ISOLAGEN INC (Form: 10-Q, Received: 08/12/2009 17:01:38)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2009


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Isolagen, Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation)		001-31564 (Commission File Number)		87-0458888 (I.R.S. Employer Identification No.)

405 Eagleview Boulevard
Exton, Pennsylvania 19341
(Address of principal executive offices, including zip code)

(484) 713-6000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for any shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.) Yes o No o

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 definition of “accelerated filer, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

As of August 7, 2009, issuer had 42,820,380 shares of issued and 38,820,380 shares outstanding common stock, par value $0.001.

TABLE OF CONTENTS


	Page

Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets June 30, 2009 (unaudited) and December 31, 2008 (unaudited)		1

Consolidated Statements of Operations Three months ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited)		2

Consolidated Statements of Operations Six months ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited) and from inception to June 30, 2009		3

Consolidated Statements of Shareholders’ Equity (Deficit) and Comprehensive Loss From inception to June 30, 2009 (unaudited)		4

Consolidated Statements of Cash Flows Six months ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited) and cumulative period from inception to June 30, 2009 (unaudited)		15

Notes to Unaudited Consolidated Financial Statements		16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		45

Item 3. Quantitative and Qualitative Disclosures about Market Risk		63

Item 4. Controls and Procedures		63

Part II. Other Information

Item 1. Legal Proceedings		64

Item 1A. Risk Factors		64

Item 6. Exhibits		64

Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

Isolagen, Inc.
(Debtor-in-Possession)
(A Development Stage Company)

Consolidated Balance Sheets

(Unaudited)


	June 30,			December 31,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	1,039,566		$	2,854,300
Accounts receivable, net		240,917			338,850
Inventory, net		447,449			467,246
Prepaid expenses		376,119			738,652
Other current assets		—			624,365
Current assets of discontinued operations, net		16,248			29,992

Total current assets		2,120,299			5,053,405
Other assets		118,992			—

Total assets	$	2,239,291		$	5,053,405


Liabilities, Minority Interests and Shareholders’ Deficit
Current liabilities:
Current debt	$	24,705		$	90,072,286
Accounts payable		175,879			415,909
Accrued expenses		484,873			1,647,713
Deferred revenue		—			7,522
Liabilities subject to compromise		82,346,119			—
Prepetition secured loan, subject to compromise		500,471			—
Debtor-in-possession loan		1,000,000			—
Current liabilities of discontinued operations		226,142			209,458

Total current liabilities		84,758,189			92,352,888
Other long term liabilities of continuing operations		1,114,836			1,171,638

Total liabilities		85,873,025			93,524,526


Commitments and contingencies (see Note 12)

Equity
Isolagen, Inc. shareholders’ deficit:
Preferred stock, $.001 par value; 5,000,000 shares authorized		—			—
Series C junior participating preferred stock, $.001 par value; 10,000 shares authorized		—			—
Common stock, $.001 par value; 100,000,000 shares authorized		42,820			41,639
Additional paid-in capital		142,407,206			131,341,227
Treasury stock, at cost, 4,000,000 shares		(25,974,000	)		(25,974,000	)
Accumulated deficit during development stage		(200,278,450	)		(194,057,337	)

Total Isolagen, Inc. shareholders’ deficit		(83,802,424	)		(88,648,471	)

Noncontrolling interest		168,690			177,350

Total equity deficit		(83,633,734	)		(88,471,121	)

Total liabilities and equity deficit	$	2,239,291		$	5,053,405

The accompanying notes are an integral part of these consolidated financial statements.

Isolagen, Inc.
(Debtor-in-Possession)
(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended
	June 30,
	2009			2008
Revenue
Product sales	$	248,991		$	271,721
License fees		—			—

Total revenue		248,991			271,721
Cost of sales		107,929			147,787

Gross profit		141,062			123,934

Selling, general and administrative expenses		1,068,851			2,211,562
Research and development expenses		485,300			3,251,355

Operating loss		(1,413,089	)		(5,338,983	)
Other income (expense)
Interest income		7			46,886
Reorganization items		(593,204	)		—
Interest expense		(969,200	)		(974,810	)


Loss from continuing operations		(2,975,486	)		(6,266,907	)
Loss from discontinued operations, net of tax (see Notes 7 and 9)		(142,780	)		(153,408	)

Net loss		(3,118,266	)		(6,420,315	)
Plus: Net loss (income) attributable to noncontrolling interest		(5,269	)		21,910

Net loss attributable to Isolagen, Inc. common shareholders		(3,123,535	)		(6,398,405	)


Per share information:
Loss from continuing operations—basic and diluted	$	(0.08	)	$	(0.17	)
Loss from discontinued operations—basic and diluted		—			—
Loss attributable to Noncontrolling interest		—			—

Net loss attributable to common shareholders per common share—basic and diluted	$	(0.08	)	$	(0.17	)

Weighted average number of basic and diluted common shares outstanding		38,384,120			37,639,492

The accompanying notes are an integral part of these consolidated financial statements.

Isolagen, Inc.
(Debtor-in-Possession)
(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)


							Cumulative
							Period from
							December 28,
							1995 (date of
	Six Months Ended						inception) to
	June 30,						June 30,
	2009			2008			2009
Revenue
Product sales	$	407,880		$	489,674		$	4,688,254
License fees		—			—			260,000

Total revenue		407,880			489,674			4,948,254
Cost of sales		171,719			318,762			2,026,915

Gross profit		236,161			170,912			2,921,339

Selling, general and administrative expenses		2,268,415			6,156,400			83,646,561
Research and development expenses		1,493,207			6,145,211			55,655,358

Operating loss		(3,525,461	)		(12,130,699	)		(136,380,580	)
Other income (expense)
Interest income		247			133,518			6,989,538
Reorganization items		(593,204	)		—			(593,204	)
Other income		—			—			322,581
Interest expense		(1,942,075	)		(1,949,620	)		(18,500,155	)

Loss from continuing operations before income taxes		(6,060,493	)		(13,946,801	)		(148,161,820	)
Income tax benefit		—			—			190,754


Loss from continuing operations		(6,060,493	)		(13,946,801	)		(147,971,066	)
Loss from discontinued operations, net of tax (see Notes 7 and 9)		(169,280	)		(4,477,021	)		(41,307,514	)

Net loss		(6,229,773	)		(18,423,822	)		(189,278,580	)
Deemed dividend associated with beneficial conversion		—			—			(11,423,824	)
Preferred stock dividends		—			—			(1,589,861	)
Plus: Net loss attributable to noncontrolling interest		8,660			60,495			2,013,815

Net loss attributable to Isolagen, Inc. common shareholders	$	(6,221,113	)	$	(18,363,327	)	$	(200,278,450	)


Per share information:
Loss from continuing operations—basic and diluted	$	(0.16	)	$	(0.37	)	$	(8.50	)
Loss from discontinued operations—basic and diluted		—			(0.12	)		(2.37	)
Loss attributable to noncontrolling interest		—			—			0.12
Deemed dividend associated with beneficial conversion of preferred stock		—			—			(0.66	)
Preferred stock dividends		—			—			(0.09	)

Net loss attributable to common shareholders per common share—basic and diluted	$	(0.16	)	$	(0.49	)	$	(11.50	)

Weighted average number of basic and diluted common shares outstanding		38,027,838			37,639,525			17,412,495

The accompanying notes are an integral part of these consolidated financial statements.

Isolagen, Inc.
(Debtor-in-Possession)
(A Development Stage Company)

Consolidated Statements of Shareholders’ Equity (Deficit) and Comprehensive Income (Loss)


																						Accumulated
	Series A				Series B																	Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock				Accumulated Other		During			Shareholders’
	Number of				Number of				Number of				Paid-In			Number of				Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount		Income		Stage			(Deficit)
Issuance of common stock for cash on 12/28/95		—	$	—		—	$	—		2,285,291	$	2,285	$	(1,465	)		—	$	—	$	—	$	—		$	820
Issuance of common stock for cash on 11/7/96		—		—		—		—		11,149		11		49,989			—		—		—		—			50,000
Issuance of common stock for cash on 11/29/96		—		—		—		—		2,230		2		9,998			—		—		—		—			10,000
Issuance of common stock for cash on 12/19/96		—		—		—		—		6,690		7		29,993			—		—		—		—			30,000
Issuance of common stock for cash on 12/26/96		—		—		—		—		11,148		11		49,989			—		—		—		—			50,000

Net loss		—		—		—		—		—		—		—			—		—		—		(270,468	)		(270,468	)

Balance, 12/31/96		—	$	—		—	$	—		2,316,508	$	2,316	$	138,504			—	$	—	$	—	$	(270,468	)	$	(129,648	)
Issuance of common stock for cash on 12/27/97		—		—		—		—		21,182		21		94,979			—		—		—		—			95,000
Issuance of common stock for services on 9/1/97		—		—		—		—		11,148		11		36,249			—		—		—		—			36,260
Issuance of common stock for services on 12/28/97		—		—		—		—		287,193		287		9,968			—		—		—		—			10,255
Net loss		—		—		—		—		—		—		—			—		—		—		(52,550	)		(52,550	)

Balance, 12/31/97		—	$	—		—	$	—		2,636,031	$	2,635	$	279,700			—	$	—	$	—	$	(323,018	)	$	(40,683	)

The accompanying notes are an integral part of these consolidated financial statements.


																							Accumulated
	Series A				Series B																Accumulated		Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other		During			Shareholders’
	Number of				Number of				Number of				Paid-In			Number of					Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount			Income		Stage			(Deficit)
Issuance of common stock for cash on 8/23/98		—	$	—		—	$	—		4,459	$	4	$	20,063			—	$	—		$	—	$	—		$	20,067
Repurchase of common stock on 9/29/98		—		—		—		—		—		—		—			2,400		(50,280	)		—		—			(50,280	)
Net loss		—		—		—		—		—		—		—			—		—			—		(195,675	)		(195,675	)

Balance, 12/31/98		—	$	—		—	$	—		2,640,490	$	2,639	$	299,763			2,400	$	(50,280	)	$	—	$	(518,693	)	$	(266,571	)
Issuance of common stock for cash on 9/10/99		—		—		—		—		52,506		53		149,947			—		—			—		—			150,000
Net loss		—		—		—		—		—		—		—			—		—			—		(1,306,778	)		(1,306,778	)

Balance, 12/31/99		—	$	—		—	$	—		2,692,996	$	2,692	$	449,710			2,400	$	(50,280	)	$	—	$	(1,825,471	)	$	(1,423,349	)
Issuance of common stock for cash on 1/18/00		—		—		—		—		53,583		54		1,869			—		—			—		—			1,923
Issuance of common stock for services on 3/1/00		—		—		—		—		68,698		69		(44	)		—		—			—		—			25
Issuance of common stock for services on 4/4/00		—		—		—		—		27,768		28		(18	)		—		—			—		—			10
Net loss		—		—		—		—		—		—		—			—		—			—		(807,076	)		(807,076	)

Balance, 12/31/00		—	$	—		—	$	—		2,843,045	$	2,843	$	451,517			2,400	$	(50,280	)	$	—	$	(2,632,547	)	$	(2,228,467	)

The accompanying notes are an integral part of these consolidated financial statements.


																							Accumulated
	Series A				Series B																Accumulated		Deficit		Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other		During		Shareholders’
	Number of				Number of				Number of				Paid-In			Number of					Comprehensive		Development		Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares			Amount		Income		Stage		(Deficit)
Issuance of common stock for services on 7/1/01		—	$	—		—	$	—		156,960	$	157	$	(101	)		—		$	—	$	—	$	—	$	56
Issuance of common stock for services on 7/1/01		—		—		—		—		125,000		125		(80	)		—			—		—		—		45
Issuance of common stock for capitalization of accrued salaries on 8/10/01		—		—		—		—		70,000		70		328,055			—			—		—		—		328,125
Issuance of common stock for conversion of convertible debt on 8/10/01		—		—		—		—		1,750,000		1,750		1,609,596			—			—		—		—		1,611,346
Issuance of common stock for conversion of convertible shareholder notes payable on 8/10/01		—		—		—		—		208,972		209		135,458			—			—		—		—		135,667
Issuance of common stock for bridge financing on 8/10/01		—		—		—		—		300,000		300		(192	)		—			—		—		—		108
Retirement of treasury stock on 8/10/01		—		—		—		—		—		—		(50,280	)		(2,400	)		50,280		—		—		—
Issuance of common stock for net assets of Gemini on 8/10/01		—		—		—		—		3,942,400		3,942		(3,942	)		—			—		—		—		—
Issuance of common stock for net assets of AFH on 8/10/01		—		—		—		—		3,899,547		3,900		(3,900	)		—			—		—		—		—
Issuance of common stock for cash on 8/10/01		—		—		—		—		1,346,669		1,347		2,018,653			—			—		—		—		2,020,000
Transaction and fund raising expenses on 8/10/01		—		—		—		—		—		—		(48,547	)		—			—		—		—		(48,547	)
Issuance of common stock for services on 8/10/01		—		—		—		—		60,000		60		—			—			—		—		—		60
Issuance of common stock for cash on 8/28/01		—		—		—		—		26,667		27		39,973			—			—		—		—		40,000
Issuance of common stock for services on 9/30/01		—		—		—		—		314,370		314		471,241			—			—		—		—		471,555

The accompanying notes are an integral part of these consolidated financial statements.


																					Accumulated
	Series A				Series B														Accumulated		Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional		Treasury Stock				Other		During			Shareholders’
	Number of				Number of				Number of				Paid-In		Number of				Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Shares		Amount		Income		Stage			(Deficit)
Uncompensated contribution of services—3rd quarter		—	$	—		—	$	—		—	$	—	$	55,556		—	$	—	$	—	$	—		$	55,556
Issuance of common stock for services on 11/1/01		—		—		—		—		145,933		146		218,754		—		—		—		—			218,900
Uncompensated contribution of services—4th quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Net loss		—		—		—		—		—		—		—		—		—		—		(1,652,004	)		(1,652,004	)

Balance, 12/31/01		—	$	—		—	$	—		15,189,563	$	15,190	$	5,321,761		—	$	—	$	—	$	(4,284,551	)	$	1,052,400
Uncompensated contribution of services—1st quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Issuance of preferred stock for cash on 4/26/02		905,000		905		—		—		—		—		2,817,331		—		—		—		—			2,818,236
Issuance of preferred stock for cash on 5/16/02		890,250		890		—		—		—		—		2,772,239		—		—		—		—			2,773,129
Issuance of preferred stock for cash on 5/31/02		795,000		795		—		—		—		—		2,473,380		—		—		—		—			2,474,175
Issuance of preferred stock for cash on 6/28/02		229,642		230		—		—		—		—		712,991		—		—		—		—			713,221
Uncompensated contribution of services—2nd quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Issuance of preferred stock for cash on 7/15/02		75,108		75		—		—		—		—		233,886		—		—		—		—			233,961
Issuance of common stock for cash on 8/1/02		—		—		—		—		38,400		38		57,562		—		—		—		—			57,600
Issuance of warrants for services on 9/06/02		—		—		—		—		—		—		103,388		—		—		—		—			103,388
Uncompensated contribution of services—3rd quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Uncompensated contribution of services—4th quarter		—		—		—		—		—		—		100,000		—		—		—		—			100,000
Issuance of preferred stock for dividends		143,507		144		—		—		—		—		502,517		—		—		—		(502,661	)		—
Deemed dividend associated with beneficial conversion of preferred stock		—		—		—		—		—		—		10,178,944		—		—		—		(10,178,944	)		—
Comprehensive income:
Net loss		—		—		—		—		—		—		—		—		—		—		(5,433,055	)		(5,433,055	)
Other comprehensive income, foreign currency translation adjustment		—		—		—		—		—		—		—		—		—		13,875		—			13,875

Comprehensive loss		—		—		—		—		—		—		—		—		—		—		—			(5,419,180	)

Balance, 12/31/02		3,038,507	$	3,039		—	$	—		15,227,963	$	15,228	$	25,573,999		—	$	—	$	13,875	$	(20,399,211	)	$	5,206,930

The accompanying notes are an integral part of these consolidated financial statements.


																												Accumulated
	Series A						Series B																			Accumulated		Deficit			Total
	Preferred Stock						Preferred Stock						Common Stock						Additional			Treasury Stock				Other		During			Shareholders’
	Number of						Number of						Number of						Paid-In			Number of				Comprehensive		Development			Equity
	Shares			Amount			Shares			Amount			Shares			Amount			Capital			Shares		Amount		Income		Stage			(Deficit)
Issuance of common stock for cash on 1/7/03		—		$	—			—		$	—			61,600		$	62		$	92,338			—	$	—	$	—	$	—		$	92,400
Issuance of common stock for patent pending acquisition on 3/31/03		—			—			—			—			100,000			100			539,900			—		—		—		—			540,000
Cancellation of common stock on 3/31/03		—			—			—			—			(79,382	)		(79	)		(119,380	)		—		—		—		—			(119,459	)
Uncompensated contribution of services—1st quarter		—			—			—			—			—			—			100,000			—		—		—		—			100,000
Issuance of preferred stock for cash on 5/9/03		—			—			110,250			110			—			—			2,773,218			—		—		—		—			2,773,328
Issuance of preferred stock for cash on 5/16/03		—			—			45,500			46			—			—			1,145,704			—		—		—		—			1,145,750
Conversion of preferred stock into common stock—2nd qtr		(70,954	)		(72	)		—			—			147,062			147			40,626			—		—		—		—			40,701
Conversion of warrants into common stock—2nd qtr		—			—			—			—			114,598			114			(114	)		—		—		—		—			—
Uncompensated contribution of services—2nd quarter		—			—			—			—			—			—			100,000			—		—		—		—			100,000
Issuance of preferred stock dividends		—			—			—			—			—			—			—			—		—		—		(1,087,200	)		(1,087,200	)
Deemed dividend associated with beneficial conversion of preferred stock		—			—			—			—			—			—			1,244,880			—		—		—		(1,244,880	)		—
Issuance of common stock for cash—3 ^rd qtr		—			—			—			—			202,500			202			309,798			—		—		—		—			310,000
Issuance of common stock for cash on 8/27/03		—			—			—			—			3,359,331			3,359			18,452,202			—		—		—		—			18,455,561
Conversion of preferred stock into common stock—3 ^rd qtr		(2,967,553	)		(2,967	)		(155,750	)		(156	)		7,188,793			7,189			(82,875	)		—		—		—		—			(78,809	)
Conversion of warrants into common stock—3 ^rd qtr		—			—			—			—			212,834			213			(213	)		—		—		—		—			—
Compensation expense on warrants issued to non-employees		—			—			—			—			—			—			412,812			—		—		—		—			412,812
Issuance of common stock for cash—4 ^th qtr		—			—			—			—			136,500			137			279,363			—		—		—		—			279,500
Conversion of warrants into common stock—4 ^th qtr		—			—			—			—			393			—			—			—		—		—		—			—
Comprehensive income:
Net loss		—			—			—			—			—			—			—			—		—		—		(11,268,294	)		(11,268,294	)
Other comprehensive income, foreign currency translation adjustment		—			—			—			—			—			—			—			—		—		360,505		—			360,505

Comprehensive loss		—			—			—			—			—			—			—			—		—		—		—			(10,907,789	)

Balance, 12/31/03		—		$	—			—		$	—			26,672,192		$	26,672		$	50,862,258			—	$	—	$	374,380	$	(33,999,585	)	$	17,263,725

The accompanying notes are an integral part of these consolidated financial statements.


																							Accumulated
	Series A				Series B																Accumulated		Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other		During			Shareholders’
	Number of				Number of				Number of				Paid-In			Number of					Comprehensive		Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount			Income		Stage			(Deficit)
Conversion of warrants into common stock—1 ^st qtr		—	$	—		—	$	—		78,526	$	79	$	(79	)		—	$	—		$	—	$	—		$	—
Issuance of common stock for cash in connection with exercise of stock options—1 ^st qtr		—		—		—		—		15,000		15		94,985			—		—			—		—			95,000
Issuance of common stock for cash in connection with exercise of warrants—1 ^st qtr		—		—		—		—		4,000		4		7,716			—		—			—		—			7,720
Compensation expense on options and warrants issued to non-employees and directors—1 ^st qtr		—		—		—		—		—		—		1,410,498			—		—			—		—			1,410,498
Issuance of common stock in connection with exercise of warrants—2 ^nd qtr		—		—		—		—		51,828		52		(52	)		—		—			—		—			—
Issuance of common stock for cash—2 ^nd qtr		—		—		—		—		7,200,000		7,200		56,810,234			—		—			—		—			56,817,434
Compensation expense on options and warrants issued to non-employees and directors—2 ^nd qtr		—		—		—		—		—		—		143,462			—		—			—		—			143,462
Issuance of common stock in connection with exercise of warrants—3 ^rd qtr		—		—		—		—		7,431		7		(7	)		—		—			—		—			—
Issuance of common stock for cash in connection with exercise of stock options—3 ^rd qtr		—		—		—		—		110,000		110		189,890			—		—			—		—			190,000
Issuance of common stock for cash in connection with exercise of warrants—3 ^rd qtr		—		—		—		—		28,270		28		59,667			—		—			—		—			59,695
Compensation expense on options and warrants issued to non-employees and directors—3 ^rd qtr		—		—		—		—		—		—		229,133			—		—			—		—			229,133
Issuance of common stock in connection with exercise of warrants—4 ^th qtr		—		—		—		—		27,652		28		(28	)		—		—			—		—			—
Compensation expense on options and warrants issued to non-employees, employees, and directors—4 ^th qtr		—		—		—		—		—		—		127,497			—		—			—		—			127,497
Purchase of treasury stock—4 ^th qtr		—		—		—		—		—		—		—			4,000,000		(25,974,000	)		—		—			(25,974,000	)
Comprehensive income:
Net loss		—		—		—		—		—		—		—			—		—			—		(21,474,469	)		(21,474,469	)
Other comprehensive income, foreign currency translation adjustment		—		—		—		—		—		—		—			—		—			79,725		—			79,725
Other comprehensive income, net unrealized gain on available-for-sale investments		—		—		—		—		—		—		—			—		—			10,005		—			10,005

Comprehensive loss		—		—		—		—		—		—		—			—		—			—		—			(21,384,739	)

Balance, 12/31/04		—	$	—		—	$	—		34,194,899	$	34,195	$	109,935,174			4,000,000	$	(25,974,000	)	$	464,110	$	(55,474,054	)	$	28,985,425

The accompanying notes are an integral part of these consolidated financial statements.


																								Accumulated
	Series A				Series B																Accumulated			Deficit			Total
	Preferred Stock				Preferred Stock				Common Stock				Additional			Treasury Stock					Other			During			Shareholders’
	Number of				Number of				Number of				Paid-In			Number of					Comprehensive			Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Shares		Amount			Income (Loss)			Stage			(Deficit)
Issuance of common stock for cash in connection with exercise of stock options—1 ^st qtr		—	$	—		—	$	—		25,000	$	25	$	74,975			—	$	—		$	—		$	—		$	75,000
Compensation expense on options and warrants issued to non-employees—1 ^st qtr		—		—		—		—		—		—		33,565			—		—			—			—			33,565
Conversion of warrants into common stock—2 ^nd qtr		—		—		—		—		27,785		28		(28	)		—		—			—			—			—
Compensation expense on options and warrants issued to non-employees—2 ^nd qtr		—		—		—		—		—		—		(61,762	)		—		—			—			—			(61,762	)
Compensation expense on options and warrants issued to non-employees—3 ^rd qtr		—		—		—		—		—		—		(137,187	)		—		—			—			—			(137,187	)
Conversion of warrants into common stock—3 ^rd qtr		—		—		—		—		12,605		12		(12	)		—		—			—			—			—
Compensation expense on options and warrants issued to non-employees—4 ^th qtr		—		—		—		—		—		—		18,844			—		—			—			—			18,844
Compensation expense on acceleration of options—4 ^th qtr		—		—		—		—		—		—		14,950			—		—			—			—			14,950
Compensation expense on restricted stock award issued to employee—4 ^th qtr		—		—		—		—		—		—		606			—		—			—			—			606
Conversion of predecessor company shares		—		—		—		—		94		—		—			—		—			—			—			—
Comprehensive loss:
Net loss		—		—		—		—		—		—		—			—		—			—			(35,777,584	)		(35,777,584	)
Other comprehensive loss, foreign currency translation adjustment		—		—		—		—		—		—		—			—		—			(1,372,600	)		—			(1,372,600	)
Foreign exchange gain on substantial liquidation of foreign entity																						133,851						133,851
Other comprehensive loss, net unrealized gain on available-for-sale investments		—		—		—		—		—		—		—			—		—			(10,005	)		—			(10,005	)

Comprehensive loss		—		—		—		—		—		—		—			—		—			—			—			(37,026,338	)

Balance, 12/31/05		—	$	—		—	$	—		34,260,383	$	34,260	$	109,879,125			4,000,000	$	(25,974,000	)	$	(784,644	)	$	(91,251,638	)	$	(8,096,897	)

The accompanying notes are an integral part of these consolidated financial statements.


																									Accumulated
	Series A				Series B																	Accumulated			Deficit						Total
	Preferred Stock				Preferred Stock				Common Stock						Additional		Treasury Stock					Other			During						Shareholders’
	Number of				Number of				Number of						Paid-In		Number of					Comprehensive			Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares			Amount			Capital		Shares		Amount			Income			Stage			Interest			(Deficit)
Compensation expense on options and warrants issued to non-employees—1 ^st qtr		—	$	—		—	$	—		—		$	—		$	42,810		—	$	—		$	—		$	—		$	—		$	42,810
Compensation expense on option awards issued to employees and directors—1 ^st qtr		—		—		—		—		—			—			46,336		—		—			—			—			—			46,336
Compensation expense on restricted stock issued to employees—1 ^st qtr		—		—		—		—		128,750			129			23,368		—		—			—			—			—			23,497
Compensation expense on options and warrants issued to non-employees—2 ^nd qtr		—		—		—		—		—			—			96,177		—		—			—			—			—			96,177
Compensation expense on option awards issued to employees and directors—2 ^nd qtr		—		—		—		—		—			—			407,012		—		—			—			—			—			407,012
Compensation expense on restricted stock to employees—2 ^nd qtr		—		—		—		—		—			—			4,210		—		—			—			—			—			4,210
Cancellation of unvested restricted stock – 2 ^nd qtr		—		—		—		—		(97,400	)		(97	)		97		—		—			—			—			—			—
Issuance of common stock for cash in connection with exercise of stock options—2 ^nd qtr		—		—		—		—		10,000			10			16,490		—		—			—			—			—			16,500
Compensation expense on options and warrants issued to non-employees—3 ^rd qtr		—		—		—		—		—			—			25,627		—		—			—			—			—			25,627
Compensation expense on option awards issued to employees and directors—3 ^rd qtr		—		—		—		—		—			—			389,458		—		—			—			—			—			389,458
Compensation expense on restricted stock to employees—3 ^rd qtr		—		—		—		—		—			—			3,605		—		—			—			—			—			3,605
Issuance of common stock for cash in connection with exercise of stock options—3 ^rd qtr		—		—		—		—		76,000			76			156,824		—		—			—			—			—			156,900
Acquisition of Agera		—		—		—		—		—			—			—		—		—			—			—			2,182,505			2,182,505
Compensation expense on options and warrants issued to non-employees—4 ^th qtr		—		—		—		—		—			—			34,772		—		—			—			—			—			34,772
Compensation expense on option awards issued to employees and directors—4 ^th qtr		—		—		—		—		—			—			390,547		—		—			—			—			—			390,547
Compensation expense on restricted stock to employees—4 ^th qtr		—		—		—		—		—			—			88		—		—			—			—			—			88
Cancellation of unvested restricted stock award—4 ^th qtr		—		—		—		—		(15,002	)		(15	)		15		—		—			—			—			—			—
Comprehensive loss:
Net loss		—		—		—		—		—			—			—		—		—			—			(35,821,406	)		(78,132	)		(35,899,538	)
Other comprehensive gain, foreign currency translation adjustment		—		—		—		—		—			—			—		—		—			657,182			—			—			657,182


Comprehensive loss		—		—		—		—		—			—			—		—		—			—			—			—			(35,242,356	)


Balance 12/31/06		—	$	—		—	$	—		34,362,731		$	34,363		$	111,516,561		4,000,000	$	(25,974,000	)	$	(127,462	)	$	(127,073,044	)	$	2,104,373		$	(39,519,209	)

The accompanying notes are an integral part of these consolidated financial statements.


																						Accumulated
	Series A				Series B															Accumulated		Deficit						Total
	Preferred Stock				Preferred Stock				Common Stock				Additional		Treasury Stock					Other		During						Shareholders’
	Number of				Number of				Number of				Paid-In		Number of					Comprehensive		Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Shares		Amount			Income (Loss)		Stage			Interest			(Deficit)
Compensation expense on options and warrants issued to non-employees—1 ^st qtr		—	$	—		—	$	—		—	$	—	$	39,742		—	$	—		$	—	$	—		$	—		$	39,742
Compensation expense on option awards issued to employees and directors—1 ^st qtr		—		—		—		—		—		—		448,067		—		—			—		—			—			448,067
Compensation expense on restricted stock issued to employees—1 ^st qtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Issuance of common stock for cash in connection with exercise of stock options—1 ^st qtr		—		—		—		—		15,000		15		23,085		—		—			—		—			—			23,100

Expense in connection with modification of employee stock options —1 ^st qtr		—		—		—		—		—		—		1,178,483		—		—			—		—			—			1,178,483
Compensation expense on options and warrants issued to non-employees—2 ^nd qtr		—		—		—		—		—		—		39,981		—		—			—		—			—			39,981
Compensation expense on option awards issued to employees and directors—2 ^nd qtr		—		—		—		—		—		—		462,363		—		—			—		—			—			462,363
Compensation expense on restricted stock issued to employees—2 ^nd qtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Compensation expense on option awards issued to employees and directors—3 ^rd qtr		—		—		—		—		—		—		478,795		—		—			—		—			—			478,795
Compensation expense on restricted stock issued to employees—3 ^rd qtr		—		—		—		—		—		—		88		—		—			—		—			—			88
Issuance of common stock upon exercise of warrants—3 ^rd qtr		—		—		—		—		492,613		493		893,811		—		—			—		—			—			894,304
Issuance of common stock for cash, net of offering costs—3 ^rd qtr		—		—		—		—		6,767,647		6,767		13,745,400		—		—			—		—			—			13,752,167
Issuance of common stock for cash in connection with exercise of stock options—3 ^rd qtr		—		—		—		—		1,666		2		3,164		—		—			—		—			—			3,166
Compensation expense on option awards issued to employees and directors—4 ^th qtr		—		—		—		—		—		—		378,827		—		—			—		—			—			378,827
Compensation expense on restricted stock issued to employees—4 ^th qtr		—		—		—		—		—		—		88		—		—			—		—			—			88

Comprehensive loss:

Net loss		—		—		—		—		—		—		—		—		—			—		(35,573,114	)		(246,347	)		(35,819,461	)
Other comprehensive gain, foreign currency translation adjustment		—		—		—		—		—		—		—		—		—			846,388		—			—			846,388


Comprehensive loss		—		—		—		—		—		—		—		—		—			—		—			—			(34,973,073	)


Balance 12/31/07		—	$	—		—	$	—		41,639,657	$	41,640	$	129,208,631		4,000,000	$	(25,974,000	)	$	718,926	$	(162,646,158	)	$	1,858,026		$	(56,792,935	)

The accompanying notes are an integral part of these consolidated financial statements.


																										Accumulated
	Series A				Series B																		Accumulated			Deficit						Total
	Preferred Stock				Preferred Stock				Common Stock						Additional			Treasury Stock					Other			During						Shareholders’
	Number of				Number of				Number of						Paid-In			Number of					Comprehensive			Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares			Amount			Capital			Shares		Amount			Income (Loss)			Stage			Interest			(Deficit)
Compensation expense on vested options related to non-employees—1 ^st qtr		—	$	—		—	$	—		—		$	—		$	44,849			—	$	—		$	—		$	—		$	—		$	44,849
Compensation expense on option awards issued to employees and directors—1 ^st qtr		—		—		—		—		—			—			151,305			—		—			—			—			—			151,305
Expense in connection with modification of employee stock options —1 ^st qtr		—		—		—		—		—			—			1,262,815			—		—			—			—			—			1,262,815

Retirement of restricted stock		—		—		—		—		(165	)		(1	)		—			—		—			—			—			—			(1	)
Compensation expense on vested options related to non-employees—2 ^nd qtr		—		—		—		—		—			—			62,697			—		—			—			—			—			62,697
Compensation expense on option awards issued to employees and directors—2 ^nd qtr		—		—		—		—		—			—			193,754			—		—			—			—			—			193,754
Compensation expense on vested options related to non-employees—3 ^rd qtr		—		—		—		—		—			—			166,687			—		—			—			—			—			166,687
Compensation expense on option awards issued to employees and directors—3rd qtr		—		—		—		—		—			—			171,012			—		—			—			—			—			171,012
Compensation expense on vested options related to non-employees—4th qtr		—		—		—		—		—			—			(86,719	)		—		—			—			—			—			(86,719	)
Compensation expense on option awards issued to employees and directors—4th qtr		—		—		—		—		—			—			166,196			—		—			—			—			—			166,196

Comprehensive loss:

Net loss		—		—		—		—		—			—			—			—		—			—			(31,411,179	)		(1,680,676	)		(33,091,855	)
Reclassification of foreign exchange gain on substantial liquidation of foreign entities		—		—		—		—		—			—			—			—		—			(2,152,569	)		—			—			(2,152,569	)
Other comprehensive gain, foreign currency translation adjustment		—		—		—		—		—			—			—			—		—			1,433,643			—			—			1,433,643


Comprehensive loss		—		—		—		—		—			—			—			—		—			—			—			—			(33,810,781	)


Balance 12/31/08		—	$	—		—	$	—		41,639,492		$	41,639		$	131,341,227			4,000,000	$	(25,974,000	)	$	—		$	(194,057,337	)	$	177,350		$	(88,471,121	)

The accompanying notes are an integral part of these consolidated financial statements.


																						Accumulated
	Series A				Series B															Accumulated		Deficit
	Preferred Stock				Preferred Stock				Common Stock				Additional		Treasury Stock					Other		During						Total
	Number of				Number of				Number of				Paid-In		Number of					Comprehensive		Development			Noncontrolling			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital		Shares		Amount			Income (Loss)		Stage			Interest			(Deficit)
Compensation expense on vested options related to non-employees—1 ^st qtr		—	$	—		—	$	—		—	$	—	$	1,746		—	$	—		$	—	$	—		$	—		$	1,746
Compensation expense on option awards issued to employees and directors—1 ^st qtr		—		—		—		—		—		—		138,798		—		—			—		—			—			138,798
Conversion of debt into common stock – 1st qtr 2009		—		—		—		—		37,564		38		343,962		—		—			—		—			—			344,000
Compensation expense on option awards issued to employees and directors—2nd qtr		—		—		—		—		—		—		112,616		—		—			—		—			—			112,616
Conversion of debt into common stock – 2nd qtr 2009		—		—		—		—		1,143,324		1,143		10,468,857		—		—			—		—			—			10,470,000

Comprehensive loss:

Net loss		—		—		—		—		—		—		—		—		—			—		(6,221,113	)		(8,660	)		(6,229,773	)

Comprehensive loss for six months ended June 30, 2009		—		—		—		—		—		—		—		—		—			—		—			—			(6,229,773	)


Balance 06/30/09		—	$	—		—	$	—		42,820,380	$	42,820	$	142,407,206		4,000,000	$	(25,974,000	)	$	—	$	(200,278,450	)	$	168,690		$	(83,633,734	)

The accompanying notes are an integral part of these consolidated financial statements.

Isolagen, Inc.
(Debtor-in-Possession)
(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)


							Cumulative
							Period from
							December 28,
							1995 (date of
							inception) to
	June 30,						June 30,
	2009			2008			2009
Cash flows from operating activities:
Net loss	$	(6,221,113	)	$	(18,363,327	)	$	(187,264,765	)
Adjustments to reconcile net loss to net cash used in operating activities:
Expense related to equity awards		253,159			1,715,420			10,278,705
Uncompensated contribution of services		—			—			755,556
Depreciation and amortization		—			719,762			9,091,990
Provision for doubtful accounts		(1,925	)		(3,746	)		335,384
Provision for excessive and/or obsolete inventory		(16,745	)		59,972			73,597
Amortization of debt issue costs		803,187			374,619			3,925,017
Amortization of debt discounts on investments		—			—			(508,983	)
Loss on disposal or impairment of property and equipment		—			6,326,855			17,668,477
Foreign exchange loss (gain) on substantial liquidation of foreign entity		35,714			(2,133,905	)		(2,250,706	)
Net loss attributable to non-controlling interests		(8,660	)		(60,495	)		(2,013,815	)
Change in operating assets and liabilities, excluding effects of acquisition:
Decrease in restricted cash		—			451,382			—
Decrease (increase) in accounts receivable		99,859			22,276			(83,303	)
Decrease (increase) in other receivables		8,344			(116,675	)		203,690
Decrease (increase) in inventory		36,542			14,503			(448,283	)
Decrease (increase) in prepaid expenses		366,533			187,639			(227,323	)
Decrease (increase) in other assets		(118,992	)		(12	)		64,449
Increase (decrease) in accounts payable		(176,477	)		363,202			111,763
Increase (decrease) in accrued expenses, liabilities subject to compromise and other liabilities		1,868,952			(1,221,434	)		3,312,342
Decrease in deferred revenue		(7,522	)		—-			(50,096	)

Net cash used in operating activities		(3,079,144	)		(11,663,964	)		(147,026,304	)

Cash flows from investing activities:
Acquisition of Agera, net of cash acquired		—			(6,679	)		(2,016,520	)
Purchase of property and equipment		—			(29,892	)		(25,515,170	)
Proceeds from the sale of property and equipment, net of selling costs		—			6,444,153			6,542,434
Purchase of investments		—			—			(152,998,313	)
Proceeds from sales and maturities of investments		—			—			153,507,000

Net cash provided by (used in) investing activities		—			6,407,582			(20,480,569	)

Cash flows from financing activities:
Proceeds from convertible debt		—			—			91,450,000
Offering costs associated with the issuance of convertible debt		—			—			(3,746,193	)
Proceeds from notes payable to shareholders, net		—			—			135,667
Proceeds from the issuance of preferred stock, net		—			—			12,931,800
Proceeds from the issuance of common stock, net		—			—			93,753,857
Costs associated with secured loan and debtor-in-possession loan		(178,822	)		—			(178,822	)
Proceeds from secured loan		500,471			—			500,471
Proceeds from debtor-in-possession loan		1,000,000			—			1,000,000
Principle payments on insurance loan		(47,582	)		—			(62,918	)
Cash dividends paid on preferred stock		—			—			(1,087,200	)
Cash paid for fractional shares of preferred stock		—			—			(38,108	)
Merger and acquisition expenses		—			—			(48,547	)
Repurchase of common stock		—			—			(26,024,280	)

Net cash provided by financing activities		1,274,067			—			168,585,727

Effect of exchange rate changes on cash balances		(9,657	)		(82,914	)		(39,288	)
Net increase (decrease) in cash and cash equivalents		(1,814,734	)		(5,339,296	)		1,039,566
Cash and cash equivalents, beginning of period		2,854,300			16,590,720			—

Cash and cash equivalents, end of period	$	1,039,566		$	11,251,424		$	1,039,566

Supplemental disclosures of cash flow information:
Cash paid for interest	$	—		$	1,575,000		$	12,715,283

Non-cash investing and financing activities:
Deemed dividend associated with beneficial conversion of preferred stock	$	—		$	—		$	11,423,824

Preferred stock dividend		—			—			1,589,861

Uncompensated contribution of services		—			—			755,556

Common stock issued for intangible assets		—			—			540,000

Common stock issued in connection with conversion of debt		10,814,000			—			10,814,000

Equipment acquired through capital lease		—			—			167,154

Financing of insurance premiums		—			—			87,623

Increase in receivable in connection with sale of Swiss property	$	—		$	49,115		$	27,125

The accompanying notes are an integral part of these consolidated financial statements.

Isolagen, Inc.
(Debtor-in-Possession)
(A Development Stage Company)

Notes to Consolidated Financial Statements

Note 1—Basis of Presentation, Business and Organization

Isolagen, Inc. (“Isolagen”), a Delaware corporation, is the parent company of Isolagen Technologies, Inc., a Delaware corporation (“Isolagen Technologies”) and Agera Laboratories, Inc., a Delaware corporation (“Agera”). Isolagen Technologies is the parent company of Isolagen Europe Limited, a company organized under the laws of the United Kingdom (“Isolagen Europe”), Isolagen Australia Pty Limited, a company organized under the laws of Australia (“Isolagen Australia”), and Isolagen International, S.A., a company organized under the laws of Switzerland (“Isolagen Switzerland”). The common stock of the Company, par value $0.001 per share, (“Common Stock”) had been traded on the NYSE Amex exchange (formerly known as the American Stock Exchange or “AMEX”) under the symbol “ILE” until trading was halted on May 6, 2009 (see Note 12).

As more fully discussed in Note 2 — Proceedings Under Chapter 11 of the Bankruptcy Code, on June 15, 2009, Isolagen, Inc. and its wholly-owned, U.S. subsidiary Isolagen Technologies, Inc. (collectively, the “Debtors”), filed voluntary petitions for relief under Chapter 11 of the federal bankruptcy laws (“Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court for the District of Delaware under case numbers 09-12072 (MFW) and 09-12073 (MFW) (jointly administered for procedural purposes before the Bankruptcy Court under case number 09-12072 (MFW)). The Debtors are currently operating their business as debtors-in-possession pursuant to the Bankruptcy Code.

The Company is an aesthetic and therapeutic company focused on developing novel skin and tissue rejuvenation products. The Company’s clinical development product candidates are designed to improve the appearance of skin injured by the effects of aging, sun exposure, acne and burns with a patient’s own, or autologous, fibroblast cells produced in the Company’s proprietary Isolagen Process. The Company also markets an advanced skin care line with broad application in core target markets through its Agera subsidiary.

The Company acquired 57% of the outstanding common shares of Agera on August 10, 2006. Agera offers a complete line of skincare systems based on a wide array of proprietary formulations, trademarks and nano-peptide technology. These technologically advanced skincare products can be packaged to offer anti-aging, anti-pigmentary and acne treatment systems. Agera markets its product in both the United States and Europe (primarily the United Kingdom). The results of Agera’s operations and cash flows have been included in the consolidated financial statements from the date of the acquisition. The assets and liabilities of Agera have been included in the consolidated balance sheet since the date of the acquisition. In October 2006, the Company reached an agreement with the FDA on the design of a Phase III pivotal study protocol for the treatment of nasolabial folds. The randomized, double-blind protocol was submitted to the FDA under the agency’s Special Protocol Assessment (“SPA”) regulations. Pursuant to this assessment process, the FDA has agreed that the Company’s study design for two identical trials, including patient numbers, clinical endpoints, and statistical analyses, is acceptable to the FDA to form the basis of an efficacy claim for a marketing application. The randomized, double-blind, pivotal Phase III trials will evaluate the efficacy and safety of Isolagen Therapy against placebo in approximately 400 patients with approximately 200 patients enrolled in each trial. The Company completed enrollment of the study and commenced injection of subjects in early 2007. All injections were completed in January 2008 and top line results from this trial were publically announced in August 2008. The data analysis, including safety data, was publically released in October 2008. The related Biologics License Application was submitted to the FDA in March 2009. In May 2009, the Company announced that the FDA had completed its initial review of the Company’s Biologics License Application (“BLA”) related to its Nasolabial Fold/Wrinkles product candidate and that the FDA has accepted (or filed) the BLA for full review. The FDA’s filing review was only a preliminary review, and deficiencies may be identified during full review of the BLA. Also, the acknowledgment of filing by the FDA does not mean that the FDA has issued a license, nor did the FDA represent any evaluation of the adequacy of the data submitted.

During 2006 and prior, the Company sold its aesthetic product primarily in the United Kingdom. However, during the fourth quarter of fiscal 2006, the Company decided to close the United Kingdom operation. The Company completed the closure of the United Kingdom operation on March 31, 2007, and as of March 31, 2007, the United Kingdom, Swiss and Australian operations were presented as discontinued operations for all periods presented, as more fully discussed in Note 9.

Through June 30, 2009, the Company has been primarily engaged in developing its initial product technology. In the course of its development activities, the Company has sustained losses and expects such losses to continue through at least 2009. During the three months ended June 30, 2009, the Company financed its operations primarily through (1) $0.5 million of gross pre-petition loan borrowings from certain lenders (the “Pre-Petition Secured Lenders”), executed on April 30, 2009 and which is secured by the Company’s 57% ownership interest in Agera Laboratories, Inc. and (2) through debtor-in-possession financing, of which $1.0 million was outstanding as of June 30, 2009 and a remaining $1.75 million available for borrowing as of June 30, 2009. However, the Company requires additional financing. As a result, as described in Note 6, there exists substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to operate profitably is largely contingent upon its (i) success in obtaining exit financing from bankruptcy, as well as its ability to obtain additional financing if it is able to exit bankruptcy, (ii) obtaining regulatory approval to sell one or a variety of applications of the Isolagen Therapy, (iii) successful development of markets for its products and (iv) development of profitable scalable manufacturing processes. There is no assurance that the Company will be able to obtain any such additional capital as it needs to finance these efforts, through asset sales, equity or debt financing, or any combination thereof, on satisfactory terms or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet the Company’s ultimate capital needs and to support the Company’s growth. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, the Company’s operations would be materially negatively impacted. In addition, even if the Company were to obtain the capital it requires, no assurance can be given that the Company will be able to obtain necessary regulatory approvals, successfully develop the markets for its products or develop profitable manufacturing methods in the future. Refer to Note 6 for discussion of the existence of substantial doubt about the Company’s ability to continue as a going concern. Also as discussed in Note 2 — Proceedings Under Chapter 11 of the Bankruptcy Code, the Debtors have filed for Chapter 11 reorganization, and the ability to exit Chapter 11 as a reorganized entity is subject to numerous uncertainties, including uncertainties related to the funding of the Chapter 11 process, risk related to potential objections from the Debtors’ creditors and/or equity holders and risks related to any determinations made by the Bankruptcy Court with respect to the Debtors’ Plan of Bankruptcy.

Acquisition and merger and basis of presentation

On August 10, 2001, Isolagen Technologies consummated a merger with American Financial Holdings, Inc. (“AFH”) and Gemini IX, Inc. (“Gemini”). Pursuant to an Agreement and Plan of Merger, dated August 1, 2001, by and among AFH, ISO Acquisition Corp, a Delaware corporation and wholly-owned subsidiary of AFH (“Merger Sub”), Isolagen Technologies, Gemini, a Delaware corporation, and William J. Boss, Jr., Olga Marko and Dennis McGill, stockholders of Isolagen Technologies (the “Merger Agreement”), AFH (i) issued 5,453,977 shares of its common stock, par value $0.001 to acquire, in a privately negotiated transaction, 100% of the issued and outstanding common stock (195,707 shares, par value $0.01, including the shares issued immediately prior to the Merger for the conversion of certain liabilities, as discussed below) of Isolagen Technologies, and (ii) issued 3,942,400 shares of its common stock to acquire 100% of the issued and outstanding common stock of Gemini. Pursuant to the terms of the Merger Agreement, Merger Sub, together with Gemini, merged with and into Isolagen Technologies (the “Merger”), and AFH was the surviving corporation. AFH subsequently changed its name to Isolagen, Inc. on November 13, 2001. Prior to the Merger, Isolagen Technologies had no active business and was seeking funding to begin FDA trials of the Isolagen Therapy. AFH was a non-operating, public shell company with limited assets. Gemini was a non-operating private company with limited assets and was unaffiliated with AFH.

The consolidated financial statements presented include Isolagen, Inc., its wholly-owned subsidiaries and its majority-owned subsidiary. All significant intercompany transactions and balances have been eliminated. Isolagen Technologies was, for accounting purposes, the surviving entity of the Merger, and accordingly for the periods prior to the Merger, the financial statements reflect the financial position, results of operations and cash flows of Isolagen Technologies. The assets, liabilities, operations and cash flows of AFH and Gemini are included in the consolidated financial statements from August 10, 2001 onward.

Unless the context requires otherwise, the “Company” refers to Isolagen, Inc. and all of its consolidated subsidiaries, “Isolagen” refers to Isolagen, Isolagen Technologies, Isolagen Europe, Isolagen Australia and Isolagen Switzerland, and “Agera” refers to Agera Laboratories, Inc.

The consolidated financial statements and notes thereto presented herein are unaudited. In the opinion of management, all adjustments (consisting of normal accruals) have been made that are necessary to present fairly the financial position of the Company as of June 30, 2009, and the results of its operations for the three and six months ended June 30, 2009 and cash flows for the six months ended June 30, 2009 and the cumulative period from December 28, 1995 (date of inception) to June 30, 2009. These financial statements should be read in conjunction with the financial statements that were included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2008.

Note 2. Proceedings Under Chapter 11 of the Bankruptcy Code

On June 15, 2009 (the “Petition Date”), Isolagen, Inc. and its wholly-owned, U.S. subsidiary Isolagen Technologies, Inc. (collectively, the “Debtors”), filed voluntary petitions for relief under Chapter 11 of the federal bankruptcy laws (“Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court for the District of Delaware (“Bankruptcy Court”) under case numbers 09-12072 (MFW) and 09-12073 (MFW) (jointly administered for procedural purposes before the Bankruptcy Court under case number 09-12072 (MFW)).

The Debtors are currently operating their business as debtors-in-possession pursuant to the Bankruptcy Code.

Isolagen, Inc. and Isolagen Technologies, Inc. filed for reorganization under Chapter 11 in an effort to restructure their balance sheets and access new working capital while continuing to operate in the ordinary course of business. The Debtors have incurred losses since their inception, have never generated significant revenue from commercial sales of their products, and have never been profitable. The Debtors are focused on product development, and have expended significant resources on clinical trials, personnel and research and development. The Debtors’ consolidated net losses for the years ended 2008 and 2007 were $31.4 million and $35.6 million, respectively. As of December 31, 2008, the Debtors had an accumulated development stage net loss attributable to common shareholders of $194.1 million. The Debtors previously failed the Phase III wrinkle trials in 2005. The Debtors utilized their remaining cash resources, at the time, to re-design and re-perform the Phase III trials. These funds were originally planned to be utilized for a commercial launch had the Phase III trials been successful and the product candidate approved by the FDA. The Debtors successfully completed the re-performed new Phase III trials in late 2008 under a new management team; however, the Debtors were in an untenable financial position due to the Debtors’ remaining cash position and $90 million of debt then due as early as November 2009—these financial difficulties were further compounded by unprecedented economic downturns with respect to the equity and credit markets. Accordingly, Isolagen, Inc. did not make an interest payment of approximately $1.5 million that was due on May 1, 2009, to the holders of approximately $87.3 million in principal amount of subordinated, convertible notes, which notes are currently in default of the related indenture. Isolagen, Inc. did not, and does not, have the cash or available resources to pay the $1.5 million of interest that was due on May 1, 2009, or to pay the $87.3 million in principal amount of subordinated, convertible notes outstanding as of May 1, 2009, which could be called due as early as November 1, 2009, or earlier in the event of a default (see Note 11).

As debtors in possession under Chapter 11, the Debtors are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the approval of the Bankruptcy Court. The Debtors’ foreign subsidiaries, with operations outside of the U.S., are not included in the Chapter 11 proceedings, nor is Agera, the Company’s 57% owned subsidiary. The Company’s ownership interest in Agera serves as collateral on a pre-petition loan. The pre-petition loan balance is approximately $0.5 million, and was due on the date that Isolagen, Inc. filed for relief under Chapter 11, or June 15, 2009. As such, the Company is technically in default of this loan. It is expected, that if the Debtors’ currently-filed Plan of Reorganization is confirmed and becomes effective, the loan balance and interest thereon will be converted into equity ownership of the reorganized debtor upon exit from bankruptcy.

On July 6, 2009, the Debtors received final Bankruptcy Court approval to access their debtor-in-possession (“DIP”) Credit Facility of up to $2.75 million, subject to upward adjustment at the discretion of the lenders. The DIP Credit Facility is being used to fund operations during the reorganization process, including the payment of post-petition ordinary course trade, bankruptcy and other payables, the payment of certain permitted pre-petition claims, working capital needs, and for other general corporate purposes, all in accordance with the Bankruptcy Court-approved budget.

Under Section 362 of the Bankruptcy Code, actions to collect pre-petition indebtedness, as well as most other pending litigation, are stayed. Absent an order of the Bankruptcy Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization to be approved by the Bankruptcy Court. Although the Debtors have filed a reorganization plan that provides for emergence from bankruptcy as a going concern, there can be no assurance that a reorganization plan proposed by the Debtors will be confirmed by the Bankruptcy Court, or that any such plan will be successfully implemented.

Under the Bankruptcy Code, the Debtors may also assume or reject executory contracts, including lease obligations, subject to the approval of the Bankruptcy Court and certain other conditions. Parties affected by these rejections may file claims with the Bankruptcy Court in accordance with the reorganization process. Due to the timing of the Chapter 11 proceedings, the Company cannot currently estimate or anticipate what impact the rejection and subsequent claims of executory contracts may have on the reorganization process.

On June 30, 2009, the Company filed with the Bankruptcy Court schedules and statements of financial affairs setting forth, among other things, the assets and liabilities of the Debtors as shown by their books and records on the Petition Date, subject to the assumptions contained in certain notes filed in connection therewith. All of the schedules are subject to further amendment or modification. The Bankruptcy Code provides for a claims reconciliation and resolution process, and a bar date for filing claims has been established as July 31, 2009 (or such later date as provided in the Bankruptcy Court Order establishing the bar date). As the ultimate number and amount of allowed claims is not presently known, and because any settlement terms of such allowed claims are subject to a confirmed plan of reorganization, the ultimate distribution with respect to allowed claims is not presently ascertainable. Under the terms of the Debtors’ currently-filed Plan of Reorganization, most pre-petition, general unsecured claims will be satisfied through the distribution of the claimant’s respective share of 1% of the common stock of the Reorganized Debtors, subject to dilution by exit financing.

The United States Trustee has not appointed an unsecured creditors committee. If such a committee is appointed in the future, the official committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court.

At this time, it is not possible to predict the effect of the Chapter 11 reorganization process on the Company’s business, various creditors and security holders, or when it may be possible to emerge from Chapter 11. The Debtors have sought the Bankruptcy Court’s approval of a process for confirmation of the Plan of Reorganization (“Plan of Reorganization” or “Bankruptcy Plan”) that will allow the Debtors to exit bankruptcy through a confirmed and effective plan on or around the end of August 2009. The Debtors’ future results are dependent upon the confirmation and implementation, on a timely basis, of a Plan of Reorganization, as well as their ability to successfully finance their operations thereafter.

General Framework of the Bankruptcy Plan

As is set forth more fully in the Bankruptcy Plan, and should the Debtors emerge from Chapter 11 bankruptcy, the holders of the DIP Facility claims have agreed that, in lieu of accepting cash on account of their DIP Credit Facility, the DIP lenders shall receive, together with the Pre-Petition Secured Lenders, their pro rata share of up to 61% of the common stock of the reorganized Company, subject to dilution by additional exit financing. In addition, pursuant to the settlements and compromises set forth in the Bankruptcy Plan, the DIP Lenders and the Pre-Petition Lenders had agreed to give 1% of the value of their common stock in the reorganized Company to the holders of the pre-petition common stock, subject to dilution by any exit financing, which would have been effected through a 333 shares to 1 reverse stock split. The Office of the United States Trustee objected to this distribution to the holders of the pre-petition common stock, given that the unsecured creditors, who have priority over the holders of the pre-petition commons stock, would not receive satisfaction in full for their claims. The Debtors, in consultation with the DIP Lenders and the Pre-Petition Lenders have revised the plan to remove the distribution to pre-petition holders of common stock, and as such, it is anticipated that the holders of the pre-petition common stock will receive no distribution and that their common stock will become worthless. The DIP Lenders and the Pre-Petition Secured Lenders have agreed to compensate Viriathus Capital, an investment bank, or its assignee, with 10% of such parties pro rata distribution of the common stock of the reorganized Company.

The holders of allowed other secured claims are not impaired and will be paid in full under the Bankruptcy Plan. Each holder of allowed claims arising from or relating to the pre-petition 3.5% subordinated, convertible notes outstanding shall each receive a pro rata share of an unsecured note in the principal amount of $6 million (the “New Note”) and a pro rata share of 33% of the common stock of the reorganized Company, subject to dilution by the exit financing.

Under the Bankruptcy Plan, the Debtors’ general unsecured trade creditors, whose purported claims total approximately $1.0 million, will receive, in full and final satisfaction, settlement, release and discharge of and in exchange for such allowed general unsecured claim, their pro rata portion of 1% of the common stock or the reorganized Company, subject to dilution by the exit financing. Under the Bankruptcy Plan, management of the reorganized Company will receive the remaining 5% of the common stock of the reorganized Company, subject to dilution by the exit financing.

Finally, no distributions shall be made under the Bankruptcy Plan on account of intercompany claims, and any and all liability on account of such intercompany claims shall be deemed discharged. All existing common stock options and common stock warrants will be cancelled, under the Bankruptcy Plan. The Debtors will seek a determination from the Bankruptcy Court that the issuance of the common stock under the Bankruptcy Plan shall be exempt from registration under the Securities Act and any state or local law, pursuant to section 1145 of the Bankruptcy Code, although the Company cannot guarantee that all of the common stock of the reorganized Debtor will be exempt from registration under the Securities Act and any state or local law.

