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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q

 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission file number: 001-33876
 
 
Athersys, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware 20-4864095
(State or other jurisdiction
of incorporation or organization)
 (I.R.S. Employer
Identification No.)
 
3201 Carnegie Avenue,Cleveland,Ohio 44115-2634
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (216) 431-9900
Former name, former address and former fiscal year, if changed since last report: Not Applicable
 
 
  
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.001 per shareATHXThe NASDAQ Stock Market LLC
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 


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Large accelerated filer   Accelerated filer 
Non-accelerated filer   Smaller reporting company 
Emerging growth company    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
The number of outstanding shares of the registrant’s common stock, $0.001 par value, as of August 5, 2020 was 197,403,562.


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ATHERSYS, INC.
TABLE OF CONTENTS
 
PART I. FINANCIAL INFORMATION
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
PART II. OTHER INFORMATION
ITEM 1A.
ITEM 2.
ITEM 6.


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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Athersys, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
June 30,
2020
December 31,
2019
 (Unaudited) 
Assets
Current assets:
Cash and cash equivalents$80,707  $35,041  
Accounts receivable24  17  
Accounts receivable from Healios96  945  
Prepaid expenses and other1,071  1,168  
Total current assets81,898  37,171  
Equipment, net3,163  2,882  
Deposits and other1,375  1,613  
Total assets$86,436  $41,666  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$12,331  $9,048  
Accounts payable to Healios1,068  1,068  
Accrued compensation and related benefits1,066  773  
Accrued clinical trial related costs750  1,160  
Accrued expenses and other1,592  723  
Deferred revenue - Healios65  65  
Total current liabilities16,872  12,837  
Advance from Healios5,338  5,338  
Other long-term liabilities48  220  
Stockholders’ equity:
Preferred stock, at stated value; 10,000,000 shares authorized, and no shares issued and outstanding at June 30, 2020 and December 31, 2019
    
Common stock, $0.001 par value; 300,000,000 shares authorized, and 197,008,562 and 159,791,585 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
197  160  
Additional paid-in capital515,621  440,735  
Accumulated deficit(451,640) (417,624) 
Total stockholders’ equity64,178  23,271  
Total liabilities and stockholders’ equity$86,436  $41,666  
See accompanying notes to unaudited condensed consolidated financial statements.
4

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Athersys, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share data)
(Unaudited)
 
 Three months ended
June 30,
Six months ended
June 30,
 2020201920202019
Revenues
Contract revenue from Healios$77  $4,193  $77  $5,634  
Grant revenue7  69  7  73  
Total revenues84  4,262  84  5,707  
Costs and expenses
Research and development13,767  11,139  25,862  22,554  
General and administrative4,432  2,867  7,906  5,973  
Depreciation222  157  412  341  
Total costs and expenses18,421  14,163  34,180  28,868  
Loss from operations(18,337) (9,901) (34,096) (23,161) 
Other income (expense), net(35) 213  80  517  
Net loss and comprehensive loss$(18,372) $(9,688) $(34,016) $(22,644) 
Net loss per share, basic and diluted$(0.10) $(0.06) $(0.19) $(0.15) 
Weighted average shares outstanding, basic and diluted191,317  150,163  177,016  148,075  
See accompanying notes to unaudited condensed consolidated financial statements.
5

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Athersys, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(In Thousands, Except Share Amounts)
(Unaudited)

 Preferred StockCommon StockStock Subscription ReceivableAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 Number
of Shares
Stated
Value
Number
of Shares
Par
Value
Balance at December 31, 2019  $  159,791,585  $160  $  $440,735  $(417,624) $23,271  
Stock-based compensation—  —  —  —  —  1,280  —  1,280  
Stock subscription receivable from Healios warrant exercise—  —  4,000,000  4  (7,040) 7,036  —    
Issuance of common stock—  —  6,825,000  7  —  10,243  —  10,250  
Issuance of common stock under equity compensation plan—  —  153,504  —  —  (149) —  (149) 
Net comprehensive loss—  —  —  —  —  —  (15,644) (15,644) 
Balance at March 31, 2020    170,770,089  171  (7,040) 459,145  (433,268) 19,008  
Stock-based compensation—  —  —  —  —  2,579  —  2,579  
Stock subscription receivable from Healios warrant exercise—  —  —  —  7,040  —  —  7,040  
Issuance of common stock, net of issuance cost—  —  25,587,500  26  —  53,665  —  53,691  
Issuance of common stock to Healios—  —  310,526  —  —  534  —  534  
Issuance of common stock under equity compensation plan—  —  340,447  —  —  (302) —  (302) 
Net comprehensive loss—  —  —  —  —  —  (18,372) (18,372) 
Balance at June 30, 2020  $  197,008,562  $197  $  $515,621  $(451,640) $64,178  
 Preferred StockCommon StockAdditional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
 Number
of Shares
Stated
Value
Number
of Shares
Par
Value
Balance at December 31, 2018  $  144,292,739  $144  $416,014  $(373,042) $43,116  
Stock-based compensation—  —  —  —  1,090  —  1,090  
Issuance of common stock, net of issuance cost—  —  3,825,000  4  5,603  —  5,607  
Issuance of common stock under equity compensation plan—  —  158,494  —  (69) —  (69) 
Net comprehensive loss—  —  —  —  —  (12,956) (12,956) 
Balance at March 31, 2019    148,276,233  148  422,638  (385,998) 36,788  
Stock-based compensation—  —  —  —  1,152  —  1,152  
Issuance of common stock, net of issuance cost—  —  3,350,000  4  5,102  —  5,106  
Issuance of common stock under equity compensation plan—  —  151,518  —  (107) —  (107) 
Net comprehensive income—  —  —  —  —  (9,688) (9,688) 
Balance at June 30, 2019  $  151,777,751  $152  $428,785  $(395,686) $33,251  
See accompanying notes to unaudited condensed consolidated financial statements.

6

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Athersys, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 Six months ended
June 30,
 20202019
Operating activities
Net loss$(34,016) $(22,644) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation412  341  
Stock-based compensation3,859  2,242  
Changes in operating assets and liabilities:
Accounts receivable(7) 182  
Accounts receivable from Healios 849  1,820  
Prepaid expenses, deposits and other336  677  
Accounts payable and accrued expenses3,720  1,192  
Deferred revenue - Healios  (672) 
Advances and deposits from Healios  (97) 
Net cash used in operating activities(24,847) (16,959) 
Investing activities
Purchases of equipment(551) (400) 
Net cash used in investing activities(551) (400) 
Financing activities
Proceeds from issuance of common stock, net of issuance cost63,941  10,713  
Proceeds from issuance of common stock to Healios534    
Shares retained for withholding tax payments on stock-based awards(451) (176) 
Proceeds from exercise of warrants - Healios7,040    
Net cash provided by financing activities71,064  10,537  
Increase (decrease) in cash and cash equivalents45,666  (6,822) 
Cash and cash equivalents at beginning of the period35,041  51,059  
Cash and cash equivalents at end of the period$80,707  $44,237  
See accompanying notes to unaudited condensed consolidated financial statements.

7

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Athersys, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Three- and Six- Month Periods Ended June 30, 2020 and 2019


