Document:

intlstem_8k-ex1002.htm

    Exhibit 10.2

     

    
      

      INTERNATIONAL
STEM CELL CORPORATION

      

      CERTIFICATE OF DESIGNATION
OF RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF THE SERIES D PREFERRED
STOCK

       

      The Board
of Directors of International Stem Cell Corporation (the "Corporation") hereby
provides for the issuance of a series of preferred stock of the Corporation and
does hereby fix and determine the rights, preferences, privileges, restrictions,
and other matters related to said series of preferred stock as
follows:

      

      1.           Designation of
Series D
Preferred Stock.  The shares of such series shall be designated
as "Series D Preferred Stock" and the number of shares constituting such
series shall be fifty (50) shares of Series D Preferred Stock, par value $0.001
per share ("Series D
Preferred Stock").

       

      2.           Rank, Parity and
Seniority.  The Series D Preferred Stock shall rank senior to
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Common Stock, and any other capital stock of the Corporation that is
junior to the Series D Preferred Stock (the "Junior
Shares") as to liquidation, dividends, redemption and upon a Liquidation
Event (as defined in Section 4(a)
below).  Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and any other series of Preferred Stock subsequently created
that is junior to the Series D Preferred Stock may be referred to collectively
in this Designation as "Junior
Preferred Stock."

       

      3.           Dividend Provisions –
Accruing and Participating.

       

      (a)           Accruing Series D
Dividends.

       

      (i)           From
the date of the issuance of any shares of Series D Preferred Stock through
December 31, 2011, dividends at the rate per annum of ten percent (10%) of the
Base Amount per share shall accrue on such shares of Series D Preferred Stock
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization with respect to the Series
D Preferred Stock) (the "Ten
Percent Dividend").  From and after January 1, 2012, dividends
at the rate per annum of six percent (6%) of the Base Amount per share shall
accrue on such shares of Series D Preferred Stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization with respect to the Series D Preferred Stock) (the
"Six
Percent Dividend" and, together with the Ten Percent Dividend, the "Accruing
Series D Dividends").  "Base Amount" shall mean the Series D
Original Issue Price (defined below).

       

      (ii)           Accruing
Series D Dividends shall accrue, whether or not declared, and shall be
cumulative; provided
however, that such Accruing Series D Dividends shall be paid, from funds
lawfully available for the payment of dividends, to the holders of the Series D
Preferred Stock on the fifteenth (15th) day of
the first month following each calendar quarter.  Accruing Series D
Dividends which are not paid by such date shall accrue additional interest at
the rate of one and one half (1.5%) per month, until paid in full.

       

      
        
          
            - 1 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      

       

      (iii)           The
Corporation shall not declare, pay or set aside any dividends on shares of any
other class or series of capital stock of the Corporation (other than dividends
on shares of Common Stock payable in shares of Common Stock) unless (in addition
to the obtaining of any required consents) the holders of the Series D Preferred
Stock then outstanding shall first receive, or simultaneously receive, a
dividend on each outstanding share of Series D Preferred Stock in an amount at
least equal to the greater of (i) the amount of the aggregate Accruing Series D
Dividends then accrued on such share of Series D Preferred Stock and not
previously paid and (ii) (A) in the case of a dividend on Common Stock or any
class or series that is convertible into Common Stock, that dividend per share
of Series D Preferred Stock as would equal the product of (1) the dividend
payable on each share of such class or series determined, if applicable, as if
all shares of such class or series had been converted into Common Stock and (2)
the number of shares of Common Stock issuable upon conversion of a share of
Series D Preferred Stock, in each case calculated on the record date for
determination of holders entitled to receive such dividend or (B) in the case of
a dividend on any class or series that is not convertible into Common Stock, at
a rate per share of Series D Preferred Stock determined by (1) dividing the
amount of the dividend payable on each share of such class or series of capital
stock by the original issuance price of such class or series of capital stock
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization with respect to such class
or series) and (2) multiplying such fraction by an amount equal to the Series D
Original Issue Price (as defined below); provided that, if the Corporation
declares, pays or sets aside, on the same date, a dividend on shares of more
than one class or series of capital stock of the Corporation, the dividend
payable to the holders of Series D Preferred Stock pursuant to this Section 1 shall be
calculated based upon the dividend on the class or series of capital stock that
would result in the highest Series D Preferred Stock dividend.  The
"Series D
Original Issue Price" means one hundred thousand dollars ($100,000) per
share, subject to appropriate adjustment in the event of any stock dividend,
stock split, combination, or other similar recapitalization with respect to the
Series D Preferred Stock. 

       

      4.           Liquidation
Preference.

       

      (a)           Preference.  In
the event of any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary (each, a "Liquidation
Event"), the holders of Series D Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Junior Preferred Stock and Common Stock, an amount
per share equal to the sum of (i) one hundred percent (100%) of the Series D
Original Issue Price (as adjusted for any stock splits, stock dividends, reverse
stock splits, stock combinations and other similar capitalization changes with
respect to the Series D Preferred Stock), and (ii) any accrued but unpaid
Accruing Series D Dividends attributable to such share of Series D Preferred
Stock to which such holder is entitled (such sum, the "Liquidation
Amount").  If upon the occurrence of a Liquidation Event, the
assets and funds legally available for distribution to stockholders shall be
insufficient to permit the payment to all holders of Series D Preferred Stock of
the full Liquidation Amount for such series, then the entire assets and funds of
the Corporation legally available for distribution to stockholders shall be
distributed ratably among the holders of Series D Preferred Stock until one
hundred percent (100%) of the Series D Original Issue Price and any accrued but
unpaid Accruing Series D Dividends attributable to such shares of Series D
Preferred Stock have been paid in full.  Such payments shall be
distributed based on the preferential amounts each such holder of such series is
otherwise entitled to receive.  For the avoidance of doubt, the Series
D Preferred Stock shall rank senior to the Junior Preferred Stock in the
distribution of assets of the Corporation in the event of any Liquidation
Event.

