intlstem_8kex1003.htm


    Exhibit 10.3

     

    INVESTORS'
RIGHTS AGREEMENT

     (International
Stem Cell Corporation)

     

     

     

    THIS
INVESTORS' RIGHTS AGREEMENT is made as of the 30th day of December 2008, by and
among International Stem Cell Corporation, a Delaware corporation (the
"Company"), and each of the investors listed on Schedule
A hereto, each of which is referred to in this Agreement as an
"Investor".

     

    RECITALS

     

    WHEREAS,
the Company and the Investors are parties to the Series D Preferred Stock
Purchase Agreement of even date herewith (the "Purchase Agreement");
and

     

    WHEREAS,
in order to induce the Company to enter into the Purchase Agreement and to
induce the Investors to invest funds in the Company pursuant to the Purchase
Agreement, the Investors and the Company hereby agree that this Agreement shall
govern certain rights of the Investors granted herein, including, but not
limited to, the right to participate in future equity offerings by the Company,
and shall govern certain other matters as set forth in this
Agreement;

     

    NOW,
THEREFORE, the parties hereby agree as follows: 

     

    
      	
              1.

            	
              Definitions.
      For purposes of this Agreement:

            


    

     

    
      	
            	
              1.1

            	
              "Affiliate" means, with respect to any
      specified Person, any other Person who, directly or indirectly, controls,
      is controlled by, or is under common control with such Person, including
      without limitation any general partner, managing member, officer or
      director of such Person or any venture capital fund now or hereafter
      existing that is controlled by one or more general partners or managing
      members of, or shares the same management company with, such
      Person.

            


    

     

    
      	
            	
              1.2

            	
              "Common Stock" means shares of the
      Company's common stock, par value $0.001 per
  share.

            


    

     

    
      	
            	
              1.3

            	
              "Derivative Securities" means any
      securities or rights convertible into, or exercisable or exchangeable for
      (in each case, directly or indirectly), Common Stock, including options
      and warrants.

            


    

     

    
      	
            	
              1.4

            	
              "Exchange Act" means the Securities
      Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

            


    

     

    
      	
            	
              1.5

            	
              "GAAP" means generally accepted
      accounting principles in the United
States.

            


    

     

    
      	
            	
              1.6

            	
              "Key Employee" means any executive-level
      employee (including division director and vice president-level positions)
      as well as any employee who, either alone or in concert with others,
      develops, invents, programs, or designs any Company Intellectual Property
      (as defined in the Purchase
Agreement).

            


    

     

     

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


     

    


     

    
      	
            	
              1.7

            	
              "New Securities" means, collectively,
      equity securities of the Company, whether or not currently authorized, as
      well as rights, options, or warrants to purchase such equity securities,
      or securities of any type whatsoever that are, or may become, convertible
      or exchangeable into or exercisable for such equity
      securities.

            


    

     

    
      	
            	
              1.8

            	
              "Person"
      means any individual, corporation, partnership, trust, limited
      liability company, association or other
entity.

            


    

     

    
      	
            	
              1.9

            	
              "Preferred
      Stock" means, collectively, shares of the Company's Series A, B,
      C, and D Preferred Stock.

            


    

     

    
      	
            	
              1.10

            	
              "SEC" means the Securities and Exchange
      Commission.

            


    

     

    
      
        	
              	
                1.11

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

              


      

    

     

    
      
        	
              	
                1.12

              	
                "Series
      C Director" means any director of the Company that the holders of
      record of the Series C Preferred Stock are entitled to elect pursuant to
      the Company's Series C Preferred Stock Certificate of
      Designation.

              


      

    

     

    
      
        	
              	
                1.13

              	
                "Series
      D Director" means any director of the Company that the holders of
      record of the Series D Preferred Stock are entitled to elect pursuant to
      the Company's Series D Preferred Stock Certificate of
      Designation.

              


      

    

     

    
      
        	
              	
                1.14

              	
                "Series
      D Preferred Stock" means shares of the Company's Series D Preferred
      Stock, par value $0.001 per
share.

              


      

    

     

    
      
        
          	
                  2.