1. Background and Basis of Presentation
Background: We are an international biotechnology company focused in the field of regenerative medicine and operate in one business segment. Our operations consist of research, preclinical development and clinical development activities, and our most advanced program is in Phase 3 clinical development.
We have incurred losses since our inception in 1995 and had an accumulated deficit of $451.6 million at June 30, 2020, and we will not commence sales of our clinical product candidates until they receive regulatory approval for commercialization. We will require significant additional capital to continue our research and development programs, including progressing our clinical product candidates to commercialization and preparing for commercial-scale manufacturing and sales. At June 30, 2020, we had available cash and cash equivalents of $80.7 million. In April 2020, we completed an underwritten public offering of common stock, generating net proceeds of approximately $53.7 million. Also, in March 2020, HEALIOS K.K. (“Healios”), our collaborator in Japan, elected to exercise its warrant in full, and we generated proceeds of approximately $7.0 million, which were received in April 2020. We believe that these recent proceeds combined with our cash on hand, certain cash receipts, proceeds from the equity facility, potential delays in non-core programs and our ability to defer certain spending will enable us to meet our obligations as they come due at least for a period of twelve months from the date of the issuance of these unaudited condensed consolidated financial statements. We expect that our near-term milestones and clinical trial results, including the results of Healios’ clinical trials, may have a significant impact on our ability to access capital from the equity capital markets. Depending on the outcome of these milestones and clinical trial results, we may accelerate, defer or stage the timing of certain programs until we become cash flow positive from the sales of our clinical products, if they are approved for marketing. In the longer term, we will have to continue to generate additional capital to meet our needs until we would become cash flow positive as a result of the sales our clinical products, if they are approved for marketing. Such capital would come from new and existing collaborations and the related license fees, milestones and potential royalties, monetization of other assets, and/or the sale of equity securities from time to time including through our equity facility and grant-funding opportunities.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019. The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial statements reflect all adjustments, consisting of normal recurring adjustments and disclosures that are, in the opinion of management, necessary for a fair presentation of financial position and results of operations for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our critical accounting policies, estimates and assumptions are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included in this Quarterly Report on Form 10-Q.
2. Recently Issued Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326): Effective Dates, delaying the effective date for smaller reporting companies until January 2023. We are currently evaluating the potential impact of adoption of this standard on our condensed consolidated financial statements and disclosures, and we do not intend to early adopt.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting
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arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software and deferred over the non-cancellable term of the cloud computing arrangement plus any optional renewal periods reasonably certain to be exercised by the customer or for which exercise is controlled by the provider. ASU 2018-15 is effective for annual and interim periods beginning after December 15, 2019. The amendments in ASU 2018-15 should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We adopted this standard on a prospective basis effective January 1, 2020 and the adoption of this standard had no impact on our condensed consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”). The amendments in this update: (i) clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account, and in those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation and disclosure requirements; (ii) add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606; and (iii) require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The provisions of ASU 2018-18 are effective for years beginning after December 15, 2019. We have adopted the standard effective January 1, 2020 prospectively, which had no impact on our condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU simplifies the accounting for income taxes, changes the accounting for certain income tax transactions, and other minor changes. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods, with early adoption permitted. We are currently assessing the impact that this ASU will have on our condensed consolidated financial statements and disclosures.
3. Net Loss per Share
Basic and diluted net loss per share have been computed using the weighted-average number of shares of common stock outstanding during the period. We have outstanding stock-based awards that are not used in the calculation of diluted net loss per share because to do so would be anti-dilutive.
The following instruments (in thousands) were excluded from the calculation of diluted net loss per share because their effects would be antidilutive:
 Three months ended
June 30,
Six months ended
June 30,
 2020201920202019
Stock-based awards21,061  16,791  21,061  16,791  
Healios warrant – see Note 6  4,000    4,000  
Total21,061  20,791  21,061  20,791  
4. Collaborative Arrangements and Revenue Recognition
Healios Collaboration
We have a licensing collaboration with Healios to primarily develop and commercialize our cell therapy technologies for certain disease indications in Japan, pursuant to which we received nonrefundable license fee payments and are entitled to royalties on net sales. We also have the right to receive development and commercial milestone payments from Healios, subject to certain potential credits that have been negotiated from time-to-time and are associated with modifications to the arrangement. Healios is responsible for the development and commercialization of the licensed products in the licensed territories, and we provide certain services to Healios for which we are paid.
Refer to Note 6 regarding Healios’ exercise of a warrant in March 2020 and its exercise of a right to participate in certain equity transactions in May 2020.
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Healios Revenue Recognition
At the inception of the Healios arrangement and again each time that the arrangement is modified, all material performance obligations are identified, which currently include (i) licenses to our technology, (ii) product supply services and (iii) services to transfer technology to a contract manufacturer on Healios’ behalf. It was determined that these performance obligations are separate and distinct within the context of the contract. We determine the standalone selling price of each performance obligation and the related transaction price, taking into account variable consideration using the expected value or most likely amount method and reassessing our estimates each reporting period. We constrain, or reduce, the estimates of variable consideration if it is probable that a significant reversal of previously recognized revenue could occur throughout the life of the contract, and both the likelihood and magnitude of a potential reversal of revenue are taken into consideration.
At inception and upon each modification date, once the estimated transaction price is established, amounts are allocated to each separate performance obligation on a relative standalone selling price basis. These performance obligations include any remaining, undelivered elements at the time of modifications and any new elements from a modification to the arrangement if the conditions are not met for being treated as a separate agreement.
The remaining transaction price for the performance obligations that were not yet delivered is not significant at June 30, 2020. At June 30, 2020, the contract liability, included in Deferred Revenue - Healios on the unaudited condensed consolidated balance sheets, is properly classified as a current liability since the rights to consideration are expected to be satisfied, in all material respects, within one year.
Advance from Healios
Certain clinical product supply services that were concluded in 2019 involved a cost-sharing arrangement, the proceeds from which may either (i) result in a reduction in the proceeds we receive from Healios upon the achievement of two potential milestones and an increase to a commercial milestone under the license agreement for stroke or (ii) be repaid to Healios at our election, as defined. The cost-sharing proceeds received are recognized in advance from Healios on the unaudited condensed consolidated balance sheets until the earlier of the milestones being achieved or such amounts being repaid to Healios at our election, at which time, the culmination of the earnings process or the repayment will be complete.
Disaggregation of Revenues
We recognize license-related amounts, including upfront payments, exclusivity fees, additional disease indication fees and milestones at a point in time when earned. Similarly, product supply revenue is recognized at a point in time upon delivery, as defined in the applicable product supply contracts, while service revenue (e.g., technology transfer) is recognized when earned over time in proportion to the contractual services provided. For performance obligations satisfied over time, we apply an appropriate method of measuring progress each reporting period and, if necessary, adjust the estimates of performance and the related revenue recognition.
The following table presents our contract revenues disaggregated by timing of revenue recognition (in thousands):
 Three months ended
June 30, 2020
Three months ended
June 30, 2019
 Point in
Time
Over TimePoint in
Time
Over Time
Contract Revenue from Healios
License fee revenue$  $  $1,624  $  
Product supply revenue77    905    
Service revenue      1,664  
Total disaggregated revenues$77  $  $2,529  $1,664  