       

      
        
          
            - 2 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (b)           Distributions of Residual
Value to Holders of Common Stock.  After the payment of all
preferential amounts required to be paid to the holders of each series of the
Series D Preferred Stock upon a Liquidation Event, the assets and funds of the
Corporation remaining available for distribution to stockholders, if any, shall
be distributed ratably among the holders of Junior Preferred Stock and Common
Stock in accordance with the Certificate of Incorporation.

       

      (c)           Deemed Liquidation
Events.  Unless waived by written approval or consent of the
holders of at least sixty-seven percent (67%) of the outstanding shares of
Series D Preferred Stock, voting together as a single class on an "as-converted"
basis (the "Majority
Series D Holders"), each of the following transactions shall be deemed to
be a liquidation, dissolution or winding up of the Corporation as those terms
are used in and for purposes of this Section 4 (each such
event being a "Deemed
Liquidation Event").  Written notice of such election shall be
given to the Corporation at least ten (10) days prior to the effective date of
any such event.

       

      (i)           any
reorganization, consolidation, merger or similar transaction or series of
related transactions in which (A) the Corporation is a constituent corporation
or a party thereto, or (B) a subsidiary of the Corporation is a constituent
party and the Corporation issues shares of its capital stock pursuant to such
combination transaction if, in either case, as a result of such transaction, the
voting securities of the Corporation that are outstanding immediately prior to
the consummation of such transaction (other than any such
securities that are held by the acquiring organization) do not represent, or are
not converted into, securities of the surviving or resulting corporation of such
transaction (or such surviving or resulting corporation’s parent corporation if
the surviving or resulting corporation is owned by the parent corporation) that,
immediately after the consummation of such transaction, together possess at
least a majority of the total voting power of all securities of such surviving
or resulting corporation (or its parent corporation, if applicable) that are
outstanding immediately after the consummation of such transaction;

       

      (ii)           a
sale, lease or other transfer or disposition in any transaction or series of
related transactions of all or substantially all of the assets, or the exclusive
license of all or substantially all of the intellectual property, of the
Corporation and its subsidiaries taken as a whole or the sale or disposition
(whether by merger or otherwise) of one or more subsidiaries of the Corporation
if substantially all of the assets (including intellectual property) of the
Corporation and its subsidiaries taken as a whole are held by such subsidiary or
subsidiaries, except where such sale, lease, transfer, other disposition or
license is to a wholly-owned subsidiary of the Corporation or is otherwise
licensed in the ordinary course of business; or

       

      
        
          
            - 3 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (iii)           (i)
any transaction or series of related transactions occurring after the Original
Issue Date, as a result of which, securities representing in excess of fifty
percent (50%) of the voting power of the Corporation are transferred and/or
issued and the stockholders of the Corporation immediately prior to such event
hold less than fifty percent (50%) of the voting securities of the Corporation
immediately after such event; or (ii) any transaction or series of related
transactions involving any recapitalization, leveraged buyout, management
buyout, reclassification of capital structure, or other redemption and
recapitalization of shares of capital stock in which existing stockholders’
shares of capital stock are being redeemed or retired pursuant to a change in
voting control, the principal purpose of which is to effect an acquisition of
the Corporation, provided, however, notwithstanding
anything contained in this Section 4(c)(iii) to the contrary, a Deemed
Liquidation Event shall not include the issuance by the Corporation of shares of
capital stock to existing or new stockholders where the principal purpose of the
transaction (or series of related transactions) is the consummation of an equity
financing designed to raise working capital for general corporate purposes or
the acquisition of another company or technology rights.

       

      (d)           Liquidating
Redemption.  In the event of a Deemed Liquidation Event, if the
Corporation does not effect a dissolution of the Corporation under the Delaware
General Corporations Law within sixty (60) days after such Deemed Liquidation
Event, then (A) the Corporation shall deliver a written notice to each holder of
Series D Preferred Stock no later than the 60th day after the Deemed Liquidation
Event advising such holders of their right (and the requirements to be met to
secure such right) pursuant to the terms of the following clause (B) to require
the redemption of such shares of Series D Preferred Stock, and (B) if the
Majority Series D Holders, as a single class, so request in a written instrument
delivered to the Corporation not later than ninety (90) days after such Deemed
Liquidation Event, the Corporation shall use the consideration received by the
Corporation for such Deemed Liquidation Event (net of any retained liabilities
associated with the assets sold or intellectual property licensed, as determined
in good faith by the Board of Directors), together with any other assets of the
Corporation available for distribution to its stockholders, to the extent
legally available therefor (collectively, the "Available
Proceeds"), to redeem, on the 120th day after such Deemed Liquidation
Event (the "Liquidation
Redemption Date"), all outstanding shares of Series D Preferred Stock at
a price equal to such amounts set forth in Subsection
4(a).  Notwithstanding the foregoing, in the event of a
redemption pursuant to the preceding sentence, if the Available Proceeds are not
sufficient to redeem in full all outstanding shares of Series D Preferred Stock,
the Corporation shall redeem a pro rata portion of each holder’s shares of
Series D Preferred Stock, ratably according to the number of outstanding shares
of Series D Preferred Stock held by each holder thereof and multiplied by the
Liquidation Amount attributable to such shares, and shall redeem the remaining
shares to have been redeemed as soon as practicable after the Corporation has
funds legally available therefor.  Prior to the distribution or
redemption provided for in this subsection, the Corporation shall not expend or
dissipate the consideration received for such Deemed Liquidation Event, except
to discharge expenses including, without limitation, discharge of tax liability
incurred in connection with such Deemed Liquidation Event.

