursuing the development of drugs and other therapies that target the same diseases and conditions that we are targeting with our product candidates.

There are no therapies currently approved by the FDA to improve cord blood transplants. However, we are aware of one product candidate in clinical development, Gamida Cell Ltd.’s StemEx, which may compete with ALD-151 in leukemia patients. Other therapies are also being developed to treat the underlying diseases that are treated with cord blood transplants. These competing therapies could be a competitive threat to our ALD-101 and ALD-151 product candidates to the extent that alternative therapies diminish the need for cord blood transplants to treat these diseases. For example, some inherited metabolic diseases, including Hurler syndrome, are currently treated with approved and marketed enzyme replacement therapies. Additionally, a few inherited metabolic diseases can be treated with a transplant of primary cell lines that manufacture the deficient enzyme.

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For our cardiovascular product candidates, we generally target patients without other revascularization options. Therefore, we do not believe that we will compete directly with pharmaceutical therapies being developed to treat less severe stages of our target indications. However, to the extent that therapies are developed that reverse the progression of the ischemic damage or improve blood flow, it could have the effect of reducing demand for our ALD-301 and ALD-201 product candidates. New pharmaceutical agents or devices that improve the repair of cardiac injury after a heart attack, with the result that fewer patients develop ischemic heart failure, would also represent a competitive threat for ALD-201. In addition, cell-based therapies, such as skeletal myoblasts and bone marrow-derived stem cell therapies, are being pursued by companies such as Aastrom Biosciences, Inc. and Bioheart, Inc. Some other companies, such as Harvest Technologies, Inc., Cytori Therapeutics, Inc. and Baxter International, Inc., are developing devices to facilitate the production of therapeutic cell populations by clinicians for the treatment of our target indications.

We may also face competition in the future from other companies that are researching and developing stem cell therapies. We are aware of many companies working in this area. Many of the companies competing against us have financial and other resources substantially greater than we do. In addition, many of our competitors have significantly greater experience in testing pharmaceutical and other therapeutic products, obtaining FDA and other regulatory approvals of products, and marketing and selling those products. If we obtain necessary regulatory approval and commence significant commercial sales of our products, we will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which we have limited or no commercial-scale experience. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated by our competitors. Competition may increase further as a result of advances made in the commercial applicability of our technologies and greater availability of capital for investment in these fields.

As a result, our competitors may:

• develop products that are safer or more effective than ours;

• obtain FDA and other regulatory approvals or reach the market with their products more rapidly than we can, reducing the potential sales of our product candidates;

• develop new or improved technologies and scientific advances;

• obtain patent protection that could impact our ability to market our product candidates;

• devote greater resources to market or sell their products;

• initiate or withstand substantial price competition more successfully than we can;

• recruit skilled scientific workers from the limited pool of available talent; and

• take advantage of acquisition or other opportunities more readily than we can.

The successful commercialization of our product candidates will depend on obtaining reimbursement from third-party payors.

If we successfully develop and obtain the necessary regulatory approvals, we intend to sell our products initially in the United States. In the United States, the market for any pharmaceutical or biologic product is affected by the availability of reimbursement from third-party payors, such as government health administration authorities, private health insurers, health maintenance organizations and pharmacy benefit management companies. We anticipate that our products, if approved, will be expensive. If we cannot demonstrate a favorable cost-benefit relationship, we may have difficulty obtaining adequate reimbursement for our products from these payors. Third-party payors may also deny coverage or offer inadequate levels of reimbursement for any of our potential products if they determine that the product is experimental, unnecessary or inappropriate.

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Should we seek to expand our commercialization internationally, we would be subject to the regulations of the European Union and other countries, where the pricing of prescription pharmaceutical products and services and the level of government reimbursement may be subject to governmental control. In these countries, pricing negotiations with governmental authorities can take six to 12 months or longer after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct one or more clinical trials that compares the cost effectiveness of our product candidates or products to other available therapies. Conducting one or more of these clinical trials would be expensive and result in delays in commercialization of our products.

Managing and reducing healthcare costs has been a general concern of federal and state governments in the United States and of foreign governments. We might be subject to future regulations or other cost-control initiatives that materially restrict the price we can receive for our products. Third-party payors may also limit reimbursement for newly approved healthcare products generally or limit the indications for which they will reimburse patients who use any products that we may develop. Cost control initiatives could decrease the price for products that we may develop, which would result in lower product revenues to us.

We have only limited experience manufacturing our product candidates. We may not be able to manufacture our product candidates in compliance with evolving regulatory standards or in quantities sufficient for commercial sale.

Components of therapeutic products approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with current good manufacturing practices, or cGMP, as required by the FDA. Manufacturers of cell-based product candidates such as ours also must comply with the FDA’s current good tissue practices, or cGTP. Manufacture of live cellular-based products is complex and subjects us to significant regulatory burdens that may change over time. We may encounter difficulties in the production of our product candidates due to our limited manufacturing capabilities. To date, we have not built commercial-scale manufacturing facilities, and we have only limited manufacturing experience with our product candidates. These difficulties could reduce sales of our products, if they are approved for marketing, increase our costs or cause production delays, any of which could damage our reputation and hurt our profitability.

If we successfully obtain marketing approval for ALD-301 and ALD-201, which potentially have large addressable patient populations, we may not be able to efficiently produce sufficient quantities of these products to meet potential commercial demand. We expect that we would need to significantly expand our manufacturing capabilities to meet potential demand for these products. Such expansion would require additional regulatory approvals. We may also encounter difficulties in the commercial-scale manufacture of all of our product candidates.

We are currently developing new processes and instruments to address limitations of our manufacturing process, such as increasing the speed of our cell sorting. However, we cannot assure you that we will be able to develop these enhancements timely, on commercially reasonable terms, or at all. We may need to demonstrate that our product candidates manufactured using any new processes or instruments are comparable to our product candidates used in clinical trials. Depending on the type and degree of differences, we may be required to conduct additional studies or clinical trials to demonstrate comparability.

In addition, some changes in our manufacturing processes or procedures, including a change in the location where a product candidate is manufactured, generally require prior FDA or foreign regulatory authority review and approval for determining our compliance with cGMP and cGTP. We may need to conduct additional preclinical studies and clinical trials to support approval of any such changes. Furthermore, this review process could be costly and time-consuming and could delay or prevent the commercialization of our product candidates.

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If our sole clinical manufacturing facility is damaged or destroyed, our business and prospects would be negatively affected.

We have a manufacturing facility located at our corporate headquarters in Durham, North Carolina at which we produce product candidates for our clinical trials. If this facility or the equipment in it is significantly damaged or destroyed, we may not be able to quickly or inexpensively replace our manufacturing capacity or replace it at all. In the event of a temporary or protracted loss of this facility or equipment, we might not be able to transfer manufacturing to a third party. Even if we could transfer manufacturing to a third party, the shift would likely be expensive and time-consuming, particularly since the new facility would need to comply with the necessary regulatory requirements and we would need FDA approval before selling any products manufactured at that facility. Such an event could delay our clinical trials or, if our product candidates are approved by the FDA, reduce our product sales.

Currently, we maintain insurance coverage totaling $1.8 million against damage to our property and equipment and an additional $700,000 to cover business interruption and research and development restoration expenses. If we have underestimated our insurance needs with respect to an interruption in our clinical manufacturing of our product candidates, we may not be able to cover our losses.

We are currently working with a third-party vendor to develop new cell sorting technology. If we experience any delay or disruption or other unforeseen event in connection with this development arrangement, it could hurt our business.

We have an arrangement with Innovative Micro Technology, or IMT, relating to the development of a new cell sorting machine that we refer to as the Aldesorter. The Aldesorter is based upon micro-electrical-mechanical systems, or MEMS, chips that we believe will enhance our cell sorting speed and capabilities. We currently anticipate that the Aldesorter and the related MEMS chips will be key components of our long-term ability to manufacture our product candidates for commercial sale if our products are approved.

Our success in completing the development of the Aldesorter could be impaired by:

• a failure of IMT to conduct their contractual responsibilities in a timely manner, or a breach or termination of their arrangement with us;

• a failure of IMT to comply with legal or regulatory requirements;

• variations in the operation or financial results of IMT, including additions or departures of key IMT personnel; and

• market conditions or competition in the sectors affecting IMT.

The occurrence of any of the above disruptions or other unforeseen events relating to the development efforts of IMT could harm our potential for success or delay or prevent the achievement of our development or business objectives.

We may use third-party collaborators to help us develop or commercialize our product candidates, and our ability to commercialize such candidates may be impaired or delayed if collaborations are unsuccessful.

We may in the future selectively pursue strategic collaborations for the development and commercialization of our cardiovascular product candidates and for the international development and commercialization of all of our product candidates. For example, we may not be able to commercialize our ALD-201 product candidate successfully without entering into an arrangement with a third party to provide an approved method of administration. ALD-201 is currently administered by injection directly into a patient’s heart muscle using a specialized catheter, but neither this method of administration nor the catheter has been approved or cleared by the FDA or any other regulatory authority. In any future third-party collaboration, we would be dependent upon the success of the collaborators in performing their responsibilities and their continued cooperation. Our

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collaborators may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to performing their responsibilities under our agreements with them. Our collaborators may choose to pursue alternative technologies in preference to those being developed in collaboration with us. The development and commercialization of our product candidates will be delayed if collaborators fail to conduct their responsibilities in a timely manner or in accordance with applicable regulatory requirements or if they breach or terminate their collaboration agreements with us. Disputes with our collaborators could also result in product development delays, decreased revenues and litigation expenses.

If we market any approved products through a direct sales force, we would need to either hire a sales force with expertise in biologic products or contract with a third party to provide a sales force to meet our needs.

We do not currently have a sales or marketing organization, and we have no experience in the sale, marketing or distribution of biologic products. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. Our corporate strategy for our cord blood transplantation products includes a plan to develop an internal sales organization to promote these products, if approved.

We may be unable to establish marketing, sales and distribution capabilities necessary to commercialize and gain market acceptance for any of our product candidates and to be competitive. In addition, co-promotion or other marketing arrangements with third parties to commercialize product candidates could significantly limit the revenues we derive from these product candidates, and these third parties may fail to commercialize our product candidates successfully.

Ethical and other concerns surrounding the use of stem cell-based therapy or donated human tissue may negatively affect public perception of us or our product candidates, thereby reducing potential demand for our products.

The commercial success of our product candidates, which are based on adult stem cells, will depend in part on general public acceptance of the use of stem cell-based therapy and donated human tissue for the prevention or treatment of human diseases. The use of embryonic stem cells and fetal tissue for research and stem cell therapy has been the subject of substantial national and international debate regarding related ethical, legal and social issues. In the United States, for example, federal government funding of embryonic stem cell research has been limited to specifically identified cell lines and is not otherwise available. We do not use embryonic stem cells or fetal tissue in any of our product candidates, but the public may not be able to, or may fail to, differentiate our use of adult stem cells from the use by others of embryonic stem cells or fetal tissue. This could result in a negative perception of our company or our product candidates.

We obtain our stem cells from volunteer cord blood donors or from the bone marrow collected from the patient receiving the therapy. Cord blood donors do not receive payment or other benefit from use of their cells. Some people have raised ethical concerns about the use of donated human tissue in a commercial setting, which could also negatively affect the perception of our product candidates and inhibit their commercialization in a successful manner.

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ALD-101 and ALD-151 are derived from human cord blood sources and therefore have the potential for disease transmission.

Our use of donated human cord blood creates the potential for transmission of a number of communicable infectious diseases, including HIV, viral hepatitis, syphilis or Creutzfeldt-Jakob disease, which is the human form of mad cow disease, as well as other viruses and fungal or bacterial pathogens. We are required to comply with federal and state regulations intended to prevent the transmission of communicable disease, and public cord blood banks that supply our source material for ALD-101 and ALD-151 are required to comply with such regulations in connection with their collection, storage and supply to us. Despite taking what we believe are appropriate precautionary measures:

• we or our suppliers may fail to comply with such regulations;

• even with compliance, our product candidates might nevertheless be associated by the public with transmission of disease; and

• a patient that contracts an infectious disease might assert that the use of our product resulted in disease transmission, even if the patient became infected through another source.

Any actual or alleged transmission of communicable disease could result in patient claims, litigation, distraction of management’s attention and potentially increased expenses. Further, any failure in screening, whether by us or other manufacturers of similar products, could adversely affect our reputation, the support we receive from the medical community and the overall demand for our products, if approved for marketing. As a result, such actions or claims, whether or not directed at us, could harm our reputation with our customers and our ability to market our products, if approved.

The use of our product candidates in human subjects may expose us to product liability claims, and we may not be able to obtain adequate insurance for these claims.

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. None of our product candidates has been widely used over an extended period of time, and therefore our safety data are limited. We derive the raw materials for manufacturing of our product candidates from human cell sources, and therefore the manufacturing process and handling requirements are extensive, which increases the risk of quality failures and subsequent product liability claims.

We currently have $3.0 million of product liability insurance for our product candidates which are in clinical testing. We will need to increase our insurance coverage when we begin commercializing our product candidates, if ever. We may not be able to obtain or maintain product liability insurance on acceptable terms with adequate coverage or at all. If we are unable to obtain and maintain adequate insurance, or if claims against us substantially exceed our coverage, then our financial position could be significantly impaired.

Whether or not we are ultimately successful in any product liability litigation, such litigation could consume substantial amounts of our financial and managerial resources and could result in:

• decreased demand for any products or product candidates we may develop;

• significant awards against us;

• substantial litigation costs;

• injury to our reputation; and

• withdrawal of clinical trial participants.

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Risks Related to Our Intellectual Property

If our patent position does not adequately protect our product candidates or any future products, others could compete against us more directly.

Our success depends, in large part, on our ability to obtain and maintain intellectual property protection for our product candidates. The patent position of biotechnology companies is generally highly uncertain, involves complex legal and factual questions and has been the subject of much litigation.

The claims of the issued U.S. patents that are licensed to us, and the claims of any patents which may issue in the future and be owned by or licensed to us, may not confer on us significant commercial protection against competing products. Third parties may challenge, narrow, invalidate or circumvent any patents we own or license currently or in the future. Also, our pending patent applications may not issue, and we may not receive any additional patents. Our patents might not contain claims that are sufficiently broad to prevent others from utilizing our technologies. Consequently, our competitors may independently develop competing products that do not infringe our patents or other intellectual property. For instance, the two issued U.S. patents relating to our product candidates are limited to a particular chemistry in the manufacturing process. To the extent a competitor can develop similar products using a different chemistry, these patents will not prevent others from directly competing with us. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our product candidates can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantages of the patent. For instance, one of our patents relating to our technology will expire in 2019. To the extent our product candidates based on that technology are not commercialized significantly ahead of this date, or to the extent we have no other patent protection on such product candidates, those product candidates would not be protected by patents beyond 2019. The background technologies used in the development of our product candidates are known in the scientific community, and it is possible to duplicate the methods we use to create our product candidates.

Similar considerations apply in any other country where we are prosecuting patents, have been issued patents, or have licensed patents or patent applications relating to our technology. The laws of foreign countries may not protect our intellectual property rights to the same extent as do laws of the United States.

If we are unable to protect the confidentiality of our proprietary information and know-how, our competitive position would be impaired.

A significant amount of our technology, especially regarding manufacturing processes, is unpatented and is maintained by us as trade secrets. In an effort to protect these trade secrets, we require our employees, consultants, collaborators and advisors to execute confidentiality agreements upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. A breach of confidentiality could affect our competitive position. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators or advisors have previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business.

We have acquired rights to some of our product candidates under license agreements with third parties and expect to enter into additional licenses in the future. These licenses provide us rights to third party intellectual property that is necessary for our business. For example, we acquired from Duke University and Johns Hopkins University the exclusive worldwide right to patents relating to our core technology.

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Our existing licenses impose, and we expect that future licenses would impose, numerous obligations on us, including development and commercialization requirements, milestone and royalty payments, sublicensing obligations, patent protection and maintenance covenants and insurance requirements. If we fail to comply with these obligations or otherwise breach the license agreement, the licensor may have the right to terminate the license in whole, terminate the exclusive nature of the license or bring a claim against us for damages. Any such termination or claim could prevent or impede our ability to market any product that is covered by the licensed patents. Even if we contest any such termination or claim and are ultimately successful, our financial results and stock price could suffer. In addition, upon any termination of a license agreement, we may be required to grant to the licensor a license to any related intellectual property that we developed.

If we infringe or are alleged to infringe intellectual property rights of third parties, our business could be harmed.

Our research, development and commercialization activities, including any product candidates resulting from these activities, may infringe or be claimed to infringe patents owned by third parties and to which we do not hold licenses or other rights. There may be applications that have been filed but not published that, when issued, could be asserted against us. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.

For example, we are aware of patents owned by third parties that are directed toward sorting stem cells with different cell surface markers and the use thereof. Our preliminary research suggests that our product candidates, upon commercialization, would not infringe a valid claim of these patents. However, our review of these patents is still at an early stage, and our views are subject to change.

As a result of patent infringement claims, or in order to avoid potential claims, we may choose or be required to seek a license from the third party. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. All of the issues described above could also affect our potential collaborators to the extent we have any collaborations then in place, which would also affect the success of the collaboration and therefore us.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference proceedings declared by the U. S. Patent and Trademark Office and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our product candidates and technology. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

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We may become involved in lawsuits to protect or enforce our patents or the patents of our potential collaborators or licensors, which could be expensive and time consuming.

Competitors may infringe our patents or the patents of our potential collaborators or licensors. As a result, we may be required to file infringement claims to counter infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover its technology. An adverse determination of any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. We are aware of several companies that are employing stem cell sorting technology in their research and product development efforts. If these companies commercialize these products, there is no assurance that we would have a basis for initiating patent infringement proceedings or that if initiated we would prevail in such proceedings.

Interference proceedings brought by the U.S. Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patent applications or those of our potential collaborators or licensors. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distraction to our management. We may not be able, alone or with our potential collaborators and licensors, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.

Risks Related to Regulatory Approval and Other Government Regulations

If we are not able to obtain the necessary regulatory approvals for any of our product candidates, we may not generate sufficient revenues to continue our business operations.

Our product candidates, and the activities associated with their development and commercialization, including their testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in states and in other countries. Our failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate. We have not received regulatory approval to market any of our product candidates in any jurisdiction. Securing FDA approval typically requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing FDA approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the FDA. Our future products may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or may prevent or limit commercial use.

We began enrolling patients in a pivotal Phase 3 clinical trial of our most advanced product candidate, ALD-101, in March 2008. We must complete clinical trials to the FDA’s satisfaction before we can receive its approval to market this product candidate. Our ongoing pivotal Phase 3 clinical trial alone may not be sufficient for approval of a BLA. Collection of data needed for submission of an acceptable BLA may take several years and will require the expenditure of substantial resources. The FDA could require more extensive clinical trials of ALD-101, potentially including trials with greater numbers of sites and patients or trials using a different control group, as a condition to approval of ALD-101, or could impose other costly conditions prior to approval. If our

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clinical trials fail to demonstrate to the FDA that ALD-101 is safe and effective, in accordance with the FDA’s standards, it will not receive regulatory approval.

The process of obtaining FDA and other regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved and challenges by competitors. Moreover, because all of our product candidates are based on our ALDH^br stem cell technology, any adverse events in our clinical trials of one of our product candidates could negatively affect the clinical trials and approval process for our other candidates. Changes in regulatory approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application or may make it easier for our competitors to gain regulatory approval to enter the marketplace. The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying agency interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

Any of the following factors, among others, may cause regulatory approval for our product candidates to be delayed, limited or denied:

• our product candidates require significant clinical testing to demonstrate safety and effectiveness before applications for marketing approval can be filed with the FDA;

• data obtained from preclinical and nonclinical animal testing and clinical trials can be interpreted in different ways, and the FDA may not agree with our interpretations or may require us to conduct additional testing;

• it may take many years to complete the testing of our product candidates, and failure can occur at any stage of the process;

• the FDA may not grant licensure for the use of cord blood in our target indications;

• negative or inconclusive results or the occurrence of serious or unexpected adverse events during a clinical trial could cause us to delay or terminate development efforts for a product candidate; and

• commercialization may be delayed if the FDA requires us to expand the size and scope of the clinical trials.

Any difficulties that we encounter in obtaining regulatory approval could have a substantial adverse impact on our ability to generate product sales and cause our stock price to decline significantly.

If we or our investigators are not able to conduct the clinical trials of our product candidates in accordance with regulations and accepted standards, and on schedule, regulatory approval by the FDA and other regulatory authorities may be delayed or denied.

To obtain marketing approvals for our products in the United States, we must, among other requirements, complete adequate and well-controlled clinical trials sufficient to demonstrate to the FDA that the product candidate is safe and effective, for each indication for which we seek approval. Several factors could prevent completion or cause significant delay of these trials, including an inability to enroll the required number of patients or failure to demonstrate adequately that our product candidates are safe and effective for use in humans. Negative or inconclusive results from, or serious adverse events during, a clinical trial could cause the clinical trial to be repeated or a development program to be terminated, even if other studies or trials relating to the program are successful. A serious adverse event is an event that results in significant medical consequences, such as hospitalization, disability or death, and must be reported to the FDA. We cannot predict whether safety

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concerns regarding our product candidates will or will not develop. The FDA can place a clinical trial on hold if, among other reasons, it finds that patients enrolled in the trial are or would be exposed to an unreasonable and significant risk of illness or injury. If safety concerns develop, we may, or the FDA or an institutional review board may require us to, stop our trials before completion.

The completion of our clinical trials may be delayed or terminated for many reasons, including if:

• the FDA or other regulatory authority does not grant permission to proceed and places the trial on clinical hold;

• subjects do not enroll in our clinical trials at the rate we expect;

• subjects experience an unacceptable rate or severity of adverse side effects;

• third-party clinical investigators do not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, good clinical practices required by the FDA and other regulatory requirements, or other third parties do not perform data collection and analysis in a timely or accurate manner;

• inspections of clinical trial sites by the FDA or by institutional review boards of research institutions participating in our clinical trials, reveal regulatory violations that require us to undertake corrective action, suspend or terminate one or more sites, or prohibit us from using some or all of the data in support of our marketing applications; or

• the FDA or one or more institutional review boards suspends or terminates the trial at an investigational site, precludes enrollment of additional subjects or withdraws its approval of the trial.

Our development costs will increase if we have material delays in our clinical trials, or if we are required to modify, suspend, terminate or repeat a clinical trial. If we are unable to conduct our clinical trials properly and on schedule, marketing approval may be delayed or denied by FDA.

Any product for which we obtain marketing approval will be subject to extensive ongoing regulatory requirements, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and comparable regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration requirements, cGMP and cGTP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians, requirements relating to product labeling, advertising and promotion, and recordkeeping. Even if regulatory approval of a product is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to other conditions of approval. For example, we will not be permitted to advertise or promote ALD-101 based on claims that a reduction in engraftment times could lead to reductions in post-transplant complications, length of hospital stays or reductions in costs associated with hospital stays. In addition, approval may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. Discovery after approval of previously unknown problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in actions such as:

• restrictions on such products’ manufacturing processes;

• restrictions on the marketing of a product;

• restrictions on product distribution;

• requirements to conduct post-marketing clinical trials;

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• warning letters;

• withdrawal of the products from the market;

• refusal to approve pending applications or supplements to approved applications that we submit;

• recall of products;

• fines, restitution or disgorgement of profits or revenue;

• suspension or withdrawal of regulatory approvals;

• refusal to permit the import or export of our products;

• product seizure;

• injunctions; or

• imposition of civil or criminal penalties.

Failure to obtain regulatory approval in international jurisdictions would prevent us from marketing products abroad.

We may in the future seek to market some of our product candidates outside the United States. In order to market our product candidates in the European Union and many other jurisdictions, we must submit clinical data concerning our product candidates and obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval from foreign regulators may be longer than the time required to obtain FDA approval. The regulatory approval process outside the United States may include all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product candidate be approved for reimbursement before it can be approved for sale in that country. In some cases this may include approval of the price we intend to charge for our product, if approved. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, or at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA, but a failure or delay in obtaining regulatory approval in one country may negatively affect the regulatory process in other countries. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize any products in any market and therefore may not be able to generate sufficient revenues to support our business.

Our business involves the use of hazardous materials that could expose us to environmental and other liability.

Our manufacturing facility located at our corporate headquarters in Durham, North Carolina is subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory and manufacturing practices and the use and disposal of hazardous or potentially hazardous substances, including chemicals, micro-organisms and various radioactive compounds used in connection with our research and development activities. In the United States, these laws include the Occupational Safety and Health Act, the Toxic Test Substances Control Act and the Resource Conservation and Recovery Act. We cannot assure you that accidental contamination or injury to our employees and third parties from hazardous materials will not occur. We do not have insurance to cover claims arising from our use and disposal of these hazardous substances other than limited clean-up expense coverage for environmental contamination due to an otherwise insured peril, such as fire.

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Recently enacted legislation may make it more difficult and costly for us to obtain regulatory approval of our product candidates and to produce, market and distribute our product candidates after approval.

In September 2007, the President of the United States signed the Food and Drug Administration Amendments Act of 2007, or the FDAAA. The FDAAA grants a variety of new powers to the FDA, many of which are aimed at improving drug safety and assuring the safety of drug products after approval. For example, the FDA may impose a risk evaluation and mitigation strategy if the FDA deems it necessary to ensure that product benefits outweigh product risks. Under the FDAAA, companies that violate the new law are subject to substantial civil monetary penalties. While we expect the FDAAA to have a substantial effect on the pharmaceutical and biotechnology industries, the extent of that effect is not yet known. As the FDA issues regulations, guidance and interpretations relating to the new legislation, the impact on the industry, as well as our business, will become clearer. The new requirements and other changes that the FDAAA imposes may make it more difficult, and likely more costly, to obtain approval of new pharmaceutical products and to produce, market and distribute products after approval.

Risks Related to this Offering

An active trading market for our common stock may not develop.

Prior to this offering, there has been no public market for our common stock. The initial public offering price for our common stock has been determined through negotiations with the underwriters and may bear no relationship to the price at which the common stock will trade upon completion of this offering. Although we have applied to have our common stock listed on The NASDAQ Global Market, an active trading market for our shares may never develop or be sustained following this offering. If an active market for our common stock does not develop, it may be difficult to sell shares you purchase in this offering without depressing the market price for the shares or to sell your shares at all.

The trading price of the shares of our common stock is likely to be volatile, and purchasers of our common stock could incur substantial losses.

Our stock price is likely to be volatile. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the initial public offering price. The market price for our common stock may be influenced by many factors, including:

• results of clinical trials of our product candidates or those of our competitors;

• regulatory or legal developments in the United States and foreign countries;

• variations in our financial results or those of companies that are perceived to be similar to us;

• changes in the structure of healthcare payment systems;

• announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

• market conditions in the pharmaceutical and biotechnology sectors and issuance of securities analysts’ reports or recommendations;

• sales of substantial amounts of our stock by existing stockholders;

• sales of our stock by insiders and large stockholders;

• general economic, industry and market conditions;

• additions or departures of key personnel;

• intellectual property, product liability or other litigation against us;

• expiration or termination of our potential relationships with collaborators; and

• the other factors described in this “Risk Factors” section.

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In addition, in the past, stockholders have initiated class action lawsuits against biotechnology and pharmaceutical companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management’s attention and resources.

If you purchase shares of our common stock in this offering, you will suffer immediate dilution of your investment.

We expect the initial public offering price of our common stock to be substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our pro forma net tangible book value per share after this offering. Based on an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $            per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering and the assumed initial public offering price. In addition, purchasers of common stock in this offering will have contributed approximately     % of the aggregate price paid by all purchasers of our common stock but will own only approximately     % of our common stock outstanding after this offering.

In addition, as of April 30, 2008, we had outstanding stock options to purchase an aggregate of 5,996,472 shares of common stock at a weighted-average exercise price of $0.27 per share and outstanding warrants to purchase an aggregate of 1,771,370 shares of our common stock, assuming the conversion of preferred stock issuable upon the exercise of the warrants, at a weighted average exercise price of $0.79 per share. To the extent these outstanding options and warrants are exercised, there will be further dilution to investors in this offering.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decline significantly. Upon completion of this offering, we will have outstanding              shares of common stock, assuming no exercise of outstanding options or warrants. Of these shares, the              shares sold in this offering and              additional shares will be freely tradable,              additional shares of common stock will be eligible for sale in the public market beginning 90 days after the date of this prospectus, subject to volume, manner of sale and other limitations of Rule 144 and Rule 701, and              additional shares of common stock will be available for sale in the public market beginning 180 days after the date of this prospectus following the expiration of lock-up agreements between our stockholders and the underwriters. The representatives of the underwriters may release these stockholders from their 180-day lock-up agreements with the underwriters at any time and without notice, which would allow for earlier sales of shares in the public market. In addition, after this offering, holders of an aggregate of              shares of our common stock will have rights, subject to some exceptions, limitations, and conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register the shares of common stock that we may issue in the future under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the 180-day lock-up agreements with our underwriters.

Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.

There are provisions in our certificate of incorporation and bylaws, as they will be in effect following this offering, that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by you and other stockholders. For example, our board of directors

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will have the authority to issue up to              shares of preferred stock. The board of directors can fix the price, rights, preferences, privileges, and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change in control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to other stockholders.

Our charter documents will also contain other provisions that could have an anti-takeover effect, including:

• only one of our three classes of directors will be elected each year;

• stockholders will not be entitled to remove directors other than by a 66 ²/3% vote and only for cause;

• stockholders will not be permitted to take actions by written consent;

• stockholders cannot call a special meeting of stockholders; and

• stockholders must give advance notice to nominate directors or submit proposals for consideration at stockholder meetings.

In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock. These provisions may also prevent changes in our management.

Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

Upon completion of this offering, our executive officers, directors and current beneficial owners of 5% or more of our common stock and their affiliates will, in aggregate, beneficially own approximately     % of our outstanding common stock, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into shares of our common stock, but assuming no exercise of the underwriters’ over-allotment option. These persons, acting together, will be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with our interests or the interests of other stockholders.

We have broad discretion in the use of proceeds from this offering and may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return.

We will have broad discretion over the use of proceeds from this offering. You may not agree with our decisions, and our use of the proceeds may not yield any return on your investment in us. Our failure to apply the net proceeds of this offering effectively could have a material adverse effect on our business, financial condition and results of operations.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gains.

We have not declared or paid cash dividends on our capital stock to date. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any existing or future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

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As a public company, we will be subject to the requirements of Section 404 of the Sarbanes-Oxley Act. If we are unable to comply with Section 404 in a timely manner it may affect the reliability of our internal control over financial reporting.

Assessing our staffing and training procedures to improve our internal control over financial reporting is an ongoing process. We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, and are therefore not required to make an assessment of the effectiveness of our internal control over financial reporting. Further, our independent registered public accounting firm has not been engaged to express, nor have they expressed, an opinion on the effectiveness of our internal control over financial reporting. However, in connection with our financial statement audits for the years ended December 31, 2005 and 2006, our independent registered public accounting firm informed us that they had identified material weaknesses in our internal controls as defined by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which our internal controls do not reduce to a low level the risk that misstatements caused by error or fraud in amounts that are material to our audited financial statements may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.

The material weakness reported by our independent registered public accounting firm relates to our controls for those prior periods over our financial statement close process, the lack of financial accounting and reporting expertise, a lack of sufficient levels of review and approval of the results of the closing procedures, and a lack of a formal process to assess the accounting implications of complex transactions.

During 2007, we took remedial measures to improve the effectiveness of our internal controls. Specifically, we improved controls by:

• strengthening our internal staffing and technical expertise in financial accounting and Securities and Exchange Commission, or SEC, reporting;

• implementing executive-level review of financial statements and complex transactions;

• enhancing and segregating duties within our accounting and finance department; and

• upgrading our accounting software systems.

We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify. For the year ending December 31, 2009, pursuant to Section 404 of the Sarbanes-Oxley Act, management will be required to deliver a report that assesses the effectiveness of our internal control over financial reporting. Under current SEC rules, our independent registered public accounting firm will also be required to deliver an attestation report on the operating effectiveness of our internal control over financial reporting beginning with the year ending December 31, 2009.

We have been and will continue to be involved in a substantial effort to implement appropriate processes, document the system of internal control over key processes, assess their design, remediate any deficiencies identified and test their operation. However, the existence of a material weakness is an indication that there is a more than remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period, and the process of designing and implementing effective internal controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot be certain at this time that we will be able to successfully complete the procedures, certification and attestation requirements of Section 404 or that we or our independent registered public accounting firm will not identify additional material weaknesses in our internal control over financial reporting. If we fail to comply with the requirements of Section 404 or if we or our independent registered public accounting firm identify and report a material weakness, it may affect the reliability of our internal control over financial reporting, which could adversely affect our stock price.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” but are also contained elsewhere in this prospectus. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this prospectus, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Forward-looking statements include statements about:

• the outcome, timing or success of preclinical studies and clinical trials;

• the expected timing of clinical trial enrollments or results;

• the possible clinical activities of our ALDH^br stem cell populations and their potential applicability in a variety of therapeutic areas;

• our ability to obtain and maintain regulatory approval for our product candidates from the FDA or foreign regulatory authorities;

• future demand for our product candidates and our ability to sustain such demand;

• the size and growth of the potential markets for our product candidates;

• the existing capacity of our manufacturing facility to produce our product candidates for our clinical trials;

• plans for enhancements to our manufacturing capabilities;

• our ability to sell our cord blood transplantation products, if approved for marketing, using a small internal sales force;

• our plans to seek collaborative relationships and the success of those relationships;

• the success of competing therapies that are or become available;

• our anticipated cash needs and our estimates regarding our use of proceeds, future revenues, capital requirements and needs for additional financing;

• our expectation that our research and development expense levels will remain high as we continue clinical trials and develop our product candidates;

• our compliance with federal, state and foreign regulatory requirements, and regulatory developments that impact those requirements;

• our estimates and assumptions with respect to disease incidence;

• our intellectual property and our strategies regarding filing additional patent applications to attempt to strengthen our intellectual property rights;

• our expected stock-based compensation expense in future periods;

• our ability to retain key management, scientific, sales and marketing personnel;

• our ability to implement financial controls and procedures on a timely basis; and

• anticipated trends and challenges in our business and the markets in which we operate.

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You should refer to the “Risk Factors” section of this prospectus for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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USE OF PROCEEDS

We estimate that the net proceeds from our issuance and sale of              shares of our common stock in this offering will be approximately $            million, or approximately $             million if the underwriters exercise their over-allotment option in full, based upon an assumed initial public offering price of $             per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase or decrease in the assumed initial public offering price of $             per share would increase or decrease the net proceeds to us from this offering by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

We currently expect to use the net proceeds from this offering as follows:

• approximately $             million to continue and expand our research and development activities, including clinical trials of our product candidates and further development of our product pipeline;

• approximately $             million to improve our manufacturing processes and to increase our manufacturing capacity as demand increases;

• approximately $             million to commercialize any of our product candidates that receive regulatory marketing approval; and

• the balance for other general corporate purposes, including general and administrative expenses and working capital.

In addition, we may use a portion of the net proceeds from this offering to acquire, invest in or in-license complementary products, technologies or businesses, but we currently have no agreements or commitments with respect to any potential acquisition, investment or in-license. We may allocate funds from other sources to fund some or all of these activities.

The expected use of net proceeds from this offering represents our intentions based upon our present plans and business conditions. We estimate that the net proceeds currently allocated to our clinical trials will be sufficient to complete the trials that we expect will be necessary to obtain regulatory approval for the marketing of each of our current product candidates other than ALD-201. As described elsewhere in this prospectus, however, the completion of these trials may be delayed for a number of reasons, in which case the net proceeds of this offering may not be sufficient to fully fund each of these trials. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the proceeds of this offering or the amounts that we will actually spend on the uses set forth above. The amount and timing of actual expenditures may vary significantly depending upon a number of factors, such as the progress of our development efforts, regulatory requirements, commercialization efforts in the event that we obtain regulatory approval, the amount of cash we generate from strategic collaborations that we may enter into, and the amount of cash used by operations. Accordingly, we will have significant flexibility in applying the net proceeds of this offering.

Pending their use, we intend to invest the net proceeds of this offering in a variety of capital-preservation investments, including short- and intermediate-term, interest-bearing, investment-grade securities.

DIVIDEND POLICY

We have never declared or paid any dividends on our common stock or any other securities. We anticipate that we will retain all of our future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and our capitalization as of December 31, 2007:

• on an actual basis;

• on a pro forma basis to give effect to:

• the issuance of 17,636,655 shares of Series C-1 convertible preferred stock in April 2008 and our receipt of $18.3 million in cash proceeds from that issuance;

• the issuance of 26,285 shares of our Series B convertible preferred stock prior to the closing of this offering upon the exercise for cash of warrants that would otherwise expire upon the closing of this offering and our receipt of an aggregate of $26,285 in proceeds from these exercises;

• the conversion of all then outstanding shares of our convertible preferred stock, including the Series C-1 convertible preferred stock we issued in April 2008 and the Series B convertible preferred stock we expect to issue upon the exercise of warrants prior to the closing of this offering, into an aggregate of 59,288,071 shares of our common stock, which will occur automatically upon the closing of this offering; and

• the reclassification of the preferred stock warrant liability to additional paid-in capital upon conversion of the warrants to purchase convertible preferred stock into warrants to purchase common stock; and

• on a pro forma as adjusted basis to give further effect to our sale of             shares of common stock in this offering at an assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

	As of December 31, 2007
	Actual			Pro forma			Pro forma as adjusted
	(in thousands, except numbers of shares)
Cash and cash equivalents	$	7,513		$	25,881		$
Preferred stock warrant liability	$	773		$	—		$
Capital lease obligations, including current portion		68			68
Notes payable, including current portion		3,240			3,240
Series A and Series B redeemable convertible preferred stock, $0.001 par value, 14,963,785 shares authorized, 14,515,000 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		9,383			—
Series C and Series C-1 redeemable convertible preferred stock, $0.001 par value, 31,889,058 shares authorized, 24,742,979 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		18,910			—
Stockholders’ (deficit) equity:
Common stock, $0.001 par value, 80,000,000 shares authorized; 3,619,747 shares issued and outstanding, actual; 62,907,818 shares issued and outstanding, pro forma;              shares issued and outstanding, pro forma as adjusted		4			63
Additional paid-in capital		—			47,395
Deficit accumulated during the development stage		(25,093	)		(25,093	)
Total stockholders’ (deficit) equity		(25,089	)		22,365
Total capitalization	$	7,285		$	25,673		$

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The pro forma as adjusted information set forth above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $             assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

The number of shares of common stock outstanding in the table above does not include:

• 4,342,500 shares of our common stock issuable upon the exercise of stock options outstanding under our 2000 stock option plan as of December 31, 2007, at a weighted-average exercise price of $0.20 per share;

• 1,817,881 shares of our common stock issuable upon the exercise of outstanding warrants as of December 31, 2007, at a weighted-average exercise price of $0.77 per share; and

•              shares of our common stock to be reserved for future issuance under our equity incentive plans.

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DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value per share is determined by dividing our total tangible assets less total liabilities and convertible preferred stock by the number of outstanding shares of our common stock.

As of December 31, 2007, we had a deficit in net tangible book value of $(25.1) million, or approximately $(6.93) per share of common stock. On a pro forma basis, after giving effect to the issuance of shares of Series C-1 convertible preferred stock in April 2008 and our receipt of the net proceeds from that issuance, the issuance of shares of our Series B convertible preferred stock prior to the closing of this offering upon the exercise of warrants that would otherwise expire upon the closing of this offering and our receipt of the proceeds from these exercises, and the conversion of the outstanding shares of our convertible preferred stock, including the Series C-1 convertible preferred stock we issued in April 2008 and the Series B convertible preferred stock we expect to issue upon the exercise of warrants prior to the closing of this offering, into shares of our common stock and the reclassification of the preferred stock warrant liability to equity immediately prior to the closing of this offering, our net tangible book value would have been approximately $22.4 million, or approximately $0.36 per share of common stock.

Investors participating in this offering will incur immediate and substantial dilution. After giving effect to the issuance and sale of              shares of our common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2007 would have been approximately $             million, or approximately $             per share of common stock. This represents an immediate increase in the pro forma net tangible book value of $             per share to existing stockholders, and an immediate dilution in the pro forma net tangible book value of $             per share to investors purchasing shares of our common stock in this offering. The following table illustrates this per share dilution:

Assumed initial public offering price per share				$
Actual deficit in net tangible book value per share as of December 31, 2007	$	(6.93	)
Increase per share attributable to issuance of convertible preferred stock, conversion of preferred stock and reclassification of preferred stock warrant liability		7.29
Pro forma net tangible book value per share before this offering		0.36
Increase in pro forma net tangible book value per share attributable to new investors participating in this offering
Pro forma as adjusted net tangible book value per share after this offering
Dilution per share to investors participating in this offering				$

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. Each $1.00 increase or decrease in the assumed initial public offering price of $             per share would increase or decrease our pro forma as adjusted net tangible book value by approximately $             million, or approximately $             per share, and the dilution per share to investors participating in this offering by approximately $             per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

If the underwriters exercise their option in full to purchase              additional shares of common stock in this offering, the pro forma as adjusted net tangible book value per share after the offering would be $             per share, the increase in the pro forma net tangible book value per share to existing stockholders would be $             per share and the dilution to new investors purchasing common stock in this offering would be $             per share.

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The following table sets forth as of December 31, 2007, on the pro forma basis described above, the differences between the number of shares of common stock purchased from us, the total consideration paid and the weighted average price per share paid by existing stockholders and by investors purchasing shares of our common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the range set forth on the cover page on this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

	Shares purchased			Total consideration			Weighted average price per share
	Number	Percent		Amount	Percent
Existing stockholders			%	$		%	$
New investors
Total		100	%	$	100	%

If the underwriters exercise their option to purchase additional shares in full, the common stock held by existing stockholders will be reduced to     % of the total number of shares of common stock outstanding after this offering, and the number of shares of common stock held by investors participating in this offering will be increased to              shares, or     % of the total number of shares of common stock outstanding after this offering.

Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $             million, and increase or decrease the percent of total consideration paid by new investors by              percentage points, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

The table above excludes:

• 4,342,500 shares of our common stock issuable upon the exercise of stock options outstanding under our 2000 stock option plan as of December 31, 2007, at a weighted-average exercise price of $0.20 per share;

• 1,817,881 shares of our common stock issuable upon the exercise of outstanding warrants as of December 31, 2007, at a weighted-average exercise price of $0.77 per share; and

•              shares of our common stock to be reserved for future issuance under our equity incentive plans.

The shares of our common stock reserved for future issuance under our equity benefit plans will be subject to automatic annual increases in accordance with the terms of the plans. To the extent that options or warrants are exercised, new options are issued under our equity benefit plans, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. In addition, we may choose to raise additional capital because of market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

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SELECTED FINANCIAL DATA

You should read the following selected financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and accompanying notes included later in this prospectus. The selected financial data in this section is not intended to replace our financial statements and the accompanying notes.

We have derived the selected statement of operations data for the years ended December 31, 2005, 2006 and 2007 and for the period from March 3, 2000 (inception) through December 31, 2007 and the selected balance sheet data as of December 31, 2006 and 2007 from our audited financial statements that are included in this prospectus. We have derived the selected balance sheet data as of December 31, 2003, 2004 and 2005 and the selected statement of operations data for the years ended December 31, 2003 and 2004 from our unaudited financial statements that are not included in this prospectus.

Note 2 to our financial statements explains the method we used to compute basic and diluted net (loss) income per share allocable to common stockholders and pro forma basic and diluted net loss per share.

Our historical results are not necessarily indicative of the results to be expected in any future period.

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	Year Ended December 31,															Period from March 3, 2000 (inception) through December 31, 2007
	2003			2004			2005			2006			2007
	(In thousands, except share and per share data)
Statement of Operations Data:
Revenues	$	140		$	28		$	59		$	105		$	211		$	629
Operating expenses:
Cost of product sales		34			9			18			46			75			183
Research and development		3,095			3,020			2,846			3,239			4,842			21,559
Selling, general and administrative		1,263			1,587			1,120			1,058			1,761			8,172
Total operating expenses		4,392			4,616			3,984			4,343			6,678			29,914
Loss from operations		(4,252	)		(4,588	)		(3,925	)		(4,238	)		(6,467	)		(29,285	)
Interest expense, net		(254	)		(67	)		(1,744	)		(1,630	)		(87	)		(3,808	)
Other income (expense), net		—			—			5			92			(147	)		(45	)
Loss before cumulative effect of change in accounting principle		(4,506	)		(4,655	)		(5,664	)		(5,776	)		(6,701	)		(33,138	)
Cumulative effect of change in accounting principle		—			—			(1,470	)		—			—			(1,470	)
Net loss		(4,506	)		(4,655	)		(7,134	)		(5,776	)		(6,701	)		(34,608	)
Accretion of redeemable convertible preferred stock		(835	)		(1,120	)		(1,214	)		(1,223	)		(2,120	)		(7,381	)
Gain on exchange of redeemable convertible preferred stock		—			—			—			14,518			—			14,518
Beneficial conversion feature		—			—			—			—			—			(128	)
Net (loss) income attributable to common stockholders		(5,341	)		(5,775	)		(8,348	)		7,519			(8,821	)	$	(27,599	)
Income allocable to preferred stockholders		—			—			—			(5,621	)		—
Net (loss) income allocable to common stockholders	$	(5,341	)	$	(5,775	)	$	(8,348	)	$	1,898		$	(8,821	)
Basic net (loss) income per share allocable to common stockholders	$	(2.79	)	$	(3.02	)	$	(2.72	)	$	0.56		$	(2.53	)
Diluted net (loss) income per share allocable to common stockholders	$	(2.79	)	$	(3.02	)	$	(2.72	)	$	0.32		$	(2.53	)
Shares used to compute basic net (loss) income per share allocable to common stockholders		1,911,000			1,911,000			3,065,795			3,411,000			3,487,396
Shares used to compute diluted net (loss) income per share allocable to common stockholders		1,911,000			1,911,000			3,065,795			5,918,171			3,487,396
Pro forma net loss per share—basic and diluted													$	(0.23	)
Pro forma weighted-average shares outstanding—basic and diluted														38,005,249

	As of December 31,
	2003			2004			2005			2006			2007
	(In thousands)
Balance Sheet Data:
Cash and cash equivalents	$	2,097		$	975		$	916		$	6,751		$	7,513
Working capital		1,616			452			(2,542	)		5,808			6,282
Total assets		3,318			2,406			1,992			7,620			8,710
Preferred stock warrant liability		—			—			4,030			625			773
Notes payable, including current portion		407			570			3,343			3,078			3,240
Total liabilities		1,035			1,021			7,695			4,754			5,506
Redeemable convertible preferred stock		13,837			18,696			18,240			19,270			28,293
Deficit accumulated during the development stage		(11,556	)		(17,314	)		(24,448	)		(16,407	)		(25,093	)
Total stockholders’ deficit		(11,554	)		(17,312	)		(23,944	)		(16,404	)		(25,089	)

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of our operations together with our financial statements and the related notes to those statements included later in this prospectus. In addition to historical financial information, this discussion contains forward-looking statements reflecting our current plans, estimates, beliefs and expectations that involve risks and uncertainties. As a result of many important factors, particularly those set forth under “Special Note Regarding Forward-Looking Statements” and “Risk Factors,” our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements.

Overview

We are a biopharmaceutical company developing proprietary regenerative cell therapies that target significant unmet medical needs. Our product candidates consist of specific populations of adult stem cells that we isolate using our proprietary technology. We have four product candidates in clinical trials. Our most advanced product candidate is ALD-101. We are currently conducting a pivotal Phase 3 clinical trial of ALD-101 to evaluate its efficacy in improving umbilical cord blood transplants used to treat inherited metabolic diseases in pediatric patients. We are also conducting or supporting Phase 1 or Phase 1/2 clinical trials of three other product candidates—ALD-151 to improve cord blood transplants used for the treatment of leukemia; ALD-301 to treat critical limb ischemia; and ALD-201 to treat ischemic heart failure.

We are a development stage company and have incurred significant losses since our inception. As of December 31, 2007, we had a deficit accumulated since inception of $25.1 million. We incurred a net loss of $6.7 million in the year ended December 31, 2007. We expect our losses to continue over the next several years as we continue clinical trials of our product candidates prior to receiving any potential regulatory approval to market these products. In addition, even if one or more of our product candidates are approved for marketing, we will incur significant expenses for regulatory approval and the initiation of commercialization activities.

Financial Operations Overview

Revenues

All of our revenues are currently derived from the sales of two research and diagnostic products, ALDEFLUOR and ALDECOUNT. ALDEFLUOR is a reagent system for use in research activities to identify and isolate stem cells and progenitor cells based on ALDH activity. We have sold ALDEFLUOR to researchers since 2003. ALDECOUNT is a diagnostic product for identification and counting of ALDH^br cells in vitro using flow cytometry. We have sold ALDECOUNT to clinical and research laboratories since 2004. We currently sell both ALDEFLUOR and ALDECOUNT through a third-party distributor.

From our inception through December 31, 2007, we have generated cumulative aggregate product revenues of approximately $500,000 attributable to the sale of ALDEFLUOR and, to a lesser extent, ALDECOUNT. Because these product revenues have been insufficient to fund our operations, we have financed our operations primarily through a combination of privately placed convertible preferred stock sales, convertible promissory notes, bank financing, capital lease agreements for the purchase of equipment and, during 2002 and 2003, approximately $100,000 in non-recurring research and development grants from governmental authorities. Until we receive regulatory approval to market our product candidates, if ever, we expect that our only source of product revenue will be from sales of ALDEFLUOR and ALDECOUNT. We anticipate that revenues from these products will continue to be minimal.

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Cost of Product Sales

Our cost of product sales relate to direct costs of raw materials in producing ALDEFLUOR and ALDECOUNT by a third party. Historically, these costs have averaged approximately 35% of our product sales revenues.

Research and Development Expenses

Our research and development expenses primarily consist of personnel-related costs, including employee salaries and benefits, non-cash stock-based compensation expense for stock option grants, patent expenses and facility, operational support and insurance costs allocated to the research and development function. Research and development expenses also include the costs of manufacturing our product candidates for clinical trials and the costs of supplies required in the clinical trial process. In addition, research and development expenses include costs paid to third parties to conduct our clinical trials. Costs for clinical trials are generally attributable to contracted services, such as services by clinical research organizations and clinical investigators, and costs associated with enrolling patients in clinical trials. We expense research and development costs as they are incurred.

Conducting a significant amount of research and development is a central part of our business model. From our inception through December 31, 2007, we have incurred $21.6 million in research and development expenses, and we plan to continue to make significant investments in research and development in order to realize the potential of our product candidates. The following table summarizes our research and development expense for the years ended December 31, 2005, 2006 and 2007:

	Year ended December 31,
	2005		2006		2007
	(in thousands)
Direct research and development expense by program:
ALD-101	$	183	$	272	$	246
ALD-151		—		—		—
ALD-301		—		159		690
ALD-201		251		521		1,351
Total direct research and development program expense		434		952		2,287
Indirect research and development expense		2,412		2,287		2,555
Total research and development expense	$	2,846	$	3,239	$	4,842

We do not allocate salaries, employee benefits, or other indirect costs related to our research and development function to specific product candidates and have included those expenses in “Indirect research and development expense” in the table above.

We expect our research and development expenses to increase as we advance into later-stage development of our product candidates. We expect to fund our research and development expenses from our current cash and cash equivalents, a portion of the net proceeds from this offering, interest income on these balances and, potentially, additional financing transactions.

We are unable to estimate the nature, timing or costs of future research and development investments due to the complexity of the process through which, and the markets in which, our product candidates are being developed. In addition, there are numerous risks and uncertainties associated with developing our product candidates, including the currently limited clinical data concerning their benefits, the uncertain cost and outcome of ongoing and planned clinical trials, the possibility that regulators may require us to conduct clinical or non-clinical testing in addition to trials that we have planned, the rapid and significant technological changes, frequent new product and service introductions and enhancements, evolving industry standards in the life sciences industry and our future need for additional capital.

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Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of salaries and benefits, non-cash stock-based compensation expense for stock option grants and professional fees related to our administrative, finance, human resources, legal and information technology functions. In addition, selling, general and administrative expenses include an allocation of facility, operational support and insurance costs. During 2008 and over the next several years, we anticipate that our selling, general and administrative expenses will continue to increase. We expect the increase to be attributable to accelerated selling and marketing activities, if we receive required regulatory approvals for any of our product candidates. In addition, we will need to add additional personnel in all of the key functional areas that support the growth of our general operations, including accounting and finance, legal and human resources as a result of becoming a public company. If we obtain approval to market ALD-101, we intend to commercialize ALD-101 with a small, specialized internal sales force. The development and expansion of this sales force would result in an increase in selling expenses.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents. We expect our interest income to increase following this offering as we invest the net proceeds from the offering.

Interest Expense

Interest expense to date has consisted primarily of interest expense on capital leases and loan balances and the amortization of debt discounts and debt issuance costs. Our debt discounts represent the initial value of warrants issued in connection with promissory notes, and any related beneficial conversion features associated with the debt. We currently have a term loan from a bank with an outstanding principal balance of $3.0 million as of December 31, 2007. This loan carries an annual interest rate equal to the bank’s prime rate plus 1.5%. We also currently pay interest on an equipment loan with a principal balance of approximately $240,000 as of December 31, 2007. This loan bears interest at a fixed rate of 10.61% per annum.

Critical Accounting Policies and Significant Judgments and Estimates

We have prepared our financial statements in accordance with U.S. generally accepted accounting principles. Our preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, expenses and related disclosures at the date of the financial statements, as well as revenues and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in note 2 to our financial statements included later in this prospectus, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Expenses Accrued Under Contractual Arrangements with Third Parties

A substantial portion of our ongoing research and development activities are performed under contractual arrangements we enter into with external service providers, including contract research organizations and clinical investigators. We accrue for costs incurred under these arrangements based on our estimates of service performed and costs incurred as of a particular balance sheet date. We base our estimates of expenses incurred on facts and circumstances known to us. The factors we consider include the level of services performed, patient enrollment in clinical trials, administrative costs incurred, and other indicators of services completed. The majority of our

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service providers invoice us in arrears, and to the extent that amounts invoiced differ from our estimates of expenses incurred, we accrue for additional costs. Furthermore, based on amounts invoiced to us by our service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as services are rendered. We make these estimates as of each balance sheet date in our financial statements.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting expenses that are too high or too low in any particular period. Any such difference may result in adjustments in future periods.

Stock-Based Compensation

Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123R, Share-Based Payment, or SFAS No. 123R, as interpreted by Staff Accounting Bulletin No. 107, Share-Based Payment, or SAB 107. SFAS No. 123R is a revision of SFAS No. 123, Accounting for Stock Based Compensation, and supersedes Accounting Principles Board No. 25, Accounting for Stock Issued to Employees, or APB 25. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Pro forma disclosure is no longer an alternative.

Prior to January 1, 2006, we accounted for employee stock-based compensation in accordance with the provisions of APB 25 and complied with the disclosure provisions of SFAS No. 123, and related SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Under APB 25, we measured compensation cost for stock options granted to employees and non-employee directors as the excess, if any, on the date of the grant, of the fair value of the stock over the exercise price an employee or non-employee director must pay to acquire the stock. Prior to 2006, the exercise price for all options we granted was equal to the fair value of the stock on the date of grant, as determined by our board of directors. As a result, there was no compensation expense recorded for stock options granted to employees and non-employee directors in 2005. Our board of directors, which included members who were experienced in valuing the securities of early-stage companies, considered both objective and subjective factors in determining the estimated fair value of our common stock on each option grant date.

Effective January 1, 2006, with the adoption of SFAS No. 123R, we elected to use the Black-Scholes option pricing model to determine the fair value of options granted. In accordance with SFAS No. 123R, we recognize the compensation expense of share-based awards on a straight-line basis over the vesting period of the award. Vesting is generally based upon continued service to our company. We adopted the provisions of SFAS No. 123R using the prospective transition method. Under this method, the provisions of SFAS No. 123R apply to all awards granted or modified after January 1, 2006. We continue to account for awards outstanding at January 1, 2006 using the accounting principles originally applied to the award.

The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by the fair value of our stock and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We do not have a history of market prices of our common stock. In connection with retrospective valuations of our common stock we performed in 2006 and 2007, we determined the volatility of comparable publicly traded companies, and in accordance with SAB 107 we used these historical volatilities. We estimate the expected life of awards to employees based on the “SEC Shortcut Approach,” as defined in SAB 107, which is the midpoint between the vesting date and the end of the contractual term. For non-employees, we use the contractual term of the award. We use a risk-free interest rate based on interest rates for U.S. Treasury notes with lives approximating the expected life of the stock options. We use a dividend yield of zero based on our history and expectation of paying no dividends. We estimate forfeitures based on the discrete groupings of employees, management and non-employee directors and the historical rate of forfeitures

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for those groups. We estimate forfeiture rates at the time of grant and revise these rates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense recognized during the year ended December 31, 2006 and thereafter is based on awards that we ultimately expect to vest. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unrecognized stock-based compensation expense.

After our adoption of SFAS No. 123R in 2006, our board of directors continued to set exercise prices for stock options based on its estimate of the fair market value of our common stock. Our board of directors considered a number of factors in determining the fair market value of our common stock, including the sales price of our Series C convertible preferred stock, which we had sold to outside investors at $0.7278 per share in December 2006 and September 2007 in arms-length transactions, and the rights, preferences and privileges of our Series A, Series B and Series C convertible preferred stock. Our board of directors, with the assistance of management, initially determined that the fair market value of our common stock continued to be $0.20 per share for all of 2006 and 2007.

In connection with the preparation of our financial statements for the year ended December 31, 2007, however, our board of directors directed management to retrospectively assess our enterprise value and the fair value of our common stock and preferred stock at December 31, 2006 and December 31, 2007. Management completed this assessment in February 2008 and then performed an internal reassessment of the fair value of our common stock for stock option grants between January 1, 2007 and December 31, 2007.

In conducting these retrospective valuations, we used a two-step methodology that first estimated the fair value of our company as a whole and then allocated a portion of the enterprise value to our preferred stock and to our common stock. We then validated our enterprise value using a market approach. This approach is consistent with the methods guidance set forth by the American Institute of Certified Public Accountants in the AICPA Technical Practice Aid, “Valuation of Privately-Held-Company Equity Securities Issued as Compensation,” which we refer to as the AICPA Practice Aid.

Our valuation methodology used the probability weighted expected return, or PWER, method to value our common stock. Under the PWER method, we estimated the value of our common stock based upon an analysis of future values of our common stock assuming various future outcomes and weighting those values based on our estimate of the relative probability of each outcome.

Valuation models require the input of highly subjective assumptions, and the valuation model we used is not the only valuation model available. Therefore, we cannot assure you of the accuracy of any particular valuation of our stock. Because our common stock has characteristics significantly different from that of publicly traded common stock and because changes in the subjective input assumptions can materially affect the fair value estimate, the models we used do not, in management’s opinion, necessarily provide a reliable, single measure of the fair value of our common stock, and we will not use them to value our common stock once this offering is complete. Accordingly, you are cautioned not to place undue reliance on the valuation methodology described below as an indicator of future stock prices.

Liquidity Scenarios

For the retrospective valuations as of December 31, 2006 and 2007, we considered a number of different liquidity scenarios, including an initial public offering, or IPO, of our common stock and an acquisition of our company. In some of these scenarios, the proceeds of the liquidation event were sufficient to provide a return to the holders of common stock. We also considered other scenarios involving an acquisition of our company in which the proceeds of the transaction were sufficient to fully or partially satisfy the liquidation preferences of our Series A, Series B, Series C and Series C-1 convertible preferred stock, but in which no proceeds would remain to be distributed to the holders of our common stock. We considered a final scenario in which we would be liquidated at a value that is insufficient to pay the liquidation preferences of any of the preferred stock.

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IPO and acquisition scenarios in which holders of common stock will realize a return. For the December 31, 2006 and 2007 retrospective valuations, we assigned probabilities to successful IPO scenarios in 2008 or 2009 and to acquisition scenarios during 2008 or 2009 that would result in a return to the holders of our common stock. We considered that our success in completing either an IPO or acquisition that resulted in a return to the holders of our common stock would be dependent upon our realization of clinical milestones, together with our execution of our business plan and a receptive marketplace.

For both the December 31, 2006 and December 31, 2007 valuations, our estimates of our company’s enterprise value in the acquisition scenarios were the same as in the IPO scenarios, but in the acquisition scenarios we took into account the liquidation preferences that would be payable to the shares of our convertible preferred stock before any distribution of proceeds to holders of our common stock. We also considered that the holders of the convertible preferred stock would have the right to participate, after payment of the convertible preferred stock liquidation preference, in receiving their pro rata share of remaining proceeds payable to the common stock, up to a maximum amount per share of convertible preferred stock set forth in our certificate of incorporation. As a result, the values per share of our common stock in the acquisition scenarios were less than the corresponding values per share of common stock in the IPO scenarios.

To test our expected enterprise valuations under the IPO and acquisition scenarios, we relied upon the guideline public company method, or GPC method, within the market approach to valuation outlined in the AICPA Practice Aid. Using the GPC method, we considered market transactions involving guideline public companies, defined to be publicly traded companies in our industry that provide a reasonable basis for comparison with our company. Once the guideline companies were identified, we developed ratios of value or market multiples based on the traded market value of each guideline company, as well as operating performance and financial condition indicators such as earnings at various levels, cash flows and revenues.

For the December 31, 2007 valuation, we identified public life sciences companies that had completed IPOs during 2006 and 2007 and determined the median pre-money valuation of these companies. We also looked specifically at the companies within the group of comparable public companies that were focused on therapeutic products derived from stem cells. For our 2006 retrospective valuation, we used an identical GPC method to the one we used for the 2007 valuation, but we only considered comparable companies that had completed IPOs during 2006.

Liquidity scenarios in which holders of common stock will not realize any return. For each of the December 31, 2006 and December 31, 2007 retrospective valuations, we assigned probabilities to acquisition scenarios in which the proceeds of the transaction would be sufficient to pay all or a portion of our preferred stock liquidation preferences, but no proceeds would be available to holders of our common stock. We also assigned a probability to an additional scenario in which we would be dissolved for no value and no proceeds would be available for any stockholder. In this scenario, we assumed that our common stock had a value of zero, since no proceeds would be available for distribution to the holders of common stock.

Discount Rate

Once we had allocated the per share values to our common stock and to each series of our convertible preferred stock at each of the future dates in our various scenarios, we calculated the present values of each per share amount to the valuation date, using a discount rate of 30% for our convertible preferred stock and 40% for our common stock. We believe that these discount rates are consistent with the required rates of return described in the AICPA Practice Aid for companies in a similar stage of development to us. Under the criteria set forth in the AICPA Practice Aid, we determined that our company was no longer in the start-up stage but had generally not progressed beyond the first or early stage of development.

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Fair Value Estimates

After applying the PWER method of estimating the fair value of our common stock in our retrospective valuations as of each valuation date, we estimated the fair value of our common stock to be approximately $0.24 per share as of December 31, 2006 and approximately $0.40 per share as of December 31, 2007. During 2006, we granted options to purchase an aggregate of approximately 950,000 shares of our common stock, all with an exercise price of $0.20 per share. These options had a weighted-average Black-Scholes value of $0.14 per share at issuance, which we are recognizing as expense ratably over the respective vesting periods of the options.

Our internal reassessment of the fair value of our common stock for options granted between the December 31, 2006 and December 31, 2007 valuation dates was based upon the timing of achievement of clinical and regulatory milestones and the closing of an additional round of equity financing in September 2007. Based on this internal reassessment, we believed that the fair market value of our common stock did not change during the first half of 2007 from the $0.24 per share calculated as of December 31, 2006, because there were no material developments in our business during this time. We granted options to purchase an aggregate of approximately 1.9 million shares of our common stock during this period. Using the estimated fair value of our common stock of $0.24 per share and an exercise price of $0.20 per share, the weighted-average fair value, determined using the Black-Scholes formula, of options granted during the first quarter of 2007 was $0.17 per share at issuance and during the second quarter of 2007 was $0.16 per share at issuance, which we are recognizing as expense ratably over the respective vesting periods of the options.

During the third quarter of 2007, we established a manufacturing facility at our corporate headquarters that we believe operates in compliance with the FDA’s cGMP and cGTP regulations to manufacture our product candidates, which has enhanced our manufacturing capabilities. In addition, in July 2007, we added three new sites for our clinical trial of ALD-301 for the treatment of critical limb ischemia. On September 15, 2007, we completed a second closing of our Series C convertible preferred stock financing in which we raised an additional $7.0 million. As a result of these developments, we determined that the fair market value of our common stock had increased from $0.24 to $0.35 per share as of September 15, 2007. We granted an option to purchase 60,000 shares of our common stock in the third quarter of 2007 at an exercise price of $0.20 per share. This option had a Black-Scholes fair value of $0.26 per share at issuance, which we are recognizing as expense ratably over the vesting period of the option.

In the fourth quarter of 2007, we submitted an IND to the FDA for, and received initial feedback from the FDA regarding, a pivotal Phase 3 clinical trial of ALD-101 for pediatric inherited metabolic diseases. During this period, our sponsored investigator also received clearance from the FDA to proceed with a Phase 1 clinical trial of ALD-151. We believe that these additional developments in the fourth quarter of 2007 justified the further increase in the fair market value of our common stock from $0.35 per share to approximately $0.40 per share as of December 31, 2007, as determined by the retrospective valuation. We granted an option to purchase 250,000 shares of our common stock during the fourth quarter at an exercise price of $0.20 per share. The Black-Scholes fair value of this option was $0.31 per share at issuance, which we are recognizing as expense ratably over the vesting period of the option.

Based on an assumed initial public offering price of $            per share, which is the midpoint of the range set forth on the cover page of this prospectus, the intrinsic value of stock options outstanding at December 31, 2007 would have been $            million, of which $            million and $            million related to stock options that were vested and unvested, respectively, at that date.

Income Taxes

We have incurred operating and net losses since our inception and, accordingly, have not recorded a current provision for income taxes for any of the periods presented. At December 31, 2007, we had $28.2 million of federal net operating loss carryforwards and $29.0 million of state net operating loss carryforwards. If not utilized, these net operating loss carryforwards will begin expiring in 2020 for federal purposes and 2015 for state purposes.

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In June 2006, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109, or FIN 48. FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN 48 as of January 1, 2007. The adoption of FIN 48 did not have a material impact on our financial statements.

Results Of Operations for the Years Ended December 31, 2007, 2006 and 2005

Revenues

Our total revenues for the year ended December 31, 2007 were $211,000, increasing from $105,000 for the year ended December 31, 2006 and $59,000 for the year ended December 31, 2005. These year-over-year increases relate to expanded sales of ALDEFLUOR and, to a lesser extent, ALDECOUNT.

Cost of Product Sales

Our cost of product sales for the year ended December 31, 2007 was $75,000, or 36% of revenues, increasing from $46,000, or 44% of revenues, for the year ended December 31, 2006 and $18,000, or 30% of revenues, for the year ended December 31, 2005. These increased costs were directly related to our increased sales of ALDEFLUOR and ALDECOUNT.

Research and Development Expenses

Research and development expenses for the year ended December 31, 2007 were approximately $4.8 million, increasing from $3.2 million for the year ended December 31, 2006 and $2.8 million for the year ended December 31, 2005. The $1.6 million increase for 2007, as compared to 2006, was primarily due to an increase in direct development expenses for clinical trial activities related to ALD-301 and ALD-201. Clinical trial expenses for ALD-301 increased by $531,000 for 2007 as compared to 2006 due to the expansion of our Phase 1/2 clinical trial activities. Clinical trial expenses for ALD-201 increased by $830,000 for 2007 as compared to 2006 due to an increase in patient enrollment during 2007. Other research and development expenses for 2007, as compared to 2006, increased by $267,000 primarily due to increased personnel-related costs. The $393,000 increase for 2006, as compared to 2005, was primarily due to a $518,000 increase in direct development expenses for clinical trial activities for ALD-101, ALD-301 and ALD-201, offset in part by a $125,000 decrease in personnel and consulting expenses during 2006.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the year ended December 31, 2007 were approximately $1.8 million, increasing from $1.1 million for the year ended December 31, 2006 and $1.1 million for the year ended December 31, 2005. The increase for 2007 as compared to 2006 was primarily due to a $301,000 increase in personnel-related expenses, a $218,000 increase in consulting, accounting and legal fees and a $183,000 increase in other expenses associated with our corporate infrastructure. Selling, general and administrative expenses remained relatively flat during 2006 as compared to 2005.

Interest Expense, net

Interest expense, net for the year ended December 31, 2007 was approximately $87,000, compared to $1.6 million for the year ended December 31, 2006 and $1.7 million for the year ended December 31, 2005. We incurred non-cash interest expense of $1.5 million during 2006 and $1.7 million during 2005. The non-cash interest expense was due primarily to the amortization of debt discounts associated with warrants we issued in connection with a term loan during 2006 and warrants we issued in connection with convertible promissory notes issued in 2005. These debt discounts were fully amortized as of December 2006.

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Other Income (Expense), net

Beginning in 2005, we have accounted for our outstanding warrants to purchase convertible preferred stock at the end of each reporting period by recording changes in fair value during the period as a component of other income or expense. For the year ended December 31, 2007, we recorded an expense of approximately $148,000 for the increase in fair value of all preferred stock warrants. For the year ended December 31, 2006, we recorded $191,000, and for the year ended December 31, 2005, we recorded $5,000, as other income to reflect the decrease in fair value of all preferred stock warrants. Upon the completion of this offering, these preferred stock warrants will convert to warrants to purchase common stock, as a result of which the preferred stock warrant liability will be reclassified to stockholders’ (deficit) equity and there will be no further adjustments to the fair value of these warrants that will have an effect on our statement of operations.

During 2006, we entered into a series of amendments to our $3.0 million promissory note. In accordance with Emerging Issues Task Force 96-19, Debtors Accounting for a Modification or Exchange of Debt Instruments, two of these amendments resulted in exchanges of debt instruments with substantially different terms, resulting in a $99,000 loss on extinguishment of debt reflected in other income (expense), net for the year ended December 31, 2006.

Gain on Exchange of Redeemable Convertible Preferred Stock

In December 2006, we issued shares of our Series C convertible preferred stock. In connection with that transaction, there were substantive modifications to the rights, preferences and privileges of our existing Series A convertible preferred stock and Series B convertible preferred stock, which we refer to as the junior preferred stock. For example, we extended the redemption date of the junior preferred stock from January 2008 to December 2012, cancelled all accrued dividends on the junior preferred stock and eliminated the right to future dividends on the junior preferred stock. In accordance with Emerging Issues Task Force D-42, The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock, we accounted for this transaction as a redemption of the existing Series A convertible preferred stock and Series B convertible preferred stock and the issuance of new junior preferred stock. Upon the closing of that transaction, we recorded a gain of $14.5 million, which represented the excess of the carrying value of the securities and other financial instruments redeemed over the fair value of the new equity and financial instruments issued.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have financed our operations primarily through a combination of privately placed convertible preferred stock sales, convertible promissory notes and associated warrants to purchase shares of our preferred stock, bank financing, capital lease agreements for the purchase of equipment and, during 2002 and 2003, research and development grants from governmental authorities. From our inception through April 30, 2008, we have raised approximately $51.5 million in cash proceeds, net of issuance costs, through the issuance of convertible preferred stock and the issuance of bridge loans that were subsequently converted into convertible preferred stock.

In March 2006, we raised $1.5 million for our working capital requirements from the issuance of a promissory note to a commercial bank, which was originally scheduled to mature in July 2006 or, if earlier, the date on which we received at least $5.0 million in additional equity financing. This loan was collateralized by all of our equipment. We have entered into a series of amendments with the commercial bank to, among other things, increase the amount borrowed to $3.0 million, extend the maturity date to May 2010, increase the interest rate to the lender’s prime rate plus 1.5%, and revise the collateral underlying the loan. As of December 31, 2007, the full principal amount of $3.0 million was outstanding. The promissory note, as amended to date, is payable in 17 equal monthly installments beginning in January 2009.

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During 2007, we entered into a $260,000 loan and security agreement with a venture finance company for the purpose of financing the acquisition of equipment. This loan bears interest at 10.61% per year and is payable in monthly installments through March 2011. As of December 31, 2007, we owed approximately $240,000 on this loan.

In April 2008, we raised approximately $18.3 million through the issuance of Series C-1 convertible preferred stock to accredited investors, all of which were existing stockholders in our company. This issuance of Series C-1 convertible preferred stock was contemplated at the time of the second closing of our Series C convertible preferred stock financing in September 2007, upon the achievement of specified milestones. All of the terms of the Series C-1 convertible preferred stock, including its price, were determined at the time of the second closing of the Series C convertible preferred stock financing, except that that the proceeds of the Series C-1 convertible preferred stock financing were initially contemplated to be $6.1 million. In conjunction with the closing of the Series C-1 convertible preferred stock issuance in April 2008, we amended our certificate of incorporation to increase the number of authorized shares of Series C-1 convertible preferred stock.

Cash Flows

We had cash and cash equivalents of $7.5 million at December 31, 2007 and $6.8 million at December 31, 2006. The change in our cash balance during 2007 was primarily the result of our $6.7 million net loss during the year, offset by the $6.9 million in net proceeds from our September 2007 issuance of Series C convertible preferred stock. We have no other agreements with investors, banks or other entities to provide new sources of funding.

Net cash used in operating activities was $5.8 million for the year ended December 31, 2007, $3.4 million for the year ended December 31, 2006 and $3.7 million for the year ended December 31, 2005. Net cash used during these years primarily reflected our net losses and changes in working capital during those periods, offset in part by non-cash depreciation and amortization, non-cash stock-based compensation expense in 2006 and 2007, changes in the fair value of our preferred stock warrant liabilities and, for the years ended December 31, 2006 and 2005, non-cash interest expense associated with the amortization of debt discounts.

Our cash used in investing activities relate to our purchases and sales of property and equipment. During the year ended December 31, 2007, we purchased approximately $502,000 in computer and laboratory equipment and leasehold improvements. We had nominal cash expenditures for investing activities during the years ended December 31, 2006 and 2005.

Net cash provided by financing activities was $7.1 million for the year ended December 31, 2007, $9.2 million for the year ended December 31, 2006 and $3.6 million for the year ended December 31, 2005. These cash flows are primarily proceeds from the issuance of notes payable and shares of our convertible preferred stock. In December 2006, we issued shares of our Series C convertible preferred stock in an initial closing for net cash proceeds of $6.5 million, excluding conversion of bridge notes and accrued interest thereon. In September 2007, we completed a second closing of our Series C convertible preferred stock financing, in which we issued shares of Series C convertible preferred stock to some of our existing investors for net cash proceeds of $6.9 million. During 2006, we also entered into the $3.0 million term loan with a commercial bank, and in 2005, we raised $3.9 million from the issuance of convertible promissory notes to our existing stockholders, all of which were subsequently converted into shares of Series C convertible preferred stock in December 2006. During 2007, we also received $260,000 in cash proceeds from an equipment loan and approximately $42,000 in cash from the exercise of employee stock options. During 2007, 2006 and 2005, we repaid approximately $118,000, $266,000 and $265,000 of borrowings under notes payable and capital leases.

Capital Resources and Expenditure Requirements

We expect to continue to incur substantial operating losses in the future and to make expenditures to expand our clinical trials and other research and development programs, which we expect to fund in part with a portion of the net proceeds of this offering. It may take several years, if ever, to achieve these goals. We expect that we

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will use a portion of the net proceeds from this offering and our existing cash and cash equivalents, including the net proceeds of the issuance of Series C-1 convertible preferred stock in April 2008, for working capital requirements and for general corporate purposes, including the increased costs associated with being a public company. We may also use a portion of the net proceeds of this offering to acquire or invest in complementary businesses, technologies, services or products, although we do not have any current plans to do so.

We currently believe that our cash and cash equivalents, together with the net proceeds from this offering and interest income on these balances, will be sufficient to meet our anticipated cash requirements for at least the next              months. However, our present and future funding requirements will depend on many factors, including:

• the scope, progress and results of our research and preclinical development programs;

• the scope, progress, results, costs, timing and outcomes of the clinical trials of our product candidates;

• the timing of and the costs involved in obtaining regulatory approvals for our product candidates, a process which could be particularly lengthy or complex given the FDA’s limited experience with marketing approval for therapeutics using adult stem cells;

• the costs of building, operating and enhancing our manufacturing facilities and capabilities to support our clinical activities, and, if our product candidates are approved, our commercialization activities;

• the costs of maintaining, expanding and protecting our intellectual property portfolio, including potential litigation costs and liabilities;

• revenues received from sales of our product candidates, if approved by the FDA;

• the costs of additional general and administrative personnel, including accounting and finance, legal and human resources employees, as a result of becoming a public company; and

• the costs of developing our anticipated internal sales, marketing and distribution capabilities.

Until we obtain regulatory approval to market our product candidates, if ever, and can generate a sufficient amount of product revenues to finance our cash requirements, which we may never do, we may seek to finance future cash needs through public or private equity offerings, debt financings, borrowings or strategic collaborations. We cannot assure you that additional capital will be available when needed on acceptable terms, or at all. The issuance of equity securities may result in dilution to stockholders. If we raise additional funds through the issuance of debt securities, these securities would have rights, preferences and privileges senior to those of our common stock and the terms of the debt securities could impose significant restrictions on our operations. If we raise additional funds through collaborations and licensing arrangements, we might be required to relinquish significant rights to our technologies or products, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we may have to scale back our operations or limit our research and development activities, which would have a material adverse impact on our business prospects and results of operations.

Future Contractual Obligations

The following table reflects a summary of our estimates of future contractual obligations as of December 31, 2007. The information in the table reflects future unconditional payments and is based on the terms of the relevant agreements, appropriate classification of items under generally accepted accounting principles currently in effect and certain assumptions, such as the interest rate on our variable debt that was in effect as of December 31, 2007. Future events could cause actual payments to differ from these amounts. In April 2008, we entered into an amendment to our loan agreement with a commercial bank, which increased the interest rate, extended the maturity date to June 2010 and delayed our obligations to begin repayment until January 2009. As a result of this amendment, the amounts owed to the commercial bank are classified as long-term on our balance sheet as of December 31, 2007.

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	Payments Due By Period
	Total		2008		2009-2010		2011-2012		2013 or beyond
	(in thousands)
Principal and interest under promissory notes	$	3,648	$	1,193	$	2,433	$	22	$	—
Capital lease obligations, including interest, for equipment		83		22		38		23		—
Operating lease obligations relating to corporate headquarters and manufacturing facility		664		117		244		259		44
Total	$	4,395	$	1,332	$	2,715	$	304	$	44

Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk is confined to our cash and cash equivalents, all of which have maturities of less than one year. The goals of our investment policy are liquidity and capital preservation. Our cash and cash equivalents as of December 31, 2007 consisted primarily of money market funds. Due to the short duration of our cash equivalents and the high quality of the underlying securities, an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash or cash equivalents. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our cash equivalents.

At December 31, 2007, we had $3.0 million outstanding under a term loan with a variable interest rate that adjusts periodically based on the prime rate. If the interest rate on this loan had been one percentage point higher during all of 2007, our interest expense with respect to this loan would have increased by $30,000. Our equipment loans have fixed interest payments. Therefore, we are not subject to market risk with respect to these loans.

We have no operations outside the United States, and all of our operating expenses and capital expenditures are denominated in U.S. dollars. As a result, we are not subject to market risk with respect to currency exchange rate fluctuations.

We have not entered into, and do not expect to enter into, hedging or derivative instrument arrangements.

Off-Balance Sheet Arrangements

Since inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.

Other Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS 157. SFAS 157 provides a common definition of fair value and establishes a framework to make the measurement of fair value in generally accepted accounting principles more consistent and comparable. SFAS 157 also requires expanded disclosure to provide information about the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. SFAS 157 is effective for our fiscal year ending December 31, 2008, although early adoption is permitted. We are currently evaluating the potential impact of SFAS 157 on our financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115, or SFAS 159. SFAS 159 gives us the irrevocable option to carry most financial assets and liabilities at fair value, with changes in fair value recognized in earnings. SFAS 159 is effective for our fiscal year ending December 31, 2008, although early adoption is permitted. We are currently evaluating the potential impact of SFAS 159 on our financial statements.

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In June 2007, the FASB issued EITF Issue No. 07-3, Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities, or EITF 07-3. EITF 07-3 requires companies to defer and capitalize prepaid, nonrefundable research and development payments to third parties, and amortize them over the period that the research and development activities are performed or the services are provided, subject to an assessment of recoverability. EITF 07-3 is effective for new contracts entered into during fiscal years beginning after December 15, 2007, including interim periods within those fiscal years. We are currently evaluating the impact, if any, of adopting EITF 07-3 on our financial statements.

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BUSINESS

Overview

We are a biopharmaceutical company developing proprietary regenerative cell therapies that target significant unmet medical needs. We have four product candidates in clinical trials. Our most advanced product candidate is ALD-101. We are currently conducting a pivotal Phase 3 clinical trial of ALD-101 to evaluate its efficacy in improving umbilical cord blood, or cord blood, transplants used to treat inherited metabolic diseases in pediatric patients. We are also conducting or supporting Phase 1 or Phase 1/2 clinical trials of three other product candidates—ALD-151 to improve cord blood transplants used for the treatment of leukemia; ALD-301 to treat critical limb ischemia; and ALD-201 to treat ischemic heart failure.

Our product candidates consist of specific populations of adult stem cells that we isolate using our proprietary technology. Stem cells are cells within the human body that have the potential to develop, or differentiate, into other types of cells with individual characteristics and specific functions. Stem cells found in blood, tissues or organs are referred to as adult stem cells. In preclinical studies conducted by leading research institutions and academic centers, adult stem cells expressing high levels of an enzyme known as aldehyde dehydrogenase, or ALDH, exhibited a variety of activities that we believe may promote the regeneration of multiple types of cells and tissues. We have developed a proprietary technology that allows us to isolate adult stem cells that express high levels of ALDH, which we refer to as ALDH-bright, or ALDH^br, cells. We believe that the ALDH^br stem cell populations we produce may have a variety of therapeutic uses.

Our four product candidates are:

• ALD-101 to improve cord blood transplants used to treat pediatric inherited metabolic diseases. ALD-101 is the population of ALDH^br stem cells we produce from a portion of a cord blood unit using our proprietary technology. ALD-101 is infused into a patient shortly after the transplant of the remaining portion of the cord blood unit. In an ongoing Phase 1 clinical trial of ALD-101, we observed a statistically significant reduction in the time to platelet and neutrophil engraftment in patients receiving ALD-101 following their cord blood transplant, as compared to similar patients who had received a cord blood transplant without ALD-101 in an earlier independent clinical trial. We believe that reduction in engraftment time could reduce risks associated with cord blood transplants and decrease the length and cost of the related hospital stay. In March 2008, we began enrolling patients in a pivotal Phase 3 clinical trial of ALD-101 to further evaluate its ability to accelerate engraftment following cord blood transplants in pediatric patients with inherited metabolic diseases. We expect to complete enrollment of this trial in the second half of 2009 and to receive the results of the trial in the first half of 2010.

• ALD-151 to improve cord blood transplants used to treat leukemia. ALD-151 is the population of ALDH^br stem cells we produce from a full cord blood unit using our proprietary technology. ALD-151 is infused into the patient shortly after the transplant of a separate, full cord blood unit. Investigators are currently enrolling patients in a Phase 1 clinical trial of ALD-151 to evaluate its safety and potential efficacy in accelerating engraftment in pediatric patients undergoing cord blood transplants for the treatment of leukemia. We expect that the results of this clinical trial will be available in the first quarter of 2009. If the results of this clinical trial are positive, we plan to conduct additional clinical trials of ALD-151 in adult leukemia patients undergoing cord blood transplants.

• ALD-301 to treat critical limb ischemia. ALD-301 is the population of ALDH^br stem cells we produce using our proprietary technology to sort a specified quantity of bone marrow collected from the patient receiving the therapy. ALD-301 is injected into the patient’s leg muscle. We have completed enrollment of a 21-patient Phase 1/2 clinical trial of ALD-301 to assess its safety and potential efficacy as a treatment for patients with advanced critical limb ischemia. In February 2008, we performed an interim analysis of the data from this trial. Our efficacy analysis included only those patients who had completed their 12-week assessments. Our safety analysis included all available safety data, regardless of whether the

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patient had completed his or her 12-week assessment. Four patients in the ALD-301 treatment group had efficacy data available at 12 weeks, while a total of seven were analyzed for safety. Six patients in the unsorted bone marrow group had efficacy data available, while a total of seven of these patients were analyzed for safety. ALD-301 was well-tolerated by the patients treated with it. In addition, we believe that the interim data provide initial evidence of potential therapeutic benefit of ALD-301. We expect the final results of our Phase 1/2 clinical trial to be available in the third quarter of 2008.

• ALD-201 to treat ischemic heart failure. ALD-201 is the population of ALDH^br stem cells we produce using our proprietary technology to sort a specified quantity of bone marrow collected from the patient receiving the therapy. ALD-201 is injected directly into the patient’s heart muscle. This procedure is currently performed using a specialized catheter. Investigators are currently enrolling patients in a Phase 1 clinical trial of ALD-201 to assess its safety and potential efficacy as a treatment for ischemic heart failure in patients with no further options for restoring blood supply to the heart. We expect that the results of this clinical trial will be available in the fourth quarter of 2008.

We manufacture all of our product candidates at a facility located at our corporate headquarters in Durham, North Carolina. We believe that this facility is in substantial compliance with the current good manufacturing practices, or cGMP, and current good tissue practices, or cGTP, standards required by the FDA. We believe that we can scale our current manufacturing process to support our clinical development programs and, if approved for marketing, the commercialization of our product candidates.

Our technology and the stem cell populations it produces, which form the basis for our current product candidates, are protected by an intellectual property portfolio consisting of two issued U.S. patents and two U.S. patent applications, as well as a number of issued foreign patents and pending foreign patent applications. Our issued patents and pending patent applications cover the method we use to manufacture ALDH^br cell populations, the chemistry used in this manufacturing process, kits that embody this chemistry, the composition of ALDH^br cell populations and the therapeutic use of these cell populations. We believe that the patents and patent applications that cover our current product candidates and our technology will generally be applicable to other target indications that we may seek to pursue in the future.

Our Business Strategy

Our goal is to become a fully integrated biopharmaceutical company focused on the development, manufacturing and commercialization of regenerative cell therapies that address disease areas with significant unmet medical needs and commercial potential. To achieve this goal, we are pursuing the following strategies:

• Continue to advance our product candidates through clinical trials. Each of our current product candidates is in clinical development. We are currently enrolling patients in a pivotal Phase 3 clinical trial of ALD-101, for which we expect to receive final results in the first half of 2010. Phase 1 or Phase 1/2 clinical trials of ALD-151, ALD-301 and ALD-201 are also underway. We expect to receive the results of the ALD-301 trial in the third quarter of 2008, the ALD-201 trial in the fourth quarter of 2008 and the ALD-151 trial in the first quarter of 2009.

• Commercialize our cord blood transplant product candidates with an internal sales force. Children receiving cord blood transplants for the treatment of inherited metabolic diseases are treated at a relatively small number of treatment centers in the United States. We are currently recruiting many of these centers to participate in our pivotal Phase 3 clinical trial of ALD-101. We estimate that the investigators in our ALD-101 clinical trial treat the majority of the pediatric patients in the United States receiving cord blood transplants for inherited metabolic diseases. Because of the relatively small number of treatment centers and investigators involved in cord blood transplants for pediatric inherited metabolic diseases, we believe that we can effectively market ALD-101 using a small, focused and specialized internal sales force. In addition, we expect that we will be able to use the experience of an internal sales force gained in promoting ALD-101 to market ALD-151, our second cord blood transplant product candidate, if it is approved for marketing by the FDA.

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• Selectively pursue strategic collaborations. We plan to pursue strategic collaborations to support and facilitate the development and commercialization of some of our product candidates. In particular, we may seek to enter into a strategic collaboration with a manufacturer of a specialized catheter to be used for the injection of ALD-201 into a patient’s heart muscle. We expect this type of collaboration, if established, to support the further development and potential commercialization of ALD-201. In addition, we intend to explore collaboration arrangements with leading pharmaceutical or biotechnology companies for the commercialization of ALD-301 and ALD-201, which we are developing for target indications with large addressable patient populations that we believe are better served by large sales and marketing organizations. Furthermore, if we choose to pursue approval of any of our product candidates by foreign regulatory authorities, we would evaluate the potential for collaborations with third parties to assist in the development and commercialization of these product candidates in international markets.

• Expand and enhance our manufacturing capabilities. We currently manufacture all of our product candidates for use in our clinical trials and research and development efforts at our facility located at our corporate headquarters in Durham, North Carolina. We believe that we can scale our manufacturing processes to support our clinical development programs and the potential commercialization of our product candidates. If any of our product candidates are approved for marketing by the FDA, we intend to manufacture these products ourselves. We are currently developing technological and process improvements to enhance our ability to produce our product candidates in a faster, more cost-effective manner. For example, we are developing an advanced cell sorting device that we believe could increase the speed, and reduce the associated costs, of manufacturing our product candidates. If we receive marketing approval for any of our product candidates, we also intend to evaluate the need for strategically located regional facilities where we could produce our cell populations in close proximity to key treatment centers and potential patients.

• Develop new product candidates to target additional indications based on our technology. We intend to continue investing in our product pipeline by pursuing additional therapeutic indications where we believe that adult stem cell populations isolated using our proprietary technology may have potential benefit. Based on our existing preclinical research, we are evaluating preclinical plans in a variety of additional therapeutic areas.

Scientific Background of Stem Cells

The human body contains many types of cells, each with individual characteristics and specific functions. Cells with a defined or specialized function are called differentiated cells. Examples of differentiated cells include blood cells, nerve cells and skin cells. Stem cells are rare, undifferentiated cells within the human body that have the potential to replace and renew differentiated cells. Stem cells can also produce additional stem cells. In some cases, stem cells generate an intermediate cell type before they achieve their fully differentiated state. The intermediate cells, called progenitor cells, are partially differentiated cells that then divide and become fully differentiated cells. While stem cells may have the capability to differentiate into multiple cell types, progenitor cells are limited to differentiating along a particular cellular development pathway.

Human adult stem cells can be derived from a variety of sources, including bone marrow, blood from an umbilical cord removed after childbirth and blood circulating throughout the body, which is known as peripheral blood. Bone marrow can be obtained from a patient or from a suitable, appropriately matched donor. Blood from umbilical cords, referred to as cord blood, is stored in cord blood banks throughout the world. Currently, there are over 200,000 cord blood units available from public cord blood banks. Stem cells can also be derived from the tissue of human embryos, but we do not use embryonic stem cells in our product candidates.

There are many types of adult stem cells and progenitor cells found in the human body, including:

• Hematopoietic stem cells. Hematopoietic stem cells generate all of the blood and immune system cells in the body, including red blood cells, platelets and neutrophils.

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• Mesenchymal stem cells. Mesenchymal stem cells differentiate into many cell types, including bone, cartilage, fat, muscle, tendon and other connective tissues.

• Neural stem cells. Neural stem cells are capable of differentiating into neurons and cells that support nerve tissue.

• Endothelial progenitor cells. Endothelial progenitor cells differentiate into the cells that line the blood vessels.

Many researchers believe that stem cells hold significant promise in the treatment of a wide variety of diseases. Researchers have reported progress in the development of new therapies utilizing stem cells for the treatment of cancer as well as neurological, immunological, genetic, cardiac, pancreatic, liver and degenerative diseases. In seeking to apply stem cell therapies to these diseases, researchers have explored both autologous and allogeneic stem cell therapies. Autologous therapies use stem cells derived from the patient receiving the therapy, while allogeneic therapies use stem cells derived from a separate donor.

Stem cells represent a very small fraction, typically less than 1%, of the cells in a cord blood or bone marrow source. As a result, we believe that the proper selection of the stem cells that are expected to have the greatest therapeutic effect, and the isolation of those cells from the other cells in the cord blood or bone marrow source, is critical to the successful development of any regenerative therapy based on stem cells.

Our ALDH^br Technology

Our proprietary technology represents a novel approach to isolating adult stem cells for therapy. We identify, select and isolate adult stem cells that express high levels of the enzyme ALDH. We believe that the use of ALDH expression as a marker for stem cells has a strong biological rationale. ALDH plays an important role in controlling the developmental state of stem and progenitor cells. It converts Vitamin A into retinoic acids, which are molecules that regulate genes and influence the differentiation of blood, neural, endothelial and other types of stem and progenitor cells. To identify ALDH^br cells, we use a proprietary chemical compound that accumulates in cells with high ALDH levels and causes these cells to emit a green florescence that can be detected by a cell sorting device.

We believe that the ALDH^br stem cell populations produced using our technology have several potential advantages, including:

• Broad potential applicability. In preclinical studies, ALDH^br cell populations produced using our technology exhibited a variety of activities that suggest these cells could be active in promoting the regeneration of multiple types of cells and tissues. Accordingly, we believe that ALDH^br cell populations may have a variety of therapeutic uses.

• Heterogeneous mix of stem cells and progenitor cells. We believe that ALDH^br cell populations contain a diverse, or heterogeneous, mix of stem cells and progenitor cells, potentially including hematopoietic, mesenchymal and neural stem cells and endothelial progenitor cells. Other companies are pursuing stem cell therapeutic approaches to tissue repair that consist of homogeneous cell populations containing only one of these types of cells. Because of the diversity of the stem cell types included in our ALDH^br cell populations, we believe that our cell populations may promote tissue repair in a variety of ways.

• Well-characterized stem cell populations. Our technology produces stem cell populations that are well characterized, meaning that each population produced has a high level of purity and a consistent set of physical and chemical characteristics. We believe that our ability to produce well-characterized cell populations based on ALDH activity enhances our ability to meet regulatory requirements related to the safety and efficacy of therapeutic cell products.

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• Rapid manufacturing process. Our technology currently allows for the sorting of the ALDH^br cell populations and their administration to the patient typically in less than 36 hours. We are developing enhancements to our technology that we believe may decrease turnaround time further. Additionally, the ALDH^br cell populations produced using our technology do not require any expansion in the size of the cell population or other manipulation before infusion. Other methodologies may require cell culturing, for example, which can take several days or weeks.

Our Product Development Pipeline

The following table summarizes our product candidates and their stages of clinical development. We hold the worldwide commercialization rights for each of these product candidates.

Product Candidate	Target Indications	Status of Development	Upcoming Milestones
ALD-101	Improvement of cord blood transplants used to treat pediatric inherited metabolic diseases	Pivotal Phase 3	Complete Enrollment in Second Half of 2009; Results Expected in First Half of 2010
ALD-151	Improvement of cord blood transplants used to treat leukemia	Phase 1 in pediatric patients	Results Expected in First Quarter of 2009
ALD-301	Critical limb ischemia	Phase 1/2	Results Expected in Third Quarter of 2008
ALD-201	Ischemic heart failure	Phase 1	Results Expected in Fourth Quarter of 2008

ALD-101 and ALD-151 – Our Cord Blood Transplant Product Candidates

Background of Cord Blood Transplantation

According to the National Marrow Donor Program, an estimated 45,000 to 50,000 transplants using hematopoietic stem cells derived from bone marrow, peripheral blood or cord blood are performed annually worldwide to treat patients with life-threatening cancers as well as some inherited diseases that are not cancers. The group of diseases treatable with hematopoietic stem cell transplants include inherited metabolic diseases, such as Krabbe syndrome, metachromatic leukodystrophy, Hurler syndrome and adrenoleukodystrophy. These diseases, also known as inborn errors of metabolism, are progressive, degenerative and often fatal. In many cases, the only treatment available to patients with these diseases is a hematopoietic stem cell transplant. The results of these transplants improve when children are treated early. In some cases, doctors attempt to perform transplants in children with inherited metabolic diseases within the first six months of life.

Children and adults with leukemia, a group of cancers of the blood or bone marrow characterized by abnormal proliferation of malignant blood cells that invade and disrupt the functioning of tissues, may also be candidates for hematopoietic stem cell transplants in order to restore their ability to produce new blood cells following chemotherapy. For leukemia patients with no other treatment alternatives, high doses of chemotherapy or radiation are administered to kill their cancerous cells, but this regimen also has the effect of destroying the patient’s ability to produce new blood cells. Other disorders of blood cell formation that may be treated with hematopoietic stem cell transplants include lymphomas, multiple myeloma and other plasma cell disorders, severe aplastic anemia and other marrow failure states, inherited immune system diseases, sickle cell disease and other malignancies.

Although comparable outcomes have been achieved with transplants of hematopoietic stem cells derived from bone marrow, cord blood and peripheral blood, the selection of the source of stem cells to be used in a

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transplant is based on several patient-specific factors. For cases in which a patient needs a transplant from another individual, also known as an allogeneic transplant, physicians usually search for a bone marrow donor or cord blood unit that closely or identically matches the patient’s human leukocyte antigen, or HLA, type. HLA markers are features of cell surfaces used by the body’s immune system to recognize which cells belong in the body and which do not. Because HLA tissue types are inherited, a patient’s best chance of finding a matched source is from a close relative. The National Marrow Donor Program estimates, however, that 70% of patients do not have a suitable bone marrow donor in their family. Finding, obtaining and qualifying an unrelated bone marrow donor for transplant can take months, often resulting in unacceptable progression of the underlying disease.

When a related, type-matched bone marrow donor cannot be located quickly or at all, the physician may recommend a cord blood transplant. In a cord blood transplant, umbilical cord blood of a known HLA type is obtained from a donor bank to be infused into the patient. The use of cord blood transplants has increased for both children and adults, but they are more frequently used in the treatment of children, such as in the case of pediatric inherited metabolic diseases and pediatric leukemias. Because the number of hematopoietic stem cells that can form blood cells in the transplant recipient is proportional to his or her weight, smaller patients need fewer hematopoietic stem cells than larger patients. The FDA has not licensed the use of umbilical cord blood for any purpose, including for use as a treatment for pediatric inherited metabolic diseases or leukemias, but we believe that the FDA is currently considering a process to enable such licensure.

We believe that umbilical cord blood has a number of advantages as a source of hematopoietic stem cells for transplant, compared to other potential allogeneic transplant sources such as bone marrow. In particular, a well-developed and reliable international infrastructure allows doctors to search for and obtain high-quality, type-matched cord blood from public cord blood banks in a matter of days. Currently, there are over 200,000 publicly banked, frozen cord blood units worldwide that have been collected from healthy donors, screened for genetic diseases, tested for infectious diseases and typed by a variety of blood-matching characteristics. Compared to transplants of bone marrow from unrelated donors, cord blood transplants generally result in fewer instances of severe graft-versus-host disease, or GvHD, a condition in which a donor’s immune cells attack the patient’s body after the transplant. This lower risk of GvHD permits the matching of donor cord blood to the patient’s blood characteristics to be less exact than in the case of a bone marrow transplant, which simplifies donor selection. As a result of the availability of high-quality, type-matched cord blood from public cord blood banks and the reduced risk of severe GvHD, umbilical cord blood transplants are more common than bone marrow transplants for patients who do not have related donors.

Cord blood transplants also carry several risks. Prior to the transplant, the patient undergoes a treatment regimen involving chemotherapy that destroys the patient’s bone marrow cells. As a result, the patient has fewer platelets, which are cell fragments that circulate in the blood and promote blood clotting, and neutrophils, which are white blood cells that protect against infections. Following the cord blood transplant, new platelets and neutrophils are produced over time from the stem cells contained in the donated cord blood. During this process, known as engraftment, the donated hematopoietic stem cells establish themselves in the patient, begin to divide and then to differentiate to form new blood cells, including platelets and neutrophils. Engraftment time is generally measured as the period of time required to re-establish specified levels of platelets or neutrophils circulating in the patient’s bloodstream. Neutrophil engraftment typically takes several weeks, and platelet engraftment can take several months. The time to engraftment and the restoration of acceptable levels of platelets and neutrophils is generally longer in the case of cord blood transplants than for a matched bone marrow transplant. Following the transplant, while platelet and neutrophil levels are depressed, there is significant risk of life-threatening infections, bleeding and transfusion-related reactions. During this engraftment period, patients are typically isolated in special hospital sterile rooms and may require repeated platelet transfusions. We believe that a reduction in engraftment times could reduce these risks associated with conventional cord blood transplants and decrease the length and cost of the related hospital stay, which is a significant component of the overall cost of treatment for these patients.

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Preclinical Research — Rationale for the Use of ALDH^br Cell Populations in Cord Blood Transplants

The preclinical research that we and others have conducted suggests that ALDH^br cell populations exhibit hematopoietic, or blood production, activity. In this research, sorting human cord blood to isolate ALDH^br cells captured:

• a high concentration of the multilineage hematopoietic stem cells, which are very early-stage stem cells that are capable of differentiating into any type of blood cell, contained in the original cord blood;

• virtually all of the human stem cells contained in the original cord blood unit that durably engrafted in mice with compromised immune systems, meaning that those stem cells were able to continue to generate blood cells and regenerate themselves beyond eight weeks; and

• virtually all of the early-stage platelet progenitor cells contained in the original cord blood.

Independent researchers have also performed retrospective analyses of data from prior transplants of peripheral blood and bone marrow. In these studies, researchers analyzed a small sample of the specific peripheral blood or bone marrow that had previously been transplanted into particular adult cancer patients. In each case, these samples had been saved for future analysis. In one study, researchers observed that speed of platelet and neutrophil engraftment following peripheral blood stem cell transplants were both highly correlated with the number of ALDH^br cells the patients had received in the transplant. In a second study, researchers observed that the speed with which cells from transplanted bone marrow replaced the patient’s own blood cells likewise was strongly correlated with the number of ALDH^br cells received in the transplant.

Based on this research, we believe that ALDH^br stem cell populations may encourage stable, accelerated and long-term engraftment following a cord blood transplant. We commenced our clinical trials of ALD-101 and ALD-151 to evaluate this potential.

ALD-101

ALD-101 is the population of ALDH^br stem cells we produce from a portion of a cord blood unit using our proprietary technology. We are developing ALD-101 to improve cord blood transplants used to treat pediatric inherited metabolic diseases.

The production of ALD-101 begins when a physician orders a cord blood unit from a cord blood donor bank. Banked cord blood units are customarily frozen and packaged in a dual compartment bag, with 80% of the blood unit in one compartment and 20% in the other. The original banked cord blood unit is delivered frozen to the hospital where the transplant will occur. The hospital removes and delivers the 20% portion of the unit to us at our manufacturing facility and retains the 80% portion to be transplanted into the patient. We process the portion of the cord blood unit we receive to isolate and capture the ALDH^br cells. Typically within 24 hours of our receipt of the 20% portion of the cord blood unit, we ship the resulting ALD-101 to the hospital. ALD-101 is then infused into the patient approximately four hours after the transplantation of the 80% portion of the cord blood unit.

Market Opportunity for ALD-101

In a study that we commissioned, Trinity Partners, a consulting firm specializing in the pharmaceutical and biotechnology industries, estimates that there are over 12,000 patients in the United States and Europe living with the inherited metabolic diseases included in our pivotal Phase 3 clinical trial of ALD-101. These diseases include Krabbe syndrome, metachromatic leukodystrophy, Hurler syndrome and adrenoleukodystrophy. Trinity Partners also estimates that approximately 700 children in the United States and Europe are born with these diseases each year. Not every patient diagnosed with one of these inherited metabolic diseases will undergo a hematopoietic stem cell transplant, and some of those who are diagnosed with these diseases will undergo a bone marrow transplant, rather than a cord blood transplant, if a type-matched bone marrow donor can be located. We believe that the implementation of newborn screening for inherited metabolic diseases, such as a pilot program initiated in New York in August 2006 to screen for Krabbe syndrome, could lead to earlier and wider identification of pediatric patients that can be effectively treated with cord blood transplants.

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According to the Healthcare Cost and Utilization Project, a family of databases sponsored by the Agency for Healthcare Research and Quality of the U.S. Department of Health and Human Services, the median cost of the initial hospital stay associated with a cord blood transplant in the United States is approximately $360,000. This amount includes costs associated with post-transplant complications during hospitalization, such as infections and GvHD. We believe that ALD-101, if proven to be effective in accelerating engraftment times in patients following a cord blood transplant, could result in a reduction in post-transplant complications and the length of hospital stays.

Clinical Development of ALD-101

Phase 1 Clinical Trial

Investigators have completed enrollment and treatment of 24 patients in a Phase 1 clinical trial, which we refer to as the UCBT-001 trial. This trial is being performed at the Duke University Medical Center.

Trial Design. The UCBT-001 trial is a single-arm study, meaning that all subjects received ALD-101. In this trial, investigators infused ALD-101 into patients approximately four hours after the transplant of the 80% portion of the cord blood unit. Investigators are monitoring patients over a 180-day period following the transplant to observe safety of the infusion, the rate of platelet and neutrophil engraftment and clinical outcomes.

Endpoints. The primary objective of the UCBT-001 trial is to evaluate the safety of ALD-101. Endpoints of the trial include the time to neutrophil engraftment, patient survival at day 100, disease-free survival at day 180, the incidence of platelet engraftment, median time to reconstitution of the immune system and the incidence and severity of GvHD. For purposes of this trial, platelet engraftment is defined as the restoration of platelet levels to at least 50,000 per microliter of blood for three consecutive days without a platelet transfusion during the preceding seven days. Neutrophil engraftment is defined as the restoration of circulating absolute neutrophil count to at least 500 per microliter of blood for three consecutive measurements over three or more days prior to day 42. Investigators also monitored patients for any adverse events associated with the administration of ALD-101.

As part of our statistical analysis plan for the UCBT-001 trial, we are comparing the patient outcomes in the UCBT-001 trial to patient outcomes observed in a subset of subjects in the Cord Blood Transplantation, or COBLT, trial sponsored by the National Heart, Lung, and Blood Institute of the National Institutes of Health. The COBLT trial was a Phase 2 clinical trial that commenced in 1999 and was completed in 2007. The study included 364 cord blood transplant patients at 26 participating institutions, including 69 patients with inherited metabolic diseases. The goal of the COBLT trial was to determine if banked cord blood from unrelated donors could serve as an adequate hematopoietic stem cell source for adults and children with malignancies, immune deficiencies, inherited bone marrow failure, or inherited metabolic diseases. The largest group of patients in the COBLT trial were pediatric patients with various leukemias.

The primary endpoint of the COBLT trial was 180-day survival after the cord blood transplant. Secondary endpoints of the COBLT trial included disease-free survival and platelet and neutrophil engraftment, using the same standard measures of platelet and neutrophil levels used in the UCBT-001 trial, the frequency and severity of acute and chronic GvHD, overall patient survival and immune system reconstitution.

Inclusion and Exclusion Criteria. The primary inclusion criterion for the UCBT-001 trial participants was a diagnosis of a hematological malignancy, such as leukemia, an inherited metabolic disease or one of a variety of other conditions. Of the patients enrolled in the trial, 11 had been diagnosed with leukemia and other non-metabolic diseases and 13 had been diagnosed with an inherited metabolic disease. Key exclusion criteria for the trial participants were active central nervous system disease in patients with malignancies, uncontrolled infection, life expectancy of less than three months, and other specified conditions that would render the patient at too high of a risk for treatment. These patient inclusion and exclusion criteria were largely the same as those used in the COBLT trial.

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Results. All patients in the UCBT-001 trial have either reached engraftment or died before engraftment. Three surviving patients have yet to complete their 180-day final examination for survival, the last of which is scheduled for June 2008.

The adverse event profile of patients in the UCBT-001 trial to date has been similar to that reported in the COBLT trial, and we have not observed any toxicity associated with the ALD-101 infusion. The results of the UCBT-001 trial have not indicated any increase in the rate of failure of the recipients to accept the transplanted cells when compared with the COBLT trial or any delay in platelet or neutrophil engraftment when compared to the COBLT trial.

In the UCBT-001 trial, observed engraftment results included:

• statistically significant reduction in the median time to platelet engraftment, compared to the COBLT trial;

• statistically significant improvement in the cumulative incidence of platelet engraftment, which means the percentage of patients who achieved platelet engraftment, at 180 days following the cord blood transplant, compared to the COBLT trial;

• statistically significant reduction in the median time to neutrophil engraftment, compared to the COBLT trial; and

• statistically significant improvement in the cumulative incidence of neutrophil engraftment at 42 days following the cord blood transplant, compared to the COBLT trial.

The following table compares the engraftment results of the 12 patients in the UCBT-001 trial who suffered from inherited metabolic diseases and commenced the trial with a Lansky performance score of 80% or higher with the results of the 57 patients in the COBLT trial who fit the same description. The Lansky performance score is a standard scale used by clinicians to assess a patient’s physical and mental developmental status. Researchers have observed that patients with inherited metabolic diseases and Lansky performance scores of less than 80% tend to do poorly following a cord blood transplant. Consequently, researchers now consider such patients to be poor transplant candidates. The original protocol for the UCBT-001 trial did not specify that we analyze the specific endpoints and subgroups in the table below and it did not contemplate that we would exclude the patients with Lansky performance scores below 80%. We believe, however, that excluding the patients with Lansky performance scores below 80% is appropriate in this analysis because it more closely tracks current treatment conventions. We are also excluding these patients from participating in our pivotal Phase 3 clinical trial of ALD-101. For the purposes of the following table, we determined statistical significance based on a widely used, conventional statistical method that establishes a measure known as the p-value of clinical results. Under this method, a p-value of 0.05 or less represents statistical significance, meaning that there is a less than one-in-twenty likelihood that the observed results occurred by chance.

Endpoint	UCBT-001 (n=12)		COBLT (n=57)		p-value
Median time to platelet engraftment	53 days		97 days		0.04
Cumulative incidence of platelet engraftment at day 180	83.3	%	64.9	%	0.04
Median time to neutrophil engraftment	19 days		24 days		0.03
Cumulative incidence of neutrophil engraftment at day 42	91.7	%	78.6	%	0.03

The FDA has raised specific concerns about the use of the results from a group of patients in the COBLT trial as a historical control group for analysis. The FDA has stated that time to engraftment in the COBLT trial was longer than in other published studies, raising the possibility that a comparison of our results to the COBLT trial will be seen by the FDA as overstating the potential efficacy of ALD-101. The FDA asked us to comment on this discrepancy. In our response to the FDA, we reviewed the published studies they cited and concluded that, in each case, either the study was not comparable to the COBLT trial or there were unrelated reasons for the shorter engraftment times. However, the FDA may ultimately disagree with our view.

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Pivotal Phase 3 Clinical Trial

In March 2008, we began enrolling patients in a pivotal Phase 3 clinical trial, which we refer to as the UCBT-002 trial. The purpose of the UCBT-002 trial is to further evaluate the efficacy of ALD-101 in accelerating the engraftment of platelets and neutrophils in pediatric patients undergoing cord blood transplants for the treatment of inherited metabolic diseases. We anticipate that we will complete enrollment of the patients in the second half of 2009 and that the results of this trial will be available in the first half of 2010.

Trial Design. The design of the UCBT-002 trial is similar to that of the UCBT-001 trial, with the exception that the UCBT-002 trial will be conducted at multiple sites, the number of patients to be enrolled will be increased to 40 patients, all of whom will be children with inherited metabolic diseases and Lansky scores of at least 80%, and the primary endpoint will be time to platelet engraftment. The UCBT-002 trial is a single-arm trial. As with the UCBT-001 trial, we will compare results for patients treated with ALD-101 in the UCBT-002 trial to results for patients who received cord blood transplants for inherited metabolic diseases and Lansky scores of at least 80% in the COBLT trial. Lansky scores were not part of the inclusion or exclusion criteria for enrollment in the COBLT trial.

Although the FDA prefers the use of randomized, controlled trials, in which enrolled patients are randomly assigned to one of two treatment groups, and has raised specific concerns about the use of a single-arm study with a historical control for the UCBT-002 trial, the FDA has acknowledged the unique issues associated with our targeted patient population for ALD-101. However, the FDA may require that we complete a randomized, controlled trial of ALD-101 with appropriately sized treatment and concurrent control groups before it would agree to review a BLA. We believe that enrolling such a trial would take approximately five to seven years due to the limited number of pediatric patients with inherited metabolic diseases. In such a lengthy trial, investigators might also seek to change treatment regimens, which could cause additional enrollment delays. The FDA has also suggested that we consider using a case-match historical control trial, which we are also evaluating. A case-match historical control trial would involve seeking specific cases in historical databases that match a variety of clinical characteristics similar to those of the patients being studied in the UCBT-002 trial that would serve as the control group for comparative purposes.

The FDA also has raised concerns regarding the acceptability of the COBLT trial as the comparator for the UCBT-002 trial. We believe that the COBLT trial is the best historical control comparator for the UCBT-002 trial because the COBLT trial was a relatively large trial conducted by an independent party that included patients from the same patient population that we are using in the UCBT-002 trial. There is substantial similarity in treatment regimens, endpoint measurements, patient inclusion and exclusion criteria and patient population between the COBLT trial and the UCBT-002 trial.

Endpoints. The primary endpoint of the UCBT-002 trial is the time to platelet engraftment. Secondary endpoints of this trial include the time to neutrophil engraftment and the incidence of platelet and neutrophil engraftment. We are also evaluating the safety profile of ALD-101 as well as overall patient survival rates. For purposes of the UCBT-002 trial, platelet and neutrophil engraftment will be measured in the same manner as in the UCBT-001 trial.

Inclusion and Exclusion Criteria. The patient inclusion and exclusion criteria to be used in the UCBT-002 trial are largely the same as those used for patients with inherited metabolic diseases in the COBLT trial. The primary inclusion criterion for the UCBT-002 trial is a diagnosis of one of several inherited metabolic diseases, including Krabbe syndrome, metachromatic leukodystrophy, Hurler syndrome and adrenoleukodystrophy. Key exclusion criteria include uncontrolled infections, uncontrolled seizures, apnea, evidence of aspiration pneumonia, prior allogeneic stem cell transplant within 12 months of enrollment, availability of related donors that are type-matched, and evidence of brain stem involvement on MRI scans. In the UCBT-002 trial, but not in the COBLT trial, subjects must also have a Lansky performance score of at least 80%.

