EXHIBIT 10.17
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
     THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (“Agreement”) is made as of
the first day of December, 1998, and is effective as of April 1, 1998, between
DR. JOHN J. HARRINGTON, an individual (“Employee”), and ATHERSYS, INC., a
Delaware corporation (“Athersys”).
     WHEREAS, Athersys and Employee have entered into an Employment Agreement
dated as of January 1, 1996 (the “Agreement”); and
     WHEREAS, Athersys and Employee desire to amend and restate the Agreement.
     NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties hereto hereby
agree as follows:
     1. Employment. Athersys agrees to employ Employee, and Employee agrees to
serve Athersys, on the terms and conditions set forth in this Agreement.
     2. Term. Subject to the provisions for termination as hereinafter provided,
the term of this Agreement will begin on April 1, 1998 (the “Effective Date”)
and continue through March 31, 1999. Such term will automatically be extended
for one additional year on April 1 of each succeeding year, beginning on
April 1, 1999 and thereafter, unless (i) this Agreement is terminated as
provided in Section 7, or (ii) either Employee or Athersys gives written notice
of termination of this Agreement to the other at least thirty (30) days prior to
such date.
     3. Position and Duties. Employee will serve as Executive Vice President and
Chief Scientific Officer of Athersys and will have such responsibilities, duties
and authority as are customary of a Executive Vice President and Chief
Scientific Officer of a company the size and structure of Athersys (or any
position to which he may be promoted after the date of this Agreement) and as
may from time to time be assigned to Employee by the Board of Directors of
Athersys (the “Board”) that are consistent with such responsibilities, duties,
authority and applicable law. Employee will devote substantially all his working
time and efforts to the business and affairs of Athersys.
     4. Place of Performance. In connection with Employee’s employment by
Athersys, Employee will be based at the principal executive offices of Athersys
in the greater Cleveland, Ohio area.
     5. Compensation and Related Matters. As compensation and consideration for
the performance by Employee of Employee’s duties, responsibilities and covenants
pursuant to this Agreement, Athersys will pay Employee and Employee agrees to
accept in full payment for such performance the amounts and benefits set forth
below:
     (a) Salary. Athersys will pay to Employee an annual base salary (“Base
Salary”) at a rate of One Hundred Fifty Thousand Dollars ($150,000), which shall
be retroactive to the Effective Date. In all cases, the Board will review the
Base Salary upon the closing of an initial public offering or a sale of all or
substantially all of the stock or assets of Athersys for

 

--------------------------------------------------------------------------------

 

adjustment to Base Salary at a rate which is comparable to that of an executive
of a company the size and structure of Athersys. The Base Salary may be
increased from time to time by the Board in its sole discretion and, if so
increased, will not thereafter during the term of this Agreement be decreased.
The Board will review the Base Salary at least annually to determine, in its
sole discretion, whether an increase is appropriate. Compensation of Employee by
salary payments will not be deemed exclusive and will not prevent Employee from
participating in any other compensation or benefit plan of Athersys.
     (b) Bonus. Employee shall be eligible for a bonus of up to Thirty-three
percent (33%) of Base Salary upon the achievement of certain performance goals
as determined by the Board on an annual basis, as set forth on Exhibit A.
     (c) Expenses. Employee will be entitled to receive prompt reimbursement for
all reasonable and customary travel and entertainment expenses or other
out-of-pocket business expenses incurred by Employee in fulfilling Employee’s
duties and responsibilities under this Agreement, including all expenses of
travel and living expenses while away from home on business or at the request of
and in the service of Athersys, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by
Athersys.
     (d) Other Benefits. Employee will be entitled to participate in all of the
employee benefit plans and arrangements of Athersys and enjoy all of the
perquisites provided to the employees of Athersys (including, without
limitation, each retirement, thrift and profit sharing plan, group life
insurance and accident plan, medical and/or dental insurance plan, and
disability plan); provided, however, that a change may be made to a plan in
which salaried employees of Athersys participate, including termination of any
such plan, arrangement or perquisite, if it does not result in a proportionately
greater reduction in the rights of or benefits to Employee as compared with any
other salaried employee of Athersys or is required by law or a technical change.
Employee will be entitled to participate in and receive benefits under any
employee benefit plan, arrangement or perquisite made available by Athersys in
the future to its executive employees, subject to and on a basis consistent with
the terms, conditions and overall administration of such plans, arrangements and
perquisites. Nothing paid to Employee under any plan, arrangement or perquisite
presently in effect or made available in the future will be deemed to be in lieu
of the Base Salary payable to Employee pursuant to paragraph (a) of this
Section 5.
     (e) Vacations. Employee will be entitled to paid vacation in each calendar
year, determined in accordance with Athersys’ vacation policy, but in all events
in an amount of not less than three (3) weeks per calendar year. Employee will
also be entitled to all paid holidays and personal days given by Athersys to its
executive employees.
     (f) Life Insurance. Athersys shall purchase for Employee a life insurance
policy in the amount of $1,000,000 for the benefit of the family of Employee.