                	
                  Rights
      to Future Stock
Issuances.

                


        

      

    

     

    
      	
            	
              2.1

            	
              Participation
      Right .  If, at any time after the date of this Agreement and
      prior to the termination of this participation right pursuant to subsection
      2.5, the Company should desire to issue in a transaction not
      registered under the Securities Act any New Securities (as hereinafter
      defined), it shall give each Investor the right to purchase such
      Investor's pro rata share (or any part thereof) of all of such privately
      offered New Securities on the same terms as the Company is willing to sell
      such New Securities to any other person, for a period of thirty (30)
      calendar days after the initial issuance of such New Securities. Each such
      Investor's pro rata share of the New Securities shall be equal to that
      percentage of the outstanding Common Stock of the Company held by such
      Investor on the date of delivery of notice to such Investor, as set forth
      in Section
      2.2 below, of the Company's intention to sell and issue such New
      Securities. For purposes of this subsection
      2.1, the outstanding Common Stock of the Company shall include (i)
      outstanding shares of Common Stock, and (ii) shares of Common Stock issued
      or issuable upon exercise and/or conversion of any
      then outstanding options, warrants and Preferred Stock of the
      Company.

            


    

     

    
 

    
      
        
           


        

        
          2

          
            

          

        

        
           


        

      

    

    


    


     

     

    
      	
            	
              2.2

            	
              Notice;
      Over-Allotment .  Promptly after the sale or issuance by the
      Company of any New Securities, the Company shall notify in writing each
      such Investor of the sale and issuance of such securities, setting forth
      the terms of such sale. Within seven (7) days after receipt of such
      notice, each such Investor shall notify the Company whether such Investor
      desires to purchase such Investor's pro rata share, or any part thereof,
      of the New Securities so offered. If such Investor elects to purchase such
      Investor's pro rata share, as applicable, then such Investor shall have a
      right of over-allotment such that if any other Investor fails to purchase
      such
      Investor's pro rata share of the New Securities, such Investors who have
      elected to purchase their pro rata shares may purchase, on a pro rata
      basis, that portion of the New Securities which such other Investor(s)
      elected not to purchase.

            


    

     

    
      	
            	
              2.3

            	
              Closing
      of Investor Purchases.  If an Investor gives the
      Company notice that such Investor desires to purchase any
      of the New Securities offered by the Company, payment for the New Securities
      shall be by check or wire transfer, against delivery of the New Securities at
      the executive offices of the Company within twenty (20) days after giving
      the Company such notice. The Company shall take all such action as may be
      required by any regulatory authority in connection with the exercise by such Investor of
      the right to purchase New Securities as set forth in this Section
      2.

            


    

     

    
      	
            	
              2.4

            	
              Exempted
      Issuances.  The participation right contained in this Section
      2 shall not apply to the issuance by the Company of New Securities
      (i) upon conversion of any securities registrable under the Securities
      Act; (ii) to officers, directors or employees of, or consultants to, the
      Company pursuant to a warrant, stock grant, option agreement or plan,
      purchase plan or other employee stock incentive program or agreement
      approved by the Board of Directors; (iii) in connection with the
      acquisition by the Company of another business entity or majority
      ownership thereof approved by the Board of Directors; (iv) to lease
      companies, real estate lessors, banks or financial institutions, in
      connection with any lease or debt financing transaction approved by the
      Board of Directors; (v) to purchase equipment or services; (vi) upon
      exercise of warrants outstanding as of the date of this Agreement; (vii)
      in connection with any stock split, stock dividend, distribution,
      recapitalization or similar event; (viii) in connection with a strategic
      investment and/or acquisition of technology or intellectual property not
      principally for equity financing purposes approved by the Board of
      Directors; (ix) pursuant to the Purchase Agreement, including without
      limitation issuances of shares of Series D Preferred Stock; or (x) by way
      of a dividend or other distribution on New Securities described in the
      foregoing clauses (i) through (ix).

            


    

    


    
      
        
           


        

        
          3

          
            

          

        

        
           


        

      

    

    


    


    
      	
            	
              2.5

            	
              Termination.
      The participation right set forth in this Section
      2 shall terminate and be of no further force and effect upon such
      time as the Investor or its affiliates hold less than five (5) shares of
      Series D Preferred Stock.