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Plans for Future Development. If the UCBT-002 trial yields positive results, and the FDA separately approves the use of cord blood for the treatment of inherited metabolic diseases, we intend to submit a BLA to the FDA seeking marketing approval for ALD-101. We may also initiate clinical trials to evaluate the efficacy of ALD-101 in accelerating the engraftment time of platelets and neutrophils in pediatric patients undergoing cord blood transplants for the treatment of leukemias and other genetic disorders.

ALD-151

ALD-151 is the population of ALDH^br stem cells we produce from a full cord blood unit using our proprietary technology. We are currently developing ALD-151 to improve cord blood transplants used to treat leukemias.

A single cord blood unit typically contains a sufficient number of hematopoietic stem cells to treat a patient weighing less than approximately 90 pounds. To provide larger patients with a higher stem cell dose than would be available in a single cord blood unit, some clinicians transplant two full cord blood units, each from a different donor. Early data, however, suggest that patients receiving two cord blood units have a higher risk of contracting GvHD.

In these transplants using two cord blood units, blood cells derived from both units are present following the transplant. Studies indicate, however, that only one of the two transplanted cord blood units ultimately engrafts completely in a patient over the long term, and after approximately three months, virtually all blood cells in these patients have been derived from only one of the transplanted cord blood units. To date, it has not been possible to predict which of the two cord blood units transplanted will ultimately engraft.

ALD-151 presents another approach to increasing the dose of stem cells from a cord blood transplant for larger patients. To produce ALD-151 we receive one full unit of cord blood from a cord blood bank. An additional full cord blood unit is separately shipped to the hospital for the transplant. We process the full cord blood unit we receive to isolate and capture the ALDH^br cells. Typically within 24 hours of our receipt of the full cord blood unit, we ship the resulting ALD-151 to the hospital. ALD-151 is then infused into the patient approximately four hours after the transplant of the other cord blood unit. ALD-151, when administered in conjunction with a full-unit cord blood transplant, can provide a larger dose of hematopoietic stem cells than would be available in a transplant from a single cord blood unit, while reducing the number of cells that could lead to GvHD from the number that would be present following a transplant using two cord blood units.

Market Opportunity for ALD-151

In a study we commissioned, Trinity Partners estimates that there are over 12,000 new cases of adult leukemia per year in the United States. According to Trinity, approximately 7,500 allogeneic hematopoietic stem cell transplants are performed annually in the United States and Europe for the treatment of adult leukemias. These statistics include bone marrow transplants and cord blood transplants.

Clinical Development of ALD-151

In February 2008, investigators began enrolling patients in a Phase 1 clinical trial of ALD-151 that is being conducted at Duke University Medical Center. The purpose of this trial is to evaluate the safety and potential efficacy of ALD-151 in accelerating the engraftment time of platelets and neutrophils in patients undergoing cord blood transplants for the treatment of leukemia or inherited metabolic diseases. To date, investigators have treated five patients with ALD-151 in this trial, and we expect a total of up to 10 patients to be enrolled. We expect that the results of this clinical trial will be available in the first quarter of 2009.

Trial Design. In this single-arm trial, investigators will infuse ALD-151 into patients approximately four hours after the transplant of a full cord blood unit. Investigators will monitor patients over a 180-day period following the transplant.

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Endpoints. The primary objective of this clinical trial is to evaluate the safety of ALD-151. Endpoints of this trial include overall patient survival rates at 100 days, time and incidence of platelet and neutrophil engraftment, immune system reconstitution and the incidence and severity of GvHD. Platelet and neutrophil engraftment will be measured in the same manner as in the UCBT-001 and UCBT-002 clinical trials of ALD-101. We also intend to determine whether ALD-151 contributes the cells that durably engraft.

Inclusion and Exclusion Criteria. The primary inclusion criterion is a diagnosis of a hematological malignancy, such as leukemia, melodysplastic syndrome, an inherited metabolic disease or one of a variety of other conditions. Key exclusion criteria include active central nervous system disease in patients with malignancies, uncontrolled infection at the time of the transplant preparative regimen, a life expectancy of less than three months, and other specified conditions that would render the patient too high of a risk for treatment. The protocol for this trial does not exclude patients based on size. Therefore, patients weighing less than approximately 90 pounds may be included in the trial if, in the clinical judgment of the treating physician, the patient would be likely to benefit from a two-unit cord blood transplant.

Plans for Future Development. If the final results of this Phase 1 clinical trial are positive, we plan to conduct further clinical trials of ALD-151 in adult leukemia patients undergoing cord blood transplants.

ALD-301 and ALD-201—Our Cardiovascular Product Candidates

Preclinical Research—Rationale for the Use of ALDH^br Cell Populations in Cardiovascular Ischemic Repair

Preclinical research suggests that ALDH^br cells derived from bone marrow may promote the repair of ischemic tissue damage, which is tissue damage caused by inadequate blood flow resulting from the obstruction of blood vessels supplying blood to the tissue. One way in which ALDH^br cells may contribute to tissue repair is by promoting the creation of new blood vessels in the damaged tissue, which could result in an influx of cells and other molecules that are necessary for tissue repair.

To test the hypothesis that ALDH^br cells promote the formation of new blood vessels, which could in turn promote the repair of ischemic tissue damage, we commissioned a preclinical animal study at the Washington University School of Medicine. This study used a mouse model of hind limb ischemic damage. In this study, researchers induced ischemic damage in one leg of each mouse. Researchers then injected the mice with one of the following:

• a vehicle control, which contained the solution in which the other cell populations described below were suspended, but no cells;

• a cell population consisting of unsorted human bone marrow cells;

• a cell population consisting of all the non-ALDH^br cells sorted from human bone marrow, which we refer to as ALDH^low cells; or

• a cell population consisting of all the ALDH^br cells sorted from human bone marrow.

The researchers then observed the mice at four days, seven days, 10 days, 14 days and 21 days after the injection and measured the amount of blood flow, or perfusion, using laser Doppler imaging. Results were expressed as the ratio of perfusion in the ischemic limb after the injection as compared to perfusion in a non-ischemic limb of the mouse. Key findings of this study included:

• mice receiving ALDH^br cells experienced more improvement in blood flow to the injured tissue within one week of injection than did mice in the vehicle control group, and the improvement in blood flow compared to the vehicle control group increased progressively over the first three weeks of the experiment, and doubled the extent of improvement over the vehicle control group at day 21;

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• mice receiving ALDH^low cells did not experience any more improvement in blood flow to the injured tissue than did the vehicle control group as measured at the first four measurement dates, with only minor improvement at the 21-day measurement; and

• mice receiving ALDH^br cells experienced more blood flow improvement than did those receiving unsorted human bone marrow cells, which we believe suggests that other cells or proteins in bone marrow may inhibit tissue repair activity and that sorting and isolating ALDH^br cells may increase their effectiveness in repairing ischemic damage.

The following chart illustrates these results.

The researchers in this study also examined mice from each group following the end of the study to determine the density of capillaries, which are small blood vessels, at the site of the tissue damage. Capillary density was measured by counting the number of capillaries in a given volume of tissue and was expressed as a percentage of the capillary density of the vehicle control group. The following chart indicates the changes in capillary density. Only the mice that received injections of ALDH^br cells exhibited a statistically significant increase in capillary density when compared to the vehicle control group. The p-value for this increase was less than 0.05.

Based on these preclinical results, we initiated a Phase 1/2 clinical trial of ALD-301 and a Phase 1 clinical trial of ALD-201, both of which are derived from bone marrow, for the treatment of cardiovascular diseases.

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ALD-301

ALD-301 is the population of ALDH^br stem cells we produce using our proprietary technology to sort a specified quantity of bone marrow collected from the patient receiving the therapy. We are developing ALD-301 for the treatment of critical limb ischemia.

To produce ALD-301, we receive 150 milliliters of bone marrow extracted from the patient. At our manufacturing facility, we process the bone marrow to isolate and capture the ALDH^br cells. Typically within 36 hours of our receipt of the bone marrow, we deliver the resulting ALD-301 cells either to an interventional cardiologist or to a vascular surgeon, who then administers ALD-301 to the patient by intramuscular injection into the patient’s leg.

Critical Limb Ischemia

Critical limb ischemia is a condition characterized by significant impairment of blood flow to the legs and feet caused by a blockage of the arteries. Patients with severe cases of critical limb ischemia may experience persistent pain in their lower extremities and may also suffer from severe tissue damage in the affected area. There are no drugs currently approved by the FDA for the treatment of this condition. The predominant treatment options for patients with critical limb ischemia are surgical procedures to restore blood flow, or revascularization, such as implanting a new blood vessel to bypass the blockage, or endovascular approaches, such as angioplasty, in which the vessel is unblocked from the inside using a balloon catheter or by installing a stent inside the vessel to maintain its opening.

We estimate that nearly 50% of patients who undergo surgery for critical limb ischemia have poor functional recovery and that many of these patients ultimately require amputation. In a study published in the journal Cardiovascular and Hematological Disorders, researchers estimated that approximately 10% to 40% of critical limb ischemia patients are not considered candidates for surgical revascularization or endovascular procedures. For these patients, amputation is often the only available clinical option. The Sage Group, an independent research and consulting firm specializing in vascular diseases in the lower limbs, estimates that within six months of diagnosis up to 35% of critical limb ischemia patients will require limb amputation and approximately 20% will die.

Market Opportunity for ALD-301

The Sage Group estimates that approximately 2.0 million people in the United States have been diagnosed with critical limb ischemia and projects that this patient population will grow to nearly 2.8 million by 2020. The Sage Group also estimates that there are approximately 160,000 leg amputations performed on critical limb ischemia patients annually in the United States. According to the Healthcare Cost and Utilization Project, the median hospital cost associated with a leg amputation was approximately $38,000 in 2005.

Clinical Development of ALD-301

In April 2008, we completed enrollment of a 21-patient Phase 1/2 clinical trial of ALD-301. We are conducting this trial at five sites in the United States to evaluate the safety and potential efficacy of ALD-301 as a treatment for patients with advanced critical limb ischemia. We expect the final results of this trial to be available in the third quarter of 2008.

Trial Design. This trial is a randomized, controlled trial with two treatment groups. A total of 21 patients were randomly selected to receive an injection of either ALD-301 or an unsorted quantity of their own bone marrow. The trial is also double-blind, meaning that neither the clinician or the sponsor, on the one hand, nor the patient, on the other hand, knows the group to which the patient has been assigned. We have elected to use unsorted bone marrow as the control for this trial to facilitate recruitment of patients, because clinical studies using unsorted bone marrow cells have indicated that they may promote the restoration of limb function and the repair of tissue damage where there has been a loss of blood supply.

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Endpoints. The primary objective of this trial is to evaluate the safety of ALD-301. Patients are being monitored for serious adverse events, including death, amputation, stroke, heart attack and hospitalization. Secondary endpoints of the trial include change in clinical status from baseline to 12 weeks, as measured by the Rutherford scale, a well- accepted clinical categorization for the extent of critical limb ischemia. The Rutherford scale places patients in one of the following seven categories based on their clinical status:

• Category 0 patients are not symptomatic;

• Category 1 patients experience mild claudication, or cramp-like pains after activities such as walking;

• Category 2 patients experience moderate claudication;

• Category 3 patients experience severe claudication;

• Category 4 patients experience ischemic pain while at rest;

• Category 5 patients have suffered minor tissue loss; and

• Category 6 patients have suffered major tissue loss.

In addition, we are measuring change in clinical status by two other well-accepted clinical tools for assessing the extent of critical limb ischemia, the ankle-brachial index and transcutaneous pressure of oxygen, or TcPO₂. The ankle-brachial index measures the ratio of blood pressure in the leg to blood pressure in the arm. When blood flow is increased in the leg, the blood pressure in the leg more closely approaches blood pressure in the arm providing for a higher ratio. TcPO₂ measures oxygen in the skin tissues of the leg. When blood flow is increased, TcPO₂ increases because, blood carries oxygen to the tissues. Other endpoints include change in ulceration and change in nerve conduction ability. We are assessing patients in this clinical trial for endpoints for the first 12 weeks after injection and following them for a total of six months after injection.

Inclusion and Exclusion Criteria. Only patients assessed within categories 4 or 5 on the Rutherford scale who had no revascularization treatment options and exhibited objective evidence of severe peripheral arterial disease, among other criteria, were eligible for participation in this clinical trial. Patients with poorly controlled diabetes, renal insufficiency, congestive heart failure, cognitive impairments or a past malignancy affecting the bone marrow were excluded from participation in the trial.

Preliminary Analysis of Interim Results. In February 2008, we performed an interim analysis of the data from our Phase 1/2 clinical trial. Our efficacy analysis included only those patients who had completed their 12-week assessments. Our safety analysis included all available safety data, regardless of whether the patient had completed his or her 12-week assessment. Four patients in the ALD-301 treatment group had efficacy data available at 12 weeks, while a total of seven were analyzed for safety. Six patients in the unsorted bone marrow group had efficacy data available, while a total of seven of these patients were analyzed for safety.

Interim Safety Results. Based on our analysis of the interim results of this trial, both ALD-301 and the unsorted bone marrow cells were well tolerated. Among the seven patients in the ALD-301 treatment group, one patient experienced severe hypotension 10 days after treatment and a second patient suffered an ischemic stroke nine days after treatment. In both cases, the clinical investigator considered the events to be unrelated to treatment with ALD-301. Among the seven patients in the unsorted bone marrow group, one patient experienced continued progression of critical limb ischemia, resulting in the amputation of the treated limb, and one patient required amputation of the big toe of the untreated limb. None of the patients evaluated as part of the interim analysis died during the trial.

Interim Efficacy Results. Twelve-week efficacy data was available for 10 of the patients at the time we conducted our interim analysis. Four of these 10 patients were in the ALD-301 treatment group and six were in the unsorted bone marrow group. Of the 10 patients included in the interim results, seven were male and three were female. The patients had a median age of 74 years. Two of the patients had been diagnosed with diabetes. At 12 weeks following the injection, we observed the following changes in clinical condition based on changes in the Rutherford scale:

• Three of four patients in the ALD-301 treatment group improved to Rutherford category 3 or lower, indicating that they no longer had critical limb ischemia. Two of the six patients in the unsorted bone marrow group improved to Rutherford category 3 or lower.

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• None of the patients in the ALD-301 treatment group worsened clinically, as evidenced by an increase of Rutherford category. Two of the patients in the unsorted bone marrow group worsened clinically, as evidenced by an increase of Rutherford category or amputation.

• The two patients in the ALD-301 treatment group who received the highest numbers of ALDH^br cells experienced the greatest clinical improvement within the ALD-301 treatment group, as evidenced by an improvement of at least two Rutherford categories. The number of ALDH^br cells administered differs from one patient to another because each patient yields a different number of cells from the 150 milliliters of bone marrow collected from that patient to produce ALD-301.

At 12 weeks following the injection, we also observed:

• All four of the patients in the ALD-301 treatment group improved in at least one of the measures of clinical status. Five of the six patients in the unsorted bone marrow group improved in at least one of these measures.

• Two of the four patients in the ALD-301 treatment group improved in two or more of the measures of clinical status. One of the six patients in the unsorted bone marrow group improved in two or more of these measures.

In addition, all four of the patients in the ALD-301 treatment group were alive and amputation-free at the end of the six-month follow-up period.

These interim results have only recently become available, and new information may arise from our continuing analysis of the data that may be less favorable than this interim data. In addition, the results from the remaining patients enrolled in this clinical trial may cause the final results of the trial to differ materially from the data for the 10 patients presented above.

Plans for Future Development. If the final results of this Phase 1/2 clinical trial are positive, we plan to initiate additional larger clinical trials of ALD-301. As a result of the six-month amputation-free survival data, we may explore increases in amputation-free survival as a potential clinical endpoint for further development of ALD-301. We anticipate that our future clinical trials would use a placebo control.

ALD-201

ALD-201 is the population of ALDH^br stem cells we produce using our proprietary technology to sort a specified quantity of bone marrow collected from the patient receiving the therapy. We are developing ALD-201 for the treatment of ischemic heart failure.

To produce ALD-201, we receive 100 milliliters of bone marrow collected from the patient. At our manufacturing facility, we process the bone marrow to isolate and capture the ALDH^br cells. Typically within 36 hours of our receipt of the bone marrow, we deliver the resulting ALD-201 to an interventional cardiologist, who then administers ALD-201 to the patient by injection directly into the patient’s heart muscle using a specialized catheter.

Ischemic Heart Failure

Ischemic heart failure is caused by an obstruction of the arteries feeding blood to the heart tissue. The resulting damage to the heart muscle from insufficient oxygen and nutrients reduces the heart’s ability to pump blood efficiently to the rest of the body. Current treatment options for ischemic heart failure include surgical procedures, bi-ventricular pacers, drug therapies, implantable cardiac defibrillators, and ventricular assist devices. For some patients, these treatments are not effective or appropriate. Once ischemic heart failure patients have exhausted all potential revascularization options, their only other option is a heart transplant.

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Market Opportunity for ALD-201

According to the American Heart Association, 5.3 million patients in the United States suffer from heart failure, with an additional 660,000 new cases of heart failure diagnosed each year. In a study we commissioned, Trinity Partners estimates that approximately 70% of U.S. heart failure patients, or approximately 3.7 million patients, have ischemic heart failure. There is no definitive data on the number of ischemic heart failure patients who no longer have revascularization options and whose only treatment option is a heart transplant. However, Trinity Partners estimates that there are between 200,000 and 300,000 patients who fall into this category. According to the Healthcare Cost and Utilization Project, the median hospital cost associated with heart transplantation is approximately $307,000 per transplant.

Clinical Development of ALD-201

In September 2006, investigators at The Texas Heart Institute began enrolling patients in a Phase 1 clinical trial of ALD-201. This trial is designed to evaluate the safety and potential efficacy of ALD-201 as a treatment for ischemic heart failure. To date, investigators have enrolled and treated 18 patients in the trial. The protocol for this trial provides for up to 60 patients, but we expect to limit enrollment to 20 patients, which we expect will be completed in the second quarter of 2008. We expect that the results of the 20 patients to be evaluated in this trial will be available in the fourth quarter of 2008.

Trial Design. This clinical trial is being conducted as a randomized, double-blind, placebo-controlled trial. Patients in the ALD-201 treatment group will receive an injection of ALD-201. Patients in the placebo control group receive an injection of an equivalent volume of placebo using the same catheter delivery system. Investigators are assessing patients for endpoints for the first six months after the injection and then following them for an additional six months. After the initial six-month assessment, patients in the control group are offered the opportunity to be treated with ALD-201 and then evaluated as though they had been initially placed in the ALD-201 treatment group.

The clinical investigators in this trial are using the MyoStar catheter system developed by Johnson & Johnson for the injection of ALD-201 and the placebo. The MyoStar catheter is a highly specialized, experimental catheter designed to inject agents into the heart. It has not been approved by the FDA for use with ALD-201 or any commercial use. The catheter is used together with an electronanatomical mapping system, which creates a real-time, three-dimensional mapping of the patient’s heart. The location information displayed on the mapping system screen gives the location of the catheter tip, which allows for precise targeting of injections into the heart muscle.

Endpoints. The primary objective of this clinical trial is to evaluate the safety of ALD-201. Secondary endpoints include efficacy evaluations, including aerobic capacity and walking distance. Other endpoints include change in clinical status, blood flow measures, imaging tests, such as echocardiograms and single-photon-emission computed tomography, or SPECT, and subjective measures of quality of life.

Inclusion and Exclusion Criteria. Only patients with no further revascularization options are eligible to participate in this trial. In addition, patients must be in specified classes under the Canadian Cardiovascular Society system for the measurement of angina and have an observed ejection fraction no greater than 45%, meaning that their left ventricle pumps less than 45% of the total blood in the ventricle per heartbeat. Other inclusion criteria include a reversible perfusion defect on SPECT. Key exclusion criteria include high-risk acute coronary syndrome, a recent heart attack or a left ventricular wall thickness of less than eight millimeters at the injection site.

Plans for Future Development. If the results of this Phase 1 clinical trial are positive, we plan to initiate additional larger clinical trials of ALD-201.

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Potential Use of ALDH^br Cell Populations in Other Therapeutic Areas

In addition to the potential role of ALDH^br cells in accelerating engraftment following cord blood transplants, as well as in the treatment of ischemic damage, we believe that these cells may have broad applicability in a variety of other therapeutic areas. Three preclinical studies suggest potential for using ALDH^br cells in other indications:

• In a preclinical study conducted by third-party researchers to evaluate the treatment of mice with a genetic neurodegenerative disease, ALDH^br cell populations derived from mouse spinal cord tissue were shown to contain mouse neural progenitor cells. Mice that received the ALDH^br cells in this study showed evidence of the regeneration of a specific damaged spinal nerve and these mice regained function in their hind legs. We believe that these results suggest that ALDH^br cell populations may have the potential to treat neurological disorders, such as ischemic stroke and neurodegenerative diseases.

• In another preclinical study, academic researchers evaluated whether ALDH^br cells derived from human cord blood can participate in liver regeneration in mice following acute chemically induced liver damage. In that study, mice were injected with ALDH^br cells derived from human cord blood following the induced damage to the liver tissue. The researchers then observed that ALDH^br cells were present in the mouse livers after the injury. Furthermore, these ALDH^br cells appeared to have differentiated into cells resembling the chief functional cells of the liver. We believe that these results suggest that ALDH^br cell populations could promote the repair of damaged livers in several clinical contexts, including hepatitis.

• In a preclinical study conducted by academic researchers using a mouse model of multi-organ failure in human lysosomal storage disease, researchers injected human ALDH^br cells into the mice. The researchers then observed that ALDH^br cells were present in the damaged tissue. Furthermore, these ALDH^br cells appeared to have differentiated into a variety of tissue types depending on the nature of the damaged tissue. We believe that these results suggest that ALDH^br cell populations could have the potential to help promote the repair of a variety of tissues in clinical indications in orthopedics, eye diseases, diabetes, kidney diseases and neurological disorders.

Our Research and Diagnostic Products

In addition to our therapeutic product candidates in clinical development, we have commercialized two research and diagnostic products based on our technology. We sell both of these products through a third-party distributor.

ALDEFLUOR

ALDEFLUOR is a reagent system for use only in research activities to identify and isolate stem cells and progenitor cells based on ALDH activity. ALDEFLUOR is optimized for identifying human hematopoietic cells, but has also been adapted for use with other cell types. ALDEFLUOR is not capable of producing any of our therapeutic product candidates. We have sold ALDEFLUOR units to researchers since 2003 and have received cumulative revenues to date of approximately $500,000.

ALDECOUNT

ALDECOUNT is a diagnostic product for identification and counting of ALDH^br cells in vitro using flow cytometry. The FDA has given pre-market clearance to ALDECOUNT for use with fresh or frozen human peripheral blood, umbilical cord blood and bone marrow and for use in leukapheresis, a process by which white blood cells are separated from a sample of blood. Researchers and diagnostic laboratories use ALDECOUNT for a variety of applications, including the assessment of cardiovascular health by counting circulating progenitor cells and the assessment of bone marrow transplant quality by counting hematopoietic stem cells. We also use ALDECOUNT internally in our clinical trials to assess the stem cell count in our product candidates. We have sold ALDECOUNT to clinical and research laboratories since 2004 and have received only nominal revenues to date from the sale of ALDECOUNT.

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Manufacturing

Historically, we and several contractors manufactured our product candidates for preclinical studies and clinical trials. In 2007, we consolidated all of our manufacturing functions at our facility at our corporate headquarters in Durham, North Carolina. This facility is registered with the FDA as a cell manufacturing establishment and we believe that it is operating in compliance with the cGMP and cGTP standards required by the FDA. At our facility, we configure and package our product candidates to allow for ease of storage, distribution and use in the clinic.

We currently use traditional cell sorting equipment to manufacture our product candidates. We believe that our current isolation methodologies are sufficient to produce a sufficient number and quality of ALDH^br cells to advance our product candidates through clinical trials and to commence commercialization if we receive marketing approval. However, we believe that there are a number of ways to enhance our processes that could reduce our manufacturing costs. As a result, we are currently developing new processes and instruments to improve our manufacturing efficiency. For example, we are currently developing and testing a prototype of an advanced cell sorter that we refer to as the Aldesorter. The Aldesorter is based on micro-electro-mechanical systems, or MEMS, sorting chips. The Aldesorter MEMS chip under development has 16 parallel channels that will sort cells simultaneously, which should significantly increase our sorting speeds and decrease overall manufacturing costs. In addition, we anticipate that the Aldesorter would be significantly less expensive for us to operate than conventional cell sorters. The Aldesorter is also significantly smaller than our current sorting machines and, once operational, will not require separate clean room space.

Sales and Marketing

We currently have limited sales and marketing capabilities and no distribution capabilities. If we receive regulatory approval for ALD-101, we plan to market ALD-101 using a small, focused and specialized internal sales force. We believe that such a sales force could address the relatively small number of treatment centers and investigators involved in cord blood transplants for inherited metabolic diseases in pediatric patients. We also believe that, by developing our own sales force, we can control marketing efforts more effectively and obtain better access to the physicians that we would target. In addition, we expect that we would be able to use the experience of an internal sales force gained in promoting ALD-101 to market ALD-151, our other cord blood transplant product candidate, if it is approved for marketing by the FDA.

We also plan to pursue strategic collaborations to support and facilitate the development and commercialization of some of our product candidates. In particular, we intend to explore collaboration arrangements with leading pharmaceutical or biotechnology companies for the commercialization of ALD-301 and ALD-201, which we are developing for target indications with large addressable patient populations that we believe are better served by large sales and marketing organizations. Furthermore, if we choose to pursue approval of any of our product candidates by foreign regulatory authorities, we would evaluate the potential for collaborations with third parties to assist in the development and commercialization of these product candidates in international markets.

When appropriate, we also plan to build a marketing and sales management organization to create and implement marketing strategies for any products that we market through our own sales force and to oversee and support our sales force. The responsibilities of the marketing organization would include developing educational initiatives with respect to any approved products and establishing relationships with influential practitioners in relevant fields of medicine.

Intellectual Property

We currently own or have exclusive licenses to four issued U.S. patents, including two with claims directed to our product candidates. Foreign counterparts to these patents, including composition of matter claims, have been filed, and we own or hold licenses to three issued or allowed patents in Europe, Australia and Singapore.

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We also have two additional pending U.S. patent applications, two pending international applications under the Patent Cooperation Treaty, and six pending patent applications on file in foreign countries. The issued patents and pending patent applications included in our portfolio are directed to the method used to manufacture cell populations that express high levels of ALDH, the chemistry used in this manufacturing process, kits that embody this chemistry, the composition of sorted cell populations that express high levels of ALDH, and the therapeutic use of these cell populations. We are committed to protecting our intellectual property position and to aggressively pursuing our patent portfolio.

For most of our product candidates, we rely on multiple patents in combination. The following provides a summary of our key U.S. patents and pending U.S. and international patent applications.

U.S. Patent	Subject Matter	Related Product Candidates	Expiration
US5,876,956	Methods for Identification or Purification of Cells Containing an Enzymatic Intracellular Marker	—	2016
US6,537,807	Hematopoietic Stem Cells	—	2018
US6,627,759	Method of Isolating Stem Cells	ALD-101, 151, 201, 301	2019
US6,991,897	Method of Isolating Stem Cells	ALD-101, 151, 201, 301	2020
Pending U.S. Applications
—	Method of Isolating Stem Cells	ALD-101, 151, 201, 301	—
—	Stem Cell Populations and Methods of Use	ALD-101, 151, 201, 301	—
Pending International Applications
—	Methods For Improved Engraftment Following Stem Cell Transplantation	ALD-101, ALD-151	—
—	Methods For Using ALDHbr Cells to Supplement Stem Cell Transplantation	ALD-101, ALD-151	—

Patent life determination depends on the date of filing of the application or the date of patent issuance and other factors as promulgated under patent law. The United States Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act, permits a patent extension of up to five years as compensation for patent term lost during the FDA regulatory development and review process. For stem cell therapies, the patent term restoration period is generally one-half of the time between the effective date of an investigational new drug, or IND, application and the submission date of a biologics license application, or BLA, plus the time between the submission date of a BLA and the approval of the product. Only one patent applicable to the earliest approved product containing a particular active ingredient is eligible for the extension. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves applications for patent term extension. We expect to apply for patent term extensions for eligible patents and products to add patent life beyond the expiration date, depending on the expected length of clinical trials and other factors involved in the filing of a BLA.

Through our experience with product development with stem cells sorted by ALDH activity, we have developed expertise and know-how in this field. To protect this non-patentable know-how, our policies require confidentiality agreements with our employees, consultants, contractors, manufacturers, outside collaborators, sponsored researchers, and advisors. These agreements generally provide for protection of confidential information, restrictions on the use of materials and assignment of inventions conceived during the course of performance for us. These agreements might not effectively prevent disclosure of our confidential information.

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License Agreements with Duke University and Johns Hopkins University

We were founded on the basis of technology obtained from Duke University, or Duke, and Johns Hopkins University, or JHU. In 2000, we entered into separate technology transfer and license agreements with Duke and JHU. Pursuant to these license agreements, we obtained exclusive worldwide licenses to specified patents owned by Duke and JHU, with the right to grant sublicenses. These licenses are subject to specified rights of the United States government, based on governmental agencies’ partial funding of the research underlying the licensed patents. The licenses are also subject to Duke’s and JHU’s retained rights under the granted patents for non-commercial research, testing and educational purposes. We are responsible for all patent prosecution costs under both license agreements and, along with Duke and JHU, we have the right to enforce the licensed patents.

Pursuant to the license agreement with Duke, we are obligated to pay royalties to Duke based on sales of products covered by, and revenue received from sublicenses of, the granted patents licensed under such agreement, with minimum royalties owed to Duke under specified circumstances. In connection with entering into the Duke license agreement, we also issued shares of our common stock to Duke. Additionally, we have agreed to limit all royalties on products covered by the Duke license agreement to a maximum royalty rate. If the total royalties owed on such products would otherwise be greater than the maximum percentage, all royalties would be reduced on a pro rata basis. The patent license is terminable by Duke if there is an uncured material breach of the agreement by us, or for our fraud, willful misconduct or illegal conduct. Otherwise, the term of the exclusive license from Duke will extend until 2020, the expiration of the last underlying patent that is the subject of the license, at which point it will become non-exclusive.

Pursuant to the license agreement with JHU, we are obligated to pay royalties to JHU based on sales of products covered by, and revenue received from sublicenses of, the granted patents licensed under such agreement, with minimum royalties owed to JHU under specified circumstances. The patent license is terminable by JHU if there is an uncured material breach of the agreement by us or if we become the subject of a bankruptcy proceeding. Otherwise, the term of the exclusive license from JHU will extend until 2016, the expiration of the patent that is the subject of the license.

Competition

Our industry is subject to rapid and intense technological change. We face, and will continue to face, intense competition from pharmaceutical, biopharmaceutical and biotechnology companies, as well as numerous academic and research institutions and governmental agencies engaged in drug discovery activities or funding, both in the United States and abroad. Some of these competitors are pursuing the development of drugs and other therapies that target the same diseases and conditions that we are targeting with our product candidates.

Many of the companies competing against us have financial and other resources substantially greater than ours. In addition, many of our competitors have significantly greater experience in testing pharmaceutical and other therapeutic products, obtaining FDA and other regulatory approvals of products, and marketing and selling those products. Accordingly, our competitors may succeed more rapidly than us in obtaining FDA approval for products and achieving widespread market acceptance. If we obtain necessary regulatory approval and commence significant commercial sales of our products, we will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which we have limited or no commercial-scale experience.

The primary competitors and potential competitors for our product candidates include:

• ALD-101. There are no therapies currently approved by the FDA, and we are not aware of any other therapy being pursued, for use following a cord blood transplant in an effort to accelerate engraftment in pediatric patients with inherited metabolic diseases. Cord blood transplants, if successful, can cure these diseases. Other therapies are being developed, however, to treat the underlying diseases, which could be a competitive threat to the extent that cord blood transplants become less necessary for our target indications.

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Some inherited metabolic diseases, including Hurler syndrome, are currently treated with approved enzyme replacement therapies marketed by companies such as Genzyme and Biomarin. Other companies, such as Shire Pharmaceuticals, market enzyme replacement therapies for other indications. Unlike a cord blood transplant, enzyme replacement therapies do not cure inherited metabolic diseases, and patients require ongoing infusions over the course of their lives. Enzyme replacement therapy is also very expensive and is not available for many inherited metabolic diseases. Alternatively, a few inherited metabolic diseases can be treated with a transplant of primary cell lines that manufacture the deficient enzyme. Such therapies, which are approved in Europe, are now being sold and developed by Shire Pharmaceuticals. As with enzyme replacement therapy, these cell-based therapies do not cure the underlying diseases.

• ALD-151. There are no therapies currently approved by the FDA for use following a cord blood transplant in an effort to accelerate engraftment in patients with leukemia. We are aware of one potential competing product in clinical development, Gamida Cell’s StemEx^®, which is currently being tested in a Phase 3 clinical trial under an approved special protocol assessment with the FDA. Like our UCBT-002 trial of ALD-101, this trial utilizes a historical control. As with ALD-151, StemEx is a supplement to a stem cell transplant, but unlike ALD-151, which requires no culturing, StemEx is produced by growing a portion of the cord blood used for the transplant in tissue culture under conditions believed to allow for an increase in the number of blood stem cells. These expanded StemEx cell populations are then infused into a patient after the remainder of the unmanipulated cord blood is administered.

• ALD-301. We are developing ALD-301 for the treatment of critical limb ischemia patients with no further revascularization options and who face amputation of the affected limb. ALD-301 would compete with pharmaceutical therapies and cell-based therapies being developed to treat critical limb ischemia, although there are no FDA-approved therapies for the treatment of this condition. To the extent that therapies are developed that reverse the progression of the ischemic damage, it could have the effect of reducing demand for ALD-301. Potential pharmaceutical therapies being developed for critical limb ischemia include several strategies to use the tissue repair activities of cytokines, which are regulatory proteins released by the immune system, to increase blood flow to the damaged limb tissue. In some strategies, purified recombinant cytokines, such as hepatocyte growth factor, are being administered locally to the damaged limb. Gene constructs for cytokines are also being administered on the theory that cells taking up the gene will manufacture cytokines locally. Cell-based therapies, such as other bone marrow-derived stem cell therapies, are being pursued by companies such as Aastrom Biosciences. In addition, some companies, such as Harvest Technologies, are developing devices to facilitate the production of therapeutic cell populations by clinicians for the treatment of critical limb ischemia.

• ALD-201. We are developing ALD-201 for the treatment of ischemic heart failure patients with no further revascularization options. Accordingly, we do not believe that ALD-201 would compete directly with other therapies that have been exhausted by the patient. However, to the extent that therapies are developed that reverse the progression of the ischemic damage or restore blood flow, it could have the effect of reducing demand for ALD-201. New pharmaceutical agents or devices that improve the repair of cardiac injury after a heart attack, with the result that fewer patients develop ischemic heart failure, would also represent a competitive threat. Cell-based therapies such as skeletal myoblasts and adipose-derived stem cells are being pursued for the treatment of ischemic heart failure by companies such as Bioheart. In addition, some companies, such as Cytori Therapeutics and Baxter International, are developing devices to facilitate the production of therapeutic cell populations by clinicians for the treatment of ischemic heart failure.

We may face competition in the future from other companies that are researching and developing stem cell therapies. In addition to the companies mentioned above, we are aware of other companies working in this area, including Angioblast Systems, Inc. and Athersys, Inc. We expect to compete based upon, among other things, the efficacy of our product candidates and our intellectual property portfolio. Our ability to compete successfully will

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depend on our continued ability to attract and retain skilled and experienced scientific, clinical development and executive personnel, to identify and develop viable biologic candidates and to exploit these product candidates commercially before others are able to develop competitive products.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries, extensively regulate, among other things, the research, development, testing, manufacture, including any manufacturing changes, packaging, storage, recordkeeping, labeling, advertising promotion, distribution, marketing, import and export of biological products such as those we are developing. The process of obtaining required regulatory approvals and the subsequent compliance with appropriate statutes and regulations require the expenditure of substantial time and money, and there is no guarantee that we will successfully complete the steps needed to obtain regulatory approval of any of our product candidates.

U.S. Government Regulation

In the United States, our product candidates are regulated by the FDA as biological products. Biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act, and related regulations, and other federal, state and local statutes and regulations. Failure to comply with the applicable U.S. regulatory requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include the imposition by the FDA or an Institutional Review Board, or IRB, of a clinical hold on trials, the FDA’s refusal to approve pending applications or supplements, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on us.

The process required by the FDA before a biological product may be marketed in the United States generally involves the following:

• completion of preclinical laboratory and animal tests conducted in compliance with the FDA’s good laboratory practice, or GLP, requirements to assess a drug’s biological activity and to identify potential safety problems, and to characterize and document the product’s chemistry, manufacturing controls, formulation, and stability;

• submission to the FDA of an investigational new drug, or IND, application, which must become effective before clinical testing in humans can begin;

• obtaining approval of IRBs of research institutions or other clinical sites to introduce the biologic product candidate into humans in clinical trials;

• completion of adequate and well-controlled human clinical trials to establish the safety, purity and potency of the product for its intended indication conducted in compliance with the FDA’s good clinical practice, or GCP, requirements;

• compliance with applicable cGMP regulations and standards and, for cell-based products, cGTP regulations;

• submission to the FDA of a biologics license application, or BLA, for marketing approval that includes, among other things, results of preclinical testing and clinical trials;

• FDA review of the BLA in order to determine, among other things, whether the product is safe and effective for its intended uses; and

• satisfactory completion of an FDA inspection of the facility or facilities at which the product is manufactured, processed, packaged or held to assess compliance with cGMP and cGTP requirements, prior to any commercial sale or shipment of the biological product.

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Preclinical Studies and IND Submission

Preclinical studies include laboratory evaluation of the product candidate, its chemistry, formulation and stability, as well as animal studies to assess its potential safety and efficacy. An IND sponsor must submit the results of the preclinical studies, together with manufacturing information, analytical data and any available clinical data or literature to the FDA as part of an IND. The IND will also include the protocols for the initial clinical trials and an investigator’s brochure, and the IND must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to the proposed clinical trials as outlined in the IND. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before clinical trials can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to commence.

Clinical Trials

Clinical trials involve the administration of the product candidate to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing prior to their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, and the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the study protocol and informed consent for any clinical trial before it commences at that institution. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined, such as in the case of our Phase 1/2 clinical trial of ALD-301:

• In Phase 1 trials, the product candidate is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance and pharmacokinetics, such as absorption, metabolism, distribution and excretion.

• In Phase 2 trials, the product candidate is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product candidate for specific targeted diseases and to determine dosage tolerance and optimal dosage and schedule.

• In Phase 3 trials, the product candidate is administered to an expanded patient population generally at geographically dispersed clinical trial sites to further evaluate dosage, clinical efficacy and safety and to establish the overall risk-benefit ratio of the product candidate and an adequate basis for product labeling.

• The FDA may require Phase 4 trials or other post-marketing trials if it finds that additional drug information must be collected following market entry or it may condition approval of a product on the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s safety and effectiveness after approval.

Phase 1, Phase 2, Phase 1/2 and Phase 3 clinical trials may not be completed successfully within any specified time period, or at all. Further, the FDA, an IRB or the product candidate’s sponsor may prevent clinical trials from beginning or suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk.

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Marketing Approval

Assuming successful completion of the required clinical trials, the results of product development, preclinical studies and clinical studies, descriptions of the manufacturing process and other relevant information concerning the safety, purity and potency of the biological product candidate are submitted to the FDA in the form of a BLA. In most cases, the BLA must be accompanied by a substantial user fee. Currently, the fee for submission of most BLAs is approximately $1.2 million and manufacturers of approved biologics are subject to annual fees of $65,000 per approved product and $393,000 per manufacturing facility. The FDA reviews a BLA to determine, among other things, whether the product is safe, pure and potent and the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product’s continued safety, purity and potency. Under the Prescription Drug Fee Act, the FDA has committed to reviewing most standard BLAs in 10 months, although the FDA’s review process can sometimes be longer.

The FDA may request that an Advisory Committee review the BLA and make a recommendation as to whether the application should be approved and under what conditions. The Advisory Committee is a panel of experts who provide advice and recommendations when requested by the FDA on matters of importance that come before the agency. Committee recommendations are not binding on the FDA, but the agency considers them carefully when making decisions.

BLAs for a new active ingredient, indication, dosage form, dosage regimen or route of administration must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may also require sponsors of currently marketed biologics to conduct pediatric studies if the product serves a substantial number of pediatric patients and adequate pediatric labeling could benefit such patients, the product would provide a meaningful therapeutic benefit for pediatric patients or the absence of pediatric labeling could pose a risk to pediatric patients. The FDA may, on its own initiative or at the request of the applicant, defer submission of some or all pediatric data until after approval of the product for use in adults, or grant a full or partial waiver from the pediatric data requirements.

Before approving an application, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications.

The testing and approval process requires substantial time, effort and financial resources and may take many years to complete. The FDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to develop our products and secure the necessary approvals, which could delay or prevent us from marketing our products. The FDA may deny an application if all applicable regulatory criteria are not satisfied or may require additional clinical data. Even if additional clinical data are submitted, the FDA may ultimately decide that the application does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret the data differently than we interpret the data. Even if the FDA approves a product, it may limit the approved therapeutic uses for the product, require that contraindications, warnings or precautions be included in the product labeling, require that additional studies be conducted following approval, or require surveillance programs to monitor the product after commercialization. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further FDA review and approval.

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Orphan Drugs

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs and biological products intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation for a biological product must be requested before submitting a BLA. We applied for orphan drug designation for ALD-101 in April 2008. Our application is currently under review. If the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. However, the first applicant with FDA orphan drug designation for a particular active ingredient to receive FDA approval for the disease for which it has such designation is entitled to a seven-year exclusive marketing period in the United States for the product for that indication. During the seven-year period, the FDA may not approve any other applications to market the same drug or biological product for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biological product for the same disease or condition, or the same drug or biological product for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for specified research and a waiver of the marketing application user fee.

Accelerated Approval

Under the FDA’s accelerated approval regulations, the FDA may approve a biologic product for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments, based upon a surrogate endpoint that is reasonably likely to predict clinical benefit. In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions or survives. Time to engraftment is a surrogate endpoint. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the biological product from the market on an expedited basis. All promotional materials for biologics approved under accelerated regulations are subject to prior review by the FDA.

Combination Products

The FDA has the authority to approve and regulate combination products. A combination product may include a product that includes two or more regulated components such as a biologic product and a device that are combined or produced as a single entity; two or more separate products packaged together in a single package or as a unit; or a product packaged separately that is intended to be used only with an approved drug, device or biological product to achieve the intended effect. In some cases, a combination product might fall under the jurisdiction of more than one agency center within the FDA, for example the center charged with regulating biological products or the center that regulates devices. In these cases, to determine which agency center will be assigned primary responsibility for regulating a particular combination product, the FDA looks to the product’s primary mode of action. To determine the primary mode of action, the FDA assesses the principal means by which a product achieves its most important intended therapeutic effect or action. If the product has a biological primary mode of action, it will likely be regulated by the FDA center focused on regulating biological products. The center with primary jurisdiction may also consult other FDA centers to assist with reviewing a marketing application, as appropriate. In most instances, only a single marketing application is filed with the center at the FDA that is assigned with primary jurisdiction over the application. We believe that ALD-201 may be regulated as a combination product because it requires administration through a specialized medical device, such as the MyoStar system.

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Post-approval Requirements

Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion, and reporting of adverse experiences with the product.

In addition, manufacturers of biopharmaceutical products must continue to comply with cGMP requirements after approval, which are extensive and require considerable time, resources and ongoing investment to ensure compliance. The requirements apply to all stages of the manufacturing process, including the synthesis, processing, packaging, labeling, storage and shipment of the product. Manufacturers must establish validated systems to ensure that products consistently meet high standards of sterility, safety, purity, potency and identity. Changes to the manufacturing process are strictly regulated and generally require prior FDA approval before being implemented.

FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use. Manufacturing establishments are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP. Future FDA and state inspections may identify compliance issues at our manufacturing facilities or the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct.

The FDA may withdraw or revoke a product’s approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Further, the failure to maintain compliance with regulatory requirements may result in administrative or judicial action, such as fines, warning letters, holds on clinical trials, product recalls or seizures, product detention or refusal to permit the import or export of products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, injunctions, civil penalties or criminal prosecution. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses and a company that is found to have improperly promoted off-label uses may be subject to significant liability. Also, new governmental requirements may be established, including those resulting from new legislation, or the FDA’s policies may change, which could significantly affect our business, including preventing or delaying regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of any adverse governmental legislation, regulation or other administrative action, or what the impact of such changes, if any, may be.

New Legislation

The FDAAA was enacted in September 2007. This law grants significant expanded authority to the FDA, much of which is aimed at improving the safety of drug products before and after approval. In particular, the FDAAA authorizes the FDA to, among other things, require post-approval studies and clinical trials, mandate changes to labeling to reflect new safety information, and require risk evaluation and remedy and mitigation strategies for some drugs and biological products, including some currently approved drugs and biological products. In addition, it significantly expands the federal government’s clinical trial registry and results databank and creates new restrictions on the advertising and promotion of drug products. Under the FDAAA, companies that violate these and other provisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties. While we expect the FDAAA to have a substantial effect on the pharmaceutical and biotechnology industries, the extent of that effect is not yet known. As the FDA issues regulations, guidance and interpretations relating to the new legislation, the impact on the industry, as well as our business, will become clearer. The new requirements and other changes that the FDAAA imposes may make it more difficult, and likely more costly, to obtain approval of new pharmaceutical products and to produce, market and distribute existing products.

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Privacy Laws

Federal and state laws govern our ability to obtain and, in some cases, to use and disclose data we need to conduct research activities. Through the Health Insurance Portability and Accountability Act of 1996, or HIPAA, Congress required the Department of Health and Human Services to issue a series of regulations establishing standards for the electronic transmission of certain health information. Among these regulations were standards for the privacy of individually identifiable health information.

HIPAA does not preempt, or override, state privacy laws that provide even more protection for individuals’ health information. These laws’ requirements could further complicate our ability to obtain necessary research data from our collaborators. In addition, certain state privacy and genetic testing laws may directly regulate our research activities, affecting the manner in which we use and disclose individuals’ health information, potentially increasing our cost of doing business, and exposing us to liability claims. In addition, patients and research collaborators may have contractual rights that further limit our ability to use and disclose individually identifiable health information. Claims that we have violated individuals’ privacy rights or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

Other Regulations

In addition to privacy law requirements and regulations enforced by the FDA, we also are subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including chemicals, micro-organisms and various radioactive compounds used in connection with our research and development activities. These laws include, but are not limited to, the Occupational Safety and Health Act, the Toxic Test Substances Control Act and the Resource Conservation and Recovery Act. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, we cannot assure you that accidental contamination or injury to employees and third parties from these materials will not occur. We may not have adequate insurance to cover claims arising from our use and disposal of these hazardous substances.

Foreign Regulation

In addition to regulations in the United States, we may be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of biological products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. The requirements governing the conduct of clinical trials and the approval process vary from country to country and the time may be longer or shorter than that required for FDA approval. In the European Union, marketing authorizations may be submitted under a centralized or decentralized procedure. The centralized procedure is mandatory for the approval of biotechnology products and many pharmaceutical products, and provides for the grant of a single marketing authorization that is valid in all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions and is available at the request of the applicant for medicinal products that are not subject to the centralized procedure.

In addition to regulations in Europe and the United States, we will be subject to a variety of other foreign regulations governing, among other things, the conduct of clinical trials, pricing and reimbursement and commercial distribution of our products. If we fail to comply with applicable foreign regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

To date, we have not initiated any discussions with the European Medicines Agency or any other foreign regulatory authorities with respect to seeking regulatory approval for any of our product candidates in Europe or in any other country outside the United States.

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Employees

As of March 31, 2008, we employed 18 individuals, 17 of whom were full-time employees. Of our employees, 12 were engaged in research and development activities and five were engaged in selling, general and administrative activities. None of our employees is represented by a labor union or covered under a collective bargaining agreement, nor have we experienced any work stoppages. We consider our employee relations to be good.

Facilities

Our corporate headquarters, which includes our manufacturing facility, are located in Durham, North Carolina, where we lease approximately 11,000 square feet of space. The lease on this facility expires in April 2013.

Legal Proceedings

We are not currently a party to or engaged in any material legal proceedings. However, we may be subject to various claims and legal actions arising in the ordinary course of business from time to time.

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MANAGEMENT

Directors and Executive Officers

The following table sets forth information concerning our directors and executive officers, including their ages as of April 30, 2008:

Name	Age	Position
W. Thomas Amick	65	Chairman of the Board of Directors, Chief Executive Officer
Edward L. Field	43	President and Chief Operating Officer
David Carberry	55	Chief Financial Officer
Andrew E. Balber, Ph.D.	63	Chief Scientific Officer
Laurence Keller, M.D.	44	Chief Medical Officer
Joel R. Kimbrough	50	Director
Martin J. Murphy, Ph.D.	65	Director
B. Jefferson Clark	51	Director
Garheng Kong, M.D., Ph.D.	32	Director

Executive Officers

W. Thomas Amick

Mr. Amick has served as our Chief Executive Officer and Chairman of our Board of Directors since March 2005. Mr. Amick was retired from March 2004 until he began serving as a consultant to Aldagen in March 2005, before becoming an employee in March 2006. Mr. Amick served in a series of positions with Johnson & Johnson and its subsidiaries and divisions from 1974 until his retirement in February 2004, including Vice President, Business Development of the Johnson & Johnson Development Corporation from January 2003 to February 2004, President of Ortho Biotech Europe from June 2000 to December 2002, President of Janssen-Ortho, Inc. from March 1999 to June 2000 and Vice President of the Oncology Franchise for Ortho Biotech Products, L.P. from 1997 to March 1999. Mr. Amick has served as a director of Discovery Laboratories, Inc., a publicly traded life sciences company, since September 2004 and as the chairman of its board of directors since March 2007. Mr. Amick received a B.S. degree in business administration from Elon College.

Edward L. Field

Mr. Field has served as our President and Chief Operating Officer since November 2004. Prior to joining Aldagen, Mr. Field was the President and Chief Executive Officer of Inologic, Inc., a private biopharmaceutical company, from February 2002 to September 2004. Prior to joining Inologic, from 1999 to 2002, Mr. Field was the President of Molecumetics, Ltd., a drug discovery and development subsidiary of Tredegar Corporation, until its merger with Therics, LLC, a regenerative medicine company. Mr. Field received a Master of Business Administration degree from the University of Virginia’s Darden School of Business Administration and a Bachelor of Science degree in Economics from Duke University.

David Carberry

Mr. Carberry has served as our Chief Financial Officer since March 2008. Prior to joining Aldagen, Mr. Carberry served with Johnson & Johnson and its subsidiaries and divisions in a variety of financial positions from 1981 to February 2008. Most recently, Mr. Carberry served as Vice President, Finance and Chief Financial Officer of Johnson & Johnson*Merck Consumer Pharmaceuticals Co. from March 2005 to September 2006 and as Vice President, Finance of Johnson & Johnson Health Care Systems Inc. from January 2005 to February 2005. Concurrently, Mr. Carberry acted as Vice President, Finance and Chief Financial Officer of Independence Technology, Inc., a division of Johnson & Johnson, from September 2004 to September 2007. Mr. Carberry received a Master of Business Administration degree from Drexel University and a Bachelor of Science degree in accounting from LaSalle College. Mr. Carberry is a Certified Management Accountant.

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Andrew E. Balber, Ph.D.

Dr. Balber was a co-founder of Aldagen and has served as our Chief Scientific Officer since 2000. Dr. Balber began his work with cell therapies in 1983 when, as a Duke University faculty member in immunology and Director of the Comprehensive Cancer Center Flow Cytometry Facility, he helped organize and manage a university-based, industry sponsored research consortium in immunology. Dr. Balber received a Bachelor of Science degree in biology from Haverford College and his Ph.D. degree from Rockefeller University and completed postdoctoral training in immunology and microbiology at Yale University.

Laurence Keller, M.D.

Dr. Keller has served as our Chief Medical Officer since December 2007. Prior to joining Aldagen, from November 2005 to August 2007, Dr. Keller was the Senior Medical Director at Kos Pharmaceuticals, a pharmaceutical company, which was acquired by Abbott Laboratories in December 2006. Dr. Keller was previously employed by Pfizer/Parke Davis, a pharmaceutical company, where he served as Director of Clinical Research and Development from 1999 to September 2003 and as Senior Director from September 2003 to November 2005. Dr. Keller received a Bachelor of Science degree from The George Washington University and a Master of Science degree in physiology from Georgetown University. He received his M.D. degree from The George Washington University. Dr. Keller completed his internship and residency in pediatrics at The New York Hospital—Cornell Medical Center. He did his fellowship training in pediatric cardiology at St. Christopher’s Hospital for Children and the Children’s Hospital of Michigan. Dr. Keller also completed a postdoctoral research fellowship at the Children’s Hospital of Michigan, where he studied pulmonary vascular development and angiogenesis. Dr. Keller is a board-certified pediatric cardiologist and a Fellow of the American College of Cardiology and member of the American Heart Association.

Non-management Directors

Joel R. Kimbrough

Mr. Kimbrough has served as a member of our board of directors since November 2007. Currently retired, Mr. Kimbrough served as the Senior Vice President, Chief Financial Officer and Treasurer of Accredo Health Group, Inc., a specialty pharmaceutical provider, and its predecessor companies from 1989 until its acquisition by Medco Health Solutions in August 2005. He then served as Senior Vice President of the specialty segment of Medco from August 2005 to March 2007. Mr. Kimbrough was an auditor with Ernst & Young, LLP from 1980 to 1989. In addition to his directorship with us, Mr. Kimbrough is a member of the boards of directors of Bostwick Laboratories, Inc., a specialized anatomic pathology laboratory focused on the diagnosis of cancer, and Trust One Bank, a division of Synovus Financial Corp. Mr. Kimbrough received a Bachelor of Science degree in accounting from the University of North Alabama and is a certified public accountant.

Martin J. Murphy

Dr. Murphy has served as a member of our board of directors since May 2007. Since 1995, he has served as Founding Chairman and Chief Executive Officer of AlphaMed Consulting, Inc., a corporation that provides strategic support for academic cancer centers and cancer drug development programs for global pharmaceutical and biotechnology companies. In 1978, he founded the Hipple Cancer Research Center, now the Cancer Prevention Institute, where he served as President and Chief Executive Officer from 1985 to 1990 and was also a professor of medicine and principal investigator. Dr. Murphy is a member of the board of trustees of the American Cancer Society Foundation, a director of the Foundation for the National Institutes of Health and a charter member of C-Change, formerly the National Dialogue on Cancer. At the request of former President George H.W. Bush, Dr. Murphy has been convener of the non-profit CEO Roundtable on Cancer since its inception in 2001. He is also the executive editor of two international peer-reviewed scientific journals. Dr. Murphy received a Ph.D. degree in experimental hematology from New York University.

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B. Jefferson Clark

Mr. Clark has served as a member of our board of directors since 2000. He co-founded The Aurora Funds, a venture capital firm, in 1994 and serves as its Managing General Partner. Mr. Clark currently serves on the boards of directors of several of Aurora’s private life science portfolio companies. He received a Bachelor of Science degree in Mechanical Engineering from Duke University and a Master of Business Administration degree from the Fuqua School of Business at Duke University.

Garheng Kong

Dr. Kong has served as a member of our board of directors since August 2004. He is a General Partner at Intersouth Partners, a venture capital firm, and has been associated with Intersouth since 2000. Dr. Kong received his M.D., Ph.D. in biomedical engineering and Master of Business Administration degrees from Duke University. He also holds Bachelor of Science degrees in chemical engineering and biological sciences from Stanford University. Dr. Kong served on the Duke University Medical Center Institutional Review Board from August 1999 to August 2000. Dr. Kong is also on the faculty at the Fuqua School of Business at Duke University as a Senior Scholar.

Board Composition

Our board of directors currently consists of five members. Our board of directors has determined that all of our directors, other than Mr. Amick, are independent within the meaning of applicable NASDAQ listing standards.

Effective upon the completion of this offering, we will divide our board of directors into three classes, as follows:

• Class I, which will consist of             and             , and whose term will expire at our first annual meeting of stockholders to be held after the completion of this offering;

• Class II, which will consist of             and             , and whose term will expire at our second annual meeting of stockholders to be held after the completion of this offering; and

• Class III, which will consist of             , and whose term will expire at our third annual meeting of stockholders to be held after the completion of this offering.

At each annual meeting of stockholders to be held after the initial classification, the successors to directors whose terms then expire will serve until the third annual meeting following their election and until their successors are duly elected and qualified. The authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in our control or management. Under our certificate of incorporation to be in effect upon the closing of this offering, our directors may be removed only for cause by the affirmative vote of the holders of 66 ²/3% of our voting stock.

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Board Committees

Upon the completion of this offering, our board of directors will have an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and primary responsibilities of each committee are described below.

Audit Committee

Upon the completion of this offering, the members of our audit committee will be             ,             and             .             will serve as chairman of the audit committee. Our board of directors has determined that each member of the audit committee meets the independence requirements of Rule 10A-3 of the Exchange Act and NASDAQ listing standards. Our board of directors has also determined that             qualifies as an audit committee financial expert within the meaning of SEC regulations.

The primary purpose of the audit committee is to discharge the responsibilities of our board of directors with respect to our accounting, financial and other reporting and internal control practices and to oversee our independent registered public accounting firm. Specific responsibilities of our audit committee include:

• evaluating the performance of our independent registered public accounting firm and determining whether to retain or terminate their services;

• determining and pre-approving the engagement of our independent registered public accounting firm to perform audit services and any permissible non-audit services, other than immaterial aggregate amounts of non-audit services as excepted under applicable laws and rules;

• reviewing and discussing with management and our independent registered public accounting firm the results of the annual audit and the independent registered public accounting firm’s review of our annual and quarterly financial statements and reports;

• reviewing with management and our independent registered public accounting firm, significant issues that arise regarding accounting principles and financial statement presentation;

• conferring with management and our independent registered public accounting firm, regarding the scope, adequacy and effectiveness of our internal control over financial reporting; and

• establishing procedures for the receipt, retention and treatment of any complaints we receive regarding accounting, internal control or auditing matters.

Compensation Committee

Upon the completion of this offering, the members of our compensation committee will be             ,             and             .             will serve as chairman of the compensation committee. Each member of the compensation committee is independent within the meaning of applicable NASDAQ listing standards, is a non-employee director as defined in Rule 16b-3 under the Exchange Act and is an outside director as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, or the Code. The purpose of our compensation committee is to discharge the responsibilities of our board of directors to oversee our compensation policies, plans and programs and to review and determine the compensation to be paid to our executive officers and other senior management. Specific responsibilities of our compensation committee include:

• determining the compensation and other terms of employment of our executive officers and reviewing and approving corporate performance goals and objectives relevant to such compensation;

• evaluating and recommending to our board of directors the compensation plans and programs advisable for us, and evaluating and recommending the modification or termination of existing plans and programs; and

• reviewing and approving the terms of any employment agreements, severance arrangements, change-of-control protections and any other compensatory arrangements for our executive officers.

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Nominating and Corporate Governance Committee

Upon the completion of this offering, the members of our nominating and corporate governance committee will be             ,             and             .             will serve as chairman of the nominating and corporate governance committee. Each member of the nominating and corporate governance committee is independent within the meaning of applicable NASDAQ listing standards. The specific responsibilities of our nominating and corporate governance committee include:

• identifying, reviewing, evaluating and recommending for selection candidates for membership to our board of directors;

• reviewing, evaluating and considering the recommendation for nomination of incumbent members of our board of directors for reelection to our board of directors and monitoring the size of our board of directors;

• evaluating nominations by stockholders of candidates for election to our board of directors;

• reviewing, discussing and reporting to our board of directors an assessment of our board’s performance; and

• determining adherence to our corporate governance documents.

Compensation Committee Interlocks and Insider Participation

Mr. Amick, our chief executive officer, is currently a member of our compensation committee. We expect that Mr. Amick will resign as a member of this committee prior to the completion of this offering. Other than Mr. Amick, none of the members of the compensation committee is currently or has been at any time one of our officers or employees. None of our officers currently serve, nor have they served during the last completed fiscal year, as a member of the board of directors or compensation committee of any entity that has one or more officers serving as a member of our board of directors or compensation committee.

Non-Employee Director Compensation

The following table shows, for the fiscal year ended December 31, 2007, information with respect to the compensation of all of our non-employee directors. Prior to January 1, 2008, non-employee directors did not receive any other cash compensation for attendance at board and committee meetings. Beginning in 2008, we pay Mr. Kimbrough, in his capacity as a director and chairman of our audit committee, a quarterly cash retainer of $1,000 and a fee of $3,000 per meeting attended, and we pay Dr. Murphy, in his capacity as a director, a quarterly cash retainer of $1,000 and a fee of $2,000 per meeting attended. Directors are also eligible for reimbursement for their reasonable expenses incurred in connection with attendance at board and committee meetings.

Name	Fees Earned or Paid in Cash	Option Awards(1)		All Other Compensation	Total
Joel R. Kimbrough(2)	—		—	—		—
Martin J. Murphy(3)	—	$	4,000	—	$	4,000
William W. Brooke(4)	—		—	—		—
B. Jefferson Clark	—		—	—		—
Garheng Kong	—		—	—		—

(1) The assumptions we used in valuing options are described under the caption “Share-Based Compensation” in note 2 to our financial statements included in this prospectus. This column reflects the amount we recorded under SFAS No. 123R as stock-based compensation in our financial statements for 2007 in connection with options we granted in 2007, adjusted to disregard the effects of any estimate of forfeitures related to service-based vesting. Instead, it assumes that the director will perform the requisite service for the award to vest.

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(2) In November 2007, our board of directors approved the grant of a stock option to Mr. Kimbrough to purchase 300,000 shares of common stock. This stock option has a grant date of January 1, 2008 and an exercise price of $0.397, which was equal to the fair market value of our common stock as determined by a retrospective valuation as of December 31, 2007.

(3) Upon joining our board of directors in May 2007, Dr. Murphy was granted a stock option to purchase 100,000 shares of our common stock at $0.20 per share. This option had a grant date fair value of $16,000 as determined in accordance with SFAS No. 123R, adjusted to disregard the effect of any estimate of forfeitures related to service-based vesting. The shares subject to this option vested as to 25% of the shares on the date of grant, and the remainder vest in three equal annual installments. In November 2007, our board of directors approved the grant of an additional stock option to Dr. Murphy to purchase 150,000 shares of common stock. This stock option has a grant date of January 1, 2008 and an exercise price of $0.397, which was equal to the fair market value of our common stock as determined by a retrospective valuation as of December 31, 2007.

(4) Mr. Brooke resigned as a member of our board of directors in May 2008.

We expect that our board of directors will adopt a formal compensation program for non-employee directors. If adopted, this compensation program will be effective immediately upon the closing of this offering.

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EXECUTIVE COMPENSATION

The following discussion and analysis of compensation arrangements of our named executive officers for our fiscal year ended December 31, 2007 should be read together with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt may differ materially from currently planned programs as summarized in this discussion.

Compensation Discussion and Analysis

Our executive compensation program is designed to help us attract talented individuals to manage and operate all aspects of our business, to reward those individuals fairly over time and to retain those individuals who continue to meet our high expectations. The goals of our executive compensation program are to align our executive officers’ compensation with our business objectives and the interests of our stockholders, to incentivize and reward our executive officers for our success and to reflect the teamwork philosophy of our executive management team. To achieve these goals, we have established executive compensation and benefit packages that are generally based on a mix of base salary, cash incentive payments and equity awards, in the proportions that our board believes are the most appropriate to incentivize and reward our executive officers for achieving our objectives. Our executive compensation program is also intended to make us competitive in the biopharmaceutical industry, where there is significant competition for talented employees, and to be fair relative to other professionals within our organization. We believe that we must provide competitive compensation packages to attract and retain the most talented and dedicated executive officers possible and to help our executive management team function as a stable unit over the longer term.

Role of Our President and Our Chief Executive Officer in Setting Executive Compensation

We initially establish executive officers’ compensation arrangements when negotiating their employment when they join our company. We generally include these initial compensation terms in an offer letter or employment agreement with the executive. Additionally, we conduct an annual review of executive compensation, as well as the mix of elements used to compensate our executive officers. In connection with each annual review cycle, Edward Field, our President, and Thomas Amick, our Chief Executive Officer, each meet with those officers who report directly to them to discuss the individual’s performance over the prior year and to establish individual goals for the coming year. Based on these discussions, our President and our Chief Executive Officer then develop a set of compensation recommendations for submission to the compensation committee. In making these recommendations, our President and our Chief Executive Officer also seek input, as appropriate, from representatives of the venture capital funds who have invested in our company, including some of our outside directors, in order to ensure that their compensation recommendations are generally consistent with the compensation paid to executives of comparable companies.

Role of Our Board and Compensation Committee in Setting Executive Compensation

Our board of directors has established a compensation committee for the purpose of making recommendations to the full board regarding compensation decisions for our executive officers. The compensation committee currently consists of Mr. Amick and Dr. Kong, although we anticipate that Mr. Amick will resign as a member of the compensation committee prior to the closing of this offering. In carrying out its responsibilities, our compensation committee receives and evaluates the compensation recommendations made by our President and our Chief Executive Officer as described above. None of our executive officers participates in the discussions regarding his compensation. For Mr. Amick, his compensation is approved by the remaining member of the compensation committee, which is currently Dr. Kong. Based on the evaluation of management’s suggestions, the compensation committee then makes formal recommendations regarding executive compensation decisions to the full board of directors. In making these recommendations, the compensation

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committee does not delegate any of its functions to others, and has historically not engaged a compensation consultant to advise it in making its compensation recommendations. Instead, the committee members have relied on their own experience and observations in the marketplace in assessing and making recommendations regarding executive compensation. Our board of directors evaluates the recommendations from the compensation committee and makes final decisions regarding executive compensation.

Prior to the completion of this offering, Mr. Amick will resign from the compensation committee and our compensation committee will be reconstituted to consist solely of directors who are “outside directors” for purposes of Section 162(m) and “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended.

Elements of our Executive Compensation Program

General. Our executive compensation program consists of three principal components: base salary, cash bonus payments and long-term incentive compensation in the form of equity awards. Each component of our executive compensation program is designed to address specific compensation objectives. Our executive officers are also eligible to participate, on the same basis as other employees, in our 401(k) plan and our other benefit programs generally available to all employees. Although we have not adopted any formal guidelines for allocating total compensation among these elements, we intend to implement and maintain compensation plans that tie a substantial portion of our executives’ overall compensation to the achievement of corporate performance objectives. Additionally, pursuant to the terms of offer letters and employment agreements, some of our executive officers are entitled to receive severance payments in the event that their employment is terminated without cause.

We view each of the elements of our compensation program as related but distinct. Our decisions about each individual element generally do not affect the decisions we make about other elements. For example, we do not believe that significant compensation derived from one element of compensation, such as equity appreciation, should necessarily negate or reduce compensation from other elements, such as salary or bonus.

Base Salary. Upon joining the company, each of our executive officers either entered into an employment agreement or received an offer letter that provided for an initial base salary. These initial salaries are the product of negotiation with the executive, but we generally seek to establish salaries that we believe are commensurate with the salaries being paid to executive officers serving in similar roles at comparable biopharmaceutical companies. Shortly before the end of each calendar year, we review company and individual performance to, among other things, determine whether adjustments in base salary are necessary or appropriate. In establishing the 2007 base salaries of our executive officers, our compensation committee and board of directors took into account a number of factors, including the executive’s seniority, position, functional role and level of responsibility and individual performance during 2006. We will continue to review base salaries of our executive officers on an annual basis and make adjustments to reflect individual performance-based factors, as well as our financial status. Historically, we have not applied, nor do we intend to apply, specific formulas to determine base salary increases.

Cash Bonuses. In addition to base salaries, our executive officers are eligible to receive annual discretionary cash bonuses. The annual cash bonuses are intended to compensate our executive officers for their individual contributions to our achievement of corporate goals. Our annual cash bonus amounts are recommended by our compensation committee and approved by our board, and these bonuses are ordinarily paid in a single installment in the first quarter of each year for performance in the prior year. Each executive officer is eligible for a discretionary annual cash incentive payment up to an amount equal to a specified percentage of the executive officer’s salary. The board of directors sets these target percentages at levels that, upon achievement of the target percentage, are likely to result in cash bonus payments that the board believes to be approximately the level paid to high-performing executives of comparable companies in the biopharmaceutical industry.

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At the end of each year, our President and our Chief Executive Officer develop bonus recommendations for each of our executive officers, based on the company’s achievement of corporate objectives and the individual’s performance during the year. These recommendations are subjective determinations which may vary, from time to time, depending on our overall strategic objectives and the job responsibilities of each executive officer, but relate generally to factors such as development and progression of our existing product candidates, achievement of clinical and regulatory milestones, and financial factors such as raising and maintaining capital. However, these recommendations may be more or less than the established target percentages for the executive officers, depending on individual and corporate performance, as well as our financial position. The compensation committee assesses the bonuses recommended by management and makes its bonus recommendations to the full board of directors. Based on its consideration of the recommendations of the compensation committee, the full board then makes a final decision regarding cash bonus payments, if any, for the year. Whether or not a cash bonus is paid for any year is solely within the discretion of the board of directors.

For 2007, based upon recommendations of the compensation committee, the board of directors established the target amounts of cash bonuses at 25% of the base salary for each of our executive officers. The board of directors determined the actual amounts of the cash bonus payments in December 2007, following a review of the achievement of our overall corporate goals and milestones and each executive officer’s individual performance and contribution. These bonuses ranged from 15% to 24% of the executive officers’ base salaries.

We have not determined whether we would attempt to recover cash bonus payments paid to our executive officers if the performance objectives that led to the determination of such payments were to be restated, or found not to have been met to the extent that we originally believed.

Long-Term Equity Compensation. The salary and cash bonus payment components of our executive compensation program are intended to compensate our executive officers for short-term performance. We believe that long-term performance is best incentivized through an ownership culture that encourages performance by our executive officers through the use of stock options. Our equity benefit plans have been established to provide our employees, including our executive officers, with incentives to help align those employees’ interests with the interests of our stockholders. We believe that the use of stock options, which only provide value to the executive officer if the value of our common stock increases, offers the best approach to achieving our compensation goals and provides tax and other advantages to our executive officers relative to other forms of equity compensation. We believe that our equity benefit plans are an important retention tool for our employees.

Initial option grants to our executive officers are generally set forth in an offer letter or employment agreement. These initial option grants are the product of negotiation with the executive, but we generally seek to establish equity ownership levels that we believe are commensurate with the equity stakes held by executive officers serving in similar roles at comparable biopharmaceutical companies. In addition, as part of our annual compensation review process, we provide subsequent option grants to those executive officers determined to be performing well.

We have not formally adopted stock ownership guidelines, although Mr. Amick has historically been awarded options that allow him to maintain an ownership of our company equal to 5% of our capital stock on a fully diluted basis. With the exception of Dr. Balber, who as a founder of our company received shares of restricted stock at our inception, which shares have since vested in full, our equity benefit plans have provided the principal method for our executive officers to acquire equity in our company. Prior to this offering, we have granted stock options exclusively through our 2000 stock option plan, which was adopted by our board of directors and approved by our stockholders to permit the grant of stock options to our employees, officers, directors, consultants, advisors and independent contractors. In 2007, each of our named executive officers, who are designated below under “—Executive Compensation—Summary Compensation Table,” were awarded stock options under our 2000 stock option plan in the amounts indicated in the section below entitled “—Executive Compensation—Stock Option Grants in 2007.” In determining the size of the stock option grants to our executive officers, the compensation committee and board of directors took into account each executive officer’s existing

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ownership stake in our company, as well as his position, scope of responsibility, ability to affect stockholder value, historic and recent performance, and the equity ownership levels of executive officers in similar roles of comparable companies in our industry.

In addition to the stock option grants described below under “Stock Option Grants in 2007,” in November 2007 our board of directors approved additional option grants to each of our executive officers. We granted Mr. Amick an option to purchase 501,467 shares of our common stock, Mr. Field an option to purchase 200,000 shares of our common stock and Dr. Balber an option to purchase 75,000 shares of our common stock. Each of these option grants has a grant date of January 1, 2008 and an exercise price of $0.397 per share, which was equal to the fair market value of our common stock as determined by a retrospective valuation as of December 31, 2007. In addition, we granted Laurence Keller, our chief medical officer, a stock option to purchase 250,000 shares of common stock in connection with the commencement of his employment with our company in December 2007. This stock option was granted with an exercise price of $0.20 per share and was subsequently repriced to $0.397 per share in April 2008. In 2008, we granted a stock option to David Carberry, our chief financial officer, to purchase 400,000 shares of common stock at an exercise price of $0.626 per share in connection with the commencement of his employment with our company. This exercise price was equal to the fair value of our common stock as of the grant date, based on a contemporaneous valuation as of April 15, 2008 in connection with the closing of our Series C-1 convertible preferred stock financing.

In connection with this offering, our board of directors has adopted a new equity benefit plan described under “—Employee Benefit Plans” below. The 2008 equity incentive plan will replace our existing 2000 stock option plan immediately following this offering and, as described below, will afford our compensation committee much greater flexibility in making a wide variety of equity awards, as it determines to be appropriate.

Severance and Change of Control Benefits. Under their employment agreements and offer letters, some of our executive officers are entitled to cash severance benefits if they are terminated without cause. In some instances, this may include reimbursement for the costs of continued health insurance premiums for a period of time after termination of employment. The terms of these arrangements are more fully described below under “—Termination of Employment and Change of Control Arrangements.”

401(k) Plan. Our employees, including our executive officers, are eligible to participate in our 401(k) plan. Our 401(k) plan is intended to qualify as a tax qualified plan under Section 401 of the Code. Our 401(k) plan provides that each participant may contribute a portion of his or her pretax compensation, up to a statutory limit, which for most employees is $15,500 in 2008, with a larger “catch up” limit for older employees. Employee contributions are held and invested by the plan’s trustee. Beginning in 2008, we began providing a 100% match on employee contributions on the first 3% of each contributing employee’s salary and a 50% match on an additional 2% of salary contributed.

Other Benefits and Perquisites. We provide medical insurance, dental insurance, vision coverage, life insurance and accidental death and dismemberment insurance benefits to all full-time employees, including our executive officers. These benefits are available to all employees, subject to applicable laws. Our executive officers generally do not receive any perquisites, except that we pay temporary living expenses for Mr. Amick in connection with his travel from his residence to our corporate headquarters. However, from time to time, we have provided relocation expenses in connection with the relocation of executive officers to the geographic area of our corporate headquarters in Durham, North Carolina. We intend to continue to provide relocation expenses in the future, as necessary, to obtain the services of qualified individuals.

Other Compensation. We intend to continue to maintain the current benefits for our executive officers, which are also available to all of our other employees; however, our compensation committee, in its discretion, may in the future revise, amend or add to the benefits of any executive officer if it deems it advisable.

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Federal Tax Considerations Under Sections 162(m) and 409A

Section 162(m) of the Code limits our deduction for federal income tax purposes to not more than $1 million of compensation paid to specified executive officers in a calendar year. Compensation above $1 million may be deducted if it is performance-based compensation within the meaning of Section 162(m). Our compensation committee has not yet established a policy for determining which forms of incentive compensation awarded to our executive officers will be designed to qualify as performance-based compensation. To maintain flexibility in compensating our executive officers in a manner designed to promote our objectives, our compensation committee has not adopted a policy that requires all compensation to be deductible. However, the committee intends to evaluate the effects of the compensation limits of Section 162(m) on any compensation it proposes to grant, and the compensation committee intends to provide future compensation in a manner consistent with our best interests and those of our stockholders.

Section 409A of the Code addresses the tax treatment of nonqualified deferred compensation benefits and provides for significant taxes and penalties in the case of payment of nonqualified deferred compensation. We currently intend to structure our executive compensation programs to avoid triggering these taxes and penalties under Section 409A.

Accounting Considerations

Effective January 1, 2006, we adopted the fair value provisions of SFAS No. 123R. Under SFAS No. 123R, we are required to estimate and record an expense for each award of equity compensation, including stock options, over the vesting period of the award. Our board of directors has determined to retain for the foreseeable future our stock option program as the sole component of its long-term compensation program, and, therefore, to record this expense on an ongoing basis according to SFAS No. 123R. Our compensation committee may in the future consider the grant of restricted stock or other equity-based awards to our executive officers in lieu of stock option grants, in light of the accounting impact of SFAS No. 123R with respect to stock option grants.

Summary Compensation Table

The following table sets forth information regarding compensation earned during the year ended December 31, 2007 by our principal executive officer, our former principal financial officer, and our two other executive officers whose total compensation exceeded $100,000 for the year ended December 31, 2007. We refer to these persons as our named executive officers.

Name and Principal Position	Salary		Bonus		Option Awards(1)		All Other Compensation(2)		Total
W. Thomas Amick	$	250,000	$	60,000	$	93,971	$	38,378	$	442,349
Chairman of the Board of Directors and Chief Executive Officer
Edward L. Field		217,500		43,500		12,875		—		273,875
President and Chief Operating Officer
Andrew E. Balber		188,225		29,650		2,719		—		220,594
Chief Scientific Officer
Matthew Czajkowski		79,090		10,000		1,417		—		90,507
Former Chief Financial Officer(3)

(1) The assumptions we used in valuing options are described under the caption “Share-Based Compensation” in note 2 to our financial statements included in this prospectus. This column reflects compensation expense that would be recorded under SFAS No. 123R as stock-based compensation in our financial statements for 2007 in connection with options we granted in 2007 and in prior years, adjusted to disregard the effects of any estimate of forfeitures related to service-based vesting, if we had adopted the modified-prospective transition method of SFAS No. 123R. As a result, unlike our financial statements for 2007, the amounts in

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the table include value associated with stock options that were granted prior to January 1, 2006 and that had not fully vested prior to 2007, and assume that the executive will perform the requisite service for the award to vest.

(2) Amount represents the cost of temporary living expenses for Mr. Amick during 2007 that we reimbursed or paid on his behalf.

(3) Mr. Czajkowski was our part-time chief financial officer from May 2007 until the termination of his employment in January 2008.

Stock Option Grants in 2007

All options granted to our named executive officers in 2007 were incentive stock options, to the extent permissible under the Code. The exercise price per share of each option granted to our named executive officers was equal to the fair market value of our common stock as determined by our board of directors on the date of the grant. Our common stock was not publicly traded in 2007 and accordingly, no actual closing price for the common stock on the grant date is available. In determining the fair market value of our common stock granted on the grant date, our board of directors considered many factors, including:

• the rate of progress and costs of our clinical trials and other research and development activities;

• the fact that our options involved illiquid securities in a non-public company;

• prices of preferred stock we issued to outside investors in arm’s-length transactions;

• the rights, preferences and privileges of our preferred stock over our common stock; and

• the likelihood that our common stock would become liquid through an initial public offering, an acquisition of us or another event.

The following table sets forth information regarding grants of plan-based awards to the named executive officers during the year ended December 31, 2007. All awards were stock options granted under our 2000 stock option plan.

	Grant date	Number of Shares Underlying Option Awards	Exercise Price of Option Awards ($/sh)		Grant Date Fair Value of Option Awards(1)
W. Thomas Amick	February 27, 2007	1,033,869	$	0.20	$	175,758
Edward L. Field	February 27, 2007	300,000		0.20		51,000
Andrew E. Balber	February 27, 2007	75,000		0.20		12,750
Matthew Czajkowski(2)	May 14, 2007	50,000		0.20		8,500

(1) The assumptions we used in valuing the options we granted during 2007 are described under the caption “Share-Based Compensation” in note 2 to our financial statements included in this prospectus. This column reflects the amount we will record under SFAS No. 123R as stock-based compensation in our financial statements in connection with these options over the entire term of the options, adjusted to disregard the effects of any estimate of forfeitures related to service-based vesting. Instead, it assumes that the executive will perform the requisite service for the award to vest.

(2) Mr. Czajkowski’s options were forfeited following the termination of his employment in January 2008.

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Outstanding Equity Awards at End of 2007

The following table provides information about outstanding stock options held by each of our named executive officers at December 31, 2007. All of these options were granted under our 2000 stock option plan. Our named executive officers did not hold any restricted stock or other stock awards at the end of 2007. Our named executive officers did not exercise any stock options during 2007 and they did not have any stock awards that vested in 2007.

	Number of Shares Underlying Unexercised Options				Option Exercise Price		Option Expiration Date
Name	(#) Exercisable		(#) Unexercisable
W. Thomas Amick	212,289	(1)	—		$	0.20	March 2, 2015
	409,678	(2)	484,164			0.20	March 23, 2016
	—		1,033,869	(3)		0.20	February 27, 2017
Edward L. Field	300,000	(4)	—			0.20	October 4, 2014
	—		300,000	(3)		0.20	February 27, 2017
Andrew E. Balber	50,000	(5)	—			0.20	March 4, 2013
	—		75,000	(3)		0.20	February 27, 2017
Matthew Czajkowski	—		50,000	(6)		0.20	May 14, 2017

(1) These options vested six months following the date of grant and are now fully vested.

(2) These options vest in 48 equal monthly installments through March 23, 2010.

(3) These options vested as to 25% of the shares on February 26, 2008 and vest as to an additional 1/48th of the shares per month thereafter.

(4) These options vested over a period of three years from the date of grant and are now fully vested.

(5) These options vested over a period of four years beginning March 4, 2003 and are now fully vested.

(6) Mr. Czajkowski’s options were forfeited following the termination of his employment in January 2008.

Termination of Employment and Change of Control Arrangements

Potential Payments Under Employment Arrangements

Edward Field. In September 2004, we entered into an offer letter with Mr. Field, pursuant to which, if we terminate his employment at any time without cause, as defined in the offer letter, he would be entitled to receive an amount equal to three months’ then base salary, subject to signing an acceptable release in favor of our company. In addition, Mr. Field would be entitled to receive continuation of standard health benefits payable by us for a period of three months, or a shorter period if he obtains reasonably comparable coverage from another employer. Under this offer letter, if Mr. Field’s employment was terminated by us without cause on December 31, 2007, he would have been entitled to severance in the amount of $60,900 and continuation of health benefits in the amount of $2,509.

Andrew Balber. In October 2000, we entered into an offer letter with Dr. Balber, pursuant to which, if we terminate his employment at any time without cause, as defined in the offer letter, he would be entitled to receive an amount equal to six months’ then base salary, payable on our normal payroll dates. Under this offer letter, if Dr. Balber’s employment was terminated by us without cause on December 31, 2007, he would have been entitled to severance pay in the amount of $98,818.

None of our other named executive officers are currently entitled to payments upon termination of employment or in connection with a change of control transaction other than amounts earned during the term of employment, including salary, vested options and vacation pay. Prior to the completion of this offering, we expect to enter into standardized employment arrangements with our named executive officers that may provide for severance and change of control benefits.

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Option Acceleration Under Equity Incentive Plans

Under our 2000 stock option plan and the 2008 equity incentive plan to be in effect following the closing of this offering, the vesting of stock options granted to our employees and officers may be accelerated by our board of directors in connection with specified change in control transactions. However, to date, the board of directors has not committed us to accelerate the vesting of any options in connection with such a transaction.

Confidential Information and Inventions Agreement

Each of our named executive officers has entered into a standard form agreement with respect to confidential information and inventions. Among other things, this agreement obligates each named executive officer to refrain from disclosing any of our confidential information received during the course of employment and, with some exceptions, to assign to us any inventions conceived or developed during the course of employment.

Employee Benefit Plans

We believe that our ability to grant equity-based awards is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees and directors with the financial interests of our stockholders. In addition, we believe that our ability to grant options and other equity-based awards helps us to attract, retain and motivate qualified employees, and encourages them to devote their best efforts to our business and financial success. The material terms of our equity incentive plans are described below.

Stock Option Plan

Our board of directors adopted, and our stockholders approved, our stock option plan, or the 2000 stock option plan, in May 2000. As of December 31, 2007, an aggregate of 5,949,000 shares of common stock were reserved for issuance under the 2000 stock option plan. The 2000 stock option plan provides for the grant of incentive stock options and nonstatutory stock options. As of December 31, 2007, options to purchase 4,342,500 shares of common stock at a weighted average exercise price per share of $0.20 were outstanding under the 2000 stock option plan. As of December 31, 2007, 1,397,753 shares of common stock remained available for future issuance. In April 2008, our board of directors and stockholders approved an increase of 700,000 shares of common stock under the 2000 stock option plan, increasing the shares reserved for issuance under the 2000 stock option plan to a new total of 6,649,000 shares.

Our board of directors has the authority to construe and interpret the terms of the 2000 stock option plan and the options granted under it. After the effectiveness of the 2008 equity incentive plan described below, we will make no further stock option grants under the 2000 stock option plan, but all outstanding options will continue to be governed by their existing terms.

Transfer of Shares to 2008 Equity Incentive Plan. Following this offering, any shares of common stock that have been reserved for issuance under the 2000 stock option plan, but which are not subject to any outstanding stock option award at the time of the completion of this offering, shall no longer be available for issuance under the 2000 stock option plan, but instead shall be considered shares that are available for awards under our 2008 equity incentive plan. In addition, if any outstanding stock option award under the 2000 stock option plan is forfeited, cancelled, or terminated for any reason without such option being exercised, either in part or whole, then the shares of common stock subject to the unexercised portion of such stock option shall revert to and become available for issuance under the 2008 equity incentive plan. In the event an optionee’s service relationship with us, or one of our affiliates, terminates for cause, any outstanding options under the 2000 stock option plan are cancelled and forfeited.

Stock Options. The 2000 stock option plan provides for the grant of incentive stock options under the federal tax laws and the grant of nonstatutory stock options. Only employees may receive incentive stock options, but

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nonstatutory stock options may be granted to employees, non-employee directors, advisors, independent contractors and consultants. The exercise price of incentive stock options may not be less than 100% of the fair market value of our common stock on the date of grant. Shares subject to options under the 2000 stock option plan generally vest in a series of installments over a specified period of service, typically four years. In general, except as described below, the term of options granted under the 2000 stock option plan may not exceed ten years.

Unless the terms of an optionee’s stock option agreement provide otherwise, if an optionee’s service relationship with us, or any of our affiliates, ceases for any reason other than termination for cause, disability or death, the optionee may exercise the vested portion of any options for three months after the date of such termination. If an optionee’s service relationship with us, or any of our affiliates, ceases due to disability or death or an optionee dies within a certain period following cessation of service, the optionee or a beneficiary may exercise any vested portion of an option for a period of 12 months. In no event, however, may an option be exercised beyond the expiration of its term.

Tax Limitations on Incentive Stock Options. Incentive stock options may be granted only to our employees. The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to incentive stock options that are exercisable for the first time by an optionee during any calendar year under all of our stock plans may not exceed $100,000. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and the term of the incentive stock option does not exceed five years from the date of grant.

Corporate Transactions. Unless otherwise determined by the board of directors at the time of grant, in the event of a merger, consolidation, corporate reorganization or any transaction in which all or substantially all of our assets or stock are sold, leased, transferred or otherwise disposed of, any unvested portion of a stock option granted under the 2000 stock option plan will become fully vested, unless the surviving or acquiring corporation assumes or substitutes comparable options for the outstanding options granted under the 2000 stock option plan or replaces the options with a cash incentive program that preserves the intrinsic value of the options at the time of the transaction and provides for subsequent payout over the same vesting schedules as the options being replaced.

2008 Equity Incentive Plan

Our board of directors and stockholders adopted the 2008 Equity Incentive Plan, or the 2008 equity incentive plan, in             2008. The 2008 equity incentive plan will become effective immediately upon the signing of the underwriting agreement for this offering. The 2008 equity incentive plan will terminate on             , 2018, unless sooner terminated by our board of directors.

Stock Awards. The 2008 equity incentive plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of equity compensation, which may be granted to employees, including officers, non-employee directors, and consultants.

Initial Share Reserve; Transfer of Shares from 2000 stock option plan. Following this offering, the aggregate number of shares of our common stock that may be issued initially pursuant to stock awards under the 2008 equity incentive plan is             shares, plus any shares of our common stock that were previously held in reserve under the 2000 stock option plan, but which were unused and which have been transferred to the 2008 equity incentive plan. Additionally, if any outstanding stock options granted under the 2000 stock option plan should for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, or if any shares of common stock issued under the 2000 stock option plan are reacquired by or returned to us for any

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reason, including the failure to satisfy a vesting contingency, the shares of common stock that are not acquired, or which are returned, will revert to and become available for issuance under the 2008 equity incentive plan.

Evergreen Share Replacement Feature. The number of shares of our common stock reserved for issuance will automatically increase on each January 1st, from January 1, 2009 through January 1, 2018, by the lesser of 5% of the total number of shares of our common stock outstanding on December 31st of the preceding calendar year, or             shares.

Maximum Number of Shares Issued through Incentive Stock Options. The maximum number of shares that may be issued pursuant to the exercise of incentive stock options under the 2008 equity incentive plan is             shares of common stock, which equals the total initial share reserve, as increased from time to time pursuant to annual “evergreen” increases, plus shares subject to awards granted under the 2000 stock option plan that may be transferred to the 2008 equity incentive plan.

Section 162(m) Limits. No person may be granted awards covering more than             shares of our common stock under the 2008 equity incentive plan during any calendar year pursuant to an appreciation-only stock award. An appreciation-only stock award is a stock award whose value is determined by reference to an increase over an exercise or strike price of at least 100% of the fair market value of our common stock on the date of grant. A stock option with an exercise price equal to the value of the stock on the date of grant is an example of an appreciation-only award. Such limitation is designed to help assure that any deductions to which we would otherwise be entitled upon the exercise of an appreciation-only stock award or upon the subsequent sale of shares purchased under such an award, will not be subject to the $1,000,000 limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code.

Reversion of Shares. If a stock award granted under the 2008 equity incentive plan expires or otherwise terminates without being exercised in full, the shares of our common stock not acquired pursuant to the stock award again become available for subsequent issuance under the 2008 equity incentive plan. In addition, the following types of shares under the 2008 equity incentive plan may become available for the grant of new stock awards under the 2008 equity incentive plan:

• shares that are forfeited to or repurchased by us prior to becoming fully vested;

• shares withheld to satisfy income and employment withholding taxes;

• shares used to pay the exercise price of an option in a net exercise arrangement;

• shares tendered to us to pay the exercise price of an option; and

• shares that are cancelled pursuant to an exchange or repricing program.

Shares issued under the 2008 equity incentive plan may be previously unissued shares or reacquired shares bought on the open market. No shares of our common stock have been issued under the 2008 equity incentive plan.

Administration. Our board of directors has delegated its authority to administer the 2008 equity incentive plan to our compensation committee. Subject to the terms of the 2008 equity incentive plan, our board of directors or an authorized committee, referred to as the plan administrator, determines recipients, dates of grant, the numbers and types of stock awards to be granted, and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the plan administrator will also determine the exercise price of options granted, the consideration to be paid for restricted stock awards, and the strike price of stock appreciation rights.

The plan administrator has the authority, under appropriate circumstances, to:

• reduce the exercise price of any outstanding option or the strike price of any outstanding stock appreciation right;

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• cancel any outstanding option or stock appreciation right and to grant in exchange one or more of the following:

• new options or stock appreciation rights covering the same or a different number of shares of common stock,

• new stock awards,

• cash, and/or

• other valuable consideration; or

• engage in any action that is treated as a repricing under generally accepted accounting principles.

Stock Options. Incentive and nonstatutory stock options are granted pursuant to incentive and nonstatutory stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for a stock option, within the terms and conditions of the 2008 equity incentive plan, provided that the exercise price of an incentive stock option and nonstatutory stock option cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2008 equity incentive plan vest at the rate specified by the plan administrator.

Generally, the plan administrator determines the term of stock options granted under the 2008 equity incentive plan, up to a maximum of ten years, except in the case of specified incentive stock options, as described below. Unless the terms of an optionee’s stock option agreement provide otherwise, if an optionee’s service relationship with us, or any of our affiliates, ceases for any reason other than a termination for “cause” or a termination because of disability or death, the optionee may exercise the vested portion of any options for a period of three months following the cessation of service. If an optionee’s service relationship with us, or any of our affiliates, ceases due to disability or death or an optionee dies within a specified period following cessation of service, the optionee or a beneficiary may exercise the vested portion of any options for a period of 12 months in the event of death or disability. In the event of a termination of an optionee’s services for cause, the unexercised portion of any outstanding stock option held by the optionee will be forfeited and may not be exercised. The option term may be extended in the event that exercise of the option following termination of service is prohibited by applicable securities laws. In no event, however, may an option be exercised beyond the expiration of its term.

Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the plan administrator and may include cash or check, a broker-assisted cashless exercise, the tender of common stock previously owned by the optionee, a net exercise of the option, and other legal consideration approved by the plan administrator.

Unless the plan administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionee may designate a beneficiary, however, who may exercise the option following the optionee’s death.

Tax Limitations on Incentive Stock Options. Incentive stock options may be granted only to our employees. The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to incentive stock options that are exercisable for the first time by an optionee during any calendar year under all of our stock plans may not exceed $100,000. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our affiliates unless the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and the term of the incentive stock option does not exceed five years from the date of grant.

Restricted Stock Awards. Restricted stock awards are granted pursuant to restricted stock award agreements adopted by the plan administrator. Restricted stock awards may be granted in consideration for cash or check,

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past or future services rendered to us or our affiliates, or any other form of legal consideration. Shares of common stock acquired under a restricted stock award may, but need not, be subject to a share repurchase option in our favor in accordance with a vesting schedule to be determined by the plan administrator. Rights to acquire shares under a restricted stock award may be transferred only upon such terms and conditions as set by the plan administrator.

Restricted Stock Unit Awards. A restricted stock unit is a promise by us to issue shares of our common stock, or to pay cash equal to the value of shares of our common stock, equivalent to the number of units covered by the award at the time of vesting of the units or thereafter. Restricted stock unit awards are granted pursuant to restricted stock unit award agreements adopted by the plan administrator. Restricted stock unit awards may be granted in consideration for any form of legal consideration. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect to shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited upon the participant’s cessation of continuous service for any reason.

Stock Appreciation Rights. A stock appreciation right entitles the participant to a payment equal in value to the appreciation in the value of the underlying shares of our common stock for a predetermined number of shares over a specified period. Stock appreciation rights are granted pursuant to stock appreciation rights agreements adopted by the plan administrator. The plan administrator determines the strike price for a stock appreciation right which cannot be less than 100% of the fair market value of our common stock on the date of grant. Upon the exercise of a stock appreciation right, we will pay the participant an amount equal to the product of (a) the excess of the per share fair market value of our common stock on the date of exercise over the strike price, multiplied by (b) the number of shares of common stock with respect to which the stock appreciation right is exercised. A stock appreciation right granted under the 2008 equity incentive plan vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator.

The plan administrator determines the term of stock appreciation rights granted under the 2008 equity incentive plan, up to a maximum of ten years. If a participant’s service relationship with us, or any of our affiliates, ceases, then the participant, or the participant’s beneficiary, may exercise any vested stock appreciation right for three months, or such longer or shorter period specified in the stock appreciation right agreement, after the date such service relationship ends. If a participant’s service relationship is terminated for cause, any unexercised stock appreciation right will terminate immediately and may not be exercised. In no event, however, may a stock appreciation right be exercised beyond the expiration of its term.

Performance Stock Awards. The 2008 equity incentive plan permits the grant of performance stock awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code. To assure that the compensation attributable to one or more performance stock awards will so qualify, our compensation committee can structure one or more such awards so that stock will be issued or paid pursuant to such award only upon the achievement of certain pre-established performance goals during a designated performance period. The maximum benefit to be received by a participant in any calendar year attributable to performance stock awards may not exceed             shares of our common stock.

Other Stock Awards. The plan administrator may grant other awards based in whole or in part by reference to our common stock. The plan administrator will set the number of shares under the award and all other terms and conditions of such awards.

Adjustment provisions. Transactions not involving our receipt of consideration, such as certain mergers, consolidations, reorganizations, stock dividends, or stock splits, may change the type, class and number of shares of our common stock subject to the 2008 equity incentive plan and outstanding awards. In that event, the 2008

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equity incentive plan will be appropriately adjusted as to the type, class and the maximum number of shares of our common stock subject to the 2008 equity incentive plan, and outstanding awards will be adjusted as to the type, class, number of shares and price per share of common stock subject to such awards.

Corporate Transactions; Changes in Control. In the event of certain specified organizational changes, which we refer to in this prospectus as corporate transactions, including but not limited to a consolidation, merger, or similar transaction involving our company, the sale, lease or other disposition of all or substantially all of the assets of our company or the consolidated assets of our company and our subsidiaries, or a sale or disposition of at least 50% of the outstanding capital stock of our company, then our board of directors, or the board of directors of any corporation assuming our obligations, may take any one or more actions as to outstanding awards, or as to a portion of any outstanding award under the 2008 equity incentive plan, including:

• providing that such awards will continue in existence with appropriate adjustments or modifications, if applicable;

• providing that such awards will be assumed, or equivalent awards substituted, by the acquiring or succeeding corporation or an affiliate thereof;

• providing that all unexercised stock options, or other awards to the extent they are unexercised or unvested, will terminate immediately prior to the consummation of such transaction unless exercised within a specified period;

• in the event of a consolidation, merger, combination, reorganization or similar transaction under the terms of which holders of our common stock will receive a cash payment per share surrendered in the transaction, making or providing for an equivalent cash payment in exchange for the termination of such awards; or

• providing that all or any outstanding awards will become vested and exercisable in full or part or any reacquisition or repurchase rights held by us shall immediately lapse in full or part at or immediately prior to such event.

If a corporate transaction occurs that also qualifies as a change in control under the 2008 equity incentive plan, an individual stock award may provide for accelerated vesting upon the change in control. A change in control includes a transaction or series of related transactions, in each case, where persons who were not our stockholders immediately prior to acquiring our capital stock as part of such transaction become the owners of our capital stock that represents more than 50% of the combined voting power of our outstanding capital stock.

Limitation of Liability and Indemnification

Our amended and restated certificate of incorporation to be in effect upon the closing of this offering require us to indemnify, and limit the liability of, our directors to the fullest extent permitted by Delaware law. Our amended and restated bylaws to be in effect upon the closing of this offering require us to indemnify our directors to the fullest extent not prohibited by law and permit us to indemnify our officers, employees and other agents as set forth under Delaware law. We will indemnify any such person in connection with a proceeding initiated by such person only if such indemnification is expressly required by law, the proceeding was authorized by our board of directors, the indemnification is provided by us, in our sole discretion, pursuant to the Delaware General Corporation Law or other applicable law or is otherwise expressly required by our amended and restated bylaws. Section 145 of the Delaware General Corporation Law permits indemnification of officers, directors and other agents under specified circumstances and subject to specified limitations. Delaware law also permits a corporation to not hold its directors personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for:

• breach of their duty of loyalty to the corporation or its stockholders;

• acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

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• unlawful payments of dividends or unlawful stock repurchases or redemptions; and

• any transaction from which the director derived an improper personal benefit.

These limitations of liability do not affect the availability of equitable remedies such as injunctive relief or rescission.

Our amended and restated bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in this capacity. We have obtained directors’ and officers’ liability insurance to cover certain liabilities described above.

We have entered into indemnity agreements with each of our directors that require us to indemnify such persons against any and all expenses, including attorneys’ fees, witness fees, judgments, fines, settlements and other amounts incurred, including expenses of a derivative action, in connection with any action, suit or proceeding or alternative dispute resolution mechanism, inquiry hearing or investigation, whether threatened, pending or completed, to which any such person may be made a party by reason of the fact that such person is or was a director, an officer or an employee of our company, provided that such person’s conduct did not constitute a breach of his or her duty of loyalty to us or our stockholders, and was not an act or omission not in good faith or which involved intentional misconduct or a knowing violation of laws. The indemnity agreements also set forth procedures that will apply in the event of a claim for indemnification thereunder. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors of our company.

At present, there is no pending litigation or proceeding involving a director or officer of our company for which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted by directors, executive officers or persons controlling us, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following is a summary of transactions, and series of related transactions, since January 1, 2005 to which we have been or will be a participant, in which the amount involved exceeded or will exceed $120,000 and in which any of our executive officers, directors or beneficial holders of more than 5% of our capital stock had or will have a direct or indirect material interest, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest, other than executive and director compensation arrangements, including the employment, termination of employment and change of control arrangements, which are described in the section of this prospectus entitled “Executive Compensation.”

Sales of Securities

2005 Convertible Notes

In March and November 2005, we issued and sold convertible promissory notes, or the 2005 convertible notes, in the aggregate principal amount of $3.9 million. These notes bore interest at 8% per annum, and all principal and accrued interest was originally due in May 2006. The notes were automatically convertible into shares of our convertible preferred stock upon the closing of our next preferred stock equity financing. The holders of the notes did not call them at maturity in May 2006 and provided forbearance to us through the closing of our Series C convertible preferred stock financing in December 2006. For the period between May 2006 and December 2006, the notes bore interest at the default rate of 12% per annum.

In connection with the issuance of the 2005 convertible notes, we also issued warrants to the holders of the notes to purchase shares of the series of preferred stock to be issued in the next round of financing, or if no such financing occurred, an aggregate of 3,862,011 shares of Series B convertible preferred stock at an exercise price of $0.01 per share.

The following table sets forth the principal amount of the 2005 convertible notes that we issued to entities affiliated with our directors and to our 5% stockholders and their affiliates and the number of shares of Series B convertible preferred stock underlying the warrants issued to these stockholders.

Stockholder(1)	Aggregate Principal Amount of 2005 Convertible Notes		Number of Shares of Series B Convertible Preferred Stock Underlying Warrants(2)
Entities affiliated with directors:
Entities affiliated with Intersouth Partners(3)	$	1,797,304	1,797,304
Entities affiliated with The Aurora Funds(4)		898,652	898,652
Other 5% stockholders:
The Trelys Funds, L.P.		673,989	673,989

⁽¹⁾ See “Principal Stockholders” for more information about shares held by these stockholders.

⁽²⁾ Represents the number of shares of Series B convertible preferred stock potentially issuable upon exercise of warrants issued in connection with the 2005 convertible notes. As noted above, as issued, these warrants were to become exercisable for shares of the series of preferred stock to be issued in the next round of financing or, if no such financing occurred, shares of Series B convertible preferred stock. As described below, these warrants were subsequently exchanged for warrants to purchase Series C convertible preferred stock in connection with the Series C convertible preferred stock financing.

⁽³⁾ Represents securities held by Intersouth Partners V, L.P. and Intersouth Affiliates V, L.P. Dr. Garheng Kong, one of our directors, is a member of the general partner of these entities.

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⁽⁴⁾ Represents securities held by Harbinger/Aurora QP Venture Fund, L.L.C., Harbinger/Aurora Venture Fund, L.L.C. and Aurora Enrichment Fund, LLC. B. Jefferson Clark, one of our directors, is a member of the investment committee of Harbinger/Aurora Ventures, LLC, the managing member of Harbinger/Aurora QP Venture Fund, L.L.C. and Harbinger/Aurora Venture Fund, L.L.C., and a manager of Aurora Enrichment Management Company LLC, the managing member of Aurora Enrichment Fund, LLC.

Series C and Series C-1 Convertible Preferred Stock Financings

In December 2006 and September 2007, we issued and sold an aggregate of 24,742,979 shares of Series C convertible preferred stock at a price of $0.7278 per share for aggregate consideration of approximately $17.8 million, including the conversion of principal and accrued interest on all of the outstanding 2005 convertible notes described above, and net of issuance costs. In connection with this offering, in December 2006 we also exchanged all of the warrants issued in connection with the 2005 convertible notes for new warrants with revised terms. The new warrants are exercisable for an aggregate of 1,326,605 shares of Series C convertible preferred stock at an exercise price of $0.7278 per share and expire in December 2011.

In April 2008, we issued and sold an aggregate of 17,636,655 shares of Series C-1 convertible preferred stock at a price of $1.0411 per share for aggregate consideration of $18.4 million.

The participants in these transactions included the following entities affiliated with our directors and other holders of more than 5% of our capital stock or their affiliates. The following table presents the number of shares issued to these related parties in these financings. Each share of our Series C convertible preferred stock and Series C-1 convertible preferred stock is currently convertible into one share of our common stock.

Stockholder(1)	Number of Shares Series C Convertible Preferred Stock Purchased (including the conversion of principal and accrued interest under 2005 convertible notes)	Number of Shares of Series C Convertible Preferred Stock Underlying Warrants Received Upon Exchange of Series B Warrants	Number of Shares of Series C-1 Convertible Preferred Stock Purchased
Entities affiliated with directors:
Entities affiliated with Intersouth Partners(2)	9,990,418	617,376	5,878,695
Entities affiliated with The Aurora Funds(3)	2,306,064	308,687	1,021,358
Entities affiliated with Harbert Venture Partners(4)	3,297,609	—	5,974,013
Other 5% stockholders:
Tullis-Dickerson Capital Focus III, L.P.	3,435,010	—	2,401,322
The Trelys Funds, L.P.	1,314,698	231,516	95,504
CNF Investments II, LLC	2,748,008	—	1,440,794

⁽¹⁾ See “Principal Stockholders” for more information about shares held by these stockholders.

⁽²⁾ Represents shares held by Intersouth Partners V, L.P., Intersouth Affiliates V, L.P., Intersouth Partners VI, L.P. and Intersouth Partners VII, L.P. Dr. Garheng Kong, one of our directors, is a member of the general partner of each of these entities.

⁽³⁾ Represents shares held by Harbinger/Aurora QP Venture Fund, L.L.C., Harbinger/Aurora Venture Fund, L.L.C. and Aurora Enrichment Fund, LLC. B. Jefferson Clark, one of our directors, is a member of the investment committee of Harbinger/Aurora Ventures, LLC, the managing member of Harbinger/Aurora QP Venture Fund, L.L.C. and Harbinger/Aurora Venture Fund, L.L.C., and a manager of Aurora Enrichment Management Company LLC, the managing member of Aurora Enrichment Fund, LLC.

⁽⁴⁾ Represents shares held by Harbert Venture Partners, L.L.C. and ALD Co-Investor, LLC. The consideration paid by Harbert Venture Partners, L.L.C. for the purchase of Series C-1 convertible preferred stock included the cancellation of approximately $20,000 in indebtedness. William W. Brooke, one of our former directors,

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is an executive vice president of the manager of the managing member of these entities. Mr. Brooke is also a member of the investment committee of Harbinger/Aurora Ventures, LLC, the managing member of Harbinger/Aurora QP Venture Fund, L.L.C. and Harbinger/Aurora Venture Fund, L.L.C. Mr. Brooke resigned as a member of our board of directors in May 2008.

We believe that the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described above were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

Amended and Restated Investor Rights Agreement

In connection with our preferred stock financings, we have entered into an amended and restated investor rights agreement with the purchasers of our preferred stock and warrants to purchase preferred stock, including entities with which some of our directors are affiliated, and with some holders of our common stock, including some of our officers. This amended and restated investor rights agreement relates to voting rights, information rights, rights of first refusal and registration rights, among other things. This agreement will terminate upon the closing of this offering, except for the registration rights granted under the agreement, as more fully described in “Description of Capital Stock—Registration Rights.”

Related Person Transaction Policy

Prior to this offering, we have not had a formal policy regarding approval of transactions with related parties. In 2008, we adopted a related person transaction policy that sets forth our procedures for the identification, review, consideration and approval or ratification of related person transactions. The policy will become effective immediately upon the execution of the underwriting agreement for this offering. For purposes of our policy only, a related person transaction is a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we and any related person are, were or will be participants in which the amount involves exceeds $120,000. Transactions involving compensation for services provided to us as an employee or director are not covered by this policy. A related person is any executive officer, director or beneficial owner of more than 5% of any class of our voting securities, including any of their immediate family members and any entity owned or controlled by such persons.

Under the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to consummation, our management must present information regarding the related person transaction to our audit committee, or, if audit committee approval would be inappropriate, to another independent body of our board of directors, for review, consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction and whether the transaction is on terms that are comparable to the terms available to or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, we will collect information that we deem reasonably necessary from each director, executive officer and, to the extent feasible, significant stockholder to enable us to identify any existing or potential related-person transactions and to effectuate the terms of the policy. In addition, under our Code of Business Conduct and Ethics, our employees and directors have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest. In considering related person transactions, our audit committee, or other independent body of our board of directors, will take into account the relevant available facts and circumstances including, but not limited to:

• the risks, costs and benefits to us;

• the impact on a director’s independence in the event that the related person is a director, immediate family member of a director or an entity with which a director is affiliated;

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• the availability of other sources for comparable services or products; and

• the terms available to or from, as the case may be, unrelated third parties or to or from employees generally.

The policy requires that, in determining whether to approve, ratify or reject a related person transaction, our audit committee, or other independent body of our board of directors, must consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those of our stockholders, as our audit committee, or other independent body of our board of directors, determines in the good faith exercise of its discretion.

All of the transactions described above were entered into prior to the adoption of the written policy, but all were approved by our board of directors considering similar factors to those described above.

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PRINCIPAL STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock as of April 30, 2008 by:

• each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock;

• each of our named executive officers;

• each of our directors; and

• all of our executive officers and directors as a group.

The percentage ownership information shown in the table is based upon 62,907,818 shares of common stock outstanding as of April 30, 2008, after giving effect to the conversion of all of our convertible preferred stock into 59,288,071 shares of common stock, which will occur automatically immediately prior to the closing of this offering.

We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options or warrants that are either immediately exercisable or exercisable on or before June 29, 2008, which is 60 days after April 30, 2008. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws.

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Except as otherwise noted below, the address for persons listed in the table is c/o Aldagen, Inc., 2810 Meridian Parkway, Suite 148, Durham, North Carolina 27713.

Name of Beneficial Owner	Number of Shares Beneficially Owned	Percentage of Shares Beneficially Owned
		Before Offering		After Offering
5% Stockholders:
Entities affiliated with Intersouth Partners(1)     406 Blackwell Street, Suite 200     Durham, NC 27701	26,515,547	41.6	%		%
Entities affiliated with Harbert Venture Partners(4)     1901 6th Avenue North, Suite 2010     Birmingham, AL 35203	9,271,622	14.7
Entities affiliated with The Aurora Funds(2)     2525 Meridian Parkway, Suite 220     Durham, NC 27713	7,778,545	12.3
Tullis-Dickerson Capital Focus III, L.P.(3)     Two Greenwich Plaza     Greenwich, CT 06830	5,836,332	9.3
CNF Investments II, LLC(6)     7500 Old Georgetown Road, 15th Floor     Bethesda, MD 20814	4,188,802	6.7
The Trelys Funds, L.P.(5)     2525 Meridian Parkway, Suite 225     Durham, NC 27713	3,385,903	5.4
Named Executive Officers and Directors:
W. Thomas Amick(7)	1,130,556	1.8
Edward L. Field(8)	420,833	*		*
Andrew E. Balber(9)	362,812	*		*
Matthew Czajkowski	—	—		—
Joel R. Kimbrough	—	—		—
Martin J. Murphy(10)	50,000	*		*
B. Jefferson Clark(2)	7,778,545	12.3
Garheng Kong(1)	26,515,547	41.6
All current directors and executive officers as a group(11) (9 persons)	36,258,293	55.2

 * Represents beneficial ownership of less than 1%.

⁽¹⁾ Consists of 5,003,835 shares of common stock issuable upon the conversion of shares of Series A convertible preferred stock, 4,447,853 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock, 138,995 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock issuable upon exercise of immediately exercisable warrants, 3,859,967 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock, 590,390 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock issuable upon exercise of immediately exercisable warrants and 416,671 shares of common stock issuable upon the conversion of shares of Series C-1 convertible preferred stock, in each case held by Intersouth Partners V, L.P.; 228,719 shares of common stock issuable upon the conversion of shares of Series A convertible preferred stock, 203,303 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock, 6,353 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock issuable upon exercise of immediately exercisable

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warrants, 176,435 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock, 26,986 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock issuable upon exercise of immediately exercisable warrants and 19,046 shares of common stock issuable upon the conversion of shares of Series C-1 convertible preferred stock, in each case held by Intersouth Affiliates V, L.P.; 5,954,016 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock and 1,600,889 shares of common stock issuable upon the conversion of shares of Series C-1 convertible preferred stock, in each case held by Intersouth Partners VI, L.P.; and 3,842,089 shares of common stock issuable upon the conversion of shares of Series C-1 convertible preferred stock held by Intersouth Partners VII, L.P. Intersouth Associates V, LLC, the general partner of each of Intersouth Partners V, L.P. and Intersouth Affiliates V, L.P., Intersouth Associates VI, LLC, the general partner of Intersouth Partners VI, L.P., and Intersouth Associates VII, LLC, the general partner of Intersouth Partners VII, L.P., may be deemed to share voting and dispositive power over the shares held by each of Intersouth Partners V, L.P., Intersouth Affiliates V, L.P., Intersouth Partners VI, L.P. and Intersouth Partners VII, L.P. Dennis Dougherty and Mitch Mumma are both member managers of Intersouth Associates V, LLC, Intersouth Associates VI, LLC and Intersouth Associates VII, LLC and share voting and investment power over the shares held by each of Intersouth Partners V, L.P., Intersouth Affiliates V, L.P., Intersouth Partners VI, L.P. and Intersouth Partners VII, L.P. Dr. Garheng Kong, a member of our board of directors, is a member of each of Intersouth Associates V, LLC, Intersouth Associates VI, LLC and Intersouth Associates VII, LLC. Pursuant to powers of attorney granted by each of Intersouth Associates V, LLC, Intersouth Associates VI, LLC and Intersouth Associates VII, LLC, Dr. Kong shares voting power with respect to the securities owned by the entities for which these entities serve as general partners. Dr. Kong disclaims beneficial ownership of these shares held by Intersouth Partners V, L.P., Intersouth Affiliates V, L.P., Intersouth Partners VI, L.P. and Intersouth Partners VII, L.P.