       

      (e)           Consideration.  If
any of the assets of this Corporation are to be distributed under this Section 4 in a form
other than cash, the fair market value of such assets shall be determined in
good faith by the Board of Directors, including a majority of the directors
nominated and elected by the holders of the Series D Preferred
Stock.  Any securities shall be valued as follows:

       

      
        
          
            - 4 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      

       

      (i)          
  Securities not subject to investment letter or other similar restrictions
on free marketability covered by subparagraph (ii) below:

       

      (A)           If
traded on a securities exchange, the value shall be deemed to be the average of
the closing prices of the securities on such exchange over the thirty (30) day
period ending three days prior to the distribution;

       

      (B)           If
actively traded over-the-counter, the value shall be deemed to be the average of
the closing bid or sale prices (whichever is applicable) over the thirty (30)
day period ending three days prior to the distribution; and

       

      (C)           If
there is no active public market, the value shall be the fair market value
thereof, as determined by the Board of Directors, including a majority of the
directors nominated and elected by the holders of the Series D Preferred
Stock.

       

      (ii)           The
method of valuation of securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely by
virtue of a stockholder's status as an affiliate or former affiliate) shall be
to make an appropriate discount from the market value determined as above in
clause (i) (A), (B) or (C) to reflect the approximate fair market value thereof,
as determined in good faith by the Board of Directors, including a majority of
the directors nominated and elected by the holders of the Series D Preferred
Stock.

       

      (iii)           The
Corporation shall give each holder of record of Series D Preferred Stock written
notice of the transaction which, if effected, will constitute a Deemed
Liquidation Event not later than ten (10) days prior to the stockholders'
meeting called to approve such transaction, or ten (10) days prior to the
closing of such transaction, whichever is earlier, and shall also notify such
holders in writing of the final approval of such transaction.  The
first notice shall describe the material terms and conditions of the pending
transaction and the applicable provisions of Section
4(d).  The Corporation shall thereafter give such holders
prompt notice of any material changes in the terms of the pending
transaction.  In the event the requirements of Section 4(d) are not
complied with, the Corporation shall forthwith either:

       

      (A)           cause
such closing to be postponed until such time as the requirements of this Section 4(e) have
been complied with; or

       

      (B)           cancel
such transaction, in which event the rights, preferences and privileges of the
Series D Preferred Stock shall continue in effect in accordance with the terms
of this Certificate of Incorporation, as the same may be amended and/or restated
from time to time.

       

      (f)           Allocation of Escrow
Following Deemed Liquidation Event.  In the event of a Deemed
Liquidation Event, if any portion of the consideration payable to the
stockholders of the Corporation is placed into escrow and/or is payable to the
stockholders of the Corporation subject to contingencies, the merger or
acquisition agreement shall provide that (a) the portion of such consideration
that is not placed in escrow and not subject to any contingencies (the "Initial
Consideration") shall be allocated among the holders of capital stock of
the Corporation in accordance with Subsections 4(a) and (b) as if
the Initial Consideration were the only consideration payable in connection with
such Deemed Liquidation Event, and (b) any additional consideration which
becomes payable to the stockholders of the Corporation upon release from escrow
or satisfaction of contingencies shall be allocated among the holders of capital
stock of the Corporation in accordance with Subsections 4(a) and
(b) after taking into account the previous payment of the Initial
Consideration as part of the same transaction.

       

      
        
          
            - 5 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      5.           Conversion
Rights.

       

      The
holders of Series D Preferred Stock shall have the following conversion rights
(the "Conversion
Rights"):

       

      (a)           Right to
Convert.  Each share of each series of Series D Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Series D Original Issue Price (as
adjusted for any stock splits, stock dividends, reverse stock splits, stock
combinations, and other similar capitalization changes with respect to the
Series D Preferred Stock), by the Conversion Price for the Series D Preferred
Stock (as defined below) in effect at the time of conversion.  Subject
to adjustment as provided further herein, the initial Conversion Price of the
Series D Preferred Stock shall initially be twenty-five cents ($0.25) per share
(the "Conversion
Price").  The Conversion Price for the Series D Preferred
Stock, and the rate at which shares of each series of Series D Preferred Stock
may be converted into shares of Common Stock, shall be subject to adjustment as
provided below.

       

      (b)           Automatic
Conversion.  All shares Series D Preferred Stock then
outstanding shall automatically be converted into shares of Common Stock, at the
then effective Conversion Price, upon the vote or consent in writing of the
Majority Series D Holders, as a single class.

       

      (c)           Fractional
Shares.  Fractional shares of Common Stock will not be issued
upon conversion of Series D Preferred Stock.  In lieu of any
fractional shares to which a holder would otherwise be entitled, the Corporation
shall pay cash in an amount equal to the product (calculated to the nearest
cent) of such fraction and the fair market value of one share of Common Stock as
determined in good faith by the Board of Directors.  Fractional shares
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series D Preferred Stock that the holder is then converting
into Common Stock and the number of shares of Common Stock issuable upon
conversion of such shares of Series D Preferred Stock.

       

      (d)           Mechanics of
Conversion.

       

      (i)           Upon
conversion of a share of Series D Preferred Stock pursuant to Section 5, any and
all accrued but unpaid Accruing Series D Dividends with respect to such share
shall be paid in cash when and to the extent the corporation has funds legally
available therefor.