The Debtors believe that absent the concessions of senior creditors memorialized in the Plan of Reorganization, the Debtors would be unable to make any meaningful distribution to unsecured creditors. All terms in the Plan of Reorganization remain subject to Bankruptcy Court approval, and may be modified at any time in advance of confirmation (or thereafter in accordance with the terms of the Plan of Reorganization and the confirmation order). The summary of the terms of the Plan of Reorganization set forth herein is subject to, and qualified in its entirety by, the terms of the Plan of Reorganization itself. In no event shall the summary set forth herein, or the possible distributions referenced herein and set forth in the Plan of Reorganization, be interpreted, or relied upon, as a guaranty or warranty that the distributions will be made by the Debtors to any creditor or shareholder.

The ultimate recovery, if any, by creditors, security holders and/or common shareholders will not be determined until confirmation of a Plan of Reorganization. No assurance can be given as to what value will be ascribed in the bankruptcy proceedings to each of these constituencies. Accordingly, the Debtors urge that appropriate caution be exercised with respect to existing and future investments in any of these securities.

Financial Reporting by Entities in Reorganization under the Bankruptcy Code

American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (SOP 90-7), which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, SOP 90-7 does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the consolidated statements of operations beginning in the quarter ending June 30, 2009. The consolidated balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by the Bankruptcy Plan must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by reorganization items must be disclosed separately in the condensed consolidated statement of cash flows, or related notes thereto. Subsequent to the Chapter 11 filings, the Debtors will record post-petition interest expense on its prepetition obligations only to the extent it believed the interest will be paid during the bankruptcy proceeding or that is probable that the interest will be an allowed claim. The Company currently believes that it is probable that its pre-petition and post-petition interest will be allowed claims. The Company adopted SOP 90-7 effective in June 2009 and will segregate those items as outlined above for all reporting periods subsequent to such date.

Note 3 . Debtors’ Financial Information

The unaudited condensed combined financial statements of the Debtors are presented below. These statements reflect the financial position, results of operations and cash flows of the combined Debtor, including certain amounts and activities between Debtors and non-debtor subsidiaries of the Company which are eliminated in the unaudited condensed consolidated financial statements. The unaudited condensed combined financial statements of the Debtors are presented as follows:

ISOLAGEN, INC. AND SUBSIDIARY

DEBTORS’ CONDENSED COMBINED STATEMENT OF OPERATIONS
(Unaudited, in thousands)


	For the Period
	From June 15,
	2009 Through
	June 30, 2009

OPERATING EXPENSES:
Research and development	$	68
General and administrative		187
Other (income) expense, net		(0	)

		255

Operating loss		(255	)

INTEREST EXPENSE		123
REORGANIZATION ITEMS, net (Note 4)		472

NET LOSS	$	(850	)

The unaudited condensed consolidated statements of operations also includes Reorganization items, net, $0.5 million (consisting primarily of professional fees) for the period from June 15, 2009 through June 30, 2009.

DEBTORS’ CONDENSED COMBINED BALANCE SHEET
(Unaudited, in thousands)


	June 30,
	2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	877
Prepaid expenses		310


Total current assets		1,187

OTHER ASSETS:
Intercompany receivable		931
Other		116


Total other assets		1,047


Total assets	$	2,234


LIABILITIES AND STOCKHOLDERS’ DEFICIT

CURRENT LIABILITIES:

Current debt	$	25
Accounts payable		157
Accrued expenses, other		454
Prepetition secured loan, subject to compromise		500
Debtor-in-possession loan		1,000
Liabilities subject to compromise		82,346


Total current liabilities		84,482
Other long-term liabilities		426

Total liabilities		84,908

STOCKHOLDERS’ DEFICIT
Total stockholders’ deficit		(82,674	)


TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	2,234

DEBTORS’ CONDENSED COMBINED STATEMENT OF CASH FLOWS
(Unaudited, in thousands)


	For the Period
	From June 15,
	2009 Through
	June 30, 2009
CASH RECEIPTS:
Third party receipts	$	4
Borrowings, net, under DIP Credit Facility		986


Total cash receipts		990
CASH DISBURSEMENTS:
Financing costs, fees and interest		(100	)
Payroll and benefits		(40	)
Other disbursements		(2	)

Total cash disbursements		(142	)

Net cash flow		848
CASH AT BEGINNING OF PERIOD:		29

CASH AT END OF PERIOD:	$	877

Note 4. Reorganization Items

Reorganization items represent amounts the Company incurred as a result of Chapter 11 and are presented separately in the unaudited condensed consolidated statements of operations. For the three months ended June 30, 2009, the following have been incurred:


	For the
	Three Months Ended
(000’s omitted)	June 30, 2009

Professional fees	$	199
Debt Issuance costs related To DIP Facility		113
Other debt issuance costs		281


Total reorganization items	$	593

Cash paid for reorganization items during the three months ended June 30, 2009 was $0.2 million. Professional fees include financial, legal and valuation services directly associated with the reorganization process.

Note 5. Liabilities Subject to Compromise

Under U.S. bankruptcy law, actions by creditors to collect indebtedness the Company owes prior to the petition date of June 15, 2009 are stayed and certain other pre-petition contractual obligations may not be enforced against the Debtors without relief from the Bankruptcy Court. The Company has received approval from the Bankruptcy Court to pay certain pre-petition liabilities. All pre-petition liabilities of the Debtors have been classified as liabilities subject to compromise in the accompanying unaudited consolidated balance sheet as of June 30, 2009. Adjustments to these amounts may result from negotiations, payments authorized by the Bankruptcy Court, rejection of executory contracts including leases or other events. Amounts that the Company has recorded may ultimately be different than amounts filed by our creditors under the Bankruptcy Court claims reconciliation and resolution process.

The following table summarizes the components of the liabilities classified as Liabilities Subject To Compromise in the accompanying unaudited consolidated balance sheet as of June 30, 2009 (in thousands):


	June 30,
	2009
Accounts payable	$	64
Accrued interest payable		1,935
Accrued expenses		1,161
Convertible, subordinated debt		79,186


Total liabilities subject to compromise	$	82,346

Note 6. Going Concern

The Debtors are currently operating pursuant to Chapter 11 of the Bankruptcy Code and continuation of the Company as a going-concern is contingent upon, among other things, the Debtors’ ability to (i) obtain confirmation of a plan of reorganization under the Bankruptcy Code and (ii) obtain financing sources to meet our future obligations and to fund future losses. The Company will need to access the capital markets in the future in order to fund future operations. There is no guarantee that any such required financing will available on terms satisfactory to the Company, or available at all. These matters create uncertainty relating to our ability to continue as a going concern. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of assets or liabilities that might result from the outcome of these uncertainties. In addition, a reorganization could materially change amounts reported in the Company’s consolidated financial statements, and the accompanying consolidated financial statements do not give effect to any adjustments of the carrying value of assets and liabilities that may be necessary as a consequence of reorganization under Chapter 11 of the Bankruptcy Code. If the Company does not obtain additional funding, or does not anticipate additional funding, prior to approximately the end of August 2009, the Company may cease operations and the Chapter 11 bankruptcy may be converted into a Chapter 7 bankruptcy.

Note 7—Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Examples include provisions for bad debts and inventory obsolescence, deferred taxes, the provision for and disclosure of litigation and loss contingencies (see Note 12) and estimates and assumptions related to equity-based compensation expense (see Note 13). In addition, management’s assessment of the Company’s ability to continue as a going concern involves the estimation of the amount and timing of future cash inflows and outflows. Actual results may differ materially from those estimates.

Change in Accounting Principle

Effective January 1, 2009, the Company implemented the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 160 “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of Accounting Research Bulletin No. 51” (“SFAS 160”) for the presentation of and accounting for changes in the minority interests (now referred to as “noncontrolling interests”) in the company’s Consolidated Financial Statements and accompanying notes. SFAS 160 changed the manner in which noncontrolling interests were presented in the Company’s Consolidated Balance Sheet (now included as a component of consolidated stockholders’ equity) and the manner in which in income or loss attributable to noncontrolling interests is presented on the Company’s Consolidated Statements of Operations. In addition, SFAS 160 changes the manner in which changes in noncontrolling interests are accounted for. As required by SFAS 160, the presentation and disclosure changes have been applied retrospectively to the financial statements for all periods presented, and the changes in the manner in which changes in noncontrolling interests are accounted for was adopted prospectively effective January 1, 2009. The effects of the implementation of SFAS 160 were not material.

Foreign Currency Translation

The financial position and results of operations of the Company’s foreign subsidiaries are determined using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each period end. Income statement accounts are translated at the average rate of exchange prevailing during the period. Adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive income in shareholders’ deficit. Gains and losses resulting from foreign currency transactions are included in earnings and, other than discussed below, have not been material in any one period.

Upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity, the amount attributable to that entity and accumulated in the translation adjustment component of equity is removed from the separate component of equity and is reported as a gain or loss for the period during which the sale or liquidation occurs. During March 2008, the Company substantially liquidated the assets of the Company’s Swiss entity (in connection with the sale of the Company’s Swiss campus; see Assets of Discontinued Operations Held for Sale below). As such, the amount of the accumulated foreign currency translation adjustment account in stockholders’ deficit which related to the Company’s Swiss franc assets and liabilities was removed from equity by recording income of $2.1 million, which is included in loss from discontinued operations in the accompanying consolidated statement of operations for the three and six months ended June 30, 2008.

Statement of Cash Flows

For purposes of the statements of cash flows, the Company considers all highly liquid investments (i.e., investments which, when purchased, have original maturities of three months or less) to be cash equivalents.

Concentration of Credit Risk

As of June 30, 2009, the Company maintains the majority of its cash primarily with one major U.S. domestic bank. The amounts held in this bank exceeds the insured limit of $250,000. The terms of these deposits are on demand to minimize risk. The Company has not incurred losses related to these deposits. Cash and cash equivalents of approximately $0.2 million, related to Agera and the Company’s Swiss subsidiary, is maintained in two separate financial institutions. The Company invests these funds primarily in demand deposit accounts.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts related to its accounts receivable that have been deemed to have a high risk of collectability. Management reviews its accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. One foreign customer represents 78% and 94% of accounts receivable, net, at June 30, 2009 and December 31, 2008, respectively. Management analyzes historical collection trends and changes in its customer payment patterns, customer concentration, and creditworthiness when evaluating the adequacy of its allowance for doubtful accounts. In its overall allowance for doubtful accounts, the Company includes any receivable balances that are determined to be uncollectible. Based on the information available, management believes the allowance for doubtful accounts is adequate; however, actual write-offs might exceed the recorded allowance.

Inventory

Agera purchases the large majority of its inventory from one contract manufacturer. Agera accounts for its inventory on the first-in-first-out method. At June 30, 2009, Agera’s inventory of $0.4 million consisted of $0.2 million of raw materials and $0.2 million of finished goods. At December 31, 2008, Agera’s inventory of $0.5 million consisted of $0.2 million of raw materials and $0.3 million of finished goods.

Assets of discontinued operations held for sale

In April 2005, the Company acquired land and a two-building, 100,000 square foot campus (the “Swiss campus”) in Bevaix, Canton of Neuchâtel, Switzerland. In March 2008, the Company sold its Swiss campus to a third party for approximately $6.4 million, net of transaction costs. The net book value of the Swiss campus on the date of sale was approximately $12.7 million (or $10.6 million, net of the related cumulative foreign currency translation gain of approximately $2.1 million, as discussed in Foreign Currency Translation above). In connection with this sale of the Swiss campus, the Company recorded a net loss of $4.2 million which is reflected in loss from discontinued operations in the accompanying consolidated statement of operations for the three and six months ended June 30, 2008 (refer to Note 9 for further detail related to the net loss on the sale of the Swiss campus).

Debt Issue Costs

As of December 31, 2008, the costs incurred in issuing the Company’s 3.5% Convertible Subordinated Notes, including placement agent fees, legal and accounting costs and other direct costs are included in other assets and are being amortized to expense using the effective interest method over five years, through November 2009. During the three and six months ended June 30, 2009, the remaining debt issuance costs associated with the Company’s 3.5% Convertible Subordinated Notes as of the petition date were expensed to Reorganization Items in the accompanying consolidated statement of operations. Debt issuance costs, net of amortization, of zero at June 30, 2009 and $0.6 million at December 31, 2008 and were included in other current assets, net, in the accompanying consolidated balance sheets. The unamortized debt issue costs were classified as a current asset at December 31, 2008 because the related debt was classified as a current liability at that date.

Treasury Stock

The Company utilizes the cost method for accounting for its treasury stock acquisitions and dispositions.

Revenue recognition

The Company recognizes revenue over the period the service is performed in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (“SAB 104”). In general, SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services rendered, (3) the fee is fixed and determinable and (4) collectability is reasonably assured.

Revenue from the sale of Agera’s products is recognized upon transfer of title, which is upon shipment of the product to the customer. The Company believes that the requirements of SAB 104 are met when the ordered product is shipped, as the risk of loss transfers to our customer at that time, the fee is fixed and determinable and collection is reasonably assured. Any advanced payments are deferred until shipment.

Shipping and handling costs

Agera charges its customers for shipping and handling costs. Such charges to customers are presented net of the costs of shipping and handling, as selling, general and administrative expense, and are not significant to the consolidated statements of operations.

Advertising cost

Agera advertising costs are expensed as incurred and include the costs of public relations and certain marketing related activities. These costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Research and development expenses

Research and development costs are expensed as incurred and include salaries and benefits, costs paid to third-party contractors to perform research, conduct clinical trials, develop and manufacture drug materials and delivery devices, and a portion of facilities cost. Research and development costs also include costs to develop manufacturing, cell collection and logistical process improvements.

Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. Invoicing from third-party contractors for services performed can lag several months. The Company accrues the costs of services rendered in connection with third-party contractor activities based on its estimate of management fees, site management and monitoring costs and data management costs. Actual clinical trial costs may differ from estimated clinical trial costs and are adjusted for in the period in which they become known.

Stock-based compensation

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) replaces SFAS No. 123, “Accounting for Stock-Based Compensation”, supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123(R) requires entities to recognize compensation expense for all share-based payments to employees and directors, including grants of employee stock options, based on the grant-date fair value of those share-based payments, adjusted for expected forfeitures. The Company adopted SFAS No. 123(R) using the modified prospective application method. Under the modified prospective application method, the fair value measurement requirements of SFAS No. 123(R) is applied to new awards and to awards modified, repurchased, or cancelled after January 1, 2006. Compensation expense is recognized in connection with the issuance of stock options to non-employee consultants in accordance with EITF 96-18, “Accounting for Equity Instruments That are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.” SFAS No. 123(R) did not change the accounting for stock-based compensation related to non-employees in connection with equity based incentive arrangements.

Income taxe s

An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards (“NOLs”). If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

In the event the Company is charged interest or penalties related to income tax matters, the Company would record such interest as interest expense and would record such penalties as other expense in the consolidated statement of operations. No such charges have been incurred by the Company. As of June 30, 2009 and December 31, 2008, the Company had no accrued interest related to uncertain tax positions.

The Company adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”) an interpretation of FASB Statement No. 109 (“SFAS 109”) on January 1, 2007. No material adjustment in the liability for unrecognized income tax benefits was recognized as a result of the adoption of FIN 48. At the adoption date of January 1, 2007, we had $40.4 million of unrecognized tax benefits, all of which would affect the Company’s effective tax rate if recognized. At June 30, 2009 and December 31, 2008, the Company had approximately $66.3 and $63.9 million of unrecognized net deferred tax assets, the large majority of which relates to the future benefit of loss carryforwards. The Company has provided a full valuation allowance for the net deferred tax assets. The tax years 2005 through 2008 remain open to examination by the major taxing jurisdictions to which we are subject.

Loss per share data

Basic loss per share is calculated based on the weighted average common shares outstanding during the period, after giving effect to the manner in which the merger was accounted for as described in Note 1. Diluted earnings per share also gives effect to the dilutive effect of stock options, warrants (calculated based on the treasury stock method) and convertible notes and convertible preferred stock. The Company does not present diluted earnings per share for years in which it incurred net losses as the effect is antidilutive.

At June 30, 2009, options and warrants to purchase 8.1 million shares of common stock at exercise prices ranging from $0.41 to $9.00 per share were outstanding, but were not included in the computation of diluted earnings per share as their effect would be antidilutive. Also, 9.8 million shares issuable upon the conversion of the Company’s convertible notes, at a conversion price of approximately $9.16, were not included as their effect would be antidilutive.

At June 30, 2008, options and warrants to purchase 8.8 million shares of common stock at exercise prices ranging from $0.41 to $9.81 per share were outstanding, but were not included in the computation of diluted earnings per share as their effect would be antidilutive. Also, 9.8 million shares issuable upon the conversion of the Company’s convertible notes, at a conversion price of approximately $9.16, were not included as their effect would be antidilutive.

Fair Value of Financial Instruments

The Company’s financial instruments consist of accounts receivable, accounts payable and convertible subordinated debentures. The fair values of the Company’s accounts receivable and accounts payable approximate, in the Company’s opinion, their respective carrying amounts. The Company’s convertible subordinated debentures were quoted at approximately 15% at December 31, 2008. Accordingly, the fair value of our convertible subordinated debentures was approximately $13.5 million at December 31, 2008. The convertible subordinated debentures traded during January 2009 at less than 5% of par value. No quote for the convertible subordinated debentures was available at June 30, 2009. The Company’s convertible subordinated debentures are publicly traded, although most recently not actively traded. The fair value of the convertible subordinated debentures are estimated based on primary factors such as (1) the most recent trade prices of the convertible subordinated debentures on or near the respective reporting period end and/or (2) the bid and ask prices of the convertible subordinated debentures at the end of the reporting period. Historically, these factors have fluctuated significantly, and these factors are expected to fluctuate in future periods.

Recently Issued Accounting Standards Not Yet Effective

In December 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,” which is effective for fiscal years ending after December 15, 2009. The new standard expands disclosures for assets held by employer pension and other postretirement benefit plans. FSP FAS 132(R)-1 will not affect the company’s financial position or results of operations. The new standard solely affects the disclosure of information related to assets held by employer pension and other postretirement benefit plans.

Note 8—Agera Laboratories, Inc.

On August 10, 2006, the Company acquired 57% of the outstanding common shares of Agera Laboratories, Inc. (“Agera”). Agera is a skincare company that has proprietary rights to a scientifically-based advanced line of skincare products. Agera markets its product primarily in the United States and Europe. The acquisition agreement includes future contingent payments up to a maximum of $8.0 million. Such additional purchase price is based upon certain percentages of Agera’s cost of sales incurred after June 30, 2007. Accordingly, based upon the financial performance of Agera, up to an additional $8.0 million of purchase price may be due the selling shareholder in future periods. Approximately $0.1 million is due to the selling shareholder as of June 30, 2009. The future contingent payments of up to an additional $8.0 million were listed as a contingent claim in the Isolagen, Inc. Chapter 11 bankruptcy petition schedules provided to the Court, and as such, the Company believes the future contingent payments are subject to compromise. However, it is uncertain as to how the Court will ultimately treat the future contingent payments, or if any treatment or relief will be afforded at all by the Court.

The Company’s 57% ownership interest in Agera serves as collateral for a $0.5 million secured loan, which was issued by the Company in April 2009. The results of Agera’s operations and cash flows have been included in the consolidated financial statements from the date of the acquisition. The assets and liabilities of Agera have been included in the consolidated balance sheet since the date of the acquisition.

Note 9—Discontinued Operations and Exit Costs

As part of the Company’s continuing efforts to evaluate the best uses of its resources, in the fourth quarter of 2006 the Company’s Board of Directors approved the closing of the Company’s United Kingdom operation. On March 31, 2007, the Company completed the closure of its United Kingdom manufacturing facility. The Company believes that substantially all costs related to the closure of the United Kingdom operation have been incurred as of June 30, 2009, excluding any potential claims or contingencies unknown or which cannot be estimated at this time (see Note 12).

As a result of the closure of the Company’s United Kingdom operation, the operations that the Company previously conducted in Switzerland and Australia, which when closed had been absorbed into the United Kingdom operation, were also classified as discontinued operations as of March 31, 2007. During March 2008, the Company sold its buildings located in Switzerland (see Note 7). All assets, liabilities and results of operations of the United Kingdom, Switzerland and Australian operations are reflected as discontinued operations in the accompanying consolidated financial statements. All prior period information has been restated to reflect the presentation of discontinued operations.

The balance sheet components of discontinued operations as of both June 30, 2009 and December 31, 2008 are comprised of $0.2 million of accrued expenses and other current liabilities. There are minimal remaining assets related to discontinued operations as of June 30, 2009 and December 31, 2008.

The following sets forth the results of operations of discontinued operations for the three months ended June 30, 2009 and June 30, 2008:


	June 30,			June 30,
(in millions)	2009			2008
Net revenue	$	—		$	—
Gross loss		—			—
Loss on sale of Swiss campus, before foreign currency gain		—			—
Operating loss		—			(0.2	)
Foreign exchange gain on substantial liquidation of foreign entity		—			—
Other		(0.1	)		—

Loss from discontinued operations	$	(0.1	)	$	(0.2	)

The following sets forth the results of operations of discontinued operations for the six months ended June 30, 2009 and June 30, 2008:


	June 30,			June 30,
(in millions)	2009			2008
Net revenue	$	—		$	—
Gross loss		—			—
Loss on sale of Swiss campus, before foreign currency gain		—			(6.3	)
Operating loss		—			(6.7	)
Foreign exchange gain on substantial liquidation of foreign entity		—			2.1
Other		(0.1	)		0.1

Loss from discontinued operations	$	(0.1	)	$	(4.5	)

Note 10—Accrued Expenses

Accrued expenses are comprised of the following:


	June 30,		December 31,
	2009		2008
Accrued professional fees	$	106,120	$	479,943
Accrued settlement fees		—		325,000
Accrued compensation		53,686		17,570
Accrued interest		123,261		525,000
Accrued other		201,806		300,200

Accrued expenses	$	484,873	$	1,647,713

Note 11—Debt and Events of Default

Secured Promissory Notes

On April 30, 2009, the Company entered into secured promissory notes and security agreements (the “Secured Notes”) with eight lenders pursuant to which the Company borrowed an aggregate of $0.5 million in principal amount. The net proceeds were $0.4 million, net of fees and commissions. The Secured Notes bear interest at a rate of 20% per annum with principal and interest on the Secured Notes due on the earlier of June 20, 2009 or the date that the Company files for voluntary or involuntary bankruptcy.

If an event of default under the Secured Notes occurs, the holders of the Secured Notes may declare the Secured Notes to be due and payable. An event of default will occur: (a) if the Company defaults in the payment of the Secured Notes or any other amounts payable to the holders of the Secured Notes; (b) if the Company defaults in the performance of or compliance with any material term contained in the agreements pursuant to which the Secured Notes were issued and such default shall not have been remedied within five business days after written notice to the Company; or (c) if the Company defaults (as principal or guarantor or other surety) in the payment of any principal of or premium or interest on any indebtedness for borrowed money, excluding the interest due May 1, 2009 on the Company’s pre-existing subordinated notes (see 3.5% Subordinated Notes discussion below). The default rate of interest shall be 25% per annum from the date of any event of default under the Secured Notes. The Secured Notes were due on the date that Isolagen, Inc. filed for relief under Chapter 11, or June 15, 2009. As such, the Company is technically in default of this loan. It is expected, if the Debtors’ currently-filed Plan of Reorganization is confirmed and becomes effective, that the loan balance and interest thereon will be converted into equity ownership of the reorganized debtor upon exit from bankruptcy.

The Company is required to redeem the Secured Notes with a 25% premium on the then outstanding principal plus accrued but unpaid interest, upon the (i) receipt of proceeds from the sale of any assets of the Company or any of its subsidiaries, excluding sales in the ordinary course of business by Agera; (b) receipt of the proceeds from any insurance policy held by the Company or any of its subsidiaries or pursuant to which the Company or any of its subsidiaries are beneficiaries; and (c) receipt of proceeds from the sale of any equity of the Company or the Company subsidiaries or issuance of any indebtedness by the Company or any of its subsidiaries. To secure the repayment of the Secured Notes, the Company granted the holders of the Secured Notes a security interest in and a lien on the Company’s 57% equity interest in Agera.

Debtor-in-Possession Credit Facility

On June 17, 2009, the Bankruptcy Court approved a motion for an interim order for debtor-in-possession financing with certain lenders (the “DIP Lenders”) composed of a loan facility in an aggregate principal amount of up to $2,750,000 (subject to increase at the discretion of the DIP Lenders) (the “DIP Facility”), of which up to $1,000,000 will be available to the Debtors from the date of the interim order until the entry of a final order. The proceeds from the DIP Facility will be used, among other things, to provide the Debtors with working capital for general corporate purposes and for expenses associated with the bankruptcy proceeding. The DIP Facility will accrue interest at the rate of 10% per annum (with a default rate of 18%) and will mature on the date a plan of reorganization is approved by the Bankruptcy Court, subject to acceleration upon certain event of defaults set forth in the DIP Facility agreement. As of June 30, 2009, $1.0 million was borrowed under the DIP Facility by the Company and outstanding.

3.5% Subordinated Notes

As of June 30, 2009 and December 31, 2008, the Company has $79.2 million and $90.0 million, respectively, of aggregate principal amount of 3.5% Convertible Subordinated Notes Due 2024 (the “3.5% Subordinated Notes”). The 3.5% Subordinated Notes could be called due as early as November 2009, or earlier in the event of an uncured default. The 3.5% Subordinated Notes require the semi-annual payment of interest, on May 1 and November 1 of each year at 3.5% interest per annum on the principal amount outstanding. The 3.5% Subordinated Notes will mature on November 1, 2024. Prior to maturity the holders may convert their 3.5% Subordinated Notes into shares of the Company’s common stock. The initial conversion rate is 109.2001 shares per $1,000 principal amount of 3.5% Subordinated Notes, which is equivalent to an initial conversion price of approximately $9.16 per share.

The Company did not make an interest payment of approximately $1.5 million that was due on May 1, 2009 to the holders of $89.7 million (as of May 1, 2009) in principal amount of the 3.5% Subordinated Notes issued by the Company. A failure in the payment of any interest when it becomes due and payable, and continuance of such default for a period of 30 days, constitutes an event of default upon the receipt of certain notices. The entry into a bankruptcy proceeding also constitutes an event of default. The 3.5% Convertible Notes are due upon demand. As discussed in Note 2, it is contemplated under the Bankruptcy Plan that each holder of allowed claims arising from or relating to the 3.5% Subordinated Notes shall each receive a pro rata share of an unsecured note in the principal amount of $6 million (the “New Note”) and a pro rata share of 33% of the common stock of the reorganized Company, subject to dilution by the exit financing.

In April 2009, certain note holders converted an additional $2.4 million of the 3.5% Subordinated Notes into the Company’s common shares at a conversion rate of approximately $9.16 per common share (or approximately 262,000 of additional common shares issued in total), pursuant to the original terms of the 3.5% Subordinated Notes. In May 2009, a note holder converted an additional $8.1 million of the 3.5% Subordinated Notes into the Company’s common shares at a conversion rate of approximately $9.16 per common share (or approximately 881,250 of additional common shares issued in total), pursuant to the original terms of the 3.5% Subordinated Notes.

The Company does not have the cash or available resources to pay the $1.5 million of interest which was due on May 1, 2009, nor does the Company have the cash or available resources to pay the remaining $79.2 million of subordinated, convertible notes.

Note 12—Commitments and Contingencies

Federal Securities Litigation

The Company and certain of its current and former officers and directors were defendants in class action cases before the United States District Court for the Eastern District of Pennsylvania.

In August 2005 and September 2005, various lawsuits were filed alleging securities fraud and asserting claims on behalf of a putative class of purchasers of publicly traded Isolagen securities between March 3, 2004 and August 1, 2005. These lawsuits were Elliot Liff v. Isolagen, Inc. et al. , C.A. No. H-05-2887, filed in the United States District Court for the Southern District of Texas; Michael Cummiskey v. Isolagen, Inc. et al. , C.A. No. 05-cv-03105, filed in the United States District Court for the Southern District of Texas; Ronald A. Gargiulo v. Isolagen, Inc. et al. , C.A. No. 05-cv-4983, filed in the United States District Court for the Eastern District of Pennsylvania, and Gregory J. Newman v. Frank M. DeLape, et al. , C.A. No. 05-cv-5090, filed in the United States District Court for the Eastern District of Pennsylvania.

The Liff and Cummiskey actions were consolidated on October 7, 2005. The Gargiolo and Newman actions were consolidated on November 29, 2005. On November 18, 2005, the Company filed a motion with the Judicial Panel on Multidistrict Litigation (the “MDL Motion”) to transfer the Federal Securities Actions and the Keene derivative case (described below) to the United States District Court for the Eastern District of Pennsylvania. The Liff and Cummiskey actions were stayed on November 23, 2005 pending resolution of the MDL Motion. The Gargiulo and Newman actions were stayed on December 7, 2005 pending resolution of the MDL Motion. On February 23, 2006, the MDL Motion was granted and the actions pending in the Southern District of Texas were transferred to the Eastern District of Pennsylvania, where they have been captioned In re Isolagen, Inc. Securities & Derivative Litigation , MDL No. 1741 (the “Federal Securities Litigation”).

On April 4, 2006, the United States District Court for the Eastern District of Pennsylvania appointed Silverback Asset Management, LLC, Silverback Master, Ltd., Silverback Life Sciences Master Fund, Ltd., Context Capital Management, LLC and Michael F. McNulty as Lead Plaintiffs, and the law firms of Bernstein Litowitz Berger & Grossman LLP and Kirby McInerney & Squire LLP as Lead Counsel in the Federal Securities Litigation.

On July 14, 2006, Lead Plaintiffs filed a Consolidated Class Action Complaint in the Federal Securities Litigation on behalf of a putative class of persons or entities who purchased or otherwise acquired Isolagen common stock or convertible debt securities between March 3, 2004 and August 9, 2005. The complaint purports to assert claims for securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against Isolagen and certain of its former officers and directors. The complaint also purports to assert claims for violations of Section 11 and 12 of the Securities Act of 1933 against the Company and certain of its current and former directors and officers in connection with the registration and sale of certain shares of Isolagen common stock and certain convertible debt securities. The complaint also purports to assert claims against the underwriters of an April 2004 public offering of Isolagen common stock and a 2005 sale of convertible notes. On November 1, 2006, the defendants moved to dismiss the complaint. On September 26, 2007, the court denied the Company’s motions to dismiss the complaint. On November 6, 2007, the court entered a scheduling order that provided for discovery to be complete by June 8, 2009. On February 4, 2008, Lead Plaintiffs moved for class certification. On February 15, 2008, Lead Plaintiffs dismissed without prejudice their claims against certain of the underwriters named as defendants in the Federal Securities Class Action, but maintained claims against CIBC World Markets Corp. and UBS Securities LLC (the “Underwriters”).

On April 1, 2008, the court entered an order staying the schedule set forth in its November 6, 2007 order for a period of 90 days and directing the parties (together with the parties in the Beattie action, described under “Derivative Actions,” below) to participate in mediation before a private mediator. The mediation occurred on June 2, 2008 and June 5, 2008, at which the parties reached an agreement in principle to settle the Federal Securities Litigation. On October 23, 2008, the parties executed a definitive settlement agreement. In November 2008, the Company received settlement proceeds of $5.25 million from its directors and officers liability insurance carrier, of which $4.4 million was paid to the class action plaintiffs in December 2008 in accordance with the definitive settlement agreement. The $5.25 million cash received by the Company from the directors and officers liability insurance carrier, the $4.4 million that the Company paid to the class action plaintiffs, and the $0.3 million which remains due to be paid by the Company to counsel for the plaintiffs in the derivative actions discussed further below were each recorded as selling, general and administrative expense, net, for the year ended December 31, 2008 in the accompanying statement of operations. On March 25, 2009, the court entered an order and final judgment approving the settlement and dismissing the Federal Securities Litigation with prejudice. There is no accrual in the accompanying consolidated balance sheet at June 30, 2009 and December 31, 2008 with respect to the Federal Securities Litigation.

Derivative Actions

The Company is the nominal defendant in derivative actions (the “Derivative Actions”) pending in State District Court in Harris County, Texas, the United States District Court for the Eastern District of Pennsylvania, and the Court of Common Pleas of Chester County, Pennsylvania.

On September 28, 2005, Carmine Vitale filed an action styled, Case No. 2005-61840, Carmine Vitale v. Frank DeLape, et al. in the 55 ^th Judicial District Court of Harris County, Texas, and in February 2006, Mr. Vitale filed an amended petition. In this action, the plaintiff purports to bring a shareholder derivative action on behalf of the Company against certain of the Company’s current and former officers and directors. The Plaintiff alleges that the individual defendants breached their fiduciary duties to the Company and engaged in other wrongful conduct. Jeffrey Tomz, who formerly served as Isolagen’s Chief Financial Officer, was accused of engaging in insider trading of Isolagen stock through a proxy. The plaintiff did not make a demand on the Board of Isolagen prior to bringing the action and plaintiff alleges that a demand was excused under the law as futile.

On December 2, 2005, the Company filed its answer and special exceptions pursuant to Rule 91 of the Texas Rules of Civil Procedure based on pleading defects inherent in the Vitale petition. The plaintiff filed an amended petition on February 15, 2006, to which the defendants renewed their special exceptions. On September 6, 2006, the Court granted the special exceptions and permitted the plaintiff thirty days to attempt to replead. Thereafter, the plaintiff moved the Court for an order compelling discovery, which the Court denied on October 2, 2006. On October 18, 2006, the Court entered an order explaining its grounds for granting the special exceptions. On November 3, 2006, the plaintiff filed a second amended petition. On February 8, 2007, the Company filed its answer and special exceptions to the second amended petition. On August 9, 2007, the Court granted the special exceptions and dismissed the second amended petition with prejudice. On September 4, 2007, the plaintiff moved for reconsideration of the dismissal with prejudice of the second amended petition, for a new trial, and for leave to further amend the petition, and the defendants opposed that motion on September 20, 2007. On October 23, 2007, that motion was deemed denied by operation of law because the court had not acted on it by that date.

On October 8, 2005, Richard Keene filed an action styled, C.A. No. H-05-3441, Richard Keene v. Frank M. DeLape et al., in the United States District Court for the Southern District of Texas. This action makes substantially similar allegations as the original complaint in the Vitale action. The plaintiff also alleges that his failure to make a demand on the Board prior to filing the action is excused as futile.

The Company sought to transfer the Keene action to the United States District Court for the Eastern District of Pennsylvania as part of the MDL Motion. On January 21, 2006, the court stayed the Keene action pending resolution of the MDL Motion. On February 23, 2006, the Keene action was transferred with the Federal Securities Actions from the Southern District of Texas to the Eastern District of Pennsylvania. Thereafter, on May 15, 2006, the plaintiff filed an amended complaint, and on June 5, 2006, the defendants moved to dismiss the amended complaint. On August 21, 2006, the plaintiff moved for leave to file a second amended complaint, and on September 15, 2006, defendants filed an opposition to that motion. On January 24, 2007, the court denied the plaintiff’s motion to file a second amended complaint, and on April 10, 2007 the court granted the defendants’ motion to dismiss and dismissed the amended complaint without prejudice. On May 9, 2007, plaintiff filed a notice of appeal from the January 24, 2007 order denying plaintiff’s motion to file a second amended complaint, and from the April 10, 2007 order dismissing plaintiff’s amended complaint without prejudice. The appeal is fully briefed. On or about April 5, 2008, Keene moved the appeals court to stay the appeal for a period of 90 days to permit Keene to participate in the mediation of the federal securities litigation (described above) and the Beattie derivative litigation (described below). The mediation is described under “Federal Securities Litigation” above.

On October 31, 2005, William Thomas Fordyce filed an action styled, C.A. No. GD-05-08432, William Thomas Fordyce v. Frank M. DeLape, et al., in the Court of Common Pleas of Chester County, Pennsylvania. This action makes substantially similar allegations as the original complaint in the Vitale action. The plaintiff also alleges that his failure to make a demand on the Board prior to filing the action is excused as futile.

On January 20, 2006, the Company filed its preliminary objections to the complaint. On August 31, 2006, the Court of Common Pleas entered an opinion and order sustaining the preliminary objections and dismissing the complaint with prejudice. On September 19, 2006, Fordyce filed a motion for reconsideration, which the Court of Common Pleas denied. On September 28, 2006, Fordyce filed a notice of appeal to the Superior Court of Pennsylvania. On July 27, 2007, the Superior Court affirmed the decision of the Court of Common Pleas.

On February 14, 2008, Ronald Beattie filed an action styled C.A. No. 08-724, Ronald Beattie v. Michael Macaluso, et al., in the United States District Court for the Eastern District of Pennsylvania. This action makes substantially similar allegations as the original complaint in the Vitale action.

On April 1, 2008, the court entered an order extending the defendants’ time to respond to the complaint for a period ending 150 days from April 1, 2008 and directing the parties, together with the parties to the federal securities litigation described above, to mediation before a private mediator. The mediation is described under “Federal Securities Litigation” above.

The mediation occurred on June 2, 2008 and June 5, 2008, at which the parties reached an agreement in principle to settle the Keene and Beattie Derivative Actions, and on January 27, 2009, the parties executed a definitive settlement agreement. On May 19, 2009, the court entered a final judgment and order approving the settlement and terminating the Keene and Beattie Derivative Actions. The settlement of the Keene and Beattie Derivative Actions provides for the Company to make certain payments of attorneys’ fees and expenses to counsel for Keene and Beattie. The settlement agreement in the Derivative Actions contemplated that a portion of the proceeds previously received by the Company from its directors and officers liability insurance would be applied to make those payments. An accrual of $0.3 million has been recorded in the accompanying consolidated balance sheets at both June 30, 2009 and December 31, 2008, in connection with the proposed settlement. The $0.3 million accrued settlement liability was not paid when due, and as such, exists as a liability subject to compromise in connection with the Debtors’ bankruptcy proceedings.

Indemnity Demands

Mr. Jeffrey Tomz

After the above referenced litigations were commenced, Mr. Jeffrey Tomz, who formerly served as Isolagen’s Chief Financial Officer, demanded reimbursement of his costs of defense, and reimbursement for the costs of responding to a Securities and Exchange Commission investigation of his alleged insider trading in Isolagen stock. It is understood that Mr. Tomz’s defense costs to date amount to in excess of approximately $0.3 million in pre-petition claims.

As the Vitale matter has now been resolved in favor of all defendants, including Mr. Tomz, the Company is presently obligated to reimburse him for the reasonable and necessary costs of defending all claims asserted therein other than the insider trading allegations. Although decided on jurisdictional grounds, it is likely the Company is also obligated to reimburse Mr. Tomz for the reasonable and necessary costs incurred in defending the Fordyce matter given that it has also been resolved in favor of all defendants. The Company could potentially be liable to reimburse Mr. Tomz for the reasonable and necessary costs of defense in the Keene case and in the putative securities cases, both of which have been resolved by settlement, as described above. The Company has refused to pay the amount of fees and expenses for which Mr. Tomz has sought reimbursement because it believes they are excessive, duplicative and have not been properly segregated between reimbursable and non-reimbursable claims. The Company has negotiated an acceptable compromise for the amounts billed by Mr. Tomz’s local Pennsylvania counsel for an amount less than $0.1 million.

Prior to the resolution of the various derivative actions, Mr. Tomz filed a demand for arbitration seeking advancement of his defense costs. He subsequently agreed to stay those proceedings. At present, Mr. Tomz has not sought to lift this stay and it is uncertain whether he will attempt to do so in the future.

The Company has accrued less than $0.1 million in the accompanying consolidated financial statements as of June 30, 2009 and December 31, 2008 with respect to Mr. Tomz’s existing defense costs in dispute.

Underwriters

The Underwriters have each demanded that the Company indemnify, hold harmless and defend them with respect to the claims asserted in the putative securities actions. The total amount demanded to date is approximately $0.8 million. The Underwriters demands for indemnification were a subject of the ongoing mediation efforts described under “Federal Securities Litigation” above, and as part of the proposed settlement of the Federal Securities Litigation the Underwriters agreed to release their claims for indemnification. Accordingly, no accrual has been recorded in the accompanying consolidated balance sheets at June 30, 2009 and December 31, 2008 in connection with the Underwriters original demand of approximately $0.8 million.

United Kingdom Customer Settlement

During 2005, the Company began an informal study and surveyed a number of patients who had previously received the Isolagen treatment to assess patient satisfaction. Some patients surveyed reported sub-optimal results from treatment. One hundred forty-nine patients who claimed to have received sub-optimal results were retreated for the purpose of determining the reasons for sub-optimal results. Only those patients who completed the survey, provided adequate medical records including before and after photographs and who were deemed both to have received a sub-optimal result from a first treatment administered according to the Isolagen protocol and who were considered to be appropriate patients for treatment with the Isolagen Therapy received re-treatment. No one completing the survey was offered re-treatment unless they agreed to these conditions. Following re-treatment, a number of patients reported better results than first obtained through the initial treatment by their initial treating physician.

During the first quarter of 2006, the Company received a number of complaints from certain patients who had learned of the limited re-treatment program and also learned that a number of physicians with dissatisfied patients were generating public ill-will as a result of the Company’s decision to limit the number of patients offered re-treatment and were encouraging dissatisfied patients to seek recourse against the Company. In response, in March 2006 the Company decided that it was in its best interest to address these complaints to foster goodwill in the marketplace and avoid the cost of any potential patient claims. Accordingly, the Company agreed to resolve any properly documented and substantiated patient complaints by offering to retreat the patient pursuant to the same criteria stated above or pay £1,000 (approximately US$1,750 at the time) to the patients identified to the Company as having received a sub-optimal result. In order to have qualified for re-treatment and in addition to the criteria set forth above, the patient would be treated by a physician identified by the Company who would treat these patients pursuant to a protocol. In addition, these patients must have agreed to follow-up visits and assessments of their response to treatment. No patient unlikely to benefit from Isolagen Therapy has been or would be retreated.

The Company made this offer to approximately 290 patients during late March 2006. Accordingly, the Company believed its range of liability was between £290,000 (or approximately $0.5 million at the time), assuming all 290 patients were to choose the £1,000 payment, and approximately £580,000 (or approximately $1.0 million at the time), assuming all 290 patients elected to be retreated. The estimated costs for retreatment include the cost of treatment, physician fees and other ancillary costs. The Company estimated that 60% of the patients would elect the £1,000 offer and 40% would elect to be retreated. Accordingly, the Company recorded a charge reflected under loss from discontinued operations for the three months ended June 30, 2006 of $0.7 million. During the three months ended June 30, 2006, an additional 31 patients were entered into the settlement program, resulting in an additional charge reflected in loss from discontinued operations of $0.1 million.

During the year ended December 31, 2006, payments to patients and retreatments reduced the accrual by $0.6 million. During the year ended December 31, 2007, payments and retreatments to patients reduced the accrual by approximately $0.1 million. As of both June 30, 2009 and December 31, 2008, the accrual, which is included in current liabilities of discontinued operations in the consolidated balance sheets, was $0.1 million. As discussed in Note 9, on March 31, 2007, the Company completed the closure of its United Kingdom manufacturing facility, and as such, treatments are no longer available in the United Kingdom, or elsewhere currently.

U nited Kingdom Claims

Subsequent to the Company’s public announcement regarding the closure of the United Kingdom operation, the Company received negative publicity and negative correspondence from former patients in the United Kingdom that previously received the Company’s treatment. To date, the Company received written demand by an attorney representing approximately 132 former patients, as of June 30, 2009, each claiming negligent misstatements were made and each claiming, on average, £3,500 (or approximately $5,000), plus unquantified interest and incidental expenses. The Company has responded to the written demand and is in the process of evaluating the merits of the claims. To date, no formal legal action has been brought by the attorney against the Company, and no provision has been recorded in the consolidated financial statements related to this matter.

During 2008, the Company received written correspondence from one former patient claiming physical injury allegedly from the use of Isolagen Therapy. The Company believes this claim is without merit. To date, no formal legal action has been brought by the former patient against the Company, and no provision has been recorded in the consolidated financial statements related to this matter.

NYSE Amex Delisting

On May 6, 2009, the Company was advised that due to the Company’s disclosure with respect to the likelihood of bankruptcy, effective immediately the Exchange halted trading in the Company’s common stock. The Company was further advised that it would receive a notice from the Exchange that it intended to delist the Company’s common stock from listing on the Exchange, which delisting would occur approximately seven days from the receipt of such notification if the Company determined not to appeal such decision. In June 2009, the Exchange delisted the Company’s common stock from listing on the Exchange.

Other

The Company has not accrued in its consolidated balance sheet at June 30, 2009, nor has it expensed as research and development expense in its consolidated statements of operations for the six months ended June 30, 2009, approximately $0.5 million of charges submitted to the Company by one of its consultants. The Company disputes these charges and does not currently consider payment of these charges to be probable.

Note 13—Equity-based Compensation

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) replaced SFAS No. 123, “Accounting for Stock-Based Compensation”, superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and amended SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123(R) requires entities to recognize compensation expense for all share-based payments to employees and directors, including grants of employee stock options, based on the grant-date fair value of those share-based payments, adjusted for expected forfeitures. Further, compensation expense is recognized in connection with the issuance of stock options to non-employee consultants in accordance with EITF 96-18, “Accounting for Equity Instruments That are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.”

The Company utilizes the straight-line attribution method for recognizing stock-based compensation expense under SFAS No. 123(R). The Company recorded $0.1 million and $0.2 million of compensation expense, net of tax, during the three months ended June 30, 2009 and June 30, 2008, respectively, for stock option awards to employees and directors based on the estimated fair values, at the grant dates, of the awards. The Company recorded $0.2 million and $0.4 million of compensation expense, net of tax, during the six months ended June 30, 2009 and June 30, 2008, respectively, for stock option awards to employees and directors based on the estimated fair values, at the grant dates, of the awards. In addition, refer to Equity Instruments Issued for Services for discussion below of additional stock option expense incurred by the Company in accordance with EITF 96-18.

There were no options granted for the six months ended June 30, 2009. The weighted average fair market value using the Black-Scholes option-pricing model of the options granted was $0.92 for the six months ended June 30, 2008. The fair market value of the stock options at the date of grant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:


	Six Months ended
	June 30, 2008
Expected life (years)	5.8 years
Interest rate		2.9	%
Dividend yield		—
Volatility		92	%

The risk-free interest rate is based on U.S. Treasury interest rates at the time of the grant whose term is consistent with the expected life of the stock options. Expected volatility is based on the Company’s historical experience. Expected life represents the period of time that options are expected to be outstanding and is based on the Company’s historical experience or the simplified method, as permitted by SEC Staff Accounting Bulletin No. 107 where appropriate. Expected dividend yield was not considered in the option pricing formula since the Company does not pay dividends and has no current plans to do so in the future. The forfeiture rate used was based upon historical experience. As required by SFAS No. 123(R), the Company will adjust the estimated forfeiture rate based upon actual experience.

There were no stock options exercised during the six months ended June 30, 2009 and June 30, 2008, respectively. A summary of option activity for the six months ended June 30, 2009 is as follows:


						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
Options	Shares			Price		Term		Value

Outstanding at January 1, 2009		8,436,833		$	3.04
Six months ended June 30, 2009:
Granted		—			—
Exercised		—			—
Forfeited		(370,000	)		4.29

Outstanding at June 30, 2009		8,066,833		$	2.98		4.97	$	—

Options exercisable at June 30, 2009		6,595,496		$	3.27		4.63	$	—

The following table summarizes the status of the Company’s non-vested stock options since January 1, 2009:


	Non-vested Options
				Weighted-
	Number of			Average Fair
	Shares			Value
Non-vested at January 1, 2009		2,229,171		$	1.22
Granted		—			—
Vested		(597,834	)		1.14
Forfeited		(160,000	)		1.61

Non-vested at June 30, 2009		1,471,337		$	1.20

The total fair value of shares vested during the six months ended June 30, 2009 and June 30, 2008 was $0.7 million and $0.9 million, respectively. As of June 30, 2009 and December 31, 2008, there was $0.4 million and $0.7 million of total unrecognized compensation cost, respectively, related to non-vested director and employee stock options which vest over time. That cost is expected to be recognized over a weighted-average period of 1.7 years. As of June 30, 2009 and December 31, 2008, there was $0.1 million and $0.3 million, respectively, of total unrecognized compensation cost related to performance-based, non-vested employee stock options. That cost is recognized when the performance criteria within the respective performance-base option grants become probable of achievement. During the three months ended March 31, 2009, the Company recorded $0.1 million of stock option compensation expense in the accompanying statement of operations which related to previously granted performance-based option grants that became probable of achievement during the three months ended March 31, 2009.

2001 Stock Option and Stock Appreciation Rights Plan

Effective August 10, 2001, the Company adopted the Isolagen, Inc. 2001 Stock Option and Stock Appreciation Rights Plan (the “2001 Stock Plan”). The 2001 Stock Plan is discretionary and allows for an aggregate of up to 5,000,000 shares of the Company’s common stock to be awarded through incentive and non-qualified stock options and stock appreciation rights. The 2001 Stock Plan is administered by the Company’s Board of Directors, who has exclusive discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted. As of June 30, 2009, there were 2,713,500 options outstanding under the Stock Plan and 1,660,834 options were available to be issued under the Stock Plan. There were no stock options granted during the six months ended June 30, 2009. A total of 1,132,000 stock options were granted during the six months ended June 30, 2008 under the 2001 Stock Plan.

During the three months ended March 31, 2008, the Company issued under the 2001 Stock Plan the following ten-year life option grants to Mr. Declan Daly, Chief Executive Officer: (a) an option to purchase 350,000 shares of common stock at an exercise price of $2.36, which vests in twelve equal quarterly installments commencing March 31, 2008; and (b) a performance stock option to purchase 100,000 shares of common stock at an exercise price of $2.36 that shall vest as follows: (i) 50% of performance stock option vested upon the Company’s accepted filing of a Biologics License Application by the FDA during the three months ended March 31, 2009 and (ii) the remaining 50% of the performance stock option shall vest upon the FDA’s approval of the Company’s Biologics License Application filing; provided that Mr. Daly is the Company’s Chief Executive Officer at the time of said event.

Further, during the three months ended March 31, 2008, the following options grants were issued: (1) options issued to nine employees to purchase a total of 102,000 shares of common stock at an exercise price of $0.61, which vest in equal annual installments over three years and have a five year life, (2) an option issued to the Company’s Chief Financial Officer to purchase 200,000 shares of common stock at an exercise price of $0.48, which vests in equal annual installments over three years and have a ten year life and (3) performance options issued to two consultants to purchase 200,000 shares of common stock at an average exercise price of $0.51 (or exercise price range of $0.41 to $0.61), which vest upon the attainment of certain performance criteria. No compensation cost has been recorded for the performance stock option grants as the Company does not currently believe that the vesting events are probable of occurrence. A total of 952,000 stock options were granted during the three months ended March 31, 2008 under the 2001 Stock Plan.

The grant date fair value of the employee performance option awards issued during the three months ended March 31, 2008 was approximately $0.2 million. This fair value of $0.2 million, or any portion thereof, will not be recognized as compensation expense until the vesting of the award becomes probable. The fair value of the total non-employee performance awards issued during the three months ended March 31, 2008 was less than $0.1 million as of March 31, 2008. Compensation expense related to the non-employee performance option awards will not be recognized until vesting of the awards occur, and the actual amount of expense will be based upon the valuation factors in effect at that time.

During the three months ended June 30, 2008, the company issued to its six independent Board of Director members, under the 2001 Stock Plan, a total of 180,000 options to purchase its common stock with an exercise price of $0.62 per share and a ten year maximum contractual life. The options vest one-fourth upon grant and one-fourth over the three remaining fiscal quarters of 2008.

2003 Stock Option and Stock Appreciation Rights Plan

On January 29, 2003, the Company’s Board of Directors approved the 2003 Stock Option and Appreciation Rights Plan (the “2003 Stock Plan”). The 2003 Stock Plan is discretionary and allows for an aggregate of up to 2,250,000 shares of the Company’s common stock to be awarded through incentive and non-qualified stock options and stock appreciation rights. The 2003 Stock Plan is administered by the Company’s Board of Directors, who has exclusive discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted. As of June 30, 2009, there were 1,480,000 options outstanding under the 2003 Stock Plan and 770,000 shares were available for issuance under the 2003 Stock Plan. No options have been granted under the 2003 Stock Plan since November 2006.

2005 Equity Incentive Plan

On April 26, 2005, the Company’s Board of Directors approved the 2005 Equity Incentive Plan (the “2005 Stock Plan”). The 2005 Stock Plan is discretionary and allows for an aggregate of up to 2,100,000 shares of the Company’s common stock to be awarded through incentive and non-qualified stock options, stock units, stock awards, stock appreciation rights and other stock-based awards. The 2005 Stock Plan is administered by the Compensation Committee of the Company’s Board of Directors, who has exclusive discretion to select participants who will receive the awards and to determine the type, size and terms of each award granted. As of June 30, 2009, there were 305,000 options outstanding and 1,712,818 shares were available for issuance under the 2005 Stock Plan. No options have been granted under the 2005 Stock Plan since June 2006.

Other Stock Options

The Company has not issued any options outside the 2001 Stock Plan, the 2003 Stock Plan or the 2005 Stock Plan since June 2006. As of June 30, 2009, there were 3,568,333 nonqualified stock options outstanding outside of the shareholder approved plans discussed above.

Modification of Stock Options

On January 7, 2008, the Company and Mr. Nicholas L. Teti, Jr. entered into a consulting and non-competition agreement (the “Consulting Agreement”), pursuant to which Mr. Teti agreed to continue as the Company’s non-executive Chairman of the Board and to become a consultant to the Company, and Mr. Teti resigned his position as Chief Executive Officer and President of the Company. Pursuant to the Consulting Agreement, Mr. Teti’s original employment agreement, dated June 5, 2006, was terminated and the parties agreed that he was owed no severance payments under the original employment agreement. Mr. Teti retained his previously issued stock options which were modified such that Mr. Teti continued to vest in accordance with the original terms, except as a non-employee. As a result of the modifications to Mr. Teti’s stock options set forth in the Consulting Agreement, the Company recorded a non-cash compensation charge during the three months ended March 31, 2008 of approximately $1.3 million related to Mr. Teti’s 1,166,665 vested stock options on the date of modification.

Further, stock compensation expense relating to the 833,335 unvested stock options Mr. Teti held at the time of modification was recorded as stock option expense over the remaining periods those stock options were earned in accordance with EITF 96-18, “Accounting for Equity Instruments That are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.” These stock options vested ratably through March 31, 2009.

Equity Instruments Issued for Services

As of June 30, 2009, the Company had outstanding 1,216,935 warrants and options issued to non-employees under consulting agreements, including the 833,335 options related to Mr. Teti, the Company’s former CEO, which were unvested at the time of modification, as discussed above. The following sets forth certain information concerning these warrants and options:


	Vested
Warrants and options outstanding		1,216,935
Range of exercise prices	$	1.50-6.00
Weighted average exercise price	$	2.27
Expiration dates		2011-2016

There was no expense related to these contracts for the three month period ended June 30, 2009, and the expense was less than $0.1 million for the three month period ended June 30, 2008. Expense related to these contracts was less than $0.1 million and $0.1 million in the six month period ended June 30, 2009 and 2008. The expense was calculated using the Black Scholes option-pricing model based on the following assumptions:


Expected life (years)	3-4 Years
Interest rate	1.2-3.0	%
Dividend yield	—
Volatility	100-150	%

Note 14—Segment Information and Geographical information

With the acquisition of Agera on August 10, 2006 (see Note 8), the Company now has two reportable segments: Isolagen Therapy and Agera. Prior to the acquisition of Agera, the Company reported one reportable segment. The Isolagen Therapy segment specializes in the development and commercialization of autologous cellular therapies for soft tissue regeneration. The Agera segment maintains proprietary rights to a scientifically-based advanced line of skincare products. The following table provides operating financial information for the continuing operations of the Company’s two reportable segments:


	Segment
	Isolagen
	Therapy			Agera			Consolidated
Three Months Ended June 30, 2009

External revenue	$	—		$	248,991		$	248,991
Intersegment revenue		—			—			—

Total operating revenue		—			248,991			248,991
Cost of revenue		—			107,929			107,929
Selling, general and administrative expense		940,039			128,812			1,068,851
Research and development expense		485,300			—			485,300
Management fee		(35,421	)		35,421			—

Total operating expenses		1,389,918			164,233			1,554,151
Operating loss		(1,389,918	)		(23,171	)		(1,413,089	)
Interest income		3			4			7
Reorganization items		(593,204	)		—			(593,204	)
Interest expense		(969,200	)		—			(969,200	)

Segment loss from continuing operations	$	(2,952,319	)	$	(23,167	)	$	(2,975,486	)


	Segment
	Isolagen
	Therapy			Agera			Consolidated
Six Months Ended June 30, 2009

External revenue	$	—		$	407,880		$	407,880
Intersegment revenue		—			—			—

Total operating revenue		—			407,880			407,880
Cost of revenue		—			171,719			171,719
Selling, general and administrative expense		2,012,107			256,308			2,268,415
Research and development expense		1,493,207			—			1,493,207
Management fee		(73,296	)		73,296			—

Total operating expenses		3,432,018			329,604			3,761,622
Operating loss		(3,432,018	)		(93,443	)		(3,525,461	)
Interest income		238			9			247
Reorganization items		(593,204	)		—			(593,204	)
Interest expense		(1,942,075	)		—			(1,942,075	)

Segment loss from continuing operations	$	(5,967,059	)	$	(93,434	)	$	(6,060,493	)

Supplemental information:


	Segment
	Isolagen
	Therapy		Agera		Consolidated

For the three months ended June 30, 2009 and as of June 30, 2009:

Equity awards issued for services		112,616		—		112,616
Amortization of debt issuance costs		615,877		—		615,877
Total assets, including assets from discontinued operations, June 30, 2009		1,428,547		810,744		2,239,291


	Segment
	Isolagen
	Therapy		Agera		Consolidated

For the six months ended June 30, 2009:

Equity awards issued for services		253,159		—		253,159
Amortization of debt issuance costs		803,187		—		803,187

An intercompany receivable of $0.9 million, due from the Agera segment to the Isolagen Therapy segment, is eliminated in consolidation. This intercompany receivable is primarily due to the intercompany management fee charge to Agera by Isolagen, as well as Agera working capital needs provided by Isolagen, and has been excluded from total assets of the Isolagen Therapy segment in the above table. Total assets on the consolidated balance sheet at June 30, 2009 are approximately $2.2 million, which includes assets of discontinued operations of less than $0.1 million.


