EX-10.35



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EXHIBIT
10.35


CONFIDENTIAL




Execution Copy



CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS EXHIBIT, AND SUCH
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.




STRATEGIC ALLIANCE AGREEMENT




By and Between




ATHERSYS, INC.




and




ANGIOTECH PHARMACEUTICALS, INC.




Effective as of May 5, 2006




 









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	 	 	Page	 	 	 	 
	ARTICLE I. DEFINITIONS
	 	 	2	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE II. CERTAIN TRANSACTION COMPONENTS
	 	 	11	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	2.1 Concurrent Execution.
	 	 	11	 	 	 	 	 
	 
	2.2 Right of First Negotiation for Non-Licensed Cardiovascular Indications.
	 	 	11	 	 	 	 	 
	 
	2.3 Additional Investment.
	 	 	13	 	 	 	 	 
	 
	2.4 Phase I Milestone Fee.
	 	 	13	 	 	 	 	 
	 
	2.5 Exclusivity.
	 	 	14	 	 	 	 	 
	 
	2.6 Retained Rights.
	 	 	14	 	 	 	 	 
	 
	2.7 Costs Borne by Each Party.
	 	 	15	 	 	 	 	 
	 
	2.8 Certain Restrictions on Athersys’ Activities Outside of Cardiovascular Indications.
	 	 	15	 	 	 	 	 
	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE III. JOINT STEERING COMMITTEE
	 	 	15	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	3.1 Joint Steering Committee.
	 	 	15	 	 	 	 	 
	 
	3.2 Subcommittees.
	 	 	15	 	 	 	 	 
	 
	3.3 Chairperson.
	 	 	15	 	 	 	 	 
	 
	3.4 JSC Meetings.
	 	 	15	 	 	 	 	 
	 
	3.5 Responsibilities of the Joint Steering Committee.
	 	 	16	 	 	 	 	 
	 
	3.6 Voting; Decision-Making.
	 	 	19	 	 	 	 	 
	 
	3.7 JSC Disputes.
	 	 	19	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IV. PRE-CLINICAL DEVELOPMENT
	 	 	20	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	4.1 Existing Pre–Clinical Development Programs.
	 	 	20	 	 	 	 	 
	 
	4.2 Costs for Existing Pre-Clinical Development Programs.
	 	 	21	 	 	 	 	 
	 
	4.3 New Pre-Clinical Development Programs.
	 	 	21	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE V. CLINICAL DEVELOPMENT
	 	 	21	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	5.1 Proposed Clinical Plans; Clinical Development Plans.
	 	 	21	 	 	 	 	 
	 
	5.2 Athersys Responsibilities.
	 	 	21	 	 	 	 	 
	 
	5.3 Angiotech Responsibilities.
	 	 	22	 	 	 	 	 
	 
	5.4 Subcontracting.
	 	 	22	 	 	 	 	 






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	ARTICLE VI. OPT-OUT RIGHTS
	 	 	23	 
	 
	 	 	 	 
	6.1 Opt-Out Rights.
	 	 	23	 
	 
	6.2 Development Updates.
	 	 	25	 
	 
	6.3 Failure to Exercise Sole Development Option.
	 	 	25	 
	 
	6.4 Diligence Requirement.
	 	 	25	 
	 
	 	 	 	 
	ARTICLE VII. COSTS, PAYMENTS AND FINANCIAL RECORD KEEPING
	 	 	26	 
	 
	 	 	 	 
	7.1 Clinical Development Costs.
	 	 	26	 
	 
	7.2 Development Costs Quarterly Reconciliation.
	 	 	26	 
	 
	7.3 Milestone Payments.
	 	 	27	 
	 
	7.4 Profit Sharing.
	 	 	27	 
	 
	7.5 Royalties on Sole Development Products.
	 	 	27	 
	 
	7.6 Calculation and Payment of Royalties.
	 	 	29	 
	 
	7.7 Sharing of Sole Development Income.
	 	 	30	 
	 
	7.8 Financial Record Keeping.
	 	 	31	 
	 
	7.9 Audits.
	 	 	31	 
	 
	7.10 Late Payments.
	 	 	31	 
	 
	 	 	 	 
	ARTICLE VIII. COMMERCIALIZATION
	 	 	32	 
	 
	 	 	 	 
	8.1 Commercialization of Cell Therapy Products.
	 	 	32	 
	 
	 	 	 	 
	ARTICLE IX. MANUFACTURE AND SUPPLY OF CLINICAL DEVELOPMENT CANDIDATES AND CELL THERAPY
PRODUCTS
	 	 	32	 
	 
	 	 	 	 
	9.1 Athersys’ Manufacturing Obligation.
	 	 	32	 
	 
	9.2 Manufacturing Costs.
	 	 	33	 
	 
	9.3 Manufacturing Compliance.
	 	 	33	 
	 
	9.4 Product Conformity.
	 	 	33	 
	 
	9.5 Ordering; Forecasting; Acceptance and Rejection.
	 	 	33	 
	 
	9.6 Inspection.
	 	 	34	 
	 
	9.7 Supply Disruption.
	 	 	34	 
	 
	9.8 Back-Up Supplier.
	 	 	34	 






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	 	 	Page
	ARTICLE X. REGULATORY MATTERS
	 	 	35	 
	 
	 	 	 	 
	10.1 Ownership of Regulatory Documentation and Reference Rights; Regulatory Strategy.
	 	 	35	 
	 
	10.2 Regulatory Communications.
	 	 	35	 
	 
	10.3 Other Regulatory Responsibilities.
	 	 	36	 
	 
	10.4 Cell Therapy Product Complaints and Recalls.
	 	 	36	 
	 
	10.5 Compliance With All Applicable Laws and Regulations; Cooperation.
	 	 	36	 
	 
	 	 	 	 
	ARTICLE XI. INTELLECTUAL PROPERTY
	 	 	37	 
	 
	 	 	 	 
	11.1 Existing Intellectual Property Rights Retained.
	 	 	37	 
	 
	11.2 Ownership Of New Intellectual Property.
	 	 	37	 
	 
	 	 	 	 
	ARTICLE XII. CLINICAL PROGRAM RECORD KEEPING
	 	 	37	 
	 
	 	 	 	 
	12.1 Scientific, Patent and Regulatory Records.
	 	 	37	 
	 
	12.2 Review of Records.
	 	 	37	 
	 
	12.3 Policies For Records.
	 	 	38	 
	 
	 	 	 	 
	ARTICLE XIII. CONFIDENTIAL INFORMATION
	 	 	38	 
	 
	 	 	 	 
	13.1 Confidential Information.
	 	 	38	 
	 
	13.2 Confidentiality Obligations.
	 	 	38	 
	 
	13.3 Permitted Disclosures.
	 	 	39	 
	 
	13.4 Publication.
	 	 	41	 
	 
	 	 	 	 
	ARTICLE XIV. REPRESENTATIONS AND WARRANTIES
	 	 	41	 
	 
	 	 	 	 
	14.1 Authority.
	 	 	41	 
	 
	14.2 No Conflicts.
	 	 	41	 
	 
	14.3 Additional Representations and Warranties of Athersys.
	 	 	42	 
	 
	14.4 Additional Covenants of Athersys.
	 	 	44	 
	 
	14.5 Additional Covenants of Angiotech.
	 	 	46	 
	 
	14.6 Disclaimer Of Warranties.
	 	 	47	 
	 
	 	 	 	 
	ARTICLE XV. INDEMNIFICATION AND INSURANCE
	 	 	47	 
	 
	 	 	 	 
	15.1 Indemnification By Athersys.
	 	 	47	 
	 
	15.2 Indemnification By Angiotech.
	 	 	48	 
	 
	15.3 Insurance.
	 	 	49	 






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	 	 	Page
	ARTICLE XVI. TERM AND TERMINATION
	 	 	49	 
	 
	 	 	 	 
	16.1 Term.
	 	 	49	 
	 
	16.2 Termination.
	 	 	49	 
	 
	16.3 Effects of Termination.
	 	 	52	 
	 
	16.4 Survival Of Obligations.
	 	 	53	 
	 
	 	 	 	 
	ARTICLE XVII. DISPUTE RESOLUTION
	 	 	53	 
	 
	 	 	 	 
	17.1 Dispute Resolution Process.
	 	 	53	 
	 
	17.2 Injunctive Relief.
	 	 	54	 
	 
	 	 	 	 
	ARTICLE XVIII. MISCELLANEOUS PROVISIONS
	 	 	55	 
	 
	 	 	 	 
	18.1 Governing Law.
	 	 	55	 
	 
	18.2 Assignment.
	 	 	55	 
	 
	18.3 Compliance With Laws.
	 	 	55	 
	 
	18.4 Further Assurances.
	 	 	55	 
	 
	18.5 Severability.
	 	 	55	 
	 
	18.6 Waivers And Amendments; Preservation Of Remedies.
	 	 	56	 
	 
	18.7 Headings.
	 	 	56	 
	 
	18.8 Counterparts.
	 	 	56	 
	 
	18.9 Successors.
	 	 	56	 
	 
	18.10 Notices.
	 	 	56	 
	 
	18.11 No Consequential Damages.
	 	 	57	 
	 
	18.12 Independent Contractor.
	 	 	57	 
	 
	18.13 Complete Agreement.
	 	 	57	 






SCHEDULES

Schedule 1.13

Schedule 1.14

Schedule 1.33

Schedule 1.45

Schedule 2.2

Schedule 4.1

Schedule 7.3

Schedule 7.4

Schedule 14.3(b)

Schedule 14.3(g)




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	Schedule 14.3(l)
	 	 	 	 
	 
	 	 	 	 
	EXHIBITS
	 	 	 	 
	Exhibit A – Note Purchase Agreement
	 	 	 	 
	Exhibit B – License Agreement
	 	 	 	 
	Exhibit C – Sublicense Agreement
	 	 	 	 






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STRATEGIC ALLIANCE AGREEMENT




     This Strategic Alliance Agreement (this “Strategic Alliance Agreement”) is made and
entered into as of May 5, 2006 (the “Effective Date”), by and between Athersys, Inc., a corporation
organized under the laws of Delaware and having a place of business at 3201 Carnegie Avenue,
Cleveland, Ohio 44115 (“Athersys”), and Angiotech Pharmaceuticals, Inc., a corporation organized
under the laws of British Columbia and having a place of business at 1618 Station Street,
Vancouver, British Columbia, Canada V6A 1B6 (“Angiotech”). In this Strategic Alliance Agreement,
Athersys and Angiotech may each be referred to as a “Party” and collectively as the “Parties.”



RECITALS




     A. Angiotech is engaged in, among other things, design, research, development, manufacture and
commercialization of medical devices and therapeutic, biopharmaceutical and biosurgery products and
biomaterials.



     B. Athersys is engaged in, among other things, the research and development of therapeutic
biologics to treat disease.



     C. Angiotech and Athersys desire to enter into a strategic alliance relating to the research,
development, manufacture, market and commercialization of clinical development candidates and cell
therapy products for the treatment and/or prophylaxis of certain cardiovascular diseases, disorders
and conditions.



     D. Concurrently with the execution of this Strategic Alliance Agreement, Angiotech and
Athersys are entering into that certain Note Purchase Agreement attached hereto as Exhibit
A, pursuant to which Angiotech will loan $5,000,000.00 to Athersys pursuant to a convertible
promissory note (the “Note”) on the terms and conditions set forth therein (such Note Purchase
Agreement and the exhibits and schedules thereto, the “Purchase Agreement”).



     E. Concurrently with the execution of this Strategic Alliance Agreement, Angiotech and
Athersys are entering into that certain License Agreement attached hereto as Exhibit B
(such License Agreement and the exhibits and schedules thereto, the “License Agreement”) concerning
Athersys’ license to Angiotech of technology and intellectual property related to certain stem
cells and stem cell therapies.



     F. Concurrently with the execution of this Strategic Alliance Agreement, Angiotech and
Athersys are entering into that certain Sublicense Agreement attached hereto as Exhibit C
(such Sublicense Agreement and the exhibits and schedules thereto, the “Sublicense Agreement”)
concerning Athersys’ sublicense to Angiotech of technology and intellectual property related to
certain stem cells and stem cell therapies licensed from the University of Minnesota.



     G. This Strategic Alliance Agreement, the License Agreement and the Sublicense Agreement
hereinafter shall be referred to collectively as the “Transaction Agreements”, and unless expressly
specified otherwise in the License Agreement, the Sublicense Agreement or this



 









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Strategic Alliance Agreement, the terms and conditions of this Strategic Alliance Agreement
shall apply to all Transaction Agreements.



AGREEMENT




     NOW, THEREFORE, in consideration of the covenants and obligations expressed herein, and
intending to be legally bound, the Parties agree as follows:



ARTICLE I.

DEFINITIONS





     1.1 “Affiliate” means, with respect to any Party, any corporation or other business
entity which directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Party, but only for so long as the
relationship exists. A corporation or other entity shall be regarded as in control of
another corporation or entity (a) if it (or any of its subsidiaries or parents) beneficially
owns, holds or directly or indirectly controls more than fifty percent (50%) of the voting
capital stock (or such lesser maximum percentage permitted by applicable law considered a
control percentage) or other ownership interest of such other corporation or entity, or (b)
if it possesses, directly or indirectly, the power to direct or cause the direction of the
management and policies of such other corporation or entity, or (c) if it possesses,
directly or indirectly, the power to elect or appoint more than fifty percent (50%) of the
members of the governing body of such other corporation or entity.




     1.2 “Angiotech” has the meaning ascribed to it in the preamble.




     1.3 “Angiotech Indemnitees” has the meaning ascribed to it in Section 15.1.




     1.4 “Athersys” has the meaning ascribed to it in the preamble.




     1.5 “Athersys Indemnitees” has the meaning ascribed to it in Section 15.2.




     1.6 “Athersys Stem Cells” has the meaning ascribed to it in the License Agreement.




     1.7 “Athersys Stem Cell Technology” has the meaning ascribed to it in the License
Agreement.




     1.8 “Cardiovascular Indications” means myocardial infarction (whether chronic (e.g.,
ischemia) or acute) and peripheral vascular disease (excluding neurovascular) in humans.




     1.9 “Cells” means the following cells identified, developed, and/or intended for use
for treatment and/or prophylaxis of a disease or condition in humans: (a) MAPCs; (b)
progeny or components of any MAPCs; (c) derivatives of any of the foregoing (a) or (b); (d)
genetically-modified MAPCs; and (e) Athersys Stem Cells; and including, without limitation,
cells or tissues that are derived from any of the foregoing, as any of the foregoing cells
might be at the time of treatment (i) in their native, undifferentiated



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state, (ii) in a partially or fully pre-differentiated state, (iii) primed for
differentiation (for example, through the introduction of a protein, peptide, gene,
polynucleotide, small molecule or other active pharmaceutical ingredient), or (iv) in a
modified form.




     1.10 “Cell Therapy” means the treatment and/or prophylaxis of a disease or condition,
by regional, local, systemic or other delivery, localization and/or administration of Cells.
The term “Cell Therapy” specifically excludes using (a) any of the Cells as reagents; (b)
any of the Cells for diagnostic applications or assays; and (c) any of the Cells for drug
and drug target validation screening. The term “Cell Therapy” specifically includes (x)
delivery, localization and/or administration of a protein, peptide, gene, polynucleotide,
small molecule or other active pharmaceutical ingredient (or any combination of the
foregoing) at or near the time of delivery, localization and/or administration of Cells; (y)
delivery, localization and/or administration of one or more fractions and/or subsets of
Cells; and (z) delivery, localization and/or administration of one or more other cell types
at or near the time of delivery, localization or administration of Cells.




     1.11 “Cell Therapy Product” means a therapeutic and/or prophylactic product for humans
that (a) includes a Cell developed under this Agreement that is intended for use or used as
Cell Therapy for at least one Cardiovascular Indication, and (b) has obtained Regulatory
Approval in a given country or jurisdiction in the Territory.




     1.12 “Clinical Development Candidate” means (a) a Cell(s) that meets certain criteria
and has certain characteristics that are necessary and desirable for the submission of an
IND for use of such Cell(s) in Cell Therapy for at least one Cardiovascular Indication (and,
therefore, make such Cell(s) suitable for a Clinical Development Program), as determined by
the JSC; or (b) a Cell(s) that is or has been the subject of an IND for use of such Cell(s)
in Cell Therapy for at least one Cardiovascular Indication. The term “Clinical Development
Candidate” shall expressly exclude Cell Therapy Products.




     1.13 “Clinical Development Costs” means the costs incurred by the Parties in connection
with their respective activities under a Clinical Development Plan, as such costs are more
fully described on Schedule 1.13.




     1.14 “Clinical Development Plan” means, for each Clinical Development Candidate, a
detailed plan that sets forth the responsibilities of, and the activities to be conducted
by, each of the Parties in advancing each such Clinical Development Candidate to Regulatory
Approval for a Cardiovascular Indication (including a detailed budget corresponding to each
such plan). Each such Clinical Development Plan shall include, without limitation, the
following activities (or their equivalents), to the extent applicable:




          (a) conducting pre-clinical research, pre-clinical development and other pre-clinical
studies that are intended to support clinical development of a Clinical Development
Candidate for a Cardiovascular Indication;



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          (b) preparation and filing of an IND for a Clinical Development Candidate for a
Cardiovascular Indication;




          (c) conducting clinical trials of such Clinical Development Candidate for a
Cardiovascular Indication, including clinical trials that are intended to support
Regulatory Approvals for such Clinical Development Candidate for such Cardiovascular
Indication; and




          (d) preparation and filing of documentation, applications (including, for example, an
NDA/BLA) and related activities to enable the Parties to seek Regulatory Approval for such
Clinical Development Candidate for such Cardiovascular Indication.




Each Clinical Development Plan approved by the Parties shall be attached hereto as
Schedule 1.14.



     1.15 “Clinical Development Program” means the clinical development activities conducted
by (or to be conducted by) each Party pursuant to a Clinical Development Plan.



     1.16 “Commercialization Costs” means the costs incurred by Angiotech in connection with
the promotion, marketing, advertising, sale and/or distribution of Cell Therapy Products, as
such costs are more fully described on Schedule 1.13.



     1.17 “Commercially Reasonable Efforts” shall mean efforts and deployment of resources,
consistent with the exercise of reasonable and prudent scientific and business judgment,
normally used by a research-based pharmaceutical company for a product owned by it or to
which it has rights, which is of similar market potential at a similar stage in its
development or product life, taking into account issues of safety and efficacy, product
profile, the competitiveness of the marketplace, the proprietary position of the product,
the regulatory and reimbursement structure involved, the cost of scaling up a manufacturing
process (including facility costs), the profitability of the applicable products, and other
relevant factors.



     1.18 “Confidential Information” has the meaning ascribed to it in Section 13.1.



     1.19 “Disclosing Party” has the meaning ascribed to it in Section 13.1.



     1.20 “Effective Date” has the meaning ascribed to it in the preamble.



     1.21 “FDA” means the United States Food and Drug Administration and any successor
governmental agency having substantially the same function.



     1.22 “FDA Approval” means the receipt by a Party of all approvals by the FDA necessary
or required for the commercialization in the United States of a Cell Therapy Product.



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     1.23 “First Commercial Sale” shall mean, for each Cell Therapy Product in each country
in the Territory on a country-by-country basis, the first sale by Angiotech, or a
sublicensee of Angiotech, of a Cell Therapy Product to an independent Third Party after the
required Regulatory Approval to sell such Cell Therapy Product in that country has been
granted by the relevant regulatory authority. If Regulatory Approval is not required in
order to sell a Cell Therapy Product in a particular jurisdiction, then First Commercial
Sale shall mean the first transfer of title by Angiotech, or a sublicensee of Angiotech, of
a Cell Therapy Product to an independent Third Party for consideration in any arm’s-length
transaction in such jurisdiction. Cell Therapy Product sale shall be deemed to occur on the
earlier of (a) the date the Cell Therapy Product is shipped to the purchaser, or (b) the
date of the invoice to the purchaser of the Cell Therapy Product.



     1.24 “IND” means (a) an Investigational New Drug Application, as defined in the United
States Federal Food, Drug and Cosmetic Act, as amended, and the rules and regulations
promulgated thereunder, that is required to be filed with the FDA before beginning clinical
testing in the United States of a Clinical Development Candidate in human subjects, or any
successor application or procedure; and (b) all supplements and amendments thereto,
including any supplemental Investigational New Drug Application; and (c) any related foreign
counterparts of (a) and (b) that may be filed with respect to the foregoing.



     1.25 “Intellectual Property” means all of the following (including any substantial
equivalent or counterpart) in any jurisdiction throughout the Territory: (a) Patents and
Patent Rights; (b) trademarks, service marks, trade dress, trade names, corporate names,
logos and Internet domain names; (c) copyrights, software, source code and copyrightable
works; (d) applications and registrations for any of the foregoing; and (e) Know-How.



     1.26 “JSC” has the meaning ascribed to it in Section 3.1.



     1.27 “JSC Dispute” has the meaning ascribed to it in Section 3.7(a).



     1.28 “Know-How” means inventions, discoveries, data, information, trade secrets,
processes, methods, techniques, materials, technology, results or other know-how, whether or
not patentable.



     1.29 “License Agreement” has the meaning ascribed to it in the Recitals.



     1.30 “Local Therapeutic Company” means a corporation or other business entity engaged
in the business of exploiting products for human or veterinary uses wherein all or a
substantial portion of the activities of such corporation or other business entity are
competitive with those of Angiotech.



     1.31 “Manufacturing Costs” means, with respect to each Clinical Development Candidate
and Cell Therapy Product, the costs incurred by Athersys in connection with the manufacture
and supply of the Clinical Development Candidate or Cell Therapy Product (respectively) to
Angiotech or any Third Party on Angiotech’s behalf, as such costs are more fully described
on Schedule 1.13.



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     1.32 “Major Market” means the following markets: United States, Australia, Canada,
United Kingdom, Germany, France, Italy, Spain and Japan.



     1.33 “MAPC” means any multipotent adult progenitor cell, including without limitation
those described in the Patent Rights listed on Schedule 1.33 or described in any
Patent Rights that claim priority to any such Patent Rights listed on Schedule 1.33.



     1.34 “NDA/BLA” means (a) a New Drug Application and/or a Biologics License Application
as defined in the United States Federal Food, Drug and Cosmetic Act or the United States
Public Health Service Act, each as amended, and the rules and regulations promulgated
thereunder, that is required to be filed with the FDA before commercialization of a product
in the United States, and any successor application or procedure; (b) all supplements and
amendments thereto; and (c) any related foreign counterparts of (a) and (b) that may be
filed with respect to the foregoing.



     1.35 “Net Sales” means the gross amount invoiced for sale or other commercial
disposition of a Cell Therapy Product (or any Cells sold for use in the Therapeutic Field)
by Athersys or Angiotech or any of their Affiliates or their respective direct or indirect
licensees, sublicensees or subcontractors, to a Third Party (including, without limitation,
sales to distributors), in bona fide, arm’s-length transactions, after deduction of the
following items (to the extent actually incurred and to the extent not already deducted in
the amount invoiced):




          (a) all trade, quantity and cash discounts, wholesaler-charge backs or rebates
(including, but not limited to, rebates to governmental agencies, managed care
organizations, health management organizations, pharmacy benefit managers and group
purchasing organizations) actually allowed;




          (b) all credits or allowances actually granted for rejection or return of a previously
sold Cell Therapy Product (or Cells sold for use in the Therapeutic Field);




          (c) excise, sales and other consumption taxes and customs duties;




          (d) retroactive price reductions including, but not limited to, those imposed by
governmental agencies; and




          (e) any charge for freight or insurance if separately stated on the same invoice as for
the sale of the Cell Therapy Product (or Cells sold for use in the Therapeutic Field) and
directly related to the sale or distribution of the Cell Therapy Product (or Cells sold for
use in the Therapeutic Field);




all in accordance with standard allocation procedures, allowance methodologies and
accounting methods consistently applied, which procedures and methodologies shall be in
accordance with generally accepted accounting principles (“GAAP”). A “sale” of a Cell
Therapy Product (or Cells sold for use in the Therapeutic Field) is deemed to occur upon the
invoicing, or if no invoice is issued, upon the earlier of shipment or transfer of title in
the Cell Therapy Product (or the Cells) to the Third Party. Sales between or among a Party,
on the one hand, and its Affiliates, licensees or sublicensees, on the other



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hand, shall not be used to calculate “Net Sales” unless the purchasing Affiliate, licensee
or sublicensee is an end-user. “Net Sales” for purposes of this Strategic Alliance
Agreement includes all such sales by assignees or other successors to either Party’s rights
under this Strategic Alliance Agreement. If a Cell Therapy Product (or the Cells) is sold
as part of a larger bundle or kit that incorporates or includes other products in addition
to the Cell Therapy Product (or the Cells), Net Sales will be computed using an average net
selling price of the Cell Therapy Product (or the Cells) sold separately or, if such average
net selling price is unavailable, it will include only that part of such sale reasonably
allocated by the JSC to the value of the Cell Therapy Product (or the Cells) as compared to
the value of the larger bundle or kit sold without the Cell Therapy Product (or the Cells).




     1.36 “Non-Licensed Cardiovascular Indications” means any disease, disorder, condition,
or the prevention, palliation, treatment, or correction of the same, which involves or
relates to the heart and/or blood vessels, other than the Cardiovascular Indications and
neurovascular disease (including stroke). Non-Licensed Cardiovascular Indications
explicitly includes, but is not limited to, congestive heart failure.




     1.37 “Party” and/or “Parties” has the meaning ascribed to it in the preamble.




     1.38 “Patent” means any and all issued and granted patents, or other registration of
ownership of an invention, granted by any governmental authority in the Territory,
including, but not limited to, patents of implementation, improvement or addition; utility
patents; design patents; and inventors’ certificates, as well as those patents that may
issue or be granted from any divisions, reissues, continuations (in whole or in part),
reexaminations, renewals, substitutions and extensions of any of the foregoing.




     1.39 “Patent Prosecution” means the (a) preparation, filing and/or prosecution of
applications (of all types) for Patent(s); (b) maintenance of any Patent Rights; and (c)
management of any interference or opposition proceeding relating to the foregoing.




     1.40 “Patent Rights” means rights in (a) issued Patents and pending provisional and
non-provisional applications for Patents, including, without limitation, any continuations,
continuations-in-part or divisions directed to inventions disclosed therein; (b) any
re-examinations, reissues, renewals, substitutions or extensions of any Patents; and (c)
foreign counterparts or equivalents of any of the foregoing.




     1.41 “Phase I Study” means a clinical study in human subjects that is intended to
initially evaluate the tolerance, safety and/or pharmacological effects of (or to otherwise
satisfy the requirements of 21 C.F.R. § 312.21(a) or its foreign equivalent with respect to)
a Clinical Development Candidate for a particular Cardiovascular Indication.




     1.42 “Phase II Study” means a clinical study in human patients that is intended to
initially evaluate the effectiveness of (or to otherwise satisfy the requirements of 21
C.F.R. § 312.21(b) or its foreign equivalent with respect to) a Clinical Development
Candidate for a particular Cardiovascular Indication.



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     1.43 “Phase III Study” means a pivotal clinical study in human patients with a defined
dose or set of doses of a Clinical Development Candidate that is designed to ascertain the
safety and efficacy of (or to otherwise satisfy the requirements of 21 C.F.R. § 312.21(c) or
its foreign equivalent with respect to) such Clinical Development Candidate for a particular
Cardiovascular Indication, which Phase III Study is conducted for the purpose of enabling
the preparation and submission of applications for Regulatory Approval to the competent
regulatory authorities in a country of the Territory.




     1.44 “Phase IV Study” means any clinical study in human patients that is commenced
after receipt of Regulatory Approval of a Cell Therapy Product in any country of the
Territory, which study is conducted within the parameters of the Regulatory Approval, and
shall include studies required or requested by the Regulatory Authority as a condition of,
or in connection with, obtaining Regulatory Approval with respect to such Cell Therapy
Product for a particular Cardiovascular Indication. Phase IV Studies also shall include
studies conducted to gather additional information regarding such Cell Therapy Product,
including, without limitation, potential risks, medical or pharmacoeconomic benefits,
optimal use, dose, route and schedule of administration, modeling and pharmacoeconomic
studies, and investigator-sponsored clinical trials.




     1.45 “Pre-Clinical Development Plan” means a detailed plan that sets forth the
responsibilities of, and activities to be conducted by, Athersys (and Angiotech pursuant to
Section 4.3) in advancing one or more Cells and/or Cell Therapies into one or more
potential Clinical Development Candidates for a particular Cardiovascular Indication
(including a detailed budget corresponding to each such plan). Each such Pre-Clinical
Development Plan shall include, without limitation, the following activities (or their
equivalents), to the extent applicable:




          (a) conducting research and development activities related to Cells and Cell Therapy,
as a step in the ultimate objective of identifying and characterizing Clinical Development
Candidates; and




          (b) conducting pre-clinical research, pre-clinical development and other pre-clinical
studies that are intended to facilitate and support progression of one or more Cells and/or
Cell Therapies to selection as Clinical Development Candidates, and ultimately to Regulatory
Approval of such Clinical Development Candidate(s) as a Cell Therapy Product(s);




An initial draft Pre-Clinical Development Plan(s) has been prepared by Athersys and
presented to Angiotech prior to the Effective Date. Within ninety (90) days after the
Effective Date, the JSC shall finalize such draft Pre-Clinical Development Plan(s), and such
final Pre-Clinical Development Plan shall be attached hereto as Schedule 1.45.




     1.46 “Pre–Clinical Development Program” means the pre-clinical development activities
conducted by (or to be conducted by) each Party pursuant to a Pre-Clinical Development Plan.




     1.47 “Profit(s)” has the meaning ascribed to it on Schedule 7.4.



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     1.48 “Purchase Agreement” has the meaning ascribed to it in the Recitals.




     1.49 “Receiving Party” has the meaning ascribed to it in Section 13.1.




     1.50 “Regulatory Approval” means any and all approvals (including any applicable
governmental price and reimbursement approvals), licenses, registrations or authorizations
of any federal, national, multinational, state, provincial or local regulatory agency,
department, bureau, commission, council or other governmental entity necessary for the
commercial manufacture, use, storage, import, export, transport, distribution, promotion,
marketing, offer for sale and sale of a therapeutic and/or prophylactic product in a country
of the Territory.




     1.51 “Royalty Term” shall mean, for a particular Sole Development Product in a
particular country in the Territory, the period of time from First Commercial Sale of such
Sole Development Product to the date on which market exclusivity in such country ends, which
shall mean the later date to occur of the following: (a) the expiration of all Patent Rights
covering such Sole Development Product in such country; or (b) the expiration of market
exclusivity related to such Sole Development Product in such country.




     1.52 “Sole Development Income” shall mean any payments that the Developing Party
receives from a licensee or sublicensee of the rights owned by or granted to the Developing
Party hereunder, in consideration for the license or sublicense of such rights as applicable
to a Sole Development Product, including, without limitation, license fees, milestone
payments, license maintenance fees, and other payments received for such a license or
sublicense, but specifically excluding royalty-type payments based on Net Sales, bona fide
payments for research and development, marketing, sales and/or other services, bona fide
reimbursement for costs and expenses incurred by the Developing Party (such as patent
prosecution costs), payments to the extent of fair market value for the issuance of equity
or debt (or for debt financing such as loans), and payments resulting from any bona fide
arms length agreement relating to the supply to such licensee or sublicensee of the
applicable Sole Development Products (and/or ingredients or components thereof).




     1.53 “Sole Development Product” has the meaning ascribed to it in Section 6.1.




     1.54 “Strategic Alliance Agreement” has the meaning ascribed to it in the preamble.




     1.55 “Sublicense Agreement” has the meaning ascribed to it in the Recitals.




     1.56 “Successful Completion” means, with respect to a clinical study of a Clinical
Development Candidate in human patients, (a) completion of such clinical study; (b) the
meeting of all primary and secondary clinical endpoints of such clinical study or the
advancement of the Clinical Development Candidate to the next phase of clinical trials (or
to commercialization, where the subject clinical study is a Phase III Study), even though
the Clinical Development Candidate does not meet all secondary endpoints; and



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(c) delivery to the JSC of the corresponding written, completed study report prepared
according to the study protocol.




     1.57 “Term” has the meaning ascribed to it in Section 16.1.




     1.58 “Territory” means the world.




     1.59 “Therapeutic Field” means, as the context requires, a field comprising any one or
more of the Cardiovascular Indications.




     1.60 “Third-Party” means a person or entity other than Angiotech or Athersys.




     1.61 “Third Party Payments” shall mean all amounts payable to a Third Party for rights
or licenses to Intellectual Property in connection with the manufacture, use, sale, offer
for sale or importation of Clinical Development Candidates and/or Cell Therapy Products,
including without limitation license fees, milestone payments, license maintenance fees,
royalties and other payments made for such a right or license.




     1.62 “Transaction Agreements” has the meaning ascribed to it in the Recitals.




     1.63 Additional Definitions.



	 	 	 
	Defined Term	 	Section in which Defined
	CFOs
	 	7.2(c)
	Change of Control
	 	16.2(e)
	Change of Control Notice
	 	16.2(e)
	CHF Offer
	 	2.2(b)
	CHF Offer Notice
	 	2.2(b)
	Co-Chair
	 	3.3
	Code
	 	16.2(c)
	Developing Party
	 	6.1
	Diligence Requirement
	 	6.4
	Discontinuing Party
	 	6.1
	Existing Third Party Agreement
	 	4.1
	for cause
	 	16.2(d)(i)
	GAAP
	 	1.35
	Heads of Research
	 	3.7(b)
	Negotiation Notice
	 	2.2(a)
	New Pre-Clinical Development Programs
	 	4.3
	Offer Notice
	 	2.2(a)






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	Defined Term	 	Section in which Defined
	Offer Period
	 	2.2(a)
	Opt-Out Notice
	 	6.1
	Paying Party
	 	7.6(a)
	Phase I Milestone Fee
	 	2.4(a)
	Product Specifications
	 	9.4
	Proposed Clinical Plan(s)
	 	3.5(c)
	Replacement Fee
	 	2.4(b)(i)
	Royalty Recipient
	 	7.6(a)
	Sole Development Option
	 	6.1
	Supply Disruption
	 	9.7
	Terms and Conditions
	 	2.2(b)






ARTICLE II.

CERTAIN TRANSACTION COMPONENTS





     2.1 Concurrent Execution. Each Party shall execute all of the Transaction
Agreements and the Purchase Agreement, and shall deliver each of them to the other Party,
and each of the Transaction Agreements and the Purchase Agreement shall be effective as of
the Effective Date. Neither Party shall have any obligations under any of the Transaction
Agreements or the Purchase Agreement unless and until all of the Transaction Agreements and
the Purchase Agreement have been so executed and delivered.