⁽²⁾ Consists of 1,030,963 shares of common stock issuable upon the conversion of shares of Series A convertible preferred stock, 859,116 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock, 42,965 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock issuable upon exercise of immediately exercisable warrants, 809,188 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock, 60,814 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock issuable upon exercise of immediately exercisable warrants and 603,652 shares of common stock issuable upon the conversion of shares of Series C-1 convertible preferred stock, in each case held by Harbinger/Aurora QP Venture Fund, L.L.C.; 713,221 shares of common stock issuable upon the conversion of shares of Series A convertible preferred stock, 594,371 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock, 29,709 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock issuable upon exercise of immediately exercisable warrants, 559,929 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock, 42,081 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock issuable upon exercise of immediately exercisable warrants and 417,706 shares of common stock issuable upon the conversion of shares of Series C-1 convertible preferred stock, in each case held by Harbinger/Aurora Venture Fund, L.L.C.; and 872,091 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock, 936,947 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock and 205,792 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock issuable upon exercise of immediately exercisable warrants, in each case held by Aurora Enrichment Fund, LLC. Harbinger/Aurora Ventures, LLC is the managing member of Harbinger/Aurora QP Venture Fund, L.L.C. and Harbinger/Aurora Venture Fund, L.L.C. and has voting and investment power with respect to all shares held by those entities, which is exercised by the investment committee comprised of M. Scott Albert, B. Jefferson Clark and William W. Brooke. Mr. Clark is also the manager of Aurora Enrichment Management Co. LLC, the managing member of Aurora Enrichment Fund, LLC. Mr. Clark is a member of our board of directors and disclaims beneficial ownership of the shares held by Harbinger/Aurora QP Venture Fund, L.L.C., Harbinger/Aurora Venture Fund, L.L.C., and Aurora Enrichment Fund, LLC.

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⁽³⁾ Consists of 3,435,010 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock and 2,401,322 shares of common stock issuable upon the conversion of shares of Series C-1 convertible preferred stock. Tullis-Dickerson Partners III, L.L.C. is the general partner of Tullis-Dickerson Capital Focus III, L.P. Lyle A. Hohnke, Joan P. Neuscheler, James L. L. Tullis, Thomas P. Dickerson and Timothy M. Buono share voting and/or dispositive power over all shares held by Tullis-Dickerson Capital Focus III, L.P.

⁽⁴⁾ Consists of 3,297,609 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock and 1,171,401 shares of common stock issuable upon the conversion of shares of Series C-1 convertible preferred stock, in each case held by Harbert Venture Partners, L.L.C.; and 4,802,612 shares of common stock issuable upon the conversion of shares of convertible preferred stock held by ALD Co-Investor, LLC. Harbert Venture Partners MM, LLC is the sole managing member of each of Harbert Venture Partners, L.L.C. and ALD Co-Investor, LLC, and HMC-Virginia, Inc. is the sole manager of Harbert Venture Partners MM, LLC. The managers of HMC-Virginia, Inc. are William Brooke, David Boutwell, William Lucas and Raymond Harbert each of whom may be deemed to beneficially own the shares held of record by Harbert Venture Partners, L.L.C. and ALD Co-Investor, LLC.

⁽⁵⁾ Consists of 1,744,185 shares of common stock issuable upon the conversion of shares of Series B convertible preferred stock, 1,314,698 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock, 231,516 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock issuable upon exercise of immediately exercisable warrants and 95,504 shares of common stock issuable upon the conversion of shares of Series C-1 convertible preferred stock. Trelys Ventures, LLC is the general partner of The Trelys Funds, L.P. Adrian Wilson holds voting and investment power over all shares held by The Trelys Funds, L.P.

⁽⁶⁾ Consists of 2,748,008 shares of common stock issuable upon the conversion of shares of Series C convertible preferred stock and 1,440,794 shares of common stock issuable upon the conversion of shares of Series C-1 convertible preferred stock. Robert J. Flanagan is the Manager of CNF Investments II, LLC and as such is deemed to possess voting and investment power over the shares held by this entity.

⁽⁷⁾ Represents those shares issuable upon the exercise of options exercisable within 60 days of April 30, 2008.

⁽⁸⁾ Represents those shares issuable upon the exercise of options exercisable within 60 days of April 30, 2008.

⁽⁹⁾ Consists of 280,000 shares of common stock held by Dr. Balber and 82,812 shares issuable upon the exercise of options exercisable within 60 days of April 30, 2008.

⁽¹⁰⁾ Represents those shares issuable upon the exercise of options exercisable within 60 days of April 30, 2008.

⁽¹¹⁾ Includes 1,684,202 shares of common stock issuable upon the exercise of options exercisable within 60 days of April 30, 2008.

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DESCRIPTION OF CAPITAL STOCK

The following description of our capital stock and provisions of our certificate of incorporation and bylaws are summaries and are qualified by reference to the amended and restated certificate of incorporation and the amended and restated bylaws, each to be in effect upon the completion of this offering. We have filed copies of these documents with the SEC as exhibits to our registration statement of which this prospectus forms a part. The description of the capital stock reflects changes to our capital structure that will occur upon the closing of this offering. Upon the closing of this offering and the filing of the amended and restated certificate of incorporation, our authorized capital stock will consist of              shares of common stock, par value $0.001 per share, and              shares of preferred stock, par value $0.001 per share, all of which preferred stock will be undesignated.

As of April 30, 2008, we had issued and outstanding:

• 3,619,747 shares of our common stock held by 13 stockholders of record;

• 6,000,000 shares of our Series A convertible preferred stock held by four stockholders of record that are convertible into an aggregate of 6,976,738 shares of our common stock;

• 8,515,000 shares of our Series B convertible preferred stock held by 12 stockholders of record that are convertible into an aggregate of 9,901,136 shares of our common stock;

• 24,742,979 shares of our Series C convertible preferred stock held by 19 stockholders of record that are convertible into shares of our common stock on a one-for-one basis; and

• 17,636,655 shares of our Series C-1 convertible preferred stock held by 19 stockholders of record that are convertible into shares of our common stock on a one-for-one basis.

As of April 30, 2008, we also had outstanding:

• options to purchase 5,996,472 shares of our common stock at a weighted-average exercise price of $0.27 per share;

• warrants to purchase an aggregate of 408,785 shares of our Series B convertible preferred stock at an exercise price of $1.00 per share; and

• warrants to purchase an aggregate of 1,326,605 shares of our Series C convertible preferred stock at an exercise price of $0.7278 per share.

Upon the closing of this offering, all of the outstanding shares of our preferred stock, including 26,285 shares of our Series B convertible preferred stock we expect to issue upon the exercise of warrants prior to the closing of this offering, will automatically convert into a total of 59,288,071 shares of our common stock. In addition, upon the closing of this offering and after giving effect to the automatic conversion of our preferred stock into common stock, warrants to purchase an aggregate of 1,771,370 shares of common stock will remain outstanding.

Common Stock

Voting Rights. Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Our amended and restated certificate of incorporation and amended and restated bylaws do not provide for cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose.

Dividends. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.

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Liquidation. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.

Rights and Preferences. Holders of common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate in the future.

Fully paid and Nonassessable. All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, fully paid and nonassessable.

Preferred Stock

Upon the closing of this offering, all outstanding shares of preferred stock will have been automatically converted into shares of common stock. Following this offering, our certificate of incorporation will be amended and restated to delete all references to such shares of preferred stock.

Under the amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue up to             shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding.

Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock. We have no current plans to issue any shares of preferred stock.

Preferred Stock Warrants

Except as described in the second bullet below, in connection with the automatic conversion of all of our outstanding shares of preferred stock into common stock immediately prior to the closing of this offering, all warrants outstanding as of the closing will automatically become exercisable for shares of common stock based on the then effective conversion ratios applicable to the respective series of convertible preferred stock.

• We have outstanding warrants to purchase an aggregate of 382,500 shares of Series B convertible preferred stock with an exercise price of $1.00 per share. Upon the closing of this offering, these warrants will become exercisable for an aggregate of 444,765 shares of common stock at an exercise price of $0.86 per share. These warrants expire between December 2012 and December 2013.

• We have additional outstanding warrants to purchase an aggregate of 26,285 shares of Series B preferred stock with an exercise price of $1.00 per share. Unless exercised, these warrants will expire upon the closing of this offering. We have assumed throughout this prospectus that the holders of these warrants will exercise these warrants for cash prior to the closing of this offering for an aggregate of 26,285 shares of Series B convertible preferred stock that will convert upon completion of this offering into 30,563 shares of common stock.

• We have outstanding warrants to purchase an aggregate of 1,326,605 shares of Series C convertible preferred stock at an exercise price of $0.7278 per share. Upon the closing of this offering, these warrants will become exercisable for an aggregate of 1,326,605 shares of common stock at an exercise price of $0.7278 per share. These warrants expire in December 2011.

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These warrants have net exercise provisions under which their holders may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of our stock at the time of exercise of the warrants after deduction of the aggregate exercise price. Each of the warrants contains a provision for the adjustment of the exercise price and the number of shares issuable upon the exercise of the warrant in the event of certain stock dividends, stock splits, reorganizations, reclassifications and consolidations.

Registration Rights

Under an amended and restated investor rights agreement, following the completion of this offering, the holders of an aggregate of             shares of common stock and warrants to purchase an aggregate of up to             shares of common stock, or their transferees, will have the right to require us to register their shares with the SEC so that those shares may be publicly resold, or to include their shares in any registration statement we file, subject to specified exemptions, conditions and limitations.

Demand Registration Rights. At any time beginning six months after the completion of this offering, the holders of at least a majority of the shares issuable upon conversion of our Series A convertible preferred stock and Series B convertible preferred stock in the aggregate have the right to demand that we file up to a total of two registration statements and additional holders of at least a majority of the shares issuable upon conversion of our Series C convertible preferred stock and Series C-1 convertible preferred stock in the aggregate have the right to demand that we file up to a total of two additional registration statements. These registration rights are subject to specified conditions and limitations, including the right of the underwriters, if any, to limit the number of shares included in any such registration under specified circumstances.

Form S-3 Registration Rights. If we are eligible to file a registration statement on Form S-3, holders of no less than 20% of the shares having registration rights have the right to demand that we file a registration statement on Form S-3 so long as the aggregate amount of securities to be sold under the registration statement on Form S-3 is at least $1,000,000, subject to specified exceptions. We are obligated to file a maximum of three registration statements on Form S-3 in any 360-day period. These registration rights are subject to specified conditions and limitations, including the right of the underwriters, if any, to limit the number of shares included in any such registration under specified circumstances.

Piggyback Registration Rights. If we register any securities for public sale, stockholders with registration rights will have the right to include their shares in the registration statement. The underwriters of any underwritten offering will have the right to limit the number of shares having registration rights to be included in the registration statement, but not below 30% of the total number of shares included in the registration statement. These registration rights are also subject to other specified conditions and limitations, including the exclusion of stockholders in registration statements relating to any employee benefit plan or any corporate reorganization or transaction under Rule 145 of the Securities Act.

Expenses of Registration. We will pay all expenses relating to demand registrations, Form S-3 registrations and piggyback registrations, other than any stock transfer taxes and underwriting discounts and commissions. However, we will not pay for the expenses of any demand registration if the request is subsequently withdrawn by the holders of the shares having registration rights, subject to specified exceptions.

Termination. The registration rights terminate on the fifth anniversary of the closing of this offering.

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Delaware Anti-takeover Law and Certain Provisions of Our Amended and Restated Certificate of Incorporation and Bylaws

Delaware law. We are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a public Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

• prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

• the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for this purpose shares owned by persons who are directors and also officers and shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

• on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 ²/3% of the outstanding voting stock that is not owned by the interested stockholder.

Section 203 defines a business combination to include:

• any merger or consolidation involving the corporation and the interested stockholder;

• any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation;

• subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

• any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; and

• the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person.

Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws. Provisions of our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective upon the closing of this offering, may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock.

Among other things, our amended and restated certificate of incorporation and amended and restated bylaws:

• permit our board of directors to issue up to             shares of preferred stock, with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change in our control;

• provide that the authorized number of directors may be changed only by resolution of the board of directors;

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• provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

• divide our board of directors into three classes with staggered, three-year terms;

• require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

• provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice;

• do not provide for cumulative voting rights, therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose;

• provide that special meetings of our stockholders may be called only by the chairman of the board, our chief executive officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors; and

• provide that stockholders will be permitted to amend our amended and restated bylaws only upon receiving at least         % of the votes entitled to be cast by holders of all outstanding shares then entitled to vote generally in the election of directors, voting together as a single class.

The amendment of any of these provisions would require approval by the holders of at least         % of our then outstanding common stock, voting as a single class.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is             . The transfer agent and registrar’s address is             .

NASDAQ Global Market Listing

We have applied for quotation of our common stock on The NASDAQ Global Market under the trading symbol “ALDH.”

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, no public market existed for our common stock. Market sales of shares of our common stock after this offering and from time to time, and the availability of shares for future sale, may reduce the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that these sales could occur, could adversely affect prevailing market prices for our common stock and could impair our future ability to obtain capital, especially through an offering of equity securities.

Based on the number of shares of common stock outstanding as of             , 2008, upon completion of this offering,             shares of common stock will be outstanding, assuming no exercise of the underwriters’ over-allotment option and no exercise of options or warrants prior to the completion of this offering. All of the shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act, unless held by our affiliates as that term is defined under Rule 144 under the Securities Act. The remaining             shares of common stock outstanding upon the closing of this offering are restricted securities as defined under Rule 144 of the Securities Act. Restricted securities may be sold in the U.S. public market only if registered or if they qualify for an exemption from registration, including by reason of Rule 144 or 701 under the Securities Act, which rules are summarized below. These remaining shares will generally become available for sale in the public market as follows:

•             restricted shares will be eligible for immediate sale upon the completion of this offering;

• approximately             restricted shares will be eligible for sale in the public market 90 days after the date of this prospectus, subject to the volume, manner of sale and other limitations under Rule 144 and Rule 701; and

• approximately             restricted shares will be eligible for sale in the public market upon expiration of lock-up agreements 180 days after the date of this prospectus, which date may be extended in specified circumstances, subject in certain circumstances to the volume, manner of sale and other limitations under Rule 144 and Rule 701.

Additionally, of the 5,996,472 shares of common stock issuable upon exercise of options outstanding as of April 30, 2008, approximately             shares will be vested and eligible for sale 180 days after the date of this prospectus. All of the shares of common stock issuable upon exercise of warrants outstanding as of April 30, 2008, will be vested and may become eligible for sale beginning 180 days after the date of this prospectus.

Rule 144

In general, under Rule 144 under the Securities Act of 1933, as in effect on the date of this prospectus, beginning 90 days after the date of this prospectus, a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned shares of our common stock to be sold for at least six months, would be entitled to sell an unlimited number of shares of our common stock, provided current public information about us is available. In addition, under Rule 144, a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares of our common stock to be sold for at least one year, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available. Beginning 90 days after the date of this prospectus, our affiliates who have beneficially owned shares of our common stock for at least six months are entitled to sell within any three-month period a number of shares that does not exceed the greater of:

• one percent of the number of shares of our common stock then outstanding, which will equal approximately             shares immediately after this offering; and

• the average weekly trading volume of our common stock on The NASDAQ Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

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Sales of restricted shares under Rule 144 by our affiliates are also subject to requirements regarding the manner of sale, notice and the availability of current public information about us. Rule 144 also provides that affiliates relying on Rule 144 to sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.

Notwithstanding the availability of Rule 144, the holders of substantially all of our restricted shares have entered into lock-up agreements as described below under “Underwriting” and their restricted shares will become eligible for sale at the expiration of the restrictions set forth in those agreements.

Rule 701

Rule 701 under the Securities Act, as in effect on the date of this prospectus, permits resales of shares in reliance upon Rule 144 but without compliance with some of the restrictions of Rule 144, including the holding period requirement. Most of our employees, executive officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares under Rule 701. However, all of the Rule 701 shares are subject to lock-up agreements as described below and under “Underwriting” and will become eligible for sale at the expiration of the restrictions set forth in those agreements.

Lock-up Agreements

We, along with our directors, executive officers and substantially all of our other stockholders, optionholders and warrantholders, have agreed with the underwriters that, for a period of 180 days following the date of this prospectus, we or they will not offer, sell, assign, transfer, pledge, contract to sell or otherwise dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for shares of common stock, subject to specified exceptions. Cowen and Company, LLC and Wachovia Capital Markets, LLC may, in their sole discretion, at any time without prior notice, release all or any portion of the shares from the restrictions in any such agreement.

The 180-day restricted period described in the preceding paragraph will be extended if:

• during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs and is publicly announced; or

• prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day restricted period.

In this case, the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the release of the material news or the occurrence of the material event.

The lock-up agreements signed by our securityholders generally permit them, among other customary exceptions, to make bona fide gifts to their immediate family, to transfer securities to trusts for their or their immediate family’s benefit and, if the securityholder is a partnership, limited liability company or corporation, to transfer securities to its partners, members or stockholders. However, the recipients of these transfers must agree to be bound by the lock-up agreement for the remainder of the lock-up period.

Registration Rights

Upon the closing of this offering, the holders of an aggregate of             shares of our common stock and warrants to purchase an aggregate of up to             shares of our common stock will have the right to require us to

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register their shares for resale under the Securities Act, beginning six months after the date of this prospectus. Registration of these shares for resale under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of such registration. Any sales of securities by these stockholders could adversely affect the trading price of our common stock. These registration rights are described in more detail under the caption “Description of Capital Stock—Registration Rights.”

Equity Incentive Plans

As of April 30, 2008, we had outstanding options to purchase 5,996,472 shares of our common stock, of which options to purchase 2,376,771 shares were vested. We intend to file with the SEC one or more registration statements under the Securities Act covering the shares of common stock subject to outstanding stock options granted under our 2000 stock option plan, as well as the shares of common stock reserved for issuance under our 2008 equity incentive plan. We expect to file these registration statements as soon as practicable after the closing of this offering. These registration statements will become effective automatically upon filing. Accordingly, shares registered under these registration statements will be available for sale in the open market following their effective dates, subject to the volume and other limitations under Rule 144, other than the holding period, applicable to our affiliates and the lock-up agreements described above.

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UNDERWRITING

We and the underwriters for the offering named below have entered into an underwriting agreement with respect to the common stock being offered. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase from us the number of shares of our common stock set forth opposite its name below. Cowen and Company, LLC and Wachovia Capital Markets, LLC are the representatives of the underwriters.

Underwriter	Number of Shares
Cowen and Company, LLC
Wachovia Capital Markets, LLC
Pacific Growth Equities, LLC
Total

The underwriting agreement provides that the obligations of the underwriters are conditional and may be terminated at their discretion based on their assessment of the state of the financial markets. The obligations of the underwriters may also be terminated upon the occurrence of the events specified in the underwriting agreement. The underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased, other than those shares covered by the overallotment option described below. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.

We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act of 1933, and to contribute to payments the underwriters may be required to make in respect thereof.

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Overallotment Option to Purchase Additional Shares. We have granted to the underwriters an option to purchase up to             additional shares of common stock at the public offering price, less the underwriting discount. This option is exercisable for a period of 30 days. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, made in connection with the sale of common stock offered hereby. To the extent that the underwriters exercise this option, the underwriters will purchase additional shares from us in approximately the same proportion as shown in the table above.

Discounts and Commissions. The following table shows the public offering price, underwriting discount and proceeds, before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

We estimate that the total expenses of the offering, excluding underwriting discount, will be approximately $            and are payable by us.

	Total
	Per Share	Without Overallotment	With Over Allotment
Public offering price	$	$	$
Underwriting discount
Proceeds, before expenses, to us

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The underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover of this prospectus. The underwriters may offer the shares of common stock to securities dealers at the public offering price less a concession not in excess of $            per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $            per share to other dealers. If all of the shares are not sold at the public offering price, the underwriters may change the offering price and other selling terms.

Discretionary Accounts. The underwriters do not intend to confirm sales of the shares to any accounts over which they have discretionary authority.

Market Information. Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In addition to prevailing market conditions, the factors to be considered in these negotiations will include:

• the history of, and prospects for, our company and the industry in which we compete;

• our past and present financial information;

• an assessment of our management;

• our past and present operations, and the prospects for, and timing of, our future revenues;

• the present state of our development;

• the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.

We have applied for the quotation of our common stock on The NASDAQ Global Market under the symbol “ALDH.”

Stabilization. In connection with this offering, the underwriters may engage in stabilizing transactions, overallotment transactions, syndicate covering transactions, penalty bids and purchases to cover positions created by short sales.

• Stabilizing transactions permit bids to purchase shares of common stock so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the common stock while the offering is in progress.

• Overallotment transactions involve sales by the underwriters of shares of common stock in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the overallotment option. In a naked short position, the number of shares involved is greater than the number of shares in the overallotment option. The underwriters may close out any short position by exercising their overallotment option and/or purchasing shares in the open market.

• Syndicate covering transactions involve purchases of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the overallotment option. If the underwriters sell more shares than could be covered by exercise of the overallotment option and, therefore, have a naked short position,

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the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering.

• Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by that syndicate member is purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be effected on The NASDAQ Global Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.

Lock-Up Agreements. Pursuant to certain “lock-up” agreements, we and our executive officers, directors and our other stockholders, have agreed, subject to certain exceptions, not to offer, sell, contract to sell, announce any intention to sell, pledge or otherwise dispose of, enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any common stock or securities convertible into or exchangeable or exercisable for any common stock without the prior written consent of Cowen and Company, LLC and Wachovia Capital Markets, LLC, for a period of 180 days after the date of the pricing of the offering. The 180-day restricted period will be automatically extended if (i) during the last 17 days of the 180-day restricted period we issue an earnings release or material news or a material event relating to us occurs and is publicly announced or (ii) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results or become aware that material news or a material event will occur during the 16-day period beginning on the last day of the 180-day restricted period, in either of which case the restrictions described above will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition. The exceptions permit us, among other things and subject to restrictions, to: (a) issue common stock or options pursuant to employee benefit plans, (b) issue common stock upon exercise of outstanding options or warrants, (c) issue securities in connection with the conversion of our preferred stock into common stock, or (d) file registration statements on Form S-8. The exceptions permit parties to the “lock-up” agreements, among other things and subject to restrictions, to: (a) make certain distributions to their partners or stockholders (b) enter into or modify 10b5-1 plans so long as no shares may be sold under such plans during the 180 day restricted period, (c) use the “net” exercise provisions of outstanding warrants for our common stock or (d) make certain gifts. In addition, the lock-up provision will not restrict broker-dealers from engaging in market making and similar activities conducted in the ordinary course of their business.

United Kingdom. Each of the underwriters has represented and agreed that:

• it has not made or will not make an offer of the securities to the public in the United Kingdom within the meaning of section 102B of the Financial Services and Markets Act 2000 (as amended) (FSMA) except to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances which do not require the publication by us of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority (FSA);

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• it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which section 21 of FSMA does not apply to us; and

• it has complied with and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom.

Switzerland. The securities will not be offered, directly or indirectly, to the public in Switzerland and this prospectus does not constitute a public offering prospectus as that term is understood pursuant to article 652a or 1156 of the Swiss Federal Code of Obligations.

European Economic Area. In relation to each Member State of the European Economic Area (Iceland, Norway and Lichtenstein in addition to the member states of the European Union) that has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of the securities to the public in that Relevant Member State prior to the publication of a prospectus in relation to the securities that has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of the securities to the public in that Relevant Member State at any time:

• to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

• to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

• in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

Each person in a Relevant Member State who receives any communication in respect of, or who acquires any securities under, the offer contemplated in this prospectus will be deemed to have represented, warranted and agreed to and with us and each underwriter that:

• it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive; and

• in the case of any securities acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (1) the securities acquired by it in the offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the representatives of the underwriters has been given to the offer or resale; or (2) where securities have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those securities to it is not treated under the Prospectus Directive as having been made to such persons.

For the purposes of the provisions in the two immediately preceding paragraphs, the expression an “offer of the securities to the public” in relation to the securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

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United Arab Emirates. This document has not been reviewed, approved or licensed by the Central Bank of the United Arab Emirates (the “UAE”), Emirates Securities and Commodities Authority or any other relevant licensing authority in the UAE including any licensing authority incorporated under the laws and regulations of any of the free zones established and operating in the territory of the UAE, in particular the Dubai International Financial Services Authority (the “DFSA”), a regulatory authority of the Dubai International Financial Centre (the “DIFC”). The issue of shares of common stock does not constitute a public offer of securities in the UAE, DIFC and/or any other free zone in accordance with the Commercial Companies law, Federal Law No. 8 of 1984 (as amended), DFSA Offered Securities Rules and the Dubai International Financial Exchange Listing Rules, accordingly or otherwise.

The shares of common stock may not be offered to the public in the UAE and/or any of the free zones including, in particular, the DIFC. The shares of common stock may be offered and this document may be issued, only to a limited number of investors in the UAE or any of its free zones (including, in particular, the DIFC) who qualify as sophisticated investors under the relevant laws and regulations of the UAE or the free zone concerned. Management of the company, and the representatives represent and warrant the shares of common stock will not be offered, sold, transferred or delivered to the public in the UAE or any of its free zones, in particular the, the DIFC.

Electronic Offer, Sale and Distribution of Shares. A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.

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LEGAL MATTERS

The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley Godward Kronish LLP, Reston, Virginia. The underwriters are being represented by Wilmer Cutler Pickering Hale and Dorr LLP, New York, New York.

EXPERTS

Ernst & Young LLP, independent registered public accounting firm, has audited our financial statements at December 31, 2006 and 2007, and for each of the three years in the period ended December 31, 2007 and for the period from March 3, 2000 (inception) through December 31, 2007, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the shares of common stock being offered by this prospectus. This prospectus does not contain all of the information in the registration statement and its exhibits. For further information with respect to Aldagen and the common stock offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.

You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

Upon completion of this offering, we will be subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and web site of the SEC referred to above. We also maintain a website at www.aldagen.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of, and is not incorporated into, this prospectus.

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Index to Financial Statements

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets as of December 31, 2006 and 2007	F-3
Statements of Operations for the years ended December 31, 2005, 2006 and 2007 and for the period from March 3, 2000 (inception) through December 31, 2007	F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit	F-5
Statements of Cash Flows for the years ended December 31, 2005, 2006 and 2007 and for the period from March 3, 2000 (inception) through December 31, 2007	F-8
Notes to Financial Statements	F-9

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Aldagen, Inc.

We have audited the accompanying balance sheets of Aldagen, Inc. (a development stage company) as of December 31, 2006 and 2007, and the related statements of operations, redeemable convertible preferred stock and stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2007 and for the period from March 3, 2000 (inception) through December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aldagen, Inc. (a development stage company) at December 31, 2006 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007 and for the period from March 3, 2000 (inception) through December 31, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the financial statements, effective July 1, 2005, Aldagen, Inc. adopted Financial Accounting Standards Board (FASB) Staff Position No. 150-5, Issuer’s Accounting under Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable and effective January 1, 2006, the Company changed its method of accounting for share-based compensation in accordance with guidance provided in FASB Statement No. 123(R), Share-Based Payment.

Ernst & Young LLP

Raleigh, North Carolina

May 7, 2008

The foregoing report is in the form that will be signed upon the completion of the reverse stock split described in Note 11 to the financial statements.

/s/ Ernst & Young LLP

Raleigh, North Carolina

May 7, 2008

F-2

ALDAGEN, INC.

(A Development Stage Company)

BALANCE SHEETS

	December 31,
	2006			2007
Assets
Current assets:
Cash and cash equivalents	$	6,750,792		$	7,512,689
Accounts receivable		31,321			55,567
Other receivables		18,595			84,909
Prepaid expenses and other assets		77,226			117,216
Inventories, net		53,888			18,011
Total current assets		6,931,822			7,788,392
Property and equipment, net		670,353			912,424
Other assets		17,906			9,256
Total assets	$	7,620,081		$	8,710,072
Liabilities, redeemable convertible preferred stock and stockholders’ deficit
Current liabilities:
Accounts payable	$	178,970		$	122,973
Accrued expenses		810,148			1,157,518
Deferred rent		46,471			144,905
Capital lease obligations, current portion		9,906			15,701
Notes payable, current portion		78,449			64,882
Total current liabilities		1,123,944			1,505,979
Preferred stock warrant liability		625,175			772,695
Capital lease obligations, less current portion		4,986			52,067
Notes payable, less current portion		3,000,000			3,175,285
Total liabilities		4,754,105			5,506,026
Commitments and contingencies
Junior Preferred redeemable convertible preferred stock, $0.001 par value; 14,963,785 shares authorized, 14,515,000 shares issued and outstanding, and aggregate liquidation value of $14,515,000 at December 31, 2006 and 2007		8,347,968			9,383,371
Series C redeemable convertible preferred stock, $0.001 par value; 34,742,000 and 31,889,058 shares authorized at December 31, 2006 and 2007, respectively; 15,124,951 and 24,742,979 shares issued and outstanding at December 31, 2006 and 2007, respectively; aggregate liquidation value of $11,048,955 and $19,099,892 at December 31, 2006 and 2007, respectively		10,921,569			18,909,883
Stockholders’ deficit:
Common stock, $0.001 par value; 80,000,000 shares authorized; 3,411,000 and 3,619,747 shares issued and outstanding at December 31, 2006 and 2007, respectively		3,411			3,620
Deficit accumulated during the development stage		(16,406,972	)		(25,092,828	)
Total stockholders’ deficit		(16,403,561	)		(25,089,208	)
Total liabilities, redeemable convertible preferred stock, and stockholders’ deficit	$	7,620,081		$	8,710,072

The accompanying notes are an integral part of these financial statements.

F-3

ALDAGEN, INC.

(A Development Stage Company)

STATEMENTS OF OPERATIONS

	Year Ended December 31,									Period from March 3, 2000 (inception) through December 31, 2007
	2005			2006			2007
Revenues:
Grant revenue	$	—		$	—		$	—		$	109,485
Product sales, net		59,285			105,299			210,780			519,409
Total revenues		59,285			105,299			210,780			628,894
Operating expenses:
Cost of product sales		17,698			45,862			75,483			182,678
Research and development		2,846,176			3,238,795			4,841,435			21,558,805
Selling, general and administrative		1,120,515			1,058,642			1,761,002			8,172,121
Total operating expenses		3,984,389			4,343,299			6,677,920			29,913,604
Loss from operations		(3,925,104	)		(4,238,000	)		(6,467,140	)		(29,284,710	)
Other income (expense):
Interest expense, net		(1,743,619	)		(1,630,099	)		(86,786	)		(3,807,706	)
Other income (expense), net		4,574			91,922			(147,520	)		(46,107	)
Total other expense		(1,739,045	)		(1,538,177	)		(234,306	)		(3,853,813	)
Loss before cumulative effect of change in accounting principle		(5,664,149	)		(5,776,177	)		(6,701,446	)		(33,138,523	)
Cumulative effect of change in accounting principle		(1,469,856	)		—			—			(1,469,856	)
Net loss		(7,134,005	)		(5,776,177	)		(6,701,446	)		(34,608,379	)
Accretion of redeemable convertible preferred stock		(1,213,974	)		(1,222,435	)		(2,119,421	)		(7,381,009	)
Gain on exchange of redeemable convertible preferred stock		—			14,517,817			—			14,517,817
Beneficial conversion feature		—			—			—			(127,500	)
Net (loss) income attributable to common stockholders	$	(8,347,979	)	$	7,519,205		$	(8,820,867	)	$	(27,599,071	)
(Loss) income per common share:
Cumulative effect of change in accounting principle	$	(0.48	)	$	—		$	—
Net (loss) income per share allocable to common stockholders—basic	$	(2.72	)	$	0.56		$	(2.53	)
Net (loss) income per share allocable to common stockholders—diluted	$	(2.72	)	$	0.32		$	(2.53	)
Shares used to compute net (loss) income per share allocable to common stockholders—basic		3,065,795			3,411,000			3,487,396
Shares used to compute net (loss) income per share allocable to common stockholders—diluted		3,065,795			5,918,171			3,487,396
Pro Forma (Unaudited):
Pro forma basic and diluted net loss per common share							$	(0.23	)
Weighted average shares used in computation of basic and diluted net loss per share attributable to common stockholders								3,487,396
Pro forma adjustments to reflect assumed conversion of redeemable convertible preferred stock								34,517,853
Weighted average shares used to compute pro forma basic and diluted net loss per share attributable to common stockholders								38,005,249

The accompanying notes are an integral part of these financial statements.

F-4

ALDAGEN, INC.

(A Development Stage Company)

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

	Redeemable Convertible Preferred Stock												Stockholders’ Deficit
	Series A Redeemable Convertible Preferred Stock			Series B Redeemable Convertible Preferred Stock			Junior Preferred			Series C Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital			Deficit Accumulated During the Development Stage			Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balance at March 3, 2000 (inception)	—	$	—	—	$	—	—	$	—	—	$	—	—	$	—	$	—		$	—		$	—
Issuance of restricted common stock to founders at $0.001 per share for cash in April 2000	—		—	—		—	—		—	—		—	900,000		900		—			—			900
Issuance of common stock to consultants at $0.001 per share for services in April 2000	—		—	—		—	—		—	—		—	111,000		111		—			—			111
Issuance of restricted common stock to employees at $0.01 per share for cash in September 2000	—		—	—		—	—		—	—		—	600,000		600		5,400			—			6,000
Issuance of common stock for technology and services at fair value	—		—	—		—	—		—	—		—	300,000		300		29,700			—			30,000
Issuance of Series A redeemable convertible preferred stock for cash at $1.00 per share in October 2000, net of issuance costs of $24,971	3,000,000		2,975,029	—		—	—		—	—		—	—		—		—			—			—
Revaluation of restricted stock to founders	—		—	—		—	—		—	—		—	—		—		5,000			—			5,000
Accretion of redeemable convertible preferred stock	—		48,657	—		—	—		—	—		—	—		—		(40,100	)		(8,557	)		(48,657	)
Net loss from March 3, 2000 (inception) through December 31, 2000	—		—	—		—	—		—	—		—	—		—		—			(275,472	)		(275,472	)
Balance at December 31, 2000	3,000,000		3,023,686	—		—	—		—	—		—	1,911,000		1,911		—			(284,029	)		(282,118	)
Issuance of Series A redeemable convertible preferred stock at $1.00 per share for cash in January and December 2001, net of issuance costs of $32,789	3,000,000		2,967,211	—		—	—		—	—		—	—		—		—			—			—
Issuance of preferred stock warrants	—		—	—		—	—		—	—		—	—		—		33,721			—			33,721
Issuance of common stock options to consultants for services at fair value	—		—	—		—	—		—	—		—	—		—		735			—			735
Revaluation of restricted stock to founders	—		—	—		—	—		—	—		—	—		—		30,000			—			30,000
Accretion of redeemable convertible preferred stock	—		331,997	—		—	—		—	—		—	—		—		(64,456	)		(267,541	)		(331,997	)
Net loss	—		—	—		—	—		—	—		—	—		—		—			(1,988,196	)		(1,988,196	)
Balance at December 31, 2001	6,000,000		6,322,894	—		—	—		—	—		—	1,911,000		1,911		—			(2,539,766	)		(2,537,855	)
Issuance of preferred stock warrants	—		—	—		—	—		—	—		—	—		—		127,500			—			127,500
Beneficial conversion feature of 2002 Bridge notes	—		—	—		—	—		—	—		—	—		—		127,500			—			127,500
Issuance of common stock options to consultants for services at fair value	—		—	—		—	—		—	—		—	—		—		2,081			—			2,081
Revaluation of restricted stock to founders	—		—	—		—	—		—	—		—	—		—		60,270			—			60,270
Accretion of redeemable convertible preferred stock	—		489,821	—		—	—		—	—		—	—		—		(317,351	)		(172,470	)		(489,821	)
Net loss	—		—	—		—	—		—	—		—	—		—		—			(3,572,625	)		(3,572,625	)
Balance at December 31, 2002	6,000,000	$	6,812,715	—	$	—	—	$	—	—	$	—	1,911,000	$	1,911	$	—		$	(6,284,861	)	$	(6,282,950	)

The accompanying notes are an integral part of these financial statements.

F-5

ALDAGEN, INC.

(A Development Stage Company)

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Continued)

	Redeemable Convertible Preferred Stock														Stockholders’ Deficit
	Series A Redeemable Convertible Preferred Stock			Series B Redeemable Convertible Preferred Stock					Junior Preferred			Series C Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital			Deficit Accumulated During the Development Stage			Total Stockholders’ Deficit
	Shares	Amount		Shares		Amount			Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2002	6,000,000	$	6,812,715	—		$	—		—	$	—	—	$	—	1,911,000	$	1,911	$	—		$	(6,284,861	)	$	(6,282,950	)
Issuance of preferred stock warrants	—		—	—			—		—		—	—		—	—		—		10,755			—			10,755
Conversion of bridge notes and accrued interest into redeemable convertible preferred stock in March 2003	—		—	761,833			761,833		—		—	—		—	—		—		—			—			—
Issuance of redeemable convertible preferred stock in March and December 2003, net of issuance costs of $69,526	—		—	5,497,544			5,428,018		—		—	—		—	—		—		—			—			—
Revaluation of restricted stock to founders	—		—	—			—		—		—	—		—	—		—		45,000			—			45,000
Issuance of common stock options to consultants for services at fair value	—		—	—			—		—		—	—		—	—		—		14,229			—			14,229
Accretion of redeemable convertible preferred stock	—		487,572	—			347,342		—		—	—		—	—		—		(69,984	)		(764,930	)		(834,914	)
Net loss	—		—	—			—		—		—	—		—	—		—		—			(4,505,763	)		(4,505,763	)
Balance at December 31, 2003	6,000,000		7,300,287	6,259,377			6,537,193		—		—	—		—	1,911,000		1,911		—			(11,555,554	)		(11,553,643	)
Issuance of preferred stock warrants	—		—	—			—		—		—	—		—	—		—		8,010			—			8,010
Issuance of redeemable convertible preferred stock in May, August and November 2004, net of issuance costs of $16,993	—		—	3,755,623			3,738,630		—		—	—		—	—		—		—			—			—
Issuance of common stock options to consultants for services at fair value	—		—	—			—		—		—	—		—	—		—		8,523			—			8,523
Accretion of redeemable convertible preferred stock	—		487,581	—			632,209		—		—	—		—	—		—		(16,533	)		(1,103,257	)		(1,119,790	)
Net loss	—		—	—			—		—		—	—		—	—		—		—			(4,654,695	)		(4,654,695	)
Balance at December 31, 2004	6,000,000		7,787,868	10,015,000			10,908,032		—		—	—		—	1,911,000		1,911		—			(17,313,506	)		(17,311,595	)
Issuance of preferred stock warrants	—		—	—			—		—		—	—		—	—		—		1,282,271			—			1,282,271
Conversion of Series B reedemable convertible preferred stock into common stock in March 2005	—		—	(1,500,000	)		(1,500,000	)	—		—	—		—	1,500,000		1,500		1,498,500			—			1,500,000
Elimination of preferred stock dividends upon conversion to common stock	—		—	—			(169,685	)	—		—	—		—	—		—		169,685			—			169,685
Establishment of FAS 150 preferred stock warrant liability	—		—	—			—		—		—	—		—	—		—		(1,282,271	)		—			(1,282,271	)
Issuance of common stock options to consultants for services at fair value	—		—	—			—		—		—	—		—	—		—		45,975			—			45,975
Accretion of redeemable convertible preferred stock	—		487,516	—			726,458		—		—	—		—	—		—		(1,213,974	)		—			(1,213,974	)
Net loss	—		—	—			—		—		—	—		—	—		—		—			(7,134,005	)		(7,134,005	)
Balance at December 31, 2005	6,000,000	$	8,275,384	8,515,000		$	9,964,805		—	$	—	—	$	—	3,411,000	$	3,411	$	500,186		$	(24,447,511	)	$	(23,943,914	)

The accompanying notes are an integral part of these financial statements.

F-6

ALDAGEN, INC.

(A Development Stage Company)

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Continued)

	Redeemable Convertible Preferred Stock																Stockholders’ Deficit
	Series A Redeemable Convertible Preferred Stock					Series B Redeemable Convertible Preferred Stock					Junior Preferred			Series C Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital			Deficit Accumulated During the Development Stage			Total Stockholders’ Deficit
	Shares		Amount			Shares		Amount			Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2005	6,000,000		$	8,275,384		8,515,000		$	9,964,805		—	$	—	—	$	—	3,411,000	$	3,411	$	500,186		$	(24,447,511	)	$	(23,943,914	)
Share-based compensation expense	—			—		—			—		—		—	—		—	—		—		21,148			—			21,148
Conversion of bridge notes and accrued interest into redeemable convertible preferred stock in December 2006	—			—		—			—		—		—	5,951,801		4,331,720	—		—		—			—			—
Issuance of redeemable convertible preferred stock in December 2006, net of issuance costs of $127,386	—			—		—			—		—		—	9,131,243		6,518,333	—		—		—			—			—
Issuance of redeemable convertible preferred stock in December 2006 for consulting services at fair value	—			—		—			—		—		—	41,907		30,500	—		—		—			—			—
Exchange of Series A and B redeemable convertible preferred stock to Junior Preferred redeemable convertible preferred stock in December 2006	(6,000,000	)		(8,741,917	)	(8,515,000	)		(10,634,303	)	14,515,000		8,302,580	—		—	—		—		—			—			—
Gain on redemption of certain preferred stock, warrants, and other securities	—			—		—			—		—		—	—		—	—		—		—			14,517,817			14,517,817
Accretion of redeemable convertible preferred stock	—			466,533		—			669,498		—		45,388	—		41,016	—		—		(521,334	)		(701,101	)		(1,222,435	)
Net loss	—			—		—			—		—		—	—		—	—		—		—			(5,776,177	)		(5,776,177	)
Balance at December 31, 2006	—			—		—			—		14,515,000		8,347,968	15,124,951		10,921,569	3,411,000		3,411		—			(16,406,972	)		(16,403,561	)
Share-based compensation expense	—			—		—			—		—		—	—		—	—		—		93,471						93,471
Issuance of common stock in July and August 2007 upon exercise of stock options at $0.20 per share for cash	—			—		—			—		—		—	—		—	208,747		209		41,540			—			41,749
Issuance of redeemable convertible preferred stock in September 2007, net of issuance costs of $95,705	—			—		—			—		—		—	9,618,028		6,904,296	—		—		—			—			—
Accretion of redeemable convertible preferred stock	—			—		—			—		—		1,035,403	—		1,084,018	—		—		(135,011	)		(1,984,410	)		(2,119,421	)
Net loss	—			—		—			—		—		—	—		—	—		—		—			(6,701,446	)		(6,701,446	)
Balance at December 31, 2007	—		$	—		—		$	—		14,515,000	$	9,383,371	24,742,979	$	18,909,883	3,619,747	$	3,620	$	—		$	(25,092,828	)	$	(25,089,208	)

The accompanying notes are an integral part of these financial statements.

F-7

ALDAGEN, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

	Year Ended December 31,									Period from March 3, 2000 (inception) through December 31, 2007
	2005			2006			2007
Operating Activities
Net loss	$	(7,134,005	)	$	(5,776,177	)	$	(6,701,446	)	$	(34,608,379	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		291,010			276,984			311,809			1,645,809
Loss (gain) on disposal of equipment		30,782			427			(2,754	)		27,087
Non-cash interest expense		1,728,499			1,465,097			1,564			3,494,392
Write-down of inventories		—			12,000			22,413			56,413
Share-based compensation to consultants and employees		45,975			51,648			93,471			356,932
Stock issued for technology license and services		—			—			—			30,000
Change in value of preferred stock warrant liability including cumulative effect of change in accounting principle		1,465,282			(191,255	)		147,520			1,421,545
Loss on debt extinguishment		—			99,333			—			99,333
Changes in operating assets and liabilities:
Accounts receivable		(5,726	)		(41,516	)		(90,560	)		(55,567	)
Prepaid expenses and other assets		32,006			(29,082	)		(31,340	)		(211,381	)
Inventories		17,896			8,111			13,464			(74,424	)
Accounts payable		17,863			37,521			(55,997	)		122,973
Accrued expenses		(133,866	)		721,486			347,370			1,157,518
Deferred rent		(16,199	)		(31,168	)		98,434			144,905
Net cash used in operating activities		(3,660,483	)		(3,396,591	)		(5,846,052	)		(26,392,844	)
Investing activities
Proceeds from sale of equipment		14,000			—			22,000			44,281
Purchase of property and equipment		(8,926	)		(11,395	)		(501,621	)		(2,354,216	)
Net cash provided by (used in) investing activities		5,074			(11,395	)		(479,621	)		(2,309,935	)
Financing activities
Proceeds from notes payable		3,862,011			2,990,500			260,000			9,325,340
Repayment of notes payable		(252,238	)		(257,505	)		(99,846	)		(1,482,661	)
Payments on capital lease obligations		(12,872	)		(8,877	)		(18,629	)		(207,487	)
Proceeds from issuance of preferred stock, net of issuance costs		—			6,518,333			6,904,296			28,531,517
Proceeds from issuance of common stock		—			—			41,749			48,759
Net cash provided by financing activities		3,596,901			9,242,451			7,087,570			36,215,468
Net (decrease) increase in cash and cash equivalents		(58,508	)		5,834,465			761,897			7,512,689
Cash and cash equivalents at beginning of period		974,835			916,327			6,750,792			—
Cash and cash equivalents at end of period	$	916,327		$	6,750,792		$	7,512,689		$	7,512,689
Supplemental disclosure of cash flow information:
Cash paid for interest	$	34,374		$	171,672		$	288,208		$	583,614
Non-cash investing and financing activities:
Conversion of bridge notes and accrued interest into redeemable convertible preferred stock	$	—		$	4,331,720		$	—		$	5,093,553
Acquisition of property and equipment under capital leases	$	15,500		$	9,431		$	71,505		$	275,255

The accompanying notes are an integral part of these financial statements.

F-8

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

1. Description of Company

Aldagen, Inc. (Aldagen or the Company) was incorporated in the State of Delaware on March 3, 2000 as Stemco Biomedical, Inc. and changed its name to Aldagen, Inc. in November 2005.

Aldagen is a biopharmaceutical company developing proprietary regenerative cell therapies that target significant unmet medical needs. The Company has developed a proprietary technology that allows it to isolate active adult stem cells that express high levels of an enzyme known as aldehyde dehydrogenase, or ALDH, which the Company refers to as ALDH-bright, or ALDH^br, cells. The Company’s product candidates consist of specific populations of adult stem cells that it isolates using its proprietary technology. The Company operates as a single reportable segment.

The Company has the following four product candidates in clinical trials:

ALD-101—To accelerate platelet and neutrophil engraftment following cord blood transplants used to treat inherited metabolic diseases in pediatric patients.

ALD-151—To accelerate platelet and neutrophil engraftment following cord blood transplants used to treat leukemia.

ALD-301—To treat critical limb ischemia.

ALD-201—To treat ischemic heart failure.

Since inception, the Company has commercialized the following products:

ALDEFLUOR^®—An enzyme-based assay which detects stem and progenitor cells based on their high level of expression of ALDH. ALDEFLUOR^® has been sold since 2003 through a third-party distributor.

ALDECOUNT^®—a FDA-approved in vitro diagnostic use-product for the identification and enumeration of ALDH^br cells by flow cytometry. ALDECOUNT^® has been sold since 2004 through a third-party distributor.

Statement of Financial Accounting Standards Board (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises, states that an enterprise shall be considered to be in the development stage if either planned principal operations have not commenced or planned principal operations have commenced but there has been no significant revenue therefrom. The Company’s operations since inception have consisted primarily of organizing the Company, research and development of product technologies and securing financing. Product sales of ALDEFLUOR^® and ALDECOUNT^® were $519,409 from March 3, 2000 (inception) through December 31, 2007. Accordingly, the Company will remain a development stage company until such time as significant revenues have been generated from the sale of the Company’s product candidates or a significant collaboration is entered into with a third party.

The Company has incurred losses since its inception and expects to incur substantial additional development costs. As a result, the Company will require substantial additional funds and will continue to seek private or public equity or debt financing, research funding and revenue or expense sharing from collaborative agreements to meet its capital requirements. If such funds are not available, management may need to reassess its business

F-9

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

plans. Even if the Company does not have an immediate need for additional cash, it may seek access to the private or public equity markets if and when conditions are favorable. There is no assurance that such additional funds will be available for the Company to finance its operations on acceptable terms, if at all.

2. Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company invests its available cash balances in bank deposits and money market funds. The Company considers all highly liquid investments with an original maturity date of three months or less at the date of purchase to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, accounts receivable and other receivables.

The Company’s cash is held by one financial institution. The Company invests cash not currently used for operating purposes in money market funds. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the balance sheets.

Accounts receivable consists of trade receivables from product sales. Other receivables result from sales of capital equipment and landlord-reimbursable leasehold improvements. As of December 31, 2006 and 2007, the Company’s wholesale distributor for ALDEFLUOR^® and ALDECOUNT^® accounted for 95% and 97%, respectively, of the Company’s trade accounts receivable. The Company’s credit policies include establishment of provisions for potential credit losses. Since inception, the Company has not experienced significant credit losses on its accounts receivable or other receivables. As of December 31, 2006 and 2007, no allowance for doubtful accounts was considered necessary by management.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Management bases its estimates on historical experience and assumptions believed to be reasonable under the circumstances. Actual results could differ from the estimates and assumptions used.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts receivable, other receivables, accounts payable, notes payable, capital leases and preferred stock warrants. The carrying amounts of cash and cash equivalents, accounts receivable, other receivables and accounts payable approximate their fair values due to the short-term nature of such instruments. The carrying amounts of borrowings under the Company’s debt facilities approximate their fair values as of December 31, 2006 and 2007, based on the determination that the stated rates on such debt are consistent with current interest rates for similar borrowing arrangements available to the Company. The carrying amounts of preferred stock warrant liabilities are revalued and adjusted at the end of each reporting period to reflect their fair value using the Black-Scholes valuation model.

F-10

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

Inventories

Inventories are valued at the lower of cost or market. Cost is determined by using the first-in, first-out method for all inventory transactions. The Company’s policy is to record a valuation allowance for inventory that has become obsolete, has a cost basis in excess of net realizable value or is in excess of forecasted demand. As of December 31, 2006 and 2007, no inventory valuation allowance was considered necessary by management.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, usually three to seven years. The costs of leasehold improvements and equipment under capital leases that do not transfer ownership are amortized over the life of the lease or the useful economic life of the asset, whichever is shorter. Maintenance and repairs are expensed as incurred.

Long-Lived Assets

The Company periodically assesses the impairment of long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company reviews long-lived assets, including property and equipment, for impairment whenever changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. Since inception, the Company has not recorded any such impairment.

Revenue Recognition

The Company’s recognizes revenue in accordance with the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104).

Grant revenues from cost-reimbursement contracts for research and development activities are recorded in the period in which the related costs are incurred. Grant revenues from fixed fee contracts are recorded using a proportional performance method based on the level of services provided. Direct costs associated with grant contracts are reported as incurred in research and development expense.

During 2002, the Company was awarded a government grant of $109,485 to fund research and development activities. All grant revenue was recognized during the years ended December 31, 2002 and 2003 and is reflected in grant revenue for the period from March 3, 2000 (inception) through December 31, 2007.

Revenues from product sales are recorded when all of the SAB 104 criteria are met, which typically occurs at the time of shipment of the product to customers, as title and risk of loss are transferred upon shipment. Revenues from product sales are recorded net of applicable distributor discounts.

In May 2005, the Company executed an exclusive distribution agreement under which the distributor sells ALDEFLUOR^®. Product revenues attributable to ALDEFLUOR^® for the years ended December 31, 2005, 2006 and 2007 and for the period from March 3, 2000 (inception) through December 31, 2007 were $58,835, $100,259, $197,100, and $499,339, respectively.

F-11

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

The Company also sells ALDECOUNT^® under a non-exclusive distribution agreement that was executed in November 2006. Product revenues attributable to ALDECOUNT^® for the years ended December 31, 2005, 2006 and 2007 and for the period from March 3, 2000 (inception) through December 31, 2007 were $450, $5,040, $13,680, and $20,070, respectively.

Research and Development

The Company expenses research and development costs for its own research and development activities as incurred. Research and development costs include personnel-related expenses, patent expenses, allocations of research-related overhead costs for facilities, operational support and insurance, costs of manufacturing product candidates for clinical trial activities and costs paid to third parties to conduct clinical trials. The Company accrues for costs incurred by external service providers, including contract research organization and clinical investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed by the third parties, patient enrollment in clinical trials, administrative costs incurred by the third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.

Deferred Rent

The Company recognizes rent expense on a straight-line basis over the non-cancelable term of its operating lease and records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. The Company also records landlord-funded lease incentives, such as reimbursable leasehold improvements, as a deferred rent liability, which is amortized as a reduction of rent expense over the non-cancelable term of its operating lease. The Company’s deferred rent liability as of December 31, 2006 and 2007 was $46,471 and $144,905, respectively.

Share-Based Compensation

Prior to January 1, 2006, the Company accounted for employee share-based compensation arrangements using the intrinsic value method in accordance with the recognition and measurement provisions of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. In accordance with APB No. 25, share-based compensation for employees is based on the excess, if any, of the fair value of the Company’s common stock over the exercise price of a stock option on the date of the grant. Accordingly, prior to January 1, 2006, the Company did not recognize compensation cost for employee stock options, as all such options had an exercise price equal to at least the fair value of the underlying common stock on the date of the grant, as determined by the Company’s board of directors.

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), Share-Based Payment (SFAS 123R). SFAS 123R revises SFAS No. 123, as amended, and supersedes APB No. 25. Under SFAS 123R, share-based awards, including stock options, are recorded at their fair value as of the grant date and recognized to expense on a straight-line basis over the employee’s requisite service period, which is generally the vesting period of the award. Share-based compensation expense is based on awards ultimately expected to vest, and therefore the recorded expense includes an estimate of future forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company adopted the provisions of SFAS 123R using the prospective transition method.

F-12

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

Under this method, the provisions of SFAS 123R apply to all awards granted or modified after January 1, 2006. Awards outstanding at January 1, 2006 continue to be accounted for using the accounting principles originally applied to the award.

As a result of adopting SFAS 123R on January 1, 2006, the net income attributable to common stockholders for the year ended December 31, 2006 was $21,148 lower than if the Company had continued to account for the share-based compensation under APB No. 25. The Company has not recognized any tax benefits related to share-based compensation costs since its inception.

The Company accounts for equity instruments issued to nonemployees in accordance with the provisions of Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using a fair value approach. The Company values equity instruments, stock options and warrants granted to lenders and consultants using the Black-Scholes valuation model. The measurement of nonemployee share-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the term of the related financing or the period over which services are received. In connection with the issuance of share-based common stock awards to nonemployees, the Company recorded share-based compensation within stockholders’ deficit totaling $45,975 and $211,813 for the year ended December 31, 2005 and for the period from March 3, 2000 (inception) through December 31, 2007, respectively. No equity instruments, options, or warrants were issued to nonemployees during the years ended December 31, 2006 and 2007.

The following table shows the weighted-average assumptions used to compute share-based compensation expense for options granted to nonemployees during the year ended December 31, 2005 using the Black-Scholes valuation model.

Dividend yield	0	%
Volatility	75	%
Risk-free interest rate	4.36	%
Expected life (in years)	8.30

The weighted-average grant date fair value per share of nonemployee stock options granted during the year ended December 31, 2005 was $0.15.

The following table shows the weighted-average assumptions used to compute the grant date fair value of stock options granted to employees using the Black-Scholes valuation model during the years ended December 31, 2006 and 2007. No stock options were issued to employees during the year ended December 31, 2005.

	Year Ended December 31,
	2006		2007
Dividend yield	0	%	0	%
Volatility	78	%	68	%
Risk-free interest rate	4.75	%	4.38	%
Expected life (in years)	6.25		6.08

The weighted-average grant date fair value per share of employee stock options granted during the years ended December 31, 2006 and 2007 was $0.14 and $0.19, respectively.

F-13

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

The assumed dividend yield is based on the Company’s expectation of not paying dividends in the foreseeable future. Due to limited historical data, the Company’s estimated stock price volatility reflects application of SEC Staff Accounting Bulletin No. 107 (SAB 107), which provides for an estimate of volatility based on the actual volatility of comparable publicly traded companies over the expected life of the option. The risk-free interest rate is based on the U.S. Treasury yield curve during the expected life of the option. The expected life of employee stock options is based on the mid-point between the vesting date and the end of the contractual term in accordance with the simplified method prescribed in SAB 107, and the expected life for share-based compensation granted to nonemployees is the contractual term of the award.

The Company recognized non-cash share-based compensation expense to employees in its research and development and selling, general and administrative functions as follows:

	Year Ended December 31,
	2006		2007
Research and development	$	615	$	14,751
Selling, general and administrative		20,533		78,720
Total share-based compensation	$	21,148	$	93,471

Preferred Stock Warrant Liability

Effective July 1, 2005, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Staff Position (FSP) No. 150-5, Issuer’s Accounting under Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares that are Redeemable, an interpretation of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Pursuant to FSP No. 150-5, freestanding warrants for shares that are either putable or warrants for shares that are redeemable are classified as liabilities on the balance sheet at fair value. At the end of each reporting period, changes in fair value during the period are recorded as a component of other income or expense. Prior to July 1, 2005, the Company accounted for warrants to purchase preferred stock as equity under Accounting Principles Board (APB) Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.

Upon adoption of FSP No. 150-5 on July 1, 2005, the Company reclassified $1,469,856, the fair value of the outstanding warrants to purchase shares of its redeemable convertible preferred stock from stockholders’ deficit to a liability and recorded a cumulative effect of the change in accounting principle. During the years ended December 31, 2005 and 2006, the Company recorded $4,574 and $191,255, respectively, as other income to reflect the decrease in fair value of all preferred stock warrants. For the year ended December 31, 2007, the Company recorded $147,520 as other expense for the increase in fair value of all preferred stock warrants. The Company will continue to adjust the preferred stock warrant liability for changes in fair value until the earlier of the exercise of all of the warrants to purchase shares of redeemable convertible preferred stock or the completion of an initial public offering in which all shares of convertible preferred stock are converted to shares of common stock, at which time these liabilities will be reclassified to stockholders’ (deficit) equity, because the warrants to purchase convertible preferred stock would be converted to warrants to purchase common stock.

Other Income and Expense

Interest income for the years ended December 31, 2005, 2006 and 2007 and for the period from March 3, 2000 (inception) through December 31, 2007 was $19,254, $6,670, $202,986, and $375,458, respectively.

F-14

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

Interest expense consists of interest relating to the Company’s capital lease obligations and loan balances and the amortization of debt discounts and debt issuance costs. The Company’s debt discounts represent the initial value of warrants issued in connection with promissory notes and any related beneficial conversion features associated with the debt. Interest expense for the years ended December 31, 2005, 2006, 2007 and for the period from March 3, 2000 (inception) through December 31, 2007 was $1,762,873, $1,636,769, $289,772, and $4,183,164, respectively.

Other income and expense consists primarily of changes in the fair value of the Company’s preferred stock warrant liability and charges associated with the extinguishment of debt.

Income Taxes

The Company utilizes the liability method of accounting for income taxes as required by SFAS No. 109, Accounting for Income Taxes and interpreted by FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109. Under this method, deferred tax assets and liabilities are determined based on differences between the financial and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized. The Company has incurred operating losses from March 3, 2000 (inception) through December 31, 2007 and therefore has not recorded any current provision for income taxes.

(Loss) Income Per Common Share

The Company computes (loss) income per share in accordance with SFAS No. 128, Earnings per Share (SFAS 128) and EITF 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128 (EITF 03-6), which establish standards regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in earnings and dividends. EITF 03-6 requires earnings attributable to common stockholders for the period, after deduction of preferred stock preferences, to be allocated between the common stockholders and preferred stockholders based on their respective rights to receive dividends. EITF 03-6 does not require the presentation of basic and diluted net income (loss) per share for securities other than common stock; therefore, the following net (loss) income per share amounts only pertain to the Company’s common stock. Since the Company’s participating preferred stock was not contractually required to share in the Company’s losses, in applying the two-class method to compute basic net (loss) income per common share, no allocation was made to preferred stock if a net loss existed.

F-15

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

Basic net (loss) income per common share is calculated by dividing net (loss) income allocable to common stockholders (net (loss) income after reduction for any required returns to preferred stockholders prior to paying dividends to the common stock and assuming current income for the period had been distributed and without regard to any gain on exchange of preferred stock) by the weighted-average number of common shares outstanding during the period. For purpose of this calculation, certain shares of redeemable convertible preferred stock, warrants to purchase redeemable convertible preferred stock, and options to purchase common stock are considered to be common stock equivalents but have been excluded from the calculation of diluted net (loss) income per share allocable to common stockholders since their effect would be anti-dilutive. The following table sets forth the computation of basic and diluted net (loss) income per share allocable to common stockholders:

	Year Ended December 31,
	2005			2006			2007
Historical:
Numerator:
Loss before cumulative effect of change in accounting principle	$	(5,664,149	)	$	(5,776,177	)	$	(6,701,446	)
Cumulative effect of change in accounting principle		(1,469,856	)		—			—
Accretion of redeemable convertible preferred stock		(1,213,974	)		(1,222,435	)		(2,119,421	)
Gain on exchange of redeemable convertible preferred stock		—			14,517,817			—
Net (loss) income attributable to common stockholders		(8,347,979	)		7,519,205			(8,820,867	)
Income allocable to preferred stockholders		—			(5,621,514	)		—
Net (loss) income allocable to common stockholders	$	(8,347,979	)	$	1,897,691		$	(8,820,867	)
Denominator:
Weighted average common shares outstanding—Basic		3,065,795			3,411,000			3,487,396
Dilutive effect of common stock equivalent shares resulting from common stock options and preferred stock warrants		—			2,507,171			—
Weighted average common shares outstanding—Diluted		3,065,795			5,918,171			3,487,396
Net (loss) income per common share—Basic and Diluted:
Cumulative effect of change in accounting principle	$	(0.48	)	$	—		$	—
Net (loss) income per share allocable to common stockholders—Basic	$	(2.72	)	$	0.56		$	(2.53	)
Net (loss) income per share allocable to common stockholders—Diluted	$	(2.72	)	$	0.32		$	(2.53	)
Pro Forma (Unaudited):
Weighted average shares used in computation of basic and diluted net loss per share attributable to common stockholders								3,487,396
Pro forma adjustments to reflect assumed conversion of redeemable convertible preferred stock								34,517,853
Weighted average shares used to compute pro forma basic and diluted net loss per share attributable to common stockholders								38,005,249
Pro forma basic and diluted net loss per common share							$	(0.23	)

F-16

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

Historical outstanding anti-dilutive securities not included in the diluted net loss per common share calculations include the following on a weighted-average basis:

	Year Ended December 31,
	2005	2006	2007
Redeemable convertible preferred stock	14,847,877	10,104,379	34,517,853
Outstanding common stock options	2,105,936	2,194,884	3,892,098
Outstanding warrants	2,461,656	400,257	1,836,588
	19,415,469	12,699,520	40,246,539

The 2005 Notes described in Note 5 below were outstanding during 2005 and 2006 and included a provision by which the notes could be settled through the issuance of the Company’s redeemable convertible preferred stock based upon a contingent event. However, the 2005 Notes were not convertible, and therefore the potentially dilutive shares related to the settlement of these notes were excluded from the diluted net loss (income) per common share calculations for 2005 and 2006.

Impact of Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 provides a common definition of fair value and establishes a framework to make the measurement of fair value in generally accepted accounting principles more consistent and comparable. SFAS 157 also requires expanded disclosure to provide information about the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. SFAS 157 is effective for the Company’s fiscal year ending December 31, 2008, although early adoption is permitted. The Company is currently evaluating the potential impact of SFAS 157 on its financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 gives the Company the irrevocable option to carry most financial assets and liabilities at fair value, with changes in fair value recognized in earnings. SFAS 159 is effective for the Company’s fiscal year ending December 31, 2008, although early adoption is permitted. The Company is currently evaluating the potential impact of SFAS 159 on its financial statements.

In June 2007, the FASB issued EITF Issue No. 07-3, Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities (EITF 07-3). EITF 07-3 requires companies to defer and capitalize prepaid, nonrefundable research and development payments to third parties and amortize them over the period that the research and development activities are performed or the services are provided, subject to an assessment of recoverability. EITF 07-3 is effective for new contracts entered into during fiscal years beginning after December 15, 2007, including interim periods within those fiscal years. The Company is currently evaluating the impact, if any, of adopting EITF 07-3 on its financial statements.

F-17

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

3. Certain Balance Sheet Items

Inventories consist of the following as of December 31, 2006 and 2007:

	December 31,
	2006		2007
Raw materials	$	42,918	$	14,913
Finished goods		10,970		3,098
Total inventories	$	53,888	$	18,011

The Company recognized $12,000, $22,413 and $56,413 of expense related to inventory obsolescence reserves or other inventory write-downs for the years ended 2006 and 2007 and for the period from March 3, 2000 (inception) through December 31, 2007, respectively. There were no inventory write-downs during the year ended December 31, 2005. The obsolete inventory adjustment for the period ended December 31, 2007 was primarily due to expiration of a portion of the Company’s raw materials in which inventory quantities exceeded the Company’s projected usage of these materials based on forecasted demand.

Property and equipment consist of the following as of December 31, 2006 and 2007:

	December 31,
	2006			2007
Lab equipment	$	1,504,747		$	1,553,343
Leasehold improvements		216,277			360,903
Computer equipment and software		101,572			156,662
Furniture and fixtures		79,892			79,892
Total		1,902,488			2,150,800
Less: accumulated depreciation and amortization		(1,232,135	)		(1,238,376	)
Property and equipment, net	$	670,353		$	912,424

Depreciation and amortization expense, relating to property and equipment and leasehold improvements, for the years ended December 31, 2005, 2006, 2007 and for the period from March 3, 2000 (inception) through December 31, 2007 was $291,010, $276,984, $311,809, and $1,645,809, respectively.

Accrued expenses consist of the following as of December 31, 2006 and 2007:

	December 31,
	2006		2007
Research and development expense	$	446,567	$	938,340
Compensation		227,231		140,825
Interest		44,323		—
Other		92,027		78,353
Total accrued expenses	$	810,148	$	1,157,518

F-18

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

4. Notes Payable

Equipment Loans

In February 2001, the Company entered into a loan agreement with a bank, which provided for the Company to borrow up to $1,000,000 at an interest rate equal to the bank’s prime rate plus 0.75% for the acquisition of property and equipment. Through December 31, 2002, the Company had borrowed $540,531 under the agreement, of which $308,772 was outstanding as of December 31, 2002. Borrowings for the acquisition of property and equipment were collateralized by all of the assets of the Company with a negative pledge on intellectual property. In connection with the loan agreement, the Company issued a warrant to purchase 40,000 shares of Series A redeemable convertible preferred stock (Series A Preferred) at $1.00 per share. The Company recorded the warrant at its estimated relative fair value of $33,721, resulting in a debt discount that was amortized as a component of interest expense over the expected remaining life of the loan using the effective interest method. The warrant expired seven years from the date of issuance on February 28, 2008. In addition, $9,957 of debt issuance costs were capitalized as a deferred asset and amortized as interest expense over the expected remaining life of the loan. The note was paid in full during 2003.

In June and July of 2003, the Company entered into loan and security agreements totaling $500,106, with an interest rate of 8.74% per annum with a venture finance company for the purpose of financing the acquisition of certain equipment. The loan was collateralized by the financed equipment. In conjunction with the loan agreements, the Company issued warrants to purchase a total of 15,003 shares of Series B redeemable convertible preferred stock (Series B Preferred) at $1.00 per share. The Company recorded the warrants at their estimated relative fair value of $10,755 as a debt discount, which was amortized as a component of interest expense over the expected remaining life of the loans using the effective interest method. The warrants expire seven years from their respective dates of issuance, in June and July of 2010. The loans were repaid in full during 2006.

In March 2004, the Company entered into a $376,056 loan and security agreement, with an interest rate of 8.74% per annum with a venture finance company for the purpose of financing the acquisition of certain equipment. The loan was collateralized by the equipment being financed. In conjunction with the loan agreement, the Company issued a warrant to purchase 11,282 shares of Series B Preferred at $1.00 per share. The Company recorded the warrant at its estimated relative fair value of $8,010 as a debt discount, which was amortized as a component of interest expense over the expected remaining life of the loan using the effective interest method. The loan was repaid in full during 2007.

In November 2007, the Company entered into a $260,000 loan and security agreement, with an interest rate of 10.61% per annum with a venture finance company for the purpose of financing the acquisition of certain equipment. The loan is collateralized by the financed equipment. The loan is payable in equal monthly installments through March 2011.

Term Loan

In March 2006, the Company entered into a term loan agreement with a bank (term loan), which provided for the Company to borrow up to $1,500,000. The term loan carried interest at a rate equal to the bank’s prime rate plus 1.0% and initially matured on the earlier of July 26, 2006 or the date on which the Company received at least $5,000,000 in new equity financing. The term loan was collateralized by all of the Company’s equipment. In conjunction with the agreement, the Company issued a warrant to purchase 75,000 shares of Series B Preferred at $1.00 per share. The warrant was recorded at its estimated fair value of $55,901 as a debt discount, which was amortized as a component of

F-19

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

interest expense over the then expected remaining life of the loan. In addition, $18,559 of debt issuance costs were capitalized as a deferred asset and amortized over the then expected remaining life of the loan using the effective interest method. An amendment to the term loan in July 2006 extended the maturity date through August 2006.

A second amendment to the term loan in August 2006 extended the maturity date to November 2006 and increased the borrowing limit to $3,000,000. In conjunction with the second amendment, the Company issued the bank an additional warrant to purchase 75,000 shares of Series B Preferred at $1.00 per share. The warrant was initially recorded at its estimated fair value of $55,923 as a debt discount, which was amortized as a component of interest expense over the then expected remaining life of the loan using the effective interest method. The Company also paid $2,500 in debt issuance costs, which were capitalized as a deferred asset and amortized over the then expected remaining life of the loan. A third amendment to the term loan in November 2006 extended the maturity date to December 2006.

A fourth amendment to the term loan in December 2006 further extended the maturity date to May 31, 2010 and delayed required repayments of principal until June 2008. In addition, the interest rate on the outstanding amount from June 30, 2008 through the remaining term of the loan was increased to the bank’s prime rate plus 1.50%. In connection with the fourth amendment, the Company issued to the bank an additional warrant to purchase 45,000 shares of Series B Preferred at $1.00 per share. The warrant was recorded initially at its estimated fair value of $33,410 as an additional debt discount. The Company also paid $7,500 in debt issuance costs, which were capitalized as a deferred asset and amortized over the then expected remaining life of the loan using the effective interest method. A fifth amendment to the term loan in December 2006 excluded certain intellectual property from the collateral for the loan.

During 2007, the Company entered into a sixth amendment to the term loan, which increased the required amount of collateral. From November 30, 2007 through December 21, 2007, the Company was in violation of the loan covenants under the term loan relating to attainment of specified clinical development milestones. A seventh amendment executed in December 2007 extended the date for compliance with the covenants to March 31, 2008. As of December 31, 2007, the full $3,000,000 borrowed under the term loan was outstanding. The Company recorded $119,816 and $275,104 in interest expense for the years ended December 31, 2006 and 2007, respectively, related to the term loan.

All warrants issued to the lender in connection with the term loan expire seven years from their respective dates of issuance.

The Company evaluated each of the above amendments to the term loan under EITF Issue No. 96-19, Debtors Accounting for a Modification or Exchange of Debt Instruments (EITF 96-19). Based on the Company’s evaluation, the second and fourth term loan amendments resulted in exchanges of debt instruments with substantially different terms, resulting in a $99,333 loss on extinguishment of debt reflected in other expense for the year ended December 31, 2006.

On April 9, 2008, the Company executed an eighth amendment to the Company’s term loan. The amendment reset the interest rate on the loan to the bank’s prime rate plus 1.5% per annum as of the date of the amendment, extended the maturity date of the term loan to June 30, 2010 and delayed the Company’s obligations to begin repayment until January 31, 2009. Accordingly, such notes payable have been classified as long-term debt at December 31, 2007.

F-20

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

The following represents the outstanding principal balances and carrying amounts of notes payable as of December 31, 2006 and 2007:

	December 31,
	2006		2007
Term loan	$	3,000,000	$	3,000,000
Equipment loans		80,013		240,167
Total		3,080,013		3,240,167
Less debt discount		1,564		—
Notes payable, net of debt discount		3,078,449		3,240,167
Less current portion		78,449		64,882
Notes payable, less current portion	$	3,000,000	$	3,175,285

The following represents the scheduled maturities of notes payable outstanding as of December 31, 2007:

Year ending December 31,
2008	$	64,882
2009		2,190,166
2010		963,407
2011		21,712
Total	$	3,240,167

5. Bridge Notes Payable

2002 Notes

In December 2002, the Company issued convertible promissory notes (2002 Notes) with an aggregate face value of $750,000 to accredited investors. The 2002 Notes initially had a maturity date of January 2003 and an interest rate of 8% per annum. All principal and accrued interest under the 2002 Notes was to automatically convert into the Company’s equity on the same terms as the shares of preferred stock to be issued in the next qualified financing (as defined in the agreements relating to the 2002 Notes), but in the event a qualified financing was not completed prior to the maturity date, the 2002 Notes could be converted into a number of shares of existing Series A Preferred equal to 25% of the principal amount of the note, at a conversion price of $1.00 per share.

In connection with the issuance of the 2002 Notes, the Company issued warrants to the lenders to purchase shares of the series of preferred stock to be issued in the Company’s next qualified financing or, in the event a qualified financing did not occur by January 31, 2003, shares of Series A Preferred. The Company issued warrants to purchase 187,500 shares of preferred stock in the aggregate in accordance with the terms of the original December 2002 agreement and a January 2003 amendment, which extended the maturity date of the 2002 Notes to March 2003.

The Company accounted for the 2002 Notes and the related warrants in accordance with EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments (EITF 00-27) and EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable

F-21

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

Conversion Ratios. Of the $750,000 in proceeds from the 2002 Notes, the Company allocated $622,500 to the initial carrying value of the 2002 Notes and the remaining $127,500 to the carrying value of the preferred stock warrants, based on their estimated relative fair values. In addition, the Company applied EITF 00-27 and determined that the effective conversion ratio of the 2002 Notes represented an in-the-money conversion at the time of issuance of the 2002 Notes, resulting in a beneficial conversion feature equal to the $127,500 intrinsic value. The Company recorded the beneficial conversion feature as an additional debt discount and a charge to stockholders’ equity. The aggregate debt discount of $255,000 was amortized as interest expense through the January 2003 maturity date of the notes. The Company recorded total interest expense related to the 2002 Notes of $64,879 and $201,954 in the years ended December 31, 2002 and 2003, respectively.

In March 2003, the principal balance of the 2002 Notes of $750,000 and accrued interest of $11,833 were converted into an aggregate of 761,833 shares of Series B Preferred at $1.00 per share. In addition, as of the date of conversion of the 2002 Notes, the warrants issued in December 2002 became exercisable for 187,500 shares of Series B Preferred at an exercise price of $1.00 per share. The warrants remain outstanding and expire on December 23, 2012.

2005 Notes with Related Parties

In 2005, the Company issued promissory notes to existing shareholders (2005 Notes) with an aggregate face value of $3,862,011 in two separate tranches. The first tranche was issued in March 2005 in an aggregate principal amount of $2,574,674 and an interest rate of 8% per annum and a default interest rate of 12% per annum. The principal and accrued interest under the 2005 Notes was to be settled in the Company’s preferred stock issued upon the closing of the next equity financing. If an additional equity financing did not occur by the maturity date, the 2005 Notes were to be settled in cash. The 2005 Notes were initially scheduled to mature on December 15, 2005, but if the Company closed an additional tranche of financing prior to that date, the maturity date would be extended to May 15, 2006.

In connection with the issuance of the 2005 Notes, the Company issued warrants to the lenders to purchase a number of shares of the series of preferred stock to be issued in the Company’s next qualified financing (as defined in the agreements relating to the 2005 Notes) equal to 50% of the principal amount of the 2005 Notes divided by the purchase price in the next qualified financing or, in the event a qualified financing did not occur prior to maturity of the 2005 Notes, warrants to purchase a number of shares of Series B Preferred equal to 100% of the principal amount of the 2005 Notes divided by $1.00 per share. Each warrant had an exercise price of $0.01 per share and a term of 10 years.

Of the $2,574,674 in aggregate proceeds from the first tranche of the 2005 Notes, the Company allocated $1,292,403 to the carrying amount of the 2005 Notes and the remaining $1,282,271 to the carrying amount of the preferred stock warrants, based on their estimated relative fair values. The initial carrying value of the preferred stock warrants resulted in a debt discount and was amortized as additional interest expense over the then estimated life of the loan using the effective interest method.

The second tranche of the 2005 Notes was issued in November 2005 for aggregate proceeds of $1,287,337, thereby extending the maturity date for all of the 2005 Notes to May 15, 2006. The terms of the second tranche of 2005 Notes were identical to the 2005 Notes issued in the first tranche. In addition, in connection with the second tranche of the 2005 Notes, the Company issued additional warrants to purchase an aggregate of 1,287,337 shares of the series of preferred stock to be issued by the Company in the next qualified financing, with the warrants having the same terms as the warrants issued at first tranche closing in March 2005. Of the $1,287,337 in aggregate proceeds from the second tranche of the 2005 Notes, the Company allocated $1,282,271 to the carrying amount of the preferred stock warrants and the remaining $5,066 to the carrying amount of the 2005 Notes, based on their estimated

F-22

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

fair values using the Black-Scholes valuation model. The initial carrying value of the preferred stock warrants was recorded as a debt discount and preferred stock warrant liability in accordance with FSP No. 150-5. The Company adjusts the preferred stock warrant liability for changes in fair value as of each balance sheet date (see Note 7).

The Company did not close an additional equity financing prior to the maturity of the 2005 Notes in May 2006. The holders of the 2005 Notes did not call the notes at their maturity and provided forbearance to the Company until the next equity financing, which closed in December 2006. However, the interest rate on the 2005 Notes was reset to the default interest rate of 12% per annum for the period from the maturity date through the next financing in December 2006. In December 2006, the principal balance of the 2005 Notes of $3,862,011 and accrued interest of $469,709 was converted into 5,951,800 shares of the Company’s Series C redeemable convertible preferred stock (Series C Preferred) at $0.7278 per share. Each of the related warrants to purchase an aggregate of 3,862,011 shares of Series B Preferred were also exchanged for warrants to purchase an aggregate of 1,326,605 shares of Series C Preferred with an exercise price of $0.7278 per share. The newly issued preferred stock warrants have a term of five years from issuance and expire on December 13, 2011. The Company’s December 2006 settlement of the 2005 Notes and exchange of preferred stock warrants occurred contemporaneously with the new Series C Preferred financing and other equity transactions (see Note 8).

The Company recorded interest expense related to the 2005 Notes of $173,606, $381,497, and $555,103 in the years ended December 31, 2005 and 2006 and for the period from March 3, 2000 (inception) through December 31, 2007, respectively.

6. Commitments and Contingencies

Leases

The Company leases its office facilities and certain laboratory and office equipment under capital and non-cancelable operating leases. The Company’s lease for its office facilities, as amended to date, expires on April 30, 2013.

Future minimum lease payments under capital and non-cancelable operating leases as of December 31, 2007 are as follows:

	Capital Leases		Operating Leases
Year ending December 31,
2008	$	21,930	$	116,679
2009		20,165		120,166
2010		18,401		123,766
2011		18,401		127,476
2012		4,377		131,297
Thereafter		—		44,194
		83,274	$	663,578
Less interest at 7.7% to 11.9%		15,506
Present value of minimum lease payments		67,768
Less current portion		15,701
Capital lease obligations less current portion	$	52,067

F-23

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

Rent expense under these non-cancelable operating leases was $112,676, $121,417, $109,125, and $753,419 for the years ended December 31, 2005, 2006, 2007 and for the period from March 3, 2000 (inception) through December 31, 2007, respectively.

7. Preferred Stock Warrant Liability

As discussed in Note 2 above, subsequent to the Company’s adoption of FSP No. 150-5 on July 1, 2005, the outstanding preferred stock warrants are revalued at the end of each reporting period using the Black-Scholes option pricing valuation model. Changes in fair value, based on the fair value of the Company’s redeemable convertible preferred stock and other valuation assumptions, are reflected in the Company’s statements of operations as other income or expense. Unless previously exercised, upon the closing of an initial public offering of the Company’s common stock that results in the conversion of all outstanding shares of convertible preferred stock to common stock, the preferred stock warrants will automatically convert into warrants to purchase shares of common stock, based on the then applicable conversion ratio for the related series of preferred stock. As of December 31, 2007, each share of Series A Preferred and Series B Preferred is convertible into 1.163 shares of common stock, and each share of Series C Preferred is convertible into one share of common stock. All preferred stock warrants were immediately exercisable upon their issuance.

The following table sets forth the fair values for each of the categories of preferred stock warrants as of December 31, 2006 and 2007, as well as changes in fair value for the years ended December 31, 2006 and 2007:

	Expiration Date	Exercise Price Per Share		Shares as of December 31,		Fair Value as of December 31,				Change in Fair Value During the Year Ended December 31,
Warrant Holder				2006	2007	2006		2007		2006			2007
Series A Preferred:
Warrants issued with equipment notes	2/26/2008	$	1.00	40,000	40,000	$	1,629	$	239	$	(14,669	)	$	(1,390	)
Series B Preferred:
Warrants issued with 2002 Notes	12/23/2012		1.00	187,500	187,500		65,246		76,431		(85,208	)		11,185
Warrants issued with equipment notes and term loan	6/25/2010		1.00	4,724	4,724		1,022		1,012		(2,056	)		(10	)
	7/24/2010		1.00	10,279	10,279		2,262		2,250		(4,479	)		(12	)
	3/11/2011		1.00	11,282	11,282		2,980		2,979		(4,785	)		(1	)
	3/21/2013		1.00	75,000	75,000		26,770		33,654		(29,131	)		6,884
	8/30/2013		1.00	75,000	75,000		27,728		35,477		(28,195	)		7,749
	12/4/2013		1.00	45,000	45,000		16,958		21,776		(16,452	)		4,818
Series C Preferred:
Warrants issued with 2005 Notes	12/15/2011		0.7278	1,326,605	1,326,605		480,580		598,877		(6,280	)		118,297
				1,775,390	1,775,390	$	625,175	$	772,695	$	191,255		$	147,520

F-24

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

The fair value of the preferred stock warrants was determined using the Black-Scholes valuation model with the following weighted-average assumptions:

	Year Ended December 31,
	2006		2007
Dividend yield	0	%	0	%
Volatility	70.9	%	57.9	%
Risk-free interest rate	4.71	%	3.31	%
Remaining contractual term (in years)	5.22		4.23

8. Common Stock, Redeemable Convertible Preferred Stock and Stockholders’ Deficit

Common Stock

Upon the initial formation of the Company in 2000, the Company sold 900,000 shares of its common stock at fair value of $0.001 per share to its founders, subject to stock restriction agreements that provided for vesting based upon service to the Company. Subsequent to the issuance of this stock, the founders terminated their employment with the Company and were hired as consultants. The Company revalued the unvested shares of restricted stock issued to the founders and recorded $140,270 of compensation expense associated with the restricted stock during the year ended December 31, 2003. As of December 31, 2003, all of these shares of restricted stock were fully vested.

In April 2000, the Company also sold 111,000 shares of its common stock at $0.001 per share to consultants in connection with services provided, and also issued 300,000 shares of common stock in exchange for a technology license and services. The expense associated with these issuances of stock was included as research and development expenses during the year ended December 31, 2000. In September 2000, the Company sold 600,000 shares of common stock at fair value of $0.01 per share to two employees, subject to stock restriction agreements that provided for vesting based upon service to the Company. As of December 31, 2005, all of these shares of restricted stock were fully vested.

During 2007, the Company issued 208,747 shares of its common stock upon the exercise of stock options with an exercise price of $0.20 per share.

Dividends—The holders of common stock are be entitled to receive dividends from time to time as may be declared by the Company’s Board of Directors, subject to any preferential dividend rights of any then outstanding preferred stock. For the period from March 3, 2000 (inception) through December 31, 2007, no dividends were declared or paid by the Company.

Voting—The holders of shares of common stock are entitled to one vote for each share held with respect to all matters voted on by the stockholders of the Company. There is no cumulative voting of shares of common stock.

Liquidation—After payment to the preferred stockholders, holders of common stock are entitled, together with holders of preferred stock, to share ratably in all remaining assets of the Company.

F-25

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

Redeemable Convertible Preferred Stock

As of December 31, 2006 and 2007, the authorized, issued and outstanding shares of redeemable convertible preferred stock (preferred stock) were as follows:

	Redeemable Convertible Preferred Stock
	Series A	Series B	Series C	Series C-1	Total
As of December 31, 2006
Shares authorized	6,040,000	8,923,785	34,742,000	—	49,705,785
Shares issued and outstanding	6,000,000	8,515,000	15,124,951	—	29,639,951
As of December 31, 2007
Shares authorized	6,040,000	8,923,785	26,069,584	5,819,474	46,852,843
Shares issued and outstanding	6,000,000	8,515,000	24,742,979	—	39,257,979

The Company initially recorded the shares of preferred stock at their fair values on the dates of issuance, net of issuance costs. All shares of redeemable convertible preferred stock have been presented outside of permanent equity in accordance with EITF D-98, Classification and Measurement of Redeemable Securities. The carrying value of the Company’s redeemable convertible preferred stock is increased by periodic accretion using the effective interest method so that the carrying amount will equal the redemption value at the redemption date.

In 2000 and 2001, the Company issued 6,000,000 shares of Series A Preferred at $1.00 per share for cash proceeds of $5,942,240, net of related issuance costs of $57,760.

In 2003 and 2004 the Company issued 10,015,000 shares of Series B Preferred at $1.00 per share for cash proceeds of $9,166,648, net of related issuance costs of $86,519, and conversion of debt with principal and accrued interest of $761,833.

In March 2005, one Series B Preferred stockholder did not purchase its pro rata share of the 2005 Notes and as a result, under the provisions of the Company’s certificate of incorporation then in effect, the stockholder’s shares of Series B Preferred were automatically converted into 1,500,000 shares of common stock on a 1-for-1 basis. In accordance with the original terms of the Series B Preferred, accrued dividends of $169,685 were eliminated upon this conversion.

In December 2006, the Company issued 15,124,951 shares of Series C Preferred with a purchase price of $0.7278 per share for i) cash proceeds from existing shareholders of $6,518,333, net of issuance costs of $127,386, ii) conversion of the 2005 Notes with principal and accrued interest of $4,331,720, and iii) services with a fair value of $30,500, collectively constituting a first closing of the Series C Preferred (first closing). The terms of the first closing included a contingent forward put provision that required the Series C Preferred holders to participate in a second closing of Series C Preferred (second closing) with a stated number of shares and at a stated purchase price of $0.7278 per share if certain clinical and regulatory milestones were met by the Company. In addition, the Series C Preferred holders were provided a call option to purchase a specified number of shares of Series C Preferred at a second closing at a price of $0.7278 per share, regardless of whether the Company’s clinical and regulatory milestones were met.

In connection with the first closing in December 2006, the Company amended its certificate of incorporation and designated the existing shares of Series A Preferred and Series B Preferred collectively as “Junior Preferred.” Substantive modifications to the rights of the Series A Preferred and Series B Preferred stockholders included i) extension of the redemption date from January 2008 to December 2012, ii) elimination of accrued dividends of $2,730,083 on the Series A Preferred and $2,137,462 on the Series B Preferred and elimination of any future

F-26

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

cumulative dividends and iii) adjustment of the conversion ratios for the Junior Preferred to approximately 1.14-for-1 as a result of anti-dilution provisions. In addition, at the first closing, outstanding warrants to purchase an aggregate of 3,826,011 shares of Series B Preferred with an exercise price of $0.01 per share were exchanged for warrants to purchase 1,326,605 shares of Series C Preferred with an exercise price of $0.7278 per share.

The Company initially recorded the $482,190 fair value of the warrants to purchase Series C Preferred, estimated using the Black-Scholes valuation model, as a preferred stock warrant liability under FSP No. 150-5. As described in Note 7, the Company adjusts the preferred stock warrant liability at the end of each reporting period for changes in fair value.

In accordance with EITF D-42, The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock, the modification of the outstanding Series A Preferred and Series B Preferred, in conjunction with the contemporaneous exchange of certain other equity instruments with existing stockholders, including the exchange of preferred stock warrants, settlement and conversion of the 2005 Notes into equity, and the issuance of the Series C Preferred for cash, was accounted for as a redemption of existing equity securities and the issuance of new Junior Preferred, preferred stock warrants and Series C Preferred. As a result, the Company recorded a gain of $14,517,817 attributable to common stockholders equal to the excess of the carrying value of the securities and other financial instruments redeemed over the fair value of the new equity and financial instruments issued. The following summarizes the accounting for the December 2006 transaction with existing stockholders:

Total cash received and carrying value of securities and instruments exchanged in the Series C Preferred first closing:
Cash received	$	6,645,719
Carrying value of 2005 Notes and accrued interest		4,331,720
Forbearance of 2005 Notes additional default interest		85,394
Carrying value of Series A Preferred including accrued dividends		8,741,917
Carrying value of Series B Preferred including accrued dividends		10,634,303
Fair value of Series B Preferred warrant liability		3,840,973
Total cash received and carrying value of securities and instruments exchanged in the first closing			$	34,280,026
Fair value of new instruments upon issuance:
Fair value of Series C Preferred at issuance		10,977,439
Fair value of Junior Preferred		8,302,580
Fair value of Series C Preferred warrant liability		482,190
Total fair value of new instruments upon issuance				19,762,209
Gain on redemption and exchange of redeemable convertible preferred stock			$	14,517,817

The fair values of the Junior Preferred and Series C Preferred were determined by management retrospectively, based on the Company’s reassessment methodology as described under “Share-Based Compensation” below. The gain on redemption and exchange of redeemable convertible preferred stock is reported below net (loss) income on the statements of operations as a gain attributable to common stockholders and is recorded as a component of stockholders’ deficit. The carrying value of the Junior Preferred is accreted to its redemption value over the period from the date of issuance to the date of earliest redemption, or December 2012 in the case of the Junior Preferred.

F-27

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

In September 2007, the Company completed a second closing of the Series C Preferred (second closing) in which the Company issued 9,618,028 shares of Series C Preferred at $0.7278 per share for total cash proceeds of $6,904,296, net of issuance costs of $95,705. As a result of anti-dilution adjustments, the conversion ratio for the Junior Preferred was further adjusted to approximately 1.163-for-1. The original December 2006 Series C Preferred agreements were amended to provide that all first closing purchasers of the Series C Preferred would be obligated by contingent forward put provisions to purchase up to $6,058,654 of a newly designated Series C-1 redeemable convertible preferred stock (Series C-1 Preferred) at $1.0411 per share as a replacement of the original Series C Preferred contingent forward put provision. Each second closing purchaser would be obligated to purchase its pro rata share of the Series C-1 Preferred if specified clinical and regulatory milestones are met by the Company at any time on or before December 31, 2008. If the milestones are met and a purchaser of Series C Preferred does not purchase at least its pro rata share of Series C-1 Preferred, then all of the shares of Series C Preferred held by the stockholder would be automatically converted into shares of common stock at the then effective conversion rate for the Series C Preferred. The September 2007 amendment also revised the original call options held by the first closing Series C Preferred holders, such that all first closing Series C Preferred holders had a right, but not an obligation, to purchase its pro rata amount of the Series C-1 Preferred at $1.0411 per share prior to December 31, 2008, regardless of whether the clinical and regulatory milestones are achieved by the Company. The Company determined that the estimated fair value of the original embedded call option and contingent forward put provisions to purchase Series C Preferred was substantially equivalent to the estimated fair value of the embedded Series C-1 Preferred call option and contingent forward put provisions in existence as a result of the above amendments, and as a result there was no impact on the Company’s financial statements for this modification.

The rights and features of the Company’s Junior Preferred are as follows:

Voting—The holders of the Junior Preferred are entitled to vote, together with the holders of common stock, Series C preferred and Series C-1 preferred on all matters submitted to stockholders for vote. The holder of each share of Junior Preferred is entitled to the number of votes equal to the number of shares of common stock into which each such preferred share is convertible at the time of the vote.

Dividends—The holders of Junior Preferred are entitled to receive dividends, when and as declared by the Company’s Board of Directors, and out of funds legally available, payable in preference and priority to any payment of dividends on the shares of common stock. Holders of Junior Preferred are also entitled to participate in dividends paid on the common stock on an as-converted basis. For the period from March 3, 2000 (inception) through December 31, 2007, no dividends were declared or paid by the Company. Accretion of the Junior Preferred for the years ended December 31, 2006 and 2007 was $45,388 and $1,035,403, respectively.

Conversion—As of December 31, 2007, each share of Junior Preferred was convertible into approximately 1.163 shares of common stock. Anti-dilution protection for the Junior Preferred was eliminated as part of the second closing of Series C Preferred in September 2007.

Redemption—At any time after December 13, 2012 and following redemption in full of the Series C Preferred, the holders of the outstanding Junior Preferred may, by written request, require the Company to redeem the outstanding shares of Junior Preferred stock by paying in cash a sum equal to the original purchase price of the Series A Preferred and Series B Preferred plus any unpaid dividends. The Junior Preferred may be redeemed in three annual installments of amounts ranging from 20% to 50% of the aggregate amount redeemable, subject to certain provisions as described in the Company’s certificate of incorporation. On the redemption date, the Junior Preferred is redeemable for an aggregate amount of $14,515,000.

F-28

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

The rights and features of the Company’s Series C Preferred and Series C-1 Preferred are as follows:

Voting—The holders of Series C Preferred and Series C-1 Preferred are entitled to vote, together with the holders of common stock and Junior Preferred, on all matters submitted to stockholders for vote. The holder of each share of Series C Preferred and Series C-1 Preferred is entitled to the number of votes equal to the number of shares of common stock into which each such preferred share is convertible at the time of the vote.

Dividends—The holders of Series C Preferred and Series C-1 Preferred are entitled to receive cumulative dividends at a rate of 8% per annum of the original issue price, or when and as declared by the Company’s Board of Directors, payable in preference and priority to payment of any dividends on the shares of common stock. Holders of Series C Preferred and Series C-1 Preferred are entitled to participate in dividends paid on the common stock on an as-converted basis. For the period from March 3, 2000 (inception) through December 31, 2007, no dividends were declared or paid by the Company. Accretion of the Series C Preferred during the years ended December 31, 2006 and 2007 was $41,016 and $1,050,937, respectively.

Conversion—Each share of Series C Preferred and Series C-1 Preferred, at the option of the holder, is convertible into a number of fully paid shares of common stock as determined by dividing the original issue price for the applicable series of preferred stock by the conversion price in effect at the time. The Series C Preferred and Series C-1 Preferred conversion prices are $0.7278 and $1.0411 per share, respectively, and are subject to adjustment in accordance with anti-dilution provisions. Each share of Series C Preferred and Series C-1 Preferred is currently convertible into one share of common stock. Mandatory conversion features exist for non-participation in an additional Series C-1 Preferred equity financing if certain regulatory and clinical milestones are met. If Series C investors do not acquire shares in the C-1 Preferred equity financing, then all shares of Series C held by the non-participating holder will automatically convert into shares of common stock at 1/10 of the conversion rate. In addition, the Series C Preferred and Series C-1 Preferred is automatically convertible upon the closing of a firm commitment underwritten public offering with specified terms or the affirmative vote of the holders of at least two-thirds of the then outstanding shares of Series C Preferred and Series C-1 Preferred, voting together as a single class.

Redemption—At any time after December 13, 2011, the holders of Series C Preferred and Series C-1 Preferred may, by written request, require the Company to redeem the outstanding shares of Series C Preferred and Series C-1 Preferred by paying in cash a sum equal to the original issuance price of the Series C Preferred or Series C-1 Preferred, as applicable, plus any accrued and unpaid dividends. The Series C Preferred may be redeemed in three annual installments of amounts ranging from 20% to 50% of the aggregate amount redeemable, subject to certain provisions as described in the Company’s certificate of incorporation. On the redemption date, the Series C Preferred is redeemable for an aggregate amount of $24,795,335.

Liquidation

In the event of liquidation or winding up of the Company, all holders of Series C Preferred and Series C-1 Preferred have a liquidation preference equal to the applicable original issue price of the series of preferred stock, plus any accrued but unpaid dividends. After payment of the full liquidation preference to the holders of Series C Preferred and Series C-1 Preferred, the holders of Junior Preferred have a liquidation preference of $1.00 per share. After payment of these preferential amounts to the holders of preferred stock, the remaining assets of the Company would be distributed among the holders of the preferred stock and common stock on an as-converted to common stock basis.

F-29

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

Shares Reserved for Future Issuances

The Company had reserved shares of common stock for future issuances as follows:

	December 31,
	2006	2007
Redeemable convertible preferred stock (assuming conversion)	31,619,246	41,620,853
Warrants to purchase redeemable convertible preferred stock (assuming conversion)	1,836,585	1,848,444
2000 Stock Plan:
Shares available for grant	3,501,869	1,397,753
Options outstanding	2,447,131	4,342,500
Total shares reserved for future issuance	39,404,831	49,209,550

Share-Based Compensation

During 2000, the Company adopted the Aldagen, Inc. 2000 Stock Option Plan (the 2000 Plan), which provides for the granting of incentive and nonstatutory stock options by the Company’s Board of Directors to employees, officers, directors, and consultants of the Company. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock on the date of the grant and generally vest over 4 years. Options generally have 10-year contractual terms.

Fair Value of Common and Preferred Stock

The fair value of the Company’s common and preferred stock during the years ended December 31, 2005 and 2006 was determined by the Board of Directors with assistance from management. In connection with the preparation of the Company’s financial statements for the year ended December 31, 2007, the Company’s Board of Directors directed management to retrospectively assess the Company’s enterprise value and the fair value of its common stock and preferred stock at December 31, 2006 and December 31, 2007. This assessment was completed in February 2008. Management then performed an internal reassessment of the fair value of the Company’s common stock for stock option grants between December 31, 2006 and December 31, 2007.

In conducting these retrospective valuations, the Company used a two-step methodology that first estimated the fair value of the Company as a whole and then allocated a portion of the enterprise value to its preferred stock and common stock. This approach is consistent with the methods outlined in the AICPA Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The valuation methodology utilized the “probability-weighted expected return” (PWER) method to estimate enterprise value. The enterprise value was then validated utilizing a “market approach.” The PWER methodology involved estimating the future values of the Company for several probable liquidity scenarios. The value of the common stock was determined for each liquidity scenario and was then discounted to present value using a risk-adjusted discount rate. The discount rate used in both valuations was 30% for the common stock and 40% for the preferred stock. The present values of the common stock under each scenario were then weighted based upon the probability of each liquidity event occurring.

The determination of the liquidity values and estimates of the probabilities of each scenario involved a significant degree of management’s judgment. In some of these scenarios, the proceeds of the liquidation event were sufficient to provide a return to the holders of common stock. The Company also considered scenarios

F-30

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

involving a sale of the Company in which the proceeds of the transaction were sufficient to fully or partially satisfy the liquidation preferences of the Junior Preferred, Series C and Series C-1 convertible preferred stock, but in which no proceeds would remain to be distributed to the holders of common stock. The Company considered a final scenario in which it would be liquidated at a value that is insufficient to pay the liquidation preferences of any of the preferred stock. The market approach was also used to validate the determination of enterprise value. The market approach bases fair value on what similar enterprises or comparable transactions indicate value to be, and applies such analyses to the Company. These valuations included selecting and evaluating pre-money valuations of similar companies completing IPOs in 2006 and 2007, pre-money valuations of similar companies completing recent IPOs relative to the fully diluted post-money valuations at the time of their last round of financing, and the valuation and analysis of six comparable publicly traded companies that were focused on therapeutic products derived from stem cells.

The allocation of fair value between the Company’s common stock and preferred stock using the PWER methodology at December 31, 2006 resulted in a fair value estimate of $0.24 per share for the common stock and $0.57 per share and $0.62 per share for the Junior Preferred and Series C Preferred, respectively. The allocation of fair value between common stock and preferred stock using the PWER methodology at December 31, 2007 resulted in a fair value estimate of $0.40 per share for the common stock and $0.82 per share and $0.88 per share for the Junior Preferred and Series C Preferred, respectively.

Management reassessed the fair value of the Company’s common stock and preferred stock issued between December 31, 2006 and December 31, 2007 based upon the timing of achievement of clinical and regulatory milestones and the closing of an additional Series C Preferred equity financing round in September 2007.

During the year ended December 31, 2007, the Company granted stock options which were valued using the reassessed values of the Company’s common stock as follows:

Grants Made During the Quarter Ended	Number of Options Granted	Weighted Average Exercise Price		Black-Scholes Weighted Average Fair Value		Weighted Average Intrinsic Value
March 31, 2007	1,698,869	$	0.20	$	0.17	$	—
June 30, 2007	157,500		0.20		0.16		—
September 30, 2007	85,000		0.20		0.23		0.03
December 31, 2007	250,000		0.20		0.31		0.11

The Company used the reassessed fair value of its preferred stock, calculated in the manner describe above, in estimating the fair value of its outstanding warrants to purchase each series of preferred stock (see Note 7).

F-31

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

The following table summarizes stock option activity under the 2000 Plan since March 3, 2000 (inception) through December 31, 2007:

			Outstanding Options
	Shares Available for Grant		Number of Shares		Weighted Average Exercise Price
Balance at March 3, 2000 (inception)	—		—		$	—
Shares authorized	990,250		—			—
Options granted	(35,000	)	35,000			0.10
Options canceled	—		—
Balance at December 31, 2000	955,250		35,000			0.10
Options granted	(540,000	)	540,000			0.10
Options canceled	—		—
Balance at December 31, 2001	415,250		575,000			0.13
Options granted	(334,000	)	334,000			0.20
Options canceled	94,000		(94,000	)		0.10
Balance at December 31, 2002	175,250		815,000			0.17
Shares authorized	2,058,750		—			—
Options granted	(1,829,500	)	1,829,500			0.20
Options canceled	160,000		(160,000	)		0.11
Balance at December 31, 2003	564,500		2,484,500			0.19
Options granted	(553,500	)	553,500			0.20
Options canceled	397,000		(397,000	)		0.16
Balance at December 31, 2004	408,000		2,641,000			0.19
Options granted	(212,289	)	212,289			0.20
Options canceled	1,160,000		(1,160,000	)		0.20
Balance at December 31, 2005	1,355,711		1,693,289			0.19
Shares authorized	2,900,000		—			—
Options granted	(953,842	)	953,842			0.20
Options canceled	200,000		(200,000	)		0.20
Balance at December 31, 2006	3,501,869		2,447,131			0.19
Options granted	(2,191,369	)	2,191,369			0.20
Options exercised	—		(208,747	)		0.20
Options canceled	87,253		(87,253	)		0.20
Balance at December 31, 2007	1,397,753		4,342,500			0.20

As of December 31, 2007, the aggregate intrinsic value of outstanding stock options and exercisable stock options was $866,173 and $336,652, respectively. The aggregate intrinsic value of options exercised during the year ended December 31, 2007 was $41,124. There were no options exercised during the years ended December 31, 2005 and 2006.

F-32

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

The following table summarizes information about stock options outstanding as of December 31, 2007 and expected to vest, of which a portion were already vested and exercisable:

	Number of Options	Weighted-Average Remaining Contractual Life (In Years)	Weighted- Average Exercise Price		Intrinsic Value
Outstanding	3,908,250	8.07	$	0.20	$	779,555
Exercisable	1,654,579	7.88		0.19		336,652

The following table summarizes information about all stock options outstanding as of December 31, 2007:

Exercise Price	Number of Options Outstanding	Weighted-Average Remaining Contractual Life (In Years)	Number of Options Exercisable
$ 0.10	107,000	3.36	107,000
$ 0.20	4,235,500	8.19	1,547,579
	4,342,500		1,654,579

As of December 31, 2007, there was $249,543 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of three years.

Cash received from option exercises under all share-based payment arrangements for the year ended December 31, 2007 was $41,749.

F-33

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

9. Income Taxes

No provision for federal or state income taxes has been recorded as the Company has incurred net operating losses since inception.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2006 and 2007 consist of the following:

	2006			2007
Current
Deferred tax assets:
Inventory reserve	$	6,500		$	—
Less valuation allowance for deferred assets		(6,500	)		—
Deferred tax assets, current		—			—
Deferred tax asset (liabilities), current	$	—		$	—
Noncurrent
Deferred tax assets:
Domestic net operating loss carryforwards	$	8,504,900		$	10,917,300
Charitable contribution carryforwards		1,400			2,400
Start-up costs		266,600			266,600
Organizational costs		1,000			1,000
Share-based compensation		81,700			104,900
Intangible assets		33,600			29,900
Research and development credits		815,300			959,900
Less valuation allowance		(9,630,500	)		(12,239,700	)
Deferred tax assets, noncurrent		74,000			42,300
Deferred tax liabilities:
Fixed assets		74,000			42,300
Deferred tax asset (liabilities), noncurrent		74,000			42,300
Net deferred tax asset (liability)	$	—		$	—

As of December 31, 2007, the Company provided a full valuation allowance against its net deferred tax assets since realization of these benefits could not be reasonably assured. The increase in valuation allowance resulted primarily from the additional net operating loss carryforward generated.

As of December 31, 2007, the Company had federal and state net operating loss carryforwards of $28,230,800 and $28,984,500, respectively. These net operating loss carryforwards begin to expire in 2020 and 2015 for federal and state purposes. The utilization of the federal net operating loss carryforwards may be subject to limitations under the rules regarding a change in stock ownership as determined by the Internal Revenue Code.

F-34

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

Taxes computed at the statutory federal income tax rate of 34% are reconciled to the provision for income taxes for the years ended December 31, 2006 and 2007 as follows:

	2006					2007
	Amount			% of Pretax Earnings		Amount			% of Pretax Earnings
United States Federal tax at statutory rate	$	(1,963,900	)	(34.0	)%	$	(2,278,500	)	(34.0	)%
State taxes (net of Federal benefit)		(215,200	)	(3.7	)		(296,000	)	(4.4	)
Change in valuation reserves		1,936,300		33.5			2,602,700		38.8
Research and development credit		(207,000	)	(3.6	)		(144,600	)	(2.2	)
Amortization of debt discount		372,000		6.4			500		0.0
Other nondeductible expenses		54,000		1.0			115,400		1.8
Other		23,800		0.4			500		0.0
Provision for income taxes	$	—		0.0	%	$	—		0.0	%

The Tax Reform Act of 1986 contains provisions which limit the ability to utilize the net operating loss carryforwards in the case of certain events including significant changes in ownership interests. If the Company’s net operating loss carryforwards are limited, and the Company has taxable income which exceeds the permissible yearly net operating loss carryforwards, the Company would incur a federal income tax liability even though net operating loss carryforwards would be available in future years.

In June 2006, the Financial Accounting Standards Board (FASB) issued interpretation No. 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109 (FIN 48). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company adopted the provisions of FIN 48 on January 1, 2007. The implementation of FIN 48 resulted in a $283,923 adjustment to the Company’s beginning tax positions. The Company continues to recognize its tax benefits which are offset by a valuation allowance to the extent that it is more likely than not that the deferred tax assets will not be realized.

The following summarizes the activity related to the Company’s unrecognized tax benefits:

Balance at January 1, 2007	$	283,923
Increases related to current year tax positions		—
Balance at December 31, 2007	$	283,923

If these unrecognized tax benefits of $283,923 at December 31, 2007 were recognized, they would not affect the Company’s annual effective tax rate. It is the Company’s policy to record and classify interest and penalties as income tax expense, although no liability for potential interest or penalties was recorded during the year. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.

The Company files U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The 2000 through 2007 tax years remain subject to examination by federal and state authorities.

F-35

ALDAGEN, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS (Continued)

10. 401K Plan

The Company provides a qualified 401(k) savings plan for its employees. All employees are eligible to participate, provided they meet the requirements of the plan. While the Company may elect to match employee contributions, no such matching contributions were made through December 31, 2007. Beginning January 1, 2008, the Company began providing a 100% match of employee contributions on the first 3% of a contributing employee’s salary and a 50% match on an additional 2% of salary contributed.

11. Subsequent Events

On April 9, 2008 the Company executed an eighth amendment to the Company’s term loan described in Note 4 above. The amendment reset the interest rate on the loan to the bank’s prime rate plus 1.5% per annum as of the date of the amendment, extended the maturity date of the term loan to June 30, 2010 and delayed the Company’s obligations to begin repayment until January 31, 2009. As amended, the term loan is now payable in 17 equal installments of $176,471, beginning on January 31, 2009.

On April 14, 2008, the Company’s Board of Directors adopted, and the stockholders approved, an amendment to the 2000 Plan that increases the maximum number of shares of common stock issuable under the 2000 Plan to an aggregate of 6,649,000 shares.

On April 15, 2008, the Company issued an aggregate of 17,636,655 shares of Series C-1 Preferred at a price of $1.0411 per share, for aggregate proceeds of $18,361,522. Of this amount, $6,058,654 related to satisfaction of the contingent forward put upon the achievement of specified milestones that was contemplated at the second closing of the Series C Preferred financing in September 2007, as described in Note 8 above. The Company’s certificate of incorporation was amended to authorize additional shares of Series C-1 Preferred beyond the amount authorized for future issuance at the time of the second closing of the Series C Preferred financing. The rights, preferences and privileges of the Series C-1 Preferred are substantially identical to those of the Series C Preferred, other than with respect to the original purchase price. The aggregate amount redeemable on the redemption date is $23,742,202 for the Series C-1 Preferred.

On                 , 2008, the Company’s Board of Directors adopted, and on                 , 2008, the stockholders approved, a              to              reverse stock split of the Company’s common stock effective as of                 . All common stock and per common share amounts for all periods presented in the accompanying financial statements have been restated to reflect the effect of this common stock split.

F-36

            Shares

Common Stock

PROSPECTUS

Cowen and Company	Wachovia Securities
Pacific Growth Equities, LLC

                    , 2008

Until                     , 2008, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth all costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and the NASDAQ Global Market listing fee.

	Amount to be Paid
SEC registration fee	$	3,164
FINRA filing fee		8,550
NASDAQ Global Market initial listing fee		100,000
Printing and engraving expenses		*
Legal fees and expenses		*
Blue Sky fees and expenses		*
Accounting fees and expenses		*
Transfer agent and registrar fees and expenses		*
Miscellaneous expenses		*
Total	$	*

* To be filed by amendment.

Item 14. Indemnification of Directors and Officers.

We are incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was an officer, director, employee or agent of such corporation, or is or was serving at the request of such person as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses that such officer or director has actually and reasonably incurred. Our amended and restated certificate of incorporation to be in effect upon the closing of this offering requires us to indemnify, and limit the liability of, our directors to the fullest extent permitted by Delaware law. Our amended and restated bylaws to be in effect upon the closing of this offering require us to indemnify our directors to the fullest extent not prohibited by law and permit us to indemnify our officers, employees and other agents as set forth under Delaware law.

II-1

Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any:

• transaction from which the director derives an improper personal benefit;

• act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

• unlawful payment of dividends or redemption of shares; or

• breach of a director’s duty of loyalty to the corporation or its stockholders.

Our amended and restated certificate of incorporation and amended and restated bylaws include such a provision. Expenses incurred by any director in defending any such action, suit or proceeding in advance of its final disposition shall be paid by us upon delivery to us of an undertaking, by or on behalf of such director, to repay all amounts so advanced if it shall ultimately be determined that such director is not entitled to be indemnified by us.

Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved, or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts.

As permitted by the Delaware General Corporation Law, we have entered into indemnity agreements with each of our directors that require us to indemnify such persons against any and all expenses (including attorneys’ fees), witness fees, judgments, fines, settlements and other amounts incurred (including expenses of a derivative action) in connection with any action, suit or proceeding or alternative dispute resolution mechanism, inquiry hearing or investigation, whether threatened, pending or completed, to which any such person may be made a party by reason of the fact that such person is or was a director, an officer or an employee of Aldagen or any of its affiliated enterprises, provided that such person’s conduct did not constitute a breach of his or her duty of loyalty to us or our stockholders, and was not an act or omission not in good faith or which involved intentional misconduct or a knowing violation of laws. The indemnity agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder.

At present, there is no pending litigation or proceeding involving any of our directors or officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.

We have an insurance policy covering our officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise.

We plan to enter into an underwriting agreement that provides that the underwriters are obligated, under some circumstances, to indemnify our directors, officers and controlling persons against specified liabilities, including liabilities under the Securities Act.

Our amended and restated investor rights agreement with certain investors provides for cross-indemnification in connection with the registration of the our common stock on behalf of such investors.

Item 15. Recent Sales of Unregistered Securities.

The following list sets forth information regarding all unregistered securities sold by us since January 1, 2005 through the date of this prospectus.

1) From January 1, 2005 through April 30, 2008, we have granted options under our 2000 stock option plan to purchase an aggregate of 5,061,472 shares of our common stock to employees, consultants and

II-2

directors, having exercise prices ranging from $0.20 to $0.626 per share. From January 1, 2005 through April 30, 2008, 208,747 shares of common stock have been issued upon the exercise of options issued to employees, consultants and directors under our 2000 stock option plan for aggregate consideration of approximately $42,000, at an exercise price of $0.20 per share.