       

      
        
          
            - 6 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (ii)           Except
as provided in subparagraph (iii) below, in order for a holder of Series D
Preferred Stock to convert shares of Series D Preferred Stock into shares of
Common Stock, such holder shall surrender the certificate(s) representing such
shares of Series D Preferred Stock, at the office of the transfer agent for the
Series D Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any portion of the shares of the Series D
Preferred Stock represented by such certificate(s).  Such notice shall
state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be
issued.  If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or such holder's attorney duly authorized in
writing.  The date of receipt of such certificates and notice by the
transfer agent (or by the Corporation if the Corporation serves as its own
transfer agent) shall be the conversion date ("Conversion
Date").  If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act,
the conversion may at the option of any holder tendering Series D Preferred
Stock for conversion, be conditioned upon the closing with the underwriter of
the sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock issuable upon such conversion of Series D
Preferred Stock shall not be deemed to have converted such Series D Preferred
Stock until immediately prior to the closing of the sale of
securities.  The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver to the holder of such Series D Preferred
Stock, or to such holder's nominees, a certificate or certificates representing
the number of shares of Common Stock to which such holder is entitled upon
conversion of such Series D Preferred Stock and cash in payment of any Accruing
Series D Dividends, together with cash in lieu of any fractional
share.

       

      (iii)          In
the event of a conversion pursuant to Section 5(b) above,
the outstanding shares of Series D Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agents.  Such automatic conversion shall
be deemed to have been made on the effective date of the applicable vote or
written consent or decrease in the number of outstanding shares of Series D
Preferred Stock, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date which
date shall be referred to herein as the "Automatic
Conversion Date."  Immediately upon such automatic conversion,
all shares of Series D Preferred Stock shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate,
except only the right of the holders thereof, upon surrender of their
certificate or certificates therefor, to receive certificates representing the
number of shares of Common Stock into which such Series D Preferred Stock has
been converted and, if applicable, cash in payment of Accruing Series D
Dividends, together with cash in lieu of any fractional share (as provided in
Section 5(c)
above).  In the event that the automatic conversion of Series D
Preferred Stock is pursuant to the vote or consent of the Majority Series D
Holders, the Majority Series D Holders shall give written notice to the
Corporation and to each other holder of Series D Preferred Stock (the "Conversion Notice")
promptly following the vote or consent, as applicable, that the shares of Series
D Preferred Stock shall be converted to Common Stock.

       

      
        
          
            - 7 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (iv)           Promptly
following the date on which the Majority Series D Holders give the Conversion
Notice each holder of Series D Preferred Stock shall surrender to the
Corporation or its transfer agent the certificate(s) representing such holder's
Series D Preferred Stock together with a notice that states such holder's name
or the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued.  If so required
by the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or such
holder's attorney duly authorized in writing.  The Corporation shall
not be obligated to issue certificates representing the shares of Common Stock
issuable upon such automatic conversion or, if applicable, pay cash in payment
of any Accruing Series D Dividends, unless and until the certificates
representing such shares of Series D Preferred Stock are either delivered to the
Corporation or its transfer agent as provided above, or the holder notifies the
Corporation or its transfer agent that such certificate or certificates have
been lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates, including an indemnity bond in such amount as
the Corporation deems appropriate in its discretion.  As soon as
practicable following the Automatic Conversion Date and the surrender by the
holder of the certificate or certificates representing the Series D Preferred
Stock to be converted, the Corporation shall cause to be issued and delivered to
such holder, or to such holder's nominees, a certificate or certificates
representing the number of shares of Common Stock to which such holder is
entitled upon conversion of such Series D Preferred Stock and, if applicable,
cash in payment of Accruing Series D Dividends, together with cash in lieu of
any fractional share.

       

      (v)           The
Corporation shall at all times when shares of Series D Preferred Stock are
outstanding, reserve and keep available out of its authorized but unissued
stock, for the purpose of effecting the conversion of Series D Preferred Stock,
such number of its duly authorized shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of Series
D Preferred Stock.  Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value of the shares
of Common Stock issuable upon conversion of Series D Preferred Stock, the
Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Conversion Price.

       

      (e)           Adjustments to Conversion
Price for Diluting Issuances.

       

      (i)           Special
Definitions.  For purposes of this Section 5(e), the
following definitions shall apply:

       

      (A)         "Option"
shall mean rights, options or warrants to subscribe for, purchase or otherwise
acquire Common Stock or Convertible Securities.

       

      (B)         "Original
Issue Date" shall mean the date on which the first share of Series D
Preferred Stock was issued by the Corporation to any stockholder.

       

      
        
          
            - 8 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (C)           "Convertible
Securities" shall mean any evidence of indebtedness, shares or other
securities (including preferred stock) directly or indirectly convertible into,
or exercisable or exchangeable for, Common Stock.

       

      (D)           "Additional
Shares of Common Stock" shall mean all shares of Common Stock issued (or,
pursuant to Section 5(e)(iii)
below, deemed to be issued) by the Corporation after the Original Issue Date,
other than shares of Common
Stock (or Options or Convertible Securities) issued (or pursuant to Section 5(e)(iii)
below, deemed to be issued) by the Corporation:

       

      (I)      
     upon the conversion of shares of Series D
Preferred Stock or as a dividend or other distribution on the Series D Preferred
Stock;

       

      (II)           in
a transaction described in Section 5(f), (g),
(h) or (i) subject to
compliance with the specific provisions set forth therein;

       

      (III)          in
a transaction approved by the Majority Series D Holders where the Majority
Series D Holders waive the adjustment provisions of this Section 5(e);
or

       