     2.2 Right of First Negotiation for Non-Licensed Cardiovascular Indications.




          (a) Throughout the Term, Angiotech shall have the first right to negotiate to obtain an
exclusive license to Cell Therapy for all or any part of the Non-Licensed Cardiovascular
Indications. Athersys shall promptly notify Angiotech in writing if: (a) Athersys intends
to initiate a research and/or development and/or commercialization program for Cell Therapy
involving any of the Non-Licensed Cardiovascular Indications; (b) Athersys intends to take
any action to initiate any process to license (whether exclusively or non-exclusively) to a
Third Party (or otherwise grant to a Third Party) any rights to develop or commercialize
Cell Therapy for any of the Non-Licensed Cardiovascular Indications; or (c) Athersys
receives an unsolicited offer from a Third Party that desires to acquire any rights to
develop or commercialize Cell Therapy for any of the Non-Licensed Cardiovascular Indications
(where each of the events set forth in (a-c) above shall obligate Athersys to provide such
written notice, hereinafter termed an “Offer Notice”). The Offer Notice shall specify the
indications within the Non-Licensed Cardiovascular Indications to which the notice applies,
and in the case of (c), shall summarize the terms of the Third Party’s offer. Upon
Angiotech’s receipt of the Offer Notice, Angiotech shall have fifteen (15) days (the “Offer
Period”) to notify Athersys
that Angiotech desires to negotiate with Athersys to obtain a license for Cell Therapy
for



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the applicable Non-Licensed Cardiovascular Indications (such notice by Angiotech is
hereinafter referred to as the “Negotiation Notice”). If Angiotech delivers such
Negotiation Notice to Athersys, Athersys shall negotiate in good faith exclusively with
Angiotech, for a period of not less than ninety (90) days from the date of Athersys’ receipt
of the Negotiation Notice (the “Negotiation Period”), mutually acceptable, commercially
reasonable terms and conditions of an exclusive license to Angiotech for the applicable
Non-Licensed Cardiovascular Indications. Accordingly, Angiotech shall have the right of
first and exclusive negotiation to obtain an exclusive license to Cell Therapy for all or
any part of the Non-Licensed Cardiovascular Indications identified in the Negotiation
Notice. If Angiotech fails to deliver the Negotiation Notice prior to expiration of the
Offer Period, or if Athersys and Angiotech are unable to consummate a mutually acceptable
transaction prior to expiration of the Negotiation Period, Athersys shall be free to license
Cell Therapy for the applicable Non-Licensed Cardiovascular Indications to a Third Party.
If Athersys is unable to complete a transaction granting rights to Cell Therapy for the
applicable Non-Licensed Cardiovascular Indications to a Third Party within ninety days (90)
days after (y) the expiration of the applicable Offer Period if Angiotech has not delivered
a Negotiation Notice, or (z) the expiration of the applicable Negotiation Period if
Angiotech has delivered a Negotiation Notice, then Athersys’ notification requirement shall
“reset” with respect to Cell Therapy for the applicable Non-Licensed Cardiovascular
Indications. For the avoidance of doubt, this right of first negotiation shall apply to
Cell Therapy for all indications within the Non-Licensed Cardiovascular Indications.




          (b) In addition to Section 2.2(a) above, throughout the Term with respect to
Cell Therapy involving congestive heart failure, Angiotech shall have the right of first
refusal to obtain a license to Cell Therapy for congestive heart failure as described in
this Section 2.2(b). Upon the receipt by Athersys from a Third Party of any offer
for any rights relating to Cell Therapy for congestive heart failure that Athersys desires
to accept (a “CHF Offer”), Athersys shall provide written notice of such CHF Offer to
Angiotech (the “CHF Offer Notice”). The CHF Offer Notice shall include a detailed summary
of the material terms and conditions of the CHF Offer (the “Terms and Conditions”). If the
Terms and Conditions are substantially more favorable to such Third Party than the terms and
conditions offered by Angiotech pursuant to Section 2.2(a), Angiotech shall have
thirty (30) days from receipt of the CHF Offer Notice to accept or reject the CHF Offer
according to the Terms and Conditions. If Athersys and Angiotech do not conclude such
transaction within a ninety (90)-day period of exclusive, good faith negotiations that
begins on receipt of Angiotech’s notice of “acceptance,” or if Angiotech does not provide
such written notice before expiration of its 30-day acceptance period (or if Angiotech
rejects the CHF Offer in writing before the end of such 30-day period), Athersys shall then
have ninety (90) days to negotiate definitive, binding agreements with such Third Party on
terms and conditions not substantially more favorable to such Third Party than the Terms and
Conditions. If (i) Athersys is unable to complete such a transaction within such ninety
(90) day period with such Third Party, then the notification requirement shall “reset” with
respect to Cell Therapy for congestive heart failure, or (ii) the terms and conditions
negotiated with such Third Party and acceptable to both Athersys and such Third Party
concerning such transaction are substantially more favorable to such Third
Party than the Terms and Conditions, then the terms and conditions of the transaction as



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negotiated shall be considered to be a new CHF Offer that is subject to the right of
first refusal on behalf of Angiotech described in this Section 2.2(b).




     2.3 Additional Investment.




          (a) Angiotech shall make an additional $5,000,000.00 investment in Athersys pursuant to
the terms described in Section 2.3(b) within ten (10) business days after Athersys
fulfills the first of the following conditions to occur (provided that if Athersys fulfills
any such condition prior to January 1, 2007, then such condition shall be deemed to have
been fulfilled on January 1, 2007):




          (i) Athersys has commenced at least one additional pre-clinical animal study
between the Effective Date and January 1, 2007 (in accordance with the applicable
Pre-Clinical Development Plan) and either (A) such study has been completed prior to
January 1, 2007 in accordance with the applicable pre-clinical animal study
protocol; or (B) such study is ongoing as of January 1, 2007 and is being conducted
in accordance with the applicable pre-clinical animal study protocol, or




          (ii) at any time after January 1, 2007 Athersys completes at least one
additional pre-clinical study (in accordance with the applicable Pre-Clinical
Development Plan) in accordance with the applicable pre-clinical animal study
protocol.




          (b) With respect to the investment described in (a) above:




          (i) if the Note has not been converted into capital stock of Athersys prior to
the date of such investment, then Angiotech and Athersys shall enter into a note
purchase agreement, in substantially the form of the Purchase Agreement, pursuant to
which Angiotech shall loan $5,000,000.00 in cash to Athersys pursuant to a
convertible promissory note having the same terms and conditions as the Note; and




          (ii) if the Note has been converted into capital stock of Athersys prior to the
date of such investment, then Angiotech and Athersys shall enter into a securities
purchase agreement, in substantially the form of the Purchase Agreement (except for
necessary adaptations for a securities purchase instead of a note purchase),
pursuant to which Angiotech shall purchase with cash the number of whole shares of
capital stock of Athersys that can be purchased with $5,000,000.00 in cash, at one
hundred ten percent (110%) of the per share price at which stock is sold in the Bona
Fide Financial Investment (as defined in the Note), on the terms and conditions set
forth therein. The class and series of capital stock shall be the same as that sold
in the Bona Fide Financial Investment.




     2.4 Phase I Milestone Fee.




          (a) As soon as reasonably practicable after the passage of thirty (30) days (or such
other period of time during which the FDA may then be permitted to impose a



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clinical hold)
following the first IND submission to the FDA in connection with the first Clinical
Development Candidate hereunder without the FDA imposing a clinical hold, thereby enabling
the Parties to lawfully initiate a Phase I Study of such Clinical Development Candidate,
subject to Section 2.4(b) below, the Parties shall enter into a one-time only
securities purchase agreement, in substantially the form of the Purchase Agreement (except
for necessary adaptations for a securities purchase instead of a note purchase), pursuant to
which Angiotech shall purchase with cash the number of whole shares of capital stock of
Athersys that can be purchased with $ 5,000,000 in cash, at the per share price
determined in accordance with Schedule 2.2, on the terms and conditions set forth
therein (the “Phase I Milestone Fee”). For the avoidance of doubt, Angiotech shall not be
required to enter into any further securities purchase agreement(s) in connection with any
subsequent IND submission .




          (b) Angiotech, in its sole discretion, may elect to decline payment of the Phase I
Milestone Fee by providing written notice of such election within the applicable 30-day
period set forth in Section 2.4(a). Within thirty (30) days after receipt of such
written notice from Angiotech, Athersys shall provide written notice to Angiotech choosing
one of the following items as a replacement for the Phase I Milestone Fee:




          (i) requiring Angiotech to, within ten (10) business days following the
Successful Completion of the first Phase III Study for a Clinical Development
Candidate in the U.S. (or foreign equivalent trial) in any Cardiovascular
Indication, pay to Athersys a one-time milestone payment in cash
equal to $ 10,000,000 (the
“Replacement Fee”) upon the Successful Completion of the first Phase III Study for a
Clinical Development Candidate in the U.S. (or foreign equivalent trial) in any of
the Cardiovascular Indications; or




          (ii) modifying the split of Profits from the commercialization of a Cell
Therapy Product described in Schedule 7.4 to be [*]% to Athersys and
[*]% to Angiotech.




     2.5 Exclusivity. Except as expressly provided pursuant to a Clinical
Development Plan or in any Transaction Agreement, during the Term Athersys shall not engage
(itself or with a Third Party) in any clinical development or commercialization activities
directed to the Cardiovascular Indications using any stem cells.




     2.6 Retained Rights. Except as expressly set forth herein or as otherwise mutually agreed by the Parties in
writing, no Intellectual Property rights or licenses are granted by Angiotech to Athersys
under this Strategic Alliance Agreement. Angiotech retains all rights to Angiotech
Intellectual Property. Except as expressly set forth herein or as otherwise mutually agreed
by the Parties in writing, no Intellectual Property rights or licenses are granted by
Athersys to Angiotech under this Strategic Alliance Agreement.



 




			
	*	 	Confidential treatment has been requested for the redacted portions of
this exhibit, and such confidential portions have been omitted and filed separately with the
Securities and Exchange Commission.





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Athersys retains all rights
to Athersys Intellectual Property to the extent such Intellectual Property rights are not
expressly granted to Angiotech hereunder.





     2.7 Costs Borne by Each Party. Except as expressly set forth herein, including
without limitation Sections 7.1, 7.2 and 7.4 and Schedule
7.4, all costs and expenses connected with a Party’s activities or performance under any
Pre-Clinical Development Program, Clinical Development Plan or this Strategic Alliance
Agreement shall be borne solely by that Party.




     2.8 Certain Restrictions on Athersys’ Activities Outside of Cardiovascular
Indications. In its research and development activities in connection with Third
Parties related to products for Cell Therapy outside of the Cardiovascular Indications,
Athersys shall make Commercially Reasonable Efforts to position such products in a way that
reduces the potential for such products to be used off label in any of the Cardiovascular
Indications.



ARTICLE III.

JOINT STEERING COMMITTEE





     3.1 Joint Steering Committee. Promptly following the Effective Date, the
Parties shall establish a Joint Steering Committee (“JSC”) to oversee and coordinate the
Parties’ responsibilities and activities in accordance with and in furtherance of the
Pre-Clinical Development Plan(s), Clinical Development Plan(s) and this Strategic Alliance
Agreement. The JSC shall be composed of up to four (4) senior, qualified representatives
from each Party (or from a Party’s Affiliate). The total number of JSC members will
initially be up to eight (8), but the number may be increased or decreased from time-to-time
by mutual written agreement of the Parties; provided that the number of representatives from
Angiotech shall always be equal to the number of representatives from Athersys. Each of
Angiotech and Athersys may replace any of its representatives on the JSC at will by giving
written notice thereof to the other Party.




     3.2 Subcommittees. The JSC shall be empowered to create one or more
subcommittees, project teams or working groups, as it may deem appropriate or necessary.
Each such subcommittee, project team and working group shall report to the JSC, which shall
have authority to approve or reject recommendations or actions proposed thereby, subject to
the terms of
this Strategic Alliance Agreement. In general, the Parties contemplate that all JSC
subcommittees shall have an equal number of members appointed by each Party.




     3.3 Chairperson. Each Party shall appoint one of its representatives on the
JSC as a co-chair of the JSC (each, a “Co-Chair”), and a Party may change its Co-Chair from
time to time by written notice to the other Party. Each Party’s Co-Chair shall serve as a
co-chair of the JSC meetings, unless the Co-Chairs jointly determine that they shall
alternate responsibility for chairing JSC meetings (whether on a meeting-by-meeting,
calendar quarter-by-calendar quarter or calendar year-by-calendar year basis).




     3.4 JSC Meetings.



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          (a) The JSC shall meet at least once every calendar quarter during the Term, either in
person, by video conference or by telephone conference, as appropriate, as reasonably
arranged by the Co-Chairs; provided that at least one (1) JSC meeting per calendar year
shall be held in person. Meetings of the JSC shall be effective only if at least one (1)
JSC representative of each Party participates in the meeting (in person or by telephone or
videoconference). The Co-Chairs (or the responsible JSC chairperson, if applicable) shall
be responsible for scheduling meetings of the JSC, preparing agendas for JSC meetings,
sending to all JSC members notices of all regular JSC meetings (at least thirty (30) days
before such meetings) and agendas for such meetings (at least ten (10) days before such
meetings).




          (b) In addition, either Co-Chair may from time to time request a special JSC meeting by
contacting the other Co-Chair and providing a proposed agenda for such meeting. The
Co-Chairs shall arrange a mutually acceptable time for such special JSC meeting as promptly
thereafter as reasonably possible, and shall prepare and circulate an agenda for such
special JSC meeting as far in advance of such meeting as reasonably possible.




          (c) The Co-Chairs (or the responsible JSC chairperson, if applicable) shall be
responsible for having minutes of each JSC meeting prepared and circulated among the JSC
members. The JSC meeting minutes will be documented in writing and shall provide a
description in reasonable detail of the discussions held at the JSC meeting, and a list of
any actions, decisions or determinations taken or approved by the JSC. In addition, the JSC
meeting minutes shall include, with respect to the Parties’ responsibilities, activities and
tasks hereunder, (i) the Parties’ progress to date, (ii) difficulties encountered by the
Parties to date, (iii) schedules for performing and completing the Parties’ tasks and
activities, (iv) each Party’s action plans, and (v) any JSC recommendation that the Parties
approve a Proposed Clinical Plan or end an existing Clinical Development Plan. The
responsible Co-Chair shall distribute the minutes of the JSC meeting to the Parties and the
JSC members within ten (10) days after the conclusion of each JSC meeting. The JSC meeting
minutes shall be deemed to be approved by the JSC members if no written objections to the
meeting minutes are submitted to the JSC within ten (10) days after being distributed to the
JSC members. Each Party shall be
responsible for expenses incurred by its JSC representatives in attending or otherwise
participating in JSC meetings.




     3.5 Responsibilities of the Joint Steering Committee.




          (a) Clinical Development Plans and Clinical Development Candidates. In
addition to its general responsibility to oversee and coordinate the activities of the
Parties in connection with the Pre-Clinical Development Plans, Clinical Development Plans
and this Strategic Alliance Agreement, the JSC shall in particular:




          (i) monitor the progress made by Athersys in connection with the Pre-Clinical
Development Programs in a manner consistent with the corresponding Pre-Clinical
Development Plans and this Strategic Alliance Agreement;



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          (ii) monitor the Existing Third Party Agreements and any other agreements with
a Third Party related to the Pre-Clinical Development Plans, Clinical Development
Plans and/or Cell Therapy in the Therapeutic Field, including without limitation
monitoring compliance with such agreements and activities thereunder, reviewing
reports prepared by or for a Party, evaluating Intellectual Property resulting from
such agreements and ensuring that the appropriate Party obtains rights to any such
Intellectual Property when advisable;




          (iii) designate Cell(s) as Clinical Development Candidate(s) in accordance with
criteria determined by the JSC;




          (iv) monitor the progress made, and direct the activities to be undertaken, by
the Parties in connection with the Clinical Development Programs in a manner
consistent with the corresponding Clinical Development Plans and this Strategic
Alliance Agreement;




          (v) review, modify as it deems appropriate, and recommend, as necessary from
time-to-time, the Clinical Development Plan(s);




          (vi) oversee and, whenever practicable, expedite the implementation of each
Pre-Clinical Development Plan and each Clinical Development Plan;




          (vii) create and update a risk analysis plan;




          (viii) clarify or adjust the tasks of the respective Parties under the
Pre-Clinical Development Plans and Clinical Development Plans, in a manner
consistent with this Strategic Alliance Agreement;




          (ix) ensure adequate resources are assigned by each Party for research
planning, project management and personnel and other resource management related to
the Clinical Development Plans;




          (x) create, review, modify as it deems appropriate, and recommend an annual
budget corresponding to each Clinical Development Plan, in a manner consistent with
this Strategic Alliance Agreement;




          (xi) reasonably determine or adjust milestones and progress related to the
Clinical Development Plans; and




          (xii) recommend whether or not, and to what extent, research or development
studies, beyond those identified in an existing Pre-Clinical Development Plan or
Clinical Development Plan, should be conducted.




          (b) Existing Third Party Agreements. Within thirty (30) days after the
Effective Date, Athersys shall provide to the JSC a report describing the status of, purpose
of, scope of activities encompassed by, recent activities conducted under, and Intellectual
Property developed under each Existing Third Party Agreement related to the



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Pre-Clinical
Development Plans, Clinical Development Plans and/or Cell Therapy in the Therapeutic Field,
together with complete, unredacted copies of each such agreement and any reports delivered
by or provided to Athersys thereunder, subject to confidentiality obligations to the
counterparty to each such Agreement; provided that where such obligations of confidentiality
preclude or limit any such disclosures hereunder, Athersys shall use Commercially Reasonable
Efforts to obtain consent from such counterparty to permit such disclosures to Angiotech.




          (c) Proposed Clinical Plans. The Parties, either separately or jointly, may
submit written proposals for Clinical Development Plans for any Clinical Development
Candidate (“Proposed Clinical Plans”) to the JSC for review (which review shall take place
at the first JSC meeting following submission of a Proposed Clinical Plan to the JSC) and
recommendation to the Parties; provided that each Party may submit no more than one Proposed
Clinical Plan per calendar quarter during the Term. Each Proposed Clinical Plan shall
include, as appropriate, (i) an objective, key milestones and a timetable for the Proposed
Clinical Plan; (ii) a summary of resources expected to be required to conduct the Proposed
Clinical Plan to completion; (iii) a summary of expected Third Party arrangements that may
be necessary or useful, including, without limitation, license agreements and/or supply
arrangements; and (iv) a proposed budget and term for the Proposed Clinical Plan. Any
Proposed Clinical Plan that is recommended by the JSC and approved in writing by the Parties
will be deemed a Clinical Development Plan, and each such approved Clinical Development Plan
shall be a part of, and subject to all of the provisions of, this Strategic Alliance
Agreement and the other Transaction Agreements, as applicable.




          (d) New Pre-Clinical Development Programs. The JSC shall oversee and coordinate
the Parties’ responsibilities and activities, and shall recommend to the Parties appropriate
cost-sharing by the Parties, in connection with each New Pre-Clinical Development Program.




          (e) Advancement or Termination of Clinical Development Plans. Upon the
completion of each Clinical Development Plan, the JSC will have sixty (60) days thereafter
to provide written recommendations to the Parties as to whether the Clinical Development
Plan should either (i) be advanced to the next phase of development or commercialization, as
applicable, or (ii) be terminated by the Parties. With the prior written approval of both
Parties, the JSC will also have the authority to terminate a Clinical Development Plan at
any time.




          (f) Other Responsibilities. The JSC shall have such other responsibilities as
are expressly set forth elsewhere in this Strategic Alliance Agreement, the Transaction
Agreements or as are assigned to it as mutually agreed upon by the Parties.




          (g) Angiotech Proposals. During the term of this Strategic Alliance Agreement,
Angiotech may, but is not obligated to, present to the JSC for consideration medical
devices, biomaterials, compositions and methods that may enhance the development of Cells,
Clinical Development Candidates and/or Cell Therapy Products in the Cardiovascular Field.
The JSC shall consider the value of any such enhancements



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(including where appropriate, for
example, an evaluation of market analysis, financial projections, costs, resources,
responsibilities of Athersys and Angiotech, and timelines). After due consideration, the
Steering Committee shall accept or reject each such proposed enhancement. If the JSC
accepts a proposed enhancement, then the JSC shall (i) recommend appropriate compensation to
Angiotech with respect to such enhancement and the applicable Pre-Clinical Development Plan
or Clinical Development Plan shall be modified to include such enhancement; and (ii)
determine ownership of any Intellectual Property related to the accepted enhancement that
may be made, created, identified, conceived, reduced to practice or derived by or on behalf
of the Parties (either alone or jointly) during the course of performance of a Party’s
obligations under the applicable Pre-Clinical Development Plan or Clinical Development Plan;
provided that Angiotech shall own all Intellectual Property related to any proposed or
accepted enhancement that is made, created, identified, conceived, reduced to practice or
derived by or on behalf of Angiotech or its Affiliates at or prior to the time the
enhancement is presented to the JSC for consideration.




     3.6 Voting; Decision-Making. Regardless of the number of JSC representatives
from any Party, Angiotech shall present one consolidated view and have one vote on any issue
before the JSC, to be cast by Angiotech’s Co-Chair or his/her designee, and Athersys shall
present one consolidated view and have one vote on any issue before the JSC, to be cast by
Athersys’ Co-Chair or his/her designee. Except as otherwise expressly set forth herein, the
JSC may only act by unanimous written agreement. Except as otherwise expressly set forth
herein, the JSC shall have final decision-making authority (which decision-making authority
may be
delegated to a subcommittee by the JSC, in its discretion) regarding all issues
relating to the Pre-Clinical Development Plans and Clinical Development Plans; provided that
the JSC may not modify or renegotiate any terms or conditions of this Strategic Alliance
Agreement. In making decisions on the JSC, each Party shall duly consider in good faith any
suggestions, opinions and proposals made by the other Party, and shall use good faith
efforts to reach consensus with the other Party. If the JSC fails to reach unanimous
agreement on any matter within the scope of its responsibilities, as described in this
Strategic Alliance Agreement or as expressly delegated to the JSC by written agreement of
the Parties, the dispute shall be resolved as set forth in Section 3.7.




     3.7 JSC Disputes.




          (a) If, before adjourning any JSC meeting, the JSC fails to reach unanimous agreement
on any matter or issue upon which the JSC has voted at such JSC meeting, and upon which the
JSC has authority to vote, in accordance with this ARTICLE III (each such matter or
issue, a “JSC Dispute”), such JSC Dispute shall automatically be added as an agenda item for
the next regular meeting of the JSC. Between the meeting in which the JSC Dispute arose and
such next regularly scheduled JSC meeting, the JSC and/or the Parties may negotiate in good
faith to attempt to resolve the JSC Dispute. At any time during such interim time period,
the JSC may call a special meeting to attempt to resolve the JSC Dispute.



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          (b) If the JSC members are unable to resolve such JSC Dispute before or at the next
regularly scheduled JSC meeting, such JSC Dispute shall be referred for resolution to the
Chief Scientific Officer (or person fulfilling the equivalent function) of each Party (each,
a “Head of Research”). Resolution of such JSC Dispute by the Heads of Research shall occur
within thirty (30) days after the date of referral to the Heads of Research. If the Heads
of Research are unable to reach consensus and resolve such JSC Dispute within such 30-day
period after good faith attempts to reach such consensus and resolution, then the JSC
Dispute shall be referred for final resolution to Athersys’ President (or other designated
executive level officer of Athersys), if the JSC Dispute relates to a Phase I Study
completion or earlier matter or issue, and to Angiotech’s CFO (or other designated executive
level officer of Angiotech), if the JSC Dispute relates to a post-Phase I Study (or later)
or commercialization matter or issue; provided that, when exercising such final,
decision-making authority, neither Party’s President, CFO (or other designated executive
level officer) shall be empowered to alter the Parties’ respective rights or obligations
under this Strategic Alliance Agreement; and provided further that neither Party’s
President, CFO (or other designated executive level officer) shall have final
decision-making authority with respect to approval or modification of (i) designation of any
Cell as a Clinical Development Candidate; (ii) any Pre-Clinical Development Plan or Clinical
Development Plan (but expressly excluding any immaterial modifications to such Pre-Clinical
Development Plan or Clinical Development Plan); (iii) any Clinical Development Plan budget
(but expressly excluding any immaterial modifications to such Clinical Development Plan
budget), (iv) any IND filing pertaining to a Clinical Development Candidate, (v) any NDA/BLA
filing pertaining to a Clinical Development Candidate; (vi) clinical trial design; or (vii)
termination, or advancement to the next stage, of development of a Clinical Development
Candidate; instead, such
designations, plans, budgets filings, designs, termination and advancements set forth
in (i-vii) shall be approved or modified only by consensus of the Parties and shall not be
subject to the dispute resolution process described in ARTICLE XVII.



ARTICLE IV.

PRE-CLINICAL DEVELOPMENT





     4.1 Existing Pre–Clinical Development Programs. Athersys shall conduct, and
shall be responsible for, the Pre-Clinical Development Programs in existence as of the
Effective Date within the Cardiovascular Indications. With respect to each such existing
Pre-Clinical Development Program, Athersys may modify its activities and undertake new
activities in connection with such Pre-Clinical Development Program, but only after
consultation with and approval of the JSC; provided that Athersys shall: (a) use its
Commercially Reasonable Efforts to make available the resources specified in the
Pre-Clinical Development Plan (or otherwise by mutual agreement of the Parties), (b) use its
Commercially Reasonable Efforts to undertake its obligations and responsibilities in the
Pre-Clinical Development Plan (or otherwise by mutual agreement of the Parties), (c) perform
its activities and discharge the responsibilities that will facilitate the ability of the
Parties to obtain Regulatory Approval to manufacture Cells to be used in Clinical
Development Candidates and in Cell Therapy Products in the United States and other countries
of the Territory, as determined by the JSC, and (d) manufacture the Cells in conformance
with the quantity and quality reasonably required for the conduct of the Pre-



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Clinical
Development Programs. With respect to each such existing Pre-Clinical Development Program,
and subject to the foregoing sentence, Athersys shall consider in good faith any
recommendations and requests made by Angiotech and its representatives on the JSC concerning
the existing Pre-Clinical Development Program. Athersys may subcontract any of its
obligations under this Section 4.1, provided that it furnishes the JSC and Angiotech
with advance written notice thereof specifying the work to be subcontracted, and with an
opportunity to object to such subcontract for sound business reasons. Any dispute regarding
Athersys’ use of a subcontractor pursuant to the foregoing sentence shall be referred to the
JSC, and any corresponding JSC Dispute shall be resolved in accordance with Section
3.7. As of the Effective Date, Athersys has executed agreements related to the existing
Pre-Clinical Development Programs with the Third Parties listed on Schedule 4.1 of
this Strategic Alliance Agreement (each such agreement, an “Existing Third Party
Agreement”).




     4.2 Costs for Existing Pre-Clinical Development Programs. Athersys shall be
fully and solely responsible for all costs and expenses relating to the activities conducted
by or for Athersys in connection with the existing Pre-Clinical Development Programs.




     4.3 New Pre-Clinical Development Programs. During the Term, the Parties expect
to undertake additional Pre-Clinical Development Programs (“New Pre-Clinical Development
Programs”), and the Parties
acknowledge that Angiotech may assume certain responsibilities, and may conduct certain
activities, in connection with such New Pre-Clinical Development Programs. Irrespective of
Angiotech’s responsibilities or activities in connection with any New Pre-Clinical
Development Program, the JSC shall assume oversight and coordination of the Parties’
responsibilities and activities (if any), and shall recommend appropriate compensation to
Angiotech with respect to its activities under each New Pre-Clinical Development Program and
any Intellectual Property and materials (including without limitation biomaterials and
medical devices) contributed by Angiotech to such New Pre-Clinical Development Program.



ARTICLE V.

CLINICAL DEVELOPMENT





     5.1 Proposed Clinical Plans; Clinical Development Plans. Angiotech and/or
Athersys may prepare and submit a Proposed Clinical Plan to the JSC in accordance with
Section 3.5(c) for any Clinical Development Candidate. Each Proposed Clinical Plan
shall address the specific roles and responsibilities of each Party consistent with this
Strategic Alliance Agreement, shall address and/or incorporate any JSC recommendations, and
shall propose appropriate Clinical Development Programs for each stage of development set
out in such Proposed Clinical Plan. The responsibilities of the Parties set forth in this
ARTICLE V will apply only to those Clinical Development Plans approved by the
Parties in accordance with Section 3.5 and 3.7.




     5.2 Athersys Responsibilities. During each Clinical Development Program,
Athersys, after consulting with the JSC, shall direct all Clinical Development Program
activities through the completion of Phase I Studies. In this regard, Athersys’ President
shall have ultimate, final decision-making authority for JSC Disputes pertaining to Phase



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I Study completion or earlier matters and issues, as described in Section 3.7(b).
During the Term, Athersys shall: (a) use its Commercially Reasonable Efforts to make
available the resources specified as the responsibility of Athersys in the Clinical
Development Plan (or otherwise by mutual agreement of the Parties), (b) use its Commercially
Reasonable Efforts to undertake the obligations and responsibilities assigned to Athersys in
the Clinical Development Plan (or otherwise by mutual agreement of the Parties), (c) perform
the activities and discharge the responsibilities that are required to obtain Regulatory
Approval to manufacture Cells that are used in Clinical Development Candidates and in Cell
Therapy Products in the United States and other countries of the Territory, as determined by
the JSC, and (d) manufacture the Cells in conformance with the quantity and quality
reasonably required for the conduct of the Clinical Development Programs, and supply such
Cells to Angiotech (or its designee) or to one or more Third Parties engaged by a Party to
perform clinical studies of Clinical Development Candidates and/or Cell Therapy Products in
accordance with this Strategic Alliance Agreement.




     5.3 Angiotech Responsibilities. During each Clinical Development Program, Angiotech shall direct all Clinical
Development Program activities after the completion of Phase I Studies. In this regard,
Angiotech’s CFO shall have ultimate, final decision-making authority for JSC Disputes
pertaining to post-Phase I Study (or later) matters and issues, as described in Section
3.7(b). During the Term, Angiotech shall: (a) use its Commercially Reasonable Efforts
to make available the resources specified as the responsibility of Angiotech in the
Clinical Development Plan (or otherwise by mutual agreement of the Parties), (b) use its
Commercially Reasonable Efforts to undertake the obligations and responsibilities assigned
to Angiotech in the Clinical Development Plan (or otherwise by mutual agreement of the
Parties), and (c) perform the activities and discharge the responsibilities that are
required to obtain Regulatory Approval to market and sell Cell Therapy Products in the
United States and the other countries of the Territory, as determined by the JSC (to the
extent such Regulatory Approval is not described as an obligation of Athersys pursuant to
Section 5.2).




     5.4 Subcontracting. Either Party may subcontract any of its obligations under
a Clinical Development Plan, provided that it furnishes the JSC and the other Party with
advance written notice thereof specifying the work to be subcontracted, and with an
opportunity to object to such subcontract for sound business reasons. Any dispute regarding
a Party’s use of a subcontractor pursuant to the foregoing sentence shall be referred to the
JSC, and any corresponding JSC Dispute shall be resolved in accordance with Section
3.7. In any subcontract agreement with a Third Party, the subcontracting Party shall
ensure that (a) such Third Party subcontractor is bound by obligations of confidentiality no
less stringent than those imposed on the Parties under this Strategic Alliance Agreement,
(b) all inventions, copyrightable subject matter, discoveries or materials created,
identified, conceived, reduced to practice or developed by the Third Party subcontractor in
the scope of its, his or her engagement with a Party in connection with the subcontract
agreement, and in furtherance of a Clinical Development Program or this Strategic Alliance
Agreement, are appropriately documented and disclosed to the subcontracting Party, and (c)
all such inventions, copyrightable subject matter, discoveries or materials directly related
to the Cells (and not related to Angiotech



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Intellectual Property) shall be owned solely by
Athersys (or jointly with Angiotech in the case of Joint IP), or in the case of
subcontractors that are not-for-profit institutions, (i) either owned solely by Athersys (or
jointly with Angiotech in the case of Joint IP), (ii) jointly owned by Athersys and the
institution (and jointly with Angiotech in the case of Joint IP), or (iii) owned solely by
the institution, and in the case of (ii) or (iii), the institution’s right, title and
interest in such inventions, copyrightable subject matter, discoveries or materials related
to the Cells shall be either exclusively licensed to Athersys (and Angiotech in the case of
Joint IP) or the institution shall have granted to Athersys (and Angiotech in the case of
Joint IP) the exclusive option to obtain an exclusive license thereto; provided, however,
that the foregoing shall not require Athersys to modify the terms or conditions of any of
the Existing Third Party Agreements which the Parties recognize may not contain the terms
described in this sentence. Any subcontract agreement under this Section 5.4 shall
(w) grant to the subcontracting Party a right to inspect the subcontractor’s relevant
records and facilities; (x) require the subcontractor to be in good standing with all
applicable
regulatory authorities; (y) require the subcontractor to comply (as appropriate) with
current good laboratory practices, current good manufacturing laboratory practices and
applicable laws, regulations, rules and guidelines; and (z) require that the subcontractor
have no outstanding violations or citations that would or may impair the services or
deliverables to be provided to the subcontracting Party by such subcontractor; provided,
however, that the foregoing shall not require Athersys to modify the terms or conditions of
any of the Existing Third Party Agreements which the Parties recognize may not contain the
terms described in this sentence.



ARTICLE VI.