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Six months ended
June 30, 2020
Six months ended
June 30, 2019
Point in
Time
Over TimePoint in TimeOver Time
Contract Revenue from Healios
       License fee revenue$  $  $1,624  $  
Product supply revenue77    1,871    
Service revenue      2,139  
Total disaggregated revenues$77  $  $3,495  $2,139  
5. Stock-based Compensation
Our 2019 Equity and Incentive Compensation Plan (the “EICP”) authorized at inception an aggregate of approximately 18,500,000 shares of common stock for awards to employees, directors and consultants. Under the EICP, in the three-month period ended June 30, 2020, we granted 3,594,984 stock options and 1,453,671 restricted stock units to our employees, primarily in connection with our annual incentive programs. The EICP authorizes the issuance of stock-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other stock-based awards. Also, in the first quarter of 2020, we awarded inducement stock options to purchase 1,000,000 shares of our common stock.
As of June 30, 2020, a total of 9,108,743 shares were available for issuance under our EICP, and stock-based awards to purchase 20,060,708 shares of common stock were outstanding under our current and former equity incentive plans, and inducement awards granted outside of our equity incentive plans to purchase 1,000,000 shares of common stock were outstanding. For the three-month periods ended June 30, 2020 and 2019, stock-based compensation expense was approximately $2.6 million and $1.2 million, respectively. At June 30, 2020, total unrecognized estimated compensation cost related to unvested stock-based awards was approximately $18.3 million, which is expected to be recognized by the end of 2024 using the straight-line method.
In June 2020, the Company modified stock option awards granted under the EICP or the Company’s prior equity plans for all then-current employees and directors by providing an extension to the period of time during which vested stock options can be exercised, first, for employees, following an employee’s voluntary termination of employment (or the involuntary termination by the Company without cause (as defined with respect to the applicable options) of the employee’s employment) with the Company and second, for directors, following a director’s death or voluntary termination of service with the Company, in each case following significant tenure with the Company. Upon modification, employees have post-employment exercise periods from six months up to a maximum of three years and directors have from twenty-four months up to thirty months maximum, with the exercise periods increasing based on the applicable individual’s tenure with the Company. The modification is applied to all stock option awards outstanding on the modification date to nonqualified stock options, and to those incentive stock options held by individuals who accepted the modification. Stock option awards issued post-modification will include the extended exercise provisions as described in this paragraph. Following evaluation of the modification of the stock option awards, we recorded stock compensation expense of $1.2 million for the incremental value of stock option awards vested prior to the modification date. The remaining incremental value of $0.5 million associated with the modification of the unvested stock option awards will be recognized over the remaining vesting period of these stock option awards.
6. Stockholders’ Equity
Public Offering
In April 2020, we completed an underwritten public offering of common stock, generating gross proceeds of approximately $57.6 million and net proceeds of approximately $53.7 million through the issuance of 25,587,500 shares of common stock at an offering price of $2.25 per share.
Equity Purchase Agreement
We have had equity purchase agreements in place since 2011 with Aspire Capital Fund LLC (“Aspire Capital”) that provide us the ability to sell shares to Aspire Capital from time to time. Currently, we have an agreement with Aspire Capital that was entered into on November 5, 2019 and includes Aspire Capital’s commitment to purchase up to an aggregate of $100.0 million shares of our common stock over a defined timeframe. The terms of the 2019 equity facility are similar to the previous equity facilities with Aspire Capital, and we issued 350,000 shares of our common stock to Aspire Capital as a commitment fee in November 2019 and filed a registration statement for the resale of 31,000,000 shares of common stock in connection with the
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equity facility. Our prior equity facility that was entered into in February 2018 was fully utilized and terminated during the first quarter of 2020.
There were no sales to Aspire Capital in the second quarter of 2020, and we sold 6,825,000 shares to Aspire Capital at an average price of $1.50 per share in the first quarter of 2020, generating proceeds of $10.2 million. We sold 3,350,000 shares to Aspire Capital at an average price of $1.52 per share in the second quarter of 2019, generating proceeds of $5.1 million and we sold 7,175,000 shares to Aspire Capital at an average price of $1.49 per share during the six months ended June 30, 2019, generating proceeds of $10.7 million.
Healios Warrant
In March 2020, Healios elected to exercise its warrant in full, and we issued 4,000,000 shares of our common stock at an exercise price equal to the reference price of $1.76 per share, as defined in the warrant. Proceeds of approximately $7.0 million were received in April 2020 in accordance with the terms of the warrant.
Healios Investor Rights Agreement
In March 2018, we entered into an investor rights agreement (the “Investor Rights Agreement”) with Healios that governs certain of our and Healios’ rights relating to Healios’ ownership of our common stock. Under the Investor Rights Agreement, Healios is permitted to participate in certain equity issuances as a means to maintain its proportionate ownership of our common stock as of the time of such issuance. In May 2020, we entered into a purchase agreement with Healios, providing for Healios to purchase shares of our common stock in connection with certain equity issuances to Aspire Capital. In May 2020, we sold Healios 310,526 shares of our common stock at $1.72 per share for an aggregate purchase price of $534,105, in accordance with the terms of the Investor Rights Agreement.
7. Income Taxes
We have United States (“U.S.”) federal net operating loss and research and development tax credit carryforwards, as well as state and city net operating loss carryforwards, which may be used to reduce future taxable income and tax liabilities. We also have foreign net operating loss and tax credit carryforwards, and the foreign net operating loss carryforwards do not expire. All of our deferred tax assets have been fully offset by a valuation allowance due to our cumulative losses. The carrying value of our deferred tax assets and liabilities is determined by the enacted U.S. corporate income tax rate. Consequently, any changes in the U.S. corporate income tax rate impacts the carrying value of our deferred tax assets and liabilities. Also, there are significant limitations on our ability to utilize our net operating loss and tax credit carryforwards under Section 382 of the Internal Revenue Code of 1986, as amended.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion and analysis should be read in conjunction with our unaudited financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019. Operating results are not necessarily indicative of results that may occur in future periods.
Overview and Recent Developments
We are an international biotechnology company that is focused primarily in the field of regenerative medicine. We are developing our MultiStem cell therapy product, a patented, adult-derived “off-the-shelf” stem cell product, initially for disease indications in the neurological, inflammatory and immune, cardiovascular and other critical care indications. We have ongoing clinical trials evaluating this potential regenerative medicine product, and our most advanced program is a Phase 3 clinical trial for treatment of ischemic stroke. We also launched in April 2020 a Phase 2/3 study for the treatment of patients with COVID-19 induced acute respiratory distress syndrome, or ARDS.
In December 2019, a novel strain of the coronavirus disease, or COVID-19, was identified in Wuhan, China, and has since spread globally and been declared a pandemic by the World Health Organization. Countries, including the United States, have restricted travel, closed businesses and issued quarantine orders, and it remains unclear how long such measures will remain in place or what future measures may be required.
As of the date of this Quarterly Report on Form 10-Q, the COVID-19 pandemic has not had a significant adverse effect on our core business operations. However, the pandemic has adversely impacted operations at certain existing and potential future clinical sites involved in our ongoing clinical studies. It is possible that the COVID-19 pandemic could adversely affect our business, results of operations, financial condition or liquidity in the future. For example, it could impact the timing and
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enrollment of our or our collaborators’ planned or ongoing clinical trials, delaying clinical site initiation, regulatory review and the potential receipt of regulatory approvals, payment of milestones under our license agreements and commercialization of one or more of our product candidates, if approved. The COVID-19 pandemic could also disrupt the production capabilities of our contract manufacturing partners and materially and adversely impact our MultiStem trial supply chain. Further, the outbreak of COVID-19 has heightened the risk that a significant portion of our workforce will suffer illness or otherwise be unable to work. The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot currently predict the extent to which our business, clinical trials, results of operations, financial condition or liquidity will ultimately be impacted.
Current Programs
Our MultiStem cell therapy product development programs in the clinical development stage include the following:
Ischemic Stroke: We are conducting a pivotal Phase 3 clinical trial of MultiStem cell therapy for the treatment of ischemic stroke, referred to as MASTERS-2. The MASTERS-2 study has received several regulatory distinctions including Special Protocol Assessment designation, Fast Track designation and Regenerative Medicine Advanced Therapy designation from the U.S. Food and Drug Administration, or FDA, as well as a Final Scientific Advice positive opinion from the European Medicines Agency. We believe these designations could accelerate the development, regulatory review and subsequent commercialization of products like MultiStem cell therapy for ischemic stroke, if future clinical evaluation demonstrates appropriate safety and therapeutic effectiveness.
In addition, Healios K.K., or Healios, has an ongoing clinical trial, named TREASURE, evaluating the safety and efficacy of administration of MultiStem cell therapy for the treatment of ischemic stroke in Japan. TREASURE will be evaluated under the progressive framework for regenerative medicine therapies in Japan. Under the new framework, Healios’ ischemic stroke program has been awarded the SAKIGAKE designation by the Pharmaceuticals and Medical Devices Agency, which is designed to expedite regulatory review and approval, and is analogous to Fast Track designation from the FDA. Recently, Healios has reported that enrollment of patients to the clinical trial will be completed in the fourth quarter of 2020. We look forward to the completion of both the MASTERS-2 and TREASURE trials and using the accelerated pathways afforded to us by the regulators in the United States, Europe and Japan.
We initiated the MASTERS-2 study with a small number of high-enrolling sites and have been bringing on additional sites over time in line with clinical product supply and clinical operations objectives. The COVID-19 pandemic has impacted enrollment at some clinical sites due to operational restrictions at the hospital sites or bandwidth issues as hospital personnel are redeployed to other priorities, and has resulted in changes in clinical trial activity and supply disruptions.
ARDS: In January 2020, we announced one-year follow-up results from our exploratory clinical study of the intravenous administration of MultiStem cell therapy to treat patients who are suffering from ARDS, or the MUST-ARDS study. The study results provide further confirmation that the MultiStem treatment was well-tolerated and importantly, there were lower mortality and a greater number of ventilator-free and ICU-free days in the MultiStem-treated patient group compared to the placebo group. In April 2020, the FDA authorized the initiation of a Phase 2/3 pivotal study to assess the safety and efficacy of MultiStem therapy in subjects with moderate to severe ARDS induced by COVID-19, or the MACOVIA study, and the first patient was enrolled. The MACOVIA study features an open-label lead-in followed by a double-blinded, randomized, placebo-controlled Phase 2/3 portion, and the study is designed to enroll up to approximately 400 patients at leading pulmonary critical care centers throughout the United States. We announced commencement of enrollment in May 2020.
In Japan, Healios continues enrolling patients with pneumonia-induced ARDS in the ONE-BRIDGE study, and in April 2020, Healios announced the addition of a small cohort to examine the treatment of COVID-19 induced ARDS patients. Recently, Healios has reported that enrollment of patients will be completed in the fourth quarter of 2020 and we look forward to the results of this study.  
Trauma: In April 2020, the FDA authorized the initiation of a Phase 2 clinical trial evaluating MultiStem cell therapy for the early treatment of traumatic injuries and the subsequent complications that result following severe trauma. The trial will be conducted by The University of Texas Health Science Center at Houston, or UTH, at the Memorial Hermann-Texas Medical Center in Houston, Texas, one of the busiest Level 1 trauma centers in the United States. This study is being supported under a grant awarded to UTH McGovern Medical School from the Medical Technology Enterprise Consortium, and the Memorial Hermann Foundation will provide additional funding. We are providing the investigational clinical product for the trial, as well as regulatory and operational support. The COVID-19 pandemic has the potential to affect the launch and the pace of activity for the study.
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As part of the U.S. Government’s response to the outbreak of COVID-19, we have held discussions with and made presentations under the Medical Countermeasures TechWatch program to the Biomedical Advanced Research and Development Authority, or BARDA, and to the U.S. government interagency COVID-19 Medical Countermeasures task force led by BARDA that also included other relevant governmental agencies and public health institutions. Following infection with COVID-19, or other viruses or pathogens that trigger severe pulmonary inflammation, ARDS can occur, resulting in significant morbidity or death. As a result of this review, our program involving MultiStem for the treatment of ARDS was designated as highly relevant by the Medical Countermeasures TechWatch program, and we were subsequently invited to submit a full proposal to BARDA. After our formal proposal submitted to BARDA under the Broad Agency Announcement (BAA) was reviewed, we were notified that it was deemed “Acceptable” and were invited to proceed into additional discussions and negotiations. On June 3, 2020, BARDA suspended Area of Interest 9.3, dealing with immunomodulators or therapeutics targeting lung repair from the BAA, meaning that our potential funding from BARDA could be delayed or terminated altogether. We have subsequently been informed that our proposal is being re-evaluated, however, no specific date has been given for a final decision. While we remain committed to working with BARDA and the U.S. Department of Health and Human Services in a positive and constructive manner to provide more effective treatment options for patients that are becoming seriously or critically ill from COVID-19, there can be no guarantee of a successful outcome from the re-evaluation. We are continuing to work on this opportunity to partially fund our MACOVIA study and accelerate certain activities related to the establishment of large-scale manufacturing. Depending on the final resolution, the scope and timing of our MACOVIA study may be adjusted.
While the MultiStem product platform continues to advance, we are engaged in process development initiatives intended to increase manufacturing scale, reduce production costs and enhance process controls and product quality, among other things. In addition to our manufacturing efforts, we are also stepping up our planning and preparations for the potential commercialization of our MultiStem product candidate, including strategies for market access and reimbursement. These initiatives are being conducted both internally and outsourced to select contractors, and the related investments are meant to enable us to meet potential commercial demand in the event of eventual regulatory approval.
We have a collaboration with Healios primarily for the development and commercialization in Japan of MultiStem cell therapy for ischemic stroke and ARDS. We provide manufacturing and related services to Healios for which we are compensated.
Financial
In April 2020, we completed an underwritten public offering of common stock, generating gross proceeds of approximately $57.6 million and net proceeds of approximately $53.7 million through the issuance of 25,587,500 shares of common stock at an offering price of $2.25 per share.
In connection with an equity investment in us made by Healios in March 2018, Healios received a warrant to purchase shares of our common stock. On March 26, 2020, Healios elected to exercise its warrant in full, and we issued 4,000,000 shares of our common stock at an exercise price equal to the reference price of $1.76 per share, as defined in the warrant. The proceeds of approximately $7.0 million were received on April 2, 2020 in accordance with the terms of the warrant.
In April 2020, we were approved to receive loan proceeds in the amount of $1.3 million under the Paycheck Protection Program, or PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act to provide loans to qualifying businesses. We applied for the loan based on the initial criteria established by the PPP and guidance of the U.S. Department of the Treasury, or the Treasury Department. After we had been approved for the PPP loan, additional guidance was issued by the Treasury Department indicating that public companies may not be eligible for PPP loans and, therefore, we did not accept the PPP loan.
We have had equity purchase agreements in place since 2011 with Aspire Capital Fund LLC, or Aspire Capital, that provide us the ability to sell shares to Aspire Capital from time to time. Currently, we have an agreement with Aspire Capital that was entered into on November 5, 2019 and includes Aspire Capital’s commitment to purchase up to an aggregate of $100.0 million shares of our common stock over a defined timeframe. Our prior equity facility that was entered into in February 2018 was fully utilized and terminated during the first quarter of 2020. We did not sell shares of common stock to Aspire Capital during the quarter ended June 30, 2020. During the quarter ended June 30, 2019, we sold 3,350,000 shares of common stock to Aspire Capital at an average price of $1.52 per share.
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We have entered into a series of agreements with Healios, our collaborator in Japan and currently our largest stockholder. Under the collaboration that began in 2016, Healios is responsible for the development and commercialization of the MultiStem product for the licensed fields in the licensed territories, and we provide services to Healios for which we are compensated. Each license agreement with Healios has defined economic terms, and we may receive success-based milestone payments, some of which may be subject to credits. While there is no assurance that we will receive milestone proceeds under the Healios collaboration, any milestone payment we receive is non-refundable and non-creditable towards future royalties or any other payment due from Healios. Also, we are entitled to receive tiered royalties on net product sales, as defined in the license agreements.
In March 2018, we entered into an investor rights agreement, or the Investor Rights Agreement, with Healios, which governs certain of our and Healios’ rights relating to Healios’ ownership of our common stock. Under the Investor Rights Agreement, Healios is permitted to participate in certain equity issuances as a means to maintain its proportional ownership of our common stock as of the time of issuance. In May 2020, we entered into a purchase agreement with Healios providing for Healios to purchase shares of our common stock in connection with certain equity issuances to Aspire Capital. In May 2020, we sold to Healios 310,526 shares of our common stock at $1.72 per share for an aggregate purchase price of $534,105, in accordance with the terms of the Investor Rights Agreement.
Results of Operations
Since our inception, our revenues have consisted of license fees, contract revenues, royalties and milestone payments from our collaborators, and grant proceeds. We have not derived revenue from our commercial sale of therapeutic products to date since we are in clinical development. Research and development expenses consist primarily of external clinical and preclinical study fees, manufacturing and process development costs, salaries and related personnel costs, legal expenses resulting from intellectual property prosecution processes, facility costs, and laboratory supply and reagent costs. We expense research and development costs as they are incurred. We expect to continue to make significant investments in research and development to enhance our technologies, advance clinical trials of our product candidates, expand our regulatory affairs and product development capabilities, conduct preclinical studies of our product, manufacture our product candidates and prepare for potential commercialization of our MultiStem cell therapy product. General and administrative expenses consist primarily of salaries and related personnel costs, professional fees and other corporate expenses. We expect to continue to incur substantial losses through at least the next several years.
Three Months Ended June 30, 2020 and 2019
Revenues. There were revenues of $0.1 million for the three months ended June 30, 2020 compared to $4.3 million for the three months ended June 30, 2019. The revenues in both periods were primarily generated from our collaboration with Healios. Our collaboration revenues fluctuate from period to period based on license fees and the delivery of goods and services under our arrangement with Healios.
Research and Development Expenses. Research and development expenses increased to $13.8 million for the three months ended June 30, 2020 from $11.1 million for the comparable period in 2019. The $2.7 million net increase is associated with increases in clinical trial and manufacturing process development costs of $0.8 million, research supplies of $0.5 million, stock compensation costs of $0.5 million, personnel costs of $0.3 million, outside services of $0.3 million, and other research and development costs of $0.3 million. Our clinical development, clinical manufacturing and manufacturing process development expenses vary over time based on the timing and stage of clinical trials underway, manufacturing campaigns for clinical trials and manufacturing process development projects, and we expect our annual 2020 research and development expense to increase compared to 2019. These variations in activity level may also impact our accounts payable, accrued expenses, prepaid expenses and deposits balances from period-to-period. Other than external expenses for our clinical and preclinical programs, we generally do not track our research expenses by project; rather, we track such expenses by the type of cost incurred.
General and Administrative Expenses. General and administrative expenses increased to $4.4 million for the three months ended June 30, 2020 from $2.9 million in the comparable period in 2019. The $1.5 million increase was primarily due to increased personnel costs, outside services, professional fees, consulting costs and stock compensation costs. We expect our annual 2020 general and administrative expenses to increase compared to 2019.
Depreciation. Depreciation expense was consistent at $0.2 million for the three months ended June 30, 2020 and June 30, 2019. We expect that our annual depreciation will increase in 2020 compared to 2019.
Other Income, net. Other income, net, generally includes net foreign currency gains and losses, and net interest income and expense.
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Six Months Ended June 30, 2020 and 2019
Revenues. Revenues were $0.1 million for the six months ended June 30, 2020 compared to $5.7 million in the six months ended June 30, 2019. The revenues in both periods were primarily generated from our collaboration with Healios. As stated above, our collaboration revenues fluctuate from period to period based on new licenses conferred and the delivery of goods and services under our arrangement with Healios.