      (IV)          shares
of Common Stock (and/or options or warrants therefor) issued to parties that are
providing the Corporation with equipment leases, real property leases, loans,
credit lines, guaranties of indebtedness, cash price reductions, or similar
transactions pursuant to debt financing or other commercial transactions, in
each such case approved by the Board of Directors including a majority of the
directors nominated and elected by the holders of the Series D Preferred Stock;
provided that,
shares issued qualifying under this subsection (IV) and subsection (VII) shall
not, in the aggregate, exceed $500,000 in value at issuance without the consent
of the Majority Series D Holders;

       

      (V)           shares
of Common Stock issuable upon conversion or exercise of Convertible Securities
outstanding as of the date of filing of this Certificate of
Designation;

       

      (VI)          shares
issued or issuable pursuant to an acquisition of another business or a joint
venture agreement approved by the Board of Directors including a majority of the
directors nominated and elected by the holders of the Series D Preferred
Stock;

       

      (VII)         shares
issued or issuable in connection with sponsored research, collaboration,
technology license, development, distribution, marketing or other similar
arrangements or strategic partnerships or alliances approved by the Board of
Directors including a majority of the directors nominated and elected by the
holders of the Series D Preferred Stock; provided that, shares
issued qualifying under this subsection (IV) and subsection (VII) shall not, in
the aggregate, exceed $500,000 in value at issuance without the consent of the
Majority Series D Holders;

       

      (VIII)       shares
that are otherwise excluded by consent of the Majority Series D Holders;
or

       

      
        
          
            - 9 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (IX)         shares
issuable pursuant to the current employee benefit plans of the corporation or
those approved in the future by the Board of Directors, including a majority of
the directors nominated and elected by the holders of the Series D Preferred
Stock.

       

      (E)           "Market
Price" shall mean, with respect to one share of Common Stock on any date,
the fair market value of such share determined in accordance with the method set
forth in Section
4(e) above.

       

      (ii)     
      No Adjustment of Conversion
Price.  No adjustment in the number of shares of Common Stock
into which the Series D Preferred Stock is convertible shall be made, by
adjustment in the applicable Conversion Price for Series D Preferred Stock
unless the consideration per share (determined pursuant to Section 5(e)(v)
below) for an Additional Share of Common Stock (or Options or Convertible
Securities) issued or deemed to be issued by the Corporation is less
than the Conversion Price for Series D Preferred Stock in effect on the
date of, and immediately prior to, the issuance of such Additional Shares of
Common Stock.  The anti-dilution provisions of this instrument may be
waived with the written approval or consent of the Majority Series D
Holders.

       

      (iii)           Deemed Issuance of
Additional Shares of Common Stock.  If the Corporation at any
time, or from time to time, after the Original Issue Date shall issue any
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein designed to protect against dilution) issuable upon
the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issuance, provided that in any such case
in which Additional Shares of Common Stock are deemed to be issued:

       

      (A)           no
further adjustment in the Conversion Price for Series D Preferred Stock shall be
made upon the subsequent issuance of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;

       

      (B)           if
such Options or Convertible Securities by their terms provide, with the passage
of time or otherwise, for any increase in the consideration payable to the
Corporation, or decrease in the number of shares of Common Stock issuable upon
the exercise, conversion or exchange thereof, the Conversion Price computed upon
the original issuance thereof, and any subsequent adjustment based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities;

       

      (C)           upon
the expiration of any such Options or any rights of conversion or exchange under
such Convertible Securities which shall not have been exercised, the Conversion
Price computed upon the original issuance thereof, and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as
if,

       

      
        
          
            - 10 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (I)        
   in the case of Convertible Securities or Options for Common
Stock, the only Additional Shares of Common Stock issued were the shares of
Common Stock, if any, that were actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issuance of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issuance of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any, actually
received by the Corporation upon such conversion or exchange, and

       

      (II)           in
the case of Options for Convertible Securities, only the Convertible Securities,
if any, that were actually issued upon the exercise thereof were issued at the
time of issuance of such Options, and the consideration received by the
Corporation for the Additional Shares of Common Stock deemed to have been then
issued was the consideration actually received by the Corporation for the
issuance of all such Options, whether or not exercised, plus the consideration
deemed to have been received by the Corporation upon the issuance of the
Convertible Securities with respect to which such Options were actually
exercised;

       

      (D)           no
readjustment pursuant to clause (C) above shall have the effect of increasing
the Conversion Price to an amount which exceeds the lower of (i) the
Conversion Price on the original adjustment date, or (ii) the Conversion
Price that would have resulted from any issuance of Additional Shares of Common
Stock between the original adjustment date and such readjustment
date;

       

      (E)           in
the case of any Options or Convertible Securities with a fluctuating conversion
or exercise price or exchange ratio (a "Variable
Rate Convertible Security"), then the price per share for which the
Additional Shares of Common Stock is issuable upon such exercise of such Options
or in the case of Convertible Securities or Options therefor, the conversion or
exchange of such Convertible Securities for purposes of the calculation of the
maximum number of shares issuable upon the exercise or conversion of such
Variable Rate Convertible Securities contemplated by this Section 5(e)(iii)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Market Price on the date
of issuance of such Variable Rate Convertible Security was one hundred percent
(100%) of the Market Price on such date (the "Assumed
Variable Market Price").  Further, if the Market Price at any
time or times thereafter is less than or equal to the Assumed Variable Market
Price last used for making any adjustment under this Section 5(e)(iii)(E)
with respect to any Variable Rate Convertible Security, the Conversion Price in
effect at such time shall be readjusted to equal the Conversion Price which
would have resulted if the Assumed Variable Market Price at the time of issuance
of the Variable Rate Convertible Security had been one hundred percent (100%) of
the Market Price existing at the time of the adjustment required by this
sentence;