2) In March and November 2005, we issued and sold convertible promissory notes in aggregate principal amount of $3.9 million to a total of 11 accredited investors. In connection with these issuances, we also issued warrants to these investors that were exercisable for the series of preferred stock to be issued in our next round of equity financing, or if no such financing occurred, shares of our Series B convertible preferred stock.

3) In March 2005, the 1,500,000 shares of Series B convertible preferred stock held by one stockholder were converted into shares of our common stock on a 1-for-1 basis.

4) In March 2006, August 2006 and December 2006, in connection with a term loan with a bank and extensions of the loan, we issued warrants to the bank to purchase an aggregate of 195,000 shares of Series B convertible preferred stock with an exercise price of $1.00 per share.

5) In December 2006 and September 2007, we issued and sold an aggregate of 24,742,979 shares of Series C convertible preferred stock to 19 accredited investors for aggregate consideration of approximately $17.8 million, including the conversion of principal and interest on outstanding convertible promissory notes described in paragraph (2) above, and net of issuance costs.

6) In December 2006, upon the initial closing of our Series C convertible preferred stock financing, the warrants issued as described in paragraph (2) above were exchanged for new warrants with revised terms. The new warrants are exercisable for an aggregate of 1,326,605 shares of Series C convertible preferred stock at an exercise price of $0.7278 per share.

7) In April 2008, we issued and sold an aggregate of 17,636,655 shares of Series C-1 convertible preferred stock to 19 accredited investors for aggregate consideration of $18.4 million.

The offers, sales and issuances of the securities described in paragraph (1) were exempt from registration under the Securities Act under Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of such securities were our employees, directors or consultants and received the securities under our stock option plan. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment or business relationships, to information about us.

The offers, sales, and issuances of the securities described in paragraphs (2), (4), (5) and (7) were exempt from registration under the Securities Act under Section 4(2) of the Securities Act and Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor as defined in Rule 501 promulgated under the Securities Act.

The issuance of the securities described in paragraph (3) was exempt from registration under the Securities Act under Section 3(a)(9) thereunder by virtue of the fact that the transactions constituted the exchange of securities of the company for no additional consideration.

The issuance of the securities described in paragraph (6) was exempt from registration under the Securities Act under Section 3(a)(9) by virtue of the fact that the transactions constituted the exchange of securities of the company for no additional consideration and Regulation D promulgated under the Securities Act by virtue of the fact that each of the recipients of securities in this transaction was an accredited investor.

II-3

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits

Exhibit Number	Description of Document
1.1†	Form of Underwriting Agreement.
3.1	Fifth Amended and Restated Certificate of Incorporation, as amended to date and as currently in effect.
3.2†	Form of Certificate of Amendment of Restated Certificate of Incorporation.
3.3†	Form of Amended and Restated Certificate of Incorporation to be effective upon completion of this offering.
3.4	Amended and Restated Bylaws, as amended to date and as currently in effect.
3.5†	Form of Amended and Restated Bylaws to be effective upon completion of this offering.
4.1	Reference is made to exhibits 3.1 through 3.5.
4.2†	Specimen Common Stock Certificate.
5.1†	Opinion of Cooley Godward Kronish LLP.
10.1	Loan and Security Agreement, dated as of March 21, 2006 and as amended to date, by and between the Registrant and Square 1 Bank.
10.2+†	Form of Indemnification Agreement.
10.3+†	2000 Stock Option Plan and Forms of Stock Option Agreement thereunder.
10.4+†	2008 Equity Incentive Plan.
10.5+†	Forms of Stock Option Agreement and Restricted Stock Award Agreement under the 2008 Equity Incentive Plan.
10.6*	License Agreement, dated as of October 12, 2000, by and between the Registrant and Duke University.
10.7*	License Agreement, dated as of November 27, 2000, by and between the Registrant and Johns Hopkins University.
10.8	Building Lease, by and between the Registrant and Prince Properties, Inc., as amended.
10.9	Amended and Restated Investor Rights Agreement dated December 15, 2006 by and between the Registrant and certain of its stockholders, as amended on September 12, 2007, December 31, 2007 and April 15, 2008.
10.10	Form of Warrants to Purchase Series B Preferred Stock issued in connection with 2002 bridge loan, dated as of December 23, 2002, as amended.
10.11	Form of Warrants to Purchase Series B Preferred Stock issued to Oxford Finance Corporation, dated as of June 25, 2003, July 24, 2003 and March 11, 2004.
10.12	Form of Warrants to Purchase Series B Preferred Stock issued to Square 1 Bank, dated as of March 21, 2006, August 30, 2006 and December 4, 2006.
10.13	Form of Amended and Restated Warrant to Purchase Series C Preferred Stock, dated as of December 15, 2006.
23.1	Consent of Ernst & Young LLP, independent registered public accounting firm.
23.2†	Consent of Cooley Godward Kronish LLP (included in Exhibit 5.1).
24.1	Power of Attorney. Reference is made to the signature page hereto.

II-4

† To be filed by amendment.

+ Indicates management contract or compensatory plan.

* Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and have been separately filed with the Securities and Exchange Commission.

(b) Financial Statement Schedules

No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.

Item 17. Undertakings.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Durham, State of North Carolina, on the 9^th day of May, 2008.

ALDAGEN, INC.
By:	/S/     W. THOMAS AMICK
	W. Thomas Amick Chairman and Chief Executive Officer

KNOW ALL BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints W. Thomas Amick, Edward L. Field and Brent B. Siler, and each of them, his true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and all amendments (including post-effective amendments) to this registration statement together with all schedules and exhibits thereto and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together with all schedules and exhibits thereto, (ii) act on, sign and file such certificates, instruments, agreements and other documents as may be necessary or appropriate in connection therewith, (iii) act on and file any supplement to any prospectus included in this registration statement or any such amendment or any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and (iv) take any and all actions which may be necessary or appropriate to be done, as fully for all intents and purposes as he might or could do in person, hereby approving, ratifying and confirming all that such agent, proxy and attorney-in-fact or any of his substitutes may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/S/     W. THOMAS AMICK         W. Thomas Amick	Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)	May 9, 2008
/S/     DAVID P. CARBERRY         David P. Carberry	Chief Financial Officer (Principal Accounting and Financial Officer)	May 9, 2008
/S/     JOEL R. KIMBROUGH         Joel R. Kimbrough	Director	May 9, 2008
/S/     MARTIN J. MURPHY         Martin J. Murphy	Director	May 9, 2008
/S/     B. JEFFERSON CLARK         B. Jefferson Clark	Director	May 9, 2008
/S/     GARHENG KONG         Garheng Kong	Director	May 9, 2008

II-6

EX-3.1

Exhibit 3.1

FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

ALDAGEN, INC.

f/k/a STEMCO BIOMEDICAL, INC.

Pursuant to Section 245 of the General Corporation Law of Delaware, the undersigned corporation hereby submits the following for the purpose of amending and restating its Certificate of Incorporation, and does hereby certify as follows.

1. The name of the corporation is Aldagen, Inc. The corporation’s original Certificate of Incorporation was filed on March 3, 2000, under the name StemCo Biomedical, Inc.

2. The name of the corporation was changed to Aldagen, Inc. pursuant to the Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation filed on November 18, 2005.

3. The Fifth Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware by the directors and stockholders of Aldagen, Inc.

4. The corporation’s Certificate of Incorporation is hereby amended and restated in its entirety, as set forth in the text of the Fifth Amended and Restated Certificate of Incorporation attached hereto as Exhibit A, and will be effective upon filing.

IN WITNESS WHEREOF, said Aldagen, Inc. has caused this Fifth Amended and Restated Certificate of Incorporation to be signed by Edward L. Field, its President and Chief Operating Officer, and attested by Fred D. Hutchison, its Assistant Secretary, this 7th day of September, 2007.

ALDAGEN, INC.
By:	/s/ Edward L. Field
Name:	Edward L. Field
Title:	President

ATTEST:
By:	/s/ Fred D. Hutchison
Name:	Fred D. Hutchison
Title:	Assistant Secretary

EXHIBIT A

FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

ALDAGEN, INC.

ARTICLE I

The name of the corporation shall be “Aldagen, Inc.” (the “Corporation”).

ARTICLE II

The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, New Castle County, Delaware 19808 and the name of the registered agent is Corporation Service Company.

ARTICLE III

The purpose for which the Corporation is organized is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

ARTICLE IV

The total number of shares of stock which the Corporation shall have the authority to issue is One Hundred Twenty-Six Million Eight Hundred Fifty-Two Thousand Eight Hundred Forty-Three (126,852,843) shares, of which Eighty Million (80,000,000) shares shall be, common stock, $0.001 par value per share (“Common Stock”), and Forty-Six Million Eight Hundred Fifty-Two Thousand Eight Hundred Forty-Three (46,852,843) shares shall be preferred stock, $0.001 par value per share (“Preferred Stock”). For purposes hereof, Preferred Stock shall mean and include only shares of Series A Preferred Stock (as hereinafter defined), shares of Series B Preferred Stock (as hereinafter defined), shares of Series C Preferred Stock (as hereinafter defined) and shares of Series C-1 Preferred Stock (as hereinafter defined). Notwithstanding the provisions of Section 242(b)(2) of the Delaware General Corporation Law and subject to Section B.4(c) below, the number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares then outstanding or reserved upon conversion) by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock and Preferred Stock of the Corporation, voting together as a single class, with each such share being entitled to such number of votes per share as is provided in Sections A.2 and B.4(a).

The following is a statement of the designations, preferences, voting powers (or lack thereof), relative, participating, optional or other special rights and privileges, and the qualifications, limitations and restrictions thereof in respect of each class of capital stock of the Corporation.

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A. COMMON STOCK.

1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series.

2. Voting. The holders of the Common Stock are entitled to one vote for each share held at all meetings of shareholders (and written actions in lieu of meetings). There shall be no cumulative voting.

3. Dividends. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock.

4. Liquidation. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its shareholders, subject to any preferential rights of any then outstanding Preferred Stock.

B. PREFERRED STOCK.

Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein. The Board of Directors of the Corporation is expressly authorized to provide for the issue of all or any unissued shares of Preferred Stock, to fix the number of such shares and to determine the series of Preferred Stock, such voting powers, full or limited, or no voting powers, and such designations, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof on the terms stated or expressed herein, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares and as may be permitted by the Delaware General Corporation Law and subject to Section B.4(c). Any shares of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided.

The Preferred Stock of the Corporation shall consist of (i) Six Million Forty Thousand (6,040,000) shares of Series A Preferred Stock, $0.001 par value per share (“Series A Preferred Stock”), (ii) Eight Million Nine Hundred Twenty-Three Thousand Seven Hundred Eighty-Five (8,923,785) shares of Series B Preferred Stock, $0.001 par value per share (“Series B Preferred Stock”), (iii) Twenty-Six Million Sixty-Nine Thousand Five Hundred Eighty-Four (26,069,584) shares of Series C Preferred Stock, $0.001 par value per share (“Series C Preferred Stock”), and (iv) Five Million Eight Hundred Nineteen Thousand Four Hundred Seventy-Four (5,819,474) shares of Series C-l Preferred Stock, $0.001 par value per share (“Series C-1 Preferred Stock”), the powers, preferences, rights, privileges and restrictions, qualifications and limitations of each of which are set forth below.

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1. Dividends

(a) The holders of the Series C-l Preferred Stock shall be entitled, when, as and if declared by the Board of Directors, consistent with Delaware law, on each outstanding share of Series C-l Preferred Stock, to receive cash dividends and distributions out of funds of the Corporation legally available for that purpose, at an annual rate of eight percent (8%) of the Original Issue Price of the Series C-l Preferred. Dividends on the shares of Series C-l Preferred Stock shall accrue annually beginning as of the date of issuance thereof whether or not earned or declared and shall be cumulative (the “Series C-1 Accrued Dividends”). Holders of Series C-l Preferred Stock shall be entitled to receive the Series C-l Accrued Dividends (A) when and if declared by the Board of Directors, but only out of funds that are legally available therefore, (B) upon the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, pursuant to Section 2(c) below, (C) upon a conversion of the Series C-l Preferred Stock into Common Stock pursuant to Section 5(b), subject to the exceptions set forth therein, and (D) upon the redemption of the Series C-l Preferred Stock pursuant to Section 3 below. The Corporation shall not declare, pay or set aside any dividends on any other shares of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of the Series C-l Preferred Stock then outstanding shall first receive a dividend on each outstanding share of Series C-l Preferred Stock in an amount at least equal to (i) the amount of the aggregate Series C-l Accrued Dividends then accrued on such share of Series C-l Preferred Stock and not previously paid plus (ii) the dividend payable under Section l(c) below. The Original Issue Price of the Series C-l Preferred Stock shall be $1.0411 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). Upon the Corporation’s default in redemption of Preferred Stock as set forth in Section B.3 below and in addition to any other rights of holders of Series C-l Preferred Stock, the annual dividend rate shall increase to twelve percent (12%) per annum as long as such default continues. In the event the Board of Directors declares the payment of a dividend on the Series C-l Preferred Stock in an amount less than the total amount of-Series C-l Accrued Dividends accrued through the date of such payment, the holders of Series C-l Preferred Stock shall ratably receive such amounts that would be payable in respect of the shares held by them upon such payment if all Series C-l Accrued Dividends payable with respect to said shares were paid in full until the Series C-l Accrued Dividends for the holders of Series C-l Preferred Stock are satisfied in full or the funds available for payments are depleted.

(b) The holders of the Series C Preferred Stock shall be entitled, when, as and if declared by the Board of Directors, consistent with Delaware law, on each outstanding share of Series C Preferred Stock, to receive cash dividends and distributions out of funds of the Corporation legally available for that purpose, at an annual rate of eight percent (8%) of the Original Issue Price of the Series C Preferred. Dividends on the shares of Series C Preferred Stock shall accrue annually beginning as of the date of issuance thereof whether or not earned or declared and shall be cumulative (the “Series C Accrued Dividends” and collectively with the Series C-l Accrued Dividends, the “Accrued Dividends”). Holders of Series C Preferred Stock shall be entitled to receive the Series C Accrued Dividends (A) when and if declared by the Board of Directors, but only out of funds that are legally available therefore, (B) upon the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, pursuant to Section 2(c) below, (C) upon a conversion of the Series C Preferred Stock into Common Stock pursuant to Section 5(b), subject to the exceptions set forth therein, and (D) upon the redemption of the Series C Preferred Stock pursuant to Section 3 below. The Corporation shall not declare, pay or set aside any dividends on the Series B Preferred Stock, the

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Series A Preferred Stock or the Common Stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless the holders of the Series C Preferred Stock then outstanding shall first receive a dividend on each outstanding share of Series C Preferred Stock in an amount at least equal to (i) the amount of the aggregate Series C Accrued Dividends then accrued on such share of Series C Preferred Stock and not previously paid plus (ii) the dividend payable under Section l(b) below. The Original Issue Price of the Series C Preferred Stock shall be $0.7278 per share (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). Upon the Corporation’s default in redemption of Preferred Stock as set forth in Section B.3 below and in addition to any other rights of holders of Series C Preferred Stock, the annual dividend rate shall increase to twelve percent (12%) per annum as long as such default continues. In the event the Board of Directors declares the payment of a dividend on the Series C Preferred Stock in an amount less than the total amount of Series C Accrued Dividends accrued through the date of such payment, the holders of Series C Preferred Stock shall ratably receive such amounts that would be payable in respect of the shares held by them upon such payment if all Series C Accrued Dividends payable with respect to said shares were paid in full until the Series C Accrued Dividends for the holders of Series C Preferred Stock are satisfied in full or the funds available for payments are depleted.

(c) With respect to the declaration, payment and setting apart of dividends on shares of Common Stock, other than in Common Stock, whether of cash, securities of other persons, evidences of indebtedness, assets, Convertible Securities (as defined below), Stock Purchase Rights (as defined below) or rights to acquire any of the above, the holders of Preferred Stock shall be entitled to participate with the Common Stock and receive, before or at the same time as any dividends shall be declared and paid upon or set aside for the Common Stock, the same dividends or distributions, on an as-converted basis, as are to be distributed to the holders of the Common Stock. Each share of Preferred Stock shall be treated for purposes of such participation as being equal to the number of shares of Common Stock (which may be a fraction) into which such share could then be converted. The rights of the holders of Preferred Stock with respect to dividends of Common Stock are set forth in Section 5 hereof.

(d) Notwithstanding the foregoing, the holders of the Series A Preferred Stock and Series B Preferred Stock (the “Junior Preferred”) hereby waive rights to all dividends that have accrued with respect to such stock prior to December 15, 2006. Except as set provided in Section B.l(c), the Junior Preferred shall not be entitled to receive any dividend out of the funds of the Corporation in any event.

2. Preference on Liquidation

(a) Upon the occurrence of any Liquidating Event (as defined below), each holder of Preferred Stock then outstanding shall be paid, out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made in respect to the Corporation’s Common Stock, an amount equal to the respective Original Issue Price (the “Original Price”) per share of Preferred Stock then held by it, plus any declared but unpaid dividends pursuant to Section B.l(c) for each share of Preferred Stock and, in the case of the Series C Preferred Stock and the Series C-l Preferred Stock, any Accrued Dividends that are then unpaid for each share of Series C Preferred Stock and Series C-l Preferred Stock then held

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by such stockholder (respectively, the “Preference Amount”), subject to any stock dividend, stock split, combination or other similar recapitalization affecting such shares. The Original Issue Price of the Junior Preferred shall be One Dollar ($1.00) (as adjusted for any stock dividends, combinations, splits, recapitalization and the like with regard to such shares). The holders of the Series C-l Preferred Stock shall ratably receive their respective Preference Amount prior to and in preference to the holders of the Series C Preferred Stock and no distributions may be made to any holders of the Series C Preferred Stock pursuant to this Section 2(a) unless and until the Preference Amount for the Series C-l Preferred Stock has been paid in full. The holders of Series C Preferred Stock shall ratably receive their respective Preference Amount prior to and in preference to the Junior Preferred and no distributions may be made to any holders of Junior Preferred pursuant to this Section 2(a) unless and until the Preference Amount for the Series C Preferred Stock has been paid in full. Notwithstanding the foregoing, if the amount to be distributed to the Corporation’s stockholders upon such Liquidating Event, assuming full exercise or conversion of all outstanding securities exercisable for or convertible into Common Stock, would equal or exceed ten dollars ($10.00) per share of Preferred Stock for all series of Preferred Stock, subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares (“Qualifying Liquidation Amount”), then the holders of Preferred Stock shall not be entitled to receive the Preference Amount and shall instead receive only their ratable share of the Corporation’s assets pursuant to Subsection 2(b) below as if such shares of Preferred Stock had been converted voluntarily into Common Stock at the then applicable conversion rate immediately prior to such Liquidating Event.

(b) Written notice of any such Liquidating Event stating a payment date, the place where such payment shall be made, the amount of each payment in liquidation and the amount of dividends to be paid shall be given by first class mail, postage prepaid, not less than thirty (30) days prior to the payment date stated therein, to each holder of record of the Preferred Stock at such holder’s address as shown in the records of the Corporation, provided that any holder of Preferred Stock may convert its shares of Preferred Stock to Common Stock during such period at any time prior to the payment date stated in such notice. If upon the occurrence of a Liquidating Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of the Series C-l Preferred Stock the full Preference Amount to which they shall be entitled, the holders of the Series C-l Preferred Stock shall share ratably in any distribution of assets (so that each holder of Series C-l Preferred Stock receives the same percentage of the applicable Preference Amount per share). After payment has been made to the holders of the Series C-l Preferred Stock of the full Preference Amount to which they shall be entitled as aforesaid, holders of the Series C Preferred Stock shall be entitled to receive the Preference Amount on such shares of Series C Preferred Stock. If the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of the Series C Preferred Stock the full Preference Amount to which they shall be entitled, the holders of the Series C Preferred Stock shall share ratably in any distribution of assets (so that each holder of Series C Preferred Stock receives the same percentage of the applicable Preference Amount per share). After payment has been made to the holders of the Series C Preferred Stock and Series C-l Preferred Stock of the full Preference Amount to which they shall be entitled as aforesaid, holders of the Junior Preferred shall be entitled to receive the Preference Amount on such shares of Junior Preferred. If upon the occurrence of a Liquidating Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay

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the holders of the Junior Preferred the full Preference Amount to which they shall be entitled, the holders of the Junior Preferred shall share ratably in any distribution of assets (so that each holder of Junior Preferred receives the same percentage of the applicable Preference Amount per share). After payment has been made to the holders of the Preferred Stock of the full Preference Amount to which they shall be entitled as aforesaid, any remaining assets shall be distributed ratably among the holders of the Corporation’s Common Stock and Preferred Stock (with each share of Preferred Stock being deemed, for such purpose, to be equal to the number of shares of Common Stock (including fractions of a share) into which such share of Preferred Stock is convertible immediately prior to such Liquidating Event).

(c) A “Liquidating Event” shall mean (i) any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, or (ii) a sale, transfer, exclusive license or other disposition of all or substantially all the assets of the Corporation to, or a merger or consolidation into, an entity, or sale of voting control; provided that such surviving entity, immediately after the transaction, is not controlled, directly or indirectly, by the stockholders of the Corporation. For purposes of this definition, “control” shall mean ownership of voting securities that entitle the holders to elect more than 50% of the members of the Board of Directors. Upon the written consent of both (i) Intersouth Partners VI, L.P. or its transferee and at least two of either Harbert Venture Partners, L.L.C., or its transferee, Tullis-Dickerson Capital Focus III, L.P., or its transferee, or CNF Investments II, LLC, or its transferee (collectively, the “Approval Threshold”) and (ii) the holders of a majority of the shares of Junior Preferred, in each case given before the effective date of a merger or consolidation that would otherwise be a Liquidating Event as defined herein, then such merger or consolidation shall not be deemed a Liquidating Event and the provisions of Subsections 5(g) and 6(b) shall apply. Upon the occurrence of any Liquidating Event that would involve the distribution of assets other than cash with respect to the outstanding shares of Preferred Stock, the value of such non-cash assets shall be determined in good faith by the Board of Directors. “Purchase Agreement” shall mean that certain Series C Preferred Stock Purchase Agreement dated on or about December 14, 2006, as amended, made by and between the Corporation and the investors named therein.

3. Redemption

(a) The Corporation shall, at the option of the holders representing the Approval Threshold (the “Electing Series C Holders”) at any time after December 13, 2011 exercised by written notice provided by such Electing Series C Holders to the Corporation at least one hundred twenty (120) days prior to such requested redemption (a “Series C Redemption Election”) and subject to the provisions of this Section 3, redeem the outstanding shares of Series C Preferred Stock and Series C-l Preferred Stock by paying cash to the holders thereof in respect to each such share the Redemption Price (defined below) applicable to the Series C Preferred Stock and the Series C-l Preferred Stock, in three (3) installments (each, a “Series C Redemption Date”). The relative amounts of the three (3) installments shall be as described in the Series C Redemption Election, provided that (1) each such installment shall comprise at least twenty percent (20%), but no more than fifty percent (50%), of the total, aggregate amount being paid to holders of Series C Preferred Stock and Series C-l Preferred Stock with respect to such redemption and (2) the agreed upon relative amounts of such installments shall apply equally to all holders of Series C Preferred Stock and Series C-l Preferred Stock. After the redemption rights of the holders of the Series C Preferred Stock and

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Series C-l Preferred Stock have been satisfied in full, the holders of Junior Preferred have the right to redeem the Junior Preferred as set forth below. The Corporation shall, at the option of the holders of a majority of the then outstanding Junior Preferred (the “Electing Junior Holders”) at any time after December 13, 2012 exercised by written notice provided by such Electing Junior Holders to the Corporation at least one hundred twenty (120) days prior to such requested redemption (a “Junior Redemption Election”) and subject to the provisions of this Section 3, redeem the outstanding shares of Junior Preferred by paying cash to the holders thereof in respect to each such share the Redemption Price (defined below) applicable to the Junior Preferred, in three (3) installments (each, a “Junior Redemption Date”). The relative amounts of the three (3) installments shall be (i) as agreed upon by two-thirds (66-2/3%) of the Electing Junior Holders and (ii) described in the Junior Redemption Election, provided that (1) each such installment shall comprise at least twenty percent (20%), but no more than fifty percent (50%), of the total, aggregate amount being paid to holders of Junior Preferred with respect to such redemption and (2) the agreed upon relative amounts of such installments shall apply equally to all holders of Junior Preferred. The first Series C Redemption Date or Junior Redemption Date (generically, the “Redemption Date”) shall be within one hundred twenty (120) days of the date of the Series C Redemption Election or the Junior Redemption Election (generically, the “Redemption Election”), as the case may be, and the other applicable Redemption Dates shall be on the first and second anniversary dates of the first applicable Redemption Date. The price payable for each redeemed share of Preferred Stock (the “Redemption Price”) shall be equal to (1) in the case of the Junior Preferred, the Original Price plus any declared but unpaid dividends pursuant to Section B.l(c), and (2) in the case of the Series C Preferred Stock and Series C-l Preferred Stock, the Original Issue Price plus any declared but unpaid dividends pursuant to Section B.l(c) and any Accrued Dividends that have not been paid.

(b) Within ten (10) days of receipt by the Corporation of a Redemption Election, the Corporation shall give written notice of such Redemption Election to all holders of record of applicable Preferred Stock (the “Redemption Notice”). Each such holder shall be considered an “Electing Holder” for purposes of this Section 3 whose shares shall be redeemed on the same terms and at the same time as shares covered by the initial notice of Redemption Election. At least thirty (30) days prior to the Redemption Date, written notice shall be mailed, postage prepaid, to each Electing Holder at its post office address last shown on the records of the Corporation, specifying the Redemption Date, the Redemption Price, the place at which payment may be obtained and the date on which such holder’s Conversion Rights (as hereinafter defined) as to such shares terminate and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his certificate or certificates representing the shares to be redeemed. On or after each Redemption Date, the Redemption Price of the shares to be redeemed on such Redemption Date shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. Any remaining shares held by the Electing Holders not yet required to be redeemed pursuant to this Section 3(c) shall continue to be outstanding for all purposes. From and after each Redemption Date, unless there shall have been a default in payment of the Redemption Price payable on such Redemption Date, all dividends on the applicable Preferred Stock designated in the Redemption Notice for redemption on such Redemption Date shall cease to accrue as applicable to the shares of Series C Preferred Stock and Series C-l Preferred Stock, all rights of the holders of such shares as holders of the applicable Preferred Stock of the

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Corporation (except the right to receive the Redemption Price upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.

(c) If no funds or insufficient funds are legally available at the time of any Redemption Date to redeem all of the shares of applicable Preferred Stock then due to be redeemed, then the Corporation shall redeem shares of Series C Preferred Stock and Series C-l Preferred Stock in preference to all other Junior Preferred and then the Corporation shall redeem shares of applicable Preferred Stock from holders thereof pro rata based upon the aggregate Redemption Price of the shares to be redeemed. Shares of applicable Preferred Stock that are subject to redemption but that have not been redeemed and the Redemption Price paid or set aside with respect thereto due to insufficient legally available funds shall continue to be outstanding and entitled to the dividend, conversion and other rights, preferences, privileges and restrictions of such applicable Preferred Stock until such shares have been redeemed and the Redemption Price has been paid or set aside thereto. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of applicable Preferred Stock, such funds will immediately be used to redeem the balance of the shares that the Corporation has become obligated to redeem on any Redemption Date but that it has not redeemed. In the event the Corporation has no funds or insufficient funds that are legally available at the time of any Series C Redemption Date, which default has occurred for a period of fifteen (15) days after written notice to the Corporation of such default by holders representing the Approval Threshold, then the size of the Board shall be increased to seven (7) and the holders of Series C Preferred Stock and the Series C-l Preferred Stock shall be entitled to appoint the two newly-created board positions such that the holders of the Series C Preferred Stock and Series C-l Preferred Stock, voting as a single class, shall be entitled to elect a majority of the directors to the Board of Directors for so long as the Corporation’s default shall continue. Each of (a) Intersouth Partners VI, L.P. and Harbert Venture Partners, L.L.C., or their affiliates, and (b) Tullis-Dickerson Capital Focus III, L.P. and CNF Investments II, LLC or their affiliates, shall be entitled to appoint one member to fill the newly-created board positions.

4. Voting

(a) Voting Rights. Except as otherwise expressly provided herein or as required by law, the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock could then be converted and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class) and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares of Common Stock into which shares of Preferred Stock held by each holder could be converted) shall be reduced to the nearest whole number. Notwithstanding the foregoing, the holders of Preferred Stock shall not vote as a single class with the Common Stock with respect to any matters covered by Subsections 4(b) and 4(c). Except as required by law, the holders of the Series C Preferred Stock and the Series C-l Preferred Stock shall vote together as a single class.

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(b) Junior Preferred Protective Provisions. In addition to any other rights provided by law or as set forth in this Certificate of Incorporation, so long as One Million Eight Hundred Thousand (1,800,000) shares of Junior Preferred shall be outstanding in the aggregate, the Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of at least two-thirds (66-2/3%) of the then-outstanding shares of Junior Preferred, consenting or voting together as a single class:

(i) only to the extent that holders constituting the Approval Threshold have not previously approved action pursuant to clause (iii) below, take any action that alters or changes the powers, rights, preferences or privileges of any Junior Preferred;

(ii) take any action that increases or decreases the total number of authorized shares of any Junior Preferred;

(iii) only to the extent that holders constituting the Approval Threshold have not previously approved such transaction and excluding issuances of any shares of Series C Preferred Stock or Series C-l Preferred Stock pursuant to the Purchase Agreement, authorize or issue any new or existing class or classes or series of capital stock having any preference or priority on parity with or senior to any Junior Preferred as to dividends, liquidation, redemption or assets, or authorize or issue shares of stock of any class or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock of the Corporation haying any preference or priority on parity with or senior to the Series A Preferred Stock and/or Series B Preferred Stock as to dividends, liquidation, redemption or assets;

(iv) reclassify any Common Stock into shares having any preference or priority senior to or on a parity with any such preference or priority of the Series A Preferred Stock and/or Series B Preferred Stock as to dividends, liquidation, redemption, conversion, registration rights, voting, or assets;

(v) only to the extent that holders constituting the Approval Threshold have not previously approved action pursuant to clause (iii) above, amend or repeal any provision of, or add any provision to, the Corporation’s certificate of incorporation or bylaws that adversely affects the holders of the Series A Preferred Stock and/or Series B Preferred Stock;

(vi) pay or declare any dividend or distribution on any shares of its capital stock for holders of Common Stock, or apply any of its assets to the redemption, retirement, purchase or acquisition, directly or indirectly, through subsidiaries or otherwise, of any shares of its capital stock, except as contemplated by Section B.3 and except for repurchases of shares from former employees upon termination of employment pursuant to the terms of such former employees’ stock purchase or restricted stock agreements approved by the Board of Directors providing for such repurchases at the original issuance prices for such shares;

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(vii) only to the extent that holders constituting the Approval Threshold have not previously approved such transaction, merge, consolidate, or exchange shares with any other entity;

(viii) only to the extent that holders constituting the Approval Threshold have not previously approved such transaction, sell, lease, convey, exchange, transfer or otherwise dispose of all or substantially all of the Corporation’s assets, or engage in any transaction or other action which results in the holders of the Corporation’s capital stock prior to the transaction owning less than fifty percent (50%) of the voting power of the surviving entity’s capital stock after the transaction;

(ix) voluntarily or involuntarily liquidate, dissolve or wind up the Corporation or its business; or

(x) only to the extent that holders constituting the Approval Threshold have not previously approved such transaction, authorized any public offering of capital stock or other securities, provided that no such consent shall be required for an underwritten public offering with proceeds to the Corporation of more than Thirty Million Dollars ($30,000,000) of Corporation stock (before deduction for underwriters’ commission and expenses) with a price per share in such offering not less than five times the Series C Preferred Stock Original Price (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) (a “Qualified IPO”).

(c) Series C Preferred Stock and Series C-l Preferred Stock Protective Provisions. In addition to any other rights provided by law or as set forth in this Certificate of Incorporation, so long as One Million (1,000,000) shares of Series C Preferred Stock and Series C-l Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with regard to such shares) shall be outstanding, the Corporation shall not, without first obtaining the affirmative vote or written consent of the holders representing the Approval Threshold (whether by merger, reclassification or otherwise):

(i) take any action that alters or changes the powers, rights, preferences or privileges of the Series C Preferred Stock or the Series C-l Preferred Stock;

(ii) take any action that increases or decreases the total number of authorized shares of the Common Stock or Preferred Stock;

(iii) authorize or issue any new or existing class or classes or series of capital stock having any preference or priority on parity with or senior to the Series C Preferred Stock or the Series C-l Preferred Stock as to dividends, liquidation, redemption or assets, or authorize or issue shares of stock of any class or any bonds, debentures, notes or other obligations convertible into or exchangeable for, or having option rights to purchase, any shares of stock of the

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Corporation having any preference or priority on parity with or senior to the Series C Preferred Stock or the Series C-l Preferred Stock as to dividends, liquidation, redemption or assets;

(iv) reclassify any Common Stock into shares having any preference or priority senior to or on parity with any such preference or priority of the Series C Preferred Stock or the Series C-l Preferred Stock as to dividends, liquidation, redemption, conversion, registration rights, voting, or assets;

(v) pay or declare any dividend or distribution on any shares of its capital stock (other than the Series C Preferred Stock and the Series C-l Preferred Stock), or apply any of its assets to the redemption, retirement, purchase or acquisition, directly or indirectly, through subsidiaries or otherwise, of any shares of its capital stock, except as contemplated by Section B.3 and except for repurchases of shares from former employees upon termination of employment pursuant to the terms of such former employees’ stock purchase or restricted stock agreements approved by the Board of Directors providing for such repurchases at the original issuance prices for such shares;

(vi) merge, consolidate, or exchange shares with any other entity which results in the holders of the Corporation’s capital stock prior to the transaction owning less than fifty percent (50%) of the voting power of the surviving entity’s capital stock after the transaction;

(vii) sell, lease, license, convey, exchange, transfer or otherwise dispose of all or substantially all of the Corporation’s assets, or engage in any disposition of all or substantially all of the Corporation’s assets;

(viii) amend, alter, or repeal any provision of the Amended and Restated Certificate of Incorporation, as amended, or the Bylaws, as amended (including any filing of the Certificate of Designation), that alters or changes the voting or other powers, preferences, or other special rights, privileges or restrictions of the Series C Preferred Stock and the Series C-l Preferred Stock so as to affect them adversely;

(ix) increases or decreases the authorized size of the Corporation’s Board of Directors;

(x) voluntarily or involuntarily liquidate, dissolve or wind up the Corporation or its business; or

(xi) authorizes any Qualified IPO.

(d) In the event that any change, alteration, or repeal of the terms of the Series C Preferred Stock or the Series C-l Preferred Stock would materially and adversely impact a holder or holders of such Series C Preferred Stock or Series C-l Preferred Stock in a manner differently than the other holders of such Series C Preferred Stock or Series C-l Preferred Stock, such action shall require the consent of such materially and adversely impacted holder or holders of such Series C Preferred Stock or Series C-l Preferred Stock.

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5. Conversion Rights

Except as otherwise provided pursuant to Section 3, each share of Preferred Stock shall be convertible at the option of the holder thereof, at any time after the issuance of such share, into fully paid and nonassessable shares of Common Stock of the Corporation. The number of shares of Common Stock into which each share of the Preferred Stock may be converted shall be determined by dividing the respective Original Price by the respective Conversion Price (determined as hereinafter provided) in effect at the time of the conversion.

(a) Before any adjustment is made pursuant to Section 6, for each series of Preferred Stock the Conversion Price shall be equal to the respective Original Price.

(b) The holder of any shares of Preferred Stock may exercise the conversion rights as to such shares or any part thereof by delivering to the Corporation during regular business hours, at the office of any transfer agent of the Corporation for the Preferred Stock, or at the principal office of the Corporation or at such other place as may be designated by the Corporation, the certificate or certificates for the shares to be converted, duly endorsed for transfer to the Corporation or accompanied by a written instrument or instruments of transfer (if required by it), accompanied by written notice stating that the holder elects to convert all or a number of such shares represented by the certificate or certificates. Such notice shall also state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. Conversion shall be deemed to have been effected on the date when such delivery is made, and such date is referred to herein as the “Conversion Date.” As promptly as practicable thereafter the Corporation shall issue and deliver to such holder, at such office or other place designated by the Corporation, a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled and a check for cash with respect to any fractional interest in a share of Common Stock as provided in Subsection 5(c). The holder shall be deemed to have become a stockholder of record on the applicable Conversion Date. Upon conversion of only a portion of the number of shares of Preferred Stock represented by a certificate surrendered for conversion, the Corporation shall issue and deliver to the holder of the certificate so surrendered for conversion, at the expense of the Corporation, a new certificate covering the number of shares of Preferred Stock representing the unconverted portion of the certificate so surrendered.

(c) No fractional shares of Common Stock or scrip shall be issued upon conversion of shares of Preferred Stock. If more than one share of Preferred Stock shall be surrendered for conversion at any one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Preferred Stock so surrendered. Instead of any fractional shares of Common Stock that would otherwise be issuable upon conversion of any shares of Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fractional interest equal to the fair market value of such fractional interest as determined in good faith by the Corporation’s Board of Directors.

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(d) The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Preferred Stock pursuant hereto. The Corporation shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the Preferred Stock so converted was registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. Additionally, the Corporation shall in no event be required to pay any personal income tax that may accrue to a holder of Preferred Stock upon conversion of Preferred Stock to shares of Common Stock.

(e) The Corporation shall at all times reserve and keep available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all Preferred Stock from time to time outstanding. The Corporation shall from time to time use its best effort to obtain necessary director and stockholder approvals, in accordance with the laws of the State of Delaware, to increase the authorized amount of its Common Stock if at any time the authorized amount of its Common Stock remaining unissued shall not be sufficient to permit the conversion of all of the shares of Preferred Stock at the time outstanding, and shall take all such actions as are necessary to increase such authorized amount of Common Stock upon obtaining such approvals. Before taking any action that would cause an adjustment reducing the applicable Conversion Price below the then-par value of the shares of Common Stock issuable upon the conversion of Preferred Stock, the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such applicable adjusted Conversion Price.

(f) If the Common Stock issuable upon the conversion of Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend provided for in Subsection 6(a)), then, and in each such event, the holder of each share of Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change.

(g) In case of any consolidation or merger of the Corporation with or into another corporation or the sale of all or substantially all of the assets of the Corporation to another corporation (other than a consolidation, merger or sale treated as a Liquidating Event pursuant to Subsection 2(c) above), each share of Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock or other securities or property that a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of Preferred Stock would have been entitled upon such consolidation, merger or sale; and in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions of Sections 5 and 6 with respect to the rights and interest thereafter of the holders of Preferred Stock, to the end that the provisions set forth in Sections 5 and 6 shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of Preferred Stock.

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(h) If any shares of Common Stock to be reserved for the purpose of conversion of shares of Preferred Stock require registration or listing with, or approval of, any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise, before such shares may be validly issued or delivered upon conversion, the Corporation will in good faith and as expeditiously as possible endeavor to secure such registration, listing or approval, as the case may be.

(i) All shares of Common Stock that may be issued upon conversion of the shares of Preferred Stock will, upon issuance by the Corporation, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issuance thereof.

(j) In case any shares of Preferred Stock shall be converted pursuant to Sections 5 or 6 hereof, the shares so converted shall resume the status of authorized but unissued shares of Preferred Stock.

(k) The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all of the provisions of Sections 5 and 6 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Preferred Stock against impairment, provided that the Corporation may amend its Certificate of Incorporation or enter into any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action upon approval as required by Sections 4(b) and 4(c), if reasonable provisions have been made with respect to the rights of the Preferred Stock.

6. Adjustment of Conversion Price

The Conversion Price from time to time in effect shall be subject to adjustment from time to time as follows.

(a) Stock Splits, Dividends and Combinations. In case the Corporation shall at any time subdivide the outstanding shares of Common Stock or shall issue a dividend in Common Stock on its outstanding Common Stock, in each case without a corresponding adjustment to any series of Preferred Stock, the Conversion Price for such series of Preferred Stock in effect immediately prior to such subdivision or the issuance of such dividend shall be proportionately decreased, and in case the Corporation shall at any time combine the outstanding shares of Common Stock into a lesser number of shares of Common Stock, without a corresponding adjustment to any series of Preferred Stock, the Conversion Price for such series of Preferred Stock in effect immediately prior to such combination shall be proportionately increased, concurrently with the effectiveness of such subdivision, dividend or combination, as the case may be.

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(b) Notice of Noncash Dividends Stock Purchase Rights, Capital Reorganizations and Dissolutions. In case:

(a) the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or any other distribution, payable otherwise than in cash; or

(b) the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to subscribe for or purchase any shares of stock of any class or to receive any other rights; or

(c) of any capital reorganization of the Corporation, reclassification of the capital stock of the Corporation (other than a subdivision or combination of its outstanding shares of Common Stock), consolidation or merger of the Corporation with or into another Corporation that is not a Liquidating Event or conveyance of all or substantially all of the assets of the Corporation to another Corporation that is not a Liquidating Event;

then, and in any such case, the Corporation shall cause to be mailed to the transfer agent for the Preferred Stock and to the holders of record of the outstanding Preferred Stock, at least 20 days prior to the date hereinafter specified, a notice stating the date on which (i) a record is to be taken for the purpose of such dividend, distribution or rights or (ii) such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up.

(c) Issuances at Less Than the Conversion Price. Upon the issuance or sale by the Corporation of:

(a) Common Stock for a consideration per share less than the respective Conversion Price in effect immediately prior to the time of such issue or sale; or

(b) any Stock Purchase Rights where the consideration per share for which shares of Common Stock may at any time thereafter be issuable upon exercise thereof (or, in the case of Stock Purchase Rights exercisable for the purchase of Convertible Securities, upon the subsequent conversion or exchange of such Convertible Securities) shall be less than the respective Conversion Price in effect immediately prior to the time of the issue or sale of such Stock Purchase Rights; or

(c) any Convertible Securities where the consideration per share for which shares of Common Stock may at any time thereafter be issuable pursuant to the terms of such Convertible Securities shall be less than the respective Conversion Price in effect immediately prior to the time of the issue or sale of such Convertible Securities;

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other than an issuance of Common Stock, Stock Purchase Rights or Convertible Securities pursuant to Subsections 6(a) or 6(d)(6) hereof (any such issuance shall be referred to hereinafter as a “Dilutive Issuance”), then forthwith upon such issue or sale, the Conversion Price for such series of Preferred Stock shall be reduced to a price (calculated to the nearest cent) determined by the following formula:

CP1 = CP*	N+C
	N + AS

where:

CP1	=	the Conversion Price as so adjusted;
CP	=	the former Conversion Price;
N	=	the number of shares of Common Stock and Preferred Stock (on an as-converted basis) outstanding immediately prior to such issuance;
C	=	the number of shares of Common Stock that the aggregate consideration received or deemed to be received by the Corporation for the total number of additional securities so issued or deemed to be issued would purchase if the purchase price per share were equal to the then-existing Conversion Price;
AS	=	the number of shares of Common Stock so issued or deemed to be issued.

Notwithstanding the foregoing, the Conversion Price shall not be reduced at such time if such reduction would be an amount less than $.01, but any such amount shall be carried forward and deduction with respect thereto made at the time of and together with any subsequent reduction that, together with such amount and any other amount or amounts so carried forward, shall aggregate $.01 or more.

In addition, notwithstanding the foregoing, any adjustments to the conversion price of the Junior Preferred that is caused by the issuance of the Series C Preferred Stock and Series C-l Preferred Stock shall be calculated only on the basis of the shares of Series C Preferred Stock and Series C-l Preferred Stock actually issued by the Corporation in accordance with the Purchase Agreement.

(d) For purposes of this Section 6, the following provisions will be applicable:

(1) “Convertible Securities” shall mean evidences of indebtedness, shares of stock (including, without limitation, the Preferred Stock) or other securities that are convertible into or exchangeable for, with or without payment of additional consideration, shares of Common Stock.

(2) “Stock Purchase Rights” shall mean any warrants, options or other rights to subscribe for, purchase or otherwise acquire any shares of Common Stock or any Convertible Securities.

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(3) Convertible Securities and Stock Purchase Rights shall be deemed outstanding and issued or sold at the time of such issue or sale.

(4) Determination of Consideration. The “consideration actually received” by the Corporation for the issuance, sale, grant or assumption of shares of Common Stock, Stock Purchase Rights or Convertible Securities, irrespective of the accounting treatment of such consideration, shall be valued as follows:

i) Cash Payment. In the case of cash, the net amount received by the Corporation after deduction of any accrued interest or dividends and before deducting any expenses paid or incurred and any underwriting commissions or concessions paid or allowed by the Corporation in connection with such issue or sale;

ii) Noncash Payment. In the case of consideration other than cash, the value of such consideration, including the value of any loan made in connection with the issuance of Stock Purchase Rights or Convertible Securities, which shall not include the value of any Convertible Securities of the Corporation being converted or exchanged, as determined by the Board of Directors in good faith, after deducting any accrued interest or dividends; and

iii) Stock Purchase Rights and Convertible Securities. The total consideration, if any, received by the Corporation as consideration for the issuance of the Stock Purchase Rights or the Convertible Securities, as the case may be, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the exercise of such Stock Purchase Rights or upon the conversion or exchange of such Convertible Securities, as the case may be, in each case after deducting any accrued interest or dividends. Where as part of the same transaction or series of related transactions occurring within a sixty (60) day period more than one type of Convertible Securities and/or Stock Purchase Rights or both Convertible Securities and Stock Purchase Rights are issued, the determination as to whether a Dilutive Issuance has occurred shall be made on an aggregate basis, taking into account all Convertible Securities and all Stock Purchase Rights whose conversion or exercise are conditioned on the conversion or exercise of the other Convertible Securities and Stock Purchase Rights.

(5) Readjustment of Conversion Price. In the event of any change in (i) the consideration, if any, payable upon exercise of any Stock Purchase Rights or upon the conversion or exchange of any Convertible Securities (including additional consideration paid to extend the term or to change another provision of the Stock Purchase Rights or Convertible Securities or required as a condition of exercise or conversion) or (ii) the rate at which any Convertible Securities are convertible into or exchangeable for shares of Common Stock, the Conversion Price as computed upon the original issue thereof shall forthwith be readjusted to the Conversion Price that would have been in effect at such time had such Stock Purchase Rights or Convertible Securities provided for such changed purchase price, consideration or conversion rate, as the case

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may be, at the time initially granted, issued or sold. On the expiration of any Stock Purchase Rights not exercised or of any right to convert or exchange under any Convertible Securities not exercised, the Conversion Price then in effect shall forthwith be increased to the Conversion Price that would have been in effect at the time of such expiration had such Stock Purchase Rights or Convertible Securities never been issued. No readjustment of the Conversion Price pursuant to this Subsection 6(d)(5) shall (i) increase the applicable Conversion Price by an amount in excess of the adjustment originally made to the Conversion Price in respect of the issue, sale or grant of the applicable Stock Purchase Rights or Convertible Securities or (ii) require any adjustment to the amount paid or number of shares of Common Stock received by any holder of Preferred Stock upon any conversion of any share of Preferred Stock prior to the date upon which such readjustment to the Conversion Price shall occur.

(6) Exclusions. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Conversion Price in the case of (i) the issuance or sale of Common Stock or of options, or the shares of stock issuable upon exercise of such options, to purchase up to Three Million Five Hundred One Thousand Eight Hundred Sixty-Nine ( 3,501,869) shares of Common Stock granted after the date hereof (together with the exercise of up to 2,447,131 shares of Common Stock issuable for options granted prior to the date hereof), subject to adjustment for stock splits, stock dividends, recapitalizations and the like, to directors, officers, employees or consultants of the Corporation pursuant to stock options or stock purchase plans or agreements, whether “qualified” for tax purposes or not, pursuant to plans or arrangements approved by the Board of Directors, (ii) the issuance or sale of any other shares of Common Stock, Convertible Securities or Stock Purchase Rights as to which the holders of two-thirds (66-2/3%) of the outstanding shares of Junior Preferred and the Approval Threshold of the outstanding shares of Series C Preferred Stock and Series C-l Preferred Stock have expressly waived such adjustment to the Conversion Price pursuant to this Section 6, (iii) the issuance of Common Stock upon conversion of the Preferred Stock, (iv) any dividends or distributions on Preferred Stock, (v) the issuance of warrants to purchase snares of Common Stock to banks or equipment lessors, as approved by the Board of Directors, such issuances not to exceed in the aggregate one percent (1%) of the outstanding shares of Common Stock of the Corporation on a fully-diluted, as-converted into Common Stock basis, (vi) the issuance of shares of Common Stock, Convertible Securities, or Stock Purchase Rights in connection with business combinations or corporate partnering agreements, as approved by the Board of Directors, such issuances not to exceed in the aggregate five percent (5%) of the outstanding shares of Common Stock of the Corporation on a fully-diluted, as-converted into Common Stock basis, (vii) the sale of shares of Common Stock in connection with a Qualified IPO, or (viii) solely with respect to the Junior Preferred, any issuance or deemed issuance of Common Stock, Convertible Securities or Stock Purchase Rights other than shares of Series C Preferred or Series C-l Preferred Stock issued in accordance with the terms of the Purchase Agreement. The issuances or sales described in the preceding clauses (i), (ii), (iii), (iv), (v), (vi), (vii) and (viii) (solely with respect to the Junior Preferred) shall be ignored for purposes of calculating any adjustment to any Conversion Price.

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(7) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Conversion Price pursuant to this Section 6, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms thereof, and prepare and furnish to each holder of Preferred Stock affected thereby a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written notice at any time of any holder of Preferred Stock furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the applicable Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of such holder’s shares.

(e) Adjustment in the Absence of a Qualified IPO. In the event that a Qualified IPO does not occur prior to September 30, 2008, then if the Company completes a Qualified Financing (as defined below) after September 30, 2008 and such transaction constitutes a Dilutive Issuance with respect to the then existing Conversion Price for the Series C-l Preferred Stock, then upon the consummation of such Qualified Financing the Conversion Price for the Series C-l Preferred Stock then in effect shall be decreased to the greater of (i) the consideration per share received by the Company in the Qualified Financing (as determined in accordance with this Section 6) and (ii) the then-applicable Conversion Price of the Series C Preferred Stock. Except as set forth above, the Conversion Price for the Series C-l Preferred Stock shall otherwise be adjusted in accordance with the other provisions of this Section 6. A “Qualified Financing” shall mean the first to occur of (x) a financing or series of related financings in which the Company issues shares of its Preferred Stock for aggregate proceeds to the Company of at least $5,000,000 or (y) a financing transaction in which the Company sells Preferred Stock where the proceeds to the Company, when combined with all other financings completed by the Company since September 30, 2008, are at least $5,000,000 (provided that, in the case of (y) above, the average consideration per share for all shares sold in such financing and in the other financings completed by the Company since September 30, 2008 shall be used for the purpose of this Section 6(e) and for determining whether such a financing is a Dilutive Issuance).

7. Mandatory Conversion

Each share of each applicable series of Preferred Stock shall automatically be converted into shares of Common Stock at the then-applicable conversion rate upon the occurrence of (1) a Qualified IPO, (2) for the conversion of Junior Preferred, the affirmative vote of the holders of at least two-thirds (66-2/3%) the then-outstanding shares of Junior Preferred, voting together as a single class, or (3) for the conversion of Series C Preferred Stock and the Series C-l Preferred Stock, the affirmative vote of the Approval Threshold (the “Conversion Event”). Immediately upon the occurrence of a Conversion Event, the Preferred Stock shall cease to have any rights of Preferred Stock and shall instead have the rights attributable to the shares of Common Stock into which the Preferred Stock is automatically converted, whether or not Preferred Stock certificates have been exchanged for Common Stock certificates. All holders of record of shares of Preferred Stock will be given at least ten (10) days prior written notice of the estimated earliest date upon which mandatory conversion of the Preferred Stock could occur and the event constituting the Conversion Event. Such notice shall be sent by first class mail,

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postage prepaid, to each holder of record of Preferred Stock at such holder’s address as shown in the records of the Corporation. Each holder of shares of the Preferred Stock shall surrender the certificate or certificates for all such shares to the Corporation at the place designated in such notice and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled. The mechanics for conversion and other provisions relating to conversion of Preferred Stock into Common Stock set forth elsewhere in this Certificate of Incorporation shall apply to the mandatory conversion of the Preferred Stock.

8. Special Mandatory Conversion

(a) In the event that the conditions for the Series C-l Closing (as set forth in Section 5.2 of the Purchase Agreement) have been satisfied and any holder of shares of Series C Preferred Stock (or an affiliate of such holder) does not purchase pursuant to Section 2.4 of the Purchase Agreement at such Series C-l Closing shares of Series C-l Preferred Stock in an amount equal to or greater than its allotted amount as shown under the heading “Shares Purchased at Series C-l Closing” on Exhibit A to the Purchase Agreement (a “Purchase Default”), then effective upon, subject to, and concurrently with, the consummation of the Series C-l Closing all shares of Series C Preferred Stock held by such holder shall automatically and without any further action on the part of such holder, be converted into shares of Common Stock in accordance with this Section 8. Upon such Purchase Default, any shares of Series C Preferred Stock so converted shall be cancelled and not subject to reissuance.

(b) Upon a Purchase Default, each holder of shares of Series C Preferred Stock converted pursuant to Section 8(a) shall surrender his, her or its certificate or certificates for all such shares to the Corporation at the place designated in the notice of conversion delivered by the Corporation, and shall thereafter receive certificates for one-tenth (1/10) of the number of shares of Common Stock determined by dividing the Original Price for the Series C Preferred Stock by the Conversion Price for the Series C Preferred Stock. All rights with respect to the Series C Preferred Stock converted pursuant to Section 8(a), including the rights, if any, to receive notices and vote, will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefore, to receive certificates for the number of shares of Common Stock into which such Series C Preferred Stock has been converted. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Purchase Default and the surrender of the certificate or certificates for Series C Preferred Stock so converted, the Corporation shall cause to be issued and delivered to such holder, or on his, her or its written order, a certificate or certificates for the number of shares of Common Stock issuable on such conversion in accordance with the provisions hereof.

(c) All certificates evidencing shares of Series C Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the time of the Purchase Default, be deemed to have been retired and cancelled, and the shares of Series C Preferred Stock converted pursuant to Section 8(a) represented thereby shall, from and after the time of the Purchase Default, be deemed to have been converted into Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. The Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series C Preferred Stock accordingly.

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ARTICLE V

In further and not in limitation of the powers conferred by the laws of the State of Delaware:

The number of Directors, which constitute the whole Board of Directors of the Corporation, may be fixed by the Bylaws of the Corporation subject to the terms of Sections B.3(c) and B.4(c).

Elections of directors may be, but shall not be required to be, by written ballot, unless the Bylaws of the Corporation so provide.

The books of the Corporation may be kept at such place within or without the State of Delaware as the Bylaws of the Corporation may provide or as may be designated from time to time by the Board of Directors of the Corporation.

ARTICLE VI

The Board is authorized to adopt, amend and repeal all or any of the Bylaws of the Corporation to the fullest extent permitted by the General Corporation Law of the State of Delaware as in effect from time to time or any successor statute.

ARTICLE VII

The Corporation is to have perpetual existence.

ARTICLE VIII

No director of the corporation shall have personal liability arising out of an action whether by or in the right of the corporation or otherwise for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing shall not limit or eliminate the liability of a director (a) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the General Corporation Law of Delaware or any successor provision, (d) for any transaction from which such director derived an improper personal benefit, or (e) acts or omissions occurring prior to the date of the effectiveness of this provision.

Furthermore, notwithstanding the foregoing provision, in the event that the General Corporation Law of Delaware is amended or enacted to permit further limitation or elimination of the personal liability of the director, the personal liability of the corporation’s directors shall be limited or eliminated to the fullest extent permitted by the applicable law.

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In the event that a director of the Corporation who is also a partner or employee of an entity that is a holder of Preferred Stock and that is in the business of investing and reinvesting in other entities, or an employee of an entity that manages such an entity (each, a “Fund”), acquires knowledge of a potential transaction or matter in such person’s capacity as a partner or employee of the Fund or the manager or general partner of the Fund and that may be a corporate opportunity for both the Corporation and such Fund (a “Corporate Opportunity”), then (i) such Corporate Opportunity shall belong to such Fund, (ii) such director shall, to the fullest extent permitted by law, have fully satisfied and fulfilled his fiduciary duty to the Corporation and its stockholders with respect to such Corporate Opportunity, and (iii) the Corporation, to the fullest extent permitted by law, waives any claim that such Corporate Opportunity constituted a corporate opportunity that should have been presented to the Corporation or any of its affiliates provided, however, that such director acts in good faith and such opportunity was not offered to such person in his or her capacity as a director of the Corporation and provided, further, that nothing herein or otherwise shall limit the Corporation’s right to pursue or consummate any transaction related to any Corporate Opportunity even if originated by any director or any Fund.

The above provisions shall not affect any provision permitted under the General Corporation Law of Delaware in this Certificate of Incorporation, the Bylaws or contract or resolution of the corporation indemnifying or agreeing to indemnify a director against personal liability. Any repeal or modification of this provision shall not adversely affect any limitation hereunder on the personal liability of the director with respect to acts or omissions occurring prior to such repeal or modification.

ARTICLE IX

The Corporation shall indemnify any and all of its directors or officers or former directors or officers to the fullest extent from time to time permitted by law with respect to any matter relating to his or her duty as an officer or director of the Corporation. Such indemnification shall not be deemed exclusive or any other rights to which those indemnified may be entitled, under any law, bylaw, agreement, vote of stockholders, or otherwise. Any repeal or modification of this Article IX shall not adversely affect any right or protection of a director or former director existing under this Article IX with respect to any act or omission occurring prior to such repeal or modification.

ARTICLE X

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power.

ARTICLE XI

All provisions relating to any exchange, reclassification or cancellation of issued shares are set forth in this Certificate of Incorporation.

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ARTICLE XII

Any shares of Preferred Stock redeemed, purchased or otherwise acquired by the Corporation shall be deemed retired and shall be cancelled and may not under any circumstances thereafter be reissued or otherwise disposed of by the Corporation.

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CERTIFICATE OF CORRECTION

OF FIFTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION OF

ALDAGEN, INC.

DECEMBER 19, 2007

Aldagen, Inc., a corporation organized and existing under and by virtue of the Delaware General Corporation Law, does hereby certify:

1. The name of the corporation is Aldagen, Inc.

2. The Fifth Amended and Restated Certificate of Incorporation filed by the Secretary of State of the State of Delaware on September 11, 2007 (the “Restated Certificate”), requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware.

3. The inaccuracy or defect of the Restated Certificate to be corrected pertains to the Company’s ability to authorize an initial public offering of shares of its capital stock (other than a Qualified IPO (as defined in the Restated Certificate)) without the approval of certain holders of the Company’s Series C Preferred Stock and Series C-l Preferred Stock.

4. With respect to the foregoing inaccuracy or defect, (the Restated Certificate is hereby corrected by deleting Section B.4(c)(xi) of Article IV in its entirety and inserting the following in lieu thereof:

“(xi) authorize any public offering of capital stock or other securities, provided that no such consent shall be required for a Qualified IPO.”

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the corporation has caused this Certificate of Correction to be executed effective as of the date first set forth above.

ALDAGEN, INC.
By:	/s/ Fred D. Hutchison
	Fred D. Hutchison, Assistant Secretary

CERTIFICATE OF AMENDMENT

OF FIFTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

ALDAGEN, INC.

f/k/a STEMCO BIOMEDICAL, INC.

Aldagen, Inc., formerly known as StemCo Biomedical, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), hereby certifies as follows:

1. The name of the Corporation is Aldagen, Inc.

2. The Fifth Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by deleting the first sentence of Article IV in its entirety and substituting the following in lieu thereof:

“The total number of shares of stock which the Corporation shall have the authority to issue is One Hundred Thirty-Eight Million Six Hundred Seventy Thousand Twenty-Four (138,670,024) shares, of which Eighty Million (80,000,000) shares shall be common stock, $0.001 par value per share (“Common Stock”), and Fifty-Eight Million Six Hundred Seventy Thousand Twenty-Four (58,670,024) shares shall be preferred stock, $0.001 par value per share (“Preferred Stock”).”

3. The Fifth Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by deleting the second paragraph of Article IV, Section B in its entirety and substituting the following in lieu thereof:

“The Preferred Stock of the Corporation shall consist of (i) Six Million Forty Thousand (6,040,000) shares of Series A Preferred Stock, $0.001 par value per share (“Series A Preferred Stock”), (ii) Eight Million Nine Hundred Twenty-Three Thousand Seven Hundred Eighty-Five (8,923,785) shares of Series B Preferred Stock, $0.001 par value per share (“Series B Preferred Stock”), (iii) Twenty-Six Million Sixty-Nine Thousand Five Hundred Eighty-Four (26,069,584) shares of Series C Preferred Stock, $0.001 par value per share (“Series C Preferred Stock”), and (iv) Seventeen Million Six Hundred Thirty-Six Thousand Six Hundred Fifty-Five (17,636,655) shares of Series C-l Preferred Stock, $0.001 par value per share (“Series C-1 Preferred Stock”), the powers, preferences, rights, privileges and restrictions, qualifications and limitations of each of which are set forth below.”

4. The Fifth Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by adding the following sentence at the end of the first paragraph of Article IV, Section B(5)(a):

“However, as a result of Dilutive Issuances prior to the date of the filing of this Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation of the Corporation (the “Filing Date”), as of the Filing Date the Conversion Price for each series of Junior Preferred has been adjusted to $0.86, subject to further adjustments as provided in Section 6 below for Dilutive Issuances or other events occurring after the Filing Date.”

5. The Fifth Amended and Restated Certificate of Incorporation of the Corporation is hereby amended by deleting Article IV, Section B(6)(d)(6) in its entirety and substituting the following in lieu thereof:

Exclusions. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Conversion Price in the case of (i) the issuance or sale of Common Stock or of options, or the shares of stock issuable upon exercise of such options, to purchase up to 861,286 shares of Common Stock granted after the date hereof (together with the exercise of up to 5,787,714 shares of Common Stock issuable for options granted prior to the date hereof), subject to adjustment for stock splits, stock dividends, recapitalizations and the like, to directors, officers, employees or consultants of the Corporation pursuant to stock options or stock purchase plans or agreements, whether “qualified” for tax purposes or not, pursuant to plans or arrangements approved by the Board of Directors, (ii) the issuance or sale of any other shares of Common Stock, Convertible Securities or Stock Purchase Rights as to which the holders of two-thirds (66-2/3%) of the outstanding shares of Junior Preferred and the Approval Threshold of the outstanding shares of Series C Preferred Stock and Series C-l Preferred Stock have expressly waived such adjustment to the Conversion Price pursuant to this Section 6, (iii) the issuance of Common Stock upon conversion of the Preferred Stock, (iv) any dividends or distributions on Preferred Stock, (v) the issuance of warrants to purchase shares of Common Stock to banks or equipment lessors, as approved by the Board of Directors, such issuances not to exceed in the aggregate one percent (1%) of the outstanding shares of Common Stock of the Corporation on a fully-diluted, as-converted into Common Stock basis, (vi) the issuance of shares of Common Stock, Convertible Securities, or Stock Purchase Rights in connection with business combinations or corporate partnering agreements, as approved by the Board of Directors, such issuances not to exceed in the aggregate five percent (5%) of the outstanding shares of Common Stock of the Corporation on a fully-diluted, as-converted into Common Stock basis, (vii) the sale of shares of Common Stock in connection with a Qualified IPO, (viii) solely with respect to the Junior Preferred, any issuance or deemed issuance of Common Stock, Convertible Securities or Stock Purchase Rights other than shares of Series C Preferred or Series C-l Preferred Stock issued in accordance with the terms of the Purchase Agreement, or (ix) the issuance of 408,785 shares of Series B Preferred Stock and 1,326,605 shares of Series C Preferred Stock upon the exercise of outstanding warrants. The issuances

or sales described in the preceding clauses (i), (ii), (iii), (iv), (v), (vi), (vii), (viii) and (ix) (solely with respect to the Junior Preferred) shall be ignored for purposes of calculating any adjustment to any Conversion Price.

6. The foregoing amendment as certified herein has been duly adopted by the Board of Directors and the Stockholders of the Corporation in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, this Certificate of Amendment of Fifth Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of the Corporation on April 14, 2008.

ALDAGEN, INC.
By:	/s/ Edward L. Field
Name:	Edward L. Field
Title:	President

EX-3.4

Exhibit 3.4

BYLAWS

OF

STEMCO BIOMEDICAL, INC.

ARTICLE I

OFFICES

1. Principal Office. The principal office of the Corporation shall be located in Wake County, North Carolina or such other place as is designated by the Board of Directors.

2. Registered Office. The registered office of the Corporation required by law to be maintained in the State of Delaware may be, but need not be, identical with the principal office.

3. Other Offices. The Corporation may have offices at such other places, either within or without the State of Delaware, as the Board of Directors may from time to time determine or as the affairs of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

1. Place of Meetings. All meetings of stockholders shall be held at the principal office of the Corporation or at such other place, either within or without the State of Delaware, as shall be designated in the notice of the meeting or agreed upon by the Board of Directors.

2. Annual Meeting. Unless directors are elected by written consent in lieu of an annual meeting, the annual meeting of the stockholders shall be held at the principal office of the Corporation during any month of each year on any day (except a Saturday, Sunday or a legal holiday) and at such time as is determined by the Board of Directors, for the purpose of electing Directors of the Corporation and for the transaction of such other business as may be properly brought before the meeting.

3. Substitute Annual Meeting. If the annual meeting shall not be held on the day designated by these Bylaws, a substitute annual meeting may be called in accordance with the provisions of Section 4 of this Article II. A meeting so called shall be designated and treated for all purposes as the annual meeting. The shares represented at such substitute annual meeting, either in person or by proxy, and entitled to vote thereat, shall constitute a quorum for the purpose of such meeting.

4. Special Meetings. Special meetings of the stockholders may be called at any time by the President, the Secretary or the Board of Directors of the Corporation, or by any stockholder pursuant to the written request of the holders of not less than one-tenth (1/10) of all the shares entitled to vote at the meeting.

5. Notice of Meetings.

(a) Written or printed notice stating the time and place of the meeting shall be delivered not less than ten (10) nor more than sixty (60) days before the date thereof, either personally or by mail, by or at the direction of the Board of Directors, President, Secretary or other person calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the stockholder at such stockholder’s address as it appears on the record of stockholders of the Corporation, with postage thereon prepaid.

(b) In the case of an annual or substitute annual meeting, the notice of meeting need not specifically state the business to be transacted thereat unless it is a matter, other than election of Directors, on which the vote of the stockholders is expressly required by the provisions of the Delaware Corporation Law. In the case of a special meeting, the notice of meeting shall specifically state the purpose or purposes for which the meeting is called.

(c) When a meeting is adjourned for thirty (30) days or more, or when a new record date is fixed after the adjournment for the adjourned meeting, notice of the adjourned meeting shall be given as in the case of an original meeting. When a meeting is adjourned for less than thirty (30) days in any one adjournment and a new record date is not fixed, it is not necessary to give any notice of the time and place of the adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which the adjournment is taken.

6. Voting Lists. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notices of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each such stockholder.

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7. Quorum.

(a) Unless otherwise provided by law, the holders of a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. When a quorum is present at the original meeting, any business which might have been transacted at the original meeting may be transacted at an adjourned meeting, even when a quorum is not present. In the absence of a quorum at the opening of any meeting of stockholders, such meeting may be adjourned from time to time by the Board of Directors or the vote of a majority of the shares voting on the motion to adjourn, but no other business may be transacted until and unless a quorum is present. If later a quorum is present at an adjourned meeting, then any business may be transacted which might have been transacted at the original meeting.

(b) The stockholders at a meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of sufficient stockholders to leave less than a quorum.

8. Voting of Shares.

(a) Unless otherwise provided in the Certificate of Incorporation, each outstanding share having voting rights shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders.

(b) Except in the election of Directors, when a quorum is present at any meeting, the vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter, shall be the act of the stockholders on that matter, unless a vote by a greater number is required by law or by the charter or Bylaws of the Corporation.

(c) Voting on all matters except the election of Directors shall be by voice vote or by a show of hands unless the holders of one-tenth (1/10) of the shares represented at the meeting shall, prior to the voting on any matter, demand a ballot vote on that particular matter.

(d) Shares of its own stock owned by the Corporation, directly or indirectly, through a subsidiary or otherwise, shall not be voted and shall not be counted in determining the total number of shares entitled to vote; except that shares held in a fiduciary capacity may be voted and shall be counted to the extent provided by law.

9. Proxies. Shares may be voted either in person or by one or more agents authorized by a written proxy executed by the stockholder or by such stockholder’s duly authorized attorney-in-fact. A proxy is not valid after the expiration of three years from the date of its execution, unless the person executing it specifies therein the length of time for which it is to continue in force, or limits its use to a particular meeting.

10. Inspectors of Election.

(a) Appointment of Inspectors of Election. In advance of any meeting of stockholders, the Board of Directors may appoint any persons, other than nominees for office, as inspectors of election to act at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the chairman of any such meeting may appoint inspectors of election at the

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meeting. The number of inspectors shall be either one or three. In case any person appointed as inspector fails to appear or fails or refuses to act, the vacancy may be filled by appointment by the Board of Directors in advance of the meeting or at the meeting by the person acting as chairman.

(b) Duties of Inspectors. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all stockholders. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical.

(c) Vote of Inspectors. If there are three inspectors of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all.

(d) Report of Inspectors. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge or question or matter determined by them and shall execute a certificate of any fact found by them. Any report or certificate made by them shall be a prima facie evidence of the facts stated therein.

11. Informal Action by Stockholders.

(a) Any action which is required or permitted to be taken at a meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed and dated by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Such signed and dated consent must be filed with the Secretary of the Corporation to be kept in the Corporate minute book, whether done before or after the action so taken, but in no event later than sixty (60) days after the earliest dated consent delivered in accordance with this section. Delivery made to the Secretary of the Corporation shall be by hand or by certified or registered mail, return receipt requested. When corporate action is taken without a meeting by less than unanimous written consent, prompt notice shall be given to those stockholders who have not consented in writing.

(b) Stockholders may act by written consent to elect directors; provided, however, that, if such consent is less than unanimous, such action by written consent may be in lieu of holding an annual meeting only if all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.

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ARTICLE III

DIRECTORS

1. General Powers. The business and affairs of the Corporation shall be managed by the Board of Directors or by such committees as the Board may establish pursuant to these Bylaws.

2. Number. Term and Qualification. The number of Directors of the Corporation shall be not less than one (1) nor more than seven (7) as may be fixed or changed from time to time, within the minimum and maximum, by the stockholders or by the Board of Directors. Each Director shall hold office until such Director’s death, resignation, retirement, removal, disqualification, or such Director’s successor is elected and qualifies. Directors need not be residents of the State of Delaware or stockholders of the Corporation.

3. Election of Directors. Except as provided in Section 5 of this Article III and unless directors are elected by written consent in lieu of an annual meeting, the Directors shall be elected at the annual meeting of stockholders. Those persons who receive the highest number of votes shall be deemed to have been elected. Unless otherwise provided in the Certificate of Incorporation, election of Directors shall be by written ballot.

4. Removal. Directors may be removed from office with or without cause by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of Directors. If a director is elected by a voting group of stockholders, only the stockholders of that voting group may participate in the vote to remove him. If any Directors are so removed, new Directors may be elected at the same meeting.

5. Vacancies. A vacancy occurring in the Board of Directors, including, without limitation, a vacancy created by an increase in the authorized number of Directors or resulting from the stockholders’ failure to elect the full authorized number of Directors, may be filled by the Board of Directors or if the Directors remaining in office constitute less than a quorum of the Directors, they may fill the vacancy by the affirmative vote of a majority of all remaining Directors or by the sole remaining Director. If the vacant office was held by a Director elected by a voting group, only the remaining Director or Directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy. A Director elected to fill a vacancy shall be elected for the unexpired term of such Director’s predecessor in office. The stockholders may elect a Director at any time to fill any vacancy not filled by the Directors.

6. Compensation. The Board of Directors may provide for the compensation of Directors for their services as such and may provide for the payment of any and all expenses incurred by the Directors in connection with such services.

7. Committees.

(a) The Board of Directors, by resolution adopted by a majority of the number of Directors then in office, may designate one or more committees, each committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the

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Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (a) adopting, amending or repealing any bylaw of the Corporation or (b) approving or adopting, or recommending to the stockholders any action or matter expressly required by law to be submitted to stockholders for approval. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and make such reports to the Board of Directors as the Board of Directors may request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these Bylaws for the conduct of its business by the Board of Directors.

(b) Any resolutions adopted or other action taken by any such committee within the scope of the authority delegated to it by the Board of Directors shall be deemed for all purposes to be adopted or taken by the Board of Directors. The designation of any committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility or liability imposed upon it or him by law.

(c) If a committee member is absent or disqualified, the qualified members present at a meeting, even if not a quorum, may unanimously appoint another Board of Directors member to act in the absent or disqualified member’s place.

(d) Regular meetings of any such committee may be held without notice at such time and place as such committee may fix from time to time by resolution. Special meetings of any such committee may be called by any member thereof upon not less than two day’s notice stating the place, date and hour of such meeting, which notice may be given by any usual means of communication. Any member of a committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a committee meeting need not state the business proposed to be transacted at the meeting.

(e) A majority of the members of any such committee shall constitute a quorum for the transaction of business at any meeting thereof, and actions of such committee must be authorized by the affirmative vote of a majority of the members of such committee.

(f) Any member of any such committee may be removed at any time with or without cause by resolution adopted by a majority of the Board of Directors.

(g) Any such committee shall elect a presiding officer from among its members and may fix its own rules of procedure which shall not be inconsistent with these Bylaws. It shall keep regular minutes of its proceedings and report the same to the Board of Directors for its information at the meeting thereof held next after the proceedings shall have been taken.

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ARTICLE IV

MEETINGS OF DIRECTORS

1. Regular Meetings. If an annual meeting of the stockholders is convened, a regular meeting of the Board of Directors shall be held immediately after, and at the same place as, the annual meeting of stockholders. In addition, the Board of Directors may provide, by resolution, the time and place for the holding of additional regular meetings.

2. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board (if one has been duly elected), the President or any two Directors.

3. Notice of Meetings.

(a) Regular meetings of the Board of Directors may be held without notice.

(b) The person or persons calling a special meeting of the Board of Directors shall, at least two days before the meeting, give notice thereof by any usual means of communication. Such notice or waiver of notice shall specify the business to be transacted at, or the purpose of, the meeting that is called. Notice of an adjourned meeting need not be given if the time and place are fixed at the meeting adjourning and if the period of adjournment does not exceed ten (10) days in any one adjournment.

(c) A Director may waive notice of any meeting. Attendance by a Director at a meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.

4. Quorum. A majority of the Directors in office immediately before the meeting shall constitute a quorum for the transaction of business at any meeting of the Board of Directors.

5. Manner of Acting.

(a) The act of a majority of the Directors then in office shall be the act of the Board of Directors, unless a greater number is required by law, the charter of the Corporation, or a Bylaw adopted by the stockholders.

(b) A Director of the Corporation, who is present at a meeting of the Board of Directors at which action on any corporate matter is taken, shall be presumed to have assented to the action taken unless such Director’s contrary vote is recorded or such Director’s dissent is otherwise entered in the minutes of the meeting or unless he or she shall file such Director’s written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right of dissent shall not apply to a Director who voted in favor of such action.

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6. Action By Consent. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may by taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

7. Attendance by Telephone. Any one or more Directors or members of a committee may participate in a meeting of the Board or committee by means of a conference telephone or similar communications device which allows all persons participating in the meeting to hear each other, and such participation in the meeting shall be deemed presence in person at such meeting.

ARTICLE V

OFFICERS

1. Number. The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and such Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers as the Board of Directors may from time to time elect. Any two or more offices, other than that of President and Secretary, may be held by the same person. In no event, however, may an officer act in more than one capacity where action of two or more officers is required.

2. Election and Term. The officers of the Corporation shall be elected by the Board of Directors. Such election may be held at any regular or special meeting of the Board or without a meeting by consent as provided in Article IV, Section 6 of these Bylaws. Each officer shall hold office until such officer’s death, resignation, retirement, removal, disqualification, or such officer’s successor is elected and qualifies.

3. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board with or without cause; but such removal shall be without prejudice to the contract rights, if any, of the person so removed.

4. Compensation. The compensation of all officers of the Corporation shall be fixed by the Board of Directors.

5. Chief Executive Officer. The Chief Executive Officer shall be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, shall supervise and control the management of the Corporation in accordance with these Bylaws. He shall, in the absence of a Chairman of the Board of Directors, preside at all meetings of the Board of Directors and stockholders. He shall sign, with any other proper officer, certificates for shares of the Corporation and any deeds, mortgages, bonds, contracts, or other instruments which may be lawfully executed on behalf of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated by the Board of Directors to some other officer or agent; and, in general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time.

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6. President. The President shall be the chief operating officer of the Corporation and shall have such duties as may be prescribed from time to time by the Board of Directors or the Chief Executive Officer.

7. Vice Presidents. The Vice Presidents, in the order of their appointment, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of that office. In addition, they shall perform such other duties and have such other powers as the President or the Board of Directors shall prescribe. The Board of Directors may designate one or more Vice Presidents to be responsible for certain functions, including, without limitation, Marketing, Finance, Manufacturing and Personnel.

8. Secretary. The Secretary shall keep accurate records of the acts and proceedings of all meetings of stockholders, Directors and committees. He or she shall give all notices required by law and by these Bylaws. He or she shall have general charge of the corporate books and records and of the corporate seal, and he or she shall affix the corporate seal to any lawfully executed instrument requiring it. He or she shall have general charge of the stock transfer books of the Corporation and shall keep, at the registered or principal office of the Corporation, a record of stockholders showing the name and address of each stockholder and the number and class of the shares held by each. He or she shall sign such instruments as may require his/her signature, and, in general, attest the signature or certify the incumbency or signature of any other officer of the Corporation and shall perform all duties incident to the office of Secretary and such other duties as may be assigned him from time to time by the President or by the Board of Directors.

9. Treasurer. The Treasurer shall have custody of all funds and securities belonging to the Corporation and shall receive, deposit or disburse the same under the direction of the Board of Directors. He or she shall keep full and accurate accounts of the finances of the Corporation in books especially provided for that purpose, which may be consolidated or combined statements of the Corporation and one or more of its subsidiaries as appropriate, that include a balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of cash flows for the year unless that information appears elsewhere in the financial statements. If financial statements are prepared for the Corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared on that basis. The Treasurer shall, in general, perform all duties incident to his/her office and such other duties as may be assigned to him from time to time by the President or by the Board of Directors.

10. Assistant Secretaries and Treasurers. The Assistant Secretaries and Assistant Treasurers shall, in the absence or disability of the Secretary or the Treasurer, perform the respective duties and exercise the respective powers of those offices, and they shall, in general, perform such other duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President or by the Board of Directors.

11. Controller and Assistant Controllers. The Controller, if one has been appointed, shall have charge of the accounting affairs of the Corporation and shall have such other powers and perform such other duties as the Board of Directors shall designate. Each Assistant Controller shall have such powers and perform such duties as the President may be assigned by the Board of Directors, and the Assistant Controllers shall exercise the powers of the Controller during that officer’s absence or inability to act.

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12. Bonds. The Board of Directors, by resolution, may require any or all officers, agents and employees of the Corporation to give bond to the Corporation, with sufficient sureties, conditioned on the faithful performance of the duties of their respective offices or positions, and to comply with such other conditions as may from time to time be required by the Board of Directors.

ARTICLE VI

CONTRACTS, LOANS AND DEPOSITS

1. Contracts. The Board of Directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument on behalf of the Corporation, and such authority may be general or confined to specific instances.

2. Loans. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

3. Checks and Drafts. All checks, drafts or other orders for the payment of money issued in the name of the Corporation shall be signed by such officer or officers, or agent or agents, of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such depository or depositories as the Board of Directors shall direct.

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ARTICLE VII

CERTIFICATES FOR SHARES AND OTHER TRANSFERS

1. Certificates for Shares. Certificates representing shares of the Corporation shall be issued, in such form as the Board of Directors shall determine, to every stockholder for the fully paid shares owned by him. These certificates shall be signed by the President or any Vice President or a person who has been designated as the chief executive officer of the Corporation and by the Secretary, Assistant Secretary, Treasurer or Assistant Treasurer and sealed with the seal of the Corporation or a facsimile thereof. The signatures of any such officers upon a certificate may be facsimiles or may be engraved or printed or omitted if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. In case any officer who has signed or whose facsimile or other signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer at the date of its issue. The certificates shall be consecutively numbered or otherwise identified; and the name and address of the persons to whom they are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation.

2. Transfer of Shares. Transfer of shares shall be made on the stock transfer books of the Corporation only upon surrender of the certificates for the shares sought to be transferred by the record holder thereof or by such holder’s duly authorized agent, transferee or legal representative. All certificates surrendered for transfer shall be canceled before new certificates for the transferred shares shall be issued.

3. Transfer Agent and Registrar. The Board of Directors may appoint one or more transfer agents and one or more registrars of transfer and may require all stock certificates to be signed or countersigned by the transfer agent and registered by the registrar of transfers.

4. Restrictions on Transfer.

(a) If the Corporation has elected Subchapter S status under Section 1362 of the Internal Revenue Code of 1986, as amended, no stockholder or involuntary transferee shall dispose of or transfer any shares of the Corporation which such stockholder now owns or may hereafter acquire if such disposition or transfer would result in the termination of such Subchapter S status, unless such disposition or transfer is consented to by all stockholders of the Corporation. Any such disposition or transfer that does not comply with the terms of this Section 4 shall be void and have no legal force or effect and shall not be recognized on the share transfer books of the Corporation as effective.

(b) No stockholder or involuntary transferee shall dispose of or transfer any shares of the Corporation which such stockholder now owns or may hereafter acquire except as set forth in this Section 4. Any purported transfer or disposition of shares in violation of the terms of this Section 4 shall be void and the Corporation shall not recognize or give any effect to such transaction.

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(c) An individual stockholder shall be free to transfer, during such stockholder’s lifetime or by testamentary transfer, any or all of such stockholder’s shares of the Corporation to such stockholder’s spouse, any of such stockholder’s children, grandchildren or direct lineal descendants, whether by blood or by adoption, spouses of such issue, parents, siblings, or direct lineal descendents, whether by blood or by adoption, of such siblings or a trust or family limited partnership for the sole benefit of those persons or any of them, a Section 501(c)(3) organization or a non-profit foundation or other non-profit organization; and a stockholder which is a partnership, corporation or limited liability company shall be free to transfer any or all of its shares of the Corporation to its partners, stockholders or members, respectively, if there is no consideration for such transfer; but, in case of any such transfer, the transferee shall be bound by all the terms of this provision and no further transfer of such shares shall be made by such transferee except back to the stockholder who originally owned them or except in accordance with the provisions of this Section 4 of Article VII.

(d) Any shareholder, or transferee of such shareholder, who wishes to transfer all or any part of his shares of the Corporation (hereinafter “offeror”), other than as permitted in subparagraph (c) above, first shall submit a written offer to sell such shares to the Corporation at the same price per share and upon the same terms and conditions offered by a bona fide prospective purchaser (the “Third Party Purchaser”) of such shares.

(e) Every written offer submitted in accordance with the provisions of this paragraph shall specifically name the person to whom the offeror intends to transfer the shares, the number of shares which he intends so to transfer and the price per share and other terms upon which the intended transfer is to be made. Such written offer to the Corporation shall continue to be a binding offer to sell, subject to the terms of this Section 4, until: (1) expressly rejected by the Corporation acting pursuant to resolution adopted by the Board of Directors; or (2) the expiration of a period of thirty (30) days after delivery of such written offer to the Corporation, whichever shall first occur (the “Offer Period”).

(f) The Corporation shall accept the offer by providing written notice (the “Acceptance Notice”) to the offeror of its acceptance of the offer to purchase such shares prior to the expiration of the Offer Period. Upon receipt of the Acceptance Notice, the offeror may, at his or her election, either (i) sell such shares to the Corporation at the price and on the other terms of the original written offer or (ii) rescind his or her offer to sell such shares to the Third Party Purchaser and keep all of such shares. Such election shall be made by delivery of written notice to the Corporation within five (5) business days of receipt of the Acceptance Notice. Any offer of the Corporation to purchase such shares not rejected by delivery of a written notice to the Corporation within such five (5) day period shall be deemed accepted by the offeror.

(g) If the Corporation does not accept the offer within the Offer Period, the offeror shall be free to transfer, for a period of three (3) months thereafter, any unpurchased shares to the Third Party Purchaser at the price per share and upon the other terms and conditions so named, provided that any such transferee of such shares shall thereafter be bound by all the provisions of these Bylaws.

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(h) Every written offer submitted to the Corporation shall be deemed to have been delivered when delivered to the principal office of the Corporation or if and when sent by prepaid certified mail, or delivered by hand to the President of the Company at the principal office of the Corporation.

(i) If any consideration to be received by the offeror for the shares offered is property other than cash, then the price per share shall be measured to the extent of the fair market value of such noncash consideration.

(j) The provisions contained herein shall not apply to the pledge of any shares of the Corporation as collateral for a loan but shall apply to the sale or other disposition of shares under any such pledge.

(k) In the event of any conflict between the terms of this Section 4 of Article VII and any written agreement between the Corporation and any stockholder of the Corporation, the terms of such written agreement shall control, and the provisions of this Section shall not be applicable.

(1) The restrictions set forth in this Section 4 shall terminate upon the closing of a public offering of securities of the Corporation registered under the Securities Act of 1933, as amended.

(m) Every certificate representing shares of the Corporation shall bear the following legend prominently displayed:

“The shares represented by this certificate, and the transfer thereof, are subject to the restrictions on transfer provisions of the Bylaws of the Corporation, a copy of which is on file in, and may be examined at, the principal office of the Corporation.”

5. Closing Transfer Books and Fixing Record Date.

(a) For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, such record date shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. Such determination of stockholders of record shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

(b) For the purpose of determining the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no

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record date has been fixed by the Board of Directors, such record date, when no prior action by the Board of Directors is required by this chapter, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is filed with the Secretary of the Corporation. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the Delaware Corporation Law, such record date shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

(c) For the purpose of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

6. Lost Certificates. The Board of Directors may authorize the issuance of a new share certificate in place of a certificate claimed to have been lost or destroyed, upon receipt of an affidavit of such fact from the person claiming the loss or destruction. When authorizing such issuance of a new certificate, the Board may require the claimant to give the Corporation a bond in such sum as it may direct to indemnify the Corporation against loss from any claim with respect to the certificate claimed to have been lost or destroyed; or the Board may, by resolution reciting that the circumstances justify such action, authorize the issuance of the new certificate without requiring such a bond.

7. Holder of Record. The Corporation may treat as absolute owner of the shares the person in whose name the shares stand of record on its books just as if that person had full competency, capacity, and authority to exercise all rights of ownership irrespective of any knowledge or notice to the contrary or any description indicating a representative, pledge or other fiduciary relation or any reference to any other instrument or to the rights of any other person appearing upon its record or upon the share certificate; except that any person furnishing to the Corporation proof of his/her appointment as a fiduciary shall be treated as if he or she were a holder of record of the Corporation’s shares.

8. Treasury Shares. Treasury shares of the Corporation shall consist of such shares as have been issued and thereafter acquired but not canceled by the Corporation. Treasury shares shall not carry voting or dividend rights, except rights in share dividends.

ARTICLE VIII

INDEMNIFICATION AND REIMBURSEMENT

OF DIRECTORS AND OFFICERS

1. Indemnification for Expenses and Liabilities. Any person who at any time serves or has served (i) as a director, officer, employee or agent of the Corporation, (ii) at the request of the

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Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or (iii) at the request of the Corporation as a trustee or administrator under an employee benefit plan, or is called as a witness at a time when he or she has not been made a named defendant or respondent to any Proceeding, shall have a right to be indemnified by the Corporation to the fullest extent from time to time permitted by law against Liability and Expenses in any Proceeding (including without limitation a Proceeding brought by or on behalf of the Corporation itself) arising out of his or her status as such or activities in any of the foregoing capacities.

The Board of Directors of the Corporation shall take all such action as may be necessary and appropriate to authorize the Corporation to pay the indemnification required by this provision, including without limitation, to the extent needed, making a good faith evaluation of the manner in which the claimant for indemnity acted and of the reasonable amount of indemnity due him or her.

Any person who at any time serves or has served in any of the aforesaid capacities for or on behalf of the Corporation shall be deemed to be doing or to have done so in reliance upon, and as consideration for, the rights provided for herein. Any repeal or modification of these indemnification provisions shall not affect any rights or obligations existing at the time of such repeal or modification. The rights provided for herein shall inure to the benefit of the legal representatives of any such person and shall not be exclusive of any other rights to which such person may be entitled apart from this provision.

The rights granted herein shall not be limited by the provisions contained in Section 145 of the Delaware Corporation Law or any successor to such statute.

2. Advance Payment of Expenses. The Corporation shall (upon receipt of an undertaking by or on behalf of the director, officer, employee or agent involved to repay the Expenses described herein unless it shall ultimately be determined that he or she is entitled to be indemnified by the Corporation against such Expenses) pay Expenses incurred by such director, officer, employee or agent in defending a Proceeding or appearing as a witness at a time when he or she has not been named as a defendant or a respondent with respect thereto in advance of the final disposition of such Proceeding.

3. Insurance. The Corporation shall have the power to purchase and maintain insurance (on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another domestic or foreign corporation, partnership, joint venture, trust or other enterprise or as a trustee or administrator under an employee benefit plan) against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability.

4. Definitions. The following terms as used in this Article shall have the following meanings. “Proceeding” means any threatened, pending or completed action, suit, or proceeding and any appeal therein (and any inquiry or investigation that could lead to such action, suit, or

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proceeding), whether civil, criminal, administrative, investigative or arbitrative and whether formal or informal. “Expenses” means expenses of every kind, including counsel fees. “Liability” means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), reasonable expenses incurred with respect to a Proceeding, and all reasonable expenses incurred in enforcing the indemnification rights provided herein. “Director,” “officer,” “employee” and “agent” include the estate or personal representative of a director, officer, employee or agent. “Corporation” shall include any domestic or foreign predecessor of this Corporation in a merger or other transaction in which the predecessor’s existence ceased upon consummation of the transaction.

ARTICLE IX

GENERAL PROVISIONS

1. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and by its charter.

2. Seal. The corporate seal shall have the name of the corporation inscribed thereon and shall be in such form of as may be approved from time to time by the Board of Directors. Such seal may be an impression or stamp and may be used by the officers of the Corporation by causing it, or a facsimile thereof, to be impressed or affixed or in any other manner reproduced. In addition to any form of seal adopted by the Board of Directors, the officers of the Corporation may use as the corporate seal a seal in the form of a circle containing the name of the Corporation and the state of its incorporation (or an abbreviation thereof) on the circumference and the word “Seal” in the center.

3. Waiver of Notice. Whenever any notice is required to be given to any stockholder or Director under the provisions of the Delaware Corporation Law or under the provisions of the charter or Bylaws of the Corporation, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice.

4. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.

5. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs, or any other information storage device; provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same.

6. Amendments. Except as otherwise provided herein, these Bylaws may be amended or repealed and new Bylaws may be adopted by the affirmative vote of stockholders entitled to exercise a majority of voting power of the Corporation, or, if the Certificate of Incorporation of

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the Corporation so permits, by the affirmative vote of a majority of the Directors then holding office at any regular or special meeting of the Board of Directors or by unanimous written consent.

No Bylaw adopted or amended by the stockholders may be altered or repealed by the Board of Directors, except to the extent that such Bylaw provision expressly authorizes its amendment or repeal by the Board of Directors. Section 4 of Article VII may not be amended without the affirmative vote or written consent of not less than 75% of the then outstanding shares of capital stock of the Corporation.

All terms used in these Bylaws shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the context may require.

THIS IS TO CERTIFY that the above Bylaws were duly adopted by the Board of Directors of the Corporation by action taken, without a meeting, effective April 1^st, 2000.

/s/ Nelson Chao

Nelson Chao, MD, Secretary

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AMENDMENT TO BYLAWS

OF

ALDAGEN, INC.

Effective December 15, 2006

The Bylaws of the Corporation are hereby amended by deleting Section 4 of Article II in its entirety and substituting the following Section 4 in lieu thereof:

“4. Special Meetings. Unless otherwise required by the laws of the State of Delaware, special meetings of the stockholders may be called at any time by or at the request of the President, the Secretary, the Board of Directors of the Corporation, by any stockholder pursuant to the written request of the holders of not less than one-tenth (1/10) of all the shares entitled to vote at the meeting or by the holders of 25% of the then issued and outstanding shares of Series C Preferred Stock of the Corporation.”

The Bylaws of the Corporation are hereby amended by deleting Section 2 of Article IV in its entirety and substituting the following Section 2 in lieu thereof:

“2. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President or any Director.”

The Bylaws of the Corporation are hereby amended by deleting Section 3(a) of Article IV in its entirety and substituting the following Section 3(a) in lieu thereof:

“(a) Any regular meeting of the Board of Directors may be held without notice, provided that the resolutions of the Board of Directors establishing the place and time of such regular meeting were publicized at least two days before such meeting to all Directors who did not participate in the adoption of such resolutions.”

EX-10.1

Exhibit 10.1

ALDAGEN, INC.

LOAN AND SECURITY AGREEMENT

This LOAN AND SECURITY AGREEMENT is entered into as of March 21, 2006, by and between Square 1 Bank (“Bank”) and ALDAGEN, INC. (“Borrower”).

RECITALS

Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.

AGREEMENT

The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

1.1 Definitions. As used in this Agreement, all capitalized terms shall have the definitions set forth on Exhibit A. Any term used in the Code and not defined herein shall have the meaning given to the term in the Code.

1.2 Accounting Terms. Any accounting term not specifically defined on Exhibit A shall be construed in accordance with GAAP and all calculations shall be made in accordance with GAAP. The term “financial statements” shall include the accompanying notes and schedules.

2. LOAN AND TERMS OF PAYMENT.

2.1 Credit Extensions.

(a) Promise to Pay. Borrower promises to pay to Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.

(b) Bridge Loan.

(i) Subject to and upon the terms and conditions of this Agreement, on the Closing Date or as soon thereafter as is practical, Bank shall make one bridge loan to Borrower in an aggregate amount not to exceed $1,500,000 (the “Bridge Loan”), which amount shall be used to support the general capital needs of Borrower.

(ii) Interest shall accrue from the date the Bridge Loan is made at the rate specified in Section 2.3(a), and shall be payable monthly on the last day of each month commencing on March 31, 2006 in accordance with Section 2.3(c). On the Bridge Loan Maturity Date all amounts owing under this Section 2.1(b) shall be immediately due and payable. The Bridge Loan, once repaid, may not be reborrowed. Borrower may prepay the Bridge Loan without penalty or premium. Upon maturity of the Bridge Loan, Borrower and Bank may mutually agree to convert the Bridge Loan into a Term Loan upon terms and conditions mutually acceptable to both Borrower and Bank.

(iii) When Borrower desires to obtain the Bridge Loan, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Eastern time three (3) Business Days before the day on which the Bridge Loan is to be made. Such notice shall be substantially in the form of Exhibit B. The notice shall be signed by a Responsible Officer or its designee.

2.2 Intentionally Omitted.

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2.3 Interest Rates, Payments, and Calculations.

(a) Interest Rate for Bridge Loan. Except as set forth in Section 2.3(b), the Bridge Loan shall bear interest, on the outstanding daily balance thereof, at a variable rate equal to 1.00% above the Prime Rate.

(b) Late Fee; Default Rate. If any payment is not made within 10 days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) 5% of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to 5 percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.

(c) Payments. Interest hereunder shall be due and payable on the last calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.

(d) Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed.

2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, Bank shall have the right, in its sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment Bank may receive to conditionally reduce Obligations, but such applications of funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Eastern time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.

2.5 Fees. Borrower shall pay to Bank the following:

(a) Facility Fee. On the Closing Date, a fee equal to $5,000, which shall be nonrefundable;

(b) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date (provided that Bank Expenses for outside legal counsel shall not exceed $5,000 on the Closing Date provided there have been two turns or less of the Loan Documents), and, after the Closing Date, all Bank Expenses, as and when they become due; provided however that Bank shall notify Borrower before deducting any Bank Expenses for outside legal counsel from Borrower’s Accounts.

2.6 Term. This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for so long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default.

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3. CONDITIONS OF LOANS.

3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following:

(a) this Agreement;

(b) an officer’s certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;

(c) a financing statement (Form UCC-1);

(d) an intellectual property security agreement;

(e) agreement to provide insurance;

(f) a subordination agreement from holders of Subordinated Debt;

(g) payment of the fees and Bank Expenses then due specified in Section 2.5;

(h) current SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral;

(i) current financial statements, including unaudited statements for Borrower’s most recently ended fiscal year, company prepared consolidated and consolidating balance sheets and income statements for the most recently ended month in accordance with Section 6.2, and such other updated financial information as Bank may reasonably request;

(j) current Compliance Certificate in accordance with Section 6.2;

(k) a Warrant in form and substance satisfactory to Bank; and

(l) such other documents or certificates, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is further subject to the following conditions:

(a) timely receipt by Bank of the Payment/Advance Form as provided in Section 2.1; and

(b) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty (as modified by those exceptions set forth on the Schedule, as the same may be updated or amended from time to time) by Borrower on the date of such Credit Extension as to the accuracy of the facts in all material respects, referred to in this Section 3.2.

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4. CREATION OF SECURITY INTEREST.

4.1 Grant of Security Interest. Borrower grants and pledges to Bank a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral. Notwithstanding any termination, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.

4.2 Perfection of Security Interest. Borrower authorizes Bank to file at any time, during the term of this Agreement or while any of the Obligations are outstanding, financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable. Any such financing statements may be signed by Bank on behalf of Borrower, as provided in the Code, and may be filed at any time in any jurisdiction whether or not Revised Article 9 of the Code is then in effect in that jurisdiction. Borrower shall from time to time endorse and deliver to Bank, at the request of Bank, all Negotiable Collateral and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of a third party bailee, Borrower shall take such steps as Bank reasonably requests for Bank to (i) obtain an acknowledgment, in form and substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, (ii) obtain “control” of any Collateral consisting of investment property, deposit accounts, g of-credit rights or electronic chattel paper (as such items and the term “control” are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance satisfactory to Bank. Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper. Borrower from time to time may deposit with Bank specific cash collateral to secure specific Obligations; Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding.

4.3 Right to Inspect. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower’s usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral.

5. REPRESENTATIONS AND WARRANTIES.

Borrower represents and warrants as follows:

5.1 Due Organization and Qualification. Borrower and each Subsidiary is a corporation duly existing under the laws of the state in which it is incorporated and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.

5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower’s Certificate of Incorporation or Bylaws, nor will they constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement by which it is bound, except to the extent such default would not reasonably be expected to cause a Material Adverse Effect.

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5.3 Collateral. Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens. All Collateral is located solely in the Collateral States. All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made. Except as set forth in the Schedule, none of the Collateral is maintained or invested with a Person other than Bank or Bank’s Affiliates.

5.4 Intellectual Property Collateral. Borrower is the sole owner of the Intellectual Property Collateral, except for licenses granted by Borrower to its customers in the ordinary course of business. To the best of Borrower’s knowledge, each of the Copyrights, Trademarks and Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the Intellectual Property Collateral violates the rights of any third party except to the extent such claim would not reasonably be expected to cause a Material Adverse Effect. Except as set forth in the Schedule, Borrower’s rights as a licensee of intellectual property do not give rise to more than 5% of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service.

5.5 Name; Location of Chief Executive Office. Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement. The chief executive office of Borrower is located in the Chief Executive Office State at the address indicated in Section 10 hereof.

5.6 Litigation. Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which a likely adverse decision would reasonably be expected to have a Material Adverse Effect.

5.7 No Material Adverse Change in Financial Statements. All consolidated and consolidating financial statements related to Borrower and any Subsidiary that are delivered by Borrower to Bank fairly present in all material respects Borrower’s consolidated and consolidating financial condition as of the date thereof and Borrower’s consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or in the consolidating financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.

5.8 Solvency, Payment of Debts. Borrower is able to pay its debts (including trade debts) as they mature; the fair saleable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement.

5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower’s failure to comply with ERISA that is reasonably likely to result in Borrower’s incurring any liability that could have a Material Adverse Effect. Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has complied in all material respects with all the provisions of the Federal Fair Labor Standards Act. Borrower is in compliance with all environmental laws, regulations and ordinances except where the failure to comply is not reasonably likely to have a Material Adverse Effect. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, the violation of which would reasonably be expected to have a Material Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the

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payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes would not reasonably be expected to have a Material Adverse Effect.

5.10 Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.

5.11 Government Consents. Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower’s business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.

5.12 Inbound Licenses. Except as disclosed on the Schedule, Borrower is not a party to, nor is bound by, any license or other agreement that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property.

5.13 Full Disclosure. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bank taken together with all such certificates and written statements furnished to Bank contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading, it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results.

6. AFFIRMATIVE COVENANTS.

Borrower covenants that, until payment in full of all outstanding Obligations, and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:

6.1 Good Standing and Government Compliance. Borrower shall maintain its and each of its Subsidiaries’ corporate existence and good standing in the Borrower State, shall maintain qualification and good standing in each other jurisdiction in which the failure to so qualify would reasonably be expected to have a Material Adverse Effect, and shall furnish to Bank the organizational identification number issued to Borrower by the authorities of the state in which Borrower is organized, if applicable. Borrower shall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply in all material respects with all applicable Environmental Laws, and maintain all material permits, licenses and approvals required thereunder where the failure to do so would reasonably be expected to have a Material Adverse Effect. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in force all licenses, approvals and agreements, the loss of which or failure to comply with which would reasonably be expected to have a Material Adverse Effect.

6.2 Financial Statements, Reports, Certificates. Borrower shall deliver to Bank: (i) as soon as available, but in any event within 30 days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet and income statement covering Borrower’s operations during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer; (ii) as soon as available, but in any event within 150 days after the end of Borrower’s fiscal year, audited consolidated and consolidating financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an opinion which is unqualified or otherwise consented to in writing by Bank on such financial statements of an independent certified public accounting firm reasonably acceptable to Bank; (iii) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (iv) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of $250,000 or more; (v) promptly

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upon receipt, each management letter prepared by Borrower’s independent certified public accounting firm regarding Borrower’s management control systems; (vi) such budgets, sales projections, operating plans or other financial information generally prepared by Borrower in the ordinary course of business as Bank may reasonably request from time to time; and (vii) within 30 days of the last day of each fiscal quarter, a report signed by Borrower, in form reasonably acceptable to Bank, listing any applications or registrations that Borrower has made or filed in respect of any Patents, Copyrights or Trademarks and the status of any outstanding applications or registrations, as well as any material change in Borrower’s Intellectual Property Collateral, including but not limited to any subsequent ownership right of Borrower in or to any Trademark, Patent or Copyright not specified in Exhibits A, B, and C of any Intellectual Property Security Agreement delivered to Bank by Borrower in connection with this Agreement.

(a) Within 30 days after the last day of each month, Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit D hereto.

(b) As soon as possible and in any event within 3 calendar days after becoming aware of the occurrence or existence of an Event of Default hereunder, a written statement of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto.

(c) Bank shall have a right from time to time hereafter to audit Borrower’s Accounts and appraise Collateral at Borrower’s expense, provided that such audits will be conducted no more often than every 6 months unless an Event of Default has occurred and is continuing.

Borrower may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information contained in the electronic files, provided that Bank in good faith believes that the files were delivered by a Responsible Officer. If Borrower delivers this information electronically, it shall also deliver to Bank by U.S. Mail, reputable overnight courier service, hand delivery, facsimile or .pdf file within 5 Business Days of submission of the unsigned electronic copy the certification of monthly financial statements, the intellectual property report and the Compliance Certificate, each bearing the physical signature of the Responsible Officer.

6.3 Inventory; Returns. Borrower shall keep all Inventory in good and merchantable condition, free from all material defects except for Inventory for which adequate reserves have been made. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving more than $250,000.

6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Bank, on demand, proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits and any appropriate certificates attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower.

6.5 Insurance.

(a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower’s business is conducted on the date hereof. Borrower shall also maintain liability and other insurance in amounts and of a type that are customary to businesses similar to Borrower’s.

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(b) All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. All policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee, and all liability insurance policies shall show the Bank as an additional insured and shall specify that the insurer must give at least 20 days notice to Bank before canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver to Bank certified copies of the policies of insurance and evidence of all premium payments. If no Event of Default has occurred and is continuing, proceeds payable under any casualty policy will, at Borrower’s option, be payable to Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Bank has been granted a first priority security interest. If an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Bank’s option, be payable to Bank to be applied on account of the Obligations.

6.6 Accounts. Borrower shall maintain all its depository and operating accounts with Bank and all its investment accounts with Bank or Bank’s Affiliates.

6.7 Intentionally Omitted.

6.8 Registration of Intellectual Property Rights.

(a) Borrower shall register or cause to be registered on an expedited basis (to the extent not already registered) with the United States Patent and Trademark Office or the United States Copyright Office, as the case may be, those registrable intellectual property rights now owned or hereafter developed or acquired by Borrower, to the extent that Borrower, in its reasonable business judgment, deems it appropriate to so protect such intellectual property rights.

(b) Borrower shall promptly give Bank written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of such filing and the registration or application numbers, if any.

(c) Borrower shall (i) give Bank not less than 30 days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the title of such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed; (ii) prior to the filing of any such applications or registrations, execute such documents as Bank may reasonably request for Bank to maintain its perfection in such intellectual property rights to be registered by Borrower; (iii) upon the request of Bank, either deliver to Bank or file such documents simultaneously with the filing of any such applications or registrations; (iv) upon filing any such applications or registrations, promptly provide Bank with a copy of such applications or registrations together with any exhibits, evidence of the filing of any documents requested by Bank to be filed for Bank to maintain the perfection and priority of its security interest in such intellectual property rights, and the date of such filing.

(d) Borrower shall execute and deliver such additional instruments and documents from time to time as Bank shall reasonably request to perfect and maintain the perfection and priority of Bank’s security interest in the Intellectual Property Collateral.

(e) Borrower shall (i) protect, defend and maintain the validity and enforceability of the trade secrets, Trademarks, Patents and Copyrights, (ii) use commercially reasonable efforts to detect infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which shall not be unreasonably withheld.

(f) Bank may audit Borrower’s Intellectual Property Collateral to confirm compliance with this Section 6.8, provided such audit may not occur more often than twice per year, unless an Event of Default has occurred and is continuing. Bank shall have the right, but not the obligation, to take, at Borrower’s sole expense, any actions that Borrower is required under this Section 6.8 to take but which Borrower fails to take, after 15 days’ notice to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section 6.8.

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6.9 Consent of Inbound Licensors. Prior to entering into or becoming bound by any license or agreement, Borrower shall: (i) provide written notice to Bank of the material terms of such license or agreement with a description of its likely impact on Borrower’s business or financial condition; and (ii) in good faith use commercially reasonable efforts to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for Borrower’s interest in such licenses or contract rights to be deemed Collateral and for Bank to have a security interest in it that might otherwise be restricted by the terms of the applicable license or agreement, whether now existing or entered into in the future, provided, however, that the failure to obtain any such consent or waiver shall not constitute a default under this Agreement.

6.10 Further Assurances. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement.

7. NEGATIVE COVENANTS.

Borrower covenants and agrees that, so long as any credit hereunder shall be available and until the outstanding Obligations are paid in full or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any of the following without Bank’s prior written consent, which shall not be unreasonably withheld:

7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, or move cash balances on deposit with Bank to accounts opened at another financial institution, other than Permitted Transfers.

7.2 Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year; Change in Control. Change its name or the Borrower State or relocate its chief executive office without 30 days prior written notification to Bank; replace its chief executive officer or chief financial officer without 30 days prior written notification to Bank; engage in any business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; change its fiscal year end; have a Change in Control; notwithstanding the foregoing, the provisions of this Section 7.2 shall not apply to Borrower’s appointment of W. Thomas Amick as its Chief Executive Officer on or about the date hereof.

7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (i) such transactions do not in the aggregate exceed $250,000 during any fiscal year, (ii) no Event of Default has occurred, is continuing or would exist after giving effect to such transactions, (iii) such transactions do not result in a Change in Control, and (iv) Borrower is the surviving entity.

7.4 Indebtedness. Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary so to do, other than Permitted Indebtedness, or prepay any Indebtedness or take any actions which impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness to Bank.

7.5 Encumbrances. Create, incur, assume or allow any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant to any other Person that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower’s property.

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7.6 Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, except that Borrower may (i) repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase, and (ii) repurchase the stock of former employees pursuant to stock repurchase agreements by the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists.

7.7 Investments. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do, other than Permitted Investments, or maintain or invest any of its property with a Person other than Bank or Bank’s Affiliates or permit any Subsidiary to do so unless such Person has entered into a control agreement with Bank, in form and substance satisfactory to Bank, or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.

7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision affecting Bank’s rights contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.

7.10 Inventory and Equipment. Store the Inventory or the Equipment with a bailee, warehouseman, or similar third party unless the third party has been notified of Bank’s security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in the ordinary course of business and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at the location set forth in Section 10 and such other locations of which Borrower gives Bank prior written notice and as to which Bank files a financing statement where needed to perfect its security interest.

7.11 No Investment Company; Margin Regulation. Become or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.

8. EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:

8.1 Payment Default. If Borrower fails to pay any of the Obligations when due;

8.2 Covenant Default.

(a) If Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of this Agreement; or

(b) If Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within 10 days after Borrower receives notice thereof or

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any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the 10 day period or cannot after diligent attempts by Borrower be cured within such 10 day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made;

8.3 Material Adverse Change. If there occurs any circumstance or circumstances which could have a Material Adverse Effect;

8.4 Intentionally Omitted.

8.5 Attachment. If any material portion of Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within 10 days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be made during such cure period);

8.6 Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within 30 days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);

8.7 Other Agreements. If there is a default or other failure to perform in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of $250,000 or that would reasonably be expected to have a Material Adverse Effect;

8.8 Subordinated Debt. If Borrower makes any payment on account of Subordinated Debt, except to the extent the payment is allowed under any subordination agreement entered into with Bank;

8.9 Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least $250,000 shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of 10 days (provided that no Credit Extensions will be made prior to the satisfaction or stay of the judgment); or

8.10 Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.

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9. BANK’S RIGHTS AND REMEDIES.

9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:

(a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5 (insolvency), all Obligations shall become immediately due and payable without any action by Bank);

(b) Demand that Borrower (i) deposit cash with Bank in an amount equal to the amount of any letters of credit remaining undrawn, as collateral security for the repayment of any future drawings under such letters of credit, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of the letters of credit, and Borrower shall promptly deposit and pay such amounts;

(c) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;

(d) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;

(e) Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower’s owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise;

(f) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, and (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank;

(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements shall inure to Bank’s benefit;

(h) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate. Bank may sell the Collateral without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Bank, and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale;

(i) Bank may credit bid and purchase at any public sale;

(j) Apply for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of the Obligations; and

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(k) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.

Bank may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

9.2 Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (g) enter into a short-form intellectual property security agreement consistent with the terms of this Agreement for recording purposes only or modify, in its sole discretion, any intellectual property security agreement entered into between Borrower and Bank without first obtaining Borrower’s approval of or signature to such modification by amending Exhibits A, B, and C, thereof, as appropriate, to include reference to any right, title or interest in any Copyrights, Patents or Trademarks acquired by Borrower after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or Trademarks in which Borrower no longer has or claims to have any right, title or interest; and (h) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in clauses (g) and (h) above, regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide advances hereunder is terminated.

9.3 Accounts Collection. At any time after the occurrence and during the continuation of an Event of Default, Bank may notify any Person owing funds to Borrower of Bank’s security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.

9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities who have a valid claim for payment, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Line as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.

9.5 Bank’s Liability for Collateral. Bank has no obligation to clean up or otherwise prepare the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.

9.6 No Obligation to Pursue Others. Bank has no obligation to attempt to satisfy the Obligations by collecting them from any other person liable for them and Bank may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Bank’s rights against Borrower. Borrower waives any right it may have to require Bank to pursue any other Person for any of the Obligations.

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9.7 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. Borrower expressly agrees that this Section 9.7 may not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise.

9.8 Demand; Protest. Except as otherwise provided in this Agreement, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations.

10. NOTICES.

Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:

If to Borrower:	ALDAGEN, INC.
	2810 Meridian Parkway, Suite 148
	Durham, NC 27713
	Attn: Ed Field – President and CEO
	FAX: (919) 484-8792
If to Bank:	Square 1 Bank
	406 Blackwell Street, Suite 240
	Crowe Building
	Durham, NC 27701
	Attn: Manager
	FAX: (919) 314-3080
with a copy to:	Square 1 Bank
	406 Blackwell Street, Suite 240
	Crowe Building
	Durham, NC 27701
	Attn: Peter Meath – Vice President
	FAX: (919) 314-3080

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.

11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of North Carolina, without regard to principles of conflicts of law. BANK AND BORROWER WAIVE ANY RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREIN, INCLUDING CLAIMS BASED ON CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER COMMON LAW OR STATUTORY BASES. Borrower submits to the exclusive jurisdiction of the state and federal courts located in the Counties of Durham or Wake, State of North Carolina. If the jury waiver set forth in this Section is not enforceable, then any dispute, controversy or claim arising out of or relating to this Agreement or any of the transactions contemplated herein will be finally settled by binding arbitration in Durham, North Carolina in accordance with the then-current Commercial

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Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator shall apply North Carolina law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph. The expenses of the arbitration, including the arbitrator’s fees and expert witness fees, incurred by the parties to the arbitration, may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or a share) of such expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.