	Segment
	Isolagen
	Therapy			Agera			Consolidated
Three Months Ended June 30, 2008

External revenue	$	—		$	271,721		$	271,721
Intersegment revenue		—			—			—

Total operating revenue		—			271,721			271,721
Cost of revenue		—			147,787			147,787
Selling, general and administrative expense		2,036,668			174,894			2,211,562
Research and development expense		3,251,355			—			3,251,355
Management fee		(69,000	)		69,000			—

Total operating expenses		5,219,023			243,894			5,462,917

Operating loss		(5,219,023	)		(119,960	)		(5,338,983	)
Interest income		46,879			7			46,886
Other income		—			—			—
Interest expense		(974,810	)		—			(974,810	)

Segment loss from continuing operations	$	(6,146,954	)	$	(119,953	)	$	(6,266,907	)


Six Months Ended June 30, 2008

External revenue	$	—		$	489,674		$	489,674
Intersegment revenue		—			—			—

Total operating revenue		—			489,674			489,674
Cost of revenue		—			318,762			318,762
Selling, general and administrative expense		5,844,777			311,623			6,156,400
Research and development expense		6,145,211			—			6,145,211
Management fee		(219,000	)		219,000			—

Total operating expenses		11,770,988			530,623			12,301,611

Operating loss		(11,770,988	)		(359,711	)		(12,130,699	)
Interest income		133,493			25			133,518
Other income		—			—			—
Interest expense		(1,949,620	)		—			(1,949,620	)

Segment loss from continuing operations	$	(13,587,115	)	$	(359,686	)	$	(13,946,801	)

Supplemental information:


	Segment
	Isolagen
	Therapy		Agera		Consolidated

For the three months ended June 30, 2008 and as of June 30, 2008:

Depreciation and amortization expense	$	270,510	$	81,711	$	352,221
Capital expenditures		13,013		—		13,013
Equity awards issued for services		256,452		—		256,452
Amortization of debt issuance costs		187,310		—		187,310
Total assets, including assets from discontinued operations, June 30, 2008		16,371,793		4,931,948		21,303,741
Property and equipment, June 30, 2008		2,858,108		—		2,858,108
Intangible assets, net, June 30, 2008		525,937		3,906,244		4,432,181

Supplemental information:


	Segment
	Isolagen
	Therapy		Agera		Consolidated

For the six months ended June 30, 2008:

Depreciation and amortization expense	$	556,343	$	163,419	$	719,762
Capital expenditures		29,892		—		29,892
Equity awards issued for services		1,715,420		—		1,715,420
Amortization of debt issuance costs		374,619		—		374,619

An intercompany receivable of $1.0 million, due from the Agera segment to the Isolagen Therapy segment as of June 30, 2008, is eliminated in consolidation. This intercompany receivable is primarily due to the intercompany management fee charge to Agera by Isolagen, as well as Agera working capital needs provided by Isolagen, and has been excluded from total assets of the Isolagen Therapy segment in the above table. Total assets on the consolidated balance sheet at June 30, 2008 are approximately $21.3 million, which includes assets of continuing operations of $21.1 million and assets of discontinued operations of $0.2 million.

Geographical information concerning the Company’s operations and assets is as follows:


	Revenue
	Three months ended June 30,
	2009		2008
United States	$	73,143	$	82,325
United Kingdom		165,067		163,810
Other		10,781		25,586

	$	248,991	$	271,721


	Revenue
	Six months ended June 30,
	2009		2008
United States	$	146,633	$	179,605
United Kingdom		224,111		271,320
Other		37,136		38,749

	$	407,880	$	489,674

During the three months ended June 30, 2009 revenue from one foreign customer and one domestic customer represented 66% and 20% of consolidated revenue, respectively. During the three months ended June 30, 2008, revenue from one foreign customer and one domestic customer represented 60% and 22% of consolidated revenue, respectively.

During the six months ended June 30, 2009, revenue from one foreign customer and one domestic customer represented 55% and 24% of consolidated revenue, respectively. During the six months ended June 30, 2008 revenue from one foreign customer and one domestic customer represented 55% and 26% of consolidated revenue, respectively.

As of June 30, 2009 and December 31, 2008, one foreign customer represented 78% and 94%, respectively, of accounts receivable, net.

Note 15—Subsequent Events

Subsequent events have been evaluated by the Company through August 11, 2009, which is the date the financial statements were available to be issued.

Subsequent to June 30, 2009 through August 11, 2009, the Company borrowed an additional $1.75 million ($1.6 million, net of financing costs) under its DIP Facility (see Note 11). As of August 11, 2009, the Company had $2.75 million outstanding under its DIP Facility.

On August 10, 2009, counsel for plaintiffs Keene and Beattie in the Derivative Actions (“Counsel”) filed a complaint in the United States Bankruptcy Court for the District of Delaware against Isolagen, Inc. and Isolagen Technologies, Inc. seeking declaratory and injunctive relief from the Bankruptcy Court. The relief sought includes: (i) compelling the Debtors to provide an accounting of certain funds received by the Company from its directors and officers liability insurance carrier ; (ii) imposing a constructive trust over certain purported assets of the estates; (iii) finding that certain purported assets are not estate property; (iv) contesting the validity, nature, extent, and priority of all other creditors’ or lien holders’ security interests and liens in and to certain purported assets; and (iv) directing the Company to pay Counsel the attorneys’ fees and expenses awarded them in connection with the settlement of the Derivative Actions. The Company intends to contest the complaint in the manner proscribed by the Bankruptcy Code and the Bankruptcy Rules, and the Company has accrued the $0.3 million settlement as a liability subject to compromise in the accompanying consolidated balance sheet as of June 30, 2009.

Refer to Note 2 and Part II, Item 1A. Risk Factors , for a discussion of the risks related to successfully emerging from Chapter 11.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our consolidated financial statements, including the notes thereto.

Forward-Looking Information

This report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, as well as information relating to Isolagen that is based on management’s exercise of business judgment and assumptions made by and information currently available to management. When used in this document and other documents, releases and reports released by us, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “the facts suggest” and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements. Several of these factors include, without limitation:

•

our ability to finance our business, continue in operations and exit bankruptcy;

•

our ability to develop autologous cellular therapies that have specific applications in cosmetic dermatology, and our ability to explore (and possibly develop) applications for periodontal disease, reconstructive dentistry, treatment of restrictive scars and burns and other health-related markets;

•

whether our clinical human trials relating to the use of autologous cellular therapy applications, and such other indications as we may identify and pursue can be conducted within the timeframe that we expect, whether such trials will yield positive results, or whether additional applications for the commercialization of autologous cellular therapy can be identified by us and advanced into human clinical trials;

•

whether the results of our full Phase III pivotal study, our BLA filing, and our upcoming Exton, Pennsylvania plant approval inspection by the FDA will result in approval of our product candidate, and whether any approval will occur on a timely basis;

•

adverse results from, or changes in, any pending or threatened legal proceedings;

•

our ability to provide and deliver any autologous cellular therapies that we may develop on a basis that is competitive with other therapies, drugs and treatments that may be provided by our competitors;

•

our ability to decrease our manufacturing costs for our Isolagen Therapy product candidates through the improvement of our manufacturing process, and our ability to validate any such improvements with the relevant regulatory agencies;

•

our ability to reduce our need for fetal bovine calf serum by improved use of less expensive media combinations and different media alternatives;

•

our ability to improve our historical pricing model;

•

our ability to meet requisite regulations or receive regulatory approvals in the United States, Europe, Asia and the Americas, and our ability to retain any regulatory approvals that we may obtain; and the absence of adverse regulatory developments in the United States, Europe, Asia and the Americas or any other country where we plan to conduct commercial operations;

•

a stable currency rate environment in the world, and specifically the countries we are doing business in or plan to do business in;

•

continued availability of supplies at satisfactory prices;

•

new entrance of competitive products or further penetration of existing products in our markets;

•

the effect on us from adverse publicity related to our products or the company itself;

•

any adverse claims relating to our intellectual property;

•

the adoption of new, or changes in, accounting principles;

•

our ability to efficiently integrate our past acquisition and future acquisitions, if any, or any other new lines of business that we may enter in the future;

•

our issuance of certain rights to our shareholders that may have anti-takeover effects;

•

our dependence on physicians to correctly follow our established protocols for the safe administration of our Isolagen Therapy; and

•

other risks referenced from time to time elsewhere in this report and in our filings with the SEC, including, without limitation, the risks and uncertainties described in Item 1A of our Form 10-K for the year ended December 31, 2008, as well as Part II, Item 1A of this Form 10-Q.

These factors are not necessarily all of the important factors that could cause actual results of operations to differ materially from those expressed in these forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results. We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events. We cannot assure you that projected results will be achieved.

Overview

We are an aesthetic and therapeutic development stage company focused on developing novel skin and tissue rejuvenation products. Our clinical development product candidates are designed to improve the appearance of skin injured by the effects of aging, sun exposure, acne and burn scars with a patient’s own, or autologous, fibroblast cells produced by our proprietary Isolagen Process. Our clinical development programs encompass both aesthetic and therapeutic indications. Our most advanced indication utilizing the Isolagen Therapy is for the treatment of nasolabial folds/wrinkles, which completed Phase III clinical studies and the related Biologics License Application (“BLA”) was been accepted for filing by the Food and Drug Administration (“FDA”) during May 2009. During 2009 we completed one of two Phase II/III studies for the treatment of acne scars. During 2008 we completed our open-label Phase II study related to full face rejuvenation.

We also develop and market an advanced skin care product line through our Agera Laboratories, Inc. (“Agera”) subsidiary, in which we acquired a 57% interest in August 2006.

Bankruptcy, Debt and Going Concern

The Debtors are currently operating their business as debtors-in-possession pursuant to the Bankruptcy Code.

Isolagen, Inc. and Isolagen Technologies, Inc. filed for reorganization under Chapter 11 in an effort to restructure their balance sheets and access new working capital while continuing to operate in the ordinary course of business. The Debtors have incurred losses since their inception, have never generated significant revenue from commercial sales of their products, and have never been profitable. The Debtors are focused on product development, and have expended significant resources on clinical trials, personnel and research and development. The Debtors’ consolidated net losses for the years ended 2008 and 2007 were $31.4 million and $35.6 million, respectively. As of December 31, 2008, the Debtors had an accumulated development stage net loss attributable to common shareholders of $194.1 million. The Debtors previously failed the Phase III nasolabial folds/wrinkle trials in 2005. The Debtors utilized their remaining cash resources, at the time, to re-design and re-perform the Phase III trials. These funds were originally planned to be utilized for a commercial launch had the Phase III trials been successful and the product candidate approved by the FDA. The Debtors successfully completed the re-performed new Phase III trials in late 2008 under a new management team; however, the Debtors were in an untenable financial position due to the Debtors’ remaining cash position and $90 million of debt then due as early as November 2009—these financial difficulties were further compounded by unprecedented economic downturns with respect to the equity and credit markets. Accordingly, we did not make an interest payment of approximately $1.5 million that was due on May 1, 2009, to the holders of approximately $87.3 million in principal amount of subordinated, convertible notes, which notes are currently in default of the related indenture. We did not, and do not, have the cash or available resources to pay the $1.5 million of interest that was due on May 1, 2009, or to pay the $87.3 million in principal amount of subordinated, convertible notes outstanding as of May 1, 2009 ($79.2 million as of June 30, 2009), which could be called due as early as November 1, 2009, or earlier in the event of a default (see discussion below under 3.5% Subordinated Notes regarding our events of default).

As debtors-in-possession under Chapter 11, the Debtors are authorized to continue to operate as an ongoing business, but may not engage in transactions outside the ordinary course of business without the approval of the Bankruptcy Court. The Debtors’ foreign subsidiaries, with operations outside of the U.S., are not included in the Chapter 11 proceedings, nor is Agera, our 57% owned subsidiary. Our ownership interest in Agera serves as collateral on a pre-petition loan. The pre-petition loan balance is approximately $0.5 million, and was due on the date that Isolagen, Inc. filed for relief under Chapter 11, or June 15, 2009. As such, we are technically in default of this loan. It is expected that if the Debtors’ currently-filed Plan of Reorganization is confirmed and becomes effective, the loan balance and interest thereon will be converted into equity ownership of the reorganized debtor upon exit from bankruptcy.

Under the Bankruptcy Code, the Debtors may also assume or reject executory contracts, including lease obligations, subject to the approval of the Bankruptcy Court and certain other conditions. Parties affected by these rejections may file claims with the Bankruptcy Court in accordance with the reorganization process. Due to the timing of the Chapter 11 proceedings, we cannot currently estimate or anticipate what impact the rejection and subsequent claims of executory contracts may have on the reorganization process.

On June 30, 2009, we filed with the Bankruptcy Court schedules and statements of financial affairs setting forth, among other things, the assets and liabilities of the Debtors as shown by their books and records on the Petition Date, subject to the assumptions contained in certain notes filed in connection therewith. All of the schedules are subject to further amendment or modification. The Bankruptcy Code provides for a claims reconciliation and resolution process, and a bar date for filing claims has been established as July 31, 2009 (or such later date as provided in the Bankruptcy Court Order establishing the bar date). As the ultimate number and amount of allowed claims is not presently known, and because any settlement terms of such allowed claims are subject to a confirmed plan of reorganization, the ultimate distribution with respect to allowed claims is not presently ascertainable. Under the terms of the Debtors’ currently-filed plan of reorganization, most pre-petition, general unsecured claims will be satisfied through the distribution of the claimant’s respective share of 1% of the common stock of the Reorganized Debtors.

At this time, it is not possible to predict the effect of the Chapter 11 reorganization process on our business, various creditors and security holders, or when it may be possible to emerge from Chapter 11. The Debtors have sought the Bankruptcy Court’s approval of a process for confirmation of the plan of reorganization (“Plan of Reorganization” or “Bankruptcy Plan”) that will allow the Debtors to exit bankruptcy through a confirmed and effective plan on or around the end of August 2009. The Debtors’ future results are dependent upon the confirmation and implementation, on a timely basis, of a Plan of Reorganization, as well as their ability to successfully finance their operations thereafter.

General Framework of the Bankruptcy Plan

As is set forth more fully in the Bankruptcy Plan, and should the Debtors emerge from Chapter 11 bankruptcy, the holders of the DIP Credit Facility claims have agreed that, in lieu of accepting cash on account of their DIP Credit Facility, the DIP lenders shall receive, together with the Pre-Petition Secured Lenders, their pro rata share of up to 61% of the common stock of the reorganized Company, subject to dilution by additional exit financing. In addition, pursuant to the settlements and compromises set forth in the Bankruptcy Plan, the DIP Lenders and the Pre-Petition Lenders had agreed to give 1% of the value of their common stock in the reorganized Company to the holders of the pre-petition common stock, subject to dilution by any exit financing, which would have been effected through a 333 shares to 1 reverse stock split. The Office of the United States Trustee preliminarily objected to this distribution to the holders of the pre-petition common stock, given that the unsecured creditors, who have priority over the holders of the pre-petition commons stock, would not receive satisfaction in full for their claims. The Debtors, in consultation with the DIP Lenders and the Pre-Petition Lenders have revised the plan to remove the distribution to pre-petition holders of common stock, and as such, it is anticipated that the holders of the pre-petition common stock will receive no distribution and that their common stock will become worthless. The DIP Lenders and the Pre-Petition Secured Lenders have agreed to compensate Viriathus Capital, an investment bank, or its assignee, 10% of such parties pro rata distribution of the common stock of the reorganized Company.

The holders of allowed other secured claims are not impaired and will be paid in full under the Bankruptcy Plan. Each holder of allowed claims arising from or relating to the pre-petition 3.5% subordinated, convertible notes outstanding, discussed below, shall each receive a pro rata share of an unsecured note in the principal amount of $6 million (the “New Note”) and a pro rata share of 33% of the common stock of the reorganized Company, subject to dilution by exit financing.

At June 30, 2009, we had cash and cash equivalents of $1.0 million and negative working capital of $(82.6) million. We believe that our existing available capital resources are adequate to sustain our operation through approximately August 2009, under our current, reduced operating plan under Chapter 11 Bankruptcy.

Secured Promissory Notes

On April 30, 2009, we entered into secured promissory notes and security agreements (the “Secured Notes”) with eight lenders pursuant to which we borrowed an aggregate of $0.5 in principal amount. The net proceeds were $0.4 million, net of fees and commissions. The Secured Notes bear interest at a rate of 20% per annum with principal and interest on the Secured Notes due on the earlier of June 20, 2009 or the date that we file for voluntary or involuntary bankruptcy.

If an event of default under the Secured Notes occurs, the holders of the Secured Notes may declare the Secured Notes to be due and payable. An event of default will occur: (a) if we default in the payment of the Secured Notes or any other amounts payable to the holders of the Secured Notes; (b) if we default in the performance of or compliance with any material term contained in the agreements pursuant to which the Secured Notes were issued and such default shall not have been remedied within five business days after written notice to us; or (c) if we default (as principal or guarantor or other surety) in the payment of any principal of or premium or interest on any indebtedness for borrowed money, excluding the interest due May 1, 2009 on our pre-existing subordinated notes (see 3.5% Subordinated Notes discussion below). The default rate of interest shall be 25% per annum from the date of any event of default under the Secured Notes. The Secured Notes were due on the date that Isolagen, Inc. filed for relief under Chapter 11, or June 15, 2009. As such, we are technically in default of this loan. It is expected, if the Debtors’ currently-filed Plan of Reorganization is confirmed and becomes effective, that the loan balance and interest thereon will be converted into equity ownership of the reorganized debtor upon exit from bankruptcy.

We are required to redeem the Secured Notes with a 25% premium on the then outstanding principal plus accrued but unpaid interest, upon the (i) receipt of proceeds from the sale of any assets of us, excluding sales in the ordinary course of business by Agera; (b) receipt of the proceeds from any insurance policy held by us or pursuant to which we are beneficiaries; and (c) receipt of proceeds from the sale of any equity of the us or issuance of any indebtedness of by us. To secure the repayment of the Secured Notes, we granted the holders of the Secured Notes a security interest in and a lien on our 57% equity interest in Agera.

Debtor-in-Possession Credit Facility

3.5% Subordinated Notes

As of June 30, 2009 and December 31, 2008, we had $79.2 million and $90.0 million, respectively, of aggregate principal amount of 3.5% Convertible Subordinated Notes Due 2024 (the “3.5% Subordinated Notes”). The 3.5% Subordinated Notes could be called due as early as November 2009, or earlier in the event of an uncured default. The 3.5% Subordinated Notes require the semi-annual payment of interest, on May 1 and November 1 of each year at 3.5% interest per annum on the principal amount outstanding. The 3.5% Subordinated Notes will mature on November 1, 2024. Prior to maturity the holders may convert their 3.5% Subordinated Notes into shares of our common stock. The initial conversion rate is 109.2001 shares per $1,000 principal amount of 3.5% Subordinated Notes, which is equivalent to an initial conversion price of approximately $9.16 per share.

We did not make an interest payment of approximately $1.5 million that was due on May 1, 2009 to the holders of $89.7 million (as of May 1, 2009) in principal amount of the 3.5% Subordinated Notes issued by us. A failure in the payment of any interest when it becomes due and payable, and continuance of such default for a period of 30 days, constitutes an event of default upon the receipt of certain notices. The entry into a bankruptcy proceeding also constitutes an event of default. The 3.5% Convertible Notes are due upon demand. As discussed in Note 2 of Notes to the Unaudited Consolidated Financial Statements, it is contemplated under the Bankruptcy Plan that each holder of allowed claims arising from or relating to the 3.5% Subordinated Notes shall each receive a pro rata share of an unsecured note in the principal amount of $6 million (the “New Note”) and a pro rata share of 33% of the common stock of the reorganized Company, subject to dilution by exit financing.

In April 2009, certain note holders converted an additional $2.4 million of the 3.5% Subordinated Notes into our common shares at a conversion rate of approximately $9.16 per common share (or approximately 262,000 of additional common shares issued in total), pursuant to the original terms of the 3.5% Subordinated Notes. In May 2009, a note holder converted an additional $8.1 million of the 3.5% Subordinated Notes into our common shares at a conversion rate of approximately $9.16 per common share (or approximately 881,250 of additional common shares issued in total), pursuant to the original terms of the 3.5% Subordinated Notes.

We do not have the cash or available resources to pay the $1.5 million of interest which was due on May 1, 2009, nor do we have the cash or available resources to pay the remaining $79.2 million of subordinated, convertible notes.

Going Concern

As we have previously disclosed, the credit and equity markets both in the United States and internationally are severely contracted, which has made our task of raising additional debt or equity capital extremely difficult. Our ability to complete a transaction may be dependent on our ability to exit bankruptcy, the status of our FDA regulatory milestones and our clinical trials, and in particular, the status of our indication for the treatment of nasolabial folds , which cannot be predicted. There is no assurance that funding in any form would be available to us, and if available, on terms and conditions that are acceptable.

As a result of the conditions discussed above, and in accordance with generally accepted accounting principles in the United States, there exists substantial doubt about our ability to continue as a going concern, and our ability to continue as a going concern is contingent, among other things, upon our ability to secure additional adequate financing prior to approximately the end of August 2009. If we do not obtain additional funding, or do not anticipate additional funding, prior to approximately the end of August 2009, we may cease operations and the Chapter 11 bankruptcy may be converted into a Chapter 7 bankruptcy.

NYSE Amex Delisting

On May 6, 2009, we were advised that due to our disclosure with respect to the likelihood of bankruptcy, effective immediately the Exchange halted trading in our common stock. We were further advised that we would receive a notice from the Exchange that it intended to delist our common stock from listing on the Exchange, which delisting would occur approximately seven days from the receipt of such notification if we determined not to appeal such decision. In June 2009, the Exchange delisted our common stock from listing on the Exchange.

Clinical Development Programs

Our product development programs are focused on the aesthetic and therapeutic markets. These programs are supported by a number of clinical trial programs at various stages of development. Currently, under our reduced operating plan, we have suspended activity on all of our trials, although we have continued our efforts related to obtaining FDA approval for our lead product candidate, Isolagen Therapy for the treatment of nasolabial folds/wrinkles.

Our aesthetics development programs include product candidates to treat targeted areas or wrinkles and to provide full-face rejuvenation that includes the improvement of fine lines, wrinkles, skin texture and appearance. Our therapeutic development programs are designed to treat acne scars, restrictive burn scars and dental papillary recession. All of our product candidates are non-surgical and minimally invasive. Although the discussions below may include estimates of when we expect trials to be completed, the prediction of when a clinical trial will be completed is subject to a number of factors and uncertainties. Also, please refer to Part I, Item 1A of our Form 10-K for the year ending December 31, 2008 for a discussion of certain of our risk factors related to our clinical development programs, as well as other risk factors related to our business.

Aesthetic Development Programs

Wrinkles/Nasolabial Folds — Phase III Trials : In October 2006, we reached an agreement with the U.S. Food and Drug Administration, or FDA, on the design of a Phase III pivotal study protocol for the treatment of nasolabial folds (lines which run from the sides of the nose to the corners of the mouth). The randomized, double-blind protocol was submitted to the FDA under the agency’s Special Protocol Assessment, or SPA. Pursuant to this assessment process, the FDA has agreed that our study design for two identical trials, including subject numbers, clinical endpoints, and statistical analyses, is adequate to provide the necessary data that, depending on the outcome, could form the basis of an efficacy claim for a marketing application. The pivotal Phase III trials evaluated the efficacy and safety of Isolagen Therapy against placebo in approximately 400 subjects total with approximately 200 subjects enrolled in each trial. The injections were completed in January 2008 and the trial data results were disclosed in October 2008. The Phase III trial data results indicated statistically significant efficacy results for the treatment of nasolabial folds. The Phase III data analysis, including safety results, was disclosed in October 2008. We submitted the related Biologics License Application (BLA) to the FDA in March 2009. In May 2009, the FDA accepted our BLA submission for filing. The acknowledgment of the filing from the FDA does not mean that the FDA has issued a license nor does it represent any evaluation of the adequacy of the data submitted. The filing review by the FDA is only a preliminary review, and deficiencies may be indentified during the FDA’s complete review of the application.

Full Face Rejuvenation — Phase II Trial: In March 2007 we commenced an open label (unblinded) trial of approximately 50 subjects. Injections of Isolagen Therapy began to be administered in July 2007. This trial was designed to further evaluate the safety and use of Isolagen Therapy to treat fine lines and wrinkles for the full face. Five investigators across the United States participated in this trial. The subjects received two series of injections approximately one month apart. In late December 2007, all 45 remaining subjects completed injections. The subjects were followed for twelve months following each subject’s last injection. Data results related to this trial were disclosed in August 2008, which included top line positive efficacy results related to this open label Phase II trial.

Therapeutic Development Programs

Acne Scars — Phase II/III Trial: In November 2007, we commenced an acne scar Phase II/III study. This study included approximately 95 subjects. This placebo controlled trial was designed to evaluate the use of our Isolagen Therapy to correct or improve the appearance of acne scars. Each subject served as their own control, receiving Isolagen Therapy on one side of their face and placebo on the other. The subjects received three treatments two weeks apart. The follow-up and evaluation period was completed four months after each subject’s last injection. In March 2009, we disclosed certain trial data results, which included statistically significant efficacy results for the treatment of moderate to severe acne scars. Compilation of safety data and data related to the validation of the study photo guide assessment scale discussed below is ongoing and is also subject to additional financing.

In connection with this acne scar program, we developed a photo guide for use in the evaluators’ assessment of acne study subjects. We had originally designed the acne scar clinical program as two randomized, double-blind, Phase III, placebo-controlled trials. However, our evaluator assessment scale and photo guide have not previously been utilized in a clinical trial. In November 2007, the FDA recommended that we consider conducting a Phase II study in order to address certain study issues, including additional validation related to our evaluator assessment scale. As such, we modified our clinical plans to initiate a single Phase II/III trial. This Phase II/III study, was powered to demonstrate efficacy, and has allowed for a closer assessment of the evaluator assessment scale and photo guide that is ongoing. We expect to initiate a subsequent, additional Phase III trial, subject to sufficient financial resources. We believe that the two trials may have the potential to form the basis of a licensure submission to the FDA.

Restrictive Burn Scars - Phase II Trial: In January 2007, we met with the FDA to discuss our clinical program for the use of Isolagen Therapy for restrictive burn scar patients. This Phase II trial would evaluate the use of Isolagen Therapy to improve range of motion, function and flexibility, among other parameters, in existing restrictive burn scars in approximately 20 patients. However, we have delayed the screening and enrollment in this trial until such time as we raise sufficient additional financing.

Dental Study - Phase II Trial: In late 2003, we completed a Phase I clinical trial for the treatment of condition relating to periodontal disease, specifically to treat Interdental Papillary Insufficiency. In the second quarter of 2005, we concluded the Phase II dental clinical trial with the use of Isolagen Therapy and subsequently announced that investigator and subject visual analog scale assessments demonstrated that the Isolagen Therapy was statistically superior to placebo at four months after treatment. Although results of the investigator and subject assessment demonstrated that the Isolagen Therapy was statistically superior to placebo, an analysis of objective linear measurements did not yield statistically significant results.

In 2006, we commenced a Phase II open-label dental trial for the treatment of Interdental Papillary Insufficiency. This single site study included 11 subjects. The study was previously placed on internal hold due to our financial resource constraints. We currently do not expect to fund additional trial efforts related to this application at this time.

Agera Skincare Systems

We market and sell a skin care product line through our majority-owned subsidiary, Agera Laboratories, Inc., which we acquired in August 2006. Agera offers a complete line of skincare systems based on a wide array of proprietary formulations, trademarks and nano-peptide technology. These skincare products can be packaged to offer anti-aging, anti-pigmentary and acne treatment systems. Agera primarily markets its products primarily in the United States and Europe (primarily the United Kingdom).

Closure of the United Kingdom Operation

In the fourth quarter of 2006 our Board of Directors approved the closing of the United Kingdom operation. On March 31, 2007, we completed the closure of the United Kingdom manufacturing facility. With the closure of the United Kingdom operation on March 31, 2007, our European operations (both the United Kingdom and Switzerland) and Australian operations have been presented in the financial statements as discontinued operations for all periods presented. See Note 9 of Notes to Consolidated Financial Statements.

Critical Accounting Policies

The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. Our significant accounting policies are more fully described in Note 7 of the Notes to the Unaudited Consolidated Financial Statements. However, certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of the control of management. As a result they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. The following discusses our critical accounting policies and estimates.

Financial Reporting by Entities in Reorganization under the Bankruptcy Code: American Institute of Certified Public Accountants Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (SOP 90-7), which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, SOP 90-7 does require that the financial statements for periods subsequent to the filing of the Chapter 11 petition distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses (including professional fees), realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the consolidated statements of operations beginning in the quarter ending June 30, 2009. The consolidated balance sheet must distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by the Bankruptcy Plan must be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. In addition, cash provided by reorganization items must be disclosed separately in the condensed consolidated statement of cash flows, or related notes thereto. Subsequent to the Chapter 11 filings, the Debtors recorded post-petition interest expense on its prepetition obligations only to the extent it believed the interest will be paid during the bankruptcy proceeding or that is probable that the interest will be an allowed claim. The Company currently believes that it is probable that its pre-petition and post-petition interest will be allowed claims. The Company adopted SOP 90-7 effective in June 2009 and will segregate those items as outlined above for all reporting periods subsequent to such date.

Going Concern: As disclosed in Note 6 to the Consolidated Financial Statements, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern. This conclusion is based on estimates of our future spending and future funding required during 2009. We will be required to obtain additional capital in August 2009 to continue and expand our operations. There is no assurance that we will be able to obtain any such additional funding as we need to finance these efforts, through asset sales, equity or debt financing, or any combination thereof, or on satisfactory terms or at all (refer to Bankruptcy, Debt and Going Concern discussion above).

At June 30, 2009, our cash and cash equivalents was $1.0 million. For the six months ended June 30, 2009, our cash used in operations was $(3.1) million. Further, we have interest and debt due during 2009 for which we do not have the available funding to pay when due. These factors, as well as our future spending estimates, are important factors in concluding that substantial doubt exists about our ability to continue as a going concern. We believe these estimates are particularly important to the understanding of our financial position.

Stock-Based Compensation : In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123 (R)”). SFAS No. 123 (R) replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123 (R) requires entities to recognize compensation expense for all share-based payments to employees and directors, including grants of employee stock options, based on the grant-date fair value of those share-based payments, adjusted for expected forfeitures.

We adopted SFAS No. 123(R) as of January 1, 2006 using the modified prospective application method. Under the modified prospective application method, the fair value measurement requirements of SFAS No. 123(R) is applied to new awards and to awards modified, repurchased, or cancelled after January 1, 2006. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that were outstanding as of January 1, 2006 is recognized as the requisite service is rendered on or after January 1, 2006. The compensation cost for that portion of awards is based on the grant-date fair value of those awards as calculated for pro forma disclosures under SFAS No. 123. Changes to the grant-date fair value of equity awards granted before January 1, 2006 are precluded.

The fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with our valuation techniques previously utilized for awards in footnote disclosures required under SFAS No. 123. Prior to the adoption of SFAS No. 123(R), we followed the intrinsic value method in accordance with APB No. 25 to account for our employee and director stock options. Historically, substantially all stock options have been granted with an exercise price equal to the fair market value of the common stock on the date of grant. Accordingly, no compensation expense was recognized from substantially all option grants to employees and directors prior to the adoption of SFAS No. 123(R). However, compensation expense was recognized in connection with the issuance of stock options to non-employee consultants in accordance with EITF 96-18, “Accounting for Equity Instruments That are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.” SFAS No. 123(R) did not change the accounting for stock-based compensation related to non-employees in connection with equity based incentive arrangements.

The adoption of SFAS No. 123(R) requires additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangement. This change in accounting resulted in the recognition of compensation expense of $0.1 million and $0.2 million for the three months ended June 30, 2009 and 2008, respectively, and $0.2 million and $0.4 million for the six months ended June 30, 2009 and 2008, respectively, related to our employee and director stock options. No stock options were granted during the three months ended June 30, 2009. During the three months ended June 30, 2008, we granted stock options to purchase 0.2 million shares of our common stock. As of June 30, 2009, there was $0.4 million of total unrecognized compensation cost related to non-vested director and employee stock options which vest over time. That cost is expected to be recognized over a weighted-average period of 1.7 years. As of June 30, 2009, there was $0.1 million of total unrecognized compensation cost related to performance-based, non-vested employee stock options. That cost is recognized when the performance criteria within the respective performance-base option grants become probable of achievement. During the three months ended March 31, 2009, we recorded $ 0.1 million of stock option compensation expense in the accompanying statement of operations which related to previously granted performance-based option grants that became probable of achievement during the three months ended March 31, 2009.

On January 7, 2008, we and Mr. Nicholas L. Teti, Jr. entered into a consulting and non-competition agreement (the “Consulting Agreement”), pursuant to which Mr. Teti agreed to continue as our non-executive Chairman of the Board and to become a consultant to the company, and Mr. Teti resigned his position as Chief Executive Officer and President. Mr. Teti retained his previously issued stock options which were modified such that Mr. Teti will continue to vest in accordance with the original terms, except as a non-employee. As a result of the modifications to Mr. Teti’s stock options set forth in the Consulting Agreement, we recorded a non-cash compensation charge during the three months ended March 31, 2008 of approximately $1.3 million related to Mr. Teti’s 1,166,665 vested stock options. Further, related to Mr. Teti’s 833,335 unvested stock options at the date of modification, we recorded stock option expense over the remaining periods those stock options were earned in accordance with EITF 96-18, “Accounting for Equity Instruments That are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services.”

Accounting for Legal Matters: As discussed in Notes 12 and 15 of Notes to Unaudited Consolidated Financial Statements, set forth elsewhere in this Report, we have settled our class and derivative actions. We have also received threats of litigation and demands from former patients associated with our United Kingdom operation. We intend to defend ourselves vigorously against these actions, as needed. We cannot currently estimate the amount of loss, if any, that may result from the resolution of these actions related to our discontinued United Kingdom operation, and no provision has been recorded in our consolidated financial statements. No provision has been recorded in our consolidated financial statements related to the class and derivative actions, other than a remaining settlement accrual of approximately $0.3 million with respect to the derivative action. Generally, a loss is not recorded until it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. We expense our legal costs as they are incurred and record any insurance recoveries on such legal costs in the period the recoveries are received. Although we have not recorded a provision for loss regarding these matters, other than the $0.3 million settlement accrual discussed above, a loss could occur in a future period. The $0.3 million accrued derivative settlement liability was not paid when due, and as such, exists as a liability subject to compromise in connection with the Debtors’ bankruptcy proceedings.

Research and Development Expenses: Research and development costs are expensed as incurred and include salaries and benefits, costs paid to third-party contractors to perform research, conduct clinical trials, develop and manufacture drug materials and delivery devices, and a portion of facilities cost. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third-party contractor activities based on our estimate of management fees, site management and monitoring costs and data management costs. Actual clinical trial costs may differ from estimated clinical trial costs and are adjusted for in the period in which they become known.

Results of Operations

Comparison of the three months ended June 30, 2009 and 2008

REVENUE. Revenue remained constant at approximately $0.3 million for the three months ended June 30, 2009 and 2008. For the three months ended June 30, 2009 and 2008, 66% and 60%, respectively, of Agera’s revenue were to one foreign customer. As such, total revenue is subject to fluctuation depending primarily on the orders received and orders fulfilled with respect to this large customer.

COST OF SALES. Costs of sales remained constant at approximately $0.1 million for the three months ended June 30, 2009 and 2008. Our cost of sales relates to the operation of Agera. As a percentage of revenue, Agera cost of sales were approximately 43% for the three months ended June 30, 2009 and 54% for the three months ended June 30, 2008. Cost of sales as a percentage of revenue has decreased primarily due to changes in Agera’s product mix.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased approximately $1.1 million, or 52%, to $1.1 million for the three months ended June 30, 2009, as compared to $2.2 million for the three months ended June 30, 2008. The decrease in selling, general and administrative expense is primarily due to the following:

a) Employee compensation, bonuses and payroll taxes decreased by approximately $0.4 million to $0.4 million for the three months ended June 30, 2009, as compared to $0.8 million for the three months ended June 30, 2008, due primarily to significantly reduced average headcount and reduced bonus expense recorded during the three months ended June 30, 2009 as compared to the three months ended June 30, 2008.

b) Other general and administrative operating costs decreased by approximately $0.4 million to $0.6 million for the three months ended June 30, 2009, as compared to $1.0 million for the three months ended June 30, 2008 due primarily to a successful appeal of state franchise tax during the three months ended June 30, 2009, resulting in a reduction of such tax in the amount of $0.1 million, reduced depreciation and amortization expense of $0.1 million due to the impairment of fixed assets and intangible assets during 2008, and an overall reduction in operating costs, such as accounting expense, insurance premiums, and general corporate expenses due to further increased focus on cash conservation.

c) Legal expenses decreased by approximately $0.3 million to less than $0.1 million for the three months ended June 30, 2009, as compared to $0.4 million for the three months ended June 30, 2008. For the three months ended June 30, 2008, we received a $0.4 million reimbursement from our insurance carrier as reimbursement for defense costs related to our class action and derivative matters. If we had not received this $0.4 million reimbursement, our legal expenses would have been approximately $0.8 million for the three months ended June 30, 2008. As a result of the class action and derivative action settlements which occurred in late 2008, our legal expenses have decreased during the three months ended June 30, 2009 as compared to the three months ended June 30, 2008.

RESEARCH AND DEVELOPMENT. Research and development expenses decreased by approximately $2.8 million for the three months ended June 30, 2009 to $0.5 million, as compared to $3.3 million for the three months ended June 30, 2008. The decrease of $2.8 million is primarily due to reduced consulting costs and trial costs, as injections related to our Phase II/III Acne Scar trial were completed during late 2008. There was little clinical trial and laboratory activity performed during the three months ended June 30, 2009, resulting in a significant decrease in research and development expense as compared to the three months ended June 30, 2008.

Our historical research and development costs have been composed primarily of costs related to our efforts to gain FDA approval for our Isolagen Therapy for specific dermal applications in the United States, as well as costs related to other potential indications for our Isolagen Therapy. Also, research and development expense includes costs to develop manufacturing, cell collection and logistical process improvements.

Our initial pivotal Phase III dermal studies and our Phase II dental studies concluded during the first half of 2005. We subsequently commenced preparations for a confirmatory Phase III dermal trial during the fourth quarter of 2005. In October 2006, we reached an agreement with the FDA on the design of our Phase III dermal pivotal study protocol. The protocol was submitted to the FDA under the agency’s Special Protocol Assessment (“SPA”) regulations. Injections related to our Phase III dermal pivotal study were completed in January 2008, and the related BLA was accepted for filing by the FDA during May 2009. Research and development costs primarily include personnel and laboratory costs related to these FDA trials and certain consulting costs. The FDA approval process is extremely complicated and is dependent upon our study protocols and the results of our studies. In the event that the FDA requires additional studies for our dermal product candidate or requires changes in our study protocols or in the event that the results of any of our studies are not consistent with our expectations, as occurred during 2005 with respect to our pivotal Phase III dermal trial, the process will be more expensive and time consuming. Due to the complexities of the FDA approval process, we are unable to predict what the cost of obtaining approval for our dermal product candidate will be at this time.

LOSS FROM DISCONTINUED OPERATIONS. During the three months ended December 31, 2006, the Board of Directors approved the closure of our United Kingdom operation. The loss from discontinued operations decreased less than $0.1 million for the three months ended June 30, 2009 to $0.1 million, as compared to $0.2 million for the three months ended June 30, 2008.

INTEREST INCOME. Interest income decreased less than $0.1 million to $0.0 million for the three months ended June 30, 2009, as compared to less than $0.1 million for the three months ended June 30, 2008. The decrease in interest income resulted principally from a decrease in the amount of cash and cash equivalents, as a result of our normal operating activities primarily related to our efforts to gain FDA approval for our Isolagen Therapy.

REORGANIZATION ITEMS. On June 15, 2009, Isolagen, Inc. and its wholly-owned, U.S. subsidiary Isolagen Technologies, Inc. (collectively, the “Debtors”), filed voluntary petitions for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the District of Delaware, as more fully discussed under Bankruptcy, Debt and Going Concern. Reorganization costs of $0.6 million were recorded for the three months ended June 30, 2009, which were comprised primarily of legal fees and the unamortized debt acquisition costs, as of the date of the bankruptcy filing, related to the pre-petition 3.5% Convertible Subordinated Notes (refer to Note 4 of Notes to the Unaudited Consolidated Financial Statement for further discussion).

INTEREST EXPENSE. Interest expense remained constant at $1.0 million for the three months ended June 30, 2009, as compared to the three months ended June 30, 2008. Our interest expense is primarily related to our 3.5% convertible subordinated notes, of which $79.2 million was outstanding at June 30, 2009, as well as amortization of deferred debt issuance costs of $0.4 million and $0.2 million for the three months ended June 30, 2009 and 2008, respectively.

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS. Net loss attributable to common shareholders decreased approximately $3.3 million to $3.1 million for the three months ended June 30, 2009, as compared to a net loss of $6.4 million for the three months ended June 30, 2008. This decrease in loss primarily represents the effects of the decreases in our selling, general and administrative expenses and research and development expenses, offset by reorganization items incurred during the three months ended June 30, 2009, as discussed above.

Comparison of the six months ended June 30, 2009 and 2008

REVENUE. Revenue decreased approximately $0.1 million to $0.4 million for the six months ended June 30, 2009 as compared to $0.5 million for the six months ended June 30, 2008. For both the six months ended June 30, 2009 and 2008, 55% of Agera’s revenue was to one foreign customer. As such, total revenue is subject to fluctuation depending primarily on the orders received and orders fulfilled with respect to this large customer.

COST OF SALES. Costs of sales decreased approximately $0.1 million to $0.2 million for the six months ended June 30, 2009 as compared to $0.3 million for the six months ended June 30, 2008. Our cost of sales relates to the operation of Agera. As a percentage of revenue, Agera cost of sales were approximately 42% for the six months ended June 30, 2009 and 54% for the six months ended June 30, 2008. Cost of sales as a percentage of revenue has decreased primarily due to a reserve recorded during the six months ended June 30, 2008 of less than $0.1 million, with no such reserve recorded during the six months ended June 30, 2009, and changes in Agera’s product mix.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased approximately $3.9 million, or 63%, to $2.3 million for the six months ended June 30, 2009, as compared to $6.2 million for the six months ended June 30, 2008. The decrease in selling, general and administrative expense is primarily due to the following:

a) Employee compensation, bonuses and payroll taxes decreased by approximately $1.8 million to $1.0 million for the six months ended June 30, 2009, as compared to $2.8 million for the six months ended June 30, 2008, due primarily to the $1.3 million stock option modification charge related to our former CEO recorded during the six months ended June 30, 2008. The remaining decrease relates to significantly reduced average headcount and reduced bonus expense recorded during the six months ended June 30, 2009 as compared to the six months ended June 30, 2008.

b) Other general and administrative operating costs decreased by approximately $1.1 million to $1.3 million for the six months ended June 30, 2009, as compared to $2.4 million for the six months ended June 30, 2008 due to a reduced depreciation and amortization expense of $0.2 million due to the impairment of fixed assets and intangible assets during 2008, the successful appeal of state franchise tax during the three months ended June 30, 2009, resulting in a reduction of such tax in the amount of $0.1 million, reduced costs related to our previous Houston, Texas facility lease and consulting expenses of $0.2 million, reduced insurance premiums of $0.1 million, and an overall reduction various other operating costs, such as accounting expense and general corporate expenses due to further increased focus on cash conservation.

c) Legal expenses decreased by approximately $0.9 million to ($0.1) million for the six months ended June 30, 2009, as compared to $0.8 million for the six months ended June 30, 2008. For the six months ended June 30, 2009, we received a $0.3 million reimbursement from our insurance carrier as reimbursement for defense costs related to our class action and derivative matters. If we had not received this $0.3 million reimbursement, our legal expenses would have been approximately $0.2 million for the six months ended June 30, 2009. For the six months ended June 30, 2008, we received a $0.5 million reimbursement from our insurance carrier as reimbursement for defense costs related to our class action and derivative matters. If we had not received this $0.5 million reimbursement, our legal expenses would have been approximately $1.3 million for the six months ended June 30, 2008. As a result of the class action and derivative action settlements which occurred in late 2008, our legal expenses have decreased during the six months ended June 30, 2009 as compared to the six months ended June 30, 2008.

d) Travel expense decreased $0.1 million to less than $0.1 million for the six months ended June 30, 2009, as compared to $0.2 million for the six months ended June 30, 2008 due to the decrease in the number of our employees, primarily at the executive management level, and our increased focus on cash conservation.

RESEARCH AND DEVELOPMENT. Research and development expenses decreased by approximately $4.7 million for the six months ended June 30, 2009 to $1.5 million, as compared to $6.1 million for the six months ended June 30, 2008. The decrease of $4.7 million is primarily due to reduced consulting costs and trial costs, as injections related to our Phase II/III Acne Scar trial were completed during late 2008. There was little clinical trial and laboratory activity performed during the six months ended June 30, 2009, resulting in a significant decrease in research and development expense as compared to the six months ended June 30, 2008.

Our initial pivotal Phase III dermal studies and our Phase II dental studies concluded during the first half of 2005. We subsequently commenced preparations for a confirmatory Phase III dermal trial during the fourth quarter of 2005. In October 2006, we reached an agreement with the FDA on the design of our Phase III dermal pivotal study protocol. The protocol was submitted to the FDA under the agency’s Special Protocol Assessment (“SPA”) regulations. Injections related to our Phase III dermal pivotal study were completed in January 2008, and the related BLA was accepted for filing by the FDA in May 2009. Research and development costs primarily include personnel and laboratory costs related to these FDA trials and certain consulting costs. The total inception to date cost of research and development as of June 30, 2009 was $55.7 million. The FDA approval process is extremely complicated and is dependent upon our study protocols and the results of our studies. In the event that the FDA requires additional studies for our dermal product candidate or requires changes in our study protocols or in the event that the results of any of our studies are not consistent with our expectations, as occurred during 2005 with respect to our pivotal Phase III dermal trial, the process will be more expensive and time consuming. Due to the complexities of the FDA approval process, we are unable to predict what the cost of obtaining approval for our dermal product candidate will be at this time.

LOSS FROM DISCONTINUED OPERATIONS. During the six months ended December 31, 2006, the Board of Directors approved the closure of our United Kingdom operation. The loss from discontinued operations decreased by approximately $4.3 million for the six months ended June 30, 2009 to $0.2 million, as compared to $4.5 million for the six months ended June 30, 2008.

The $4.3 million loss from discontinued operations for the six months ended June 30, 2008 primarily related to the sale of our Swiss campus in March 2008. In connection with this sale, we recorded a loss on sale of $6.3 million, offset by a foreign currency exchange gain of $2.1 million upon the substantial liquidation of the Swiss subsidiary. The foreign exchange gain recorded during the six months ended June 30, 2008 results from removing from the accumulated foreign currency translation adjustment account in stockholders’ equity a credit balance which related to the translation into U.S. dollars of our Swiss franc assets and liabilities. The credit balance which had accumulated, and the resulting gain recorded upon the substantial liquidation of our Swiss franc assets, reflected the increase in the value of the Swiss franc relative to the U.S. dollar over the period that we had operated in Switzerland.

INTEREST INCOME. Interest income decreased approximately $0.1 million to nearly $0.0 million for the six months ended June 30, 2009, as compared to $0.1 million for the six months ended June 30, 2008. The decrease in interest income of $0.1 million resulted principally from a decrease in the amount of cash and cash equivalents, as a result of our normal operating activities primarily related to our efforts to gain FDA approval for our Isolagen Therapy, as well as decreases in the average interest rate.

REORGANIZATION ITEMS. On June 15, 2009, Isolagen, Inc. and its wholly-owned, U.S. subsidiary Isolagen Technologies, Inc. (collectively, the “Debtors”), filed voluntary petitions for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court for the District of Delaware, as more fully discussed under Bankruptcy, Debt and Going Concern. Reorganization costs of $0.6 million were recorded for the six months ended June 30, 2009, which were comprised primarily of legal fees and the unamortized debt acquisition costs, as of the date of the bankruptcy filing, related to the pre-petition 3.5% Convertible Subordinated Notes (refer to Note 4 of Notes to the Unaudited Consolidated Financial Statement for further discussion).

INTEREST EXPENSE. Interest expense remained constant at $1.9 million for the six months ended June 30, 2009, as compared to the six months ended June 30, 2008. Our interest expense is related to our 3.5% convertible subordinated notes, of which $79.2 million was outstanding at June 30, 2009, as well as the related amortization of debt issuance costs of $0.6 million and $0.4 million, for the six months ended June 30, 2009 and 2008, respectively.

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS. Net loss attributable to common shareholders decreased approximately $12.1 million to $6.2 million for the six months ended June 30, 2009, as compared to a net loss of $18.4 million for the six months ended June 30, 2008. This decrease in loss primarily represents the effects of the decreases in our selling, general and administrative expenses and research and development expenses, and our decrease in loss from discontinued operations, offset by reorganization costs, as discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by (used in) operating, investing and financing activities for the six months ended June 30, 2009 and 2008, respectively, were as follows:


	Six Months Ended June 30,
	2009			2008
	(in millions)
Cash flows from operating activities	$	(3.1	)	$	(11.7	)
Cash flows from investing activities		—			6.4
Cash flows from financing activities		1.3			—

Operating Activities

Cash used in operating activities during the six months ended June 30, 2009 amounted to $3.1 million, as compared to the $11.7 million of cash used in operating activities during the six months ended June 30, 2008. The decrease in the cash used in operations of approximately $8.6 million is primarily due to our $12.1 million decrease in net loss, adjusted for the change in the level of non-cash items and changes in operating assets and liabilities of approximately $3.6 million. Our net loss, adjusted for noncash items, decreased from $11.4 million during the six months ended June 30, 2008 to approximately $5.2 million during the six months ended June 30, 2009, reflecting the decrease in our net loss of $12.1 million offset by a change in non-cash items included in the net loss for the six months ended June 30, 2008 and six months ended June 30, 2009 of $5.9 million. Also, during the six months ended June 30, 2009, our changes in net operating assets and liabilities resulted in a cash inflow of $2.1 million, as compared to a cash outflow of $0.3 million during the six months ended June 30, 2008, which resulted in a positive impact to cash flows of $2.4 million. For the six months ended June 30, 2009, we financed our operating cash flow needs from our cash on hand at the beginning of the period and from borrowings of $1.3 million, net, discussed further below.

Investing Activities

Cash provided by investing activities during the six months ended June 30, 2008 amounted to approximately $6.4 million as compared to no cash provided by or used in investing activities during the six months ended June 30, 2009. Investing activities during the six months ended June 30, 2008 related primarily to the sale of our Swiss campus in March 2008 for approximately $6.4 million, net of selling costs.

Financing Activities

Cash provided by financing activities during the six months ended June 30, 2009 amounted to approximately $1.3 million as compared to no cash provided by or used in investing activities during the six months ended June 30, 2008 During the six months ended June 30, 2009, we borrowed approximately $1.3 million, net, under a Pre-petition Secured Loan and a Debtor-in-Possession Credit Facility, discussed in further detail below under Working Capital. There were no borrowings during the six months ended June 30, 2008, or other proceeds from financing activities.

Cash Flows Related to Discontinued Operations

Cash flows related to discontinued operations, which are included in the table of cash flows above, were as follows:


	Six Months Ended June 30,
	2009			2008
	(in millions)
Cash flows from operating activities	$	(0.1	)	$	(0.2	)
Cash flows from investing activities		—			6.4
Cash flows from financing activities		—			—

The cash provided by investing activities during the six months ended June 30, 2008 of $6.4 million is discussed above under “Investing Activities”.

Working Capital

Secured Promissory Notes

Debtor-in-Possession Credit Facility

3.5% Subordinated Notes

As of June 30, 2009 and December 31, 2008, we had $79.2 million and $90.0 million, respectively, of aggregate principal amount of 3.5% Convertible Subordinated Notes Due 2024 (the “3.5% Subordinated Notes”). The 3.5% Subordinated Notes are in default, and are currently due and payable. The 3.5% Subordinated Notes require the semi-annual payment of interest, on May 1 and November 1 of each year at 3.5% interest per annum on the principal amount outstanding. The stated maturity date for the 3.5% Subordinated Notes is November 1, 2024. Prior to maturity the holders may convert their 3.5% Subordinated Notes into shares of our common stock. The initial conversion rate is 109.2001 shares per $1,000 principal amount of 3.5% Subordinated Notes, which is equivalent to an initial conversion price of approximately $9.16 per share.

We did not make an interest payment of approximately $1.5 million that was due on May 1, 2009 to the holders of $89.7 million (as of May 1, 2009) in principal amount of the 3.5% Subordinated Notes issued by us. A failure in the payment of any interest when it becomes due and payable, and continuance of such default for a period of 30 days, constitutes an event of default upon the receipt of certain notices. The entry into a bankruptcy proceeding also constitutes an event of default. The 3.5% Convertible Notes are currently due upon demand. As discussed in Note 2 of Notes to the Unaudited Consolidated Financial Statements, it is contemplated under the Bankruptcy Plan that each holder of allowed claims arising from or relating to the 3.5% Subordinated Notes shall each receive a pro rata share of an unsecured note in the principal amount of $6 million (the “New Note”) and a pro rata share of 33% of the common stock of the reorganized Company, subject to dilution by exit financing.

Other

The Bankruptcy Plan contemplates that the we raise up to $2 million upon our exit from bankruptcy by the issuance of new common stock of the reorganized entity. We currently have no firm commitments for such exit financing and there is no assurance that we will be able to successfully obtain such financing. Even if we are able to raise exit financing of $2 million, we will require additional financing during the fourth quarter 2009 to operate our business for which we have no commitments. As previously disclosed by us, the credit and equity markets both in the United States and internationally are severely contracted, which has made our task of raising additional debt or equity capital extremely difficult. Our ability to complete a transaction may be dependent on the status of our FDA regulatory milestones and our clinical trials, and in particular, the status of our indication for the treatment of nasolabial folds, and the status of our Phase II/III acne scar trial, which cannot be predicted. There is no assurance that funding in any form would be available to us, and if available, on terms and conditions that are acceptable.

As a result of the conditions discussed above, and in accordance with generally accepted accounting principles in the United States, there exists substantial doubt about our ability to continue as a going concern, and our ability to continue as a going concern is contingent, among other things, upon our ability to secure additional adequate financing prior to approximately the end of August 2009. If we do not obtain additional funding, or do not anticipate additional funding, prior to approximately the end of August 2009, we may cease operations and our Chapter 11 bankruptcy may be converted into a Chapter 7 bankruptcy.

Factors Affecting Our Capital Resources

Inflation did not have a significant impact on the Company’s results during the six months ended June 30, 2009.

Off-Balance Sheet Transactions

We do not engage in material off-balance sheet transactions.


ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates or interest rates.

Foreign Exchange Rate Risk

Primarily as the result of the sale of our Swiss campus in March 2008, we now have less than $0.2 million of foreign assets and approximately $0.2 million of foreign liabilities. We do not believe that we have significant foreign exchange rate risk at June 30, 2009.

Interest Rate Risk

As of June 30, 2009, our 3.5%, $79.2 million convertible, subordinated notes, pay interest at a fixed rate and, accordingly, we are not exposed to interest rate risk as a result of this debt. The fair value of our $79.2 million convertible, subordinated notes has varied significantly, historically, based upon, among other factors, the price of our common stock and current interest rates on similar instruments.

We do not enter into derivatives or other financial instruments for trading or speculative purposes.


ITEM 4.	CONTROLS AND PROCEDURES

(a)

Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer (the “Certifying Officers”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that material information required to be in this quarterly report is made known to them by others on a timely basis and that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b)

Changes in Internal Controls. There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

Refer to Notes 12 and 15 of Notes to the Consolidated Financial Statements, within Part I of this Form 10-Q, for a discussion of legal proceedings.


ITEM 1A.	RISK FACTORS

In addition to the Risk Factors disclosed in our December 31, 2008 Form 10-K, investors should consider the following risks and uncertainties, or updates to such risks and uncertainties, prior to making an investment decision with respect to our securities.

There has been substantial doubt regarding the Company’s ability to remain a Going Concern, and such substantial doubt continues. On June 15, 2009 , Isolagen, Inc. and its wholly-owned, U.S. subsidiary Isolagen Technologies, Inc. (collectively, the “Debtors”), filed voluntary petitions for relief under Chapter 11 of the federal bankruptcy laws (“Bankruptcy Code” or “Chapter 11”) in the United States Bankruptcy Court for the District of Delaware (“Bankruptcy Court”). There can be no assurance that the Debtors will be able to successfully emerge from Chapter 11.

The Debtors are currently operating their business as debtors-in-possession pursuant to the Bankruptcy Code. The ability to exit Chapter 11 as a reorganized entity is subject to numerous uncertainties, including uncertainties related to the funding of the Chapter 11 process and the funding needed to emerge from Chapter 11, risk related to existing and potential objections from the Debtors’ creditors and/or equity holders and risks related to any determinations made by the Bankruptcy Court with respect to the Debtors’ Plan of Reorganization. The Debtors are under a strict funding budget with respect to the Chapter 11 process, and as such, any of the aforementioned uncertainties may cause a failure to exit Chapter 11, and may result in the conversion of the Chapter 11 into a Chapter 7 bankruptcy. A conversion to Chapter 7 would result in the appointment of a chapter 7 trustee, who would be vested with the ability to liquidate the Debtors’ assets. The Company anticipates that liquidation of the Debtors’ assets in Chapter 7 will likely result in a lesser distribution, if any, to creditors, than otherwise contemplated by the Plan of Reorganization.


