EXHIBIT 10.13
AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
     This Amendment (this “Amendment”) is made as of September 29, 2006, by and
among ATHERSYS, INC., a Delaware corporation (“Athersys”), ADVANCED
BIOTHERAPEUTICS, INC., a Delaware corporation (“ABI,” and collectively with
Athersys, the “Borrowers”), and VENTURE LENDING & LEASING IV, INC. (“VLL4”), and
COSTELLA KIRSCH IV, L.P. (“CK,” and collectively with VLL4, the “Lenders”).
     A. Borrowers and Lenders are parties to that certain Loan and Security
Agreement dated as of November 2, 2004 (the “Loan and Security Agreement”),
together with a Supplement (the “Supplement”) thereto of even date therewith
(sometimes referred to together as the “Loan Agreement”).
     B. Athersys intends to raise additional capital through a new convertible
bridge financing and/or a new round of equity financing in which it proposes to
raise aggregate gross proceeds of not less than $10,000,000. Borrowers have
requested that Lenders temporarily reduce the amount of the monthly repayment
obligation of Borrowers by deferring principal on the Loans and permitting
interest-only payments on the Loans, in each case for up to four months, subject
to certain terms and conditions.
     C. Lenders are willing to provide such accommodations on the terms and
subject to the conditions set forth in this Amendment.
     D. Except where the context otherwise requires, or unless this Amendment
otherwise provides, all words and expressions defined in the Loan Agreement when
used or referred to in this Amendment shall have the same meaning as those
provided for in the Loan Agreement.
     NOW, THEREFORE, in consideration of the mutual obligations in this
Amendment and the Loan Agreement, and for other good consideration, the receipt
and sufficiency of which are acknowledged, the parties agree as follows:
     1. Defined Terms. All capitalized terms used in this Amendment and not
otherwise defined herein have the meanings ascribed to them in Article 10 of the
Loan and Security Agreement and in the Supplement. The following defined terms
are also used in this Amendment:
          “Next Round” means the next bona fide sale of equity securities
(including debt securities convertible into equity securities) by Athersys after
September 30, 2006 resulting in aggregate gross proceeds of at least
$10,000,000.00 from one or more financial (as opposed to strategic) investors in
a single transaction or a series of related transactions. The receipt by
Athersys after September 30, 2006 of gross proceeds from the issuance of bridge
notes convertible into such equity securities shall be counted toward the
foregoing dollar amount.

 

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          “Next Round Securities” means the equity securities of Athersys issued
and sold in the Next Round; provided, however, that in the case of an issuance
of debt securities convertible into equity securities, “Next Round Securities”
means the equity securities issuable upon conversion of such debt securities.
          “Deferral Period” means the period commencing October 1, 2006, and
ending on the earliest of (i) January 2, 2007, (ii) the non-payment of an
Interest-only Payment (as defined below) when due as set forth in Table 1 (in
Section 2.1 of this Amendment), (iii) the occurrence of an Event of Default, and
(iv) the date on which the Borrowers elect to pay the deferred principal portion
of the Loans.
     2. Deferral of Principal; Restructured Amortization. Notwithstanding
anything to the contrary contained in the Loan Agreement or in any Note made and
delivered in connection with an outstanding Loan, the parties agree that:
          2.1 Interest-Only Payments. Commencing on the first day of the first
month of the Deferral Period, and continuing on the first Business Day of each
successive month during the Deferral Period, the principal portion of the
regularly scheduled amortization payments under each of Lenders’ Notes shall be
deferred until the expiration of the Deferral Period, and only the interest set
forth in Table 1 below (each, an “Interest-only Payment”) shall be due and
owing:
Table 1:

                      Interest-only   Interest-only Interest-only Payment Date  
Payment to CK   Payment to VLL4
October 1, 2006
  $ 14,617.14     $ 44,017.11  
November 1, 2006
  $ 14,617.14     $ 44,017.11  
December 1, 2006
  $ 14,617.14     $ 44,017.11  
January 2, 2007
  $ 14,617.14     $ 44,017.11  

Borrowers may pay the deferred principal portion of the Loans at any time
without premium or penalty. The deferral of principal and payment of interest
only during the Deferral Period is subject, in the case of each monthly payment,
to the occurrence of each event shown in Table 2 below on or before the first
Business Day of the corresponding month:
Table 2:

      Interest-only Payment Date   Condition Precedent Event
October 1, 2006
  On or before 10/1/06, Athersys shall have received one or more bona fide
letters of intent, in form and substance reasonably satisfactory to Lenders,
from investors expressing an intent to invest in the Next Round.
 
   
November 1, 2006
  On or before 11/1/06, Athersys shall have obtained gross proceeds of at least
$1.5 million from a convertible bridge financing and/or an equity financing.
 