2

--------------------------------------------------------------------------------

 

     6. Stock Options.
     (a) Employee will be granted an option (the “Option”) to purchase One
Hundred (100) shares of Common Stock of Athersys, which will vest equally on the
Effective Date over a period of three (3) years. The average exercise price of
the Option will be Four Thousand Five Hundred Dollars ($4500) per share. The
terms and conditions of the stock options are governed by the Option Agreement
between Athersys and Employee of even date herewith.
     (b) Employee will be granted an additional option (the “Second Option”) to
purchase One Hundred Fifty-two and one half (152.5) shares of Common Stock of
Athersys, which will vest immediately upon execution of this Agreement. The
exercise price of the Second Option will be Four Thousand Five Hundred Dollars
($4500) per share. The terms and conditions of the Second Option are governed by
the Option Agreement between Athersys and Employee of even date herewith.
     7. Termination. Employee’s employment under this Agreement may be
terminated under the following circumstances:
     (a) Death. Employee’s employment under this Agreement will terminate upon
his death.
     (b) Disability. If, in the written opinion of a qualified physician
selected by Athersys and agreed to by Employee (or if no agreement is reached
within thirty (30) days of the commencement of discussions between Athersys and
Employee, then of a qualified physician agreed upon by the physician selected by
Athersys and a physician selected by Employee), Employee becomes unable to
perform his duties under this Agreement due to physical or mental illness,
Athersys may terminate Employee’s employment under this Agreement.
     (c) Cause. Athersys may terminate Employee’s employment under this
Agreement for Cause. For purposes of this Agreement, Athersys will have “Cause”
to terminate Employee’s employment under this Agreement upon:
     (i) the willful and continuous neglect or willful and continuous refusal to
perform Employee’s duties or responsibilities under this Agreement which
continues for a period of at least thirty (30) days after being brought to the
attention of Employee in writing (other than any such failure resulting from
Employee’s incapacity due to physical or mental illness or any such actual or
anticipated failure after the issuance of a Notice of Termination (as defined in
paragraph (e) of this Section 7) by Employee for Good Reason (as defined in
paragraph (d) of this Section 7)); or

3

--------------------------------------------------------------------------------

 