12. GENERAL PROVISIONS.

12.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder.

12.2 Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its officers, employees and agents as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorneys fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct.

12.3 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.

12.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

12.5 Amendments in Writing, Integration. All amendments to or terminations of this Agreement or the other Loan Documents must be in writing. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the Loan Documents.

12.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement.

12.7 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding or Bank has any obligation to make any Credit Extension to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.

12.8 Confidentiality. In handling any confidential information, Bank and all employees and agents of Bank shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries

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or Affiliates of Bank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information.

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

ALDAGEN, INC.
By:	/s/ W. Thomas Amick
Title:	Chairman, CEO
SQUARE 1 BANK
By:	/s/ Peter Meath
Title:	VP

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EXHIBIT A

DEFINITIONS

“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.

“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners.

“Bank Expenses” means all reasonable costs or expenses (including reasonable attorneys’ fees and expenses generated by outside counsel) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses (generated by outside counsel) incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.

“Bridge Loan” has the meaning ascribed to such term in Section 2.1(b) hereof.

“Bridge Loan Maturity Date” means the earlier of (i) July 31, 2006 or (ii) the date upon which Borrower has received at least $5,000,000 in New Equity.

“Borrower State” means Delaware, the state under whose laws Borrower is organized.

“Borrower’s Books” means all of Borrower’s books and records including: ledgers; records concerning Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.

“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of North Carolina are authorized or required to close.

“Cash” means unrestricted cash and cash equivalents.

“Change in Control” shall mean a transaction in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.

“Chief Executive Office State” means North Carolina, where Borrower’s chief executive office is located.

“Closing Date” means the date of this Agreement.

“Code” means the North Carolina Uniform Commercial Code as amended or supplemented from time to time.

“Collateral” means the property described on Exhibit B attached hereto and all Negotiable Collateral and Intellectual Property Collateral to the extent not described on Exhibit B, except to the extent any such property (i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral, or

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(iii) constitutes the capital stock of a controlled foreign corporation (as defined in the IRC), in excess of 65% of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote.

“Collateral State” means the state or states where the Collateral is located, which is North Carolina.

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.

“Credit Extension” means the Bridge Loan, or any other extension of credit by Bank to or for the benefit of Borrower hereunder.

“Environmental Laws” means all laws, rules, regulations, orders and the like issued by any federal state, local foreign or other governmental or quasi-governmental authority or any agency pertaining to the environment or to any hazardous materials or wastes, toxic substances, flammable, explosive or radioactive materials, asbestos or other similar materials.

“Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.

“Event of Default” has the meaning assigned in Article 8.

“GAAP” means generally accepted accounting principles, consistently applied, as in effect from time to time.

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations.

“Insolvency Proceeding” means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

“Intellectual Property Collateral” means all of Borrower’s right, title, and interest in and to the following:

(a) Copyrights, Trademarks and Patents;

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(b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;

(c) Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;

(d) Any and all claims for damages by way of past, present and future infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;

(e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights;

(f) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and

(g) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing.

“Inventory” means all present and future inventory in which Borrower has any interest.

“Investment” means any beneficial ownership of (including stock, partnership or limited liability company interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.

“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

“Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, and any other document, instrument or agreement entered into in connection with this Agreement, all as amended or extended from time to time.

“Material Adverse Effect” means a material adverse effect on (i) the business operations, condition (financial or otherwise) or prospects of Borrower and its Subsidiaries taken as a whole, (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents, or (iii) Borrower’s interest in, or the value, perfection or priority of Bank’s security interest in the Collateral.

“Negotiable Collateral” means all of Borrower’s present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and chattel paper, and Borrower’s Books relating to any of the foregoing.

“New Equity” means cash proceeds received after the Closing Date from the sale or issuance of Borrower’s equity securities.

“Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

“Periodic Payments” means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.

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“Permitted Indebtedness” means:

(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;

(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;

(c) Indebtedness not to exceed $250,000 in the aggregate in any fiscal year of Borrower secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness;

(d) Subordinated Debt;

(e) Indebtedness to trade creditors incurred in the ordinary course of business; and

(f) Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

“Permitted Investment” means:

(a) Investments existing on the Closing Date disclosed in the Schedule;

(b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) Bank’s certificates of deposit maturing no more than one year from the date of investment therein, and (iv) Bank’s money market accounts;

(c) Repurchases of stock from former employees or directors of Borrower under the terms of applicable repurchase agreements (i) in an aggregate amount not to exceed $250,000 in any fiscal year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases, or (ii) in any amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former employees to Borrower regardless of whether an Event of Default exists;

(d) Investments accepted in connection with Permitted Transfers;

(e) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed $250,000 in the aggregate in any fiscal year;

(f) Investments not to exceed $250,000 in the aggregate in any fiscal year consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower’s Board of Directors;

(g) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business;

(h) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (h) shall not apply to Investments of Borrower in any Subsidiary; and

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(i) Joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed $250,000 in the aggregate in any fiscal year.

“Permitted Liens” means the following:

(a) Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Advances) or arising under this Agreement or the other Loan Documents;

(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower maintains adequate reserves, provided the same have no priority over any of Bank’s security interests;

(c) Liens not to exceed $250,000 in the aggregate (i) upon or in any Equipment (other than Equipment financed by an Equipment Advance) acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;

(d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (e) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;

(e) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.5 (attachment) or 8.9 (judgments); and

(f) Liens securing Subordinated Debt.

“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition by Borrower or any Subsidiary of:

(a) Inventory in the ordinary course of business;

(b) licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business;

(c) worn-out or obsolete Equipment not financed with the proceeds of Equipment Advances; or

(d) other assets of Borrower or its Subsidiaries that do not in the aggregate exceed $250,000 during any fiscal year.

“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.

“Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.

“Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and the Controller of Borrower.

“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.

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“SOS Reports” means the official reports from the Secretaries of State of each Collateral State, Chief Executive Office State and the Borrower State and other applicable federal, state or local government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report.

“Subordinated Debt” means any debt incurred by Borrower that is subordinated in writing to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank).

“Subsidiary” means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership interest or (ii) more than 50% of the stock, limited liability company interest or joint venture of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.

“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

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DEBTOR	ALDAGEN, INC.
SECURED PARTY:	SQUARE 1 BANK

EXHIBIT B

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:

(a) all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), financial assets, general intangibles (including patents, trademarks, copyrights, goodwill, payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records;

(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the North Carolina Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9 of the Uniform Commercial Code-Secured Transactions.

FIRST AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This First Amendment (the “Amendment”) to that certain Loan and Security Agreement dated March 21, 2006 (as may be amended from time to time, and together with related documents, the “Existing Loan Agreement”), between Aldagen, Inc. (“Borrower”) and Square 1 Bank (“Bank”) is made as of this 26th day of July, 2006.

Now, therefore, Borrower and Bank wish to amend the Existing Loan Agreement as follows:

1) The definition of “Bridge Loan Maturity Date” in Exhibit A is hereby amended and restated as follows:

“Bridge Loan Maturity Date’ means the earlier of (i) August 30, 2006 or (ii) the date upon which the Borrower has received at least $5,000,000 in New Equity.”

2) The Existing Loan Agreement is hereby amended wherever necessary to reflect the changes described above.

3) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, (i) no other portion of the Agreement is amended hereby and (ii) the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.

4) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

(a) this Amendment, duly executed by Borrower;

(b) all reasonable Bank Expenses incurred through the date of this Amendment, including a $500 documentation fee, which may be debited from any of Borrower’s accounts; and

(c) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

5) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

6) By signing below, the parties confirm that in modifying the Existing Loan Agreement, Bank is relying upon Borrower’s representations, warranties, and agreements as set forth in the Existing Loan Agreement. Except as expressly modified hereby, the Existing Loan Agreement remains unchanged and in full force and effect. Bank’s agreement to amend the Existing Loan Agreement in no way obligates Bank to make any future amendments to any other provisions of the Existing Loan Agreement.

BORROWER		BANK
Aldagen, Inc.		Square 1 Bank
By:	/s/ W. Thomas Amick	By:	/s/ Peter Meath
Its:		Its:	VP

SECOND AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This Second Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of August 30, 2006, by and between SQUARE 1 BANK (“Bank”) and ALDAGEN, INC. (“Borrower”).

RECITALS

Borrower and Bank are parties to that certain Loan and Security Agreement dated as of March 21, 2006, as amended from time to time including by that certain First Amendment to Loan and Security Agreement dated as of March 21, 2006 (the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, the parties agree as follows:

1. The following defined term in Exhibit A of the Agreement hereby is amended and restated to read as follows:

“Bridge Loan Maturity Date” means the earlier of (i) November 30, 2006 or (ii) the date upon which Borrower has received at least $5,000,000 in New Equity.

2. Section 2.1(b)(i) of the Agreement is hereby amended and restated in its entirety to read as follows:

“Subject to and upon the terms and conditions of this Agreement, on the Closing Date or as soon thereafter as is practical, Bank shall make one bridge loan to Borrower in an aggregate amount not to exceed $3,000,000 (the “Bridge Loan”), which amount shall be used to support the general capital needs of Borrower.”

3. No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank’s failure at any time to require strict performance by Borrower of any provision shall not affect any right of Bank thereafter to demand strict compliance and perfomance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.

4. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.

5. Borrower represents and wanants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.

6. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

(a) this Amendment, duly executed by Borrower;

(b) a Certificate of the Secretary of Borrower with respect to incumibency and resolutions authorizing the execution and delivery of this Amendment;

(c) an amendment fee in the amount of $2,500, which may be debited from any of Borrower’s accounts;

(d) a Warrant to purchase stock;

(e) all reasonable Bank Expenese incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and

(f) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

7. This Amendment may be executed in two of more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

ALDAGEN, INC.
By:	/s/ W. Thomas Amick

Title: Chairman & CEO

SQUARE 1 BANK
By:	/s/ Peter Meath

Title: VP—Venture Banking

THIRD AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This Third Amendment (the “Amendment”) to that certain Loan and Security Agreement dated March 21, 2006 (as may be amended from time to time, and together with related documents, the “Existing Loan Agreement”), between Aldagen, Inc. (“Borrower”) and Square 1 Bank (“Bank”) is made as of this 29th day of November, 2006.

Now, therefore, Borrower and Bank wish to amend the Existing Loan Agreement as follows:

1) The definition of “Bridge Loan Maturity Date” in Exhibit A is hereby amended and restated as follows:

‘“Bridge Loan Maturity Date’ means December 15, 2006 or (ii) the date upon which the Borrower has received at least $5,000,000 in New Equity.”

2) The Existing Loan Agreement is hereby amended wherever necessary to reflect the changes described above.

3) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, (i) no other portion of the Agreement is amended hereby and (ii) the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.

4) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

(a) this Amendment, duly executed by Borrower;

(b) all reasonable Bank Expenses incurred through the date of this Amendment, including a $250 documentation fee, which may be debited from any of Borrower’s accounts; and

(c) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

5) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

6) By signing below, the parties confirm that in modifying the Existing Loan Agreement, Bank is relying upon Borrower’s representations, warranties, and agreements as set forth in the Existing Loan Agreement Except as expressly modified hereby, the Existing Loan Agreement remains unchanged and in full force and effect. Bank’s agreement to amend the Existing Loan Agreement in no way obligates Bank to make any future amendments to any other provisions of the Existing Loan Agreement.

BORROWER		BANK
Aldagen, Inc.		Square 1 Bank
By:	/s/ W. Thomas Amick	By:	/s/ Illegible
Its:	Chairman, CEO	Its:	Vice President

FOURTH AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This Fourth Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of December 4, 2006, by and between SQUARE 1 BANK (“Bank”) and ALDAGEN, INC. (“Borrower”).

RECITALS

Borrower and Bank are parties to that certain Loan and Security Agreement dated as of March 21, 2006, as amended from time to time including by that certain First Amendment to Loan and Security Agreement dated as of July 26, 2006, that certain Second Amendment to Loan and Security Agreement dated as of August 30, 2006 and that certain Third Amendment to Loan and Security Agreement dated as of November 29, 2006 (the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, the parties agree as follows:

1. The following defined term in Exhibit A of the Agreement hereby is amended and restated to read as follows:

“Bridge Loan Maturity Date” means May 30, 2010.

“New Equity” means cash proceeds received after November 15, 2006 from the sale or issuance of Borrower’s equity securities.

2. Section 2.1 (b)(ii) of the Agreement is hereby amended and restated in its entirety to read as follows:

“(ii) Interest shall accrue from the date the Bridge Loan is made at the rate specified in Section 2.3(a), and shall be payable quarterly on the last day of each calendar quarter commencing on December 31, 2006 in accordance with Section 2.3(c). The Bridge Loan shall be payable in 24 equal monthly installments of principal, plus all accrued interest, beginning on June 30, 2008, and continuing on the same day of each month thereafter through the Bridge Loan Maturity Date, at which time all amounts due in connection with the Bridge Loan shall be immediately due and payable. The Bridge Loan, once repaid, may not be reborrowed. Borrower may prepay the Bridge Loan without penalty or premium.”

Section 2.3(a) of the Agreement is hereby amended and restated in its entirety to read as follows:

“(a) Interest Rate for Bridge Loan. Except as set forth in Section 2.3(b), the Bridge Loan shall bear interest, on the outstanding daily balance thereof, at a variable rate equal to (i) 1.00% above the Prime Rate from the Closing Date through May 29, 2008 and (ii) 1.50% above the Prime Rate at all times thereafter.”

4. Section 2.3(c) of the Agreement is hereby amended and restated in its entirety to read as follows:

“(c) Payments. Interest hereunder shall be due and payable on the last calendar day of each calendar quarter during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts or against the Bridge Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.”

5. Section 6.7 of the Agreement is hereby amended and restated in its entirety to read as follows:

“6.7 New Equity; Milestones. Borrower shall achieve the following

(a) New Equity. Borrower shall have received at least (i) $6,700,000 in New Equity no later than December 15, 2006 and (ii) an additional $3,300,000 in New Equity no later than June 30, 2007.

(b) Milestones.

(i) Borrower shall have successfully completed patient enrollment and collection of neutrophil engraftment, platelet engraftment and 180 day survival data in its Phase 1 cord blood study no later than May 30, 2007.

(ii) Borrower shall have successfully completed 10 patient enrollments and collection of safety data and 6 month data points on qualify of life and exercise capacity in chronic heart failure study no later than October 31, 2007.

(iii) Borrower shall have successfully completed 20 patient enrollments and collection of safety data and 3 month data points of transcutaneous oxygen pressure (increased blood flow to appendage), rest pain and quality of life in Phase I/II critical limb ischemia study no later than November 30, 2007.

In each case, Borrower’s investors shall have confirmed achievement of each Milestone to Bank’s satisfaction.

6. No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank’s failure at any time to require strict performance by Borrower of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must be in writing signed by an officer of Bank.

7. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.

8. Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.

9. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

(a) this Amendment, duly executed by Borrower;

(b) a Certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;

(c) an amendment fee in the amount of $2,500, which may be debited from any of Borrower’s accounts;

(d) a Warrant to purchase stock;

(e) all reasonable Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and

(f) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

10. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

ALDAGEN, INC.
By:	/s/ W. Thomas Amick
Title
SQUARE 1 BANK
By:	/s/ Illegible
Title

FIFTH AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This Fifth Amendment to Loan and Security Agreement (this “Amendment”) is entered into as of December 14, 2006, by and between SQUARE 1 BANK (“Bank”) and ALDAGEN, INC. (“Borrower”).

RECITALS

Borrower and Bank are parties to that certain Loan and Security Agreement dated as of March 21, 2006, as amended from time to time including by that certain First Amendment to Loan and Security Agreement dated as of July 26, 2006, that certain Second Amendment to Loan and Security Agreement dated as of August 30, 2006, that certain Third Amendment to Loan and Security Agreement dated as of November 29, 2006 and that certain Fourth Amendment to Loan and Security Agreement dated as of December 4, 2006 (the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, the parties agree as follows:

1. The following defined term in Exhibit A of the Agreement hereby is amended and restated to rend as follows:

“Collateral” means the property described on Exhibit B attached hereto and all Negotiable Collateral to the extent not described on Exhibit B, except to the extent any such property (i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral, or (iii) constitutes the capital stock of a controlled foreign corporation (as defined in the JRC), in excess of 65% of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote.

2. The defined terms “Copyrights”, “Intellectual Property Collateral”, “Patents” and ‘Trademarks” are hereby deleted from the Agreement in their entirety.

3. Section 4.1 of the Agreement is hereby amended and restated in its entirety to read as follows:

“4.1 Grant of Security Interest. Borrower grants and pledges to Bank a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral. Borrower also hereby agrees to not sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its intellectual property. Notwithstanding any termination, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.”

4. Section 5.4 of the Agreement is hereby amended and restated in its entirety to read as follows:

“5.4 Intellectual Property. Borrower is the sole owner of its patents, trademarks, copyrights and other intellectual properly, except for non-exclusive licenses granted by Borrower to its customers in the ordinary course of business. To the best of Borrower’s knowledge, each of Borrower’s patents, trademarks and copyrights is valid and enforceable, and no part of its intellectual property has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of its Intellectual properly violates the rights of any third party except to the extent such claim would not reasonably be expected to cause a Material Adverse Effect.”

5. Section 6.2(vii) of the Agreement is hereby deleted in its entirety.

6. Section 6.7(a) of the Agreement is hereby amended and restated in its entirety to read as follows:

(a) New Equity. Borrower shall have received at least (i) $6,600,000 in New Equity no later than December 21, 2006 and (ii) an additional $3,330,000 in New Equity no later than (a) November 30, 2007.”

7. The last sentence of Section 6.7 is hereby amended and restated in its entirety to read as follows:

“In each case, (a) Borrower will confirm achievement of each Milestone in writing to Bank and Borrower’s investors (each such confirmation, a “Notice”), and (b) Borrower’s investors shall subsequently confirm in writing to Bank, to Bank’s satisfaction, that Borrower’s investors have received the applicable Notice from Borrower and, to such investor’s knowledge, the maters expressed in such notice are true and correct.”

8. Section 6.8 of the Agreement is hereby amended and restated in its entirety to read as follows:

“6.8 Intentionally Omitted.”

9. Section 7.1 of the Agreement is hereby amended and restated in its entirety lo read as follows:

“7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, including its intellectual property, or move cash balances on deposit with Bank to accounts opened at another financial institution, other than Permitted Transfers.”

10. Section 7.5 of the Agreement is hereby amended and restated in its entirety to read as follows:

“Encumbrances. Create, incur, assume or allow any Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens. Agree with any Person other than Bank not to grant a security interest in, or otherwise encumber, any of its or covenant to any Other Person that Borrower in the future will refrain from creating, incurring, assuming or allowing any Lien will respect to any of Borrower’s property, or permit any Subsidiary to do so.”

11. A new Section 8.11 is hereby added to the Agreement as follows:

“8.11 Investor Support. If Borrower investors (as determined by Bank in its sole discretion) inform Bank that Borrower has not met any investor mandated milestone such that Borrower’s investors will not provide Borrower with the New Equity required by this Agreement.”

12. Section 9.2 of the Agreement is hereby amended and restated in its entirety to read as follows:

“9.2 Power of Attorney. Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (c) make, settle, and adjust disputes and claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; and (g) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of Borrower where permitted by law; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in clause (g) above, regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide advances hereunder is terminated.”

13. Exhibit B to the Agreement is hereby replaced with Exhibit B attached hereto.

14. No course of dealing on the part of Bank or its officers, nor any failure or delay in the exercise of any right by Bank, shall operate as a waiver thereof, and any single or partial exercise of any such right shall not preclude any later exercise of any such right. Bank’s failure at any time to require strict performance by Borrower of any provision shall not affect any right of Bank thereafter to demand strict compliance and performance. Any suspension or waiver of a right must by in writing signed by on officer of Bank.

15. Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Back under the Agreement, as in effect prior to the date hereof.

16. Borrower represents and warrants that the Representations and Warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing.

17. As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

(a) this Amendment, duly executed by Borrower;

(b) a Certificate of the Secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment;

(c) a facility fee in the amount of $7,000 which may be debited from any of Borrower’s accounts;

(d) a bank documentation fee of $500 which may be debited from any of Borrower’s accounts;

(e) all other reasonable Bank Expenses incurred through the date of this Amendment, which may be debited from any of Borrower’s accounts; and

(f) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

18. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

ALDAGEN, INC.
By:	/s/ Edward L. Field
Title:	President & COO
SQUARE 1 BANK
By:	/s/ Illegible
Title:	VP

DEBTOR	ALDAGEN, INC.
SECURED PARTY:	SQUARE 1 BANK

EXHIBIT B

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:

(a) all accounts (including health-care insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), financial assets, general intangibles (including patents, trademarks, copyrights, goodwill, payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records;

(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the North Carolina Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9 of the Uniform Commercial Code-Secured Transactions.

Notwithstanding the foregoing, the Collateral shall not include any copyrights, patents, trademarks, servicemarks and applications therefor, now owned or hereafter acquired, or any claims for damages by way of any past, present and future infringement of any of the foregoing (collectively, the “Intellectual Property”); provided, however, that the Collateral shall include all accounts and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the “Rights to Payment”). Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of March 21, 2006, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in the Rights to Payment.

SIXTH AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This Sixth Amendment (the “Amendment”) to that certain Loan and Security Agreement dated March 21, 2006 (as may be amended from time to time, and together with related documents, the “Existing Loan Agreement”), between Aldagen, Inc. (“Borrower”) and Square 1 Bank (“Bank”) is made as of this 27th day of November, 2007.

Now, therefore, Borrower and Bank wish to amend the Existing Loan Agreement as follows:

1) The following definition in Exhibit A is hereby amended and restated as follows:

“Permitted Indebtedness” means:

(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;

(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;

(c) Indebtedness not to exceed $260,000 in the aggregate in any fiscal year of Borrower secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed at the time it is incurred the lesser of the cost or fair market value of the property financed with such Indebtedness;

(d) Subordinated Debt;

(e) Indebtedness to trade creditors incurred in the ordinary course of business; and

(f) Extensions, refinancings and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

2) The Existing Loan Agreement is hereby amended wherever necessary to reflect the changes described above.

3) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, (i) no other portion of the Agreement is amended hereby and (ii) the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.

4) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

(a) this Amendment, duly executed by Borrower;

(b) all reasonable Bank Expenses incurred through the date of this Amendment, including a $250 documentation fee, which may be debited from any of Borrower’s accounts; and

(c) such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

5) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

6) By signing below, the parties confirm that in modifying the Existing Loan Agreement, Bank is relying upon Borrower’s representations, warranties, and agreements as set forth in the Existing Loan Agreement. Except as expressly modified hereby, the Existing Loan Agreement remains unchanged and in full force and effect. Bank’s agreement to amend the Existing Loan Agreement in no way obligates Bank to make any future amendments to any other provisions of the Existing Loan Agreement.

BORROWER		BANK
Aldagen, Inc.		Square 1 Bank
By:	/s/ Edward L. Field	By:	/s/ Illegible
Its:	President	Its:	SVP

SEVENTH AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This Seventh Amendment (the “Amendment”) to that certain Loan and Security Agreement dated March 21, 2006 (as may be amended from time to time, and together with related documents, the “Agreement”), between Aldagen, Inc. (“Borrower”) and Square 1 Bank (“Bank”) is made as of this 21st day of December, 2007.

Now, therefore, Borrower and Bank wish to amend the Agreement as follows:

1) Section 6.7(b)(ii) is hereby amended and restated as follows:

“Borrower shall have successfully completed 10 patient enrollments and collection of safety data and 6 month data points on quality of life and exercise capacity in chronic heart failure study no later than March 31, 2008.”

2) Section 6.7(b)(iii) is hereby amended and restated as follows:

“Borrower shall have successfully completed 10 patient enrollments and collection of safety data and 3 month data points of transcutaneous oxygen pressure (increased blood flow to appendage), rest pain and quality of life in Phase I/II critical limb ischemia study no later than March 31, 2008.”

3) The Agreement is hereby amended wherever necessary to reflect the changes described above.

4) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, (i) no other portion of the Agreement is amended hereby and (ii) the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.

5) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

(a) this Amendment, duly executed by Borrower;

(b) all reasonable Bank Expenses incurred through the date of this Amendment, including a $250 documentation fee, which may be debited from any of Borrower’s accounts; and

(c) such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

6) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

7) By signing below, the parties confirm that in modifying the Agreement, Bank is relying upon Borrower’s representations, warranties, and agreements as set forth in the Agreement. Except as expressly modified hereby, the Agreement remains unchanged and in full force and effect. Bank’s agreement to amend the Agreement in no way obligates Bank to make any future amendments to any other provisions of the Agreement.

BORROWER		BANK
Aldagen, Inc.		Square 1 Bank
By:	/s/ Edward L. Field	By:	/s/ Illegible
Its:	President	Its:	AVP

EIGHTH AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This Eighth Amendment to Loan and Security Agreement (the “Amendment”), is entered into as of April 9, 2008, by and between SQUARE 1 BANK (the “Bank”) and ALDAGEN, INC. (the “Borrower”).

RECITALS

Borrower and Bank are parties to that certain Loan and Security Agreement dated as of March 21, 2006 (as amended from time to time, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, the parties agree as follows:

1) Section 2.1(b)(ii) of the Agreement is hereby amended and restated as follows:

(ii) Interest shall accrue from the date the Bridge Loan is made at the rate specified in Section 2.3(a), and shall be payable quarterly on the last day of each calendar quarter commencing on December 31, 2006 in accordance with Section 2.3(c). The Bridge Loan shall be payable in 17 equal monthly installments of principal, plus all accrued interest, beginning on January 31, 2009, and continuing on the same day of each month thereafter through the Bridge Loan Maturity Date, at which time all amounts due in connection with the Bridge Loan shall be immediately due and payable. Bridge Loan, once repaid, may not be reborrowed. Borrower may prepay the Bridge Loan without penalty or premium.

2) Section 2.3(a) of the Agreement is hereby amended and restated as follows:

(a) Interest Rate for Bridge Loan. Except as set forth in Section 2.3(b), the Bridge Loan shall bear interest, on the outstanding daily balance thereof, at a variable annual rate equal to 1.50% above the Prime Rate then in effect.

3) Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.

4) Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment.

5) This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

6) As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

a) this Amendment, duly executed by Borrower;

b) payments for all Bank Expenses incurred through the date of this Amendment, including a $250 In House Documentation Fee, which may be debited from any of Borrower’s accounts; and

c) such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

Aldagen, Inc.		Square 1 Bank
By:	/s/ Edward L. Field	By:	/s/ Illegible
Its:	President	Its:	VP

EX-10.6

Exhibit 10.6

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

LICENSE AGREEMENT

THIS LICENSE AGREEMENT (the “AGREEMENT”) made and entered into October 12, 2000 (the “EFFECTIVE DATE”), by and between DUKE UNIVERSITY, a North Carolina not-for-profit corporation, (hereinafter called “DUKE”), having its principal office at Durham, North Carolina 27708, and STEMCO BIOMEDICAL, INC., a Delaware corporation organized under the laws of Delaware (hereinafter called “STEMCO”), having a mailing address at P.O. Box 14509, Research Triangle Park, North Carolina 27709.

WHEREAS, [ * ], and [ * ] are inventors of an invention (the “[ * ] INVENTION” hereinafter) described in Duke Office of Science and Technology File #[ * ] and in related patent applications defined hereinafter; and

WHEREAS, [ * ], and [ * ] are inventors of an invention (the “[ * ] INVENTION” hereinafter) described in Duke Office of Science and Technology File #[ * ] and in related patent applications defined hereinafter; and

WHEREAS, DUKE has the right to grant licenses to the [ * ] INVENTION and to the [ * ] INVENTION under PATENT RIGHTS (as hereinafter defined), and wishes to have the inventions covered by the PATENT RIGHTS utilized in the public interest; and

WHEREAS, subject to certain U.S. Government rights disclosed herein, DUKE represents that it is the sole owner of the entire right, title and interest in and to said inventions and PATENT RIGHTS; and

WHEREAS, STEMCO has informed DUKE that it wishes to obtain an exclusive license to commercialize the [ * ] INVENTION and the [ * ] INVENTION under the terms and conditions specified hereinafter; and

WHEREAS, STEMCO represents that it intends to develop and commercialize the PATENT RIGHTS so that products made under the PATENT RIGHTS shall become available to the public;

NOW THEREFORE, in consideration of the premises and the faithful performance of the covenants herein contained, IT IS AGREED:

ARTICLE 1 - DEFINITIONS

1.01 - For the purposes of this AGREEMENT, and solely for that purpose, the terms and phrases set forth hereinafter in capital letters shall be defined as follows:

a. “INVENTORS” shall mean [ * ], and [ * ].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 1 of 20

b. “FIELD” shall mean all uses of KNOW-HOW and PATENT RIGHTS, specifically including, without limitation, research and development, diagnosis, prevention, therapy, and monitoring of all human and animal diseases or disorders.

c. “PATENT RIGHTS” shall mean all U.S. and foreign Patent Applications filed to protect the [ * ] INVENTION or the [ * ] INVENTION and any patent now issued or hereafter issuing on any such patent application, substitutes, continuations, extensions, renewals, reissues, reexaminations, additions, continuations-in-part, divisionals, or reissues thereof and any patent revalidations, registrations, supplementary protection certificates, patents of importation or cautionary notices thereof in connection with the [ * ] INVENTION or [ * ] INVENTION. As of the EFFECTIVE DATE of this AGREEMENT, PATENT RIGHTS related to the [ * ] INVENTION consist of a provisional application filed in the USA numbered [ * ], a PCT application numbered [ * ], a US patent application numbered [ * ], and EPC, Australian, Canadian, and Japanese patent applications filed based on the PCT applications that have not yet been assigned numbers. As of the EFFECTIVE DATE of this AGREEMENT, PATENT RIGHTS related to the [ * ] INVENTION consist of a provisional application filed in the USA numbered [ * ] and a PCT application designating all possible countries and numbered [ * ].

d. “KNOW-HOW” shall mean any research information, technical information, technical data or other information generated at DUKE by one of the INVENTORS prior to or during the term of this AGREEMENT, which relate to and are necessary for the practice of the PATENT RIGHTS in the FIELD. For avoidance of doubt, KNOW-HOW shall include all unpatented and unpatentable inventions, technology, cell lines, biological materials, compounds, probes, sequences, and methods necessary for the practice of the PATENT RIGHTS under this AGREEMENT. KNOW-HOW shall not, however, include any such materials or information or any uses of such materials and information that DUKE cannot provide to STEMCO on either an exclusive or non-exclusive basis because of other legal obligations of DUKE pursuant to sponsored research, clinical research, material transfer, confidentiality or other agreements.

e. “VALID CLAIM” means a claim of an issued patent which has not lapsed or become abandoned or been declared invalid or unenforceable by a court of competent jurisdiction or an administrative agency for which there is no right of appeal or for which the right of appeal is waived.

f. “LICENSED PRODUCT” shall mean any product which is produced or sold by STEMCO that utilizes the KNOW-HOW or that infringes one or more VALID CLAIMS of the PATENT RIGHTS, and which is intended for use in, or is used in, the FIELD.

g. “NET SALES” shall mean the total invoiced sales of LICENSED PRODUCTS sold by STEMCO, less the following sums actually paid or credited by STEMCO as shall be detailed in STEMCO’s reports made pursuant to Article 5.02 of this AGREEMENT:

(a) trade, quantity or cash discounts or commissions allowed in amounts customary in the trade;

(b) any tax, excise or other governmental charge upon or measured by the production, sale, transportation, delivery or use and duties imposed on the import of LICENSED PRODUCTS included in such amount;

(c) outbound transportation charges prepaid or allowed on the cost of shipping to customers, if any; and

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 2 of 20

(d) credits or allowances, if given or made for LICENSED PRODUCTS, price adjustments, returns, rejections, recalls or destructions (voluntarily made by or requested or made by an appropriate government agency, subdivision or department) of LICENSED PRODUCTS previously delivered.

LICENSED PRODUCTS used by STEMCO for its own use in the FIELD, LICENSED PRODUCTS sold to Affiliates, and internal sales for use in service businesses in arms length transactions shall be considered to be NET SALES for purposes of computing royalty obligations, except such LICENSED PRODUCT used for non-revenue producing activity such as promotional items or field trials shall not be considered to be NET SALES.

With respect to a LICENSED PRODUCT which is sold together with any other products and/or services in a country at a unit price, whether packaged together or separately or that is sold together with a delivery system comprising a device, equipment, instrumentation, or other components (but not solely containers or packaging) designed to assist in the preparation or administration of the LICENSED PRODUCT (a “BUNDLED PRODUCT”), the NET SALES of a BUNDLED PRODUCT shall first be calculated in accordance with the definition of NET SALES given in the preceding paragraph, and then the parties to this Agreement shall negotiate in good faith to determine by mutual agreement an equitable reduction in NET SALES which represents the proportionate economic value added by other products or the delivery system in BUNDLED PRODUCTS. Disputes concerning the determination of NET SALES of BUNDLED PRODUCTS shall be resolved according to Article 20 of this AGREEMENT.

h. “AFFILIATE” shall mean any entity that controls, is controlled by or is under common control with STEMCO. An entity shall be regarded as in control of another entity if it owns or controls more than fifty percent (50%) of the voting power of the entity.

i. “CAPITAL STOCK” shall mean common stock of STEMCO issued and outstanding by STEMCO prior to closing the first round of equity financing with outside investors. The fair market value and price of CAPITAL STOCK shall be deemed to be [ * ] per share. DUKE and STEMCO agree that all CAPITAL STOCK issued shall be dilutable to the same extent upon each stage of subsequent financing of STEMCO.

ARTICLE 2 - LICENSE

2.01 - DUKE hereby grants to STEMCO and STEMCO hereby accepts from DUKE, upon the terms and conditions herein specified, an exclusive worldwide license under the PATENT RIGHTS and a non-exclusive, world-wide license to KNOW-HOW to make, have made, use, import, offer to sell, sell, offer to provide and provide LICENSED PRODUCTS. Such licenses are worldwide to the full end of the term as provided in Article 11.01 herein, unless sooner terminated as hereinafter provided. DUKE hereby represents that it has the full right and authority to enter into this AGREEMENT, to grant the licenses provided herein and to perform its other obligations hereunder.

2.02 - STEMCO shall have the right to grant sub-licenses. Any such sub-licenses shall be subject to terms of this AGREEMENT. Royalties paid to DUKE for NET SALES of LICENSED PRODUCTS by sublicensees shall be equal to the royalties that would have been paid to DUKE if LICENSED PRODUCTS were sold directly by STEMCO. The terms of any non-cash sub-licenses will be negotiated by DUKE and STEMCO. STEMCO agrees to be responsible for the payment to DUKE of royalties on funds received by STEMCO from its sublicensees and for using commercially reasonable efforts to enforce the terms of the sublicense agreements. If, for any reason, this AGREEMENT is terminated, STEMCO agrees to assign all such sublicenses directly to DUKE.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 3 of 20

2.03 - It is agreed that, notwithstanding any provisions of this AGREEMENT, DUKE shall be free to use the [ * ] INVENTION, the [ * ] INVENTION, and PATENT RIGHTS for its own non-commercial educational, teaching, research and clinical purposes without restriction and without payment of royalties or other fees. Further, DUKE shall retain the right to provide materials related to the [ * ] INVENTION, the [ * ] INVENTION, and/or PATENT RIGHTS to other academic research institutions for their own non-commercial research purposes under a materials transfer agreement (“MTA”), a form of which is set forth in Appendix A herein, which shall stipulate that no commercial entity shall gain rights to the results or inventions arising from that institution’s research with the subject materials. In addition, notwithstanding any provisions of this Agreement, DUKE shall be free to use KNOW-HOW for its own educational, teaching, research and clinical purposes without restriction.

2.04 - Nothing in this AGREEMENT shall be construed to grant to DUKE any rights in the inventions, discoveries, technology, patent rights or other intellectual property developed by or for STEMCO or its AFFILIATES or sublicensees and which are not covered by the PATENT RIGHTS or KNOW-HOW.

2.05 - Nothing in this AGREEMENT shall be construed to confer any rights upon STEMCO by implication, estoppel, or otherwise as to any technology or intellectual property owned solely or jointly by DUKE which is not covered by the PATENT RIGHTS or KNOW-HOW as described in Article 1.01c. and Article 1.01d herein, respectively.

2.06 - Within thirty (30) days following the execution of this AGREEMENT and thereafter during the period of this AGREEMENT, DUKE agrees to provide STEMCO with reasonable access to all technical KNOW-HOW it may have or later obtain relative to the PATENT RIGHTS or KNOW-HOW, and with copies of any and all patents or patent applications owned or controlled by DUKE covering the PATENT RIGHTS or KNOW-HOW or the use of the PATENT RIGHTS or KNOW-HOW or processes for the manufacture of the LICENSED PRODUCTS, including all Patent Office actions received and amendments filed, if any, relative thereto.

ARTICLE 3 - GOVERNMENT RIGHTS

3.01 - DUKE hereby discloses to STEMCO and STEMCO acknowledges that the research leading to the [ * ] INVENTION and to the [ * ] INVENTION and to PATENT RIGHTS was funded in part by the U.S. Government, and the parties agree that, notwithstanding any use of descriptive terms such as “exclusive” in Article 2.01 herein and elsewhere in this AGREEMENT, the U.S. Government has certain rights in the [ * ] INVENTION and the [ * ] INVENTION as set forth in 37 CFR 401. STEMCO agrees to comply with all obligations resulting from such government rights, including, but not limited to, the requirement that any products sold in the United States based upon such technology be substantially manufactured in the United States.

ARTICLE 4 - CONSIDERATION

4.01 - As consideration for the rights granted by DUKE in this AGREEMENT, STEMCO shall transfer to DUKE upon execution of this AGREEMENT, ownership of [ * ] shares of the CAPITAL STOCK which shall be equal to [ * ] percent ([ * ]%)] of the issued and outstanding CAPITAL STOCK of STEMCO as of the date hereof. At the time that STEMCO closes on the sale of CAPITAL STOCK to the public through a registration statement registered under the Securities Act of 1933, as amended, DUKE’S shares will convert to voting shares of common stock.

4.02 - As further consideration for the rights granted by DUKE in this AGREEMENT, at the times and in the manner set forth hereinafter, STEMCO shall pay to DUKE a royalty on NET SALES of LICENSED PRODUCTS. Such royalty shall be at the rate of [ * ] percent ([ * ]%) of NET SALES of LICENSED PRODUCTS sold by STEMCO, by AFFILIATES, or by sublicensees; provided, however, that

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 4 of 20

STEMCO shall not be obliged to pay a total royalty on any LICENSED PRODUCT to all parties in excess of [ * ] percent ([ * ]%) of NET SALES. In the event that STEMCO’s total royalty obligation on a LICENSED PRODUCT exceeds [ * ] percent ([ * ]%) the amount of royalty paid to all parties will be decreased proportionately so that the total royalty obligation is reduced to [ * ] percent ([ * ]%); however, in no event shall the royalty paid to DUKE be less than [ * ] percent ([ * ]%). For avoidance of doubt, the parties agree that any other royalties due to DUKE for the LICENSED PRODUCTS based on other agreements between DUKE and STEMCO shall be included in the calculation of total royalties set forth in this paragraph.

4.03 - STEMCO will pay to DUKE a minimum annual royalty of [ * ] dollars ($[ * ]) per year beginning the calendar year that begins on the second January 1 after the [ * ].

4.04 - STEMCO will pay to DUKE a minimum annual royalty of [ * ] dollars ($[ * ]) per year beginning the calendar year that begins on the second January 1 after [ * ]. In the event that STEMCO is already obligated to pay a minimum annual royalty pursuant to Article 4.03 herein at the time such [ * ], then this Article 4.04 shall control and the minimum annual royalty due for such calendar year shall be [ * ] dollars ($[ * ]) per year.

4.05 - STEMCO has determined, for its internal corporate purposes only, that consideration paid to DUKE under this Article 4 will be allocated as follows: [ * ] percent ([ * ]%) as consideration for the license granted to the [ * ] INVENTION and related PATENT RIGHTS under Article 2 herein and [ * ] ([ * ]%) percent, as consideration for the license granted to the [ * ] INVENTION and related PATENT RIGHTS under Article 2 herein.

4.06 - DUKE shall be entitled to have one person reasonably acceptable to STEMCO attend all meetings of the Board of Directors of STEMCO as an observer for a period of five (5) years from the EFFECTIVE DATE of this AGREEMENT. Accordingly, STEMCO shall provide DUKE with reasonable advance notification regarding the time and place of each such meeting of the STEMCO Board of Directors.

ARTICLE 5 - RECORDS AND REPORTS

5.01 - STEMCO shall render to DUKE prior to February 28th of each year a written account of progress made toward fulfillment of any due diligence requirements and commercialization of PATENT RIGHTS pursuant to Article 6 herein.

5.02 - STEMCO shall render to DUKE prior to February 28th and August 31^st of each year a written account of the NET SALES of LICENSED PRODUCTS subject to royalty hereunder made during the prior six (6) month period ending December 31^st and June 30^th, respectively, and shall simultaneously pay to DUKE the royalties due on such NET SALES in United States Dollars. Reports tendered shall include the calculation of royalties by LICENSED PRODUCT by country in substantially the format provided in Appendix B hereto. Minimum annual royalties, if any, which are due DUKE for any calendar year, shall be paid by STEMCO along with the written report due on February 28^th of each year.

5.03 - STEMCO will make all payments on or before the date required by the terms of this AGREEMENT, or, in the case of reimbursement of patent costs under Articles 7.02, 7.03, and 7.04 herein, within thirty (30) days of any invoice date on invoices received from DUKE. If STEMCO has not paid any amount due to DUKE in accordance with this Article, DUKE shall increase the amount due (in US Dollars) by an annual percentage rate equal to [ * ] percent ([ * ]%) above the prime rate in effect at the Wachovia Bank (N.A.) (or its successor, as the case may be) on the due date. Such increase(s) shall compound monthly until such time as the STEMCO has met the full financial obligation due at the time of the next payment or invoice due date. The payment of such interest shall not foreclose DUKE from exercising any other rights it may have as a consequence of the lateness of the payment, including termination in accordance with Article 11.03 herein.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 5 of 20

5.04 - STEMCO shall keep full, true and accurate books of accounts and other records containing all particulars which may be necessary to properly ascertain and verify the royalties payable by it hereunder. Upon DUKE’s request, STEMCO shall permit an independent Certified Public Accountant selected by DUKE (except one to whom STEMCO has some reasonable objection) to have access during ordinary business hours to such of STEMCO’s records as may be necessary to determine, in respect of any quarter ending not more than [ * ] years prior to the date of such request, the correctness of any report and/or payment made under this AGREEMENT. Such Certified Public Accountant shall execute a written non-disclosure agreement reasonably acceptable to STEMCO. If such examination determines that STEMCO underpaid the royalties and other consideration due to DUKE by more than [ * ] percent ([ * ]%), STEMCO shall bear the cost of such examination.

5.05 - During the term of this AGREEMENT, representatives of DUKE will meet with representatives of STEMCO at times and places mutually agreed upon to discuss the progress and results, as well as ongoing plans, with respect to the evaluation and development of the PATENT RIGHTS licensed to STEMCO; provided, however, that should DUKE’s personnel be required by STEMCO to consult with STEMCO outside of Durham County, North Carolina, STEMCO will reimburse reasonable travel and living expenses incident thereto.

ARTICLE 6 - DUE DILIGENCE REQUIREMENTS

6.01 - STEMCO shall use reasonable commercial diligence in performing research and development to bring LICENSED PRODUCTS to market through a thorough, vigorous, and diligent program for exploitation of the PATENT RIGHTS, to develop manufacturing capabilities, and to continue active, diligent marketing efforts for LICENSED PRODUCTS throughout the term of this AGREEMENT, and to vigorously sublicense PATENT RIGHTS for applications STEMCO will not pursue throughout the life of this AGREEMENT. Further, it is agreed that STEMCO shall [ * ] at least one LICENSED PRODUCT [ * ].

6.02 - Within three (3) months of the EFFECTIVE DATE, STEMCO shall provide DUKE with a written business plan showing annual projections over a three (3) year period for the following: operating costs, revenue, capital expenditures, and funding.

6.03 - Within [ * ] of the EFFECTIVE DATE, STEMCO shall raise at least [ * ] in equity financing. Further, within [ * ] of the Effective Date, STEMCO shall raise an additional sum of equity financing equal to at least [ * ].

6.04 - DUKE may terminate this AGREEMENT or convert this AGREEMENT to a non-exclusive AGREEMENT if STEMCO fails to meet any of the commercialization milestones set forth in Articles 6.01, 6.02, and 6.03 herein and STEMCO has failed to cure such failure within ninety (90) days after receiving written notice from DUKE of such failure.

ARTICLE 7 - PATENTS

7.01 - Upon execution of this License Agreement, DUKE shall retain the primary responsibility for applying for, seeking prompt issuance of, and maintaining the PATENT RIGHTS until STEMCO assumes such responsibility for perfecting PATENT RIGHTS as provided for in Articles 7.04 and 7.05 herein. DUKE shall keep STEMCO advised as to the status of the PATENT RIGHTS by providing STEMCO, in a timely manner, with copies of all official documents and correspondence relating to the prosecution,

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 6 of 20

maintenance, and validity of the PATENT RIGHTS. DUKE shall consult with STEMCO in such prosecution and maintenance, shall diligently seek STEMCO’s advice on all matters pertaining to PATENT RIGHTS, and shall not abandon prosecution of any patent application or any of the claims of the PATENT RIGHTS without first notifying STEMCO in writing in a timely manner. DUKE’S obligations under this Article 7.01 herein shall include, without limitation, an obligation to seek input from STEMCO in a timely manner concerning foreign countries in which patent applications should be filed and prosecuted. DUKE will make diligent efforts to implement reasonable strategies for or reasonable actions related to the prosecution of PATENT RIGHTS requested by STEMCO during the period that DUKE has primary responsibility for perfecting PATENT RIGHTS. Notwithstanding the foregoing, during the period that DUKE has primary responsibility for perfecting PATENT RIGHTS, all decisions with respect to the filing, prosecution, and maintenance of PATENT RIGHTS shall reside with DUKE; however, DUKE shall give reasonable consideration to all suggestions made by STEMCO concerning such filing, prosecution, and maintenance of PATENT RIGHTS.

7.02 - DUKE shall pay all expenses associated with the establishment and perfection of PATENT RIGHTS during the period that DUKE maintains primary responsibility for such activities as specified in Article 7.01 herein, and STEMCO shall reimburse DUKE for all such expenses related to PATENT RIGHTS incurred by DUKE during this period, such reimbursement to be made within thirty (30) days of being invoiced by DUKE.

7.03 - STEMCO shall reimburse DUKE for all expenses incurred by DUKE in the perfection and maintenance of PATENT RIGHTS prior to the EFFECTIVE DATE on the earlier of the following: within sixty (60) days of the EFFECTIVE DATE of this AGREEMENT or prior to assuming primary responsibility for perfecting PATENT RIGHTS.

7.04 - STEMCO shall have the option to assume primary responsibility for all activities associated with the perfection and maintenance of PATENT RIGHTS. In order to exercise this option, STEMCO shall inform DUKE in writing that it is ready to undertake responsibility for PATENT RIGHTS, ask DUKE for approval of the legal counsel that STEMCO intends to retain for such purposes, and reimburse DUKE for any unreimbursed expenses incurred by DUKE in pursuit of PATENT RIGHTS. DUKE shall not unreasonably withhold approval of STEMCO’s designated legal counsel and shall make diligent efforts to assist the transfer of responsibility for prosecution of PATENT RIGHTS from DUKE to STEMCO within forty-five (45) days of both receipt of the written notice of the exercise of the option from STEMCO and of reimbursement for any expense amount due to DUKE with regard to PATENT RIGHTS. STEMCO’s rights and obligations with respect to PATENT RIGHTS should STEMCO opt to assume such responsibilities are more fully set forth in Articles 7.05 through 7.08 herein.

7.05 - After STEMCO assumes primary responsibility for perfection and maintenance of PATENT RIGHTS as provided in Article 7.04 herein, STEMCO shall keep DUKE advised as to the status of the PATENT RIGHTS by providing DUKE, in a timely manner, with copies of all official documents and correspondence relating to the prosecution, maintenance, and validity of the PATENT RIGHTS. STEMCO shall consult with DUKE in such prosecution and maintenance, shall diligently seek DUKE’s advice on all matters pertaining to the PATENT RIGHTS, shall diligently seek strong and broad claims under the PATENT RIGHTS, and shall not abandon prosecution of any patent application or any of the claims of the PATENT RIGHTS without first notifying DUKE in a timely manner of STEMCO’s intention and reason therefor, and providing DUKE with reasonable opportunity to assume responsibility for prosecution and maintenance of the patents. All decisions with respect to the prosecution of the PATENT RIGHTS shall be made by STEMCO, subject to the approval of DUKE, which approval shall not be unreasonably withheld. However, notwithstanding the foregoing, no claims of the PATENT RIGHTS shall be modified, deleted, or abandoned by STEMCO or its patent counsel without the express, prior written approval of DUKE. STEMCO’s obligations under this Article 7.05 shall include, without limitation, an obligation to inform DUKE in a timely manner that STEMCO will not purse patents in any foreign countries where patent protection may be available such that DUKE may prosecute patents in such countries if DUKE so desires. If DUKE pursues such foreign patent protection, then from that time forward all such subject patent applications and any patents arising therefrom shall no longer be considered PATENT RIGHTS under this AGREEMENT and STEMCO shall forfeit all rights under this AGREEMENT to such patent applications and any patents arising therefrom.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 7 of 20

7.06 - After STEMCO assumes primary responsibility for perfection and maintenance of PATENT RIGHTS as provided in Article 7.04 herein, STEMCO shall be responsible for and pay all costs and expenses incurred during the term of this Agreement, for the preparation, filing, prosecution, issuance and maintenance of the PATENT RIGHTS. STEMCO shall not allow PATENT RIGHTS to become abandoned due to nonpayment of fees without first affording DUKE the opportunity to assume responsibility for the prosecution and further costs and expenses incurred relating to said PATENT RIGHTS. If DUKE assumes the responsibility for such prosecution and further costs and expenses of a subject PATENT RIGHTS, then from that time forward all such subject patent applications (and any patents arising therefrom) and patents shall no longer be considered PATENT RIGHTS under this AGREEMENT and STEMCO shall forfeit all rights under this AGREEMENT to such patent applications (and any patents arising therefrom) and patents.

7.07 - In the event that DUKE assumes responsibility for prosecution and maintenance of the PATENT RIGHTS pursuant to Article 7.05 or 7.06 above, STEMCO shall provide reasonable technical assistance to DUKE in the further prosecution of the PATENT RIGHTS.

7.08 - In the event that this Agreement is terminated pursuant to Article 11 herein, the sole responsibility for applying for, seeking prompt issuance of, and maintaining the PATENT RIGHTS shall revert to DUKE, and DUKE shall pay expenses subsequently incurred for the preparation, filing, prosecution, issuance and maintenance of the PATENT RIGHTS. In the event that responsibility for patent prosecution reverts to DUKE as specified in this Article 7.08 STEMCO shall, at its own expense, transfer all pertinent documents and materials related to the PATENT RIGHTS to DUKE in a timely manner so as to avoid loss of potential patent rights.

ARTICLE 8 - INFRINGEMENT BY THIRD PARTIES

8.01 - Upon learning of the infringement of PATENT RIGHTS by a third party, the party learning of such infringement shall promptly inform the other party in writing of that fact along with any evidence available pertaining to the infringement. STEMCO shall have the right, at its own expense, to take whatever steps are necessary to stop the infringement and recover damages. In such case, STEMCO will keep DUKE informed of the steps taken and the progress of any legal actions taken.

STEMCO will pay to DUKE [ * ] on any such damages recovered and allocated by the court, or in the absence of such allocation by the court, reasonably allocated by the mutual agreement of STEMCO and DUKE, as consideration for lost sales of LICENSED PRODUCTS that are in excess of out-of-pocket legal expenses incurred by STEMCO in enforcing the PATENT RIGHTS plus STEMCO’s reimbursement to DUKE for its out-of-pocket expenses in cooperating with STEMCO in prosecution or arbitration of such infringement. Any damages recovered by STEMCO in excess of those allocated as set forth above shall be [ * ]. If STEMCO does not undertake, within sixty (60) days of the date of the notice of infringement, to enforce the PATENT RIGHTS against the infringing party, DUKE shall have the right, at its own expense to take whatever steps are necessary to stop the infringement and recover damages, and shall be entitled to retain damages so recovered and allocated by the court, or in the absence of such allocation by the court, reasonably allocated by the mutual agreement of STEMCO and DUKE, as consideration for lost sales of LICENSED PRODUCTS that are in excess of out-of-pocket legal expenses incurred by DUKE in enforcing the PATENT RIGHTS plus DUKE’s reimbursement to STEMCO for its out-of-pocket expenses in cooperating with DUKE in prosecution or arbitration of such infringement. Any damages recovered by DUKE in excess of those allocated as set forth above shall be [ * ].

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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ARTICLE 9 - GOVERNMENT CLEARANCE AND EXPORT

9.01 - STEMCO agrees to use its best efforts to have the LICENSED PRODUCTS cleared for marketing and sale in those countries in which STEMCO intends to sell LICENSED PRODUCTS by the responsible government agencies requiring such clearance. Where such clearance requires payment of taxes or fees, STEMCO shall maintain full responsibility for that payment, which shall not be creditable against any other amounts due under this AGREEMENT. To accomplish said clearances at the earliest possible date, STEMCO agrees to file, according to the usual practice of STEMCO, any necessary data with said government agencies.

9.02 - This AGREEMENT is subject to all of the United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities and technology.

ARTICLE 10 - PUBLICATION

10.01 - STEMCO agrees that the right of publication/presentation of the [ * ] INVENTION, the [ * ] INVENTION, and information in related PATENT RIGHTS shall reside in the inventors and other staff of DUKE. DUKE shall use reasonable efforts to provide STEMCO a review copy of such publications/presentations forty-five (45) days in advance of submission for publication or public disclosure, but such prior review by STEMCO will be in no way construed as a right to restrict such publication/presentation. Such review shall be granted solely so that DUKE and STEMCO can pursue patent protection prior to public disclosure. STEMCO shall also have the right to publish/present and/or co-author, in accordance with customary academic standards, any publication/presentation on the [ * ] INVENTION and the [ * ] INVENTION based upon data developed by STEMCO.

ARTICLE 11 - DURATION AND TERMINATION

11.01 - This AGREEMENT shall become effective upon the EFFECTIVE DATE, and unless sooner terminated in accordance with any of the provisions herein, shall remain in full force and effect for the life of the last-to-expire of the patents included in the PATENT RIGHTS, or any patents issued on KNOW-HOW. Upon the expiration of this AGREEMENT, but not in the event of termination for reasons other than expiration of the last-to expire of the patents included in the PATENT RIGHTS or any patents issued on KNOW-HOW, DUKE shall grant STEMCO a non-exclusive, worldwide, fully paid license, with the right to grant sub-licenses, under the KNOW-HOW to make, have made, use, import, offer to sell, sell, offer to provide and provide LICENSED PRODUCTS.

11.02 - STEMCO may terminate this AGREEMENT by giving DUKE written notice at least three (3) months prior to such termination, and thereupon terminate the manufacture, use, and sale of LICENSED PRODUCTS, subject to Article 11.04 herein.

11.03 - Either party may [ * ] terminate this AGREEMENT for fraud, willful misconduct, or illegal conduct of the other party that materially adversely affects such party upon written notice of same to that other party. [ * ], if either party fails to fulfill any of its material obligations under this AGREEMENT, the non-breaching party may terminate this AGREEMENT, upon written notice to the breaching party, as provided below. Such notice must contain a full description of the event or occurrence constituting a material breach of this AGREEMENT. The party receiving notice of the breach shall submit a written plan to cure such breach to the non-defaulting party within thirty (30) days of receipt of such notice. The plan shall be subject to the reasonable acceptance, rejection or modification by the non-defaulting party within ten (10) days of receipt of the plan. The defaulting party shall have the opportunity to cure that breach in accordance with the terms of the accepted plan. If the breach is not cured within that time, the termination will be effective as of the end of the cure period set forth in the accepted plan. A party’s ability to cure a breach will apply only to the first two breaches properly noticed under the terms of this

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 9 of 20

AGREEMENT, regardless of the nature of those breaches. Any subsequent breach by that party will entitle the other party to terminate this AGREEMENT effective immediately upon the breaching party’s receipt of written notice of the same.

11.04 - Upon the termination of this AGREEMENT in accordance with Articles 6.04, 11.02, 11.03, or 11.04 herein, STEMCO shall notify DUKE of the amount of LICENSED PRODUCTS that STEMCO then has on hand and STEMCO shall then have a license to sell that amount of LICENSED PRODUCTS, but no more, for a period of ninety (90) days following such termination of this AGREEMENT provided STEMCO shall pay the royalty thereon at the rate and at the time provided for herein. Further, STEMCO shall, within one hundred and eighty (180) days of such termination of this Agreement destroy in a safe and legal manner all remaining LICENSED PRODUCTS that STEMCO has on hand.

11.05 - Within one hundred and twenty (120) days following termination of this AGREEMENT pursuant to Article 11.03, and except for reason of expiration, STEMCO shall [ * ] to DUKE [ * ] all market clearance applications associated with regulatory/marketing approval of any and all LICENSED PRODUCT(S) (including all data thereto) and all data related to as yet unified market clearance applications associated with regulatory/marketing approval of any LICENSED PRODUCT.

11.06 - If during the term of this AGREEMENT, STEMCO shall become bankrupt or insolvent or if the business of STEMCO shall be placed in the hands of a receiver or trustee, whether by the voluntary act of STEMCO or otherwise, or if STEMCO shall cease to exist as an active business, this Agreement shall [ * ] terminate, and STEMCO shall [ * ] cease all use of PATENT RIGHTS and KNOW-HOW, including, inter alia, manufacture, use, and sale of LICENSED PRODUCTS. In such event, DUKE shall have all the remedies and rights available to it for termination with cause; provided, however, that this provision of this Article 11.06 shall not apply to a reorganization of STEMCO under Chapter 11 of the United States Bankruptcy Code.

11.07 - Within thirty (30) days of any termination or expiration of this AGREEMENT, STEMCO shall destroy in a safe and legal manner any biological materials (including modifications and derivatives thereof) which have been provided to STEMCO by DUKE under this AGREEMENT. Further, within fifteen (15) days of such destruction STEMCO shall provide DUKE with written certification of such safe and legal destruction of the subject biological materials.

11.08 - No termination or expiration of this AGREEMENT shall relieve STEMCO from any obligations of amounts due to DUKE under Articles 2.02, 4.02, 4.03, 4.04, 5.03, 7.02, and 8.01 herein prior to or on the date of such termination/expiration.

ARTICLE 12 - LAW TO GOVERN

12.01 - This AGREEMENT shall be construed and enforced in accordance with the laws of the State of North Carolina without regard to its conflict of laws provisions.

ARTICLE 13 - NOTICES

13.01 - Notice hereunder shall be deemed sufficient if personally delivered, if given by registered mail, postage prepaid, or by national overnight courier, charges prepaid, and in each instance addressed to the party to receive such notice at the address given below, or such other address as may hereafter be designated by notice in writing.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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DUKE	STEMCO
Office of Science and Technology Duke University Room 230, North Building Box 90083 Durham, NC 27708	P.O. Box 14509 Research Triangle Park, NC 27709 ATTENTION: CEO
cc: Office of the University Counsel Duke University Medical Center DUMC Box 3024 2400 Pratt Street, Suite 4000 Durham, NC 27710	cc: Fred D. Hutchison, Esquire Hutchison & Mason PLLC Suite 100 3110 Edwards Mill Road Raleigh, NC 27612

13.02 - Information and transactions exchanged between the parties in relation to financial consideration contemplated under this AGREEMENT, including but not limited to royalty reports and payments, shall be tendered to the following offices of each party respectively:

DUKE	STEMCO
Office of Science and Technology Attn.: Financial Administrator Room 230, North Building Box 90083 Durham, NC 27708	P.O. Box 14509 Research Triangle Park, NC 27709 ATTENTION: CEO

ARTICLE 14 - ASSIGNMENT

14.01 - This AGREEMENT shall be binding upon and inure to the benefit of the respective successors and assigns of the parties hereto. However, STEMCO may not assign its rights in this AGREEMENT without approval by DUKE, such approval not to be unreasonably withheld; provided, however, that no such approval shall be required from DUKE if this AGREEMENT is assigned in connection with the sale of all or substantially all of the assets or stock of STEMCO, whether by merger, acquisition or otherwise.

ARTICLE 15 - INDEMNITY, INSURANCE, REPRESENTATIONS, STATUS

15.01 - STEMCO agrees to indemnify, hold harmless and defend DUKE, its trustees, officers, employees, students, and agents, against any and all claims, suits, losses, damages, costs, fees, and expenses asserted by third parties, both government. and non-government, resulting from or arising out of the exercise of the license granted under this AGREEMENT. STEMCO shall not be responsible for the gross negligence or intentional wrong doing of DUKE.

15.02 - STEMCO shall maintain in force at its sole cost and expense, with reputable insurance companies, general liability insurance and products liability insurance coverage in amounts customary for companies similarly situated in the same industry. DUKE shall have the right to ascertain from time to time that such coverage exists, such right to be exercised in a reasonable manner. In lieu of said coverage, DUKE agrees to consider the existence of an adequate self-insurance program as an acceptable alternative.

15.03 - NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO BE A REPRESENTATION OR WARRANTY BY DUKE OF THE VALIDITY OF ANY OF THE PATENTS OR THE ACCURACY, SAFETY, EFFICACY, OR USEFULNESS, FOR ANY PURPOSE, OF ANY PATENT RIGHTS. DUKE SHALL HAVE NO OBLIGATION, EXPRESS OR IMPLIED, TO SUPERVISE, MONITOR, REVIEW OR OTHERWISE ASSUME RESPONSIBILITY FOR THE PRODUCTION, MANUFACTURE, TESTING, MARKETING OR SALE OF ANY LICENSED PRODUCT, AND DUKE SHALL HAVE NO LIABILITY WHATSOEVER TO STEMCO OR ANY THIRD PARTIES FOR OR ON ACCOUNT OF ANY INJURY, LOSS, OR DAMAGE, OF ANY KIND OR NATURE, SUSTAINED BY, OR ANY DAMAGE ASSESSED OR

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 11 of 20

ASSERTED AGAINST, OR ANY OTHER LIABILITY INCURRED BY OR IMPOSED UPON STEMCO OR ANY OTHER PERSON OR ENTITY, ARISING OUT OF OR IN CONNECTION WITH OR RESULTING FROM:

a. the production, use, or sale of any LICENSED PRODUCT;

b. the use of any PATENT RIGHTS by STEMCO or its sublicensees; or

c. any advertising or other promotional activities by STEMCO with respect to any of the foregoing.

15.04 - Neither party hereto is an agent or subcontractor of the other party for any purpose whatsoever.

ARTICLE 16 - USE OF A PARTY’S NAME

16.01 - Neither party will, without the express, prior written consent of the other party:

a. use in advertising, publicity, press release, promotional activity, or otherwise, the name or image of that party or its employees, students, or agents, any trade-name, personal name, trademark, trade device, service mark, symbol, or any abbreviation, contraction or simulation thereof owned by the other party; or

b. represent, either directly or indirectly, that any product or service of the other party is a product or service of the representing party or that it is made in accordance with or utilizes the information or documents of the other party.

ARTICLE 17 - SEVERANCE, WAIVER AND ALTERATION

17.01 - Each clause of this AGREEMENT is a distinct and severable clause and if any clause is deemed illegal, void or unenforceable, the validity, legality or enforceability of any other clause or portion of this AGREEMENT will not be affected thereby.

17.02 - The failure of a party in any instance to insist upon the strict performance of the terms of this AGREEMENT will not be construed to be a waiver or relinquishment of any of the terms of this AGREEMENT, either at the time of the party’s failure to insist upon strict performance or at any time in the future, and such terms will continue in full force and effect.

17.03 - Any alteration, modification, or amendment to this AGREEMENT must be in writing and signed by both parties,

ARTICLE 18 - CONFIDENTIALITY

18.01 - During the term of this AGREEMENT and for a period of five (5) years following the disclosure of subject information, DUKE and STEMCO each agree to treat any confidential information disclosed to it by the other party to this AGREEMENT with reasonable care and to avoid disclosure of such information to any other person, firm or corporation, except AFFILIATES bound by the obligations of confidentiality and restricted use set forth in this Article 18, and either party shall be liable for unauthorized disclosure or failure to exercise such reasonable care. Further, the receiving party will not use the disclosing party’s confidential information other than for the benefit of the parties hereto and relating to this AGREEMENT. Neither party shall have an obligation, with respect to confidential information disclosed to it, or any part thereof, which:

a. is already known to the party at the time of the disclosure;

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 12 of 20

b. becomes publicly known without the wrongful act or breach of this AGREEMENT by the party;

c. is rightfully received by the party from a third party on a non-confidential basis;

d. is subsequently and independently developed by employees of the party who had no knowledge of the information, as verified by written records; or

e. is approved for release by prior written authorization of the party disclosing the information; or

f. is disclosed pursuant to any judicial or government request, requirement or order, provided that the party so disclosing takes reasonable steps to provide the other party sufficient prior notice in order to contest such request, requirement or order.

18.02 - DUKE and STEMCO agree that any information to be treated as confidential information under this Article 18 must be disclosed in writing or in another tangible medium and must be clearly marked “CONFIDENTIAL”. Information disclosed orally must be summarized and reduced to writing and communicated to the other party within thirty (30) days of such disclosure, and the other party agrees that such disclosed information shall be deemed confidential.

18.03 - Notwithstanding the foregoing, STEMCO shall have the right to use and disclose any confidential information related to the PATENT RIGHTS and KNOW-HOW to investors, prospective investors, employees, consultants and agents with a need to know, collaborators, prospective collaborators and other third parties in the chain of manufacturing and distribution provided that STEMCO obtains from such parties written confidentiality agreements the provisions of which are at least as strenuous as those provided in this Article 18. If a party refuses to execute a written confidentiality agreement, STEMCO may request from DUKE that such requirement be waived, such consent to waiver not to be unreasonably withheld by DUKE.

ARTICLE 19 - TITLES

19.01 - All titles and article headings contained in this AGREEMENT are inserted only as a matter of convenience and reference. They do not define, limit, extend or describe the scope of this AGREEMENT or the intent of any of its provisions.

ARTICLE 20 - ARBITRATION

20.01 - Disputes relating to the terms and conditions of this AGREEMENT shall be settled by final and binding arbitration in the City of Durham in the State of North Carolina pursuant to commercial arbitration rules of the American Arbitration Association, in accordance with the following procedures:

(a) The arbitration tribunal shall consist of three arbitrators. Each party shall nominate in the request for arbitration and the answer thereto one arbitrator and the two arbitrators so named will then jointly appoint a third arbitrator as chair of the arbitration tribunal.

(b) The decision of the arbitration tribunal shall be final and binding upon the parties hereto and enforceable in any court of competent jurisdiction.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 13 of 20

ARTICLE 21 - SURVIVAL OF TERMS

21.01 - The provisions of Articles 1, 4.01, 4.02, 5.02, 5.03, 5.04, 7.07, 7.08, 8.01, 11.01, 11.04, 11.05, 11.06, 11.07, 11.08, 12.01, 13, 15, 16, 18.01, 20, and 21 shall survive the expiration or termination of this AGREEMENT.

This space left blank intentionally.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 14 of 20

ARTICLE 22 - ENTIRE UNDERSTANDING

22.01 - This AGREEMENT represents the entire understanding between the parties with respect to the subject matter hereof, and supersedes all other agreements, express or implied, between the parties concerning the [ * ] INVENTION, the [ * ] INVENTION, the PATENT RIGHTS and the KNOW-HOW.

IN WITNESS WHEREOF, the parties have caused these presents to be executed in duplicate as of the EFFECTIVE DATE.

DUKE UNIVERSITY		STEMCO BIOMEDICAL, INC.
By:	/s/ Robert L. Taber, Ph.D.	By:	/s/ Clayton A. Smith, M.D.
	Robert L. Taber, Ph.D. Vice Chancellor Science and Technology Development		Name: Clayton A. Smith, M.D. Title: President

Date: 10/12/2000		Date: 10/15/2000
The undersigned, being all of the INVENTORS have read and understood the foregoing license agreement and have reached agreement as to their respective chares of consideration to be received under the foregoing license agreement.
By:	/s/ Clayton A. Smith, M.D.
	Clayton A. Smith, M.D.
Date: 10/15/2000
By:	/s/ O. Michael Colvin, M.D.
	O. Michael Colvin, M.D.
Date: 10/12/2000
By:	/s/ Susan M. Ludeman, Ph.D.
	Susan M. Ludeman, Ph.D.
Date: October 13, 2000
By:	/s/ Robert W. Storms, Ph.D.
	Robert W. Storms, Ph.D.
Date: October 13, 2000
By:	/s/ Eli Gilboa, Ph.D.
	Eli Gilboa, Ph.D.

Date: 10/13/2000

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 15 of 20

APPENDIX A

MATERIAL TRANSFER AGREEMENT

Duke University (“Duke”)

Durham, NC 27710

to

____________________ (“Recipient”)

_______________________

Definitions:

Recipient’s Scientist:  _______________________________________________

Original Material:  _________________________________________________

__________________________________________________________________

Progeny: Unmodified descendant from the Original Material, such as virus from virus, cell from cell, or organism from organism.

Derivatives: Substances created by Recipient which constitute an important unmodified functional subunit, fractionated subset, intermediate, or expression product of the Original Material, including, but not limited to, subclones of unmodified cell lines, purified or fractionated sub-sets of the Original Material such as novel plasmids or vectors, proteins expressed by DNA or RNA, antibodies secreted by a hybridoma.

Information: All information disclosed to Recipient by Duke relating to the Material and/or Modifications.

Material: Original Material plus Derivatives and Information.

Modifications: Substances created by Recipient which contain/incorporate any form of the Material (Original Material, Progeny or Derivatives), including, but not limited to, chemical or structural derivatives.

Research:  ________________________________________________________________

__________________________________________________________________________

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 16 of 20

Terms and Conditions of this Agreement:

1. (a) The Material is and remains the property of Duke and is to be used by Recipient’s at Recipient’s institutional facilities only, and only under the direction of Recipient’s Scientist.

(b) The Material is to be used strictly for internal, noncommercial Research as stated above and for no other purpose.

(c) Duke does not claim ownership of substances and Modifications produced as a result of Recipient’s research with the material that are not included in the definition of Material above; however, Duke does retain ownership of any form of the Material included therein.

(d) Except as expressly provided in this Agreement, no rights are provided to Recipient under any patent applications, trade secrets or other proprietary rights of Duke. In particular, no rights are provided to use the Material or Modifications for profit-making or commercial purposes, such as sale; use in manufacturing; use in drug screening, evaluation, or design programs; or provision of a commercial service based upon the Material or Modifications.

(e) If Recipient desires to use the Material or Modifications for such profit-making or commercial purposes, Recipient agrees that it must first negotiate a license or other appropriate agreement with Duke and third parties as may be required, and it is further understood by Recipient that Duke shall have no obligation to enter into such a license or agreement and in fact may grant exclusive or non-exclusive commercial licenses to others.

(f) Recipient acknowledges that Duke has granted an exclusive commercial license to the Material to a third party, and that any rights granted to Recipient under this Agreement are subject to the terms of said license.

(g) Recipient represents that research with the Material and/or Modifications will not be subject to the terms of any consultant, option, license, or sponsored research agreement in which a third party (other than the government) gains rights to the intellectual property arising from research with the Material and/or Modifications.

2. Recipient’s Scientist agrees not to transfer the Material or Modifications to anyone who does not work under his or her direct supervision at Recipient’s Institution without the prior written consent of Duke. To the extent supplies are available, Duke will make the Material available under a material transfer agreement substantially similar to this Agreement upon request from appropriate scientists at non-profit or governmental institutions for the purpose of replicating Recipient’s Scientist’s research.

3. Recipient agrees to hold confidential all Information except as such Information: (a) can be demonstrated was known by the Recipient at the time of disclosure; (b) becomes part of the public domain, except by breach of this Agreement by Recipient; (c) is rightfully received by Recipient from a third party without an obligation of confidence to Duke; or (d) is independently developed by Recipient’s personnel who have not had access to Information, Material or Modifications as demonstrated by competent written proof. Recipient’s obligations of nondisclosure of Information shall terminate five (5) years from the date that this Agreement is signed by Duke.

4. If Recipient’s research results in an invention, a new use, or a product based on, containing, or relating to the Material or Modifications (collectively referred to as “Invention”), Recipient agrees promptly to disclose the Invention to Duke on a confidential basis. Inventorship shall be determined in accordance with U.S. patent law (if patentable) or by mutual agreement between the parties (if not patentable), taking into account the role and contributions of individuals involved in the development of the Invention. Ownership shall reflect inventorship. Notwithstanding the foregoing, any Inventions that could not have been made but for use of the Material or Modifications shall be jointly owned by Duke and Recipient. In the case of a joint invention between Duke and Recipient, these parties agree to negotiate a joint invention agreement which shall provide for fair and equitable sharing of patent costs, income, and invention management responsibilities based on the respective parties’ contributions to the Invention. If either Recipient or Duke decides not to pursue the further development of a joint Invention hereunder, then the other party may elect to pursue the patenting or commercial development of said joint Invention with third parties. If either Recipient or Duke is the sole inventor of any Invention, that party shall be free to dispose of such Invention as it sees fit. Duke will have the right to use for its non-profit research and teaching purposes inventions developed through use of the Material under this Agreement without payment of license or royalty fees.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 17 of 20

5. Recipient’s Scientist agrees to provide appropriate acknowledgment of the source of the Material in all publications and presentations based on use of the Material or Information, and agrees to furnish Duke with a copy of the manuscript or abstract disclosing such results not less than thirty (30) days prior to submission for publication for Duke’s review and comment. If Duke determines that the proposed publication contains subject matter that requires patent protection, Recipient will delay submission for no longer than an additional forty-five (45) days for the filing of patent applications.

6. Any Material delivered pursuant to this Agreement is understood to be experimental in nature, and DUKE MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE MATERIAL WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS, OR THAT THE MATERIAL WILL NOT POSE A SAFETY OR HEALTH RISK.

7. Recipient agrees to defend, indemnify, and hold harmless Duke from any loss, claim, damage, or liability, of any kind whatsoever, which may arise from Recipient’s receipt, use, storage, or disposal of the Material, and Recipient assumes liability for damages which may arise from its receipt, use, storage or disposal of the Material.

8. In no event shall the Material be used in human beings (including for diagnostic purposes), and further provided, that any other research involving the Material (including but not limited to research involving the use of animals and recombinant DNA) shall be conducted in accordance with all federal, state, local and other laws, regulations, and ordinances governing such research including applicable NIH guidelines.

9. (a) This Agreement will terminate on the earliest of the following dates: (1) on completion of Recipient’s proposed research studies with the Material, or (2) on thirty (30) days written notice by either party to the other, or (3) two years from the date that this Agreement is signed by Duke.

(b) On termination of this Agreement, Recipient shall immediately discontinue its use of the Material and shall, within ten (10) days of receiving direction of Duke, return or destroy all Material. Further, Recipient shall, within ten (10) days of receiving direction from Duke, destroy all Modifications. In the case of destruction of the Material and/or Modifications under the preceding two (2) sentences, Recipient shall provide Duke with written certification of the complete, safe, and legal destruction of all of the Material and/or Modifications, as the case may be.

(c) Paragraphs 3, 4, 5, 6, 7, 9(b) and 9(c) shall survive termination.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 18 of 20

10. This Agreement is not assignable without the prior written consent of Duke.

AGREED:
Duke’s Investigator:	Recipient’s Scientist:
(Signature)                                                                                  (date)	(Signature)                                                                             (date)
Duke’s Investigator Approval:	Recipient’s Institutional Approval:
Linda Fuge Abruzzini,Ph.D.                                                     (date) Assoc. Director, Office of Science & Technology DUMC Box 3664, M454 Davison Building Durham, NC 27710 USA Mtastemco.doc	(authorized signature)                                                           (date) Name: Title: Address:

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 19 of 20

APPENDIX B

ROYALTY REPORT

ROYALTY REPORT for period ending ____________________________
Duke File #[ * ] and [ * ]
Country	Product	Sales in <Month>	Sales in <Month>	Sales in <Month>	Sales in <Month>	Sales in <Month>	Sales in <Month>	TOTAL GROSS SALES	Reductions to Sales**	TOTAL NET SALES	% Royalty Due
SubTOTAL x Country
SubTOTAL x Country
GRANT TOTAL
ROYALTIES PAID
**     Note that Reductions to Sales are limited to allowances to customers for spoiled, damaged and returned goods and Product used for promotional trials
(Article 1.01.g of the License Agreement).

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

Page 20 of 20

EX-10.7

Exhibit 10.7

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

LICENSE AGREEMENT

BETWEEN

THE JOHNS HOPKINS UNIVERSITY

&

STEMCO BIOMEDICAL, INC.

JHU Ref: [ * ]

LICENSE AGREEMENT

THIS LICENSE AGREEMENT (the “Agreement”) is entered into by and between THE JOHNS HOPKINS UNIVERSITY, a Maryland corporation having an address at 111 Market Place, Suite 906, Baltimore, MD 21202 (“JHU”) and Stemco Biomedical, Inc., a Delaware corporation having a mailing address c/o Hutchison and Mason, PLLC, Suite 100, 3110 Edwards Mill Rd., Raleigh, NC 27612 (Company), with respect to the following:

RECITALS

WHEREAS, as a center for research and education, JHU is interested in licensing PATENT RIGHTS (hereinafter defined) in a manner that will benefit the public by facilitating the distribution of useful products and the utilization of new methods, but is without capacity to commercially develop, manufacture, and distribute any such products or methods; and

WHEREAS, a valuable invention entitled “METHODS FOR IDENTIFICATION OR PURIFICATION OF CELLS CONTAINING AN ENZYMATIC INTRACELLULAR MARKER” (JHU Ref. [ * ])] was developed during the course of research conducted by Drs. [ * ], (all hereinafter, “Inventors”); and

WHEREAS, JHU has acquired through assignment all rights, title and interest, with the exception of certain retained rights by the United States government, in its interest in said valuable invention; and

WHEREAS, Company desires to commercially develop, manufacture, use and distribute such products and processes throughout the world;

NOW THEREFORE, in consideration of the premises and the mutual promises and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

All references to particular Exhibits and Articles shall mean the Exhibits to, and Articles of, this Agreement, unless otherwise specified. For the purposes of this Agreement and the Exhibits hereto, the following words and phrases shall have the following meanings:

1.1 “AFFILIATED COMPANY” as used herein in either singular or plural shall mean any corporation, company, partnership, joint venture or other entity, which controls, is controlled by or is under common control with Company. For purposes of this Paragraph 1.1, control shall mean the direct or indirect ownership of at least fifty-percent (50%).

1.2 “EFFECTIVE DATE” of this License Agreement shall mean the date the last party hereto has executed this Agreement.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

1.

1.3 “EXCLUSIVE LICENSE” shall mean a grant by JHU to Company of its entire right and interest in the PATENT RIGHTS subject to rights retained by the United States government in accordance with P.L. 96-517, as amended by P.L. 98-620, and subject to the retained right of JHU to make; have made, provide and use for its and The Johns Hopkins Health Systems’ purposes LICENSED PRODUCT and LICENSED SERVICE, including the ability to distribute any biological material covered under PATENT RIGHTS for nonprofit academic research use to non-commercial entities as is customary in the scientific community.

1.4 “LICENSED FIELD” shall mean reagent sales, therapeutic and diagnostic uses.

1.5 “LICENSED PRODUCT” as used herein in either singular or plural shall mean any material, compositions, drug, or other product, the manufacture, use or sale of which would constitute, but for the license granted to Company pursuant to this Agreement, an infringement of a claim of PATENT RIGHTS (infringement shall include, but is not limited to, direct, contributory, or inducement to infringe).

1.6 “LICENSED SERVICE” as used herein in either singular or plural shall mean the performance on behalf of a third party of any method or the manufacture of any product or the use of any product or composition which would constitute, but for the license granted to Company pursuant to this Agreement, an infringement of a claim of the PATENT RIGHTS, (infringement shall include, but not be limited to, direct, contributory or inducement to infringe).

1.7 “NET SALES” shall mean the total invoiced sales of LICENSED PRODUCTS sold by Company, less the following sums actually paid or credited by Company as shall be detailed in Company’s reports made pursuant to Paragraph 5.1 of this AGREEMENT:

(a) trade, quantity or cash discounts allowed in amounts customary in the trade;

(b) outbound transportation charges prepaid or allowed on the cost of shipping to customers that are included as a separate line item, if any; and

(c) credits or allowances, if given or made for LICENSED PRODUCTS, price adjustments, returns, rejections, recalls or destructions (voluntarily made by or requested or made by an appropriate government agency, subdivision or department) of LICENSED PRODUCTS previously delivered.

LICENSED PRODUCT used for non-revenue producing activity such as promotional items or field trials to support future sales shall not be considered to be NET SALES.

In the event that Company, AFFILIATED COMPANY or its sublicensee sells a LICENSED PRODUCT in combination with other active ingredients or biological or chemical components which are not LICENSED PRODUCTS (“Other Items”), the NET SALES for purposes of royalty payments on the combination shall be calculated as follows:

(a) If all LICENSED PRODUCTS and Other Items contained in the combination are available separately, the NET SALES for purposes of royalty payments will be calculated by multiplying the NET SALES of the combination by the fraction A/A+B, where A is the separately available price of all LICENSED PRODUCTS in the combination, and B is the separately available price for all Other Items in the combination.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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(b) If the combination includes Other Items which are not sold separately (but all LICENSED PRODUCTS contained in the combination are available separately), the NET SALES for purposes of royalty payments will be calculated by multiplying the NET SALES of the combination by A/C, where A is as defined above and C is the invoiced price of the combination.

(c) If the LICENSED PRODUCTS contained in the combination are not sold separately, the NET SALES for such combination shall be NET SALES of such combination as defined in the first sentence of this Paragraph 1.7. However, the parties agree to negotiate a reduction in the royalty rate to reflect the fair value that the LICENSED PRODUCT attributed to the overall product sold, but in no event shall the royalty rates be reduced by greater than [ * ] percent ([ * ]%.

The term “Other Items” does not include solvents, diluents, carriers, excipients, buffers or the like used in formulating a product.

In the event that Company, AFFILIATED COMPANY or its sublicensee sells a LICENSED PRODUCT(S) in combination with a system comprising a device or equipment to be used for the administration of LICENSED PRODUCT(S) to a patient (“Other Components”) as part of a bundled product (“Bundled Product(s)”), the NET SALES for purposes of royalty payments shall be calculated by multiplying the NET SALES of that Bundled Product(s) by the fraction A/A+B, where A is the higher of Company, AFFILIATED COMPANY or Sublicensees highest then-current gross selling price or fair market value of the LICENSED PRODUCT(S), and B is the lower of the lowest then-current gross selling price or fair market value of the Other Components provided that in no event shall the NET SALES for the purpose of calculating royalty be reduced below of Company, AFFILIATED COMPANY or Sublicensees highest then-current gross selling price for the LICENSED PRODUCT(S) if sold on a stand-alone basis.

1.8 “NET SERVICE REVENUES” shall mean the total invoiced service revenues for the performance of LICENSED SERVICE sold by Company, less the following sums actually paid or credited by Company as shall be detailed in Company’s reports made pursuant to Paragraph 5.1 of this AGREEMENT:

(a) trade, quantity or cash discounts allowed in amounts customary in the trade;

(b) outbound transportation charges prepaid or allowed on the cost of shipping to customers that are included as a separate line item, if any; and

(c) credits or allowances, if given or made for LICENSED SERVICES, price adjustments, returns, rejections, recalls or destructions (voluntarily made by or requested or made by an appropriate government agency, subdivision or department) of LICENSED SERVICES previously delivered.

LICENSED SERVICES used for non-revenue producing activity such as promotional items or field trials to support future sales shall not be considered to be NET SALES.

1.9 “PATENT RIGHTS” shall mean the issued U.S. Patent No. 5,876,956 and assigned to JHU entitled “METHODS FOR IDENTIFICATION OR PURIFICATION OF CELLS CONTAINING AN ENZYMATIC INTRACELLULAR MARKER” and the invention disclosed and claimed therein, and all continuations, continuation-in-parts, divisions, and reissues based

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

3.

therein. JHU warrants that as of the EFFECTIVE DATE it is not prosecuting any additional patent application, and is not intending to prosecute any additional patent application, and has not received a Notice of Allowance in any country relating to any additional patent application that is a continuation, division, reissue based thereof, patents of addition, or other equivalent foreign patent application based on the PATENT RIGHTS.

1.10 “SUBLICENSEE” as used herein in either singular or plural shall mean any person or entity other than an AFFILIATED COMPANY to which Company has granted a sublicense under this Agreement.

ARTICLE II

LICENSE GRANT

2.1 Grant. Subject to the terms and conditions of this Agreement, JHU hereby grants to Company an EXCLUSIVE LICENSE to make, have made, use, and sell the LICENSED PRODUCT and to provide the LICENSED SERVICE in the United States and worldwide under the PATENT RIGHTS in the LICENSED FIELD.

2.2 Sublicense. Company may sublicense others under this Agreement, subject to JHU’s approval which shall not be unreasonably withheld, and shall provide a copy of each such sublicense agreement to JHU promptly after it is executed. Each sublicense shall be consistent with the terms of this Agreement.

ARTICLE III

FEES, ROYALTIES, & PAYMENTS

3.1 License Fee. Company shall pay to JHU within thirty (30) days of the EFFECTIVE DATE of this Agreement a license fee as set forth in Exhibit A. JHU will not submit an invoice for the license fee, which is nonrefundable and shall not be credited against royalties or other fees.

3.2 Minimum Annual Royalties. Company shall pay to JHU minimum annual royalties as set forth in Exhibit A. These minimum annual royalties shall be due within thirty (30) days each anniversary of the EFFECTIVE DATE beginning with the first anniversary. In any year where there are sales of LICENSED PRODUCT or LICENSED SERVICE the minimum annual royalties shall be credited against running royalties due in that year).

3.3 Royalties. Company shall pay to JHU, a running royalty as set forth in Exhibit A, for each LICENSED PRODUCT sold, and for each LICENSED SERVICE provided, by Company, AFFILIATED COMPANIES, based on NET SALES and NET SERVICE REVENUES for the term of this Agreement. Such payments shall be made quarterly. All non-US taxes related to LICENSED PRODUCT or LICENSED SERVICE sold under this Agreement shall be paid by Company and shall not be deducted from royalty or other payments due to JHU.

In order to insure JHU the full royalty payments contemplated hereunder, Company agrees that in the event any LICENSED PRODUCT shall be sold to an AFFILIATED COMPANY or to a corporation, firm or association with which Company shall have any agreement, understanding or arrangement with respect to consideration (such as, among other things, an

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

4.

option to purchase stock or actual stock ownership, or an arrangement involving division of profits or special rebates or allowances) the royalties to be paid hereunder for such LICENSED PRODUCT shall be based upon the greater of: 1) the net selling price at which the purchaser of LICENSED PRODUCT resells such product to the end user, 2) the NET SERVICE REVENUES received from using the LICENSED PRODUCT in providing a service, 3) the fair market value of the LICENSED PRODUCT or 4) the net selling price of LICENSED PRODUCT paid by the purchaser.

3.4 Other Consideration. In addition to the running royalty as set forth under Paragraph 3.3, Company shall pay to JHU [ * ] percent ([ * ]%) of any “Sublicense revenues” received as consideration received for sublicenses under this Agreement, including, but not limited to, license fees, maintenance fees, milestone payments and equity. “Sublicense revenues” shall mean consideration of any kind received by the Company or AFFILIATED COMPANIES from a SUBLICENSEE for sales of LICENSED PRODUCT, for providing LICENSED SERVICE, or for fees received, such as upfront fees or milestone fees and including any premium paid by the SUBLICENSEE over Fair Market Value for stock of the Company or an Affiliated Company in consideration for such sublicense. However, not included in SUBLICENSEE REVENUES are amounts paid to the Company or an AFFILIATED COMPANY by the SUBLICENSEE for product development, research work, clinical studies and regulatory approvals performed by or for the Company or AFFILIATED COMPANIES, or third parties on their behalf pursuant to a specific agreement including a performance plan and commensurate budget. The term “Fair Market Value” shall mean the average price that the stock in question is publicly trading at for twenty (20) days prior to the announcement of its purchase by the SUBLICENSEE or if the stock is not publicly traded, the value of such stock as determined by the most recent private financing through a financial investor (an entity whose sole interest in the Company or AFFILIATED COMPANY is financial). of the Company or AFFILIATED COMPANY that issued the shares.

3.5 Reimbursement. Company will reimburse JHU, within sixty (60) days of the receipt of an invoice from JHU, for all costs associated with the preparation, filing, maintenance, and prosecution of PATENT RIGHTS in the United States Patent and Trademark Office (“USPTO”) incurred by JHU on or before the EFFECTIVE DATE of this Agreement. In accordance with Paragraph 4.1 below, Company will reimburse JHU, within thirty (30) days of the receipt of an invoice from JHU, for all costs associated with the maintenance of PATENT RIGHTS in the USPTO incurred by JHU subsequent to the EFFECTIVE DATE of this Agreement.

3.6 Form of Payment. All payments under this Agreement shall be made in U.S. Dollars the Company. Checks are to be made payable to “The Johns Hopkins University”. Wire transfers may be made through:

The Johns Hopkins University

AllFirst Bank

25 S. Charles Street

Baltimore, Maryland 21203

Transit/Routing/ABA number: [ * ]

Account Number: [ * ]

Reference: JHU SOM Office of Technology Licensing

(JHU REF. [ * ])

Attn: [ * ]

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

5.

Company shall be responsible for any and all costs associated with wire transfers.

3.7 Late Payments. In the event that any payment due hereunder is not made when due, the payment shall accrue interest beginning on the tenth day following the due date thereof, calculated at the annual rate of the sum of (a) two percent (2%) plus (b) the prime interest rate quoted by The Wall Street Journal on the date said payment is due, the interest being compounded on the last day of each calendar quarter, provided however, that in no event shall said annual interest rate exceed the maximum legal interest rate for corporations. Each such payment when made shall be accompanied by all interest so accrued. Said interest and the payment and acceptance thereof shall not negate or waive the right of JHU to seek any other remedy, legal or equitable, to which it may be entitled because of the delinquency of any payment including, but not limited to termination of this Agreement as set forth in Paragraph 9.2.

ARTICLE IV

PATENT PROSECUTION, MAINTENANCE, & INFRINGEMENT

4.1 Prosecution & Maintenance. JHU, at Company’s expense, shall maintain all patents specified under PATENT RIGHTS upon authorization of Company and Company shall be licensed thereunder. Title to, all such patents and patent applications shall reside in JHU. JHU shall have full and complete control over all patent matters in connection therewith under the PATENT RIGHTS, provided however, that JHU will consider and incorporate reasonable comments received from Company. Company will provide payment authorization to JHU at least one (1) month before an action is due, provided that Company has received timely notice of such action from JHU. Failure to provide authorization can be considered by JHU as a Company decision not to authorize an action. In any country where Company elects not to have a patent application filed or to pay expenses associated with filing, prosecuting, or maintaining a patent application or patent, JHU may file, prosecute, and/or maintain the patent application or patent at its own expense and for its own exclusive benefit and Company thereafter shall not be licensed under such patent or patent application.

4.2 Notification. Each party will notify the other promptly in writing when any infringement by another is uncovered or suspected.

4.3 Infringement. Company shall have the first right to enforce any patent within PATENT RIGHTS against any infringement or alleged infringement thereof, and shall at all times keep JHU informed as to the status thereof. Company may, in its sole judgment and at its own expense, institute suit against any such infringer or alleged infringer and control, settle, and defend such suit in a manner consistent with the terms and provisions hereof and recover, for its account, any damages, awards or settlements resulting therefrom, subject to Paragraph 4.4. This right to sue for infringement shall not be used in an arbitrary or capricious manner. JHU shall reasonably cooperate in any such litigation at Company’s expense.

If Company elects not to enforce any patent within the PATENT RIGHTS, then it shall so notify JHU in writing within ninety (90) days of receiving notice that an infringement exists, and JHU may, in its sole judgment and at its own expense, take steps to enforce any patent and control, settle, and defend such suit in a manner consistent with the terms and provisions hereof, and recover, for its own account, any damages, awards or settlements resulting therefrom.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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4.4 Recovery. Any recovery by Company under Paragraph 4.3 shall be deemed to reflect loss of commercial sales, and Company shall pay to JHU [ * ] percent ([ * ]%) of the recovery net of all reasonable costs and expenses associated with each suit or settlement. If the cost and expenses exceed the recovery, then one-half (1/2) of the excess shall be credited against royalties payable by Company to JHU hereunder in connection with sales in the country of such legal proceedings, provided, however, that any such credit under this Paragraph shall not exceed fifty percent (50%) of the royalties otherwise payable to JHU with regard to sales in the country of such action in any one calendar year, with any excess credit being carried forward to future calendar years.

ARTICLE V

OBLIGATIONS OF THE PARTIES

5.1 Reports. Company shall provide to JHU within thirty (30) days of the end of each March, June, September and December after the EFFECTIVE DATE of this Agreement, a written report to JHU of the amount of LICENSED PRODUCT sold, and LICENSED SERVICE sold, the total NET SALES and NET SERVICE REVENUES of such LICENSED PRODUCT and LICENSED SERVICE, and the running royalties due to JHU as a result of NET SALES and NET SERVICE REVENUES by Company, AFFILIATED COMPANIES and SUBLICENSEE thereof. Payment of any such royalties due shall accompany such report. The report of sales and royalties due shall be substantially in the format of the sales and royalty report form given in Exhibit B. Until Company, an AFFILIATED COMPANY or a SUBLICENSEE has achieved a first commercial sale of a LICENSED PRODUCT and received FDA market approval, a report shall be submitted at the end of every June and December after the EFFECTIVE DATE of this Agreement and will include a full written report describing Company’s, AFFILIATED COMPANIES or any SUBLICENSEE’s technical efforts towards meeting its obligations under the terms of this Agreement.

5.2 Records. Company shall make and retain, for a period of [ * ] years following the period of each report required by Paragraph 5.1, true and accurate records, files and books of account containing all the data reasonably required for the full computation and verification of sales and other information required in Paragraph 5.1. Such books and records shall be in accordance with generally accepted accounting principles consistently applied. Company shall permit the inspection and copying of such records, files and books of account by JHU or its agents during regular business hours upon ten (10) business days’ written notice to Company. Such inspection shall not be made more than once each calendar year. All costs of such inspection and copying shall be paid by JHU, provided that if any such inspection shall reveal that an error has been made in the amount equal to [ * ] percent ([ * ]%) or more of such payment, such costs shall be borne by Company. Company shall include in any agreement with its AFFILIATED COMPANIES or its SUBLICENSEE which permits such party to make, use or sell the LICENSED PRODUCT or provide LICENSED SERVICE, a provision requiring such party to retain records of sales of LICENSED PRODUCT and records of LICENSED SERVICE and other information as required in Paragraph 5.1 and permit JHU to inspect such records as required by this Paragraph.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

7.

5.3 Diligence Efforts. Company shall exercise reasonable commercial efforts to develop and to introduce the LICENSED PRODUCT and LICENSED SERVICE into the commercial market as soon as practicable, consistent with sound and reasonable business practice and judgement; thereafter, until the expiration of the Agreement, Company shall endeavor to keep LICENSED PRODUCT and LICENSED SERVICE reasonably available to the public.

Company shall meet the following business-related milestones:

(1) hire professional management and raise [ * ] dollars ($[ * ]) in equity funding withing [ * ] of the EFFECTIVE DATE; and,

(2) [ * ] within [ * ] of the EFFECTIVE DATE.

Company shall meet the following milestones towards development of a [ * ] product:

(1) identify a [ * ] LICENSED PRODUCT and provide a corresponding development plan to JHU within [ * ] of the EFFECTIVE DATE; and,

(2) [ * ] within [ * ] of the EFFECTIVE DATE for a [ * ]; and,

(3) [ * ] to the [ * ] within [ * ] of the EFFECTIVE DATE.

Company shall meet the following milestones towards development of a [ * ] product:

(1) identify a [ * ] LICENSED PRODUCT and provide a corresponding development plan to JHU within [ * ] of the EFFECTIVE DATE; and

(2) [ * ] within [ * ] of the EFFECTIVE DATE; and,

(3) [ * ] within [ * ].

Company shall also exercise commercially reasonable efforts to develop other LICENSED PRODUCT suitable for different indications, so that the PATENT RIGHTS can be commercialized as broadly and as speedily as good scientific and business judgement would deem possible.

5.4 Patent Acknowledgement. Company agrees that all packaging containing individual LICENSED PRODUCT sold by Company, AFFILIATED COMPANIES and SUBLICENSEE of Company will be marked with the number of the applicable patent(s) licensed hereunder in accordance with each country’s patent laws.

ARTICLE VI

REPRESENTATIONS

6.1 Representations by JHU. JHU warrants that it has good and marketable title to its interest in the inventions claimed under PATENT RIGHTS with the exception of certain retained rights of the United States government. JHU does not warrant the validity of any

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

8.

patents or that practice under such patents shall be free of infringement. EXCEPT AS EXPRESSLY SET FORTH IN THIS PARAGRAPH 6.1, COMPANY, AFFILIATED COMPANIES AND SUBLICENSEE AGREE THAT THE PATENT RIGHTS ARE PROVIDED “AS IS”, AND THAT JHU MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO THE PERFORMANCE OF LICENSED PRODUCT AND LICENSED SERVICE INCLUDING THEIR SAFETY, EFFECTIVENESS, OR COMMERCIAL VIABILITY. JHU DISCLAIMS ALL WARRANTIES WITH REGARD TO PRODUCT AND SERVICE LICENSED UNDER THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ALL WARRANTIES, EXPRESS OR IMPLIED, OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, JHU ADDITIONALLY DISCLAIMS ALL OBLIGATIONS AND LIABILITIES ON THE PART OF JHU AND INVENTORS, FOR DAMAGES, INCLUDING, BUT NOT LIMITED TO, DIRECT, INDIRECT, SPECIAL, AND CONSEQUENTIAL DAMAGES, ATTORNEYS’ AND EXPERTS’ FEES, AND COURT COSTS (EVEN IF JHU HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, FEES OR COSTS), ARISING OUT OF OR IN CONNECTION WITH THE MANUFACTURE, USE, OR SALE OF THE PRODUCT AND SERVICE LICENSED UNDER THIS AGREEMENT. COMPANY, AFFILIATED COMPANIES AND SUBLICENSEE ASSUME ALL RESPONSIBILITY AND LIABILITY FOR LOSS OR DAMAGE CAUSED BY A PRODUCT AND SERVICE MANUFACTURED, USED, OR SOLD BY COMPANY, ITS SUBLICENSEE AND AFFILIATED COMPANIES WHICH IS A LICENSED PRODUCT OR LICENSED SERVICE AS DEFINED IN THIS AGREEMENT.

ARTICLE VII

INDEMNIFICATION

7.1 Indemnification. JHU and the Inventors of LICENSED PRODUCT and LICENSED SERVICE will not, under the provisions of this Agreement or otherwise, have control over the manner in which Company or its AFFILIATED COMPANIES or its SUBLICENSEE or those operating for its account or third parties who purchase LICENSED PRODUCT or LICENSED SERVICE from any of the foregoing entities, practice the inventions of LICENSED PRODUCT and LICENSED SERVICE. Company shall defend and hold JHU, The Johns Hopkins Health Systems, their present and former trustees, officers, Inventors of PATENT RIGHTS, agents, faculty, employees and students harmless as against any judgments, fees, expenses, or other costs arising from or incidental to any product liability or other lawsuit, claim, demand or other action brought as a consequence of the practice of said inventions by any of the foregoing entities, whether or not JHU or said inventors, either jointly or severally, is named as a party defendant in any such lawsuit. Practice of the inventions covered by LICENSED PRODUCT and LICENSED SERVICE, by an AFFILIATED COMPANY or an agent or a SUBLICENSEE or a third party on behalf of or for the account of Company or by a third party who purchases LICENSED PRODUCT and LICENSED SERVICE from Company, shall be considered Company’s practice of said inventions for purposes of this Paragraph. The obligation of Company to defend and indemnify as set out in this Paragraph shall survive the termination of this Agreement.

7.2 Prompt Notice. Each party’s obligation to indemnify as set forth above is conditioned on the indemnified party or parties giving the indemnifying party prompt written notice of all claims, providing reasonable cooperation in their investigation and defense, and permitting the indemnifying party to defend said claims at indemnifying party’s expense with legal counsel of indemnifying party’s choice. Notwithstanding the above, the indemnifying party will not be required to defend or indemnify any party with respect to losses or expenses caused by that party’s won negligence or willful misconduct.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

9.

ARTICLE VIII

CONFIDENTIALITY

8.1 Confidentiality. If necessary, the parties will exchange information, which they consider to be confidential. The recipient of such information agrees to accept the disclosure of said information which is marked as confidential at the time it is sent to the recipient, and to employ all reasonable efforts to maintain the information secret and confidential, such efforts to be no less than the degree of care employed by the recipient to preserve and safeguard its own confidential information. The information shall not be disclosed or revealed to anyone except employees of the recipient who have a need to know the information and who have entered into a secrecy agreement with the recipient under which such employees are required to maintain confidential the proprietary information of the recipient and such employees shall be advised by the recipient of the confidential nature of the information and that the information shall be treated accordingly.

The obligations of this Paragraph shall also apply to AFFILIATED COMPANIES and/or SUBLICENSEE provided such information by Company. JHU’s, Company’s, AFFILIATED COMPANIES, and SUBLICENSEES’ obligations under this Paragraph shall extend until [ * ] after the termination of this Agreement.

8.2 Exceptions. The recipient’s obligations under Paragraph 8.1 shall not extend to any part of the information:

(a) that can be demonstrated to have been in the public domain or publicly known and readily available to the trade or the public prior to the date of the disclosure; or

(b) that can be demonstrated, from written records to have been in the recipient’s possession or readily available to the recipient from another source not under obligation of secrecy to the disclosing party prior to the disclosure; or

(c) that becomes part of the public domain or publicly known by publication or otherwise, not due to any unauthorized act by the recipient; or

(d) that is demonstrated from written records to have been developed by or for the receiving party without reference to confidential information disclosed by the disclosing party.

(e) that is required to be disclosed by law, government regulation or court order.

8.3 Right to Publish. JHU may publish manuscripts, abstracts or the like describing the PATENT RIGHTS and inventions contained therein provided confidential information of Company as defined in Paragraph 8.1, is not included or without first obtaining approval from Company to include such confidential information. Otherwise, JHU and the Inventors shall be free to publish manuscripts and abstracts or the like directed to the work done at JHU related to the licensed technology without prior approval.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

10.

ARTICLE IX

TERM & TERMINATION

9.1 Term. The term of this Agreement shall commence on the EFFECTIVE DATE and shall continue until the date of expiration of the last to expire patent included within PATENT RIGHTS.

9.2 Termination By Either Party. This Agreement may be terminated by either party, in the event that the other party: (a) files or has filed against it a petition under the Bankruptcy Act, makes an assignment for the benefit of creditors, has a receiver appointed for it or a substantial part of its assets, or otherwise takes advantage of any statute or law designed for relief of debtors; or (b) fails to perform or otherwise breaches any of its obligations hereunder, if, following the giving of notice by the terminating party of its intent to terminate and stating the grounds therefor, the party receiving such notice shall not have cured the failure or breach within sixty (60) days. In no event, however, shall such notice or intention to terminate be deemed to waive any rights to damages or any other remedy which the party giving notice of breach may have as a consequence of such failure or breach.

9.3 Termination by Company. Company may terminate this Agreement and the license granted herein, for any reason, upon giving JHU sixty (60) days written notice.

9.4 Obligations and Duties upon Termination. If this Agreement is terminated, both parties shall be released from all obligations and duties imposed or assumed hereunder to the extent so terminated, except as expressly provided to the contrary in this Agreement. Upon termination, both parties shall cease any further use of the confidential information disclosed to the receiving party by the other party. Termination of this Agreement, for whatever reason, shall not affect the obligation of either party to make any payments for which it is liable prior to or upon such termination. Termination shall not affect JHU’s right to recover unpaid royalties or fees or reimbursement for patent expenses incurred pursuant to Paragraph 4.1 prior to termination. Upon termination Company shall submit a final royalty report to JHU and any royalty payments and unreimbursed patent expenses due JHU shall become immediately payable. Furthermore, upon termination of this Agreement, all rights in and to the licensed technology shall revert immediately to JHU at no cost to JHU. Upon termination of this Agreement, any SUBLICENSEE shall become a direct licensee of JHU. Company shall provide written-notice of such to each SUBLICENSEE with a copy of such notice provided to JHU.

ARTICLE X

MISCELLANEOUS

10.1 Use of Name. Company shall not use the name of The Johns Hopkins University or The Johns Hopkins Health System or any of its constituent parts, such as the Johns Hopkins Hospital or any contraction thereof or the name of Inventors of PATENT RIGHTS in any advertising, promotional, sales literature or fundraising documents without prior written consent from an officer of JHU. Company shall allow at least seven (7) business days notice of any proposed public disclosure for JHU’s review and comment or to provide written consent.

10.2 No Partnership. Nothing in this Agreement shall be construed to create any agency, employment, partnership, joint venture or similar relationship between the parties other than that of a licensor/licensee. Neither party shall have any right or authority whatsoever to incur any liability or obligation (express or implied) or otherwise act in any manner in the name or on the behalf of the other, or to make any promise, warranty or representation binding on the other.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

11.

10.3 Insurance; Liability to Third Persons. JHU and Company, each at their own expense, shall obtain and thereafter maintain workers’ compensation and comprehensive general liability (bodily injury and property damage) insurance, with respect to performance under this Agreement. Each party shall give the other or its representative immediately notice of any suit or action filed, or prompt notice of any claim made, against them arising out of the performance of this Agreement.

10.4 Product Liability. Prior to initial human testing or first commercial sale of any LICENSED PRODUCT or LICENSED SERVICE as the case may be in any particular country, Company shall establish and maintain, in each country in which Company, an AFFILIATED COMPANY or SUBLICENSEE shall test or sell LICENSED PRODUCT and LICENSED SERVICE, product liability or other appropriate insurance coverage appropriate to the risks involved in marketing LICENSED PRODUCT and LICENSED SERVICE and will annually present evidence to JHU that such coverage is being maintained. Upon JHU’s request, Company will furnish JHU with a Certificate of Insurance of each product liability insurance policy obtained. JHU shall be listed as an additional insured in Company’s said insurance policies. If such Product Liability insurance is underwritten on a ‘claims made’ basis, Company agrees that any change in underwriters during the term of this Agreement will require the purchase of ‘prior acts’ coverage to ensure that coverage will be continuous throughout the term of this Agreement.

10.5 Governing Law. This Agreement shall be construed, and legal relations between the parties hereto shall be determined, in accordance with the laws of the State of Maryland applicable to contracts solely executed and wholly to be performed within the State of Maryland without giving effect to the principles of conflicts of laws.

10.6 Disputes. The parties shall attempt to resolve all disputes through informal means. This may include mediation or any other procedures upon which the parties agree. Each party agrees that, prior to resorting to litigation to resolve any dispute, it will confer with other party to determine whether other procedures that are less expensive or less time consuming can be adopted to resolve the dispute. This agreement shall be interpreted under the law of the State of Maryland. Jurisdiction and venue shall be in courts located in the City of Baltimore.

10.7 Notice. All notices or communication required or permitted to be given by either party hereunder shall be deemed sufficiently given if mailed by registered mail or certified mail or sent by overnight courier, such as Federal Express, to the other party at its respective address set forth below or to such other address as one party shall give notice of to the other from time to time hereunder. Mailed notices shall be deemed to be received on the third business day following the date of mailing. Notices sent by overnight courier shall be deemed received the following business day.

If to Company:                       StemCo Biomedical, Inc.

c/o Hutchison and Mason, PLLC

Suite 100

3110 Edwards Mill Rd.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

12.

Raleigh, NC 27612

Attn: Fred D. Hutchison

If to JHU:                               Office of Technology Licensing

The Johns Hopkins University

School of Medicine

111 Market Place, Suite 906

Baltimore, MD 21202

Attn: Director

10.8 Compliance with All Laws. In all activities undertaken pursuant to this Agreement, both JHU and Company covenant and agree that each will in all material respects comply with such Federal, state and local laws and statutes, as may be in effect at the time of performance and all valid rules, regulations and orders thereof regulating such activities.

10.9 Successors and Assigns. Neither this Agreement nor any of the rights or obligations created herein, except for the right to receive any remuneration hereunder, may be assigned by either party, in whole or in part, without the prior written consent of the other party, except that either party shall be free to assign this Agreement in connection with any sale of substantially all of its assets without the consent of the other. Such Assignment shall be subject to JHU approval, which approval shall not be unreasonably withheld. This Agreement shall bind and inure to the benefit of the successors and permitted assigns of the parties hereto.

10.10 No Waivers; Severability. No waiver of any breach of this Agreement shall constitute a waiver of any other breach of the same or other provision of this Agreement, and no waiver shall be effective unless made in writing. Any provision hereof prohibited by or unenforceable under any applicable law of any jurisdiction shall as to such jurisdiction be deemed ineffective and deleted herefrom without affecting any other provision of this Agreement. It is the desire of the parties hereto that this Agreement be enforced to the maximum extent permitted by law, and should any provision contained herein be held by any governmental agency or court of competent jurisdiction to be void, illegal and unenforceable, the parties shall negotiate in good faith for a substitute term or provision which carries out the original intent of the parties

10.11 Entire Agreement; Amendment. Company and JHU acknowledge that they have read this entire Agreement and that this Agreement, including the attached Exhibits constitutes the entire understanding and contract between the parties hereto and supersedes any and all prior or contemporaneous oral or written communications with respect to the subject matter hereof, all of which communications are merged herein. It is expressly understood and agreed that (i) there being no expectations to the contrary between the parties hereto, no usage of trade, verbal agreement or another regular practice or method dealing within any industry or between the parties hereto shall be used to modify, interpret, supplement or alter in any manner the express terms of this Agreement; and (ii) this Agreement shall not be modified, amended or in any way altered except by an instrument in writing signed by both of the parties hereto.

10.12 Delays or Omissions. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party hereto, shall impair any such right, power or remedy to such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or in any similar breach or default. be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit,

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

13.

consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

10.13 Force Majeure. If either party fails to fulfill its obligations hereunder (other than an obligation for the payment of money), when such failure is due to an act of God, or other circumstances beyond its reasonable control, including but not limited to fire, flood, civil commotion, riot, war (declared and undeclared), revolution, or embargoes, then said failure shall be excused for the duration of such event and for such a time thereafter as is reasonable to enable the parties to resume performance under this Agreement.

10.14 Further Assurances. Each party shall, at any time, and from to time, prior to or after the EFFECTIVE DATE of this Agreement, at reasonable request of the other party, execute and deliver to the other such instruments and documents and shall take such actions as may be required to ‘more effectively carry out the terms of this Agreement.

10.15 Survival. All representations, warranties, covenants and agreements made herein and which by their express terms or by implication are to be performed after the execution and/or termination hereof, or are prospective in nature, shall survive such execution and/or termination, as the case may be. This shall include Articles VI, VII, VIII, IX, and X.

10.16 No Third Party Beneficiaries. Nothing in this Agreement shall be construed as giving any person, firm, corporation or other entity, other than the parties hereto and their successors and permitted assigns, any right, remedy or claim under or in respect of this Agreement or any provision hereof.

10.17 Headings. Article headings are for convenient reference and not a part of this Agreement. All Exhibits are incorporated herein by this reference.

10.18 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which when taken together shall be deemed but one instrument.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

14.

IN WITNESS WHEREOF, this Agreement shall take effect as of the EFFECTIVE DATE when it has been executed below by the duly authorized representatives of the parties.

THE JOHNS HOPKINS UNIVERSITY
By:	/s/ William P. Tew, Ph.D.,	November 27, 2000
Title:	William P. Tew, Ph.D., Executive Director Technology and Business Development School of Medicine	(Date)

COMPANY
By:	/s/ Clayton A. Smith, M.D.	10/15/2000
Title:	Clayton A. Smith, M.D.	(Date)

EXHIBIT A.    LICENSE FEE & ROYALTIES.

EXHIBIT B.    SALES & ROYALTY REPORT FORM.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

15.

EXHIBIT A

LICENSE FEE & ROYALTIES

1. License Fee: As partial consideration for the license granted by this Agreement Company will pay to JHU a first license fee of [ * ] dollars ($[ * ]) within thirty (30) days of the EFFECTIVE DATE of this Agreement and a second license fee of [ * ] dollars ($[ * ]) within thirty (30) days of the first anniversary of the EFFECTIVE DATE of this Agreement. JHU will not submit an invoice for the first license fee, which is nonrefundable and shall not be credited against royalties or any other fees. A one-time $[ * ] fee will be deducted by the Office of Technology Licensing from any fees received by Company.

2. Minimum Annual Royalties: For the term of this Agreement Company shall pay to JHU minimum annual royalties as set forth below. These minimum annual royalties shall be due within thirty (30) days of the anniversary of EFFECTIVE DATE of this Agreement. In any year where there are sales of LICENSED PRODUCT or LICENSED SERVICE the minimum annual royalties shall be credited against any running royalty due in the corresponding royalty year. A $[ * ] maintenance fee will be deducted annually from any royalties or other fees received from Company.

1^st year to 4^th year [ * ] dollars ($[ * ]).