   
December 1, 2006
  Satisfaction of the above condition to the November 1 Interest-only Payment
 
   
January 2, 2007
  Satisfaction of the above condition to the November 1 Interest-only Payment

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          2.2 Payment of Deferred Principal. The parties acknowledge and agree
that the total amount of principal that would otherwise have been paid during
the full Deferral Period under the outstanding Notes is $890,233.47, which is
allocated between the Lenders as shown in the following Table 3 (each, a
“Deferred Amount”):
Table 3:

                          Month of Deferral Period   Deferred Amounts:     CK
Loans   VLL4 Loans   Totals
October 2006
  $ 54,774.36     $ 164,157.39     $ 218,931.75  
November 2006
  $ 55,372.94     $ 165,958.97     $ 221,331.91  
December 2006
  $ 55,978.05     $ 167,780.32     $ 223,758.37  
January 2007
  $ 56,589.77     $ 169,621.67     $ 226,211.44  
Totals:
  $ 222,715.12     $ 667,518.35     $ 890,233.47  

If Borrowers are entitled to make each of the four Interest-only Payments to
Lenders in accordance with the terms of this Amendment, unless Athersys has
closed the Next Round by January 16, 2007, the total outstanding Deferred
Amounts shall become due and payable in full on the later of (i) January 16,
2007 and (ii) the date on which Athersys receives at least $5,000,000 of gross
proceeds from a strategic investor from the issuance of either debt or equity
securities. If the Next Round has closed prior to January 16, 2007, then each
Lender’s total outstanding Deferred Amounts shall be fully amortized, together
with interest thereon at the rate(s) per annum applicable to the Loans, in the
same number of equal monthly installments that remain under each of the Note(s)
evidencing the Loans, commencing February 1, 2007 (and payable with the regular
amortization payments required under Section 2.3 below).
          2.3 Resumption of Regularly Scheduled Amortization Installments.
Commencing on the first day of the month after the termination of the Deferral
Period (whether scheduled or accelerated, and in any event no later than
February 1, 2007), Borrowers shall resume payments in the full amount of the
regularly scheduled monthly amortization payments of principal and interest
called for under each of the Notes evidencing the Loans.
          2.4 Interest Rate. Notwithstanding the terms of this Amendment, the
Loans shall continue to accrue interest at the rate(s) per annum prescribed in
the Loan Agreement and the Notes.
     3. Issuance of Additional Warrants to Lenders; Vesting Schedule. As
consideration for the execution and delivery of this Amendment,
contemporaneously with the closing of the Next Round, Athersys shall issue and
deliver to each of the Lenders a warrant (the “Additional Warrants”) to purchase
up to its ratable portion (that is, 25% to CK and 75% to VLL4) of a number of
shares of Next Round Securities with an initial per share exercise price equal
to the lowest per share price paid (or, in the case of an issuance of
convertible debt

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securities, the conversion price thereof) by any new investor in the Next Round
(the “Exercise Price”); the total number of shares of Next Round Securities for
which the Additional Warrants shall be exercisable initially (the “Initial
Number of Shares”) shall be equal to the quotient obtained by dividing 50% of
$890,233.47 ($445,116,74) by the Exercise Price. Each Additional Warrant shall
be vested and exercisable by the holder thereof immediately upon issuance for up
to one-half (1/2) of the Lender’s ratable portion of the Initial Number of
Shares, and shall thereafter become vested and exercisable for an additional
one-quarter (1/4) of the Lender’s ratable portion of the Initial Number of
Shares if the Deferred Period has not expired as of December 2, 2006, and shall
become vested and exercisable for the remaining one-quarter (1/4) of the Initial
Number of Shares if the Deferral Period has not expired as of January 3, 2007.
In all other respects, the Additional Warrants shall substantially be in the
same form as the form of warrant attached as Exhibit D-1 to the Supplement, and
the securities issuable thereunder shall entitle Lenders to the same rights,
preferences and privileges as granted to the investors in connection with the
Next Round. Athersys acknowledges that VLL4 has assigned its rights to receive
its Additional Warrant to its parent, Venture Lending & Leasing IV, LLC; in
connection therewith, Athersys shall issue the warrant directly to Venture
Lending & Leasing IV, LLC.
     As a condition precedent to the issuance of Additional Warrants and any
securities issuable upon exercise thereof to any Lender (or assignee thereof),
each Lender (or assignee thereof) must execute an instrument of joinder agreeing
to be bound by the terms and conditions of that certain Amended and Restated
Stockholders’ Agreement, dated as of April 28, 2000, among Athersys and certain
of its stockholders, namely, Biotech 3 Investment, LLC, Elan International
Services, Inc., and the Class C Investors and the Class F Investors (as defined
therein), and any transferee and/or assignees thereof (as amended, the
“Stockholders’ Agreement”) or any other stockholders’ agreement of Athersys in
existence immediately prior to such issuance.
     4. Effectiveness of Amendment; Continued Effect of Original Agreement.
          4.1 Continued Effect of Original Agreement. All provisions of the Loan
Agreement and other Loan Documents, except as modified by this Amendment, shall
remain in full force and effect. This Amendment shall not operate as a waiver of
any condition or obligation imposed on the parties under the Loan Agreement.
Notwithstanding anything to the contrary in the foregoing, the consummation of
the Next Round shall not be deemed to be an Event of Default under
Section 7.1(h) of the Loan and Security Agreement.
          4.2 Interpretation of Amendment. In the event of any conflict,
inconsistency, or incongruity between any provision of this Amendment and any
provision of the Loan Documents, the provisions of this Amendment shall govern
and control.
          4.3 Conditions to Effectiveness. This Amendment shall not be effective
until each of the following conditions precedent has been fulfilled to the
satisfaction of Lenders:
               (a) This Amendment shall have been duly executed and delivered by
the respective parties hereto and, shall be in full force and effect and shall
be in form and substance reasonably satisfactory to Lenders.