ITEM 6.	EXHIBITS

(a) Exhibits


EXHIBIT NO.		IDENTIFICATION OF EXHIBIT

	10.1	Post-Petition Senior Secured Super-Priority Credit Agreement By And Among Isolagen, Inc. And, Isolagen Technologies, Inc., as Borrowers, and the Lenders party hereto from time to time, and Viriathus Services LLC Series, as Administrative Agent, And Viriathus Services LLC Series, as Collateral Agent, dated as of June 2009.

	10.2	First Amended Disclosure Statement to Accompany the Chapter 11 Plan of Reorganization Proposed by Debtors In Possession

	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ISOLAGEN, INC.
Date: August 12, 2009	By:	/s/ Todd J. Greenspan
		Todd J. Greenspan, Chief Financial Officer
		(Principal Financial Officer)

EXHIBIT INDEX


EXHIBIT NO.		IDENTIFICATION OF EXHIBIT

	10.1	Post-Petition Senior Secured Super-Priority Credit Agreement By And Among Isolagen, Inc. And, Isolagen Technologies, Inc., as Borrowers, and the Lenders party hereto from time to time, and Viriathus Services LLC Series, as Administrative Agent, And Viriathus Services LLC Series, as Collateral Agent, dated as of June 2009.

	10.2	First Amended Disclosure Statement to Accompany the Chapter 11 Plan of Reorganization Proposed by Debtors In Possession

	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 10.1

POST-PETITION
SENIOR SECURED SUPER-PRIORITY CREDIT AGREEMENT

by and among

ISOLAGEN, INC. and,

ISOLAGEN TECHNOLOGIES, INC. ,
as Borrowers,

and

the LENDERS party hereto from time to time,

and

VIRIATHUS SERVICES LLC SERIES,
as Administrative Agent,

and

VIRIATHUS SERVICES LLC SERIES,

as Collateral Agent

Dated as of June , 2009

TABLE OF CONTENTS


ARTICLE I DEFINITIONS; CERTAIN TERMS			2
Section 1.01 Definitions			2
Section 1.02 Terms Generally			24
Section 1.03 Accounting and Other Terms			24
Section 1.04 Time References			24

ARTICLE II THE FACILITY			25
Section 2.01 DIP Loans			25
Section 2.02 Use of Proceeds			26
Section 2.03 Promise to Pay			27
Section 2.04 Notes			27
Section 2.05 Allocation of Proceeds of Collateral			28
Section 2.06 Liability of Borrowers			28

ARTICLE III PAYMENTS AND OTHER COMPENSATION; EXIT FINANCING			30
Section 3.01 No Voluntary Prepayment			30
Section 3.02 Mandatory Payments			30
Section 3.03 Payments			30
Section 3.04 Taxes			32
Section 3.05 Exit Financing			34

ARTICLE IV INTEREST AND FEES			34
Section 4.01 Interest on the DIP Loans and Other Obligations			34
Section 4.02 Change in Law; Illegality			35
Section 4.03 Legal Counsel Fees			36
Section 4.04 Administrative Agent Fee			36
Section 4.05 Arranging Agent Fee			36

ARTICLE V CONDITIONS TO LOANS			36
Section 5.01 Conditions Precedent to the Initial Extension of Credit			36

ARTICLE VI REPRESENTATIONS AND WARRANTIES			39
Section 6.01 Representations and Warranties of Borrowers			39
Section 6.02 DIP Lenders Accredited Investors			44

ARTICLE VII REPORTING COVENANTS			44
Section 7.01 Financial Statements			44
Section 7.02 Other Financial Information			45
Section 7.03 Defaults, Events of Default			45
Section 7.04 Insurance			46
Section 7.05 Environmental Notices			46
Section 7.06 Agreed Budget			46
Section 7.07 Certain Reports and Information			46

(i)


ARTICLE VIII AFFIRMATIVE COVENANTS			47
Section 8.01 Compliance with Laws			47
Section 8.02 Payment of Taxes and Claims			47
Section 8.03 Maintenance and Application of Insurance			47
Section 8.04 Inspection of Property; Books and Records; Discussions			48
Section 8.05 Further Assurances			48
Section 8.06 Use of Proceeds			48
Section 8.07 Environmental			48
Section 8.08 Fiscal Year			49
Section 8.09 Cash Management			49
Section 8.10 Financing Orders			49

ARTICLE IX NEGATIVE COVENANTS			49
Section 9.01 Liens			49
Section 9.02 Indebtedness			50
Section 9.03 Consolidation; Merger			50
Section 9.04 Asset Dispositions			50
Section 9.05 Weekly Budget Compliance			51

Section 9.06 Limitations on Dividends and Distributions and Other Payment Restrictions Affecting Subsidiaries			51
Section 9.07 Investments			51
Section 9.08 Sale and Leaseback			51
Section 9.09 Negative Pledges			51
Section 9.10 Modifications of Indebtedness, Organizational Documents and Certain Other Agreements			52
Section 9.11 Federal Reserve Regulations			52
Section 9.12 Investment Company Act of 1940			52
Section 9.13 Securities and Deposit Accounts			52
Section 9.14 Impairment of Security Interests			52
Section 9.15 Restricted Payment			52
Section 9.16 Contractual Commitments			52
Section 9.17 Change of Name			53
Section 9.18 Transactions with Affiliates			53

ARTICLE X SECURITY			53
Section 10.01 Security for the Obligations			53

ARTICLE XI EVENTS OF DEFAULT, RIGHTS AND REMEDIES			54
Section 11.01 Events of Default			54
Section 11.02 Remedies			57
Section 11.03 Remedies Cumulative			57
Section 11.04 Entry Upon Premises and Access to Information			58
Section 11.05 Sale or Other Disposition of Collateral by the DIP Lenders			58
Section 11.06 Automatic Stay			59
Section 11.07 Waiver of Notice			59

(ii)


ARTICLE XII THE AGENTS			60
Section 12.01 Appointment Powers and Immunities; Delegation of Duties, Liability of Agents			60
Section 12.02 Reliance by Agents			61
Section 12.03 Defaults			62
Section 12.04 Rights as a DIP Lender			62
Section 12.05 Costs and Expenses; Indemnification			63
Section 12.06 Non-Reliance on Agents and Other DIP Lenders			64
Section 12.07 Failure to Act			64
Section 12.08 Resignation of Agent			64
Section 12.09 Collateral Sub-Agents			65
Section 12.10 Communications by Borrowers			65
Section 12.11 Collateral Matters			66
Section 12.12 Restrictions on Actions by the Agents and the DIP Lenders; Sharing Payments			67
Section 12.13 Several Obligations; No Liability			68

ARTICLE XIII MISCELLANEOUS			68
Section 13.01 Notices			68
Section 13.02 Amendments			69
Section 13.03 No Waiver; Remedies			70
Section 13.04 Expenses; Taxes; Attorneys’ Fees			71
Section 13.05 Right of Set-Off, Sharing of Payments			73
Section 13.06 Severability			73
Section 13.07 Complete Agreement; Sale of Interest			73
Section 13.08 Assignment; Register			73
Section 13.09 Counterparts			76
Section 13.10 GOVERNING LAW			76
Section 13.11 CONSENT TO JURISDICTION, SERVICE OF PROCESS AND VENUE			76
Section 13.12 WAIVER OF JURY TRIAL			77
Section 13.13 Consent			77
Section 13.14 Interpretation			77
Section 13.15 Reinstatement; Certain Payments			77
Section 13.16 Indemnification			78
Section 13.17 Interest			79
Section 13.18 Records			80
Section 13.19 Binding Effect			80
Section 13.20 USA Patriot Act			80
Section 13.21 Equitable Relief			80
Section 13.22 The DIP Lenders as Parties in Interest			80
Section 13.23 Section 506(c) Waiver			80
Section 13.24 Reversal of Payments			81
Section 13.25 Joint Agreement of Borrowers			81

(iii)

SCHEDULES

• Schedule P – Permitted Encumbrances

Schedule PP – Pre-Petition Lenders

• Schedule 6.01(g) – ERISA

• Schedule 6.01(k) – Real Estate

• Schedule 6.01(m) – Environmental Matters

• Schedule 6.01(n) – Insurance

• Schedule 6.01(o) – Bank Accounts

• Schedule 6.01(p) – Intellectual Property

• Schedule 9.13 – Securities Accounts

EXHIBITS

• Exhibit A-1 – Form of Assignment and Acceptance

• Exhibit B-1 – Form of Borrowing Request

• Exhibit C-1 – Interim Order

• Exhibit D-1 – Form of Note

• Exhibit E-1 – Agreed Budget

(iv)

POST-PETITION
SENIOR SECURED SUPER-PRIORITY CREDIT AGREEMENT

This POST-PETITION SENIOR SECURED SUPER-PRIORITY CREDIT AGREEMENT, dated as of June _____, 2009 (this “ Agreement ”), is entered into by and among ISOLAGEN, INC., a Delaware corporation (“ Isolagen ”), and ISOLAGEN TECHNOLOGIES, INC., a Delaware corporation (“ Technologies ” and, together with Isolagen, in their capacity as borrowers hereunder, each a “ Borrower ” and collectively, the “ Borrowers ”), the lenders party hereto from time to time, VIRIATHUS SERVICES LLC SERIES, a Delaware series limited liability company, as administrative agent for the DIP Lenders (in such capacity, together with its successors and assigns, if any, the “ Administrative Agent ”), and VIRIATHUS SERVICES LLC SERIES, a Delaware series limited liability company, as collateral agent for the Secured Parties (in such capacity, together with its successors and assigns, if any, the “ Collateral Agent ”).

RECITALS

WHEREAS, the Pre-Petition Borrower (as defined herein), the Pre-Petition Lenders (as defined herein), and the Pre-Petition Agent (as defined herein) are parties to the Pre-Petition Credit Agreement (as defined herein);

WHEREAS, under the Pre-Petition Credit Agreement, the Pre-Petition Lenders made certain loans and other extensions of credit to the Pre-Petition Borrower;

WHEREAS, all Pre-Petition Indebtedness is owed to the Pre-Petition Lenders;

WHEREAS, on June _____, 2009 (the “ Petition Date ”), the Pre-Petition Borrower and Technologies filed with the United States Bankruptcy Court for the District of Delaware, separate voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, Case Nos. (the “ Chapter 11 Cases ”);

WHEREAS, Borrowers are continuing to operate their business and manage their properties as debtors-in-possession under Sections 1107 and 1108 of the Bankruptcy Code;

WHEREAS, an immediate and ongoing need exists for Borrowers to obtain funds in order to continue to operate their business and manage their properties as debtors-in-possession under Chapter 11 of the Bankruptcy Code, and Borrowers have requested that the DIP Lenders extend post-petition financing to Borrowers, and the DIP Lenders are willing to provide such post-petition financing on the terms and subject to the conditions set forth in the Interim Financing Order, the Final Financing Order, and this Agreement; and

WHEREAS, to secure the post-petition financing, pursuant to the Interim Financing Order and the Final Financing Order, Borrowers have agreed to grant to the Collateral Agent for the ratable benefit of each of the DIP Lenders on a post-petition basis a Lien on substantially all of Borrowers’ real and person property and other assets.

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

ARTICLE I
DEFINITIONS; CERTAIN TERMS

Section 1.01 Definitions . As used in this Agreement, the following terms have the meanings set forth below:

“ Acceptable Disclosure Statement ” means a disclosure statement of the Borrowers in form and substance acceptable to the Instructing Group.

“ Acceptable Plan ” means a plan of reorganization of the Debtors that is consistent with the Restructuring Agreement and otherwise in form and substance acceptable to the Instructing Group and the Pre-Petition Lenders. Such Acceptable Plan shall provide, among other things, that, assuming no Event of Default has occurred and is continuing, (i) all outstanding principal of and interest accrued and unpaid on the DIP Loans and the Indebtedness under the Pre-Petition Loan Documents (the “ Unpaid DIP Loan and Pre-Petition Balance ”), in lieu of being paid in accordance with this Agreement, shall be converted into, or there shall be issued to the DIP Lenders and Pre-Petition Lenders in full satisfaction of and in exchange for the Unpaid DIP Loan and Pre-Petition Balance, new common stock of Reorganized ILE representing in the aggregate not less than 61% (and not less than 49.91% after dilution by any exit financing) of the issued and outstanding common stock of Reorganized ILE immediately after consummation of such Acceptable Plan, which stock shall be allocated to the DIP Lenders and Pre-Petition Lenders pro rata in proportion to their respective shares of the Unpaid DIP Loan and Pre-Petition Balance and (ii) the Board of Directors of Reorganized ILE shall be comprised of such persons as the Instructing Group, the Pre-Petition Lenders and the Person(s) providing exit financing to Reorganized ILE shall mutually agree.

“ Account ” means an “ account ” as that term is defined in the UCC.

“ Action ” has the meaning ascribed to such term in Section 13.13 .

“ Administrative Agent ” has the meaning ascribed to such term in the introductory paragraph hereto.

“ Administrative Agent’s Office ” means the office of the Administrative Agent located at Viriathus Services LLC Series, Two Rector Street, 16th Floor, New York, NY 10006-1840, or such other office as may be designated pursuant to the provisions of Section 13.01 .

“ Affiliate ”, as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such specified Person, whether through the ownership of voting Securities or by contract or otherwise.

“ Agent-Related Persons ” means each of the Agents and its Affiliates, and the officers, directors, employees, counsel, agents, and attorneys-in-fact of such Agent and its Affiliates.

“ Agents ” means, collectively, the Administrative Agent and the Collateral Agent.

“ Agreed Budget ” means the 15 week budget (such 15 week period, the “ Budget Period ”) of Borrowers attached hereto as Exhibit E-1 ; provided that on a weekly basis, Borrowers shall provide to the DIP Lenders an updated budget for the Budget Period in substantially the same format as the previous budget, which upon acceptance by the Instructing Group in their sole discretion, shall become the Agreed Budget; provided , further , that at the end of every four week period, prior to the Entry Date, Borrowers shall provide the DIP Lenders with a new 15-week budget for the ensuing 15-week period in substantially the same format as the previous budget, which, upon acceptance by the Instructing Group in their sole discretion, shall become the Agreed Budget.

“ Agreement ” means this Post-Petition Senior Secured Super-Priority Credit Agreement, together with all Exhibits and Schedules hereto, as such agreement may be amended, supplemented or otherwise modified from time to time.

“ Applicable Law ” means, in respect of any Person, all provisions of constitutions, laws, statutes, rules, regulations, treaties, directives, guidelines and orders of Governmental Authorities applicable to such Person, including zoning ordinances, all Environmental Laws, and all orders, decisions, judgments and decrees of all courts and arbitrators in proceedings or actions to which the Person in question is a party or by which it is bound.

“ Arranging Agent ” means Viriathus Capital LLC, an affiliate of Trade Desk Financial Corp., a FINRA-registered broker-dealer.

“ Asset Purchase Agreement ” means an agreement for an Asset Sale executed and delivered by Borrowers, as sellers, and the DIP Lenders and, if they elect to participate therein, the Pre-Petition Lenders, as purchasers.

“ Asset Sale ” means the sale of substantially all of the assets of Borrowers pursuant to the terms of the Asset Purchase Agreement. Nothing in this Agreement shall preclude the Pre-Petition Lenders from participating, and the Pre-Petition Lenders shall have the right to participate, in the DIP Lenders’ purchase of the Debtors’ assets, including without limitation any sale of Pre-Petition Collateral. In the event the Pre-Petition Lenders participate in such a sale, the Pre-Petition Lenders shall be entitled to credit bid the full amount of the Indebtedness owing to them under the Pre-Petition Credit Agreement at the time of such sale.

“ Assignment and Acceptance ” means an Assignment and Acceptance substantially in the form of Exhibit A-1 attached hereto and made a part hereof (with blanks appropriately completed) delivered to the Administrative Agent in connection with an assignment of a DIP Lender’s interest under this Agreement in accordance with Section 13.08(b) .

“ Avoidance Actions ” means, collectively, any and all avoidance claims and causes of action of the bankruptcy estates of the Debtors arising under Sections 544, 545, 547, 548, 549, 550 or 553 of the Bankruptcy Code.

“ Bankruptcy Code ” means Title 11 of the United States Code (11 U.S.C. §§ 101 et seq.), as amended from time to time, and any successor statute.

“ Bankruptcy Court ” means the United States Bankruptcy Court for the District of Delaware or such other courts as shall have jurisdiction over the Chapter 11 Cases.

“ Benefit Plan ” means any “employee benefit plan”, as defined in Section 3(3) of ERISA.

“ Bid Procedures ” means the bid procedures to be established by the Bankruptcy Court with respect to the auction of the assets of Borrowers.

“ Bid Procedures Order ” has the meaning ascribed to such term in the definition of Sale Milestone.

“ Borrower ” and “ Borrowers ” have the meanings ascribed to such terms in the introductory paragraph hereto.

“ Borrowing Request ” means a request and certification in substantially the form attached as Exhibit B-1 hereto, executed by a Responsible Officer of Borrower and delivered to the Administrative Agent.

“ Budget Period ” has the meaning ascribed to such term in the definition of Agreed Budget.

“ Business Day ” means any day that is not a Saturday, a Sunday or a day on which commercial banks are required or permitted to be closed in the State of New York.

“ Capital Expenditures ” means, with respect to any Person for any period, the sum of the aggregate of all expenditures by such Person arising during such period that, in accordance with GAAP, are or should be included in the “property, plant and equipment” account on its consolidated balance sheet, including all applicable Capitalized Lease Obligations with respect to “property, plant and equipment”, paid or payable during such period, plus any other capital expenditures of such Person that are set forth in a consolidated statement of cash flows of such person for such period prepared in accordance with GAAP, excluding in each case, (a) any such expenditures made for the repair, replacement or restoration of assets to the extent paid or reimbursed by any insurance policy or condemnation award to the extent such expenditures for reinvestment are permitted under the Loan Documents, and (b) any leasehold improvement expenditures to the extent paid or reimbursed by the applicable lessor, sublessor or sublessee.

“ Capitalized Lease ” means, with respect to any Person, any lease of real or personal property by such Person as lessee which is required under GAAP to be capitalized on the balance sheet of such Person.

“ Capitalized Lease Obligations ” means, with respect to any Person, obligations of such Person as lessee under Capitalized Leases as determined in accordance with GAAP.

“ Carve-Out ” means sums having priority ahead of the Super-Priority Claims and Liens securing the DIP Loans for (a) the payment of any unpaid fees payable to the Clerk of the Bankruptcy Court and the Office of the United States Trustee pursuant to 28 U.S.C. §1930 and (b) the payment of unpaid claims (whether then or subsequently allowed) for fees and expenses incurred by professionals retained by the Debtors pursuant to an order of the Bankruptcy Court, including (i) fees and expenses actually incurred prior to the occurrence of an Event of Default and (ii) fees and expenses incurred after the occurrence of a Carve-Out Event up to: (1) $200,000 for fees and expenses payable to counsel and $97,500 payable to other professionals retained by the Debtors, subject to Bankruptcy Court approval (the “ Debtors’ Professional Expense Cap ”); and (2) $50,000 for fees and expenses payable to professionals retained by any committee in the Chapter 11 Cases, subject to Bankruptcy Court approval (together with the Debtors’ Professional Expense Cap, collectively, the “ Professional Expense Cap ”); provided , that any payments actually made to such professionals under Sections 330 or 331 of the Bankruptcy Code or any other provision of the Bankruptcy Code or order of the Bankruptcy Court shall reduce the Professional Expense Cap on a dollar-for-dollar basis, provided , however , that (x) any prepetition retainers shall not count against and shall not reduce the Professional Expense Cap and (y) all such retainers shall be exhausted prior to Debtors’ payment of any amounts subject to the Debtors’ Professional Expense Cap. The post-petition Liens and security interests and the administrative priority claims of the DIP Lenders shall be senior to, and no proceeds of the DIP Loans nor any Collateral granted hereunder (nor proceeds thereof) may be used to pay, any and all claims for services rendered by any of the professionals retained by Borrower or any official committee in connection with the investigation of, assertion of or joinder in any claim, counterclaim, action, proceeding, application, motion, objection, defense or other contested matter against the Pre-Petition Lenders or the DIP Lenders.

“ Carve-Out Event ” means the earliest to occur of: (i) the Maturity Date; (ii) the existence of a Default or Event of Default hereunder; or (iii) any material violation of the Financing Orders.

“ Cash Equivalents ” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by an agency thereof and backed by the full faith and credit of the United States, in each case maturing within one (1) year after the date of acquisition thereof; (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one (1) year after the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, then from such other nationally recognized rating services as are reasonably acceptable to the Administrative Agent) and not listed in Credit Watch published by S&P; (c) commercial paper, other than commercial paper issued by Borrower, maturing no more than two hundred seventy (270) days after the date of acquisition thereof and, at the time of acquisition, having a rating of at least A 1 or P 1, respectively, from either S&P or Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, then the comparable rating from such other nationally recognized rating services as are reasonably acceptable to the Administrative Agent); (d) domestic and Eurodollar certificates of deposit or time deposits or bankers’ acceptances maturing within one (1) year after the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or Canada having combined capital and surplus of not less than $500,000,000; and (e) shares of money market or mutual funds that are required to have a net asset value of $1.00 per share with assets in excess of $250,000,000 and that invest exclusively in assets satisfying the requirements of clauses (a) through (d) of this definition.

“ Cash Management Bank ” means TD Bank, 405 Eagleview Blvd., Exton, PA 19341, or such other financial institution as may be acting as cash management bank for Borrowers with the consent of the Instructing Group.

“ Casualty ” means any casualty, loss, damage, destruction or other similar loss with respect to real or personal property or improvements.

“ Change of Control ” means, at any time, (i) any Person or “group” (within the meaning of Rules 13d 3 and 13d 5 under the Securities Exchange Act) (a) shall become a beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act) of 50% or more on a fully diluted basis of the voting and/or economic interest in the Equity Interests of either Borrower or (b) shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of either Borrower; (ii) Isolagen shall cease to beneficially own and control 100% on a fully diluted basis of the economic and voting interest in the Equity Interests of Technologies except as otherwise permitted hereunder; or (iii) the majority of the seats (other than vacant seats) on the board of directors (or similar governing body) of either Borrower cease to be occupied by Persons who either (a) were members of the board of directors of such Borrower on the Closing Date, (b) were nominated for election by the board of directors of such Borrower, a majority of whom were directors on the Closing Date or whose election or nomination for election was previously approved by a majority of such directors or (c) were appointed by an equity investor pursuant to a right to designate directors.

“ Chapter 11 Cases ” has the meaning ascribed to such term in the recitals hereto.

“ Closing Date ” means the Business Day, on or before June 16, 2009 or such later date to which the Instructing Group may agree in their sole discretion, on which all of the conditions precedent to the availability of DIP Loans set forth in Section 5.01 have been satisfied (or waived in accordance with the terms of this Agreement).

“ Code ” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed also to refer to any successor sections.

“ Collateral ” means all current and future assets, properties and rights of Debtors, wherever located, including, but not limited to, all affiliate indebtedness, Accounts, deposit accounts, chattel paper, instruments, documents, securities, contract rights, receivables, Equipment, goods, Inventory, investment property (including, without limitation, Isolagen’s 100% interest in Technologies), goodwill, General Intangibles, Intellectual Property, letter-of-credit rights, commercial tort claims, warranties and guarantees, leaseholds ( provided that Debtors shall not be required to deliver or record real property leasehold mortgages), licenses; and all products, proceeds (including insurance policies and proceeds) and income of or derived from of any of the foregoing, whether by disposition or otherwise, and shall include all assets defined as “Collateral” in the Financing Orders or any Security Documents; provided , however , that Collateral shall not include Isolagen’s 57% equity interest in Agera Laboratories, Inc. or any proceeds thereof and provided , further , that, (i) until the Entry Date, Collateral shall not include Avoidance Actions and proceeds thereof and (ii) upon the Entry Date, Collateral shall include Avoidance Actions and proceeds thereof.

“ Collateral Agent ” has the meaning ascribed to such term in the introductory paragraph hereto.

“ Collateral Rights Agreement ” means that certain Collateral Rights Agreement dated as of April 21, 2009 among Viriathus and the Pre-Petition Lenders appointing Viriathus as agent for the Pre-Petition Lenders.

“ Collections ” means all cash, checks, notes, instruments, and other items of payment (including insurance and condemnation proceeds, cash proceeds of sales and other voluntary or involuntary dispositions of property, rental proceeds, royalties, settlements and tax refunds).

“ Commitment ” means, with respect to any DIP Lender, the obligation of such DIP Lender to make a DIP Loan pursuant to the terms and conditions of this Agreement, and which shall not exceed the amount set forth on such DIP Lender’s signature page to this Agreement (as such amount may be amended in connection with the exercise of the right of the DIP Lenders to provided additional financing under Section 2.01(b)(ii) hereof). “ Commitments ” means the aggregate principal amount of the Commitments of all the DIP Lenders up to the Maximum Commitment Amount.

“ Condemnation ” means any taking by a Governmental Authority of property or assets, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any public improvement or condemnation or in any other manner.

“ Contingent Obligation ” means, with respect to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement, or (c) any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation, or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, assets, Securities or services primarily for the purpose of assuring the owner of any such primary obligation, of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof.

“ Control Agreement ” means, with respect to a Securities Account or a Deposit Account, an agreement, in form and substance reasonably satisfactory to the Collateral Agent, which effectively gives “ control ” (as defined in the UCC) to the Collateral Agent in such Securities Account and all investment property contained therein or such Deposit Account and all funds contained therein, as the case may be.

“ Copyrights ” means all current and future (i) copyright rights, including mask work rights and rights in and to published and unpublished works of authorship in any medium, arising under the laws of the United States, any other country, or union of countries, or any political subdivision of any of the foregoing, whether registered or unregistered and whether published or unpublished (ii) all registrations and recordings thereof, and all applications in connection therewith, (iii) all extensions and renewals thereof, (iv) all rights corresponding thereto throughout the world, including without limitation, all registrations, recordings and applications in the United States Copyright Office, (v) all rights to sue for past, present and future infringement thereof and all rights to receive proceeds, payments and distributions made in connection with the foregoing and (vi) all other rights of any kind whatsoever accruing thereunder or pertaining thereto including rights to income, proceeds of such receivables and royalties from the exploitation thereof.

“ Debtor ” means a Borrower as debtor and debtor-in-possession in its Chapter 11 Case and “ Debtors ” means the Debtors, collectively.

“ Default ” means an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“ Deposit Account ” means a “ deposit account ” as that term is defined in Article 9 of the UCC.

“ DIP Lenders ” means, collectively, the lenders identified on the signature pages hereof, together with their respective successors and permitted assigns, each a “ DIP Lender .”

“ DIP Liens ” has the meaning ascribed to such term in Section 10.01 .

“ DIP Loans ” has the meaning ascribed to such term in Section 2.01(a) .

“ Disposition ” means any transaction, or series of related transactions, pursuant to which a Borrower or any of its subsidiaries conveys, sells, leases or subleases, assigns, transfers or otherwise disposes of any part of its business, property or assets (whether now owned or hereafter acquired) to any other Person, in each case whether or not the consideration therefor consists of cash, Securities or other assets, excluding any sales of Inventory in the ordinary course of business.

“ Dollar ”, “ Dollars ” and the symbol “ $ ” each means lawful money of the United States of America.

“ Eligible Assignee ” means (a) a DIP Lender; (b) Affiliate of a DIP Lender; and (c) any other Person approved by the Administrative Agent.

“ Entry Date ” means the date of the entry of the Final Order.

“ Environmental Actions ” means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter or other communication from any Governmental Authority or other Person alleging violations of, or liability under, any Environmental Law or Releases of Hazardous Materials on, in, at, to, from or under (i) any assets, properties or businesses of a Borrower or any of its predecessors in interest, and (ii) any facilities which received Hazardous Materials generated by a Borrower or any of their predecessors in interest.

“ Environmental Laws ” means any federal, state, local or foreign law or regulation relating to the protection of the environment or health and safety including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9601, et seq .), the Hazardous Materials Transportation Act (49 U.S.C. § 1801, et s e q.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901, et seq .), the Federal Clean Water Act (33 U.S.C. § 1251 et seq .), the Clean Air Act (42 U.S.C. § 7401 et seq .), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq .) and the Occupational Safety and Health Act (29 U.S.C. § 651 et seq .) and any other law, including common law, relating to the environment (including, without limitation, laws relating to the storage, generation, use, handling, manufacture, processing, labeling, advertising, sale, display, transportation, treatment, reuse, recycling, release and disposal of Hazardous Materials), as such laws may be amended or otherwise modified from time to time, and any other present or future federal, state, provincial, local or foreign statute, ordinance, rule, regulation, order, judgment, decree, permit, license or other binding determination (including the common law) of any Governmental Authority imposing liability or establishing standards of conduct for protection of the environment.

“ Environmental Liabilities and Costs ” means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants and costs of investigations and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any environmental condition or a Release of Hazardous Materials from or onto (a) any property presently or formerly owned by a Borrower, or (b) any facility which received Hazardous Materials generated by a Borrower.

“ Environmental Lien ” means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs or otherwise relating to any Environmental Law.

“ Equipment ” means, with respect to any Person, all of such Person’s now owned or hereafter acquired right, title, and interest with respect to equipment (including, without limitation, “ equipment ” as such term is defined in Article 9 of the UCC), machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles, tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing.

“ Equity Interest ” means, with respect to any Person: (i) any shares of capital stock of, or other ownership or profit interests in, such Person, whether preferred or common and whether voting or nonvoting (including, without limitation, partnership, membership or trust units or interests therein); (ii) any warrant, option or other right to purchase or otherwise acquire from such Person shares or interests of the type described in clause (i) above; and (iii) any security convertible into or exchangeable for any shares or interests of the type described in clause (i) or (ii) above, in each case whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed also to refer to any successor sections.

“ ERISA Affiliate ” means, with respect to any Person, any trade or business (whether or not incorporated) which is a member of a group of which such Person is a member and which would be deemed to be a “ controlled group ” within the meaning of Sections 414(b), (c), (m) and (o) of the Code.

“ ERISA Event ” means (a) a Reportable Event with respect to any Benefit Plan, (b) the filing of a notice of intent to terminate a Benefit Plan in a distress termination (as described in Section 4041(c) of ERISA), (c) the institution by the Pension Benefit Guaranty Corporation of proceedings to terminate a Benefit Plan or Multiemployer Plan, (d) the appointment of a trustee to administer any Benefit Plan under Section 4042 of ERISA, or (e) any event requiring a Borrower or any ERISA Affiliate to provide security to a Benefit Plan under Section 401(a)(29) of the Code.

“ Escrow Account ” means a non-interest-bearing account established by the Administrative Agent into which funds from each of the DIP Lenders in the amount of their respective Commitments shall be deposited on the Closing Date.

“ Event of Default ” has the meaning ascribed to such term in Section 10.01 .

“ Excluded Taxes ” means, with respect to the Administrative Agent, the Collateral Agent, any DIP Lender, or any other recipient of any payment to be made by or on account of any Obligation hereunder, Taxes imposed on or measured by the overall net income (however denominated) of such recipient, franchise Taxes (whether or not in lieu of net income Taxes) and branch profit Taxes, in each case imposed on such recipient by a jurisdiction (or any political subdivision thereof) as a result of the recipient being organized or having its principal office or, in the case of any DIP Lender, its applicable lending office in such jurisdiction.

“ Federal Reserve Board ” or the “ Board ” means the Board of the Federal Reserve System or any Governmental Authority succeeding to its functions.

“ Filing Deadline ” has the meaning ascribed to such term in the definition of Plan Milestone.

“ Final Order ” means an order of the Bankruptcy Court, in form and substance satisfactory to the Administrative Agent and Instructing Group, which (a) contains substantially the same provisions as the Interim Order (including reaffirming (x) that the DIP Lenders are extending credit to Borrowers in good faith (within the meaning of Section 364(e) of the Bankruptcy Code) under this Agreement and (y) the granting of priming Liens and superpriority position provided in connection with the Interim Order), (b) is not subject to vacatur, amendment, modification, reversal or stay without the prior written consent of the Instructing Group and (c) reaffirms the grant of protections to be accorded to the Administrative Agent and the DIP Lenders described herein.

“ Financial Statements ” has the meaning ascribed to such term in Section 7.01 .

“ Financing Orders ” means both the Interim Order and the Final Order.

“ FINRA ” means the Financial Industry Regulatory Authority or any successor thereto exercising similar authority.

“ First Day Orders ” means the Interim Order and all other orders entered by the Bankruptcy Court on the Petition Date or within five (5) Business Days of the Petition Date or based on motions filed on the Petition Date.

“ Fiscal Month ” means each calendar month of Borrowers consisting of a four (4) or five (5) week period.

“ Fiscal Quarter ” means the calendar quarter of Borrowers ending on or about each March 31, June 30, September 30 and December 31 of any Fiscal Year.

“ Fiscal Year ” means the fiscal year of Borrowers ending on December 31.

“ Fund ” means any Person that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit.

“ Funded DIP Loans ” has the meaning ascribed to such term in Section 2.01(a) .

“ Funding Date ” means, with respect to any DIP Loan, the date upon which the amount of the DIP Loan is advanced to a Borrower.

“ GAAP ” means generally accepted accounting principles in effect from time to time in the United States, provided that, for the purpose of the financial amounts and the definitions used herein, “ GAAP ” means generally accepted accounting principles in effect on the date hereof and consistent with those used in the preparation of the financial statements, and provided further that, if there occurs after the date of this Agreement any change in GAAP that affects in any material respect the calculation of any financial covenant contained in ARTICLE XI , the Administrative Agent and Borrowers shall negotiate in good faith an amendment to such financial covenant and any other provision of this Agreement that relates to the calculation of such financial covenant with the intent of having the respective positions of the DIP Lenders and Borrowers after such change in GAAP conform as nearly as possible to their respective positions as of the date of this Agreement and, after the execution of any such amendment or consent by the Instructing Group in connection with any such change in GAAP, “ GAAP ” means generally accepted accounting principles in effect on the effective date of such amendment or consent. Until any such amendments have been agreed upon, the covenants in ARTICLE XI shall be calculated as if no such change in GAAP has occurred.

“ General Intangibles ” means general intangibles (as that term is defined in the UCC).

“ Governing Documents ” means, (a) with respect to any corporation, (i) the articles or certificate of incorporation (or the equivalent organizational documents) of such corporation, (ii) the by-laws (or the equivalent governing documents) of the corporation and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any class or series of such corporation’s capital stock; (b) with respect to any general partnership, (i) the partnership agreement (or the equivalent organizational documents) of such partnership, and (ii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any of the partnership interests; (c) with respect to any limited partnership, (i) the partnership agreement (or the equivalent organizational documents) of such partnership, (ii) a certificate of limited partnership (or the equivalent organizational documents), and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any of the partnership interests; and (d) with respect to any limited liability company, (i) the certificate of formation (or equivalent filings) of such limited liability company, (ii) the limited liability company agreement (or the equivalent organizational documents) of such limited liability company, and (iii) any document setting forth the designation, amount and/or relative rights, limitations and preferences of any of such company’s membership interests; including, in each case, all agreements and other documents establishing voting limitations and rights, puts, calls, options and other arrangements among holders of Equity Interests in such corporation, partnership or limited liability company.

“ Governmental Authority ” means any nation or government, any federal, state, provincial, city, town, municipal, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“ Hazardous Materials ” means (a) any element, compound or chemical that is regulated under any Environmental Law including any substance that is defined, listed or otherwise classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous substance or chemical, hazardous waste, special waste, or solid waste under Environmental Laws; (b) petroleum and its refined products; (c) polychlorinated biphenyls; (d) any waste exhibiting a hazardous characteristic, including, but not limited to, corrosivity, ignitability, toxicity or reactivity as well as any radioactive or explosive materials; and (e) friable asbestos-containing materials.

“ Highest Lawful Rate ” has the meaning ascribed to such term in Section 4.01(c) . “ Indebtedness ” means, without duplication, with respect to any Person, (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business irrespective of when paid); (c) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (d) all obligations and liabilities of such Person created or arising under any conditional sales or other title retention agreement with respect to property used and/or acquired by such Person, even if the rights and remedies of the lessor, seller and/or lender thereunder are limited to repossession or sale of such property; (e) all Capitalized Lease Obligations of such Person; (f) all obligations and liabilities of such Person as an account party, in respect of letters of credit, bankers’ acceptances and similar facilities; (g) all Contingent Obligations; and (h) all obligations referred to in clauses (a) through (g) of this definition of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien upon property owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, provided that the amount of Indebtedness of others that constitutes Indebtedness solely by reason of this clause (h) shall not for purposes of this Agreement exceed the fair market value of the properties or assets subject to such Lien. The Indebtedness of any Person shall include the Indebtedness of any partnership of or joint venture in which such Person is a general partner or a joint venturer that is required to be consolidated under GAAP to the extent such Person would be liable therefor under Applicable Law or any agreement or instrument by virtue of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person shall not be liable therefor.

“ Indemnified Matters ” has the meaning ascribed to such term in Section 13.16 .

“ Indemnified Taxes ” means all Taxes imposed upon or with respect to payments from a Borrower to the Administrative Agent, the Collateral Agent, any DIP Lender, or any other recipient of any payment to be made by or on account of any Obligation hereunder, other than Excluded Taxes.

“ Indemnitees ” has the meaning ascribed to such term in Section 13.16 .

“ Instructing Group ” means a committee composed of three of the DIP Lenders appointed by DIP Lenders holding more than 50% of the aggregate Loan Exposure of all DIP Lenders (a “ Majority In Interest of DIP Lenders ”). The initial Instructing Group consists of Gavin Sargent, Noburo Muto and Bob Sagarino. Any member of the Instructing Group may be removed and/or replaced by a Majority In Interest of DIP Lenders at any time for any reason or no reason and all actions of the Instructing Group shall require the unanimous consent of the members thereof.

“ Intellectual Property ” means all current and future: (a) Trademarks; (b) Patents (c) other inventions and discoveries, whether patentable or not; (d) Trade Secrets; (e) Copyrights; (f) Internet domain names; (g) other materials, information, data and works whether copyrightable or not (including without limitation customer lists, software, databases and other compilations of information) and (h) any and all other know-how, technology, software, hardware, intellectual property or proprietary rights.

“ Intellectual Property Contracts ” means all agreements concerning Intellectual Property to which a Borrower is a party including, without limitation, licenses or other agreements granting a Borrower rights to use Intellectual Property, non-assertion agreements, settlement agreements, licenses or other agreements granting rights to third parties to use Intellectual Property listed on Schedule 6.01(p) , Trademark coexistence agreements and Trademark consent agreements.

“ Interest Payment Date ” means (a) with respect to all DIP Loans, the last Business Day of each month commencing on the first such date to occur after the Closing Date and the Maturity Date; and (b) with respect to the amount of any DIP Loans that are prepaid, the date of such prepayment.

“ Interest Rate ” means interest at a rate equal to ten percent (10%) per annum.

“ Interim Availability Amount ” means, until the Entry Date, the lesser of (a) $1,000,000 and (b) the amount authorized by the Bankruptcy Court in the Interim Order to be borrowed by Borrowers under this Agreement.

“ Interim Order ” means an order of the Bankruptcy Court in substantially the form attached hereto as Exhibit D-1 , which, prior to the entry of the Final Order, shall remain in full force and effect and shall not have been stayed, reversed, vacated or otherwise modified without the prior written consent of the Administrative Agent and the Instructing Group.

“ Inventory ” means all Borrowers’ now owned or hereafter acquired right, title, and interest with respect to (a) all “ inventory ” as defined in Article 9 of the UCC, and (b) all goods held for sale or lease or to be furnished under contracts of service or so leased or furnished, all raw materials, work in process, finished goods, and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in Borrowers’ business; all goods which are returned to or repossessed by a Borrower; and all software, computer programs, or other Intellectual Property embedded in any of the foregoing and all accessions thereto and products thereof (in each case, regardless of whether characterized as inventory under the UCC).

“ Investment ” means, with respect to any Person, (a) any purchase or other acquisition by that Person of Securities, or of a beneficial interest in Securities, issued by any other Person, (b) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, (c) any joint venture, and (d) any direct or indirect loan, advance (other than prepaid expenses, accounts receivable, advances and other loans to employees including, without limitation, employee forgivable loans and similar items made or incurred in the ordinary course of business) or capital contribution by that Person to any other Person, including all Indebtedness owing to such Person arising from a sale of any property or assets by such Person other than in the ordinary course of its business.

“ IRS ” means the Internal Revenue Service or any successor federal tax Governmental Authority.

“ Isolagen ” means, Isolagen, Inc., a Delaware corporation.

“ Lender Expenses ” has the meaning ascribed to such term in Section 13.04 .

“ Lender Group ” means, individually and collectively, each of the Agents and the DIP Lenders.

“ Lender-Related Persons ” means, with respect to any DIP Lender, such DIP Lender, together with such DIP Lender’s Affiliates, and the officers, directors, employees, counsel, advisors, agents, and attorneys-in-fact of such DIP Lender and such DIP Lender’s Affiliates.

“ Lien ” means any lien, security interest or other charge of any kind, or any other type of preferential arrangement intended to have the effect of a lien or security interest, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property.

“ Loan Documents ” means this Agreement, the Notes, if any, the Security Documents, if any, and all other agreements, instruments, and other documents executed and delivered by either Borrower pursuant hereto or thereto or otherwise evidencing or securing any DIP Loan.

“ Loan Exposure ” means, with respect to any DIP Lender, as of any date of determination (a) prior to the funding of the DIP Loans in full, such DIP Lender’s Commitment plus the such DIP Lender’s Pro Rata Share of the outstanding DIP Loans, and (b) after the funding of the DIP Loans in full and the termination of the Commitments under this Agreement, the outstanding principal amount of the DIP Loans of such DIP Lender.

“ Material Adverse Effect ” means a material adverse effect on (a) the business, operations, properties, assets, condition (financial or otherwise) or prospects of either Borrower, (b) the ability of either Borrower to perform its obligations hereunder or under any of the other Loan Documents, or (c) the rights or remedies of the Administrative Agent, Collateral Agent or any DIP Lender hereunder or under any other Loan Document.

“ Maturity Date ” means the earliest of (a) December 31, 2009 or such later date to which the Instructing Group may agree in their discretion, (b) thirty (30) days after the entry of the Interim Order if the Final Order has not been entered prior to the expiration of such thirty (30) day period (as such period may be extended with the consent of the Administrative Agent), (c) the date on which all Obligations become due as the result of an acceleration pursuant to Section 11.04 , and (d) the substantial consummation (as defined in Section 1101 of the Bankruptcy Code) of a plan of reorganization that is confirmed pursuant to an order entered by the Bankruptcy Court in any of the Chapter 11 Cases unless such plan is an Acceptable Plan and the DIP Lenders have agreed to make additional DIP Loans in accordance with the provisions of Section 2.01(b) and to waive the provisions of this clause (d) with respect to their outstanding DIP Loans.

“ Maximum Commitment Amount ” means $2,750,000 (subject to increase, in the discretion of the DIP Lenders, in connection with the exercise of their right to provided additional financing under Section 2.01(b)(ii) hereof).

“ Moody’s ” means Moody’s Investor Service.

“ Multiemployer Plan ” means a “ multiemployer plan ” as defined in Section 4001(a)(3) of ERISA to which a Borrower or any of its ERISA Affiliates has contributed, or has been obligated to contribute, at any time during the preceding six years, or has liability.

“ Net Cash Proceeds ” means all cash and Cash Equivalents received by a Borrower from time to time in connection with a Disposition (whether as initial consideration or through the payment of deferred consideration) other than a Disposition permitted under Section 9.04 , after deducting therefrom only (a) the principal amount of any Indebtedness of such Borrower secured by any Permitted Encumbrance on any asset that is the subject of the Disposition (other than Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such Disposition (other than Indebtedness under this Agreement), (b) reasonable fees and expenses related thereto reasonably incurred by such Borrower in connection therewith, and (c) a provision for any Taxes to be paid or reasonably estimated to be payable, in connection with such Disposition (after taking into account any tax credits or deductions and any tax sharing arrangements).

“ Net Income ” means, with respect to any Person for any period, the net income (loss) of such Person and its consolidated Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

“ Net Insurance Proceeds ” means the amount of any insurance proceeds received by a Borrower or any of its subsidiaries from time to time in connection with Casualty, key man life insurance, business interruption insurance or other insurance, but excluding, with respect to Casualty, any proceeds or awards required to be paid to a creditor (other than the DIP Lenders) which holds a first-priority Lien permitted pursuant to this Agreement on the property which is the subject of Casualty after deducting therefrom only (a) a reserve for any Taxes to be paid or estimated by such Borrower to be paid as a result of such Casualty, and (b) to the extent not excluded above, payments to retire Indebtedness where payment of such Indebtedness is required in connection with such Casualty.

“ Note ” means a promissory note in substantially the form attached as Exhibit E-1 payable to a DIP Lender pursuant to Section 2.04 .

“ Obligations ” means all DIP Loans, advances, debts, liabilities, obligations, covenants and duties, owing by Borrowers to the Administrative Agent, the Collateral Agent, any DIP Lender, any Affiliate of any DIP Lender, or any Person entitled to indemnification pursuant to Section 13.16 of this Agreement, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, interest rate contract, foreign exchange contract or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, but in all such circumstances only to the extent now existing or hereafter arising or however acquired, arising under or in connection with this Agreement, the Notes or any other Loan Document. The term includes all interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), charges, expenses, fees, attorneys’ fees and disbursements and any other sum chargeable to Borrowers under this Agreement, the Notes, or any other Loan Document.

“ Operating Lease ” means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capitalized Lease other than any such lease under which that Person is the lessor.

“ Other Taxes ” has the meaning ascribed to such term in Section 3.04(b) .

“ Participant ” has the meaning ascribed to such term in Section 13.08(e) .

“ Patents ” means: (a) all current and future letters patent of the United States or any other country, union of countries or any political subdivision of any of the foregoing, all registrations and recordings thereof, all applications for letters patent of the United States or any other country, union of countries or any political subdivision of any of the foregoing, including without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country and all patentable inventions and improvements described and claimed in any of the foregoing, (b) all reissues, continuations, continuations-in-part, divisions, renewals, or extensions thereof and all amendments and supplements thereto and improvements thereon, (c) all rights to sue for past, present and future infringement of the foregoing including in the case of each of (a) and (b) and any Intellectual Property Contracts related to Patents, all rights corresponding thereto in the United States and in every other country, union of countries or any political subdivision of any of the foregoing, including the right to make, use, lease, license, sell and otherwise transfer the technology or inventions disclosed therein, all proceeds, payments and distributions made in connection with the foregoing, including without limitation, all income and proceeds thereof and all license royalties and proceeds of infringement suits.

“ Patriot Act ” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Title III of Pub. L. No. 107-56 (signed into law October 26, 2001).

“ Permitted Encumbrances ” means:

(a) Liens imposed by law for unpaid utilities and taxes, assessments or governmental charges or levies that are not yet due or are being contested in a Permitted Protest, provided that a stay of enforcement of any such Lien is in effect;

(b) landlords’, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue or are being contested in a Permitted Protest, provided that a stay of enforcement of any such Lien is in effect;

(c) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security or employment laws or regulations or similar legislation or to secure public, statutory or regulatory obligations;

(d) deposits to secure the performance of bids, trade contracts, government contracts, leases, statutory or regulatory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;

(e) deposits made in connection with utility services and deposits required under any lease specifically permitted by this Agreement;

(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and which individually or in the aggregate do not have a Material Adverse Effect;

(g) pre-petition Liens existing on the Closing Date and listed on Schedule P hereto, in each case solely to the extent that such Liens are or are made junior to the DIP Loans and the Liens securing the DIP Loans under section 364(d) of the Bankruptcy Code unless otherwise expressly agreed in writing by the Instructing Group;

(h) any interest or title of a lessor, sublessor, licensee or licensor under any Operating Lease or license agreement entered into in the ordinary course of business and not interfering in any material respect with the business of Borrowers;

(i) Liens held by the Pre-Petition Agent on behalf of the Pre-Petition Lenders pursuant to the Pre-Petition Loan Documents; and

(j) Liens under this Agreement and the other Loan Documents pursuant to the Interim Order and the Final Order.

“ Permitted Indebtedness ” means:

(a) the Pre-Petition Indebtedness;

(b) Indebtedness of Borrowers under this Agreement or other Loan Documents;

(d) Indebtedness under performance bonds, surety bonds and letter of credit obligations to provide security for worker’s compensation claims, in each case, incurred in the ordinary course of business;

(e) Contingent Obligations with respect to endorsements of checks and other negotiable instruments for deposit or collection;

(f) to the extent constituting Contingent Obligations, indemnification obligations and other similar obligations of a Borrower in favor of directors, officers, employees, consultants or agents of such Borrower extended in the ordinary course of business;

(g) Contingent Obligations with respect to customer deposits received in the ordinary course of business; and

(h) Indebtedness disclosed in the Agreed Budget.

“ Permitted Protest ” means the right of a Person to protest any Lien (other than a Lien that secures all or any portion of the Obligations) or taxes, provided that (a) a reserve with respect to such obligation is established, if required, by such Person in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently and in good faith by such Person, and (c) if such Permitted Protest or any Lien is for an amount in excess of $50,000 and the Administrative Agent determines in the exercise of its reasonable discretion, that such Lien could not reasonably be or become senior to, or have or obtain priority over, any Lien in favor of the Collateral Agent in or to any portion of the Collateral.

“ Person ” means any individual, corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated organization, joint venture or Governmental Authority.

“ Petition Date ” has the meaning ascribed to such term in the recitals hereto.

“ Plan Milestone ” means any of the following:

(a) the filing by the Debtors with the Bankruptcy Court of an Acceptable Disclosure Statement and an Acceptable Plan not later than the date (the “ Filing Deadline ”) that is ten (10) days after the Petition Date;

(b) the holding of a hearing and approval of an Acceptable Disclosure Statement by the Bankruptcy Court on or before July 20, 2009; and

(c) entry of an order of the Bankruptcy Court, in form and substance acceptable to the Instructing Group, evidencing the confirmation of an Acceptable Plan on or before August 17, 2009.

“ Pre-Petition Agent ” means Viriathus in its capacity as agent of the Pre-Petition Lenders under the Collateral Rights Agreement.

“ Pre-Petition Borrowers ” has the meaning ascribed to such term in the definition of Pre-Petition Credit Agreement.

“ Pre-Petition Collateral ” means the Pre-Petition Borrower’s 57% interest in Agera Laboratories, Inc. and any proceeds thereof securing the Pre-Petition Indebtedness under the Pre-Petition Loan Documents.

“ Pre-Petition Credit Agreement ” means, collectively, the Secured Promissory Note and Security Agreement dated April 30, 2009 from Isolagen (in such capacity, “ Pre-Petition Borrower ”) in favor of each of the Pre-Petition Lenders in the aggregate principal amount of $500,417.

“ Pre-Petition Indebtedness ” means Indebtedness of Pre-Petition Borrower immediately prior to the Petition Date under the Pre-Petition Loan Documents.

“ Pre-Petition Lenders ” means the Persons identified on Schedule PP hereto and their respective successors and permitted assigns (each a “ Pre-Petition Lender ”).

“ Pre-Petition Loan Documents ” means the Pre-Petition Credit Agreement, the Collateral Rights Agreement and the other documents related thereto and entered into in conjunction with the credit facilities referenced therein.

“ Professional Expense Cap ” has the meaning ascribed to such term in the definition of Carve-Out.

“ Property ” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.

“ Pro Rata Share ” means, with respect to any DIP Lender, the percentage obtained by dividing (x) such DIP Lender’s Loan Exposure by (y) the aggregate Loan Exposure of all DIP Lenders.

“ Real Estate Asset ” means, at any time of determination, any interest (fee, leasehold or otherwise) then owned by either Borrower in any real property.

“ Register ” has the meaning ascribed to such term in Section 13.08(d) .

“ Registered ” means issued by, registered with, renewed by or the subject of a pending application before any Governmental Authority or Internet domain name registrar.

“ Registered Intellectual Property ” means all (i) Intellectual Property that has been registered with, filed in or issued by, as the case may be, the United States Patent and Trademark Office or such other similar filing offices, domestic or foreign, as applicable and (ii) domain names.

“ Regulation T ”, “ Regulation U ”, and “ Regulation X ” mean, respectively, Regulations T, U, and X of the Federal Reserve Board or any successor, as the same may be amended or supplemented from time to time.

“ Related Party ”, as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to vote ten percent (10%) or more of the Securities having voting power for the election of directors of such specified Person or otherwise to direct or cause the direction of the management and policies of such specified Person, whether through the ownership of voting Securities or by contract or otherwise.

“ Release ” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, seeping, migrating, dumping or disposing of any Hazardous Material (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Hazardous Material) into the indoor or outdoor environment, including ambient air, soil, surface or ground water in violation of any Environmental Law.

“ Remedial Action ” means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate or in any other way address Hazardous Materials in the indoor or outdoor environment; (b) prevent or minimize a Release or threatened Release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; (c) perform pre-remedial studies and investigations and post-remedial operation and maintenance activities; or (d) any other actions authorized by 42 U.S.C. § 9601.

“ Reorganized ILE ” means Isolagen as reorganized under the Bankruptcy Code following confirmation of an Acceptable Plan under, inter alia , Bankruptcy Code Sections 1129, 1141, 1142, 1145 et seq .

“ Reportable Event ” means any of the events described in Section 4043(c) of ERISA or the regulations thereunder other than a Reportable Event as to which the provision of thirty (30) days’ notice to the Pension Benefit Guaranty Corporation is waived under applicable regulations.

“ Requirements of Law ” means, as to any Person, the charter and by-laws or other organizational or Governing Documents of such Person, and any law, ordinance, rule, regulation, requirement, or determination of an arbitrator or a court or other Governmental Authority, including, without limitation, the Bankruptcy Court, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, including, without limitation, the Patriot Act, the Securities Act, the Securities Exchange Act, Regulations T, U and X, ERISA, the Internal Revenue Code, the Fair Labor Standards Act and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or Permit or environmental, labor, employment, occupational safety or health law, rule or regulation.

“ Responsible Officer ” means, with respect to Borrowers, either Borrower’s chief financial officer, treasurer, or other Senior Officer.

“ Restricted Payments ” means, with respect to any Person, (a) any dividend or other distribution, direct or indirect, on account of any Equity Interest of such Person, now or hereafter outstanding, (b) any redemption, retirement, sinking fund or similar payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, or any other purchase or other acquisition for value, direct or indirect, of, any Equity Interest of such Person now or hereafter outstanding, and (c) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to, any Indebtedness which is contractually subordinated to the Obligations or to the Pre-Petition Indebtedness.

“ Restructuring Agreement ” means that certain Restructuring Agreement dated as of June _____, 2009 by and among the Borrowers, Viriathus Holdings LLC, the Pre-Petition Agent, as agent for the Pre-Petition Lenders, and the noteholders party thereto, and the Term Sheet annexed thereto.

“ Sale Milestone ” means, if Debtors do not file an Acceptable Disclosure Statement and an Acceptable Plan by the Filing Deadline, any of the following:

(a) the execution and delivery of an Asset Purchase Agreement by all parties thereto and filing of a motion with the Bankruptcy Court seeking approval of the Bid Procedures Order on or before June 26, 2009;

(b) entry of an order of the Bankruptcy Court in form and substance acceptable to the Instructing Group establishing the Bid Procedures (the “ Bid Procedures Order ”) on or before July 8, 2009;

(d) (i) the holding of a hearing by the Bankruptcy Court regarding the sale of all or substantially all of the assets of Borrowers in accordance with the Bid Procedures Order and an Asset Purchase Agreement (at which hearing the Bankruptcy Court shall have indicated its approval of the foregoing) on or before August 14, 2009 and (ii) an order of the Bankruptcy Court, in form and substance acceptable to the Instructing Group, evidencing the approval described in the foregoing clause (i) entered on or before August 14, 2009; and

(e) the closing of the Asset Sale on or before August 17, 2009 unless extended by agreement of the purchaser and the Debtors.

“ S&P ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.

“ SEC ” means the Securities and Exchange Commission or any other similar or successor agency of the Federal government administering the Securities Act.

“ Secured Parties ” means the Collateral Agent and the DIP Lenders.

“ Securities ” means any capital stock, shares, voting trust certificates, bonds, debentures, notes, loans or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include the Obligations.

“ Securities Account ” has the meaning provided in Section 8-501(a) of the UCC.

“ Securities Act ” means the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time.

“ Securities Exchange Act ” means the Securities Exchange Act of 1934, as amended, or any successor Federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time.

“ Security Documents ” means any UCC financing statements, the Control Agreements, and any other documents granting or perfecting a Lien upon any portion of the Collateral as security for all or any part of the Obligations.

“ Senior Officer ” means, with respect to Borrowers, either Borrower’s president, chief executive officer, chief operating officer or chief financial officer.

“ Sub-Arranger ” means any FINRA-registered broker-dealer the services of which have been enlisted by the Arranger to solicit or arrange for the participation by any Person as a DIP Lender under this Agreement.

“ Subsidiary ” means, with respect to any Person at any date, any corporation, limited or general partnership, limited liability company, trust, association or other entity (a) the accounts of which would be consolidated with those of such Person in such Person’s consolidated financial statements if such financial statements were prepared in accordance with GAAP, or (b) of which more than 50% of (i) the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors of such corporation, (ii) the interest in the capital or profits of such partnership or limited liability company, or (iii) the beneficial interest in such trust or estate is, in respect of each of (i), (ii) and (iii) above, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such Person.

“ Super-Priority Claims ” has the meaning ascribed to such term in the Interim Order or Financing Order, as applicable.

“ Taxes ” means any and all present or future taxes, levies, imposts, deductions, charges or withholdings imposed by any Governmental Authority.