5^th year and beyond [ * ] dollars ($[ * ])

3. Royalties. Company shall pay to JHU, a running royalty, for each LICENSED PRODUCT sold, and for each LICENSED SERVICE provided, by Company, AFFILIATED COMPANIES and Company’s SUBLICENSEE, of [ * ] percent ([ * ]%) on NET SALES of [ * ], [ * ] percent ([ * ]%) on NET SALES of [ * ] and [ * ] percent ([ * ]%) on NET SALES of [ * ] for the term of this Agreement. Such payments shall be made quarterly.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

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EXHIBIT B

QUARTERLY SALES & ROYALTY REPORT

FOR LICENSE AGREEMENT BETWEEN Company AND

THE JOHNS HOPKINS UNIVERSITY DATED

{EFFECTIVE DATE OF AGREEMENT}

FOR PERIOD OF _______________ TO ________________

TOTAL ROYALTIES DUE FOR THIS PERIOD $___________

PRODUCT
NAME *JHU
REFERENCE TOTAL NET
SALES/SERVICES ROYALTY
RATE AMOUNT
DUE

* Please provide the JHU Disclosure Number or Patent Reference

This report format is to be used to report quarterly royalty statements to JHU. It should be placed on Company letterhead and accompany any royalty payments due for the reporting period. This report shall be submitted even if no sales are reported.

[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

17.

EX-10.8

Exhibit 10.8

STANDARD LEASE

WITH

StemCo Biomedical, Inc.

SUITES:	144 and 148
BUILDING:	2810 Meridian
CITY:	Durham, North Carolina

TABLE OF CONTENTS

ARTICLE 1:	BASIC PROVISIONS	1
ARTICLE 2:	TERM AND COMMENCEMENT	3
ARTICLE 3:	BASE RENT AND ADDITIONAL RENT	3
ARTICLE 4:	CONDITION OF PREMISES	6
ARTICLE 5:	QUIET ENJOYMENT	7
ARTICLE 6:	UTILITIES AND SERVICES	7
ARTICLE 7:	USE, COMPLIANCE WITH LAWS, AND RULES	8
ARTICLE 8:	MAINTENANCE AND REPAIRS	9
ARTICLE 9:	ALTERATIONS AND LIENS	10
ARTICLE 10:	INSURANCE, SUBROGATION, AND WAIVER OF CLAIMS	11
ARTICLE 11:	CASUALTY DAMAGE	12
ARTICLE 12:	CONDEMNATION	13
ARTICLE 13:	ASSIGNMENT AND SUBLETTING	14
ARTICLE 14:	PERSONAL PROPERTY, RENT AND OTHER TAXES	16
ARTICLE 15:	LANDLORD’S REMEDIES	16
ARTICLE 16:	SECURITY DEPOSIT	19
ARTICLE 17:	ATTORNEYS’ FEES, JURY TRIAL AND VENUE	20
ARTICLE 18:	SUBORDINATION, ATTORNMENT AND LENDER PROTECTION	20
ARTICLE 19:	ESTOPPEL CERTIFICATES	21
ARTICLE 20:	RIGHTS RESERVED BY LANDLORD	21
ARTICLE 21:	LANDLORD’S RIGHT TO CURE	22
ARTICLE 22:	INDEMNIFICATION	22
ARTICLE 23:	RETURN OF POSSESSION	23
ARTICLE 24:	HOLDING OVER	23
ARTICLE 25:	NOTICES	24
ARTICLE 26:	REAL ESTATE BROKERS	24
ARTICLE 27:	NO WAIVER	24
ARTICLE 28:	TELECOMMUNICATION LINES	25
ARTICLE 29:	HAZARDOUS MATERIALS	25
ARTICLE 30:	DEFINITIONS	28
ARTICLE 31:	OFFER	31
ARTICLE 32:	MISCELLANEOUS	31
ARTICLE 33:	ENTIRE AGREEMENT	33
EXHIBITS		Listed in Article 1.P

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STANDARD LEASE

THIS STANDARD LEASE (“Lease”) is made and entered into as of the ___ day of June, 2003, by and between CMD PROPERTIES, INC. (“Landlord”), an Illinois corporation, and StemCo Biomedical, Inc. (‘Tenant”), a Delaware corporation.

ARTICLE 1: BASIC PROVISIONS

This Article contains the basic tease provisions between Landlord and Tenant.

A. Building:	2810 Meridian, located at 2810 Meridian Parkway, Durham, North Carolina (the “Property”, as further described in Article 30).
B. Premises:	Suites 144 and 148 located in the Building as outlined or hatched on Exhibit A hereto.
C. Commencement Date:	May 1, 2004 for Suite 148 or such earlier date as the Andcare Lease may be terminated as further described in Article 2 below (sometimes referred to herein as the “Suite 148 Commencement Date”) and September 1, 2005 for Suite 144 or such earlier date as the PRI Lease may be terminated as further described in Article 2 below (sometimes referred to herein as the “Suite 144 Commencement Date”), subject to Articles 2 and 4. The term “Commencement Date” as used herein shall mean either the Suite 148 Commencement Date or the Suite 144 Commencement Date, or both, as the context reasonably implies.
D. Expiration Date:	April 30, 2008, subject to Articles 2 and 4.
E. Rentable Area:	The rentable area of the Premises shall be deemed to be 11,021 square feet, consisting of 3,954 for Suite 148 and 7,067 for Suite 144, and the rentable area of the Property shall be deemed to be 100,878 square feet, for purposes of this Lease, subject to Article 30.
F. Tenant’s Share:	Three and 92/100 percent (3.92%) until the Suite 144 Commencement Date and thereafter ten and 93/100 percent (10.93%), subject to Articles 3 and 30.
G. Base Rent:	Tenant shall pay monthly Base Rent pursuant to the following schedule and as described in Article 3:

Period	Monthly Base Rent
Suite 148 Commencement Date – April 30, 2005	$	3,225.81
May 1, 2005 – day immediately prior to Suite 144 Commencement Date	$	3,322.58
Suite 144 Commencement Date – April 30,2006	$	9,256.31
May 1, 2006 – April 30, 2007	$	9,534.00
May 1, 2007 – Expiration Date	$	9,820.02

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H. Additional Rent:	Tenant shall pay Tenant’s Share of Taxes, Insurance and Expenses as further described in Article 3.
I. Permitted Use:	General office and minor or “light” laboratory, subject to Article 7.
J. Security Deposit:	$9,256.31, subject to Article 16.
K. Broker:	Advantis GVA, subject to Article 26.
L. Guarantor(s):	n/a
M. Landlord’s Notice Address (subject to Article 25):
	c/o CMD Realty Investors, L.P., Suite 450, 2100 RiverEdge Parkway, Atlanta, Georgia 30328, Attn.: Regional Manager; with copies c/o CMD Realty Investors, L.P., 227 West Monroe Street, Suite 3900, Chicago, Illinois 60606, Attn.: General Counsel and Attn.: Asset Manager.
N. Tenant’s Notice Address (subject to Article 25):
	StemCo Biomedical, Inc. 2810 Meridian, Suite 148, Durham, North Carolina 27713
O. Rent Payments:	Rent shall be paid to Landlord c/o Bank One, P.O. Box 93150, Chicago, Illinois 60673-3150, or such other parties and addresses as to which Landlord shall provide advance notice.
P. Exhibits:	This Lease includes, and incorporates by this reference:
	Exhibit A:	Premises
	Exhibit B:	Rules
	Exhibit C:	Extension Option
	Exhibit D:	Right of Offer
	Exhibit E:	Option to Terminate

The above provisions shall be interpreted and applied in accordance with the other provisions of this Lease. The terms of this Article, and the terms defined in Article 30 and other Articles, shall have the meanings specified therefor when used as capitalized terms in other provisions of this Lease or related documentation (except as expressly provided to the contrary therein).

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ARTICLE 2: TERM AND COMMENCEMENT

A. Term. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises for the Term, subject to the other provisions of this Lease. The term (“Term”) of this Lease shall commence on the applicable Commencement Date for each suite and end on the Expiration Date set forth in Article 1, unless sooner terminated as provided in this Lease, subject to adjustment as provided below and the other provisions of this Lease.

B. Suite 148. The parties acknowledge and agree that: (i) Tenant is currently occupying Suite 148 pursuant to a Sublease dated December 14, 2000, as amended (“Andcare Sublease”) from Andcare, Inc. (“Andcare”), that will terminate on April 30, 2004 or such earlier date on which the lease between Andcare and Landlord (“Andcare Lease”) is terminated (as contemplated in the Consent to Sublease dated January 11, 2001 between Landlord, Tenant and Andcare), (ii) the Suite 148 Commencement Date herein Rent and Tenant’s other obligations hereunder shall be advanced to such earlier date on which the Andcare Sublease and Andcare Lease are terminated, and (iii) in such event, the Base Rent under Article 1.G of this Lease shall be as follows: $4,136.50 per month for the period commencing on the date of the Lease and ending on April 30, 2004. If the Commencement Date is advanced to an earlier date under Article 1.C hereof due to an earlier termination of the Andcare Lease, the Expiration Date herein shall not be changed.

C. Suite 144. The parties acknowledge and agree that: (i) Tenants currently occupying Suite 144 pursuant to a Subsublease dated February 2, 2003, as amended (“PRI Subsublease”) from MD Everywhere, Inc. (“MD”), MD itself being a subtenant pursuant to a Sublease dated on or about January 8, 2001 (“PRI Sublease”) from PRI Associates, Inc. (“PRI”); and that the Sublease and Subsublease will terminate on August 31, 2005 or such earlier date on which the lease between PRI and Landlord (“PRI Lease”) is terminated (as contemplated in the Consent to Sub-Sublease dated February 3, 2003 between Landlord, PRI, MD and Tenant and the Consent to Sublease dated January 8, 2001 between Landlord, MD and PRI), (ii) the Suite 144 Commencement Date herein and Tenant’s other obligations hereunder shall be advanced to such earlier date on which the PRI Sub-sublease, PRI Sublease and PRI Lease are terminated, and (iii) in such event, the Base Rent under Article 1.G of this Lease shall be as follows. $5,594.71 per month (escalated by 3% on February 3, 2004 and February 3, 2005) for the period beginning on the date of this Lease and ending on August 31, 2005. If the Commencement Date is advanced to an earlier date under Article 1.C hereof due to an earlier termination of the PRI Lease, the Expiration Date herein shall not be changed.

D. Adjustments and Confirmation. Tenant shall execute a confirmation of any Commencement Date as adjusted herein in such form as Landlord may reasonably request; any failure to respond within thirty (30) days after requested shall be deemed an acceptance of the date set forth in Landlord’s confirmation.

ARTICLE 3: BASE RENT AND ADDITIONAL RENT

A. Base Rent. Tenant shall pay Landlord the monthly Base Rent set forth in Article 1 in advance on or before the first day of each calendar month during the Term; provided, Tenant shall pay Base Rent for the first full calendar month for which Base Rent is due no later than three (3) months before the applicable Commencement Date.

B. Taxes, Insurance and Expenses. Subject to the limitations in Paragraph I below, Tenant shall pay Landlord Tenant’s Share of Taxes, Insurance and Expenses in the manner described below. The foregoing capitalized terms shall have the meanings specified therefor in Articles 1 and 30.

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C. Payments.

(i) Landlord may reasonably estimate in advance the amounts Tenant shall owe for Taxes, Insurance and Expenses for any full or partial calendar year of the Term. Tenant shall pay such estimated amounts, on a monthly basis, on or before the first day of each calendar month, together with Tenant’s payment of Base Rent. Landlord may reasonably adjust such estimate from time to time.

(ii) Within 120 days after the end of each calendar year, or as soon thereafter as practicable, Landlord shall provide a statement (the “Statement”) showing: (a) the amount of actual Taxes, Insurance and Expenses for such calendar year, with a listing of amounts for major categories of Expenses, (b) any amount paid by Tenant towards Taxes, insurance and Expenses during such calendar year on an estimated basis, and (c) any revised estimate of Tenant’s obligations for such items for the current year.

(iii) If the Statement shows that Tenant’s estimated payments were less than Tenant’s actual obligations for Taxes, Insurance and Expenses for such year, Tenant shall pay the difference within thirty (30) days after Tenant receives the Statement. If the Statement shows that Tenant’s estimated payments exceeded Tenant’s actual obligations for Taxes, Insurance and Expenses, Landlord shall credit the difference against the payment of Rent next due. However, if the Term shall nave expired and no further Rent shall be due, Landlord shall provide a prompt refund of such difference with the final Statement for such year and this obligation will survive expiration or earlier termination of the Lease.

(iv) If the Statement shows a further increase in Tenant’s estimated payments for the current calendar year, Tenant shall: (a) thereafter pay the new estimated amount until Landlord further revises such estimated amount, and (b) pay the difference between the new and former estimates for the period from January 1 of the current calendar year through the month in which the Statement is sent within thirty (30) days after Tenant receives the Statement.

(v) In lieu of providing one Statement covering Taxes, Insurance and Expenses, Landlord may provide separate statements. So long as Tenant’s obligations hereunder are not materially adversely affected thereby, Landlord reserves the right to reasonably change the manner or timing of Tenant’s payments for Taxes, Insurance and Expenses.

D. Tax Refunds, Protest Costs, Fiscal Years and Special Assessments. Landlord shall each year: (i) credit against Taxes any refunds received during such year, whether or not for a prior year, (ii) include in Taxes any additional amount paid during such year involving an adjustment to Taxes for a prior year due to supplemental assessment or other reason, (iii) for Taxes payable in installments over more than one year, include only the minimum amounts payable each year and any interest thereon, and (iv) include, in either Taxes or Expenses, any reasonable fees for attorneys, consultants and experts, and other costs paid during such year in attempting to protest, appeal or otherwise seek to reduce or minimize Taxes. Notwithstanding anything to the contrary contained in this Lease, if any taxing authority, at any time, uses a fiscal year other than a current calendar year, Landlord may require payments by Tenant based on: (a) amounts paid or payable during each calendar year, or (b) amounts paid or payable for or during each fiscal tax year.

E. Grossing Up and Tenant’s Share Adjustments. In order to allocate variable Expenses (i.e. those items that vary based on occupancy levels) among those parties who are leasing space when the Property is not fully occupied during all or a portion of any calendar year, Landlord may reasonably determine the amount of such variable Expenses that would have been paid had the Property been fully occupied, and the amount so determined shall be deemed to have been the amount of variable Expenses for such year (rather than adjusting Tenant’s Share by subtracting vacant space from the denominator). Similarly, if Landlord is not furnishing any particular utility or service to a tenant during any period (the cost of which, if performed by Landlord, would be included in Expenses), such as where a single building tenant in a complex arranges for its own landscaping, Landlord may for such period: (i) exclude the rentable area of such tenant from the rentable area of the Property in computing Tenant’s Share of such utility or service, or (ii) adjust Expenses to reflect the additional amount that would reasonably have been incurred had Landlord furnished such utility or service to such tenant (rather than adjusting Tenant’s Share). “Tenant’s Share” shall be subject to other adjustments under the definition thereof in Article 30.

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The preceding Paragraph is not intended to allow Landlord to make a profit on such Expenses, nor to permit Landlord to collect from Tenant and other tenants more than 100% of such Expenses actually incurred by Landlord, but rather is intended to provide that Tenant and other tenants receiving such utilities or services pay their respective shares of the Expenses for variable utilities or services that are actually incurred. The general concept of “grossing up” contained in the preceding Paragraph is illustrated by the following general hypothetical: (a) a building contains 100,000 feet, (b) occupancy is 50% or 50,000 feet, (c) actual janitorial cost for 100% occupancy would be $10,000, (d) actual janitorial cost for 50% occupancy is $5,000, (e) with no “gross up,” tenants pay the landlord $2,500 (50% of $5,000), (f) with the gross up, tenants would pay the actual $5,000 of janitorial costs (50% of $10,000), thus permitting the landlord to recover variable costs actually incurred, (g) the landlord would absorb fixed costs for vacant space with no adjustment. The foregoing illustration is intended to help demonstrate that “grossing up” is designed to ensure that Tenant pays its fair share of variable costs actually incurred as a result of its occupancy.

F. Prorations; Payments After Term Ends. If the Term commences on a day other than the first day of a calendar month or ends on a day other than the last day of a calendar month, the Base Rent and any other amounts payable on a monthly basis shall be prorated on a per diem basis for such partial calendar months. If the Base Rent is scheduled to increase under Article 1 other than on the first day of a calendar month, the amount for such month shall be prorated on a per diem basis to reflect the number of days of such month at the then current and increased rates, respectively. If the Term commences other than on January 1, or ends other than on December 31, Tenant’s obligations to pay amounts towards Taxes, Insurance and Expenses for such first or final calendar years shall be prorated on a per diem basis to reflect the portion of such years included in the Term. Tenant’s obligations to pay any amounts accruing during, or relating to, the period prior to expiration or earlier termination of this Lease, shall survive such expiration or termination.

G. Landlord’s Accounting Practices and Records. Landlord shall maintain records respecting Taxes, Insurance and Expenses and determine the same in accordance with sound accounting and management practices consistently applied in accordance with this Lease. Tenant’s employees (or any certified public accounting firm acting for Tenant on a non-contingent fee basis) shall have the right to review such records by sending notice to Landlord no later than thirty (30) days following the furnishing of the Statement specifying such records as Tenant reasonably desires to review. Such review shall be subject to the continuing condition that Tenant not be in Default, and subject to reasonable scheduling by Landlord during normal business hours at the place or places where such records are normally kept. No later than thirty (30) days after Landlord makes such records available for review, Tenant shall send Landlord notice specifying any exceptions that Tenant takes to matters included in such Statement, Tenant’s detailed reasons for each exception which support a conclusion that such exception properly identifies an error in such Statement, and a complete copy of the review report. Such Statement shall be considered final and binding on Tenant, except as to matters to which exception is taken after review of Landlord’s records in the foregoing manner and within the foregoing times. The foregoing times for sending Tenant’s notices hereunder are critical to Landlord’s budgeting process, and are therefore of the essence of this Paragraph. If Tenant takes timely exception as provided herein, Landlord may seek certification from an independent certified public accountant or financial consultant (who shall be subject to Tenant’s reasonable approval) as to the proper amount of Taxes, Insurance and Expenses or the items as to which Tenant has taken exception. In such case: (i) such certification shall be considered final and binding on both parties (except as to additional amounts not then known or omitted by error), and (ii) Tenant shall pay Landlord for the cost of such certification, unless it shows that Taxes, Insurance and Expenses were overstated by a net amount of five percent (5%) or more. Pending review of such records and resolution of any exceptions, Tenant shall pay the amounts shown on such Statement, subject to credit, refund or additional payment after any such exceptions are resolved.

H. General Payment Matters. Base Rent, Taxes, Insurance, Expenses and any other amounts which Tenant is or becomes obligated to pay Landlord under this Lease or other agreement entered in connection herewith are sometimes herein referred to collectively as “Rent,” and all remedies applicable to the non-payment of rent shall be applicable thereto. Tenant shall pay Rent in good funds and legal tender of the United States of America, together with any applicable sales tax or other taxes on

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Rent as further described in Article 14. Tenant shall pay Rent without any deduction, recoupment, set-off or counterclaim, and without relief from any valuation or appraisement laws, except as may be expressly provided in this Lease. No delay by Landlord in providing the Statement (or separate statements) shall be deemed a default by Landlord or a waiver of Landlord’s right to require payment of Tenant’s obligations for actual or estimated Taxes, Insurance or Expenses. In no event shall a decrease in Taxes, Insurance or Expenses serve to decrease Base Rent. Landlord may apply payments received from Tenant to any obligations of Tenant then accrued, without regard to obligations designated by Tenant.

I. Cap On Controllable Expenses. Notwithstanding anything to the contrary contained in this Lease, Landlord hereby agrees that, for purposes of computing Tenant’s obligations for Expenses, increases in Controllable Expenses (as defined below) during the initial Term shall not exceed six percent (6%) of Controllable Expenses (the “Controllable Expense Cap”), on an average, cumulative basis, subject to the following provisions: (i) “Controllable Expenses” for purposes hereof shall mean all Expenses, except that Landlord may exclude therefrom Utility Costs, Taxes and other costs imposed or established by governmental or regulatory authorities and Insurance, (ii) “average, cumulative basis” for purposes hereof shall mean that, if Controllable Expenses either decrease, or increase by less than the foregoing Controllable Expense Cap amount, in any year or years, then Landlord may apply the difference between Controllable Expenses and the Controllable Expense Cap for such year or years so as to increase the Controllable Expense Cap in another year or years, so long as Controllable Expenses do not exceed the foregoing Controllable Expense Cap on an average, cumulative basis during the initial Term, and (iii) this provision is personal to the Tenant first named in this Lease, and shall no longer apply if Tenant assigns this Lease by operation of law or otherwise or subleases all or a material portion of the Premises. For example, if Controllable Expenses increase by 5% in 2003 and 5% in 2004, they could increase by 8% in 2005 because they would not increase by more than 6% per year on an average, cumulative basis, if Controllable Expenses then increase by a further 8% in 2006, they would be limited to the 6% cap amount for purposes of computing Tenant’s obligations for 2006 in order to keep within the 6% average, cumulative increase. If Controllable Expenses then increase by only 4% in 2007, Landlord may include the extra 2% that Landlord was prevented from using in 2006, so long as Tenant’s obligations for Controllable Expenses do not increase by more than 6% per year on an average, cumulative basis.

ARTICLE 4: CONDITION OF PREMISES

A. Condition of Premises. Tenant is currently entitled to enter and occupy the Premises pursuant to the Andcare Sublease and Consent to Sublease and PRI Sublease and Consent to Sublease referred to in Article 2 above, and has inspected, or had an opportunity to inspect, the Premises (and portions of the Property, Systems and Equipment providing access to or serving the Premises), and agrees to accept the same “as is” without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements except as set forth in the following sentence. Landlord shall, within sixty (60) days after execution and delivery of this Lease by both parties, perform all work necessary to bring the section of drainage piping identified in the email dated April 22, 2003 from Pete Padron of Project Planning and Delivery to Kelly Bolick into compliance with applicable codes.

B. Subsequent Tenant Work. Notwithstanding the foregoing to the contrary, Landlord shall provide an allowance (“Allowance”) of up to $100,000.00 to be used towards reasonable, direct out-of-pocket costs of designing and performing permanent leasehold improvements in the Premises during the period beginning on the date that this Lease has been executed and delivered by both parties and ending on December 31, 2003 (the “Subsequent Tenant Work”). Tenant shall engage its own designers and contractors, and Landlord shall reimburse Tenant based on Tenant’s submission of a customary tenant’s affidavit respecting the work, invoices, paid receipts and other reasonable evidence of payment, and the submission of customary architect’s certificates, lien waivers and affidavits of payment, all reasonably satisfactory to Landlord. Any unused portion of the Allowance shall belong to Landlord. Such Subsequent Tenant Work shall be subject to applicable provisions of the Lease, including Landlord’s

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approval of the contractors and plans for the work under Article 9 of the Lease, and all such work shall also be subject to the approval of Andcare with respect to Suite 148 and PRI and MD with respect to Suite 144 as further provided in the applicable Sublease and Subsublease. Any personal property, trade fixtures or equipment, including, but not limited to, modular or other furniture, and cabling or other items for communications or computer systems, whether or not shown on any plan approved by Landlord, shall be provided by Tenant, at Tenant’s sole cost. Landlord shall be entitled manage the Subsequent Tenant Work and to receive an administrative fee equal to three percent (3%) of all other amounts included in the cost of the Subsequent Tenant Work. There shall be no postponement of any Commencement Date or abatement of Rent as a result of any Subsequent Tenant Work or delays in substantially completing the same, under any circumstances.

ARTICLE 5: QUIET ENJOYMENT

Landlord agrees that, if Tenant timely pays the Rent and performs the terms and provisions hereunder, Tenant shall hold the Premises during the Term free of lawful claims by any party acting by or through Landlord, subject to all other terms and provisions of this Lease.

ARTICLE 6: UTILITIES AND SERVICES

A. Tenant To Obtain Utilities and Services. Tenant shall obtain in Tenant’s own name and pay the utility company or other provider directly for all utilities and services furnished to or for the Premises, including without limitation, electricity, gas, water, sewer, steam, fire protection, telephone and other communication services, utilities for heating, ventilating and air-conditioning (“HVAC”), alarm and other security services, pest and rodent control, janitorial, cleaning and trash collection, including ail connection, disconnection and maintenance charges, deposits, taxes or fees therefor. Landlord reserves the right to designate the companies that shall provide utility services. Notwithstanding the foregoing or any other provision of this Lease to the contrary, Landlord reserves the right to provide water, sewer, HVAC and other services for the Building or Property, and to require that Tenant pay Tenant’s Share thereof as part of Expenses.

B. Intentionally omitted.

C. Installation, Connection and Use of Utility Equipment. Tenant shall install and connect all equipment and lines required to supply such utilities to the extent not already available at or serving the Premises, or at Landlord’s option shall repair, alter or replace any such existing items (or Tenant shall share the costs thereof for any HVAC unit or other equipment shared with other tenants as described in Article 8). Tenant shall not install any equipment or fixtures, or use the same, so as to exceed the safe and lawful capacity of any utility equipment or lines serving the same. The maintenance and repair of all such items shall be as further provided in Article 8, and the installation, alteration, replacement or connection of any utility equipment and lines shall be subject to the requirements for alterations of the Premises set forth in Article 9. Tenant shall ensure that ail HVAC equipment is operated at all times in a manner to prevent roof leaks, damage or noise due to vibrations or improper installation, maintenance or operation. Tenant shall keep the Premises sufficiently heated to avoid freezing of pipes.

D. Interruptions. Landlord shall not be liable in damages or otherwise for any failure or interruption of Tenant’s utilities or services, and Tenant shall not be entitled to terminate this Lease or abate any portion of the Rent due under the Lease as a result of such failure or interruption.

E. Abatement of Rent. Notwithstanding Paragraph D above to the contrary, if: (a) any services or utilities are interrupted or discontinued as a result of Landlord’s negligence (and not caused by Tenant or its employees, agents or contractors), and Tenant is unable to and does not use, the Premises as a result of such interruption or discontinuance, and (b) Tenant shall have given written notice respecting such interruption or discontinuance to Landlord, and Landlord shall have failed to cure such interruption or discontinuance within three (3) consecutive business days after receiving such notice,

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Base Rent hereunder shall thereafter be abated until such time as such services or utilities are restored or Tenant begins using the Premises again, whichever shall first occur. Notwithstanding anything to the contrary contained herein, if Tenant, or its contractors, or their respective officers, employees, contractors, invitees or agents, delay Landlord in restoring the utilities or services, Landlord shall have additional time to complete the restoration equal to such delay and Tenant shall pay Landlord all Rent for the period of such delay.

ARTICLE 7: USE, COMPLIANCE WITH LAWS, AND RULES

A. Use of Premises. Tenant shall use the Premises only for the permitted use identified in Article 1, and no other purpose whatsoever, subject to the other provisions of this Article and this Lease. Unless expressly permitted in Article 1, Tenant shall not use or permit the Premises to be used as a: (i) telemarketing “boiler-room,” or call center operation, (ii) “executive suite” or “legal suite” multi-party shared offices operation, (iii) travel agency or reservation center, (iv) computerized vehicle sales, loan or “finder” service, (v) social-welfare office or governmental, quasi-governmental, trade association or union office or activities, (vi) employment, placement, recruiting or clerical support agency, (vii) radio or television studio or broadcasting or recording facility, or (viii) school, educational facility or training center (except for training that is minor and ancillary and does not require parking in excess of code requirements for the Building).

B. Compliance With Laws. Tenant shall comply with all Laws relating to the Premises and Tenant’s use of the Premises and Property, and shall promptly reimburse Landlord for any expenses Landlord incurs for work or other matters relating to areas outside of the Premises in order to comply with Laws as a result of Tenant’s use of the Premises or Property; provided, Tenant shall not be required by this provision to perform structural improvements to the Premises that involve a significant capital expenditure and will result in a benefit to Landlord extending beyond the Term, as it may be extended, unless required by a Law pertaining to: (i) Tenant’s particular use of the Premises (as opposed to a Law that applies to all tenants in general), (ii) Work performed by or for Tenant or any Transferee (i.e. excluding any improvements or work that Landlord is required to perform under this Lease), or (iii) other acts or omissions of Tenant or any Transferee.

C. Rules. Tenant shall comply with the Rules set forth in Exhibit B attached hereto (the “Rules”). Landlord shall have the right, by notice to Tenant, to reasonably amend such Rules and supplement the same with other reasonable Rules relating to the Property, or the promotion of safety, care, efficiency, cleanliness or good order therein, provided that such new or supplemental rule(s) do not materially decrease Tenant’s rights under this Lease or materially increase Tenant’s costs or monetary obligations. Tenant shall be required to comply with any such new or amended rules if Tenant receives a copy thereof. Although Landlord shall not discriminate against Tenant in the enforcement of the Rules, nothing herein shall be construed to give Tenant or any other Person any claim, demand or cause of action against Landlord arising out of the violation of Laws or the Rules by any other tenant or visitor of the Property, or out of the enforcement, modification or waiver of the Rules by Landlord in any particular instance.

D. Other Requirements. So long as Tenant receives written notification of the applicable requirements, Tenant shall not use or permit the Premises or Property to be used in a way that will: (i) violate the commercially reasonable requirements of Landlord’s insurers, the American Insurance Association, or any board of underwriters, (ii) cause a cancellation of Landlord’s policies, impair the insurability of the Property, or increase Landlord’s premiums, provided Tenant is given written notice and a reasonable opportunity to alter its use of the Premises to prevent the foregoing (any such increase shall be paid by Tenant, to the extent Landlord provides Tenant with reasonable evidence that Tenant is responsible for such increase, without such payment being deemed permission to continue such activity or a waiver of any other remedies of Landlord), or (iii) violate the commercially reasonable requirements of any Lenders, the certificates of occupancy issued for the Premises or the Property, or any other requirements, covenants, conditions or restrictions affecting the Property at any time.

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ARTICLE 8: MAINTENANCE AND REPAIRS

A. Tenant Maintenance and Repairs. Tenant shall keep and maintain the Premises in good and sanitary condition, working order and repair, in compliance with all applicable Laws as described in Article 7, and as required under other provisions of this Lease (including the Rules), including any carpet and other flooring material, paint and wall-coverings, entrances, entry and interior doors, windows, ceilings, interior sides of demising walls and all interior walls and partitions, lighting fixtures (including bulbs, tubes and ballasts), refrigeration systems and equipment, interior drainage systems, plumbing fixtures and equipment, lines for water and sewer exclusively serving the Premises (including free flow up to the common sewer line), dock boards, dock levelers and/or dock bumpers, overhead truck doors, keys and locks, fire extinguishers, trade fixtures, alterations, improvements, and systems and equipment in or exclusively serving the Premises whether installed by Landlord or Tenant, all subject to normal wear and tear. In the event that any repairs, maintenance or replacements are required, Tenant shall promptly notify Landlord and arrange for the same either: (i) through Landlord for such reasonable charges as Landlord may establish from time to time, payable within thirty (30) days after billing, or (ii) at Landlord’s option, by engaging such contractors as Landlord shall first designate or approve in writing to perform such work, all in a first class, workmanlike manner approved by Landlord in advance in writing and otherwise in compliance with Article 9 respecting “Work”. Tenant shall promptly notify Landlord concerning the necessity for any repairs or other work hereunder and upon completion thereof. Tenant shall pay Landlord for any repairs, maintenance and replacements to areas of the Property outside the Premises caused, in whole or in part, as a result of moving any furniture, fixtures, or other property to or from the Premises, or otherwise by Tenant or its employees, agents, contractors, or visitors (notwithstanding anything in this Lease).

B. HVAC Maintenance. Tenant shall enter annual, written HVAC maintenance contracts at Tenant’s sole cost with competent, licensed contractors reasonably approved or designated by Landlord (unless Landlord elects from time to time in writing to make such arrangements directly, in which case, Landlord may include such costs in Expenses), Such contracts to be entered into by Tenant shall include, and Tenant shall require that such contractors provide: (i) inspection, cleaning and testing at least semi-annually (or more frequently if required by applicable Law or if reasonably required by Landlord), (ii) any servicing, maintenance, repairs and replacements of filters, belts or other items determined to be necessary or appropriate as a result of such inspections and tests, or by the manufacturers’ warranty, service manual or technical bulletins, or otherwise required to ensure proper and efficient operation, including emergency work, (iii) all other work as shall be reasonably required by Tenant, Landlord or Landlord’s insurance carriers, (iv) a detailed record of all services performed, and (v) an annual service report at the end of each calendar year (Tenant shall provide Landlord with a copy of such annual reports promptly upon Tenant’s receipt thereof). Not later than ten (10) days after the Commencement Date and annually thereafter, Tenant shall provide Landlord with a copy of all maintenance contracts required hereunder, and written evidence reasonably satisfactory to Landlord that the annual fees therefor have been paid. Such maintenance contracts shall not be deemed to limit Tenant’s general obligations to keep any HVAC equipment and other systems and equipment hereunder in good working order, repair and condition as further described in Paragraph A, above.

Notwithstanding the foregoing, it is understood and agreed that with respect to the costs of any maintenance, repairs or replacements to the HVAC system which are not covered by the annual maintenance contracts described in the preceding paragraph, any costs in excess of $200 per unit per year shall be paid by Landlord, unless Landlord elects, at its cost, to replace any unit(s) in which case Tenant shall thereafter be responsible for all costs for such new unit(s).

C. Landlord Maintenance and Repairs. Landlord shall keep the roof, roof membrane, foundation, structural components of exterior walls of the Premises, and common areas of the Property, in good and sanitary condition, working order and repair (the cost of which shall be included in Expenses to the extent permitted in the definition thereof in Article 30). As conditions to Landlord’s repair obligations, Tenant shall give Landlord reasonable prior notice of the necessity for such repairs, and any damage shall not have been caused by any act or omission of Tenant or any other occupant of the Premises, or any of

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their employees, agents, invitees or contractors. Notwithstanding the foregoing, for any damage which shall have been caused by any act or omission of Tenant or any other occupant of the Premises, or any of their employees, agents, invitees or contractors, Landlord shall repair such damage but reserves the right to charge Tenant for the cost of such repair.

ARTICLE 9: ALTERATIONS AND LIENS

A. Alterations and Approval. Tenant shall not attach any fixtures, equipment or other items to the Premises, or paint or make any other additions, changes, alterations or improvements to the Premises or the Systems and Equipment serving the Premises (all such work is referred to collectively herein as the “Work”), without the prior written consent of Landlord. Landlord shall not unreasonably withhold or delay consent, except that Landlord reserves the right to withhold consent in Landlord’s sole discretion for Work affecting the structure, safety, efficiency or security of the Property or Premises, the Systems and Equipment, or the appearance of the Premises from any common or public areas. Landlord may only require removal of Work installed by or for Tenant as provided under Article 23. Notwithstanding the foregoing to the contrary, Tenant may perform cosmetic Work in the Premises (i.e. consisting of paint, carpeting and/or wall-coverings), without Landlord’s consent and without paying Landlord’s fee described below, provided: (i) Tenant shall give reasonable advance notice to, and shall coordinate the scheduling of such Work with, Landlord, (ii) such Work shall not cost more than $10,000 in the aggregate in any twelve (12) month period, and (iii) such Work shall be subject to all other provisions of this Lease, including, but not limited to, the other provisions of this Article and the Rules attached hereto as Exhibit B.

B. Approval Conditions. Landlord reserves the right to impose reasonable requirements as a condition of such consent or otherwise in connection with the Work, including requirements that Tenant: (i) use parties contained on Landlord’s approved list (if reputable and available on commercially reasonable terms) or submit for Landlord’s prior written approval the names, addresses and background information concerning all architects, engineers, contractors, subcontractors and suppliers Tenant proposes to use, (ii) submit for Landlord’s written approval detailed plans and specifications prepared by licensed and competent architects and engineers, (iii) obtain and post permits, (iv) provide additional insurance, bonds and/or other reasonable security and/or documentation protecting against damages, liability and liens, (v) use union labor (if failure to use union labor would cause strikes, picketing or other labor disharmony at the Property), (vi) permit Landlord or its representatives to inspect the Work at reasonable times, and (vii) comply with such other reasonable requirements as Landlord may impose concerning the manner and times in which such Work shall be done. If Landlord consents, inspects, supervises, recommends or designates any architects, engineers, contractors, subcontractors or suppliers, the same shall not be deemed a warranty as to the adequacy of the design, workmanship or quality of materials, or compliance of the Work with the plans and specifications or any Laws.

C. Performance of Work. All Work shall be performed: (i) in a thoroughly first class, professional and workmanlike manner, (ii) only with materials that are new, high quality, and free of material defects, (iii) only by parties, and strictly in accordance with plans, specifications, and other matters/approved or designated by Landlord in advance in writing, (iv) so as not to adversely affect the Systems and Equipment or the structure of the Property, (v) diligently to completion and so as to avoid any disturbance, disruption or inconvenience to other tenants and the operation of the Property, and (vi) in compliance with all Laws, the Rules and other provisions of this Lease, and such other reasonable requirements as Landlord may impose concerning the manner and times in which such Work shall be done. Landlord may require that any floor, wall or ceiling coring work or penetrations OF use of noisy or heavy equipment which may interfere with the conduct of business by other tenants be performed at times other than normal building hours (at Tenant’s sole cost). If Tenant fails to perform the Work as required herein or the materials supplied fail to comply herewith or with the specifications approved by Landlord, Landlord shall have the right to temporarily stop the applicable portions of the Work pending Tenant’s cure of such failure. Upon completion of any Work hereunder, Tenant shall provide Landlord with “as built” plans, copies of all construction contracts, and proof of payment for all labor and materials.

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D. Liens. Tenant shall pay all costs for the Work when due. Tenant shall keep the Property, Premises and this Lease free from any mechanic’s, materialman’s, architect’s, engineer’s or similar liens or encumbrances, and any claims therefor, or stop or violation notices, in connection with any Work. If contemplated under applicable statutory procedures, Tenant shall post and record appropriate notices of non-responsibility on behalf of Landlord, and shall give Landlord notice at least ten (10) days prior to the commencement of any Work (or such additional time as may be necessary under applicable Laws), to afford Landlord the opportunity of posting and recording any other notices of non-responsibility. Tenant shall remove any such claim, lien or encumbrance, or stop or violation notices of record, by bond or otherwise within thirty (30) days after Landlord provides notice. If Tenant fails to do so, Landlord may pay the amount (or any portion thereof) or take such other action as Landlord deems necessary to remove such claim, lien or encumbrance, or stop or violation notices, without being responsible for investigating the validity thereof. The amount so paid and costs incurred by Landlord shall be deemed additional Rent under this Lease payable upon demand, without limitation as to other remedies available to Landlord. Nothing contained in this Lease shall authorize Tenant to do any act that subjects Landlord’s title to, or any Lender’s interest in, the Property or Premises to any such claims, liens or encumbrances, or stop or violation notices, whether claimed pursuant to statute or other Law or express or implied contract.

E. Landlord’s Fees and Costs. Tenant shall pay Landlord a fee for reviewing, scheduling, monitoring, supervising, and providing access for or in connection with the Work, in an amount equal to three percent (3%) of the total cost of the Work (including costs of plans and permits therefor), and Landlord’s reasonable out-of-pocket costs, including any costs for security, utilities, trash removal, temporary barricades, janitorial engineering, architectural or consulting services, and other matters in connection with the Work, payable within thirty (30) days after billing; provided, such percentage fee under this Paragraph 9.E shall not apply to minor cosmetic Work costing less than $10,000, or to the Work under Exhibit C (which shall be governed by the provisions thereof).

ARTICLE 10: INSURANCE, SUBROGATION, AND WAIVER OF CLAIMS

A. Required Insurance. Tenant shall maintain during the Term: (i) commercial general liability (“CGL”) insurance, with limits of not less than $1,000,000 for personal injury, bodily injury or death, and property damage or destruction (including loss of use thereof), combined single limit, for any one occurrence, and $2,000,000 in the aggregate per policy year, with endorsements: (a) for contractual liability covering Tenant’s indemnity obligations under this Lease, and (b) adding Landlord, the management company for the Property, and other parties reasonably designated by Landlord, as additional insureds, (ii) environmental impact liability insurance (“EIL”) in the amount of at least $1,000,000 per claim (and which shall apply to claims made during the Term and for a period of at least 12 months thereafter), and (iii) primary, noncontributory, extended coverage or “all-risk” property damage insurance (including installation floater insurance during any alterations or improvements that Tenant makes to the Premises) covering any alterations or improvements beyond any work or allowance provided by Landlord under this Lease, and Tenant’s personal property, business records, fixtures and equipment, for damage or other loss caused by fire or other casualty or cause including, but not limited to, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, explosion, business interruption (for at least nine (9) months), and other insurable risks for not less than the full insurable replacement value of such property and full insurable value of such other interests of Tenant (subject to reasonable deductible amounts). Landlord agrees to maintain, as part of Expenses, during the Term, commercial general liability insurance, and property damage insurance on the Property, covering such risks and in such amounts as Landlord shall deem commercially reasonable, and such other insurance as Landlord shall deem commercially reasonable (subject to such deductibles, self-insurance retention amounts, blanket and umbrella policy arrangements or other features as Landlord deems commercially reasonable); provided (i) such commercial general liability insurance shall be at least One Million Dollars ($1,000,000.00) per occurrence and Two Million Dollars ($2,000,000.00) general aggregate, and (ii) such property damage insurance shall cover the Building, and leasehold improvements to the extent provided or paid for by Landlord, and shall be in the amount of full replacement cost, excluding basements, footings and foundations (subject, in each case, to such deductibles, self-insurance retention amounts, blanket and umbrella policy arrangements or other features as Landlord deems commercially reasonable).

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B. Certificates and Other Matters. Tenant shall provide Landlord with certificates evidencing the coverage required hereunder prior to the Commencement Date. Such certificates shall state that such insurance coverage may not be reduced, canceled or allowed to expire without at least thirty (30) days’ prior written notice to Landlord, and shall include, as attachments, originals of the additional insured endorsements to Tenant’s CGL policy required above. Tenant shall provide renewal certificates to Landlord at least thirty (30) days prior to expiration of such policies. Except as provided to the contrary herein, any insurance carried by Landlord or Tenant shall be for the sole benefit of the party carrying such insurance. Tenant’s insurance policies shall be primary to all policies of Landlord and any other additional insureds (whose policies shall be deemed excess and non-contributory). All insurance required hereunder shall be provided by responsible insurers licensed in the State in which the Property is located, and shall have a general policy holder’s rating of at least A- and a financial rating of at least X in the then current edition of Best’s Insurance Reports. Landlord disclaims any representation as to whether the foregoing coverages will be adequate to protect Tenant.

C. Mutual Waiver of Claims and Subrogation. The parties hereby mutually waive all claims against each other for all losses covered or required to be covered hereunder by their respective insurance policies, and waive all rights of subrogation of their respective insurers; for purposes hereof, any deductible amount shall be treated as though it were recoverable under such policies. SUCH MUTUAL WAIVER OF CLAIMS SHALL APPLY REGARDLESS OF THE NEGLIGENCE OF THE OTHER PARTY OR ITS AFFILIATES, AGENTS OR EMPLOYEES. The parties agree that their respective insurance policies are now, or shall be, endorsed such that said waiver of subrogation shall not affect the right of the insured to recover thereunder.

ARTICLE 11: CASUALTY DAMAGE

A. Restoration. Tenant shall promptly notify Landlord of any damage to the Premises by fire or other casualty. If the Premises or any common areas of the Property providing access thereto shall be damaged by fire or other casualty, Landlord shall use available insurance proceeds to restore the same. Such restoration shall be to substantially the same condition as prior to the casualty, except for modifications required by zoning and building codes and other Laws or by any Lender, any other modifications to the common areas deemed desirable by Landlord (provided access to the Premises is not materially impaired), and except that Landlord shall not be required to repair or replace any of Tenant’s furniture, furnishings, fixtures, systems or equipment, or any alterations or improvements in excess of any work or allowance provided by Landlord under this Lease. Tenant shall reasonably cooperate in approving any plans for repairs to the Premises hereunder, and in vacating the Premises to the extent reasonably required to avoid any interference or delay in Landlord’s repair work. Promptly following completion of Landlord’s work, Tenant shall repair and replace Tenant’s furniture, furnishings, fixtures, systems or equipment, and any alterations or improvements made by Tenant in excess of those provided by Landlord, subject to and in compliance with the other provisions of this Lease.

B. Abatement of Rent. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof. However, Landlord shall allow Tenant a proportionate abatement of Rent from the date of the casualty through the date that Landlord substantially completes Landlord’s repair obligations hereunder (or the date that Landlord would have substantially completed such repairs, but for delays by Tenant or any other Person occupying the Premises through or under Tenant, or any of their agents, employees, invitees, Transferees and contractors), provided such abatement shall apply only to the extent the Premises are untenantable for the purposes permitted under this Lease and not used by Tenant as a result thereof, based proportionately on the square footage of the Premises so affected and not used.

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C. Termination of Lease by Landlord. Notwithstanding the foregoing to the contrary, in lieu of performing the restoration work, Landlord may elect to terminate this Lease by notifying Tenant in writing of such termination within ninety (90) days after the date of damage (such termination notice to include a termination date providing at least thirty (30) days for Tenant to vacate the Premises), if the Property shall be materially damaged by the intentional misconduct of Tenant or its Transferees or their respective agents, employees or contractors, or if the Property shall be damaged by fire or other casualty or cause such that: (i) repairs to the Premises and access thereto cannot reasonably be completed within 120 days after the casualty without the payment of overtime or other premiums, (ii) more than twenty-five percent (25%) of the Premises is affected by the damage and fewer than twenty-four (24) months remain in the Term, or any material damage occurs to the Premises during the last twelve (12) months of the Term, (iii) any Lender shall require that the insurance proceeds or any material portion thereof be used to retire the Mortgage debt (or shall terminate the ground lease, as the case may be), or the damage is not fully covered, except for reasonable deductible amounts, by Landlord’s insurance policies, or (iv) the cost of the repairs, alterations, restoration or improvement work would exceed thirty-five percent (35%) of the replacement value of the Building (whether or not the Premises are affected by the damage). Tenant agrees that the abatement of Rent provided herein shall be Tenant’s sole recourse in the event of such damage, and waives any other rights Tenant may have under any applicable Law to perform repairs or terminate the Lease by reason of damage to the Premises or Property, except as provided in Section D below.

D. Termination of Lease By Tenant. Notwithstanding Paragraph C above to the contrary, Tenant may terminate this Lease if Tenant is unable to use all or a substantial portion of the Premises as a result of fire or other casualty not caused by Tenant or its employees or agents, and: (i) Landlord fails to commence the restoration work within forty-five (45) days after the damage occurs, or (ii) such work is estimated (which estimate Landlord shall provide within sixty (60) days following the casualty), to take more than 120 days to substantially complete after being commenced, or (iii) Landlord fails to substantially complete such work within 120 days after commencing the same, or (iv) more than 25% of the Premises is affected by the damage, and fewer than 12 months remain in the Term. In order to exercise any of the foregoing termination rights, Tenant must send Landlord at least thirty (30) days (but not more than 120 days) advance notice specifying the basis for termination, and such notice must be given no later than fifteen (15) days following the occurrence of the condition serving as the basis for the termination right invoked by Tenant. Such termination rights shall not be available to Tenant if: (a) Landlord substantially completes the repairs to the Premises and access thereto within fifteen (15) days after Tenant’s notice, or (b) Landlord provides Tenant with new premises under Article 20 or otherwise and access thereto within thirty (30) days after Tenant’s notice. Notwithstanding anything to the contrary contained herein, if Tenant, or its officers, employees, contractors, invitees or agents delay Landlord in performing the repairs, Landlord shall have additional time to complete the work equal to such delay and Tenant shall pay Landlord all Rent for the period of such delay.

ARTICLE 12: CONDEMNATION

If at least twenty-five percent (25%) of the rentable area of the Premises shall be taken by power of eminent domain or condemned by a competent authority or by conveyance in lieu thereof for public or quasi-public use (“Condemnation”), including any temporary taking for a period of one year or longer, then either Landlord or Tenant may elect to terminate this Lease effective on the date possession for such use is so taken, by giving notice to the other party no later than one hundred and twenty (120) days after receiving notice of the filing of the Condemnation. If: (i) less than the foregoing amount of the Premises is taken, but the taking includes or affects a material portion of the Building or Property, or Landlord’s economical operation thereof, or (ii) the taking is temporary and will be in effect for less than the foregoing period but more than thirty (30) days, then in either such event, Landlord may elect to terminate this Lease upon at least thirty (30) days’ prior notice to Tenant. The parties further agree that: (a) if this Lease is terminated, all Rent shall be apportioned as of the date of such termination or the date of such taking, whichever shall first occur, (b) if the taking is temporary, Rent shall be abated for the period of the taking, and Landlord may seek a condemnation award therefor (and the Term shall not be extended thereby), and (c) if this Lease is not terminated but any part of the Premises is permanently taken, the Rent shall be proportionately abated based on the square footage of the Premises so taken. Landlord shall be entitled to receive the entire award or payment in connection with such Condemnation

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and Tenant hereby assigns to Landlord any interest therein for the value of Tenant’s unexpired leasehold estate or any other claim and waives any right to participate therein, except that Tenant shall have the right to file any separate claim available to Tenant for moving expenses and any taking of Tenant’s personal property, provided such award is separately payable to Tenant and does not diminish the award available to Landlord or any Lender.

ARTICLE 13: ASSIGNMENT AND SUBLETTING

A. Transfers. Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld as further described below: (i) assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, by operation of Law or otherwise, (ii) sublet the Premises or any part thereof, or (iii) permit the use of the Premises by any Persons other than Tenant and its employees (all of the foregoing are hereinafter sometimes referred to collectively as “Transfers” and any Person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “Transferee”). If Tenant shall desire Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice shall include: (a) the proposed effective date (which shall not be less than thirty (30) nor more than 180 days after Tenant’s notice), (b) the portion of the Premises to be Transferred (herein called the “Subject Space”), (c) the terms of the proposed Transfer and the consideration therefor, the name, address and background information concerning the proposed Transferee, and a true and complete copy of all proposed Transfer documentation, (d) financial statements (balance sheets and income/expense statements for the current and prior year) of the proposed Transferee, in form and detail reasonably satisfactory to Landlord, certified by an officer, partner or owner of the Transferee, or (e) any other reasonable information to enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee’s business and proposed use of the Subject Space or as Landlord may reasonably request. Any Transfer made without complying with this Article shall, at Landlord’s option, be null, void and of no effect, or shall constitute a Default under this Lease. Whether or not Landlord shall grant consent, Tenant shall pay $500 towards Landlord’s review and processing expenses, as well as any reasonable legal fees incurred by Landlord, within thirty (30) days after Landlord’s written request (provided, Landlord’s current policy is to handle such matters with in-house counsel, to the extent that the in-house staff has time, in which case no legal fees will be charged).

B. Approval. Landlord will not unreasonably withhold its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in Tenant’s notice. The parties hereby agree that it shall be reasonable under this Lease and under any applicable Law for Landlord to withhold consent to any proposed Transfer where one or more of the following applies (without limitation as to other reasonable grounds for withholding consent): (i) the Transferee is of a character or reputation or engaged in a business which is not consistent with the quality or nature of the Property or other tenants of the Property, (ii) the Transferee intends to use the Subject Space for purposes which are not permitted under this Lease, would result in more than a reasonable number of occupants, or would require increased services by Landlord, (iii) the Subject Space is not regular in shape with appropriate means of ingress and egress suitable for normal renting purposes in compliance with Laws, (iv) the Transferee is a government, or agency or instrumentality thereof, (v) the Transferee or any affiliate thereof is an occupant of the Property (or of any complex in which the Property is located) or has negotiated to lease space in the Property (or in such complex) from Landlord during the prior four (4) months (unless Landlord is unable to provide office space of the approximate number of square feet of rentable area (plus or minus ten percent) required by such party at the Property (or in such complex), and Tenant can provide such size space within the Premises), (vi) the Transferee does not have, in Landlord’s good faith determination, satisfactory references or a reasonable financial condition in relation to the obligations to be assumed in connection with the Transfer, (vii) the Transfer involves a partial or collateral assignment, mortgage or other encumbrance on this Lease, a sub-sublease or assignment of a sublease, (viii) the Transfer would cause Landlord to be in violation of any Laws or any other lease, Mortgage or agreement to which Landlord is a party, or would give a tenant of the Property a right to cancel its lease, or (ix) Tenant has committed and failed to cure a Default. If Tenant disagrees with Landlord’s decision to deny approval, Tenant’s sole remedy shall be to seek immediate declaratory and injunctive relief, and to recover attorneys’ fees and costs as a prevailing party under Article 17.

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C. Transfer Premiums. If Landlord consents to a Transfer, and as a condition thereto which the parties hereby agree is reasonable, Tenant shall retain fifty percent (50%) of any Transfer Premium, and shall pay Landlord fifty percent (50%) of any Transfer Premium, derived by Tenant from such Transfer. “Transfer Premium” shall mean: (i) for a lease assignment, all consideration paid or payable therefor, and (ii) for a sublease, all rent, additional rent or other consideration paid by such Transferee in excess of the Rent payable by Tenant under this Lease (on a monthly basis during the Term, and on a per rentable square foot basis, if less than all of the Premises is transferred). In any such computation, Tenant: (a) may subtract any reasonable direct out-of-pocket costs incurred in connection with such Transfer, such as advertising costs, brokerage commissions, attorneys’ fees and leasehold improvements for the Subject Space, and (b) shall include in the “Transfer Premium” any so-called “key money” or other bonus amount paid by Transferee to Tenant, and any payments in excess of fair market value for services rendered by Tenant to Transferee or in excess of fair market value for assets, fixtures, inventory, equipment or furniture transferred by Tenant to Transferee. Tenant shall pay the percentage of the Transfer Premium due Landlord within thirty (30) days after Tenant receives any Transfer Premium.

D. Recapture. Notwithstanding anything to the contrary contained in this Article, Landlord shall have the option, by giving notice to Tenant within thirty (30) days after receipt of Tenant’s notice of any proposed Transfer, to recapture the Subject Space. Such recapture notice shall cancel and terminate this Lease with respect to the Subject Space, as the case may be, as of the date stated in Tenant’s notice as the effective date of the proposed Transfer (or at Landlord’s option, such notice shall cause the Transfer to be made to Landlord or its agent or nominee, in which case the parties shall execute reasonable Transfer documentation promptly thereafter). If this Lease shall be canceled with respect to less than the entire Premises, the Rent herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party the parties shall execute written confirmation of the same. Tenant shall surrender and vacate the Subject Space when required hereunder in accordance with Article 23, and any failure to do so shall be subject to Article 24. Notwithstanding the foregoing to the contrary, Landlord’s recapture rights hereunder shall not apply with respect to any sublease: (a) to a Tenant Affiliate as hereinafter defined, or (b) to a non-Tenant Affiliate where Tenant is not, and will not as a result of such sublease, be subleasing more than thirty percent (30%) of the rentable area of the Premises, in the aggregate, to non- Tenant Affiliates, unless: (i) the sublease for a non-Tenant Affiliate is for a term that will be in effect during all or most of the remainder of the then current term of this Lease, or (ii) fewer than twelve (12) months will then remain in the Term on the commencement date of such sublease for the non-Tenant Affiliate. The term “ Tenant Affiliate “ as used herein shall mean any party which directly or indirectly: (i) wholly owns or controls Tenant, (ii) is wholly owned or controlled by Tenant, or (iii) is under common ownership or control with Tenant, or (iv) into which Tenant is merged, consolidated or reorganized, or to which all or substantially all of Tenant’s assets are sold.

E. Terms of Consent. If Landlord consents to a Transfer: (i) the terms and conditions of this Lease, including Tenant’s liability for the Subject Space, shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) no Transferee shall succeed to any rights provided in this Lease or any amendment hereto to extend the Term of this Lease, expand the Premises, or lease other space, any such rights being deemed personal to the initial Tenant, (iv) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, and (v) Tenant shall furnish a statement setting forth in detail the computation of any Transfer Premium that Tenant has derived and shall derive from such Transfer. Landlord or its representatives shall have the right at reasonable times to audit the books, records and papers of Tenant and any Transferee relating to any Transfer, and to make copies thereof. If a Transfer Premium is found understated, Tenant shall pay the deficiency within thirty (30) days after billing (and if understated by more than five percent (5%), Tenant shall include with such payment Landlord’s reasonable costs of such audit). Any sublease hereunder shall be subordinate and subject to the

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provisions of this Lease, and if this Lease shall be terminated during the term of any sublease, whether based on Default or mutual agreement, Landlord shall have the right to: (a) deem such sublease as merged and canceled and repossess the Subject Space by any lawful means, or (b) require that such subtenant attorn to and recognize Landlord as its landlord under such sublease with respect to obligations arising thereafter, subject to the terms of Landlord’s standard form of attornment documentation. If Tenant shall commit a Default under this Lease, Landlord is hereby irrevocably authorized to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply toward Tenant’s obligations under this Lease).

F. Certain Transfers. For purposes of this Lease, the term ‘Transfer” shall also include, and all of the foregoing provisions shall apply to: (i) the conversion, merger or consolidation of Tenant into a limited liability company or limited liability partnership, (ii) if Tenant is a partnership or limited liability company, the withdrawal or change, voluntary, involuntary or by operation of law, of a majority of the partners or members, or a transfer of a majority of partnership or membership interests, within a twelve month period, or the dissolution of the partnership or company, and (iii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter), the dissolution, merger, consolidation or other reorganization of Tenant, or within a twelve month period: (a) the sale or other transfer of more than an aggregate of 50% of the voting shares of Tenant (other than to immediate family members by reason of gift or death) or (b) the sale, mortgage, hypothecation or pledge of more than an aggregate of 50% of Tenant’s net assets. Notwithstanding the foregoing to the contrary, a transaction described in this Article 13.F shall not be deemed to be a Transfer requiring Landlord’s consent so long as, after the transaction, Tenant or the surviving entity (as the case may be) shall own all or substantially all of the business and assets of Tenant (including the assignment of this Lease to and assumption of this Lease by any such surviving entity) and so long as such transaction is not for the express purpose of avoiding Landlord’s consent but is made in good faith for bona fide business reasons of Tenant.

ARTICLE 14: PERSONAL PROPERTY, RENT AND OTHER TAXES

Tenant shall pay, prior to delinquency, all taxes, charges or other governmental impositions assessed against or levied upon all fixtures, furnishings, personal property, built-in and modular furniture, and systems and equipment located in or exclusively serving the Premises, notwithstanding that certain such items may become Landlord’s property under Article 23 upon termination of the Lease. Whenever possible, Tenant shall cause all such items to be assessed and billed separately from the other property of Landlord. In the event any such items shall be assessed and billed with the other property of Landlord, Tenant shall pay Landlord Tenant’s share of such taxes, charges or other governmental impositions within thirty (30) days after Landlord delivers a statement and a copy of the assessment or other documentation showing the amount of impositions applicable to Tenant’s property. Tenant shall pay any rent tax, sales tax, service tax, transfer tax, value added tax, or any other applicable tax on the Rent, utilities or services herein, the privilege of renting, using or occupying the Premises or collecting Rent therefrom, or otherwise respecting this Lease or any other document entered in connection herewith, but shall not be required to pay any income tax of Landlord.

ARTICLE 15: LANDLORD’S REMEDIES

A. Default. The occurrence of any one or more of the following events shall constitute a “Default” by Tenant and shall give rise to Landlord’s remedies set forth in Paragraph B below: (i) failure to make when due any payment of Rent, unless such failure is cured within ten (10) days after notice; (ii) failure to observe or perform any term or condition of this Lease other than the payment of Rent (or the other matters expressly described herein), unless such failure is cured within any period of time following notice expressly provided with respect thereto in other Articles hereof, or otherwise within a reasonable time, but in no event more than thirty (30) days following notice (provided, if the nature of Tenant’s failure is such that more time is reasonably required in order to cure, Tenant shall not be in Default if Tenant commences to cure promptly within such period, and diligently seeks and keeps Landlord reasonably

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advised of efforts to cure such failure to completion); (iii) failure to cure immediately upon notice thereof any condition which is hazardous, interferes with another tenant or the operation or leasing of the Property, or may cause the imposition of a fine, penalty or other remedy on Landlord or its agents or affiliates, (iv) violating Article 13 respecting Transfers, or abandoning the Premises (“abandonment” under this Lease shall mean vacating or failing to occupy the Premises for more than thirty (30) days while Tenant is in Default for failure to pay Rent), or (v) (a) making by Tenant or any guarantor of this Lease (“Guarantor”) of any general assignment for the benefit of creditors, (b) filing by or for reorganization or arrangement under any Law relating to bankruptcy or insolvency (unless, in the case of a petition filed against Tenant or such Guarantor, the same is dismissed within thirty (30) days), (c) appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets located in the Premises or of Tenant’s interest in this Lease, where possession is not restored to Tenant within thirty (30) days, (d) attachment, execution or other judicial seizure of substantially all of Tenant’s assets located in the Premises or of Tenant’s interest in this Lease, (e) Tenant’s or any Guarantor’s convening of a meeting of its creditors or any class thereof for the purpose of effecting a moratorium upon or composition of its debts, (f) Tenant’s or any Guarantor’s insolvency or failure, or admission of an inability, to pay debts as they mature, or (g) a violation by Tenant or any affiliate of Tenant under any other lease or agreement with Landlord or any affiliate thereof which is not cured within the time permitted for cure thereunder. The notice and cure periods herein are intended to satisfy and run concurrently with any notice and cure periods provided by Law, and shall not be in addition thereto.

B. Remedies. If a Default occurs, Landlord shall have the rights and remedies hereinafter set forth to the extent permitted by Law:

(1) Landlord may in accordance with applicable Law terminate Tenant’s right of possession, peaceably reenter and repossess the Premises by detainer suit, summary proceedings or other lawful means, with or without terminating this Lease (except as required by Law), and recover from Tenant: (i) any unpaid Rent as of the termination date, (ii) the amount by which: (a) any unpaid Rent which would have accrued after the termination date during the balance of the Term exceeds (b) the reasonable rental value of the Premises under a lease substantially similar to this Lease, taking into account, among other things, the condition of the Premises, market conditions, the period of time the Premises may reasonably remain vacant before Landlord is able to re-lease the same to a suitable replacement tenant, and Costs of Reletting (as defined in Paragraph G below) that Landlord may incur in order to enter into such replacement lease, and (iii) any other amounts necessary to compensate Landlord for all damages proximately caused by Tenant’s failure to perform its obligations under this Lease. For purposes of computing the amount of Rent that would have accrued after the termination date, Tenant’s obligations for Taxes, Insurance and Expenses shall be projected based on the average increase from the Commencement Date through the termination date. The amounts computed in accordance with the foregoing subclauses (a) and (b) shall be discounted in accordance with accepted financial practice at five percent (5%) per annum to the then present value.

(2) Landlord may in accordance with applicable Law terminate Tenant’s right of possession, peaceably reenter and repossess the Premises by detainer suit, summary proceedings or other lawful means, with or without terminating this Lease (except as required by Law), and recover from Tenant: (i) any unpaid Rent as of the date possession is terminated, (ii) any unpaid Rent which thereafter accrues during the Term from the date possession is terminated through the time of judgment (or which may have accrued from the time of any earlier judgment obtained by Landlord), less any consideration received from replacement tenants as further described and applied pursuant to Paragraph G, below, and (iii) any other amounts necessary to compensate Landlord for all damages proximately caused by Tenant’s failure to perform its obligations under this Lease, including all Costs of Reletting (as defined in Paragraph G below). Tenant shall pay any such amounts to Landlord as the same accrue or after the same have accrued from time to time upon demand. At any time after terminating Tenant’s right to possession as provided herein, Landlord may terminate this Lease as provided in clause (1) above by notice to Tenant and may pursue such other remedies as may be available to Landlord under this Lease or Law.

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C. Mitigation of Damages. If Landlord terminates this Lease or Tenant’s right to possession, Landlord shall use reasonable efforts to mitigate Landlord’s damages, and Tenant may submit proof of such failure to mitigate as a defense to Landlord’s claims for Rent, subject to the following clarifications: (i) Landlord shall not be required to use greater efforts or lower standards than Landlord generally uses to lease other space at the Property, (ii) Landlord will not have failed to mitigate if Landlord or its affiliates lease other portions of the Property or other projects in the vicinity before reletting the Premises, provided that Landlord shall not discriminate against the Premises in its re-letting efforts, (iii) any failure to mitigate during any period shall reduce the Rent and other amounts to which Landlord is entitled by the reasonable rental value of the Premises during such period taking into account the factors described in clause B(1) above, (iv) in recognition that the value of the Property depends on the rental rates and terms of leases therein, Landlord’s rejection of a prospective replacement tenant based on an offer of rentals below the then-current fair market rent for new leases of comparable space at the Property, as reasonably determined by Landlord, shall not constitute a failure to mitigate, and (v) until Landlord terminates this Lease or Tenant’s right to possession, Landlord shall have no obligation to mitigate and may permit the Premises to remain vacant or abandoned; in such case, Tenant may seek to mitigate damages by attempting to sublease the Premises or assign this Lease pursuant to Article 13.

D. Reletting. If this Lease or Tenant’s right to possession is terminated in accordance with the terms of this Lease, or Tenant abandons the Premises, Landlord may: (i) peaceably enter and secure the Premises, change the locks, install barricades, remove any improvements, fixtures or other property of Tenant therein, perform any decorating, remodeling, repairs, alterations, improvements or additions and take such other actions as Landlord shall determine in Landlord’s sole discretion to prevent damage or deterioration to the Premises or prepare the same for reletting, and (ii) relet all or any portion of the Premises (separately or as part of a larger space), for any rent, use or period of time (which may extend beyond the Term hereof), and upon any other terms as Landlord shall determine in Landlord’s sole discretion, directly or as Tenant’s agent (if permitted or required by applicable Law). The consideration received from such reletting shall be applied pursuant to the terms of Paragraph G hereof, and if such consideration, as so applied, is not sufficient to cover all Rent and damages to which Landlord may be entitled hereunder, Tenant shall pay any deficiency to Landlord as the same accrues or after the same has accrued from time to time upon demand, subject to Paragraph C and the other provisions hereof.

E. Late Charges, Interest, and Returned Checks. Tenant shall pay, as additional Rent, a service charge of Two Hundred Fifty Dollars ($250.00) or five percent (5%) of the delinquent amount, whichever is greater, if any portion of Rent is not received within ten (10) days after due. Any Rent not paid within thirty (30) days after due shall also accrue interest from the due date at the Default Rate until paid. Such service charges and interest payments shall not be consent by Landlord to late payments, nor a waiver of Landlord’s right to insist upon timely payments at any time, nor a waiver of any remedies to which Landlord is entitled as a result of the late payment of Rent. If Landlord receives two (2) or more checks that are returned by Tenant’s bank for insufficient funds, Landlord may require that all checks thereafter be bank certified or cashier’s checks (without limiting Landlord’s other remedies). All bank service charges resulting from any returned checks shall be borne by Tenant. Notwithstanding the foregoing to the contrary, Landlord shall not impose late charges on the first late payment in any period of twelve (12) consecutive full calendar months; provided, this limitation on late charges is granted as a special accommodation and a personal right, and shall no longer apply in the event of any assignment of this Lease.

F. Other Remedies. If Tenant fails to perform any obligation within the time required under this Lease (including any applicable notice and cure period hereunder except in emergencies), Landlord shall have the right (but not the duty), to perform such obligation on behalf and for the account of Tenant. In such event, Tenant shall reimburse Landlord upon demand, as additional Rent, for all expenses incurred by Landlord in performing such obligation together with an amount equal to ten percent (10%) thereof for Landlord’s overhead, and interest thereon at the Default Rate from the date such expenses were incurred. Landlord’s performance of Tenant’s obligations hereunder shall not be deemed a waiver or release of Tenant therefrom. Landlord’s remedies set forth above are distinct, separate and cumulative with and in addition to any other right or remedy allowed under any Law or other provision of this Lease. Without limiting the generality of the foregoing, Landlord shall at all times have the right without prior demand or notice except as required by applicable Law to: (i) seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease or restrain or enjoin a violation of any provision hereof, and (ii) sue for and collect any unpaid Rent which has accrued.

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G. Other Matters. No re-entry or repossession, repairs, changes, alterations and additions, reletting, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant’s right to possession, nor shall the same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express notice of such intention is sent by Landlord to Tenant (and if applicable Law permits, and Landlord shall not have expressly terminated this Lease in writing, then any termination shall be deemed a termination of Tenant’s right of possession only). Landlord may bring suits for amounts owed by Tenant hereunder or any portions thereof, as the same accrue or after the same have accrued, and no suit or recovery of any portion due hereunder shall be deemed a waiver of Landlord’s right to collect all amounts to which Landlord is entitled hereunder, nor shall the same serve as any defense to any subsequent suit brought for any amount not theretofore reduced to judgment. Landlord may pursue one or more remedies against Tenant and need not make an election of remedies until findings of fact are made by a court of competent jurisdiction. All rent and other consideration paid by any replacement tenants shall be applied at Landlord’s option: (i) first, to the Costs of Reletting, (ii) second, to the payment of all costs of enforcing this Lease against Tenant or any Guarantor, (iii) third, to the payment of all interest and service charges accruing hereunder, (iv) fourth, to the payment of Rent theretofore accrued, and (v) with the residue, if any, to be held by Landlord and applied to the payment of Rent and other obligations of Tenant as the same become due (and with any remaining residue to be retained by Landlord). “Costs of Reletting” shall include all reasonable costs and expenses incurred by Landlord for any repairs or other matters described in Paragraph D above, brokerage commissions, advertising costs, reasonable attorneys’ fees, and any other costs and incentives incurred in order to enter into leases with replacement tenants. Landlord shall be under no obligation to observe or perform any provision of this Lease on its part to be observed or performed which involves the payment of money by Landlord to Tenant, or the performance of alterations or improvements to the Premises, while Tenant is in Default hereunder. Tenant agrees that the notice and cure rights set forth herein contain the entire agreement of the parties respecting such matters, and hereby waives any right otherwise available under any Law to redeem or reinstate this Lease or Tenant’s right to possession after this Lease or Tenant’s right to possession is properly terminated hereunder.

ARTICLE 16: SECURITY DEPOSIT

Tenant shall deposit with Landlord the amount set forth in Article 1 (“Security Deposit”), upon Tenant’s execution and submission of this Lease. The Security Deposit shall serve as security for the prompt, full and faithful performance by Tenant of the provisions of this Lease. If Tenant commits a Default, or owes any amounts to Landlord upon the expiration or earlier termination of this Lease (including estimated amounts under Article 3, which shall remain subject to reconciliation against actual amounts as further provided therein), Landlord may use or apply the whole or any part of the Security Deposit for the payment of Tenant’s obligations hereunder. The use or application of the Security Deposit or any portion thereof shall not prevent Landlord from exercising any other right or remedy provided hereunder or under any Law and shall not be construed as liquidated damages. In the event the Security Deposit is reduced by such use or application, Tenant shall deposit with Landlord within ten (10) days after notice, an amount sufficient to restore the full amount of the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from Landlord’s general funds or pay interest on the Security Deposit. Any remaining portion of the Security Deposit not used or applied hereunder shall be returned to Tenant (or, at Landlord’s option, to the last assignee of Tenant’s interest in this Lease) within sixty (60) days after Tenant (or such assignee) has vacated the Premises in accordance with Article 23. If the Premises shall be expanded at any time, or if the Term shall be extended at an increased rate of Rent, the Security Deposit shall thereupon be proportionately increased. Tenant shall not assign, pledge or otherwise transfer any interest in the Security Deposit except as part of an assignment of this Lease approved by Landlord under Article 13, and any attempt to do so shall be null and void.

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ARTICLE 17: ATTORNEYS^’ FEES AND VENUE

In the event of any litigation or arbitration between the parties relating to this Lease, the Premises or Property (including pretrial, trial, appellate, administrative, bankruptcy or insolvency proceedings), the prevailing party shall be entitled to recover its reasonable attorneys’ fees and costs as part of the judgment, award or settlement therein. In the event of a breach of this Lease by either party which does not result in litigation but which causes the non-breaching party to incur attorneys’ fees or costs, the breaching party shall reimburse such reasonable fees and costs to the non-breaching party upon demand. If either party or any of its officers, directors, trustees, beneficiaries, partners, agents, affiliates or employees shall be made a party to any litigation or arbitration commenced by or against the other party and is not at fault, the other party shall pay all reasonable attorneys’ fees and costs incurred by such parties in connection with such litigation. Any action or proceeding brought by either party against the other for any matter arising out of or in any way relating to this Lease, the Premises or the Property, shall be heard, at Landlord’s option, in the court having jurisdiction located closest to the Property.

ARTICLE 18: SUBORDINATION, ATTORNMENT AND LENDER PROTECTION

Landlord represents that there is no Mortgage encumbering the Property as of the date of this Lease. This Lease is subject and subordinate to all Mortgages hereafter placed upon the Property, and all other encumbrances and matters of public record applicable to the Property; provided, this Lease shall only be subordinate to Mortgages made hereafter if the Lenders thereunder agree to enter into their standard forms of subordination, non-disturbance and attornment agreement with Tenant. Whether before or after any foreclosure or power of sale proceedings are initiated or completed by any Lender or a deed in lieu is granted (or any ground lease is terminated), Tenant agrees, upon written request of any such Lender or any purchaser at such sale, to attorn and pay Rent to such party, and recognize such party as Landlord (provided such Lender or purchaser shall agree not to disturb Tenant’s occupancy so long as Tenant does not Default hereunder, on a form of agreement customarily used by, or otherwise reasonably acceptable to, such party). However, in the event of attornment, no Lender shall be: (i) liable for any act or omission of Landlord, or subject to any offsets or defenses which Tenant might have against Landlord (arising prior to such Lender becoming Landlord under such attornment), (ii) liable for any security deposit or bound by any prepaid Rent not actually received by such Lender, or (iii) bound by any modification of this Lease not consented to by such Lender. Any Lender may elect to make this Lease prior to the lien of its Mortgage by written notice to Tenant, and if the Lender of any prior Mortgage shall require, this Lease shall be prior to any subordinate Mortgage; such elections shall be effective upon written notice to Tenant, or shall be effective as of such earlier or later date set forth in such notice. Tenant agrees to give any Lender by certified mail, return receipt requested, a copy of any notice of default served by Tenant upon Landlord, provided that prior to such notice Tenant has been notified in writing (by way of service on Tenant of a copy of an assignment of leases, or otherwise) of the address of such Lender. Tenant further agrees that if Landlord shall have failed to cure such default within the time permitted Landlord for cure under this Lease, any such Lender whose address has been provided to Tenant shall have an additional period of thirty (30) days in which to cure (or such additional time as may be required due to causes beyond such Lender’s reasonable control, including time to obtain possession of the Property by appointment of receiver, power of sale or judicial action; provided, such Lender cure period shall not affect Tenant’s express rights under this Lease, including Tenant’s rights to abate Rent and/or terminate this Lease under Articles 6.E, 11.B, 11.D and 12). Except as expressly provided to the contrary herein, the provisions of this Article shall be self-operative; however Tenant shall execute and deliver, within ten (10) days after request therefor, such documentation as Landlord or any Lender may request from time to time, whether prior to or after a foreclosure or power of sale proceeding is initiated or completed, a deed in lieu is delivered, or a ground lease is terminated, in order to further confirm or effectuate the matters set forth in this Article in recordable form.

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ARTICLE 19: ESTOPPEL CERTIFICATES

Tenant shall from time to time, within ten (10) business days after written request from Landlord, execute, acknowledge and deliver a statement certifying (subject to such exceptions or claims as Tenant may properly make and describe therein) the following: (i) this Lease is unmodified, and is valid and in full force and effect, (ii) the Commencement Date, Expiration Date, and rentable area of the Premises, (iii) no Rent has been paid more than one month in advance, and the annual and monthly Base Rent, Tenant’s Share of Taxes, Insurance and Expenses, and current payments thereof, and Security Deposit, (iv) Tenant is in possession of the Premises, and paying Rent on a current basis with no offsets, defenses or claims, (v) there are no uncured defaults on the part of Landlord or Tenant, and no events or conditions which, with the giving of notice or lapse of time or both, would constitute a default by Tenant or Landlord, (vi) Tenant has no options to purchase the Property or terminate this Lease, nor any expansion, reduction or extension rights, (vii) Landlord has satisfied any obligations to perform or reimburse Tenant for any leasehold improvements, and Tenant is not entitled to any Rent abatement period after the date of the certificate, and (viii) certifying such other matters, and including such current financial statements, as Landlord may reasonably request, or as may be requested by Landlord’s current or prospective Lenders, insurance carriers, auditors, and prospective purchasers (and including a comparable certification statement from any subtenant respecting its sublease). Any such statement may be relied upon by any such parties. If Tenant shall fail to execute and return such statement within the time required/herein, Tenant shall be in Default, and shall be deemed to have agreed with the matters set forth therein (without limiting Landlord’s other remedies).

ARTICLE 20: RIGHTS RESERVED BY LANDLORD

Except to the extent expressly limited herein, Landlord reserves full rights to control the Property (which rights may be exercised without subjecting Landlord to claims for constructive eviction, abatement of Rent, damages or other claims of any kind), including more particularly, but without limitation, the following rights:

A. General Matters. To: (i) change the name or street address of the Property or designation of the Premises (provided Landlord gives Tenant at least thirty (30) days advance notice, and reimburses Tenant for reasonable costs for reasonable supplies of Tenant’s stationery and business cards that can no longer be used as a result of such change upon reasonable evidence thereof), (ii) install and maintain signs on and about the Property, and grant any other Person the right to do so, (iii) retain at all times, and use in appropriate instances, keys to all doors within and into the Premises, (iv) grant to any Person the right to conduct any business or render any service at the Property, whether or not the same are similar to the use permitted Tenant by this Lease, (v) have access for Landlord and other tenants of the Property to any mail chutes located on the Premises according to the rules of the United States Postal Service (and to install or remove such chutes), and (vi) in case of fire, invasion, insurrection, riot, civil disorder, public excitement or other dangerous condition, or threat thereof: (a) limit or prevent access to the Property, (b) shut down elevator service, (c) activate elevator emergency controls, and (d) otherwise take such action or preventative measures deemed necessary by Landlord for the safety of tenants of the Property or the protection of the Property and other property located thereon or therein (but this provision shall impose no duty on Landlord to take such actions, and no liability for actions taken in good faith).

B. Access To Premises. Subject to the following provisions, to enter the Premises in order to: (i) inspect, (ii) supply cleaning service or other services to be provided Tenant hereunder, (iii) show the Premises to current and prospective Lenders, insurers, purchasers, governmental authorities, and their representatives, and during the last nine (9) months of Tenant’s occupancy, show the Premises to prospective tenants and leasing brokers, and (iv) decorate, remodel or alter the Premises if Tenant abandons the Premises at any time or vacates the same during the last 120 days of the Term (without thereby terminating this Lease), and (v) perform any work or take any other actions under Paragraph C below, or exercise other rights of Landlord under this Lease or applicable Laws. If Tenant requests that any such access occur before or after normal building hours, and Landlord schedules the work accordingly, Tenant shall pay all overtime and other additional costs in connection therewith. In

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connection with any such access to the Premises, except in emergencies or for cleaning or other routine services to be provided to Tenant under this Lease, Landlord shall: (a) provide reasonable advance written or oral notice to Tenant’s on-site manager or other appropriate person, (b) be accompanied at all times by a representative of Tenant (if mutual scheduling thereof is reasonably feasible), and (c) take reasonable steps to minimize any disruption to Tenant’s business.

C. Changes To The Property. Subject to the last sentence of this Paragraph, to; (i) paint and decorate, (ii) perform repairs or maintenance, and (iii) make replacements, restorations, renovations, alterations, additions and improvements, structural or otherwise (including freon retrofit work), in and to the Property or any part thereof, including any adjacent building, structure, facility, land, street or alley, or change the uses thereof (other than Tenant’s permitted use under this Lease), including changes, reductions or additions of corridors, entrances, doors, lobbies, parking facilities and other areas, structural support columns and shear walls, elevators, stairs, escalators, mezzanines, solar tint windows or film, kiosks, planters, sculptures, displays, and other amenities and features therein, and changes relating to the connection with or entrance into or use of the Property or any other adjoining or adjacent building or buildings, now existing or hereafter constructed. In connection with such matters, Landlord may erect scaffolding, barricades and other structures, open ceilings, close entry ways, restrooms, elevators, stairways, corridors, parking and other areas and facilities, and take such other actions as Landlord deems appropriate. Notwithstanding anything to the contrary herein, Landlord shall: (a) maintain reasonable access to the Premises, (b) not materially restrict or impair Tenant’s use of the Premises or any rights expressly granted to Tenant under this Lease, and (c) in connection with entering the Premises, comply with the last sentence of Paragraph B above (including subclauses (a) and (b) thereof).

D. New Premises. Intentionally omitted.

ARTICLE 21: LANDLORD’S RIGHT TO CURE

If Landlord shall fail to perform any obligation under this Lease required to be performed by Landlord, Landlord shall not be deemed to be in default hereunder nor subject to any claims for damages of any kind, unless such failure shall have continued for a period of thirty (30) days (in non-emergency situations) or ten (10) days (in emergency situations), as applicable, after notice thereof by Tenant (provided, if the nature of Landlord’s failure is such that more time is reasonably required in order to cure, Landlord shall not be in default if Landlord commences to cure within such applicable period and thereafter diligently seeks to cure such failure to completion). If Landlord shall default and fail to cure as provided herein, Tenant shall have such rights and remedies as may be available to Tenant under applicable Laws, subject to the other provisions of this Lease; provided, Tenant shall have no right of self-help to perform repairs or any other obligation of Landlord, and shall have no right to withhold, set-off or abate Rent, or terminate this Lease, except as may be expressly provided in this Lease.

ARTICLE 22: INDEMNIFICATION

Subject to the provisions of Articles 10 and 11, Tenant shall defend, indemnify and hold Landlord harmless from and against any and all claims, demands, losses, penalties, fines, fees, charges, assessments, liabilities, damages, judgments, orders, decrees, actions, administrative or other proceedings, costs and expenses (including reasonable attorneys’ and expert witness fees, and court costs), arising or alleged to arise from: (i) any violation or breach of this Lease or applicable Law by any Tenant Parties (as defined below), (ii) damage, loss or injury to persons, property or business directly or indirectly arising out of any Tenant Party’s use of the Premises or Property, or out of any other act or omission of any Tenant Parties, and (iii) any other damage, loss or injury to persons, property or business occurring in, about or from the Premises, except to the extent that such other damage, loss or injury to persons, property or business is caused by the negligence or intentional misconduct of Landlord or its agents or employees. For purposes of this provision, “Tenant Parties” shall, mean Tenant, any other occupant of the Premises and any of their respective agents, employees, invitees, Transferees and contractors. Subject to Articles 10 and 11 and the other provisions of this Lease, and excluding matters

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covered by Tenant’s foregoing indemnity obligations. Landlord shall defend, indemnify and hold harmless Tenant from and against claims, demands, losses, penalties, fines, fees, charges, assessments, liabilities, damages, judgments, orders, decrees, actions, administrative or other proceedings, costs and expenses (including reasonable attorneys^’ and expert witness fees, and court costs) arising in the common areas of the Properly from or relating to any loss of life, damage or injury to persons, property or business to the extent caused by any violation or breach of this Lease or any other negligence, intentional misconduct, or any other act or omission of Landlord or Landlord’s agents or employees.

ARTICLE 23: RETURN OF POSSESSION

A. General Provisions. At the expiration or earlier termination of this Lease or Tenant’s right of possession, Tenant shall vacate and surrender possession of the entire Premises in the condition required under Article 8 and the Rules, ordinary wear and tear and casualty damage excepted, shall surrender all keys and key cards, and any parking transmitters, stickers or cards to Landlord, and shall remove all personal property and trade fixtures that may be readily removed without damage to the Premises or Property, subject to the following provisions.

B. Landlord’s Property. Alt improvements, fixtures and other items, including ceiling light fixtures, HVAC equipment, plumbing fixtures, hot water heaters, fire suppression and sprinkler systems, Lines under Article 28, built-in shelves and cabinets, interior partitioning, interior stairs, wall coverings, carpeting and other flooring, blinds, drapes and window treatments, in or serving the Premises, whether installed by Tenant or Landlord, and any other items installed or provided by Landlord or at Landlord’s expense (including any modular furniture provided or paid for by Landlord), shall be Landlord’s property and shall remain upon the Premises, all without compensation, allowance or credit to Tenant, unless Landlord elects otherwise as provided in Paragraph C below.

C. Removal of Items by Tenant. Notwithstanding the foregoing to the contrary, if prior to expiration or earlier termination of this Lease or within thirty (30) days thereafter Landlord so directs by notice, Tenant shall promptly remove such items described in Paragraph B above as are designated in such notice and restore the Premises to the condition prior to the installation of such items in a good and workmanlike manner; provided, Landlord shall not require removal of any such items that: (I) already existed in the Premises before this Lease and Tenant’s occupancy of the Premises, or (ii) involve customary leasehold improvements that are installed by or for Tenant pursuant to the provisions of this Lease (including any Exhibit hereto) except to the extent that Landlord reserves the right to require such removal in connection with Landlord’s approval of the plans therefor, or (iii) involve the restoration of lab space to office space.

D. Tenant’s Failure to Remove Items. If Tenant shall fail to remove any items from the Premises as required hereunder, Landlord may do so and Tenant shall pay Landlord’s charges therefor upon demand. All such property removed from the Premises by Landlord pursuant to any provisions of this Lease or any Law may be handled or stored by Landlord at Tenant’s expense, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. All such property not removed from the Premises or retaken from storage by Tenant within thirty (30) days after expiration or earlier termination of this Lease or Tenant’s right to possession shall, at Landlord’s option, be conclusively deemed to have been conveyed by Tenant to Landlord as if by bill of sale without payment by Landlord. Landlord shall have a lien against such property for the costs incurred in removing and storing the same.

ARTICLE 24: HOLDING OVER

Unless Landlord expressly agrees otherwise in writing, Tenant shall pay Landlord 150% for the first thirty (30) days, and thereafter 200%, of the amount of Rent then applicable prorated on a per diem basis for each day that Tenant shall fail to vacate or surrender possession of the Premises or any part thereof after expiration or earlier termination of this Lease as required under Article 23, together with all damages (direct and consequential) sustained by Landlord on account thereof; provided, Tenant shall not

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be liable for consequential damages unless Tenant holds over for more than thirty (30) days. Tenant shall pay such amount of Rent monthly in advance (subject to refund of any partial month occupancy prorated on a per diem basis), and such other amounts on demand. The foregoing provisions, and Landlord’s acceptance of any such amounts, shall not serve as permission for Tenant to hold-over, nor serve to extend the Term (although Tenant shall remain a tenant-at-sufferance bound to comply with ail other ; provisions of this Lease until Tenant properly vacates the Premises, including Article 23), and Landlord shall have such other remedies to recover possession of the Premises as may be available to Landlord under applicable Laws.

ARTICLE 25: NOTICES

Except as expressly provided to the contrary in this Lease, every notice or other communication to be given by either party to the other with respect hereto or to the Premises or Property, shall be in writing and shall not be effective unless served personally or by national air courier service, or United States certified mail, return receipt requested, postage prepaid, to the parties at the addresses set forth in Article 1, or such other address or addresses as Tenant or Landlord may from time to time designate by notice given as above provided. Every notice or other communication hereunder shall be deemed to have been given as of the third business day following the date of such mailing (or as of any earlier date evidenced by a receipt from such national air courier service or the United States Postal Service) or immediately if personally delivered. Notices not sent in accordance with the foregoing shall be effective when received by the parties at the addresses required herein.

ARTICLE 26: REAL ESTATE BROKERS

Landlord and Tenant hereby mutually: (i) represent and warrant to each other that they have dealt only with the broker, if any, designated in Article 1 (whose commission, if any, shall be paid pursuant to separate written agreement by Landlord) as broker, agent or finder in connection with this Lease, and (ii) agree to defend, indemnify and hold each other harmless from and against any and all claims, demands, losses, liabilities, damages, judgments, costs and expenses (including reasonable attorneys’ and expert witness fees, and court costs), arising or alleged to arise from any breach of their respective foregoing representation and warranty under this Article.

ARTICLE 27: NO WAIVER

No provision of this Lease will be deemed waived by either party unless expressly waived in writing and signed by the waiving party. No waiver shall be implied by delay or any other act or omission of either party. No waiver by either party of any provision of this Lease shall be deemed a waiver of such provision with respect to any subsequent matter relating to such provision, and Landlord’s consent or approval respecting any action by Tenant shall not constitute a waiver of the requirement for obtaining Landlord’s consent or approval respecting any subsequent action. Acceptance of Rent by Landlord directly or through any agent or lock-box arrangement shall not constitute a waiver of any breach by Tenant of any term or provision of this Lease (and Landlord reserves the right to return or refund any untimely payments if necessary to preserve Landlord’s remedies). No acceptance of a lesser amount of Rent shall be deemed a waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the full amount due. The acceptance of Rent or of the performance of any other term or provision from, or providing directory listings or services for, any Person other than Tenant shall not constitute a waiver of Landlord’s right to approve any Transfer. No delivery to, or acceptance by, Landlord or its agents or employees of keys, nor any other act or omission of Tenant or Landlord or their agents or employees, shall be deemed a surrender, or acceptance of a surrender, of the Premises or a termination of this Lease, unless stated expressly in writing by Landlord.

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ARTICLE 28: TELECOMMUNICATION LINES

A. Telecommunication Lines. Subject to Landlord’s continuing right of reasonable supervision and reasonable approval, and the other provisions hereof, Tenant may: (i) install telecommunication lines (“Lines”) connecting the Premises to any Property terminal block already serving or available to serve the Premises, or (ii) use such Lines as may currently exist and already connect the Premises to such terminal block. Such terminal block may comprise, or be connected through riser or other Lines with, a main distribution frame (“MDF”) for the Property. Landlord disclaims any representations, warranties or understandings concerning the capacity, design or suitability of any such terminal or MDF, Property riser Lines, or related equipment. Landlord may arrange for an independent contractor to review Tenant’s requests for approval hereunder, monitor or supervise Tenant’s installation, connection and disconnection of Lines, and provide other such services, or Landlord may provide the same, and Tenant shall pay Landlord’s reasonable charges therefor as provided in Article 9.

B. Installation. Tenant may install and use Tenant’s Lines and make connections and disconnections at the terminal blocks as described above, provided Tenant shall; (i) obtain Landlord’s prior written reasonable approval of all aspects thereof, (ii) use an experienced and qualified contractor reasonably designated or approved in writing in advance by Landlord (whom Landlord may require to enter an access and indemnity agreement on Landlord’s then-standard form of agreement’ therefor), (iii) comply with such reasonable inside wire standards as Landlord may adopt from time to time, and ail other provisions of this Lease, including Article 9 respecting Work, and the Rules respecting access to the wire closets, (iv) not install Lines in the same sleeve, chaseway or other enclosure in close proximity with electrical wire, and not install PVC-coated Lines under any circumstances, (v) thoroughly test any riser Lines to which Tenant intends to connect any Lines to ensure that such riser Lines are available and are not then connected to or used for telephone, data transmission or any other purpose by any other party (whether or not Landlord has previously approved such connections), and not connect to any such unavailable or connected riser Lines, and (vi) not connect any equipment to the Lines which may create an electromagnetic field exceeding the normal insulation ratings of ordinary twisted pair riser cable or cause radiation higher than normal background radiation, unless the Lines therefor (including riser Lines) are appropriately insulated to prevent such excessive electromagnetic fields or radiation (and such insulation shall not be provided by the use of additional unused twisted pair Lines). As a condition to permitting installation of new Lines, Landlord may require that Tenant remove any existing Lines located in or serving the Premises previously installed or utilized by Tenant.

C. Limitation of Liability. Except to the extent due to Landlord’s intentional misconduct or grossly negligent acts, Landlord shall have no liability for damages arising, and Landlord does not warrant that the Tenant’s use of the Lines will be free, from the following (collectively called “Line Problems”): (i) any eavesdropping, wire-tapping or theft of long distance access codes by unauthorized parties, (ii) any failure of the Lines to satisfy Tenant’s requirements, or (iii) any capacitance, attenuation, cross-talk or other problems with the Lines, any misdesignation of the Lines in the MDF room or wire closets, or any shortages, failures, variations, interruptions, disconnections, loss or damage caused by or in connection with the installation, maintenance, replacement, use or removal of any other Lines or equipment at the Property by or for other tenants at the Property, by any failure of the environmental conditions at or the power supply for the Property to conform to any requirements of the Lines or any other problems associated with any Lines or by any other cause. Under no circumstances shall any Line Problems be deemed an actual or constructive eviction of Tenant, render Landlord liable to Tenant for abatement of any Rent or other charges under the Lease, or relieve Tenant from performance of Tenant’s obligations under the Lease. Landlord in no event shall be liable for damages by reason of loss of profits, business interruption or other consequential damage arising from any Line Problems.

ARTICLE 29: HAZARDOUS MATERIALS

A. Hazardous Materials Generally Prohibited. Tenant shall not transport, use, store, maintain, generate, manufacture, handle, dispose, release, discharge, spill or leak any “Hazardous Material”

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(as defined in Article 30), or permit Tenants employees, agents, contractors, or other occupants of the Premises to engage in such activities on or about the Property. However, the foregoing provisions shall not prohibit the transportation to and from, and use, storage, maintenance and handling within, the Premises of substances customarily and lawfully used as an incidental and minor part of the business or activity expressly permitted to be undertaken in the Premises under this Lease, provided: (i) such substances shall be properly labeled, contained, used and stored only in small quantities reasonably necessary for such permitted use of the Premises and the ordinary course of Tenant’s business therein, strictly in accordance with applicable Laws, highest prevailing standards, and the manufacturers’ instructions therefor, and as Landlord shall reasonably require (but no warning notices or symbols shall be placed, or required to be placed, on or near any door to or within the Premises or Property), (ii) Tenant shall provide Landlord with advance notice and current Material Safety Data Sheets (“MSDSs”) therefor, (iii) such substances shall not be disposed of, released, discharged or permitted to spill or leak in or about the Premises or the Property (and under no circumstances shall any Hazardous Material be disposed of within the drains or plumbing facilities in or serving the Premises or Property or in any other public or private drain or sewer, regardless of quantity or concentration), (iv) if any applicable Law or Landlord’s trash removal contractor requires that any such substances be disposed of separately from ordinary trash, Tenant shall make arrangements at Tenant’s expense for such disposal in approved containers directly with a qualified and licensed disposal company at a lawful disposal site, (v) any remaining such substances shall be completely, properly and lawfully removed from the Property upon expiration or earlier termination of this Lease, and (vi) for purposes of removal and disposal of any such substances, Tenant shall be named as the owner, operator and generator, shall obtain a waste generator identification number, and shall execute all permit applications, manifests, waste characterization documents and any other required forms.

B. Notifications. Tenant shall immediately notify Landlord of: (i) any inspection, enforcement, cleanup or other regulatory action taken or threatened by any regulatory authority with respect to any Hazardous Material on or from the Premises or the migration thereof from or to other property, (ii) any demands or claims made or threatened by any party relating to any loss or injury claimed to have resulted from any Hazardous Material on or from the Premises, (iii) any release, discharge, spill, leak, migration, disposal or transportation of any Hazardous Material on or from the Premises in violation of this Article, and any damage, loss or injury to persons, property or business resulting or claimed to have resulted therefrom, and (iv) any matters where Tenant is required by Law to give a notice to any regulatory authority respecting any Hazardous Material on or from the Premises. Landlord shall have the right (but not the obligation) to notify regulatory authorities concerning actual and claimed violations of this Article, and to join and participate, as a party, in any legal proceedings or actions affecting the Premises and concerning Hazardous Materials or otherwise initiated under any environmental, health or safety Law.

C. Hazardous Materials Questionnaire. At such times as Landlord may reasonably request, Tenant shall accurately and completely fill out, sign (and certify to be accurate and complete) and return Landlord’s then current form of Tenant Hazardous Materials Questionnaire and Disclosure Statement (“Hazardous Materials Questionnaire”) which shall: (i) identify, describe and list quantities of any Hazardous Materials that have been transported to or from, used, stored, generated, handled, maintained, disposed, released, discharged, spilled, leaked or migrated in or from the Premises since the Commencement Date or the last such Hazardous Materials Questionnaire, and any such activity that is anticipated during the next twelve (12) months, (ii) provide information concerning past, present and anticipated disposal practices, storage tanks, process tanks, dip tanks, waste management practices, waste water discharge/treatment practices, air discharges, regulatory actions, and such other information as Landlord requires, and (iii) include copies of any material safety data sheets (“MSDS”) issued by the manufacturer, distributor or importer for any such Hazardous Materials. Landlord shall generally not require such Environmental Questionnaires more than once per year, except if required by Law or a Lender, or in connection with a proposed sale or financing of the Property, or if based on Tenant’s answers to any prior Environmental Questionnaire or an inspection of the Premises, or if Landlord determines that more frequent Environmental Questionnaires are reasonably required.

D. Hazardous Materials Records; Inspections, Tests and Studies. Tenant shall immediately upon written request from time to time provide Landlord with copies of all permits, approvals, memos, reports, correspondence, complaints, demands, claims, subpoenas, requests, feasibility and impact

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studies, storage and management plans, business plans, remediation and cleanup plans, closure plans, documentation evidencing that a clean-up or other action required hereunder has been properly and lawfully completed, and all papers of any kind filed with or by any regulatory authority and any other books, records or items pertaining to Hazardous Materials that are subject to the provisions of this Article (collectively referred to herein as “Tenant’s Hazardous Materials Records”). Landlord reserves the right to conduct, and to request that regulatory authorities conduct, from time to time, detailed inspections, tests and studies at or respecting the Premises, and of Tenants operations therein including, without limitation, air, soil, water and the contents of any cans, bottles, jars, drums, barrels or other containers, and Tenant’s Hazardous Materials Records, respecting Tenant’s compliance with this Article. In connection therewith, Tenant shall fully cooperate and shall instruct Tenant’s officers and employees to answer all questions truthfully and completely. Such inspections, tests and studies may be made with or without prior notice. If Landlord or any Lender or regulatory authority arranges for any inspections, tests or studies showing this Article has been violated, or otherwise in connection with any request by Tenant for permission to engage in any activity or to waive any requirement involving Hazardous Materials, Tenant shall pay for the cost of such inspections, tests and studies and an amount equal to fifteen percent (15%) of such cost to cover Landlord’s overhead.

E. Clean Up Responsibilities. Subject to the last sentence of this Article 29. E, if any Hazardous Material is released, discharged or disposed of, or permitted to spill, leak or migrate, in violation of the foregoing provisions, Tenant shall immediately, properly and in compliance with applicable Laws, clean up and remove the Hazardous Material from the Premises, Property and any other affected property and clean or replace any affected personal properly (whether or not owned by Landlord), at Tenant’s expense (without limiting Landlord’s other remedies therefor). Such clean up and removal work shall be considered “Work” under Article 9 and subject to the provisions thereof including, without limitation, Landlord’s prior written approval (except in emergencies), and any testing, investigation, feasibility and impact studies, and the preparation and implementation of any remedial action plan required by any court or regulatory authority having jurisdiction or reasonably required by Landlord. In connection therewith, Tenant shall provide documentation evidencing that all Tenant Remedial Work or other action required hereunder has been properly and lawfully completed (including a certificate addressed to Landlord from a environmental consultant reasonably acceptable to Landlord, in such detail and form as Landlord may reasonably require). If any Hazardous Material is released, discharged, disposed of, or permitted to spill, leak or migrate on or about the Property and is not caused by Tenant or other occupants of the Premises, or their agents, employees, Transferees, or contractors, such release, discharge, disposal, spill, teak or migration shall be deemed casualty damage under Article 11 to the extent that the Premises and Tenant’s use thereof is affected thereby; in such case, Landlord and Tenant shall have the obligations and rights respecting such casualty damage provided under such Article. If any Hazardous Material contamination is discovered on or about the Property before Tenant begins occupying or performing work at the Premises, there shall be a rebuttable presumption that Tenant is not responsible; if any Hazardous Material contamination is discovered on or about the Property after Tenant begins occupying or performing work at the Premises, and the contamination is located in the Premises or areas of the Property exclusively serving the Premises, there shall be a rebuttable presumption that Tenant is responsible (including Landlord’s obligations to restore under Article 11 .A, and Tenant’s rights to abate Rent under Article 11.B).

F. Storage Tanks and Ponds. Tenant shall not install or use storage tanks on or about the Premises (whether under, on or above ground) without Landlord’s prior written consent, which consent may be withheld in Landlord’s sole discretion. Tenant shall not engage in or permit ponding or surface storage or treatment of Hazardous Materials under any circumstances. If Landlord permits Tenant to install or use a storage tank, Tenant shall comply with all applicable Laws in connection therewith, and at Landlord’s request shall properly and lawfully remove such tank upon expiration or earlier termination of this Lease (or sooner if such tank is found to leak or removal is required by applicable Laws) in accordance with removal procedures approved by Landlord in advance in writing.

G. Fees, Taxes, Fines and Remedies. Tenant shall pay, prior to delinquency, any and all fees, taxes (including excise taxes), penalties and fines arising from or based on Tenant’s activities involving Hazardous Material on or about the Premises or Property, and shall not allow such obligations to become a lien or charge against the Property or Landlord. If Tenant violates any provision of this Article with respect to any Hazardous Materials, Landlord may: (i) require that Tenant immediately remove all Hazardous Materials from the Premises and discontinue using, storing and handling Hazardous Materials in the Premises, and/or (ii) pursue such other remedies as may be available under this Lease or applicable Law.

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ARTICLE 30: DEFINITIONS

(A) “Building” shall mean the structure (or the portion thereof owned by Landlord) identified in Article 1.

(B) “Default Rate” shall mean one and one half percent (1.5%) per month, or the highest rate permitted by applicable Law, whichever shall be less.

(C) “Expenses” shall mean all expenses, costs and amounts (other than Taxes, unless Landlord elects to bill Taxes as part of Expenses) of every kind and nature relating to the ownership, management, repair, maintenance, replacement, insurance and operation of the Property, including, without limitation (except as expressly set forth herein): (i) utilities, including electricity, gas, steam, oil or other fuel, water and sewer services (but excluding any such costs for the Premises paid directly by Tenant pursuant to Article 6), (ii) complying with Laws, subject to the exclusions below, (iii) Insurance (but only if Landlord elects to bill Insurance as part of Expenses and not separately), (iv) supplies, materials, tools and equipment, including rental, installment purchase and financing agreements therefor, (v) accounting, security, janitorial, property management and other services (but excluding janitorial costs for the Premises paid directly by Tenant pursuant to Article 6), (vi) compensation and benefits for personnel providing services at or below the level of senior property manager (but if personnel handle other properties or functions, the foregoing expenses shall be allocated appropriately between the Property and such other properties or functions), (vii) payments under any reciprocal easement, declaration or other agreement for sharing common area costs or other matters in any development or complex in which the Property is located, (viii) sales or other taxes on supplies or services for the Property, (ix) operating and maintaining a property management office, including the fair rental value, appropriately allocated between the Property and any other property served by such office, and (x) operation, maintenance, repair, installation, replacement, painting, decorating and cleaning of the Property and off-site items that benefit the Property, including signs, traffic signals, drainage and irrigation systems, sidewalks, driveways, parking facilities, loading and service areas, landscaping, common area fixtures, trash compactors, doors, windows, roofs, Systems and Equipment, and any other features of and services for the Property. The foregoing provision is for definitional purposes and shall not impose any obligation upon Landlord to incur such expenses, nor limit other Expenses that Landlord may incur for the Property. Landlord may retain independent contractors (or affiliated contractors at market rates) to provide any services or perform any work, in which case the costs thereof shall be deemed Expenses. Expenses shall, however, exclude:

(1) the following items: (a) interest and amortization on Mortgages, and other debt costs or ground lease payments, if any, except as provided herein, (b) depreciation of buildings and other improvements (except permitted amortization of certain capital expenditures as provided below), (c) legal fees in connection with leasing, tenant disputes or enforcement of leases, (d) real estate brokers’ commissions or marketing costs, (e) improvements or alterations to tenant spaces, (f) the cost of providing any service directly to, and paid directly by, any tenant, (g) costs of any items to the extent Landlord receives reimbursement from insurance proceeds or from a warranty or other such third party (such proceeds to be deducted from Expenses in the year in which received); (h) the cost of work in connection with a Condemnation proceeding, (i) costs incurred in removing or abating asbestos, (j) costs arising from the existence of hazardous materials and hazardous substances in or about the Property in violation of any legal requirements, (k) accounting fees and auditing expenses (at the ownership level, as opposed to normal property management accounting and auditing costs), (l) costs in connection with arbitration proceedings and litigation with tenants, (m) items included in Taxes, and (n) amounts required to purchase any sculptures, paintings and other works of fine art displayed within or about the Property; and

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(2) capital expenditures, except those: (a) made primarily to reduce Expenses or increases therein (provided that the amount passed through shall not exceed the amount of the savings in any year), or to comply with Laws or insurance requirements (excluding capital expenditures to cure violations of Laws or insurance requirements that existed prior to the date of this Lease), or (b) for replacements (as opposed to additions or new improvements) of roofs and parking areas, and other nonstructural items located in the common areas of the Property required to keep such areas in good condition; provided, any such permitted capital expenditure shall be amortized (with interest at the prevailing loan rate available to Landlord when the cost was incurred) over: (x) the period during which the reasonably estimated savings in Expenses equals the expenditure, if applicable, or (y) the useful life of the item as reasonably determined by Landlord.

(D) “Hazardous Material” shall include, but not be limited to: (i) any flammable, explosive, toxic, radioactive, biological, corrosive or otherwise hazardous chemical, substance, liquid, gas, device, form of energy, material or waste or component thereof, (ii) petroleum-based products, diesel fuel, paints, solvents, lead, radioactive materials, cyanide, biohazards, infectious or medical waste and “sharps”, printing inks, acids, DDT, pesticides, ammonia compounds, and any other items which now or subsequently are found to have an adverse effect on the environment or the health and safety of persons or animals or the presence of which require investigation or remediation under any Law or governmental policy, and (iii) any item defined as a “hazardous substance”, “hazardous material”, “hazardous waste”, “regulated substance” or “toxic substance” under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. §9601, et seq., Hazardous Materials Transportation Act, 49 U.$.C. §1801, et seq., Resource Conservation and Recovery Act of 1976, 42 U.S.C. §6901 et seq., Clean Water Act, 33 U.S.C. §1251, et seq., Safe Drinking Water Act, 14 U.S.C. §300f, et seq., Toxic Substances Control Act, 15 U.S.C. §2601, et seq., Atomic Energy Act of 1954, 42 U.S.C. §2014 et seq., and any similar federal, state or local Laws, and all regulations, guidelines, directives and other requirements thereunder, all as may be amended or supplemented from time to time.

(E) “Insurance” shall mean costs of insurance that Landlord maintains for the Property, which may include, but shall not be limited to, commercial general liability, casualty damage, flood, earthquake, boiler and machinery, rent loss, workers’ compensation and employers’ liability, builders’ risk, automobile, and other coverages, in such amounts and with such deductibles and other features as Landlord deems commercially appropriate, and including a reasonable allocation of such costs under any blanket policies and self-retention funds.

(F) “Landlord” shall mean only the landlord from time to time, except that for purposes of any provisions defending, indemnifying and holding Landlord harmless hereunder, “Landlord” shall include past, present and future landlords and their respective partners, beneficiaries, trustees, officers, directors, employees, shareholders, principals, agents, affiliates, successors and assigns.

(G) “Law” or “Laws” shall mean all federal, state, county and local governmental and municipal laws, statutes, ordinances, rules, regulations, codes, decrees, orders and other such requirements, applicable equitable remedies and decisions by courts in cases where such decisions are considered binding precedents in the State in which the Property is located, and decisions of federal courts applying the Laws of such State, at the time in question. This Lease shall be interpreted and governed by the Laws of the State in which the Property is located.

(H) “Lender” shall mean the holder of any Mortgage at the time in question, and where such Mortgage is a ground lease, such term shall refer to the ground lessor (and the term “ground lease” although not capitalized is intended throughout this Lease to include any superior or master lease).

(I) “Mortgage” shall mean all mortgages, deeds of trust, ground leases and other such encumbrances now or hereafter placed upon the Property or Building, or any part thereof, and all renewals, modifications, consolidations, replacements or extensions thereof, and all indebtedness now or hereafter secured thereby and all interest thereon.

(J) “Person” shall mean an individual, trust, partnership, limited liability company, joint venture, association, corporation and any other entity.

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(K) “Premises” shall mean the area within the Building identified in Article 1 and Exhibit A. Landlord reserves the right to use (or grant other parties the right to use) and Tenant shall have no right, title or interest in: (i) the roof of the Building, (ii) exterior portions of the Premises (including, without limitation, demising walls and outer walls of the Building), (iii) air rights above the Premises and rights to the land and improvements below the floor level of the Premises, and (iv) areas within the Premises necessary for utilities, services, safety and operation of the Building or Property, including systems and equipment, fire stairways, and space between any suspended ceiling of the Premises and the slab of the floor or roof of the Property thereabove. If the Premises does not contain a suspended ceiling, the Premises shall extend vertically to the height where, in Landlord’s reasonable opinion, a suspended ceiling would otherwise exist, and Landlord reserves the right to install a suspended ceiling and/or use the area thereabove.

(L) “Property” shall mean the Building, and any common or public areas or facilities, easements, corridors, lobbies, sidewalks, loading areas, driveways, landscaped areas, skywalks, parking rights, garages and lots, and any and all other rights, structures or facilities operated or maintained in connection with or for the benefit of the Building, and all parcels or tracts of land on which all or any portion of the foregoing items are located, and any fixtures, machinery, apparatus, Systems and Equipment, furniture and other personal property located thereon or therein and used in connection with the operation thereof. Landlord reserves the right to add land, buildings, easements or other interests to, or sell or eliminate the same from, the Property, and grant interests and rights in the Property to other parties. If the Building shall now or hereafter be part of a development or complex of buildings or structures collectively owned by Landlord or its affiliates, the Property shall, at Landlord’s option, also be deemed to include such other of those buildings or structures as Landlord shall from time to time designate, and shall initially include such buildings and structures (and related facilities and parcels on which the same are located) as Landlord shall have incorporated by reference to the total rentable area of the Property in Article 1.

(M) “Rent” shall have the meaning specified therefor in Article 3.

(N) “Systems and Equipment” shall mean any plant, machinery, transformers, duct work, cable, wires, and other equipment, facilities, and systems designed to supply light, heat, ventilation, air conditioning and humidity or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life/safety systems or equipment, or any elevators, escalators or other mechanical, electrical, electronic, computer or other systems or equipment for the Property, except to the extent that any of the same serves particular tenants exclusively (and “systems and equipment” without capitalization shall refer to such of the foregoing items serving particular tenants exclusively).

(O) “Taxes” shall mean all amounts (unless required by Landlord to be paid under Article 14 or as Expenses) for federal, state, county, or local governmental, special district, improvement district, municipal or other political subdivision taxes, fees, levies, assessments, charges or other impositions of every kind and nature in connection with the ownership, leasing and operation of the Property, whether foreseen or unforeseen, general, special, ordinary or extraordinary (including real estate and ad valorem taxes, general and special assessments, transit taxes, water and sewer rents, license and business license fees, use or occupancy taxes, gross receipts or sales taxes, taxes on personal property and property management services, and taxes or charges for fire protection, streets, sidewalks, road maintenance, refuse or other services). If the method of taxation of real estate prevailing at the time of execution hereof shall be, or has been, altered so as to cause the whole or any part of the Taxes now, hereafter or heretofore levied, assessed or imposed on real estate to be levied, assessed or imposed on Landlord, wholly or partially, as a capital stock levy or otherwise, or on or measured by the rents, income or gross receipts received therefrom, then such new or altered taxes shall be included within the term “Taxes,” except that the same shall not include any portion of such tax attributable to other income of Landlord not relating to the Property. Tenant shall pay increased Taxes whether Taxes are increased as a result of increases in the assessment or valuation of the Property (whether based on a sale, change in ownership or refinancing of the Property or otherwise), increases in tax rates, reduction or elimination of any rollbacks or other deductions available under current law, scheduled reductions of any tax abatement, as a result of the elimination, invalidity or withdrawal of any tax abatement, or for any other

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cause whatsoever. Notwithstanding the foregoing, there shall be excluded from Taxes all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state income taxes, and other taxes to the extent applicable to Landlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Property).

(P) “Tenant” shall be applicable to one or more Persons as the case may be, the singular shall include the plural, and if there be more than one Tenant, the obligations thereof shall be joint and several. When used in the lower case, “tenant” shall mean any other tenant or occupant of the Property.

(Q) “Tenant’s Share” of Taxes, Insurance and Expenses shall be the percentage set forth in Article 1, but if the rentable area of the Premises changes due to the addition or subtraction of space under this Lease or by amendment, Landlord shall reasonably adjust Tenant’s Share to be based on the rentable area of the Premises divided by the rentable area of the Property, subject to further adjustment hereunder and under Article 3. If the Property shall now or hereafter be part of or shall include a development or complex of two or more buildings or structures collectively owned by Landlord or its affiliates, Landlord may allocate Taxes, Insurance and Expenses (or components thereof) within such complex or development, and between such buildings and structures and the parcels on which they are located, in accordance with sound accounting and management practices. In the alternative, Landlord may determine Tenant’s Share of Taxes, Insurance and Expenses (or components thereof) for all or any such buildings and structures, and any common areas and facilities operated or maintained in connection therewith and all parcels or tracts of land on which all or any portion of any of the other foregoing items are located, in accordance with sound accounting and management practices; provided, Landlord shall reasonably reduce Tenant’s Share to be based on the ratio of the rentable area of the Premises to the rentable area of all such buildings as to which such Taxes, Insurance and Expenses (or components thereof) are included. In addition, if the Property, or any development or complex of which it is a part, shall contain non-flex space types of uses (e.g. general office use) during any period, Landlord may determine, in accordance with sound accounting and management practices, Tenant’s Share of Taxes, Insurance and Expenses (or components thereof) for only the flex space portion of the Property or of such development or complex; in such event, Landlord shall reasonably adjust Tenant’s Share to be based on the ratio of the rentable area of the Premises to the rentable area of such flex space portion for such period. Tenant acknowledges that the “rentable area of the Premises” under this Lease includes the so-called “usable area,” without deduction for columns or projections and which may have been measured to the “drip line” or may include patio or balcony space to which Tenant has access, multiplied by one or more load or conversion factors to reflect a share of certain areas, which may include lobbies, corridors, mechanical, utility, janitorial, boiler and service rooms and closets, restrooms, and other public, common and service areas. Except as provided expressly to the contrary herein, the “rentable area of the Property” shall include all rentable area of all space leased or available for lease at the Property (excluding any parking facilities). Landlord may reasonably re-determine the rentable area of the Property from time to time to reflect remeasurements, re-configurations, additions or modifications to the Property, and may reasonably adjust Tenant’s Share prospectively based thereon.