Research and Development Expenses. Research and development expenses increased to $25.9 million for the six months ended June 30, 2020 from $22.6 million in the comparable period in 2019. The $3.3 million net increase is associated with increases in research supplies of $1.3 million, personnel costs of $0.6 million, stock compensation costs of $0.6 million, outside services of $0.5 million and other research and development costs of $0.3 million. Other than external expenses for our clinical and preclinical programs, we do not track our research expenses by project; rather, we track such expenses by the type of cost incurred.

General and Administrative Expenses. General and administrative expenses increased to $7.9 million for the six months ended June 30, 2020 from $6.0 million in the comparable period in 2019. The $1.9 million increase was due primarily to increases in personnel costs, other outside services and stock compensation costs compared to the same period in 2019. We expect our annual 2020 general and administrative expenses to increase compared to 2019.

Depreciation. Depreciation expense of $0.4 million for the six months ended June 30, 2020 was slightly higher compared to $0.3 million for the comparable period in 2019. We expect that our annual 2020 depreciation will increase compared to 2019.

Other Income, net. Other income, net, was $0.1 million for the six-month period ended June 30, 2020 and $0.5 million for the comparable 2019 period, and is typically comprised of interest income and expense, and foreign currency gains and losses.
Liquidity and Capital Resources
Our sources of liquidity include our cash balances. At June 30, 2020, we had $80.7 million in cash and cash equivalents. We have primarily financed our operations through business collaborations, grant funding and equity financings. Although the COVID-19 pandemic has not had a significant adverse effect on our business as of the date of this Quarterly Report on Form 10-Q, the pandemic could negatively impact our ability to access financing sources on the same or reasonably similar terms as were available to us before the pandemic. We conduct all of our operations through our subsidiary, ABT Holding Company. Consequently, our ability to fund our operations depends on ABT Holding Company’s financial condition and its ability to make dividend payments or other cash distributions to us. There are no restrictions such as government regulations or material contractual arrangements that restrict the ability of ABT Holding Company to make dividend and other payments to us.
We incurred losses since inception of operations in 1995 and had an accumulated deficit of $451.6 million at June 30, 2020. Our losses have resulted principally from costs incurred in research and development, clinical and preclinical product development, acquisition and licensing costs, and general and administrative costs associated with our operations. We use all of our sources of capital to develop our technologies, discover and develop therapeutic product candidates and develop business collaborations, and we may use our sources of capital to acquire certain technologies and assets.
We are entitled to receive potential milestones payments, subject to certain credits, and royalties from Healios under our licensed programs. We also receive payments from Healios for clinical product supply and other manufacturing-related services. Certain proceeds from Healios may be used by Healios to offset milestone payments that may become due in the future.
In April 2020, we completed an underwritten public offering of common stock, generating gross proceeds of approximately $57.6 million and net proceeds of approximately $53.7 million through the issuance of 25,587,500 shares of common stock at an offering price of $2.25 per share.
In March 2020, Healios elected to exercise a warrant in full, and we issued 4,000,000 shares of our common stock at an exercise price equal to the reference price of $1.76 per share, in accordance with the terms of the warrant. The proceeds of approximately $7.0 million were received in April 2020.
We have had equity purchase agreements in place since 2011 with Aspire Capital that provide us the ability to sell shares to Aspire Capital from time to time. Currently, we have an agreement with Aspire Capital that was entered into on November 5, 2019 and includes Aspire Capital’s commitment to purchase up to an aggregate of $100.0 million shares of our common stock over a defined timeframe. Our prior equity facility that was entered into in February 2018 was fully utilized and terminated during the first quarter of 2020. During the quarter ended June 30, 2020, we sold no shares of common stock to Aspire Capital.
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During the quarter ended June 30, 2019, we sold 3,350,000 shares of common stock to Aspire Capital at an average price of $1.52 per share.
We will require substantial additional funding in order to continue our research and product development programs, including clinical trials of our product candidates and process development and manufacturing projects, and to prepare for possible approval and commercial activities. We intend to generate additional funding to meet our needs through business development and other transactions, collaborator achievement of milestones under our agreements, grant-funding activities, and other activities. At June 30, 2020, we had available cash and cash equivalents of $80.7 million. We intend to meet our short-term liquidity needs with available cash combined with expected cash receipts from our collaboration with Healios and potential proceeds from business development. Over the longer term, we will continue to make use of available cash and may raise capital from time to time through our equity facility, subject to any volume and price limitations, and equity offerings. We may also manage our cash by deferring certain discretionary costs and staging certain development costs to extend our operational runway, as needed. Over time, we may consider borrowing from financing institutions.
Our capital requirements over time depend on a number of factors, including progress in our clinical development programs, our clinical and preclinical pipeline of additional opportunities and their stage of development, additional external costs such as payments to contract research organizations and contract manufacturing organizations, additional personnel costs and the costs in filing and prosecuting patent applications and enforcing patent claims. Furthermore, delays in product supply for our and Healios’ clinical trials may impact the timing and cost of such studies. The availability of funds impacts our ability to advance multiple clinical programs concurrently, and any shortfall in funding could result in our having to delay or curtail research and development efforts. Further, these requirements may change at any time due to technological advances, business development activity or competition from other companies. We cannot assure you that adequate funding will be available to us or, if available, that it will be available on acceptable terms.
We expect to continue to incur substantial losses through at least the next several years and may incur losses in subsequent periods. The amount and timing of our future losses are highly uncertain. Our ability to achieve and thereafter sustain profitability will be dependent upon, among other things, successfully developing, commercializing and obtaining regulatory approval or clearances for our technologies and products resulting from these technologies.
Cash Flow Analysis
Net cash used in operating activities was $24.8 million for the six months ended June 30, 2020 compared to cash used of $17.0 million for the six months ended June 30, 2019. Net cash used in operating activities may fluctuate significantly on a quarter-to-quarter basis, as it has over the past several years, primarily due to the receipt of fees from our collaborators and payment of specific clinical trial costs, such as clinical manufacturing campaigns, contract research organization costs and manufacturing process development projects. These variations in activity level may also impact our accounts payable, accrued expenses, prepaid expenses and deposits balances from period-to-period.
Net cash used in investing activities was $0.6 million and $0.4 million for the six months ended June 30, 2020 and 2019, respectively. The fluctuations over the periods were due to the timing of equipment purchases primarily for our manufacturing process development activities.
Financing activities provided cash of $71.1 million and $10.5 million for the six months ended June 30, 2020 and 2019, respectively. The increase in financing activities of $60.6 million is due to the underwritten public offering, for which we received net proceeds of approximately $53.7 million, that we completed in April 2020, the Healios warrant exercise for which we received proceeds of $7.0 million in April 2020, and $0.5 million received from Healios in May 2020 from the issuance of our common stock related to its participation right under the Investor Rights Agreement. Also included in financing activities for the six months ended June 30, 2020 and June 30, 2019 are proceeds from the issuance of common stock to Aspire Capital in the amount of $10.2 million and $10.7 million.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Management Estimates
The SEC defines critical accounting policies as those that are, in management’s view, important to the portrayal of our financial condition and results of operations and demanding of management’s judgment. Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance
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with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates on experience and on various assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. A description of these accounting policies and estimates is included in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes in our accounting policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2019.
For additional information regarding our accounting policies, see Note B to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2019.
Cautionary Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These forward-looking statements relate to, among other things, the expected timetable for development of our product candidates, our growth strategy, and our future financial performance, including our operations, economic performance, financial condition, prospects, and other future events. We have attempted to identify forward-looking statements by using such words as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “should,” “suggest,” “will,” or other similar expressions. These forward-looking statements are only predictions and are largely based on our current expectations. These forward-looking statements appear in a number of places in this Quarterly Report on Form 10-Q.
In addition, a number of known and unknown risks, uncertainties, and other factors could affect the accuracy of these statements. Some of the more significant known risks that we face are the risks and uncertainties inherent in the process of discovering, developing, and commercializing products that are safe and effective for use as therapeutics, including the uncertainty regarding market acceptance of our product candidates and our ability to generate revenues. The following risks and uncertainties may cause our actual results, levels of activity, performance, or achievements to differ materially from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements:
 