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               (b) All action on the part of Borrowers necessary for the valid
execution, delivery and performance by Borrowers of this Amendment shall have
been duly and effectively taken; provided, however, that Lenders acknowledge
that, in connection with the issuance of the Additional Warrants, Athersys must
either obtain the requisite approval of certain of its stockholders to waive
their rights of first refusal under the Stockholders’ Agreement or the requisite
period of time must elapse after Athersys provides notice to certain of its
stockholders under the Stockholders’ Agreement. Athersys will seek a waiver of
such stockholders’ rights of first refusal or give a New Issue Notice (as
defined in the Stockholders’ Agreement) to such stockholders, describing the
terms and conditions on which Lenders have agreed to defer principal payments as
consideration for the issuance of the Additional Warrants.
          4.4 Borrowers’ Representations. Each Borrower hereby represents and
warrants to Lenders that: such Borrower has full corporate power and authority
to execute and deliver this Amendment and to perform the obligations of its part
to be performed hereunder and under the Loan Agreement as amended hereby; such
Borrower has taken all necessary action, corporate or otherwise, to authorize
the execution and delivery of this Amendment; no consent or approval of any
person, no waiver of any lien or similar right, and no consent, license,
approval or authorization of any governmental authority or agency is or will be
required in connection with the execution or delivery by such Borrower of this
Amendment or the performance by such Borrower of the Loan Documents as amended
hereby; and this Amendment and the Loan Documents as amended hereby are, or upon
delivery thereof to Lenders will be, the legal, valid and binding obligations of
such Borrower, enforceable against such Borrower in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors’ rights
generally; provided, however, that, notwithstanding anything to the contrary in
the foregoing, to issue the Additional Warrants, Athersys must either obtain the
requisite approval of certain of its stockholders to waive their rights of first
refusal under the Stockholders’ Agreement or the requisite period of time must
elapse after Athersys provides notice to certain of its stockholders under the
Stockholders’ Agreement.
     5. Miscellaneous.
          5.1 Successors and Assigns. The terms and conditions of this Amendment
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties.
          5.2 Governing Law. This Amendment shall be governed by and construed
under the internal laws of the State of California.
          5.3 Amendments and Waivers. Any term of this Amendment may be amended
and the observance of any term of this Amendment may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of Borrowers and Lenders.
          5.4 Severability. If one or more provisions of this Amendment are held
to be unenforceable under applicable law, such provision shall be excluded from
this Amendment and

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the balance of the Amendment shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
          5.5 Entire Agreement. This Amendment and the Loan Documents and the
exhibits and schedules hereto and thereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
          5.6 Fees and Costs. All reasonable legal fees and costs incurred by
Lenders in connection with the preparation, negotiation and execution of this
Amendment and the Additional Warrants shall be reimbursed by Borrowers by
addition of such amounts to the outstanding balance of the Loans.
          5.7 Counterparts. This Amendment may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same agreement.
[Remainder of this page intentionally left blank.]

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[Signature Page to First Amendment to Loan Agreement]
     IN WITNESS WHEREOF, the parties have caused this Amendment to Loan and
Security Agreement to be duly executed as of the date and year first written
above.

            BORROWERS:

ATHERSYS, INC.
      By:           Name:           Title:           ADVANCED BIOTHERAPEUTICS,
INC.
      By:           Name:           Title:           LENDERS:

VENTURE LENDING & LEASING IV, INC., as a
Lender and in its capacity as Agent
      By:           Name:           Title:           COSTELLA KIRSCH IV, L.P.,
as a Lender
      By:           Name:           Title:        

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