ARTICLE 31: OFFER

This document shall not be binding on either party unless and until signed and delivered by both parties.

ARTICLE 32: MISCELLANEOUS

A. Captions and Interpretation. The captions of the Articles and Paragraphs of this Lease, and any computer highlighting of changes from earlier drafts, are for convenience of reference only and shall not be considered or referred to in resolving questions of interpretation. Tenant acknowledges that it has read this Lease and that it has had the opportunity to confer with counsel in negotiating this Lease; accordingly, this Lease shall be construed neither for nor against Landlord or Tenant, but shall be given a fair and reasonable interpretation in accordance with the meaning of its terms. The neuter shall include the masculine and feminine, and the singular shall include the plural. The term “including” shall be interpreted to mean “including, but not limited to.”

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B. Survival of Provisions. All obligations (including indemnity, Rent and other payment obligations) or rights of either party arising during or attributable to the period prior to expiration or earlier termination of this Lease shall survive such expiration or earlier termination.

C. Severability. If any term or provision of this Lease or portion thereof shall be found invalid, void, illegal, or unenforceable generally, or with respect to any particular party, by a court of competent jurisdiction, it shall not affect, impair or invalidate any other terms or provisions or the remaining portion thereof or enforceability with respect to any other party.

D. Perpetuities. If the Commencement Date is delayed in accordance with Article 2 for more than nine (9) months, Landlord may declare this Lease terminated by notice to Tenant, and if the Commencement Date is so delayed for more than three years, this Lease shall thereupon be deemed terminated without further action by either party.

E. Short Form Lease. This Lease shall not be recorded by any party, but either party or any Lender may elect to record a customary short form memorandum of this Lease, in which case: (i) the other party shall promptly execute, acknowledge and deliver the same on a customary form prepared by the requesting party and reasonably acceptable to such other party, and (ii) upon expiration or earlier termination of this Lease, Tenant shall promptly execute, acknowledge and deliver such documentation as Landlord may prepare evidencing the termination of this Lease on a customary form prepared by Landlord and reasonably acceptable to Tenant.

F. Light, Air and Other Interests. This Lease does not grant any legal rights to “light and air” outside the Premises nor any particular view visible from the Premises, nor any easements, licenses or other interests unless expressly contained in this Lease.

G. Authority. Tenant and all Persons signing for Tenant below, and Landlord and all Persons signing for Landlord below, hereby represent that this Lease has been fully authorized and no further approvals are required, and that Landlord and Tenant are duly organized, in good standing and legally qualified to do business in the Property and Premises (and have any required certificates, licenses, permits and other such items).

H. Partnership Tenant. If Tenant is a partnership, all current and new general partners shall be jointly and severally liable for all obligations of Tenant hereunder and as this Lease may hereafter be modified, whether such obligations accrue before or after admission of future partners or after any partners die or leave the partnership. Tenant shall cause each new partner to sign and deliver to Landlord written confirmation of such liability, in form and content satisfactory to Landlord, but failure to do so shall not avoid such liability.

I. Successors and Assigns; Transfer of Property and Security Deposit. Each of the terms and provisions of this Lease shall be binding upon and inure to the benefit of the parties’ respective heirs, executors, administrators, guardians, custodians, successors and assigns, subject to Article 13 respecting Transfers and Article 18 respecting rights of Lenders. Subject to Article 18, if Landlord shall convey or transfer the Property or any portion thereof in which the Premises are contained to another party, such party shall thereupon be and become landlord hereunder, shall be deemed to have fully assumed all of Landlord’s obligations under this Lease accruing during such party’s ownership, including the return of any Security Deposit, and Landlord shall be free of all such obligations accruing from and after the date of conveyance or transfer.

J. Limitation of Liability. Tenant agrees to look solely to Landlord’s interest in the Property for the enforcement of any judgment, award, order or other remedy under or in connection with this Lease or any related agreement, instrument or document or for any other matter whatsoever relating thereto or to the Property or Premises. Under no circumstances shall any present or future, direct or

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indirect, principals or investors, general or limited partners, officers, directors, shareholders, trustees, beneficiaries, participants, advisors, managers, employees, agents or affiliates of Landlord, or of any of the other foregoing parties, or any of their heirs, successors or assigns have any liability for any of the foregoing matters. In no event shall Landlord be liable to Tenant for any consequential damages. Notwithstanding the foregoing, the parties agree that this provision shall not apply to claims to the extent covered by Landlord’s liability insurance.

K. Confidentiality. Tenant shall use commercially reasonable efforts to keep confidential the content and all copies of this Lease, related documents or amendments now or hereafter entered, and all proposals, materials, information and matters relating thereto, including the results of any review of Landlord’s records under Article 3, and not to disclose, disseminate or distribute any of the same, or permit the same to occur, except on an “as needed” basis to the extent reasonably required for proper business purposes by Tenant’s employees, attorneys, insurers, auditors, lenders, brokers and Transferees, and except as may be required by Law or court proceedings.

ARTICLE 33: ENTIRE AGREEMENT

This Lease, together with the Exhibits and other documents listed in Article 1 (WHICH ARE HEREBY COLLECTIVELY INCORPORATED HEREIN AND MADE A PART HEREOF AS THOUGH FULLY SET FORTH), contains all the terms and provisions between Landlord and Tenant relating to the matters set forth herein and no prior or contemporaneous agreement or understanding pertaining to the same shall be of any force or effect, except for any such contemporaneous agreement specifically referring to and modifying this Lease and signed by both parties. Without limitation as to the generality of the foregoing, Tenant hereby acknowledges and agrees that Landlord’s leasing agents and field personnel are only authorized to show the Premises and negotiate terms and conditions for leases subject to Landlord’s final approval, and are not authorized to make any agreements, representations, understandings or obligations binding upon Landlord respecting the condition of the Premises or Property, suitability of the same for Tenant’s business, the current or future amount of Taxes, Insurance or Expenses or any component thereof, the amount of rent or other terms applicable under other leases at the Property, whether Landlord is furnishing the same utilities or services to other tenants at all, on the same level or on the same basis, or any other matter, and no such agreements, representations, understandings or obligations not expressly contained herein or in such contemporaneous agreement shall be of any force or effect. TENANT HAS RELIED ON TENANT’S INSPECTIONS AND DUE DILIGENCE IN ENTERING THIS LEASE, AND NOT ON ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE HABITABILITY, CONDITION OR SUITABILITY OF THE PREMISES OR PROPERTY FOR ANY PARTICULAR PURPOSE OR ANY OTHER MATTER NOT EXPRESSLY CONTAINED HEREIN. This Lease, including the Exhibits referred to above, may not be modified, except in writing signed by both parties.

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IN WITNESS WHEREOF, the parties have executed this Lease as of the date first set forth above.

LANDLORD:	CMD PROPERTIES, INC. [SEAL]
	an Illinois corporation
	By:	/s/ Allen D. Aldridge
		Allen D. Aldridge, Vice President

TENANT:	StemCo Biomedical, Inc. [SEAL]
	a Delaware corporation
	By:	/s/ Jonathan Lawrie
	Name:	Jonathan Lawrie
	Its:	President & CEO

CERTIFICATE

I, Kelly Bolick, as Office Manager of the aforesaid Tenant, hereby certify that the individual(s) executing the foregoing Lease on behalf of Tenant was/were duly authorized to act in his/their capacities as set forth above, and his/their action(s) are the action of Tenant.

(Corporate Seal) /s/ Kelly Bolick

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EXHIBIT A: PREMISES

(Floor Plate(s) Showing Premises Cross-Hatched)

EXHIBIT B: RULES

(1) No Exterior Storage. Nothing shall be stored outside the Premises, unless exterior storage is required by Law and approved in writing by Landlord in its reasonable discretion.

(2) Dust and Fume Control. No wood-shaping or spraying material processes or any activity creating dust or fumes that may be hazardous shall be performed in the Premises except in an environment controlled by air-handling equipment properly and lawfully designed and utilized, which shall be maintained and operated at alt times to prevent hazardous accumulations of wood, chemical or other pollutants in the atmosphere within the Premises or Property.

(3) Trash. All garbage, refuse, trash and other waste shall be kept in the kind of container, placed in the areas, and prepared for collection in the manner and at the times and places reasonably specified by Landlord, subject to the provisions of this Lease respecting Hazardous Materials. If Landlord designates a service to pick up such items, Tenant shall use the same (and the cost shall be included in Expenses). Landlord reserves the right to require that Tenant participate in any recycling program designated by Landlord.

(4) Window and Door Treatments. Tenant shall not place anything or allow anything to be placed in the Premises near the glass of any door, partition, wall or window which may be unsightly from outside the Premises, and Tenant shall not place or permit to be placed any article of any kind on any window ledge or on the exterior walls. Blinds, shades, awnings or other forms of inside or outside window devices shall not be placed in or about the outside windows or doors in the Premises except to the extent, if any, that the design, character, shape, color, material and make thereof is first approved or designated by Landlord, Tenant shall not install or remove any solar tint film from the windows.

(5) Balconies and Patios. If the Premises has access to a patio or balcony, Tenant shall have a license to enter such area, subject to the following provisions: (i) Tenant’s access to such area shall be limited to the area immediately adjoining the Premises (and bounded by an extension of the demising lines of the Premises), and Landlord reserves the right to install materials separating Tenant’s area from the area adjoining other tenants’ premises, (ii) Tenant shall use such area only in a manner that is quiet and compatible with the nature of the Property, which only involves the use of benches or outdoor furniture approved by Landlord in writing, and which will not bother, disturb or annoy any other occupants of the Property, and (iii) Tenant’s use thereof shall be subject to the other provisions of this Lease, including the other Rules,

(6) Lighting and General Appearance of Premises. Landlord reserves the right to designate and/or approve in writing all internal lighting that may be visible from the public, common or exterior areas. The design, arrangement, style, color, character, quality and general appearance of the portion of the Premises visible from public, common and exterior areas, and contents of such portion of the Premises, including furniture, fixtures, signs, art work, wall coverings, carpet and decorations, and all changes, additions and replacements thereto shall at all times have a neat, professional, attractive, first class appearance.

(7) Use of Common Areas; No Soliciting. Tenant shall not use the common areas, including areas adjacent to the Premises, for any purpose other than ingress and egress, and any such use thereof shall be subject to the other provisions of this Lease, including these Rules. Without limiting the generality of the foregoing, Tenant shall not allow anything to remain in any passageway, sidewalk, court, corridor, stairway, entrance, exit, elevator, parking or shipping area, or other area outside the Premises. Tenant shall not use the common areas to canvass, solicit business or information from, or distribute any article or material to, other tenants or invitees of the Property. Tenant shall not make any room-to-room canvass to solicit business or information or to distribute any article or material to or from other tenants of the Property and shall not exhibit, sell or offer to sell, use, rent or exchange any products or services in or from the Premises unless ordinarily embraced within the Tenant’s use of the Premises expressly permitted in the Lease. Landlord shall in all cases retain the right to control and prevent access to such areas by Persons engaged in activities which are illegal or violate these Rules, or whose presence in the judgment of Landlord shall be prejudicial to the safety, character, reputation and interests of the Property and its tenants (and Landlord shall have no liability for such actions taken in good faith).

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(8) Plumbing Equipment. Toilet rooms, urinals, wash bowls, drains, sewers and other plumbing fixtures, equipment and lines shall not be misused or used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be disposed of therein.

(9) Roof; Awnings and Projections. Tenant shall not install any sign, antennae, satellite dish or any other device on the roof, or common areas of the Property. Tenant may install and have access to rooftop HVAC equipment only to the extent approved or required by Landlord from time to time in connection with Tenant’s maintenance, repair or HVAC obligations under this Lease. No awning or other projection shall be attached by or for Tenant to the exterior walls of the Premises or the Building.

(10) Signs. Landlord may prescribe the suite number for the Premises and cause building standard suite identification signage to be placed on or adjacent to the main entrance door of the Premises. Landlord shall bear the expense of any such initial building standard signage, and Tenant shall pay Landlord’s standard charges for changes requested by Tenant and approved by Landlord thereafter promptly after billing thereof. Tenant shall not paint, display, inscribe, maintain or affix any sign, placard, picture, advertisement, name, notice, lettering or direction on any part of the outside or inside of the Property, or on any part of the inside of the Premises which can be seen from the outside of the Premises, without the prior consent of Landlord, and then only such name or names or matter arid in such color, size, style, character and material, and with professional designers, fabricators and installers as may be first approved or designated by Landlord in writing. Landlord reserves the right, without notice to Tenant, to remove at Tenant’s expense all matter not so installed or approved. If Landlord approves of any Tenant sign, then such sign shall: (i) be professionally designed, prepared and installed, (ii) be in good taste so as not to detract from the general appearance of the Premises or the Property, (iii) not advertise any product, and (iv) comply with any sign criteria developed by Landlord from time to time. All signs hereunder shall be subject to all Laws and any covenants, conditions and restrictions applicable to the Property or Building. Tenant shall maintain any Tenant signs approved hereunder in good repair and sightly first class condition.

(11) Parking. Parking of cars shall be available in areas designated generally for tenant parking, if any, on a “first come”, “first served” unassigned basis in common with Landlord, other tenants and other parties to whom parking privileges have been or are hereafter granted. At Landlord’s option from time to time, Tenant shall not exceed its percentage share of such available parking spaces based on the ratio of the rentable area of the Premises to the rentable area of the Building. Parking is prohibited in areas: (1) not striped or designated for parking, (2) aisles, (3) where “no parking” signs are posted, (4) on ramps, and (5) loading areas and other specially designated areas. Delivery trucks and vehicles shall use only those areas designated therefor. Landlord reserves the right to: (i) assign specific spaces, and reserve spaces for small cars, disabled individuals, and other tenants, customers of tenants or other parties (and Tenant shall not park in any such assigned or reserved spaces) and (ii) restrict or prohibit full size vans and other large vehicles. In case of any violation of these provisions or any applicable Laws, Landlord may: (a) refuse to permit the violator to park, and remove the vehicle owned or driven by the violator from the Property without liability whatsoever, at such violator’s risk and expense and/or (b) charge Tenant such reasonable rates as Landlord may from time to time establish for such violations, which shall be at least $100.00 per day for each vehicle that is parked in violation of these Rules. These provisions shall be in addition to any other remedies available to Landlord under this Lease or otherwise.

(12) Overloading Floors. Tenant shall not overload any floor in the Premises or Property.

(13) Going-Out-Of-Business Sates and Auctions. Tenant shall not use, or permit any other party to use, the Premises for any distress, fire, bankruptcy, close-out, “lost our lease” or going-out-of-business sale or auction. Tenant shall not display any signs advertising the foregoing anywhere in or about the Premises. This prohibition shall also apply to Tenant’s creditors.

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(14) Labor Harmony. Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment, or labor and employment practices that, in Landlord’s good faith judgment, may cause strikes, picketing or boycotts or disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Property.

(15) Responsibility for Compliance. Tenant shall be responsible for ensuring compliance with these Rules, as they may be amended, by Tenant’s employees and as applicable, by Tenant, any other occupant of the Premises, and their respective agents, employees, invitees, Transferees and contractors.

(16) Property Tradename, Likeness, Trademarks. Tenant shall not in any manner use the name of the Property for any purpose other than as Tenant’s business address, or use any tradenames or trademarks of Landlord, any other tenant, or their affiliates, or any picture or likeness of the Property, for any purpose, in any letterheads, circulars, notices, advertisements or other material whatsoever.

(17) Deliveries and Removals. Tenant shall not take or permit to be taken in or out of other entrances or elevators of the Property any item normally taken, or which Landlord otherwise reasonably requires to be taken, in or out through service doors or on freight elevators. Landlord may impose reasonable requirements for the use of freight elevators and loading areas, and reserves the right to alter schedules without notice. Any hand-carts used at the Property shall have rubber wheels and sideguards, and no other material-handling equipment may be used without Landlord’s prior written approval.

(18) Locks and Keys. Tenant shall use such standard key system designated by Landlord on all keyed doors to and within the Premises, excluding any permitted vaults or safes (but Landlord’s designation shall not be deemed a representation of adequacy to prevent unlawful entry or criminal acts, and Tenant shall maintain such additional insurance as Tenant deems advisable for such events). Tenant shall not attach or permit to be attached additional locks or similar devices to any door or window, change existing locks or the mechanism thereof, or make or permit to be made any keys for any door other than those provided by Landlord. If more than two keys for one lock are desired, Landlord will provide them upon payment of Landlord’s charges. In the event of loss of any keys furnished by Landlord, Tenant shall pay Landlord’s reasonable charges therefor. The term “key” shall include mechanical, electronic or other keys, cards and passes.

(19) Safety And Security Devices, Services And Programs. Safety and security devices, services and programs provided by Landlord, if any, while intended to deter crime and ensure safety, may not in given instances prevent theft or other criminal acts, or ensure safety of persons or property. The risk that any safety or security device, service or program may not be effective, or may malfunction, or be circumvented by a criminal, is assumed by Tenant with respect to Tenant’s property and interests, and Tenant shall obtain insurance coverage to the extent Tenant desires protection against such criminal acts and other losses, as further described in Article 10. Tenant agrees to cooperate in any reasonable safety or security program developed by Landlord or required by Law.

(20) Utility Closets and Connections. Landlord reserves the right to control access to and use of, and monitor and supervise any work in or affecting, the “wire” or telephone, electrical, plumbing or other utility closets, the Systems and Equipment, and any changes, connections, new installations, and wiring work relating thereto (or Landlord may engage or designate an independent contractor to provide such services). Tenant shall obtain Landlord’s prior written reasonable consent for any such access, use and work in each instance, and shall comply with such requirements as Landlord may reasonably impose, and the other provisions of Article 6 respecting electric installations and connections, Article 28 respecting telephone Lines and connections, and Article 9 respecting Work in general. Tenant shall have no right to use any broom closets, storage closets, janitorial closets, or other such closets, rooms and areas whatsoever. Tenant shall not install in or for the Premises any equipment which requires more electric current than Landlord is required to provide under this Lease, without Landlord’s prior written approval, and Tenant shall ascertain from Landlord the maximum amount of load or demand for or use of electrical current which can safety be permitted in and for the Premises, taking into account the capacity of electric wiring in the Property and the Premises and the needs of tenants of the Property, and shall not in any event connect a greater load than such safe capacity.

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(21) Alcohol, Drugs, Food and Smoking. Landlord reserves the right to exclude or expel from the Property any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules. Tenant shall not at any time manufacture, sell, use or give away, any spirituous, fermented, intoxicating or alcoholic liquors on the Premises, nor permit any of the same to occur. Tenant shall not at any time cook, sell, purchase or give away, food in any form by or to any of Tenant’s agents or employees or any other parties on the Premises, nor permit any of the same to occur (other than in microwave ovens and coffee makers properly maintained in good and safe working order and repair in lunch rooms or kitchens for employees as may be permitted or installed by Landlord, and which do not violate any Laws or bother or annoy any other tenant). Tenant and its employees shall not smoke tobacco on any part of the Property (including exterior areas) except those areas, if any, that are designated or approved as smoking areas by Landlord.

(22) Energy and Utility Conservation. Tenant shall not waste electricity, water, heat or air conditioning or other utilities or services, and agrees to cooperate fully with Landlord to assure the most effective and energy efficient operation of the Property.

(23) Unattended Premises. Before leaving the Premises unattended, Tenant shall close and securely lock all doors or other means of entry to the Premises and shut off all lights and water faucets in the Premises (except heat to the extent necessary to prevent the freezing or bursting of pipes).

(24) Prohibited Activities. Tenant shall not: (i) use strobe or flashing lights in or oh the Premises, (ii) install or operate any internal combustion engine, boiler, machinery, refrigerating, heating or air conditioning equipment in or about the Premises, except with Landlord’s express written approval, (iii) use the Premises for housing, lodging or sleeping purposes or for the washing of clothes, (iv) place any radio or television antennae other than inside of the Premises, (v) operate or permit to be operated any musical or sound producing instrument or device which may be heard outside the Premises, (vi) use any source of power other than electricity, (vii) operate any electrical or other device from which may emanate electrical, electromagnetic, x-ray, magnetic resonance, energy, microwave, radiation or other waves or fields which may interfere with or impair radio, television, microwave, or other broadcasting or reception from or in the Property or elsewhere, or impair or interfere with computers, faxes or telecommunication lines or equipment at the Property or elsewhere, or create a health hazard, (viii) bring or permit any bicycle or other vehicle, or dog (except in the company of a blind person or except where specifically permitted) or other animal or bird in the Property, (ix) make or permit objectionable noise, vibration or odor to emanate from the Premises, (x) do anything in or about the Premises or Property that is illegal, immoral, obscene, pornographic, or anything that may in Landlord’s good faith opinion create or maintain a nuisance, cause physical damage to the Premises or Property, interfere with the normal operation of the Systems and Equipment, impair the appearance, character or reputation of the Premises or Property, create waste to the Premises or Property, cause demonstrations, protests, loitering, bomb threats or other events that may require evacuation of the Building, (xi) throw or permit to be thrown or dropped any article from any window or other opening in the Property, (xii) use the Premises for any purpose, or permit upon the Premises or Property anything, that may be dangerous to persons or property (including firearms or other weapons (whether or not licensed or used by security guards) or any explosive or combustible articles or materials), (xiii) place vending or game machines in the Premises, except vending machines for employees, (xiv) adversely affect the indoor air quality of the Premises or Property, or (xv) do or permit anything to be done upon the Premises or Property in any way tending to disturb, bother, annoy or interfere with Landlord or any other tenant at the Property or the tenants of neighboring property, or otherwise disrupt orderly, quiet use and occupancy of the Property.

(25) Responsibility for Compliance. Tenant shall be responsible for ensuring compliance with these Rules, as they may be amended, by Tenant’s employees and as applicable, by Tenant’s agents, invitees, contractors, subcontractors, and suppliers. Tenant shall cooperate with any reasonable program or requests by Landlord to monitor and enforce the Rules, including providing vehicle numbers and taking appropriate action against such of the foregoing parties who violate these provisions.

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EXHIBIT C

EXTENSION OPTION

1. Option to Extend. Subject to the other provisions hereof, Landlord hereby grants Tenant one option (“Extension Option”) to extend the current Term of the Lease for an additional period of three (3) consecutive years from the expiration of the prior period (“Extension Period”), on the same terms and conditions then in effect under this Lease immediately prior to the Extension Period, except as modified by the “Market Rates, Terms and Conditions” further described below, and Tenant shall have no further option to extend. Tenant may exercise the Extension Option only by giving Landlord written notice thereof (“Tenant’s Exercise Notice”) no earlier than fourteen (14) and no later than nine (9) full calendar months prior to commencement of the subject Extension Period. Tenant’s Exercise Notice shall be unconditional and irrevocable (except as expressly provided herein).

2. Landlord’s Notice of Market Rates, Terms and Conditions; Disagreement. Within ten (10) business days after receiving Tenant’s Exercise Notice, Landlord shall provide Tenant with notice (“Landlord’s Notice”) of the Market Rates, Terms and Conditions, subject to the other provisions hereof. The term “Market Rates, Terms and Conditions” herein shall mean Landlord’s good faith determination of fair market Base Rent and other terms and conditions (including, but not limited to any scheduled increases in Base Rent, any base years or stops for taxes or expenses, and any improvements or an allowance therefor) for renewing the Lease for the Premises during the Extension Period, taking into account comparable renewals of comparable tenants of comparable financial condition in comparable non-sublease space in comparable buildings in the same market area. If the Market Rates, Terms and Conditions determined by Landlord are acceptable to Tenant, then Tenant shall confirm its exercise of the Extension Option by notice (“Tenant Confirmation Notice”) to Landlord confirming such acceptance given no later than fifteen (15) days after Landlord’s Notice. However, if the Market Rates, Terms and Conditions determined by Landlord are not acceptable to Tenant, then Tenant may, no later than fifteen (15) days after Landlord’s Notice, deliver to Landlord a notice (“Tenant’s Market Notice”) of Tenant’s good faith determination of the Market Rates, Terms and Conditions and reasons therefor. If Tenant provides a timely Tenant’s Market Notice, the parties shall seek to agree on the Market Rates, Terms and Conditions in the form of a non-binding letter of intent (“Letter of Intent”) during the period (“Negotiation Period”) ending forty-five (45) days after Landlord’s Notice. If Tenant delivers a timely Tenant Confirmation Notice, or if the parties enter into the Letter of Intent concerning the Market Rates, Terms and Conditions during the Negotiation Period, then the parties shall seek reasonably and in good faith to agree on and enter into a mutually acceptable formal written extension amendment to the Lease (“Extension Amendment”) setting forth the final and definitive Market Rates, Terms and Conditions and other mutually acceptable provisions for the Lease extension during the period ending sixty (60) days after Landlord’s Notice (“Documentation Period”). Tenant shall be deemed to have revoked its exercise of the Extension Option, and the Extension Option and Tenant’s exercise thereof shall be null and void if: (a) Tenant fails to provide a timely Tenant Confirmation Notice or Tenant’s Market Notice, or (b) the parties fail to enter into the Letter of Intent within the Negotiation Period, or (c) the parties fail to mutually sign and deliver the Extension Amendment within the Documentation Period.

3. General Matters. The Extension Option herein shall, at Landlord’s election, be conditioned on the Lease being in full force and effect, and Tenant not then being in default beyond any applicable cure period under the Lease, at the time Tenant seeks to exercise the Extension Option, or at any time thereafter and prior to commencement of the Extension Period. If Tenant shall fail to properly and timely exercise the Extension Option, then the Extension Option shall thereupon terminate. STRICT COMPLIANCE AND TIMELINESS IN GIVING TENANTS NOTICES AND SIGNING THE EXTENSION AMENDMENT HEREUNDER IS OF THE ESSENCE OF THIS PROVISION. The rights granted in this Exhibit are personal to Tenant and its Tenant Affiliates (as hereinafter defined) as named in this Lease document. Under no circumstance whatsoever shall the assignee under a complete or partial assignment of the Lease document (other than a complete assignment to a Tenant Affiliate), or a subtenant under a sublease of the Premises, have any right to exercise the rights of Tenant under this Exhibit. If Tenant shall sublease or assign the Lease with respect to all or any portion of the Premises (other than to a Tenant Affiliate), then immediately upon such sublease or assignment Tenant’s rights under this Exhibit shall concurrently terminate and

become null and void. The Extension Option shall be subordinate to, and limited by, any rights of any other parties to expand into or lease the Premises granted prior to full execution and delivery of this Lease document. The term “Tenant Affiliate” as used herein shall mean any party which directly or indirectly: (i) wholly owns or controls Tenant, (ii) is wholly owned or controlled by Tenant, or (iii) is under common ownership or control with Tenant, or (iv) into which Tenant is merged, consolidated or reorganized, or to which all or substantially all of Tenant’s assets are sold.

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EXHIBIT D

RIGHT OF OFFER

1. Right of Offer. Landlord hereby grants Tenant a right of offer (“Right Of Offer”) to lease the space shown on Exhibit A, currently known as Suite 152 (the “Expansion Space”), which shall be deemed to contain 5,293 square feet of rentable area for current purposes hereof, all on and subject to the following provisions; provided, this Right of Offer and Landlord’s obligation to provide a “Landlord Notice” shall be in effect commencing on the date that this Lease has been executed and delivered by both parties.

2. Landlord’s Notice of Expansion Terms. While this Right of Offer is in effect, Landlord shall notify Tenant in writing (“Landlord’s Notice”): (i) within thirty (30) days after the Expansion Space becomes legally available to lease, or (ii) at such earlier time as Landlord shall be in a position to project when the Expansion Space will be legally available to lease, advising Tenant of such projected date, or (iii) at any time thereafter but prior to leasing the Expansion Space to another party. Landlord’s Notice shall set forth the terms (“Expansion Terms”) on which Landlord proposes to lease the Expansion Space to Tenant, including, but not limited to, a date for the commencement of the lease thereof (“Expansion Space Commencement Date”), an expiration date therefor or whether the term therefor will be co-terminous with the Term of this Lease, rentable area, monthly base rent and any scheduled increases therein, Tenant’s share of taxes, expenses and other such items (and any base year or stop level therefor), any tenant improvements or allowance therefor, and any other terms and conditions, as determined in Landlord’s good faith discretion, taking into account comparable expansion terms generally being provided for comparable tenants of comparable financial condition for comparable non-sublease space in comparable buildings in the vicinity for time periods that are substantially the same as the period of time during which the Expansion Space will be leased to Tenant. Except as set forth in Landlord’s Notice, the Expansion Terms shall be deemed to include the same terms then in effect on the Expansion Space Commencement Date, and thereafter scheduled to be in effect, under the Lease (with any matters in the Lease based on square footage adjusted proportionately to reflect the rentable area of the Expansion Space and Landlord’s then current Building-standard ratios and policies).

3. Tenant’s Notice and Financial Information. If Tenant desires to lease the Expansion Space on the Expansion Terms set forth in Landlord’s Notice, Tenant shall so notify Landlord in writing (“Tenant’s Notice”) exercising Tenant’s right to lease the Expansion Space on such Expansion Terms within five (5) business days after Landlord sends Landlord’s Notice. Tenant’s Notice shall be unconditional and irrevocable. In order to be effective, Tenant’s Notice shall include financial information for Tenant’s business comparable to the information provided in connection with entering into this Lease document. If Landlord determines in good faith that Tenant’s financial condition is materially worse than the condition that Landlord accepted when the parties entered into this Lease document, Landlord may withdraw Landlord’s Notice and the Right of Offer, or provide a new Landlord’s Notice with reasonably modified Expansion Terms or reasonable additional security requirements taking into account Tenant’s financial condition.

4. Expansion Documentation; Failure to Exercise Right Of Offer or to Sign Expansion Documentation. If Tenant validly exercises Tenant’s Right Of Offer herein, Landlord shall prepare an amendment (“Expansion Documentation”) on Landlord’s then standard form which shall set forth the final and definitive terms and conditions upon which Landlord proposes to lease the Expansion Space to Tenant, and which shall be generally consistent with Landlord’s Notice. If Tenant desires to lease the Expansion Space on the basis of such Expansion Documentation, Tenant shall execute and deliver the Expansion Documentation to Landlord within ten (10) days after Landlord provides the Expansion Documentation to Tenant. Once Tenant provides Tenant’s Notice exercising Tenant’s Right of Offer, Landlord shall have no further obligation to provide a Landlord’s Notice respecting the Expansion Space included in Landlord’s Notice (provided, this Right of Offer shall continue to apply to any portions of the Expansion Space that were not included in Landlord’s Notice as further provided below). If Tenant fails to validly exercise such Right Of Offer, or fails to sign and deliver the Expansion Documentation to Landlord, strictly in accordance with the terms hereof, such Right Of Offer shall be deemed to have lapsed and

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expired as to the Expansion Space that was included in Landlord’s Notice, and Landlord may thereafter freely lease all or a portion of the Expansion Space that was included in Landlord’s Notice to any other party, at any time, on any terms, in Landlord’s sole discretion; provided, despite Tenant’s waiver, this Right of Offer shall continue to apply to any portions of the Expansion Space that were not included in Landlord’s Notice as further provided below. TIME PERIODS AND STRICT COMPLIANCE IN GIVING TENANT’S NOTICE, AND IN TENANT’S SIGNING AND DELIVERING THE EXPANSION DOCUMENTATION, ARE OF THE ESSENCE OF THIS RIGHT OF OFFER.

5. Offering Portions of Expansion Space; Adjustments to Expansion Space; Prior Rights. This Right Of Offer shall apply only with respect to the entire Expansion Space, and may not be exercised with respect to only a portion thereof (unless only a portion of the Expansion Space shall be included in Landlord’s Notice). If only a portion of the Expansion Space shall be included in Landlord’s Notice, this Right of Offer shall apply to such portion, and shall thereafter apply to such other portions of the Expansion Space as they become the subject of Landlord’s Notices, subject to good faith adjustments by Landlord in the size, configuration and location of such remaining portions. If the Expansion Space is part of a larger space that Landlord desires to lease as a unit, then Landlord’s Notice shall, at Landlord’s option, identify the entire such space and the Expansion Terms therefor, and in such case, this Right Of Offer shall apply only to such entire space. Landlord reserves the right at any time prior to sending, or as part of, Landlord’s Notice, to substitute for the Expansion Space other space (herein referred to as the “new expansion space”) in the Building or another building in the same complex or in the vicinity, provided the new expansion space shall be similar to the Expansion Space in size (up to 10% larger or smaller); at Landlord’s option, the new expansion space may overlap with and include a portion of the then current Expansion Space. This Right Of Offer shall be subject to the then existing tenants or occupants of the Expansion Space renewing their existing leases whether pursuant to options to extend previously granted or otherwise, and such Right Of Offer, and any rights of Tenant to extend the Term of the Lease with respect to the Expansion Space, are subordinate to, and limited by, any rights of any other parties to lease the Expansion Space granted prior to full execution and delivery of this document.

6. Miscellaneous. This Right Of Offer is subject to the condition that the Lease be in full force and effect, and that Tenant not then be in default beyond any applicable cure period under the Lease on the date when Landlord provides or would otherwise provide Landlord’s Notice, or at any time thereafter and prior to the Expansion Space Commencement Date. The rights granted in this Exhibit are personal to Tenant and its Tenant Affiliates (as hereinafter defined) as named in this Lease document. Under no circumstance whatsoever shall the assignee under a complete or partial assignment of the Lease document (other than a complete assignment to a Tenant Affiliate), or a subtenant under a sublease of the Premises, have any right to exercise the rights of Tenant under this Exhibit. If Tenant shall sublease or assign the Lease with respect to all or any portion of the Premises (other than to a Tenant Affiliate), then immediately upon such sublease or assignment Tenant’s rights under this Exhibit shall concurrently terminate and become null and void. The term “Tenant Affiliate” as used herein shall mean any party which directly or indirectly; (i) wholly owns or controls Tenant, (ii) is wholly owned or controlled by Tenant, or (iii) is under common ownership or control with Tenant, or (iv) into which Tenant is merged, consolidated or reorganized, or to which all or substantially all of Tenant’s assets are sold. If Tenant shall exercise the Right Of Offer herein, Landlord does not guarantee to deliver possession of the Expansion Space on the Expansion Space Commencement Date due to continued possession by the then existing occupants or any other reason beyond Landlord’s reasonable control. In such event, rent and other charges with respect to the Expansion Space shall be abated until Landlord delivers the same to Tenant (except to the extent that Tenant or its affiliates, agents, employees or contractors cause the delay), as Tenant’s sole recourse. Tenant’s exercise of this Right of Offer is intended to supersede any rights of Tenant under the Lease to reduce or relocate the Premises, or terminate the Lease early, and all such provisions shall thereupon be automatically deleted.

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EXHIBIT E

OPTION TO TERMINATE

Tenant shall have a one-time option to terminate this Lease effective on December 31, 2006 (“Early Termination Date”) as though such date were the original expiration date set forth in this Lease, but only by complying strictly with the following conditions: (i) Tenant shall deliver to Landlord written notice (Tenant’s Exercise Notice”) exercising such option no later than February 28, 2006 (“Latest Exercise Date”), (ii) Tenant shall timely pay the cancellation payment as hereinafter described (“Cancellation Payment”), as a cancellation fee and not as liquidated damages or a penalty, and (iii) Tenant shall continue to timely pay all rentals and other charges under the Lease and comply with each and every term and provision hereof accruing through the Early Termination Date (and all such obligations accruing through the Early Termination Date shall survive such termination, including, but not limited to, any rentals or other charges not yet determined or billed prior to the Early Termination Date).

Following receipt of Tenant’s Exercise Notice, Landlord shall provide Tenant with a notice (“Landlord’s Unamortized Improvement Costs Notice”) setting forth a calculation of all unamortized costs of tenant improvements (collectively referred to as “Unamortized Improvement Costs”) theretofore incurred by Landlord in connection with entering this Lease (including the Allowance as provided in Article 4) and any amendment adding space or modifying the Premises, including, but not limited to, the cost of all allowance and other tenant improvements paid for by Landlord. Such amortization shall be calculated on a straight-line basis over the period from the date or dates such costs or concessions were incurred or commenced through the expiration date then otherwise scheduled to be in effect under the Lease, with interest at the rate of ten percent (10%) per annum, alt as reasonably determined by Landlord. Tenant shall pay such Unamortized Improvement Costs as set forth in Landlord’s Unamortized Improvement Costs Notice by check in good funds within fifteen (15) days after the date of Landlord’s Unamortized Improvement Costs Notice, as a condition to the effectiveness of Tenant’s exercise of Tenant’s early termination option herein.

The option herein is personal to the original Tenant named in this Lease and its Tenant Affiliates as hereinafter defined. Under no circumstances whatsoever shall the assignee under a complete or partial assignment of the Lease (other than a Tenant Affiliate), or a subtenant under a sublease of the Premises, have any right to exercise the option herein. If Tenant shall sublease or assign the Lease with respect to all or any portion of the Premises (other than to a Tenant Affiliate), then immediately upon such sublease or assignment Tenant’s rights under this Exhibit shall concurrently terminate and become null and void. The term “ Tenant Affiliate “ as used herein shall mean any party which directly or indirectly: (i) wholly owns or controls Tenant, (ii) is wholly owned or controlled by Tenant, or (iii) is under common ownership or control with Tenant, or (iv) into which Tenant is merged, consolidated or reorganized, or to which all or substantially ail of Tenant’s assets are sold. Tenant’s exercise of such option shall not operate to cure any violation by Tenant of any of the terms or provisions in the Lease, nor to extinguish or impair any rights or remedies of Landlord arising by virtue of such violation. Notwithstanding anything contained herein to the contrary, Tenant’s option hereunder shall, at Landlord’s election, terminate and become null and void if: (a) Tenant is in violation of the Lease at the time Tenant seeks to exercise such option, or at any time thereafter and prior to the Early Termination Date (or if Tenant’s Cancellation Payment hereunder is returned for insufficient funds), or (b) Tenant leases additional space in the Property, whether pursuant to an expansion right contained in the Lease or otherwise. TIME IS OF THE ESSENCE IN GIVING TENANT’S EXERCISE NOTICE AND MAKING THE CANCELLATION PAYMENT HEREUNDER.

LEASE AMENDMENT ONE

(Extension of Term with Allowance)

THIS LEASE AMENDMENT ONE (“Amendment”) is made as of the 23rd day of March, 2007, between Prince Properties, Inc. (“Landlord”), an Illinois corporation, formerly known as CMD Properties, Inc., and Aldagen, Inc. (“Tenant”), a Delaware corporation, formerly known as Stemco Biomedical, Inc.

A. Landlord and Tenant are the current parties to that certain Standard Lease (“Original Lease”) dated June             , 2003, for premises (“Premises”) in the building (“Building”) known as 2810 Meridian, located at 2810 Meridian Parkway, Durham, North Carolina (“Property”) (as amended herein, the “Lease”).

B. The parties mutually desire to amend the Lease on the terms hereof.

NOW THEREFORE, in consideration of the mutual agreements herein contained, the parties hereby agree as follows.

1. Extension of Term. The term of the Lease is hereby modified to extend for a period (“Extended Term”) commencing on May 1, 2008 (“Extension Date”) and expiring on April 30, 2013 (“New Expiration Date”), unless sooner terminated in accordance with its terms.

2. Base Rent. The Lease is amended to provide that Base Rent shall be $9,534.00. per month through April 30, 2008; i.e., there shall be no increase in Base Rent on May 1, 2007, notwithstanding anything in the Original Lease to the contrary. Commencing on the Extension Date, Tenant shall pay monthly Base Rent as set forth in the following schedule:

Period	Monthly Base Rent
Extension Date - April 30, 2009	$	9,817.87
May 1, 2009 - April 30, 2010	$	10,111.77
May 1 ,2010 - April 30, 2011	$	10,414.85
May 1, 2011 - April 30, 2012	$	10,727.11
May 1, 2012 - New Expiration Date	$	11,048.55

3. HVAC Maintenance. Effective on the Extension Date, in line 3 of the second paragraph of Article 8.B, the number “$200” is deleted and “$300” is inserted therein.

4. Taxes, Insurance and Expenses. Commencing on the Extension Date, Tenant shall continue to pay Tenant’s Share of Taxes, Insurance and Expenses as provided in the Lease.

5. Prorations. If the Extension Date does not occur at the beginning, or the New Expiration Date does not occur at the end, of an applicable payment period under the Lease, Landlord shall reasonably pro rate Tenant’s payment obligations on a per diem basis; Tenant shall remain liable for all amounts accruing or relating to the period prior to the Extension Date, and through the New Expiration Date, whether or not theretofore billed.

6. Condition of Premises; Improvement Allowance. Tenant has been occupying the Premises, and agrees to accept the same “AS IS” without any agreements, representations, understandings or obligations on the part of Landlord to perform or pay for any alterations, repairs or improvements, except as expressly provided herein.

(a) Allowance for Tenant Work. Notwithstanding the foregoing, Landlord shall provide an allowance (“Allowance”) of up to $143,273.00 to be used towards: (i) Tenant’s reasonable, direct out-of-pocket costs of designing and performing permanent leasehold improvements, including the “clean room” (and all permanent leasehold improvements associated with the clean room) previously installed by Tenant (“Work”) in the Premises, and (ii) reasonable out-of-pocket costs, if any, paid by Landlord to third parties in connection with the Work. Tenant shall engage its own designers and contractors for the Work as described below, and Landlord shall reimburse Tenant based on Tenant’s submission of a customary tenant’s affidavit respecting the Work, invoices, paid receipts and other reasonable evidence of payment, and the submission of customary architect’s certificates, lien waivers and affidavits of payment, all reasonably satisfactory to Landlord. If Tenant does not use the entire Allowance for the purposes permitted herein, or does not submit the foregoing documentation to Landlord, by August 31, 2007, then Landlord shall be entitled to the savings and Tenant shall receive no credit therefor. Any personal property, trade fixtures or equipment, including, but not limited to, modular or other furniture, and cabling or other items for communications or computer systems, whether or not shown on any plan approved by Landlord, shall be provided by Tenant, at Tenant’s sole cost.

(b) Tenant Work Procedures. Tenant shall cause all Work hereunder, as well as any further alterations or improvements by Tenant, to be performed: (i) by architects, engineers, and contractors reasonably approved by Landlord in writing, (ii) in accordance with plans, specifications, and other matters reasonably approved by Landlord in writing, (iii) in a first class, professional and workmanlike manner, (iv) with materials that are consistent with, or better than, the quality of the Premises and Property, and which are new and free of material defects, (v) so as not to adversely affect the Property systems and equipment or the structure of the Property, (vi) with reasonable diligence to completion and so as to avoid disturbance, disruption or inconvenience to other tenants and the operation of the Property, and (vii) in compliance with all legal requirements, all applicable provisions of the Lease, including Article 9 of the Original Lease, and such other reasonable requirements as Landlord may reasonably impose concerning the manner and times in which such Work shall be done. Any floor, wall or ceiling coring work or penetrations or use of noisy or heavy equipment which may interfere with the conduct of business by other tenants at the Property shall, at Landlord’s reasonable option, be performed at times other than Landlord’s regular building hours.

7. Landlord’s Notice Address. The addresses for notices or documents delivered to Landlord set forth in the Lease are hereby deleted, and the following are substituted therefor: Prince Properties, Inc., c/o Wind Realty Partners, 12201 Merit Drive, Suite 175, Dallas, Texas 75251, Attn.: Asset Manager; with copies to: Prince Properties, Inc., c/o Wind Realty Partners, 101 North Wacker Drive, Suite 2002, Chicago, Illinois 60606, Attn: Asset Manager and National Property Manager, and to: DLA Piper US LLP, 203 N. LaSalle Street, Suite 1900, Chicago, IL 6060M293, Attn: Randal J. Selig

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8. Other Terms; Certain Provisions Deleted. All provisions of the Lease currently in effect or scheduled to become effective shall remain in effect and become effective in accordance with their terms, except to the extent inconsistent herewith or provided to the contrary herein, and except for any provisions which by their express terms have lapsed, are scheduled to lapse, or were to be in effect only during the initial Term or other period (in which case such express terms shall govern the periods during which such provisions were, or will remain, in effect), Notwithstanding the foregoing, this Amendment is intended to supersede any rights of Tenant to extend or renew the term, expand, reduce or relocate the Premises, lease additional space, or terminate the Lease early, and all such provisions are hereby deleted.

9. Confidentiality. Tenant shall keep confidential the content and all copies of this document and the Lease, related documents now or hereafter entered, and all proposals and matters relating thereto, except to the extent reasonably required on a legitimate “need to know” basis in connection with Tenant’s business by its employees, insurers, auditors, attorneys, and existing or prospective lenders, successors and assigns, or by law or court proceedings.

10. Real Estate Brokers. Tenant hereby represents to Landlord that Tenant has not dealt with any broker, salesperson, agent or finder in connection with this Amendment, except CB Richard Ellis (representing Landlord) and Colliers Pinkard (representing Tenant), and agrees to defend, indemnify and hold Landlord, and its employees, agents and affiliates harmless from all liabilities and expenses (including reasonable attorneys’ fees and court costs) arising from any claims or demands of any other broker, salesperson, agent or finder with whom Tenant has dealt for any commission or fee alleged to be due in connection with this Amendment.

11. Offer. The submission and negotiation of this Amendment shall not be deemed an offer to enter into the same by Landlord. This Amendment shall not be binding on Landlord unless and until fully signed and delivered by both parties. Tenant’s execution of this Amendment constitutes a firm offer to enter into the same which may not be withdrawn for a period of fifteen (15) days after delivery to Landlord. During such period, Landlord may proceed in reliance thereon, but such acts shall not be deemed an acceptance.

12. Whole Amendment; Full Force and Effect; Conflicts. This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. As amended herein, the Lease shall remain in full force and effect. As an inducement for Landlord to enter into this Amendment, Tenant hereby represents that Landlord is not in violation of the Lease, and that Landlord has fully performed all of its obligations under the Lease as of the date on which Tenant signs this Amendment. In case of any inconsistency between the provisions of the Lease and this Amendment, the latter provisions shall govern.

13. Interpretation. This Amendment shall be interpreted in a reasonable manner in conjunction with the Lease. If an Exhibit is attached to this Amendment, the term “Lease” therein shall refer to this Amendment or the Lease as amended, and terms such as “Commencement Date” and “Lease Term” shall refer to analogous terms in this Amendment,

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all as the context expressly provides or reasonably implies. Unless expressly provided to the contrary herein: (a) any terms defined herein shall have the meanings ascribed herein when used as capitalized terms in other provisions hereof, (b) capitalized terms not otherwise defined herein shall have the meanings, if any, ascribed thereto in the Lease, and (c) non-capitalized undefined terms herein shall be interpreted broadly and reasonably to refer to terms contained in the Lease which have a similar meaning, and as such terms may be further defined therein.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above.

LANDLORD:
[SEAL]
Prince Properties, Inc., an Illinois corporation
By: Wind Realty Partners,
	an Illinois general partnership, as agent
	By:	/s/ Joseph J. Bowar
	Name:	Joseph J. Bowar
	Its:	Senior Vice President

TENANT:
[SEAL]
Aldagen, Inc.,
a Delaware corporation
By:	/S/ Edward L Field
Name:	Edward L Field
Its:	President

CERTIFICATE

I,                                      , as                                      of the aforesaid Tenant, hereby certify that the individual(s) executing the foregoing Lease on behalf of Tenant was/were duly authorized to act in his/their capacities as set forth above, and his/their action(s) are the action of Tenant.

(Corporate Seal)             

4

EX-10.9

Exhibit 10.9

ALDAGEN, INC.

AMENDED AND RESTATED

INVESTOR RIGHTS AGREEMENT

December 15, 2006

TABLE OF CONTENTS

			PAGE
SECTION 1.		RESTRICTIONS ON TRANSFER	2
	1.1	Restrictive Legend	2
	1.2	Notice of Proposed Transfers	3
	1.3	Transfer to Competitor	4
SECTION 2.		REGISTRATION RIGHTS	4
	2.1	Certain Definitions	4
	2.2	Demand Registration	5
	2.3	Piggyback Registration	7
	2.4	Expenses of Registration	9
	2.5	Obligations of the Company	9
	2.6	Indemnification	11
	2.7	Information by Holder	13
	2.8	Transfer of Rights	14
	2.9	Form S-3	14
	2.10	Delay of Registration	14
	2.11	Limitations on Subsequent Registration Rights	15
	2.12	Rule 144 Reporting	15
	2.13	“Market Stand Off” Agreement	15
	2.14	Amendment of Registration Rights	16
	2.15	Inclusion of Stock Held by Common Holders	16
	2.16	Termination of Rights	16
SECTION 3.		RIGHTS OF FIRST REFUSAL	16
	3.1	Certain Definitions	16
	3.2	Right of First Offer	17
	3.3	Required Notices	18
	3.4	Company’s Right to Sell	18
	3.5	Expiration of Right	18
SECTION 4.		KEY HOLDER TRANSFERS	18
	4.1	Certain Definitions	18
	4.2	Notice of Transfer	18

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TABLE OF CONTENTS

(CONTINUED)

			PAGE
	4.3	Company Right of First Refusal	19
	4.4	Investor Right of First Refusal	19
	4.5	Right of Co-Sale	20
	4.6	Certain Transfers	21
	4.7	Expiration of Right	22
	4.8	Legend	22
	4.9	Assignment	22
SECTION 5.		COMPANY COVENANTS	23
	5.1	Affirmative Covenants	23
	5.2	Negative Covenants	27
	5.3	Press Release	28
	5.4	Board Consent Required	28
	5.5	Expiration of Covenants	29
SECTION 6.		VOTING AGREEMENT	29
	6.1	Election of Directors	29
	6.2	Binding Effect of Voting Agreement	29
	6.3	Legends	30
	6.4	Drag-Along Rights	30
	6.5	Irrevocable Proxy	31
	6.6	Termination of Voting Agreement	31
SECTION 7.		MISCELLANEOUS	31
	7.1	Governing Law	31
	7.2	Successors and Assigns	31
	7.3	Entire Agreement	31
	7.4	Severability	32
	7.5	Amendment and Waiver	32
	7.6	Delays or Omissions	32
	7.7	Notices, etc	33
	7.8	Titles and Subtitles	34
	7.9	Counterparts	34

-ii-

TABLE OF CONTENTS

		PAGE
EXHIBITS
A	Schedule of Investors
B	Schedule of Junior Stock Holders
C	Schedule of Common Holders
SCHEDULES
5.2(a)	Indebtedness and Obligations

-i-

ALDAGEN, INC.

AMENDED AND RESTATED

INVESTOR RIGHTS AGREEMENT

THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the “Agreement”) is entered into as of this 15^th day of December 2006, by and among Aldagen, Inc., a Delaware corporation (the “Company”), the holders of the Company’s Series C Preferred Stock (the “Series C Stock”) listed on Exhibit A attached hereto (the “Series C Holders,” or “Investors”), the holders of the Company’s Series A Preferred Stock (the “Series A Stock”) listed on Exhibit B attached hereto (the “Series A Holders”), the holders of the Company’s Series B Preferred Stock (the “Series B Stock,” and together with the Series C Stock and Series A Stock, the “Preferred Stock”) listed on Exhibit B attached hereto (the “Series B Holders,” and together with the Series C Holders and Series A Holders, the “Preferred Holders”), the holders of warrants exercisable for shares of the Company’s Series B Stock (the “Warrants”) listed on Exhibit B attached hereto (the “Warrant Holders”), and those holders of the Company’s Common Stock listed on Exhibit C attached hereto and holders of the Company’s Common Stock converted pursuant to Section 8 of Article IV of the Company’s Certificate of Incorporation as in effect on the date hereof solely for the purposes of Sections 2.13, Section 4.1(a), Section 6, and Section 7 below (the “Common Holders”). The Series A Stock and Series B Stock shall collectively be referred to herein as “Junior Stock” and the Series A Holders and the Series B Holders shall collectively be referred to herein as “Junior Holders.”

WHEREAS, the Company, the Series A Holders, and the Common Holders previously entered into that certain Investor Rights Agreement, dated as of October 18, 2000 (which agreement was amended and restated by the Prior Investor Rights Agreement (as defined below));

WHEREAS, the Company, the Junior Holders, the Warrant Holders and the Common Holders have entered into that certain Amended and Restated Investor Rights Agreement, dated as of March 4, 2003, as amended (the “Prior Investor Rights Agreement”);

WHEREAS, the Company, the Junior Holders, the Warrant Holders and the Common Holders entered into that certain Amended and Restated Stock Sale Agreement, dated as of March 3, 2003 (the “Stock Sale Agreement”);

WHEREAS, the Company proposes to sell and issue up to 34,737,603 shares of its Series C Stock, pursuant to that certain Series C Preferred Stock Purchase Agreement, dated as of the date hereof, by and among the Company and the Series C Holders (the “Purchase Agreement”), which financing the Company believes to be in the best interests of the Company and its stockholders;

WHEREAS, the Investors purchasing shares of Series C Stock, as a condition to entering into the Purchase Agreement, have requested that the Company, the Junior Holders and the Common Holders amend and restate the Prior Investor Rights Agreement and terminate the Stock Sale Agreement as set forth herein;

WHEREAS, pursuant to Section 6.5 of the Prior Investor Rights Agreement, the amendment of the Prior Investor Rights Agreement contemplated hereby requires the written consent of (i) the holders of at least 66-2/3% of the shares of the Junior Stock, voting together on an as-if-converted basis, (ii) the consent of the holders of the majority of the shares of the Common Stock held by the Common Holders (other than BD Ventures, L.L.C.), and (iii) the Company (the “Requisite Approval”), and execution of this Agreement by the undersigned Junior Holders, the Common Holders, and the Company satisfies such requirement;

WHEREAS, pursuant to Section 7.3 of the Stock Sale Agreement, the termination of the Stock Sale Agreement contemplated hereby requires the written consent of (i) the holders of at least 66-2/3% of the shares of the Junior Stock, voting together on an as-if-converted basis, (ii) the consent of the holders of the majority of the shares of the Common Stock held by the Common Holders (other than BD Ventures, L.L.C.), and (iii) the Company (the “Requisite Stock Sale Approval”), and execution of this Agreement by the undersigned Junior Holders, the Common Holders, and the Company satisfies such requirement;

WHEREAS, in order to induce the Company and the Series C Holders to enter into the Purchase Agreement, the Company, the Junior Holders, and the Common Holders hereby agree that this Agreement shall amend and restate the Prior Investor Rights Agreement and shall extend to the Company and the Investors the rights and obligations as set forth below;

WHEREAS, in order to induce the Company and the Series C Holders to enter into the Purchase Agreement, the parties thereto hereby agree that this Agreement shall terminate the Stock Sale Agreement and shall extend to the Company and the Investors the rights and obligations as set forth below; and

NOW, THEREFORE, in consideration of the mutual agreements, covenants and conditions contained herein, the Company, the Series C Holders, the Junior Holders and the Common Holders hereby agree as follows.

Section 1.

RESTRICTIONS ON TRANSFER

1.1 Restrictive Legend. Each certificate representing (i) the Preferred Stock, (ii) the Common Stock of the Company (the “Common Stock”) issued upon conversion of the Preferred Stock, and (iii) any other securities issued in respect of the Preferred Stock or Common Stock issued upon conversion of the Preferred Stock upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 1.2 below) be stamped or otherwise imprinted with a legend in substantially the following form (in addition to any legend required under applicable state securities laws).

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS

2.

AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS. COPIES OF THE STOCK PURCHASE AGREEMENT AND INVESTOR RIGHTS AGREEMENT, PROVIDING FOR RESTRICTIONS ON TRANSFER OF THESE SECURITIES MAY BE OBTAINED UPON WRITTEN REQUEST BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.

Each Holder (as defined below) consents to the Company’s making a notation on its records and giving instructions to any transfer agent of the Preferred Stock or the Common Stock in order to implement the restrictions on transfer established in this Section 1. Such legend shall be removed by the Company from any certificate at such time as the holder of the shares represented by the certificate satisfies the requirements of Rule 144(k) under the Securities Act of 1933, as amended (the “1933 Act”), provided that Rule 144(k) as then in effect does not differ substantially from Rule 144(k) as in effect as of the date of this Agreement and other applicable regulations do not then require such legend to be included on the Preferred Stock or Common Stock, and provided further that the Company has received from the Holder a written representation that (i) such Holder is not an affiliate of the Company and has not been an affiliate during the preceding three months, (ii) such Holder has beneficially owned the shares represented by the certificate for a period of at least two years, (iii) such Holder otherwise satisfies the requirements of Rule 144(k) as then in effect with respect to such shares, and (iv) such Holder will submit the certificate for any such shares to the Company for reapplication of the legend at such time as the holder becomes an affiliate of the Company or otherwise ceases to satisfy the requirements of Rule 144(k) as then in effect.

1.2 Notice of Proposed Transfers. The holder of each certificate representing Registrable Securities (as defined below) by acceptance thereof agrees to comply in all respects with the provisions of this Section 1.2. Prior to any proposed sale, assignment, transfer or pledge of any Registrable Securities, unless there is in effect a registration statement under the 1933 Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder’s intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and shall be accompanied at such holder’s expense by a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Registrable Securities may be effected without registration under the 1933 Act. Each certificate evidencing the Registrable Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 1.1 above, except that

3.

such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and the Company such legend is not required in order to establish compliance with any provisions of the 1933 Act. Prior to any transfer of Registrable Securities in accordance with this Section 1, such transferee shall execute and deliver a form of agreement reasonably acceptable to the Company wherein the transferee agrees to be bound by the provisions of this Section 1 and Section 2.13 hereof.

1.3 Transfer to Competitor. No Holder shall transfer any Registrable Securities to a competitor of the Company, as determined by the Board of Directors of the Company in good faith. This provision shall terminate after the Company conducts a Qualified Public Offering (as defined in Section 3.5 hereof).

Section 2.

REGISTRATION RIGHTS

The Company hereby grants to each of the Holders (as defined below) the registration rights set forth in this Section 2, with respect to the Registrable Securities (as defined below) owned by such Holders. The Company and the Holders agree that the registration rights provided herein set forth the sole and entire agreement, and supersede any prior agreement, between the Company and the Holders with respect to registration rights for the Company’s securities.

2.1 Certain Definitions. As used in this Section 2:

(a) The terms “register,” “registered” and “registration” refer to a registration effected by filing with the Securities and Exchange Commission (the “SEC”) a registration statement (the “Registration Statement”) in compliance with the 1933 Act, and the declaration or ordering by the SEC of the effectiveness of such Registration Statement.

(b) The term “Registrable Securities” means (i) Common Stock issued or issuable upon conversion of the shares of Preferred Stock held by Preferred Holders or any transferee as permitted by Section 2.8 hereof, and (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange or in replacement of, such Registrable Securities; provided, however, that shares of Common Stock or other securities shall only be treated as Registrable Securities if and so long as (A) they have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, (B) they have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the 1933 Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale, and (C) the registration rights associated with such securities have not been terminated pursuant to Section 2.15 hereof. Notwithstanding the foregoing, Registrable Securities shall not include any securities issued upon the conversion of shares of Series C Stock pursuant to Section 8 of Article IV of the Company’s Certificate of Incorporation as in effect on the date hereof.

4.

(c) The term “Holder” (collectively, “Holders”) means each Preferred Holder and any transferee, as permitted by Section 2.8 hereof, holding Registrable Securities, securities exercisable or convertible into Registrable Securities or securities exercisable for securities convertible into Registrable Securities.

(d) The term “Initiating Holders” means (i) any Junior Holder or Junior Holders of 66-2/3% of the Registrable Securities then outstanding and not registered at the time of any request for registration made pursuant to Section 2.2 of this Agreement or (ii) the holders of a majority of the Series C Stock (or a lesser percentage if the anticipated aggregate offering price for such offering is at least $10,000,000).

2.2 Demand Registration.

(a) Demand for Registration. If the Company shall receive from Initiating Holders of Registrable Securities a written demand that the Company effect any registration (a “Demand Registration”) of Registrable Securities (other than a registration on Form S-3 or any related form of registration statement, such a request being provided for under Section 2.9 hereof) then outstanding, the Company will:

(i) promptly (but in any event within 10 days) give written notice of the proposed registration to all other Holders; and

(ii) use its best efforts to effect such registration as soon as practicable and as will permit or facilitate the sale and distribution of all or such portion of such Initiating Holders’ Registrable Securities as are specified in such demand, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such demand as are specified in a written demand received by the Company within 15 days after such written notice is given, provided that the Company shall not be obligated to take any action to effect any such registration pursuant to this Section 2.2:

(A) in any jurisdiction outside the United States or in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the 1933 Act;

(B) after the Company has effected 2 registrations requested by the Junior Holders pursuant to this Section 2.2 and the sales of the shares of Common Stock under such registration have closed;

(C) after the Company has effected 2 registrations requested by the Series C Holders pursuant to this Section 2.2 and the sales of the shares of Common Stock under such registration have closed;

(D) if the Company shall furnish to such Holders a certificate, signed by the President of the Company, stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Registration Statement to be filed at the date filing would be required, then the Company shall have an additional period of not more than 90 days within which to file such Registration Statement; provided, however, that the Company shall not use this right more than once in any 12-month period;

5.

(E) if within thirty (30) days of receipt of a written request from Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Company’s intention to file a registration statement for a public offering, other than (i) pursuant to a registration statement relating to any employee benefit plan, (ii) with respect to any corporate reorganization or transaction under Rule 145 of the Securities Act, any registration statements related to the issuance or resale of securities issued in such a transaction, or (iii) pursuant to a registration related to stock issued upon conversion of debt securities, within ninety (90) days;

(F) prior to the earlier of (1) the third anniversary of the date of the initial closing of the sale of Series C Stock or (2) the date six months after the effective date of the initial public offering of the Company’s securities.

(b) Underwriting. If reasonably required to maintain an orderly market in the Common Stock, the Holders shall distribute the Registrable Securities covered by their demand by means of an underwriting. If the Initiating Holders intend to distribute the Registrable Securities covered by their demand by means of an underwriting, they shall so advise the Company as part of their demand made pursuant to this Section 2.2, including the identity of the managing underwriter; and the Company shall include such information in the written notice referred to in Section 2.2(a)(i). In such event, the right of any Holder to registration pursuant to this Section 2.2 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein.

The Company shall, together with all holders of capital stock of the Company proposing to distribute their securities through such underwriting, enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company, which underwriter or underwriters shall be reasonably acceptable to a majority-in-interest of the Initiating Holders. Notwithstanding any other provision of this Section 2.2, if the underwriter shall advise the Company that marketing factors (including, without limitation, an adverse effect on the per share offering price) require a limitation of the number of shares to be underwritten (including Registrable Securities) (the “Underwriters’ Maximum Number”), then the Company will be obligated and required to include in such registration that number of Registrable Securities requested by all Holders to be included in such registration, which does not exceed the Underwriters’ Maximum Number, and such number of Registrable Securities shall be allocated pro rata among the Holders of such Registrable Securities on the basis of the number of Registrable Securities requested to be included therein by each such Holder. No Registrable Securities excluded from the underwriting by reason of the underwriter’s marketing limitation shall be included in such registration.

If any Holder disapproves of the terms of the underwriting, such Holder may elect to withdraw therefrom by written notice to the Company, the underwriter and the Initiating Holders. The Registrable Securities so withdrawn shall also be withdrawn from registration.

6.

The Company may include securities for its own account (or for the account of other Stockholders) in such registration if the underwriter so agrees, but only to the extent the number of Registrable Securities would not thereby be limited.

2.3 Piggyback Registration.

(a) Company Registration. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or for the account of security holders (other than a registration relating solely to employee benefits plan, a registration relating to a corporate reorganization, a registration on Form S-4 relating solely to an SEC Rule 145 transaction (or subsequent similar rule), a registration pursuant to Section 2.2 or 2.9 hereof, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered), the Company will:

(i) promptly (but in any event within 10 days after the Board of Directors approves retaining the underwriter) give to each Holder written notice thereof; and

(ii) include in such registration (and any related qualification under state securities laws or other compliance, subject to Section 2.2(a)(ii)(A)), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 15 days after receipt of such written notice from the Company, by any Holder or Holders, except as set forth in Section 2.3(b) below (or if the Company could complete registration prior to the 15 day notice period set forth above, include in a separate registration any Registrable Securities for which notices are received after registration but before expiration of the 15 day period described above).

Such Registrable Securities shall only be included (i) to the extent that inclusion will not diminish the number of securities included by the Company, and (ii) if such Registrable Securities can be included in the form of registration chosen by the Company under applicable securities rules and regulations.

(b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 2.3(a)(i). In such event the right of any Holder to registration pursuant to this Section 2.3 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein.

All Holders proposing to distribute their Registrable Securities through such underwriting shall, together with the Company and the other parties distributing their securities through such underwriting, enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company.

Notwithstanding any other provision of this Section 2.3, if the underwriter determines that marketing factors require a limitation or reduction of the number of shares to be underwritten, the underwriter may limit the number of Registrable Securities to be included in the registration and underwriting, subject to the terms of this Section 2.3. The Company shall so advise all holders of the Company’s securities that would otherwise be registered and

7.

underwritten pursuant hereto, and the number of shares of such securities, including Registrable Securities, that may be excluded in the registration and underwriting shall be allocated in the following manner: (i) shares held by persons who at that time do not have contractual registration rights shall have their shares excluded on a pro rata basis until the underwriters no longer require shares to be excluded from the registration (“Level 1 Cutbacks”); (ii) if further cutbacks are required, shares held by employees and former employees of the Company that have contractual registration rights shall have their shares excluded until the underwriters no longer require shares to be excluded from the registration (“Level 2 Cutbacks”); (iii) if further cutbacks are required, shares, including Registrable Securities, held by persons who have contractual rights to have their shares included in the registration (excluding the holders of Series C Stock, employees and former employees of the Company) shall have their shares excluded until the underwriters no longer require shares to be excluded from the registration (“Level 3 Cutbacks”); (iv) if further cutbacks are required, shares held by the holders of Series C Stock shall have their shares excluded until the underwriters no longer require shares to be excluded from the registration (“Level 4 Cutbacks”); provided, that, in any registration other than a registration that is the Company’s initial public offering of securities, the amount of Series C Stock included in such registration shall not be reduced below 30% of the total number of shares included in such registration; and (v) if further cutbacks are required, shares of the Company shall be excluded from the registration until the underwriters no longer require shares to be excluded from the registration (“Level 5 Cutbacks”). If less than all the shares held by persons on the same level of cutbacks are required to be excluded to reduce the number of shares in the offering to the number the underwriters want included in the registration, the shares that are included in the registration shall be allocated among the holders thereof in proportion, as nearly as practicable, to the amounts of Registrable Securities and such other securities held by each such holder on that level of cutbacks at the time of filing the Registration Statement.

For purposes of any such underwriter cutback, all Registrable Securities and other securities held by any Holder that is a partnership, limited liability company or corporation shall also include any Registrable Securities held by the partners, retired partners, members, stockholders or affiliated entities of such Holder, or the estates and family members of any such partners, retired partners, members and any trusts for the benefit of any of the foregoing persons, and such Holder and other persons shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “selling Holder,” as defined in this sentence. The Company shall be entitled to rely on the written representation of any firm or entity as to whether any such affiliation exists.

No securities excluded from the underwriting by reason of the underwriter’s marketing limitation shall be included in such registration. Nothing in this Section 2.3(b) is intended to diminish the number of securities to be included by the Company in the underwriting.

If any Holder disapproves of the terms of the underwriting, it may elect to withdraw therefrom by written notice to the Company and the underwriter. The Registrable Securities so withdrawn shall also be withdrawn from registration.

(c) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration.

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2.4 Expenses of Registration. All expenses incurred in connection with all registrations effected pursuant to Sections 2.2, 2.3, and 2.9, including without limitation all registration, filing and qualification fees (including state securities law fees and expenses), printing expenses, escrow fees, fees and disbursements of counsel for the Company (and the reasonable fees and disbursements of one separate special counsel for the participating Holders not to exceed $20,000 for a registration pursuant to Section 2.2(a) and $10,000 for a registration pursuant to Sections 2.3 and 2.9) and expenses of any special audits incidental to or required by such registration shall be borne by the Company; provided, however, that the Company shall not be required to pay stock transfer taxes or underwriters’ discounts or selling commissions relating to Registrable Securities. Notwithstanding anything to the contrary above, the Company shall not be required to pay for any expenses of any registration proceeding under Section 2.2 if the registration request is subsequently withdrawn at the request of the Holders of 66-2/3% of the Registrable Securities to have been registered, provided, however, that in the event that Holders holding at least 66-2/3% of the Registrable Securities agree to forfeit their right to a demand registration pursuant to Section 2.2 (in which event such right shall be forfeited by all Holders), then the Company shall be required to pay the expenses of such withdrawn registration. In the absence of such an agreement to forfeit, the Holders of Registrable Securities to have been registered shall bear all such expenses pro rata on the basis of the Registrable Securities to have been registered. Notwithstanding the preceding sentence, however, if at the time of the withdrawal, the Holders have learned of a materially adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their registration request, then the Holders shall not be required to pay any of said expenses and shall retain their rights pursuant to Section 2.2, unless within 20 days of written disclosure of such materially adverse change by the Company to the Holders, the Holders fail to notify the Company of their intent to withdraw.

2.5 Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) prepare and file with the SEC a Registration Statement with respect to such Registrable Securities and use all commercially reasonable efforts to cause such Registration Statement to become effective, and keep such Registration Statement effective for the lesser of 270 days or until the distribution contemplated in the Registration Statement has been completed;

(b) prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to keep such Registration Statement effective and to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such Registration Statement;

(c) furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the 1933 Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;

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(d) use all commercially reasonable efforts to register or otherwise qualify the securities covered by such Registration Statement under such other securities laws of such states and other jurisdictions as shall be reasonably requested by the Holders or the managing underwriter, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering;

(f) notify each Holder of Registrable Securities covered by such Registration Statement of (x) any order the Securities and Exchange Commission or any jurisdiction in which registration has been made terminating or suspending effectiveness or such registration or (y) at any time when a prospectus relating thereto is required to be delivered under the 1933 Act, the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing (in which case each Holder of Registrable Securities agrees to discontinue transactions in the Company’s securities until notified by the Company that the conditions described above are no longer in effect), and at the request of any such Holder, prepare and furnish to such Holder a reasonable number of copies of a supplement or an amendment of such prospectus as may be necessary so that as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

(g) cause all such Registrable Securities covered by such Registration Statement to be listed with any securities exchange on which the Common Stock is then listed;

(h) make available for inspection by each Holder including Registrable Securities in such registration, any underwriter participating in any distribution pursuant to such registration, and any attorney, accountant or other agent retained by such Holder or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, as such parties may reasonably request, and cause the Company’s officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney, accountant or agent in connection with such Registration Statement, provided that the Company may require reasonable confidentiality agreements and reasonable agreements restricting trading its stock to be signed as a condition to disclosure;

(i) cooperate with Holders including Registrable Securities in such registration and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, such certificates to be in such denominations and registered in such names as such Holders or the managing underwriters may request at least two business days prior to any sale of Registrable Securities; and

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(j) permit any Holder which Holder, in the sole and exclusive judgment, exercised in good faith, of such Holder, might be deemed to be a controlling person of the Company, to participate in good faith in the preparation of such Registration Statement through a single legal counsel and to require insertion of material, furnished to the Company in writing, that in the reasonable judgment of such Holder and its counsel should be included if a failure to include would expose Holder to a material risk of liability.

2.6 Indemnification.

(a) The Company will, and does hereby undertake to, indemnify and hold harmless each Holder of Registrable Securities, each of such Holder’s officers, directors, managers, partners, members and agents, and each person controlling such Holder, with respect to any registration, qualification or compliance effected pursuant to this Section 2, and each underwriter, if any, and each person who controls any underwriter, of the Registrable Securities held by or issuable to such Holder, against all claims, losses, damages and liabilities (or actions in respect thereto) to which they may become subject under the 1933 Act, the Securities Exchange Act of 1934, as amended (the “1934 Act”), or other federal or state law arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other similar document (including any related Registration Statement, notification, or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made, (ii) any violation or alleged violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to any action or inaction required of the Company in connection with any such registration, qualification or compliance, or (iii) any failure to register or qualify Registrable Securities in any state where the Company or its agents have affirmatively undertaken or agreed in writing that the Company (the undertaking of any underwriter chosen by the Company being attributed to the Company) will undertake such registration or qualification on behalf of the Holders of such Registrable Securities and will reimburse, as incurred, each such Holder, each such underwriter and each such director, manager, officer, partner, member, agent and controlling person, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission made in conformity with written information furnished to the Company by an instrument duly executed by such Holder or underwriter and stated to be specifically for use therein.

(b) If Registrable Securities held by or issuable to such Holder are included in such registration, qualification, or compliance pursuant to this Section 2, each Holder will and does hereby undertake to indemnify and hold harmless the Company, each of its directors and officers, and each person controlling (for purposes hereof, “control” or any form thereof shall have within the meaning ascribed thereto in Section 15 of the 1933 Act) the Company, each underwriter, if any, and each person who controls any underwriter, of the Company’s securities

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covered by such a Registration Statement, and each other Holder, each of such other Holder’s officers, directors, managers, partners, members and agents and each person controlling such other Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on (i) any failure of such Holder or its agents or representatives to comply with the prospectus delivery requirements of the 1933 Act or any other applicable securities or Blue Sky law, or (ii) any untrue statement (or alleged untrue statement) of a material fact contained in any such Registration Statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made, and will reimburse, as incurred, the Company, each such underwriter, each such other Holder, and each such director, officer, manager, partner, member, agent, and controlling person of the foregoing, for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) was made in such Registration Statement, prospectus, offering circular or other document, in reliance upon and in strict conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein (or related registration statement, notification or the like) or any amendment or supplement thereto and except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement becomes effective or in the final prospectus, such indemnity agreement shall not inure to the benefit of (i) the Company and (ii) any underwriter or any Holder, if there is no underwriter, if a copy of the final prospectus was not furnished to the person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the 1933 Act; provided, further, that this indemnity shall not be deemed to relieve any underwriter of any of its due diligence obligations; provided, further, that the indemnity agreement contained in this subsection 2.6(b) shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided, further, that the liability of each Holder hereunder (unless such Holder’s liability hereunder is based upon such Holder’s willful misconduct as determined by the nonappealable final decision of a court) shall be limited to the proportion of any such claim, loss, damage or liability that is equal to the proportion that the public offering price of the shares sold by such Holder under such Registration Statement bears to the total public offering price of all securities sold thereunder, but in any event not to exceed the net proceeds received by such Holder from the sale of securities under such Registration Statement. It is understood and agreed that the indemnification obligations of each Holder pursuant to any underwriting agreement entered into in connection with any Registration Statement shall be limited to the obligations contained in this subsection 2.6(b).

(c) Each party entitled to indemnification under this Section 2.6 (the “Indemnified Party”) shall give notice to the party required to provide such indemnification (the “Indemnifying Party”) of any claim as to which indemnification may be sought promptly after such Indemnified Party has actual knowledge thereof, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom with counsel mutually satisfactory to the parties; provided, however, that (i) a party shall not unreasonably withhold its

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agreement with respect to the selection of such counsel, (ii) an Indemnified Party (together with all other Indemnified Parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding, and (iii) the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2, except to the extent that such failure to give notice shall materially adversely affect the Indemnifying Party in the defense of any such claim or any such litigation. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff therein, to such Indemnified Party, of a release from all liability with respect to such claim or litigation.

(d) In order to provide for just and equitable contribution to joint liability under the 1933 Act in any case in which either (i) any Holder exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 2.6 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.6 provides for indemnification in such case, or (ii) contribution under the 1933 Act may be required on the part of any such Holder or any such controlling person in circumstances for which indemnification is provided under this Section 2.6, then, and in each such case, the Company and such Holder will contribute to the aggregate claims, losses, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering price of the securities offered by such Holder pursuant to the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, and the Company will be responsible for the remaining portion (without prejudice as to the Company’s right to contributions from any other responsible parties); provided, however, that, in any case, (A) no such Holder will be required to contribute any amount in excess of the public offering price of all securities offered by it pursuant to such Registration Statement, after deduction of underwriting discounts and commissions (unless such Holder’s liability hereunder is based upon such Holder’s willful misconduct as determined by the nonappealable final decision of a court); and (B) no person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) will be entitled to contribution from any person or entity who was not guilty of such fraudulent misrepresentation.

(e) The indemnities provided in this Section 2.6 shall survive the transfer of any Registrable Securities by such Holder.

2.7 Information by Holder. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 2.

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2.8 Transfer of Rights. The rights contained in Sections 2 hereof may be assigned or otherwise conveyed to (i) any principal, partner, officer, or retired principal, partner, or officer of an Investor, (ii) any transferee, other than a competitor of the Company, receiving at least Three Hundred Thousand (300,000) shares of Registrable Securities, (iii) any partner, retired partner or affiliated fund of any Holder which is a partnership, (iv) any member of former member of any Holder which is a limited liability company, (v) any family member or trust for the benefit of any individual holder, or (vi) any transferee receiving at least 100,000 shares of Series C Stock, who shall be considered a “Holder” for purposes hereof, provided that such transfer is effected in compliance with Section 1.2 hereof and such transferee agree to be bound by the terms of this Agreement.

2.9 Form S-3. The Company shall use all commercially reasonable efforts to qualify for registration on Form S-3. After the Company has qualified for the use of Form S-3, the Holders holding no less than 20% of the Registrable Securities or a Series C Holder shall have the right to request registrations on Form S-3 thereafter under this Section 2.9. The Company shall promptly give notice to all Holders of Registrable Securities of the receipt of a request for registration pursuant to this Section 2.9 and shall provide a reasonable opportunity for other Holders to participate in the registration. Subject to the foregoing, the Company will use its best efforts to effect as soon as practicable the registration of all shares of Registrable Securities on Form S-3 to the extent requested by the Holder or Holders thereof for purposes of disposition; provided, however, that the Company shall not be obligated to effect any such registration (A) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $1,000,000, (B) with respect to a request from a Series C Holder, at any time when the Company has effected two registrations requested by Series C Holders pursuant to this Section 2.9 during the preceding 12-month period, or (C) with respect to a request from a Junior Holder, at any time when the Company has effected one registration requested by Junior Holders pursuant to this Section 2.9 during the preceding 12-month period. Notwithstanding the foregoing, nothing herein shall restrict, prohibit or limit in any way a Holder’s ability to exercise its registration rights under Sections 2.2 or 2.3 hereof. The Company shall have no obligation to take any action to effect any registration pursuant to this Section 2.9 for any of the reasons set forth in Section 2.2(a)(ii)(A) or (C) (which shall be deemed to apply to the obligations under this Section 2.9 with equal force). In addition, any registration pursuant to this Section 2.9 shall be subject to the provisions of Section 2.2(b), which shall be deemed to apply to the obligations under this Section 2.9 with equal force, except that any reference therein to Section 2.2 or a subsection thereof shall, for these purposes only, be deemed to be a reference to this Section 2.9. Subject to the foregoing, the Company shall file a Registration Statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 2.9 shall not be counted as requests for registration effected pursuant to Section 2.2.

2.10 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.

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2.11 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, (i) without the prior written consent of the Junior Holders of at least a 66 2/3% of the Junior Preferred Registrable Securities then outstanding and not registered, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (A) to have a level of priority on cutbacks that is more favorable to such persons(s) than the Level 3 Cutbacks afforded to the holders pursuant to Section 2.3(b) or (B) to require the Company to register securities of such holder or prospective holder at any time earlier than the date specified in Section 2.2(a)(ii)(E) of this Agreement. From and after the date of this Agreement, the Company shall not, (i) without the prior written consent of the Series C Holders of at least a 66 2/3% of the Series C Registrable Securities then outstanding and not registered, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (A) to have a level of priority on cutbacks that is more favorable to such persons(s) than the Level 4 Cutbacks afforded to the holders pursuant to Section 2.3(b) or (B) to require the Company to register securities of such holder or prospective holder at any time earlier than the date specified in Section 2.2(a)(ii)(E) of this Agreement.

2.12 Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC that may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its diligent efforts to:

(a) make and keep current public information available, within the meaning of SEC Rule 144 or any similar or analogous rule promulgated under the 1933 Act, at all times after it has become subject to the reporting requirements of the 1934 Act;

(b) file with the SEC, in a timely manner, all reports and other documents required of the Company under the 1933 Act and 1934 Act (after it has become subject to such reporting requirements); and

(c) so long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request a (i) written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time commencing 90 days after the effective date of the first registration filed by the Company for an offering of its securities to the general public), the 1933 Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) copy of the most recent annual or quarterly report of the Company, and (iii) such other reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.

2.13 “Market Stand Off” Agreement. Each Holder (including the Common Holders) hereby agrees that during a period, not to exceed 180 days, following the effective date of the initial, effective registration statement of the Company filed under the 1933 Act, it shall not, to the extent requested by the Company and any underwriter, sell, pledge, transfer, make any short sale of, loan, grant any option for the purchase of, or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Common Stock held by it at any time during such period except Common Stock included in such registration; provided, however, that all

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other stockholders with registration rights (whether or not pursuant to this Agreement) and all officers and directors of the Company enter into similar agreements. The foregoing provisions of this Section 2.13 shall apply only to the Company’s initial public offering of equity securities, and shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement. If requested by any underwriter, all stockholders shall execute and deliver to such underwriters an agreement in form reasonably acceptable to such underwriter evidencing the obligation described in this Section 2.13.

In order to enforce the foregoing covenant, the Company may impose stop transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.

2.14 Amendment of Registration Rights. Subject to Section 6.5, any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of at least 66-2/3% of the Registrable Securities then outstanding and not registered. Notwithstanding the foregoing, any amendment that changes the rights of a Holder in a manner materially and adversely different than all Holders shall require the approval of such Holder. Any amendment or waiver effected in accordance with this Section shall be binding upon each Holder, each future Holder of Registrable Securities, and the Company.

2.15 Inclusion of Stock Held by Common Holders. In connection with any registration effected pursuant to Section 2.3 hereof, the Common Holders shall be entitled to include in such registration (on the same terms and conditions as Holders selling their Registrable Securities in such registration) shares of Common Stock held by such Common Holders; provided that any limitation by the underwriter on the number of shares to be underwritten in connection with such registration shall first be applied to the shares so included by such Common Holders before being applied to shares of Registrable Securities, and provided further that each such Common Holder’s right to include shares of Common Stock in a registration pursuant to this Section 2.15 is contingent upon such Common Holder’s compliance with the obligations of a Holder of Registrable Securities under this Agreement.

2.16 Termination of Rights. The rights of any particular Holder under this Section 2 hereof shall terminate as to any Holder upon the date that is five years after the effective date of the sale of the Company’s shares of Common Stock in a firm commitment underwritten public offering registered under the 1933 Act at a public offering per share price not less than five times the Series C Stock Original Issue Price (as defined in the Amended and Restated Charter, as amended from time to time, (“Restated Charter”), subject to adjustment in the event of any stock dividends, stock splits or the like), with proceeds to the Company of not less than $30,000,000 (before deduction of underwriters’ commission and expenses) (a “Qualified Public Offering”).

Section 3.

RIGHTS OF FIRST REFUSAL

3.1 Certain Definitions. As used in this Section 3:

(a) The term “Major Investor” shall mean a Holder who holds at least 100,000 shares of Series C Stock.

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(b) The term “New Securities” shall mean any capital stock of the Company, whether now authorized or not, and rights, options or warrants to purchase capital stock, and securities of any type whatsoever that are, or may become, convertible into capital stock; provided that the term “New Securities” does not include: (i) the Investor Stock; (ii) securities issuable upon conversion of or with respect to Investor Stock; (iii) up to 5,949,000 shares of Common Stock, and options, warrants or rights convertible into such Common Stock, issued to employees, consultants, officers or directors of the Company pursuant to any incentive agreement or arrangement approved by the Board of Directors of the Company (the “Permitted Stock”); (iv) securities issued pursuant to any stock dividend, stock split, combination or other reclassification by the Company of any of its capital stock; (v) securities issuable upon conversion or exercise of any convertible security, option, warrant or other right to acquire, if upon issuance of such convertible security, option, warrant or right the Company complied with the provisions of this Section 3; (vi) warrants to purchase shares of Common Stock issued to banks or equipment lessors, as approved by the Board of Directors, such issuances not to exceed in the aggregate one percent (1%) of the outstanding shares of Common Stock of the Company on a fully-diluted, as-converted into Common Stock basis; (vii) shares of capital stock or securities convertible into shares of capital stock issued in connection with business combinations or corporate partnering agreements, as approved by the Board of Directors, such issuances not to exceed in the aggregate five percent (5%) of the outstanding shares of Common Stock of the Company on a fully-diluted, as-converted into Common Stock basis; or (viii) shares of Common Stock sold in connection with a Qualified IPO.

(c) The term “Pro Rata Share” means the ratio (i) the numerator of which is the number of shares of Common Stock held by such Major Investor, or issuable to such Major Investor upon the conversion of shares of Series C Stock held by such Major Investor, on the date of the Company’s written notice pursuant to Section 3.4 hereof, and (ii) the denominator of which is the number of shares of Common Stock outstanding, assuming for this purpose conversion or exercise of all securities convertible into or exercisable for Common Stock of the Company.

(d) The term “Transfer” shall include any sale, assignment, encumbrance, hypothecation, pledge, conveyance in trust, gift, transfer by request, devise or descent, or other transfer or disposition of any kind, including, but not limited to, transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary or by operation of law, directly or indirectly, of any of the Key Holder Stock.

3.2 Right of First Offer. The Company hereby grants to each Major Investor, subject to the terms and conditions specified in this Section 3, the right of first offer to purchase, on the terms and conditions set forth in the Company’s notice pursuant to Section 3.3 hereof, up to its Pro Rata Share of all New Securities that the Company may, from time to time, propose to sell and issue. Each Major Investor may assign its right of first offer to purchase hereunder to an affiliate of such Major Investor.

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3.3 Required Notices. In the event the Company proposes to undertake an issuance of New Securities, it shall give each Major Investor written notice of its intention, describing the type of New Securities, the price and the general terms upon which the Company proposes to issue the same. Each Major Investor shall have 15 days from the date of any such notice to exercise its right of first refusal under Section 3.2 hereof for the price and upon the general terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased.

3.4 Company’s Right to Sell. The Company shall have 45 days after the 15-day period described in Section 3.3 hereof to sell all such New Securities respecting which the Major Investors’ rights of first refusal hereunder were not exercised, at a price equal to and upon terms no more favorable in any material respect to the purchasers thereof than those specified in the Company’s notice. In the event the Company has not sold all such New Securities within such 45 day period, the Company shall not thereafter issue or sell any New Securities without first notifying the Major Investors in the manner provided herein.

3.5 Expiration of Right. The right of first offer granted under this Section 3 shall not apply to, and shall expire upon, the effectiveness of a registration statement for a Qualified Public Offering or a Liquidating Event, as defined in the Company’s Fourth Amended and Restated Certificate of Incorporation effective as of the date hereof.

Section 4.

KEY HOLDER TRANSFERS

4.1 Certain Definitions. As used in this Section 4 and in Section 6:

(a) The term “Key Holder” shall mean a Junior Holder, Common Holder, or W. Thomas Amick or Ed Field.

(b) “Key Holder Stock” shall mean shares of the Company’s Common Stock now owned or subsequently acquired by the Key Holders by gift, purchase, dividend, option exercise or any other means whether or not such securities are only registered in a Key Holder’s name or beneficially or legally owned by such Key Holder, including any interest of a spouse in any of the Key Holder Stock, whether that interest is asserted pursuant to marital property laws or otherwise. The number of shares of Key Holder Stock owned by the Key Holders as of the date hereof are set forth on Exhibit A and Exhibit B, which Exhibits may be amended from time to time by the Company to reflect changes in the number of shares owned by the Key Holders, but the failure to so amend shall have no effect on such Key Holder Stock being subject to this Agreement.

4.2 Notice of Transfer. If a Key Holder proposes to transfer any shares of Key Holder Stock then the Key Holder shall promptly give written notice (the “Transfer Notice”) simultaneously to the Company and to each of the Investors at least thirty (30) days prior to the closing of such transfer. The Transfer Notice shall describe in reasonable detail the proposed Transfer including, without limitation, the number of shares of Key Holder Stock to be transferred, the nature of such Transfer, the consideration to be paid, and the name and address

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of each prospective purchaser or transferee. In the event that the Transfer is being made pursuant to the provisions of Section 4.6, the Transfer Notice shall state under which clause of Section 4.6 the Transfer is being made.

4.3 Company Right of First Refusal. For a period of 10 days following receipt of any Transfer Notice described in Section 4.2, the Company shall have the right to purchase all or a portion of the Key Holder Stock subject to such Transfer Notice on the same terms and conditions as set forth therein. The Company’s purchase right shall be exercised by written notice signed by an officer of the Company (the “Company Notice”) and delivered to the Key Holder within such 10 day period. The Company shall effect the purchase of the Key Holder Stock, including payment of the purchase price, not more than five business days after delivery of the Company’s Notice, and at such time the Key Holder shall deliver to the Company the certificate(s) representing the Key Holder Stock to be purchased by the Company, each certificate to be properly endorsed for transfer. The Key Holder Stock so purchased shall thereupon be cancelled and cease to be issued and outstanding shares of the Company’s Common Stock.

4.4 Investor Right of First Refusal.

(a) In the event that the Company does not elect to purchase all of the Key Holder Stock available pursuant to its rights under Section 4.3 within the period set forth therein, the Key Holder shall promptly give written notice (the “Second Notice”) to each of the Investors, which shall set forth the number of shares of Key Holder Stock not purchased by the Company and which shall include the terms of Transfer Notice set forth in Section 4.2. Each Investor shall then have the right, exercisable upon written notice to the Key Holder (the “Investor Notice”) within 10 days after the receipt of the Second Notice, to purchase its pro rata share of the Key Holder Stock subject to the Second Notice and on the same terms and conditions as set forth therein. Except as set forth in Section 4.4(c), the Investors who so exercise their rights (the “Participating Investors”) shall effect the purchase of the Key Holder Stock, including payment of the purchase price, not more than five days after delivery of the Investor Notice, and at such time the Key Holder shall deliver to the Participating Investors the certificate(s) representing the Key Holder Stock to be purchased by the Participating Investors, each certificate to be properly endorsed for transfer.

(b) Each Investor’s pro rata share shall be equal to the product obtained by multiplying (i) the aggregate number of shares of Key Holder Stock covered by the Second Notice and (ii) a fraction, the numerator of which is the number of shares of Common Stock issued or issuable upon the conversion or exercise of Preferred Stock or other rights to acquire shares of Common Stock held by the Participating Investor at the time of the First Notice, and the denominator of which is the total number of shares of Common Stock issued or issuable upon the conversion or exercise of Preferred Stock or other rights to acquire shares of Common Stock at the time of the First Notice held by all Investors.

(c) In the event that not all of the Investors elect to purchase their pro rata share of the Key Holder Stock available pursuant to their rights under Section 4.4(a) within the time period set forth therein, then the Key Holder shall promptly give written notice to each of the Participating Investors (the “Overallotment Notice”), which shall set forth the number of

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shares of Key Holder Stock not purchased by the other Investors, and shall offer such Participating Investors the right to acquire such unsubscribed shares. Each Participating Investor shall have five days after receipt of the Overallotment Notice to deliver a written notice to the Key Holder (the “Participating Investors Overallotment Notice”) indicating the number of unsubscribed shares that such Participating Investor desires to purchase, and each such Participating Investor shall be entitled to purchase such number of unsubscribed shares on the same terms and conditions as set forth in the Second Notice. In the event that the Participating Investors desire, in the aggregate, to purchase in excess of the total number of available unsubscribed shares, then the number of unsubscribed shares that each Participating Investor may purchase shall be reduced on a pro rata basis. For purposes of this Section 4.4(c) the denominator described in clause (ii) of subsection 4.4(b) shall be the total number of shares of Common Stock issued or issuable upon the conversion or exercise of Preferred Stock or other rights to acquire shares of Common Stock held by all Participating Investors at the time of the First Notice. The Participating Investors shall then effect the purchase of the Key Holder Stock, including payment of the purchase price, not more than five days after delivery of the Participating Investors Overallotment Notice, and at such time, the Key Holder shall deliver to the Investors the certificates representing the Key Holder Stock to be purchased by the Participating Investors, each certificate to be properly endorsed for transfer.

4.5 Right of Co-Sale.

(a) In the event the Company and the Investors fail to exercise their respective rights to purchase all of the Key Holder Stock subject to Sections 4.3 and 4.4 hereof, following the exercise or expiration of the rights of purchase set forth in Section 4.3 and 4.4, then the Key Holder shall deliver to the Company and each Investor written notice (the “Co-Sale Notice”) that each Investor shall have the right, exercisable upon written notice to such Key Holder with a copy to the Company within 15 days after receipt of the Co-Sale Notice, to participate in such Transfer of Key Holder Stock on the same terms and conditions. Such notice shall indicate the number of shares of Investor Stock up to that number of shares determined under Section 4.5(b) that such Investor wishes to sell under his or her right to participate. To the extent one or more of the Investors exercise such right of participation in accordance with the terms and conditions set forth below, the number of shares of Key Holder Stock that such Key Holder may sell in the transaction shall be correspondingly reduced.

(b) Each Investor may sell all or any part of that number of shares equal to the product obtained by multiplying (i) the aggregate number of shares of Key Holder Stock covered by the Co-Sale Notice and not purchased by the Company or its assignees or Investors pursuant to Section 4.3 or 4.4 by (ii) a fraction the numerator of which is the number of shares of Common Stock issued or issuable upon the conversion or exercise of Preferred Stock or other rights to acquire shares of Common Stock held by such Investor at the time of the First Notice and the denominator of which is the total number of shares of Common Stock held by such Key Holder (excluding shares purchased by the Company and/or Investors pursuant to Section 4.3 or 4.4) plus the number of shares of Common Stock issued or issuable upon the conversion or exercise of Preferred Stock or other rights to acquire shares of Common Stock held by all Investors at the time of the First Notice.

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(c) Each Investor who elects to participate in the Transfer pursuant to this Section 4.6 (a “Co-Sale Participant”) shall effect its participation in the Transfer by promptly delivering to such Key Holder for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent:

(i) the type and number of shares of Common Stock which such Co-Sale Participant elects to sell; or

(ii) that number of shares of Preferred Stock which is at such time convertible into the number of shares of Common Stock which such Co-Sale Participant elects to sell; provided, however, that if the prospective purchaser objects to the delivery of Preferred Stock in lieu of Common Stock, such Co-Sale Participant shall convert such Preferred Stock into Common Stock and deliver Common Stock as provided in Section 4.5(c)(i). The Company agrees to make any such conversion concurrent with and contingent upon the actual transfer of such shares to the purchaser.

(d) The stock certificate or certificates that the Co-Sale Participant delivers to such Key Holder pursuant to Section 4.5(c) shall be transferred to the prospective purchaser in consummation of the sale of the Common Stock pursuant to the terms and conditions specified in the Co-Sale Notice, and the Key Holder shall concurrently therewith remit to such Co-Sale Participant that portion of the sale proceeds to which such Co-Sale Participant is entitled by reason of its participation in such sale. To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchase shares or other securities from a Co-Sale Participant exercising its rights of co-sale hereunder, such Key Holder shall not sell to such prospective purchaser or purchasers any Key Holder Stock unless and until, simultaneously with such sale, such Key Holder shall purchase such shares or other securities from such Co-Sale Participant on the same terms and conditions specified in the Co-Sale Notice.

(e) The exercise or non-exercise of the rights of any Investor hereunder to participate in one or more Transfers of Key Holder Stock made by any Key Holder shall not adversely affect his right to participate in subsequent Transfers of Key Holder Stock subject to Section 3.

(f) To the extent that the Investors do not elect to participate in the sale of the Key Holder Stock subject to the Co-Sale Notice, such Key Holder may, not later than 90 days following delivery to the Company of the Co-Sale Notice, enter into an agreement providing for the closing of the Transfer of such Key Holder Stock covered by the Co-Sale Notice within 60 days of such agreement on terms and conditions not materially more favorable to the transferor than those described in the Co-Sale Notice. Any proposed Transfer on terms and conditions materially more favorable than those described in the Co-Sale Notice, as well as any subsequent proposed Transfer of any of the Key Holder Stock by a Key Holder, shall again be subject to the first refusal and co-sale rights of the Company and/or Investors and shall require compliance by a Key Holder with the procedures described in this Section 4.5.

4.6 Certain Transfers. Notwithstanding the foregoing, the first refusal and co-sale rights of the Company and/or the Investors set forth in this Section 4 above shall not apply to (i) any transfer without consideration to the Key Holder’s ancestors, descendants or spouse or to

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trusts for the benefit of such persons or the Key Holder, (ii) any transfer or transfers by a Key Holder to another Key Holder (the “Transferee-Key Holder”) so long as the Transferee-Key Holder is, at the time of the transfer, employed by or acting as a consultant or director of the Company, or (iii) transfers to affiliates; provided that in the event of any transfer made pursuant to one of the exemptions provided by clauses (i), (ii), and (iii), (A) the Key Holder shall inform the Investors of such pledge, transfer or gift prior to effecting it and (B) the pledgee, transferee or donee shall enter into a written agreement to be bound by and comply with all provisions of this Agreement, as if it were an original Key Holder hereunder, including without limitation this Section 4.

4.7 Expiration of Right; Excluded Investors. The right of first refusal and right of co-sale granted under this Section 4 shall not apply to, and shall expire upon, the effectiveness of a registration statement for a Qualified Public Offering or Liquidation Event, as defined in the Company’s Fourth Amended and Restated Certificate of Incorporation effective as of the date hereof. Notwithstanding anything to the contrary herein, the terms and conditions of this Article 4 shall not apply to any Investor to the extent such Investor’s shares of Series C Preferred Stock were converted pursuant to Section 8 of Article IV of the Company’s Certificate of Incorporation as in effect as of the date hereof.

4.8 Legend. Each certificate representing shares of Key Holder Stock now or hereafter owned by the Key Holder or issued to any person in connection with a Transfer pursuant to Section 4.5 hereof shall be endorsed with the following legend:

“THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO, AND IN SOME CASES PROHIBITED BY, THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT BY AND AMONG THE STOCKHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.”

The Key Holders agree that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to above to enforce the provisions of this Agreement and the Company agrees to promptly do so. The legend shall be removed at the request of any Key Holder following termination of this Agreement.

4.9 Assignment. The rights of first refusal set forth in this Section 4 are nonassignable without the consent of the Company, such consent which will not be unreasonably withheld, except by each Major Investor to any wholly owned subsidiary or parent of, or to any corporation, entity or other person that is, within the meaning of the 1933 Act, controlling, controlled by or under common control with, such Major Investor or one or more affiliated partnerships, limited liability companies or funds managed by the Major Investor or any of their respective directors, officers, partners or members; provided that such transferee agrees in writing to be subject to the terms of the investment documents as if it were a Major Investor thereunder.

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Section 5.

COMPANY COVENANTS

The Company hereby covenants and agrees on behalf of itself to the following:

5.1 Affirmative Covenants.

(a) Financial Statements and Information for All Investors. The Company will keep books of account and prepare financial statements and will cause to be furnished to each Investor and each other Junior Holder (all of the foregoing and following to be kept and prepared in accordance with accounting principles generally accepted in the United States applied on a consistent basis), as soon as practicable, but in any event within 160 days after the end of each fiscal year of the Company, beginning with the fiscal year ending December 31, 2006, (1) an audited copy of the financial statements of the Company for such fiscal year containing a consolidated and consolidating balance sheet, statement of income, statement of stockholders’ equity, and statement of cash flows, each as at the end of such fiscal year and for the period then ended and in each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and audited and certified by independent certified public accountants of recognized standing selected by the Company’s Board of Directors and (2) a comparison of the actual results during such fiscal year to those originally budgeted by the Company for such fiscal year and a narrative description and explanation of any budget variances.

(b) Financial Statements and Information for Major Investors. The Company will keep books of account and prepare financial statements and will cause to be furnished to each Major Investor (all of the foregoing and following to be kept and prepared in accordance with accounting principles generally accepted in the United States applied on a consistent basis):

(i) As soon as practicable after the end of each of the first three quarters of the fiscal year, but in any event within 45 days after the end of each such quarter, the unaudited consolidated balance sheets of the Company, as of the end of such quarter, and its unaudited consolidated statements of income and losses, stockholders’ equity and cash flows for such quarter, setting forth in each case in comparative form the figures for the corresponding period of the preceding fiscal year, all in reasonable detail (without the footnotes required under generally accepted accounting principles, and subject to year-end adjustment). Such quarterly report shall include a narrative, summary description of the Company’s operations for such quarter, indicating whether the Company is materially in compliance with this Agreement and other material agreements and discussing any material variances from the Company’s operating plan, accompanied by an updated forecast of financial performance for the next four quarters.

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(ii) As soon as practicable after the end of each month, but in any event within 30 days thereafter, the unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of such month and its unaudited statement of income and losses, stockholders’ equity and cash flows for such month (without the footnotes required under generally accepted accounting principles, and subject to year-end adjustment), indicating actual results versus the Company’s plan for such month, setting forth in each case in comparative form the figures for the corresponding period of the preceding fiscal year and a summary discussion of the Company’s principal functional areas (provided, that in alternate months the Company shall have the right to provide an interim letter regarding significant developments in lieu of such summary discussion).

(iii) As soon as practicable after the adoption thereof, but in any event within 45 days after the beginning of each fiscal year, an annual operating plan for each fiscal year, and, as soon as practicable after the adoption thereof, copies of any revisions to such annual operating plan.

(iv) As soon as available, a copy of each (1) financial statement, report, notice, or proxy statement sent by the Company to its stockholders; (2) regular, periodic, or special report, registration statement, or prospectus filed by the Company with any securities exchange, state securities regulator, or the Commission; (3) material order issued by any court, governmental authority, or arbitrator in any material proceeding to which the Company is a party or to which any of its assets is subject; (4) press release or other statement made available generally by the Company or its officers to the public generally concerning material developments in the business of the Company; and (5) item of correspondence, report, or other information sent by the Company to any holder of any indebtedness, including, without limitation, the Investors.

(v) Prompt notice of any default of the Company under any bond, note, indenture or other debt instrument representing indebtedness for borrowed money and of any acceleration of indebtedness which may result therefrom.

(vi) With reasonable promptness, such other information respecting the business, properties or the condition or operations, financial or other, of the Company or any subsidiary as any Holder may from time to time reasonably request.

(c) Inspection. The Company shall permit each Major Investor and each transferee (provided such transfer is effected in compliance with Section 1.2 hereof), its attorney or its other representative to visit and inspect the Company’s properties, to examine the Company’s books of account and other records, to make copies or extracts therefrom and to discuss the Company’s affairs, finances and accounts with its officers, management, employees and independent auditors all at such reasonable times and as often as such Major Investor or transferee may reasonably request; provided, however, that the Company shall not be obligated pursuant to this Section 4.1(c) to provide trade secrets or confidential information or to provide information to any person whom the Company reasonably believes is a competitor of the Company; provided, further, that such Major Investor shall bear any costs or expenses of such investigations or inquiries.

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(d) Observation Rights. Harbert Venture Partners, L.L.C. (“Harbert”) shall have the right to receive notice of all meetings of the Board of Directors and to appoint one representative to attend any such meeting as a nonvoting observer, in addition to the Harbert Director (as defined below) or any other member of the Company’s Board of Directors affiliated with Harbert.

(e) Payment of Taxes. The Company shall pay, and cause each subsidiary to pay, and discharge all taxes, assessments and governmental charges or levies imposed upon it or upon its income, profits or business, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims that, if unpaid, might become a lien or charge upon any properties of the Company or any subsidiary, provided that neither the Company nor any subsidiary shall be required to pay any such tax, assessment, charge, levy or claim that is being contested in good faith and by appropriate proceedings if the Company or any subsidiary shall have set aside on its books sufficient reserves, if any, with respect thereto.

(f) Payment of Trade Debt. The Company shall pay, and cause each subsidiary to pay, when due, or in conformity with customary trade terms but not later than 90 days from the due date, all lease obligations, all trade debt, and all other indebtedness incident to the operations of the Company or its subsidiaries, except such as are being contested in good faith and by proper proceedings if the Company or subsidiary concerned shall have set aside on its books sufficient reserves, if any, with respect thereto.

(g) Maintenance of Insurance. The Company shall maintain, and cause each subsidiary to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is customarily carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Company or such subsidiary operates. The Company shall obtain and maintain in full force and effect director and officer liability insurance in an amount and on terms and conditions acceptable to Harbert Venture Partners, L.L.C. and Intersouth Partners VI.

(h) Intellectual Property. The Company shall, and shall cause each subsidiary to, use its best efforts to secure, preserve and maintain all licenses and other rights to own, possess and use its Intellectual Property (as defined in the Purchase Agreement) to the extent necessary to the conduct of its business as now conducted and as currently proposed to be conducted, provided that nothing herein shall dictate which form of protection of Intellectual Property the Company implements.

(i) Compliance with Laws. The Company shall comply, and cause each subsidiary to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority, noncompliance with which could materially adversely affect its Intellectual Property, business or condition (financial or otherwise).

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(j) Records and Books of Account. The Company shall keep, and cause each subsidiary to keep, adequate records and books of account in which complete entries will be made in accordance with accounting principles generally accepted in the United States consistently applied, reflecting all financial transactions of the Company, and in which, for each fiscal year, all proper reserves for depreciation, depletion, returns of merchandise, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made.

(k) Maintenance of Properties. The Company shall maintain and preserve, and cause each subsidiary to maintain and preserve, all of its properties and assets necessary for the proper conduct of its business as now conducted and as currently contemplated to be conducted, in good repair, working order and condition, ordinary wear and tear excepted.

(l) ERISA Compliance. The Company shall comply, and cause each subsidiary to comply, with all minimum funding requirements applicable to any pension, employee benefit plans, or employee contribution plans that are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or to the Internal Revenue Code of 1986, as amended (the “Code”), and comply, and cause each subsidiary to comply, in all other material respects with the provisions of ERISA and the Code, and the rules and regulations thereunder, which are applicable to any such plan; provided further that neither the Company nor any subsidiary will permit any event or condition to exist that would permit any such plan to be terminated under circumstances that would cause any material lien provided for in section 4068 of ERISA to attach to the assets of the Company or any subsidiary.

(m) Compliance with Environmental Laws. The Company shall comply, and cause each subsidiary to comply, with the provisions of all federal, state and local environmental, health and safety laws, codes and ordinances and all rules and regulations promulgated thereunder, and the Company shall maintain, and cause each subsidiary to maintain, all federal, state and local permits, licenses, certificates and approvals known to the Company or any subsidiary to be required relating to (i) air emissions, (ii) discharges to surface water or ground water, (iii) noise emissions, (iv) solid or liquid waste disposal, (v) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes (intended hereby and hereafter to include any and all such materials listed in any federal, state or local law, code or ordinance and all rules and regulations promulgated thereunder, as hazardous or potentially hazardous), or (vi) other environmental, health and safety matters.

(n) Financings. The Company shall promptly, fully and in detail, inform the Board of Directors of any substantive discussions, offers or contracts relating to possible financings of any nature for the Company, whether initiated by the Company or any other person, except for arrangements with trade creditors.

(o) Nature of Business. The Company shall continue to conduct its business without material change from the nature of the business contemplated in the written materials delivered to the Investors prior to the date hereof, except as approved by the Board of Directors of the Company, including approval by the member of the Board of Directors designated by the holders of a majority of Investor Stock in accordance with Section 5.1 hereto.

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(p) Nondisclosure, Invention and Noncompetition Agreements. The Company shall require each officer of the Company and each employee who contributes to the invention, design or authorship of the Company’s proprietary technology or products to enter into the Company’s standard Nondisclosure and Inventions Agreement, in form and substance reasonably satisfactory to the Investors, prior to the commencement of such officer’s or employee’s employment. The Company shall also require key employees designated by the Board of Directors of the Company to sign prior to commencement of employment noncompetition agreements in form and substance satisfactory to the Board of Directors of the Company.

(q) Use of Proceeds. The Company shall use the proceeds from the sale of the Series C Stock for working capital purposes.

5.2 Negative Covenants.

(a) Limit on Indebtedness. The Company and its subsidiaries shall not, directly or indirectly, create, incur, assume or be or remain liable with respect to, any indebtedness or obligation other than indebtedness (i) outstanding on the date hereof described on Schedule 5.2(a); or (ii) arising in the ordinary course of the Company’s business that are approved by the Company’s Board of Directors.

(b) Limitation on Guaranties; Investments; Advances or Loans. The Company and its subsidiaries shall not guarantee, create any subsidiaries or enter into any joint ventures, or purchase or otherwise acquire, or invest in the securities of, or make or suffer to exist any loan or advance to, or enter into any arrangement for the purpose of providing funds or credit to, or make any other investment in, any person or entity, other than as approved by the Company’s Board of Directors and other than travel advances in the ordinary course of business.

(c) Sale of Assets. The Company shall not effect any sale, lease, assignment, transfer, pledge, license, encumbrance or other conveyance of any material portion of the assets (including without limitation any technology or Intellectual Property) or operations or the revenue or income generating capacity of the Company (other than inventory in the ordinary course of business and other assets reasonably and in good faith determined by the Company to be obsolete or no longer necessary to the business of the Company), or to take any such action that has the effect of any of the foregoing, other than with the approval of (i) the Board of Directors and (ii) Intersouth Partners VI, L.P. and one of either Harbert or the Additional Purchaser (as defined in the Purchase Agreement) (the “Approval Threshold”) (which approval shall be in writing).

(d) Employee Compensation. The Company shall not (i) increase the compensation paid to its executive officers or directors, whether by means of salary, bonus, profit sharing, options, dividends or any other means whatsoever, or (ii) grant any salaries and/or

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bonuses for new or existing employees of the Company in excess of $100,000, unless approved by the Board of Directors of the Company upon recommendation of the compensation committee of the Company.

(e) Related Party Transactions. Without approval by a majority of the Directors who do not have an interest, the Company shall not enter into any transaction or transactions with any director, officer or stockholder of the Company, or any affiliate or relative of the foregoing, or advance any monies to any such persons or entities, except for travel advances in the ordinary course of business.

5.3 Press Release. The Company shall not issue any press release or other information to the public regarding the financing, management, or scientific discoveries of the Company without prior written consent of the Major Investors, which consent shall not be unreasonably withheld.

5.4 Board Consent Required. Notwithstanding anything to the contrary in this Agreement, the Company shall not take any of the following actions without the prior consent of the Board of Directors:

(a) incurrence of indebtedness in excess of $100,000;

(b) capital expenditures in excess of $100,000 not contemplated by the Company’s Board-approved operating budget;

(c) grant of any stock option or stock equivalent providing for vesting provisions that differ from the Company’s standard vesting schedule or acceleration of vesting upon a change of control of the Company, sale of all or substantially all assets of the Company, termination or similar event;

(d) increase in the number of shares reserved under the Company’s equity incentive plans;

(e) creation of any committee of the Board of Directors;

(f) acquisition of any business (whether by stock or asset purchase, merger, consolidation or otherwise);

(g) changing the Company’s independent accountants;

(h) approval of annual operating and capital budgets;

(i) entry into any material new line of business or material change to the Company’s existing line(s) of business;

(j) changing the location of the Company’s executive office;

(k) changes by the Company of its Chief Executive Officer or other senior executive officers;

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(l) pledge or grant of security interests in any assets of the Company;

(m) pursue or accept any external grant funding outside of the Board-approved annual operating plan; or

(n) establishment or investment in any subsidiary or joint venture.

5.5 Expiration of Covenants; Excluded Investors. The covenants set forth in this Section 5 shall expire and be of no further force or effect upon the effectiveness of a Qualified Public Offering (as defined in Section 2.16 hereof), Liquidation (as defined in the Restated Charter), winding up or deemed Liquidation. After such time, the Investors shall be entitled to receive such annual and quarterly reports as the Company shall distribute to its stockholders generally. Notwithstanding anything to the contrary herein, the terms and conditions of this Article 5 shall not apply to any Investor to the extent such Investor’s shares of Series C Preferred Stock were converted pursuant to Section 8 of Article IV of the Company’s Certificate of Incorporation as in effect as of the date hereof.

Section 6.

VOTING AGREEMENT

6.1 Election of Directors. The Board of Directors of the Company will consist of five persons. The Preferred Holders and Common Holders shall, whether by meeting, action by written consent of lieu of a meeting, or otherwise, act in all capacities and vote the shares of capital stock of the Company now or hereafter owned or controlled by them so as to cause and maintain the election to the Board of Directors of the Company of (a) two representatives of the holders of a majority of Common Stock held by the Common Holders, one of which shall be the chief executive officer of the Company (“CEO”), who shall initially be Tom Amick as the CEO, and the other shall be an individual not affiliated with the Company or any Investor, who shall initially be Russ Medford, (b) one designee of Harbert (the “Harbert Director”), who shall initially be William Brooke, (c) one designee of Intersouth Partners VI, L.P. (the “Intersouth Director”), who shall initially be Garheng Kong and (d) one designee nominated by a majority of the Common Holders and the Junior Holders, voting together as a single class, who shall initially be B. Jefferson Clark. Harbert, Intersouth Partners VI, the Junior Holders or the Common Holders may elect at any time to replace their designee on the Board of Directors, in which case all parties will vote to remove their then-current designee(s) and elect new designee(s) of that voting group. Upon request, the Harbert Director and Intersouth Director shall be appointed to any committee of the Board of Directors.