OPT-OUT RIGHTS





     6.1 Opt-Out Rights. Either Party may elect to discontinue (a “Discontinuing
Party”) joint research on, development and commercialization of a Clinical Development
Candidate or a Cell Therapy Product upon six (6) months prior written notice (“Opt-Out
Notice”) to the other Party; provided that the effective date of either Party’s election to
opt out shall not be prior to the completion of the first Phase I Study conducted by the
Parties hereunder, and provided further that neither Party shall be relieved of its
obligations to pay for its share of Clinical Development Costs for a clinical study that is
ongoing at the effective date of a Party’s election to opt-out with respect to the
applicable Clinical Development Candidate. Notwithstanding the foregoing, if a Party is
unable to pay any or all of its portion of Clinical Development Costs when due, such Party
shall be deemed to have delivered an Opt-Out Notice on the date such payment was due. Upon
delivery of the Opt-Out Notice, the subject Clinical Development Candidate or Cell Therapy
Product shall be deemed a “Rejected Product.” The Discontinuing Party shall be required to
continue co-funding all of its activities under this Strategic Alliance Agreement during
such six (6) month notice period (subject to the first sentence of this Section
6.1). Upon receipt of an Opt-Out Notice for a Clinical Development Candidate or Cell
Therapy Product, the non-discontinuing Party shall have the option (the “Sole Development
Option”), exercisable by providing written notice to the Discontinuing Party by the end of
such six (6) month period, to continue the development and commercialization of such
Rejected Product in the Therapeutic Field (and in such event,



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such Rejected Product shall
thereafter be referred to as a “Sole Development Product”), at its own expense. Upon the
exercise of such option, the non-discontinuing Party shall be deemed the “Developing Party,”
and the Developing Party shall be released from its exclusivity obligations set forth in
Section 2.5 above with respect only to such Sole Development Product. The Parties
shall have the following rights and obligations upon exercise of the Sole Development
Option:




          (a) if Angiotech is the Developing Party, such Sole Development Product shall continue
to be considered a Clinical Development Candidate or Cell Therapy Product (as applicable)
for purposes of the Transaction Agreements; provided, however that (i) the provisions of
Section 2.4 and ARTICLES III, V, VII (other than Sections 7.5-7.10)
and IX (other than Sections 9.7 and 9.8) shall no longer apply to such Sole
Development Product; (ii) a Supply Disruption shall be deemed to have occurred
pursuant to Section 9.7 (and Section 9.7 shall apply in its entirety
with respect to such Supply Disruption), and Angiotech shall have the right to engage a
back-up supplier pursuant to Section 9.8 (and Section 9.8 shall apply in its
entirety with respect to engagement of such back-up supplier); and further provided that if
neither a Third-Party manufacturer nor a Third-Party back-up manufacturer of the Cells,
Clinical Development Candidates and/or Cell Therapy Products is reasonably available at the
effective date of Athersys’ opt-out, Athersys shall manufacture and supply Cells, Clinical
Development Candidates and/or Cell Therapy Products to Angiotech (as the supply chain for
each exists at such time) for the Territory for a period of up to twenty-four (24) months
after the effective date of such opt-out (during which Section 9.6 shall apply in its
entirety), wherein such Cells, Clinical Development Candidates and/or Cell Therapy Products
supply shall be provided by Athersys on commercially reasonable terms and conditions to be
discussed and agreed upon by Angiotech and Athersys at such time (which terms shall include
a reasonable price, and shall set forth any subsequent period (after such 24-month period)
during which Athersys is willing (in its sole discretion) to supply Cells, Clinical
Development Candidates and/or Cell Therapy Products to Angiotech); and (iii) Angiotech shall
be responsible for all activities described in ARTICLE X with respect to such Sole
Development Product;




          (b) if Athersys is the Developing Party, such Sole Development Product shall no longer
be considered a Clinical Development Candidate or Cell Therapy Product for purposes of the
License Agreement and Sublicense Agreement, but shall continue to be considered a Clinical
Development Candidate or Cell Therapy Product for purposes of this Strategic Alliance
Agreement; provided, however, that (i) the provisions of ARTICLES II, III, V, VII
(other than Sections 7.5-7.10), VIII and IX shall no longer apply to
such Sole Development Product, and (ii) Athersys shall be responsible for all activities
described in ARTICLE X with respect to such Sole Development Product;




          (c) any Regulatory Approvals filed, and clinical data owned or licensed, and any
product trademarks owned or licensed by the Discontinuing Party or its Affiliates relating
to the applicable Sole Development Product shall be (i) assigned or (ii) exclusively
licensed to the Developing Party or any Third Party or Affiliate designated by such Party,
until such time as the Developing Party or its designee is qualified to hold such Regulatory
Approvals or product trademarks under applicable laws and regulations,



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and then shall be
transferred or assigned to the Developing Party or its designee, as appropriate, as soon as
practicable thereafter; provided, however, that in any country where such transfer or
assignment is not possible, the Discontinuing Party shall use Commercially Reasonable
Efforts to ensure that the Developing Party has the benefit of such Regulatory Approvals and
product trademarks, and to this end consents to any regulatory authority cross-referencing
to the data and information on file with any regulatory authority as may be necessary; and




          (d) the Developing Party shall pay a royalty on Sole Development Products to the
Discontinuing Party and shall share Sole Development Income with the Discontinuing Party in
accordance with Sections 7.5 through 7.10 below.




     6.2 Development Updates. At least every six (6) months during the Term, the Developing Party shall provide the
Discontinuing Party with a written update regarding the status of the Developing Party’s
efforts to develop and commercialize Sole Development Products. All information provided by
the Developing Party to the Discontinuing Party pursuant to this Section 6.2 shall
be considered Confidential Information (as defined in Section 13.1) of the
Developing Party.




     6.3 Failure to Exercise Sole Development Option. In the event the
non-discontinuing Party does not exercise the Sole Development Option within the six (6)
month time period set forth in Section 6.1 above, and if agreed upon in writing by
the Parties, the JSC may seek, or designate one of the Parties to seek, qualified Third
Party(ies) to develop the applicable Clinical Development Candidate or Cell Therapy Product.
Both Parties shall have the right to approve any such qualified Third Party(ies). The
Parties shall share equally all (a) income received from such Third Party(ies) and (b)
Clinical Development Costs, Commercialization Costs and Manufacturing Costs (as applicable)
associated with the wind-down of activities related to the applicable Clinical Development
Candidate or Cell Therapy Product.




     6.4 Diligence Requirement. The Developing Party’s right to exclusively develop
and commercialize a Sole Development Product is expressly conditioned on such Party’s
continuing effort to use Commercially Reasonable Efforts to develop such Sole Development
Product (the “Diligence Requirement”). The Diligence Requirement shall be conditioned upon
the continuing absence of any adverse condition or event that warrants a delay in the
development, clinical testing or commercialization of a particular Sole Development Product;
provided that a delay shall only be warranted for as long as the condition or event
preventing the performance continues and, upon cessation of such condition or event, the
Developing Party shall promptly resume performance hereunder. Such conditions and events
shall include, without limitation, the inability to produce preclinical or clinical
supplies, events that would cause delays in clinical studies (e.g., negative toxicological
or pharmacological test results or an adverse clinical event), challenges within the
regulatory process, or intellectual property impediments to developing a Sole Development
Product that the Developing Party could not reasonably have foreseen. If the Discontinuing
Party reasonably believes that the Developing Party has failed to satisfy the Diligence
Requirement with respect to a Sole Development Product, it shall so notify the Developing
Party in writing and the Developing Party shall



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then have ninety (90) days to demonstrate to
the Discontinuing Party’s reasonable satisfaction that the Diligence Requirement for such
Sole Development Product has been satisfied. Any dispute regarding the satisfaction of the
Diligence Requirement shall be resolved by the Parties under the terms of ARTICLE
XVII below. If it is determined that the Diligence Requirement has not been satisfied
with respect to a Sole Development Product, then the Parties shall meet and discuss in good
faith a mutually agreeable process for development and commercialization of the Sole
Development Product.



ARTICLE VII.

COSTS, PAYMENTS AND FINANCIAL RECORD KEEPING





     7.1 Clinical Development Costs. All Clinical Development Costs incurred in
accordance with the corresponding Clinical Development Plan budget shall be borne by
Athersys and Angiotech in the following proportions:




          (a)
Clinical Development Costs associated with the execution of any Phase I Study or
Phase II Study pursuant to any Clinical Development Plan shall be
shared fifty percent (50%) by Athersys and
fifty percent (50%) by Angiotech;




          (b) Clinical Development Costs associated with the execution of the first Phase III
Study conducted pursuant to this Strategic Alliance Agreement shall
be shared thirty-three percent (33%) by
Athersys and sixty-seven percent (67%) by Angiotech; and




          (c) Clinical Development Costs associated with the execution of any Phase III Study
that is subsequent to the first Phase III Study trial described in clause (b) above shall be
shared twenty-five percent (25%) by Athersys and seventy-five percent (75%) by Angiotech.




     7.2 Development Costs Quarterly Reconciliation.




          (a) Within thirty (30) days following the end of each calendar quarter during the Term,
Athersys shall submit to Angiotech a written report setting forth in reasonable detail, and
separately with respect to each Clinical Development Plan and each of the categories of
Clinical Development Costs set forth in Section 7.1(a-c), all associated Clinical
Development Costs incurred by Athersys in the immediately preceding calendar quarter.




          (b) Within thirty (30) days following the end of each calendar quarter during the Term,
Angiotech shall submit to Athersys a written report setting forth in reasonable detail, and
separately with respect to each Clinical Development Plan and each of the categories of
Clinical Development Costs set forth in Section 7.1(a-c), all associated Clinical
Development Costs incurred by Angiotech in the immediately preceding calendar quarter.





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          (c) Within forty-five (45) days following the end of each calendar quarter, Angiotech
shall submit to Athersys a written report (i) reconciling the Clinical Development Costs set
forth in the reports required under Section 7.2(a) and Section 7.2(b), and
(ii) setting forth the calculation of any net amount owed by Athersys to Angiotech, or by
Angiotech to Athersys (as the case may be) in order to ensure the sharing of such Clinical
Development Costs in accordance with Section 7.1. The net amount payable in
accordance with clause (ii) shall be paid by Angiotech or Athersys, as
the case may be, within ten (10) business days after Athersys’ receipt of such written
report, without regard to any dispute as to the amounts incurred by a Party or owed to a
Party under this Section 7.2(c) in accordance with the applicable budget. In the
event of such dispute under this Section 7.2(c), the disputing Party shall provide
written notice to the other Party within such ten (10)-business day period after receipt of
the written report in question, specifying in detail such dispute. The Chief Financial
Officers (“CFOs”) of the Parties shall promptly thereafter meet and shall negotiate in good
faith a final resolution to such dispute.




     7.3 Milestone Payments. Angiotech shall provide written notice to Athersys
within thirty (30) days of achievement of any milestone set forth on Schedule 7.3;
provided that such notice with respect to items 4 and 5 on Schedule 7.3 shall be
given within thirty (30) days following the calendar quarter in which such milestone
occurred. Angiotech shall pay to Athersys the corresponding amount set forth on
Schedule 7.3 within ten (10) business days following receipt of such written notice
by Athersys. An additional milestone payment is described in Section 2.4.




     7.4 Profit Sharing. Angiotech and Athersys shall share Profits from the sale
of Cell Therapy Products in accordance with Schedule 7.4.




     7.5 Royalties on Sole Development Products.




          (a) Royalty Amounts. During the Royalty Term for each Sole Development Product
commercialized by the Developing Party under ARTICLE VI, the Developing Party will
pay the Discontinuing Party a royalty on Net Sales of such Sole Development Product (except
to the extent otherwise provided under Section 7.5(b)) at the following rates:




          (i) if, as of the date the Opt-Out Notice is delivered, the first patient has
not yet been enrolled in a Phase II Study of such Sole Development Product, such
royalty shall be [*] percent ([*%]) with respect to Net Sales of Sole
Development Products for which Angiotech is the Developing Party, and no royalty
with respect to Net Sales of Sole Development Products for which Athersys is the
Developing Party;




          (ii) if, as of the date the Opt-Out Notice is delivered, the first patient has
been enrolled in a Phase II Study of such Sole Development Product





 




			
	*	 	Confidential treatment has been
requested for the redacted portions of this exhibit, and such confidential
portions have been omitted and filed separately with the Securities and
Exchange Commission.




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but the first patient has not yet been enrolled in a Phase III Study of such Sole
Development Product, such royalty shall be [*] percent ([*%]) with
respect to Net Sales of Sole Development Products for which Angiotech is the
Developing Party, and [*] percent ([*%]) with respect to Net Sales of Sole Development Products
for which Athersys is the Developing Party; and




          (iii) if, as of the date the Opt-Out Notice is delivered, the first patient has
been enrolled in a Phase III Study for such Sole Development Product and thereafter,
such royalty shall be [*] percent ([*%]) with respect to Net Sales of Sole Development Products
regardless of which Party is the Developing Party;




provided, however, that if it is unclear whether a clinical trial is in a particular phase,
the actual phase of such clinical trial shall be determined by reference to the next
following clinical trial for such Sole Development Product (e.g., a Phase I/II clinical
trial would be considered a Phase II Study if, following completion of such trial, the
Developing Party commences a Phase III Study of such Sole Development Product). If (xi)
Angiotech is the Discontinuing Party and has elected to decline payment of the Phase I
Milestone Fee pursuant to Section 2.4(b), and (xii) Athersys has elected to receive
a greater share of Profits pursuant to Section 2.4(b)(ii), then the royalty rate
payable to Angiotech pursuant to clause (ii) above shall be [*] percent [*%] and the
royalty rate payable to Angiotech pursuant to clause (iii) above shall be [*] percent
[*%]. The royalties payable pursuant to this Section 7.5(a) shall not be creditable
against any other payment by the Developing Party under this ARTICLE VII.




          (b) Licensee and Sublicensee Royalties on Sole Development Products. Any sales
of Sole Development Products by a licensee or sublicensee of a Developing Party or its
Affiliate shall be subject to royalties under Section 7.5(a) to the same extent as
if the sale had been made by the Developing Party; provided that the royalty payable to the
Discontinuing Party pursuant to (i) Section 7.5(a)(i) shall not exceed twenty-five
percent (25%) of the royalty revenue received by the Developing Party from such licensee or
sublicensee; (ii) Section 7.5(a)(ii) shall not exceed thirty percent (30%) of the
royalty revenue received by the Developing Party from such licensee or sublicensee; and
(iii) Section 7.5(a)(iii) shall not exceed thirty-five percent (35%) of the royalty
revenue received by the Developing Party from such licensee or sublicensee. The royalties
payable pursuant to this Section 7.3(b) shall not be creditable against any other
payment by the Developing Party under this ARTICLE VII.




          (c) Third Party Payments on Sole Development Products. The Developing Party
shall pay all Third Party Payments due as a result of any Sole Development Product sold by
the Developing Party. For the avoidance of doubt, such Third Party Payments shall be in
addition to any royalties that may be due pursuant to Sections 7.5(a) and
7.5(b).





 




			
	*	 	Confidential treatment has been
requested for the redacted portions of this exhibit, and such confidential
portions have been omitted and filed separately with the Securities and
Exchange Commission.




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          (d) Reduction due to Royalty Stacking. In the event the Developing Party
obtains or possesses a license to one or more Patent Rights of a Third Party in order to
make, have made, use, lease, offer to sell, sell, export or import a Sole Development
Product and is required to pay Third Party Payments with respect to the Sole Development
Product in connection with such license(s), then the Developing Party may deduct, from
royalties due the other Party pursuant to this Section 7.5(d), fifty percent (50%)
of the Third Party Payments that are actually paid and are attributable to such Sole
Development Product, but in no event may the royalties due to the other Party pursuant to
this Section 7.5(d) be reduced by more than fifty percent (50%) as a result of this
provision. Any amounts for which the Developing Party is entitled to receive credit, which
are not deducted as a result of the fifty percent (50%) cap, shall be carried forward and
credited against future royalties due to such Party.




     7.6 Calculation and Payment of Royalties.




          (a) Timing of Royalty Payments. A Party paying a royalty required under
Section 7.5 (the “Paying Party”) shall pay all such royalties to the other Party
(the “Royalty Recipient”) within forty-five (45) days after the last day of the calendar
quarter in which such royalties accrue; provided that the Paying Party shall be entitled to
offset any such royalty payment against amounts owed to the Paying Party by the Royalty
Recipient; and provided further that if: (i) Angiotech is the Royalty Recipient and has
elected to decline payment of the Phase I Milestone Fee pursuant to Section 2.4(b);
(ii) Athersys has elected to receive the Replacement Fee pursuant to Section
2.4(b)(i); and (iii) the Replacement Fee has not yet been paid, then before paying any
royalties to Angiotech under Section 7.5 or Sole Development Income to Angiotech
under Section 7.7, Athersys shall be entitled to withhold from such royalties and
Sole Development Income the Replacement Fee (plus interest) on the unpaid amount of the
Replacement Fee, at the rate set forth in Section 7.10, from the date of Successful
Completion of the first Phase III Study for a Clinical Development Candidate in the U.S. in
any Cardiovascular Indication(s), until the unpaid amounts of the Replacement Fee (plus
interest) are recovered by Athersys.




          (b) Payment Method. The Paying Party shall pay royalties hereunder in U.S.
dollars by wire transfer in immediately available funds to an account designated by the
Royalty Recipient.




          (c) Accrual of Royalties. Sales between a Party and its Affiliates or their
respective direct or indirect licensees, sublicensees or subcontractors , or between such
parties, shall not be subject to royalties, but in such cases royalties shall be calculated
upon the quarterly Net Sales of Sole Development Products by such parties to an independent
Third Party. Only one (1) royalty payment shall accrue with respect to the same unit of a
Sole Development Product. No royalties shall accrue on disposition of reasonable quantities
of Sole Development Products for no charge as samples, pursuant to an indigent patient
assistance program, or donations to Third Parties. Royalties shall accrue on Sole
Development Products distributed for free other than as described in the preceding sentence
based on average Net Sales for such Sole Development Product during the corresponding
period, excluding such free Sole Development Product.



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          (d) Taxes. Any withholding of taxes levied by tax authorities on the payments
hereunder shall be deducted by the Paying Party from the sums otherwise payable by the
Paying Party hereunder for payment to the proper tax authorities on behalf of the Royalty
Recipient and shall be paid by the Paying Party to such proper tax authorities. The Parties
agree to cooperate with each other in the event the Royalty Recipient claims exemption from
such withholding or seeks deductions under any double taxation or other similar treaty or
agreement from time to time in force, such cooperation to consist of providing receipts of
payment of such withheld tax or other documents reasonably available to the Parties.




          (e) Royalty Reports. Within forty-five (45) days after the last day of each
calendar quarter in which royalties are due, the Paying Party shall deliver to the Royalty
Recipient a report setting forth in reasonable detail the calculation of Net Sales and of
royalties payable to the Royalty Recipient for such calendar quarter identifying, by
country, the Sole Development Products sold by the Paying Party and its Affiliates,
licensees, sublicensees and distributors. Such reports shall be considered Confidential
Information of the Paying Party subject to the terms of ARTICLE XII hereof.




     7.7 Sharing of Sole Development Income. The Developing Party shall pay to the
Discontinuing Party the following percentage share of all Sole Development Income received
by the Developing Party that is attributable to the rights owned by or granted to the
Developing Party hereunder: (i) if the royalty rate specified in Section 7.5(a)(i)
would be payable on Net Sales of such Sole Development Product, [*] percent ([*%]) of
all such Sole Development Income; (ii) if the royalty rate specified in Section
7.5(a)(ii) would be payable on Net Sales of such Sole Development Product, [*] percent ([*%]) of all
such Sole Development Income; or (iii) if the royalty rate specified in Section
7.5(a)(iii) would be payable on Net Sales of such Sole Development Product, [*] percent ([*%]) of all
such Sole Development Income. All such amounts owed by the Developing Party in accordance
with this Section 7.7 shall be due and payable to the Discontinuing Party within
thirty (30) days after receipt of such Sole Development Income by the Developing Party,
subject to any right of offset pursuant to Section 7.6(a). In the case of receipt
by the Developing Party of any non-cash consideration from a licensee or sublicensee in
consideration for the granting of a license or sublicense to a Sole Development Product that
is attributable to the rights owned by or granted to the Developing Party hereunder (but
excluding, for the avoidance of doubt, consideration received by the Developing Party that
is attributable to the items excluded from the definition of Sole Development Income, and
further excluding standard contractual benefits, such as indemnities, warranties, diligence
and confidentiality obligations and the like), Sole Development Income shall be calculated
based on the value of such non-cash consideration received by the Developing Party (and
shall be combined with the value of any cash consideration received for purposes of
determining the applicable percentage share above).





 




			
	*	 	Confidential treatment has been
requested for the redacted portions of this exhibit, and such confidential
portions have been omitted and filed separately with the Securities and
Exchange Commission.




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     7.8 Financial Record Keeping. During the Term and for seven (7) years
thereafter, each Party shall keep complete and accurate records of its Clinical Development
Costs, Manufacturing Costs, Commercialization Costs, Net Sales and other business and
financial data and information underlying the reconciliations, cost reports, calculation of
costs and Profits, and payments that are the subject of the Transaction Agreements.




     7.9 Audits. Upon at least forty-five (45) days prior written notice to the
other Party, a Party will have the right, once annually at its own expense, to have an
independent, certified public accounting firm, selected by such Party and reasonably
acceptable to the other Party, inspect relevant books and records of the other Party in the
location(s) where such books and records are maintained by the other Party. The written
notice from the auditing Party shall name the accounting firm and shall describe the scope
of the audit to be conducted and the records and statements sought to be verified. Such
audit shall be conducted during regular business hours and under obligations of strict
confidence, and shall be conducted for the sole purpose of verifying the basis and accuracy
of any report(s) submitted by the audited Party and the payment of costs and Profit-sharing
amounts hereunder, as applicable, all to ascertain that all costs charged and payments made
hereunder are correct in accordance with the Transaction Agreements, in each case with
respect to relevant books and records corresponding to the prior twenty-four (24) month
period. If such audit of such books and records concludes that the audited Party has failed
to accurately report any cost, Profit or payment information, then in the event of any
underpayment, the audited Party shall pay to the auditing Party any undisputed additional
amounts due within thirty (30) days after the date the audited Party receives such
accounting firm’s written report so concluding, together with interest calculated using the
prime rate (as published in The Wall Street Journal on the date when payment was due) plus
three percent (3%) for the time from which the amounts should have been paid until the time
of actual payment. If such undisputed underpayment exceeds seven and one-half percent
(7.5%) of the payments that were to be paid to the auditing Party during the period audited,
the audited Party also shall reimburse the auditing Party for the amounts (reasonable fees
and expenses) paid to the accounting firm in conducting the audit. If such accounting firm
concludes that the audited Party overpaid the auditing Party, the auditing Party shall
refund such undisputed overpayments to the audited Party within thirty (30) days after the
date the auditing Party receives such accounting firm’s report so concluding. If the
audited Party disputes the results of the audit, such dispute shall be resolved by the
Parties’ CFOs, and any purported underpayment shall be withheld until such dispute is
finally resolved.




     7.10 Late Payments. Interest will be assessed on any overdue payments at a
rate equal to the prime rate (as published in The Wall Street Journal on the date when
payment was due) plus three percent (3%) for the time from which the amounts should have
been paid until the time of actual payment, or at such lower maximum rate permitted by law.
The payment of such
interest will not prevent the Party to which such payment is due from exercising any
other rights it may have as a consequence of the lateness of any payment.



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ARTICLE VIII.

COMMERCIALIZATION





     8.1 Commercialization of Cell Therapy Products. During the Term, Angiotech
shall have the sole authority and the exclusive right to commercialize Cell Therapy Products
(itself or through one or more Third Parties selected by Angiotech), and shall have sole
authority and responsibility in all matters relating to the commercialization of Cell
Therapy Products including, without limitation, the following activities (and other
associated activities) with respect to Cell Therapy Products: (a) executing product
promotion, marketing and sales activities; (b) booking sales; (c) handling all aspects of
order intake and processing, invoicing and collection, distribution, warehousing, inventory
and receivables, and collection of data of sales to hospitals and other end users (i.e.,
market research data); (d) handling all privacy and reimbursement-related activities; (e)
handling the logistics of all recalls; (f) handling all returns; (g) handling all other
customer service related functions; and (h) filing Cell Therapy Product promotional
materials with the relevant regulatory authority as permitted or required under applicable
law. Angiotech shall use Commercially Reasonable Efforts to commercialize at least one Cell
Therapy Product (at its discretion) for a myocardial infarction indication and a peripheral
vascular disease indication in countries of the Territory where Regulatory Approval has been
obtained for such Cell Therapy Product(s); provided that Angiotech shall consider in good
faith any recommendations and requests by Athersys’ representatives on the JSC regarding
commercialization of Cell Therapy Products.



ARTICLE IX.

MANUFACTURE AND SUPPLY OF CLINICAL DEVELOPMENT CANDIDATES AND CELL THERAPY PRODUCTS





     9.1 Athersys’ Manufacturing Obligation. Athersys shall be responsible for
manufacturing and supplying Clinical Development Candidates and Cell Therapy Products for
development and commercialization by the Parties in accordance with the Transaction
Agreements. In accordance with this ARTICLE IX, Athersys shall supply (or shall
engage a Third-Party manufacturer to supply) sufficient quantities of the Clinical
Development Candidates and Cell Therapy Products in final packaged form to the extent
reasonably required by Athersys and Angiotech to implement the Clinical Development Programs
and by Angiotech to commercialize the Cell Therapy Products in the Territory. The specific
terms and procedures by and upon which Athersys shall supply the Cell Therapy Products to
Angiotech hereunder shall be reasonably mutually determined by the Parties in good faith,
and shall be set forth in a separate manufacturing and supply agreement not less than twelve
(12) months prior to the anticipated First Commercial Sale of a Cell Therapy Product in the
Territory, such terms and procedures to be commercially
reasonable and consistent with the provisions of the Transaction Agreements. The
Parties also may agree to negotiate in good faith a separate quality agreement that sets
forth the Parties’ obligations with respect to current good manufacturing practices,
production, release and/or distribution of Clinical Development Candidates and Cell Therapy
Products in the Territory, the first draft of which shall be prepared collaboratively by the
quality departments of each Party. Unless otherwise provided herein, Athersys shall have
the exclusive right and obligation to manufacture



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(itself and/or through Third Parties
selected by Athersys) and supply Clinical Development Candidates and Cell Therapy Products
for development and commercialization hereunder.




     9.2 Manufacturing Costs. Athersys shall keep, and shall require all
Third-Party manufacturers of the Clinical Development Candidates and/or Cell Therapy
Products to keep, accurate records in sufficient detail concerning the Manufacturing Costs.
Angiotech shall be entitled to engage an independent public accounting firm to audit the
Manufacturing Costs as provided in, and in accordance with, Section 7.6. For this
purpose, Athersys itself shall keep, and to the extent that Athersys has obtained records or
documents from its Third-Party manufacturers shall keep, such account books and related
records or documents for a period of at least seven (7) years after the end of the fiscal
year to which the Manufacturing Costs relate.




     9.3 Manufacturing Compliance. All Clinical Development Candidates and Cell
Therapy Products supplied hereunder shall be manufactured by or on behalf of Athersys in
compliance with current good manufacturing practices, other applicable requirements of
relevant regulatory authorities, and other applicable laws and regulations, including
applicable laws and regulations relating to the transportation, storage, use, handling and
disposal of waste materials and hazardous materials used to manufacture Clinical Development
Candidates and/or Cell Therapy Products. Athersys, at its expense, shall obtain and
maintain, and/or shall require that its Third-Party manufacturers obtain and maintain, for
so long as Athersys is supplying Clinical Development Candidates and/or Cell Therapy
Products hereunder, all facility licenses and government permits necessary to manufacture
and supply the Clinical Development Candidates and Cell Therapy Products.




     9.4 Product Conformity. Angiotech, in consultation with the JSC, shall
determine the Clinical Development Product and Cell Therapy Product specifications and
testing methods (“Product Specifications”) for the Clinical Development Products and Cell
Therapy Products to be supplied by Athersys hereunder, and such specifications and testing
methods shall be consistent with industry standards and applicable regulatory requirements.
When Regulatory Approval is obtained in any country of the Territory, the Product
Specifications shall be those specifications and testing methods which have been approved by
the regulatory authority in that country. The Product Specifications may be
amended from time to time by written mutual agreement of the Parties. Athersys shall,
and shall ensure that any Third-Party manufacturer shall, manufacture the Clinical
Development Products and Cell Therapy Products in conformance with the Product
Specifications and in compliance with the requirements set forth in Section 9.3.




     9.5 Ordering; Forecasting; Acceptance and Rejection. The terms and procedures
set forth in the manufacturing and supply agreement described in Section 9.1 may
include provisions related to Cell Therapy Product orders and forecasts, Cell Therapy
Product acceptance, and, subject to the provisions of this Section 9.5, Cell Therapy
Product rejection and remedies for defective Cell Therapy Product. Any dispute arising
between Athersys and Angiotech concerning a shipment of Cell Therapy Product that the
Parties do not resolve within thirty (30) days of Angiotech providing a notice of shipment
of




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defective Cell Therapy Product shall be submitted to a reputable independent test
organization located in the Territory, to be mutually agreed upon by the Parties. Such
independent test organization shall determine whether the Cell Therapy Product in a given
shipment was defective, and the decision of said independent test organization shall be
final and binding on Athersys and Angiotech. If the defective Cell Therapy Product was
supplied by a Third-Party manufacturer or by Athersys, then any expenses actually incurred
by Athersys in connection with such defective Cell Therapy Product shall be borne solely by
Athersys, and shall not be included in Manufacturing Costs hereunder.




     9.6 Inspection. With respect to the manufacture of the Clinical Development
Candidates and Cell Therapy Products, Angiotech may, at its expense, upon reasonable notice
and during normal business hours, conduct appropriate review and inspection of the Clinical
Development Candidates and Cell Therapy Products manufacturing facilities, procedures and
related documentation to verify Athersys’ and/or its Third-Party manufacturer’s (as
applicable) compliance with current good manufacturing practices, other applicable
requirements of relevant regulatory authorities, and other applicable laws and regulations,
and conformity of Clinical Development Candidates and Cell Therapy Products with the
applicable Product Specifications.



     9.7 Supply Disruption. In the event that Athersys is materially unable, at any
time, to fulfill its obligation to supply Clinical Development Candidates or Cell Therapy
Products in a timely manner, as required hereunder, for any reason (a “Supply Disruption”),
Athersys shall promptly notify Angiotech of such Supply Disruption and the estimated extent
of such Supply Disruption (including the anticipated delay time and the quantity of Clinical
Development Candidate or Cell Therapy Product involved). Athersys shall use its
Commercially Reasonable Efforts to cure the Supply Disruption as soon as practicable. In
the event that such Supply Disruption is expected to continue for at least three (3) months
from the date of such notification, Angiotech shall have the right to have the Clinical
Development Candidate or Cell Therapy Product (as applicable) manufactured by itself or
by a Third-Party supplier/manufacturer, and Athersys shall cooperate and use its
Commercially Reasonable Efforts to transfer to Angiotech (or Angiotech’s designee) all
Athersys Intellectual Property (including, without limitation, Athersys Stem Cell Technology
and production and manufacturing technology) that is necessary or useful to enable Angiotech
to establish (or be) a source for supply of the Clinical Development Candidate or Cell
Therapy Product (as applicable). In addition, Athersys shall teach and instruct personnel
of Angiotech (or Angiotech’s designee) how to obtain appropriate raw materials and how to
reproduce the production and manufacturing processes and techniques used by Athersys for
production and manufacturing of the Clinical Development Candidate or Cell Therapy Product
(as applicable).



     9.8 Back-Up Supplier. If Angiotech, through exercise of reasonable business
judgment, determines that it is reasonable and prudent to obtain a back-up supplier to
prevent a Supply Disruption, then Athersys shall use its Commercially Reasonable Efforts to
identify, engage and qualify at least one back-up supplier for the Clinical Development
Candidate(s) or Cell Therapy Product(s). If a Third-Party is or will be the principal
manufacturer of the Clinical Development Candidate(s) or Cell Therapy Product(s), such
back-up supplier may be Athersys or its



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Affiliate or Angiotech or its Affiliate. In a
manner similar to that described in Section 9.7 regarding a Supply Disruption,
Athersys shall transfer or license to each such back-up supplier such Athersys Intellectual
Property as is necessary or useful to permit such back-up supplier to implement and practice
processes related to manufacture and supply of Clinical Development Candidate(s) or Cell
Therapy Product(s), and/or to maintain its status as a qualified manufacturing entity under
any and all applicable laws and regulations with respect to such processes or Clinical
Development Candidate(s) or Cell Therapy Product(s). If Athersys decides to designate and
qualify a back-up supplier, Athersys agrees to consult with Angiotech in identifying and
selecting an appropriate Third Party as back-up supplier, and the Parties shall work
together to establish each selected Third Party back-up supplier as expeditiously as
reasonably possible, so as to minimize the period of absence of supply of Clinical
Development Candidate(s) and/or Cell Therapy Product(s), as the case may be.




ARTICLE X.



REGULATORY MATTERS




     10.1 Ownership of Regulatory Documentation and Reference Rights; Regulatory
Strategy. Athersys (in collaboration with Angiotech) shall prepare and file, in its own
name, all IND applications for Clinical Development Candidates throughout the Territory,
such filings to be consistent with the JSC’s regulatory strategy and decisions and subject
to Angiotech’s prior written approval. Upon Angiotech’s reasonable request and to the
extent permitted by applicable law, within thirty (30) days after the completion of each
such Phase I Study hereunder, Athersys shall assign and transfer to Angiotech Athersys’
entire right, title and interest in and to any corresponding IND and other regulatory
filings and documentation pertaining thereto. Angiotech shall own (a) all regulatory
filings and
documentation pertaining to all post-Phase I Studies of Clinical Development
Candidates, and all Regulatory Approvals and related regulatory documents prepared for
and/or submitted to the applicable regulatory authorities in the Territory for all Cell
Therapy Products. Upon the reasonable request of Angiotech, and within a time period that
is reasonable and appropriate in view of the nature and volume of documents so requested,
Athersys shall make available to Angiotech such regulatory filings and related regulatory
documents owned by Athersys (including a right to reference the foregoing) if and to the
extent necessary to enable Angiotech to fulfill its obligations and to exercise its rights
under the Transaction Agreements.



     10.2 Regulatory Communications. Athersys shall have the primary responsibility
for communicating with any regulatory authority regarding any IND application or other
regulatory filing pertaining to a Clinical Development Candidate that has not yet completed
a Phase I Study. Angiotech shall have the primary responsibility for communicating with any
regulatory authority regarding any IND application or other regulatory filing pertaining to
a Clinical Development Candidate that has completed a Phase I Study, and regarding any
Clinical Development Candidate or Cell Therapy Product that has been submitted for, or has
obtained, Regulatory Approval. Each Party shall reasonably advise, assist and cooperate
with the other Party with respect to regulatory communications within the primary
responsibility of the other Party. Each Party shall promptly notify the other Party in
writing of any material communications



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with a regulatory authority regarding any Clinical
Development Candidate or any Cell Therapy Product in the Territory.




     10.3 Other Regulatory Responsibilities. At the time when the first Phase I
Study is completed for any Clinical Development Candidate, Angiotech thereafter shall be
responsible for (a) overseeing, monitoring and coordinating all regulatory actions,
communications and filings with, and submissions to, each regulatory authority with respect
to such Clinical Development Candidate and any resulting Cell Therapy Product(s); (b)
interfacing, corresponding and meeting with each regulatory authority; (c) maintaining all
regulatory filings; (d) responding to any action by a regulatory authority that would
prohibit the marketing or the continued marketing of a Cell Therapy Product, or that would
result in any shortage or projected shortage of a Cell Therapy Product; and (e) filing all
adverse event reports. Using its Commercially Reasonable Efforts, Athersys shall cooperate
with Angiotech and assist Angiotech in the performance of all such activities, and shall
provide Angiotech with any information in Athersys’ possession or control that Angiotech or
Athersys reasonably deems to be relevant to any such activities. To the extent either Party
or its Affiliate has or receives any information regarding any new adverse event or any
serious adverse event that may be relevant to the use of any Clinical Development Candidate
or Cell Therapy Product, such Party shall immediately contact the other Party and provide
the other Party with all such information in accordance with the adverse event reporting
procedures established by Angiotech from time to time.



     10.4 Cell Therapy Product Complaints and Recalls.
Angiotech shall be solely responsible for responding to any Cell Therapy Product
complaints. In the event (a) any governmental agency or regulatory authority issues a
request, directive or order that a Cell Therapy Product be recalled; (b) a court of
competent jurisdiction orders that Cell Therapy Product be recalled; or (c) Angiotech
reasonably determines that a Cell Therapy Product should be recalled or withdrawn from the
market by Angiotech, or that a “Dear Doctor” letter should be sent relating to use of a Cell
Therapy Product (wherein Angiotech shall determine the form and content of each such “Dear
Doctor” letter), then Angiotech shall take all appropriate remedial actions with respect
thereto. The cost of any recall, field alert, Cell Therapy Product withdrawal, or field
corrective action shall be considered a Commercialization Cost, unless such recall, field
alert, Cell Therapy Product withdrawal, or field corrective action is caused in material
part by a Party’s breach of its obligations under this Strategic Alliance Agreement
(including obligations regarding manufacturing, advertising, distribution and storage of the
Cell Therapy Products) or applicable laws, or by its willful misconduct; then such cost
shall be borne by the breaching Party to the extent such recall, field alert, Cell Therapy
Product withdrawal, or field corrective action was due to such causes.