            


    

     

    
      	
              3.

            	
              Additional
      Covenants.

            


    

     

    
      	
            	
              3.1

            	
              Insurance. 
      The Company shall use its commercially reasonable efforts to obtain,
      within ninety (90) days of the date hereof, from financially sound and
      reputable insurers Directors and Officers liability insurance in an amount
      and on terms and conditions satisfactory to the Board of Directors, and
      will use commercially reasonable efforts to cause such insurance policies
      to be maintained until such time as the Board of Directors determines that
      such insurance should be discontinued. The policy shall not be cancelable
      by the Company without prior approval by the Board of Directors including
      the Series C and D Directors.

            


    

     

    
      	
            	
              3.2

            	
              Employee
      Agreements.The Company will cause each person now or hereafter
      employed by it or by any subsidiary (or engaged by the Company or any
      subsidiary as a consultant/independent contractor) with access to
      confidential information and/or trade secrets to enter into a
      nondisclosure and proprietary rights assignment agreement. In addition,
      the Company shall not amend, modify, terminate, waive, or otherwise alter,
      in whole or in part, any of the above- referenced agreements or any
      restricted stock agreement between the Company and any employee, without
      the consent of the Board of
Directors.

            


    

     

    
      	
            	
              3.3

            	
              Matters
      Requiring Investor Director Approval.  So long as the holders
      of Series D Preferred Stock are entitled to elect a Series D Director, the
      Company hereby covenants and agrees with each of the Investors that it
      shall not, without approval of the Board of Directors, which approval must
      include the affirmative vote of the Series C and Series D
      Directors:

            


    

     

    
      
        	
              	
                3.3.1

              	
                make,
      or permit any subsidiary to make, any loan or advance to, or own any stock
      or other securities of, any subsidiary or other corporation, partnership,
      or other entity unless it is wholly owned (directly or indirectly) by the
      Company;

              


      

    

     

    
      
        	
              	
                3.3.2

              	
                make,
      or permit any subsidiary to make, any loan or advance to any Person,
      including, without limitation, any employee or director of the Company or
      any subsidiary, except advances and similar expenditures in the ordinary
      course of business or under the terms of an employee stock or option plan
      approved by the Board of
Directors;

              


      

    

     

    
      
        	
              	
                3.3.3

              	
                guarantee,
      directly or indirectly, or permit any subsidiary to guarantee, directly or
      indirectly, any indebtedness except for trade accounts of the Company or
      any subsidiary arising in the ordinary course of
  business;

              


      

    

     

    


    
      
        
           


        

        
          4

          
            

          

        

        
           


        

      

    

    


    


    
      
        	
              	
                3.3.4

              	
                make
      any investment inconsistent with any investment policy approved by the
      Board of Directors;

              


      

       

    

    
      
        	
              	
                3.3.5

              	
                incur
      any aggregate indebtedness in excess of $100,000 that is not already
      included in a budget approved by the Board of Directors, other than trade
      credit incurred in the ordinary course of
  business;

              


      

    

    
       

      
        	
              	
                3.3.6

              	
                otherwise
      enter into or be a party to any transaction with any director, officer, or
      employee of the Company or any "associate" (as defined in Rule 12b-2
      promulgated under the Exchange Act) of any such person, except for
      transactions contemplated by this Agreement, the Purchase Agreement, and
      [the Employment Agreements] [; transactions resulting in payments to or by
      the Company in an aggregate amount less than $60,000 per year; or
      transactions made in the ordinary course of business and pursuant to
      reasonable requirements of the Company's business and upon fair and
      reasonable terms that are approved by a majority of the Board of
      Directors;

              


      

    

    
       


      
        	
              	
                3.3.7

              	
                increase
      the compensation of the executive officers, including approving the
      creation or amendment of any option plans under which grants or stock
      awards may be made to executive
officers;

              


      

    

    
       


      
        	
              	
                3.3.8

              	
                change
      the principal business of the Company, enter new lines of business, or
      exit the current line of
business;

              


      

    

    
       

      
        	
              	
                3.3.9

              	
                sell,
      assign, license, pledge, or encumber material technology or intellectual
      property, other than licenses granted in the ordinary course of
      business.