“ Technologies ” means, Isolagen Technologies, Inc., a Delaware corporation.

“ Trademarks ” means all current and future United States, state and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, internet domain names, trade dress, service marks, certification marks, collective marks, logos, all indicators of the source of goods or services, designs and general intangibles of a like nature whether registered or unregistered and all common law rights related thereto, all registrations, recordings and applications for any of the foregoing including, but not limited to the registrations and applications referred to in Section 6.01(p) (as such schedule may be amended or supplemented from time to time), but excluding all intent-to-use United States trademark applications until an amendment to allege use or statement of use has been filed under 15 U.S.C. § 1051(c) or 15 U.S.C. § 1051(d), accepted by the United States Patent and Trademark Office upon which such application shall automatically be subject to the security interest granted herein and deemed to be included in the Collateral, all extensions or renewals of any of the foregoing, all of the goodwill of the business connected with the use of and symbolized by the foregoing, the right to sue for past, present and future infringement or dilution of any of the foregoing or for any injury to goodwill, and all proceeds of the foregoing, including without limitation licenses, royalties, income, payments, claims, damages, and proceeds of suit, which are owned or licensed by a Borrower.

“ Trade Secrets ” means all (i) trade secrets and all other confidential or proprietary information and intangible and tangible know-how, including drawings, formulae, schematics, designs, plans, processes, supplier lists, business plans, business methods and prototypes, now or hereafter owned or used in the business of a Borrower throughout the world (all of the foregoing being collectively called a “ Trade Secret ”), whether or not such Trade Secret has been reduced to a writing or recorded in another medium, including all documents and things embodying, incorporating, or referring in any way to such Trade Secret, and (ii) the right to sue for past, present and future misappropriation or other violation of any Trade Secret, and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and proceeds of suit.

“ UCC ” means the Uniform Commercial Code as enacted in the State of New York, as amended from time to time; provided that if by reason of mandatory provisions of law, the perfection, the effect of perfection or non-perfection or priority is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, “ UCC ” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

Section 1.02 Terms Generally . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement.

Section 1.03 Accounting and Other Terms . Unless otherwise expressly provided herein, each accounting term used herein has the meaning given to it under GAAP. All terms used in this Agreement which are defined in Article 8 or Article 9 of the UCC and which are not otherwise defined herein shall have the same meanings herein as set forth therein.

Section 1.04 Time References . Unless otherwise indicated herein, all references to time of day refer to Eastern standard time or Eastern daylight saving time, as in effect in New York, New York on such day. For purposes of the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”; provided , however , that with respect to a computation of fees or interest payable to the Administrative Agent or the DIP Lenders, such period shall in any event consist of at least one full day.

ARTICLE II
THE FACILITY

Section 2.01 DIP Loans.

(a) Escrow of Commitments . Subject to the terms and conditions set forth in this Agreement, including ARTICLE V hereof, each DIP Lender hereby severally agrees to transfer to the Escrow Account, by wire transfer of immediately available funds in accordance with wire instructions delivered to the DIP Lenders by the Administrative Agent, on the Closing Date an amount equal to such DIP Lender’s Commitment as set forth opposite on DIP Lender’s signature page to this Agreement.

(b) DIP Loans .

(i) Subject to the terms and conditions set forth in this Agreement, including ARTICLE V hereof, the Administrative Agent shall make advances (each, a “ DIP Loan ” and collectively, the “ DIP Loans ”) to Borrowers on behalf of each DIP Lender on each Funding Date for such DIP Loans (each of which, once funded, shall be a “ Funded DIP Loan ”) provided , that (i) prior to the Entry Date, the aggregate amount of DIP Loans shall not exceed, and no DIP Loan shall be made on behalf of any DIP Lender if, after giving effect to the making of such DIP Loan and the simultaneous application of the proceeds thereof, the aggregate amount of outstanding DIP Loans would exceed, (x) with respect to any DIP Lender, its Pro Rata Share of the Interim Availability Amount and (y) for all DIP Lenders collectively, the Interim Availability Amount and (ii) on and after the Entry Date, the aggregate amount of DIP Loans made on behalf of the DIP Lenders shall not exceed, and no DIP Loan shall be made on behalf of any DIP Lender if, after giving effect to the making of such DIP Loan and the simultaneous application of the proceeds thereof, the aggregate amount of outstanding DIP Loans would exceed, (x) with respect to any DIP Lender, the principal amount set forth on such DIP Lender’s signature page to this Agreement and (y) for all DIP Lenders collectively, the Maximum Commitment Amount.

(ii) Notwithstanding the provisions of Section 2.01(b)(i), if the Debtors have met all of the Plan Milestones, the DIP Lenders shall have the right, but not the obligation, to make additional DIP Loans, on and in accordance with the terms and provisions of this Agreement (as the same may be amended in connection with such additional financing), up to such aggregate amount as the DIP Lenders may agree among themselves, provided that in no event shall the aggregate amount of DIP Loans made under this Agreement exceed $3,000,000. Each DIP Lender agreeing to make additional DIP Loans shall deposit in the Escrow Account the maximum amount of additional DIP Loans it has agreed to make at the time it agrees to make such additional DIP Loans. If and to the extent that funds remain in the Escrow Account at the Maturity Date, the Administrative Agent shall return such funds to the DIP Lenders as promptly as possible thereafter, without interest, pro rata in proportion to their respective Pro Rata Shares.

(c) Borrowing Request . Borrowers shall deliver to the Administrative Agent a Borrowing Request not later than 1:00 P.M. on the day that is at least three (3) Business days prior to each proposed Funding Date. Such Borrowing Request shall specify the proposed Funding Date, which must be a Business Day and contain the other information specified in the form of Borrowing Request attached as Exhibit B-1 , together with a certification that the conditions precedent to the funding of such DIP Loan under ARTICLE V have been satisfied. Borrowers shall not deliver a Borrowing Request more frequently than once daily unless authorized by the Administrative Agent. At the Administrative Agent’s election, in lieu of delivering the above-described written request, Borrowers may give the Administrative Agent telephonic notice of such request by the required time. In such circumstance, Borrowers agree that any telephonic notice will be confirmed in writing within 24 hours of the giving of such telephonic notice, but the failure to provide such written confirmation shall not affect the validity of the request.

(d) Making the DIP Loans . The Administrative Agent shall promptly notify each DIP Lender of the amount of DIP Loans requested by Borrowers and the proposed Funding Date. Subject to the satisfaction of the conditions precedent set forth in this Agreement, including Section 2.01(b) and ARTICLE V , the Administrative Agent shall make the DIP Loans to Borrowers on behalf of the DIP Lenders on the Funding Date. A Borrowing Request given pursuant to Section 2.01(b) shall be irrevocable and binding on Borrowers, unless the Borrowing Request is not honored by the Administrative Agent.

(e) Funding of DIP Loan Commitments . Except as otherwise provided in this Section 2.01(e) , all DIP Loans under this Agreement shall be made on behalf of the DIP Lenders simultaneously and proportionately in accordance with their Pro Rata Shares. The failure of any DIP Lender to deposit the amount of its Commitment with the Administrative Agent shall not relieve any other DIP Lender of such other DIP Lender’s obligation to deposit its Commitment as provided herein nor shall the Commitment of any DIP Lender be increased or decreased as a result of any such failure.

(f) Repayment of DIP Loans . The aggregate principal amount of the DIP Loans shall be payable by Borrowers in full on the Maturity Date or upon such earlier date as the Obligations may have become due by operation of Section 3.02 , by acceleration or otherwise. Amounts borrowed pursuant to this Section 2.01 may be repaid at any time during the term of this Agreement and may not be reborrowed.

Section 2.02 Use of Proceeds . Proceeds of the DIP Loans shall be utilized to pay for the operating expenses of Borrowers (including, without limitation, payments of fees and expenses to professionals under sections 330 and 331 of the Bankruptcy Code and administrative expenses of the kind specified in section 503(b) of the Bankruptcy Code incurred in the ordinary course of business of Borrowers) and other costs and expenses of administration of the Chapter 11 Cases in accordance with the Agreed Budget and consistent with the terms and conditions hereof; provided , however , that nothing herein shall in way prejudice or prevent the Agents or the DIP Lenders from objecting, for any reason, to any requests, motions or applications made in the Bankruptcy Court, including any applications for interim or final allowances of compensation for services rendered or reimbursement of expenses incurred under clause (a) of Section 105, or Section 330 or 331 of the Bankruptcy Code, by any party in interest. For the avoidance of doubt, except as otherwise provided in the Financing Orders with respect to investigations by any official creditors’ committee appointed in the Chapter 11 Cases, no proceeds of any DIP Loans or any cash collateral shall be available for any fees or expenses incurred in connection with the initiation or prosecution of any claims, causes of action, adversary proceedings or other litigation (i) against the Agents, the DIP Lenders, the Pre-Petition Agent, or the Pre-Petition Lenders, or (ii) in connection with challenging, invalidating, disallowing, recharacterizing, setting aside, avoiding, subordinating, in whole or in part, or taking or attempting to take any other action to render unenforceable, the Pre-Petition Lender s’ or DIP Lenders’ liens, claims, interests and adequate protection, as secured creditors of Borrowers.

Section 2.03 Promise to Pay . Borrowers, jointly and severally, agree to pay (a) the principal amount of the DIP Loans in full on the Maturity Date or such earlier date as they may become due and payable, whether by operation of Section 3.02 , by acceleration or otherwise, (b) all Lender Expenses within five (5) days of presentation of an invoice therefor, (c) all unpaid interest accrued, in accordance with the terms of this Agreement and any applicable Note or such earlier date as such amounts may become due and payable, whether by acceleration or otherwise, and (d) all other Obligations when due.

Section 2.04 Notes .

(a) Borrowers’ obligation to pay the principal of, and interest on, the DIP Loans made to Borrowers by each DIP Lender shall be set forth on the Register maintained by the Administrative Agent pursuant to Section 13.08(d) and, subject to the provisions of Section 2.04(c), shall be evidenced by a Note with blanks appropriately completed in conformity herewith.

(b) The Note issued to any DIP Lender shall (i) be executed by Borrowers, (ii) be payable to such DIP Lender or its registered assigns and be dated as of the Funding Date of such DIP Loan, (iii) be in a stated principal amount equal to the principal amount of the DIP Loan of such DIP Lender on the date of the issuance thereof and be payable in the principal amount of such DIP Loan evidenced thereby from time to time, (iv) mature on the Maturity Date, (v) bear interest as provided for herein, and (vi) be entitled to the benefits of this Agreement and the other Loan Documents.

(c) Notwithstanding anything to the contrary contained above or elsewhere in this Agreement, Notes shall only be required hereunder and delivered to those DIP Lenders that at any time specifically request the delivery of such Notes. No failure of any DIP Lender to request or obtain a Note evidencing its DIP Loans to Borrowers shall affect or in any manner impair (i) the obligations of Borrowers to pay the DIP Loans (and all related Obligations) which would otherwise be evidenced thereby in accordance with the requirements of this Agreement, (ii) the Collateral provided for the Obligations pursuant to the Loan Documents, or (iii) any of the rights or remedies of any Agent or any DIP Lender under any Loan Document. At any time when any DIP Lender requests the delivery of a Note to evidence any of its DIP Loans, Borrowers shall promptly execute and deliver to that DIP Lender the requested Note in the appropriate amount or amounts to evidence such DIP Loans.

Section 2.05 Allocation of Proceeds of Collateral . In all circumstances, all proceeds of the Collateral shall be paid over or delivered to the Administrative Agent for distribution as follows:

FIRST, to the payment of all reasonable out-of-pocket costs and expenses of the Administrative Agent and the Collateral Agent (including reasonable attorneys’ fees of one counsel for both the Administrative Agent and the Collateral Agent) in connection with enforcing the rights of the Administrative Agent and the Collateral Agent under the Loan Documents, and to the payment of any fees owed to the Administrative Agent or the Collateral Agent, each in its capacity as such;

SECOND, to the payment of all reasonable out-of-pocket costs and expenses of each of the DIP Lenders (including reasonable attorneys’ fees of one counsel to separately represent the DIP Lenders) in connection with enforcing its rights under the Loan Documents, as applicable, with respect to Borrowers’ Obligations owing to such DIP Lender and to all other Lender Expenses;

THIRD, to the payment of all of Borrowers’ Obligations to the DIP Lenders consisting of accrued fees and interest;

FOURTH, to the payment of the outstanding principal amount of Borrowers’ Obligations under this Agreement and the other Loan Documents;

FIFTH, to all other of Borrowers’ Obligations under this Agreement and the other Loan Documents and other obligations to DIP Lenders which shall have become due and payable under the Loan Documents; and

SIXTH, to the payment of the surplus, if any, to Borrowers or whoever may be lawfully entitled to receive such surplus.

In carrying out the foregoing, (i) amounts received shall be applied equally and ratably in the numerical order provided until exhausted prior to the application to the next succeeding category; and (ii) each of the DIP Lenders shall receive an amount equal to its Pro Rata Share (based on the proportion that the then outstanding DIP Loans held by such DIP Lender bears to the aggregate then outstanding DIP Loans) of amounts available to be applied pursuant to clauses THIRD and FOURTH above.

Section 2.06 Liability of Borrowers .

(a) Borrowers are accepting liability hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided by the Lender Group under this Agreement, for the benefit, directly and indirectly, of Borrowers.

(b) Borrowers hereby irrevocably and unconditionally accept liability with respect to the payment and performance of all of the Obligations (including, any Obligations arising under this Section 2.06 ). The Obligations of Borrowers under the provisions of this Agreement constitute the absolute and unconditional, full recourse Obligations of Borrowers enforceable against Borrowers to the full extent of their properties and assets, irrespective of the validity, regularity or enforceability of this Agreement or any other circumstances whatsoever.

(c) Except as otherwise expressly provided in this Agreement, Borrowers hereby waive notice of acceptance of its liability, notice of any advances issued under or pursuant to this Agreement, notice of the occurrence of any Default, Event of Default, or of any demand for any payment under this Agreement, notice of any action at any time taken or omitted by the Agents or the DIP Lenders under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages, and, generally, to the extent permitted by applicable law, all demands, notices, and other formalities of every kind in connection with this Agreement (except as otherwise provided in this Agreement). Borrowers hereby assent to, and waive notice of, any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent, or other action or acquiescence by the Agents or the DIP Lenders at any time or times in respect of any default by a Borrower in the performance or satisfaction of any term, covenant, condition, or provision of this Agreement, any and all other indulgences whatsoever by the Agents or the DIP Lenders in respect of any of the Obligations, and the taking, addition, substitution, or release, in whole or in part, at any time or times, of any security for any of the Obligations. Without limiting the generality of the foregoing, Borrowers assent to any other action or delay in acting or failure to act on the part of any Agent or DIP Lender with respect to the failure by Borrowers to comply with any of its Obligations, including any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this Section 2.06 , afford grounds for terminating, discharging, or relieving a Borrower, in whole or in part, from any of its Obligations under this Agreement. The intention of Borrowers is that, so long as any of the Obligations hereunder remain unsatisfied, the Obligations of Borrowers under this Agreement shall not be discharged except by performance and then only to the extent of such performance. The Obligations of each Borrower under this Section 2.06 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction, or similar proceeding with respect to any Agent or DIP Lender.

(d) Borrowers further represent and warrant to the Agents and the DIP Lenders that Borrowers have read and understand the terms and conditions of the Loan Documents. Each Borrower hereby covenants that it will continue to keep informed of the financial condition of the other Borrower and any guarantor of the Obligations and of all other circumstances that bear upon the risk of nonpayment or nonperformance of the Obligations.

(e) Borrowers waive all rights and defenses arising out of an election of remedies by the Agents or any DIP Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed such Agent’s or such DIP Lender’s rights of subrogation and reimbursement against Borrowers under applicable law.

(f) The provisions of this Section 2.06 are made for the benefit of the Agents, the DIP Lenders and their respective successors and assigns, and may be enforced by it or them from time to time against either Borrower as often as occasion therefor may arise and without requirement on the part of any such Agent, DIP Lender, successor, or assign first to marshal any of its or their claims or to exercise any of its or their rights against the other Borrower or to exhaust any remedies available to it or them against any guarantor or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this Section 2.06 shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations is rescinded or must otherwise be restored or returned by any Agent or DIP Lender upon the insolvency, bankruptcy, or reorganization of either Borrower, or otherwise, the provisions of this Section 2.06 will forthwith be reinstated in effect, as though such payment had not been made.

ARTICLE III
PAYMENTS AND OTHER COMPENSATION; EXIT FINANCING

Section 3.01 No Voluntary Prepayment . Borrowers shall not be entitled to pay all or any portion of the DIP Loans at any time prior to the Maturity Date.

Section 3.02 Mandatory Payments.

(a) Prepayments from Asset Dispositions and Insurance Proceeds . Within one (1) Business Day after the receipt by a Borrower or any subsidiary of a Borrower of any Net Cash Proceeds or Net Insurance Proceeds, Borrowers shall pay an amount equal to 100% of the Net Cash Proceeds or Net Insurance Proceeds received to the Administrative Agent.

(b) Prepayments from Loan Proceeds . On the day of receipt by a Borrower of the net cash proceeds of any Indebtedness incurred by Borrowers (other than a DIP Loan incurred pursuant to this Agreement), Borrowers shall pay to the Administrative Agent (i) an amount equal to 100% of such net cash proceeds as a prepayment of the DIP Loans and (ii) an amount equal to 5% of the amount paid in accordance with clause (i) above as a loan proceeds prepayment penalty.

(c) Application of Proceeds . Subject to Section 2.05 , all payments under this Section 3.02 shall be applied to the remaining installments of the Funded DIP Loans in the inverse order of maturity thereof until all of the Funded DIP Loans are repaid in full.

Section 3.03 Payments.

(a) General Provisions . All payments to be made by Borrowers shall be made without set-off, counterclaim or other defense. Except as otherwise expressly provided herein, all payments by Borrowers shall be made to the Administrative Agent for the ratable account of the relevant DIP Lender, Pre-Petition Lenders, Agent, or Pre-Petition Agent, as the case may be, at the Administrative Agent’s office or by wire transfer to such account or accounts as the Administrative Agent shall direct, and shall be made in immediately available funds, no later than 2:00 p.m., on the dates specified herein, as the case may be, to be reimbursed. The Administrative Agent will promptly distribute to the relevant DIP Lender, Pre-Petition Lenders, Agent, or Pre-Petition Agent its applicable share as provided herein or in the Financing Orders, of each such payment in like funds as received. Any payment received by the Administrative Agent later than 2:00 p.m. on any Business Day shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(b) Sharing of Payments . Except as otherwise provided herein, if any DIP Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of any Obligation in excess of its ratable share of payments on account of similar obligations obtained by all the DIP Lenders, such DIP Lender shall forthwith purchase from the other DIP Lenders such participations in such similar obligations held by them as shall be necessary to cause such purchasing DIP Lender to share the excess payment ratably with each of them; provided , however , that if all or any portion of such excess payment is thereafter recovered from such purchasing DIP Lender, such purchase from each other DIP Lender shall be rescinded and each such other DIP Lender shall repay to the purchasing DIP Lender the amount of the purchase made under this Section 3.03(b) to the extent of such recovery together with an amount equal to such other DIP Lender’s ratable share (according to the proportion of (i) the amount of such DIP Lender’s required repayment to (ii) the total amount so recovered from the purchasing DIP Lender of any interest or other amount paid by the purchasing DIP Lender in respect of the total amount so recovered). Borrowers agree that any DIP Lender so purchasing a participation from another DIP Lender pursuant to this Section 3.03(b) may, to the fullest extent permitted by law, exercise all of its rights (including the DIP Lender’s right of set-off) with respect to such participation as fully as if such DIP Lender were the direct creditor of Borrowers in the amount of such participation.

(c) Apportionment of Payments . Subject to the provisions of Section 2.05 , Section 3.01 , Section 3.02 and this Section 3.03(c) , all payments of principal and interest in respect of outstanding DIP Loans, and all other payments in respect of any Obligations, shall be allocated among the DIP Lenders in proportion to their respective Pro Rata Shares of such Obligations unless otherwise specified in this Agreement, in any other Loan Document, or the Financing Orders.

(d) Payments on Non-Business Days . Whenever any payment to be made by Borrowers hereunder or under the Notes is stated to be due on a day which is not a Business Day, the payment shall instead be due on the next succeeding Business Day (unless such succeeding Business Day would be in the subsequent calendar quarter, in which case such payment shall be made on the immediately preceding Business Day).

Section 3.04 Taxes .

(a) Payment of Taxes . Except as set forth below, any and all payments by Borrowers hereunder, under the Notes or under any other Loan Document shall be made free and clear of and without deduction for any and all Indemnified Taxes. If Borrowers shall be required by law to withhold or deduct any Indemnified Taxes from or in respect of any sum payable hereunder, under the Notes or under any other Loan Document to any DIP Lender or Agent, (x) such sum payable shall be increased by an additional amount so that after making all required withholdings or deductions (including withholdings or deductions applicable to additional amounts payable under this Section 3.04(a) ) such DIP Lender or Agent receives an amount equal to the sum it would have received had no such withholdings or deductions been made, (y) Borrowers shall make such withholdings or deductions, and (z) Borrowers shall pay the full amount withheld or deducted to the relevant taxation authority or other authority in accordance with Applicable Law.

(b) Other Taxes . Borrowers agree to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from and which relate directly to the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes or any other Loan Document, including all such amounts related to the creation, perfection or maintenance of the interests of the Agents and the DIP Lenders in the Collateral and all interest and penalties related thereto (“ Other Taxes ”).

(c) Indemnification . Borrowers will indemnify each DIP Lender and each Agent against, and reimburse each, within five (5) days of a receipt of written demand therefor, for the full amount of all Indemnified Taxes and Other Taxes (including any Indemnified Taxes or Other Taxes imposed by any Governmental Authority on amounts payable to such Agent or DIP Lender under this Section 3.04(c) ) incurred or paid by such DIP Lender or such Agent (as the case may be), or any Affiliate of such DIP Lender or Agent on or with respect to any payment by or on account of any Obligation, and any penalties, interest, and reasonable out-of-pocket expenses paid to third parties arising therefrom or with respect thereto. A certificate as to any amount payable to any Person under this Section 3.04(c) submitted by such Person to Borrowers shall, absent manifest error, be final, conclusive and binding upon all parties hereto.

(d) Receipts . Within thirty (30) days after a request from the Administrative Agent, Borrowers will furnish to the Administrative Agent the original or a certified copy of a receipt, if available, or other reasonably available documentation reasonably satisfactory to the Administrative Agent evidencing payment of such Indemnified Taxes or Other Taxes (including in respect of payments of additional amounts) required to be paid by Borrowers pursuant to this Section 3.04 .

(e) Resident Certifications . Each DIP Lender that is a United States Person (as defined in Section 7701(a)(30) of the Code) and is not an “exempt recipient” (as such term is defined in Section 1.6049-4(c)(1)(ii) of the United States Treasury Regulations) and each DIP Lender that is not a United States Person (as so defined) shall deliver to Borrowers and the Administrative Agent on or prior to the Closing Date, or, in the case of a DIP Lender that becomes a DIP Lender pursuant to Section 13.08 hereof, on or prior to the date on which such DIP Lender becomes a DIP Lender pursuant to Section 13.08 hereof, two original copies of IRS Form W-9 (in the case of a United States Person) or of an appropriate IRS Form W-8 (in the case of a Person that is not a United States Person), or, in either case, any successor forms, properly completed and duly executed by such DIP Lender, and such other documentation reasonably requested by Borrowers or the Administrative Agent.

(f) Refunds and Tax Benefits . If a DIP Lender or Agent becomes aware that it is entitled to claim a refund from a Governmental Authority in respect of Indemnified Taxes or Other Taxes as to which it has been indemnified by Borrowers or with respect to which Borrowers have paid additional amounts pursuant to Section 3.04(a) or (c) , it shall make reasonable efforts to timely claim to such Governmental Authority for such refund at Borrowers’ expense, provided that, in the determination of such DIP Lender or Agent, it does not prejudice the interests of such DIP Lender or Agent. If a DIP Lender or Agent actually receives a payment of a refund (including pursuant to a claim for refund made pursuant to the preceding sentence) in respect of any Indemnified Tax or Other Tax as to which it has been indemnified by Borrowers or with respect to which Borrowers have paid additional amounts pursuant to Section 3.04(a) or (c) , it shall within thirty (30) days from the date of such receipt pay over the amount of such refund to Borrowers, net of all reasonable out-of-pocket expenses of such DIP Lender or Agent and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund); provided that Borrowers, upon the request of such DIP Lender or Agent, agree to repay the amount paid over to a Borrower (plus penalties, interest or other reasonable charges) to such DIP Lender or Agent in the event such DIP Lender or Agent is required to repay such refund to such Governmental Authority.

(g) Borrowers shall not be required to indemnify or to pay any additional amounts to the DIP Lender or Agent with respect to Indemnified Taxes pursuant to Section 3.04(a) to the extent that any obligation to withhold, deduct or pay amounts with respect to such Indemnified Tax was in effect and would apply to amounts payable on the date that such DIP Lender or Agent became a party to this Agreement.

(h) Without affecting its rights under Section 3.04(a) or any provision of this Agreement, each DIP Lender and each Agent agrees that if any Indemnified Taxes or Other Taxes are imposed and required by law to be paid or to be withheld from any amount payable to any DIP Lender or Agent with respect to which Borrowers would be obligated to indemnify such DIP Lender or Agent pursuant to Section 3.04(c) , such DIP Lender or Agent shall use reasonable efforts to select an alternative lending office which would not result in the imposition of such Indemnified Taxes or Other Taxes, provided that such change in the good faith judgment of such DIP Lender is not otherwise disadvantageous to such DIP Lender.

Section 3.05 Exit Financing . On the Closing Date, Borrowers shall grant to the Arranger or its assignee(s) an exclusive right, during the period commencing on the Closing Date and ending on the first anniversary of the Closing Date, to procure for Borrowers an exit financing or post-emergence financing acceptable to Borrowers and the Instructing Group, on such terms and conditions (including compensation to the Arranger) as Borrowers and the Arranger shall agree, provided that the exclusivity of the Arranger’s right to procure any such financing shall not apply, and Borrowers shall be free to engage one or more other Persons to procure such financing for Borrowers, so long as Arranger is entitled to participate with such other Person(s) as a co-arranger or co-placement agent on an equal and pari passu basis.

ARTICLE IV
INTEREST AND FEES

Section 4.01 Interest on the DIP Loans and Other Obligations .

(a) Interest on DIP Loans . On each Interest Payment Date from the Funding Date of such DIP Loan through and including the date such Funded DIP Loan is repaid in full, interest shall accrue at the Interest Rate and Borrowers agree to pay all such accrued interest on the Maturity Date. Any interest so accrued shall bear interest at the Interest Rate from the date of accrual and Borrowers agree to pay all such accrued interest on the Maturity Date. All computations of interest hereunder shall be made on the actual number of days elapsed over a year of 360 days.

(b) Default Interest . So long as any Event of Default shall be continuing, the rate of interest applicable to the DIP Loans then outstanding or due and owing and any other amount bearing interest hereunder shall each be increased by 8% per annum above the Interest Rate otherwise applicable to the applicable DIP Loans.

(c) Maximum Interest . Notwithstanding anything to the contrary set forth in this Section 4.01 , if at any time until payment in full of the DIP Loans, the interest rate payable on any DIP Loans exceeds the highest rate of interest permissible under any law which a court of competent jurisdiction shall deem applicable hereto (the “ Highest Lawful Rate ”), then in such event and only for so long as the Highest Lawful Rate would be so exceeded, the rate of interest payable on such DIP Loans shall be equal to the Highest Lawful Rate. Thereafter, the interest rate payable on such DIP Loans shall be the applicable interest rate pursuant to Sections 4.01(a) and (b) unless and until such rate again exceeds the Highest Lawful Rate, in which event this paragraph shall again apply. In no event shall the total interest received by any DIP Lender for any DIP Loans pursuant to the terms hereof exceed the amount which it could lawfully have received for such DIP Loans had the interest due hereunder for such DIP Loans been calculated for the full term thereof at the Highest Lawful Rate. Interest on the Highest Lawful Rate shall be calculated at a daily rate equal to the Highest Lawful Rate divided by the number of days in the year in which such calculation is made. In the event that a court of competent jurisdiction shall make a determination that, notwithstanding the provisions of this Section 4.01(c) , a DIP Lender has received interest hereunder or under any of the Loan Documents in excess of the Highest Lawful Rate, such DIP Lender shall, to the extent permitted by Applicable Law, promptly apply such excess first to any interest due or accrued and not yet paid under the DIP Loans, then to the outstanding principal of the DIP Loans, then to other unpaid Obligations and thereafter shall refund any excess to Borrowers or as a court of competent jurisdiction may otherwise order.

Section 4.02 Change in Law; Illegality .

(a) If the adoption or implementation of, or any change in (or the interpretation, administration or application of), any Applicable Law shall, in each case after the date hereof, (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any DIP Lender or (ii) impose on any DIP Lender any other condition affecting this Agreement and the result of any of the foregoing under (i) or (ii) of this Section 4.02(a) shall be to increase the cost to such DIP Lender of maintaining any DIP Loan or to reduce the amount of any sum received or receivable by such DIP Lender hereunder (whether of principal, interest or otherwise), then Borrowers will pay to such DIP Lender such additional amount or amounts as will compensate such DIP Lender for such additional costs incurred to the extent that such DIP Lender reasonably determines that such increase in cost be allocable to the existence of such DIP Lender’s DIP Loans or its commitment to lend hereunder.

(b) If any DIP Lender reasonably determines that the introduction of or any change in any Applicable Law regarding capital requirements, in each case after the date hereof, has or would have the effect of reducing the rate of return on such DIP Lender’s capital as a consequence of this Agreement or the DIP Loans made by such DIP Lender to a level below that which such DIP Lender could have achieved but for such change in the Applicable Law (taking into consideration such DIP Lender’s policies with respect to capital adequacy), then from time to time Borrowers will pay to such DIP Lender such additional amount or amounts as will compensate such DIP Lender for any such reduction suffered to the extent that such DIP Lender reasonably determines that such additional amounts are allocable to the existence of such DIP Lender’s DIP Loans or its commitment to lend hereunder.

(c) A certificate of a DIP Lender setting forth in reasonable detail the amount or amounts necessary to compensate such DIP Lender as specified in paragraph (a) or (b) of this Section 4.02 shall be delivered to Borrowers and shall be binding and conclusive for all purposes, so long as it reflects the basis for the calculation of the amounts set forth therein and does not contain any manifest error. Borrowers shall pay such DIP Lender the amount shown as due on any such certificate within ten days after receipt thereof. Notwithstanding the foregoing, (i) the applicable DIP Lender shall take such actions (including changing the office of location of the funding of the DIP Loans) that Borrowers may reasonably request in order to reduce the amounts payable under Section 4.02(a) or (b) , provided that Borrowers shall reimburse such DIP Lender for any costs incurred by such DIP Lender in doing so to the extent that such DIP Lender reasonably determines that such costs are allocable to Borrowers with respect to the existence of such DIP Lender’s DIP Loans or commitment to lend hereunder and provided further that such DIP Lender shall only be required to take such actions if it determines in good faith that such actions would not be disadvantageous to it, and (ii) Borrowers shall not be required to compensate a DIP Lender under Section 4.02(a) and (b) for any costs or additional amounts arising more than 180 days prior to the date that such DIP Lender notifies Borrowers of the event giving rise to such costs and amounts of such DIP Lender’s intention to claim compensation therefor and, if the event giving rise to such increased costs and amounts is retroactive, then the 180-day period referred to in this clause (ii) shall be extended to include the period of retroactive effect thereof.

Section 4.03 Legal Counsel Fees . The Borrowers shall pay all fees of legal counsel to the Administrative Agent if, as and when such fees and/or expenses are incurred.

Section 4.04 Administrative Agent Fee . Borrowers shall pay to the Administrative Agent (a) on the Closing Date, the amount of $10,000 and (b) after the Closing Date an amount equal to the greater of (i) $2,500 per month or (ii) $2,500 for each Borrowing Request submitted to the Administrative Agent under this Agreement.

Section 4.05 Arranging Agent Fee . On the Closing Date, (a) Borrowers shall pay to the Arranger an amount equal to ten percent (10%) of the aggregate amount of Commitments of the DIP Lenders not arranged by any Sub-Arranger and (b) to the extent that any Sub-Arranger has arranged for a Commitment, Borrowers shall pay (i) to such Sub-Arranger an amount equal to eight percent (8%) of the aggregate amount of Commitments arranged by such Sub-Arranger and (ii) to the Arranger two percent (2%) of such Commitments. In addition, Borrowers shall pay any fees required by FINRA in connection with any underwriter confirmation filing under FINRA Rule 2710 made by the Arranger in connection with arranging for Persons to make DIP Loans under this Agreement.

ARTICLE V
CONDITIONS TO LOANS

Section 5.01 Conditions Precedent to the Initial Extension of Credit . The obligation of each DIP Lender to make DIP Loans requested to be made on the Closing Date shall be subject to the satisfaction, or waiver by the Administrative Agent, of all of the following conditions precedent:

(a) Loan Documents . The Administrative Agent shall have received, on the Closing Date, counterparts of this Agreement and the other Loan Documents, duly executed and delivered by each party thereto, and such Loan Documents shall be in full force and effect and in form and substance satisfactory to the Administrative Agent.

(b) Perfection of Liens and Security . All Obligations shall be secured by, and the Collateral Agent, for the ratable benefit of the Secured Parties, shall have a security interest in, the Collateral with the priority provided in the Interim Order or Final Order and Article X hereof.

(c) Chapter 11 Cases . The commencement of the Chapter 11 Cases and the borrowings and other transactions contemplated hereunder and by the other Loan Documents shall have been duly authorized by the Debtors, the Chapter 11 Cases shall have been commenced by the Debtors and the same shall each be a debtor, and Debtor shall be a debtor-in-possession, thereunder, the Chapter 11 Cases shall not have been dismissed and no order shall have been entered in the Chapter 11 Cases that has not been consented to by the Instructing Group. All of the First Day Orders sought to be entered at the time of the commencement of the Chapter 11 Cases shall be in form and substance satisfactory to the Administrative Agent.

(d) Entry of Financing Orders . The Interim Order or the Final Order, as applicable, shall have been entered by the Bankruptcy Court.

(e) Authorization; Enforceability . Except for the Chapter 11 Cases, there shall exist (i) no order, decree, judgment, ruling, injunction, writ, temporary restraining order or other order of any nature issued by any court or Governmental Authority or (ii) no action, suit, proceeding, investigation, litigation, claim, dispute or proceeding, pending, or, to the knowledge of Borrowers, threatened, at law or in equity, in arbitration or before any Governmental Authority by or against or affecting either Borrower or against any of its properties or revenues, in each case, that (A) purports to affect, pertain to or enjoin or restrain the execution, delivery and performance of the Loan Documents or any transactions contemplated hereby or thereby, (B) either individually or in the aggregate, if determined adversely, could reasonably be expected to have a Material Adverse Effect or (C) purports to affect the legality, validity or enforceability of any Loan Document or the consummation of the transactions contemplated hereby or thereby.

(f) Fees and Expenses Paid . There shall have been paid to the Administrative Agent, for the account of the Collateral Agent and the respective accounts of the DIP Lenders, all fees required under the Loan Documents and all Lender Expenses as set forth in the Interim Order and the Final Order.

(g) Agreed Budget . The DIP Lenders shall have received, and the Instructing Group shall be satisfied with the Agreed Budget.

(h) Organization and Good Standing . The Administrative Agent shall have received such documents and certifications as the Administrative Agent may reasonably require to evidence that Borrowers are duly organized or formed, validly existing and in good standing in the jurisdiction of its organization.

(i) Insurance . The Administrative Agent shall have received (A) evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in full force, (B) delivery of endorsements and certificates naming the Administrative Agent as loss payee on all property insurance and the Administrative Agent for the benefit of the DIP Lenders as additional insured under all liability insurance, and (C) copies of all policies of insurance to the extent reasonably requested by the Administrative Agent.

(j) Equity Interests . The Administrative Agent shall have received original certificates evidencing all of the issued and outstanding shares of certificated capital stock or other certificated Equity Interests required to be pledged pursuant to this Agreement, which certificates shall be accompanied by undated stock powers duly executed in blank by each relevant pledgor in favor of the Administrative Agent.

(k) UCC Requests for Information or Copies . If so requested by the Administrative Agent, the Administrative Agent shall have received certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-11) or similar search reports certified by a party acceptable to the Administrative Agent, dated a date reasonably near (but prior to) the Closing Date, listing all effective UCC financing statements, tax liens and judgment liens which name Borrowers, as the debtor, and which are filed in the jurisdictions in which Borrowers are organized or has any property or assets, and in such other jurisdictions as the Administrative Agent may reasonably request, together with copies of such financing statements (none of which (other than financing statements filed pursuant to the terms hereof in favor of the Administrative Agent, if such Form UCC-11 or search report, as the case may be, is current enough to list such financing statements) shall cover any of the Collateral, other than Liens existing on the Closing Date and listed on Schedule P ).

(l) UCC Financing Statements . If so requested by the Collateral Agent, the Collateral Agent shall have received UCC financing statements in proper form for filing naming each Borrower as the debtor and the Collateral Agent as the secured party, for filing under the UCC of all jurisdictions as may be necessary or, in the opinion of the Collateral Agent, reasonably desirable to perfect the first priority security interest of the Collateral Agent pursuant to this Agreement, and the Collateral Agent is hereby authorized to file any UCC financing statements and amendments thereto, in such filing offices, as the Collateral Agent shall deem necessary or desirable to perfect or maintain the perfection of such security interest.

(m) Further Assurances . The Administrative Agent shall have received such other assurances, certificates, documents, consents and waivers, estoppel certificates, or opinions as the Administrative Agent or the Instructing Group reasonably may require.

(n) Representations and Warranties . As of the Closing Date, both before and after giving effect to the DIP Loans funded on the Closing Date, all of the representations and warranties of Borrowers contained in ARTICLE VI and in the other Loan Documents shall be true and correct in all material respects (except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date).

(o) No Defaults . As of the Closing Date, no Default or Event of Default shall have occurred and be continuing or would result from the execution and delivery of, or the performance under, the Loan Documents, or making the requested DIP Loans on the Closing Date or the application of the proceeds therefrom.

If the Closing Date shall not have occurred on or before June 16, 2009 or such later date to which the Instructing Group may agree in its sole discretion, the Commitments shall immediately terminate.

Section 5.02 Conditions to all Extensions of Credit . The obligation of each DIP Lender to make any extension of credit hereunder shall be subject to the satisfaction, or waiver by the Administrative Agent, of all of the following conditions precedent:

(a) The representations and warranties of Borrowers contained in Article VI or any other Loan Document shall be true and correct in all material respects on and as of the applicable Funding Date except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date.

(b) No Default or Event of Default shall exist, or would result from such DIP Loan or from the application of the proceeds thereof.

(d) The Interim Order, in the case of DIP Loans made on the Closing Date and prior to the Entry Date, or the Final Order, in the case of DIP Loans made after the Entry Date, shall be in full force and effect and shall not have been revised, modified, amended or stayed, except for such modifications or amendments as may be reasonably acceptable to the Administrative Agent and the Instructing Group.

(e) Each Borrowing Request submitted by Borrowers shall be deemed to be a representation and warranty that the conditions specified in Sections 5.02(a) , (b) and (d) have been satisfied on and as of the applicable Funding Date.

ARTICLE VI
REPRESENTATIONS AND WARRANTIES

Section 6.01 Representations and Warranties of Borrowers . In order to induce the DIP Lenders to enter into this Agreement and to make or fund each DIP Loan, Borrowers hereby, jointly and severally, represent and warrant as follows:

(a) Organization; Good Standing . Each Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has upon entry of the Interim Order and the Final Order, as the case may be, all requisite power and authority to conduct its business as now conducted and as presently contemplated, to make the borrowings hereunder, to execute and deliver each Loan Document to which it is a party, and to consummate the transactions contemplated thereby, and (iii) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or the transaction of its business makes such qualification necessary for its business as currently conducted.

(b) Authorization . The execution, delivery and performance by each Borrower of each Loan Document to which it is or will be a party and the transactions contemplated thereunder (i) have been duly authorized by all necessary corporate action, subject to the entry of the Interim Order or Final Order, as applicable, (ii) do not and will not contravene its Governing Documents, and (iii) do not and will not violate any Requirements of Law except where failure to do so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

(c) Governmental Approvals . Except for the Interim Order and the Final Order, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority that has not been obtained is required in connection with the due execution, delivery and performance by each Borrower of each Loan Document to which it is a party.

(d) Enforceability of Loan Documents . Subject to the entry of the Interim Order and the Final Order, as applicable, each of the Loan Documents to which a Borrower is a party has been duly executed and delivered by such Borrower and constitutes the legal, valid and binding obligation of such Borrower, enforceable against such Borrower in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, or by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity).

(e) Subsidiaries . Neither Borrower has Subsidiaries other than those listed on Schedule 6.01(e) hereto.

(f) Compliance with Law . Neither Borrower is in violation of its Governing Documents, any Requirements of Law, any judgment or order of any Governmental Authority applicable to it or any of its property or assets, except for any such violations which, individually or in the aggregate, have not had and could not reasonably be expected to have a Material Adverse Effect.

(g) ERISA . Neither Borrower nor any ERISA Affiliate has (i) any “accumulated funding deficiency” (within the meaning of Section 412 of the Code and Section 302 of ERISA), whether or not waived, with respect to any Benefit Plan, (ii) failed to make any contribution or payment to any Benefit Plan which has resulted, or could reasonably be expected to result, in the imposition of a Lien or the posting of a bond or other security under Section 302(f) of ERISA or Section 401(a)(29) of the Code, (iii) incurred, or is reasonably likely to incur, any material liability under Title IV of ERISA (other than a liability to the PBGC for premiums under Section 4007 of ERISA), or (iv) violated any provision of ERISA that individually or in the aggregate can reasonably be expected to result in a material liability to a Borrower. Neither Borrower nor any ERISA Affiliate participates in or is obligated to contribute to a Multiemployer Plan or any Plan other than a Benefit Plan, except as specified on Schedule 6.01(g) .

(h) Taxes . All material federal, state, foreign and local tax returns and other material reports required by Applicable Law to be filed by either Borrower have been filed, or extensions have been obtained, except to the extent subject to a Permitted Protest, and all material taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon either Borrower and upon its properties, assets, income, businesses and franchises that are due and payable have been paid when due and payable; provided , however , that such taxes, assessments or governmental charges referred to above need not be paid to the extent such taxes, assessments or governmental charges are being contested pursuant to a Permitted Protest and failure to do so could not individually or in the aggregate reasonably be expected to result in a Material Adverse Effect.

(i) Margin Regulations . No proceeds of any DIP Loan will be used for any purpose that violates, or which is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System of the United States, as in effect from time to time.

(j) Properties . Borrowers have good and marketable title to, or valid leasehold interests (in the case of leasehold interests in real or personal property) in, all property and assets material to their business, free and clear of all Liens except Permitted Encumbrances.

(k) Real Estate . As of the Closing Date, Schedule 6.01(k) contains a true, accurate and complete list of (i) all Real Estate Assets, and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Estate Asset of a Borrower, regardless of whether a Borrower is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Except as provided on Schedule 6.01(k) , each agreement listed in clause (ii) of the immediately preceding sentence is in full force and effect and Borrowers have no knowledge of any default that has occurred and is continuing thereunder, and each such agreement constitutes the legally valid and binding obligation of the Borrower party thereto, enforceable against such Borrower in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles.

(l) Full Disclosure . None of the reports, financial statements, certificates or other written information furnished by or on behalf of Borrowers to the Administrative Agent or the Collateral Agent under this Agreement or any other Loan Document in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in the light of the circumstances under which it was made, not misleading; provided that to the extent any such reports, financial statements, certificates or other written information therein was based upon or constitutes a forecast, Borrowers represent only that Borrowers acted in good faith and utilized assumptions believed by it to be reasonable at the time made (it being understood that any such forecasts are subject to significant uncertainties and contingencies, many of which are beyond Borrowers’ control, that no assurance can be given that any such forecasts will be realized and that actual results may differ from any such forecasts and such differences may be material). As of each Funding Date, there are no contingent liabilities or obligations that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(m) Environmental Matters . Except as set forth on Schedule 6.01(m) and except for such events that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (i) the operations of Borrowers have at all times been in compliance with applicable Environmental Laws; (ii) there has been no Release by a Borrower, or, to the knowledge of Borrowers, by any other Person, on, in, at, to, from or under any of the properties currently or formerly owned or operated by a Borrower or a predecessor in interest that could reasonably be expected to result in any Environmental Liabilities and Costs to a Borrower; (iii) no Environmental Action has been asserted against a Borrower or any predecessor in interest which is unresolved, nor are there any threatened or pending Environmental Actions against a Borrower or any predecessor in interest; (iv) to Borrowers’ knowledge no Environmental Action has been asserted against any facilities that may have received Hazardous Materials generated by Borrowers or any predecessor in interest; (v) Borrowers are not subject to any order, decree, injunction or other arrangement with any Governmental Authority or any indemnity or other agreement with any third party relating to any Environmental Law; and (vi) to Borrowers’ knowledge there are no other circumstances or conditions involving Borrowers that could reasonably be expected to result in any Environmental Actions or Environmental Liabilities and Costs including any restriction on the ownership, use, or transfer of any property in connection with any Environmental Law. Borrowers have delivered to the Administrative Agent copies of all environmental reports, studies, assessments, sampling data and other environmental information in its possession relating to either Borrower and their current and former properties and operations.

(n) Insurance . Borrowers keep their property adequately insured and maintain (i) insurance to such extent and against such risks, including fire, as is customary with companies in the same or similar businesses, (ii) workmen’s compensation insurance in the amount required by Applicable Law, (iii) public liability insurance, which includes product liability insurance, but only to the extent and in the amount customary with companies in the same or similar business against claims for personal injury or death on properties owned, occupied or controlled by it, and (iv) such other insurance as may be required by law (including against larceny, embezzlement or other criminal misappropriation). Schedule 6.01(n) sets forth a list of all insurance maintained by Borrowers on the Closing Date.

(o) Location of Bank Accounts . Schedule 6.01(o) sets forth a complete and accurate list as of each Funding Date of all Deposit Accounts and Securities Accounts of Borrowers, together with a description thereof (i.e., the bank or securities firm at which such Deposit Account or Securities Account is maintained and the account number and the purpose thereof). Except to the extent specified in Schedule 6.01(o) , the Collateral Agent has a control agreement for each such Securities Account.

(p) Intellectual Property . Schedule 6.01(p) sets forth (i) a true and complete list of all Registered Intellectual Property and all material unregistered Intellectual Property owned by either Borrower, except for Trade Secrets, indicating for each Registered item the registration or application number and the applicable filing jurisdiction and (ii) all material Intellectual Property Contracts. Borrowers exclusively own (beneficially and of record, where applicable) all right, title and interest in and to all Registered Intellectual Property set forth on Schedule 6.01(p) free and clear of all Liens other than such exceptions as may be set forth in Schedule 6.01(p) and owns or has rights in and to all other Intellectual Property material to or used in the business of Borrowers free and clear of all Liens other than Permitted Encumbrances. Neither the Registered Intellectual Property set forth on Schedule 6.01(p) , any other Intellectual Property owned by Borrowers nor, to Borrowers’ knowledge, any other Intellectual Property material to or used in the business of Borrowers is subject to any outstanding holding, order, judgment, award or decree adversely affecting Borrowers’ use thereof or its rights thereto or questioning, canceling or limiting the validity of any such Intellectual Property and: (i) to the knowledge of Borrowers, all of the rights of Borrowers in and to such Intellectual Property is valid, subsisting and enforceable; (ii) to the knowledge of Borrowers, neither the Registered Intellectual Property nor the conduct of Borrowers infringes, dilutes, misappropriates or otherwise violates the rights of any third party and no third party is infringing the Registered Intellectual Property or any other Intellectual Property material to the business of Borrowers; (iii) Borrowers have sufficient rights to use all material Intellectual Property used in their business; and (iv) there is no litigation, arbitration, opposition, cancellation, proceeding, objection or claim pending, or, to the knowledge of Borrowers, asserted or threatened against Borrowers concerning the ownership, validity, registerability, enforceability, infringement or use of, or licensed right to use, any Registered Intellectual Property or any other material Intellectual Property owned by Borrowers or, to their knowledge, any other material Intellectual Property.

(q) Holding Company and Investment Company Acts . Neither Borrower is, or is controlled by, an “investment company” as such term is defined in the Investment Company Act of 1940, as amended.

(r) Secured, Super-priority Obligations .

(i) On and after the Closing Date, upon entry of the Interim Order or the Final Order, as applicable, the provisions of the Loan Documents, the Interim Order and the Final Order are effective to create in favor of the Collateral Agent for the benefit of the DIP Lenders, legal, valid and perfected Liens on and security interests (having the priority provided for herein, in the Interim Order and in the Final Order) in all right, title and interest in the Collateral expressed to be secured by the Loan Documents, enforceable against the Debtors.

(ii) Pursuant to Sections 364(c)(2) and (c)(3) and 364(d)(1) of the Bankruptcy Code, all Obligations shall be secured by, and the Agent, for the ratable benefit of the Secured Parties, shall have a security interest in, the Collateral with the priority provided in the Interim Order or Final Order and Article X hereof.

(s) Foreign Assets Control Regulations . Neither the execution and delivery of, nor the borrowing under any Loan Document, nor the use of proceeds from any DIP Loan will violate (i) the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto, (ii) the Patriot Act, or (iii) Executive Order No. 13,224, 66 Fed. Reg. 49,079 (2001), issued by the President of the United States (Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism). Without limiting the foregoing, neither Borrower is or will become a “blocked person” as described in Section 1 of such Executive Order or engages or will engage in any dealings or transactions with, or is otherwise associated with, any such blocked person.

(t) Agreed Budget . Attached to this Agreement as Exhibit F-1 is a true and complete copy of the Agreed Budget.

Section 6.02 DIP Lenders Accredited Investors . Each DIP Lender, for itself only and not with respect to any other DIP Lender, hereby represents and warrants to the Borrowers and the Agents that it is an “accredited investor” as that term is defined in Rule 501 promulgated under the Securities Act of 1933, as amended.

ARTICLE VII
REPORTING COVENANTS

Borrowers, jointly and severally, covenant and agree that, from and after the date hereof (except as otherwise provided herein, or unless the Instructing Group has given their prior written consent) until all amounts owing hereunder or under any Loan Document or in connection herewith or therewith have been paid in full:

Section 7.01 Financial Statements . Borrowers (i) shall keep proper books of record and account, in which true and correct entries shall be made of all material financial transactions and the assets and business of Borrowers and (ii) shall maintain a system of accounting established and administered in accordance with sound business practices to permit preparation of consolidated financial statements in conformity with GAAP, and each of the financial statements described below (collectively, the “ Financial Statements ”) shall be prepared from such system and records. Borrowers shall deliver or cause to be delivered to the Administrative Agent:

(a) Weekly Reports . As soon as available, but in any event no later than Friday of the second week of every two-week period, (i) a statement of cash flow for such period, (ii) a report of expected presentments by cost category and a list of checks expected to clear by date for the current week together with a reconciliation to the outstanding float, (iii) a liquidity summary setting forth expected sales, cash receipts, check and wiring disbursements by cost category with reconciliations for book cash, DIP Loans, availability, bank cash and check float, and (iv) a variance report reflecting the actual cash receipts and disbursements for such period, showing a reconciliation and the percentage variance of actual receipts and disbursements from those reflected in the Agreed Budget for such period, all certified by a Responsible Officer of Borrowers.

(b) Monthly Reports . As soon as available, but in any event within twenty (20) days after the end of each Fiscal Month, financial information regarding Borrowers, certified by a Responsible Officer of Borrowers, including (i) unaudited balance sheets as of the close of such Fiscal Month and the related statements of income and cash flow for that portion of the Fiscal Year ending as of the close of such Fiscal Month and (ii) unaudited statements of income and cash flows for such Fiscal Month, in each case setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the forecasts for such Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end adjustments and except that such reports shall be without footnotes).

(c) Quarterly Reports . As soon as available, but in any event within twenty (20) days after the end of each Fiscal Quarter in each Fiscal Year (excluding the last Fiscal Quarter of each Fiscal Year), financial information regarding Borrowers, certified by a Responsible Officer of Borrowers, including (i) unaudited balance sheets as of the close of such Fiscal Quarter and the related statements of income and cash flow for that portion of the Fiscal Year ending as of the close of such Fiscal Quarter and (ii) unaudited statements of income and cash flows for such Fiscal Quarter, in each case setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the forecasts for such Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end adjustments and except that such reports shall be without footnotes).

(d) Annual Reports . As soon as available, but in any event within ninety (90) days after the end of each Fiscal Year, audited financial statements of Borrowers, certified by an independent accounting firm acceptable to the Administrative Agent, including (i) an audited balance sheet as of the close of such Fiscal Year and (ii) audited statements of income and cash flows for such Fiscal Year, in each case setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the forecasts for such Fiscal Year, all prepared in accordance with GAAP (including applicable footnotes).

Section 7.02 Other Financial Information . Borrowers shall deliver to each Agent such other information, with respect to (a) the Collateral or (b) Borrowers’ business, financial condition, results of operations, properties, forecasts, business or business prospects as such Agent may, from time to time, reasonably request. Borrowers hereby authorize each Agent and its representatives to communicate directly with Borrowers’ independent certified accountants so long as a Responsible Officer of Borrowers participates in such communication and authorizes the accountants to disclose to each Agent, each DIP Lender and their respective representatives any and all financial statements and other financial information, including copies of any final management letter, that such accountants may have with respect to the Collateral or Borrowers’ financial condition, results of operations, properties, forecasts, business, and business prospects. The Agents and such representatives shall treat any non-public information so obtained as confidential.

Section 7.03 Defaults, Events of Default . Promptly upon any Responsible Officer obtaining knowledge of any condition or event which constitutes a breach or violation of any of the covenants, representations or conditions of this Agreement, a Default or an Event of Default, Borrowers shall deliver to the Administrative Agent the certification of the Responsible Officer or other Senior Officer of Borrowers specifying (a) the nature and period of existence of any such claimed default, Event of Default, Default, condition or event, (b) the notice given or action taken by such Person in connection therewith and (c) what action Borrowers have taken, is taking and proposes to take with respect thereto.

Section 7.04 Insurance . As soon as practicable and in any event within five (5) Business Days of any notice of nonrenewal or cancellation without replacement thereof of any material insurance coverage set forth on the most recent schedule delivered pursuant to Section 6.01(n) , as applicable, Borrowers shall deliver to the Administrative Agent a copy of any such notice.

Section 7.05 Environmental Notices . Borrowers shall notify the Administrative Agent, in writing, promptly, and in any event within five (5) Business Days after Borrowers’ learning thereof, of any: (a) notice or claim to the effect that a Borrower is or may be liable to any Person as a result of the Release or threatened Release of any Hazardous Material; (b) investigation by any Governmental Authority of whether any Remedial Action is needed to respond to the Release or threatened Release of any Hazardous Material; (c) notice that any Property of Borrowers is subject to an Environmental Lien; (d) any material violation of Environmental Laws by a Borrower or awareness by a Borrower of a condition which might reasonably result in a material violation of any Environmental Law by a Borrower; (e) commencement or written threat of any judicial or administrative proceeding alleging a material violation of any Environmental Law by a Borrower; (f) any proposed acquisition of stock, assets, real estate or leasing of property, or any other action by a Borrower that could reasonably subject a Borrower to Environmental Liabilities and Costs; or (g) document provided to a Governmental Authority concerning any Release of a Hazardous Material in excess of any reportable quantity from or onto property owned or operated by a Borrower or the incurrence of such obligation pursuant to any Environmental Law or any obligation to take any Remedial Action to abate any Release.

Section 7.06 Agreed Budget . Borrowers will deliver to each DIP Lender, if applicable, updates to the Agreed Budget for the Budget Period in substantially the same format as the previous budget, which upon acceptance by the Instructing Group in its sole discretion, shall become the Agreed Budget.

Section 7.07 Certain Reports and Information .

(a) Borrowers promptly shall provide the DIP Lenders with copies of or reasonable access to all consultants’ reports, investment bankers’ reports, final business plans and similar documents produced after the Petition Date in Borrowers’ possession or of which Borrowers have knowledge and may obtain using its best efforts without incurring significant expenditures;

(b) Borrowers promptly shall give or cause to be given or served on the DIP Lenders and their counsel copies of all pleadings, motions, applications, financial information and other papers and documents filed by Borrowers in the Chapter 11 Cases;

(c) Borrowers promptly shall give the DIP Lenders copies of all written reports given by Borrowers to any official or unofficial creditors’ committee in the Chapter 11 Cases;

(d) Borrowers promptly shall give the DIP Lenders copies of (i) any information generally distributed by a Borrowers to its creditors or the financial community in general and (ii) any audit or other reports submitted to a Borrower by independent accountants in connection with any annual, interim or special audit of a Borrower;

(e) Borrowers shall immediately advise the DIP Lenders of all material developments and all significant actions taken by a Borrower and/or its counsel in connection with a Borrower’s efforts to effectuate a sale, merger or other financial restructuring of either or both Borrowers; and

(f) Borrowers will promptly furnish to the DIP Lenders such other information and in such form as the Instructing Group may reasonably request.