     10.5 Compliance With All Applicable Laws and Regulations; Cooperation. Each
Party shall perform its obligations under the Transaction Agreements, and its
responsibilities and rights under the Clinical Development Plans and otherwise in
connection with the development and commercialization of Clinical Development
Candidates and Cell Therapy Products, in accordance with all applicable laws, rules and
regulations, including those of all regulatory authorities in the Territory, applicable



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reporting obligations, applicable import and export laws and regulations, current good
clinical practices. Each Party shall fully cooperate with the other Party in all
reasonable respects useful or necessary to enable each to be and remain in compliance
with all such applicable laws, rules and regulations.



ARTICLE XI.



INTELLECTUAL PROPERTY




     11.1 Existing Intellectual Property Rights Retained. Angiotech and Athersys
shall each retain all of their respective ownership interests in their respective
Intellectual Property, as such exists as of the Effective Date. Nothing in this Strategic
Alliance Agreement or any Transaction Agreement shall be construed to transfer ownership of
any Intellectual Property rights existing as of the Effective Date from one Party to another
Party.



     11.2 Ownership Of New Intellectual Property. Ownership and treatment of
Intellectual Property resulting from the Parties’ activities under the Transaction
Agreements shall be as set forth in the License Agreement.



ARTICLE XII.



CLINICAL PROGRAM RECORD KEEPING




     12.1 Scientific, Patent and Regulatory Records. When performing its
responsibilities and activities under each Pre-Clinical Development Program, New
Pre-Clinical Development Program and Clinical Development Program or under any Transaction
Agreement, each Party shall maintain, and shall cause its employees and contractors to
maintain, scientific and regulatory records, in sufficient and reasonable detail and in good
scientific manner appropriate for patent and regulatory purposes, which shall fully and
properly reflect all work done and results achieved in the performance of such
responsibilities and activities by such Party.



     12.2 Review of Records. On reasonable advance written notice, and at
reasonable intervals, during normal business hours each Party shall have the right to
inspect and copy records of the other Party maintained in connection with the activities
conducted, work performed and results achieved in the performance of its responsibilities
and activities under each Pre-Clinical Development Program, New Pre-Clinical Development
Program and Clinical Development Program or under any Transaction Agreement, including,
without limitation, records reflecting inventions, ideas, information or data developed by a
Party in the course of or work done hereunder, to the extent such access is reasonably
necessary or useful for a Party to exercise its rights and perform its obligations under
this Strategic Alliance Agreement or other Transaction Agreements. Notwithstanding the
definition of “Confidential Information” all such records and the information disclosed
therein shall constitute Confidential Information of the Party creating such records, and
shall be maintained in confidence by the receiving Party in accordance with ARTICLE
XIII.



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     12.3 Policies For Records. In order to protect each Party’s Patent Rights
under United States and foreign law in any inventions conceived or reduced to practice in
connection with any activities or work performed by the Parties under this Strategic
Alliance Agreement or any Transaction Agreement, each Party shall require its employees to
record and maintain data and information developed pursuant to the Transaction Agreements in
such a manner as to enable the Parties to use such records to establish inventorship and
corroborated and documented dates of conception, diligence to reduction to practice and/or
actual reduction to practice. Each Party shall require its employees engaged in activities
or work in connection with the Transaction Agreements to assign all Intellectual Property
created, conceived or reduced to practice in connection therewith to their respective
employer, and each Party shall ensure that each such employee has signed such an agreement
before any activities or work in connection with the Transaction Agreements commences.



ARTICLE XIII.



CONFIDENTIAL INFORMATION




     13.1 Confidential Information.
“Confidential Information” means all proprietary, non-public Intellectual Property and
other information, including, but not limited to, proprietary information and materials
(whether or not patentable) regarding a Party’s technology, products, business information
or objectives, that is communicated in any way or form by such Party (a “Disclosing Party”)
to the other Party (a “Receiving Party”), and all copies thereof made, in whole or in part,
by the Receiving Party in any form. Notwithstanding the foregoing, the term “Confidential
Information” shall not include any information of a Disclosing Party that: (a) was already
known by the Receiving Party, other than under an obligation of confidentiality, at the time
of disclosure by the Disclosing Party; (b) was generally available to the public or
otherwise part of the public domain at the time of its disclosure to the Receiving Party;
(c) became generally available to the public or otherwise part of the public domain after
its disclosure to the Receiving Party and other than through any act or omission of the
Receiving Party in breach of this Strategic Alliance Agreement or any Transaction Agreement;
(d) was subsequently lawfully disclosed to the Receiving Party by a Third Party on a
non-confidential basis; (e) can be shown by written records of the Receiving Party to have
been independently developed by the Receiving Party without reference to the Confidential
Information of the Disclosing Party, and without breach of any of the provisions of this
Strategic Alliance Agreement or any Transaction Agreement; or (f) is information that the
Disclosing Party has specifically agreed in writing that the Receiving Party may disclose.
The existence and terms of each of the Transaction Agreements, the transactions described
thereby and the performance of any Party’s rights or any Party’s obligations under them
shall be considered the Confidential Information of both of the Parties for which each of
the Parties are deemed to be the Disclosing Party.



     13.2 Confidentiality Obligations. For the Term and for five (5) years
thereafter:



          (a) Except as expressly permitted in the Transaction Agreements, the Receiving Party
shall keep completely confidential, and shall not publish or otherwise

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disclose, and shall
not use for any purpose, any Confidential Information of the Disclosing Party; provided,
however, that the Receiving Party may disclose any Confidential Information of the
Disclosing Party to a Third Party to the extent necessary to allow the Receiving Party to
collaborate with such Third Party in performing any of its obligations or exercising any of
its rights under any Transaction Agreement or to allow the Disclosing Party to make the
regulatory filings with such Third Party as advisable or required to obtain approval to
conduct clinical trials or obtain Regulatory Approval for a Clinical Development Candidate
or Cell Therapy Product, and in each case then only after (i) first advising such Third
Party of the Receiving Party’s obligations under this Strategic Alliance Agreement and the
Transaction Agreements, and (ii) securing from such Third Party a written obligation of
confidentiality no less stringent than that imposed on the Receiving Party under this
Strategic Alliance Agreement and the Transaction Agreements (except when not possible with
regard to governmental authorities or agencies).




          (b) Except as expressly permitted in the Transaction Agreements, the Receiving Party
shall not disclose the Confidential Information of the Disclosing Party to any person or
entity except the Receiving Party, its Affiliates and their respective employees,
consultants and agents who have a need to know such Confidential Information of the
Disclosing Party to further the purposes of any of the Transaction Agreements, and then only
after (i) first advising such employees, consultants and agents of the Receiving Party’s
obligations under this Strategic Alliance Agreement and the Transaction Agreements, and (ii)
securing from such employees, consultants and agents a written obligation of confidentiality
no less stringent than that imposed on the Receiving Party under this Strategic Alliance
Agreement and the Transaction Agreements.




          (c) Except with the prior written consent of the other Party, a Party shall not make
any public announcement or press release concerning any of the Transaction Agreements, the
transactions contemplated by any of them, the rights or obligations of the Parties under any
of them, or any of the activities that have occurred or may occur thereunder.




          (d) The Parties agree on the importance of coordinating their public announcements
respecting the Transactional Agreements and the subject matter thereof (other than academic,
scientific or medical publications that are subject to the publication provision set forth
below). Angiotech and Athersys shall, from time to time, and at the request of the other
Party, discuss and agree on the general information content relating to the Transactional
Agreements which may be publicly disclosed (including, without limitation, by means of any
printed publication or oral presentation).




     13.3 Permitted Disclosures. Notwithstanding Section 13.2:



          (a) The Receiving Party may disclose Confidential Information of the Disclosing Party
to the extent the Receiving Party is compelled to disclose such information by a court or
other tribunal of competent jurisdiction; provided, however, that in such case the Receiving
Party shall immediately give notice to the Disclosing Party, so that the Disclosing Party
may seek a protective order or other remedy from said

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court or tribunal. In any event, the
Receiving Party shall disclose only that portion of the Confidential Information of the
Disclosing Party that, in the opinion of its legal counsel, is legally required to be
disclosed, and will exercise reasonable efforts to ensure that any such Confidential
Information of the Disclosing Party so disclosed will be accorded confidential treatment by
said court or tribunal.




          (b) The Receiving Party may disclose the terms and conditions of this Strategic
Alliance Agreement or any Transaction Agreement (including providing a copy hereof or
thereof, redacted as appropriate) to any bona fide potential permitted assignee or successor
to a Party’s interest under this Strategic Alliance Agreement or any Transaction Agreement,
or to a bona fide potential lender from which a Party is considering borrowing money, or to
a bona fide potential collaborator in connection with the Transaction Agreements, or in the
case of Athersys, to any bona fide financial
investor from which it may take money; provided, however, in any such case such that
the Receiving Party shall first obtain a written obligation of confidentiality no less
stringent than that imposed on the Receiving Party under this Strategic Alliance Agreement
and the Transaction Agreements from the bona fide potential permitted assignee or successor,
bona fide potential lender, bona fide potential collaborator or bona fide financial
investor.




          (c) The Receiving Party may disclose the terms and conditions of this Strategic
Alliance Agreement and/or the Transaction Agreements (including providing a copy hereof,
redacted (as appropriate) with the prior written approval of the other Party, such approval
not to be unreasonably withheld or delayed) in connection with filings with the U.S.
Securities and Exchange Commission or otherwise pursuant to applicable securities laws and
regulations, filings with the Internal Revenue Service and otherwise pursuant to applicable
tax laws and regulations, and other filings required by law or regulation; provided,
however, that the Receiving Party shall provide to the other Party a copy of any such
proposed filing at least two (2) business days in advance of the filing, and shall consider
in good faith the other Party’s suggested redactions. In any event, the Receiving Party
shall disclose only that portion of the Confidential Information of the Disclosing Party
that, in the reasonable opinion of its legal counsel, is legally required to be disclosed by
law or regulation. Additionally, so long as Athersys’ securities are not publicly traded,
Athersys may disclose (including providing a copy hereof, redacted as appropriate) to any
bona fide potential purchaser of Athersys’ securities the foregoing information; provided,
however, that Athersys first obtains a written obligation of confidentiality from the
recipient that is no less stringent than Athersys’ obligations under this Strategic Alliance
Agreement and the Transaction Agreements.




          (d) The Third Party collaborators set forth on Schedule 4.1 with which Athersys
has executed an agreement as of the Effective Date, and which might be considered a
subcontractor of Athersys’ obligations under this Strategic Alliance Agreement and the
Transaction Agreements may have limited rights to publish their results obtained pursuant to
such agreements. Any publication by a Third Party collaborator in accordance with the terms
and conditions of its executed Existing Third Party Agreement with Athersys shall not be
considered a breach of Athersys’ obligations hereunder.




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          (e) The Parties agree that the public announcement of the execution of this Strategic
Alliance Agreement shall be in the form of a press release to be mutually agreed upon within
five (5) business days after the Effective Date; provided that such press release shall not
be publicly disseminated by either Party prior to May 15, 2006. A Party may republish,
reuse or disclose the same content of any prior publication, press release or disclosure, if
such republication, reuse or disclosure is presented in substantially the same form in which
it was previously published, used or disclosed, without modification of the content that was
previously published, used or disclosed.




     13.4 Publication. Except as provided in Section 13.3(e), during the Term each Party will submit
to the other Party for review and approval all proposed academic, scientific and medical
publications and public presentations relating to the Pre-Clinical Development Programs, New
Pre-Clinical Development Programs, Clinical Development Programs, or the Transactional
Agreements, for review in connection with preservation of Patent Rights and/or to determine
whether any of such other Party’s Confidential Information should be modified or deleted.
Written copies of such proposed publications and presentations shall be submitted to the
non-publishing Party no later than thirty (30) days before submission for publication or
presentation, and the non-publishing Party shall provide its comments with respect to such
publications and presentations within fifteen (15) business days of its receipt of such
written copy. The review period may be extended for an additional thirty (30) days in the
event the non-publishing Party can demonstrate reasonable need for such extension,
including, but not limited to, the preparation and filing of patent applications. By mutual
agreement, this period may be further extended. Athersys and Angiotech will each comply
with standard academic practice regarding authorship of scientific publications and
recognition of contribution of other parties in any publications pursuant to this
Section 13.4. With regard to proposed publications and presentations by a Third
Party pursuant to an Existing Third Party Agreement, the time periods set forth above shall
be complied with by the Parties to the extent possible, taking into account the applicable
provisions of the subject Existing Third Party Agreement.



ARTICLE XIV.



REPRESENTATIONS AND WARRANTIES




     14.1 Authority. Each Party represents and warrants that, as of the Effective
Date, it has the full right, power and authority to enter into this Strategic Alliance
Agreement and the other Transaction Agreements, and that this Strategic Alliance Agreement
and the other Transaction Agreements have been duly executed by such Party and constitute
the legal, valid and binding obligations of such Party, enforceable in accordance with their
terms, subject to (a) the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors’ rights and remedies
generally, and (b) the effect of general equitable principles, regardless of whether
asserted in a proceeding in equity or at law.



     14.2 No Conflicts. Each Party represents and warrants that the execution,
delivery and performance of this Strategic Alliance Agreement and the other Transaction
Agreements do not conflict with, or constitute a breach or default under, any of its charter



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or organizational documents, any law, order, judgment or governmental rule or regulation
applicable to it, or any material agreement, contract, commitment or instrument to which it
is a party.



     14.3 Additional Representations and Warranties of Athersys. In addition to the representations and warranties made by Athersys in Sections
14.1 and 14.2, Athersys, subject to Section 14.6, hereby represents and
warrants that as of the Effective Date:



          (a) it has not granted to any Third Party any right or license which would conflict
with the rights granted by it to Angiotech under any of the Transaction Agreements;




          (b) except as disclosed in Schedule 14.3(b) attached hereto, Athersys is the
sole and exclusive owner of the Athersys Patent Rights set forth in Schedule 1.33,
and Athersys has not placed, or suffered to be placed, any liens, charges or encumbrances on
or against such Athersys Patent Rights;




          (c) Schedule 1.33 is a true and complete list of Athersys’ Patent Rights that
pertain to the subject matter of the Transaction Agreements.;




          (d) Athersys has submitted to the United States Patent and Trademark Office all
information related to the Cells, pre-clinical development candidates, Clinical Development
Candidates and Cell Therapy Products that is required to be submitted in accordance with 37
C.F.R. 1.56, 1.97 and 1.98;




          (e) the Athersys Intellectual Property that is the subject of the rights and licenses
granted to Angiotech under the Transaction Agreements constitutes all intellectual property
owned or controlled by Athersys that is necessary or useful to manufacture, research,
develop, use or commercialize the Cells, pre-clinical development candidates, Clinical
Development Candidates and Cell Therapy Products for the Cardiovascular Indications, and to
the knowledge of Athersys there is no other Intellectual Property necessary for such
purposes that is owned or controlled by Athersys;




          (f) the Athersys Patent Rights set forth in Schedule 1.33 are existing and
inventorship of the Athersys Patent Rights not licensed by Athersys from the University of
Minnesota has been properly determined and to Athersys’ knowledge inventorship of the
Athersys Patent Rights licensed from the University of Minnesota has been properly
determined, and to Athersys’ knowledge, no issued or granted patents within the Athersys
Patent Rights licensed or sublicensed to Angiotech under the Transaction Agreements are
invalid or unenforceable;




          (g) except as set forth in Schedule 14.3(g) attached hereto, no Athersys Patent
Rights listed in Schedule 1.33 are subject to any funding agreement with any
government or government agency;




          (h) Athersys has received no written notice alleging infringement of a Third Party
Patent Right in connection with its research and development of Cells, pre-clinical
development candidates, Clinical Development Candidates and/or Cell Therapy

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Products, and
Athersys has disclosed to Angiotech all material information of which Athersys is aware as
to whether the research, development, manufacture, use, sale, offer for sale or importation
of Clinical Development Candidates or Cell Therapy Products
infringes or would infringe issued or granted patents owned by a Third Party as of the
Effective Date;




          (i) the Athersys Patent Rights licensed or sublicensed to Angiotech under the
Transaction Agreements are not subject to any litigation, judgments or settlements against
or owed by Athersys, nor has Athersys received written notice of any threats of such
litigation;




          (j) the Athersys Patent Rights licensed or sublicensed to Angiotech under the
Transaction Agreements are not the subject of any interference, opposition, reissue or
reexamination proceeding in the United States or, to the knowledge of Athersys, any
opposition proceeding outside of the United States;




          (k) Athersys has not knowingly used any Intellectual Property misappropriated from a
Third Party in connection with the subject matter of the Transactional Agreements, and
Athersys is not aware of any claim by a Third Party that Intellectual Property
misappropriated from such Third Party has been used by Athersys in its research and
development of Cells, pre-clinical development candidates, Clinical Development Candidates
and/or Cell Therapy Products;




          (l) except as set forth in Schedule 14.3(l) attached hereto, to Athersys’
knowledge, there is no unauthorized use, infringement or misappropriation of any of the
Intellectual Property that is the subject of the rights and licenses granted to Angiotech
under the Transaction Agreements by any Third Party, including any current or former
employee or consultant of Athersys and its Affiliates;




          (m) with respect to activities conducted by Athersys, and to Athersys’ knowledge with
respect to activities conducted by Third Parties on behalf of Athersys, there has not been
any scientific fraud regarding Cells, Clinical Development Candidates or Cell Therapy
Products or Intellectual Property of Athersys licensed to Angiotech under the Transaction
Agreements;




          (n) to Athersys’ knowledge, no employee or agent of Athersys or any of its Affiliates
has made an untrue statement of a material fact to any governmental authority with respect
to the Cells, pre-clinical development candidates, Clinical Development Candidates and/or
Cell Therapy Products (whether in any submission to such governmental authority or
otherwise), or failed to disclose a material fact required to be disclosed to any
governmental authority with respect to the Cells, pre-clinical development candidates,
Clinical Development Candidates and/or Cell Therapy Products;




          (o) none of it, its officers, directors, employees, or Affiliates is debarred under the
Generic Drug Enforcement Act or convicted of a crime which could lead to debarment, and it
has not knowingly utilized, and has not knowingly utilized, the services of any individual
or entity in conducting its manufacturing activities hereunder that has

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been
debarred under the Generic Drug Enforcement Act or convicted of a crime that could lead to debarment;




          (p) that its employees have complied materially with all safety and environmental
procedures, protocols, systems, laws, rules and regulations applicable to or associated with
its Cell isolation, purification and production activities hereunder;




          (q) Athersys and its Affiliates have complied materially with all applicable laws,
rules, regulations, permits, governmental licenses, registrations, approvals, concessions,
franchises, authorizations, orders, injunctions and decrees, including the Federal Food,
Drug and Cosmetic Act, in the research, development, manufacture and use of the Cells,
pre-clinical development candidates, Clinical Development Candidates and/or Cell Therapy
Products, and neither Athersys nor any of its Affiliates has received any written notice
from any regulatory authority claiming that any such activities as conducted by them are not
in such compliance; and




          (r) that the Cells are not derived from embryonic sources (i.e., the Cells are not
embryonic stem cells).




     14.4 Additional Covenants of Athersys. In addition to the representations and
warranties made by Athersys in Sections 14.1, 14.2, and 14.3
Athersys, subject to Section 14.6, hereby covenants to Angiotech that during the
Term:



          (a) it will not grant to any Third Party any right or license which would conflict with
the rights granted by it to Angiotech under any of the Transaction Agreements;




          (b) Athersys will not place, or suffer to be placed, any liens, charges or encumbrances
on or against any Athersys Patent Rights that may have an adverse effect on Angiotech’s
rights or licenses with respect to Athersys Patent Rights licensed to Angiotech under the
Transaction Agreements;




          (c) Athersys will submit to the United States Patent and Trademark Office all
information related to the Cells, pre-clinical development candidates, Clinical Development
Candidates and Cell Therapy Products that is required to be submitted in accordance with 37
C.F.R. 1.56, 1.97 and 1.98;




          (d) the Athersys Intellectual Property that is the subject of the rights and licenses
granted to Angiotech under the Transaction Agreements constitutes all intellectual property
owned or controlled by Athersys that is necessary or useful to manufacture, research,
develop, use or commercialize the Cells, pre-clinical development candidates, Clinical
Development Candidates and Cell Therapy Products for the Cardiovascular Indications, and to
the knowledge of Athersys there is no other Intellectual Property necessary for such
purposes that is owned or controlled by Athersys;




          (e) Athersys will take all steps necessary to ensure that the Athersys Patent Rights
set forth in Schedule 1.33 are existing and that inventorship of the Athersys Patent
Rights is properly determined, and Athersys’ will promptly inform Angiotech in

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writing if
any issued or granted patents within the Athersys Patent Rights licensed or
sublicensed to Angiotech under the Transaction Agreements become invalid or
unenforceable;



          (f) Athersys
will promptly inform Angiotech in writing of receipt of any written notice alleging infringement of a Third Party Patent Right in connection with Athersys’ research
and development of Cells, pre-clinical development candidates, Clinical Development
Candidates and/or Cell Therapy Products, and Athersys will disclose to Angiotech all
material information of which Athersys becomes aware as to whether the research,
development, manufacture, use, sale, offer for sale or importation of Clinical Development
Candidates or Cell Therapy Products might constitute infringement of issued or granted
patents owned by a Third Party;




          (g) Athersys will promptly inform Angiotech in writing if Athersys Patent Rights
licensed or sublicensed to Angiotech under the Transaction Agreements become subject to any
litigation, judgments or settlements against or owed by Athersys, or if Athersys receives
written notice of any threats of such litigation;




          (h) Athersys will promptly inform Angiotech in writing if the Athersys Patent Rights
licensed or sublicensed to Angiotech under the Transaction Agreements become the subject of
any interference, opposition, reissue or reexamination proceeding in the United States or,
if Athersys learns of any opposition proceeding outside of the United States with respect to
the Athersys Patent Rights licensed to Angiotech under the Transaction Agreements;




          (i) Athersys will not knowingly use any Intellectual Property misappropriated from a
Third Party in connection with the subject matter of the Transactional Agreements, and
Athersys will promptly inform Angiotech in writing of any claim by a Third Party that
Intellectual Property misappropriated from such Third Party has been used by Athersys in its
research and development of Cells, pre-clinical development candidates, Clinical Development
Candidates and/or Cell Therapy Products;




          (j) Athersys will promptly inform Angiotech in writing of any unauthorized use,
infringement or misappropriation of any of the Intellectual Property that is the subject of
the rights and licenses granted to Angiotech under the Transaction Agreements by any Third
Party, including any current or former employee or consultant of Athersys and its
Affiliates;




          (k) there will not be any scientific fraud by Athersys or its Affiliates regarding
Cells, Clinical Development Candidates or Cell Therapy Products or Intellectual Property of
Athersys licensed to Angiotech under the Transaction Agreements, and with respect to
activities conducted on behalf of Athersys, Athersys shall make Commercially Reasonable
Efforts to ensure that there will not be any scientific fraud by any such Third Party
regarding Cells, Clinical Development Candidates or Cell Therapy Products or Intellectual
Property of Athersys licensed to Angiotech under the Transaction Agreements;




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          (l) no employee or agent of Athersys or any of its Affiliates will make an untrue
statement of a material fact to any governmental authority with respect to the Cells,
pre-clinical development candidates, Clinical Development Candidates and/or Cell Therapy
Products (whether in any submission to such governmental authority or otherwise), or fail to
disclose a material fact required to be disclosed to any governmental authority with respect
to the Cells, pre-clinical development candidates, Clinical Development Candidates and/or
Cell Therapy Products;




          (m) none of it, its officers, directors, employees, or Affiliates will be debarred
under the Generic Drug Enforcement Act or will be convicted of a crime which could lead to
debarment, and it will not knowingly utilize, the services of any individual or entity in
conducting its manufacturing activities hereunder that has been debarred under the Generic
Drug Enforcement Act or convicted of a crime that could lead to debarment;




          (n) that its employees will comply materially with all safety and environmental
procedures, protocols, systems, laws, rules and regulations applicable to or associated with
its Cell isolation, purification and production activities hereunder;




          (o) Athersys and its Affiliates will comply materially with all applicable laws, rules,
regulations, permits, governmental licenses, registrations, approvals, concessions,
franchises, authorizations, orders, injunctions and decrees, including the Federal Food,
Drug and Cosmetic Act, in the research, development, manufacture and use of the Cells,
pre-clinical development candidates, Clinical Development Candidates and/or Cell Therapy
Products, and Athersys will promptly inform Angiotech in writing if either Athersys or any
of its Affiliates receive any written notice from any regulatory authority claiming that any
such activities as conducted by them are not in such compliance; and




          (p) that the Cells will not be derived from embryonic sources (i.e., the Cells will not
be embryonic stem cells).




     14.5 Additional Covenants of Angiotech. In addition to the representations and
warranties made by Angiotech in Sections 14.1 and 14.2, Angiotech, subject
to Section 14.6, hereby covenants to Athersys that during the Term:



          (a) Angiotech will not knowingly use any Intellectual Property misappropriated from a
Third Party in connection with the subject matter of the Transactional Agreements, and
Angiotech will promptly inform Athersys in writing of any claim by a Third Party that
Intellectual Property misappropriated from such Third Party has been used by Angiotech in
its research and development of Cells, pre-clinical development candidates, Clinical
Development Candidates and/or Cell Therapy Products;




          (b) Angiotech will promptly inform Athersys in writing of any unauthorized use,
infringement or misappropriation of any of the Intellectual Property
that is the subject of the rights and licenses granted to Angiotech under the
Transaction Agreements by any Third Party;




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          (c) there will not be any scientific fraud by Angiotech or its Affiliates regarding
Cells, Clinical Development Candidates or Cell Therapy Products licensed to Angiotech under
the Transaction Agreements, and with respect to activities conducted on behalf of Angiotech,
Angiotech shall make Commercially Reasonable Efforts to ensure that there will not be any
scientific fraud by any such Third Party regarding Cells, Clinical Development Candidates or
Cell Therapy Products licensed to Angiotech under the Transaction Agreements;




          (d) no employee or agent of Angiotech or any of its Affiliates will make an untrue
statement of a material fact to any governmental authority with respect to the Cells,
pre-clinical development candidates, Clinical Development Candidates and/or Cell Therapy
Products (whether in any submission to such governmental authority or otherwise), or fail to
disclose a material fact required to be disclosed to any governmental authority with respect
to the Cells, pre-clinical development candidates, Clinical Development Candidates and/or
Cell Therapy Products;




          (e) none of it, its officers, directors, employees, or Affiliates will be debarred
under the Generic Drug Enforcement Act or will be convicted of a crime which could lead to
debarment, and it will not knowingly utilize, the services of any individual or entity in
conducting its manufacturing activities hereunder that has been debarred under the Generic
Drug Enforcement Act or convicted of a crime that could lead to debarment; and




          (f) Angiotech and its Affiliates will comply materially with all applicable laws,
rules, regulations, permits, governmental licenses, registrations, approvals, concessions,
franchises, authorizations, orders, injunctions and decrees, including the Federal Food,
Drug and Cosmetic Act, in the research, development, manufacture and use of the Cells,
pre-clinical development candidates, Clinical Development Candidates and/or Cell Therapy
Products, and Angiotech will promptly inform Athersys in writing if either Angiotech or any
of its Affiliates receive any written notice from any regulatory authority claiming that any
such activities as conducted by them are not in such compliance.




     14.6 Disclaimer Of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS STRATEGIC
ALLIANCE AGREEMENT OR ANY TRANSACTION AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS NOR
EXTENDS ANY WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT.



ARTICLE XV.



INDEMNIFICATION AND INSURANCE




     15.1 Indemnification By Athersys. Athersys shall indemnify, defend and hold
Angiotech, its Affiliates and their permitted contractors and agents, employees, officers
and directors (the “Angiotech Indemnitees”) harmless from and against any and all



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liability,
damage, loss, cost or expense (including reasonable attorneys’ fees) arising out of Third
Party claims or lawsuits related to (a) Athersys’ performance of its obligations under the
Transaction Agreements, (b) a breach by Athersys of any of its covenants, representations or
warranties set forth in the Transaction Agreements; (c) arising out of the use of the
Company Technology, Company Patents, University Technology, and/or University Patents and/or
the development, manufacture, use, storage, handling, distribution or sale of any Clinical
Development Candidates or Cell Therapy Products by or on behalf of Athersys or its
Affiliates (other than those Cell Therapy Products for which the Parties share Profits); or
(d) the failure of Clinical Development Candidates or Cell Therapy Products manufactured by
or on behalf of Athersys to meet the Clinical Development Candidate or Cell Therapy Product
(as applicable) specifications or to be manufactured in compliance with current Good
Manufacturing Practices or other applicable laws and regulations; provided, however, all of
the foregoing is only to the extent that such claims or suits do not result from a breach of
any of the provisions of the Transaction Agreements, gross negligence or willful misconduct
of any of the Angiotech Indemnitees. Upon the assertion of any such claim or suit,
Angiotech shall promptly notify Athersys thereof and Athersys shall appoint counsel
reasonably acceptable to the affected Angiotech Indemnitees to represent such Angiotech
Indemnitees with respect to any claim or suit for which indemnification is sought. Neither
Athersys nor the Angiotech Indemnitees shall enter into any settlement agreement with any
Third Party without the consent of the other Party, which consent shall not be unreasonably
withheld; provided that affected Angiotech Indemnitees shall be permitted in their sole
discretion to settle any such claim or suit if they have first waived their rights to
indemnification hereunder.




     15.2 Indemnification By Angiotech. Angiotech shall indemnify, defend and hold
Athersys, its Affiliates and their permitted contractors and agents, employees, officers and
directors (the “Athersys Indemnitees”) harmless from and against any and all liability,
damage, loss, cost or expense (including reasonable attorneys’ fees) arising out of Third
Party claims or lawsuits related to (a) Angiotech’s performance of its obligations under the
Transaction Agreements; (b) a breach by Angiotech of any of its covenants, representations
or warranties set forth in the Transaction Agreements; or (c) arising out of the use of the
Company Technology, Company Patents, University Technology, and/or University Patents and/or
the development, manufacture, use, storage, handling, distribution or sale of any Clinical
Development Candidates or Cell Therapy Products by or on behalf of Angiotech or its
Affiliates (other than those Cell Therapy Products for which the Parties share Profits);
provided, however, all of the foregoing is only to the extent that such claims or suits do
not result from a breach of any of the provisions of the Transaction Agreements, gross
negligence or willful misconduct of the Athersys Indemnitees. Upon the assertion of any
such claim or suit, Athersys shall promptly notify Angiotech thereof
and Angiotech shall appoint counsel reasonably acceptable to the affected Athersys
Indemnitees to represent such Athersys Indemnitees with respect to any claim or suit for
which indemnification is sought. Neither Angiotech nor the Athersys Indemnitees shall enter
into any settlement agreement with any Third Party without the consent of the other Party,
which consent shall not be unreasonably withheld; provided that affected Athersys
Indemnitees shall be permitted in their sole



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discretion to settle any such claim or suit if
they have first waived their rights to indemnification hereunder.



     15.3 Insurance. During the Term and for a period of two (2) years thereafter,
each Party shall obtain and maintain commercial general liability insurance, including
products liability insurance, with reputable and financially secure insurance carriers with
respect to its obligations, responsibilities and activities under the Transaction
Agreements. Such insurance shall be in such amounts and subject to such deductibles as the
Parties may agree based upon standards prevailing in the industry at the time, but in each
case with limits of not less than Five Million Dollars ($5,000,000.00) per occurrence and in
the aggregate.



ARTICLE XVI.



TERM AND TERMINATION




     16.1 Term. This Strategic Alliance Agreement shall commence on the Effective
Date and, unless terminated earlier pursuant to Section 16.2, shall continue in full
force and effect until the earlier to occur of: (a) five (5) years after the Effective Date,
if the JSC has not approved any Clinical Development Program on or before such fifth year
anniversary; (b) if at least one Cell Therapy Product has obtained Regulatory Approval in
the Territory and the Parties have shared Profits with respect to at least one Cell Therapy
Product, on the date that there has been no sales for twelve (12) months of any Cell Therapy
Product that has been the subject of Profit-sharing, unless a Clinical Development Candidate
is in Phase III Studies or later; or (c) the later of (i) the expiration date of the
last-to-expire patent licensed to Angiotech under the Transaction Agreements, or (ii)
fifteen (15) years after the Effective Date. The period of time from the Effective Date
until expiration or early termination is the “Term.”



     16.2 Termination.



          (a) Uncured Breach of Athersys. The failure by Athersys to substantially
comply with any of the material obligations contained in this Strategic Alliance Agreement
or any Transaction Agreement shall entitle Angiotech to give written notice to have the
default cured. If such default is not cured within sixty (60) days after the receipt of
such written notice, or if by its nature such default is not capable of cure within such
sixty (60)-day period, then Angiotech shall be entitled, without prejudice to any of its
other rights conferred on it by this Strategic Alliance Agreement or any Transaction
Agreement, and in addition to any other remedies that may be available to it, to terminate
this Strategic Alliance Agreement; provided, however, that such right to terminate
shall be stayed in the event that, during such sixty (60)-day period, Athersys shall have:
(i) initiated dispute resolution in accordance with ARTICLE XVII below with respect
to the alleged default, and (ii) diligently and in good faith cooperated in the prompt
resolution of such dispute resolution process.




          (b) Uncured Breach of Angiotech. The failure by Angiotech to substantially
comply with any of the material obligations contained in this Strategic Alliance Agreement
or any Transaction Agreement shall entitle Athersys to give written

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notice to have the
default cured. If such default is not cured within sixty (60) days after the receipt of
such written notice, or if by its nature such default is not capable of cure within such
sixty (60)-day period, then Athersys shall be entitled, without prejudice to any of its
other rights conferred on it by this Strategic Alliance Agreement or any Transaction
Agreement, and in addition to any other remedies that may be available to it, to terminate
this Strategic Alliance Agreement; provided, however, that such right to terminate shall be
stayed in the event that, during such sixty (60)-day period, Angiotech shall have: (i)
initiated dispute resolution in accordance with ARTICLE XVII below with respect to
the alleged default, and (ii) diligently and in good faith cooperated in the prompt
resolution of such dispute resolution process.