       

      (F)           in
the case of any Options which expire by their terms not more than thirty (30)
days after the date of issuance thereof, no adjustments of the Conversion Price
(for such series of Preferred Stock so affected) shall be made until the
expiration or exercise of all such Options issued on the same date, whereupon
such adjustment shall be made in the manner provided in clause (C) above, or
until such number becomes determinable, as applicable; and

       

      
        
          
            - 11 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (G)           in
the event of any change in the number of shares of Common Stock deliverable, in
the consideration payable to this Corporation upon exercise of such Options or
Convertible Securities or in the conversion rate, excluding any changes under or
by reason of provisions designed to protect against dilution, the Conversion
Price in effect at the time of such event shall be readjusted to the Conversion
Price which would have been in effect at such time had such Options or
Convertible Securities to the extent then outstanding provided for such changed
number of shares, consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; provided that no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such Options or Convertible
Securities; provided further no
readjustment pursuant to this clause (G) shall have the effect of increasing the
Conversion Price (for such series of Preferred Stock so affected) to an amount
which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have resulted from
any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.

       

      (iv)           Anti-Dilution Adjustment of
Conversion Price Upon Deemed Issuances of Additional Shares of Common Stock
Below Conversion Price.  Subject to the provisions of Section 5(e)(ii)
above, in the event the Corporation shall at any time after the Original Issue
Date issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 5(e)(iii)),
without consideration or for a consideration per share less than the Conversion
Price in effect on the date of and immediately prior to such issuance (the
"Dilutive
Price"), then and in such event such Conversion Price shall be reduced,
concurrently with such issuance, to a price equal to the per share consideration
for the Additional Shares (calculated to the nearest one-hundredth of a cent),
but in any event not less than $0.0001.

       

      (v)           Determination of
Consideration.  For purposes of this Section 5(e),
the consideration received by the Corporation for the issuance of any Additional
Shares of Common Stock shall be computed as follows:

       

      (A)           Cash and
Property.  Such consideration shall:

       

      (I)       
    insofar as it consists of cash, be the amount of cash
received by the Corporation (including the proceeds of any convertible debt
financing or debt financing with a warrant feature) deducting any underwriting
or similar concessions, commissions or compensation paid or allowed by the
Corporation, excluding amounts paid or payable for accrued interest or accrued
dividends;

       

      (II)           insofar
as it consists of property other than cash, be the fair market value thereof at
the time of such issuance, as determined in good faith by the Board of Directors
including a majority of the directors nominated and elected by the holders of
the Series D Preferred Stock; and

       

      
        
          
            - 12 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (III)          in
the event Additional Shares of Common Stock are issued together with other
shares or securities or other assets of the Corporation for consideration which
covers both, be the proportion of such consideration so received, computed as
provided in clauses (I) and (II) above, as determined in good faith by the Board
of Directors including a majority of the directors nominated and elected by the
holders of the Series D Preferred Stock.

       

      (B)           Options and Convertible
Securities.  The consideration per share received by the
Corporation for Additional Shares of Common Stock deemed to have been issued
pursuant to Section
5(e)(iii) above, relating to Options and Convertible Securities, shall be
determined by dividing:

       

      (x)       
    the total amount, if any, received or receivable by the
Corporation as consideration for the issuance of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by

       

      (y)           the
maximum number of shares of Common Stock (as set forth in the instruments
relating thereto without regard to any provision contained therein designed to
protect against dilution) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.

       

      (f)           Adjustment for Stock Splits
and Combinations.  If the Corporation shall at any time, or
from time to time, after the Original Issue Date effect a subdivision of the
outstanding Common Stock, the Conversion Price then in effect for Series D
Preferred Stock immediately before that subdivision shall be proportionately
decreased.  If the Corporation shall at any time, or from time to
time, after the Original Issue Date combine the outstanding shares of Common
Stock, the Conversion Price then in effect for Series D Preferred Stock
immediately before the combination shall be proportionately
increased.  Any adjustment under this subsection shall become
effective concurrently with the effectiveness of such subdivision or
combination.

       

      (g)           Adjustment for Common Stock
Dividends and Distributions.  If the Corporation at any time,
or from time to time, after the Original Issue Date, shall make or issue a
dividend or other distribution payable in additional shares of Common Stock,
then and in each such event the Conversion Price then in effect for Series D
Preferred Stock shall be decreased concurrently with the issuance of such
dividend or distribution, by multiplying the Conversion Price then in effect for
Series D Preferred Stock by a fraction: (x) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance, and (y) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance, plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.

       

      (h)           Adjustments for Other
Dividends and Distributions.  In the event the Corporation at
any time, or from time to time, after the Original Issue Date shall make or
issue a dividend or other distribution payable in property (other than cash) or
securities of the Corporation other than shares of Common Stock (and other than
as otherwise adjusted in this Section 5), then and
in each such event provision shall be made so that the holders of Series D
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of property or
securities of the Corporation that they would have received had their Series D
Preferred Stock been converted into Common Stock immediately preceding the
record date for the determination of stockholders entitled to receive such
dividend or other distribution.

       

      
        
          
            - 13 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (i)           Adjustment for
Recapitalization, Reclassification, Exchange or
Substitution.  If the Common Stock issuable upon the conversion
of the Series D Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of stock, whether by recapitalization,
reclassification, exchange, substitution or other similar event (other than
pursuant to subsections (f),
(g) and (h) above or a Deemed
Liquidation Event), each holder of Series D Preferred Stock shall thereafter
receive upon conversion of such Series D Preferred Stock, in lieu of the number
of shares of Common Stock which such holder would otherwise have been entitled
to receive, the number of shares of such other class or classes of stock which a
holder of the number of shares of Common Stock deliverable upon conversion of
the shares of Series D Preferred Stock held by such holder of Series D Preferred
Stock would have been entitled to receive upon such recapitalization,
reclassification, exchange, substitution or other similar event.