ARTICLE VIII
AFFIRMATIVE COVENANTS

Borrowers, jointly and severally, covenant and agree, from and after the date hereof (except as otherwise provided herein, or unless the Instructing Group has given its prior written consent) until all amounts owing hereunder or under any Loan Document or in connection herewith or therewith have been paid in full, that:

Section 8.01 Compliance with Laws . Borrowers shall comply with all Requirements of Law (including with respect to the Environmental Laws and laws with respect to social security and pension funds obligations), except, in each case, where the failures to do so, in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

Section 8.02 Payment of Taxes and Claims . Borrowers shall pay (a) all material taxes, assessments and other governmental charges imposed upon it or on any of its properties or assets or in respect of any of its franchises, business, income or property, and (b) all material claims (including claims for labor, services, materials and supplies) for sums material in the aggregate to Borrowers which have become due and payable after the Petition Date, and which by law have or may become a Lien upon any of Borrowers’ properties or assets, in each case prior to the time when any penalty or fine will be incurred by a Borrower with respect thereto, except for such taxes, assessments, other governmental charges and claims that are being contested in a Permitted Protest to the extent that the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

Section 8.03 Maintenance and Application of Insurance .

(a) Borrowers shall maintain insurance with financially sound and reputable insurance companies or associations with respect to their properties and business, in such amounts and covering such risks as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated. Borrowers shall request that the holders of all property policies pursuant to which a Borrower is additional named insured, if any, name the Collateral Agent as an additional insured or loss payee of the insured parties, in case of loss. Certificates of insurance of Borrowers with respect to the foregoing policies are to be delivered to the Collateral Agent.

(b) Borrowers shall utilize any Net Insurance Proceeds with respect to Casualty and property, to the extent not applied to repay the DIP Loans pursuant to Section 3.02(a) , to repair, replace or restore any property lost, damaged or destroyed on account of which such proceeds were paid.

Section 8.04 Inspection of Property; Books and Records; Discussions . At any reasonable time during normal business hours and from time to time with prior notice, or at any time without notice if a Default or Event of Default shall have occurred and be continuing, Borrowers shall permit any authorized representative(s) designated by any Agent to visit and inspect any of its assets, to examine, audit, check and make copies of its financial and accounting records, books, journals, orders, receipts and any correspondence with regulators and other data relating to its business or the transactions contemplated by the Loan Documents (including in connection with environmental compliance, hazard or liability or insurance programs), and to discuss its affairs, finances and accounts with its officers and independent certified public accountants. The visitations and/or inspections by or on behalf of any Agent shall be at Borrowers’ expense and all costs and expenses incurred by the Administrative Agent or the Collateral Agent in connection therewith shall constitute Lender Expenses hereunder.

Section 8.05 Further Assurances . Borrowers shall take such action and execute, acknowledge and deliver, at its sole cost and expense, such agreements, instruments or other documents as the Collateral Agent may reasonably require from time to time in order (a) to carry out more effectively the purposes of this Agreement and the other Loan Documents, (b) to obtain, maintain, continue, validate or perfect its Liens on any of the Collateral or any other property of Borrowers, (c) to establish and maintain the validity and effectiveness of any of the Loan Documents and the validity, perfection and priority of the Liens intended to be created thereby, and (d) to better assure, convey, grant, assign, transfer and confirm unto the Collateral Agent for the ratable benefit of the DIP Lenders the rights now or hereafter intended to be granted to the Collateral Agent for the ratable benefit of the DIP Lenders under this Agreement or any other Loan Document.

Section 8.06 Use of Proceeds . Proceeds of the DIP Loans shall be used in accordance with Section 2.02 hereof.

Section 8.07 Environmental . Borrowers shall (a) comply in all material respects with Environmental Laws and provide to the Collateral Agent documentation of such compliance which Collateral Agent reasonably requests, which documentation shall include a notice by Borrowers one (1) month after the Closing Date of the steps taken by the Borrowers to address any outstanding matters described on Schedule 6.01(m) , (b) promptly notify the Collateral Agent of any material violation by a Borrower of any Environmental Law and undertake immediate measures to correct such violation, (c) promptly provide the Collateral Agent a copy of any document provided to a Governmental Authority concerning any Release of a Hazardous Material from or onto property owned or operated by a Borrower and take any Remedial Actions required of a Borrower by Environmental Laws or otherwise appropriate to abate said Release or avoid Environmental Liabilities and Costs; and (d) perform any Remedial Action at property owned or operated by a Borrower (i) that is required of a Borrower pursuant to any Environmental Law or agreement with a Governmental Authority, or (ii) that was initiated prior to the Closing Date and is identified on Schedule 6.01(m) .

Section 8.08 Fiscal Year . Borrowers shall cause their Fiscal Year to end on December 31 of each year unless the Instructing Group consents to a change in such Fiscal Year (and appropriate related changes to this Agreement).

Section 8.09 Cash Management .

(a) No Borrower shall have any Deposit Account or Securities Account other than accounts maintained at the Cash Management Bank and Borrowers shall cause the Secured Parties to have a valid, perfected, first-priority security interest in all such accounts.

(b) Borrowers shall take all reasonable steps necessary from time to time to deposit or cause to be deposited promptly all of their Collections (including those sent in cash or otherwise directly to Borrowers) into an account maintained at the Cash Management Bank.

Section 8.10 Financing Orders . Borrowers will comply with the Interim Order and the Final Order, as applicable, and the Agreed Budget and shall not make any payment with respect to Pre-Petition Indebtedness, except as permitted by the Interim Order or the Final Order, as applicable, or by the Bankruptcy Court, in each case as contemplated by the Agreed Budget.

Section 8.11 Compliance with Plan and Sale Milestones . Borrowers shall take or cause to be taken all steps necessary or appropriate to comply with the Plan Milestones or, if an Acceptable Disclosure Statement and an Acceptable Plan are not filed by the Filing Date, to comply with the Sale Milestones. If an Acceptable Disclosure Statement and an Acceptable Plan are filed by the Filing Date but Borrowers fail to meet any subsequent Plan Milestone or any other Event of Default shall occur, Borrowers shall take or cause to be taken the actions required by the Sale Milestones on a expedited schedule to be agreed to by Borrowers and the Instructing Group.

ARTICLE IX
NEGATIVE COVENANTS

Borrowers, jointly and severally, covenant and agree, from and after the date hereof (except as otherwise provided herein, or unless the Instructing Group has given its prior written consent) until all amounts owing hereunder or under any other Loan Document or in connection herewith or therewith have been paid in full that, with respect to each Borrower:

Section 9.01 Liens . It shall not create, incur, assume or suffer to exist any Lien upon or with respect to any of its property or assets, whether now owned or hereafter acquired, or assign or otherwise transfer any account receivable or other right to receive income, other than Permitted Encumbrances.

Section 9.02 Indebtedness . It shall not create, incur, assume, guarantee or suffer to exist, or otherwise become or remain liable with respect to any Indebtedness, other than Permitted Indebtedness.

Section 9.03 Consolidation; Merger . It shall not (a) liquidate or dissolve, consolidate with, or merge into or with, any other corporation or other business entity or (b) purchase or otherwise acquire all or substantially all of the capital stock, other Equity Interests or assets of any Person (or of any division or business unit thereof).

Section 9.04 Asset Dispositions . It shall not sell, transfer, lease, license or otherwise dispose of, or grant options, warrants or other rights with respect to, any of its assets (including any capital stock or Indebtedness of any Person), except:

(a) sales, transfers, leases or other dispositions of Inventory or rights to Inventory in the ordinary course of business;

(b) sales, transfers, leases or other dispositions of assets to a Borrower;

(c) the discount or sale, in each case without recourse and in the ordinary course of business, of receivables more than ninety (90) days overdue and arising in the ordinary course of business, but only in connection with the compromise or collection thereof consistent with customary industry practice (and not as part of any bulk sale or financing of receivables);

(d) sales or other dispositions in the ordinary course of business of equipment and other tangible assets that have become obsolete, uneconomic, worn-out or no longer useful;

(e) Restricted Payments permitted by the terms of this Agreement;

(f) dispositions of cash and Cash Equivalents in the ordinary course of business;

(g) nonexclusive licenses of Intellectual Property of a Borrower entered into in the ordinary course of business consistent with past practice;

(h) sales or other dispositions approved by the Bankruptcy Court; and

(i) sales and other dispositions of assets provided for and disclosed in the Agreed Budget.

Section 9.05 Weekly Budget Compliance . It shall not make any cash disbursement if, after giving effect thereto (a) the aggregate cash disbursements by Borrowers during each weekly period would exceed the product of (i) the aggregate of budgeted disbursements for such weekly period reflected in the Agreed Budget times (ii) 110%; or (b) the aggregate cash disbursements by Borrowers in respect of any one line item in the Agreed Budget (for disbursements) during each weekly period would exceed the product of (i) the aggregate of the disbursements for such line item for such weekly period times (ii) 110%; provided , however , that Borrowers shall be entitled to apply (A) any line item favorable variance ( i.e. , underspending) relative to the Agreed Budget to satisfy any line-item unfavorable variance ( i.e. , overspending) relative to the Agreed Budget and (B) any favorable variance in one period to satisfy an unfavorable variance in any subsequent period.

Section 9.06 Limitations on Dividends and Distributions and Other Payment Restrictions Affecting Subsidiaries . It shall not create or otherwise cause, incur, assume, suffer or permit to exist or become effective any consensual encumbrance or restriction of any kind on its ability (a) to pay dividends or to make any other distribution on any shares of its Equity Interests, (b) to subordinate or to pay, prepay, redeem or repurchase any Indebtedness owed to a Borrower, (c) to make loans or advances to a Borrower or (d) to transfer any of its property or assets to a Borrower; provided , however , that nothing in clauses (a) through (d) of this Section 9.05 shall prohibit or restrict: (A) this Agreement and the other Loan Documents; (B) any Applicable Law, rule or regulation (including applicable currency control laws and applicable state or provincial corporate statutes restricting the payment of dividends or any other distributions in certain circumstances); (C) any restriction set forth in any document or agreement governing or securing any Pre-Petition Indebtedness; (D) in the case of clause (d) any restrictions on the subletting, assignment or transfer of any property or asset included in a lease, license, sale conveyance or similar agreement with respect to such property or asset; (E) in the case of clause (d) any holder of a Permitted Encumbrance from restricting on customary terms the transfer of any property or assets subject to such Permitted Encumbrance; (F) customary provisions restricting assignment of any licensing agreement or other contract entered into by Borrowers in the ordinary course of business; or (G) restrictions on the transfer of any asset pending the close of the sale of such asset.

Section 9.07 Investments . From and after the Petition Date, it shall not directly or indirectly, hold, own or invest in or commit or agree to hold or invest in, or purchase or otherwise acquire or commit or agree to purchase or otherwise acquire any Investment, except as set forth in the Agreed Budget or as otherwise approved in writing by the Instructing Group.

Section 9.08 Sale and Leaseback . From and after the Petition Date, it shall not, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an Operating Lease or a Capitalized Lease (i) that a Borrower has sold or transferred or is to sell or transfer to any other Person or (ii) that a Borrower intends to use for substantially the same purpose as any other property that has been or is to be sold or transferred by a Borrower to any Person in connection with such lease, except as set forth in the Agreed Budget or as otherwise approved in writing by the Instructing Group.

Section 9.09 Negative Pledges . It shall not enter into any agreement prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired, except (i) pursuant to this Agreement and the Security Documents; (ii) pursuant to any document or instrument governing Pre-Petition Indebtedness or in connection with any Lien permitted by Section 9.01 or any Disposition permitted by Section 9.04 ; (iii) prohibitions or conditions under Applicable Law, rule or regulation; or (iv) restrictions on the transfer of any asset pending the close of the sale of such asset.

Section 9.10 Modifications of Indebtedness, Organizational Documents and Certain Other Agreements . It shall not amend, modify or otherwise change (i) its certificate of incorporation or bylaws (or other similar organizational documents), including by the filing or modification of any certificate of designation, or any agreement or arrangement entered into by it, with respect to any of its capital stock (including any shareholders’ agreement) except any such amendments, modifications or changes pursuant to this clause that either individually or in the aggregate would not be materially adverse to the interests of the DIP Lenders hereunder; it being understood that changes to the certificate of incorporation relating to the number or terms of existing or future equity securities will not be considered to materially adversely affect the DIP Lenders to the extent that such changes otherwise comply with Borrowers’ obligations under the Loan Documents; or (ii) its accounting policies or reporting practices other than amendments, modifications or changes consistent with GAAP so long as such amendment, modification or change has no material impact on reporting financial data.

Section 9.11 Federal Reserve Regulations . It shall not use any DIP Loan or the proceeds of any DIP Loan for any purpose that would cause such DIP Loan to be a margin loan under the provisions of Regulation T, U or X.

Section 9.12 Investment Company Act of 1940 . It shall not engage in any business, enter into any transaction or take any other action that would cause it to become subject to the registration requirements of the Investment Company Act of 1940, as amended, by virtue of being an “investment company” or a company “controlled” by an “investment company” not entitled to an exemption within the meaning of such Act.

Section 9.13 Securities and Deposit Accounts . Except as specified on Schedule 9.13 or as provided in Section 8.10 , it shall not establish or maintain any Securities Account, Deposit Account or similar account unless the Collateral Agent shall have received a Control Agreement in respect of such Securities Account, Deposit Account or similar account. Borrowers shall comply in all material respects with the provisions of each Control Agreement to which it is a party.

Section 9.14 Impairment of Security Interests . Except as otherwise permitted pursuant to any of the Loan Documents, it shall not, directly or indirectly, take any action or do anything that would have the effect of terminating, limiting in any material respect or impairing the perfection or priority of any Lien securing the Obligations except as expressly permitted under any Loan Document.

Section 9.15 Restricted Payment . From and after the Petition Date, it shall not make any Restricted Payment, except as set forth in the Agreed Budget or otherwise agreed to in writing by the Instructing Group.

Section 9.16 Contractual Commitments . It shall not enter into any lease, contract or agreement outside of the ordinary course of Borrowers’ current business except as provided for in the Agreed Budget.

Section 9.17 Change of Name . It shall not change its name, organizational identification number, state of organization, or organizational identity; provided , however , that a Borrower may change its name upon at least 30 days’ prior written notice to the Administrative Agent of such change and so long as, at the time of such written notification, such Borrower provides any financing statements necessary to perfect and continue perfected the Liens granted under the Loan Documents.

Section 9.18 Transactions with Affiliates . It shall not, directly or indirectly, enter into or permit to exist any transaction with any Affiliate of a Borrower except for transactions that (a) are in the ordinary course of Borrowers’ business, (b) upon fair and reasonable terms that are no less favorable to Borrowers than would be obtained in an arm’s length transaction with a non-Affiliate, and (c) are fully disclosed to the Administrative Agent if they involve one or more payments by Borrowers in excess of $10,000 per year in the aggregate.

ARTICLE X
SECURITY

Section 10.01 Security for the Obligations . As security for the Obligations, (A) Borrowers hereby grant to the Collateral Agent for the ratable benefit of the DIP Lenders a security interest in the Collateral pursuant to and in accordance with the applicable provisions of the UCC and (B) pursuant to Bankruptcy Code Sections 364(c)(2), (c)(3), and (d) and by the consent of the Pre-Petition Lenders and the Pre-Petition Agent, the Collateral Agent shall have for the ratable benefit of the DIP Lenders, and is hereby granted (effective and perfected upon the date of the Interim Order and without the necessity of the execution by the Debtors or the filing or recordation of mortgages, security agreements, control agreements, pledge agreements, lock box agreements financing statements, or otherwise) the following liens and security interests (together with the security interest referred to in clause (A) above, the “ DIP Liens ”) ( provided , however , that the DIP Liens shall not include Avoidance Actions or the proceeds thereof until the entry of the Final Order):

(a) pursuant to Bankruptcy Code Section 364(c)(2), valid, perfected, enforceable and non-avoidable first priority liens on and security interests in the Collateral and all other hereafter acquired assets and property of Borrowers, including, without limitation, avoidance actions under Chapter 5 of the Bankruptcy Code and the proceeds thereof upon entry of the Final Order, that are not subject to valid, perfected, enforceable and non-avoidable liens as of the Petition Date;

(b) pursuant to Bankruptcy Code Section 364(c)(3), valid, perfected, enforceable and non-avoidable second priority or other junior liens on and security interests in the Collateral and all other hereafter acquired assets and property of the Debtors that are subject to valid, perfected, enforceable and non-avoidable liens in existence on the Petition Date or to valid liens in existence on the Petition Date (other than assets and property that are subject to the existing liens as referred to in subparagraph (c) below, which existing liens shall be primed as provided therein); and

(c) pursuant to Bankruptcy Code Section 364(d), valid, perfected, enforceable and non-avoidable first priority senior priming liens on and security interests in the Collateral.

For the avoidance of doubt, the DIP Lenders shall not receive any Liens on the Pre-Petition Collateral. In the event of the occurrence of an Event of Default (as defined below), or an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default (a “ Default ”), the DIP Liens shall be subject only to the payment of the Carve-Out (as defined below).

ARTICLE XI
EVENTS OF DEFAULT, RIGHTS AND REMEDIES

Section 11.01 Events of Default . Each of the following occurrences shall constitute an event of default (an “ Event of Default ”) under this Agreement:

(a) Failure to Make Payments When Due . Borrowers shall fail to pay (i) any principal when due or (ii) any interest, fees, Lender Expenses or any other monetary Obligation, and such failure shall continue for a period of three (3) days after such amount was due (in each case, whether by scheduled maturity, required prepayment, acceleration, demand or otherwise).

(b) Breach of Certain Covenants . Borrowers shall fail to perform or comply with any covenant or agreement contained in Section 7.01 , Section 7.03 , Section 7.04 , Section 7.05 , Section 8.03 , Section 8.04 , Section 8.06 , Section 8.09 , or ARTICLE IX under this Agreement.

(c) Ten (10) Day Cure Period . Borrowers shall fail to perform or comply with any covenant or agreement other than the covenants described or set forth in Section 11.01(a) and (b) and such default shall continue for ten (10) Business Days or more after the earlier of (i) the date on which such failure shall first become known to any officer of Borrowers and (ii) notice thereof is provided to Borrowers by the Administrative Agent.

(d) Breach of Representation or Warranty . Any representation, warranty or statement made or deemed made by or on behalf of Borrowers or by any officer of the foregoing under any Loan Document or in any report, certificate, or other document delivered to the Administrative Agent or any DIP Lender pursuant to any Loan Document prove to be incorrect or misleading in any material respect when made or deemed made.

(e) Invalidity of Documents . A court of competent jurisdiction, including but not limited to the Bankruptcy Court, shall declare that any material provision of any Loan Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against Borrowers; or the validity or enforceability thereof shall be contested by Borrowers; or a proceeding shall be commenced by Borrowers or any Governmental Authority having jurisdiction over Borrowers, seeking to establish the invalidity or unenforceability thereof; or Borrowers shall deny in writing that it has any liability or obligation purported to be created under any Loan Document.

(f) Loan Documents; Impairment . At any time, for any reason, any (i) Loan Document shall (other than pursuant to the express terms hereof or thereof) fail or cease to create a valid and perfected Lien on any Collateral other than as a result of any failure by the Administrative Agent or the Collateral Agent to take customary actions such as, by way of example, the filing of a UCC amendment to reflect a name change, or the Liens intended to be created or perfected thereby are, or a Borrower seeks to render such Liens, invalid or unperfected with respect to any Collateral except as otherwise contemplated hereby or thereby, or (ii) Liens with respect to any Collateral in favor of the Collateral Agent contemplated by the Loan Documents shall be invalidated or otherwise cease to be in full force and effect, or such Liens shall be subordinated or shall not have the priority contemplated hereby or by the other Loan Documents (subject to Permitted Encumbrances and to the exceptions set forth in any applicable Security Documents).

(g) Change of Control . A Change of Control shall have occurred, except as otherwise consented to by the Instructing Group.

(h) Failure to Comply with Financing Orders . Any of the Debtors shall fail to comply with the terms of the Financing Orders and such failure shall continue for five Business Days after the Debtors become aware of such non compliance.

(i) Bankruptcy Case Matters . The occurrence of any of the following in any of the Chapter 11 Cases:

(i) the bringing of a motion, taking of any action or the filing of any plan of reorganization or disclosure statement attendant thereto by any of the Debtors in the Chapter 11 Cases: (A) to obtain additional financing under Section 364(c) or (d) of the Bankruptcy Code not otherwise permitted pursuant to this Agreement; (B) to grant any Lien other than Permitted Encumbrances upon or affecting any Collateral; (C) except as provided in the Interim Order or the Final Order, as the case may be, to use cash collateral of the Pre-Petition Lenders under Section 363(c) of the Bankruptcy Code without the prior written consent of the Pre-Petition Agent; or (D) any other action or actions directly adverse to the DIP Lenders or their rights and remedies hereunder or their interest in the Collateral; or

(ii) the filing of any plan of reorganization or disclosure statement attendant thereto by a Borrower or any other Person with respect to which the Instructing Group or the Pre-Petition Agent has not consented or otherwise agreed to the treatment of its respective claims; or

(iii) the entry of an order in the Chapter 11 Cases confirming a plan of reorganization that is not either an Acceptable Plan or a plan that contains a provision for termination of the Commitments and repayment in full in cash of all the Obligations under this Agreement on or before the effective date of such plan; or

(iv) the entry of an order amending, supplementing, staying, vacating or otherwise modifying the Loan Documents, the Interim Order, or the Final Order without the written consent of the Administrative Agent or the filing of a motion for reconsideration with respect to the Interim Order or the Final Order; or

(v) the Final Order is not entered immediately following the expiration of the Interim Order and, in any event, within 18 days following the Petition Date; or

(vi) other than payments permitted pursuant to this Agreement or the Interim Order or the Final Order, as applicable, a Borrower shall make any payment (whether by way of adequate protection or otherwise) of principal or interest or otherwise on account of any Indebtedness incurred prior to the Petition Date; or

(vii) the payment of, or application for authority to pay, any pre-petition claim without the Administrative Agent’s prior written consent or pursuant to an order of the Bankruptcy Court after notice and hearing unless otherwise permitted under this Agreement; or

(viii) the allowance of any claim or claims under Section 506(c) of the Bankruptcy Code against or with respect to any of the Collateral or Pre-Petition Collateral, other than the Carve-Out Amount; or

(ix) a Borrower shall file, support or fail to oppose a motion seeking, or the Bankruptcy Court shall enter, an order in any of the Chapter 11 Cases appointing (i) a trustee under Chapter 7 or Chapter 11 of the Bankruptcy Code, (ii) a responsible officer or (iii) an examiner, in each case with enlarged powers relating to the operation of the business (powers beyond those set forth in subclauses (3) and (4) of Section 1106(a) of the Bankruptcy Code) under Section 1106(b) of the Bankruptcy Code in the Chapter 11 Cases; or

(x) the dismissal of the Chapter 11 Cases, or the conversion of the Chapter 11 Cases from one under Chapter 11 to one under Chapter 7 of the Bankruptcy Code or a Borrower shall file a motion or other pleading seeking the dismissal of the Chapter 11 Cases under Section 1112 of the Bankruptcy Code or otherwise; or

(xi) the Bankruptcy Court shall enter an order granting relief from the automatic stay to any creditor or party in interest (i) to permit foreclosure (or the granting of a deed in lieu of foreclosure or the like) on any assets of a Borrower which have an aggregate value in excess of $50,000 or (ii) to permit other actions that would have a Material Adverse Effect on the Borrowers or the Chapter 11 estates; or

(xii) the commencement by a Borrower or any officer of employee of a Borrower or by any committee in the Chapter 11 Cases, or any other party in interest in the Chapter 11 Cases, of a suit, action or contested matter against the DIP Lenders, the Pre-Petition Lenders, the Agents, or the Pre-Petition Agent or affecting the Collateral, including, without limitation, (a) any claim or legal or equitable remedy which seeks reduction, setoff, subordination or any recharacterization of the claims or Liens of the DIP Lenders or Pre-Petition Lenders, or (b) a claim that would otherwise have a Material Adverse Effect on the rights and remedies of the DIP Lenders or Pre-Petition Lenders under any Loan Document or the Pre-Petition Loan Documents and related documents or the collectability of all or any portion of the Obligations or the Pre-Petition Indebtedness; or

(xiii) the entry of an order in the Chapter 11 Cases avoiding or requiring repayment of any portion of the payments made on account of the Obligations owing under this Agreement; or

(xiv) the failure to achieve any Plan Milestone; or

(xv) if an Acceptable Disclosure Statement and an Acceptable Plan are not filed by the Filing Deadline, the failure to achieve any Sale Milestone.

Section 11.02 Remedies . If any Event of Default specified in Section 11.01 shall have occurred and be continuing, the Administrative Agent may, and upon the written request of Instructing Group shall, take any or all of the following actions: (i) terminate or reduce the Commitments, whereupon the Commitments shall immediately be terminated or reduced, (ii) declare all or a portion of the DIP Loans then outstanding to be due and payable, whereupon all or such portion of the aggregate principal of such DIP Loans, all accrued and unpaid interest thereon, all fees and all other amounts payable under this Agreement and all other Obligations shall become immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrowers and (iii) exercise any and all of its or the DIP Lenders’ other rights and remedies, or waive or decline to exercise any of its or the DIP Lenders’ rights or remedies, hereunder, under the other Loan Documents, under Applicable Law and otherwise; provided , however , that upon the occurrence of any Event of Default described in Section 11.01(f) or (g) , the DIP Loans then outstanding, together with all accrued and unpaid interest thereon, all fees, all other amounts due under this Agreement or any other Loan Document and all other Obligations shall become immediately due and payable automatically, without presentment, demand, protest or notice of any kind, all of which are expressly waived by Borrowers and provided further that the Collateral Agent shall pay and apply the proceeds of any sale or other disposition of the Collateral, or any part thereof, resulting from the exercise of the remedies as provided for in this Section 11.02 in accordance with Section 2.05 .

Section 11.03 Remedies Cumulative . The rights and remedies of the DIP Lenders under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. The DIP Lenders shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law, or in equity. No exercise by the DIP Lenders of one right or remedy shall be deemed an election, and no waiver by the DIP Lenders of any Event of Default shall be deemed a continuing waiver. No delay by any DIP Lender shall constitute a waiver, election, or acquiescence by it. In addition to all such rights and remedies, the DIP Lenders shall have the right to sell, lease or otherwise dispose of all or any part of the Collateral and the sale, lease or other disposition of the Collateral, or any part thereof, by the DIP Lenders after an Event of Default may be for cash, credit or any combination thereof, and any DIP Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale, and in lieu of actual payment of such purchase price, may set off the amount of such purchase price against the Obligations then owing. Any sale of all or part of the Collateral may be adjourned from time to time with or without notice. The DIP Lenders shall have the right to conduct such sales on Borrowers’ premises, at Borrowers’ expense, or elsewhere, on such occasion or occasions as the DIP Lenders may see fit.

Section 11.04 Entry Upon Premises and Access to Information . The DIP Lenders shall have the right (i) to cause the Collateral to remain on Borrowers’ premises, (ii) to enter upon the premises of Borrowers where the Collateral is located or any other place or places where the Collateral is believed to be located and kept to render the Collateral unusable or saleable, or to remove the Collateral therefrom to the premises of any DIP Lender or any agent of a DIP Lender, at Borrowers’ expense, for such time as the Instructing Group may desire in order effectively to collect or liquidate the Collateral, and (iii) to require Borrowers to assemble the Collateral and make it available to the DIP Lenders at a place or places to be designated by the Instructing Group; provided , however , that the automatic stay shall not be deemed vacated and modified with respect to the exercise by the DIP Lenders of any rights or remedies with respect to the Collateral following an Event of Default unless and until the Instructing Group has given Borrowers and the Office of the United States Trustee three (3) Business Days’ prior notice of the DIP Lenders’ intention to exercise such remedies. Upon acceleration of the Obligations, the DIP Lenders shall have the right to take possession of Borrowers’ original books and records, to obtain access to Borrowers’ data processing equipment and computer hardware and software relating to the Collateral and to use all of the foregoing and the information contained therein in any manner the Instructing Group deems appropriate; and the DIP Lenders shall have the right to notify postal authorities to change the address for delivery of Borrowers’ mail to an address designated by the Instructing Group and to receive, open and dispose of all mail addressed to Borrowers and to take possession of all checks or other original remittances contained in such mail.

Section 11.05 Sale or Other Disposition of Collateral by the DIP Lenders . Upon acceleration of the Obligations, any notice required to be given by the DIP Lenders of a sale, lease or other disposition or other intended action by the DIP Lenders with respect to any of the Collateral which is deposited in the United States mails, postage prepaid and duly addressed to Borrowers at the address specified herein, at least three (3) days prior to such proposed action, shall constitute fair and reasonable notice to Borrowers of any such action. The net proceeds realized by the DIP Lenders upon any such sale or other disposition, after deduction for the expenses of retaking, holding, storing, transporting, preparing for sale, selling or otherwise disposing of the Collateral incurred by the DIP Lenders in connection therewith, shall be applied as provided herein toward satisfaction of the Obligations. The DIP Lenders shall account to Borrowers for any surplus realized upon such sale or other disposition, and Borrowers shall remain liable for any deficiency. The commencement of any action, legal or equitable, or the rendering of any judgment or decree for any deficiency shall not affect the DIP Lenders’ Liens on the Collateral until the Obligations are fully paid. Borrowers agree that no DIP Lender has any obligation to preserve rights to the Collateral against any other Person. For the purpose of enabling the DIP Lenders to exercise their rights, powers and remedies under this Article XI in order to take possession of, hold, preserve, process, assemble, prepare for sale, market for sale, sell or otherwise dispose of the Collateral, at such time as the DIP Lenders shall be entitled to exercise such rights and remedies, the DIP Lenders are hereby granted a license, lease or other right to use, without charge, Borrowers’ General Intangibles, Intellectual Property, Equipment, fixtures and Real Estate Assets, whether part of the Collateral or not, including, without limitation, any patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any other Property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale or lease and selling or leasing any Inventory or other Collateral and Borrowers’ rights under all licenses, leases and franchise agreements shall inure to the benefit of the DIP Lenders until all Obligations are paid in full.

Section 11.06 Automatic Stay . Upon the occurrence and during the continuance of an Event of Default, the automatic stay provided in section 362 of the Bankruptcy Code shall be deemed automatically vacated as to the DIP Lenders without further order of the Bankruptcy Court and the DIP Lenders shall be immediately permitted, to, inter alia, pursue any and all of their remedies against Borrowers and/or the Collateral and seek payment in respect of all Obligations; provided , however , that the automatic stay shall not be deemed vacated and modified with respect to the exercise by the DIP Lenders of any rights or remedies with respect to the Collateral following an Event of Default unless and until the Instructing Group has given Borrowers and the Office of United States Trustee three (3) Business Days’ prior notice of the DIP Lenders’ intention to exercise such remedies.

Section 11.07 Waiver of Notice . UPON THE OCCURRENCE OF A DEFAULT OR EVENT OF DEFAULT, THE BORROWERS HEREBY WAIVE ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY THE LENDERS OF RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE AND HEARING, THE BENEFIT OF ALL VALUATION, APPRAISAL AND EXEMPTION LAWS AND ALL RIGHTS OF SET-OFF AGAINST ANY DIP LENDER AS IT APPLIES TO THE PAYMENT OF THE OBLIGATIONS. THE BORROWERS ACKNOWLEDGE THAT THEY HAVE BEEN ADVISED BY COUNSEL OF THEIR CHOICE WITH RESPECT TO THIS TRANSACTION AND THIS AGREEMENT.

ARTICLE XII
THE AGENTS

Section 12.01 Appointment Powers and Immunities; Delegation of Duties, Liability of Agents .

(a) Each DIP Lender hereby irrevocably designates and appoints Viriathus Services LLC Series as Administrative Agent and as its Collateral Agent under this Agreement and the other Loan Documents. Each DIP Lender hereby irrevocably authorizes each such Agent to take such action on such DIP Lender’s behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Each such Agent agrees to act as such on the express conditions contained in this ARTICLE XII . The provisions of this ARTICLE XII are solely for the benefit of the Administrative Agent, the Collateral Agent and the DIP Lenders. Neither Borrowers nor any other Persons shall have any rights or benefits under this ARTICLE XII whether as third-party beneficiaries or otherwise, save and except only Borrowers’ right to consent to a successor Agent to the extent provided under Section 12.08 . Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, (i) no Agent shall have any duties or responsibilities, except those expressly set forth herein, (ii) no Agent has, shall have or be deemed to have any fiduciary relationship with any DIP Lender, (iii) no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against any Agent, and (iv) it is expressly understood, acknowledged and agreed that the use of the word “Agent” is for convenience only and that each such Agent is merely the representative of the DIP Lenders, and has only the contractual duties set forth in this Agreement and the other Loan Documents. Except as expressly otherwise provided in this Agreement, each such Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which such Agent is expressly entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. No DIP Lender shall have any right of action whatsoever against each such Agent as a result of such Agent acting or refraining from acting hereunder pursuant to such discretion and any action taken or failure to act pursuant to such discretion shall be binding on the DIP Lenders. Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to the Administrative Agent or the Collateral Agent, each DIP Lender agrees that, as long as this Agreement remains in effect: (i) (A) the Administrative Agent shall have the right to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the DIP Loans, the Collections and related matters and (B) the Collateral Agent shall have the right to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Collateral and related matters; (ii) the Collateral Agent shall have the right to execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents; (iii) the Agents shall have the right to exclusively receive, apply, and distribute the Collections as provided in the Loan Documents; (iv) the Collateral Agent shall have the right to open and maintain such bank accounts and lock boxes as the Collateral Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collections and the Collateral; (v) (A) the Administrative Agent shall have the right to perform, exercise, and enforce any and all other rights and remedies of the DIP Lenders with respect to Borrowers, the Obligations, the Collections, or otherwise related to any of same as provided in the Loan Documents and (B) the Collateral Agent shall have the right to perform, exercise, and enforce any and all other rights and remedies of the DIP Lenders with respect to Borrowers, the Obligations, the Collateral, or otherwise related to any of the same as provided in the Loan Documents; and (vi) each of the Agents shall have the right to incur and pay such fees, charges, and expenses under the Loan Documents as such Agent reasonably may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents. The Administrative Agent may deem and treat the payee of any Obligation as the holder thereof for all purposes of the Loan Documents unless and until a notice of the assignment or transfer of such Obligation that is in accordance with the provisions of this Agreement shall have been filed with the Administrative Agent. Each DIP Lender further consents to (x) the execution, delivery, and performance by the Administrative Agent or the Collateral Agent of each Loan Document entered into by such Agent on behalf of the DIP Lenders as contemplated by this Agreement, and (y) the terms of such Loan Documents.

(b) Except as otherwise expressly provided in this Section 12.01 , each of the Administrative Agent and the Collateral Agent (i) may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and (ii) shall be entitled to advice of counsel concerning all matters pertaining to such duties. Neither the Administrative Agent nor the Collateral Agent shall be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made in compliance with this section and without gross negligence or willful misconduct.

(c) None of the Agent-Related Persons shall (i) be liable to any DIP Lender for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct) or (ii) be responsible in any manner to any DIP Lender for any recital, statement, representation or warranty made by Borrowers or any Affiliate of Borrowers, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement, or other document referred to or provided for in, or received by any Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrowers or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any DIP Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of Borrowers.

Section 12.02 Reliance by Agents . Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person, and upon advice and statements of legal counsel (including counsel to Borrowers or counsel to any DIP Lender), independent accountants and other experts selected by such Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it first shall receive such advice or concurrence of the DIP Lenders as it deems appropriate and until such instructions are received, such Agent shall act, or refrain from acting, as it deems advisable. If the Administrative Agent or the Collateral Agent so requests, it first shall be indemnified to its reasonable satisfaction by the DIP Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any action under this Agreement or any other Loan Document. The Administrative Agent and the Collateral Agent in all cases shall be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Instructing Group or the DIP Lenders, as required under this Agreement, and any action taken or failure to act pursuant to such request or consent shall be binding upon all DIP Lenders.

Section 12.03 Defaults . With respect to its relationship with any of the DIP Lenders, no Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the scheduled payment of principal and interest required to be paid to such Agent for the account of the DIP Lenders and except with respect to Events of Default of which such Agent has actual knowledge due to receipt of a written notice thereof from a DIP Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a “Notice of Default”. Each Agent promptly will notify the DIP Lenders of its receipt of any such notice or of any Event of Default of which such Agent has actual knowledge. If any DIP Lender obtains actual knowledge of any Event of Default, such DIP Lender promptly shall notify the other DIP Lenders and each Agent of such Event of Default. Each DIP Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 12.03 and Section 12.07 , each Agent shall take such action with respect to such Default or Event of Default as may be requested by the Instructing Group in accordance with ARTICLE XI ; provided , however , that unless and until such Agent has received any such request, such Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in its sole discretion.

Section 12.04 Rights as a DIP Lender .

(a) With respect to its Commitments and the DIP Loans made by it, the Administrative Agent (and any successor acting as Administrative Agent, if any, as permitted by Section 12.08(a) ) in its capacity as a DIP Lender under the Loan Documents shall have the same rights, privileges and powers under the Loan Documents as any other DIP Lender and may exercise the same as though it were not acting as Administrative Agent, and the term “DIP Lender” or “DIP Lenders” shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent (and any successor acting as Administrative Agent) and its Affiliates may (without having to account for the same to any DIP Lender) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust, principal investment or other business with Borrowers (and any of their Affiliates) as if it were not acting as Administrative Agent, and the Administrative Agent (and its successors) and its Affiliates may accept fees and other consideration from Borrowers (or any other Person) for services in connection with this Agreement or otherwise without having to account for the same to the DIP Lenders.

(b) With respect to its Commitments and the DIP Loans made by it, the Collateral Agent (and any successor acting as Collateral Agent, if any, as permitted by Section 12.08(b) ) in its capacity as a DIP Lender under the Loan Documents shall have the same rights, privileges and powers under the Loan Documents as any other DIP Lender and may exercise the same as though it were not acting as Collateral Agent, and the term “DIP Lender” or “DIP Lenders” shall, unless the context otherwise indicates, include the Collateral Agent in its individual capacity. The Collateral Agent (and any successor acting as Collateral Agent) and its Affiliates may (without having to account for the same to any DIP Lender) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust, principal investment or other business with Borrowers (and any of its Affiliates) as if it were not acting as Collateral Agent, and the Collateral Agent (and its successors) and its Affiliates may accept fees and other consideration from Borrowers (or any other Person) for services in connection with this Agreement or otherwise without having to account for the same to the DIP Lenders.

Section 12.05 Costs and Expenses; Indemnification . Each Agent may incur and pay fees, costs, and expenses under the Loan Documents to the extent such Agent deems reasonably necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including without limiting the generality of the foregoing, court costs, reasonable attorneys’ fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrowers are obligated to reimburse the DIP Lenders for such expenses pursuant to the DIP Loan Agreement or otherwise (to the extent Borrowers have not done so and without limiting its obligation to do so). Each DIP Lender hereby agrees that it is and shall be obligated to pay to or reimburse the Administrative Agent and the Collateral Agent for the amount of such DIP Lender’s Pro Rata Share thereof; provided , however , that the Administrative Agent and the Collateral Agent agree to seek reimbursement from Borrowers for all reimbursable expenses prior to seeking reimbursement from the DIP Lenders. The DIP Lenders shall indemnify upon demand the Agent-Related Persons (to the extent Borrowers have not done so and without limiting the obligation of Borrowers to do so), according to their Pro Rata Shares, from and against any and all Indemnified Matters (including without limitation Indemnified Matters arising under any Environmental Law as provided in Section 13.16 ); provided , however , that no DIP Lender shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Matters resulting solely from such Person’s gross negligence or willful misconduct as determined in a final order by a court of competent jurisdiction. Without limitation of the foregoing, each DIP Lender shall reimburse the Administrative Agent or the Collateral Agent, as the case may be, upon demand for such DIP Lender’s ratable share of any costs or out-of-pocket expenses (including reasonable attorneys’ fees and expenses) incurred by such Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated hereby or thereby or referred to herein or therein. The undertaking in this Section 12.05 shall survive the payment of all Obligations hereunder and the resignation or replacement of any Agent.

Section 12.06 Non-Reliance on Agents and Other DIP Lenders . Each DIP Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by any Agent hereinafter taken, including any review of the affairs or Property of Borrowers, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any DIP Lender. Each DIP Lender represents to each Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrowers and any other Person (other than the DIP Lenders) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrowers. Each DIP Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrowers and any other Person (other than the DIP Lenders) party to a Loan Document. Except for notices, reports and other documents expressly herein required to be furnished to the DIP Lenders by such Agent, no Agent shall have any duty or responsibility to provide any DIP Lender with any credit or other information concerning the business, prospects, operations, Property, financial and other condition or creditworthiness of Borrowers or of any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons.

Section 12.07 Failure to Act . Except for action expressly required of any Agent under the Loan Documents, such Agent shall in all cases be fully justified in failing or refusing to act under any Loan Document unless it shall receive further assurances to its satisfaction from the DIP Lenders of their indemnification obligations under Section 12.05 against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action.

Section 12.08 Resignation of Agent .

(a) Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by notice to the DIP Lenders and Borrowers. Upon any such resignation, the Instructing Group with the consent of Borrowers (which consent shall not be unreasonably withheld) shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been appointed by the Instructing Group and consented to by the Borrowers and no successor Administrative Agent shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the DIP Lenders, appoint a successor Administrative Agent; provided , however , if the failure to do so was not a result of the failure by Borrowers to consent to any appointment, Borrowers shall retain the right to consent; provided further , that if the failure to do so was not a result of the failure of the Instructing Group to appoint such successor, the Instructing Group shall obtain the right to consent to such successor. Upon the acceptance of any appointment as the Administrative Agent by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, remedies, powers, privileges, duties and obligations of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations, under the Loan Documents. After any retiring Administrative Agent’s resignation as Administrative Agent, the provisions of this ARTICLE XII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.

(b) Subject to the appointment and acceptance of a successor Collateral Agent as provided below, the Collateral Agent may resign upon thirty (30) days prior written notice to the DIP Lenders and Borrowers. Upon any such resignation, the Instructing Group with the consent of Borrowers (which consent shall not be unreasonably withheld or delayed) shall have the right to appoint a successor Collateral Agent. If no successor Collateral Agent shall have been appointed by the Instructing Group and consented to by Borrowers and no successor Collateral Agent shall have accepted such appointment within thirty (30) days after the retiring Collateral Agent’s giving of notice of resignation, then the retiring Collateral Agent may, on behalf of the DIP Lenders, appoint a successor Collateral Agent; provided , however , if the failure to do so was not a result of the failure by Borrowers to consent to any appointment, Borrowers shall retain the right to consent. Upon the acceptance of any appointment as the Collateral Agent by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, remedies, powers, privileges, duties and obligations of the retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and obligations, under the Loan Documents. After any retiring Collateral Agent’s resignation as the Collateral Agent, the provisions of this ARTICLE XII shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Collateral Agent.

Section 12.09 Collateral Sub-Agents . Each DIP Lender by its execution and delivery of this Agreement (or any Assignment and Acceptance hereunder), agrees that, in the event it shall hold any monies or other investments on account of Borrowers, such monies or other investments shall be held in the name and under the control of the Administrative Agent or such DIP Lender, and the Administrative Agent or such DIP Lender shall hold such monies or other investments as a collateral sub-agent for Collateral Agent under this Agreement and the other Loan Documents. Borrowers, by their execution and delivery of this Agreement, hereby consent to the foregoing.

Section 12.10 Communications by Borrowers . Except as otherwise provided in this Agreement, Borrowers’ communications with respect to the Loan Documents shall be with the Administrative Agent or the Collateral Agent, as the case may be, and Borrowers shall be under no obligation to communicate directly with the DIP Lenders.

Section 12.11 Collateral Matters .

(a) The DIP Lenders hereby irrevocably authorize the Collateral Agent, at its option and in its sole discretion and as promptly as practicable, to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full of all Obligations owed to the DIP Lenders (other than those contingent Obligations for reimbursement and indemnity that expressly survive the termination of this Agreement); (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Borrowers certify in writing to the Collateral Agent that the sale or disposition is permitted under this Agreement or the other Loan Documents (and the Collateral Agent may rely conclusively on any such certificate, without further inquiry); (iii) constituting property in which Borrowers owned no interest at the time the security interest was granted or at any time thereafter; (iv) constituting property leased to Borrowers under a lease that has expired or is terminated in a transaction permitted under this Agreement; (v) constituting Equipment which, in the aggregate with all other dispositions of Equipment covered by this clause (v) , has a fair market value or book value, whichever is less, of $1,000,000 or less; or (vi) if such is release consented by the Instructing Group. Upon request by the Collateral Agent at any time, the Administrative Agent and the DIP Lenders will confirm in writing the Collateral Agent’s authority to release any such Liens on particular types or items of Collateral pursuant to this Section 12.11 ; provided , however , that (A) the Collateral Agent shall not be required to execute any document necessary to evidence such release on terms that, in the Collateral Agent’s opinion, would expose the Collateral Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty and (B) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of Borrowers in respect of) all interests retained by Borrowers in any asset(s) transferred, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral.

(b) Neither the Administrative Agent nor the Collateral Agent shall have any obligation whatsoever to any other DIP Lenders to assure that the Collateral exists or is owned by Borrowers or is cared for, protected, or insured or has been encumbered, or that all or any portion of the Liens securing the Obligations have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to the Administrative Agent or the Collateral Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, subject to the terms and conditions contained herein, the Administrative Agent and the Collateral Agent each may act in any manner it may deem appropriate, in its sole discretion given its own interest in the Collateral and that neither the Administrative Agent nor the Collateral Agent shall have any other duty or liability whatsoever to any other DIP Lender as to any of the foregoing, except as otherwise expressly provided herein.

Section 12.12 Restrictions on Actions by the Agents and the DIP Lenders; Sharing Payments .

(a) Each of the DIP Lenders agrees that it shall not without the express consent of the Collateral Agent, and that it shall to the extent it is lawfully entitled to do so, upon the request of the Administrative Agent and the Collateral Agent, set off against the Obligations, any amounts owing by such DIP Lender to Borrowers or any accounts of Borrowers now or hereafter maintained with such DIP Lender. Each of the DIP Lenders further agrees that it shall not, unless specifically requested to do so by the Collateral Agent, take or cause to be taken any action, including the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such DIP Lenders any preference or priority against the other DIP Lenders with respect to the Collateral.

(b) If, at any time or times any DIP Lender shall receive (i) by payment, foreclosure, set-off or otherwise, any proceeds of Collateral or any payments with respect to the Obligations arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such DIP Lender from the Administrative Agent pursuant to the terms of this Agreement or (ii) payments from the Administrative Agent in excess of such DIP Lender’s ratable portion of all such distributions by the Administrative Agent, such DIP Lender promptly shall turn the same over to the Administrative Agent, in kind, and with such endorsements as may be required to negotiate the same to the Administrative Agent, or in same-day funds, as applicable, for the account of the DIP Lenders and for apportionment and application to the Obligations in accordance with Section 3.03(b) .

(c) If and to the extent that the Instructing Group requests any Agent to take or refrain from taking any action, or delegate to any Agent the authority in its discretion to take or refrain from taking any action or class of actions, on behalf of the DIP Lenders, the DIP Lenders shall cooperate fully with such Agent in respect of any such action or class of actions and shall take all actions and refrain from taking all actions as such Agent may reasonably request with respect thereto and no DIP Lender shall take any action within the scope of, or reasonably related to, such request or authority without such Agent’s prior written consent.

Section 12.13 Several Obligations; No Liability . Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of an Agent in its capacity as such, and not by or in favor of the DIP Lenders, any and all obligations on the part of the Administrative Agent, if any, to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective DIP Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any DIP Lender any interest in, or subject any DIP Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other DIP Lenders. Each DIP Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no DIP Lender shall have any obligation, duty, or liability to any Participant of any other DIP Lender. Except as provided in Section 12.05 , no Agent and no DIP Lender shall have any liability for the acts of any other Agent or any other DIP Lender. No DIP Lender shall be responsible to Borrowers or any other Person for any failure by any other DIP Lender to fulfill its obligations to make credit available hereunder, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder, under any other Loan Document or in connection with the financing contemplated herein.

ARTICLE XIII
MISCELLANEOUS

Section 13.01 Notices . All notices and other communications provided for hereunder shall be in writing and shall be mailed, certified mail return receipt requested, telecopied, emailed or delivered by overnight delivery service or in person:

if to either of the Borrowers, at the following address :

Isolagen, Inc.
405 Eagleview Boulevard
Exton, Pennsylvania 19341
Facsimile:
email:

with a copy (which shall not constitute notice) to :

Ciardi Ciardi & Astin
919 N. Market Street, Suite 700
Wilmington, Delaware 19801
Attention: Daniel K. Astin, Esq.
Facsimile: (302) 658-1300
email: dastin@ciardilaw.com

if to any DIP Lender, the Administrative Agent or the Collateral Agent, at the following address :

Viriathus Services LLC Series
2 Rector Street, 16 ^th Floor
New York, NY 10006-1840
Attention: David Batista
Facsimile: (212) 380-1921
email: notices@viriathus.com

with a copy (which will not constitute notice) to :

Olshan Grundman Frome Rosenzweig & Wolosky LLP
Park Avenue Tower
65 East 55 ^th Street
New York, New York 10022
Attention: Adam H. Friedman, Esq.
Facsimile: (212) 451-2222
email: afriedman@olshanlaw.com

or, as to each party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 13.01 . All such notices and other communications shall be effective, (i) if mailed, when received or five (5) days after deposited in the mails as registered or certified (in each case with return receipt requested) with postage pre-paid and properly addressed, whichever occurs first, (ii) if telecopied, when transmitted and confirmation received, (iii) if emailed, when transmitted and confirmation acknowledged by recipient or (iv) if delivered, upon delivery, except that notices to the Administrative Agent pursuant to ARTICLE II shall not be effective until received by the Administrative Agent.

Section 13.02 Amendments . No amendment or waiver of any provision of this Agreement, any DIP Loan or any other Loan Document, nor consent to any departure by Borrowers therefrom, shall in any event be effective unless the same shall be in writing and signed by Borrowers and the Instructing Group (or the Administrative Agent at the request of the Instructing Group), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided , however , that no amendment, waiver or consent shall, in each case, without the consent of the Administrative Agent, which may be withheld or denied in the Administrative Agent’s sole discretion, Borrowers and each DIP Lender directly affected thereby:

(a) increase or extend any Commitment of such DIP Lender;

(b) reduce or forgive the principal of, or interest on, any Funded DIP Loan made by such DIP Lender, or reduce or forgive any fees or other amounts payable hereunder to such DIP Lender or release or discharge Borrowers from their obligations to make such payments;

(c) postpone any date fixed for any scheduled payment of principal of, or interest on, any DIP Loan or any other monetary Obligations owed to such DIP Lender;

(d) other than as expressly permitted hereunder or in the other Loan Documents, release Borrowers (or otherwise limit Borrowers’ liability with respect to their Obligations);

(e) release, or consent to Borrowers’ disposition of, all or substantially all of the Collateral, or subordinate the right of the Collateral Agent and the DIP Lenders with respect to all or substantially all of the Collateral (except as expressly permitted herein or in the other Loan Documents);

(f) amend, modify or waive Section 2.05 , Section 3.03(a) , Section 3.03(b) or Section 3.03(c) , or this Section 13.02 or the definitions of “Pro Rata Share”; or

(g) change the percentage specified in the definition of Instructing Group that shall be required to appoint or remove a member of the Instructing Group or that shall be required for the Instructing Group to take any action under this Agreement.

Section 13.03 No Waiver; Remedies . No failure on the part of the DIP Lenders or any Agent to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right under any Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the DIP Lenders and the Agents provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the DIP Lenders and the Agents under any Loan Document against any party thereto are not conditional or contingent on any attempt by the DIP Lenders and the Agents to exercise any of their rights under any other Loan Document against such party or against any other Person.

Section 13.04 Expenses; Taxes; Attorneys’ Fees . Borrowers will pay within five (5) days of presentation of an invoice therefor, all of the following fees, costs, expenses and other charges (the “ Lender Expenses ”):

(a) all reasonable out-of-pocket fees, costs and expenses incurred by or on behalf of any Agent or DIP Lender (including attorneys, consultants, advisors and agents retained by such Agent or DIP Lender) and miscellaneous disbursements, examination, and travel, lodging and meals arising from or relating to or incurred in (i) the negotiation, preparation, execution, delivery, performance, administration, amendment or termination of this Agreement, the other Loan Documents and all other documents and agreements relating to the transactions contemplated hereby or thereby (whether incurred before or after the date of this Agreement) or any consents, amendments, waivers or other modifications thereof, whether or not such documents become effective or are given, (ii) the preservation and protection of any of the Agent’s or DIP Lender’s rights under this Agreement or the other Loan Documents, (iii) the filing of any petition, complaint, answer, motion or other pleading by any Agent or the DIP Lenders, or the taking of any action in respect of the Collateral or other security, in connection with this Agreement or any other Loan Document, (iv) the protection, collection, lease, sale, taking possession, liquidation or release of any Collateral or other security in connection with this Agreement or any other Loan Document, (v) any attempt to create, perfect, record, correct, release or enforce any Lien or security interest in any Collateral or other security in connection with this Agreement or any other Loan Document, (vi) any attempt to collect any Obligations from Borrowers, and (vii) otherwise in connection with the DIP Lenders’ transactions with Borrowers, including fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and Uniform Commercial Code searches, searches with the patent and trademark office, the copyright office or any other governmental or central registry), filing, recording, publication, real estate surveys, title policies and endorsements, environmental audits, insurance costs and any other out-of-pocket expenses necessary or desirable to administer the Loan Documents or to create or perfect the liens in favor of the Collateral Agent or the DIP Lenders or which Borrowers are required to pay hereunder,

(b) all reasonable fees, costs and expenses incurred in obtaining any advice regarding Borrowers, any Loan Document or any transaction contemplated hereby or thereby from professionals (including without limitation, the reasonable fees of attorneys, auditors, accountants, advisors and consultants) for any Agent and, during the continuance of an Event of Default, a single counsel for all DIP Lenders to the extent that such fees, costs and expenses are not otherwise recoverable pursuant to any other provision of this Agreement or any other Loan Document,

(c) all liabilities and costs arising from or in connection with the past, present or future operations of Borrowers involving any damage to real or personal Property or natural resources or harm or injury alleged to have resulted from any Release of Hazardous Materials from, upon or into such Property,

(d) all Environmental Liabilities and Costs incurred in connection with any Collateral, the Loan Documents or Borrowers including any Remedial Action for any Hazardous Materials present or arising out of the operations of any facility of Borrowers,

(e) all liabilities and costs incurred in connection with any Environmental Lien,

(f) all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter determined by an Agent to be payable in connection with this Agreement or any other Loan Document, and any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions,

(g) all broker fees if any with respect to any broker retained by Borrowers that may become due in the connection with the transactions contemplated by this Agreement,

(h) during the continuance of an Event of Default, all amounts expended by the Agents, if any, to correct Borrowers’ failure to (i) make any payments or deposits with respect to any taxes of any kind or nature to the extent that such payments or deposits are due and payable prior to delinquency, (ii) make any payments or deposits with respect to any other governmental assessment prior to the time that any Lien may inure against any property of Borrowers, or (iii) make any payments or deposits with respect to any insurance premiums then due and payable or otherwise comply with Section 8.03 , which amounts the Administrative Agent or the Collateral Agent, each in its sole discretion and without prior notice to Borrowers, may but shall not be required to pay in whole or in part, or, in the case of any failure to comply with Section 8.03 , make payments to obtain and maintain insurance policies of the type described in Section 7.04 and Section 6.01(n) ;

(i) all other costs or expenses required to be paid by Borrowers under any of the Loan Documents that are paid, advanced, or incurred by the DIP Lenders,

(j) charges paid or incurred by an Agent resulting from the dishonor of checks,

(k) reasonable expenditures made by any Agent in connection with the custody or preservation of any of the Collateral or of the Liens in favor of the Collateral Agent, including payment of any amounts to preserve rights of Borrowers under any material contracts or other agreements necessary or desirable to maintain the value of the Collateral,

(l) reasonable costs and expenses of third party claims or any other suit paid or incurred by any Agent or one or more of the DIP Lenders in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or the relationship of any one or more of the DIP Lenders with Borrowers, and

(m) each Agent’s reasonable costs and expenses (including attorneys’, accountants’, consultants’, and other advisors’ fees and expenses) and reasonable fees, costs and expenses for one counsel to separately represent the DIP Lenders, in each case, incurred after the occurrence of any Default or Event of Default, including in any forbearance, workout or restructuring of the Obligations, in any bankruptcy or insolvency case or proceeding or in terminating, enforcing, or defending the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral.

Section 13.05 Right of Set-Off, Sharing of Payments .

(a) Subject to the provision of Section 12.12 , upon the occurrence and during the continuance of any Event of Default, the DIP Lenders may, and are hereby authorized to, at any time and from time to time, without notice to Borrowers (any such notice being expressly waived by Borrowers), to the fullest extent permitted by law, set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the DIP Lenders to or for the credit or the account of Borrowers against any and all Obligations now or hereafter existing under any Loan Document, irrespective of whether or not the DIP Lenders shall have made any demand hereunder or thereunder. The DIP Lenders agree to notify Borrowers, the Collateral Agent and the Administrative Agent promptly after any such set-off and application made by the DIP Lenders, provided that the failure to give such notice to Borrowers shall not affect the validity of such set-off and application. The rights of the DIP Lenders under this Section 13.05 are in addition to other rights and remedies which the DIP Lenders may have.

(b) Nothing contained in this Section 13.05 shall require any DIP Lender to exercise any such right or shall affect the right of any DIP Lender to exercise, and retain the benefits of exercising, any such right with respect to any other Indebtedness or Obligation of Borrowers. If, under any applicable bankruptcy, insolvency or other similar law, any DIP Lender receives a secured claim in lieu of a set-off to which this Section 13.05 applies, such DIP Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the DIP Lenders entitled under Section 3.03(b) and this Section 13.05 to share in the benefits of any recovery on such secured claim.