          (c) Insolvency of Athersys. In the event that Athersys has filed or instituted
bankruptcy, reorganization, liquidation or receivership proceedings, or has assigned a
substantial portion of its assets for the benefit of creditors during the Term, Angiotech
may immediately terminate the Transaction Agreements in their entirety upon written notice
of termination to Athersys; provided, however, that in the event of any involuntary
bankruptcy or receivership proceeding, such right of Angiotech to terminate the Transaction
Agreements shall only become effective if Athersys consents to the involuntary bankruptcy or
receivership or such proceeding is not dismissed within ninety (90) days after the filing
thereof; and further provided that, if the Transaction Agreements are terminated by
Angiotech due to the rejection of this Strategic Alliance Agreement or any Transaction
Agreement by or on behalf of Athersys under Section 365 of the United States Bankruptcy Code
(the “Code”), all licenses and rights to licenses granted under or pursuant to the
Transaction Agreements by Athersys to Angiotech are, and shall otherwise be deemed to be,
for purposes of Section 365(n) of the Code, licenses of rights to “intellectual property” as
defined under Section 1010(35A) of the Code. The Parties agree that Angiotech, as a
licensee of such rights under the Transaction Agreements, shall retain and may fully
exercise all of its rights and elections under the Code, and that upon commencement of a
bankruptcy proceeding by or against Athersys under the Code, Angiotech shall be entitled to
a complete duplicate of, or complete access to (as Angiotech deems appropriate), any such
intellectual property and all embodiments of such intellectual property. Such intellectual
property and all embodiments thereof shall be promptly delivered to Angiotech (a) upon any
such commencement of a bankruptcy proceeding and upon written request therefor by Angiotech,
unless Athersys elects to continue, and does continue, to perform all of its obligations
under the Transaction Agreements, or (b) if not delivered under (a) above, upon the
rejection of this Strategic Alliance Agreement or any Transaction Agreement by or on behalf
of Athersys and upon written request therefor by Angiotech. Athersys agrees not to
interfere with Angiotech’s
exercise under the Code of rights and licenses to intellectual property licensed
hereunder and embodiments thereof in accordance with this Section 16.2(c) and agrees
to use Commercially Reasonable Efforts to assist Angiotech to obtain such intellectual
property and embodiments thereof in the possession or control of Third Parties as are
reasonably necessary or useful for Angiotech to exercise such rights and licenses in
accordance with the Transaction Agreements. The foregoing provisions are without prejudice
to any rights Angiotech may have arising under the Code or other applicable law.




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          (d) Termination for Cause. Angiotech shall have a right to terminate the
Transaction Agreements for cause (as set forth in (i) or (ii) below), which termination
right may be exercised at any time during the Term. Such termination shall require at least
one hundred twenty (120) days prior written notice by Angiotech that terminates for cause,
and during such 120-day period the Parties shall continue to share costs that are incurred
and Profit that is obtained in connection with activities under the Transaction Agreements
that have been commenced but not yet completed.





     (i) Grounds that Constitute “For Cause”. If Angiotech, using its
reasonable and sound business judgment, determines that (A) a primary endpoint(s) in
a clinical study within a Clinical Development Plan has not been fulfilled or met;
(B) at least one (1) IND has not been filed by the Parties within three (3) years
after the Effective Date; (C) clinical efficacy and/or safety with respect to Cells,
a Clinical Development Candidate or a Cell Therapy Product have not been
demonstrated; (D) applicable regulatory requirements for Cells, a Clinical
Development Candidate or a Cell Therapy Product in one or more Major Markets in the
Territory shall have a material adverse impact on the ability to obtain Regulatory
Approval for a Cell Therapy Product in such countries; (E) Athersys data regarding
Cells, a Clinical Development Candidate or a Cell Therapy Product were obtained, in
whole or in part, through scientific fraud; and/or (F) a Cell Therapy Product is not
(or is not expected to be) commercially viable or profitable for a Party in at least
one of the Major Market in the Territory, then any of the conditions (A-F) above
shall constitute a grounds for termination of the Transaction Agreements “for
cause.”




     (ii) Decision to Terminate For Cause. If Angiotech decides to
terminate the Transaction Agreements for cause, then Angiotech shall provide written
notice to Athersys of such decision (and this written notice shall also serve as a
notice of termination as specified in such written notice); provided that with
respect to each instance of an event giving rise to the applicable grounds for
termination, in order to be effective such written notice shall be provided to
Athersys within one hundred eighty (180) days after Angiotech, using its reasonable
and sound business judgment, makes a determination that such event has occurred.



          (e) Change of Control of Athersys. For purposes of this clause (e), “Change of
Control” means the consummation of a transaction during the Term in which a Third Party
acquires, merges or consolidates with Athersys; or possesses (directly or indirectly) the
power to direct or cause the direction of management or policies of
Athersys through ownership of a majority of securities, partnership, or other ownership
rights or agreements; or in which Athersys transfers or sells all or substantially all of
its assets or business to which the Transaction Agreements relate; provided, however, that
none of the following shall be considered a Change in Control: (i) a merger effected
exclusively for the purpose of changing the domicile of Athersys; (ii) an equity financing
in which Athersys is the surviving corporation; or (iii) a transaction in which the
stockholders of Athersys immediately prior to the transaction own fifty percent (50%) or
more of the voting power of the surviving corporation following the transaction. In the


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event of a Change of Control of Athersys during the Term, Athersys shall provide written
notice of such Change of Control to Angiotech no later than ten (10) business days after the
occurrence of such event (“Change of Control Notice”). If the Change of Control results in
Athersys becoming controlled by a Local Therapeutic Company, or if Angiotech has other sound
business reasons, Angiotech may, in its sole discretion and at its election, terminate the
Transaction Agreements by giving Athersys and the Third Party successor to Athersys written
notice of termination within ninety (90) days after the later to occur of: (x) the date of
consummation of such transaction, or (xi) the date Angiotech received the Change of Control
Notice from Athersys. Any such notice of termination by Angiotech shall be effective sixty
(60) days after delivery of such notice to Athersys and the Third Party successor to
Athersys. If Angiotech does not exercise this right of termination, Angiotech, Athersys and
the Third Party successor to Athersys shall continue thereafter to fulfill their respective
rights and obligations under the Transaction Agreements.




     16.3 Effects of Termination.



          (a) Termination by Angiotech. Upon termination of the Transaction Agreements
by Angiotech pursuant to Section 16.2(a) or Section 16.2(c), Athersys shall
be deemed to be the Discontinuing Party and to have delivered an Opt-Out Notice on the
effective date of such termination with respect to all Clinical Development Candidates and
Cell Therapy Products pursuant to Section 6.1 (notwithstanding whether or not the
first Phase I Trial has been completed) and Angiotech shall be entitled to exercise the Sole
Development Option as described in Section 6.1. If Angiotech exercises the Sole
Development Option as described in the foregoing sentence, the Parties’ rights and
obligations set forth in the Transaction Agreements (including, without limitation,
Intellectual Property licenses) shall survive in perpetuity to the extent necessary for
Angiotech and Athersys to exercise their rights and obligations as Developing Party and
Discontinuing Party (respectively) pursuant to ARTICLE VI; provided, however, that
if Angiotech exercises the Sole Development Option as described in this Section
16.3(a): (i) the Replacement Fee (if any is outstanding at the time of termination)
shall remain payable to Athersys as described in Section 2.4, and (ii)
notwithstanding the provisions of Section 6.1(a), the achievement of each regulatory
approval or commercialization milestone pursuant to Section 7.3 (as described in
Schedule 7.3, Items 2-5) shall result in an amount payable to Athersys equal to (A)
twenty five percent (25%) of the amount described for such milestone in Schedule 7.3,
Items 2-5 (as applicable), if the Transaction Agreements are terminated by Angiotech
pursuant to Section 16.2(a), or (B) fifty percent (50%) of the amount described for
such milestone in Schedule 7.3, Items 2-5 (as
applicable), if the Transaction Agreements are terminated by Angiotech pursuant to
Section 16.2(c).




          (b) Termination by Athersys. Upon termination of the Transaction Agreements by
Athersys pursuant to Section 16.2(b), Angiotech shall be deemed to be the
Discontinuing Party and to have delivered an Opt-Out Notice on the effective date of such
termination with respect to all Clinical Development Candidates and Cell Therapy Products
pursuant to Section 6.1 (notwithstanding whether or not the first Phase I Trial has
been completed) and Athersys shall be entitled to exercise the Sole Development

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Option as
described in Section 6.1. If Athersys exercises the Sole Development Option as
described in the foregoing sentence, the Parties’ rights and obligations set forth in the
Transaction Agreements (including, without limitation, Intellectual Property licenses) shall
survive in perpetuity to the extent necessary for Athersys and Angiotech to exercise their
rights and obligations as Developing Party and Discontinuing Party (respectively) pursuant
to ARTICLE VI.




     16.4 Survival Of Obligations. The termination or expiration of this Strategic
Alliance Agreement or any Transaction Agreement shall not relieve the Parties of any
obligations accruing prior to such expiration or termination, and any such expiration or
termination shall be without prejudice to the rights of any Party against another Party. In
addition, the provisions of Article I, to the extent definitions are embodied in the
following listed Articles and Sections of this Agreement; Articles VII (to the extent any
payments have accrued as of the effective date of expiration or termination, but have not
yet been paid), XI, XIII, XV and XVII (with respect to disputes arising during the Term that
have not been resolved); Sections 2.6, 2.7, 3.7 (with respect to disputes arising during the
Term that have not been resolved), 7.8, 7.9 (once within one year after termination), 7.10,
9.5 (with respect to rejection of any Cell Therapy Product), 12.2, 14.6, 16.3, this 16.4,
18.1, and 18.4-18.13, shall survive any expiration or termination of this Strategic Alliance
Agreement for any reason. In each situation, where one of the surviving provisions requires
action or review by the JSC, the JSC will also survive expiration or termination to the
extent necessary.



ARTICLE XVII.



DISPUTE RESOLUTION




     17.1 Dispute Resolution Process. The Parties acknowledge and agree that their
long-term mutual interests as of the Effective Date will be best served by effecting a rapid
and fair resolution of any claims or disputes which may arise out of this Strategic Alliance
Agreement or any Transaction Agreement. Therefore, the Parties agree to use their
commercially reasonable best efforts to resolve in good faith all such disputes as rapidly
as possible on a fair and equitable basis.



          (a) Except as set forth in Section 3.7, Section 5.2, Section
5.3 and Section 7.2(c), if any dispute, controversy or claim arising under this
Strategic Alliance
Agreement or any other Transaction Agreement cannot be readily resolved by the Parties,
then the Parties agree to refer the matter to a panel consisting of the President of
Angiotech and the President of Athersys for review and resolution. A copy of the terms of
this Strategic Alliance Agreement and the other Transaction Agreements, agreed-upon facts
(and areas of disagreement), and a concise summary of the basis for each Party’s position
and contentions will be provided to such Presidents, who shall review the same, confer in
good faith and reach a mutual resolution of the issue.




          (b) If a dispute, controversy or claim cannot be settled through negotiation of the
Presidents of the Parties pursuant to Section 17.1(a), then, except as otherwise
specified in any of the Transaction Agreements, the Parties agree to submit the dispute to

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mediation under the Commercial Mediation Rules of the American Arbitration Association.




          (c) If efforts at mediation are unsuccessful within sixty (60) days after the date that
one Party notifies the other Party that it desires to resolve a dispute, controversy or
claim through mediation, any unresolved dispute, controversy or claim between the Parties
shall be resolved at the mutual agreement of the Parties by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration Association,
except as modified herein. Failing mutual agreement to submit such unresolved dispute,
controversy or claim to arbitration, either Party may resort to other legal remedies.




          (d) If the Parties mutually agree to submit an unresolved dispute, controversy or claim
to arbitration, each Party shall select one arbitrator and the two (2) arbitrators so
selected shall choose a third arbitrator to resolve the dispute. Prior to the commencement
of arbitration, each Party shall certify that its chosen arbitrator is competent to decide
such dispute and the two (2) arbitrators so certified shall jointly certify that their
chosen third arbitrator is likewise competent to decide such dispute. Such competence may
include the ability to understand disputes which are primarily scientific in nature or which
require expertise and knowledge of processes related to the commercial development of a
pharmaceutical/medical device product which is peculiar to persons in the
biotechnology/pharmaceutical industry. A reasoned arbitration decision shall be rendered in
writing within six (6) months of the conclusion of mediation and shall be binding and not be
appealable to any court in any jurisdiction. The prevailing Party may enter such decision
in any court having competent jurisdiction. The mediation and arbitration proceedings shall
be conducted in the English language and shall be held in New York, New York, U.S.A. The
Parties agree that they shall share equally the cost of the mediation and arbitration filing
and hearing fees, and the cost of the mediator/arbitrator. Each Party must bear its own
attorneys’ fees and associated costs and expenses with respect to any such mediation and
arbitration proceedings.




     17.2 Injunctive Relief. Each Party acknowledges that (a) the covenants and the
restrictions of the other Party that are contained in this Strategic Alliance Agreement and
the other Transaction Agreements are an inducement to enter into this Strategic Alliance
Agreement and the
other Transaction Agreements, and are necessary and required for the protection of the
Parties, (b) such covenants and restrictions may relate to matters that are of a special,
unique and extraordinary character that may give each of such covenants a special, unique
and extraordinary value, and (c) a material breach of any of such covenants and restrictions
may result in irreparable harm and damages to a Party in an amount that may be difficult to
ascertain, and which may not be adequately compensated by a monetary award. Accordingly,
in addition to any of the relief to which a Party may be entitled under this Strategic
Alliance Agreement or any other Transaction Agreement, at law or in equity, such Party shall
be entitled to seek temporary and permanent injunctive relief from any such breach or
threatened breach of such covenants or restrictions without proof of actual damages that
have been or may be caused to such Party by such breach or threatened breach. In the event
an action for injunctive relief is



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brought by a Party, the other Party waives any right to
require the Party bringing such action to post any bond or other security with the court in
connection therewith.




ARTICLE XVIII.



MISCELLANEOUS PROVISIONS




     18.1 Governing Law. The Transaction Agreements shall be governed by and
construed in accordance with the laws of the State of New York, without giving effect to the
principles of conflict of laws.



     18.2 Assignment. Neither Party shall be permitted to assign or otherwise
transfer any of its rights or obligations under the Transaction Agreements without the prior
written consent of the other Party; provided, however, that, subject to Section
16.2(e), a Party may assign or otherwise transfer all of its rights and obligations
under the Transaction Agreements without the prior written consent of the other Party (a) in
connection with a sale of all or substantially all of its business or assets, whether by
merger, sale of stock, sale of assets or otherwise or (b) to an Affiliate of such Party.
Notwithstanding the foregoing, in the event of any such permitted assignment or other
transfer, all rights and obligations under the Transaction Agreements must be assigned or
otherwise transferred together in their entirety to such assignee or successor.



     18.3 Compliance With Laws. Each Party shall comply with all applicable laws,
rules and regulations in connection with its performance of its obligations and exercise of
its rights under the Transaction Agreements. Each Party shall furnish to the other Party
any information reasonably requested or required by the requesting Party during the Term to
enable the requesting Party to comply with the requirements of any United States or foreign
federal, state, and/or government agency.



     18.4 Further Assurances. At any time, or from time to time, following the date of the Transaction Agreements,
each Party shall, at the request of the other Party (a) deliver or cause to be delivered to
the requesting Party any records, data or other documents consistent with the provisions of
the Transaction Agreements, (b) duly execute and deliver, or cause to be duly executed or
delivered, all such consents, assignments, documents or further instruments of transfer or
license as required by the Transaction Agreements, and (c) take or cause to be taken all
such actions, in each case as the requesting Party may reasonably deem necessary in order
for the requesting Party to obtain the full benefits of the Transaction Agreements and the
transactions contemplated hereby.



     18.5 Severability. In the event that any provision of the Transaction
Agreements is determined to be invalid or unenforceable by a court of competent
jurisdiction, the remainder of the Transaction Agreements shall remain in full force and
effect without said provision. In such event, the Parties shall in good faith attempt to
negotiate a substitute clause for any provision declared invalid or unenforceable, which
substitute clause shall most nearly approximate the intent of the Parties in agreeing to
such invalid provision, without itself being invalid.



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     18.6 Waivers And Amendments; Preservation Of Remedies. The Transaction
Agreements may be amended, modified, superseded, canceled, renewed or extended, and the
terms and conditions hereof may be waived, only by a written instrument signed by the
Parties or, in the case of a waiver, the Party waiving compliance. No delay on the part of
any Party in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any Party of any right, power or privilege
hereunder, nor any single or partial exercise of any right, power or privilege hereunder,
preclude any other or other exercise thereof hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies which any Party may
otherwise have at law or in equity.



     18.7 Headings. The captions to the several Articles and Sections hereof are
not a part of the Transaction Agreements, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.



     18.8 Counterparts. The Transaction Agreements may be executed by original or
facsimile signature in any number of counterparts, and each such counterpart shall be deemed
to be an original instrument, and all of which counterparts together shall constitute one
instrument.



     18.9 Successors. This Strategic Alliance Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors and permitted assigns.



     18.10 Notices. All notices, requests, demands, claims and other communications
hereunder shall be in writing and shall be deemed to have been duly given if delivered
personally, by fax, sent by nationally recognized overnight courier or mailed by registered
or certified mail (return receipt requested), postage prepaid, to the Parties at the
addresses set forth below (or at such other address for such party as shall be specified by
like notice). All such notices and other communications shall be deemed to have been given
and received (a) in the case of personal delivery, on the date of such delivery, (b) in the
case of delivery by facsimile transmission, on the date of such delivery, (c) in the case of
delivery by nationally recognized express courier, on the date of such delivery, and (d) in
the case of mailing within the United States, on the fifth (5th) business day
following such mailing.


If to Angiotech:



Angiotech Pharmaceuticals, Inc.

1618 Station Street

Vancouver, BC Canada V6A 1B6

Fax: 604-221-2330

Attn: Vice President Business Development



with a required copy to:



Angiotech Pharmaceuticals, Inc.

1618 Station Street




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Vancouver, BC Canada V6A 1B6

Fax: 604-221-2330

Attn: General Counsel



If to Athersys:



Athersys, Inc.

3201 Carnegie Avenue

Cleveland, OH 44115-2634

Fax: (216) 361-9495

Attn: Chief Executive Officer



with a copy (which shall not constitute notice) to:



Jones Day

North Point

901 Lakeside Avenue

Cleveland, OH 44114

Fax: (216) 579-0212

Attn: Thomas A. Briggs, Esq.



     18.11 No Consequential Damages. EXCEPT IN CONNECTION WITH A PARTY’S
OBLIGATIONS UNDER ARTICLE XV, IN NO EVENT SHALL A PARTY BE LIABLE TO THE OTHER PARTY
FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY,
TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, LOSS OF
PROFITS OR REVENUE.



     18.12 Independent Contractor. Neither Party shall be construed to be a
partner, joint venturer, franchisee, employee, principal, agent, representative or
participant of or with the other Party for any purpose whatsoever by virtue of the
Transaction Agreements. No Party has any right or authority to assume or to create any
obligation or responsibility, express or implied, on behalf of or in the name of the other
Party in any manner by virtue of the Transaction Agreements.



     18.13 Complete Agreement. This Strategic Alliance Agreement, together with its
Schedules and Exhibits, and any Pre-Clinical Development Plans and Clinical Development
Plans approved by the Parties, the Note and Purchase Agreement, and the Mutual Confidential
Disclosure Agreement between the Parties dated July 20, 2005, along with any other letters
or agreements signed by both Parties and of even date herewith, constitute the entire
agreement, both written and oral, between the Parties with respect to the subject matter
hereof, and all prior agreements respecting the subject matter hereof, either written or
oral, expressed or implied, are merged and canceled, and are null and void and of no effect.



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[Signature page follows]




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     IN WITNESS WHEREOF, the Parties have caused this Strategic Alliance Agreement to be
executed by their duly authorized officers, effective as of the Effective Date.



	 	 	 	 	 	 	 
	 	 	ATHERSYS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	ANGIOTECH PHARMACEUTICALS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 





[Signature page to Strategic Alliance Agreement]





 









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Schedule 1.13

Cost Definitions





	1.	 	“Clinical Development Costs” means, with respect to each Clinical Development Plan, all of
the external and internal costs and expenses (including applicable overhead costs and
expenses, including applicable general and administrative expenses, but excluding any
Commercialization Costs and Commercial Manufacturing Costs) incurred or paid by a Party and
its Affiliates in connection with the clinical development of Clinical Development Candidates
or Cell Therapy Products, including, without limitation, the following costs to the extent
such costs are actually incurred by a Party, accounted for in accordance with U.S. GAAP as
consistently applied by such Party and attributable to the activities assigned to it under the
Clinical Development Plan (except to the extent such costs constitute Commercialization Costs
or Commercial Manufacturing Costs):






	 	(a)	 	All direct costs of preparing and conducting clinical trials that is/are
subject of the Clinical Development Plan, including all direct costs related to site
recruitment, enrollment, project management, site management and monitoring,
biostatistics, clinical event classification, medical communication, data management,
outcome studies, regulatory submissions and compliance, safety surveillance, clinical
monitoring and all Clinical Manufacturing Costs; and
	 
	 	(b)	 	A reasonable allocation of indirect costs associated with the foregoing.






	2.	 	“Commercialization Costs” means, with respect to each Cell Therapy Product, all of the
external and internal costs and expenses (including applicable overhead costs and expenses,
including applicable general and administrative expenses, but excluding any Clinical
Development Costs and Commercial Manufacturing Costs) incurred or paid by Angiotech and its
Affiliates in connection with the commercialization of Cell Therapy Products, including,
without limitation, the following costs to the extent such costs are actually incurred by a
Party, accounted for in accordance with U.S. GAAP as consistently applied by such Party and
attributable to the promotion, marketing, advertising, sale, or distribution of the Cell
Therapy Product and preparing and conducting Phase IV Studies:






	 	(a)	 	All direct costs of promoting, marketing, advertising and selling the Cell
Therapy Product, including sales commissions, product labels, marketing brochures,
graphic and media design, website modification and license fees (if any);
	 
	 	(b)	 	All Third Party Payments; and
	 
	 	(c)	 	A reasonable allocation of indirect costs associated with the foregoing;
	 
	 	 	 	provided that any costs described above incurred or paid by Angiotech and its Affiliates in
connection with the preparation for commercialization of a Clinical Development Candidate
that Angiotech reasonably believes will obtain Regulatory Approval for at least one
Cardiovascular Indication (and thereby become a “Cell Therapy Product” hereunder) shall also
be deemed to be “Commercialization Costs”.





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	3.	 	“Manufacturing Costs” means, with respect to each Clinical Development Candidate (the
“Clinical Manufacturing Costs”) and Cell Therapy Product (the “Commercial Manufacturing
Costs”), all of the external and internal costs and expenses (including applicable overhead
costs and expenses, including applicable general and administrative expenses, but excluding
any Clinical Development Costs) incurred or paid by Athersys and its Affiliates (or Angiotech
and its Affiliates if Angiotech has acquired manufacturing rights hereunder) in connection
with the manufacturing of Clinical Development Candidates or Cell Therapy Products (as
applicable), including, without limitation, the following costs to the extent such costs are
actually incurred by the manufacturing Party, accounted for in accordance with U.S. GAAP as
consistently applied by the manufacturing Party and attributable to the manufacture and supply
of the Clinical Development Candidate or Cell Therapy Product (as applicable) to Angiotech or
any Third Party:






	 	(a)	 	All direct costs of manufacturing and supply the Clinical Development Candidate
or Cell Therapy Product (as applicable), including all direct costs of raw materials,
labor, license fees (if any), maintenance and repair of equipment used to manufacture
the Clinical Development Candidate or Cell Therapy Product (as applicable), storage and
packaging and shipping costs; and
	 
	 	(b)	 	A reasonable allocation of indirect costs associated with the foregoing,
including depreciation associated with the cost of capital for equipment used to
manufacture the Clinical Development Candidate or Cell Therapy Product (as applicable).





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Schedule 1.14

Clinical Development Plans




[Each Clinical Development Plan to be developed by the Parties in accordance with the

Strategic Alliance Agreement and attached hereto]




 









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Schedule 1.33

Patent Rights Related To MAPCs






	 	 	 	 	 	 	 	 	 	 	 	 	 
	APPLICATION	 	 	 	 	 	 	 	 	 	 	 	U.S. FILING DATE /
	NO./	 	 	 	 	 	 	 	 	 	 	 	NATIONAL PHASE
	PUBLICATION	 	PATENT	 	 	 	PRIORITY	 	 	 	DATE /
	NO.	 	NO.	 	COUNTRY	 	INFORMATION	 	TITLE	 	PATENT ISSUE DATE
	60/147,324

	 	 	 	 	 	U.S.
	 	N/A
	 	Totipotent Adult Stem Cells and
Methods for Isolation
	 	5 August 1999
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/164,650

	 	 	 	 	 	U.S.
	 	N/A
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	10 November 1999
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/US00/21387

Pub. No.: WO
01/11011

	 	 	 	 	 	PCT
	 	60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	4 August 2000

15 Feb. 2001
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	784163	 	 	Australia
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	12/20/05
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	2,381,292

	 	 	 	 	 	Canada
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	4 February 2002
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	EP 00953840.6

	 	 	 	 	 	Europe
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	5 March 2002
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	02109304.0

	 	 	 	 	 	Hong Kong
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	23 December 2002
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	147990

	 	 	 	 	 	Israel
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	4 February 2002
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	IN/PCT/2002/00311/CHE

	 	 	 	 	 	India
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	28 February 2002






 









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	APPLICATION	 	 	 	 	 	 	 	 	 	 	 	U.S. FILING DATE /
	NO./	 	 	 	 	 	 	 	 	 	 	 	NATIONAL PHASE
	PUBLICATION	 	PATENT	 	 	 	PRIORITY	 	 	 	DATE /
	NO.	 	NO.	 	COUNTRY	 	INFORMATION	 	TITLE	 	PATENT ISSUE DATE
	2001-515800

2003-506075

	 	 	 	 	 	Japan
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	5 February 2002

18 February 2003
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	517002	 	 	New Zealand
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	10/07/04
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	86695	 	 	Singapore
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	09/30/04
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	7015037	 	 	U.S.
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	03/21/06
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	11/084,256

Pub. No.: 2005-
0181502-A1 **

	 	 	 	 	 	U.S.
	 	10/048,757
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	21 March 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	11/238,234

Pub.No.: 2006-
0030041-A1 **

	 	 	 	 	 	U.S.
	 	10/048,757
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	29 September 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	2002/1125	 	 	South Africa
	 	PCT/US00/21387

60/147,324

60/164,650
	 	Multipotent Adult Stem Cells and
Methods for Isolation
	 	8 February 2002
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/268,786

	 	 	 	 	 	U.S.
	 	N/A
	 	Multipotent Adult Stem Cells
	 	14 February 2001
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/269,062

	 	 	 	 	 	U.S.
	 	N/A
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Therefrom
	 	15 February 2001






 









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	APPLICATION	 	 	 	 	 	 	 	 	 	 	 	U.S. FILING DATE /
	NO./	 	 	 	 	 	 	 	 	 	 	 	NATIONAL PHASE
	PUBLICATION	 	PATENT	 	 	 	PRIORITY	 	 	 	DATE /
	NO.	 	NO.	 	COUNTRY	 	INFORMATION	 	TITLE	 	PATENT ISSUE DATE
	60/310,625

	 	 	 	 	 	U.S.
	 	N/A
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Therefore
	 	7 August 2001
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/343,836

	 	 	 	 	 	U.S.
	 	N/A
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	25 October 2001
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/US02/04652

WO 02/064748

	 	 	 	 	 	PCt
	 	60/343,836

60/310,625

60/269,062

60/268,786
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	14 February 2002
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	2002250106

	 	 	 	 	 	Australia
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	14 February 2002
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	2,438,501

	 	 	 	 	 	Canada
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	14 February 2002






 









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	APPLICATION	 	 	 	 	 	 	 	 	 	 	 	U.S. FILING DATE /
	NO./	 	 	 	 	 	 	 	 	 	 	 	NATIONAL PHASE
	PUBLICATION	 	PATENT	 	 	 	PRIORITY	 	 	 	DATE /
	NO.	 	NO.	 	COUNTRY	 	INFORMATION	 	TITLE	 	PATENT ISSUE DATE
	Appl. No.:
02718998.4
Pub. No.: 1367899

	 	 	 	 	 	Europe
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	12 September 03
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	04023157.3-2405

Pub No.: 1491093A2

	 	 	 	 	 	Europe
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	29 September 2004
29 December 2004
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	05100618.7

Pub No. 1068227A

	 	 	 	 	 	Hong Kong
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	24 January 2005

20 April 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	157332

	 	 	 	 	 	Israel
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	14 February 2002
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	2002-565063

	 	 	 	 	 	Japan
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	14 August 2003






 









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	APPLICATION	 	 	 	 	 	 	 	 	 	 	 	U.S. FILING DATE /
	NO./	 	 	 	 	 	 	 	 	 	 	 	NATIONAL PHASE
	PUBLICATION	 	PATENT	 	 	 	PRIORITY	 	 	 	DATE /
	NO.	 	NO.	 	COUNTRY	 	INFORMATION	 	TITLE	 	PATENT ISSUE DATE
	527527

	 	 	 	 	 	New Zealand
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	12 August 2003
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	20030512801

	 	 	 	 	 	Singapore
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	14 February 2002
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	10/467,963
Pub. No.:
20040107453 **

	 	 	 	 	 	U.S.
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	05 January 2004
	11/084,809
Pub. No.:
20050283844 **

	 	 	 	 	 	U.S.
	 	10/467,963
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	21 March 2005

22 December 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	2003/6289	 	 	South Africa
	 	PCT/US02/04652
	 	Multipotent Adult Stem Cells,
Sources Thereof, Methods of
Obtaining and Maintaining Same,
Methods of Differentiation
Thereof,
Methods of Use Thereof and Cells
Derived Thereof
	 	23 February 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/389,799

	 	 	 	 	 	U.S.
	 	N/A
	 	Pluripotency Of Mesenchymal Stem

Cells Derived From Adult Marrow
	 	19 June 2002






 









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	APPLICATION	 	 	 	 	 	 	 	 	 	 	 	U.S. FILING DATE /
	NO./	 	 	 	 	 	 	 	 	 	 	 	NATIONAL PHASE
	PUBLICATION	 	PATENT	 	 	 	PRIORITY	 	 	 	DATE /
	NO.	 	NO.	 	COUNTRY	 	INFORMATION	 	TITLE	 	PATENT ISSUE DATE
	60/429,631

	 	 	 	 	 	U.S.
	 	N/A
	 	Homologous Recombination in

Multipotent Adult Progenitor Cells
	 	27 November 2002
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/US03/38811

Pub. No.:
WO/2004/050859

	 	 	 	 	 	PCT
	 	60/429,631
	 	Homologous Recombination in

Multipotent Adult Progenitor Cells
	 	25 November 2003
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Docket No.:
	 	 	 	 	 	 	 	 	 	 	 	 
	890003-2003.1
**

	 	 	 	 	 	U.S.
	 	PCT/US03/38811
	 	Homologous Recombination in

Multipotent Adult Progenitor Cells
	 	25 May 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	92133407

	 	 	 	 	 	Taiwan
	 	60/429,631
	 	Homologous Recombination in

Multipotent Adult Progenitor Cells
	 	27 November 2003
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/484,318

	 	 	 	 	 	U.S.
	 	N/A
	 	Enhanced Neuronal Differentiation
of Stem Cells
	 	2 July 2003
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/US2004/021553

WO 2005-003320

	 	 	 	 	 	PCT
	 	60/484,318
	 	Enhanced Neuronal Differentiation
of Stem Cells
	 	2 July 2004
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Docket No.: 890003-
2006.1 **

	 	 	 	 	 	U.S.
	 	PCT/US2004/021553
	 	Enhanced Neuronal Differentiation
of Stem Cells
	 	22 December 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/484,563

	 	 	 	 	 	U.S.
	 	N/A
	 	Tissue-Engineered Blood Vessels
	 	01 July 2003
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/484,595

	 	 	 	 	 	U.S.
	 	N/A
	 	Tissue-Engineered Blood Vessels
	 	02 July 2003
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/US2004/021414

WO 2005/003317

	 	 	 	 	 	PCT
	 	60/484,563

60/484,595
	 	Tissue-Engineered Blood Vessels
	 	01 July 2004
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Docket No.: 890003-
2008.1 **

	 	 	 	 	 	U.S.
	 	PCT/US2004/021414
	 	Tissue-Engineered Blood Vessels
	 	30 December 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/504,125

	 	 	 	 	 	U.S.
	 	N/A
	 	MAPC Generation of Muscle Tissue
	 	19 September 2003
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	10/945,528 **

	 	 	 	 	 	U.S.
	 	60/504,125
	 	MAPC Generation of Muscle Tissue
	 	20 September 2004
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/504,100

	 	 	 	 	 	U.S.
	 	N/A
	 	MBMP-Engraftment into Muscle

Tissues
	 	19 September 2003
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/517,980

	 	 	 	 	 	U.S.
	 	N/A
	 	Multipotent Stem Cells in Liver
and
Methods for Isolation Thereof
	 	05 November 2003






 









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	APPLICATION	 	 	 	 	 	 	 	 	 	 	 	U.S. FILING DATE /
	NO./	 	 	 	 	 	 	 	 	 	 	 	NATIONAL PHASE
	PUBLICATION	 	PATENT	 	 	 	PRIORITY	 	 	 	DATE /
	NO.	 	NO.	 	COUNTRY	 	INFORMATION	 	TITLE	 	PATENT ISSUE DATE
	60/564,628

	 	 	 	 	 	U.S.
	 	N/A
	 	MAPC Generation of Lung Tissue
	 	21 April 2004
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/US2005/013651

Pub. No.: WO
2005/113748 **

	 	 	 	 	 	PCT
	 	60/564,628
	 	MAPC Generation of Lung Tissue
	 	21 April 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/527,249

	 	 	 	 	 	U.S.
	 	N/A
	 	Compositions and Methods for the
Treatment of Lysosomal Storage
Disorders
	 	4 December 2003
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/US2004/040932

Pub. No.: WO
2005/056026 **

	 	 	 	 	 	PCT
	 	60/527,249
	 	Compositions and Methods for the
Treatment of Lysosomal Storage
Disorders
	 	6 December 2004
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/625,426

	 	 	 	 	 	U.S.
	 	N/A
	 	Growth of Multipotent Adult
Progenitor Cells under Low Oxygen
Conditions
	 	04 November 2004
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/622,183

	 	 	 	 	 	U.S.
	 	N/A
	 	Swine Multipotent Adult Progenitor

Cells
	 	26 October 2004
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/US2005/038979
**

	 	 	 	 	 	PCT
	 	60/622,183
	 	Swine Multipotent Adult
Progenitor Cells
	 	26 October 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	10/963,444

	 	 	 	 	 	U.S.
	 	10/048,757

10/467,963
	 	Use of Multipotent Adult Stem
Cells in Treatment of Myocardial
Infarction and Congestive Heart
Failure
	 	11 October 2004
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	11/151,689
Pub. No.: US-
2006-
0008450-A1 **

	 	 	 	 	 	U.S.
	 	10/963,444
	 	Use of Multipotent Adult Stem
Cells in Treatment of Myocardial
Infarction and Congestive Heart
Failure
	 	13 June 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/652,015

	 	 	 	 	 	U.S.
	 	N/A
	 	Endothelial Cells Derived from

Multipotent Adult Progenitor

Cells (MAPCs)
	 	10 February 2005






 









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	APPLICATION	 	 	 	 	 	 	 	 	 	 	 	U.S. FILING DATE /
	NO./	 	 	 	 	 	 	 	 	 	 	 	NATIONAL PHASE
	PUBLICATION	 	PATENT	 	 	 	PRIORITY	 	 	 	DATE /
	NO.	 	NO.	 	COUNTRY	 	INFORMATION	 	TITLE	 	PATENT ISSUE DATE
	PCT/US2006/004749

	 	 	 	 	 	PCT
	 	60/652,015
	 	Endothelial Cells Derived from

Multipotent Adult Progenitor

Cells (MAPCs)
	 	10 February 2006
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/US2005/015740
**

	 	 	 	 	 	PCT
	 	N/A
	 	Use of NK Inhibition to
Facilitate Persistence of MHC-I
Negative Cells
	 	05 May 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PCT/US2005/027147
**

	 	 	 	 	 	PCT
	 	PCT/US2005/015740
	 	Use of MAPC or Progeny Therefrom
to Populate Lympho-hematopoietic
Tissues
	 	29 July 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/703,823 **

	 	 	 	 	 	U.S.
	 	N/A
	 	Culture of Non-Embryonic Stem
Cells at High Cell Density
	 	29 July 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/704,169

	 	 	 	 	 	U.S.
	 	N/A
	 	Use of a GSK3 Beta Inhibitor to
Maintain Pluripotency of Cultured
Non-Embryonic Stem Cells
	 	29 July 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/726,750 **

	 	 	 	 	 	U.S.
	 	N/A
	 	Differentiation of MAPCs to
Pancreatic cells
	 	14 October 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	2004269409

	 	 	 	 	 	Australia
	 	60/499127 and
PCT/US2004/028231
	 	Kidney Derived Stem Cells and
Methods for Their Isolation,
Differentiation and Use
	 	30 August 2004
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	11/364,511

	 	 	 	 	 	U.S.
	 	60/499127 and
PCT/US2004/028231
	 	Kidney Derived Stem Cells and
Methods for Their Isolation,
Differentiation and Use
	 	28 February 2006
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	11/269,736

	 	 	 	 	 	U.S.
	 	11/151,689
	 	Immunomodulatory Properties of
MAPC and Uses Thereof
	 	9 November 2005
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	60/760,951

	 	 	 	 	 	U.S.
	 	N/A
	 	Methods for Sustained Functional
Effects of MAPCs on Cortical
Infarcts and the Like
	 	23 January 2006








 




			
	**	 	Some or all of the technology in the application was supported with U.S. government
funds.






 









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Schedule 1.45

Pre-Clinical Development Plans




[Each Pre-Clinical Development Plan to be developed by the Parties in accordance with the

Strategic Alliance Agreement and attached hereto]




 









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Schedule 2.2

Equity Valuation 





	1.	 	For the purpose of any Athersys capital stock issued to Angiotech pursuant to this Strategic
Alliance Agreement, the price per share of such Athersys capital stock shall be calculated as
follows:






	 	(a)	 	If at the time of issuance Athersys common stock is publicly traded, the
capital stock shall be Athersys common stock and the price per share of Athersys common
stock shall be equal to (i) the Average Closing Price (as defined below) plus
(ii) 12.5% of the Average Closing Price.
	 