our ability to raise capital to fund our operations, including but not limited to, our ability to access our traditional financing sources on the same or reasonably similar terms as were available to us before the COVID-19 pandemic;
our ability to successfully finalize and implement an alliance with BARDA, and the terms of any such alliance, including the amount, if any, of funding that we might receive;
the timing and nature of results from MultiStem clinical trials, including the MASTERS-2 Phase 3 clinical trial evaluating the administration of MultiStem for the treatment of ischemic stroke, and the Healios TREASURE and ONE-BRIDGE clinical trials in Japan evaluating the treatment in stroke and ARDS patients, respectively;
the success of our MACOVIA clinical trial evaluating the administration of MultiStem for the treatment of COVID-19 induced ARDS, and the MATRICS-1 clinical trial being conducted with The University of Texas Health Science Center at Houston evaluating the treatment of patients with serious traumatic injuries;
the impact of the COVID-19 pandemic on our ability to complete planned or ongoing clinical trials;
the possibility that the COVID-19 pandemic could delay clinical site initiation, clinical trial enrollment, regulatory review and the potential receipt of regulatory approvals, payment of milestones under our license agreements and commercialization of one or more of our product candidates, if approved;
the availability of product sufficient to meet commercial demand shortly following any approval, such as in the case of accelerated approval for the treatment of COVID-19 induced ARDS;
the impact on our business, results of operations and financial condition from the ongoing and global COVID-19 pandemic, or any other pandemic, epidemic or outbreak of infectious disease in the United States;
the possibility of delays in, adverse results of, and excessive costs of the development process;
our ability to successfully initiate and complete clinical trials of our product candidates;
the impact of the COVID-19 pandemic on the production capabilities of our contract manufacturing partners and our MultiStem trial supply chain;
the possibility of delays, work stoppages or interruptions in manufacturing by third parties or us, such as due to material supply constraints, contaminations, operational restrictions due to COVID-19 or other public health emergencies, labor constraints, regulatory issues or other factors which could negatively impact our trials and the trials of our collaborators;
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uncertainty regarding market acceptance of our product candidates and our ability to generate revenues, including MultiStem cell therapy for neurological, inflammatory and immune, cardiovascular and other critical care indications;
changes in external market factors;
changes in our industry’s overall performance;
changes in our business strategy;
our ability to protect and defend our intellectual property and related business operations, including the successful prosecution of our patent applications and enforcement of our patent rights, and operate our business in an environment of rapid technology and intellectual property development;
our possible inability to realize commercially valuable discoveries in our collaborations with pharmaceutical and other biotechnology companies;
our ability to meet milestones and earn royalties under our collaboration agreements, including the success of our collaboration with Healios;
our collaborators’ ability to continue to fulfill their obligations under the terms of our collaboration agreements and generate sales related to our technologies;
the success of our efforts to enter into new strategic partnerships and advance our programs, including, without limitation, in North America, Europe and Japan;
our possible inability to execute our strategy due to changes in our industry or the economy generally;
changes in productivity and reliability of suppliers;
the success of our competitors and the emergence of new competitors; and
the risks mentioned elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2019 under Item 1A, “Risk Factors” and our other filings with the SEC.
Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events and is subject to these other risks, uncertainties and assumptions relating to our operations, operating results growth strategy and liquidity. Although we currently believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results, levels of activity or performance. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. You are advised, however, to consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K furnished to the SEC. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There were no material changes in our exposure to market risk since the disclosure included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019.
Item 4. Controls and Procedures.
Disclosure controls and procedures
Our management, under the supervision of and with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective.
Changes in internal control over financial reporting
During the last fiscal quarter covered by this Quarterly Report on Form 10-Q, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION 

Item 1A. Risk Factors.

The following disclosure supplements the discussion of certain risks and uncertainties previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019. These risks and uncertainties, along with those previously disclosed, could materially adversely affect our business, results of operations, financial position or cash flows.

We face risks related to the current COVID-19 pandemic and other health epidemics and outbreaks.
The global outbreak of COVID-19 is currently impacting countries, communities, supply chains and markets. As of the date of this Quarterly Report on Form 10-Q, the COVID-19 pandemic has not had a significant adverse effect on our core business operations. However, the pandemic has adversely impacted operations at certain existing and potential future clinical sites involved in our ongoing clinical studies. It is possible that the COVID-19 pandemic could adversely affect our business, results of operations, financial condition or liquidity in the future. For example, it could impact the timing and enrollment of our collaborators’ planned or ongoing clinical trials, delaying clinical site initiation, regulatory review and the potential receipt of regulatory approvals, payment of milestones under our license agreements and commercialization of one or more of our product candidates, if approved. The COVID-19 pandemic could negatively impact our financial liquidity by impairing our ability to access our primary financing sources, including, but not limited to, business collaborations, grant funding and equity financings, on the same or reasonably similar terms as were available to us before the pandemic. The COVID-19 pandemic could also disrupt the production capabilities of our contract manufacturing partners and materially and adversely impact our MultiStem trial supply chain. Further, the outbreak of COVID-19 has heightened the risk that a significant portion of our workforce will suffer illness or otherwise be unable to work. The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot currently predict the extent to which our business, clinical trials, results of operations, financial condition or liquidity will ultimately be impacted.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019, such as those relating to our significant operating losses, our need for substantial additional funding to develop our products and support our operations, delays or difficulties in developing and commercializing our MultiStem product candidates, and delays in clinical trials and regulatory approvals relating to our products.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Aspire Capital Equity Purchase Agreement
During the quarter ended June 30, 2020, we sold no shares of common stock to Aspire Capital under our equity purchase agreement.

Healios Investor Rights Agreement
In May 2020, we entered into a purchase agreement with Healios, allowing Healios to purchase shares of our common stock in connection with certain equity issuances to Aspire Capital. We sold to Healios 310,526 shares of our common stock at $1.72 per share for an aggregate purchase price of $534,105, in accordance with the terms of the Investor Rights Agreement. The issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(a)(2) of the Securities Act. The issuance qualified for exemption under Section 4(a)(2) of the Securities Act because it did not involve a public offering due to the number of persons involved, the manner of the issuance and the number of securities issued. In addition, Healios had the necessary investment intent.

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Item 6. Exhibits.
Exhibit No.Description
10.1†
10.2†
10.3†
10.4†
10.5†
31.1
31.2
32.1
101The following materials from Athersys’ Quarterly Report on Form 10-Q for the period ended June 30, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheet (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss (iii) the Condensed Consolidated Statement of Shareholders’Equity (iv) the Condensed Consolidated Statement of Cash Flows (v) Notes to Unaudited Condensed Consolidated Financial Statements and (vi) document and entity information.
104Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)
Indicates management contract or compensatory plan, contract or arrangement in which one or more directors or executive officers of the registrant may be participants.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
ATHERSYS, INC.
Date: August 10, 2020/s/ Gil Van Bokkelen
Gil Van Bokkelen
Chairman and Chief Executive Officer
(principal executive officer authorized to sign on behalf of the registrant)
 
/s/ Ivor Macleod
Ivor Macleod
Chief Financial Officer
(principal financial officer authorized to sign on behalf of the registrant)
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Document
EXHIBIT 10.1
ATHERSYS, INC.
EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT

        This Employee Incentive Stock Option Agreement (“Agreement”) is made as of the [[GRANTDATE]] (the “Date of Grant”) by and between Athersys, Inc., a Delaware corporation (the “Company”), and [[FIRSTNAME]] [[LASTNAME]] (“Optionee”) with respect to the grant of an Incentive Stock Option by the Company to Optionee pursuant to the Athersys, Inc. 2019 Equity and Incentive Compensation Plan (the “Plan”).

1.Grant of Stock Option. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement, the Company hereby grants to Optionee an Option Right (the “Option”) to purchase [[SHARESGRANTEDWORDS]] ([[SHARESGRANTED]]) Common Shares (the “Option Shares”). The Option may be exercised from time to time in accordance with the terms of this Agreement.
2.Type of Option. Except to the extent of the $100,000 limitation set forth in Section 422(d) of the Code, the Option is intended to be an Incentive Stock Option. To the extent, if any, that the $100,000 limitation set forth in Section 422(d) of the Code is exceeded, the Option shall constitute two separate options with the first option covering the number of Common Shares up to the $100,000 limitation intended to be an Incentive Stock Option and the second option covering any excess Common Shares intended to be a nonqualified stock option.
3.Option Price. The Option Shares may be purchased pursuant to this Option at a price of [[GRANTPRICE]] per Common Share, subject to adjustment as hereinafter provided (the “Option Price”).
4.Term of Option/Agreement. The term of the Option shall commence on the Date of Grant and, unless earlier terminated in accordance with Section 7 hereof, shall terminate and expire automatically and without further notice ten (10) years from the Date of Grant.
5.Right to Exercise.
(a)Subject to Sections 5(b) and (c), Section 7 and Section 10 below, the Option will vest and become exercisable as provided in the attached Exhibit A, for so long as Optionee remains continuously employed with the Company or any Subsidiary. To the extent the Option is exercisable, it may be exercised in whole or in part. In no event shall Optionee be entitled to acquire a fraction of one Option Share pursuant to this Option. Optionee shall be entitled to the privileges of ownership, including dividends, only with respect to Option Shares purchased and delivered to Optionee upon the exercise of all or part of this Option.
(b)Notwithstanding Section 5(a) above, the Option shall become immediately exercisable in full, if at any time prior to the termination of the Option, a Change in Control shall occur.