6.2 Binding Effect of Voting Agreement. The voting agreement set forth in this Section 6 shall be binding upon any transferee of shares of the Company’s stock held by the Preferred Holders and Common Holders. Each such transferee shall execute documents assuming the obligations of the transferor under this Section 6 prior to the completion of such transfer.

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6.3 Legends. Each certificate held by or issued to the Investors or the Common Holders, whether now outstanding or subsequently issued, shall be surrendered to the Company for endorsement or be endorsed by the Company prior to its issuance with substantially the following legend.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN INVESTOR RIGHTS AGREEMENT, AMONG THE ISSUER, THE HOLDER OF THESE SECURITIES, AND CERTAIN OTHER HOLDERS OF THE ISSUER’S SECURITIES. BY ACCEPTING ANY INTEREST IN SUCH SECURITIES, THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL OF THE PROVISIONS OF SUCH AGREEMENT. COPIES OF SUCH INVESTOR RIGHTS AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.

6.4 Drag-Along Rights. In the event that holders of Series C Preferred Stock representing the Approval Threshold (the “Requisite Investors”) approve either (i) a future financing transaction (“Approved Financing”) or (ii) a sale of the Company or all or substantially all of the Company’s assets whether by means of a merger, consolidation or sale of stock or assets, or otherwise (an “Approved Sale”, and together with an Approved Financing, an “Approved Transaction”), then (i) in the case of an Approved Financing, each Series C Holder and Key Holder agrees to be present, in person or by proxy, at all meetings for the vote thereon, to vote all shares of capital stock held by such person for and raise no objections to such Approved Financing, (ii) in the event of an Approved Sale that is structured as a merger or consolidation of the Company, or a sale of all or substantially all of the Company’s assets, each Series C Holder and Key Holder agrees to be present, in person or by proxy, at all meetings for the vote thereon, to vote all shares of capital stock held by such person for and raise no objections to such Approved Sale, and waive and refrain from exercising any dissenters rights, appraisal rights or similar rights in connection with such merger, consolidation or asset sale, or (ii) in the case of an Approved Sale that is structured as a sale of the stock of the Company, each Series C Holder and Key Holder shall agree to sell their Preferred Stock and Common Stock, including any stock issued upon conversion of the Preferred Stock, on the terms and conditions approved by the Requisite Investors; provided in each case that such terms do not provide that such Series C Holders and Key Holders would receive as a result of such Approved Sale less than the amount that would be distributed to such holders in the event the proceeds of such Approved Sale of the Company were distributed in accordance with the liquidation preferences set forth in Company’s Restated Charter, as amended. The Series C Holders and Key Holders shall each take all necessary and desirable actions approved by the Requisite Investors in connection with the consummation of an Approved Transaction, including the execution of such agreements and such instruments and other actions reasonably necessary to (i) provide the representations, warranties, indemnities, covenants, conditions, non-compete agreements, escrow agreements and other provisions and agreements relating to such Approved Transaction and (ii) effectuate the allocation and distribution of the aggregate consideration upon the Approved Transaction.

30.

6.5 Irrevocable Proxy. To secure the Series C Holders’ and Key Holders’ obligations to vote their respective shares in accordance with this Agreement, each Series C Holder and Key Holder hereby appoints the Harbert Director of the Company, or his designees, as such Series C Holder’s and Key Holder’s true and lawful proxy and attorney, with the power to act alone and with full power of substitution, to vote all of such Series C Holder’s and Key Holder’s Preferred Stock and Common Stock as set forth in this Agreement and to execute all appropriate instruments consistent with this Agreement on behalf of such Series C Holder and Key Holder if, and only if, such Series C Holder and Key Holder fails to vote all of such Series C Holder’s or Key Holder’s Preferred Stock or Common Stock or execute such other instruments in accordance with the provisions of this Agreement within five (5) days of the Company’s or any other party’s written request for such Series C Holders’ or Key Holders’ written consent or signature. The proxy and power granted by each Series C Holder and Key Holder pursuant to this Section are coupled with an interest and are given to secure the performance of such party’s duties under this Agreement. Each such proxy and power will be irrevocable for the term hereof. The proxy and power, so long as any party hereto is an individual, will survive the death, incompetency and disability of such party or any other individual holder of the Preferred Stock and Common Stock and, so long as any party hereto is an entity, will survive the merger or reorganization of such party or any other entity holding any Preferred Stock or Common Stock.

6.6 Termination of Voting Agreement. The covenants set forth in this Section 6 shall terminate upon the earliest of (a) the closing of a Qualified Public Offering (as defined in Section 2.16 hereof), (b) such time as the Company shall be subject to the reporting requirements arising under the 1934 Act, or any successor statute and any applicable rules promulgated thereunder by the SEC or (c) the date 10 years from the date hereof.

Section 7.

MISCELLANEOUS

7.1 Governing Law. This Agreement shall be governed by, and construed and interpreted in accordance with the laws of the State of Delaware as applied to agreements between Delaware residents made and to be performed entirely within the State of Delaware.

7.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

7.3 Entire Agreement; Amendment and Restatement of Prior Investor Rights Agreement; Termination of Stock Sale Agreement. The Prior Investor Rights Agreement is hereby amended in its entirety and restated therein. Such amendment and restatement is effective upon the execution of this Agreement by the Requisite Approval. The Stock Sale Agreement is hereby terminated upon execution of this Agreement by the Requisite Stock Sale Approval and upon execution of this Agreement shall no longer be in force and effect. This Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and supersedes all prior agreements and understandings between them or any of them as to such subject matter. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto and their successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.

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7.4 Severability. Any invalidity, illegality or limitation of the enforceability with respect to any Holder of any one or more of the provisions of this Agreement, or any part thereof, whether arising by reason of the law of any such person’s domicile or otherwise, shall in no way affect or impair the validity, legality or enforceability of this Agreement with respect to any other Holder. In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

7.5 Amendment and Waiver. Except as otherwise expressly provided herein, any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely) with the written consent of (i) the Company, (ii) the Junior Holders, or their transferees, holding at least 66-2/3% of the shares of Junior Preferred and voting together as a single group (treated as if converted at the conversion rate then in effect and including, for such purposes, shares of Common Stock into which any shares of Junior Preferred shall have been converted that are held by a Junior Holder), (iii) the Series C Holders, or their transferees, representing the Approval Threshold; provided, however, that (a) no such amendment or waiver shall reduce the aforesaid percentage of Preferred Stock and Common Stock issued upon conversion thereof, the holders of which are required to consent to any waiver or supplemental agreement, without the consent of the holders of all of such Preferred Stock and Common Stock, (b) any amendment to Section 2.15 (or to Section 2.3 that would affect the rights under 2.15) or to Section 6 shall also require the consent of the holders of at least a majority of the Common Stock held by the Common Holders, and (c) any amendment to Section 4 shall also require the consent of a majority of the Key Holders. Any amendment or waiver effected in accordance with this Section 7.5 shall be binding upon each Common Holder, each Investor and each transferee of the Registrable Securities. Upon the effectuation of each such amendment or waiver, the Company shall promptly give written notice thereof to the Investors and Common Holders who have not previously consented thereto in writing. Notwithstanding anything to the contrary in this Section 7.5, the Company shall be entitled to include additional purchasers of its Series C Stock pursuant to the Purchase Agreement as parties to this Agreement, and to treat such purchasers as “Investors” and “Holders” hereunder, by amending Exhibit A attached hereto and providing such Exhibit A, as amended, to the other parties to this Agreement.

7.6 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to the Company, the Investors, or any transferees upon any breach, default or noncompliance of the Investors or any transferee or the Company under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character on the part of the Company or the Investors of any breach, default or noncompliance under this Agreement or any waiver on the Company’s or the

32.

Investors’ part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing and that all remedies, either under this Agreement, by law, or otherwise afforded to the Company and the Investors, shall be cumulative and not alternative.

7.7 Notices, etc. All notices and other communications required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid, or sent by confirmed telecopy or confirmed electronic mail, addressed:

(a) if to the Company, to:

Aldagen, Inc.

2810 Meridian Parkway, Suite 148

Durham, NC 27713

Attn: Edward L. Field

Telephone:    (919) 484-2571

Telecopier:    (919) 484-8792

With a copy to:

Hutchison Law Group PLLC

5410 Trinity Road

Suite 400

Raleigh, NC 27607

Attn: Fred D. Hutchison, Esq.

Telephone:    (919) 829-9600

Telecopier:    (919) 829-9696

or to such other address as the Company shall have furnished to the Preferred Holders in writing;

(b) if to the Investors, at the addresses of such Investors specified on Exhibit A hereto, or at such other addresses as the Investors shall have furnished to the Company in writing, with a copy to:

Cooley Godward Kronish, L.L.P.

One Freedom Square

11951 Freedom Drive

Reston, VA 20190

Attn: Christian Plaza, Esq.

Telephone:    (703) 456-8006

Telecopier:    (703) 456-8100

(c) if to a Holder other than the Investors, at such Holder’s address as shall have been furnished to the Company in writing; and

33.

(d) if to the Common Holders, at the addresses of such Common Holders specified on Exhibit C hereto, or at such other addresses as the Common Holders shall have furnished to the Company in writing.

7.8 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

7.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

34.

IN WITNESS WHEREOF, this Investor Rights Agreement has been duly executed and delivered by the parties as of the date first above written.

COMPANY:	ALDAGEN, INC.
	By:	/s/ Edward L. Field
	Name:	Edward L. Field
	Title:	President
INVESTORS:	HARBERT VENTURE PARTNERS, L.L.C.
	By:	Harbert Venture Partners MM, LLC
	Its:	Managing Member
	By:	HMC Virginia, Inc.
	Its:	Manager
	By:	/s/ William W. Brooke
	Name:	William W. Brooke
	Title:	Executive Vice President
	INTERSOUTH PARTNERS VI, L.P.
	By:	INTERSOUTH ASSOCIATES VI, LLC
	Its	General Partner
	By:	/s/ Mitch Mumma
	Name:	Mitch Mumma
	Title:	Member Manager
	INTERSOUTH PARTNERS V, L.P.
	By:	INTERSOUTH ASSOCIATES V, LLC
	Its	General Partner
	By:	/s/ Garheng Kong
	Name:	Garheng Kong
	Title:	Member, acting pursuant to Power of Attorney
	INTERSOUTH AFFILIATES V, L.P.
	By:	INTERSOUTH ASSOCIATES V, LLC
	Its	General Partner
	By:	/s/ Garheng Kong
	Name:	Garheng Kong
	Title:	Member, acting pursuant to Power of Attorney

INTERSOUTH PARTNERS VII, L.P.
By:	INTERSOUTH ASSOCIATES VII, LLC
Its	General Partner
By:	/s/ Garheng Kong
Name:	Garheng Kong
Title:	Member, acting pursuant to Power of Attorney
THE AUGUST JACKSON COMPANY
By:	/s/ Frank Andrews
Name:	Frank Andrews
Title:	President and CEO
AURORA ENRICHMENT FUND, LLC
By:	Aurora Enrichment Management Co., LLC
Its	Managing Member
By:	/s/ B. Jefferson Clark
Name:	B. Jefferson Clark
Title:	Manager
HARBINGER/AURORA VENTURE FUND, L.L.C.
By:	Harbinger/Aurora Ventures, LLC
Its	Managing Member
By:	/s/ B. Jefferson Clark
Name:	B. Jefferson Clark
Title:	President
HARBINGER/AURORA QP VENTURE FUND, L.L.C.
By:	Harbinger/Aurora Ventures, LLC
Its	Managing Member
By:	/s/ B. Jefferson Clark
Name:	B. Jefferson Clark
Title:	President
/s/ W. Lowry Caudill
W. Lowry Caudill

/s/ Alfred G. Childers
Alfred G. Childers
/s/ Jonathon M. Lawrie
Jonathon M. Lawrie
PIEDMONT ANGEL NETWORK LLC
By:	/s/ W.B. Rodman Davis
Name:	W. B. Rodman Davis
Title:	Managing Member
TALL OAKS STEMCO PARTNERS, LP
By:	/s/ Kathryne F. Carr
Name:	Kathryne F. Carr
Title:	Managing Director, TOCP, LLC as General Partner
THE TRELYS FUNDS, L.P.
By:	/s/ Adrian N. Wilson
Name:	Adrian N. Wilson
Title:	Managing General Partner
VILLAGE VENTURES PARTNERS FUND, L.P.
By:	Village Ventures Capital Partners I, LLC, its general partner
By:	Village Ventures, Inc., its manager
By:	/s/ Steven H. Massicotte
Name:	Steven H. Massicotte
Title:	Chief Operating Officer
VILLAGE VENTURES PARTNERS FUND A, L.P.
By:	Village Ventures Capital Partners I, LLC, its general partner
By:	Village Ventures, Inc., its manager
By:	/s/ Steven H. Massicotte
Name:	Steven H. Massicotte
Title:	Chief Operating Officer

CNF INVESTMENTS II, LLC
By:	/s/ Robert J. Flanagan
Name:	Robert J. Flanagan
Title:	Manager
NEW MARKETS GROWTH FUND
By:	/s/ Mark Grovic
Name:	Mark Grovic
Title:	Managing Director
TULLIS-DICKERSON CAPITAL FOCUS III, L.P.
By:	Tullis-Dickerson Partners III, L.L.C.
Its	General Partner
By:	/s/ Lyle A. Hohnke
Name:	Lyle A. Hohnke
Title:	Partner

COMMON HOLDERS:	/s/ Clay Smith	(SEAL)
	Clay Smith, M.D.
	/s/ Nelson Chao	(SEAL)
	Nelson Chao, M.D.
	/s/ Michael Colvin	(SEAL)
	Michael Colvin, M.D.
	/s/ Jonathon M. Lawrie	(SEAL)
	Jonathon M. Lawrie
	/s/ Andrew Balber	(SEAL)
	Andrew Balber

EXHIBIT A

SCHEDULE OF INVESTORS

Harbert Venture Partners, L.L.C.

Intersouth Partners VI, L.P.

Intersouth Affiliates V, L.P.

Intersouth Partners V, L.P.

Intersouth Partners VII, L.P.

The August Jackson Company

Harbinger/Aurora Venture Fund, L.L.C.

Harbinger/Aurora QP Venture Fund, L.L.C.

W. Lowry Caudill

Alfred G. Childers

Jonathon M. Lawrie

Tall Oaks StemCo Partners, LP

The Trelys Funds, L.P.

Village Ventures Partners Fund, L.P.

Village Ventures Partners Fund A, L.P.

CNF Investments II, LLC

Tullis-Dickerson Capital Focus III, L.P.

New Markets Growth Fund

EXHIBIT B

SCHEDULE OF SERIES A HOLDERS AND SERIES B HOLDERS

Intersouth Partners, V, L.P.

Intersouth Affiliates V, L.P.

Harbinger/Aurora Venture Fund, LLC

Harbinger/Aurora QP Venture Fund, LLC

Aurora Enrichment Fund, LLC

The Trelys Funds, L.P.

W. Lowry Caudill

Piedmont Angel Network

Alfred G. Childers

Tall Oaks StemCo Partners, LP

Village Ventures Partners Fund, L.P.

Village Ventures Partners Fund A, L.P.

EXHIBIT C

SCHEDULE OF COMMON HOLDERS

Clay Smith

Nelson Chao

Michael Colvin

Jonathon Lawrie

Andrew Balber

H&M Holdings LLC

BD Ventures, LLC

FIRST AMENDMENT TO SERIES C PREFERRED STOCK PURCHASE

AGREEMENT AND AGREEMENT TO PURCHASE SHARES AND JOIN AS A PARTY

AND

FIRST AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS

AGREEMENT

This First Amendment to Series C Preferred Stock Purchase Agreement and Agreement to Purchase Shares and Join as a Party and First Amendment to Amended and Restated Investor Rights Agreement (this “Agreement”) dated as of September 12, 2007 by and among Aldagen, Inc., a Delaware corporation (the “Company”), each of those persons and entities that previously purchased shares of the Series C Preferred Stock of the Company (the “Series C Preferred”) pursuant to the Purchase Agreement (defined below) and whose names are set forth on EXHIBIT A hereto as “Purchasers” (each, a “Purchaser” and collectively, the “Purchasers”), and each of those entities that propose to purchase shares of the Series C Preferred pursuant hereto and whose names are set forth on EXHIBIT A hereto as “Additional Purchasers” (each, an “Additional Purchaser” and together, the “Additional Purchasers”).

WITNESSETH:

WHEREAS, the Company, the Purchasers and other investors have entered into a Series C Preferred Stock Purchase Agreement dated December 15, 2006 (the “Purchase Agreement”), and the Company and certain holders of capital stock of the Company have entered into an Amended and Restated Investor Rights Agreement dated December 15, 2006 (the “Rights Agreement”, and together with the Purchase Agreement, the “Agreements”);

WHEREAS, the Additional Purchasers and the Purchasers propose to purchase shares of the Series C Preferred and Series C-l Preferred Stock (as defined below) pursuant to the terms and conditions of the Purchase Agreement, as amended hereby;

WHEREAS, Section 2.3 of the Purchase Agreement provides that the purchase of the Series C Preferred may be made by additional purchasers pursuant to one or more closings occurring on or before September 11, 2007, and Section 7.5 of the Rights Agreement provides that an additional purchaser of the Series C Preferred shall become a party to the Rights Agreement;

WHEREAS, the Company desires to issue, and the Purchasers and the Additional Purchasers each desire to purchase, subject to the terms and conditions of the Purchase Agreement (as amended hereby), approximately $7.0 million of Series C Preferred as set forth under “Shares Purchased at Additional Closing” on EXHIBIT A to the Purchase Agreement (as amended hereby);

WHEREAS, the Additional Purchasers have agreed to be bound by the terms of the Agreements and to become parties to the Agreements, as amended as set forth herein;

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WHEREAS, the Company, the Purchasers and the Additional Purchasers each desire to amend the Purchase Agreement by amending Section 2.3 in certain respects and by amending Section 2.4 of the Purchase Agreement in certain respects and by deleting all references therein to the Second Closing and, in lieu of the Second Closing, each hereby agrees to enter into a proposed private placement of up to $6,058,654.41 of shares of the Series C-l Preferred Stock of the Company (the “Series C-1 Preferred Stock”) upon the terms set forth herein (the “Series C-1 Financing”); and

WHEREAS, the Company, the Purchasers and the Additional Purchasers each desire to amend certain provisions of the Rights Agreement as set forth herein;

NOW, THEREFORE, in consideration of the premises, the covenants of the parties set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Capitalized Terms. Terms that are used herein with initial capital letters and that are not otherwise defined shall have the meanings given to them in the Purchase Agreement.

2. The Purchase Agreement.

2.1 Section 2.3 of the Purchase Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“2.3 Subsequent Sales of Shares. Harbert Venture Partners, L.L.C. (“Harbert”) agrees to assist the Company in identifying one or more potential additional purchasers mutually acceptable to the Company and Harbert (the “Additional Purchasers”). At any time on or before the 90^th day following the First Closing or at such later time as Harbert and Intersouth Partners VI, L.P. (“Intersouth VI”) unanimously agree, but in no event later than 300 days from the First Closing, the Company may sell up to $5,000,000 of the Shares at the purchase price set forth in Section 1.2 above to the Additional Purchasers and up to $2,000,000 of the Shares at the purchase price set forth in Section 1.2 above to Harbert and to Intersouth VI, Intersouth Partners V, L.P. and Intersouth Affiliates V, L.P. (collectively, “Intersouth”). Such sale made at an additional closing (the “Additional Closing”) shall be made on the terms and conditions set forth in this Agreement, and (i) the representations and warranties of the Company set forth in Section 3 hereof shall speak as of the Additional Closing and the Company shall update the Schedule of Exceptions as of the Additional Closing, and (ii) the representations and warranties of the Additional Purchasers, Harbert and Intersouth in Section 4 hereof shall speak as of the Additional Closing. The Schedule of Purchasers may be amended by the Company without the consent of the Purchasers to include the Additional Purchasers and the shares being purchased by the Additional Purchasers in this Additional Closing upon the execution by the Additional Purchasers of counterpart signature pages hereto. Any shares of Series C Preferred Stock sold pursuant to this Section 2.3 shall be deemed to be “Shares” for all purposes under this Agreement and the Additional Purchasers thereof shall be deemed to be “Purchasers” for all purposes under this Agreement.”

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2.2 Section 2.4 of the Purchase Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“2.4 Series C-1 Closing. In the event the Company’s Board of Directors (the “Board”) in good faith determines that the Company has achieved the Milestones (as defined below), the Company shall deliver a notice to each of the Purchasers and Additional Purchasers with shares listed opposite their names on EXHIBIT A under the heading “Shares Purchased at Series C-l Closing” (collectively “C-1 Purchasers”) advising the C-l Purchasers of the Board’s determination. Within 10 days after the Board delivers such notice to such C-l Purchasers, Intersouth VI and at least two of either Harbert, Tullis-Dickerson Capital Focus III, L.P. (“T-D”) or CNF Investments 11, LLC (“CNF”) shall decide whether they concur with the Board’s determination that the Milestones have been achieved. In the event Intersouth VI and at least two of either Harbert, T-D or CNF agree in writing (each in their sole discretion) that the Milestones have been achieved (“Milestone Approval”), the Company shall sell Series C-l Preferred Stock to the C-l Purchasers in the amounts set forth in the Schedule of Purchasers attached hereto as EXHIBIT A under the heading “Shares Purchased at Series C-l Closing” at a purchase price of $1.0411 per share and subject to adjustment as set forth in the Restated Certificate (as defined below). The Series C-l Preferred Stock shall have the rights and preferences set forth in the Fifth Amended and Restated Certificate of Incorporation of the Company attached hereto as EXHIBIT C (“Restated Certificate”). Within 30 days of notice to the C-l Purchasers by the Company of such Milestone Approval and satisfaction of the conditions set forth in Section 5.3 below (such date, the “Series C-1 Closing Date”), all C-l Purchasers shall participate in the Series C-l Preferred Stock closing (“Series C-1 Closing”) to the full extent of their obligation to purchase shares in the Series C-1 Closing in the amount set forth adjacent to their names under the heading “Shares Purchased at Series C-l Closing” on EXHIBIT A (“Pro Rata Amount”). Any shares of Series C-l Preferred Stock sold pursuant to this Section 2.4 shall be deemed to be “Shares” for all purposes of this Agreement with respect to the Series C-l Closing and any C-l Purchasers shall be deemed “Purchasers” for all purposes of this Agreement with respect to the Series C-l Closing. For purposes of this Agreement, “Milestones: shall mean, collectively, (i) the initiation by the Company of a Pivotal Trial (as defined below) in cord blood transplant; or (ii) the successful completion of a Phase I clinical trial in cardiovascular or peripheral vascular disease. “Pivotal Trial” means a clinical trial that is of appropriate size and design to establish that a product is safe and effective for its intended use, to define warnings, precautions and adverse reactions that are associated with the product, and to support marketing approval for such product by the United States Food and Drug Administration. Notwithstanding anything to the contrary in this Agreement, at any time on or before December 3, 2008, each C-l Purchaser shall have the right, but not the obligation, to purchase their Pro Rata Amount even if the Milestones have not been achieved.

If the conditions set forth in Section 5.2 below have been satisfied and any C-l Purchaser does not acquire shares of Series C-l Preferred Stock at the Series C-l

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Closing in an amount equal to or greater than its allotted amount as shown under the heading “Shares Purchased at Series C-1 Closing” on EXHIBIT A hereto (a “Nonparticipating Holder”), then all of the shares of Preferred Stock held by such Nonparticipating Holder shall automatically and without further action on the part of such holder be converted (the “Special Mandatory Conversion”) into shares of Common Stock as specified in Section B.8 of Article IV of the Restated Charter.”

2.3 The Company has made available to each Additional Purchaser (a) its audited balance sheet as at December 31, 2006 and audited statement of income and cash flows for the twelve months ending December 31, 2006, and (b) its balance sheet as of June 30, 2007 and consolidated statement of income and cash flows for the six-month period ending on June 30, 2007. For purposes of the Additional Closing, the term “Statement Date” shall mean June 30. 2007, and “Financial Statements” shall mean the audited and unaudited balance sheets, statements of income and cash flows described in this paragraph.

2.4 Section 5.2 of the Purchase Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“5.2 Conditions to Additional Purchasers’ Obligations at the Additional Closing. Additional Purchasers’ obligations to purchase Shares at the Additional Closing are subject to the satisfaction, at or prior to the Additional Closing Date, of the following conditions:

(a) Representation and Warranties True; Performance of Obligations. The representations and warranties made by the Company in Section 3 hereof shall be true and correct as of the Additional Closing Date with the same force and effect as if they had been made as of the Additional Closing Date and the Company shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to the Additional Closing.

(b) Legal Investment. On the Additional Closing Date, the sale and issuance of the Shares and the proposed issuance of the Conversion Shares shall be legally permitted by all laws and regulations to which the Additional Purchasers and the Company are subject.

(c) Consents, Permits, and Waivers. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement and the Related Agreements (including any filing required to comply with the Hart Scott Rodino Antitrust Improvements Act of 1976) except for such as may be properly obtained subsequent to the Additional Closing.

(d) Filing of Restated Charter. The Restated Certificate shall have been filed with the Secretary of State of the State of Delaware and shall continue to be in full force and effect as of the Additional Closing Date.

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(e) Corporate Documents. The Company shall have delivered to the Additional Purchasers or their counsel copies of all corporate documents of the Company as the Additional Purchasers shall reasonably request.

(f) Reservation of Conversion Shares. The Conversion Shares issuable upon conversion of the Series C Preferred Stock shall have been duly authorized and reserved for issuance upon such conversion.

(g) Compliance Certificate. The Company shall have delivered to Additional Purchasers a Compliance Certificate, executed by the President of the Company, dated the Additional Closing Date, to the effect that the conditions specified in subsections (a), (c), (d), (e) and (f) of this Section 5.2 have been satisfied.

(h) Assistant Secretary’s Certificate. Additional Purchasers shall have received from the Company’s Secretary, a certificate having attached thereto (i) the Company’s Restated Certificate as in effect at the time of the Additional Closing, (ii) the Company’s Bylaws as in effect at the time of the Additional Closing, (iii) resolutions approved by the Board of Directors authorizing the transactions contemplated hereby, (iv) resolutions approved by the Company’s stockholders authorizing the filing of the Restated Certificate and, as necessary, the transactions contemplated hereby, and (v) good standing certificates (including tax good standing if available) with respect to the Company from the applicable tax authority(ies) in Delaware, North Carolina and any other jurisdiction in which the Company is qualified to do business, dated a recent date before the Additional Closing.

(i) Legal Opinion. The Additional Purchasers shall have received from legal counsel to the Company an opinion addressed to them, dated as of the Additional Closing Date, in substantially the form attached hereto as EXHIBIT I.

(j) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Additional Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Additional Purchasers and their special counsel, and the Additional Purchasers and their special counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request.

(k) Management Rights. A Management Rights letter substantially in the form attached hereto as Exhibit J shall have been executed by the Company and delivered to each Additional Purchaser to whom it is addressed.

(l) Fees of Additional Purchaser’s Counsel and Consultants. The Company shall have paid the fees, expenses and disbursements of legal counsel incurred with respect to the purchase of the Shares as set forth in Section 6.9.”

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2.5 A new Section 5.3 of the Purchase Agreement shall be added as follows, and Section 5.3 renumbered Section 5.4:

“5.3 Conditions to C-1 Purchasers’ Obligations at the Series C-1 Closing. C-1 Purchasers’ obligations to purchase Shares at the Series C-1 Closing are subject to the satisfaction, at or prior to the Series C-1 Closing Date, of the following conditions:

(a) Representation and Warranties True; Performance of Obligations. The representations and warranties made by the Company in Section 3 hereof shall be true and correct as of the Series C-1 Closing Date with the same force and effect as if they had been made as of the Series C-1 Closing Date and the Company shall have performed all obligations and conditions herein required to be performed or observed by it on or prior to the Series C-1 Closing.

(b) Legal Investment. On the Series C-1 Closing Date, the sale and issuance of the Series C-1 Preferred Stock and the proposed issuance of the Common Stock into which the Series C-1 Preferred Stock is convertible (the “Series C-1 Conversion Shares”) shall be legally permitted by all laws and regulations to which the C-1 Purchasers and the Company are subject.

(c) Consents, Permits, and Waivers. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by the Agreement and the Related Agreements (including any filing required to comply with the Hart Scott Rodino Antitrust Improvements Act of 1976) except for such as may be properly obtained subsequent to the Series C-1 Closing.

(d) Corporate Documents. The Company shall have delivered to the C-1 Purchasers or their counsel copies of all corporate documents of the Company as the C-1 Purchasers shall reasonably request.

(e) Reservation of Conversion Shares. The Series C-1 Conversion Shares issuable upon conversion of the Series C-1 Preferred Stock shall have been duly authorized and reserved for issuance upon such conversion.

(f) Legal Opinion. The C-1 Purchasers shall have received from legal counsel to the Company an opinion addressed to them, dated as of the Series C-1 Closing Date, in substantially the form attached hereto as EXHIBIT I.

(g) Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Series C-1 Closing hereby and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the C-1 Purchasers and their special counsel, and the C-1 Purchasers and their special counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request.

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(h) Fees of Purchaser’s Counsel and Consultants. The Company shall have paid, in accordance with Section 6.9, the fees, expenses and disbursements of counsel and consultants to the C-1 Purchasers.

(i) Achievement of Milestones. The Company shall have achieved the Milestones as determined in accordance with Section 2.4.”

2.6 Section 6.6 of the Purchase Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“6.6 Amendment and Waiver. Except as otherwise expressly provided for in Section 2.3, this Agreement may be amended or modified, and the obligations of the Company and the rights of the holders of the Shares and the Conversion Shares under the Agreement may be waived, only upon the written consent of the (i) Company, (ii) Intersouth Partners VI, L.P. and (iii) at least two of Harbert, T-D and CNF.”

2.7 Section 6.9 of the Purchase Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“6.9 Expenses. Each party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of the Agreement; provided, however, that the Company shall, at each of the Additional Closings and the Series C-1 Closing, reimburse the reasonable fees of and expenses of legal counsel to T-D in an amount not to exceed $55,000 in the aggregate for all such Closings and the reasonable fees of and expenses of legal counsel of Harbert not to exceed $65,000 in the aggregate for all Closings.”

2.8 Sale of Shares to Additional Purchasers. The Additional Purchasers and the Purchasers each hereby agree to purchase the number of shares of the Series C Preferred set forth opposite its name on EXHIBIT A attached hereto and shall transmit to the Company, in accordance with the relevant provisions of the Purchase Agreement, the amount set forth opposite its name on such EXHIBIT A in payment for the shares of the Series C Preferred being purchased by such Additional Purchasers and such Purchasers on the date hereof.

3. The Rights Agreement

3.1 Section 3.5 of the Rights Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“3.5 Expiration of Right. The right of first offer granted under this Section 3 shall not apply to, and shall expire upon, the effectiveness of a registration statement for a Qualified Public Offering or a Liquidating Event, as defined in the Company’s Fifth Amended and Restated Certificate of Incorporation effective as of the date hereof.”

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3.2 Section 4.1(b) of the Rights Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“(b) “Key Holder Stock” shall mean shares of the Company’s Common Stock or Junior Stock now owned or subsequently acquired by the Key Holders by gift, purchase, dividend, option exercise or any other means whether or not such securities are only registered in a Key Holder’s name or beneficially or legally owned by such Key Holder, including any interest of a spouse in any of the Key Holder Stock, whether that interest is asserted pursuant to marital property laws or otherwise. The number of shares of Key Holder Stock owned by the Key Holders as of the date hereof are set forth on Exhibit A and Exhibit B, which Exhibits may be amended from time to time by the Company to reflect changes in the number of shares owned by the Key Holders, but the failure to so amend shall have no effect on such Key Holder Stock being subject to this Agreement.”

3.3 Section 4.7 of the Rights Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“4.7 Expiration of Right; Excluded Investors. The right of first refusal and right of co-sale granted under this Section 4 shall not apply to, and shall expire upon, the effectiveness of a registration statement for a Qualified Public Offering or Liquidation Event, as defined in the Company’s Fifth Amended and Restated Certificate of Incorporation effective as of the date hereof. Notwithstanding anything to the contrary herein, the terms and conditions of this Article 4 shall not apply to any Investor to the extent such Investor’s shares of Series C Preferred Stock were converted pursuant to Section 8 of Article IV of the Company’s Fifth Amended and Restated Certificate of Incorporation.”

3.4 Section 5.1(d) of the Rights Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“(d) Observation Rights. Harbert Venture Partners, L.L.C. (“Harbert”) and CNF Investments II, LLC (“CNF”) shall have the right to receive notice of all meetings of the Board of Directors and to appoint one representative to attend any such meeting as a nonvoting observer, in addition to the Harbert Director (as defined below) and in addition to any other member of the Company’s Board of Directors affiliated with Harbert or CNF. Tullis-Dickerson Capital Focus III, L.P. (“T-D”) shall have the right to receive notice of all meetings of the Board of Directors and to appoint two representatives to attend any such meeting as nonvoting observers, in addition to any other member of the Company’s Board of Directors affiliated with T-D.”

3.5 Section 5.1(o) of the Rights Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“(o) Nature of Business. The Company shall continue to conduct its business without material change from the nature of the business contemplated in the written

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materials delivered to the Investors prior to the date hereof, except as approved by the Board of Directors of the Company, including approval by the Harbert Director and the Intersouth Director (as defined in Section 6.1 below).”

3.6 A new Section 5.1(r) of the Rights Agreement shall be added as follows:

“(r) Expenses of Directors. The Company shall promptly reimburse in full, each director of the Company and one observer of each of T-D and CNF appointed pursuant to Section 5.1(d) hereof who is not an employee of the Company for all of his reasonable out-of-pocket expenses incurred in attending each meeting of the Board of Directors of the Company or any committee thereof.”

3.7 Section 5.2(c) of the Rights Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“(c) Sale of Assets. The Company shall not effect any sale, lease, assignment, transfer, pledge, license, encumbrance or other conveyance of any material portion of the assets (including without limitation any technology or Intellectual Property) or operations or the revenue or income generating capacity of the Company (other than inventory in the ordinary course of business and other assets reasonably and in good faith determined by the Company to be obsolete or no longer necessary to the business of the Company), or to take any such action that has the effect of any of the foregoing, other than with the approval of (i) the Board of Directors and (ii) Intersouth Partners VI, L.P. and two or more of Harbert, T-D or CNF (the “Approval Threshold”) (which approval shall be in writing).”

3.8 Upon consummation of the Series C-1 Closing, the term “Series C Holder” and “Preferred Holders” under the Rights Agreement shall be deemed to include all holders of C-1 Preferred Stock and the terms “Series C Stock,” “Series C Preferred Stock” and “Preferred Stock” shall be deemed to include the Series C-1 Preferred Stock for all purposes under the Rights Agreement.

4. Company Consent to Joinder and Purchase. The Company hereby consents to the joining of the Additional Purchasers as parties to the Agreements, and the purchase of the Shares by the Purchasers and the Additional Purchasers as contemplated herein. Such Shares shall be entitled to all of the rights and subject to all of the terms and conditions set forth in the Agreements, and the purchase of such Shares by the Additional Purchasers shall be governed by all of the terms of the Agreements.

5. Amendments to Schedules and Exhibits. EXHIBIT A to the Rights Agreement shall be amended to add the Additional Purchasers to such EXHIBIT A. Exhibit A (“Schedule of Purchasers”) to the Purchase Agreement shall be amended and supplemented to include the Additional Purchasers and the Shares being purchased by the Additional Purchasers and the Purchasers in this Additional Closing and the Series C-1 Preferred Stock being purchased in the Series C-1 Closing as set forth on Schedule 1 attached hereto.

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6. Second Closing. All references to the “Second Closing” shall be deleted from the Purchase Agreement.

7. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware.

8. Counterparts. This Agreement may be executed in one or more counterparts.

9. Effect of Amendment. Except as amended hereby, the Agreements shall remain in full force and effect as originally executed or subsequently amended, as the case may be.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

THE COMPANY:
ALDAGEN, INC.
By:	/s/    W. Thomas Amick
Name:	W. Thomas Amick
Title:	Chairman, CEO
CNF INVESTMENTS, LLC
By:	/s/    Robert J. Flanagan
Name:	Robert J. Flanagan
Title:	Manager
TULLIS-DICKERSON CAPITAL FOCUS III, L.P.
By:	Tullis-Dickerson Partners III, L.L.C.
	Its General Partner
	By:	/s/    Lyle A. Hohnke
	Name:	Lyle A. Hohnke
	Title:	Partner
HARBERT VENTURE PARTNERS MM, LX.C.
By:	HMC- Virginia, Inc.
	By:	/s/    William W. Brooke
	Name:	William W. Brooke
	Title:	Vice President
INTERSOUTH PARTNERS VI, L.P.
By:	INTERSOUTH ASSOCIATES VI, LLC
	Its General Partner
	By:	/s/    Garheng Kong
	Name:	Garheng Kong
	Title:	Member, acting pursuant to Power of Attorney
INTERSOUTH PARTNERS V, L.P.
By:	INTERSOUTH ASSOCIATES V, LLC
	Its General Partner
	By:	/s/    Garheng Kong
	Name:	Garheng Kong
	Title:	Member, acting pursuant to Power of Attorney

INTERSOUTH AFFILIATES V, L.P.
By:	INTERSOUTH ASSOCIATES V, LLC
	Its General Partner
	By:	/S/    Garheng Kong
	Name:	Garheng Kong
	Title:	Member, acting pursuant to Power of Attorney

AURORA ENRICHMENT FUND, LLC
By Aurora Enrichment Mangement, LLC Its Managing Member
By:	/s/    B. Jefferson Clark
Name:	B. Jefferson Clark
Title:	Manager
HARBINGER/AURORA VENTURE FUND, LLC
By HARBINGER/AURORA VENTURES, LLC
Its Managing Member
By:	/s/    B. Jefferson Clark
	B. Jefferson Clark
	President
HARBINGER/AURORA QP VENTURE FUND, LLC
By HARBINGER/AURORA VENTURES, LLC
Its Managing Member
By:	/s/    B. Jefferson Clark
	B. Jefferson Clark
	President
THE AUGUST JACKSON COMPANY
By:	/s/    Frank Andrews
Name:	Frank Andrews
Title:	President & CEO

/s/    Nelson Chao

Nelson Chao

MAGELLAN’S COMPASS 1 LIMITED PARTNERSHIP
By:	/s/    W. Lowry Caudill
Name:	W. Lowry Caudill
Title:	President

THE TRELYS FUND, L.P.
By:	/s/    Adrian N. Wilson
Name:	Adrian N. Wilson
Title:	Managing GP

VILLAGE VENTURES PARTNERS FUND, L.P.
By:	Village Ventures Capital Partners I, LLC its general partner
By:	Village Ventures, Inc., its managers
By:	/s/    Steven H. Massicotte
Name:	Steven H. Massicotte
Title:	Chief Operating Officer
VILLAGE VENTURES PARTNERS FUND A, L.P.
By:	Village Ventures Capital Partners I, LLC its general partner
By:	Village Ventures, Inc. its manager
By:	/s/    Steven H. Massicotte
Name:	Steven H. Massicotte
Title:	Chief Operating Officer

/s/    Andrew Balber      

Andrew Balber

/s/    Jonathan M. Lawrie      

Jonathan M. Lawrie

NEW MARKETS GROWTH FUND
By:	/s/    Mark Grovic
Name:	Mark Grovic
Title:	Managing Director

SECOND AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS

AGREEMENT

This Second Amendment to Amended and Restated Investor Rights Agreement (this “Amendment”) is entered into this 31st day of December, 2007 by and among Aldagen, Inc., a Delaware corporation (the “Company”), and certain holders of the capital stock of the Company (the “Investors”).

WHEREAS, the Company and the Investors have previously entered into an Amended and Restated Investor Rights Agreement, dated as of December 15, 2006, as amended by the First Amendment to Series C Preferred Stock Purchase Agreement and Agreement to Purchase Shares and Join as a Party and First Amendment to Amended and Restated Investor Rights Agreement, dated as of September 12, 2007 (the “Rights Agreement”); and

WHEREAS, pursuant to Section 7.5 of the Rights Agreement, the Company and the Investors desire to amend the Rights Agreement in the manner and to the extent set forth herein.

NOW, THEREFORE, in consideration of the mutual agreements set forth herein, the Company and the Investors hereby agree as follows:

1. Section 6.1 of the Rights Agreement shall be amended by deleting such Section 6.1 in its entirety and substituting the following in lieu thereof:

6.1 Election of Directors. The Board of Directors of the Company will consist of seven (7) persons. The Preferred Holders and Common Holders shall, whether by meeting, action by written consent of lieu of a meeting, or otherwise, act in all capacities and vote the shares of capital stock of the Company now or hereafter owned or controlled by them so as to cause and maintain the election to the Board of Directors of the Company of (a) two representatives of the holders of a majority of Common Stock held by the Common Holders, one of which shall be the chief executive officer of the Company (“CEO”), who shall initially be Tom Amick as the CEO, and the other shall be an individual not affiliated with the Company or any of the Investors, who shall initially be Martin Murphy, (b) one designee of Harbert (the “Harbert Director”), who shall initially be William Brooke, (c) one designee of Intersouth Partners VI, L.P. (the “Intersouth Director”), who shall initially be Garheng Kong, (d) one designee nominated by a majority of the Common Holders and the Junior Holders, voting together as a single class, who shall initially be B. Jefferson Clark, and (e) two designees, not affiliated with the Company or any of the Investors, nominated by the Board of Directors of the Company. Harbert, Intersouth Partners VI, the Junior Holders, the Common Holders or the Board of Directors may elect at any time to replace their designee on the Board of Directors, in which case all parties will vote to remove their then-current designee(s) and elect new designee(s) of that voting group. Upon request, the Harbert Director and Intersouth Director shall be appointed to any committee of the Board of Directors.

2. The provisions of the Rights Agreement are hereby amended and modified by the provisions of this Second Amendment. If any of the provisions of the Rights Agreement are materially different from or inconsistent with the provisions of this Second Amendment, the provisions of this Second Amendment shall control, and the provisions of the Rights Agreement shall, to the extent of such difference or inconsistency, be deemed to be amended and modified.

3. This Second Amendment and the Rights Agreement, as amended and modified by the provisions of this Second Amendment, shall constitute and shall be construed as a single agreement.

[Remainder of page intentionally left blank]

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

COMPANY:
ALDAGEN, INC.
By:	/s/ Edward L. Field
	Edward L. Field
	President
CNF INVESTMENTS II, LLC
By:	/s/ Joseph Del Guercio
Name:	Joseph Del Guercio
Title:	Managing Director
TULLIS-DICKERSON CAPITAL FOCUS III, L.P.
By:	Tullis-Dickerson Partners III, L.L.C. Its General Partner
By:	/s/ Lyle A. Hohnke
Name:	Lyle A. Hohnke
Title:	Partner

INTERSOUTH PARTNERS VI, L.P.
By:	INTERSOUTH ASSOCIATES VI, LLC
	Its General Partner
By:	/s/ Garheng Kong
Name:	Garheng Kong
Title:	Member, acting pursuant to Power of Attorney
INTERSOUTH PARTNERS V, L.P.
By:	INTERSOUTH ASSOCIATES V, LLC
	Its General Partner
By:	/s/ Garheng Kong
Name:	Garheng Kong
Title:	Member, acting pursuant to Power of Attorney
INTERSOUTH AFFILIATES V, L.P.
By:	INTERSOUTH AFFILIATES V, LLC
	Its General Partner
By:	/s/ Garheng Kong
Name:	Garheng Kong
Title:	Member, acting pursuant to Power of Attorney

AURORA ENRICHMENT FUND, L.L.C.
By: AURORA ENRICHMENT MANAGEMENT CO., L.L.C.
Its Managing Member
By:	/s/ B. Jefferson Clark
	B. Jefferson Clark
	Manager

HARBINGER/AURORA VENTURE FUND, L.L.C.
By: HARBINGER/AURORA VENTURES, L.L.C.
Its Managing Member
By:	/s/ B. Jefferson Clark
	B. Jefferson Clark
	President

HARBINGER/AURORA QP VENTURE FUND, L.L.C.
By: HARBINGER/AURORA VENTURES, L.L.C.
Its Managing Member
By:	/s/ B. Jefferson Clark
	B. Jefferson Clark
	President

THE TRELYS FUNDS, L.P.
By:	/s/ Adrian N. Wilson
Name:	Adrian N. Wilson
Title:	Managing GP

TALL OAKS STEMCO PARTNERS, LP
By:	/s/ Kathryne Carr
Name:	Kathryne Carr
Title:	Managing Director

/s/ Andrew Balber

Andrew Balber

/s/ Nelson Chao

Nelson Chao

/s/ Jonathon M. Lawrie

Jonathon M. Lawrie

SECOND AMENDMENT TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT

AND AGREEMENT TO PURCHASE SHARES AND JOIN AS A PARTY AND THIRD

AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

This Second Amendment to Series C Preferred Stock Purchase Agreement and Agreement to Purchase Shares and Join as a Party and Third Amendment to Amended and Restated Investor Rights Agreement (this “Agreement”) dated as of April 15, 2008 (the “Effective Date”) by and among Aldagen, Inc., a Delaware corporation (the “Company”), each of those persons and entities that previously purchased shares of the Series C Preferred Stock of the Company and committed to purchase shares of the Series C-1 Preferred Stock of the Company (the “Series C-1 Preferred”) pursuant to the Purchase Agreement (defined below) and whose names are set forth on EXHIBIT A hereto as “Purchasers” (each, a “Purchaser” and collectively, the “Purchasers”), and each of those entities that propose to purchase shares of the Series C-1 Preferred pursuant hereto and whose names are set forth on EXHIBIT A hereto as “Additional Purchasers” (each, an “Additional Purchaser” and together, the “Additional Purchasers”).

WITNESSETH:

WHEREAS, the Company, the Purchasers and other investors have entered into a Series C Preferred Stock Purchase Agreement dated December 15, 2006 as amended by a First Amendment to Series C Preferred Stock Purchase Agreement and Agreement to Purchase Shares and Join as a Party and First Amendment to Amended and Restated Investor Rights Agreement dated September 12, 2007 (the “Purchase Agreement”), and the Company and certain holders of capital stock of the Company have entered into an Amended and Restated Investor Rights Agreement dated December 15, 2006 as amended by a First Amendment to Series C Preferred Stock Purchase Agreement and Agreement to Purchase Shares and Join as a Party and First Amendment to Amended and Restated Investor Rights Agreement dated September 12, 2007, as further amended by the Second Amendment to Amended and Restated Investor Rights Agreement dated December 31, 2007 (the “Rights Agreement”, and together with the Purchase Agreement, the “Agreements”);

WHEREAS, the Additional Purchasers and the Purchasers propose to purchase shares of the Series C-1 Preferred pursuant to the terms and conditions of the Purchase Agreement, as amended hereby;

WHEREAS, Section 2.4 of the Purchase Agreement provides that the purchase of the Series C-1 Preferred shall be made by the Purchasers pursuant to a closing occurring within 30 days of notice to the Purchasers by the Company of achievement of certain milestones, and Section 7.5 of the Rights Agreement and Section 3.8 of the First Amendment to Series C Preferred Stock Purchase Agreement and Agreement to Purchase Shares and Join as a Party and First Amendment to Amended and Restated Investor Rights Agreement, dated September 12, 2007 provide that an additional purchaser of the Series C-1 Preferred shall become a party to the Rights Agreement;

WHEREAS, the Company desires to issue, and the Purchasers and the Additional Purchasers each desire to purchase, subject to the terms and conditions of the Purchase Agreement (as amended hereby), approximately $18.4 million of Series C-1 Preferred as set forth under “Shares Purchased at Series C-1 Closing” on EXHIBIT A to the Purchase Agreement (as amended hereby);

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WHEREAS, the Additional Purchasers have agreed to be bound by the terms of the Agreements and to become parties to the Agreements, as amended as set forth herein;

WHEREAS, the Company, the Purchasers and the Additional Purchasers each desire to amend certain provisions of the Rights Agreement as set forth herein; and

NOW, THEREFORE, in consideration of the premises, the covenants of the parties set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Capitalized Terms. Terms that are used herein with initial capital letters and that are not otherwise defined shall have the meanings given to them in the Purchase Agreement.

2. Amendment of the Purchase Agreement. The first paragraph of Section 2.4 of the Purchase Agreement shall be deleted in its entirety and the following substituted in lieu thereof:

“2.4 Series C-1 Closing. In the event the Company’s Board of Directors (the “Board”) in good faith determines that the Company has achieved the Milestones (as defined below), the Company shall deliver a notice to each of the Purchasers and Additional Purchasers with shares listed opposite their names on EXHIBIT A under the heading “Shares Purchased at Series C-1 Closing” (collectively “C-1 Purchasers”) advising the C-1 Purchasers of the Board’s determination. Within 10 days after the Board delivers such notice to such C-1 Purchasers, Intersouth VI and at least two of either Harbert, Tullis-Dickerson Capital Focus III, L.P. (“T-D”) or CNF Investments II, LLC (“CNF”) shall decide whether they concur with the Board’s determination that the Milestones have been achieved. In the event Intersouth VI and at least two of either Harbert, T-D or CNF agree in writing (each in their sole discretion) that the Milestones have been achieved (“Milestone Approval”), the Company shall sell Series C-1 Preferred Stock to the C-1 Purchasers in the amounts set forth in the Schedule of Purchasers attached hereto as EXHIBIT A under the heading “Shares Purchased at Series C-1 Closing” at a purchase price of $1.0411 per share and subject to adjustment as set forth in the Restated Certificate (as defined below). The Series C-1 Preferred Stock shall have the rights and preferences set forth in the Fifth Amended and Restated Certificate of Incorporation of the Company attached hereto as EXHIBIT C (“Restated Certificate”). Unless otherwise agreed to by the Company and the C-1 Purchasers, within 10 days of notice to the C-1 Purchasers by the Company of such Milestone Approval and satisfaction of the conditions set forth in Section 5.3 below (such date, the “Series C-1 Closing Date”), all C-1 Purchasers shall participate in the Series C-1 Preferred Stock closing (“Series C-1 Closing”) to the full extent of their obligation to purchase shares in the Series C-1 Closing in the amount set forth adjacent to their names under the heading “Shares Purchased at Series C-1 Closing” on EXHIBIT A (“Pro Rata Amount”). Any shares of Series C-1 Preferred Stock sold pursuant to this Section 2.4 shall be deemed to be “Shares” for all purposes of this Agreement with respect to the Series C-1 Closing and any C-1 Purchasers shall be deemed “Purchasers” for all purposes of this Agreement with respect to the Series C-1 Closing. For purposes of this Agreement, “Milestones: shall mean, collectively, (i) the initiation by the Company of a Pivotal Trial (as defined below) in cord blood transplant; or (ii) the successful completion of a Phase I

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clinical trial in cardiovascular or peripheral vascular disease. “Pivotal Trial” means a clinical trial that is of appropriate size and design to establish that a product is safe and effective for its intended use, to define warnings, precautions and adverse reactions that are associated with the product, and to support marketing approval for such product by the United States Food and Drug Administration. Notwithstanding anything to the contrary in this Agreement, at any time on or before December 31, 2008, each C-l Purchaser shall have the right, but not the obligation, to purchase their Pro Rata Amount even if the Milestones have not been achieved.”

3. Sale of Series C-1 Shares. (a) The Additional Purchasers and the Purchasers each hereby agree that all conditions of the Purchase Agreement which are required to be met prior to its purchase of the number of shares of the Series C-1 Preferred set forth opposite its name on EXHIBIT A attached hereto have been met and further agrees that the Series C-1 Closing shall occur on the Effective Date. Each of the Additional Purchasers and the Purchasers (other than Harbert) shall transmit to the Company, in accordance with the relevant provisions of the Purchase Agreement, the amount set forth opposite its name on such EXHIBIT A in payment for the shares of the Series C-1 Preferred being purchased by it on or before April 17, 2008.

(b) Harbert has agreed to purchase an aggregate of 5,974,013 shares of the Series C-1 Preferred at the Series C-1 Closing (the “Harbert Shares”). Harbert shall transmit to the Company $1,200,007.26 in cash and shall cancel an obligation of the Company to it for $19,538.00 on or before April 17, 2008 in payment for 1,171,401 shares of the Series C-1 Preferred being purchased by it (the “Initial Harbert Shares”), and Harbert (or its Permitted Assignees as defined below) shall transmit to the Company $5,000,000.00 on or before April 24, 2008 as payment for the remaining 4,802,612 shares of the Series C-1 Preferred (the “Assignable Harbert Shares”). At its election, Harbert may assign the right, in whole or in part, to purchase the Assignable Harbert Shares to one or more affiliates of Harbert or other persons or entities affiliated or associated therewith, including Harbert’s members, limited partners, general partners, affiliated companies, affiliated funds or the direct or indirect owners or affiliates of such members, limited partners, general partners, affiliated companies or affiliated funds (the “Permitted Assignees”). Such assignment, if made, shall not relieve Harbert from its obligation to purchase any Assignable Harbert Shares for which any of the Permitted Assignees have failed to make its required payment to the Company in respect of Assignable Harbert Shares for which the right to purchase has been assigned to it by April 24, 2008. The Company shall sell to any such Permitted Assignee of Harbert who meets its funding obligation on or before April 24, 2008 the number of Assignable Harbert Shares for which the right to purchase has been assigned to it and such Permitted Assignee shall be deemed an “Additional Purchaser” for the purposes of this Agreement. Through April 24, 2008, the Company agrees to (i) maintain an electronic data room containing materials relating to the Company and its business (the “Dataroom”) and update the Dataroom with information available as of the date hereof, if responsive to reasonable requests from Harbert or Permitted Assignees, the reasonableness of such requests to be determined by the Company in its sole discretion; and (ii) provide access to any Permitted Assignees who request access to the Dataroom. Except as set forth in the preceding sentence, the Company shall have no obligation to supplement or update the materials in the Dataroom. Access for a Permitted Assignee to the Dataroom shall be conditioned upon such Permitted Assignee agreeing to maintain the confidentiality of the materials and information contained in the Dataroom. Notwithstanding the foregoing, the obligation of Harbert (or its Permitted Assignees) to purchase the Assignable Harbert Shares on or before April 24, 2008, is absolute and unconditional.

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(c) The Additional Purchasers agree to be bound by all the terms and conditions of the Agreements applicable to “Purchasers” and “Investors” as defined therein.

4. Closing Conditions. All conditions to the Purchasers’ and the Additional Purchasers’ obligations at the Series C-1 Closing, as specified in Section 5.3 of the Purchase Agreement, have been satisfied as of the Effective Date, and no updates or additional conditions shall be required prior to the funding of the Series C-1 Closing as described in Section 3 above.

5. Company Consent to Joinder and Purchase. The Company hereby consents to the joining of the Additional Purchasers as parties to the Agreements, and the purchase of the shares of Series C-1 Preferred by the Purchasers and the Additional Purchasers as contemplated herein. Such shares shall be entitled to all of the rights and subject to all of the terms and conditions set forth in the Agreements, and the purchase of such shares by the Additional Purchasers shall be governed by all of the terms of the Agreements.

6. Amendments to Schedules and Exhibits. EXHIBIT A to the Rights Agreement shall be amended to add the Additional Purchasers to such EXHIBIT A. EXHIBIT A (“Schedule of Purchasers”) to the Purchase Agreement shall be amended and supplemented to include the Additional Purchasers and the shares of Series C-1 Preferred being purchased by the Additional Purchasers and the Purchasers in the Series C-1 Closing as set forth on Schedule 1 attached hereto.

7. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware.

8. Counterparts. This Agreement may be executed in one or more counterparts.

9. Effect of Amendment. Except as amended hereby, the Agreements shall remain in full force and effect as originally executed or subsequently amended, as the case may be.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

THE COMPANY:
ALDAGEN, INC.
By:	/s/ Edward L. Field
Name:	Edward L. Field
Title:	President & COO
CNF INVESTMENTS II, LLC
By:	/s/ Joseph Del Guercio
Name:	Joseph Del Guercio
Title:	Managing Director
TULLIS-DICKERSON CAPITAL FOCUS III, L.P.
By:	Tullis-Dickerson Partners III, L.L.C.
	Its General Partner
By:	/s/ Lyle A. Hohnke
Name:	Lyle A. Hohnke
Title:	Principal
HARBERT VENTURE PARTNERS, L.L.C.
By:	Harbert Venture Partners MM, LLC,
	Its Managing Member
By:	HMC-Virginia, Inc.,
	Its Manager
By:	/s/ William W. Brooke
Name:	William W. Brooke
Title:	Executive Vice President

INTERSOUTH PARTNERS VI, L.P.
By:	INTERSOUTH ASSOCIATES VI, LLC
	Its General Partner
	By:	/s/ Garheng Kong
	Name:	Garheng Kong
	Title:	Member, Acting Pursuant to Power of Attorney

INTERSOUTH PARTNERS V, L.P.
By:	INTERSOUTH ASSOCIATES V, LLC
	Its General Partner
	By:	/s/ Garheng Kong
	Name:	Garheng Kong
	Title:	Member, Acting Pursuant to Power of Attorney

INTERSOUTH AFFILIATES V, L.P.
By:	INTERSOUTH ASSOCIATES V, LLC
	Its General Partner
	By:	/s/ Garheng Kong
	Name:	Garheng Kong
	Tide:	Member, Acting Pursuant to Power of Attorney
INTERSOUTH PARTNERS VII, L.P.
By:	INTERSOUTH ASSOCIATES VII, LLC
	Its General Partner
	By:	/s/ Garheng Kong
	Name:	Garheng Kong
	Title:	Member, Acting Pursuant to Power of Attorney

HARBINGER/AURORA VENTURE FUND, LLC
By:	HARBINGER/AURORA VENTURES, LLC
Its Managing Member
By	/s/    B. Jefferson Clark
	B. Jefferson Clark
	President
HARBINGER/AURORA QP VENTURE FUND, LLC
By	HARBINGER/AURORA VENTURES, LLC
Its Managing Member
By:	/s/    B. Jefferson Clark
	B. Jefferson Clark
	President

THE TRELYS FUNDS, L.P.
By:	/s/    Adrian N. Wilson
Name:	Adrian N. Wilson
Title:	Managing General Partner

TALL OAKS STEMCO PARTNERS, LP
By:	/s/    Kathryne F. Carr
Name:	Kathryne F. Carr
Title:	Managing Director

/s/ Jonathan M. Lawrie

Jonathan M. Lawrie

EX-10.10

Exhibit 10.10

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.

STEMCO BIOMEDICAL, INC.

PREFERRED STOCK PURCHASE WARRANT

This Preferred Stock Purchase Warrant (the “Warrant”) is issued as of this the 23rd day of December 2002, by STEMCO BIOMEDICAL, INC., a Delaware corporation (the “Company”), to                             , or permitted assigns (the “Holder”).

1. Issuance of Warrant; Term; Price.

1.1. Issuance. Concurrently herewith, the Holder is making a loan to the Company in the amount of $                     (the “Loan”). The Loan is evidenced by a Secured Convertible Promissory Note dated as of the date hereof, in the original principal amount of $                    , payable to the order of the Holder, by the Company (together with any and all extensions, replacements and renewals thereof, the “Note”). In consideration of the funding of the Loan, the receipt and sufficiency of which are hereby acknowledged, the Company hereby grants to Holder the right to purchase a number of shares of the capital stock of the Company issuable in the Equity Financing (as defined in the Note and Warrant Purchase Agreement among the Company, the Holder and the Purchasers listed therein, dated December 23, 2002 (the “Purchase Agreement”) (since such shares are expected to be designated Series B Preferred Stock, such stock is referred to herein as the “Series B Preferred Stock”), equal to 25% of the Loan amount, divided by the price per share of the Series B Preferred Stock issued in such Equity Financing (the “New Securities Price”). Notwithstanding the foregoing, if either (a) the closing for an Equity Financing has not occurred on or before January 31, 2003, or (b) a transaction or series of related transactions resulting in any of the following occurs or is consummated: (A) a merger, consolidation, sale of or reorganization as a result of which stockholders of the Company immediately prior to such merger, consolidation, sale or reorganization possess a minority of the voting power of the acquiring, surviving or successor entity immediately following such merger, consolidation, sale or reorganization; (B) a sale, lease, transfer or exchange, directly or indirectly, of all or substantially all of the property and assets of the Company; or (C) the transfer of securities of the Company representing 50% or more of the combined voting power of the then outstanding securities of the Company (each, an “Acquisition Event”), then the Holder shall have the right to purchase, at its option, a number of shares of Series A Preferred Stock of the Company equal to 25% of the Loan amount, divided

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by $1.00 per share, as adjusted for stock splits, stock dividends, recapitalizations and similar events with respect to the Series A Preferred Stock (the “Series A Price”). The shares of securities for which this Warrant may be exercisable from time to time shall be referred to therein as the “Warrant Stock”.

1.2 Exercisability. This Warrant shall become exercisable for Warrant Stock upon the date of the earliest to occur of: (a) the closing of the next Equity Financing; (b) January 31, 2003, or (c) the consummation of an Acquisition Event. If this Warrant shall become exercisable for the Warrant Stock prior to January 31, 2003 for any reason other than as set forth in clause (a) above, then this Warrant shall be exercisable for a number of shares of Series A Preferred Stock of the Company equal to 25% of the principal Loan amount, divided by the Series A Price.

1.3 Term. The shares of Warrant Stock issuable upon exercise of this Warrant are hereinafter referred to as the “Shares.” This Warrant shall be exercisable at any time and from time to time in whole or in part from the dates set forth in Section 1.2 above herein until the date ten (10) years from the issue date of this Warrant referenced above.

1.4 Exercise Price. Subject to adjustment as hereinafter provided, the exercise price (the “Warrant Price”) per share for which all or any of the Shares may be purchased pursuant to the terms of this Warrant shall be equal to: (a) the New Securities Price if the Warrant is exercised for Series B Preferred Stock of the Company, or (b) the Series A Price if the Warrant is exercised for Series A Preferred Stock of the Company.

2. Adjustment of Warrant Price, Number and Kind of Shares. The Warrant Price and the number and kind of securities issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, and the Company agrees to provide ten (10) days written notice upon the happening of certain events, as follows.

2.1. Dividends in Stock Adjustment. In case at any time or from time to time on or after the date hereof the holders of the Series A Preferred Stock or the Series B Preferred Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional securities or other property (other than cash) of the Company by way of dividend or distribution (except for distributions specifically provided for below in Section 2.3) then, and in each case, the holder of this Warrant shall, upon the exercise hereof, be entitled to receive, in addition to the number of shares of Warrant Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of such other or additional securities or other property (other than cash) of the Company which such holder would hold on the date of such exercise had it been the holder of record of such stock on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional securities or other property receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by this Section 2.

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2.2. Reclassification or Reorganization Adjustment. In case of any changes in the class or kind of securities issuable upon exercise of this Warrant or any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) on or after the date hereof, then and in each such case the Company shall give the holder of this Warrant at least twenty (20) days notice of the proposed effective date of such transaction, and the holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change or reorganization, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, and the Warrant Price therefore shall be appropriately adjusted, all subject to further adjustment as provided in this Section 2.

2.3. Stock Splits and Reverse Stock Splits. If at any time on or after the date hereof the Company shall split, subdivide or otherwise change its outstanding shares of any securities receivable upon exercise of this Warrant into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall thereby be proportionately reduced and the number of shares receivable upon exercise of this Warrant shall thereby be proportionately increased; and, conversely, if at any time on or after the date hereof the outstanding number of shares of any securities receivable upon exercise of this Warrant shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall thereby be proportionately increased and the number of shares receivable upon exercise of this Warrant shall thereby be proportionately decreased, all subject to further adjustment as provided in this Section 2.

2.4. Conversion or Redemption of Warrant Stock. If at the time of any exercise of this Warrant there are no other shares of shares of Warrant Stock that would otherwise be receivable upon exercise of this Warrant (such shares having been converted or redeemed), this Warrant shall be exercisable for Common Stock in the same amounts, for the same prices and on the same terms, as though the Warrant had been exercised for shares of the Warrant Stock and immediately converted into shares of Common Stock.

2.5 Other Impairment. The Company will not, by amendment of its Certificate of Incorporation or Bylaws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and conditions and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder against impairment.

3. No Fractional Shares. No fractional shares of Warrant Stock will be issued in connection with any subscription hereunder. In lieu of any fractional shares that would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Warrant Stock on the date of exercise, as determined in good faith by the Company’s Board of Directors.

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4. No Stockholder Rights. This Warrant as such shall not entitle its holder to any of the rights of a stockholder of the Company until the holder has exercised this Warrant in accordance with Section 6 or Section 7 hereof.

5. Reservation of Stock. The Company covenants that during the period this Warrant is exercisable, the Company will reserve from its authorized and unissued Warrant Stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise of this Warrant. The Company agrees that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Stock upon the exercise of this Warrant.

6. Exercise of Warrant. This Warrant may be exercised by Holder by the surrender of this Warrant at the principal office of the Company, accompanied by payment in full of the purchase price of the shares purchased thereby, as described above. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person or entity entitled to receive the shares or other securities issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable, the Company shall issue and deliver to the person or entity entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such exercise, together with cash in lieu of any fraction of a share as provided above. The shares of Warrant Stock issuable upon exercise hereof shall, upon their issuance, be fully paid and nonassessable. If this Warrant shall be exercised in part only, the Company shall, at the time of delivery of the certificate representing the Shares or other securities in respect of which this Warrant has been exercised, deliver to the Holder a new Warrant evidencing the right to purchase the remaining Shares or other securities purchasable under this Warrant, which new warrant shall, in all other respects, be identical to this Warrant.

7. Net Issue Election.

7.1. Right to Convert. In addition to and without limiting the rights of the Holder under the terms of this Warrant, the Holder shall have the right to convert this Warrant or any portion hereof (the “Conversion Right”) into shares of Common Stock or Warrant Stock as provided in this Section 7. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any cash or other consideration) that number of shares of Common Stock or Warrant Stock equal to the quotient obtained by dividing (x) the value of this Warrant (or the specified portion hereof) on the Conversion Date (as defined in subsection 7.2 hereof), which value shall be determined by subtracting (A) the aggregate Warrant Price of the Converted Warrant Shares immediately prior to the exercise of the Conversion Right from (B) the aggregate fair market value of the Converted Warrant Shares issuable upon exercise of this Warrant (or the specified portion hereof) on the Conversion Date (as herein defined) by (y) the fair market value of one share of Warrant Stock on the Conversion Date (as herein defined). No fractional shares shall be issuable upon exercise of the Conversion Right, and if the number of shares to be issued determined in accordance with the foregoing

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formula is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as herein defined).

7.2. Method of Exercise. The Conversion Right may be exercised by the Holder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant that are being surrendered (referred to in subsection 7.1 hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon such surrender of this Warrant (the “Conversion Date”). Certificates for the shares of Common Stock or Warrant Stock issuable upon exercise of the Conversion Right (or any other securities deliverable in lieu thereof under Section 2) shall be issued as of the Conversion Date and shall be delivered to the Holder immediately following the Conversion Date, or, if requested at the time of surrender of this Warrant, held for pick-up by the Holder at the Company’s principal office.

7.3. Determination of Fair Market Value. For purposes of this Section 7, fair market value (the “Market Price”) of a share of Common Stock or Warrant Stock as of a particular date (the “Determination Date”) shall mean the average of the closing prices of such security’s sales on the principal securities exchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the last sale prices quoted in the Nasdaq System, or if on any day such security is not quoted in the Nasdaq System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of five (5) days consisting of the day prior to the day as of which “Market Price” is being determined and the five (5) consecutive business days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the Nasdaq System or the over-the-counter market, the “Market Price” shall be the fair value thereof as determined in good faith by the Company’s Board of Directors.

8. Certificate of Adjustment. Whenever the Warrant Price or number or type of securities issuable upon exercise of this Warrant is adjusted, as herein provided, the Company shall promptly deliver to the record holder of this Warrant a certificate of an officer of the Company setting forth the nature of such adjustment and a brief statement of the facts requiring such adjustment.

9. Notice of Proposed Transfers. This Warrant is transferable by the Holder hereof subject to compliance with this Section 9. Prior to any proposed transfer of this Warrant or the shares of Warrant Stock received on the exercise of this Warrant (the “Securities”), unless there is in effect a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), covering the proposed transfer, the Holder thereof shall give written notice to the Company of such Holder’s intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall, if the Company so requests, be accompanied (except in transactions in compliance with Rule 144) by either (i) an unqualified written opinion of legal counsel who shall be reasonably satisfactory to the Company

5

addressed to the Company and reasonably satisfactory in form and substance to the Company’s counsel, to the effect that the proposed transfer of the Securities may be effected without registration under the Securities Act and any applicable state securities laws, or (ii) a “no action” letter from the Securities Exchange Commission (the “Commission”) to the effect that the transfer of such Securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the Holder of the Securities shall be entitled to transfer the Securities in accordance with the terms of the notice delivered by the Holder to the Company; provided, however, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder to any affiliate of such Holder, or a transfer by a Holder which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his spouse or lineal descendants or ancestors, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if such transferee were the original Holder hereunder. Each certificate evidencing the Securities transferred as above provided shall bear the appropriate restrictive legend set forth above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for the Company such legend is not required in order to establish compliance with any provisions of the Securities Act.

10. Replacement of Warrants. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of the Warrant, and in the case of any such loss, theft or destruction of the Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrant if mutilated, the Company will execute and deliver, in lieu thereof, a new Warrant of like tenor.

11. Miscellaneous. This Warrant shall be governed by the laws of the State of North Carolina. The headings in this Warrant are for purposes of convenience of reference only, and shall not be deemed to constitute a part hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provisions. All notices and other communications from the Company to the holder of this Warrant shall be given in writing and shall be deemed effectively given as provided in the Purchase Agreement.

12. Taxes. The Company shall pay all issue taxes and other governmental charges (but not including any income taxes of a Holder) that may be imposed in respect of the issuance or delivery of the Shares or any portion thereof.

13. Amendment. Any term of this Warrant may be amended or waived with the written consent of the Company and the holders of Warrants representing a majority of the shares of Warrant Stock issuable upon exercise of the then outstanding unexercised warrants issued under the Purchase Agreement (the “Bridge Warrants”); provided, however, that any such amendment or waiver that disproportionately affects any of the holders of the then outstanding unexercised Bridge Warrants shall require the written consent of all such holders. Any amendment or waiver effected in accordance with this Section 13 shall be binding upon each holder of any Bridge Warrant, each future holder of all such Bridge Warrants and the Company, and the Company shall promptly give notice to all holders of outstanding Bridge Warrants of any amendment or waiver effected in accordance with this Section 13.

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14. Remedies. In the event of any default or threatened default by the Company in the performance of or observance with any of the terms of this Warrant, it is agreed that remedies at law are not and will not be adequate for the Holder and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

15. Facsimile Signature. This Warrant may be executed by the Company in facsimile form and upon receipt by the Holder of such faxed executed copy of this Warrant, this Warrant shall be binding upon and enforceable against the Company in accordance with its terms. The Company shall promptly forward to the Holder an original of the facsimile signed copy of this Warrant previously delivered to Holder.

[THE NEXT PAGE IS THE SIGNATURE PAGE]

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IN WITNESS WHEREOF, the undersigned officer of the Company has set his hands as of the date first above written.

STEMCO BIOMEDICAL, INC.
By:
	Jonathan M. Lawrie, President and CEO

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ALDAGEN, INC.

SERIES B WARRANTS

The Series B Preferred Stock Purchase Warrants represented by this form are substantially identical in all material respects except as to the details below. Accordingly, pursuant to Instruction 2 to Item 601(b) of Regulation S-K, we have filed the form of warrant herewith.

Name	Number of Exercise Shares	Amount of Loan & Note
Harbinger/Aurora QP Venture Fund, L.L.C	36,950	$	147,800.00
Harbinger/ Aurora Venture Fund, L.L.C	25,550		102,200.00
Intersouth Affiliates V, L.P.	5,464		21,857.00
Intersouth Partners V, L.P.	119,536		478,143.00

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FIRST AMENDMENT TO

PREFERRED STOCK PURCHASE WARRANT

THIS FIRST AMENDMENT TO STOCK PURCHASE WARRANT (the “First Amendment”) is entered into as of March 4, 2003, by and among StemCo Biomedical, Inc. a Delaware corporation (the “Company”), and                     .

WHEREAS, the Company issued to                      a Preferred Stock Purchase Warrant, dated as of December 23, 2002, a copy of which is attached as Exhibit A (the “Warrant”); and

WHEREAS, the Warrant provided that it was exercisable into Series A Preferred Stock of the Company upon certain occurrences, including if an Equity Financing (as defined therein) had not occurred on or before January 31, 2003; and

WHEREAS, an Equity Financing did not occur on or before January 31, 2003, but is expected to occur as of the date hereof; and

WHEREAS, the Company and                      agree that, if an Equity Financing occurs by March 7, 2003, the Warrant will be exercisable into Series B Preferred Stock of the Company and that the Warrant will not be exercisable into Series A Preferred Stock; and

WHEREAS, pursuant to Section 13 of the Warrant, the Company and                      desire to amend and modify the Warrant in the manner and to the extent set forth herein.

NOW, THEREFORE, in consideration of the mutual promises, covenants, and conditions set forth in this First Amendment, the Company and                      agree as follows:

1. Defined Terms. Terms that are used herein with initial capital letters and that are not otherwise defined shall have the meanings given to them in the Warrant.

2. Amendment of Entire Warrant. The date “January 31, 2003” shall be deleted wherever it appears in the Warrant, substituting in lieu thereof the date “March 7, 2003”.

3. Effect of First Amendment. The provisions of the Warrant are amended and modified by the provisions of this First Amendment. If any provisions of the Warrant are materially different from or inconsistent with any of the provisions of this First Amendment, the provisions of this First Amendment shall control, and the provisions of the Warrant shall, to the extent of such difference or inconsistency, be deemed to be amended and modified.

4. Single Agreement. This First Amendment and the Warrant, as amended and modified by the provisions of this First Amendment, shall constitute and be construed as a single agreement.

EX-10.11

Exhibit 10.11

PREFERRED STOCK WARRANT

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION.

WARRANT TO PURCHASE         [*]         SHARES OF SERIES B PREFERRED STOCK

Dated:                     [*]                     

THIS CERTIFIES THAT, for value received, Oxford Finance Corporation, a Delaware corporation, (“Holder”) is entitled to subscribe for and purchase                     [*]                      shares of the fully paid and nonassessable Series B Preferred Stock (the “Shares” or the “Preferred Stock”) of StemCo Biomedical, Inc., a Delaware corporation (the “Company”), at the Warrant Price (as hereinafter defined), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term “Series B Preferred Stock” shall mean the Company’s presently authorized Series B Preferred Stock, and any stock into which such Series B Preferred Stock may hereafter be exchanged.

[*] On June 25, 2003, the Company issued to Oxford Finance Corporation warrants to purchase 4,724.43 shares of Series B Preferred Stock. On July 24, 2003, the Company issued to Oxford Finance Corporation warrants to purchase 10,279 shares of Series B Preferred Stock. On March 11, 2004, the Company issued to Oxford Finance Corporation warrants to purchase 11,282 shares of Series B Preferred Stock.

1. Warrant Price. The Warrant Price shall initially be One and 00/100 dollars ($1.00) per share, subject to adjustment as provided in Section 7 below.

2. Conditions to Exercise. The purchase right represented by this Warrant may be exercised at any time, or from time to time, in whole or in part during the term commencing on the date hereof and ending on the earlier of:

(a) 5:00 P.M. Eastern Standard time on the seventh annual anniversary of this Warrant Agreement; or

(b) the closing of the initial public offering of the Company’s Common Stock pursuant to a registration statement under the Securities Act of 1933, as amended (the “Initial Public Offering”). The Company shall provide notice of the Initial Public Offering to the Holder at least 30 days prior to the closing thereof; or

(c) the effective date of the merger of the Company with or into, the consolidation of the Company with, or the sale by the Company of all or substantially all of its assets or all or substantially all of its shares to another corporation or other entity (other than such a transaction wherein the shareholders of the Company retain or obtain a majority of the voting capital stock of the surviving, resulting, or purchasing corporation); provided that the Company shall notify the registered Holder of this Warrant of the proposed effective date of the merger, consolidation, or sale at least 30 days prior to the effectiveness thereof.

In the event that, although the Company shall have given notice of a transaction pursuant to subparagraph (b) or subparagraph (c) hereof, the transaction does not close within 60 days of the day specified by the Company, unless otherwise elected by the Holder any exercise of the Warrant subsequent to the giving of such notice shall be rescinded and the Warrant shall again be exercisable until terminated in accordance with this Paragraph 2.

3. Method of Exercise; Payment; Issuance of Shares; Issuance of New Warrant.

(a) Cash Exercise. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the Holder hereof, in whole or in part, by the surrender of this Warrant (with a duly executed Notice of Exercise in the form attached hereto) at the principal office of the Company (as set forth in Section 18 below) and by payment to the Company, by check, of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased. In the event of any exercise of the rights represented by this Warrant, certificates for

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the shares of stock so purchased shall be in the name of, and delivered to, the Holder hereof, or as such Holder may direct (subject to the terms of transfer contained herein and upon payment by such Holder hereof of any applicable transfer taxes). Such delivery shall be made within 10 days after exercise of the Warrant and at the Company’s expense and, unless this Warrant has been fully exercised or expired, a new Warrant having terms and conditions substantially identical to this Warrant and representing the portion of the Shares, if any, with respect to which this Warrant shall not have been exercised, shall also be issued to the Holder hereof within 10 days after exercise of the Warrant.

(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 3(a), Holder may elect to receive shares equal to the value of this Warrant (or of any portion thereof remaining unexercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to Holder the number of shares of the Company’s Series B Preferred Stock computed using the following formula:

X	= Y(A-B)
	A

Where X = the number of shares of Series B Preferred Stock to be issued to Holder.

Y = the number of shares of Series B Preferred Stock purchasable under this Warrant (at the date of such calculation).

A = the Fair Market Value of one share of the Company’s Series B Preferred Stock (at the date of such calculation).

B = Warrant Exercise Price (as adjusted to the date of such calculation).

(c) Fair Market Value. For purposes of this Section 3, Fair Market Value of one share of the Company’s Series B Preferred Stock shall mean:

(i) In the event of an exercise in connection with an Initial Public Offering, the per share Fair Market Value for the Series B Preferred Stock shall be the Offering Price at which the underwriters initially sell Common Stock to the public multiplied by the number of shares of Common Stock into which each share of Series B Preferred Stock is then convertible; or

(ii) If the Common Stock is traded on Nasdaq or Over-The-Counter or on an exchange, the per share Fair Market Value for the Series B Preferred Stock will be the average of the closing bid and asked prices of the Common Stock quoted in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten (10) trading days prior to the date of determination of Fair Market Value multiplied by the number of shares of Common Stock into which each share of Series B Preferred Stock is then convertible; or

(iii) In the event of an exercise in connection with a merger, acquisition or other consolidation in which the Company is not the surviving entity, as described in Section 2(c), the per share Fair Market Value for the Series B Preferred Stock shall be the value to be received per share of Series B Preferred Stock by all Holders of the Series B Preferred Stock in such transaction as determined by the Board of Directors; or

(iv) In any other instance, the per share Fair Market Value for the Series B Preferred Stock shall be as determined in good faith by the Company’s Board of Directors, unless Holder elects to have such fair market value determined by an appraiser, which election must be

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made by Holder within ten (10) business days of the date the Company notifies Holder of the fair market value as determined by its Board of Directors. In the event of such an appraisal, the cost thereof shall be borne by the Holder unless such appraisal results in a fair market value in excess of 115% of that determined by the Company’s Board of Directors, in which event the Company shall bear the cost of such appraisal.

In the event of 3(c)(iii) or 3(c)(iv), above, the Company’s Board of Directors shall prepare a certificate, to be signed by an authorized Officer of the Company, setting forth in reasonable detail the basis for and method of determination of the per share Fair Market Value of the Series B Preferred Stock. The Board will also certify to the Holder that this per share Fair Market Value will be applicable to all holders of the Company’s Series B Preferred Stock. Such certification must be made to Holder at least thirty (30) business days prior to the proposed effective date of the merger, consolidation, sale, or other triggering event as defined in 3(c)(iii) and 3(c)(iv).

(d) Automatic Exercise. To the extent this Warrant is not previously exercised, it shall be automatically exercised in accordance with Sections 3(b) and 3(c) hereof (even if not surrendered) immediately before: (i) its expiration or (ii) the consummation of any consolidation or merger of the Company, or any sale or transfer of a majority of the Company’s assets or shares pursuant to Section 2(c).

4. Representations and Warranties of Holder and Restrictions on Transfer Imposed by the Securities Act of 1933.

(a) Representations and Warranties by Holder. The Holder represents and warrants to the Company with respect to this purchase as follows:

(i) The Holder has substantial experience in evaluating and investing in private placement transactions of securities of companies similar to the Company so that the Holder is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its interests.

(ii) The Holder is acquiring the Warrant and the Shares of Series B Preferred Stock issuable upon exercise of the Warrant (collectively the “Securities”) for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. The Holder understands that the Securities have not been registered under the Securities Act of 1933, as amended (the “Act”) by reason of a specific exemption from the registration provisions of the Act, which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. In this connection, the Holder understands that, in the view of the Securities and Exchange Commission (the “SEC”), the statutory basis for such exemption may be unavailable if this representation was predicated solely upon a present intention to hold the Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities or for a period of one year or any other fixed period in the future.

(iii) The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Act (“Rule 144”) which permits limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions, including, in case the securities have been held for more than one but less than two years, the existence of a public market for the shares, the availability of certain public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through a “broker’s transaction” or in a transaction directly with a “market maker” (as provided by Rule 144(f)) and the number of shares or other securities being sold during any three-month period not exceeding specified limitations.

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(iv) The Holder further understands that at the time the Holder wishes to sell the Securities there may be no public market upon which such a sale may be effected, and that even if such a public market exists, the Company may not be satisfying the current public information requirements of Rule 144, and that in such event, the Holder may be precluded from selling the Securities under Rule 144 unless a) a one-year minimum holding period has been satisfied and b) the Holder was not at the time of the sale nor at any time during the three-month period prior to such sale an affiliate of the Company.

(v) The Holder has had an opportunity to discuss the Company’s business, management and financial affairs with its management and an opportunity to review the Company’s facilities. The Holder understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company’s business and prospects which it believes to be material but were not necessarily a thorough or exhaustive description.

(b) Legends. Each certificate representing the Securities shall be endorsed with the following legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A “NO ACTION” LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION, OR (IF REASONABLY REQUIRED BY THE COMPANY) AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

The Company need not enter into its stock register a transfer of Securities unless the conditions specified in the foregoing legend are satisfied. The Company may also instruct its transfer agent not to register the transfer of any of the Shares unless the conditions specified in the foregoing legend are satisfied.

(c) Removal of Legend and Transfer Restrictions. The legend relating to the Act endorsed on a certificate pursuant to paragraph 4(b) of this Warrant and the stop transfer instructions with respect to the Securities represented by such certificate shall be removed and the Company shall issue a certificate without such legend to the Holder of the Securities if (i) the Securities are registered under the Act and a prospectus meeting the requirements of Section 10 of the Act is available or (ii) the Holder provides to the Company an opinion of counsel for the Holder reasonably satisfactory to the Company, or a no-action letter or interpretive opinion of the staff of the SEC reasonably satisfactory to the Company, to the effect that public sale, transfer or assignment of the Securities may be made without registration and without compliance with any restriction such as Rule 144.

5. Condition of Transfer or Exercise of Warrant. It shall be a condition to any transfer or exercise of this Warrant that at the time of such transfer or exercise, the Holder shall provide the Company with a representation in writing that the Holder or transferee is acquiring this Warrant and the shares of Series B Preferred Stock to be issued upon exercise, for investment purposes only and not with a view to any sale or distribution, or will provide the Company with a statement of pertinent facts covering any proposed distribution. As a further condition to any transfer of this Warrant or any or all of the shares of Series B Preferred Stock issuable upon exercise of this Warrant, other than a transfer registered under the Act, the Company must have received a legal opinion, in form and substance satisfactory to the Company and its counsel, reciting the pertinent circumstances surrounding the proposed transfer and stating that such transfer is exempt from the registration and prospectus delivery requirements of the Act. Each certificate evidencing the shares issued upon exercise of the Warrant or upon any transfer of the shares

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(other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall, at the Company’s option, contain a legend in form and substance satisfactory to the Company and its counsel, restricting the transfer of the shares to sales or other dispositions exempt from the requirements of the Act.

As further condition to each transfer, the Holder shall surrender this Warrant to the Company and the transferee shall receive and accept a Warrant, of like tenor and date, executed by the Company.

6. Stock Fully Paid; Reservation of Shares. All Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens, and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series B Preferred Stock to provide for the exercise of the rights represented by this Warrant.

7. Adjustment for Certain Events. In the event of changes in the outstanding Common Stock by reason of stock dividends, split-ups, recapitalizations, reclassifications, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Warrant Price shall be correspondingly adjusted, as appropriate, by the Board of Directors of the Company. The adjustment shall be such as will give the Holder of this Warrant upon exercise for the same aggregate Warrant Price the total number, class and kind of shares as it would have owned had the Warrant been exercised prior to the event and had it continued to hold such shares until after the event requiring adjustment.

8. Notice of Adjustments. Whenever any Warrant Price shall be adjusted pursuant to Section 7 hereof, the Company shall prepare a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and number of shares issuable upon exercise of the Warrant after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by certified or registered mail, return receipt required, postage prepaid, or by nationally recognized courier) within thirty (30) days of such adjustment to the Holder of this Warrant as set forth in Section 18 hereof.

9. “Market Stand-Off” Agreement. Holder hereby agrees that for a period of up to 180 days following the effective date of the first registration statement of the Company covering common stock (or other securities) to be sold on its behalf of the Company in an underwritten public offering, it will not, to the extent requested by the Company and any underwriter, sell or otherwise transfer or dispose of (other than to designees or transferees who agree to be similarly bound) any of the Shares at any time during such period except common stock included in such registration; provided, however, that all officers and directors of the Company who hold securities of the Company or options to acquire securities of the Company and all other persons with registration rights enter into similar agreements.

10. Transferability of Warrant. This Warrant is transferable on the books of the Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with Section 5 and applicable federal and state securities laws. The Company shall issue and deliver to the transferee a new Warrant representing the Warrant so transferred. Upon any partial transfer, the Company will issue and deliver to Holder a new Warrant with respect to the Warrant not so transferred. Holder shall not have any right to transfer any portion of this Warrant to any direct competitor of the Company.

11. No Fractional Shares. No fractional share of Series B Preferred Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional share the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect.

12. Charges, Taxes and Expenses. Issuance of certificates for shares of Series B Preferred Stock upon the exercise of this Warrant shall be made without charge to the Holder for any United States or state of the United States documentary stamp tax or other incidental expense with respect to the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder.

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13. No Shareholder Rights Until Exercise. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof.

14. Registry of Warrant. The Company shall maintain a registry showing the name and address of the registered Holder of this Warrant. This Warrant may be surrendered for exchange or exercise, in accordance with its terms, at such office or agency of the Company, and the Company and Holder shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

15. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft, or destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant, having terms and conditions substantially identical to this Warrant, in lieu hereof.

16. Miscellaneous.

(a) Issue Date. The provisions of this Warrant shall be construed and shall be given effect in all respect as if it had been issued and delivered by the Company on the date hereof.

(b) Successors. This Warrant shall be binding upon any successors or assigns of the Company.

(c) Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia.

(d) Headings. The headings used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

(e) Saturdays, Sundays, Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday in the Commonwealth of Virginia., then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.

17. No Impairment. The Company will not, by amendment of its Certificate of Incorporation or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder hereof against impairment.

18. Addresses. Any notice required or permitted hereunder shall be in writing and shall be mailed by overnight courier, registered or certified mail, return receipt required, and postage pre-paid, or otherwise delivered by hand or by messenger, addressed as set forth below, or at such other address as the Company or the Holder hereof shall have furnished to the other party.

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If to the Company:	StemCo Biomedical, Inc.
	2810 Meridian Parkway, Suite 148
	Durham, NC 27713
	Attn: Mr. James D. Petrilla
If to the Holder:	Oxford Finance Corporation
	133 N. Fairfax Street
	Alexandria, VA 22314
	Attn: Chief Financial Officer

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officers thereunto duly authorized.

Dated as of                                          .

By:
Name:	James D. Petrilla
Title:	Chief Executive Officer

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NOTICE OF EXERCISE

TO:

StemCo Biomedical, Inc.

2810 Meridian Parkway, Suite 148

Durham, NC 27713

Attn: Mr. James D. Petrilla

1. The undersigned Warrantholder (“Holder”) elects to acquire shares of the Series B Preferred Stock (the “Preferred Stock”) of StemCo Biomedical, Inc. (the “Company”), pursuant to the terms of the Stock Purchase Warrant dated                                  (the “Warrant”).

2. The Holder exercises its rights under the Warrant as set forth below:

(    ) The Holder elects to purchase              shares of Series B Preferred Stock as provided in Section 3(a), (c) and tenders herewith a check in the amount of $             as payment of the purchase price.

(    ) The Holder elects to convert the purchase rights into shares of Series B Preferred Stock as provided in Section 3(b), (c) of the Warrant.

3. The Holder surrenders the Warrant with this Notice of Exercise.

4. The Holder represents that it is acquiring the aforesaid shares of Series B Preferred Stock for investment and not with a view to, or for resale in connection with, distribution and that the Holder has no present intention of distributing or reselling the shares.

5. Please issue a certificate representing the shares of the Series B Preferred Stock in the name of the Holder or in such other name as is specified below:

Name:

Address:

Taxpayer I.D.:

	Oxford Finance Corporation
By:
Name:
Title:
Date:

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EX-10.12

Exhibit 10.12

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR IN ACCORDANCE WITH APPLICABLE LAW.

WARRANT TO PURCHASE STOCK

Corporation:	ALDAGEN, INC., a Delaware corporation
Number of Shares:	[*]
Class of Stock:	Series B Preferred Stock
Initial Exercise Price:	$1.00 per share
Issue Date:	[*]
Expiration Date:	[*]

[*] On March 21, 2006, the Company issued to Square 1 Bank warrants to purchase 75,000 shares of Series B Preferred Stock, and such warrants have an expiration date of March 21, 2013. On August 30, 2006, the Company issued to Square 1 Bank warrants to purchase 75,000 shares of Series B Preferred Stock, and such warrants have an expiration date of August 30, 2013. On December 4, 2006, the Company issued to Square 1 Bank warrants to purchase 45,000 shares of Series B Preferred Stock, and such warrants have an expiration date of December 4, 2013.

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, the receipt of which is hereby acknowledged, SQUARE 1 BANK or its assignee (“Holder”) is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the “Shares”) of the corporation (the “Company”) at the initial exercise price per Share (the “Warrant Price”) all as set forth above and as adjusted pursuant to Article 2 of this warrant, subject to the provisions and upon the terms and conditions set forth in this warrant.

ARTICLE 1

EXERCISE

1.1 Method of Exercise. Holder may exercise this warrant by delivering this warrant and a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased.

1.2 Conversion Right. In lieu of exercising this warrant as specified in Section 1.1, Holder may from time to time convert this warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Section 1.4.

1.3 Intentionally Omitted.

1.4 Fair Market Value. If the Shares are traded regularly in a public market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company’s stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not regularly traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.

1.5 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this warrant has not been fully exercised or converted and has not expired, a new warrant representing the Shares not so acquired.

1.6 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this warrant, the Company at its expense shall execute and deliver, in lieu of this warrant, a new warrant of like tenor.

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1.7 Repurchase on Sale, Merger, or Consolidation of the Company.

1.7.1 “Acquisition.” For the purpose of this warrant, “Acquisition” means (a) any sale, license, or other disposition of all or substantially all of the assets (including intellectual property) of the Company, or (b) any reorganization, consolidation, merger or sale of the voting securities of the Company or any other transaction where the holders of the Company’s securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction.

1.7.2 Assumption of Warrant. If upon the closing of any Acquisition the successor entity assumes the obligations of this warrant, then this warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. The Company shall use reasonable efforts to cause the surviving corporation to assume the obligations of this warrant.

1.7.3 Nonassumption. If upon the closing of any Acquisition the successor entity does not assume the obligations of this warrant and Holder has not otherwise exercised this warrant in full, then Holder shall have the option either to (a) deem this warrant to have been automatically converted pursuant to Section 1.2 and thereafter Holder shall participate in the Acquisition on the same terms as other holders of the same class of securities of the Company; or (b) require the Company to purchase this warrant for cash upon the closing of the Acquisition for an amount per Share equal to one (1) times the Warrant Price.

ARTICLE 2

ADJUSTMENTS TO THE SHARES

2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on its common stock payable in common stock, or other securities, or subdivides the outstanding common stock into a greater amount of common stock, then upon exercise of this warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred.

2.2 Reclassification, Exchange or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this warrant, Holder shall be entitled to receive, upon exercise or conversion of this warrant, the number and kind of securities and property that Holder would have received for the Shares if this warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company’s Certificate of Incorporation upon the closing of a registered public offering of the Company’s common stock. The Company or its successor shall promptly issue to Holder a new warrant for such new securities or other property. The new warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

2.3 Adjustments for Combinations, Etc. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased. If the outstanding Shares are combined or consolidated, by reclassification or otherwise, into a greater number of shares, the Warrant Price shall be proportionately decreased.

2.4 Adjustments for Diluting Issuances. In the event of the issuance (a “Diluting Issuance”) by the Company after the Issue Date of securities at a price per share less than the Warrant Price, then the number of shares of common stock issuable upon conversion of the Shares shall be adjusted in accordance with those provisions of the Company’s Certificate of Incorporation that apply to Diluting Issuances.

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2.5 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company at its expense shall promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price.

2.6 Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the Number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder amount computed by multiplying the fractional interest by the fair market value of a full Share.

ARTICLE 3

REPRESENTATIONS AND COVENANTS OF THE COMPANY

3.1 Representations and Warranties. The Company hereby represents and warrants to the Holder as follows:

(a) The initial Warrant Price referenced on the first page of this warrant is not greater than the lowest price at which the Company has sold its Series B Preferred Stock.

(b) All Shares which may be issued upon the exercise of the purchase right represented by this warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

(c) The Company’s capitalization table attached to this warrant is true and complete as of the Issue Date.

3.2 Notice of Certain Events. The Company shall provide Holder with not less than 10 days prior written notice, including a description of the material facts surrounding, any of the following events: (a) declaration of any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) offering for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) effecting any reclassification or recapitalization of common stock; or (d) the merger or consolidation with or into any other corporation, or sale, lease, license, or conveyance of all or substantially all of its assets, or liquidation, dissolution or winding up.

3.3 Information Rights. So long as the Holder holds this warrant and/or any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all communiques to the shareholders of the Company, (b) within ninety (90) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and (c) if requested by Holder, within forty-five (45) days after the end of each of the first three quarters of each fiscal year, the Company’s quarterly, unaudited financial statements.

3.4 Registration Under Securities Act of 1933, as amended. The Company agrees that, solely with respect to Section 2.3 of that certain Amended and Restated Investor Rights Agreement among the Company and other persons dated as of March 4, 2003, as may be amended from time to time, the Shares or, if the Shares are convertible into common stock of the Company, such common stock, shall be “Registrable Securities”, and Holder shall be a “Holder”.

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ARTICLE 4

REPRESENTATIONS OF THE HOLDER

4.1 Representations and Warranties. The Holder hereby represents and warrants to the Company as follows:

(a) This warrant and the Shares issuable upon exercise thereof are being acquired for its own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Act.

(b) The Holder understands that this warrant and the Shares have not been registered under the Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Act pursuant to Section 4(2) thereof, and that they must be held by the Holder indefinitely, and that the Holder must therefore bear the economic risk of such investment indefinitely, unless a disposition thereof is registered under the Act or is otherwise exempted from such registration.

(c) The Holder has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of acquiring and holding this warrant and the Shares and of protecting its interests in connection therewith.

(d) The Holder is able to bear the economic risk of acquiring the Shares pursuant to the terms of this Warrant.

ARTICLE 5

MISCELLANEOUS

5.1 Term: Exercise Upon Expiration. This warrant is exercisable in whole or in part, at any time and from time to time on or before the Expiration Date set forth above. If this warrant has not been exercised prior to the Expiration Date, this warrant shall be deemed to have been automatically exercised on the Expiration Date by “cashless” conversion pursuant to Section 1.2.

5.2 Legends. This warrant and the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR IN ACCORDANCE WITH APPLICABLE LAW.

5.3 Compliance with Securities Laws on Transfer. This warrant and the Shares issuable upon exercise of this warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee. The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144 (d) and (e) in reasonable detail, the selling broker represents that it has compiled with Rule 144(f), and the Company is provided with a copy of Holder’s notice of proposed sale.

5.4 Transfer Procedure. Subject to the provisions of Section 4.3, Holder may transfer all or part of this warrant or the Shares issuable upon exercise of this warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this warrant to the Company for reissuance to the transferee(s) (and Holder, if applicable). No surrender or reissuance shall be required if the transfer is to an affiliate of Holder.

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5.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time. All notices to the Holder shall be addressed as follows:

Square 1 Bank

Attn: Warrant Administrator

406 Blackwell Street, Suite 240

Crowe Building

Durham, NC 27701

5.6 Amendments. This warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

5.7 Attorneys’ Fees. In the event of any dispute between the parties concerning the terms and provisions of this warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

5.8 Governing Law. This warrant shall be governed by and construed in accordance with the laws of the State of North Carolina, without giving effect to its principles regarding conflicts of law.

ALDAGEN, INC.
By:	/s/ Edward L. Field
Name:	Edward L. Field
Title:	President

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APPENDIX 1

NOTICE OF EXERCISE

1. The undersigned hereby elects to purchase                      shares of the                      stock of ALDAGEN, INC. pursuant to the terms of the attached warrant, and tenders herewith payment of the purchase price of such shares in full.

2. The undersigned hereby elects to convert the attached warrant into shares in the manner specified in the warrant. This conversion is exercised with respect                      to of the shares covered by the warrant.

[Strike paragraph that does not apply.]

3. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below:

Square 1 Bank

Attn: Warrant Administrator

406 Blackwell Street, Suite 240

Crowe Building

Durham, NC 27701

4. The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws.

SQUARE 1 BANK or Registered Assignee

(Signature)

[DATE]

(Date)

EX-10.13

Exhibit 10.13

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN JURISDICTION. THIS WARRANT AND SUCH UNDERLYING SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, RENOUNCED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR THE AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.

ALDAGEN, INC.

AMENDED AND RESTATED PREFERRED STOCK PURCHASE WARRANT

This Amended and Restated Preferred Stock Purchase Warrant (the “Warrant”) is issued as of this the 15^th day of December, 2006, by ALDAGEN, INC., a Delaware corporation (the “Company”), to                                         , or permitted assigns (the “Holder”).

1. Issuance of Warrant; Term; Price.

1.1. Issuance. In consideration of the funding of a loan in the amount of $                (the “Loan”), which Loan converted into shares of the Company’s Series C Preferred Stock, $0.001 par value per share (the “Series C Preferred Stock”) on December 15, 2006, the Company hereby grants to Holder the right to subscribe and purchase                  shares of Series C Preferred Stock. The shares of securities for which this Warrant may be exercisable from time to time shall be referred to herein as the “Warrant Stock”. This Warrant amends and restates and replaces and supersedes in their entirety those certain Preferred Stock Purchase Warrants previously granted to Holder on                 .

1.2 Exercisability. This Warrant shall become exercisable for Warrant Stock on December 15, 2006 (the “Exercise Commencement Date”).

1.3 Term. The shares of Warrant Stock issuable upon exercise of this Warrant are hereinafter referred to as the “Shares.” This Warrant shall be exercisable at any time and from time to time in whole or in part from the Exercise Commencement Date until the date five (5) years from such date.

1.4 Exercise Price. Subject to adjustment as hereinafter provided, the exercise price (the “Warrant Price”) per share for which all or any of the Shares may be purchased pursuant to the terms of this Warrant shall be equal to $0.7278 per share, as adjusted for stock splits, stock dividends, recapitalizations and similar events.

2. Adjustment of Warrant Price, Number and Kind of Shares. The Warrant Price and the number and kind of securities issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, and the Company agrees to provide ten (10) days written notice upon the happening of certain events, as follows.

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2.1. Dividends in Stock Adjustment. In case at any time or from time to time on or after the date hereof the holders of the Series C Preferred Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional securities or other property (other than cash) of the Company by way of dividend or distribution (except for distributions specifically provided for below in Section 2.3) then, and in each case, the holder of this Warrant shall, upon the exercise hereof, be entitled to receive, in addition to the number of shares of Warrant Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of such other or additional securities or other property (other than cash) of the Company which such holder would hold on the date of such exercise had it been the holder of record of such stock on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional securities or other property receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by this Section 2.

2.2. Reclassification or Reorganization Adjustment. In case of any changes in the class or kind of securities issuable upon exercise of this Warrant or any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) on or after the date hereof, then and in each such case the Company shall give the holder of this Warrant at least twenty (20) days notice of the proposed effective date of such transaction, and the holder of this Warrant, upon the exercise hereof at any time after the consummation of such reclassification, change or reorganization, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such holder would have been entitled upon such consummation if such holder had exercised this Warrant immediately prior thereto, and the Warrant Price therefore shall be appropriately adjusted, all subject to further adjustment as provided in this Section 2.

2.3. Stock Splits and Reverse Stock Splits. If at any time on or after the date hereof the Company shall split, subdivide or otherwise change its outstanding shares of any securities receivable upon exercise of this Warrant into a greater number of shares, the Warrant Price in effect immediately prior to such subdivision shall thereby be proportionately reduced and the number of shares receivable upon exercise of this Warrant shall thereby be proportionately increased; and, conversely, if at any time on or after the date hereof the outstanding number of shares of any securities receivable upon exercise of this Warrant shall be combined into a smaller number of shares, the Warrant Price in effect immediately prior to such combination shall thereby be proportionately increased and the number of shares receivable upon exercise of this Warrant shall thereby be proportionately decreased, all subject to further adjustment as provided in this Section 2.

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2.4. Conversion or Redemption of Warrant Stock. If at the time of any exercise of this Warrant there are no other shares of shares of Warrant Stock that would otherwise be receivable upon exercise of this Warrant (such shares having been converted or redeemed), this Warrant shall be exercisable for Common Stock in the same amounts, for the same prices and on the same terms, as though the Warrant had been exercised for shares of the Warrant Stock and immediately converted into shares of Common Stock.

2.5 Other Impairment. The Company will not, by amendment of its Certificate of Incorporation or Bylaws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and conditions and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder against impairment.

3. No Fractional Shares. No fractional shares of Warrant Stock will be issued in connection with any subscription hereunder. In lieu of any fractional shares that would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Warrant Stock on the date of exercise, as determined in good faith by the Company’s Board of Directors.

4. No Stockholder Rights. This Warrant as such shall not entitle its holder to any of the rights of a stockholder of the Company until the holder has exercised this Warrant in accordance with Section 6 or Section 7 hereof.

5. Reservation of Stock. The Company covenants that during the period this Warrant is exercisable, the Company will reserve from its authorized and unissued Warrant Stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise of this Warrant. The Company agrees that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Warrant Stock upon the exercise of this Warrant.

6. Exercise of Warrant. This Warrant may be exercised by Holder by the surrender of this Warrant at the principal office of the Company, accompanied by payment in full of the purchase price of the shares purchased thereby, as described above. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person or entity entitled to receive the shares or other securities issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. As promptly as practicable, the Company shall issue and deliver to the person or entity entitled to receive the same a certificate or certificates for the number of full shares of Warrant Stock issuable upon such exercise, together with cash in lieu of any fraction of a share as provided above. The shares of Warrant Stock issuable upon exercise hereof shall, upon their issuance, be fully paid and nonassessable. If this Warrant shall be exercised in part only, the Company shall, at the time of delivery of the certificate representing the Shares or other securities in respect of which this Warrant has been

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exercised, deliver to the Holder a new Warrant evidencing the right to purchase the remaining Shares or other securities purchasable under this Warrant, which new warrant shall, in all other respects, be identical to this Warrant.

7. Net Issue Election.

7.1. Right to Convert. In addition to and without limiting the rights of the Holder under the terms of this Warrant, the Holder shall have the right to convert this Warrant or any portion hereof (the “Conversion Right”) into shares of Common Stock or Warrant Stock as provided in this Section 7. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by the Holder of any cash or other consideration) that number of shares of Common Stock or Warrant Stock equal to the quotient obtained by dividing (x) the value of this Warrant (or the specified portion hereof) on the Conversion Date (as defined in subsection 7.2 hereof), which value shall be determined by subtracting (A) the aggregate Warrant Price of the Converted Warrant Shares immediately prior to the exercise of the Conversion Right from (B) the aggregate fair market value of the Converted Warrant Shares issuable upon exercise of this Warrant (or the specified portion hereof) on the Conversion Date (as herein defined) by (y) the fair market value of one share of Warrant Stock on the Conversion Date (as herein defined). No fractional shares shall be issuable upon exercise of the Conversion Right, and if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as herein defined).

7.2. Method of Exercise. The Conversion Right may be exercised by the Holder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant that are being surrendered (referred to in subsection 7.1 hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon such surrender of this Warrant (the “Conversion Date”). Certificates for the shares of Common Stock or Warrant Stock issuable upon exercise of the Conversion Right (or any other securities deliverable in lieu thereof under Section 2) shall be issued as of the Conversion Date and shall be delivered to the Holder immediately following the Conversion Date, or, if requested at the time of surrender of this Warrant, held for pick-up by the Holder at the Company’s principal office.

7.3. Determination of Fair Market Value. For purposes of this Section 7, fair market value (the “Market Price”) of a share of Common Stock or Warrant Stock as of a particular date (the “Determination Date”) shall mean the average of the closing prices of such security’s sales on the principal securities exchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the last sale prices quoted in the Nasdaq System, or if on any day such security is not quoted in the Nasdaq System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such

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case averaged over a period of five (5) days consisting of the day prior to the day as of which “Market Price” is being determined and the five (5) consecutive business days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the Nasdaq System or the over-the-counter market, the “Market Price” shall be the fair value thereof as determined in good faith by the Company’s Board of Directors.

8. Certificate of Adjustment. Whenever the Warrant Price or number or type of securities issuable upon exercise of this Warrant is adjusted, as herein provided, the Company shall promptly deliver to the record holder of this Warrant a certificate of an officer of the Company setting forth the nature of such adjustment and a brief statement of the facts requiring such adjustment.

9. Notice of Proposed Transfers. This Warrant is transferable by the Holder hereof subject to compliance with this Section 9. Prior to any proposed transfer of this Warrant or the shares of Warrant Stock received on the exercise of this Warrant (the “Securities”), unless there is in effect a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), covering the proposed transfer, the Holder thereof shall give written notice to the Company of such Holder’s intention to effect such transfer. Each such notice shall describe the manner and circumstances of the proposed transfer in sufficient detail, and shall, if the Company so requests, be accompanied (except in transactions in compliance with Rule 144) by either (i) an unqualified written opinion of legal counsel who shall be reasonably satisfactory to the Company addressed to the Company and reasonably satisfactory in form and substance to the Company’s counsel, to the effect that the proposed transfer of the Securities may be effected without registration under the Securities Act and any applicable state securities laws, or (ii) a “no action” letter from the Securities Exchange Commission (the “Commission”) to the effect that the transfer of such Securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the Holder of the Securities shall be entitled to transfer the Securities in accordance with the terms of the notice delivered by the Holder to the Company; provided, however, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder to any affiliate of such Holder, or a transfer by a Holder which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his spouse or lineal descendants or ancestors, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if such transferee were the original Holder hereunder. Each certificate evidencing the Securities transferred as above provided shall bear the appropriate restrictive legend set forth above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for the Company such legend is not required in order to establish compliance with any provisions of the Securities Act.

10. Replacement of Warrants. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of the Warrant, and in the case of any such loss, theft or destruction of the Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrant if mutilated, the Company will execute and deliver, in lieu thereof, a new Warrant of like tenor.

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11. Miscellaneous. This Warrant shall be governed by the laws of the State of North Carolina. The headings in this Warrant are for purposes of convenience of reference only, and shall not be deemed to constitute a part hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provisions. All notices and other communications from the Company to the holder of this Warrant shall be given in writing and shall be deemed effectively given as provided in the Note and Warrant Purchase Agreement among the Company, the Holder and the Purchasers listed therein, dated March 23, 2005 (the “Purchase Agreement”).

12. Taxes. The Company shall pay all issue taxes and other governmental charges (but not including any income taxes of a Holder) that may be imposed in respect of the issuance or delivery of the Shares or any portion thereof.

13. Amendment. Any term of this Warrant may be amended or waived with the written consent of the Company and the holders of Warrants representing a majority of the shares of Warrant Stock issuable upon exercise of the then outstanding unexercised warrants issued under the Purchase Agreement (the “Bridge Warrants”); provided, however, that any such amendment or waiver that disproportionately affects any of the holders of the then outstanding unexercised Bridge Warrants shall require the written consent of all such holders. Any amendment or waiver effected in accordance with this Section 13 shall be binding upon each holder of any Bridge Warrant, each future holder of all such Bridge Warrants and the Company, and the Company shall promptly give notice to all holders of outstanding Bridge Warrants of any amendment or waiver effected in accordance with this Section 13.

14. Remedies. In the event of any default or threatened default by the Company in the performance of or observance with any of the terms of this Warrant, it is agreed that remedies at law are not and will not be adequate for the Holder and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

15. Facsimile Signature. This Warrant may be executed by the Company in facsimile form and upon receipt by the Holder of such faxed executed copy of this Warrant, this Warrant shall be binding upon and enforceable against the Company in accordance with its terms. The Company shall promptly forward to the Holder an original of the facsimile signed copy of this Warrant previously delivered to Holder.

16. Qualifying Public Offering. If the Company shall effect a firm commitment underwritten public offering of shares of Common Stock which results in the conversion of the Preferred Stock into Common Stock pursuant to the Company’s Certificate of Incorporation in effect immediately prior to such offering, then, effective upon such conversion, this Warrant shall change from the right to purchase shares of Series C Preferred Stock to the right to purchase shares of Common Stock, and the Holder shall thereupon have the right to purchase, at a total price equal to that payable upon the exercise of this Warrant in full, the number of shares

6

of Common Stock which would have been receivable by the Holder upon the exercise of this Warrant for shares of Series C Preferred Stock immediately prior to such conversion of such shares of Series C Preferred Stock into shares of Common Stock, and in such event appropriate provisions shall be made with respect to the rights and interest of the Holder to the end that the provisions hereof (including, without limitation, the provisions for the adjustment of the Purchase Price and of the number of shares purchasable upon exercise of this Warrant and the provisions relating to the net issue election) shall thereafter be applicable to any shares of Common Stock deliverable upon the exercise hereof.

[THE NEXT PAGE IS THE SIGNATURE PAGE]

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IN WITNESS WHEREOF, the undersigned officer of the Company has set his hands as of the date first above written.

ALDAGEN, INC.
By:
Name:	Edward L. Field
Title:	President and Chief Operating Officer

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ALDAGEN, INC.

AMENDED AND RESTATED SERIES C WARRANTS

The Series C Preferred Stock Purchase Warrants represented by this form are substantially identical in all material respects except as to the details below. Accordingly, pursuant to Instruction 2 to Item 601(b) of Regulation S-K, we have filed the form of warrant herewith.

Name	Number of       Exercise       Shares	Amount of         Loan		Date(s) of Previous       Warrant(s)       Superseded
Aurora Enrichment Fund, LLC	205,792	$	599,101.35	March 23, 2005
Harbinger/Aurora Venture Fund, L.L.C.	42,081	$	122,507.54	November 1, 2005
Harbinger/Aurora QP Venture Fund, L.L.C.	60,814	$	177,043.13	November 1, 2005
W. Lowry Caudill	30,869	$	89,865.20	March 23, 2005 and November 1, 2005
Alfred G. Childers	30,869	$	89,865.20	April 6, 2005 and November 1, 2005
Intersouth Affiliates V, L.P.	26,986	$	78,561.96	March 23, 2005 and November 1, 2005
Intersouth Partners V. L.P.	590,390	$	1,718,742.09	March 23, 2005 and November 1, 2005
Jonathan M. Lawrie	12,366	$	36,000.00	March 23, 2005 and November 1, 2005
Piedmont Angel Network LLC	40,901	$	119,071.39	March 23, 2005 and November 1, 2005
Tall Oaks StemCo Partners, LP	36,014	$	104,843.49	March 23, 2005 and November 1, 2005
The Trelys Funds, L.P.	231,516	$	673,989.02	April 6, 2005 and November 1, 2005
Village Venture Partners Fund, L.P.	16,739	$	48,730.30	March 23, 2005 and November 1, 2005
Village Venture Partners Fund A, L.P.	1,268	$	3,690.31	March 23, 2005 and November 1, 2005

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EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated May 7, 2008, in the Registration Statement (Form S-1) and related Prospectus of Aldagen, Inc. for the registration of shares of its common stock.

Ernst & Young LLP

Raleigh, North Carolina

The foregoing consent is in the form that will be signed upon the completion of the reverse stock split described in Note 11 to the financial statements.

/s/ Ernst & Young LLP

Raleigh, North Carolina

May 7, 2008