	 	(b)	 	If at the time of issuance Athersys common stock is not publicly traded, the
capital stock shall be Athersys common stock and the price per share of Athersys common
stock shall be equal to the price per share for the purchase of common stock during the
last round of funding by Athersys from any Third Party financial investor plus
12.5% of such amount and.






	2.	 	For purposes of this Schedule, the following terms shall have the meanings indicated below:






	 	(a)	 	“Average Closing Price” shall mean the arithmetic mean of the Closing Prices
(as defined below) for the twenty (20) days immediately preceding the fifth trading day
prior to the date of issuance.
	 
	 	(b)	 	“Closing Price” shall mean the price per share of the last sale of Athersys
common stock, as reported on the relevant national exchange on which the Athersys
common stock is publicly traded, at the close of the trading day.






 









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Schedule 4.1

Existing Third Party Agreement

Preclinical Development Programs With Third Parties










	1.	 	Material Transfer and Intellectual Property Disposition Agreement, dated as of April 5,
2004, by and between Athersys, Inc. and the Cleveland Clinic Foundation, as amended.
Agreement governs operation of and intellectual property created (if any) related to
research projects conducted by or under the direction of Dr. Marc Penn in the area of
myocardial infarction.
	 
	2.	 	Cooperative Research and Development Agreement, dated as of April 22, 2004, by and
between Athersys, Inc. and the Public Heath Service (NHLBI), as amended on September 7,
2005. Agreement governs operation of and intellectual property created (if any)
related to cooperative research projects conducted by Athersys and NHLBI, by or under the
direction of Dr. Toren Finkle, in the area of cardiovascular application of MAPCs.
	 
	3.	 	Research Agreement, dated as of April 29, 2003, by and between MCL LLC and the Regents
of the University of Minnesota, assumed by ReGenesys, LLC through operation of merger on
November 4, 2003, and Amendment No. 1 dated as of May 1, 2004, Amendment No. 2 dated as of
July 1, 2004, Amendment No. 3 dated as of February 1, 2005, and Amendment No. 4 dated as of
April 25, 2005 (effective as of January 1, 2005), (and subsequently assigned to Athersys,
Inc. pursuant to the Technology and Contract Transfer Agreement listed as item 1).
Agreement governs operation of and intellectual property created (if any) related to
series of research projects conducted by University of Minnesota investigators including
Dr. Catherine Verfaillie. Among the research projects is a project conducted by or under
the direction of Dr. Jianyi Zhang in the area of myocardial repair.
	 
	4.	 	Master Agreement by and between MPI research, Inc. and Athersys, Inc., dated as of
October 13, 2005, and various Service Agreement Addendums. Services agreement
describes the disposition of intellectual property created (if any) related to research
projects focused on ischemia reperfusion model in pig.
	 
	5.	 	License and Supply Agreement, dated as of August 8, 2005, by and between Athersys, Inc.
and Mercator, Inc. (formerly EndoBionics, Inc.). Agreement providing Athersys rights
to use a proprietary transvascular catheter.
	 
	6.	 	Service Agreement, dated as of December 9, 2005, by and between Athersys, Inc. and Perry
Scientific Inc. Services agreement describes the disposition of intellectual property
created (if any) related to research projects focused on stem cell engraftment.
	 
	7.	 	Authorization to Proceed agreement, dated as of February 17, 2006, by and between
Athersys, Inc. and Cambrex Bio Science Walkersville, Inc. Services agreement
describes the disposition of intellectual property created (if any) related to process
development services.







 









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Schedule 7.3

Milestone Payments





	1.	 	Upon first Successful Completion of a Phase II Study for a Clinical Development Candidate in
the U.S. (or foreign equivalent trial) in any of the Cardiovascular Indications, one of the
following shall occur:






	 	(a)	 	If both Athersys and Angiotech agree that such Clinical Development Candidate
should proceed to a Phase III Study, then the following shall apply:






	 	(i)	 	Angiotech shall pay to Athersys a one-time milestone payment in
cash equal to $[*]; and
	 
	 	(ii)	 	Angiotech shall enter into a securities purchase agreement, in
substantially the form of the Purchase Agreement (except for necessary
adaptations for a securities purchase instead of a note purchase), pursuant to
which Angiotech shall make a one-time purchase of $[*]of capital stock of
Athersys, of the class and at the per share price determined in accordance with
Schedule 2.2, on the terms and conditions set forth therein.






	 	(b)	 	If both Athersys and Angiotech agree that an additional Phase II Study needs to
be conducted for such Clinical Development Candidate, then the following shall apply:






	 	(i)	 	Angiotech shall pay to Athersys a one-time milestone payment in
cash equal to $[*]; and
	 
	 	(ii)	 	Upon next Successful Completion of a Phase II Study for any
Clinical Development Candidate in any Cardiovascular Indication, and a mutual
determination that such Clinical Development Candidate should proceed to a
Phase III Study, Angiotech shall enter into a securities purchase agreement, in
substantially the form of the Purchase Agreement (except for necessary
adaptations for a securities purchase instead of a note purchase), pursuant to
which Angiotech shall make a one-time purchase of $[*]of capital stock of
Athersys, of the class and at the per share price determined in accordance with
Schedule 2.2, on the terms and conditions set forth therein.






	 	(c)	 	If Angiotech believes that the Clinical Development Candidate should proceed to
a Phase III Study and Athersys does not agree with Angiotech then, if such disagreement
persists after attempts at resolution by the Heads of Research and the Party’s
President, CFO (or other designated executive level officer) pursuant to Section
3.7(b), the following shall apply:







 




			
	*	 	Confidential treatment has been requested for the redacted portions of
this exhibit, and such confidential portions have been omitted and filed separately with the
Securities and Exchange Commission.




- 1 -









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	 	(i)	 	Angiotech shall pay to Athersys a one-time milestone payment in cash equal
to $[*];
	 
	 	(ii)	 	Athersys shall be deemed to have delivered an Opt-Out Notice
with respect to such Clinical Development Candidate pursuant to ARTICLE
VI and all such provisions in ARTICLE VI shall apply; and
	 
	 	(iii)	 	Upon the next Successful Completion of a Phase II Study for
any Clinical Development Candidate in any Cardiovascular Indication, and a
mutual determination that such Clinical Development Candidate should proceed to
a Phase III Study, Angiotech shall enter into a securities purchase agreement,
in substantially the form of the Purchase Agreement (except for necessary
adaptations for a securities purchase instead of a note purchase), pursuant to
which Angiotech shall make a one-time purchase of $[*]of capital stock of
Athersys, of the class and at the per share price determined in accordance with
Schedule 2.2, on the terms and conditions set forth therein.






	 	(d)	 	If Athersys believes that the Clinical Development Candidate should proceed to
a Phase III Study and Angiotech does not agree with Athersys then, if such disagreement
persists after attempts at resolution by the Heads of Research and the Party’s
President, CFO (or other designated executive level officer) pursuant to Section
3.7(b), the following shall apply:






	 	(i)	 	No milestone payment shall be paid by Angiotech to Athersys
with respect to such Phase II Study;
	 
	 	(ii)	 	Angiotech shall be deemed to have delivered an Opt-Out Notice
with respect to such Clinical Development Candidate pursuant to ARTICLE
VI and all such provisions in ARTICLE VI shall apply; and
	 
	 	(iii)	 	Upon the next Successful Completion of a Phase II Study for
any Clinical Development Candidate in any Cardiovascular Indication, and a
mutual determination that such Clinical Development Candidate should proceed to
a Phase III Study, the following shall apply:






	 	(A)	 	Angiotech shall pay to Athersys a one-time
milestone payment in cash equal to $[*]; and
	 
	 	(B)	 	Angiotech shall enter into a securities
purchase agreement, in substantially the form of the Purchase Agreement
(except for necessary adaptations for a securities purchase instead of
a note purchase), pursuant to which Angiotech shall make a one-time
purchase of $[*]of capital stock of Athersys, of the class and at the
per share price determined in accordance with Schedule 2.2, on
the terms and conditions set forth therein.






 






	*	 	 Confidential treatment has been requested for the redacted portions of
this exhibit, and such confidential portions have been omitted and filed separately with the
Securities and Exchange Commission.




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	 	(e)	 	If both Athersys and Angiotech agree that such Clinical Development Candidate
should NOT proceed to a Phase III Study and that an additional Phase II should NOT be
conducted for such Clinical Development Candidate, then the following shall apply:






	 	(i)	 	No milestone payment shall be paid by Angiotech to Athersys
with respect to such Phase II Study; and
	 
	 	(ii)	 	The provisions of this Schedule 7.3, Item 1 shall apply to
future Phase II Studies with respect to other Clinical Development Candidates
in any Cardiovascular Indications as if such prior Phase II Studies had not
been conducted.





     For the avoidance of doubt, in no event shall Angiotech be obligated to pay to Athersys during
the Term more than $[*]in the aggregate under this Schedule 7.3, Item 1.




	2.	 	Upon the approval of the first NDA/BLA for the first Clinical Development Candidate in the
U.S. in any of the Cardiovascular Indications, Angiotech shall pay to Athersys a one-time
milestone payment in cash equal to $[*].






	3.	 	Upon the approval of the first NDA/BLA equivalent application for the first Clinical
Development Candidate in Europe for any of the Cardiovascular Indications, Angiotech shall pay
to Athersys a one-time milestone payment in cash equal to $[*].






	4.	 	For Net Sales (of all Cell Therapy Products in the aggregate on a worldwide basis) reaching
$500,000,000.00, Angiotech shall pay to Athersys a one-time milestone payment in cash equal to
$[*].






	5.	 	For Net Sales (of all Cell Therapy Products in the aggregate on a worldwide basis) reaching
$1,000,000,000.00, Angiotech shall pay to Athersys a one-time milestone payment in cash equal
to $[*].




     For the avoidance of doubt, for purposes of this Schedule 7.3 and the milestone payment
obligations described herein, “Cell Therapy Products” shall not include Sole Development Products,
except as and to the extent specifically provided in Section 16.3(a).






 




			
	*	 	Confidential treatment has been requested for the redacted portions
of this exhibit, and such confidential portions have been omitted and filed separately with the
Securities and Exchange Commission






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Schedule 7.4

Profit Sharing





	1.	 	“Profits” means, with respect to any calendar quarter, the aggregate of all Net Sales of all
Cell Therapy Products in such quarter minus the aggregate of all Commercial Manufacturing
Costs and Commercialization Costs incurred in such quarter.






	2.	 	Profits from the commercialization of a Cell Therapy Product, whether such calculation leads
to a positive or negative number, will be split [*]% by Athersys and [*]% by Angiotech
(subject to modification pursuant to Section 2.4(b)) according to the following
procedure:






	 	(a)	 	Within forty-five (45) following the end of each calendar quarter, Angiotech
shall submit to Athersys a written report setting forth in reasonable detail:






	 	(i)	 	separately with respect to each Cell Therapy Product on a
country by country basis, all Net Sales of Cell Therapy Products in the
immediately preceding calendar quarter and the basis for such calculation; and
	 
	 	(ii)	 	all Commercialization Costs in the immediately preceding
calendar quarter and the basis for such calculation.






	 	(b)	 	Within forty-five (45) days following the end of each calendar quarter,
Athersys shall submit to Angiotech a written report setting forth in reasonable detail
all Commercial Manufacturing Costs for the immediately preceding calendar quarter.
	 
	 	(c)	 	Within sixty (60) days following the end of each calendar quarter, Angiotech
shall submit to Athersys a written report setting forth the calculation of Profits and
the amount to be paid by one Party to the other Party to split Profits in accordance
with this Schedule. The net amount payable by a Party shall be paid by Angiotech or
Athersys, as the case may be, to the other Party within ten (10) business days after
receipt of such written report, without regard to any dispute as to the amount to be
paid thereunder. In the event of a dispute, the disputing Party shall provide written
notice within such ten (10) business day period after receipt of the written report in
question, specifying in detail such dispute. The Parties shall promptly thereafter
meet and negotiate in good faith a resolution to such dispute. In the event that the
Parties are unable to resolve such dispute within thirty (30) days after notice by the
disputing Party, the CFOs of the Parties shall resolve such dispute.








 




			
	*	 	Confidential treatment has been requested for the redacted portions of
this exhibit, and such confidential portions have been omitted and filed separately with the
Securities and Exchange Commission.




 









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Schedule 14.3(b)

Ownership or Liens, Charges or Encumbrances

Exclusive Ownership








	1.	 	Exclusive License Agreement, dated as of May 17, 2002, by and between Regents of the
University of Minnesota and MCL LLC, assumed by ReGenesys, LLC through operation of merger on
November 4, 2003.
	 
	2.	 	Ownership Agreement, dated as of May 17, 2002, by and between Regents of the University of
Minnesota and MCL LLC, assumed by ReGenesys, LLC through operation of merger on November 4,
2003.
	 
	3.	 	Agreement, dated as of November 2, 1999, by and among MCL LLC, Catherine Verfaillie, Morayma
Reyes, and Leo T. Furcht, assumed by ReGenesys, LLC through operation of merger on November 4,
2003.
	 
	4.	 	Loan and Security Agreement, and Supplement, dated as of November 2, 2004, by and among the
Company, Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., and Costella
Kirsch IV, L.P.
	 
	5.	 	Promissory Notes made by the Company and Advanced Biotherapeutics, Inc., on behalf of Venture
Lending & Leasing IV, Inc., and Costella Kirsch IV, L.P., dated November 12, 2004 (numbers
CK-001 and 4035-001), and dated December 29, 2004 (numbers CK-002 and 4035-002).
	 
	6.	 	UCC Financing Statements of the Company and Advanced Biotherapeutics, Inc. naming Venture
Lending & Leasing IV, Inc., as agent, as secured party.
	 
	7.	 	Intellectual Property Security Agreement, dated as of February 14, 2006, by and between
Athersys, Inc. and Venture Lending & Leasing IV, Inc.






 









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Schedule 14.3(g)

Government Funding



 
	1.	 	See Schedule 1.33 of Strategic Alliance Agreement
	 
	2.	 	See Schedule 2.1 of License Agreement





 









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Schedule 14.3(l)

Unauthorized Use, Infringement or Misappropriation of Intellectual Property




 Athersys copied claims that were in the Neuronyx, Inc. patent application no. 09/960,244.
The U.S. PTO determined that Athersys was the priority applicant, and thus issued to Athersys the
claims in US patent no. 7015037 in March 2006.




 









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Exhibit A




Note Purchase Agreement




Execution Copy




NOTE PURCHASE AGREEMENT




Dated as of May 5, 2006




by and between




ATHERSYS, INC.




and




ANGIOTECH PHARMACEUTICALS, INC.




 









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TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	ARTICLE I.       SALE OF THE NOTE	 	 	1	 
	 

	 	 1.1
	 	The Note
	 	 	1	 
	 

	 	 1.2
	 	The Issuance and Sale of the Note
	 	 	1	 
	 

	 	 1.3
	 	Exemption from Registration; Stockholders’ Agreement
	 	 	1	 
	ARTICLE II.       THE CLOSING	 	 	2	 
	 

	 	 2.1
	 	Deliveries at the Closing
	 	 	2	 
	ARTICLE III.      REPRESENTATIONS AND WARRANTIES OF THE COMPANY	 	 	3	 
	 

	 	 3.1
	 	Organization; Good Standing; Qualification and Power
	 	 	3	 
	 

	 	 3.2
	 	Authorization; Enforceability
	 	 	3	 
	 

	 	 3.3
	 	Noncontravention
	 	 	4	 
	 

	 	 3.4
	 	Compliance with Laws; Organizational Documents
	 	 	4	 
	 

	 	 3.5
	 	Capitalization of the Company
	 	 	5	 
	 

	 	 3.6
	 	Intellectual Property
	 	 	5	 
	 

	 	 3.7
	 	Material Agreements
	 	 	6	 
	 

	 	 3.8
	 	Brokers
	 	 	7	 
	 

	 	 3.9
	 	Financial Statements
	 	 	7	 
	 

	 	 3.10
	 	No Consent or Approval Required
	 	 	7	 
	 

	 	 3.11
	 	Changes
	 	 	8	 
	 

	 	 3.12
	 	Absence of Undisclosed Liabilities
	 	 	9	 
	 

	 	 3.13
	 	Insurance
	 	 	9	 
	 

	 	 3.14
	 	Title to Assets, Properties and Rights
	 	 	9	 
	 

	 	 3.15
	 	Taxes
	 	 	10	 
	 

	 	 3.16
	 	Litigation and Other Proceedings
	 	 	10	 
	 

	 	 3.17
	 	Employee Matters
	 	 	10	 
	 

	 	 3.18
	 	Environmental Matters
	 	 	11	 
	 

	 	 3.19
	 	Disclosure
	 	 	11	 
	ARTICLE IV.      REPRESENTATIONS AND WARRANTIES OF BUYER	 	 	11	 
	 

	 	 4.1
	 	Experience; Accredited Investor Status
	 	 	11	 
	 

	 	 4.2
	 	Company Information
	 	 	12	 
	 

	 	 4.3
	 	Investment
	 	 	12	 






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TABLE
OF CONTENTS

(continued)




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 

	 	 4.4
	 	Transfer Restrictions
	 	 	12	 
	 

	 	 4.5
	 	No Public Market
	 	 	12	 
	 

	 	 4.6
	 	Brokers or Finders
	 	 	12	 
	 

	 	 4.7
	 	Organization; Good Standing; Qualification and Power
	 	 	13	 
	 

	 	 4.8
	 	Authorization
	 	 	13	 
	 

	 	 4.9
	 	No Consent or Approval Required
	 	 	13	 
	ARTICLE V.      MISCELLANEOUS	 	 	13	 
	 

	 	 5.1
	 	Survival of Agreements
	 	 	13	 
	 

	 	 5.2
	 	Expenses
	 	 	13	 
	 

	 	 5.3
	 	No Third Party Beneficiaries
	 	 	13	 
	 

	 	 5.4
	 	Complete Agreement
	 	 	14	 
	 

	 	 5.5
	 	Successors and Assigns
	 	 	14	 
	 

	 	 5.6
	 	Counterparts
	 	 	14	 
	 

	 	 5.7
	 	Press Releases and Public Announcements
	 	 	14	 
	 

	 	 5.8
	 	Notices
	 	 	15	 
	 

	 	 5.9
	 	Governing Law
	 	 	16	 
	 

	 	 5.10
	 	Amendments and Waivers
	 	 	16	 
	 

	 	 5.11
	 	Headings
	 	 	16	 
	 

	 	 5.12
	 	Certain Definitions
	 	 	16	 
	 

	 	 5.13
	 	Incorporation of Schedules and Exhibits
	 	 	19	 
	 

	 	 5.14
	 	Rules of Construction
	 	 	19	 
	 

	 	 5.15
	 	Severability
	 	 	19	 
	 

	 	 5.16
	 	Loss of Note
	 	 	20	 
	 

	 	 5.17
	 	Delivery of Financial Statements and Other Information
	 	 	20	 






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EXHIBITS




	 	 	 
	Exhibit A

	 	Form of Convertible Promissory Note
	Exhibit B

	 	Form of Opinion of Jones Day






SCHEDULES




	 	 	 
	3.1

	 	Subsidiaries; Joint Ventures
	3.5(a)(i)

	 	Capitalization of the Company — Authorized Capital Stock (pre-Closing)
	3.5(a)(ii)

	 	Capitalization of the Company — Issued Capital Stock (pre-Closing)
	3.5(b)

	 	Outstanding Warrants, Options, Rights, Agreements, etc.
	3.7

	 	Material Agreements
	3.8

	 	Brokers
	3.9

	 	Financial Statements
	3.11

	 	Changes
	3.14

	 	Title to Assets, Properties and Rights
	3.17

	 	Employee Matters






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NOTE PURCHASE AGREEMENT




     This Note Purchase Agreement (this “Agreement”), is made as of May 5, 2006, by and
between Athersys, Inc., a Delaware corporation (the “Company”), and Angiotech Pharmaceuticals,
Inc., a British Columbia corporation (“Buyer”).



     WHEREAS, the Company and Buyer have entered into a Strategic Alliance Agreement, dated as of
the date of this Agreement (the “Alliance Agreement”), relating to the development and
commercialization of cell therapy products for the treatment of myocardial infarction and
peripheral vascular disease according to the terms set forth therein;



     WHEREAS, in connection with the transactions contemplated by the Alliance Agreement, the
Company has authorized the sale to Buyer of a Note (as defined below); and



     WHEREAS, Buyer wishes to purchase, and the Company wishes to issue and sell, the Note on the
terms and subject to the conditions set forth herein.



     NOW THEREFORE, in consideration of the premises and the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Buyer hereby agree as follows:



ARTICLE I.




SALE OF THE NOTE




1.1 The Note.




     The Company has authorized the issuance and sale to Buyer of a Convertible Promissory Note of
the Company in an aggregate principal amount of Five Million Dollars ($5,000,000.00) in
substantially the form of Exhibit A attached hereto. The Convertible Promissory Note is
herein referred to as the “Note,” which term shall also include any note or notes delivered in
exchange or replacement therefor.



1.2 The Issuance and Sale of the Note.




     The closing of the sale of the Note (the “Closing”) shall take place at the offices of Jones
Day, 901 Lakeside Avenue, Cleveland, Ohio, at 10:00 a.m., Cleveland, Ohio time, on the date hereof
or such other date and time as Buyer and the Company may agree (the “Closing Date”). At the
Closing, on the terms and subject to the conditions contained herein, the Company shall issue, sell
and deliver to Buyer, and Buyer shall purchase and acquire from the Company, the Note free and
clear of any Liens and with no restrictions on the transfer thereof (in each case other than
pursuant to this Agreement and the Note).



1.3 Exemption from Registration; Stockholders’ Agreement.




     (a) The Note and any shares of Company capital stock issuable upon conversion of the Note (the
“Conversion Shares”) (a) have not been registered under the Securities Act of



 









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1933, as amended (the “Securities Act”), or any applicable state or other securities laws, (b)
will be issued under an exemption or exemptions from registration under the Securities Act and any
applicable state and other securities laws, and (c) will be restricted securities (as that term is
defined in Rule 144(a)(3) promulgated under the Securities Act) and may not be resold unless such
Note or such Conversion Shares, as applicable, are registered under the Securities Act and any
applicable state and other securities laws or an exemption from registration is available.
Accordingly, the certificate(s) evidencing the shares of Conversion Shares shall, upon issuance,
contain legends in substantially the following form (in addition to any other legends required to
be placed thereon under applicable securities laws):





THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY OTHER
APPLICABLE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR APPLICABLE SECURITIES LAWS.




THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS ALSO SUBJECT
TO THE RESTRICTIONS CONTAINED IN THE AMENDED AND RESTATED STOCKHOLDERS’
AGREEMENT, DATED AS OF APRIL 28, 2000, AS AMENDED, BY AND AMONG ATHERSYS, INC.
AND THE STOCKHOLDERS OF ATHERSYS, INC. IN ACCORDANCE WITH THAT CERTAIN JOINDER
AGREEMENT, DATED                     , 200          , BY AND BETWEEN ATHERSYS, INC. AND ANGIOTECH
PHARMACEUTICALS, INC.



     (b) Buyer acknowledges that, as a condition precedent to the issuance of any Conversion Shares
in connection with the conversion of the Note, Buyer shall enter into a joinder agreement to the
Stockholders’ Agreement pursuant to which it will agree to be a party to, and bound by the terms
and conditions of, the Stockholders’ Agreement.



ARTICLE II.




THE CLOSING




2.1 Deliveries at the Closing.




     (a) At the Closing, the Company shall deliver to Buyer:




     (i) the Note;




     (ii) a certificate of good standing in respect of the Company issued by the Secretary
of State of the State of Delaware dated as of a date within five business days of the
Closing Date;



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     (iii) a certificate from the Secretary of the Company, certifying (A) the Amended and
Restated Certificate of Incorporation of the Company, (B) the Bylaws of the Company, and (C)
resolutions of the Board of Directors of Company approving the Transaction Agreements and
the transactions contemplated hereby and thereby;




     (iv) a certificate from the Company’s transfer agent, certifying the issued and
outstanding capital stock of the Company within five business days of the Closing Date;




     (v) an opinion from Jones Day, counsel for the Company, dated as of the Closing, in
substantially the form of Exhibit B attached hereto; and




     (vi) a receipt evidencing receipt by the Company of the funds transferred pursuant to
Sections 2.1(b)(i); and



     (b) At the Closing, Buyer shall deliver to the Company:




     (i) by bank wire transfer of immediately available funds to an account designated in
writing by the Company, an amount in cash equal to Five Million Dollars ($5,000,000.00) for
the Note; and




     (ii) a receipt evidencing receipt by Buyer of the Note.



ARTICLE III.




REPRESENTATIONS AND WARRANTIES OF THE COMPANY




     The Company hereby represents and warrants to Buyer as of the date hereof as follows:



3.1 Organization; Good Standing; Qualification and Power.




     The Company is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, has all requisite power and authority to own, lease and operate its
assets and to carry on its business as presently being conducted and proposed to be conducted, and
is qualified to do business and is in good standing in every jurisdiction in which the failure so
to qualify or be in good standing could reasonably be expected to have a Material Adverse Effect on
the Company. Except as set forth on Schedule 3.1, the Company does not currently own or
control, directly or indirectly, any interest in any other corporation, partnership, trust, joint
venture, limited liability company, association or other business entity. Except as set forth on
Schedule 3.1, the Company is not a participant in any joint venture, partnership or similar
arrangement.



3.2 Authorization; Enforceability.




     The Company has all requisite power and authority to execute and deliver the Transaction
Agreements and any and all instruments necessary or appropriate in order to effectuate fully the
terms of each such agreement and all related transactions and to perform its obligations under each
such agreement; provided, however, that the Company may be required to obtain the
Stockholder Approval in order to have the necessary corporate approval for the



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authorization of the issuance of the Conversion Shares. Each of the Transaction Agreements
other than the Note has been duly authorized by all necessary corporate action of, and executed and
delivered by, the Company, and, subject to the receipt of the Stockholder Approval, constitutes the
valid and binding obligation of the Company, enforceable against the Company in accordance with its
terms, except as enforceability thereof may be limited by any applicable bankruptcy,
reorganization, insolvency or other laws affecting creditors’ rights generally or by general
principles of equity. The Note has been duly authorized by all necessary corporate action of, and
executed by, the Company and, when delivered to Buyer in accordance with this Agreement against
payment of the consideration therefor as provided herein and subject to the receipt of the
Stockholder Approval with respect to the authorization and issuance of the Conversion Shares, will
constitute the valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability thereof may be limited by any applicable
bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights generally or by
general principles of equity. The Company shall obtain the Stockholder Approval required to issue
the Conversion Shares prior to their issuance.




3.3 Noncontravention.




     The execution, delivery and performance by the Company of the Transaction Agreements, the
consummation of the transactions contemplated thereby and compliance with the provisions thereof,
subject to the receipt of the Stockholder Approval required to authorize the issuance of the
Conversion Shares, have not and will not (a) violate any provision of the Organizational Documents
of the Company, (b) violate any law to which the Company or any of its assets is subject, (c)
result in a breach of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify or cancel any Contract to which the Company is a
party or by which any of the assets of the Company is bound, or (d) result in the imposition of any
Lien upon any of the assets of the Company which, with respect to each of the foregoing clauses,
could reasonably be expected to have a Material Adverse Effect on the Company. Other than state
blue sky securities filings, the filing of a Form D with the Securities and Exchange Commission,
any securities filings with foreign governments or agencies or any consents that have been
obtained, the Company has not been or is not required to give any notice to, make any filing with,
or obtain any authorization, consent or approval of any Governmental Entity for the execution and
delivery of the Transaction Agreements.



3.4 Compliance with Laws; Organizational Documents.




     The Company (a) has complied in all material respects with, and is in material compliance
with, all laws applicable to it and its business, and (b) has all Permits used or necessary in the
conduct of its business as presently conducted, other than such Permits that, if not obtained,
could not reasonably be expected to have a Material Adverse Effect on the Company. Such Permits
are in full force and effect, the Company has not received notice of any material violations with
respect to any thereof, and no material Proceeding is pending or, to the Company’s knowledge,
threatened to revoke or limit any thereof.



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3.5 Capitalization of the Company.




     (a) Immediately prior to the Closing, (i) the authorized capital stock of the Company
consisted of the classes and amounts set forth on Schedule 3.5(a)(i), and (ii) the issued
and outstanding capital stock of the Company (separated by class and series) was as set forth on
Schedule 3.5(a)(ii). All of the issued and outstanding shares of capital stock of the
Company have been duly authorized, are fully paid and nonassessable and were issued in compliance
with all applicable federal and state securities laws.



     (b) Except as contemplated by the Transaction Agreements or as set forth on Schedule
3.5(b), there are, and immediately after consummation of the Closing there will be, no (i)
outstanding warrants, options, rights, agreements, convertible securities or other commitments or
instruments pursuant to which the Company is or may become obligated to issue or sell any shares of
its capital stock or other securities, (ii) preemptive, rights of first refusal or similar rights
to purchase or otherwise acquire shares of the capital stock or other securities of the Company
pursuant to any provision of law, the Company’s Organizational Documents or any Contract to which
the Company, or to the Company’s knowledge, any stockholder thereof, is a party, (iii) obligations
to register under the Securities Act any of the Company’s outstanding securities or any securities
issuable upon exercise or conversion of its currently outstanding securities, or (iv) agreements
with respect to the voting of securities of the Company (A) to which the Company is a party and (B)
to the Company’s knowledge, to which it is not a party.



     (c) No adjustments for dilutive issuances have been made, or will be made as a result of the
execution, delivery or performance of the Transaction Agreements, with respect to any shares of
outstanding capital stock of the Company, other than as may occur upon the issuance of the
Conversion Shares.



3.6 Intellectual Property.




     (a) The Company owns or possesses sufficient legal rights to all Intellectual Property Rights,
in each instance as used by it in connection with the Company’s business as now conducted and as
presently contemplated to be conducted, without any known conflict with, or infringement or other
violation of, the Intellectual Property Rights of others. There is no pending or, to the Company’s
knowledge, threatened, claim or litigation against it asserting that the Company infringes upon or
otherwise violates any Intellectual Property Right of any Person (other than the Company or Buyer).
No Proceedings in which the Company alleges that any Person is infringing upon, or otherwise
violating, any Intellectual Property Right owned by the Company are pending, and none have been
served by, instituted or asserted by the Company, nor, to the Company’s knowledge, are any
Proceedings threatened alleging any such violation or infringement. Except for the Transaction
Agreements or for the agreements set forth on Schedule 3.7, there are no Contracts or
proposed transactions to which the Company is a party or by which it is bound that involve (i) the
license of any Intellectual Property Rights to or from the Company or (ii) the grant of rights to
manufacture, produce, assemble, market or sell its products to any other Person or the Company’s
exclusive right to develop, manufacture, produce, assemble, market or sell its products. The
Company is not aware that any of its employees is obligated under any Contract (including licenses,
covenants or commitments of any nature), or subject to any judgment, decree or order of any court
or administrative agency, that would



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interfere with the use of such employee’s best efforts to promote the interest of the Company
or that would conflict with the Company’s business. Neither the execution or delivery of the
Transaction Agreements, nor the carrying on of the Company’ s business by the employees of the
Company, nor the conduct of the Company’s business will, to the Company’s knowledge, conflict with
or result in a breach of the terms, conditions, or provisions of, or constitute a default under,
any Contract under which any such employee is now obligated.



     (b) Each employee, consultant and officer of the Company has executed an agreement with the
Company regarding confidentiality and proprietary information, and, in the case of officers,
regarding non-competition for a period of at least six months following the termination of the
employment relationship. The Company is not aware that any of its employees, consultants or
officers is in violation thereof, and the Company will use commercially reasonable efforts to
prevent any such violation. The Company does not believe it is or will be necessary to use any
inventions of any of its employees made prior to or outside the scope of such employee’s employment
by the Company.



3.7 Material Agreements.




     (a) Schedule 3.7 contains a list of all Contracts to which the Company or any of its
subsidiaries is a party that is material to the Company’s business, operations, assets, financial
condition or operating results (all such contracts, agreements, instruments and other
understandings and commitments, collectively, the “Material Agreements”). There is no material
breach or default by the Company and, to the Company’s knowledge, any other party under any
Material Agreement, and each Material Agreement is in full force and effect, constitutes the valid
and binding obligation of the respective parties thereto (assuming due execution by the parties
other than the Company or its subsidiary, as applicable), and is enforceable in accordance with its
terms, except as enforceability thereof may be limited by applicable bankruptcy, reorganization,
insolvency or other laws affecting creditors’ rights generally or by general principles of equity.
Without limiting the foregoing, Schedule 3.7 sets forth all Contracts to which the Company
is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of, or
payments to, the Company in excess of, $50,000 other than for operating expenses (including
obligations for salaries, benefit obligations, professional services, equipment service, capital
leases and insurance premiums) and taxes incurred in the ordinary course of business, (ii) the
license of any patent, copyright, trade secret or other proprietary right to or from the Company
other than (A) the license of the Company’s software and products in the ordinary course of
business or (B) the license to the Company of generally commercially available “off-the-shelf”
third-party products, or (iii) the grant of rights to manufacture, produce, assemble, market, or
sell its products to any other person or affect the Company’s exclusive right to develop,
manufacture, assemble, distribute, market or sell its products. Except as set forth on
Schedule 3.7, the Company has not (i) declared or paid any dividends, or authorized or made
any distribution upon or with respect to any class or series of its capital stock, (ii) incurred
any indebtedness for money borrowed or incurred any other liabilities individually in excess of
$50,000 or in excess of $100,000 in the aggregate, (iii) made any loans or advances to any person,
other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its material assets or rights, other than in the ordinary course of business.