     (ii) the willful act, willful failure to act or willful misconduct by
Employee which is materially and manifestly injurious to Athersys and which is
brought to the attention of Employee in writing not more than thirty (30) days
from the date of its discovery by Athersys or the Board.
     For purposes of this paragraph (c), no act, or failure to act, on
Employee’s part will be considered “willful” unless done, or omitted to be done,
by him not in good faith or without reasonable belief that his action or
omission was in the best interest of Athersys. Notwithstanding the foregoing,
Employee will not be deemed to have been terminated for Cause without
(1) reasonable written notice to Employee specifying in detail the specific
reasons for Athersys’ intention to terminate for Cause, (2) an opportunity for
Employee, together with his counsel, to be heard before the Board, and
(3) delivery to Employee of a Notice of Termination, as defined in paragraph
(e) of this Section 7, approved by the affirmative vote of not less than a
majority of the entire membership of the Board finding that in the good faith
opinion of the Board, Employee was guilty of conduct set forth in clause (i) or
(ii) above.
     (d) Good Reason.
     (i) Employee may terminate his employment under this Agreement (X) for Good
Reason or (Y) otherwise upon written notice to Athersys.
     (ii) For purposes of this Agreement, “Good Reason” includes the occurrence
of any of the following circumstances, without Employee’s express consent,
unless, in the case of clauses (A), (B), (C), (D), (F), (G) and (I) below, such
circumstances are fully corrected prior to the Date of Termination (as defined
in paragraph (f) of this Section 7) specified in the Notice of Termination (as
defined in paragraph (e) of this Section 7) given in respect thereof and such
circumstances do not reoccur: (A) a diminution in Employee’s position, duties,
responsibilities or authority (except during periods when Employee is unable to
perform all or substantially all of Employee’s duties and/or responsibilities as
a result of Employee’s illness (either physical or mental) or other incapacity);
(B) a reduction in either Employee’s Base Salary or level of participation in
any bonus or incentive plan for which he is eligible under Section 5(b); (C) an
elimination or reduction of Employee’s participation in any benefit plan
generally available to executive employees of Athersys, unless Athersys
continues to offer Employee benefits substantially similar to those made
available by such plan; provided, however, that a change to a plan in which
salaried employees of Athersys generally participate, including termination of
any such plan, if it does not result in a proportionately greater reduction in
the rights of or benefits to Employee as compared with the other salaried
employees of Athersys or is required by law or a technical change, will not be
deemed to be Good Reason; (D) failure to provide facilities or services which
are suitable to Employee’s position and adequate for the performance of
Employee’s duties and responsibilities; (E) failure of any successor (whether
direct or indirect, by purchase of stock or assets, merger, consolidation or
otherwise) to Athersys to

4

--------------------------------------------------------------------------------

 

assume Athersys’ obligations under this Agreement or failure by Athersys to
remain liable to Employee under this Agreement after an assignment by Athersys
of this Agreement, in each case as contemplated by Section 9; (F) any purported
termination by Athersys of Employee’s employment which is not effected pursuant
to a Notice of Termination satisfying the requirements of paragraph (e) of this
Section 7 (and for purposes of this Agreement no such purported termination will
be effective); (G) a change in the location of Athersys’ principal executive
offices to outside the greater Cleveland, Ohio area; (H) a termination of
employment by Employee within ninety (90) days following a Change in Control (as
defined in paragraph (g) of this Section 7); provided, however, that Good Reason
will not exist if Employee has accepted employment with the successor entity and
such successor entity has assumed this Agreement; (I) a breach of this Agreement
by Athersys; or (J) any similar circumstances which Employee reasonably believes
are contrary to this Agreement. Employee’s right to terminate employment
pursuant to this paragraph (d) will not be affected by Employee’s incapacity due
to physical or mental illness. Employee’s continued employment will not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason; provided, however, that Employee will be deemed to
have waived his rights pursuant to circumstances constituting Good Reason if he
has not provided to Athersys a Notice of Termination within ninety (90) days
following his knowledge of the circumstances constituting Good Reason.
     (e) Notice of Termination. Any termination of Employee’s employment by
Athersys or by Employee (other than a termination pursuant to paragraph (a) of
this Section 7) must be communicated by written Notice of Termination to the
other party in accordance with Section 10. For purposes of this Agreement, a
“Notice of Termination” means a notice which indicates the specific termination
provision in this Agreement relied upon and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of Employee’s
employment under the provision so indicated.