Section 13.06 Severability . Any provision of this Agreement, that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

Section 13.07 Complete Agreement; Sale of Interest . The Loan Documents constitute the complete agreement between the parties with respect to the subject matter hereof and thereof, supersede any previous agreement or understanding between them relating hereto or thereto and may not be modified, altered or amended except by an agreement in writing signed by Borrowers and the DIP Lenders in accordance with Section 13.02 . Borrowers may not sell, assign or transfer any of the Loan Documents or any portion thereof, including their rights, title, interests, remedies, powers and duties hereunder or thereunder. Borrowers hereby consent to any DIP Lender’s sale of participations, assignment, transfer or other disposition, at any time or times, of any of the Loan Documents or of any portion thereof or interest therein, including such DIP Lender’s rights, title, interests, remedies, powers or duties thereunder, subject, in the case of a participation, assignment, transfer or other disposition, to the provisions of Section 13.08 .

Section 13.08 Assignment; Register .

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that Borrowers may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each DIP Lender (and any attempted assignment or transfer by Borrowers without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Affiliates of the Administrative Agent) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Any DIP Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its DIP Loans at the time owing to it); provided that (i) except in the case of an assignment of the entire remaining outstanding amount of the DIP Loans at the time owing to it (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) or in the case of an assignment to an entity described in clause (a), (b) or (c) of the definition of Eligible Assignee, any such assignment shall not be less than $250,000, unless the Administrative Agent otherwise consents, such consent not to be unreasonably withheld or delayed (and if no Event of Default has occurred and is continuing, Borrowers consent, such consent not to be unreasonably withheld or delayed), and (ii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance. An Eligible Assignee shall not be entitled to receive any greater payment under Section 3.04 than the applicable DIP Lender would have been entitled to receive under this Agreement, unless the assignment by such DIP Lender of all or a portion of its rights and obligations under this Agreement to such Eligible Assignee is made with Borrowers’ prior written consent. Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 13.08(c) , from and after the effective date specified in each Assignment and Acceptance, the Eligible Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a DIP Lender under this Agreement, and the assigning DIP Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement and, in the case of an Assignment and Acceptance covering all of the assigning DIP Lender’s rights and obligations under this Agreement, such DIP Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Section 3.04 , Section 4.02 and Section 13.15 to the extent any claim thereunder relates to an event arising or such DIP Lender’s status or activity as DIP Lender prior to such assignment.

(c) Any assignment or transfer by a DIP Lender of rights or obligations under this Agreement that does not comply with this Section 13.08 shall be treated for purposes of this Agreement as a sale by such DIP Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section 13.08 .

(d) The Administrative Agent, acting solely for this purpose as an agent of Borrowers, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the DIP Lenders, and the Commitment of, and principal amount of the DIP Loan owing to, each DIP Lender pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive, and Borrowers, the Administrative Agent and the DIP Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a DIP Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by Borrowers and any DIP Lender, at any reasonable time and from time to time upon reasonable prior notice. Borrowers may request in writing a copy of the Register from time to time and the Administrative Agent will deliver a copy of such Register to Borrowers promptly thereafter.

(e) Any DIP Lender may, without the consent of, or notice to, Borrowers or the Administrative Agent, sell participations to one or more banks or other entities (a “ Participant ”) in all or a portion of such DIP Lender’s rights and/or obligations under this Agreement (including all or a portion of the DIP Loans owing to it); provided that (i) such DIP Lender’s obligations under this Agreement shall remain unchanged, (ii) such DIP Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) Borrowers and the Lender Group shall continue to deal solely and directly with such DIP Lender in connection with such DIP Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a DIP Lender sells such a participation shall provide that such DIP Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement, provided that such agreement or instrument may provide that such DIP Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in clauses (a) or (b) of the proviso to Section 13.02 that affects such Participant. Subject to paragraph (f) of this Section 13.08 , Borrowers agree that each Participant shall be entitled to the benefits of Section 3.04 and Section 4.02 to the same extent as if it were a DIP Lender and had acquired its interest by assignment pursuant to Section 13.08(b). To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 13.05 as though it were a DIP Lender, provided such Participant agrees to be subject to Section 3.03 as though it were a DIP Lender.

(f) A Participant shall not be entitled to receive any greater payment under Section 3.04 or ARTICLE IV than the applicable DIP Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with Borrowers’ prior written consent. A Participant shall be subject to Section 13.03 as though it were a DIP Lender. A Participant that is not a United States Person (as defined in Section 7701(a)(30) of the Code) shall not be entitled to the benefits of Section 3.04 unless Borrowers are notified of the participation sold to such Participant and such Participant agrees, for the benefit of Borrowers, to comply with Section 3.04 as though it were a DIP Lender.

(g) Any DIP Lender may, without the consent of Borrowers or the Administrative Agent, at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such DIP Lender, including without limitation (i) any pledge or assignment to secure obligations to a Federal Reserve Bank and (ii) in the case of any DIP Lender that is a Fund, any pledge or assignment of all or any portion of such DIP Lender’s rights under this Agreement to any holders of obligations owed, or securities issued, by such DIP Lender as security for such obligations or securities, or to any trustee for, or any other representative of, such holders, and this Section 13.08(g) shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a DIP Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such DIP Lender as a party hereto.

Section 13.09 Counterparts . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any of the other Loan Documents may be effected by delivery of an executed signature page hereto or thereto and such delivery may be made by telecopy or email pdf and shall have the same force and effect as the delivery of an original executed counterpart of or signature page to this Agreement or any of such other Loan Documents. Any party delivering an executed counterpart of any such agreement by telecopy shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of such agreement and any telecopy, email pdf or photostatic copy of an executed counterpart of or signature page to this Agreement or any other Loan Document shall be given the same effect as the original.

Section 13.10 GOVERNING LAW . THIS AGREEMENT, THE NOTES AND, EXCEPT TO THE EXTENT OTHERWISE PROVIDED THEREIN, THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

Section 13.11 CONSENT TO JURISDICTION, SERVICE OF PROCESS AND VENUE . EACH BORROWER HEREBY CONSENTS AND AGREES THAT THE BANKRUPTCY COURT SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED , HOWEVER , THAT THE DIP LENDERS AND BORROWERS ACKNOWLEDGE THAT ANY APPEALS FROM THE BANKRUPTCY COURT MAY HAVE TO BE HEARD BY A COURT OTHER THAN THE BANKRUPTCY COURT AND, PROVIDED FURTHER , THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO OPERATE TO PRECLUDE THE DIP LENDERS FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE DIP LENDERS. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF ANY SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AT THE ADDRESS SET FORTH IN SECTION 13.01 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH BORROWER’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES. MAIL, PROPER POSTAGE PREPAID AND RETURN RECEIPT REQUESTED.

Section 13.12 WAIVER OF JURY TRIAL . BORROWERS, THE DIP LENDERS AND THE AGENTS EACH HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, THE NOTES OR OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH BORROWER CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE DIP LENDERS OR THE AGENTS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE DIP LENDERS OR THE AGENTS WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. THE BORROWERS HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE DIP LENDERS AND THE AGENTS ENTERING INTO THIS AGREEMENT.

Section 13.13 Consent . Except as otherwise expressly set forth herein or in any other Loan Document to the contrary, if the consent, approval, satisfaction, determination, judgment, acceptance or similar action (an “ Action ”) of the DIP Lenders or the Agents, shall be permitted or required pursuant to any provision hereof or any provision of any other agreement to which a Borrower is party and to which the DIP Lenders or the Agents have succeeded, such Action shall be required to be in writing and may be withheld or denied by the DIP Lenders or the Agents with or without any reason in their discretion.

Section 13.14 Interpretation . Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against the DIP Lenders, the Agents or Borrowers, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties represented by counsel of their choosing and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.

Section 13.15 Reinstatement; Certain Payments . If any claim is ever made upon the DIP Lenders or the Agents for repayment or recovery of any amount or amounts received by the DIP Lenders or the Agents in payment or received on account of any of the Obligations, the DIP Lenders or the Agents shall give prompt notice of such claim to Borrowers, and if the DIP Lenders or the Agents repay all or part of such amount by reason of (A) any judgment, decree or order of any court of competent jurisdiction or administrative body having jurisdiction over the DIP Lenders or the Agents or any of their respective property, or (B) compliance by the DIP Lenders or the Agents with any requirement of a Governmental Authority having jurisdiction over the DIP Lenders or the Agents, then and in such event Borrowers agree that (i) any such judgment, decree or order shall be binding upon it notwithstanding the cancellation of any instrument evidencing the Obligations or the other Loan Documents or the termination of this Agreement or the other Loan Documents and (ii) it shall be and remain liable to the DIP Lenders or the Agents hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by the DIP Lenders or the Agents.

Section 13.16 Indemnification . In addition to Borrowers’ other Obligations under this Agreement, Borrowers agree, jointly and severally, to defend, protect, indemnify and hold harmless the DIP Lenders and each of their respective Affiliates and the officers, directors, trustees, employees, agents and advisors of the foregoing, the Administrative Agent, the Collateral Agent, the Agent-Related Persons and the Lender-Related Persons (including the Arranger) (collectively called the “ Indemnitees ”) from and against any and all claims, losses, demands, settlements, damages, liabilities, obligations, penalties, fines, fees, reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees, costs and expenses, but excluding income, franchise and similar taxes of an Indemnitee) incurred by such Indemnitees (but not taxes, which shall be governed by Section 3.04 ), whether prior to or from and after the Closing Date, as a result of or arising from or relating to or in connection with any of the following: (a) the Administrative Agent, the Collateral Agent or the DIP Lenders furnishing of funds to Borrowers under this Agreement, including, without limitation, the management of any such DIP Loans, (b) any matter relating to the financing transactions contemplated by this Agreement or the other Loan Documents or by any document executed in connection with the transactions contemplated by this Agreement or the other Loan Documents or the use of proceeds of such financing transactions, (c) any claim, litigation, investigation or administrative or judicial proceeding in connection with any transaction contemplated in, or consummated under, the Loan Documents or (d) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, including without limitation, claims, litigations, investigations or other proceedings arising out of (i) the presence, disposal or Release of any Hazardous Materials on, in, at, to, from or under any property at any time owned or occupied by a Borrower (or any of its predecessors in interest or title) or at any facility which received Hazardous Materials generated by a Borrower or any of its predecessors in interest in connection with the receipt of such Hazardous Materials, (ii) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to any Hazardous Materials generated by a Borrower, (iii) any investigation, lawsuit brought or threatened, settlement reached or government order relating to such Hazardous Materials, (iv) any violation of any Environmental Law by a Borrower or any of its predecessors in interest, and/or (v) any Environmental Action (collectively, the “ Indemnified Matters ”); provided , however , that Borrowers shall not have any obligation to any Indemnitee under this Section 13.16 for any Indemnified Matter to the extent resulting from the bad faith, gross negligence or willful misconduct of such Indemnitee; provided , however , that Borrowers shall not be required to reimburse the legal fees and expenses of more than one outside counsel (in addition to up to one local counsel in each applicable local jurisdiction) for all Indemnitees under this Section 13.16 unless on advice of outside counsel, representation of all such Indemnitees would be inappropriate due to the existence of an actual or potential conflict of interest. Such indemnification for all of the foregoing losses, damages, fees, costs and expenses of the Indemnitees shall be due and payable promptly after demand therefor. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 13.16 may be unenforceable because it is violative of any law or public policy, Borrowers shall contribute the maximum portion which it is permitted to pay and satisfy under Applicable Law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. This indemnity shall survive the repayment of the Obligations and the discharge of the Liens granted under the Loan Documents.

Section 13.17 Interest . It is the intention of the parties hereto that each Agent and each DIP Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby or by any other Loan Document would be usurious as to any Agent or any DIP Lender under laws applicable to it (including the laws of the United States of America, the State of New York or any other jurisdiction whose laws may be mandatorily applicable to such Agent or such DIP Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in this Agreement or any other Loan Document or any agreement entered into in connection with or as security for the Obligations, it is agreed as follows: (a) the aggregate of all consideration which constitutes interest under law applicable to any Agent or any DIP Lender that is contracted for, taken, reserved, charged or received by such Agent or such DIP Lender under this Agreement or any other Loan Document or agreements or otherwise in connection with the Obligations shall under no circumstances exceed the maximum amount allowed by such applicable law, any excess shall be canceled automatically and if theretofore paid shall be credited by such Agent or such DIP Lender on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Agent or such DIP Lender, as applicable, to Borrowers); and (b) in the event that the maturity of the Obligations is accelerated by reason of any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Agent or any DIP Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Agent or such DIP Lender, as applicable, as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Agent or such DIP Lender, as applicable, on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Agent or such DIP Lender to Borrowers). All sums paid or agreed to be paid to any Agent or any DIP Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Agent or such DIP Lender, be amortized, prorated, allocated and spread throughout the full term of the DIP Loans until payment in full so that the rate or amount of interest on account of any DIP Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time, (i) the amount of interest payable to any Agent or any DIP Lender on any date shall be computed at the Highest Lawful Rate applicable to such Agent or such DIP Lender pursuant to this Section 13.17 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Agent or such DIP Lender would be less than the amount of interest payable to such Agent or such DIP Lender computed at the Highest Lawful Rate applicable to such Agent or such DIP Lender, then the amount of interest payable to such Agent or such DIP Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Agent or such DIP Lender until the total amount of interest payable to such Agent or such DIP Lender shall equal the total amount of interest which would have been payable to such Agent or such DIP Lender if the total amount of interest had been computed without giving effect to this Section 13.17 .

For purposes of this Section 13.17 , the term “ applicable law ” means that law in effect from time to time and applicable to the loan transaction between Borrowers, on the one hand, and the Agents and the DIP Lenders, on the other, that lawfully permits the charging and collection of the highest permissible, lawful non-usurious rate of interest on such loan transaction and this Agreement, including laws of the State of New York and, to the extent controlling, laws of the United States of America.

Section 13.18 Records . The unpaid principal of, and interest on, the Obligations, the interest rate or rates applicable to such unpaid principal and interest, the duration of such applicability, and the Commitments shall at all times be ascertained from the records of the DIP Lenders and Agents, which shall be conclusive and binding absent manifest or demonstrable error.

Section 13.19 Binding Effect . This Agreement shall be binding upon and inure to the benefit of Borrowers, the DIP Lenders and the Agents, and their respective successors and assigns, subject to Section 13.08 .

Section 13.20 USA Patriot Act . Each DIP Lender that is subject to the requirements of the Patriot Act hereby notifies Borrowers that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies Borrowers, which information includes the names and addresses of Borrowers and other information that will allow such DIP Lender to identify Borrowers in accordance with the Act.

Section 13.21 Equitable Relief . Borrowers recognize that, in the event Borrowers fails to perform, observe or discharge any of its Obligations under this Agreement, any remedy at law may prove to be inadequate relief to any DIP Lender; therefore, Borrowers agree that any DIP Lender, if such Person so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

Section 13.22 The DIP Lenders as Parties in Interest . Borrowers hereby stipulate and agree that each of the DIP Lenders are and shall remain parties in interest in the Chapter 11 Cases and shall have the right to participate, object and be heard in any motion or proceeding in connection therewith. Nothing in this Agreement or any other Loan Document shall be deemed to be a waiver of any of the DIP Lenders’ rights or remedies under applicable law or documentation. Without limitation of the foregoing, each of the DIP Lenders shall have the right to make any motion or raise any objection it deems to be in its interest (specifically including, but not limited to, objections to use of proceeds of the DIP Loans, to payment of professional fees and expenses or the amount thereof, to sales or other transactions outside the ordinary course of business or to assumptions or rejection of any executory contract or lease).

Section 13.23 Section 506(c) Waiver . Subject to entry of and the provisions of the Final Order, in consideration of the DIP Loans being made available to Borrowers by the DIP Lenders, Borrowers hereby agree not to assert and affirmatively waive any claim they otherwise might have under section 506(c) of the Bankruptcy Code and agree that the Collateral securing the Obligations to the DIP Lenders may be charged with costs or expenses only as provided for hereunder.

Section 13.24 Reversal of Payments . To the extent Borrowers make a payment or payments to the DIP Lenders or the DIP Lenders receive any payment or proceeds of the Collateral for Borrowers’ benefit, which payment(s) or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Obligations or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received.

Section 13.25 Joint Agreement of Borrowers . All covenants of Borrowers herein constitute the joint and several obligations of Borrowers. All representations and warranties of Borrowers herein constitute the representations and warranties of each Borrower as to itself and the other Borrower individually and as to both Borrowers, collectively. Any payment or notice required or permitted to made or given to either or both Borrowers by any party hereto shall be deemed made or given to both Borrowers if it is made or given to either Borrower.

[Signature Pages Follow.]

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


	BORROWERS : ISOLAGEN, INC.
	By:
		Name:
		Title:

	ISOLAGEN TECHNOLOGIES, INC.
	By:
		Name:
		Title:

	ADMINISTRATIVE AGENT : VIRIATHUS SERVICES LLC SERIES
	By:
		Name:
		Title:

	COLLATERAL AGENT : VIRIATHUS SERVICES LLC SERIES
	By:
		Name:
		Title:

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


	DIP LENDER :
	By:
		Name:
		Title:

Commitment Amount:			$

Exhibit 10.2

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE


In re:	: :	Chapter 11
Isolagen, Inc., et al., ¹	: :	Case No. 09-12072 (MFW)
Debtor.	: :	Jointly Administered

FIRST AMENDED DISCLOSURE STATEMENT TO ACCOMPANY THE
CHAPTER 11 PLAN OF REORGANIZATION PROPOSED BY
DEBTORS IN POSSESSION


		CIARDI CIARDI & ASTIN
		Daniel K. Astin (No. 4068)
		Anthony M. Saccullo (No. 4141)
		Mary E. Augustine (No. 4477)
		Carl D. Neff (No. 4895)
		919 N. Market Street, Suite 700
		Wilmington, Delaware 19801
		Tel: (302) 658-1100
		Fax: (302) 658-1300
		dastin@ciardilaw.com
		asaccullo@ciardilaw.com
		maugustine@ciardilaw.com
		cneff@ciardilaw.com

		Counsel to the Debtors


Dated:	July 30, 2009 Wilmington, Delaware

THE PLAN SUMMARIZED HEREIN AND ATTACHED HERETO IS THE RESULT OF EXTENSIVE NEGOTIATIONS AMONG PRE-PETITION LENDERS AS WELL AS THE DIP FACILITY LENDERS AND THE DEBTORS. AS A RESULT, THE DEBTORS BELIEVE THAT THE PLAN PROVIDES THE BEST POSSIBLE RESULT FOR ALL HOLDERS OF CLAIMS, AND THEREFORE, ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS’ CREDITORS AND INTEREST HOLDERS. THE DEBTORS STRONGLY URGE ALL HOLDERS OF CLAIMS TO ACCEPT THE PLAN.


¹		The Debtors are Isolagen, Inc., tax identification number -8888, and Isolagen Technologies, Inc., tax identification number -**6974.

TABLE OF CONTENTS


	Page

I. INTRODUCTION		3

A. General Description of the Chapter 11 Reorganization Process:		3
B. Overview of the Plan Process in these Cases:		4
C. Holders of Claims Entitled to Vote		4
D. Voting Procedures		5
E. Confirmation Hearing		6
F. Disclaimers and Notices		6
G. Recommendation by the Debtors		7

II. GENERAL INFORMATION		7

A. Description and History of the Debtor’s Business		7
B. Existing Indebtedness		9
C. Equity Interests		11
D. Events Leading to Bankruptcy		11

III. THE CHAPTER 11 CASES		12

IV. SUMMARY OF THE PLAN		12

A. General Framework of the Plan		12
B. Distributions under the Plan		13
C. Administrative Expense Claims, Priority Tax Claims, Priority Non-Tax Claims, and DIP Facility Claims		16
D. Exit Financing		17
E. Management Incentive Plan		18
F. Permanent Injunction, Release & Exculpation		18
G. Bar Date		21
H. Executory Contracts		22
I. Consolidation for Distribution and Voting Purposes		22

V. CONFIRMATION AND CONSUMMATION OF THE PLAN		22

A. The Confirmation Hearing		23
B. Confirmation of the Plan		23
C. Consummation of the Plan		27

VI. RISK FACTORS TO BE CONSIDERED		27

A. Certain Risks of Non-Confirmation		27
B. Risks of Non-Consummation of Plan		29
C. Risks Associated with New Common Stock		29


	Page

VII. EXEMPTIONS FROM SECURITIES ACT REGISTRATION		30

A. Generally:		30
B. Initial Issuance of New Common Stock under the Plan		30

VIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN		31

A. Liquidation under Chapter 7 or Chapter 11		32
B. Alternative Plan of Reorganization		32

IX. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN		32

A. Consequences to Holders of Allowed Claims in Classes 1, 3, and 4		33
B. Consequences to the Debtors		34

X. CONCLUSION AND RECOMMENDATION		36

THIS DISCLOSURE STATEMENT IS DESIGNED TO SOLICIT YOUR ACCEPTANCE OF THE ATTACHED PLAN AND CONTAINS INFORMATION RELEVANT TO YOUR DECISION. PLEASE READ THIS DISCLOSURE STATEMENT, THE PLAN, AND THE OTHER MATERIALS COMPLETELY AND CAREFULLY. THE PLAN IS ATTACHED AS EXHIBIT “A” TO THIS DISCLOSURE STATEMENT. PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN, OTHER EXHIBITS ATTACHED HERETO, AND OTHER DOCUMENTS REFERENCED AS FILED WITH THE BANKRUPTCY COURT BEFORE OR CONCURRENTLY WITH THE FILING OF THIS DISCLOSURE STATEMENT.

FURTHERMORE, THE PROJECTED FINANCIAL INFORMATION CONTAINED HEREIN HAS NOT BEEN THE SUBJECT OF AN AUDIT. SUBSEQUENT TO THE DATE HEREOF, THERE CAN BE NO ASSURANCE THAT: (A) THE INFORMATION AND REPRESENTATIONS CONTAINED HEREIN WILL CONTINUE TO BE MATERIALLY ACCURATE; (B) THE DISCLOSURE STATEMENT CONTAINS ALL MATERIAL INFORMATION; OR (C) THE FINANCIAL INFORMATION SET FORTH HEREIN COMPLIES WITH GENERALLY ACCEPTED ACCOUNTING STANDARDS.

HOLDERS OF IMPAIRED CLAIMS OR INTERESTS ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT, INCLUDING THOSE UNDER “RISK FACTORS,” PRIOR TO SUBMITTING BALLOTS VOTING ON THE PLAN. IN MAKING A DECISION TO ACCEPT OR REJECT THE PLAN, EACH HOLDER OF AN IMPAIRED CLAIM MUST RELY ON ITS OWN EXAMINATION OF THE DEBTORS AS DESCRIBED IN THIS DISCLOSURE STATEMENT AND THE TERMS OF THE PLAN, INCLUDING THE MERITS AND RISKS INVOLVED. IN ADDITION, CONFIRMATION AND CONSUMMATION OF THE PLAN ARE SUBJECT TO CONDITIONS PRECEDENT THAT COULD LEAD TO DELAYS IN CONSUMMATION OF THE PLAN. THERE CAN BE NO ASSURANCE THAT EACH OF THESE CONDITIONS WILL BE SATISFIED OR WAIVED (AS PROVIDED IN THE PLAN) OR THAT THE PLAN WILL BE CONSUMMATED. EVEN AFTER THE EFFECTIVE DATE, DISTRIBUTIONS UNDER THE PLAN MAY BE SUBJECT TO SUBSTANTIAL DELAYS FOR HOLDERS OF CLAIMS THAT ARE DISPUTED.

THE DEBTORS WILL REQUEST THAT THE BANKRUPTCY COURT CONFIRM THE PLAN UNDER BANKRUPTCY CODE SECTION 1129(b) , WHICH PERMITS CONFIRMATION OF THE PLAN DESPITE REJECTION BY ONE OR MORE CLASSES IF THE BANKRUPTCY COURT FINDS THAT THE PLAN “DOES NOT DISCRIMINATE UNFAIRLY” AND IS “FAIR AND EQUITABLE” AS TO THE CLASS OR CLASSES THAT DO NOT ACCEPT THE PLAN. THE DEBTORS WILL REQUEST THAT THE BANKRUPTCY COURT FIND THAT THE PLAN IS FAIR AND EQUITABLE AND DOES NOT DISCRIMINATE UNFAIRLY AS TO ANY CLASS THAT FAILS TO ACCEPT THE PLAN.

NO PARTY IS AUTHORIZED BY THE DEBTORS TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS WITH RESPECT TO THE PLAN OTHER THAN THAT WHICH IS CONTAINED IN THIS DISCLOSURE STATEMENT. NO REPRESENTATIONS OR INFORMATION CONCERNING THE DEBTORS, THEIR FUTURE BUSINESS OPERATIONS, OR THE VALUE OF THEIR PROPERTIES HAVE BEEN AUTHORIZED BY THE DEBTORS OTHER THAN AS SET FORTH HEREIN.

THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125 OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE SECURITIES LAWS OR OTHER APPLICABLE NON-BANKRUPTCY LAWS. ENTITIES HOLDING, TRADING IN, OR OTHERWISE PURCHASING, SELLING, OR TRANSFERRING CLAIMS AGAINST, INTERESTS IN, OR SECURITIES OF THE DEBTORS SHOULD EVALUATE THIS DISCLOSURE STATEMENT ONLY IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED.

IF THE REQUISITE ACCEPTANCES OF THE PLAN ARE RECEIVED, THE PLAN IS CONFIRMED BY THE BANKRUPTCY COURT, AND THE EFFECTIVE DATE OCCURS, ALL HOLDERS OF CLAIMS OR INTERESTS (INCLUDING THOSE WHO DO NOT SUBMIT BALLOTS TO ACCEPT OR TO REJECT THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY) WILL BE BOUND BY THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY—INCLUDING, WITHOUT LIMITATION, THE RELEASES AND EXCULPATIONS SET FORTH IN THE PLAN.

THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL, OR REGULATORY AUTHORITY, AND NEITHER SUCH COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.

THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT, NOR ANY DISTRIBUTION OF PROPERTY PURSUANT TO THE PLAN, WILL CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF, OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE DEBTORS SINCE THE DATE HEREOF.

EACH CREDITOR OF THE DEBTORS SHOULD CONSULT WITH SUCH CREDITOR’S LEGAL, BUSINESS, FINANCIAL, AND TAX ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE SOLICITATION OF VOTES TO ACCEPT OR REJECT THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY.

I. INTRODUCTION

Isolagen, Inc. (“Isolagen”) and Isolagen Technologies, Inc. (“Isolagen Tech”), debtors and debtors in possession (collectively, the “Debtors” or the “Company”) in the above-captioned cases, by and through their counsel, hereby submit this Disclosure Statement pursuant to section 1125 of title 11 of the United States Code (the “Bankruptcy Code”) to Holders ² of Claims against, and Interests in, the Debtors in connection with: (i) the solicitation of acceptances to the Plan of Reorganization Proposed by the Debtors and Filed by the Debtors with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”); and (ii) the hearing before the Bankruptcy Court to consider confirmation of the Plan (the “Confirmation Hearing”).

A. General Description of the Chapter 11 Reorganization Process:

Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code. Under Chapter 11, a debtor is authorized to reorganize its business for the benefit of itself, its creditors, and its equity interest holders. In addition to permitting rehabilitation of a debtor, another goal of Chapter 11 is to promote equality of treatment of similarly-situated creditors and equity interest holders with respect to the distribution of a debtor’s assets. The filing of a Chapter 11 petition creates an estate that is comprised of all of the legal and equitable property interests of the debtor as of the petition date. The Bankruptcy Code provides that the debtor may continue to operate its business and remain in possession of its property as a “debtor in possession.”

The consummation of a plan of reorganization is the principal objective of a Chapter 11 case. A plan of reorganization sets forth the means for satisfying claims against, and equity interests in, a debtor. Confirmation of a plan of reorganization by the Bankruptcy Court makes the plan binding upon a debtor, any issuer of securities under the plan, any person acquiring property under the plan, and any creditor or equity interest holder of a debtor. Subject to certain limited exceptions, the confirmation order discharges a debtor from any debt that arose prior to the date of plan confirmation and substitutes the obligations specified under the confirmed plan.

After a plan of reorganization has been filed, the holders of impaired claims against, or equity interests in, a debtor are permitted to vote to accept or reject the plan. Before soliciting acceptances of the proposed plan, however, Section 1125 of the Bankruptcy Code requires the proponent to prepare a disclosure statement containing adequate information of a kind, and in sufficient detail, to enable a hypothetical reasonable investor to make an informed judgment about the plan.

Attached as Exhibits to this Disclosure Statement (the “Disclosure Statement”) are copies of the following:

•

The Plan (Exhibit “A”)

•

An order of the Bankruptcy Court (the “Disclosure Statement Order”), approving the Disclosure Statement and establishing certain procedures with respect to the solicitation and tabulation of votes to accept or reject the Plan (Exhibit “B”)


²		Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Plan.

•

Liquidation Analysis prepared by Miller Coffey Tate LLP (MCT) as financial advisor to the Debtors (Exhibit “C”)

•

Projected Operations for 12 months post-confirmation (Exhibit “D”)

•

The Restructuring Agreement with incorporated term sheet (Exhibit “E”)

In addition, a Ballot for the acceptance or rejection of the Plan submitted to Holders of Claims entitled to vote to accept or reject the Plan is enclosed with this Disclosure Statement.

B. Overview of the Plan Process in these Cases:

On the Petition Date, the Debtors each filed a voluntary petition under Chapter 11 of the Bankruptcy Code. On or about June 26, 2009, the Debtors filed the Plan and Disclosure Statement with the Bankruptcy Court pursuant to Section 1125 of the Bankruptcy Code and in connection with the solicitation of votes to accept or reject the Plan.

After notice and a hearing, the Bankruptcy Court determined that this Disclosure Statement contained “adequate information” of a kind, and in sufficient detail, to enable hypothetical, reasonable investors typical of the Debtors’ creditors to make an informed judgment about the Plan. Accordingly, the Bankruptcy Court signed the Disclosure Statement Order approving this Disclosure Statement.

The Disclosure Statement Order, a copy of which is annexed to this Disclosure Statement as Exhibit “B,” sets forth in detail the deadlines, procedures, and instructions for voting to accept or reject the Plan, and for filing objections to confirmation of the Plan, the record date for voting purposes, and the applicable standards for tabulating Ballots. In addition, detailed voting instructions accompany each Ballot. Each holder of a Claim entitled to vote to accept or reject the Plan should read the Disclosure Statement, the Plan, the Disclosure Statement Order, and the instructions accompanying the Ballots in their entirety before voting on the Plan.

C. Holders of Claims Entitled to Vote

Under the Plan, only Classes 1, 3, and 4 are entitled to vote on the Plan because they are impaired and will receive a distribution under the Plan. Accordingly, the Debtors are soliciting acceptances only from the Holders of Allowed Claims in Classes 1, 3, and 4. Holders of Claims in Class 6 and Interests in Class 5 are impaired and will receive no distribution under the Plan, and thus, are conclusively presumed to have rejected the Plan—so no vote will be solicited from Holders in Classes 5 and 6.

The Bankruptcy Code defines “acceptance” of a plan by a class of claims or interests as acceptance by creditors in that class that hold at least two-thirds in dollar amount and more than one-half in number of the claims that cast ballots for acceptance or rejection of the proposed plan of reorganization.

The Debtors reserve the right to amend the Plan and intend to request confirmation of the Plan pursuant to Section 1129(b) of the Bankruptcy Code, which would enable the Plan to be confirmed regardless of the rejection of the Plan by one or more classes of impaired Claims or Interests entitled to vote. Under Section 1129(b) of the Bankruptcy Code, the Plan may be confirmed if at least one class of impaired Claims accepts the Plan (excluding the votes of insiders) and the Plan does not “discriminate unfairly” and is “fair and equitable” with respect to each non-accepting class. For a more detailed description of the requirements for confirmation of the Plan pursuant to Section 1129(b) of the Bankruptcy Code, see “Confirmation of the Plan” set forth herein.

D. Voting Procedures

If you are entitled to vote to accept or reject the Plan, a Ballot is enclosed for the purpose of voting on the Plan. If you hold Claims in more than one Class and each of those Classes is entitled to vote, you will receive separate Ballots for each such Class which must be returned for each separate Class of Claims.

Pursuant to the Disclosure Statement Order, the Bankruptcy Court set June 22, 2009, as the record date for voting on the Plan. Accordingly, only Holders of record as of June 22, 2009, that are otherwise entitled to vote on the Plan will receive a Ballot and may vote on the Plan.

All other creditors entitled to vote on the Plan must return their Ballot(s) to the following address:

Reliable
Attn: Isolagen Ballots
1007 North Orange Street
Wilmington, DE 19801

FOR YOUR BALLOT TO BE COUNTED, YOU MUST RETURN IT TO THE ADDRESS SET FORTH ON THE BALLOT SO THAT IT IS ACTUALLY RECEIVED BY 4:00 P.M. PREVAILING EASTERN TIME ON OR BEFORE THE VOTING DEADLINE SET FORTH IN THE ATTACHED DISCLOSURE STATEMENT ORDER (THE “VOTING DEADLINE”). BALLOTS MUST BE DELIVERED BY MAIL, COURIER, OR OTHER DELIVERY SERVICE—FACSIMILE BALLOTS WILL NOT BE ACCEPTED. ANY EXECUTED BALLOT RECEIVED THAT DOES NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL NOT BE COUNTED.

Any Holder of a Claim who is entitled to vote under the Plan and who has Filed a Proof of Claim in these Cases shall be entitled to vote in the amount of the value of the Proof of Claim, unless an objection or request for estimation is pending with regard to the Claim. Any Holder of a Claim listed by the Debtors on their Schedules of Assets and Liabilities for which no Proof of Claim has been filed, shall be entitled to vote in the amount Scheduled by the Debtors. In the event that no valid Proof of Claim or Interest is Filed, and the Claim or Interest is not Scheduled by the Debtors in a fixed amount, a Holder of a Claim or Interest must set forth a fixed, liquidated amount for such Claim on the Ballot. The Holder will be permitted to vote in the amount listed on the Ballot unless: (i) a motion to estimate the claim is filed; or (ii) the Claim set forth on the Ballot is subject to an objection on the date or dates during which the confirmation hearing is held.

If you have any questions about the Plan, the Disclosure Statement, or the procedures for voting, please call Daniel K. Astin, Esquire, at Ciardi Ciardi & Astin, counsel to the Debtors at (302) 658-1100.

E. Confirmation Hearing

The hearing to consider confirmation of the Plan (the “Confirmation Hearing”) will be held on July 27, 2009 at 4:00 p.m. (Prevailing Eastern Time) before the Honorable Mary F. Walrath, United States Bankruptcy Judge, at the United States Bankruptcy Court, 824 Market Street, 5 ^th Floor, Courtroom 4, Wilmington, Delaware 19801. In the attached Disclosure Statement Order, the Bankruptcy Court has established the deadline by which objections, if any, to confirmation of the Plan must be served and filed. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for the announcement of the adjournment date made at the Confirmation Hearing or any subsequent adjourned Confirmation Hearing.

F. Disclaimers and Notices

The statements contained in this Disclosure Statement are made as of the date hereof unless another time is specified, and the delivery of this Disclosure Statement shall not create an implication that there has been no change in the information since the date hereof.

Any representations or inducements made to secure your acceptance or rejection of the Plan, other than as contained in this Disclosure Statement or the Plan, should not be relied upon in arriving at your decision, and should be reported to counsel to the Debtors, Daniel K. Astin, Esquire, at 302-658-1100.

Much of the information contained herein (including in the Exhibits to the Disclosure Statement) has not been subject to a certified audit. Accordingly, the Debtors are unable to warrant or represent that the information contained herein (including in the Exhibits to the Disclosure Statement) is without any inaccuracy, or complies with generally accepted accounting standards. However, reasonable efforts have been made to ensure accuracy.

For the convenience of Holders of Claims and Interests, this Disclosure Statement summarizes the terms of the Plan, but those summaries are qualified in their entirety by the Plan itself. In the event of any inconsistencies between the Plan and the Disclosure Statement, the Plan is controlling.

The Disclosure Statement may not be relied upon for any purpose other than: (i) to determine whether to vote to accept or reject the Plan; and (ii) to object to the Plan at the Confirmation Hearing. Nothing in this Disclosure Statement shall constitute an admission of any fact or liability by any person, or be admissible in any proceeding involving the Debtors, or any other person, or be deemed conclusive evidence of the tax or other legal effects of the Plan on the Debtors or holders of Claims or Interests.

Certain of the statements contained in this Disclosure Statement are forward-looking and contain estimates and assumptions. There can be no assurance that such statements will be reflective of actual outcomes. All holders of Claims should carefully read and consider fully the “Risk Factors to Be Considered,” as set forth herein before voting to accept or reject the Plan.

G. Recommendation by the Debtors

AS PROPONENTS OF THE PLAN, THE DEBTORS SUPPORT THE CONFIRMATION OF THE PLAN. THE DEBTORS BELIEVE THAT THE PLAN PROVIDES THE BEST POSSIBLE RECOVERIES TO CREDITORS AND THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF CREDITORS. ACCORDINGLY, THE DEBTORS RECOMMEND THAT ELIGIBLE CREDITORS VOTE TO ACCEPT THE PLAN.

II. GENERAL INFORMATION

A. Description and History of the Debtor’s Business

Isolagen is a Delaware corporation principally located at 405 Eagleview Boulevard in Exton, Pennsylvania, and is the parent company of Isolagen Tech, a Delaware corporation with the same principal location as Isolagen. Isolagen Tech is wholly owned by Isolagen. Isolagen also has a 57% interest in Agera Laboratories, Inc., a Delaware corporation (“Agera”). Isolagen Tech wholly owns Isolagen Europe Limited, a company organized under the laws of the United Kingdom (“Isolagen Europe”), Isolagen Australia Pty Limited, a company organized under the laws of Australia (“Isolagen Australia”), and Isolagen International, S.A., a company organized under the laws of Switzerland (“Isolagen Switzerland”, collectively, with all Isolagen entities, the “Company”). The common stock of Isolagen, par value $0.001 per share, (“Common Stock”) is listed on the NYSE Amex exchange (formerly known as the American Stock Exchange or “AMEX”) under the symbol “ILE.” However, the trading of its stock was halted by AMEX in May 2009 and is expected to be delisted soon.

The Debtors are aesthetic and therapeutic companies focused on developing novel skin and tissue rejuvenation products. The Debtors clinical development product candidates are designed to improve the appearance of skin injured by the effects of aging, sun exposure, acne and burns with a patient’s own, or autologous, fibroblast cells produced by the Company’s proprietary Isolagen Process. The Company also has a skin care line through its Agera Laboratories, Inc. (“Agera”) subsidiary.

Isolagen acquired 57% of the outstanding common shares of Agera on August 10, 2006. Agera offers a complete line of skincare systems based on a wide array of proprietary formulations, trademarks and nano-peptide technology. These skincare products can be packaged to offer anti-aging, anti-pigmentary and acne treatment systems. Agera markets its product in both the United States and Europe (primarily the United Kingdom) via third party distributors primarily.

In October 2006, the Company reached an agreement with the FDA on the design of a Phase III pivotal study protocol for the treatment of nasolabial folds. The randomized, double-blind protocol was submitted to the FDA under the agency’s Special Protocol Assessment (“SPA”) regulations. Pursuant to this assessment process, the FDA has agreed that the Company’s study design for two identical trials, including patient numbers, clinical endpoints, and statistical analyses, is acceptable to the FDA to form the basis of an efficacy claim for a marketing application. The randomized, double-blind, pivotal Phase III trials will evaluate the efficacy and safety of Isolagen Therapy against placebo in approximately 400 patients with approximately 200 patients enrolled in each trial. The Company completed enrollment of the study and commenced injection of subjects in early 2007. All injections were completed in January 2008 and top line results from this trial were publically announced in August 2008. The data analysis, including safety data, was publically released in October 2008. The related Biologics License Application (“BLA”) was submitted to the FDA in March 2009. The BLA was accepted for filing by the FDA in May 2009, and the Debtors are currently waiting for approval from the FDA to market its product.

The Debtors’ business model is a biotechnology company focused on developing emergent, novel skin and tissue rejuvenation products for application in certain aesthetic and therapeutic markets. Isolagen was founded in 1995, specializing in the development of the Isolagen Process™, the innovative cellular processing system which creates the Isolagen Therapy™. With seven secured U.S. patents and nine additional U.S. patents pending, Isolagen has an overall approach to aesthetic and therapeutic cellular rejuvenation. Specifically, the Isolagen Therapy has broad potential as a personalized treatment for wrinkles, acne scars, burn scars and periodontal disease.

The Isolagen ^® Process is a novel process whereby a patient’s own collagen-producing cells (fibroblasts) are multiplied to create a living cell therapy which can be returned to the patient’s skin. Unlike other applications for the treatment of dermal defects, the Isolagen Therapy is produced utilizing only the patient’s unique, living cells. By multiplying a patient’s own collagen-producing cells or fibroblasts into tens of millions of new cells, a personalized treatment is created which is then returned to the patient’s skin. This treatment, known as the Isolagen Therapy™, is designed to improve skin damage caused by the normal effects of aging, sun damage, acne and burns. Phase III clinical trials were completed in 2008 to evaluate the efficacy and safety of Isolagen Therapy in treating nasolabial folds or wrinkles. A Phase II open-label clinical trial to evaluate the use of Isolagen Therapy to treat fine lines and wrinkles for the full face was also completed in 2008.

In addition to wrinkle correction, Isolagen also conducted a Phase II/III clinical program to investigate Isolagen Therapy™ for the treatment of moderate to severe acne scars. Isolagen is planning clinical trials for the treatment of burn scars (Phase II), which is currently on hold. Isolagen’s aesthetics development programs include product candidates to treat targeted areas or wrinkles and to provide full-face rejuvenation that includes the improvement of fine lines, wrinkles, skin texture and appearance. The therapeutic development programs are primarily designed to treat acne scars and restrictive burn scars. All of the product candidates are non-surgical and minimally invasive.

Through December 31, 2008, the Company has been primarily engaged in developing its product technology. In the course of its development activities, the Debtors have sustained losses and expect such losses to continue through at least 2009. The Debtors’ ability to operate profitably is largely contingent upon its success in obtaining financing, obtaining regulatory approval to sell one or a variety of applications of the Isolagen Therapy, upon its successful development of markets for its products and upon the development of profitable saleable manufacturing processes. As of December 31, 2008, the Debtors had cash and cash equivalents of $2.9 million and negative working capital of $87.3 million.

B. Existing Indebtedness

Unsecured Debt . On November 3, 2004, Isolagen, Inc. (“Isolagen”) completed the private placement of $75.0 million aggregate principal amount of 3.5% Convertible Subordinated Notes Due 2024 (the “3.5% Subordinated Notes”). The 3.5% Subordinated Notes could be due sooner than 2024, as discussed below. Isolagen received net proceeds of approximately $71.7 million after the deduction of commissions and offering expenses. Isolagen also granted the purchasers of the 3.5% Subordinated Notes the option to purchase up to $15.0 million of additional 3.5% Subordinated Notes through December 2, 2004.

On November 5, 2004, Isolagen completed the private placement of the additional $15.0 million aggregate principal amount of 3.5% Subordinated Notes. Isolagen received net proceeds of approximately $14.5 million after the deduction of discounts, commissions and offering expenses. The total net proceeds to Isolagen were approximately $86.2 million after the deduction of commissions and offering expenses.

Isolagen used approximately $26 million of the net proceeds to repurchase 4,000,000 shares of its common stock, of which 2,000,000 shares were repurchased from former officers, shareholders, and members of the board of directors. The remaining net proceeds of approximately $60.2 million were added to Isolagen’s general working capital.

The 3.5% Subordinated Notes are unsecured obligations and are subordinated in right of payment to all of Isolagen’s existing and future senior indebtedness. The 3.5% Subordinated Notes are also effectively subordinated to all indebtedness and other liabilities of Isolagen’s subsidiaries.

The 3.5% Subordinated Notes require the semi-annual payment of interest, on May 1 and November 1 of each year beginning May 1, 2005, at 3.5% interest per annum on the principal amount outstanding. The 3.5% Subordinated Notes will mature on November 1, 2024. Prior to maturity, the holders may convert their 3.5% Subordinated Notes into shares of Isolagen’s common stock. The initial conversion rate is 109.2001 shares per $1,000 principal amount of 3.5% Subordinated Notes, which is equivalent to an initial conversion price of approximately $9.16 per share.

On or after November 1, 2009, Isolagen may, at its option, redeem the 3.5% Subordinated Notes, in whole or in part, for cash, at a redemption price equal to 100% of the principal amount of the 3.5% Subordinated Notes to be redeemed plus accrued and unpaid interest.

On each of November 1, 2009, November 1, 2014 and November 1, 2019, the holders may require Isolagen to purchase all or a portion of their 3.5% Subordinated Notes at a purchase price in cash equal to 100% of the principal amount of 3.5% Subordinated Notes to be purchased plus accrued and unpaid interest. The holders of the 3.5% Subordinated Notes may also require Isolagen to repurchase their 3.5% Subordinated Notes in the event its common stock (or other common stock into which the 3.5% Convertible Subordinated Notes are then convertible) ceases to be listed for trading on a U.S. national securities exchange or approved for trading on an established automated over-the-counter market in the United States.

In the event a change in control occurs on or before November 9, 2009, the holders of the 3.5% Subordinated Notes may require Isolagen to purchase all or a portion of their notes at a purchase price equal to 100% of the principal amount of the 3.5% Subordinated Notes to be purchased plus accrued and unpaid interest and the payment of a “make-whole” payment which is based on the date on which the change in control occurs and the price per share paid for Isolagen’s common stock in such change in control transaction. Isolagen will be allowed to pay for the repurchase of the 3.5% Subordinated Notes and accrued and unpaid interest in cash or, at its option, shares of its common stock, and Isolagen will be allowed to make the make-whole payment in cash or, at its option, such other form of consideration as is paid to its common stockholders in the change in control transaction. In addition, in the event a change in control occurs on or before November 9, 2009, the holders of the 3.5% Subordinated Notes that convert their 3.5% Subordinated Notes into shares of Isolagen’s common stock in connection with such change in control transaction will also be entitled to receive the make-whole payment.

The 3.5% Subordinated Notes were issued in an offering not registered under the Securities Act of 1933, as amended (the “Securities Act”). However, Isolagen was obligated to file with the SEC a shelf registration statement covering resales of the 3.5% Subordinated Notes and the shares of Isolagen’s common stock issuable upon the conversion of the 3.5% Subordinated Notes. The shelf registration statement was subsequently declared effective on May 2, 2005. As of December 31, 2008, Isolagen has recorded the 3.5% Subordinated Notes as a current liability on the accompanying consolidated balance sheet as the holders may require Isolagen to purchase all of the 3.5% Subordinated Notes as early as November 2009.

Unsecured Trade Debt . Aside from the 3.5% Subordinated Notes, the majority of the Debtors’ unsecured debt consists of general trade debt for suppliers of goods and services in the approximate amount of $725,000. In addition, the Debtors have certain outstanding debt and obligations related to their lease of their facility and lawsuits that have been commenced against them. Specifically, the Debtors are liable for the payment of $325,000 to settle a derivative lawsuit.

Secured Debt . On April 30, 2009, Isolagen entered into secured promissory notes and security agreements (the “Notes”) with eight lenders pursuant to which Isolagen borrowed an aggregate of $500,417.00 in principal amount. The Notes bear interest at a rate of 20% per annum with principal and interest on the Notes due on the earlier of June 20, 2009 or the date that Isolagen files for voluntary or involuntary bankruptcy.

If an event of default under the Notes occurs, the holders of the Notes may declare the Notes to be due and payable. An event of default will occur: (a) if Isolagen defaults in the payment of the Notes or any other amounts payable to the holders of the Notes; (b) if Isolagen defaults in the performance of or compliance with any material term contained in the agreements pursuant to which the Notes were issued and such default shall not have been remedied within five business days after written notice to Isolagen; or (c) if Isolagen defaults (as principal or guarantor or other surety) in the payment of any principal of or premium or interest on any indebtedness for borrowed money, excluding the interest due May 1, 2009 on Isolagen’s pre-existing subordinated notes. The default rate of interest shall be 25% per annum from the date of any event of default under the Notes.

Isolagen is required to redeem the Notes with a 25% premium on the then outstanding principal plus accrued but unpaid interest, upon the (i) receipt of proceeds from the sale of any assets of Isolagen or any of its subsidiaries, excluding sales in the ordinary course of business by Agera Laboratories, Inc.; (b) receipt of the proceeds from any insurance policy held by Isolagen or any of its subsidiaries or pursuant to which Isolagen or any of its subsidiaries are beneficiaries; and (c) receipt of proceeds from the sale of any equity of Isolagen or its subsidiaries or issuance of any indebtedness of Isolagen or any of its subsidiaries. To secure the repayment of the Notes, Isolagen granted the holders of the Notes a security interest in and a lien on the Company’s 57% equity interest in Agera.

C. Equity Interests

As of May 12, 2009, Isolagen had 42,820,380 common stock shares issued, and 38,820,380 common stock shares outstanding. Further, there were approximately 8,117,000 stock options outstanding. There were also approximately 8,646,000 shares of contingently issuable common shares outstanding related to Isolagen’s $79.2 million of convertible debt (convertible at a common share price equivalent to approximately $9.16). Isolagen also has preferred stock authorized, none of which is issued and outstanding.

D. Events Leading to Bankruptcy

The Debtors have incurred losses since their inception, have never generated significant revenue from commercial sales of their products, and have never been profitable. The Debtors are focused on product development, and has expended significant resources on its clinical trials, personnel and research and development. The Company’s consolidated net losses for the years ended 2008 and 2007 were $31.4 million and $35.6 million, respectively. As of December 31, 2008, the Company had an accumulated development stage net loss attributable to common shareholders of $194.1 million. The Company previously failed its Phase III wrinkle trials in 2005. As a result of this failure, the Company’s $90 million of convertible debt did not convert into equity. Further, the Company utilized its remaining cash resources at the time, which were originally planned to be utilized for a commercial launch had the Phase III trials been successful and approved by the FDA, to re-design and re-perform the Phase III trials. The Company successfully completed the re-performed Phase III trials in late 2008 under a new management team, however, due to the remaining cash position of the Debtors and the $90 million of debt due as early as November 2009, and further compounded by unprecedented economic downturns with respect to the equity and credit markets, the Debtors are now in an untenable financial position.

Isolagen did not make an interest payment of approximately $1.5 million that was due on May 1, 2009 to the holders of $79.24 million in principal amount of subordinated notes and is now in default. Isolagen does not have the cash or available resources to pay the $1.5 million of interest which was due.

Consequently, on June 15, 2009, the Debtors filed for protection under chapter 11 of the Bankruptcy Code to obtain financing and to restructure its current debt structure so that it may continue its product development.

III. THE CHAPTER 11 CASES

On June 15, 2009, (the “Petition Date”), the Debtors each filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The Debtors cases are being jointly administered. Please refer to the docket in these Cases for the specific relief granted upon the commencement of these Cases.

Contemporaneously with the filing of the voluntary petitions, the Debtors filed the Restructuring Agreement as Exhibit A to the Declaration of Declan Daly in Support of First Day Motions and Applications. The Restructuring Agreement sets forth the key terms of the Plan agreed upon by the Debtors, Viriathus, and the Participating Holders, which include, Ronald Phillips, Morgan Stanley & Co., Incorporated, Credit Suisse Securities (USA) LLC, Highbridge International, LLC, Akanthos Capital Management LLC, CSS, LLC, Alexandra Global Master Fund Ltd, and Context Advantage Master Fund, L.P. The Restructuring Agreement was negotiated and executed prior to the Petition Date and provides for (a) the deadline for plan solicitation, (b) the treatment of classified and unclassified claims and interests under the Plan, (c) corporate governance post-confirmation, and (d) the terms of the Exit Financing. Generally, the Restructuring Agreement provides for a debt to equity swap. The terms of the Restructuring Agreement represent a heavily-negotiated settlement with the key constituents in these Cases. It was negotiated to attempt provide a recovery to interested parties in these Cases. Absent the compromise set forth in the Restructuring Agreement, the Debtors only alternative would have been to file petitions under chapter 7 of the Bankruptcy Code and to liquidate. The Debtors believe that creditors would be extremely unlikely to receive a Distribution if their assets are liquidated in a chapter 7 cases.

On June 17, 2009, the Bankruptcy Court authorized the Debtors, on an interim basis, to borrow up to $1 million from the DIP Lenders. Upon entry of a final order approving debtor-in-possession financing, the Debtors may borrow up to $2.75 million subject to further increase in the discretion of the DIP Lender to fund the 11-week budget proposed by the Debtors. A final hearing on the Debtors’ request for debtor-in-possession financing is scheduled for July 6, 2009 at 10:30 a.m.

IV. SUMMARY OF THE PLAN

The following is a brief summary of the key provisions of the Plan. Holders of Claims and Interests should refer to the Plan for a more detailed description of the terms thereof.

A. General Framework of the Plan

The purpose of the Plan is to restructure the Debtors’ outstanding indebtedness and equity and resolve the Debtors’ liquidity problems, thereby enhancing the recoveries for the Debtors’ creditors and enabling the Debtors to continue as a going concern and properly focus upon development of their product technology in light of ongoing clinical trial developments in order to develop a licensed, marketable product.

As is set forth more fully below and in the Plan, the Holders of the Allowed DIP Facility Claims have agreed that, in lieu of accepting Cash on account of their Allowed DIP Lender Claims, the DIP Lenders shall receive, together with the Pre-Petition Lenders, their Pro Rata share of up to 61% of the New Common Stock of the reorganized Isolagen debtor, Renuvagen, subject to dilution by the Exit Financing. The DIP Lenders and the Pre-Petition Lenders have also agreed to compensate Viriathus or its assignee 10% of its Pro Rata Distribution of the New Common Stock. To date, the DIP Lenders and Pre-Petition Lenders have not entered into any agreements or reached any understandings with any party other than the Agent, DIP Lender and/or Prepetition Lender with regard to the transfer or other disposition of the New Common Stock that they will receive under this Plan. Following the Effective Date of the Plan, the DIP Lenders and Pre-Petition Lenders may, in their sole and absolute discretion, transfer or otherwise dispose of their shares of New Common Stock.

The Holders of Allowed Other Secured Claims are not impaired and will be paid in full under the Plan, and each Holder of Allowed Claims arising from or relating to the 3.5% Convertible Notes shall each receive its Pro Rata share of an unsecured note in the principal amount of $6 million (the “New Note”) and its Pro Rata share of 33% of the New Common Stock subject to dilution by the Exit Financing.

To facilitate treatment to the Debtors’ general unsecured creditors, whose purported Claims total approximately $1,075,000, the Debtors propose to pay Each Holder of an Allowed General Unsecured Claim, in full and final satisfaction, settlement, release and discharge of and in exchange for such Allowed General Unsecured Claim, their Pro Rata portion of 1% of the New Common Stock, subject to dilution by the Exit Financing.

Finally, no distributions shall be made under the Plan on account of the Old Common Stock and the Intercompany Claims, and any and all liability on account of such Old Common Stock and Intercompany Claims shall be deemed discharged. The Debtors will seek a determination from the Bankruptcy Court that the issuance of the New Common Stock under this Plan shall be exempt from registration under the Securities Act and any state or local law, pursuant to section 1145 of the Bankruptcy Code.

B. Distributions under the Plan

As required by Section 1122 of the Bankruptcy Code, the Plan divides all Claims (other than Administrative Expense Claims, Priority Claims, and DIP Facility Claims) and Interests into separate Classes, based on the similarity of the Holders’ legal rights. The following chart summarizes the proposed distributions to Holders of Claims and Interests under the Plan, as well as the Debtor’s estimate of the value of such recoveries. The information provided herein is solely for ease of reference, and parties should consult the terms of the Plan for specific treatment of each class of Claims and Interests.


		Estimated
Class	Treatment if Allowed	Recovery
1— Pre-Petition Lender Claims impaired	Subject to and pursuant to the terms of the Plan, the Holders of the Allowed Pre-Petition Lender Claims have agreed that, in lieu of accepting Cash on account of their Allowed Pre-Petition Lender Claims, the Pre-Petition Lenders shall receive, together with the DIP Lenders as set forth in Section 3.06 of the Plan, their Pro Rata share of up to 61% of the New Common Stock of Renuvagen, subject to dilution by the Exit Financing.	Satisfied under New Common Stock

2—Other Secured Unimpaired	On the Distribution Date, each Holder of an Allowed Class 2 Claim shall receive in full satisfaction, settlement, release and discharge of and in exchange for such Allowed Other Secured Claim and at Debtors’ exclusive election, either: (i) Cash equal to the amount of such Allowed Other Secured Claim, or (ii) the Collateral which serves as security for such Allowed Other Secured Claim, except to the extent that any Holder of an Allowed Other Secured Claim agrees to less favorable treatment thereof. Upon receipt of the Distribution provided for herein, each Holder of an Allowed Other Secured Claim shall irrevocably release and discharge any and all Liens against the Debtors’ property and Assets.		100	%

3—3.5% Unsecured Convertible Notes impaired	Each Holder of an Allowed 3.5% Noteholder Claim shall receive, in full and final satisfaction, settlement, release and discharge of and in exchange for such Allowed 3.5% Noteholder Claim the following:	Satisfaction under New Common Stock and New Note

	(a) its Pro Rata share of an unsecured note in the principal amount of $6 million (the “New Note”). The New Note shall have the following features:

	1. Type of Security: Unsecured Debentures

	2. Interest: 12.5% payable quarterly in Cash or, at the Reorganized Debtors’ option, 15% payable in kind (“PIK”) by capitalizing such unpaid amount and adding it to the principal as of the date it was due.

	3. Maturity Date: June 1, 2012

	4. Redemption Rights: At any time prior to the maturity date, the Reorganized Debtors may redeem any portion of the outstanding principal of the New Notes in Cash at 125% of the stated face value of the New Notes.


		Estimated
Class	Treatment if Allowed	Recovery
	5. Mandatory Redemption: The Reorganized Debtors will be obligated to redeem all outstanding New Notes upon the following events:

	a) The Reorganized Debtors successfully complete a capital campaign raising in excess of $10,000,000; or

	b) The Reorganized Debtors are acquired by, or sell a majority stake to, an outside party.