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     (b) The Company has not engaged in the past three months in any Significant Discussion with
any representative of any corporation, partnership, trust, joint venture, limited liability
company, association or other entity, or any individual, regarding (i) a sale of all or
substantially all of the Company’s assets, (ii) any merger, consolidation or other business
combination transaction of the Company with or into another corporation, entity or person, other
than a transaction in which the holders of at least a majority of the shares of voting capital
stock of the Company outstanding immediately prior to such transaction continue to hold (either by
such shares remaining outstanding or by their being converted into shares of voting capital stock
of the surviving entity) a majority of the total voting power represented by the shares of voting
capital stock of the Company (or the surviving entity) outstanding immediately after such
transaction, or (iii) the direct or indirect acquisition (including by way of a tender or exchange
offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire
beneficial ownership of shares representing a majority of the voting power of the then outstanding
shares of capital stock of the Company. “Significant Discussion” means any negotiation of the
material terms of any of the types of transactions enumerated in the preceding sentence.



3.8 Brokers.




     Except as set forth on Schedule 3.8, on behalf of the Company, there is no agent,
broker, investment banker, consultant, Person or firm that has acted on behalf, or under the
authority of, the Company or, to the Company’s knowledge, any of its stockholders, or will be
entitled to any fee or commission directly or indirectly from the Company or, to the Company’s
knowledge, any of its stockholders, in connection with any of the transactions contemplated by this
Agreement.



3.9 Financial Statements.




     The Company has delivered to Buyer its audited balance sheet as of December 31, 2005 (the
“Statement Date”), and the audited statements of income and cash flows for the year ending on the
Statement Date (together, the “Audited Financial Statements”) and the unaudited balance sheet and
statements of income and cash flows for the three-month period ended March 31, 2006 (the “Interim
Financial Statements,” and together with the Audited Financial Statements, the “Financial
Statements”), copies of which are attached hereto as Schedule 3.9. The Audited Financial
Statements, together with the notes thereto, have been prepared in accordance with GAAP,
consistently applied throughout the periods indicated and present fairly, in all material respects,
the financial condition and position and results of operation of the Company as of the Statement
Date and for the period indicated. The Interim Financial Statements present fairly, in all
material respects, the financial condition and position and results of operation of the Company as
of the date and for the period indicated, and have been prepared in accordance with GAAP, except
for the absence of footnote disclosure and customary year-end adjustments.



3.10 No Consent or Approval Required.




     No consent, approval or authorization of, or declaration to or filing with, any Person is
required by the Company for the valid authorization, execution and delivery by the Company of the
Transaction Agreements or for the consummation of the transactions contemplated hereby or thereby,
other than (a) the Stockholder Approval, (b) those consents, approvals, authorizations,



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declarations or filings that have been obtained or made, as the case may be, and (c) filings
pursuant to federal or state securities and any other applicable laws (all of which filings have
been made by the Company, other than those which are required to be made after the Closing and
which will be duly made in accordance with time periods under applicable laws) in connection with
the sale of the Note.



3.11 Changes.




     Except as set forth on Schedule 3.11, since December 31, 2005, there has not been:



     (a) Any change in or effect on the assets, Liabilities, financial condition or operations of
the Company from that reflected in the Audited Financial Statements, other than changes in the
ordinary course of business, none of which individually or in the aggregate has had or could
reasonably be expected to have a Material Adverse Effect on the Company;



     (b) Any waiver by the Company of a material right of the Company or a material debt owed to
the Company;



     (c) Any direct or indirect loans made by the Company to any stockholder, employee, officer or
director of the Company, other than advances made in the ordinary course of business;



     (d) Any debt, obligation or liability incurred, assumed or guaranteed by the Company, except
those for immaterial amounts and for current Liabilities incurred in the ordinary course of
business;



     (e) Any waiver or compromise by the Company of a valuable right or of a material debt owed to
it;



     (f) Any sale, pledge, assignment, license or transfer of ownership of any Intellectual
Property Rights, other than in the ordinary course of business;



     (g) Any resignation or termination of employment of any officer or key employee of the
Company;



     (h) Any material change, except in the ordinary course of business, in a contingent obligation
of the Company by way of guaranty, endorsement, indemnity, warranty or otherwise;



     (i) Any mortgage, pledge, transfer of a security interest in, or lien, created by the Company,
with respect to any of its material properties or assets, except liens for taxes not yet due or
payable and liens that arise in the ordinary course of business and do not materially impair the
Company’s ownership or use of such property or assets;



     (j) Any change in any Material Agreement which has had or could reasonably be expected to have
a Material Adverse Effect on the Company;



     (k) Any amendment of the Lending Agreement;



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     (l) Any agreement or commitment by the Company to do any of the things described in this
Section 3.11; or



     (m) Any other event or condition of any character that, either individually or cumulatively,
has had or could reasonably be expected to have a Material Adverse Effect on the Company.



3.12 Absence of Undisclosed Liabilities.




     The Company has no material Liabilities, except (a) to the extent reflected or reserved
against on the balance sheet included in the Interim Financial Statements or disclosed in the
Audited Financial Statements and (b) Liabilities arising in the ordinary course of business
consistent with past practice since December 31, 2005. There are no material loss contingencies
(as such term is used in Statement of Financial Accounting Standards No. 5 issued by the Financial
Accounting Standards Board) of or affecting the Company which are required to be disclosed or for
which adequate provision was required to be made on the balance sheet included in the Interim
Financial Statements or in the Audited Financial Statements which have not been disclosed or for
which adequate provision has not been made on the balance sheet included in the Interim Financial
Statements or in the Audited Financial Statements or in the notes thereto.



3.13 Insurance.




     The Company maintains adequate insurance covering the risks of the Company, if any, of such
types and in such amounts and with such deductibles as are customary for other companies engaged in
similar lines of business. All insurance held by the Company is in full force and effect and is
issued by insurers of recognized responsibility.



3.14 Title to Assets, Properties and Rights.




     The Company has good and marketable title (or a valid leasehold interest or license) to all of
the assets (whether real, personal or mixed) reflected as being owned (or leased or licensed) by
the Company on the balance sheet included in the Interim Financial Statements (except for those
assets subsequently disposed of in the ordinary course of business for fair value), free and clear
of all Liens, except for (a) those Liens set forth on Schedule 3.14; (b) Liens for current
Taxes, assessments and other governmental charges not yet due and payable and for which adequate
reserves have been established on the books of the Company; (c) easements, covenants, conditions
and restrictions (whether or not of record) as to which no material violation or encroachment
exists or, if such violation or encroachment exists, as to which the cure of such violation or
encroachment would not materially interfere with the conduct of the Company’s business as presently
conducted; (d) any zoning or other governmentally established restrictions or encumbrances; (e)
worker’s or unemployment compensation Liens arising in the ordinary course of business; (f)
mechanic’s, materialman’s, supplier’s, vendor’s or similar Liens arising in the ordinary course of
business securing amounts which are not delinquent; and (g) those Liens that do not, individually
or cumulatively, have or could reasonably be expected to have a Material Adverse Effect on the
Company.



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3.15 Taxes.




     The Company has timely filed all tax returns that are required to be filed, and has paid all
Taxes as shown on such returns and on all assessments received by it to the extent that such Taxes
have become due, except to the extent the Company is contesting any such assessment in good faith.
All such returns were true and correct in all material respects. The Company has not received
notice of any material tax deficiency proposed or assessed against it, and has not executed any
waiver of any statute of limitations on the assessment or collection of any Tax that has not yet
expired. None of the Company’s tax returns is currently being audited by governmental authorities,
and no taxing authority has notified (or threatened) the Company, orally or in writing, that such
taxing authority will or may audit any such return. The Company has complied with all requirements
of the Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations and any
state, local or foreign law relating to the payment and withholding of Taxes relating to the
Company, and to the Company’s knowledge, the Company has, within the time and in the manner
prescribed by applicable law, paid over to the proper taxing authorities all amounts required to be
so withheld and paid over relating to the Company. The charges, reserves and accruals on the books
of the Company in respect of Taxes and other governmental charges are adequate.



3.16 Litigation and Other Proceedings.




     There is no Proceeding pending or, to the Company’s knowledge, threatened against the Company
that seeks to enjoin, restrain or prohibit the entry into the Transaction Agreements or the
consummation of the transactions contemplated thereby, or that could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect on the Company. Neither
the Company nor, to the Company’s knowledge, any of its current or former officers or directors in
his or her capacity as an officer or director, is a party or is named as subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no Proceeding by the Company pending or which the Company intends to
initiate. The foregoing includes, without limitation, Proceedings pending or threatened in writing
(or any basis therefor known to the Company) involving the prior employment of any of the Company’s
employees, their use in connection with the Company’s business, or any information or techniques
allegedly proprietary to any of their former employers, or their obligations under any agreements
with prior employers.



3.17 Employee Matters.




     Schedule 3.17 sets forth all employee benefit plans maintained, established or
sponsored by the Company, or in or to which the Company participates or contributes, which are
subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Company
has made all required contributions and has complied in all material respects with all applicable
laws with respect to any such employee benefit plan. Each current and former employee, consultant
and officer of the Company has executed an agreement with the Company regarding
confidentiality and proprietary information. The Company is not aware that any of its
employees or consultants is in violation thereof, and the Company will use commercially reasonable
efforts to prevent any such violation. The Company is not aware that any officer or key employee
intends to terminate his or he employment with the Company, nor does the Company have any



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present intention to terminate the employment of any officer or key employee. Except as set forth on
Schedule 3.17, the employment of each officer and employee of the Company is terminable at
the will of the Company. The Company has complied in all material respects with all applicable
state and federal equal employment opportunity laws and with other laws related to employment. The
Company is not bound by or subject to (and none of its assets or properties is bound by or subject
to) any written or oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the Company’s knowledge, has sought to represent any
of the employees, representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the Company’s knowledge, threatened that could
reasonably be expected to have a Material Adverse Effect on the Company, nor is the Company aware
of any labor organization activity involving its employees.



3.18 Environmental Matters.




     The Company is not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material expenditures in
excess of routine compliance expenditures are or will be required in order to comply with any such
existing statute, law or regulation, except where such violation could not reasonably be expected
to result in a Material Adverse Effect. No material quantities of Hazardous Materials (as defined
below) are or have been released or disposed of by the Company or, to the Company’s knowledge, by
any other person or entity on any property owned, leased or used by the Company. For the purposes
of the preceding sentence, “Hazardous Materials” shall mean materials which are listed or
otherwise defined as “hazardous” or “toxic” under any applicable local, state, federal and/or
foreign laws and regulations that govern the existence and/or remedy of contamination on property,
the protection of the environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials or any petroleum products
or nuclear materials.



3.19 Disclosure.




     The Company has provided Buyer with all the information Buyer has requested. To the Company’s
knowledge, this Agreement, the exhibits hereto and the certificates and agreements contemplated
hereby do not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading in light of the circumstances under which
they were made.



ARTICLE IV.




REPRESENTATIONS AND WARRANTIES OF BUYER




     Buyer represents and warrants to the Company as follows:



4.1 Experience; Accredited Investor Status.




     Buyer is an accredited investor as that term is defined in Rule 501 of Regulation D
promulgated under the Securities Act and, by virtue of its experience in evaluating and investing
in private placement transactions of securities in companies similar to the Company, Buyer is



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capable of evaluating the merits and risks of its investment in the Company and has the capacity to
protect its own interests, and has the financial ability to bear the economic risk of its
investment in the Company.



4.2 Company Information.




     Buyer believes it has received all information it considers necessary or appropriate for
deciding whether to purchase the Note. Buyer further represents that it has had an opportunity to
ask questions and receive answers from the Company regarding the terms and conditions of the
offering of the Note and the business, properties, prospects and financial condition of the
Company. The foregoing, however, does not limit or modify the representations and warranties of
the Company in Section 3 of this Agreement or the right of Buyer to rely on such representations
and warranties.



4.3 Investment.




     Buyer has not been formed solely for the purpose of making this investment and is acquiring
the Note for investment for its own account, not as a nominee or agent, and not with the view to,
or for resale in connection with, any distribution of any part thereof. Buyer understands that the
Note has not been registered under the Securities Act or applicable state and other securities laws
and is being issued by reason of a specific exemption from the registration provisions of the
Securities Act and applicable state and other securities laws, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the accuracy of Buyer’s
representations as expressed herein.



4.4 Transfer Restrictions.




     Buyer acknowledges and understands that (a) transfers of the Note are subject to transfer
restrictions contained in this Agreement and the Note, (b) transfers of the Conversion Shares
issuable upon conversion of the Note are subject to transfer restrictions contained in the
Stockholders’ Agreement, and (c) it must bear the economic risk of this investment for an
indefinite period of time because the Note and any Conversion Shares must be held indefinitely
unless subsequently registered under the Securities Act and applicable state and other securities
laws or unless an exemption from such registration is available.



4.5 No Public Market.




     Buyer understands that no public market now exists for any of the securities issued by the
Company and that there is no assurance that a public market will ever exist for any of the
securities of the Company.



4.6 Brokers or Finders.




     Buyer has not retained any investment banker, broker or finder in connection with the purchase
of the Note.



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4.7 Organization; Good Standing; Qualification and Power.




     Buyer is a corporation duly organized, validly existing and in good standing under the laws of
British Columbia, has all requisite power and authority to own, lease and operate its assets and to
carry on its business as presently being conducted, and is qualified to do business and in good
standing in every jurisdiction in which the failure so to qualify or be in good standing could
reasonably be expected to have a Material Adverse Effect on Buyer.



4.8 Authorization.




     Buyer has all requisite power and authority to execute and deliver this Agreement and the
Alliance Agreement and any and all instruments necessary or appropriate in order to effectuate
fully the terms of each such agreement and all related transactions and to perform its obligations
under each such agreement. Each of this Agreement and the Alliance Agreement has been duly
authorized by all necessary corporate action of, and executed and delivered by, Buyer, and
constitutes the valid and binding obligation of Buyer, enforceable in accordance with its terms,
except as enforceability thereof may be limited by any applicable bankruptcy, reorganization,
insolvency or other laws affecting creditors’ rights generally or by general principles of equity.



4.9 No Consent or Approval Required.




     No consent, approval or authorization of, or declaration to or filing with, any Person shall
be required by Buyer for the valid authorization, execution and delivery by Buyer of this Agreement
or the Alliance Agreement or for the consummation of the transactions contemplated hereby or
thereby other than those consents, approvals, authorizations, declarations or filings which have
been obtained or made, as the case may be.



ARTICLE V.




MISCELLANEOUS




5.1 Survival of Agreements.




     All representations, warranties, agreements and covenants contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.



5.2 Expenses.




     Each of the Company and Buyer will be responsible for its own costs and expenses incurred in
connection with the negotiation, execution, and delivery of this Agreement, including, without
limitation, each such party’s attorneys’ fees and other expenses.



5.3 No Third Party Beneficiaries.




     Except as expressly provided herein, this Agreement shall not confer any rights or remedies
upon any Person other than the parties hereto and their respective successors and permitted
assigns, personal representatives, heirs and estates, as the case may be.



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5.4 Complete Agreement.




     This Agreement, together with the Transaction Agreements, constitute the entire agreement
among the parties hereto with respect to the transactions contemplated hereby and supersede any
prior understandings, agreements or representations by or among such parties, written or oral, that
may have related in any way to the purchase and sale of the Note.



5.5 Successors and Assigns.




     This Agreement shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither party hereto shall be permitted to assign its
rights or obligations hereunder without the prior written consent of the other party hereto;
provided, however, that the Company may assign or otherwise transfer all of its rights and
obligations under this Agreement without the prior written consent of Buyer to its successor in
interest in connection with a sale of all or substantially all of its business or assets, whether
by merger, sale of stock, sale of assets or otherwise.



5.6 Counterparts.




     This Agreement may be executed in any number of counterparts, each such counterpart which
shall be deemed to be an original instrument and all of which counterparts together shall
constitute one instrument.



5.7 Press Releases and Public Announcements.




     The parties will agree upon the timing and content of any initial press release, or other
public communications relating to this Agreement and the transactions contemplated herein.



     (a) Except to the extent already disclosed in any initial press release or other public
communication, no public announcement concerning the existence or the terms of this Agreement or
concerning the transactions described herein shall be made, either directly or indirectly, by
either of the parties hereto without such party first obtaining the approval of the other party and
agreement upon the nature, text, and timing of such announcement, which approval and agreement
shall not be unreasonably withheld; provided, however, that nothing in this Section 5.7(a) shall be
deemed to prohibit any party from making any disclosure which its counsel deems necessary or
advisable in order to satisfy such party’s disclosure obligations imposed by law. No press release
or any public announcement by the Company relating to or regarding this Agreement or the Note or
the transactions contemplated hereby or thereby shall include any reference to Buyer, its
affiliates or its subsidiaries without the written consent of Buyer, except for information
contained in filings with the Securities and Exchange Commission.



     (b) The party desiring to make any such public announcement shall provide the other party with
a written copy of the proposed announcement in sufficient time prior to public release to allow
such other party to comment upon such announcement, prior to public release.



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5.8 Notices.




     All notices, requests, demands, claims and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally, by facsimile, sent by
nationally recognized overnight courier or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the addresses set forth below (or at such other
address for such party as shall be specified by like notice):


If to the Company, to:



Athersys, Inc.

3201 Carnegie Avenue

Cleveland, Ohio 44115-2634

Telephone: (216) 431-9900

Facsimile: (216) 361-9495

Attention: Gil Van Bokkelen, President and Chief Executive Officer



With a copy to:



Jones Day

North Point

901 Lakeside Avenue

Cleveland, Ohio 44114

Telephone: (216) 586-3939

Facsimile: (216) 579-0212

Attention: Christopher M. Kelly, Esq.



If to Buyer, to:



Angiotech Pharmaceuticals, Inc.

1618 Station St.

Vancouver, British Columbia

Canada V6A 1B6

Telephone: (604) 221-7676

Facsimile: (604) 221-2330

Attention: General Counsel



With a copy to:



Heller Ehrman llp

275 Middlefield Road

Menlo Park, California 94025

Telephone: (650) 324-7000

Facsimile: (650) 324-0638

Attention: Kyle Guse, Esq.




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     All such notices and other communications shall be deemed to have been given and received (i)
in the case of personal delivery, on the date of such delivery, (ii) in the case of delivery by
facsimile, on the date of such delivery, (iii) in the case of delivery by nationally recognized
overnight courier, on the second business day following the date when sent, and (iv) in the case of
mailing, on the fifth business day following such mailing.



5.9 Governing Law.




     This Agreement shall be governed by and construed in accordance with the laws of the State of
Delaware without giving effect to the principles of conflict of laws thereof.



5.10 Amendments and Waivers.




     This Agreement may be amended or modified and the terms and conditions hereof may be waived,
only by a written instrument signed by the Company and Buyer or, in the case of a waiver, the party
hereto waiving compliance. No delay on the part of any party hereto in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any
party hereto of any right, power or privilege hereunder, nor any single or partial exercise of any
right, power or privilege hereunder, preclude any other or other exercise thereof hereunder. The
rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies
which any party hereto may otherwise have at law or in equity.



5.11 Headings.




     The captions to the several Articles and Sections hereof are not a part of this Agreement, but
are included merely for convenience of reference only and shall not affect its meaning or
interpretation.



5.12 Certain Definitions.




     “$” or “dollar” means U.S. dollars.



     “Agreement” has the meaning set forth in the preamble to this Agreement.



     “Alliance Agreement” has the meaning set forth in the recitals to this Agreement.



     “Audited Financial Statements” has the meaning set forth in Section 3.9 of this Agreement.



     “Board” means the Board of Directors of the Company.



     “Buyer” has the meaning set forth in the preamble of this Agreement.



     “Closing” has the meaning set forth in Section 1.2 of this Agreement.



     “Closing Date” has the meaning set forth in Section 1.2 of this Agreement.



     “Code” has the meaning set forth in Section 3.15 of this Agreement.



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     “Common Stock” means the shares of common stock of Athersys, Inc., par value $.01 per share.



     “Company” has the meaning set forth in the preamble to this Agreement.



     “Contract” means any loan or credit agreement, note, bond, mortgage, indenture, lease,
sublease, purchase order, instrument, permit, concession, franchise, license, commitment, contract,
subcontract or other agreement, in each case, whether written or oral.



     “Conversion Shares” has the meaning set forth in Section 1.3 of this Agreement.



     “Financial Statements” has the meaning set forth in Section 3.9 of this Agreement.



     “GAAP” means U.S. generally accepted accounting principles.



     “Governmental Entity” means any domestic or foreign federal, state, municipal, or other
governmental department, commission, board, bureau, agency or instrumentality, or any court or
tribunal.



     “Intellectual Property Rights” means all of the following or their substantial equivalent or
counterpart in any jurisdiction around the world: (i) patents, patent applications and invention
and patent disclosures; (ii) trademarks, service marks, trade dress, trade names, corporate names,
logos and Internet domain names; (iii) copyrights, software, and source code and copyrightable
works; (iv) registrations and applications for any registration for any of the foregoing; and (v)
trade secrets, know-how, confidential information, inventions and discoveries.



     “Interim Financial Statements” has the meaning set forth in Section 3.9 of this Agreement.



     “Lending Agreement” means that certain Loan and Security Agreement, dated as of November 2,
2004, among the Company, Advanced Biotherapeutics, Inc, Venture Lending and Leasing IV, Inc. and
Costella Kirsch IV, L.P., as supplemented.



     “Liabilities” mean any liabilities or obligations, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, and whether
due or to become due, regardless of when asserted.



     “License Agreement” means that certain License Agreement, dated as of the date hereof, between
the Company and Buyer entered into in connection with the Strategic Alliance Agreement and the
Sublicense Agreement.



     “Lien” means any security interest, pledge, lien, bailment (in the nature of a pledge or for
purposes of security), mortgage, deed of trust, the grant of a power to confess judgment,
conditional sale or title retention agreement (including any lease in the nature thereof), charge,
encumbrance, easement, reservation, restriction, cloud, right of first refusal or first offer,
option, commitment or other similar arrangement or interest in real or personal property, whether
oral or written.



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     “Material Adverse Effect” means, with respect to any Person, a material adverse effect on the
business, operations, assets, condition (financial or otherwise) or operating results of such
Person and its subsidiaries, if any, taken as a whole.



     “Material Agreements” has the meanings set forth in Section 3.7 of this Agreement.



     “Note” has the meaning set forth in the recitals to this Agreement.



     “Organizational Documents” means the documents by which any Person (other than an individual)
establishes its legal existence or which govern its internal affairs.



     “Permits” means all permits, licenses, authorizations, registrations, franchises, approvals,
consents, certificates, variances and similar rights obtained, or required to be obtained, from
Governmental Entities.



     “Person” means and includes an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a Governmental Entity (or any department, agency, or political subdivision
thereof).



     “Proceeding” means any action, suit, proceeding, complaint, charge, hearing, inquiry or
investigation before or by a Governmental Entity or an arbitrator.



     “Securities Act” has the meaning set forth in Section 1.3 of this Agreement.



     “Statement Date” has the meaning set forth in Section 3.9 of this Agreement.



     “Stockholder Approval” means the requisite approval by the Company’s stockholders of the
issuance of the shares of Athersys capital stock (other than Common Stock) in a Bona Fide Equity
Financing (as defined in the Note) and of the issuance of the Conversion Shares.



     “Stockholders’ Agreement” means the Amended and Restated Stockholders’ Agreement, dated as of
April 28, 2000, as amended, by and among the Company and its stockholders.



     “Sublicense Agreement” means that certain Sublicense Agreement, dated as of the date hereof,
between the Company and Buyer entered into in connection with the Strategic Alliance Agreement and
the License Agreement.



     “Tax” as used in this Agreement, means, with respect to any Person, (a) all income taxes
(including any tax on or based upon net income, gross income, income as specially defined,
earnings, profits or selected items of income, earnings or profits) and all gross receipts, sales,
use, ad valorem, transfer, franchise, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property or windfall profits taxes, alternative or add-on minimum
taxes, customs duties and other taxes, fees, assessments or charges of any kind
whatsoever, together with all interest and penalties, additions to tax and other additional
amounts imposed by any taxing authority (domestic or foreign) on such Person (if any) and (b) any
liability for the payment of any amount of the type described in clause (a) above as a result of



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being a “transferee” (within the meaning of Section 6901 of the Code or any other applicable Law)
of another entity or a member of an affiliated or combined group.



     “Transaction Agreements” means this Agreement, the Alliance Agreement, License Agreement, the
Sublicense Agreement and the Note.



5.13 Incorporation of Schedules and Exhibits.




     The schedules and exhibits identified in this Agreement are incorporated herein by reference
and made a part hereof.



5.14 Rules of Construction.




     The term “this Agreement” means this agreement together with all schedules and the exhibits
hereto, as the same may from time to time be amended, modified, supplemented or restated in
accordance with the terms hereof. In this Agreement, the term “the Company’s knowledge” or “the
knowledge of the Company” means the knowledge of each officer of the Company, which could have been
acquired after making such reasonable due inquiry and exercising such reasonable diligence as a
prudent business person could have made or exercised in the management of his or her business
affairs, including reasonable due inquiry of those key employees and professionals of the Company
who could reasonably be expected to have actual knowledge of the matters in question. Accounting
terms used but not otherwise defined herein shall have the meanings given to them under GAAP. The
use in this Agreement of the term “including” means “including, without limitation.” The words
“herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a
whole, including the schedules and exhibits, as the same may from time to time be amended,
modified, supplemented or restated, and not to any particular section, subsection, paragraph,
subparagraph or clause contained in this Agreement. All references to sections, schedules and
exhibits mean the sections of this Agreement and the schedules and exhibits attached to this
Agreement, except where otherwise stated. The title of and the section and paragraph headings in
this Agreement are for convenience of reference only and shall not govern or affect the
interpretation of any of the terms or provisions of this Agreement. The use herein of the
masculine, feminine or neuter forms shall also denote the other forms, as in each case the context
may require or permit. Where specific language is used to clarify by example a general statement
contained herein, such specific language shall not be deemed to modify, limit or restrict in any
manner the construction of the general statement to which it relates. The language used in this
Agreement has been chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party.



5.15 Severability.




     In the event that any provision of this Agreement is determined to be invalid or unenforceable
by a court of competent jurisdiction, the remainder of this Agreement shall remain in full force
and effect without such provision. In such event, the parties hereto shall in good
faith attempt to negotiate a substitute clause for any provision declared invalid or
unenforceable, which substitute clause shall most nearly approximate the intent of the parties
hereto in agreeing to such invalid provision, without itself being invalid.



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5.16
Loss of Note.




     Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of the Note or any Note exchanged for it, and indemnity reasonably satisfactory to the
Company (in case of loss, theft or destruction) or surrender and cancellation of such Note (in case
of mutilation), the Company will make and deliver to Buyer in lieu of such Note a new Note of like
tenor.


5.17
Delivery of Financial Statements and Other Information. So long as (i) any portion of
the principal or accrued interest under the Note is outstanding or (ii) Buyer continues to hold not
less than 50% of the Conversion Shares issued thereunder, the Company shall deliver to Buyer:




     (a) as soon as practicable, but in any event within ninety (90) days after the end of each
fiscal year of the Company, a cash flow statement for such fiscal year, an income statement for
such fiscal year, and a balance sheet of the Company and statement of stockholder’s equity as of
the end of such year (all on a consolidated basis), prepared in accordance with GAAP consistently
applied, including all footnotes, and audited and certified by independent public accountants of
nationally recognized standing selected by the Company;



     (b) within thirty (30) days after the end of each month (other than the last month of any
fiscal year), an unaudited balance sheet of the Company as at the end of such month and unaudited
statements of income and of cash flows of the Company for such month and for the current fiscal
year to the end of such month, prepared in accordance with GAAP, consistently applied, setting
forth in comparative form the Company’s projected statements of income for the corresponding
periods for the current fiscal year; and.



     (c) such other information relating to the financial condition, business or prospects of the
Company as Buyer may from time to time reasonably request, including, without limitation, a
capitalization table and a list of the Company’s stockholders and all holders of the Company’s
outstanding options, warrants or other securities.



     The Company shall permit Buyer, at Buyer’s expense, to visit and inspect the Company’s
properties, to examine its books of account and records and to discuss the Company’s affairs,
finances and accounts with its officers, all at such reasonable times as may be reasonably
requested by Buyer for purposes solely of monitoring its investment in the Company and meeting U.S.
GAAP accounting requirements with respect to Buyer’s investment in the Company.



     All rights of Buyer under this Section 5.17 shall terminate when the Company is obligated to
file reports under Section 13 or Section 15(d) of the Securities Exchange Act of 1934.



     The Company agrees that the Conversion Shares held by Buyer and any of its subsidiaries shall
be aggregated for purposes of determining whether any applicable thresholds are met with respect to
the rights in this Section 5.17.



{Signature page follows.}




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     IN WITNESS WHEREOF, the Company and Buyer have caused their duly authorized representatives to
execute this Agreement as of the date first above written.



	 	 	 	 	 
	 	ATHERSYS, INC.

 	 
	 	By:  	
 	 
	 	 	Gil Van Bokkelen 	 
	 	 	President and Chief Executive Officer 	 
	 
	 	ANGIOTECH PHARMACEUTICALS, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



[Signature Page to Note Purchase Agreement]





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COMPANY DISCLOSURE SCHEDULES




     Pursuant to the Note Purchase Agreement, dated as of May 5, 2006 (the “Agreement”), by and
between Athersys, Inc. (the “Company”), and Angiotech Pharmaceuticals, Inc. (the “Buyer”), these
Company Disclosure Schedules are being delivered by the Company to the Buyer. All terms used
herein with initial capital letters have the same meanings assigned to them in the Agreement,
unless otherwise defined.



     The representations and warranties of the Company set forth in Article III of the Agreement
are made and given subject to the disclosures in these Company Disclosure Schedules. These Company
Disclosure Schedules are qualified in its entirety by reference to the Agreement and are not
intended to constitute, and may not be construed as constituting, any representation, warranty or
covenant of the Company except as and to the extent expressly provided in the Agreement. These
Company Disclosure Schedules should be read in their entirety.



     In addition, these Company Disclosure Schedules are subject to the following terms and
conditions:




	 	•	 	All references to Section numbers are to Sections of the Agreement, unless otherwise
stated.
	 
	 	•	 	All references to dollar amounts are references to U.S. dollars.
	 
	 	•	 	The fact that any item of information is disclosed in any Section of these Company
Disclosure Schedules may not be construed (i) to mean that such disclosure is required
by the Agreement, including without limitation in order to render any representation or
warranty true or correct, or (ii) to constitute a representation or warranty as to the
materiality of any item so disclosed.
	 
	 	•	 	The following information (i) is set forth for informational purposes only, (ii)
does not necessarily include all matters of a similar nature, and (iii) may not be
construed as expanding or modifying the Company’s representations and warranties in the
Agreement or modifying the levels of materiality contained in the Sections of the
Agreement corresponding to such Sections of these Disclosure Schedules.
	 
	 	•	 	The inclusion of any item herein when listing a “material” item or an item having a
“Material Adverse Effect” is not deemed to be an admission or representation that the
included item is “material” or results in a “Material Adverse Effect” for purposes of
the Agreement or otherwise.




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	 	•	 	Information disclosed by the Company pursuant to any Section of the Agreement
or these Company Disclosure Schedules will be deemed to be incorporated in and
disclosed with respect to all Sections of the Agreement and these Company Disclosure
Schedules to the extent the Agreement requires such disclosure, provided that the
relevance of such matters to other Sections in these Company Disclosure Schedules is
reasonably apparent on the face hereof.
	 
	 	•	 	The annexes, attachments and exhibits to these Company Disclosure Schedules, if any,
form an integral part of these Company Disclosure Schedules and are incorporated by
reference for all purposes as if set forth fully herein.
	 
	 	•	 	The headings and descriptions of representations, warranties and covenants herein
are for descriptive purposes and convenience of reference only and should not be deemed
to affect such representations, warranties or covenants or to limit the exceptions made
hereby or the provisions hereof.





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Schedule 3.1




Subsidiaries and Joint Ventures





	1.	 	Athersys, Inc. Parent company, incorporated November 1995.
	 
	2.	 	Advanced Biotherapeutics, Inc. Operating subsidiary, owned 100% by Athersys.
Formed March 2000.
	 
	3.	 	Athersys-Singapore PTE, LTD. Inactive subsidiary, owned 100% by Athersys. Formed
January 2002.
	 
	4.	 	ReGenesys LLC. Merger subsidiary formed for acquisition of MCL LLC, owned 100% by
Athersys. Formed September 2003.
	 
	5.	 	ReGenesys BVBA. Inactive subsidiary, owned 99.5% by ReGenesys LLC and 0.5% by
Advanced Biotherapeutics, Inc. Formed October 2005.
	 
	6.	 	Oculus Pharmaceuticals, Inc. Inactive joint venture, owned 50.2% by Athersys.
Formed September 2001.
	 
	7.	 	Athersys Newco, Ltd. Inactive joint venture, owned 80.1% by Athersys. Formed
October 1999.





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Schedules 3.5(a)(i) & 3.5(a)(ii)




Capitalization of the Company (Pre-Closing)




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Authorized Capital	 	 	 	 
	 	 	Notes	 	 	Stock	 	 	Issued Capital Stock	 
	Common Stock
	 	 	 	 	 	 	40,000,000	 	 	 	8,196,850	 
	Class A Preferred Stock
	 	 	 	 	 	 	3,939,000	 	 	 	2,739,000	 
	Class B Preferred Stock
	 	 	 	 	 	 	319,800	 	 	 	319,800	 
	Class C Preferred Stock
	 	 	 	 	 	 	4,116,000	 	 	 	2,766,300	 
	Class D Preferred Stock
	 	 	 	 	 	 	150,000	 	 	 	150,000	 
	Class E Preferred Stock
	 	 	1.	 	 	 	18,100	 	 	 	12,015	 
	Class F Preferred Stock
	 	 	 	 	 	 	4,000,000	 	 	 	3,541,666	 
	Class G Preferred Stock
	 	 	 	 	 	 	639,450	 	 	 	639,450	 
	Blank Check Preferred Stock
	 	 	 	 	 	 	250,000	 	 	 	0	 
	Total
	 	 	 	 	 	 	53,432,350	 	 	 	18,365,081	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Stock Options —  Employees
	 	 	2.	 	 	 	 	 	 	 	2,809,752	 
	Stock Options – Board, consultants
	 	 	2.	 	 	 	 	 	 	 	735,002	 
	Warrants – Class C financing
	 	 	2.	 	 	 	 	 	 	 	606,000	 
	Warrant – Gallo
	 	 	2.	 	 	 	 	 	 	 	89,700	 
	Warrant – BioEnterprise
	 	 	2.	 	 	 	 	 	 	 	19,500	 
	Warrant – Lenders
	 	 	3.	 	 	 	 	 	 	TBD
	Milestone – Lenders — IPO
	 	 	4.	 	 	 	 	 	 	TBD
	Milestone – UM, Dr. Furcht, Ms. Levy
	 	 	5.	 	 	 	 	 	 	 	38,462 – 115,386	 





1. Convertible into 606,818 shares of Common Stock.



2. May result in the issuance of shares of Common Stock.



3. Pursuant to our loan agreement (Section 8 to the Supplement to the Loan and Security
Agreement), our lenders are entitled to a warrant equal to 7% of the loans advanced upon
the Company’s IPO, sale, merger, or next financing event, as defined. The warrants will
be exercisable for the type of equity instrument issue in the financing event (or common
stock if IPO) with an exercise price equal to the price per share in the financing. No
warrants have been issued as of this date.