5

--------------------------------------------------------------------------------

 

     (f) Date of Termination. “Date of Termination” means (i) if Employee’s
employment is terminated pursuant to paragraph (a) above, the date of his death,
(ii) if Employee’s employment is terminated pursuant to paragraph (b) above,
thirty (30) days after Notice of Termination is given (provided that Employee
has not returned to the full-time performance of Employee’s duties during such
thirty (30) day period), (iii) if Employee’s employment is terminated pursuant
to paragraph (c) or (d) above, the date specified in the Notice of Termination
which, in the case of a termination by Athersys for Cause will not be less than
fifteen (15) days from the date such Notice of Termination is given, and, in the
case of a termination by Employee pursuant to Section 7(d)(i), such date will
not be less than fifteen (15) days nor more than thirty (30) days from the date
such Notice of Termination is given, (iv) if Employee’s employment is terminated
by Athersys other than for Cause, thirty (30) days from the date Employee is
notified of such termination, or (v) if Employee terminates his employment and
fails to provide written notice to Athersys of such termination, the date of
such termination.
     (g) Change in Control. For purposes of this Agreement, a “Change in
Control” will occur (i) upon the sale or other disposition to a person, entity
or group (as such term is used in Rule 13d-5 promulgated under the Securities
Exchange Act of 1934, as amended) (such a person, entity or group being referred
to as an “Outside Party”) of 50% or more of the consolidated assets of Athersys
taken as a whole, or (ii) if shares representing a majority of the voting power
of Athersys are acquired by a person or group (as such term is used in
Rule 13d-5) of persons other than the holders of the capital stock of Athersys
as of the date of this Agreement, or (iii) if following an underwritten public
offering of equity securities pursuant to an effective registration statement
under the Securities Act of 1933, as amended, the individuals who are directors
of Athersys immediately following the effective date of such public offering (or
individuals nominated by such directors) no longer constitute a majority of the
whole Board.
     8. Compensation Upon Termination.
     (a) Disability. During any period that Employee fails to perform his duties
under this Agreement as a result of incapacity due to physical or mental
illness, Employee will continue to receive his full Base Salary at the rate then
in effect for such period (offset by any payments to Employee received pursuant
to disability benefit plans maintained by Athersys) and all other compensation
and benefits under this Agreement (including pro rata payment for vacation days
not taken) until his employment is terminated pursuant to Section 7(b) and for a
period of twelve (12) months from the date of such termination.
     (b) Cause or Death. If Employee’s employment is terminated by Athersys for
Cause or by Employee other than for Good Reason or as a result of Employee’s
death, Athersys will pay to Employee his full Base Salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given and
all other unpaid amounts, if any, to which Employee is entitled as of the Date
of Termination, including any expenses owed pursuant to Section 5(c) and amounts
under any compensation plan or program of Athersys,

6

--------------------------------------------------------------------------------

 