(c)Notwithstanding Section 5(a) above, if the Optionee should die or become permanently disabled while in the employ of the Company or any Subsidiary, this Option shall immediately become exercisable in full and shall remain exercisable until terminated in accordance with Section 7 below. The Optionee shall be considered to have become permanently disabled if the Optionee’s employment terminates on account of the Optionee having become “permanently and totally disabled”, as defined in Section 22(e)(3) of the Code.
6.Notice of Exercise; Payment. To the extent then exercisable, the Option may be exercised in whole or in part by written notice to the Company stating the number of Option Shares for which the Option is being exercised and the intended manner of payment. The date of such notice shall be the exercise date. The Option Price shall be payable (a) in cash or by check acceptable to the Company or by wire transfer of immediately available funds, (b) by actual or constructive transfer to the Company of nonforfeitable, unrestricted Common Shares that have been owned by the Optionee for more than six (6) months prior to the date of exercise, (c) for exercises of Options that occur more than one (1) year following the Date of Grant, by transfer to the Company of shares or vested Options (including Options under this Agreement) for the purchase of Common Shares having a fair market value (net of the exercise price) at the time of exercise equal to the portion of the Option Price for which such transfer is made, or (d) by a combination of such methods of payment. The requirement of payment in cash shall be deemed satisfied if the Optionee shall have made arrangements satisfactory to the Company with a bank or a broker who is a member of the National Association of Securities Dealers, Inc. to sell on the exercise date a sufficient number of the shares being purchased so that the net proceeds of the sale transaction will at least equal the Option Price plus payment of any applicable withholding taxes and pursuant to which the bank or broker undertakes to deliver the full Option Price plus payment of any applicable withholding taxes to the Company on a date satisfactory to the Company, but not later than the date on which the sale transaction will settle in the ordinary course of business. As soon as practicable upon the Company’s receipt of Optionee’s notice of exercise and payment, the Company shall direct the due issuance of the Option Shares so purchased.
As a further condition precedent to the exercise of this Option in whole or in part, Optionee shall comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the Common Shares and in connection therewith shall execute any documents which the Board shall in its sole discretion deem necessary or advisable.
7.Termination. Subject to the last two sentences of this Section 7, this Option shall terminate on the earliest of the following dates:
(a)The date on which the Optionee ceases to be an employee of the Company or any Subsidiary, if the Optionee’s employment with the Company or a Subsidiary is terminated for Cause (“Cause” being defined as (i) the commission of an act of fraud, embezzlement, theft or other criminal act constituting a felony; or (ii) the
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material breach of any provision contained in a written non-competition, confidentiality or non-disclosure agreement between the Company or any of its Subsidiaries and Optionee);
(b)If Optionee ceases to be an employee of the Company or a Subsidiary due to Optionee’s voluntary termination of employment (other than by reason of Optionee’s death, permanent disability (as described in Section 5(c) above) or Retirement (as described in Section 7(e) below)) or due to an involuntary termination of Optionee’s employment by the Company or a Subsidiary without Cause, Optionee’s vested Option will terminate as follows:
(i)If Optionee has fewer than ten (10) years of total employment with the Company and its Subsidiaries, the date that is three (3) months after the date of Optionee’s termination of employment;
(ii)If Optionee has at least ten (10) years but fewer than fifteen (15) years of total employment with the Company and its Subsidiaries, the date that is six (6) months after the date of Optionee’s termination of employment;
(iii)If Optionee has at least fifteen (15) years but fewer than twenty (20) years of total employment with the Company and its Subsidiaries, the date that is one (1) year after the date of Optionee’s termination of employment;
(iv)If Optionee has at least twenty (20) years but fewer than twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is two (2) years after the date of Optionee’s termination of employment; or
(v)If Optionee has at least twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is three (3) years after the date of Optionee’s termination of employment;
(c)In the event of Optionee’s death while an employee of the Company or a Subsidiary, the Option will terminate as follows:
(i)If Optionee has fewer than twenty (20) years of total employment with the Company and its Subsidiaries, the date that is one (1) year after the date of Optionee’s death;
(ii)If has at least twenty (20) years but fewer than twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is two (2) years after the date of Optionee’s death; or
(iii)If Optionee has at least twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is three (3) years after the date of Optionee’s death;
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(d)If Optionee ceases to be an employee of the Company or a Subsidiary due to Optionee’s permanent and total disability (as described in Section 5(c) above), the Option will terminate as follows:
(i)If Optionee has fewer than twenty (20) years of total employment with the Company and its Subsidiaries, the date that is one (1) year after the date of Optionee’s permanent and total disability;
(ii)If Optionee has at least twenty (20) years but fewer than twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is two (2) years after the date of Optionee’s permanent and total disability; or
(iii)If Optionee has at least twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is three (3) years after the date of Optionee’s permanent and total disability;
(e)Five (5) years after the date that the Optionee shall Retire. For this purpose, “Retire” (or similar terms) shall mean that Optionee terminates Optionee’s employment by reason of Optionee’s retirement entitling Optionee to early, normal or late retirement benefits under the provisions of any retirement plan of the Company or its Subsidiaries in which Optionee participates (or if no such plan exists, at or after age sixty-five (65)); and
(f)Three (3) months after Optionee ceases to be an employee of the Company or a Subsidiary for any other reason not otherwise provided for in this Section 7.
In the event of Optionee’s death within the three (3) month period following a termination of Optionee’s employment by the Company or a Subsidiary without Cause, the Option will terminate on the earlier of (1) the date that such Option would have expired if Optionee had remained in continuous employment with the Company or a Subsidiary and (2) the date that is one (1) year after the date of Optionee’s death.
In all events, this Option shall terminate not later than ten (10) years from the Date of Grant.
8.Option Nontransferable. This Option is not transferable by the Optionee otherwise than by will or the laws of descent and distribution. In no event will any such award granted under this Agreement be transferred for value. This Option may be exercised, during the lifetime of the Optionee, only by Optionee, or in the event of Optionee’s legal incapacity, by Optionee’s guardian or legal representative acting on behalf of Optionee in a fiduciary capacity under state law or court supervision.
9.Compliance with Law. This Option shall not be exercisable if such exercise would involve a violation of any applicable federal, state or other securities law.
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10.Adjustments. This Option and the Option Shares subject thereto, and the other terms and conditions of the grant evidenced by this Agreement, are subject to mandatory adjustment, including as provided in Section 12 of the Plan.
11.Taxes and Withholding. To the extent that the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made or benefit realized by Optionee or another person under this Agreement, Optionee agrees that the Company will withhold any taxes required to be withheld by the Company under federal, state, local or foreign law from the Option Shares in an amount sufficient to satisfy the minimum statutory withholding amount permissible (unless the Committee takes action subsequent to the Date of Grant requiring such withholding amount to be paid by Optionee in cash). The Option Shares so retained shall be credited against any such withholding requirement at the market value of such Common Shares on the date of such withholding. In no event will the market value of the Common Shares to be withheld pursuant to this Section 11 to satisfy applicable withholding taxes exceed the maximum amount of taxes or other amounts that could be required to be withheld.
12.Mandatory Notice of Disqualifying Disposition. Without limiting any other provision hereof, Optionee hereby agrees that if Optionee disposes (whether by sale, exchange, gift or otherwise) of any of the Option Shares acquired pursuant to the exercise of any Incentive Stock Option memorialized by this Agreement within two (2) years of the Date of Grant or within one (1) year after the transfer of such share or shares to Optionee, Optionee shall notify the Company of such disposition in writing within thirty (30) days from the date of such disposition. Such written notice shall state the principal terms of such disposition and the type and amount of the consideration received for such share or shares by Optionee in connection therewith.
13.Post-Termination Lapse of Incentive Stock Option Status. Optionee acknowledges and understands that, under current law, in order to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the Date of Grant and ending on the date that is three (3) months before the date of exercise of this Option, Optionee must be an employee of the Company or a Subsidiary, except in the event of Optionee’s death or permanent disability. The Company does not guarantee that the Option (or any portion thereof) will be treated as an Incentive Stock Option if Optionee continues to provide services to the Company or a Subsidiary as a consultant, advisor or director after Optionee’s employment as a common law employee terminates or if Optionee exercises this Option (or any portion thereof) more than three (3) months after the date Optionee’s employment with the Company and its Subsidiaries terminates.
14.Continuous Employment. For purposes of this Agreement, the total or continuous employment of the Optionee with the Company or a Subsidiary shall not be deemed to have been interrupted, and the Optionee shall not be deemed to have ceased to be an employee of the Company or Subsidiary, by reason of the (a) transfer of the Optionee’s
5



employment among the Company and its Subsidiaries or (b) an approved leave of absence.
15.No Employment Contract. This Option is a voluntary, discretionary award being made on a one-time basis and it does not constitute a commitment to make any future awards. This Option and any payments made hereunder will not be considered salary or other compensation for purposes of any severance pay or similar allowance, except as otherwise required by law. Nothing in this Agreement will give the Optionee any right to continue employment with the Company or any Subsidiary, as the case may be, or interfere in any way with the right of the Company or a Subsidiary to terminate the employment of the Optionee.
16.Information. Information about the Optionee and the Optionee’s participation in the Plan may be collected, recorded and held, used and disclosed for any purpose related to the administration of the Plan. The Optionee understands that such processing of this information may need to be carried out by the Company and its Subsidiaries and by third party administrators whether such persons are located within the Optionee’s country or elsewhere, including the United States of America. The Optionee consents to the processing of information relating to the Optionee and the Optionee’s participation in the Plan in any one or more of the ways referred to above.
17.Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. All terms used herein with initial capital letters and not otherwise defined herein that are defined in the Plan shall have the meanings assigned to them in the Plan. The Board (or a committee of the Board) acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine any questions which arise in connection with the grant of the Option hereunder.
18.Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall materially adversely affect the rights of the Optionee under this Agreement without the Optionee’s consent.
19.Severability. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances shall not be affected, and the provisions so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal.
20.Successors and Assigns. Without limiting Section 8 hereof, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Optionee, and the successors and assigns of the Company.
6



21.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same Agreement.
22.Governing Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws of the State of Delaware, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.
23.Notices. Any notice to the Company provided for herein shall be in writing to the Company, marked Attention: President, and any notice to Optionee shall be addressed to said Optionee at Optionee’s address on file with the Company at the time of such notice. Except as otherwise provided herein, any written notice shall be deemed to be duly given if and when delivered personally or deposited in the United States mail, first class registered mail, postage and fees prepaid, and addressed as aforesaid. Any party may change the address to which notices are to be given hereunder by written notice to the other party as herein specified (provided that for this purpose any mailed notice shall be deemed given on the third business day following deposit of the same in the United States mail).
[Remainder of page left blank intentionally]
         Executed in the name and on behalf of the Company at 3201 Carnegie Avenue,
Cleveland, Ohio, as of the [[GRANTDATE]].

ATHERSYS, INC.

              ___________________________________
              Name:
              Title:


        The undersigned Optionee hereby accepts the Option evidenced by this Employee Incentive Stock Option Agreement on the terms and conditions set forth herein and in the Plan.

Dated: [[GRANTDATE]]   ___________________________________
             [[FIRSTNAME]] [[LASTNAME]]









7



EXHIBIT A

Participant Name: [[FIRSTNAME]] [[LASTNAME]]
Option Shares Granted: [[SHARESGRANTED]]
Award Type: [[GRANTTYPE]]
Award Price: [[GRANTPRICE]]
Award Date: [[GRANTDATE]]
Expiration Date: [[GRANTEXPIRATIONDATE]]

VESTING SCHEDULE
[[ALLVESTSEGS]]


8

Document
EXHIBIT 10.2

ATHERSYS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT


        This Nonqualified Stock Option Agreement (“Agreement”) is made as of [[GRANTDATE]] (the “Date of Grant”) by and between Athersys, Inc., a Delaware corporation (the “Company”), and [[FIRSTNAME]] [[LASTNAME]] ( “Optionee”) with respect to the grant of a nonqualified stock option by the Company to Optionee pursuant to the Athersys, Inc. 2019 Equity and Incentive Compensation Plan (the "Plan").