       

      (j)           No
Impairment.  The Corporation will not, by amendment of this
Certificate of Designation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series D Preferred Stock to be observed or performed hereunder
by the Corporation, but will at all times in good faith assist in the carrying
out of all the provisions of this instrument and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holders of Series D Preferred Stock against impairment or dilution of
value.

       

      (k)           Certificate as to
Adjustments.  Upon the occurrence of each adjustment of the
Conversion Price for Series D Preferred Stock pursuant to this Section 5, the
Corporation at its expense shall promptly compute such adjustment in accordance
with the terms hereof and furnish to each holder of Series D Preferred Stock so
affected a certificate setting forth such adjustment and showing in reasonable
detail the facts upon which such adjustment is based.  The Corporation
shall, upon the written request at any time of any holder of Series D Preferred
Stock, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments, (ii) the Conversion Price then in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of any
other property which would then be received upon the conversion of Series D
Preferred Stock.

       

      (l)           Notices of Record
Date.  In the event of any taking by the Corporation of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, the Corporation shall mail to each holder of Series D Preferred
Stock at least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.

       

      
        
          
            - 14 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (m)           Notices.  All
notices hereunder shall be in writing and shall be deemed effectively given:
(i) upon personal delivery to the person to be notified; (ii) when
sent by confirmed telex or facsimile if sent during normal business hours of the
recipient, if not, then on the next business day; (iii) five (5) days after
having been sent by first class mail, return receipt requested, postage prepaid;
or (iv) by electronic transmission (email) but accompanied or confirmed by
electronic verification of receipt; or (v) the next business day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt.  All communications shall be
sent to the holder at its address and/or facsimile number appearing on the books
of the Corporation.

       

      6.           Status of Converted
Stock.  In the event any shares of Series D Preferred Stock
shall be converted pursuant to Section 5 hereof, the
shares so converted shall be cancelled and retired and shall be returned to the
status of undesignated preferred stock.

       

      7.           Voting
Rights.

       

      (a)           Preferred Stock Voting
Rights.  Except as may be otherwise provided in this
Certificate of Incorporation, the Series D Preferred Stock shall vote together
with all other classes and series of stock of the Corporation, including the
Common Stock, as a single class on all actions to be taken by the stockholders
of the Corporation.  Each share of Series D Preferred Stock shall
entitle the holder thereof to such number of votes per share on each action as
shall equal the number of shares of Common Stock into which such share of Series
D Preferred Stock is convertible on the record date for determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, the date such vote is taken or any written consent of stockholders
is solicited.  The holders of Series D Preferred Stock shall be
entitled to vote, together with holders of Common Stock, with respect to any
question upon which holders of Common Stock have the right to
vote.  Subject to the other provisions of this Certificate of
Incorporation, each holder of Series D Preferred Stock shall have full voting
rights and powers, and shall be entitled to notice of any stockholders’ meeting
in accordance with the Bylaws of the Corporation (as in effect at the time in
question) and applicable law, and shall be entitled to vote, together with the
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote, except as may be prohibited by applicable
law.  Except as otherwise expressly provided herein or required by
applicable law, the holders of Series D Preferred Stock and the holders of
Common Stock shall vote together as a single class and not as separate
classes

       

      8.           Election of Board of
Directors.

       

      (a)           Board
Composition.  For so long as there are ten (10) shares of
Series D Preferred Stock outstanding (as adjusted for any stock splits, stock
dividends, reverse stock splits, stock combinations and other similar
capitalization changes with respect to the Series D Preferred Stock), the Board
of Directors shall be elected by the stockholders subject to the following
provisions:

       

      
        
          
            - 15 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (i)           for
so long as the holders of Series C Preferred Stock are entitled to nominate and
elect at least one (1) director, one (1) director shall be nominated and elected
by the holders of a majority of the outstanding shares of Series D Preferred
Stock voting as a single class; and

       

      (ii)           if
at any time there are no shares of Series C Preferred Stock outstanding or the
holders of Series C Preferred Stock are no longer entitled to nominate and elect
a director, two (2) directors shall nominated and elected by the holders of a
majority of the outstanding shares of Series D Preferred Stock voting as a
single class.

       

      (b)           Failure to
Elect.  If the holders of shares of Series D Preferred Stock
fail to elect a director to fill the directorship for which they are entitled to
elect a director, voting exclusively and as a separate class, pursuant to Subsection 8(a), then
any directorship not so filled shall remain vacant until such time as the
holders of the Series D Preferred Stock elect a person to fill such directorship
by vote or written consent in lieu of a meeting; and no such directorship may be
filled by stockholders of the Corporation other than by the stockholders of the
Corporation that are entitled to elect a person to fill such directorship,
voting exclusively and as a separate class.

       

      (c)           Vacancy.  If
there shall be any vacancy in the office of a director elected or to be elected
by the holders Series D Preferred Stock, then a director to hold office for the
unexpired term of such directorship may be elected by either: (i) a majority of
the remaining director or directors (if any) in office that were so elected by
the holders of such specified class of stock, by the affirmative vote of a
majority of such directors (or by the sole remaining director elected by the
holders of such specified class of stock if there be but one), or (ii) the
required vote of holders of the shares of such specified class of stock that are
entitled to elect such director as provided in Subsection 8(a)
above.