	Negative Covenants: The New Notes shall contain customary representations, warranties and covenants, including a covenant that the Reorganized Debtors shall be prohibited from the incurrence of additional debt without obtaining the consent of 66 ² / ₃ % of the New Note holders.

	(b.) its Pro Rata share of 33% of the New Common Stock subject to dilution by the Exit Financing.

	(c.) The Plan allows the 3.5% Noteholder Claims in the amount of the outstanding principal and accrued and unpaid interest as of the Petition Date in the approximate aggregate amount of $81 million (plus any other amounts due under the indenture and allowable under the Bankruptcy Code).

4—General Unsecured Claims Impaired	Each holder of an Allowed General Unsecured Claim shall, in full and final satisfaction, settlement, release and discharge of and in exchange for such Allowed General Unsecured Claim, be paid their Pro Rata portion of 1% of the New Common Stock, subject to dilution by the Exit Financing.	Satisfaction under New Common Stock

5—Old Common Stock impaired	On the Effective Date, all Interests in Old Common Stock shall be cancelled and extinguished under the Plan and Holders thereof shall neither retain nor receive any distribution of property or Assets on account of their Interests.		0	%

6—Intercompany Claims impaired	No distributions shall be made under the Plan on account of Intercompany Claims, and any and all liability on account of such Intercompany Claims shall be deemed discharged.		0	%

Under a chapter 11 plan, the separate classes of claims and equity interests must be designated either as “impaired” or “unimpaired” by the plan. If a class of claims is “impaired,” the Bankruptcy Code affords certain rights to the holders of such claims, such as the right to vote on the plan (unless the plan provides for no distribution to the holders, in which case, the holder is deemed to reject the plan), and the right to receive under the Chapter 11 plan property of a value that is not less than the value the holder would receive if the debtors were liquidated under Chapter 7.

Under Section 1124 of the Bankruptcy Code, a class of claims or interests is “impaired” unless the plan (i) does not alter the legal, equitable, or contractual rights of the holders or (ii) irrespective of the holders’ acceleration rights, cures all defaults (other than those arising from the debtor’s insolvency, the commencement of the case, or nonperformance of a non-monetary obligation), reinstates the maturity of the claims or interests in the class, compensates the holders for actual damages incurred as a result of their reasonable reliance upon any acceleration rights, and does not otherwise alter their legal, equitable, or contractual rights. Typically, this means the holder of an unimpaired claim will receive on the later of the effective date or the date on which amounts owing are due and payable, payment in full, in cash, with post-petition interest to the extent appropriate and provided under the governing agreement (or if there is no agreement, under applicable non-bankruptcy law), and the remainder of the debtors’ obligations, if any, will be performed as they come due in accordance with their terms. Thus, other than its right to accelerate the debtor’s obligations, the holder of an unimpaired claim will be placed in the position it would have been in had the debtor’s case not been commenced.

The Plan has classified all Claims and Interests in compliance with the provisions of Section 1122 of the Bankruptcy Code, but it is possible that a Holder of a Claim or Interest may challenge the classification of Claims and Interests and that the Bankruptcy Court may find that a different classification is required for the Plan to be confirmed. In such event, the Debtors intend, to the extent permitted by the Bankruptcy Court and the Plan, to make such reasonable modifications of the classifications under the Plan to permit confirmation and to use the Plan acceptances received in this solicitation for the purpose of obtaining the approval of the reconstituted Class or Classes of which the accepting Holder is ultimately deemed to be a member. Any such reclassification could adversely affect the Class in which such Holder was initially a member, or any other Class under the Plan, by changing the composition of such Class and the vote required of that Class for approval of the Plan. Furthermore, a reclassification of a Claim or Interest after solicitation of acceptances of the Plan could necessitate a re-solicitation of acceptances of the Plan.

C. Administrative Expense Claims, Priority Tax Claims, Priority Non-Tax Claims, and DIP Facility Claims

The Bankruptcy Code does not require classification of certain priority claims against a debtor. In these chapter 11 Cases, these unclassified claims include Administrative Expense Claims, Priority Tax Claims, Priority Non-Tax Claims, and DIP Facility Claims. Each of these Claims will receive the treatment set forth in the Plan, which is also set forth below.

Administrative Expense Claims are not impaired under the Plan. Each Holder of an Allowed Administrative Expense Claim, shall, in full and final satisfaction, release and discharge of and in exchange for such Allowed Administrative Expense Claim, be paid either (i) in Cash, in the amount of the Allowed Administrative Expense Claim on the later of (x) the Effective Date or as soon thereafter as is reasonably practicable and (y) the date such Allowed Administrative Expense Claim becomes Allowed, or due and payable in the ordinary course of business or (ii) on such other terms and conditions as may be agreed upon between the Holder of the Allowed Administrative Expense Claim, the Debtors, and Viriathus.

Priority Non-Tax Claims are not impaired under the Plan. Each Holder of an Allowed Priority Non-Tax Claim shall, in full and final satisfaction, settlement, release and discharge of and in exchange for such Allowed Priority Non-Tax Claim, receive Cash in the amount of the Allowed Priority Non-Tax Claim, except to the extent that any Holder of an Allowed Priority Non-Tax Claim agrees to less favorable treatment thereof, on the later of (x) the Effective Date or as soon thereafter as is reasonably practicable and (y) the date such Allowed Administrative Expense Claim becomes Allowed.

Priority Tax Claims are not impaired under the Plan. Each Holder of an Allowed Priority Tax Claim shall, in full and final satisfaction, settlement, release and discharge of and in exchange for such Allowed Priority Tax Claim, be paid in full through deferred Cash payments in an aggregate principal amount equal to the amount of the Allowed Priority Tax Claim plus interest on the unpaid portion at the rate of 4% per annum from the Effective Date through the date of payment thereof which may be as long as 5 years from the order for relief in these Cases, except to the extent that any Holder of an Allowed Priority Tax Claim agrees to less favorable treatment thereof.

Pursuant to Section 1129(a)(9)(A) of the Bankruptcy Code, each Holder of an Allowed DIP Facility Claim is entitled to receive in full satisfaction, settlement, release and discharge of and in exchange for such Allowed DIP Facility Claim, Cash equal to the Allowed amount of such Claim, except to the extent that such Holder of a particular DIP Facility Claim has agreed to less favorable treatment of such claim. Under the Plan, and pursuant to the settlements and compromises set forth therein, the DIP Facility Claims shall be Allowed in the DIP Facility Maximum Repayment. Subject to and pursuant to the terms of the Plan, the Holders of the Allowed DIP Facility Claims have agreed that, in lieu of accepting Cash on account of their Allowed DIP Lender Claims, the DIP Lenders shall receive, together with the Pre-Petition Lenders as set forth in Section 4.01 of the Plan, their Pro Rata share of up to 61% of the New Common Stock of Renuvagen, subject to dilution by the Exit Financing.

D. Exit Financing

On the Effective Date, the Reorganized Debtors may issue New Common Stock in Renuvagen to the Plan Funders in exchange for $2 million to fund the Reorganized Debtors’ continued operations and the distributions that the Reorganized Debtors must make pursuant to the terms of this Plan. This New Common Stock will be issued at 1 ¹ / 2 times the DIP Facility conversion valuation on Schedule A included in the Plan Supplement.

Rights of participation as a Plan Funder shall be extended the DIP Lenders, the Pre-Petition Lenders, and the 3.5% Convertible Noteholders in the amount of $2,000,000.00. A right to participate in future financings of the Reorganized Debtors (other than with respect to (x) issuances pursuant to option or employee plans (y) the sale of equity or equity-linked securities by the Reorganized Debtors pursuant to a bona fide , firm underwriting public offering, or (z) the issuance of equity or equity-linked securities by the Reorganized Debtors in connection with a bona fide strategic alliance, so long as the equity being offered does not exceed 5% of the equity on a fully-diluted basis immediately prior to such issuance) are extended to (i) the 3.5% Convertible Noteholders, (ii) the Pre-petition Lenders, and (iii) the DIP Lenders (collectively, the “Covered Investors”) such that, for any equity or equity-linked capital raise done by the Reorganized Debtors, the Covered Investors will have the right to invest in such raise up to an amount that would allow them to preserve their existing equity ownership stake on a fully-diluted basis.

E. Management Incentive Plan

The management team of the Reorganized Debtors and their subsidiaries shall receive 5% of the New Common Stock, subject to dilution by the Exit Financing. The management team’s equity state shall be subject to a two-year vesting schedule whereby 50% shall vest on the Effective Date, 25% shall vest on the first anniversary, and 25% shall vest on the second anniversary. The management incentive plan shall be subject to documentation in a form acceptable to the management team and binding upon the Reorganized Debtor on the Effective Date, with such documentation provided on, or prior to, the deadline for submission of the Plan Supplement; provided, however, that the management incentive plan need not be filed with the Bankruptcy Court.

F. Permanent Injunction, Release & Exculpation

The Plan provides for the release of claims by parties in interest in these cases and the release of other claims and causes of action. Each Holder of a Claim or Interest should review and consider the terms and conditions of Section 10 of the Plan. If the Plan is confirmed, the applicable parties in interest will be bound by the releases and injunctions set forth in the Plan. In order to give notice to all parties of these provisions, the releases and injunctions set forth in the Plan are reprinted below:

I. Discharge of Claims:

As of the Effective Date, except as provided in the Confirmation Order or otherwise provided herein, the rights afforded under this Plan and treatment of Claims and Old Common Stock under the Plan shall be in exchange for and complete satisfaction, discharge and release of all Claims from the beginning of time through the Effective Date. Except as otherwise provided in the Plan, or the Confirmation Order, Confirmation shall, as of the Effective Date, discharge the Debtors from all Claims or other debts that arose before the Effective Date, including, but not limited to, all debts of the kind specified in Bankruptcy Code Sections 502(g), 502(h) or 502(i), whether or not (i) a proof of claim based on such debt is filed or deemed filed pursuant to Bankruptcy Code Section 501, or (ii) a Claim based on such debt is Allowed pursuant to Bankruptcy Code Section 402, or (iii) the Holder of a Claim based on such debt has accepted the Plan. As of the Effective Date, except as otherwise provided in the Plan, or the Confirmation Order, all Entities shall be precluded from asserting against the Debtors or Reorganized Debtors, or their respective successors or property, any other or further Claims, demands, debts, rights, causes of action, liabilities or equity interests based upon any act, omission, transaction or other activity of any kind or nature that occurred prior to the Effective Date. In accordance with the foregoing, except as provided in this Plan, or Confirmation Order, the Confirmation Order shall be a judicial determination, as of the Effective Date pursuant to Bankruptcy Code Sections 524 and 1141, of discharge of all such Claims against the Debtors and such discharge shall void any judgment obtained against the Debtors or the Reorganized Debtors at any time, to the extent that such judgment relates to a discharged Claim.

II. Injunction:

Except as otherwise set forth in this Plan, on and after the Effective Date, all persons and entities that have held, hold, or may hold (a) any Claim against, or Interest in, the Debtors which arose prior to the Effective Date shall be permanently enjoined from and against: (i) commencing or continuing in any manner any suit, action or other proceeding of any kind against the Debtors, the Reorganized Debtors, their respective affiliates, shareholders, accountants, direct or indirect subsidiaries, agents, attorneys, advisors, (and with regard to all of the foregoing entities, their officers and directors), and/or the estates (collectively, the “Permanent Injunction Parties”) with respect to any such Claim or Interest; (ii) the enforcement, attachment, collection, or recovery by any manner or means of any judgment, award, decree, or order against the permanent injunction parties; (iii) creating, perfecting or enforcing any lien or encumbrance of any kind against the permanent injunction parties or against any of their properties or interests in property with respect to such Claim or Interest; and (iv) asserting any right of setoff against any obligation due from the permanent injunction parties or against any property or interest in property of the Debtors or the Reorganized Debtors with respect to any such Claim or Interest; and (b) any Claim, right, action, cause of action against or Interest in the Debtors, the Reorganized Debtors, or the Estates which shall have arisen prior to the confirmation date shall be permanently enjoined from and against commencing or continuing any suit, action, or proceeding against, asserting or attempting to recover any claim against or interest in, or otherwise affecting the permanent injunction parties with respect to any matter that is the subject of this plan.

III. Exculpation and Limitation of Liability:

None of the Debtors, the Agent, the Pre-Petition Lenders, the DIP Lenders or the Plan Funders or any of the respective shareholders, members, officers, directors, employees, agents, attorneys, consultants, lenders, investment bankers, accountants and affiliates (and each of their respective shareholders, members, officers, directors, employees, agents, attorneys, consultants, lenders, investment bankers, accountants and affiliates of the foregoing, in their respective capacities as such) shall have or incur any liability to any Holder of a Claim or Old Common Stock for any act or omission in connection with, related to, or arising out of, the Cases, the pursuit of confirmation of the Plan, the consummation of the Plan or the administration of the Plan or the property to be distributed under the Plan except for willful misconduct or gross negligence, and, in all respects, the Debtors, the Agent, the DIP Lenders, the Pre-Petition Lenders and the Plan Funders shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan.

IV. Releases:

(a) Compromise of Controversies. Pursuant to Bankruptcy Rule 9019, and in consideration for the classification, distribution and other benefits provided under the Plan, the provisions of the Plan shall constitute a good faith compromise and settlement of all Claims, Interests and controversies resolved pursuant to the Plan, including, without limitation, all Claims and Interests arising prior to the Petition Date, whether known or unknown, foreseen or unforeseen, asserted or unasserted, by or against the Debtors, the Agent, the DIP Lenders, the Pre-Petition Lenders and the Plan Funders, arising out of, relating to or in connection with the business or affairs of or transactions with the Debtors. The entry of the Confirmation Order shall constitute the Bankruptcy Court’s approval of each of the foregoing compromises or settlements, and all other compromises and settlements provided for in the Plan, and the Bankruptcy Court’s findings shall constitute its determination that such compromises and settlements are in the best interests of the Debtors, the Estates, creditors, equity holders, and other parties in interest, and are fair, equitable and within the range of reasonableness. The provisions of the Plan, including, without limitation, its release, injunction, exculpation and compromise provisions, are mutually dependent and non-severable. If the Plan is confirmed, the applicable parties in interest will be bound by the releases and injunctions set forth in the Plan.

(b) Releases by the Debtors. As of the Effective Date, the Debtors and their estates hereby waive, release and discharge (i) the DIP Lender, (ii) the Pre-Petition Lenders; (iii) the Agent, (iv) the Plan Funders and (v) the Debtors’ present and former officers and directors, and (iv) each of the respective shareholders, members, officers, directors, employees, agents, attorneys, consultants, lenders, investment bankers, accountants and affiliates in their respective capacities as such of the parties released in clauses (i), (ii), and (iii) of this Section, from any Claim, obligation, right, Cause of Action or liability, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, based in whole or in part on any act or omission, transaction or occurrence from the beginning of time through the Effective Date in any way relating to the Debtors, the Cases or the Plan.

(c) Releases by Holders of Claims or Interests. On the Effective Date, the Debtors, the Reorganized Debtors, the Agent, DIP Lender, the Pre-Petition Lenders and the Plan Funders and their respective affiliates, direct or indirect subsidiaries—along with the present and former officers, directors, agents, shareholders, attorneys, accountants, the estates, and advisors of each of the foregoing (the “Released Parties”) will automatically be released from all Claims and Causes of Action of every kind and nature, from the beginning of time through the Effective Date for all acts and omissions occurring both before and after the Petition Date, whether known or unknown, that may be asserted by: (i) the Released Parties; (ii) any Holder of a Claim or Interest in Classes 1, 2, 3, 4, and 6; (iii) Holders of Priority Claims and Holders of Administrative Expense Claims; (iv) the Agent; and (v) the DIP Lenders that in any way relate to, or arise in connection with, the Debtors, the Reorganized Debtors, or these Cases—including, without limitation, the Debtors’ present and former businesses, operations, or financing. The release provisions set forth in this section shall act as an injunction against any entity commencing or continuing any action, employment of process, or act to collect, offset, or recover any Claim or Causes of Action satisfied, released, or discharged under this Plan. This injunction (the “Injunction”) shall apply regardless of whether a Proof of Claim or interest based on such Claim, debt, liability, or Interest is filed or allowed, or whether such entity voted to accept or reject this Plan except for parties in Classes 1, 3, and 4 who submit a ballot indicating that they opt out of this release. Without in any way limiting the foregoing, all Injunctions or stays entered in these Cases and existing immediately prior to the Confirmation Date shall remain in full force and effect until the Effective Date. This release in this subsection binds all parties in interest except for: (i) parties in Classes 1, 3, and 4 who submit a ballot indicating that they opt out of this release, and (ii) Holders of Interests in Class 5.

The foregoing release shall not apply to any duties, obligations, responsibilities, claims or causes of action that in any way relate to, or arise in connection with the Exit Facility.

V. Injunction Related to Releases and Exculpation:

The Confirmation Order will permanently enjoin the commencement or prosecution by any person or entity, whether directly, derivatively or otherwise, of any claims, obligations, suits, judgments, damages, debts, rights, causes of action or liabilities released pursuant to this Plan, including, but not limited to the claims, obligations, suits judgments, damages, demands, debts, rights, causes of action or liabilities released in Article 10 of this Plan.

***

The terms of the Restructuring Agreement, which form the terms of the Plan, represent a heavily-negotiated settlement with the key constituents in these Cases. It was negotiated to attempt to provide a recovery to interested parties in these Cases. Absent the compromise set forth in the Restructuring Agreement, which set forth the terms which comprise the Plan, the Debtors only alternative would have been to file petitions under chapter 7 of the Bankruptcy Code and to liquidate. The Debtors believe that creditors would be extremely unlikely to receive a Distribution if their assets are liquidated in a chapter 7 case. Therefore, the Plan is a compromise under Bankruptcy Rule 9019.

G. Bar Date

The Bar Date shall be set by Order of the Bankruptcy Court prior to the Confirmation of the Plan as the Bar Date— i.e. , last date by which any Holder of a Claim or Interest, including Administrative Expense Claims pursuant to section 503(b)(9) of the Bankruptcy Code, can assert Claims against the Debtors arising prior to the Petition Date. If a Claim or Interest is not scheduled or is scheduled as disputed, contingent, or unliquidated, the Holder of such claim or interest shall file with this Court a Proof of Claim or Interest (as applicable) or a motion for allowance of an Administrative Claim. All requests for allowance of an Administrative Claim shall be made by Motion to this Court.

Any motions for allowance of an Administrative Expense Claims not arising under section 503(b)(9) of the Bankruptcy Code and not constituting Professional Fees shall be filed by the later of: (i) 30 days after such Claim is incurred, or (ii) 30 days after the Confirmation Date. Service of the Confirmation Order shall constitute reasonable and adequate notice of the Bar Date for Administrative Expense Claims not arising under section 503(b)(9) of the Bankruptcy Code. After the Bar Date, all parties and Entities who fail to file a proof of claim or interest (as applicable) or a motion for allowance of an Administrative Claim shall not be treated as a creditor with respect to such claim or interest (or Administrative Expense Claim) for the purposes of voting and distribution.

After the Bar Date, all parties and entities shall be permanently enjoined from asserting any Claim against, or Interests in, the Debtors, or the Estates, absent further Order of this Court.

H. Executory Contracts

The Reorganized Debtors shall identify any Executory Contracts to be assumed as of the Effective Date and the amount of cure payments to be provided by Reorganized Debtors in accordance with Bankruptcy Code section 365(b)(1) prior to approval of the Disclosure Statement. Objections to any proposed cure payment must be made by the Voting Deadline and shall be determined, if necessary, at the Confirmation Hearing. A party to an assumed Executory Contract that has not filed an appropriate pleading with the Bankruptcy Court on or before the objection deadline set by the Bankruptcy Court shall be deemed to have waived its right to dispute such amount. The Debtors and the Reorganized Debtors reserve the right to reject any Executory Contract that is listed by the Debtors as an Executory Contract to be assumed. All unpaid cure payments under any Executory Contracts that are assumed or under the Plan shall be made by Reorganized Debtors as soon as practicable after the Effective Date, provided , that, in the event that there is a dispute regarding the amount of any cure payments, the Reorganized Debtors shall make such cure payments as may be required by Bankruptcy Code Section 365(b)(1) within ten (10) days following the entry of a Final Order resolving such dispute.

Each Executory Contract of the Debtors that has not expired by its own terms prior to the Effective Date, that has not been assumed or rejected during these chapter 11 Cases prior to the Effective Date, and is not listed by the Debtors as a Executory Contract to be assumed or is not included in a motion to reject such Executory Contract prior to the Effective Date, shall be deemed rejected by the Debtors pursuant to Bankruptcy Code Section 365 on the Effective Date.

All proofs of claim with respect to Claims arising from the rejection of Executory Contracts shall be filed with the Bankruptcy Court on or before the date established as the last date therefor by the Bar Date Order or other order of the Bankruptcy Court. Any proof of claim that is not timely-filed shall be released, discharged and forever barred from assertion against the Debtors, or their Assets, or Reorganized Debtors.

I. Consolidation for Distribution and Voting Purposes

On the Effective Date, the Estate of each of the Debtors shall be deemed consolidated with each other such that the assets and liabilities of each of the Debtors shall be merged solely for the purposes of Distribution, voting and Confirmation of the Plan. As a consequence, any guaranties by one of the Debtors of the obligations of the other or any joint obligations shall be deemed liquidated so that the Holder of such Claims shall have one Claim against the consolidated Debtors and shall be deemed to be a single obligation. Additionally, each and every proof of claim filed or to be filed in either case shall be deemed filed against the consolidated Estate. Notwithstanding the foregoing, the deemed consolidation of the Estate shall not affect the legal and organizational structure of the Debtors.

V. CONFIRMATION AND CONSUMMATION OF THE PLAN

Under the Bankruptcy Code, the following steps must be taken to confirm and implement the Plan.

A. The Confirmation Hearing

The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a confirmation hearing. The Confirmation Hearing in respect of the Plan has been scheduled for August 27, 2009 at 2:00 p.m. (Prevailing Eastern Time), before the Honorable Mary F. Walrath, United States Bankruptcy Judge at the United States Bankruptcy Court, 824 Market Street, Fifth Floor, Courtroom Four, Wilmington, Delaware 19801.

B. Confirmation of the Plan

At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan only if all of the requirements of Section 1129 of the Bankruptcy Code are met. These requirements are briefly summarized below.

1. Compliance with the Bankruptcy Code (Sections 1129(a)(1) and 1129 (a)(2))

The Debtors believe that the Plan complies with all the relevant provisions of the Bankruptcy Code and that they have complied with the requirements of the Bankruptcy Code in proposing the Plan.

2. Good Faith (Section 1129(a)(3) )

The Debtors have proposed the Plan in good faith and not by any means forbidden by law. At the Confirmation Hearing, the Debtors will present evidence of their good faith.

3. Court Approval of Payments (Section 1129(a)(4) )

The Plan provides for obtaining the Bankruptcy Court’s approval of any payment made or to be made by the Debtors for services or for costs and expenses in or in connection with these Cases, or in connection with the Plan and incident to these Cases.

4. Disclosure of Directors and Officers (Section 1129(a)(5) )

Pursuant to Bankruptcy Code Section 1129(a)(5), the Debtors will disclose, as part of its plan supplement, the identity and affiliations of any other person proposed to serve on the initial board of directors of Reorganized Debtors, and, to the extent such person is an insider other than by virtue of being a director, the nature of any compensation for such person. The classification and composition of the board of Reorganized Debtors shall be consistent with the New Articles of Incorporation. The Debtors assert that the appointment of such individuals will be consistent with the interests of the Debtors’ Claims and Interest Holders and with public policy.

5. Approval of Rate Change (Section 1129(a)(6) )

Section 1129(a)(6) of the Bankruptcy Code does not apply to the Debtors.

6. Best Interests Test (Section 1129(a)(7) )

With respect to each impaired Class of Claims and Interests, the Bankruptcy Code requires that in order for the Plan to be confirmed, each Holder of a Claim or Interest either (a) accept the Plan; or (b) receive or retain under the Plan property of a value, as of the Effective Date, that is not less than the value such holder would receive or retain if the Debtors were liquidated under chapter 7 of the Bankruptcy Code. To determine what Holders of Claims and Interests of each impaired Class would receive if the Debtors were liquidated under chapter 7, the Bankruptcy Court must determine the dollar amount that would be generated from the liquidation of the Debtors’ Assets and properties in the context of a chapter 7 liquidation case. The cash amount that would be available for satisfaction of unsecured non-priority Claims and Interests would consist of the proceeds resulting from the disposition of the unencumbered assets and properties of the Debtor, augmented by the unencumbered cash held by the Debtors at the time of the commencement of the liquidation case and litigation recoveries, if any. Such cash amount would be reduced by the amount of the costs and expenses of the liquidation and by such additional administrative and priority claims that might result from the termination of the Debtors’ business and the use of chapter 7 for the purposes of liquidation.

The Debtors’ costs of liquidation under chapter 7 would include the fees payable to a trustee in bankruptcy, as well those fees that might be payable to attorneys and other professionals that such a trustee might engage. In addition, Claims would arise by reason of the breach or rejection of obligations incurred and leases and executory contracts assumed or entered into by the Debtor during the pendency of these Cases. The foregoing types of Claims and other Claims that might arise in a liquidation case or result from these pending Cases, including any unpaid expenses incurred by the Debtors during these Cases such as compensation for attorneys, financial advisors, and accountants, would be paid in full from the liquidation proceeds before the balance of those proceeds would be made available to pay pre-petition general unsecured claims.

To determine if the Plan is in the best interests of each impaired class, the present value of the distributions from the proceeds of a liquidation of the Debtors’ unencumbered assets and properties, after subtracting the amounts attributable to the foregoing claims, are then compared with the value of the property offered to such Classes of Claims and Equity Interests under the Plan.

After considering the effects that a chapter 7 liquidation would have on the ultimate proceeds available for distribution to creditors in these Cases, including: (a) the liens asserted in and to the Debtors’ assets by the Pre-Petition Lenders; (b) the increased costs and expenses of a liquidation under chapter 7 arising from fees payable to a trustee in bankruptcy and professional advisors to such trustee; (c) the erosion in value of assets in a chapter 7 case in the context of the expeditious liquidation required under chapter 7 and the “forced sale” atmosphere that would prevail; and (d) the substantial increases in claims which would be satisfied on a priority basis or on parity with creditors in these cases, the Debtors have determined that confirmation of the Plan will provide each Holder of an Allowed Claim or Interest with a recovery that is not less than such Holder would receive pursuant to liquidation of the Debtors under chapter 7.

The Debtors also believe that the value of any distributions to each Class of Allowed Claims in a chapter 7 case, including all Secured Claims and Priority Tax Claims, would be less than the value of distributions under the Plan because such distribution in a chapter 7 case would not occur for a substantial period of time. It is likely that distribution of the proceeds of the liquidation could be delayed for years after the completion of such liquidation to resolve Claims and prepare for distributions. In the likely event litigation was necessary to resolve Claims asserted in the chapter 7 case, the delay could be prolonged.

The Liquidation Analysis of the Debtors and prepared by the Debtors’ financial advisor is attached as an Exhibit hereto. Underlying the Liquidation Analysis are a number of estimates and assumptions that, although developed and considered reasonable by the Debtors’ financial advisors, are inherently subject to significant economic and competitive uncertainties and contingencies beyond the control of the Debtors. The Liquidation Analysis is also based on assumptions with regard to liquidation decisions that are subject to change. Accordingly, the values reflected might not be realized if the Debtors were, in fact, to undergo such a liquidation.

7. Confirmation of a Consensual Plan (Section 1129(a)(8) )

Section 1129(a)(8) requires that to confirm a consensual Plan, each class must be unimpaired or vote to accept the plan. In these Cases, if each Class does not satisfy this requirement, then the Plan may be confirmed as a non-consensual plan under Sections 1129(a)(10) and 1129(b) as long as the requirements below are satisfied.

8. Treatment of Claims Entitled to Priority (Section 1129(a)(9) )

The Plan provides for the treatment of Administrative Expense Claims and Priority Claims in the manner required by Section 1129(a)(9) of the Bankruptcy Code.

9. Confirmation of a Nonconsensual Plan (Sections 1129(a)(10) and 1129(b) )

In the event that any impaired Class of Claims or Interests does not accept the Plan, the Bankruptcy Court may nevertheless confirm the Plan if all other requirements under Section 1129(a) of the Bankruptcy Code are satisfied, and if, with respect to each impaired Class which has not accepted the Plan, the Bankruptcy Court determines that the Plan does not “discriminate unfairly” and is “fair and equitable” with respect to such Class. Confirmation under Section 1129(b) of the Bankruptcy Code requires that at least one impaired Class of Claims accept the Plan, excluding any acceptance of the Plan by an “insider” (as that term is defined in Section 101 of the Bankruptcy Code). The Debtor intends to seek confirmation of the Plan notwithstanding the non-acceptance of one or more impaired Classes.

The Bankruptcy Code does not define what is meant by “does not discriminate unfairly,” but it is generally interpreted to mean that similarly-situated creditors or interest holders must receive similar consideration under the plan. The Bankruptcy Code provides a non-exclusive definition of the phrase “fair and equitable,” as follows:

Secured Claims

The condition that a plan be “fair and equitable” with respect to a non-accepting class of secured claims includes the requirements that (a) the holders of such secured claims retain the liens securing such claims to the extent of the allowed amount of the claims, whether the property subject to the liens is retained by the debtor or transferred to another entity under the plan and (b) each holder of a secured claim in the class receives deferred cash payments totaling at least the allowed amount of such claim with a present value, as of the effective date of the plan, at least equivalent to the value of the secured claimant’s interest in the debtor’s property subject to the liens.

Unsecured Claims

The condition that a plan be “fair and equitable” with respect to a non-accepting class of unsecured claims includes the following requirement that either: (i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or (ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property.

Equity Interests

The condition that a plan be “fair and equitable” with respect to a non-accepting class of equity interests includes the requirements that either: (a) the plan provide that each holder of an equity interest in such class receive or retain under the plan, on account of such equity interest, property of a value, as of the effective date of the plan, equal to the greater of (i) the allowed amount of any fixed liquidation preference to which such holder is entitled; (ii) any fixed redemption price to which such holder is entitled; or (iii) the value of such interest; or (b) if the class does not receive such an amount as required under (a), no class of equity interests junior to the non-accepting class may receive a distribution under the plan.

The Debtors believe that the Plan would not discriminate unfairly against, and is fair and equitable with respect to, any non-accepting Class of Claims or Interests.

10. Feasibility (Section 1129(a)(11) )

The Bankruptcy Code permits a plan to be confirmed if the Bankruptcy Court finds that it is not likely to be followed by liquidation or the need for further financial reorganization, unless the plan itself provides for a liquidation. This requirement is the so-called “feasibility test.” The Plan provides that the Reorganized Debtors will emerge with sufficient Cash and Exit Financing to satisfy, in full, all payments required under the Plan. The Debtors will not accept Exit Financing unless it is sufficient to fund ongoing operations and satisfy, in full, all payments required under the Plan. The Reorganized Debtors intend on raising additional funds post-confirmation to assist in the ongoing development of its assets and to pay its bills as they come due. Confirmation of the Plan is a necessary predicate to raising such additional financing and will make such financing more readily accessible given the significant restructuring of the balance sheet and elimination of pre-petition debt. The Debtors therefore believe that the proposed Exit Financing and the expected post-confirmation capital raising will be sufficient for the Debtors to satisfy their obligations under the Plan and to operate their businesses. The Debtors will provide evidence at the Confirmation Hearing that the post-confirmation financing is achievable and will be sufficient to satisfy Section 1129(a)(11).

The Debtors’ businesses successfully completed and re-performed the within-referenced new Phase III trials in late 2008 under a new management team and would like to move forward with the marketing and development of said product technology. As previously described, the Debtors are in the process of seeking approval from the Food and Drug Administration for their lead product candidate. At present, the Debtors anticipate that this approval will be provided in January 2010, assuming the process progresses at its currently anticipated pace and that no major unanticipated delays are encountered. Upon receiving approval from the FDA, the Debtors will be required to seek substantial funding to allow the Debtors to market its product. Conversely, the Debtors may seek to sell their assets (including the FDA approved technologies) to, or partner with, a party that has the financial wherewithal and industry experience to bring an approved product to market.

11. Payment of Statutory Fees (Section 1129(a)(12) )

All fees payable pursuant to Section 1930 of title 28 of the United States Code in connection with these Cases, as determined by the Bankruptcy Court at the Confirmation Hearing, shall be paid on or before the Effective Date.

12. Retiree Benefits (Section 1129(a)(13) )

Section 1129(a)(13) of the Bankruptcy Code contains certain requirements governing non-pension “retiree benefits” that do not apply to the Debtor.

C. Consummation of the Plan

The Plan will be consummated on the Effective Date. The Effective Date shall be determined and set by the Debtors after the Confirmation Date and shall be a Business Day upon which the conditions precedent to effectiveness of the Plan are satisfied or waived.

VI. RISK FACTORS TO BE CONSIDERED

The Holders of impaired Claims against the Debtors should carefully consider the following factors before deciding whether to vote to accept or reject the Plan.

A. Certain Risks of Non-Confirmation

The Plan sets forth certain conditions precedent to the Bankruptcy Court entering the Confirmation Order, which are as follows:

(a) The Debtors shall have reviewed and updated all financial projections, and such financial projections shall be acceptable in form and substance to Agent and the Debtors, in their sole and absolute discretion.

(b) The Post Petition Credit Agreement shall be in full force and effect without any defaults having occurred that have not been waived by Agent.

(c) The Confirmation Order shall be acceptable in form and substance to the Debtors and the Agent, in their sole and absolute discretion.

(d) The Disclosure Statement Approval Order shall have been entered.

(e) There shall have occurred no Material Adverse Changes.

Even if all of the conditions to confirmation are satisfied, the Plan may not be consummated if any of the conditions precedent to the Effective Date, as are set forth in the Plan, are not met. In addition, the Debtors will emerge from bankruptcy with a need for capital. There is a risk that the anticipated additional funding will not be available to the Debtors, or that there will not be sufficient funding available for the Debtors to obtain the FDA approval set forth above, or that there will not be sufficient funding available for the Debtors to continue to seek the FDA approval set forth above. Based upon the current financial projections that are set forth in the Budget attached hereto as Exhibit D, the Debtors anticipate that the Exit Financing will fund their continued operations for a period of 2-3 months subsequent to the Effective Date of the Plan. As is set forth above, the Debtors believe that after the Effective Date, additional funding may be more readily accessible; for, the Reorganized Debtors will have significantly reduced its liabilities and will possess a much less cumbersome equity structure. However, the Debtors do not currently have firm commitments that any funding will be available to them.

Additionally, even if the required acceptances of each of Class 1, 3, and 4 are received, the Bankruptcy Court might find that the solicitation of votes or the Plan did not comply with the solicitation requirements made applicable by Section 1125 of the Bankruptcy Code. In such an event, the Debtors may seek to re-solicit acceptances, but confirmation of the Plan could be substantially delayed and possibly jeopardized. The Debtors believe that their solicitation of acceptances of the Plan complies with the requirements of Section 1125 of the Bankruptcy Code, that duly executed Ballots and master ballots will be in compliance with applicable provisions of the Bankruptcy Code and the Bankruptcy Rules, and that, if sufficient acceptances are received, the Plan should be confirmed by the Bankruptcy Court.

The Debtors will request that the Bankruptcy Court confirm the Plan under Bankruptcy Code Section 1129(b). Section 1129(b) permits confirmation of the Plan despite rejection by one or more impaired classes if the Bankruptcy Court finds that the Plan “does not discriminate unfairly” and is “fair and equitable” as to the non-accepting class or classes. Classes 5 and 6 are fully impaired and will not receive or retain any property under the Plan. Because Classes 5 and 6 are deemed not to have accepted the Plan, the Debtors will request that the Bankruptcy Court find that the Plan is fair and equitable and does not discriminate unfairly as to such Classes (and any other class that fails to accept the Plan).

Should the Bankruptcy Court fail to confirm the Plan, the Debtors would then consider all financial and other alternatives available to it at that time. Pursuit of any such alternative could result in a protracted and non-orderly reorganization with all the attendant risk of adverse consequences to the Debtors and their ultimate ability to function effectively and competitively.

If the Plan, or a plan determined by the Bankruptcy Court not to require re-solicitation of acceptances by Classes, were not to be confirmed, it is unclear whether a reorganization could be implemented and what Holders of Claims and Interests would ultimately receive with respect to their Claims and Interests. If an alternative reorganization could not be agreed upon, it is possible that the Debtors would have to liquidate assets, in which case Holders of Claims and Interests could receive less than they would have received pursuant to the Plan.

B. Risks of Non-Consummation of Plan

Even if all of the conditions to confirmation are satisfied, the Plan may not be consummated if any of the conditions precedent to the Effective Date, as are set forth in the Plan, are not met. In addition, the Debtors will emerge from bankruptcy with a need for capital. There is a risk that the anticipated additional funding will not be available to the Debtors, or that there will not be sufficient funding available for the Debtors to obtain the FDA approval set forth above, or that there will not be sufficient funding available for the Debtors to continue to seek the FDA approval set forth above. Based upon the current financial projections that are set forth in the Budget attached hereto as Exhibit D, the Debtors anticipate that the Exit Financing will fund their continued operations for a period of 2-3 months subsequent to the Effective Date of the Plan, without regard to the post Effective Date financing which will be sought by the Reorganized Debtors, which the Debtors expect to obtain. As is set forth above, the Debtors believe that after the Effective Date, additional funding will be more readily accessible because the Reorganized Debtors will have significantly reduced its liabilities and will possess a much less cumbersome equity structure. However, the Debtors do not currently have firm commitments that any funding will be available to them.

C. Risks Associated with New Common Stock

The ultimate recoveries under the Plan to holders of Claims against the Debtors depend upon the realizable value of the New Common Stock to be issued under the Plan. The realizable value of the New Common Stock is subject to a number of material risks, including, but not limited to, those specified below. These factors assume that the Plan is approved by the Bankruptcy Court and that all conditions precedent to the Confirmation Date and the Effective Date are satisfied and/or waived pursuant to the Plan.

The New Common Stock will be issued pursuant to the Plan. Some of the recipients may prefer to liquidate their investment rather than hold it on a long term basis. The prices at which the New Common Stock may trade will depend upon a number of factors, including industry conditions, the performance of, and investor expectations for, the Reorganized Debtors, and market factors, such as the number of holders who may wish to dispose of their stock to raise funds or recognize losses for tax purposes or otherwise as well as the projected success of the product technology in future clinical trials.

The Debtor anticipates that dividends may not be paid with respect to the New Common Stock.

THE DEBTORS MAKE NO REPRESENATIONS OR WARRANTIES THAT THE NEW COMMON STOCK WILL BE FULLY TRADEABLE. ALL PARTIES SHOULD DRAW THEIR OWN CONCLUSIONS REGARDING THE TRANSFERABILITY OF THE NEW COMMON STOCK. NOTHING CONTAINED HEREIN SHALL BE INTERPRETED AS AN INDICATION THAT THE NEW COMMON STOCK IS TRADEABLE.

VII. EXEMPTIONS FROM SECURITIES ACT REGISTRATION

A. Generally:

Section 1145 of the Bankruptcy Code creates an exemption from the registration and licensing requirements of the Securities Act of 1933 (the “Securities Act”) and the corresponding provisions of the state securities laws (together with the Securities Act, the “securities laws”) for the issuance and certain resales of the securities issued in connection with a Chapter 11 plan.

B. Initial Issuance of New Common Stock under the Plan

Section 1145(a) of the Bankruptcy Code provides that the securities registration and qualification requirements of the securities laws do not apply to the offer or sale of stock, warrants or other securities by a debtor if the offer or sale occurs under a plan of reorganization and the securities are transferred in exchange (or principally in exchange) for a claim against or interest in the debtor.

THE DEBTORS MAKE NO REPRESENATIONS OR WARRANTIES WITH RESPECT TO SECTION 1145(a) OF THE BANKRUPTCY CODE. THE DEBTORS ARE SEEKING APPROVAL FROM THE BANKRUPTCY COURT OF THE ISSUANCE OF THE NEW COMMON STOCK UNDER EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY STATE OR LOCAL LAW PURSUANT TO SECTION 1145 OF THE BANKRUPTCY CODE; HOWEVER THE DEBTORS CANNOT GUARANTEE THAT SUCH EXEMPTION WILL APPLY OR WILL BE GRANTED. ALL PARTIES SHOULD DRAW THEIR OWN CONCLUSIONS REGARDING THE TRANSFERABILITY OF THE NEW COMMON STOCK AND THE APPLICABILITY OF SECTION 1 145(a) TO THE ISSUANCE OF THE NEW COMMON STOCK. NOTHING CONTAINED HEREIN SHALL BE INTERPRETED AS AN INDICATION THAT THE NEW COMMON STOCK IS TRADEABLE OR EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY STATE OR LOCAL LAW PURSUANT TO SECTION 1145 OF THE BANKRUPTCY CODE.

The views of the SEC have not been sought in this particular case and, therefore, the Debtors can give no assurances regarding the current position of the SEC on ordinary trading transactions. The Debtors have not sought any advice from the staff of the SEC with respect to such transactions.

THE DEBTORS HAVE NOT SOUGHT A “NO-ACTION” LETTER FROM THE SEC OR ANY STATE SECURITIES COMMISSION WITH RESPECT TO ANY MATTER DISCUSSED HEREIN.

Section 1145 of the Bankruptcy Code generally exempts from registration the offer or sale of a debtor’s securities of those or an affiliate of, or a successor to, the debtor under a chapter 11 plan if such securities are offered or sold in exchange for a claim against, or interest in, or a claim for an administrative expense concerning such debtor. The Debtors will seek an Order of the Bankruptcy Court seeking the issuance of the New Common Stock to the Creditors who are entitled to the same under the Plan pursuant to Section 1145(a) of the Bankruptcy Code. Therefore, under Section 1145 of the Bankruptcy Code, the issuance of the New Common Stock and the subsequent resale of such securities by entities that are not “underwriters” (as defined in Section 1145(b) of the Bankruptcy Code, a “Section 1145 Underwriter”) may not be subject to the registration requirements of Section 5 of the Securities Act of 1933, as amended (the “Securities Act”) or equivalent state securities laws. Thus, such shares may be deemed to have been issued in a registered public offering under the Securities Act and, therefore, may be resold by any holder thereof without registration under the Securities Act pursuant to the exemption provided by section 4(1) thereof unless the holder is a Section 1145 Underwriter. In addition, such securities generally may be resold by the recipients thereof without registration under state securities or “blue sky” laws pursuant to various exemptions provided by the respective laws of the several states.

Section 1145(b) of the Bankruptcy Code generally defines “underwriter” for purposes of the Securities Act as one who (a) purchases a claim with a view to distribution of any security to be received in exchange for the claim, (b) offers to sell securities issued under a plan for the holders of such securities, (c) offers to buy securities issued under a plan from persons receiving such securities, if the offer to buy is made with a view to distribution of such securities, (d) is an issuer (in this case, the Reorganized Debtor) of the securities within the meaning of section 2(11) of the Securities Act. The reference contained in Bankruptcy Code §1145(b)(1)(D) to Section 2(11) of the Securities Act includes as Section 1145 Underwriters all persons who, directly or indirectly, through one or more intermediaries, control, are controlled by or are under common control with, an issuer or securities. “Control” (as defined in Rule 405 under the Securities Act) means the possession, direct or indirect, of the power to direct or cause the direction of the policies of a person, whether through ownership of voting securities, by contract, or otherwise. Moreover, the legislative history of Section 1145 of the Bankruptcy Code suggests that a creditor that owns at least ten percent (10%) of the securities of the Reorganized Debtor is a presumptive “control person” of the Reorganized Debtor. To the extent that persons deemed to be “underwriters” receive New Common Stock, resales by such persons would not be exempted by Section 1145 of the Bankruptcy Code from registration under the Securities Act or other applicable law.

Because of the subjective nature of the question of whether a particular holder may be an underwriter, the Debtors make no representations concerning the ability of any person to dispose of the securities to be distributed under the Plan. Each recipient of securities under the Plan should consult its own legal advisor as to whether resales of such recipient’s securities are lawful under federal and state securities laws.

VIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN

If the Plan is not confirmed and consummated, the alternatives for resolution of the Debtors’ chapter 11 cases include (a) liquidation of the Debtors under chapter 7 or chapter 11 of the Bankruptcy Code, and (b) the preparation and presentation of an alternative plan or plans of reorganization.

A. Liquidation under Chapter 7 or Chapter 11

If no chapter 11 plan can be confirmed, these Cases may be converted to cases under chapter 7 of the Bankruptcy Code in which a trustee would be elected or appointed to liquidate the assets of the Debtors. A discussion of the effect that a chapter 7 liquidation would have on the recovery of holders of Claims and Equity Interests is set forth in Section V.B.6 herein. The Debtors believe that liquidation of the Debtors under chapter 7 would result in (i) smaller distributions being made to creditors than those provided in the Plan because of the additional administrative expenses involved in the appointment of a trustee, and attorneys and other professionals to assist such trustee, (ii) additional expenses and claims, some of which would be entitled to priority, which would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of the Debtors’ operations, and (iii) the failure to realize the greater going concern value of the Debtors’ assets.

The Debtors could also be liquidated pursuant to the provisions of a chapter 11 plan of liquidation. In a liquidation under chapter 11, the Debtors’ assets could be sold in a more orderly fashion over a longer period of time than in a liquidation under chapter 7. Thus, chapter 11 liquidation might result in larger recoveries than in a chapter 7 liquidation, but the delay in distributions could result in lower present values received and higher administrative costs. Because a trustee is not required in a chapter 11 case, expenses for professional fees could be lower than in a chapter 7 case, in which a trustee must be appointed. Any distribution to the Holders of Claims under a chapter 11 liquidation plan probably would be delayed substantially. Moreover, the Debtors will likely not have sufficient funds to fund a chapter 11 liquidation. Therefore, a chapter 7 liquidation is more likely if no chapter 11 plan can be confirmed.

B. Alternative Plan of Reorganization

If the Plan is not confirmed, the Debtors or any other party in interest could attempt to formulate a different plan of reorganization. Such a plan might involve either a reorganization and continuation of the Debtors’ businesses or an orderly liquidation of its assets. During the course of preparation of the Plan and prior to filing for relief under chapter 11 of the Bankruptcy Code, the Debtors explored various other alternatives and concluded that the Plan represented the best alternative to protect the interests of Creditors and other parties in interest. The Debtors have not changed their conclusions.

IX. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN

The following discussion is a summary of certain United States federal income tax consequences of the Plan to the Debtors and to Holders of Claims and Interests. This discussion is based on the Internal Revenue Code of 1986, as amended as of the date hereof (the “Tax Code”), treasury regulations promulgated and proposed thereunder, judicial decisions and published administrative rules and pronouncements of the IRS as in effect on the date hereof. Due to the complexity of certain aspects of the Plan, the lack of applicable legal precedent, the possibility of changes in the law, the differences in the nature of the Claims (including Claims within the same Class) and Interests, the Holders’ status and method of accounting (including Holders within the same Class) and the potential for disputes as to legal and factual matters with the IRS, the tax consequences described herein subject to significant uncertainties. No legal opinions have been requested from counsel with respect to any of the tax aspects of the Plan, and no rulings have been or will be requested from the IRS with respect to any of the issues discussed below. Furthermore, legislative, judicial or administrative changes may occur, perhaps with retroactive effect, which could affect the accuracy of the statements and conclusions set forth below as well as the tax consequences to the Debtors and the Holders of Claims and Interests.

This discussion does not purport to address all aspects of United States federal income taxation that may be relevant to the Debtors or the Holders of Claims or Equity Interests in light of their personal circumstances, nor does the discussion deal with tax issues with respect to taxpayers subject to special treatment under the United States federal income tax laws (including, for example, banks, governmental authorities or agencies, pass-through entities, brokers and dealers in securities, insurance companies, financial institutions, tax-exempt organizations, small business investment companies, regulated investment companies and foreign taxpayers). This discussion does not address the tax consequences to Holders of Claims who did not acquire such Claims at the issue price on original issue. No aspect of foreign, state, local or estate and gift taxation is addressed.

The following summary is not a substitute for careful tax planning and advice based upon the personal circumstances of each Holder of a Claim or Equity Interest. Each Holder of a Claim or Interest is urged to consult with his, her, or its tax advisors concerning the United States Federal, state, local, foreign, and other tax consequences applicable under the Plan.

A. Consequences to Holders of Allowed Claims in Classes 1, 3, and 4

Pursuant to the Plan, Holders of Allowed Class Claims in Classes 1, 3, and 4 may receive New Common Stock in part in discharge of their Allowed Claims or Interests. Whether or not such a Holder will be required or allowed to recognize gain or loss realized on the exchange of Allowed Claims or Interests for New Common Stock (the “Exchange”) depends on whether the Exchange constitutes a “reorganization” as that term is defined in Section 368 of the Tax Code. This determination, in turn, depends upon whether the Allowed Claim constitutes a “security” for United States federal income tax purposes. Whether an instrument constitutes a “security” is determined based on all the facts and circumstances, including the length of the term of a debt instrument, the security for payment, the creditworthiness of the obligor, the subordination or lack thereof to other creditors, the right to vote or otherwise participate in the management of the obligor, convertibility of the instrument into an equity interest of the obligor, whether payments of interest are fixed, variable or contingent, and whether such payments are made on a current basis or accrued.

Assuming the Holder’s Allowed Claim is treated as a security for United States Federal Income Tax purposes, the Exchange may qualify as a reorganization pursuant to Section 368(a)(1)(E) of the Tax Code and a Holder may not recognize gain or loss on the Exchange, except that a Holder will be required to recognize taxable income to the extent that a portion of the New Common Stock received is allocable to accrued interest on the Allowed Claims exchanged therefor.

A Holder of an Allowed Claim that does not constitute a “security” for United States Federal Income Tax purposes will recognize gain or loss for United States Federal Income Tax purposes on the Exchange equal to the difference between (i) the amount realized ( i.e., the fair market value of New Common Stock received) in respect of such Allowed Claim (other than amounts allocable to accrued interest) and (ii) such Holder’s adjusted tax basis in such Allowed Claim.

The character of any gain or loss as long-term or short-term capital gain or loss or as ordinary income or loss recognized by a Holder with respect to an Allowed Claim against the Debtors will be determined by a number of factors, including, but not limited to, the following: (a) the tax status of the Holder, (b) whether the obligation from which the Allowed Claim arose constitutes a capital asset of the Holder, (c) whether the obligation from which the Allowed Claim arose has been held for more than one year or was purchased at a discount, (d) whether the Holder is a financial institution or other entity entitled to special treatment under the United States Federal Income Tax laws and (e) whether and to what extent the Holder has previously claimed a bad debt deduction in respect of the obligation from which the Allowed Claim arose. In addition, a substantial amount of time may elapse between the Effective Date and date on which a Holder may receive distributions under the Plan. Both the timing and ultimate amount of Distributions is uncertain, and the delay in Distributions may defer the recognition of gain or loss to Holders. Holders should consult their own tax advisors to determine the United States Federal Income Tax consequences of the consummation of and the receipt of Distributions under the Plan.

B. Consequences to the Debtors

1. Cancellation of Indebtedness Income

Subject to certain exceptions, a debtor recognizes cancellation of debt (“COD”) income upon satisfaction of its outstanding indebtedness equal to the excess of (i) the amount of the indebtedness discharged, over (ii) the issue price of any new indebtedness issued, the amount of cash paid, and the fair market value of any other consideration (including stock of the debtor) given in satisfaction of the indebtedness. As discussed below, there is a bankruptcy exception to the recognition of COD income which will apply to the Debtors in connection with the Plan.

A debtor is not required to include COD income in gross income if the debt discharge occurs under chapter 11 of the Bankruptcy Code. However, under the Tax Code, the debtor must reduce certain tax attributes (in general, first its Net Operating Loss (“NOL”) carryovers and then certain tax credits, capital loss carryovers, the tax basis of its assets, and foreign tax credits) by the amount of COD income excluded from gross income by this exception. As an exception to the order of tax attribute reduction described above, a taxpayer can elect to reduce its tax basis in its depreciable assets first, then its NOL carryovers.

2. Limitation of Net Operating Loss Carryovers

Pursuant to Section 382 of the Tax Code, and subject to certain exceptions discussed below, if there is an “ownership change” with respect to a corporation with NOL carryovers, such corporation will be subject to a limitation on its use of any NOL carryover incurred prior to the ownership change to offset taxable income earned after the ownership change (a “Section 382 Limitation”). Except as discussed below, the Section 382 Limitation on such corporation’s NOL carryover will be equal to the product of (i) the net equity value of all of the corporation’s stock immediately before the ownership change and (ii) the long-term tax-exempt rate as determined under IRS rules. The long-term tax exempt rate is published monthly by the Treasury Department and is intended to represent current interest rates on long-term tax-exempt debt obligations.

In general, an “ownership change” occurs if the percentage of stock of the corporation owned actually or constructively by one or more “5% shareholders” increases by more than 50 percentage points on any “testing date” (taking into account all relevant adjustments as of the end of a “testing date”) as compared to the lowest percentage of stock of the corporation owned by those 5% shareholders at any time during the statutory “testing period” (generally, the past three years or, if shorter, the period since the last ownership change). Generally, a “testing date” is any date on which there is any change in the ownership of stock that affects the percentage stock ownership of a 5% shareholder. A “5% shareholder” is one who owns at least 5% of the stock of the corporation, and all stock owned by shareholders who are not 5% shareholders is generally treated as being owned by one 5% shareholder.

If the Plan causes an ownership change with respect to the Debtors, then to the extent any NOL carryover and certain other tax attributes allocated to the Debtors are not reduced by the amount of realized COD income and subject to any preexisting Section 382 Limitation on the Debtor’s ability to offset the NOL carryover and such other tax attributes against taxable income, the use of the remaining NOL carryover and such other tax attributes will be subject to the Section 382 Limitation unless the exception in Section 382(a)(5) applies.

If the exchanges contemplated by the Plan qualify for the tax treatment under Section 382(l)(5), the Debtors’ NOL carryover will be available for future use without any Section 382 Limitation (subject to any preexisting Section 382 Limitation and after reduction of the Debtors’ NOL carryover by the Disqualified Interest). If the exchanges do not qualify for the tax treatment under Section 382(l)(5) or the Debtors elect not to utilize Section 382(l)(5), the Debtors’ use of the NOL carryover to offset taxable income earned after the ownership change will be subject to the Section 382 Limitation (as well as any preexisting Section 382 Limitation).

In the Restructuring Agreement, the Debtors agreed to take all reasonable and appropriate steps to attempt to preserve some or all of the NOLs and to structure any transactions contemplated by the Restructuring Agreement and Plan in a manner to preserve NOLs; provided, however, that to the extent that the restructuring set forth in the Restructuring Agreement and Plan will not result in a preservation of some or all of the NOLs, it is expressly understood by and between the parties that the Debtors will move forward with the terms of the Restructuring Agreement and Plan regardless of the potential loss of the NOLs.

3. Alternative Minimum Tax

Alternative minimum tax (“AMT”) must be paid by a corporation when and to the extent that its liability for AMT exceeds its regular tax liability. AMT is equal to 20% of alternative minimum taxable income (“AMTI”) less certain allowable credits. AMTI generally equals regular taxable income, increased or decreased by certain adjustments and preference items.

THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN ARE COMPLEX AND, IN MANY RESPECTS, UNCERTAIN. THE FOREGOING IS INTENDED TO BE A SUMMARY ONLY AND, AS SUCH, DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF CLASS 1, 3, AND 4 CLAIMS OR INTERESTS. ALL HOLDERS OF SUCH CLAIMS OR INTERESTS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE PLAN THAT ARE RELEVANT TO THEIR PARTICULAR CIRCUMSTANCES.

X. CONCLUSION AND RECOMMENDATION

The Debtors believe that confirmation and implementation of the Plan is preferable to any alternatives because it will provide the greatest chance of maximizing recoveries to Creditors. In addition, alternatives may involve significant delay, uncertainty, and substantial additional administrative costs. The Debtors urge Holders of Claims entitled to vote on the Plan to vote to accept the Plan and to evidence such acceptance by returning their Ballots so they will be received no later than the Voting Deadline.


Dated: July 30, 2009
Wilmington, Delaware		CIARDI CIARDI & ASTIN

		/s/ Mary E. Augustine

		Daniel K. Astin (No. 4068)
		Anthony M. Saccullo (No. 4141)
		Mary E. Augustine (No. 4477)
		Carl D. Neff (No. 4895)
		919 N. Market Street, Suite 700
		Wilmington, Delaware 19801
		Tel: (302) 658-1100
		Fax: (302) 658-1300
		dastin@ciardilaw.com
		asaccullo@ciardilaw.com
		maugustine@ciardilaw.com
		cneff@ciardilaw.com

		Counsel for the Debtors

Exhibit 31.1

OFFICER’S CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Declan Daly, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Isolagen, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


August 12, 2009
By: /s/ Declan Daly
Declan Daly, Chief Executive Officer
(Principal Executive Officer)

Exhibit 31.2

OFFICER’S CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Todd J. Greenspan, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Isolagen, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


August 12, 2009
By: /s/ Todd J. Greenspan
Todd J. Greenspan, Chief Financial Officer
(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2009 of Isolagen, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Declan Daly, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

•

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m or 78o(d)); and

•

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: August 12, 2009	By:	/s/ Declan Daly
		Declan Daly
		(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Isolagen, Inc. and will be retained by Isolagen, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2009 of Isolagen, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Todd J. Greenspan, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

•

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C 78m or 78o(d)); and

•

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: August 12, 2009	By:	/s/ Todd J. Greenspan
		Todd J. Greenspan, Chief Financial Officer
		(Principal Financial Officer)