1.Grant of Stock Option. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement, the Company hereby grants to Optionee an Option Right (the “Option”) to purchase [[SHARESGRANTEDWORDS]] ([[SHARESGRANTED]]) Common Shares (the “Option Shares”). The Option may be exercised from time to time in accordance with the terms of this Agreement.
2.Type of Option. The Option is intended to be a nonqualified stock option and shall not be treated as an Incentive Stock Option.
3.Option Price. The Option Shares may be purchased pursuant to this Option at a price of [[GRANTPRICE]] per Common Share, subject to adjustment as hereinafter provided (the “Option Price”).
4.Term of Option/Agreement. The term of the Option shall commence on the Date of Grant and, unless earlier terminated in accordance with Section 7 hereof, shall terminate and expire automatically and without further notice ten (10) years from the Date of Grant.
5.Right to Exercise.
(a)Subject to Section 5(b) and (c), Section 7 and Section 10, the Option will vest and become exercisable as provided in the attached Exhibit A, for so long as Optionee remains continuously employed with the Company or any Subsidiary. To the extent the Option is exercisable, it may be exercised in whole or in part. In no event shall Optionee be entitled to acquire a fraction of one Option Share pursuant to this Option. Optionee shall be entitled to the privileges of ownership, including dividends, only with respect to Option Shares purchased and delivered to Optionee upon the exercise of all or part of this Option.
(b)Notwithstanding Section 5(a) above, the Option shall become immediately exercisable in full, if at any time prior to the termination of the Option, a Change in Control shall occur.
(c)Notwithstanding Section 5(a) above, if the Optionee should die or become permanently disabled while in the employ of the Company or any Subsidiary, this Option shall immediately become exercisable in full and shall remain exercisable
NAI-1513311040v2


until terminated in accordance with Section 7 below. The Optionee shall be considered to have become permanently disabled if the Optionee’s employment terminates on account of the Optionee having become “permanently and totally disabled”, as defined in Section 22(e)(3) of the Code.
6.Notice of Exercise; Payment. To the extent then exercisable, the Option may be exercised in whole or in part by written notice to the Company stating the number of Option Shares for which the Option is being exercised and the intended manner of payment. The date of such notice shall be the exercise date. The Option Price shall be payable (a) in cash or by check acceptable to the Company or by wire transfer of immediately available funds, (b) by actual or constructive transfer to the Company of nonforfeitable, unrestricted Common Shares that have been owned by the Optionee for more than six (6) months prior to the date of exercise, (c) for exercises of Options that occur more than one (1) year following the Date of Grant, by transfer to the Company of shares or vested Options (including Options under this Agreement) for the purchase of Common Shares having a fair market value (net of the exercise price) at the time of exercise equal to the portion of the Option Price for which such transfer is made, or (d) by a combination of such methods of payment. The requirement of payment in cash shall be deemed satisfied if the Optionee shall have made arrangements satisfactory to the Company with a bank or a broker who is a member of the National Association of Securities Dealers, Inc. to sell on the exercise date a sufficient number of the shares being purchased so that the net proceeds of the sale transaction will at least equal the Option Price plus payment of any applicable withholding taxes and pursuant to which the bank or broker undertakes to deliver the full Option Price plus payment of any applicable withholding taxes to the Company on a date satisfactory to the Company, but not later than the date on which the sale transaction will settle in the ordinary course of business. As soon as practicable upon the Company’s receipt of Optionee’s notice of exercise and payment, the Company shall direct the due issuance of the Option Shares so purchased.
As a further condition precedent to the exercise of this Option in whole or in part, Optionee shall comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the Common Shares and in connection therewith shall execute any documents which the Board shall in its sole discretion deem necessary or advisable.
7.Termination. Subject to the last two sentences of this Section 7, this Option shall terminate on the earliest of the following dates:
(a)The date on which the Optionee ceases to be an employee of the Company or any Subsidiary, if the Optionee’s employment with the Company or a Subsidiary is terminated for Cause (“Cause” being defined as (i) the commission of an act of fraud, embezzlement, theft or other criminal act constituting a felony; or (ii) the material breach of any provision contained in a written non-competition, confidentiality or non-disclosure agreement between the Company or any of its Subsidiaries and Optionee);
2
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(b)If Optionee ceases to be an employee of the Company or a Subsidiary due to Optionee’s voluntary termination of employment (other than by reason of Optionee’s death, permanent disability (as described in Section 5(c) above) or Retirement (as described in Section 7(e) below)) or due to an involuntary termination of Optionee’s employment by the Company or a Subsidiary without Cause, Optionee’s vested Option will terminate as follows:
(i)If Optionee has fewer than ten (10) years of total employment with the Company and its Subsidiaries, the date that is three (3) months after the date of Optionee’s termination of employment;
(ii)If Optionee has at least ten (10) years but fewer than fifteen (15) years of total employment with the Company and its Subsidiaries, the date that is six (6) months after the date of Optionee’s termination of employment;
(iii)If Optionee has at least fifteen (15) years but fewer than twenty (20) years of total employment with the Company and its Subsidiaries, the date that is one (1) year after the date of Optionee’s termination of employment;
(iv)If Optionee has at least twenty (20) years but fewer than twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is two (2) years after the date of Optionee’s termination of employment; or
(v)If Optionee has at least twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is three (3) years after the date of Optionee’s termination of employment;
(c)In the event of Optionee’s death while an employee of the Company or a Subsidiary, the Option will terminate as follows:
(i)If Optionee has fewer than twenty (20) years of total employment with the Company and its Subsidiaries, the date that is one (1) year after the date of Optionee’s death;
(ii)If has at least twenty (20) years but fewer than twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is two (2) years after the date of Optionee’s death; or
(iii)If Optionee has at least twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is three (3) years after the date of Optionee’s death;
(d)If Optionee ceases to be an employee of the Company or a Subsidiary due to Optionee’s permanent and total disability (as described in Section 5(c) above), the Option will terminate as follows:
3
NAI-1513311040v2


(i)If Optionee has fewer than twenty (20) years of total employment with the Company and its Subsidiaries, the date that is one (1) year after the date of Optionee’s permanent and total disability;
(ii)If Optionee has at least twenty (20) years but fewer than twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is two (2) years after the date of Optionee’s permanent and total disability; or
(iii)If Optionee has at least twenty-five (25) years of total employment with the Company and its Subsidiaries, the date that is three (3) years after the date of Optionee’s permanent and total disability;
(e)Five (5) years after the date that the Optionee shall Retire. For this purpose, “Retire” (or similar terms) shall mean that Optionee terminates Optionee’s employment by reason of Optionee’s retirement entitling Optionee to early, normal or late retirement benefits under the provisions of any retirement plan of the Company or its Subsidiaries in which Optionee participates (or if no such plan exists, at or after age sixty-five (65)); and
(f)Three (3) months after Optionee ceases to be an employee of the Company or a Subsidiary for any other reason not otherwise provided for in this Section 7.
In the event of Optionee’s death within the three (3) month period following a termination of Optionee’s employment by the Company or a Subsidiary without Cause, the Option will terminate on the earlier of (1) the date that such Option would have expired if Optionee had remained in continuous employment with the Company or a Subsidiary and (2) the date that is one (1) year after the date of Optionee’s death.
In all events, this Option shall terminate not later than ten (10) years from the Date of Grant.
8.Option Nontransferable. This Option is not transferable by the Optionee otherwise than by will or the laws of descent and distribution. In no event will any such award granted under this Agreement be transferred for value. This Option may be exercised, during the lifetime of the Optionee, only by Optionee, or in the event of Optionee’s legal incapacity, by Optionee’s guardian or legal representative acting on behalf of Optionee in a fiduciary capacity under state law or court supervision.
9.Compliance with Law. This Option shall not be exercisable if such exercise would involve a violation of any applicable federal, state or other securities law.
10.Adjustments. This Option and the Option Shares subject thereto, and the other terms and conditions of the grant evidenced by this Agreement, are subject to mandatory adjustment, including as provided in Section 12 of the Plan.
4
NAI-1513311040v2


11.Taxes and Withholding. To the extent that the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made or benefit realized by the Optionee or another person under this Agreement, the Optionee agrees that the Company will withhold any taxes required to be withheld by the Company under federal, state, local or foreign law from the Option Shares in an amount sufficient to satisfy the minimum statutory withholding amount permissible (unless the Committee takes action subsequent to the Date of Grant requiring such withholding amount to be paid by the Optionee in cash). The Option Shares so retained shall be credited against any such withholding requirement at the market value of such Common Shares on the date of such withholding. In no event will the market value of the Common Shares to be withheld pursuant to this Section 11 to satisfy applicable withholding taxes exceed the maximum amount of taxes or other amounts that could be required to be withheld.
12.Continuous Employment. For purposes of this Agreement, the total or continuous employment of the Optionee with the Company or a Subsidiary shall not be deemed to have been interrupted, and the Optionee shall not be deemed to have ceased to be an employee of the Company or Subsidiary, by reason of the (a) transfer of the Optionee’s employment among the Company and its Subsidiaries or (b) an approved leave of absence.
13.No Employment Contract. This Option is a voluntary, discretionary award being made on a one-time basis and it does not constitute a commitment to make any future awards. This Option and any payments made hereunder will not be considered salary or other compensation for purposes of any severance pay or similar allowance, except as otherwise required by law. Nothing in this Agreement will give the Optionee any right to continue employment with the Company or any Subsidiary, as the case may be, or interfere in any way with the right of the Company or a Subsidiary to terminate the employment of the Optionee.
14.Information. Information about the Optionee and the Optionee’s participation in the Plan may be collected, recorded and held, used and disclosed for any purpose related to the administration of the Plan. The Optionee understands that such processing of this information may need to be carried out by the Company and its Subsidiaries and by third party administrators whether such persons are located within the Optionee’s country or elsewhere, including the United States of America. The Optionee consents to the processing of information relating to the Optionee and the Optionee’s participation in the Plan in any one or more of the ways referred to above.
15.Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. All terms used herein with initial capital letters and not otherwise defined herein that are defined in the Plan shall have the meanings assigned to them in the Plan. The Board (or a committee of the Board) acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have
5
NAI-1513311040v2


the right to determine any questions which arise in connection with the grant of the Option hereunder.
16.Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall materially adversely affect the rights of the Optionee under this Agreement without the Optionee’s consent.
17.Severability. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances shall not be affected, and the provisions so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal.
18.Successors and Assigns. Without limiting Section 8 hereof, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Optionee, and the successors and assigns of the Company.
19.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same Agreement.
20.Governing Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws of the State of Delaware, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.
21.Notices. Any notice to the Company provided for herein shall be in writing to the Company, marked Attention: President, and any notice to Optionee shall be addressed to said Optionee at Optionee’s address on file with the Company at the time of such notice. Except as otherwise provided herein, any written notice shall be deemed to be duly given if and when delivered personally or deposited in the United States mail, first class registered mail, postage and fees prepaid, and addressed as aforesaid. Any party may change the address to which notices are to be given hereunder by written notice to the other party as herein specified (provided that, for this purpose, any mailed notice shall be deemed given on the third business day following deposit of the same in the United States mail).