              


      

    

     

    
      	
            	
              3.4

            	
              Board
      Matters.  Unless otherwise determined by the vote of a
      majority of the directors then in office, the Board of Directors shall
      meet at least quarterly in accordance with an agreed-upon schedule. The
      Company shall reimburse the nonemployee directors for all reasonable
      out-of-pocket travel expenses incurred (consistent with the Company's
      travel policy) in connection with attending meetings of the Board of
      Directors. Except where prohibited by applicable law or where required by
      applicable listing standards or to obtain the benefit of an applicable
      rule or regulation (such as Rule 16b-3 or the exemptions provided under
      IRC §162(m)), each committee of the Company's Board of Directors shall
      include at least one Series C or Series D
  Director.

            


    

     

    
      	
            	
              3.5

            	
              Successor
      Indemnification.  If the Company or any of its successors or
      assignees consolidates with or merges into any other Person and is not the
      continuing or surviving corporation or entity of such consolidation or
      merger, then to the extent necessary, proper provision shall be made so
      that the successors and assignees of the Company assume the obligations of
      the Company with respect to indemnification of members of the Board of
      Directors as in effect immediately before such
      transaction, whether such obligations are contained in the Company's
      Bylaws, its Certificate of Incorporation, or elsewhere, as the case may
      be.

            


    

    


    


    
      
        
           


        

        
          5

          
            

          

        

        
           


        

      

    

    


    


     

     

    
      
        	
                4.

              	
                Miscellaneous.

              


      

    

     

    
      	
            	
              4.1

            	
              Successors and
      Assigns.  The rights under this Agreement may be assigned (but
      only with all related obligations) by an Investor without the Company's
      consent, so long as the assignee acquires the Investor's ownership
      interest in the Company.

            


    

     

    
      	
            	
              4.2

            	
              Governing
      Law.  This Agreement shall be governed by, and construed in
      accordance with, the laws of the State of Delaware, regardless of the laws
      that might otherwise govern under applicable principles of conflicts of
      law.

            


    

     

    
      	
            	
              4.3

            	
              Counterparts;
      Facsimile.This Agreement may be executed in two or more
      counterparts, each of which shall be deemed an original, but all of which
      together shall constitute one and the same instrument. This Agreement may
      also be executed and delivered by facsimile signature and in two or more
      counterparts, each of which shall be deemed an original, but all of which
      together shall constitute one and the same
  instrument.

            


    

     

    
      	
            	
              4.4

            	
              Titles and
      Subtitles.  The titles and subtitles used in this Agreement
      are for convenience only and are not to be considered in construing or
      interpreting this Agreement.

            


    

     

    
      	
            	
              4.5

            	
              Notices. 
      Any notice required or permitted hereunder shall be given in writing and
      shall be deemed effectively given upon personal delivery and if a fax
      number has been provided, upon delivery (with answerback confirmed),
      addressed to a party at its address and the fax number, if any, shown
      below or at such other address and fax number as such party may designate
      by three days advance notice to the other party.

               

              
                Any
      notice to the Investor shall be sent to the addresses set forth on
      Schedule A, with a copy to:

                 

                McLane,
      Graf, Raulerson & Middleton, Professional Association

                900
      Elm Street

                P.O.
      Box 326

                Manchester,
      NH 03105-0326

                Attention:
      Thomas W. Hildreth, Esquire

                Telephone:
      603-628-1177

                Fax:
      603-625-5650

                 

                Any
      notice to the Company shall be sent to:

                 

                International
      Stem Cell Corporation

                2595
      Jason Court

              

            


    

     

     

     

     

    


    
      
        
           


        

        
          6

          
            

          

        

        
           


        

      

    

    


    
      	
            	
               

            	
              

                Oceanside,
      CA 92056 

                Telephone:
      760-940-6383

                Fax:
      760-940-6387

                 

                with
      a copy to:

                 

                DLA
      Piper US LLP

                4365
      Executive Drive, Suite 1100

                San
      Diego, California 92121-2133

                Attention:
      Douglas J. Rein, Esquire

                Telephone:
      858-677-1443

                Fax:
      858-638-5043

              

            


    

     

     

    
      
        	
              	
                4.6

              	
                Amendments and
      Waivers.  Any term of this Agreement may be amended and the
      observance of any term of this Agreement may be waived (either generally
      or in a particular instance, and either retroactively or prospectively)
      only with the written consent of the Investors holding a majority in
      interest of the Series D Preferred Stock then outstanding. Notwithstanding
      the foregoing, this Agreement may not be amended or terminated and the
      observance of any term hereof may not be waived with respect to any
      Investor without the written consent of such Investor, unless such
      amendment, termination, or waiver applies to all Investors in the same
      fashion. No waivers of or exceptions to any term, condition, or provision
      of this Agreement, in any one or more instances, shall be deemed to be or
      construed as a further or continuing waiver of any such term, condition,
      or provision.

              


      

    

     

    
      	
            	
              4.7

            	
              Severability. 
      In case any one or more of the provisions contained in this Agreement is
      for any reason held to be invalid, illegal or unenforceable in any
      respect, such invalidity, illegality, or unenforceability shall not affect
      any other provision of this Agreement, and such invalid, illegal, or
      unenforceable provision shall be reformed and construed so that it will be
      valid, legal, and enforceable to the maximum extent permitted by
      law.

            


    

     

    
      	
            	
              4.8

            	
              Additional
      Investors.  Notwithstanding anything to the contrary contained
      herein, if the Company issues additional shares of the Company's Series D
      Preferred Stock after the date hereof, whether pursuant to the Purchase
      Agreement or otherwise, any purchaser of such shares of Series D Preferred
      Stock may become a party to this Agreement by executing and delivering an
      additional counterpart signature page to this Agreement, and thereafter
      shall be deemed an "Investor" for all purposes hereunder. No action or
      consent by the Investors shall be required for such joinder to this
      Agreement by such additional Investor, so long as such additional Investor
      has agreed in writing to be bound by all of the obligations as an
      "Investor" hereunder.

            


    

     

    
      
        	
              	
                4.9

              	
                Entire
      Agreement. This Agreement (including any Schedules and Exhibits
      hereto) constitutes the full and entire understanding and agreement among
      the parties with respect to the subject matter hereof, and any other
      written or oral agreement relating to the subject matter hereof existing
      between the parties is expressly
canceled.

              


      

      
 

    

    
      
        
           


        

        
          7

          
            

          

        

        
           


        

      

    

    


     

     

    
      
        	
              	
                4.10

              	
                Termination. 
      This Agreement shall terminate at such time as there no longer are any
      shares of Series D Preferred Stock
outstanding.

              


      

    

     

    [Signature
page follows.]

     

     

     

     

     

     

    


    
      
        
           


        

        
          8

          
            

          

        

        
           


        

      

    

    


    


    IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
written above.

     

     

    
       

      
        	 	

                INTERNATIONAL
      STEM CELL CORPORATION

                 

                By:                                                          

                Name:

                Title:

                 

                INVESTOR:
      X-MASTER, INC.

                 

                By:                                                          

                Name:
      

                Title:

                 

                 

                /s/Andrei
      Semechkin

                Andrei
      Semechkin

                 

                 

                /s/ Rouslan
      Semechkin

                Rouslan
      Semechkin


              


      

       

    

     

    


    [Signature
page for Investors' Rights Agreement]

     

     

    


    
      
        
           


        

        
          9

          
            

          

        

        
           


        

      

    

    


    


    SCHEDULE
A

     

    Investors

     

    Andrei
Semechkin

    1
Overlook Drive, #11

    Amherst,
NH 03031

     

    Rouslan
Semechkin

    1
Overlook Drive, #11

    Amherst,
NH 03031

     

    X-Master,
Inc.

    1
Overlook Drive, #11

     Amherst,
NH 03031

     

     

     

     

     

     

     

    10