at the time such payments are due and Athersys will, thereafter, have no further
obligations to Employee under this Agreement.
     (c) Good Reason. If (i) in breach of this Agreement, Athersys terminates
Employee’s employment (it being understood that a purported termination for
disability pursuant to Section 7(b) or for Cause which is disputed and finally
determined not to have been proper will be a termination by Athersys in breach
of this Agreement), or (ii) Employee terminates his employment for Good Reason;
then
     (i) Athersys will continue to pay to Employee his full Base Salary and all
other compensation and benefits provided for in this Agreement for a period of
eighteen (18) months from the Date of Termination at the rate in effect at the
time Notice of Termination is given and all other unpaid amounts, if any, to
which Employee is entitled as of the Date of Termination, including any expenses
owed pursuant to Section 5(c); provided, however, if during such eighteen
(18) month period, Employee violates any provision of the Non-Competition and
Confidentiality Agreement between Employee and Athersys, then Athersys will not
be required to make any further payments to Employee. The Option and the Second
Option shall immediately vest in full on the Date of Termination; and
     (ii) Athersys will continue the participation of Employee for a period of
eighteen (18) months in all medical, life and other employee “welfare” benefit
plans and programs in which Employee was entitled to participate immediately
prior to the Date of Termination provided that Employee’s continued
participation is possible under the general terms and provisions of such plans
and programs.
     (d) Mitigation. Employee will be required to mitigate the amount of any
payment provided for in this Section 8 by seeking other employment or otherwise,
and the amount of any payment or benefit provided for in this Section 8 will be
reduced by any compensation earned by Employee as the result of employment by
another employer, by retirement benefits, by offset against any amount claimed
to be owed by Employee to Athersys, or otherwise.
     (e) Survival of Obligations. The obligations of Athersys to make payments
and provide benefits under this Section 8 will survive the termination of this
Agreement.
     9. Binding Agreement. This Agreement and all rights of Employee under this
Agreement will inure to the benefit of and be enforceable by Employee’s personal
or legal representatives, executors, administrators, successors, heirs,
distributees, devises and legatees. If Employee dies while any amounts would
still be payable to him under this Agreement if he had continued to live, all
such amounts, unless otherwise provided in this Agreement, will be paid in
accordance with the terms of this Agreement to Employee’s devisee, legatee, or
other designee or, if there be no such designee, to Employee’s estate. This
Agreement and all rights of Athersys under this Agreement will inure to the
benefit of and be enforceable by Athersys’ successors or assigns;

7

--------------------------------------------------------------------------------

 

provided, however, any assignment of this Agreement by Athersys will not relieve
Athersys from any liability it may have under this Agreement.
     10. Notice. Notices, demands and all other communications provided for in
this Agreement will be in writing and will be deemed to have been duly given
when delivered, if delivered personally, or (unless otherwise specified) mailed
by United States certified or registered mail, return receipt requested, postage
prepaid, and when received if delivered otherwise, addressed as follows:
     If to Employee:
John J. Harrington
6487 Meadowbrook Dr.
Mentor, Ohio 44060
     If to Athersys:
Athersys, Inc.
11000 Cedar Road, Suite 210
Cleveland, Ohio 44106
Attention: Dr. Gil Van Bokkelen, President
or to such other address as any party may have furnished to the other in
writing, except that notices of change of address will be effective only upon
receipt.
     11. General Provisions. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the parties hereto. No waiver by either party to this
Agreement at any time of any breach by the other party of, or compliance with,
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement will be governed by the laws of
the State of Ohio without regard to its conflicts of law principles.
     12. Validity. The invalidity or unenforceability of any provision or
provisions, in whole or in part, of this Agreement will not affect the validity
or enforceability of any other provision or enforceable part of such partially
unenforceable provision of this Agreement, which will remain in full force and
effect.
     13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together will constitute one and the same instrument.
     14. Captions. The headings of paragraphs are included solely for
convenience of reference only and are not part of this Agreement and will not be
used in construing it.

8

--------------------------------------------------------------------------------

 

     15. Consent to Jurisdiction and Forum. Employee expressly and irrevocably
agrees that Athersys may bring any action, whether at law or in equity, arising
out of or based upon this Agreement in the State of Ohio or in any federal court
therein. Employee irrevocably consents to personal jurisdiction in such court
and to accept service of process in accordance with the provisions of the laws
of the State of Ohio.
     16. Entire Agreement. This Agreement sets forth the entire agreement of the
parties in respect of the subject matter contained in this Agreement and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party; and any prior agreement of the
parties in respect of the subject mater contained in this Agreement is
terminated and canceled.
     IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the date first above written.

            ATHERSYS, INC.
      By:   /s/ Dr. Gil Van Bokkelen       Dr. Gil Van Bokkelen, President and
Chief Executive Officer                “EMPLOYEE”
      /s/ Dr. John J. Harrington     Dr. John J. Harrington         

9