       

      (d)           Removal.  Subject
to Section 141(k) of the Delaware General Corporation Law, any director who
shall have been elected to the Board of Directors by the holders of any
specified class of stock, or by any director or directors elected by holders of
any specified class of stock as provided above, may be removed during his or her
term of office, without cause, by, and only by, the affirmative vote of shares
representing a majority of the voting power, on an as-converted basis, of all
the outstanding shares of such specified class of stock entitled to vote, given
either at a meeting of such stockholders duly called for that purpose or
pursuant to a written consent of stockholders without a meeting, and any vacancy
created by such removal may be filled only in the manner provided in Subsection
8(a).

       

      (e)           Procedures.  Any
meeting of the holders of any specified class of stock, and any action taken by
the holders of any specified class of stock by written consent without a
meeting, in order to elect or remove a director under this Section 8, shall be
held in accordance with the procedures and provisions of the Corporation’s
Bylaws, the Delaware General Corporation Law and applicable law regarding
stockholder meetings and stockholder actions by written consent, as such are
then in effect (including but not limited to procedures and provisions for
determining the record date for shares entitled to vote).

       

      9.           Protective
Provisions.

       

      
        
          
            - 16 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (A)           For the Holders of Preferred
Stock.  For so long as there are ten (10) shares of Series D
Preferred Stock outstanding (as adjusted for any stock splits, stock dividends,
reverse stock splits, stock combinations and other similar capitalization
changes with respect to the Series D Preferred Stock), the Corporation shall
not, and shall not permit any subsidiary to, without the prior written consent
or affirmative vote of the Majority Series D Holders, consenting or voting
together as a single class:

       

      (a)           liquidate,
dissolve or wind-up the affairs of the Company, or effect any Deemed Liquidation
Event, or otherwise make an assignment for the benefit of creditors or appoint
or consent to the appointment of a receiver or trustee for the Corporation or a
subsidiary, the assets of the Corporation or a subsidiary, or a substantial part
of any such assets or make any voluntary bankruptcy of the Corporation or any
subsidiary; or

       

      (b)           amend,
alter, or repeal any provision of the Certificate of Incorporation, certificates
of designation, Bylaws or other document or agreement in a manner adverse to the
Series D Preferred Stock; or

       

      (c)           sell,
transfer, or assign substantially all of its assets or permit any subsidiary to
sell, transfer, or assign, substantially all of its assets, except in either
case to a wholly-owned subsidiary of the Corporation; or

       

      (d)           create
or authorize the creation of or issue or obligate itself to issue any other
security, or any other securities convertible into or exercisable for any equity
security, having rights, preferences or privileges senior to or in addition to
those granted the Series D Preferred Stock, or altering the percentage of board
seats held by the Series C and D Directors combined (or, the Series D Directors,
as the case may be), or increase the authorized number of shares of Series D
Preferred Stock; or

       

      (e)           purchase
or redeem or pay any dividend on any capital stock prior to the Series D
Preferred Stock; or

       

      (f)           create
or authorize the creation of any new debt security if the Company’s aggregate
indebtedness would exceed $100,000; or

       

      (g)           increase
or decrease the size of the Board of Directors; or

       

      (h)           enter
into any agreement or commit itself to take any action with respect to any of
the foregoing, other than a letter of intent or other similar non-binding
agreement that provides for approval required by this Section 9(A) prior to
consummation of the transactions contemplated by such agreement.

       

      (B)           Protective Provisions For
the Board of Directors.  For so long as there are ten (10)
shares of Series D Preferred Stock outstanding (as adjusted for any stock
splits, stock dividends, reverse stock splits, stock combinations and other
similar capitalization changes with respect to the Series D Preferred Stock),
the Corporation shall not take or commit itself to take any of the following
actions unless such actions are adopted, approved or ratified by a majority of
the members of the Board of Directors, including a majority of the directors
nominated and elected by the holders of the Series D Preferred Stock, at any
regular or special meeting of the Board of Directors duly called and at which a
quorum is present:

       

      
        
          
            - 17 -

            Terms of
Series D Preferred Stock

            Exhibit
10.2 - ISCO - Certificate of Des.DOC

          

           

        

        
           

          
            

          

        

        
           

        

      

      (a)           make
loans or advances to employees, except as in the ordinary course of business as
part of travel advances or salary (promissory notes for purchase of shares
permitted);

       

      (b)           hire,
fire, or change the compensation of the founders of the Corporation, including
approving any option grants;

       

      (c)           make
guarantees of indebtedness for money borrowed except in the ordinary course of
business;

       

      (d)           change
the principal business of the Corporation, enter new lines of business, or exit
the current line of business;

       

      (e)           own
or permit any subsidiary to own any stock or other securities of any other
corporation, partnership, or entity unless it is wholly owned by the
Corporation;

       

      (f)           incur
any debt security, or debt that is secured by any assets of the Corporation
(other than sale & lease-back types of credit);

       

      (g)           make
investments in, or loans to, any third parties;

       

      (h)           sell,
transfer, license, pledge, or encumber technology or intellectual property,
other than licenses granted in the ordinary course of business; or

       

      (i)           incur
aggregate indebtedness in excess of $100,000.

       

      10.           Amendments or
Waivers.  The rights, preferences, privileges and other terms
of the Series D Preferred Stock may be amended or waived as to all shares of
Series D Preferred Stock in any instance where such amendment or waiver impacts
only the Series D Preferred Stock upon the written agreement of the holders of a
majority of the outstanding shares of Series D Preferred Stock (without the
necessity of convening any meeting of stockholders).

       

       

       

      
        - 18 -

        Terms of
Series D Preferred Stock

        Exhibit
10.2 - ISCO - Certificate of Des.DOCintlstem_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

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