[Remainder of page left blank intentionally]


6
NAI-1513311040v2


         Executed in the name and on behalf of the Company, at 3201 Carnegie Avenue, Cleveland, Ohio, 44115, as of the [[GRANTDATE]].


              ATHERSYS, INC.

              ___________________________________
              Name:
              Title:

        The undersigned Optionee hereby accepts the Option evidenced by this Nonqualified Stock Option Agreement on the terms and conditions set forth herein and in the Plan.

Dated: [[GRANTDATE]]    ___________________________________
               [[FIRSTNAME]] [[LASTNAME]]

EXHIBIT A
7
NAI-1513311040v2



Participant Name: [[FIRSTNAME]] [[LASTNAME]]
Option Shares Granted: [[SHARESGRANTED]]
Award Type: [[GRANTTYPE]]    
Award Price: [[GRANTPRICE]]
Award Date: [[GRANTDATE]]   
Expiration Date: [[GRANTEXPIRATIONDATE]]

VESTING SCHEDULE
[[ALLVESTSEGS]]

8
NAI-1513311040v2
Document
EXHIBIT 10.3

ATHERSYS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT


        This Nonqualified Stock Option Agreement (“Agreement”) is made as of __________ __, 20__ (the “Date of Grant”) by and between Athersys, Inc., a Delaware corporation (the “Company”) and __________ (“Optionee”) with respect to the grant of a nonqualified stock option by the Company to Optionee pursuant to the Athersys, Inc. 2019 Equity and Incentive Compensation Plan (the "Plan").

1.Grant of Stock Option. Subject to and upon the terms, conditions, and restrictions set forth in this Agreement, the Company hereby grants to Optionee an Option Right (the “Option”) to purchase __________Thousand (___,000) Common Shares (the “Option Shares”). The Option may be exercised from time to time in accordance with the terms of this Agreement.
2.Type of Option. The Option is intended to be a nonqualified stock option and shall not be treated as an Incentive Stock Option.
3.Option Price. The Option Shares may be purchased pursuant to this Option at a price of __________ Dollars and __________ Cents ($__________) per Common Share, subject to adjustment as hereinafter provided (the “Option Price”).
4.Term of Option/Agreement. The term of the Option shall commence on the Date of Grant and, unless earlier terminated in accordance with Section 7 hereof, shall terminate and expire automatically and without further notice ten (10) years from the Date of Grant.
5.Right to Exercise. Subject to Section 7 and Section 10, the Option will vest and become exercisable as provided in the attached Exhibit A, for so long as Optionee continues to perform services for the Company or any Subsidiary. The Option may be exercised in whole or in part. In no event shall Optionee be entitled to acquire a fraction of one Option Share pursuant to this Option. Optionee shall be entitled to the privileges of ownership, including dividends, only with respect to Option Shares purchased and delivered to Optionee upon the exercise of all or part of this Option.
6.Notice of Exercise; Payment. To the extent then exercisable, the Option may be exercised in whole or in part by written notice to the Company stating the number of Option Shares for which the Option is being exercised and the intended manner of payment. The date of such notice shall be the exercise date. The Option Price shall be payable (a) in cash or by check acceptable to the Company or by wire transfer of immediately available funds, (b) by actual or constructive transfer to the Company of nonforfeitable, unrestricted Common Shares that have been owned by the Optionee for more than six (6) months prior to the date of exercise, (c) for exercises of Options that occur more than one (1) year following the Date of Grant, by transfer to the Company of shares or vested Options (including Options under this Agreement) for the purchase of
NAI-1513360546v1


Common Shares having a fair market value (net of the exercise price) at the time of exercise equal to the portion of the Option Price for which such transfer is made, or (d) by a combination of such methods of payment. The requirement of payment in cash shall be deemed satisfied if the Optionee shall have made arrangements satisfactory to the Company with a bank or a broker who is a member of the National Association of Securities Dealers, Inc. to sell on the exercise date a sufficient number of the shares being purchased so that the net proceeds of the sale transaction will at least equal the Option Price plus payment of any applicable withholding taxes and pursuant to which the bank or broker undertakes to deliver the full Option Price plus payment of any applicable withholding taxes to the Company on a date satisfactory to the Company, but not later than the date on which the sale transaction will settle in the ordinary course of business. As soon as practicable upon the Company’s receipt of Optionee’s notice of exercise and payment, the Company shall direct the due issuance of the Option Shares so purchased.
As a further condition precedent to the exercise of this Option in whole or in part, Optionee shall comply with all regulations and the requirements of any regulatory authority having control of, or supervision over, the issuance of the Common Shares and in connection therewith shall execute any documents which the Board shall in its sole discretion deem necessary or advisable.
7.Termination. This Option shall terminate on the earliest of the following dates:
(a)Eighteen (18) months after the Optionee ceases to perform services for the Company or a Subsidiary, if the Optionee voluntarily ceases to perform services for the Company or a Subsidiary (including if the Optionee dies) after the Optionee has provided less than five (5) years of total service to the Company or a Subsidiary;
(b)Twenty-four (24) months after the Optionee ceases to perform services for the Company or a Subsidiary, if the Optionee voluntarily ceases to perform services for the Company or a Subsidiary (including if the Optionee dies) after the Optionee has provided at least five (5) but less than ten (10) years of total service to the Company or a Subsidiary;
(c)Thirty (30) months after the Optionee ceases to perform services for the Company or a Subsidiary, if the Optionee voluntarily ceases to perform services for the Company or a Subsidiary (including if the Optionee dies) after the Optionee has provided at least ten (10) years of total service to the Company or a Subsidiary; and
(d)Ten (10) years from the Date of Grant.
8.Option Nontransferable. This Option is not transferable by the Optionee otherwise than by will or the laws of descent and distribution. In no event will any such award granted under this Agreement be transferred for value. This Option may be exercised, during the lifetime of the Optionee, only by Optionee, or in the event of Optionee’s legal incapacity,
2
NAI-1513360546v1


by Optionee’s guardian or legal representative acting on behalf of Optionee in a fiduciary capacity under state law or court supervision.
9.Compliance with Law. This Option shall not be exercisable if such exercise would involve a violation of any applicable federal, state or other securities law.
10.Adjustments. This Option and the Option Shares subject thereto, and the other terms and conditions of the grant evidenced by this Agreement, are subject to mandatory adjustment, including as provided in Section 12 of the Plan.
11.Taxes and Withholding. To the extent that the Company is required to withhold federal, state, local or foreign taxes or other amounts in connection with any payment made or benefit realized by the Optionee or another person under this Agreement, the Optionee agrees that the Company will withhold any taxes required to be withheld by the Company under federal, state, local or foreign law from the Option Shares in an amount sufficient to satisfy the minimum statutory withholding amount permissible (unless the Committee takes action subsequent to the Date of Grant requiring such withholding amount to be paid by the Optionee in cash). The Option Shares so retained shall be credited against any such withholding requirement at the market value of such Common Shares on the date of such withholding. In no event will the market value of the Common Shares to be withheld pursuant to this Section 11 to satisfy applicable withholding taxes exceed the maximum amount of taxes or other amounts that could be required to be withheld.
12.Information. Information about the Optionee and the Optionee’s participation in the Plan may be collected, recorded and held, used and disclosed for any purpose related to the administration of the Plan. The Optionee understands that such processing of this information may need to be carried out by the Company and its Subsidiaries and by third party administrators whether such persons are located within the Optionee’s country or elsewhere, including the United States of America. The Optionee consents to the processing of information relating to the Optionee and the Optionee’s participation in the Plan in any one or more of the ways referred to above.
13.Relation to Plan. This Agreement is subject to the terms and conditions of the Plan. In the event of any inconsistency between the provisions of this Agreement and the Plan, the Plan shall govern. All terms used herein with initial capital letters and not otherwise defined herein that are defined in the Plan shall have the meanings assigned to them in the Plan. The Board (or a committee of the Board) acting pursuant to the Plan, as constituted from time to time, shall, except as expressly provided otherwise herein, have the right to determine any questions which arise in connection with the grant of the Option hereunder.
14.Amendments. Any amendment to the Plan shall be deemed to be an amendment to this Agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall materially adversely affect the rights of the Optionee under this Agreement without the Optionee’s consent.
3
NAI-1513360546v1


15.Severability. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances shall not be affected, and the provisions so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal.
16.Successors and Assigns. Without limiting Section 8 hereof, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Optionee, and the successors and assigns of the Company.
17.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same Agreement.
18.Governing Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws of the State of Delaware, without giving effect to any principle of law that would result in the application of the law of any other jurisdiction.
19.Notices. Any notice to the Company provided for herein shall be in writing to the Company, marked Attention: President, and any notice to Optionee shall be addressed to said Optionee at Optionee’s address on file with the Company at the time of such notice. Except as otherwise provided herein, any written notice shall be deemed to be duly given if and when delivered personally or deposited in the United States mail, first class registered mail, postage and fees prepaid, and addressed as aforesaid. Any party may change the address to which notices are to be given hereunder by written notice to the other party as herein specified (provided that for this purpose any mailed notice shall be deemed given on the third business day following deposit of the same in the United States mail).

[Remainder of page left blank intentionally]


         Executed in the name and on behalf of the Company, at 3201 Carnegie Avenue, Cleveland, Ohio, 44115, as of the _____th day of __________, 20__.


              ATHERSYS, INC.

              ___________________________________
              Name:
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              Title:

        The undersigned Optionee hereby accepts the Option evidenced by this Nonqualified Stock Option Agreement on the terms and conditions set forth herein and in the Plan.

Dated: __________ ___, 20__   ___________________________________
              [Insert Name]

EXHIBIT A
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[Insert Name]
Vesting DateOption Shares VestingTotal Option Shares VestedPrice/Share
[last vesting date][underline][total shares]
[total shares]