4. Pursuant to our loan agreement (Section 10 to the Supplement to the Loan and Security
Agreement), our lenders are entitled to a milestone payment of either $1.5 million or
$2.25 million (depending on the timing of milestone achievement) upon IPO, sale, merger,
or dissolution, as defined. If the milestone is conferred due to an IPO, the milestone
may be paid 25% in cash and 75% in shares of Common Stock at the Company’s election.



5. Pursuant to our merger agreement (Section 3.4 of the Agreement and Plan of Merger),
the former members of MCL LLC would be entitled to additional consideration upon the
achievement of certain milestones. The first milestone related to patent issuance was
achieved in March 2006, resulting in the issuance of 76,924 shares of Common Stock to the
former members. Upon achievement of the two remaining milestones, the Company will issue
38,462 shares of Common Stock and pay cash in the amount of $1.0 million in aggregate.
The former members of MCL may elect additional shares of Common Stock in lieu of the cash
payments, which would result in the issuance of an additional 76,924 shares.




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Schedule 3.5(b)




Outstanding Warrants, Options, Rights, Agreements, etc.




            See Schedules 3.5(a)(i) and 3.5(a)(ii) for number of outstanding warrants, options and
convertible securities.



            The Company and certain of its stockholders have preemptive rights, voting agreements, rights
of first offer or refusal, options, warrants and/or other conversion privileges or rights presently
outstanding to purchase, subscribe for or otherwise acquire, or hold certain securities convertible
into or exercisable for or into, certain of the Company’s authorized but unissued capital stock
pursuant to any or all of the documents listed below. In addition, the Company has entered into
registration rights agreements with certain of its stockholders, which contain agreements regarding
the registration of certain of the Company’s outstanding securities under the United States federal
securities laws.




	 	1.	 	The Company’s Amended and Restated Certificate of Incorporation, as amended on December
2, 2001 and on February 12, 2003.
	 
	 	2.	 	Amended and Restated Stockholders’ Agreement, dated as of April 28, 2000, as amended as
of October 6, 2000, by and among the Company and certain of its stockholders, and certain
joinder agreements thereto.
	 
	 	3.	 	Amended and Restated Registration Rights Agreement, dated as of April 28, 2000, as
amended as of January 29, 2002 and as of November 19, 2002, by and among the Company and
certain of its stockholders.
	 
	 	4.	 	Athersys, Inc. Registration Rights Agreement, dated as of October 21, 1999, by and
between the Company and Elan International Services, Ltd.
	 
	 	5.	 	Warrant Agreement, dated as of October 30, 1998, by and among the Company and certain
of its stockholders.
	 
	 	6.	 	Warrant Certificate, dated as of March 18, 2004, by and among the Company and
BioEnterprise.
	 
	 	7.	 	Stock Purchase and Stock Exchange Agreement, dated as of March 19, 1996, by and between
the Company and Michael Gallo.
	 
	 	8.	 	1995 Incentive Plan of Athersys, Inc., as amended.
	 
	 	9.	 	2000 Stock Incentive Plan of Athersys, Inc.
	 
	 	10.	 	Stock option agreements by and between the Company and certain of its employees and
consultants.





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	 	11.	 	Employment agreement dated October 3, 2003 by and between Athersys, Inc., Advanced
Biotherapeutics, Inc. and Robert Deans, Ph.D.
	 
	 	12.	 	Employment agreement dated January 1, 2004 by and between Athersys, Inc., Advanced
Biotherapeutics, Inc. and William Lehmann
	 
	 	13.	 	Employee Stockholder Agreements by and between the Company and certain of its
employees.
	 
	 	14.	 	Optionee Stockholder Agreements by and between the Company and certain of its Board
Members and consultants.
	 
	 	15.	 	Agreement and Plan of Merger, dated as of November 3, 2003, by and among the Company,
ReGenesys LLC, MCL LLC, and Leo T. Furcht, M.D.
	 
	 	16.	 	Loan and Security Agreement, and Supplement, dated as of November 2, 2004, by and among
the Company, Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., and
Costella Kirsch IV, L.P.





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Schedule 3.7




Material Agreements




General Corporate Documents





	 	1.	 	The Company’s Amended and Restated Certificate of Incorporation, as amended on December
2, 2001 and on February 12, 2003.
	 
	 	2.	 	The Company’s Bylaws.
	 
	 	3.	 	Amended and Restated Stockholders’ Agreement, dated as of April 28, 2000, as amended as
of October 6, 2000, by and among the Company and certain of its stockholders, and certain
joinder agreements thereto.
	 
	 	4.	 	Amended and Restated Registration Rights Agreement, dated as of April 28, 2000, as
amended as of January 29, 2002 and as of November 19, 2002, by and among the Company and
certain of its stockholders.
	 
	 	5.	 	Athersys, Inc. Registration Rights Agreement, dated as of October 21, 1999, by and
between the Company and Elan International Services, Ltd.
	 
	 	6.	 	Warrant Agreement, dated as of October 30, 1998, by and among the Company and certain
of its stockholders.
	 
	 	7.	 	Warrant Certificate, dated as of March 18, 2004, by and among the Company and
BioEnterprise.
	 
	 	8.	 	Stock Purchase and Stock Exchange Agreement, dated as of March 19, 1996, by and between
the Company and Michael Gallo.
	 
	 	9.	 	1995 Incentive Plan of Athersys, Inc., as amended.
	 
	 	10.	 	2000 Stock Incentive Plan of Athersys, Inc.
	 
	 	11.	 	Stock option agreements by and between the Company and certain of its employees and
consultants.
	 
	 	12.	 	Employee Stockholder Agreements by and between the Company and certain of its
employees.
	 
	 	13.	 	Optionee Stockholder Agreements by and between the Company and certain of its Board
Members and consultants.
	 
	 	14.	 	Asset Contribution and Assumption of Liabilities Agreement, dated as of March 30, 2000,
by and between the Company and Advanced Biotherapeutics, Inc.




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	 	15.	 	Intercompany Loan Agreement, dated as of September 18, 2002, by and between the Company
and Advanced Biotherapeutics, Inc., as amended July 18, 2005.
	 
	 	16.	 	Technology and Contract Assignment and Assumption Agreement, dated as of May ___, 2006,
by and between Athersys, Inc. and ReGenesys, LLC.
	 
	 	17.	 	Services Agreement, dated as of November 4, 2003, by and between Athersys, Inc. and
ReGenesys, LLC.
	 
	 	18.	 	Intellectual Property Rights and Confidentiality Agreement, dated as of November 4,
2003, by and between Athersys, Inc. and Advanced Biotherapeutics, Inc.
	 
	 	19.	 	Certificate of Incorporation of Advanced Biotherapeutics, Inc., as amended.
	 
	 	20.	 	By-Laws of Advanced Biotherapeutics, Inc.
	 
	 	21.	 	Certificate of Formation of ReGenesys, LLC, dated as of September 19, 2003.
	 
	 	22.	 	Operating Agreement of ReGenesys, LLC, dated as of October 21, 2003.
	 
	 	23.	 	Certificate of Formation of ReGenesys BVBA, dated as of November 3, 2005.
	 
	 	 	 	Regenerative Medicine Agreements:
	 
	 	1.	 	Material Transfer and Intellectual Property Disposition Agreement, dated as of April 5,
2004, by and between the Company and the Cleveland Clinic Foundation, as amended.
	 
	 	2.	 	Research and Material Transfer Agreement, dated as of June 30, 2005, by and between the
Company, Advanced Biotherapeutics, Inc., and Case Western Reserve University, through its
faculty member Dr. Jerry Silver.
	 
	 	3.	 	Master Agreement by and between MPI research, Inc. and Athersys, Inc., dated as of
October 13, 2005, and various Service Agreement Addendums.
	 
	 	4.	 	Authorization to Proceed agreement, dated as of February 17, 2006, by and between
Athersys, Inc. and Cambrex Bio Science Walkersville, Inc.
	 
	 	5.	 	Confidentiality and Material Transfer Agreement, dated as of August 4, 2004, by and
between the Company and the Regents of the University of Minnesota, as represented by
Principal Investigator Catherine Verfaillie, MD and the University’s Stem Cell Institute.
	 
	 	6.	 	Material Transfer Agreement, dated as of April 11, 2006, by and between the Company and
the Regents of the University of Minnesota, through its faculty members Drs. Rosenberg and
Gupta.




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	 	7.	 	Research Agreement, dated as of April 29, 2003, by and between MCL LLC and the Regents
of the University of Minnesota, assumed by ReGenesys, LLC through operation of merger on
November 4, 2003, and Amendment No. 1 dated as of May 1, 2004,
Amendment No. 2 dated as of July 1, 2004, Amendment No. 3 dated as of February 1, 2005, and
Amendment No. 4 dated as of April 25, 2005 (effective as of January 1, 2005).
	 
	 	8.	 	Exclusive License Agreement, dated as of May 17, 2002, by and between Regents of the
University of Minnesota and MCL LLC, assumed by ReGenesys, LLC through operation of merger
on November 4, 2003.
	 
	 	9.	 	Ownership Agreement, dated as of May 17, 2002, by and between Regents of the University
of Minnesota and MCL LLC, assumed by ReGenesys, LLC through operation of merger on November
4, 2003.
	 
	 	10.	 	Confidential Research Agreement, dated as of November 15, 2004, by and between the
Company, Advanced Biotherapeutics, Inc. and the Medical College of Georgia Research
Institute, Inc., as amended on January 9, 2005.
	 
	 	11.	 	Confidential Research Agreement, dated as of November 1, 2005, by and between the
Company and the Medical College of Georgia Research Institute, Inc.
	 
	 	12.	 	Research Agreement, dated as of October 22, 2004, by and between the Company and Oregon
Health and Sciences University, as amended on April 13, 2005.
	 
	 	13.	 	Collaboration Agreement, dated as of May 25, 2004, by and between the Company and the
Juvenile Diabetes Research Foundation International
	 
	 	14.	 	Collaboration Agreement, dated as of July 10, 2003, by and between the Company and Case
Western Reserve University, related to the Biomedical Research and Technology Transfer
(BRTT) Trust Funds grant.
	 
	 	15.	 	Cooperative Research and Development Agreement, dated as of April 22, 2004, by and
between the Company and the Public Heath Service (NHLBI), as amended on September 7, 2005.
	 
	 	16.	 	Various Notices of Grant Awards to Company from National Institutes of Health under its
Small Business Innovation Research Program.
	 
	 	17.	 	Research Agreement, dated as of March 30, 2005, by and between the Company and the
Regents of the University of Minnesota, with Principal Investigator Dr. Wagner.
	 
	 	18.	 	Multi-Lineage Progenitor Cell Research License, dated as of August 23, 2005, by and
between Athersys, Inc. and BIOE, Inc.
	 
	 	19.	 	License and Supply Agreement, dated as of August 8, 2005, by and between Mercator, Inc.
(formerly EndoBionics, Inc.) and the Company.




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	 	20.	 	Service Agreement, dated as of December 9, 2005, by and between Athersys, Inc. and
Perry Scientific Inc.
	 
	 	21.	 	Agreement and Plan of Merger, dated as of November 3, 2003, by and among the Company,
ReGenesys LLC, MCL LLC, and Leo T. Furcht, M.D.
	 
	 	22.	 	State of Delaware Certificate of Merger, dated as of November 4, 2003, regarding MCL
LLC merger.
	 
	 	23.	 	Agreement, dated as of November 2, 1999, by and among MCL LLC, Catherine Verfaillie,
Morayma Reyes, and Leo T. Furcht, assumed by ReGenesys, LLC through operation of merger on
November 4, 2003.
	 
	 	24.	 	Waiver Regarding the Inventor’s Agreement, dated as of January 2, 2003, by and among
MCL LLC, Morayma Reyes, and the Company.
	 
	 	25.	 	Waiver Regarding the Inventor’s Agreement, dated as of October 27, 2002, by and among
MCL LLC, Catherine Verfaillie, Leo T. Furcht, and the Company.
	 
	 	26.	 	Loan Agreement, dated as of November 3, 2003, by and between the Company and Leo T.
Furcht, M.D.
	 
	 	27.	 	Tax Matters Agreement, dated as of October 27, 2002, by and between the Company and Leo
T. Furcht, M.D.
	 
	 	28.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 60/147,324 and 60/164,650, dated as of January 31, 2001 by and
between Dr. Catherine Verfaillie, Dr. Leo T. Furcht, Dr. Morayma Reyes, and MCL LLC.
	 
	 	29.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 60/504,100, dated as of October 23, 2003 by and between Dr.
Catherine Verfaillie, MCL LLC, and the Regents of the University of Minnesota.
	 
	 	30.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 10/048,757 dated as of October 17, 2003 by and between Dr.
Catherine Verfaillie, Dr. Leo T. Furcht, Dr. Morayma Reyes, MCL LLC. and the Regents of the
University of Minnesota.
	 
	 	31.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 10/467,963 dated as of October 17, 2003 by and between Dr.
Catherine Verfaillie, Dr. Leo T. Furcht, Dr. Morayma Reyes, MCL LLC and the Regents of the
University of Minnesota.
	 
	 	32.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 60/268,786 dated as of April 13, 2001 by and between Catherine
Verfaillie, Leo T. Furcht, and MCL LLC.




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	 	33.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 60/269,062 dated as of April 13, 2001 by and between Catherine
Verfaillie, Leo T. Furcht, and MCL LLC.
	 
	 	34.	 	Assignment Agreement for provisional application identified by United States Serial No.
60/429,631 dated as of October 23, 2003 by and between Dr. Catherine Verfaillie, and MCL
LLC.
	 
	 	35.	 	Assignment Agreement for provisional application identified by United States Serial No.
60/504,125 dated as of October 23, 2003 by and between Dr. Catherine Verfaillie, and MCL
LLC.
	 
	 	 	 	Biopharmaceutical and Other:
	 
	 	1.	 	Research Collaboration and License Agreement, dated as of December 8, 2000, by and
between the Company and Bristol-Myers Squibb Company.
	 
	 	2.	 	Cell Line Collaboration and License Agreement, dated as of July 1, 2002, by and between
the Company and Bristol-Myers Squibb Company, as amended as of January 1, 2006.
	 
	 	3.	 	Extended Collaboration and License Agreement, dated as of January 1, 2006, by and
between the Company and Bristol-Myers Squibb Company.
	 
	 	4.	 	Research Collaboration and License Agreement, dated as of November 7, 2001, by and
between the Company and Pfizer Inc.
	 
	 	5.	 	Research Agreement, dated as of October 2, 2001, by and between the Company and the
University of Rochester, as amended on November 10, 2003 and September 1, 2005.
	 
	 	6.	 	Cooperative Research and Development Agreement, dated as of September 21, 2000, by and
among the Company, the Board of Trustees of the University of Alabama at Birmingham for the
University of Alabama at Birmingham, and The UAB Research Foundation, as amended.
	 
	 	7.	 	Mutual Termination and Release Agreement, and License Agreement, dated as of December
19, 2003, by and between the Company and 3-Dimensional Pharmaceuticals Inc.
	 
	 	8.	 	Cross-License Agreement, dated as of September 5, 2003, by and between the Company and
Lexicon Genetics Incorporated.
	 
	 	9.	 	License Agreement, dated as of November 1, 1995, by and between Case Western Reserve
University and the Company.




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	 	10.	 	Memorandum Agreement, dated as of October 22, 1997, by and between Case Western Reserve
University and the Company.
	 
	 	11.	 	License Agreement, dated as of September 2, 2000, by and between the Company and the
University of Iowa.
	 
	 	12.	 	License Agreement, dated as of April 10, 2002, by and between the Company and PE
Corporation, through its Applied Biosystems Group.
	 
	 	13.	 	Assignment of License Right, dated as of April 10, 2002, by and between the Company and
Dr. John Harrington, Dr. Chih-Lin Hsieh and Dr. Michael Lieber, as amended.
	 
	 	14.	 	Joint Venture Agreement, dated as of November 30, 2000, by and between the Company and
President Life Sciences Co., Ltd.
	 
	 	15.	 	Subscription, Joint Development and Operating Agreement, dated as of October 21, 1999,
by and among Elan Corporation, plc, Elan International Services, Ltd., Elan Pharma
International Limited, the Company and Athersys Newco Ltd.
	 
	 	16.	 	License Agreement, dated as of October 21, 1999, by and between the Company and
Athersys Newco Ltd.
	 
	 	17.	 	Funding Agreement, dated as of October 21, 1999, by and among Elan Pharma International
Limited, Elan Corporation, plc, Elan International Services, Ltd. and the Company.
	 
	 	18.	 	Settlement Agreement, dated as of July 2, 2003, by and between Oculus Pharmaceuticals,
Inc. and the Company.
	 
	 	19.	 	Master Services Agreement, dated as of May 2, 2005, by and between Athersys, Inc.,
Advanced Biotherapeutics Inc., and SCYNEXIS, Inc.
	 
	 	20.	 	Master Agreement, dated as of August 11, 2005, between Athersys, Inc. and Inveresk
Research International Limited/Charles River Laboratories, and various Contract and
Protocol Addendums.
	 
	 	21.	 	Laboratory Services and Confidentiality Agreement, dated as of April 4, 2004, between
Athersys, Inc. and Charles River Laboratories.
	 
	 	22.	 	Consultancy Services Agreement, dated as of November 30, 2005, between Athersys, Inc.
and Charles River Laboratories Clinical Services International Limited.
	 
	 	23.	 	Material Transfer Agreement, MGH Ref. 1790, dated as of May 2, 2005, by and between
Athersys, Inc., Advanced Biotherapeutics Inc., and The General Hospital Corporation d.b.a.
Massachusetts General Hospital.




12









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	 	24.	 	Non-Exclusive Option Agreement, MGH Case No. 1790, dated as of May 2, 2005, by and
between Athersys, Inc., Advanced Biotherapeutics Inc., and The General Hospital Corporation
d.b.a. Massachusetts General Hospital.
	 
	 	25.	 	Agreement of Quotation and Protocols, dated as of December 22, 2005, by and between
Athersys, Inc. and Toxicon Corporation.
	 
	 	26.	 	Biological Materials License Agreement, dated as of December 21, 2000, by and between
Athersys, Inc. and Molecular Devices Corporation.
	 
	 	27.	 	License Agreement, dated as of June 11, 2001, by and between Athersys, Inc. and
Brookhaven Science Associates, LLC.
	 
	 	28.	 	Collaborative Research and Development Agreement, dated as of February 9, 2005, by and
between Athersys, Inc. and The Ohio State University.
	 
	 	29.	 	Various Notices of Grant Awards to Company from National Institutes of Health under its
Small Business Innovation Research Program.





Banking & Loan Arrangements





	 	1.	 	Loan and Security Agreement, and Supplement, dated as of November 2, 2004, by and among
the Company, Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., and
Costella Kirsch IV, L.P.
	 
	 	2.	 	Promissory Notes made by the Company and Advanced Biotherapeutics, Inc., on behalf of
Venture Lending & Leasing IV, Inc., and Costella Kirsch IV, L.P., dated November 12, 2004
(numbers CK-001 and 4035-001), and dated December 29, 2004 (numbers CK-002 and 4035-002).
	 
	 	3.	 	UCC Financing Statements of the Company and Advanced Biotherapeutics, Inc. naming
Venture Lending & Leasing IV, Inc., as agent, as secured party.
	 
	 	4.	 	Intellectual Property Security Agreement, dated as of February 14, 2006, by and between
Athersys, Inc. and Venture Lending & Leasing IV, Inc.
	 
	 	5.	 	Control Agreement Concerning Deposit Accounts, dated as of November 2, 2004, by and
among the Company, Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc.,
Costella Kirsch IV, L.P., and National City Bank.
	 
	 	6.	 	Account Control Agreement, dated as of November 2, 2004, by and among the Company,
Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., Costella Kirsch IV,
L.P., and NatCity Investments.




13









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Consulting and Business Advisory Agreements





	 	1.	 	Engagement Letter, dated as of October 3, 2005, by and between the Company and Kaufman
& Company, LLC.
	 
	 	2.	 	Engagement Letter, dated as of October 31, 2005, by and between the Company and Merrill
Lynch & Co.
	 
	 	3.	 	Consulting Agreement, dated as of May 27, 2004, by and between the Company, Advanced
Biotherapeutics, Inc., and Jim Shook Research, Inc., as extended.
	 
	 	4.	 	Consulting Agreement, dated as of October 27, 2002, by and between the Company and Dr.
Catherine Verfaillie, as amended on March 4, 2003.
	 
	 	5.	 	Consulting Agreement, dated as of February 22, 2005, by and between the Company,
Advanced Biotherapeutics, Inc., and Dr. Pascal Goldschmidt.
	 
	 	6.	 	Consulting Agreement, dated as of March 6, 2005, by and between the Company, Advanced
Biotherapeutics, Inc., and Dr. Jianyi Zhang.
	 
	 	7.	 	Consulting Agreement, dated as of March 6, 2005, by and between the Company, Advanced
Biotherapeutics, Inc., and Dr. Ken Walsh.
	 
	 	8.	 	Consulting Agreement, dated as of March 25, 2005, by and between the Company, Advanced
Biotherapeutics, Inc., and Dr. Michael Simons.
	 
	 	9.	 	Consulting Agreement, dated as of February 1, 2005, by and between the Company,
Advanced Biotherapeutics, Inc., and Dr. Brian Annex.
	 
	 	10.	 	Consulting Agreement, dated as of May 10, 2004, by and between the Company, Advanced
Biotherapeutics, Inc., and Dr. Gilbert Clincke, as extended on September 28, 2005.
	 
	 	11.	 	Consulting Agreement, dated as of January 6, 2005, by and between the Company, Advanced
Biotherapeutics, Inc., and Dr. Xavier Pi-Sunyer.
	 
	 	12.	 	Consulting Agreement, dated as of May 1, 2005, by and between the Company, Advanced
Biotherapeutics, Inc. and Dr. Thomas Caskey.
	 
	 	13.	 	Consulting Agreement, dated as of November 4, 2005, by and between the Company,
Advanced Biotherapeutics, Inc. and Charles E. Piper (CEP Consulting).
	 
	 	14.	 	Consulting Agreement, dated as of February 7, 2006, by and between Athersys, Inc. and
Biologics Consulting Group, Inc.
	 
	 	15.	 	Master Service Agreement, dated as of March 9, 2004, by and between the Company, and
CATO Research, as extended.




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	 	16.	 	Letter Agreement, dated as of January 22, 2003, by and between the Company and Dr.
George Milne, Jr.





Facilities and Other Agreements





	 	1.	 	Confidentiality agreements with numerous third parties and employees.
	 
	 	2.	 	Employment agreements, non-competition agreements, and D&O indemnification agreements
with key members of management.
	 
	 	3.	 	Incentive agreements with all employees.
	 
	 	4.	 	Separation and General Release Agreements with terminated employees, 2005, 2003, 2002.
	 
	 	5.	 	Promissory Note made by Gil Van Bokkelen on behalf of Advanced Biotherapeutics, Inc.,
dated May 20, 2002.
	 
	 	6.	 	Lease Agreement, dated as of March 23, 2000, by and between the Company and Sherry E.
Greer and James C. Comella, Trustees, under T/A/D December 21, 1991, as amended, and
notices of lease extensions.
	 
	 	7.	 	Facilities Use Agreement, dated as of February 18, 2002, by and between the Company and
The MetroHealth System, as amended.
	 
	 	8.	 	Various corporate insurance policies, including directors and officers coverage.
	 
	 	9.	 	Various employee benefit plan documents.






15









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Schedule 3.8




Brokers





	1.	 	Engagement Letter, dated as of October 31, 2005, by and between the Company and Merrill
Lynch & Co. Although the completion of the transactions contemplated by the Agreement will
not require the payment of compensation to Merrill Lynch & Co., it will contribute to
minimum thresholds that could lead to compensation payable to Merrill Lynch & Co. in the
future.




16









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Schedule 3.9




Audited Financial Statements




20









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Consolidated Financial Statements




Athersys, Inc.

Years Ended December 31, 2003, 2004, and 2005




 









 













Athersys, Inc.




Consolidated Financial Statements




Years Ended December 31, 2003, 2004, and 2005




Contents




	 	 	 	 	 
	Report of Independent Auditors
	 	 	1	 
	Consolidated Balance Sheets
	 	 	2	 
	Consolidated Statements of Operations
	 	 	3	 
	Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
	 	 	4	 
	Consolidated Statements of Cash Flows
	 	 	5	 
	Notes to Consolidated Financial Statements
	 	 	6	 










 









Table of Contents






	 	 	 	 	 
	

	§	Ernst & Young LLP

Suite 1300

925 Euclid Avenue

Cleveland, Ohio 44115
	§	Phone: (216) 861-5000

www.ey.com
	 

	 	 
	 

	 	 	 
	 

	 	 	 










Report of Independent Auditors




The Board of Directors and Stockholders

Athersys, Inc.



We have audited the accompanying consolidated balance sheets of Athersys, Inc. as of December 31,
2004 and 2005, and the consolidated statements of operations, changes in stockholders’ equity
(deficit), and cash flows for each of the three years in the period ended December 31, 2005. These
financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.



In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Athersys, Inc. at December 31, 2004 and 2005, and
the consolidated results of its operations and its cash flows for each of the three years in the
period ended December 31, 2005, in conformity with accounting principles generally accepted in the
United States.



The accompanying financial statements have been prepared assuming that Athersys, Inc. will continue
as a going concern. As more fully described in Note A, the Company has incurred recurring operating
losses from its inception and lacks sufficient liquidity to fund its operations. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note A. The financial statements do not
include any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.









March 13, 2006




1









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Athersys, Inc.








Consolidated Balance Sheets




(In Thousands, Except Share and Per Share Amounts)




	 	 	 	 	 	 	 	 	 
	 	 	December 31
	 	 	2004	 	2005
	 	 	 
	Assets
	 	 	 	 	 	 	 	 
	Current assets:
	 	 	 	 	 	 	 	 
	Cash and cash equivalents
	 	$	3,303	 	 	$	1,080	 
	Available for sale securities
	 	 	13,976	 	 	 	3,481	 
	Accounts receivable
	 	 	650	 	 	 	628	 
	Prepaid expenses and other
	 	 	381	 	 	 	375	 
	 	 	 
	Total current assets
	 	 	18,310	 	 	 	5,564	 
	 
	 	 	 	 	 	 	 	 
	Notes receivable from related parties
	 	 	653	 	 	 	682	 
	Equipment, net
	 	 	1,789	 	 	 	954	 
	Other assets
	 	 	142	 	 	 	109	 
	 	 	 
	Total assets
	 	$	20,894	 	 	$	7,309	 
	 	 	 
	 
	 	 	 	 	 	 	 	 
	Liabilities and stockholders’ equity (deficit)
	 	 	 	 	 	 	 	 
	Current liabilities:
	 	 	 	 	 	 	 	 
	Accounts payable
	 	$	433	 	 	$	365	 
	Accrued compensation and related benefits
	 	 	117	 	 	 	119	 
	Accrued expenses and other
	 	 	543	 	 	 	721	 
	Current portion of long-term debt
	 	 	199	 	 	 	2,531	 
	 	 	 
	Total current liabilities
	 	 	1,292	 	 	 	3,736	 
	 
	 	 	 	 	 	 	 	 
	Long-term debt
	 	 	7,215	 	 	 	4,684	 
	Accrued dividends
	 	 	11,236	 	 	 	13,489	 
	 
	 	 	 	 	 	 	 	 
	Stockholders’ equity:
	 	 	 	 	 	 	 	 
	Convertible preferred stock, at stated value; 13,432,350
shares authorized; 11,784,898 and 10,168,231 shares issued and
outstanding at December 31, 2004 and 2005, respectively; aggregate
liquidation preference of $73,942 and $68,187 at December 31, 2004
and 2005, respectively
	 	 	68,301	 	 	 	68,301	 
	Common stock, $.01 par value; 40,000,000 shares
authorized; 8,154,633 and 8,117,926 shares issued and outstanding at
December 31, 2004 and 2005, respectively
	 	 	82	 	 	 	82	 
	Additional paid-in capital
	 	 	51,749	 	 	 	49,081	 
	Treasury stock, at cost
	 	 	—	 	 	 	(250	)
	Accumulated other comprehensive loss
	 	 	(35	)	 	 	(17	)
	Unearned compensation – common stock options
	 	 	(2,557	)	 	 	(809	)
	Accumulated deficit
	 	 	(116,389	)	 	 	(130,988	)
	 	 	 
	Total stockholders’ equity (deficit)
	 	 	1,151	 	 	 	(14,600	)
	 	 	 
	Total liabilities and stockholders’ equity (deficit)
	 	$	20,894	 	 	$	7,309	 
	 	 	 






See accompanying notes.




2









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Athersys, Inc.








Consolidated Statements of Operations




(In Thousands)




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Years Ended December 31
	 	 	2003	 	2004	 	2005
	 	 	 
	Revenues
	 	 	 	 	 	 	 	 	 	 	 	 
	License fees
	 	$	1,393	 	 	$	820	 	 	$	763	 
	Grant revenue
	 	 	759	 	 	 	2,318	 	 	 	2,833	 
	 	 	 
	Total revenues
	 	 	2,152	 	 	 	3,138	 	 	 	3,596	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Costs and expenses
	 	 	 	 	 	 	 	 	 	 	 	 
	Research and development (including
stock compensation expense of $697,
$2,008, and $801 in 2003, 2004, and 2005,
respectively)
	 	 	13,675	 	 	 	12,415	 	 	 	12,578	 
	Purchased in-process research and development
	 	 	9,500	 	 	 	—	 	 	 	—	 
	General and administrative (including stock
compensation expense of $3,847, $1,481,
and $657 in 2003, 2004, and 2005,
respectively)
	 	 	10,882	 	 	 	4,717	 	 	 	3,755	 
	Depreciation
	 	 	1,803	 	 	 	1,297	 	 	 	982	 
	Restructuring costs (including stock compensation
expense of $472, $56 and $(128) in 2003, 2004,
and 2005, respectively)
	 	 	1,076	 	 	 	107	 	 	 	251	 
	 	 	 
	Total costs and expenses
	 	 	36,936	 	 	 	18,536	 	 	 	17,566	 
	 	 	 
	Loss from operations
	 	 	(34,784	)	 	 	(15,398	)	 	 	(13,970	)
	Other income
	 	 	1,000	 	 	 	—	 	 	 	18	 
	Recovery from joint ventures
	 	 	114	 	 	 	—	 	 	 	—	 
	Interest income
	 	 	644	 	 	 	317	 	 	 	317	 
	Interest expense
	 	 	(135	)	 	 	(73	)	 	 	(964	)
	 	 	 
	Net loss
	 	$	(33,161	)	 	$	(15,154	)	 	$	(14,599	)
	 	 	 






See accompanying notes.




3









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Athersys, Inc.








Consolidated Statements of Changes in Stockholders’ Equity (Deficit)




(In Thousands)




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Convertible	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	Unearned	 	 	 	 	 	 
	 	 	Preferred Stock	 	Common Stock	 	Additional	 	 	 	 	 	Other	 	Compensation–	 	 	 	 	 	Total
	 	 	Number	 	Stated	 	Number	 	Par	 	Paid-in	 	Treasury	 	Comprehensive	 	Common Stock	 	Accumulated	 	Stockholders’
	 	 	of Shares	 	Value	 	of Shares	 	Value	 	Capital	 	Stock	 	Income (Loss)	 	Options	 	Deficit	 	Equity (Deficit)
	 	 	 
	Balance at January 1, 2003
	 	 	11,785	 	 	$	68,301	 	 	 	7,411	 	 	$	74	 	 	$	36,010	 	 	$	—	 	 	$	227	 	 	$	(625	)	 	$	(68,074	)	 	$	35,913	 
	Issuance of common stock, net
	 	 	—	 	 	 	—	 	 	 	738	 	 	 	7	 	 	 	9,532	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9,539	 
	Unearned compensation – common
stock options
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	7,630	 	 	 	—	 	 	 	—	 	 	 	(7,630	)	 	 	—	 	 	 	—	 
	Amortization of unearned
compensation
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,365	 	 	 	—	 	 	 	1,365	 
	Compensation expense related to
options issued to employees and
consultants
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,696	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,696	 
	Forfeitures of common stock options
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(65	)	 	 	—	 	 	 	—	 	 	 	20	 	 	 	—	 	 	 	(45	)
	Accrued dividends – Class C preferred
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,119	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,119	)
	Accrued dividends – Class E preferred
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,045	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,045	)
	Net loss
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(33,161	)	 	 	(33,161	)
	Unrealized loss on available for
sale securities
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(192	)	 	 	—	 	 	 	—	 	 	 	(192	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total comprehensive loss
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(33,353	)
	 	 	 
	Balance at December 31, 2003
	 	 	11,785	 	 	 	68,301	 	 	 	8,149	 	 	 	81	 	 	 	54,639	 	 	 	—	 	 	 	35	 	 	 	(6,870	)	 	 	(101,235	)	 	 	14,951	 
	Issuance of common stock, net
	 	 	—	 	 	 	—	 	 	 	6	 	 	 	1	 	 	 	14	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	15	 
	Issuance of common stock warrant
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	189	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	189	 
	Unearned compensation – common
stock options
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	9	 	 	 	—	 	 	 	—	 	 	 	(9	)	 	 	—	 	 	 	—	 
	Amortization of unearned
compensation
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3,489	 	 	 	—	 	 	 	3,489	 
	Compensation expense related to
options issued to employees and
consultants
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	56	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	56	 
	Forfeitures of common stock options
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(833	)	 	 	—	 	 	 	—	 	 	 	833	 	 	 	—	 	 	 	—	 
	Accrued dividends – Class C preferred
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,208	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,208	)
	Accrued dividends – Class E preferred
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,117	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,117	)
	Net loss
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(15,154	)	 	 	(15,154	)
	Unrealized loss on available for
sale securities
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(70	)	 	 	—	 	 	 	—	 	 	 	(70	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total comprehensive loss
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(15,224	)
	 	 	 
	Balance at December 31, 2004
	 	 	11,785	 	 	 	68,301	 	 	 	8,155	 	 	 	82	 	 	 	51,749	 	 	 	—	 	 	 	(35	)	 	 	(2,557	)	 	 	(116,389	)	 	 	1,151	 
	Issuance of common stock, net
	 	 	—	 	 	 	—	 	 	 	2	 	 	 	—	 	 	 	3	 	 	 	 	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	3	 
	Repurchase of common and
preferred stock
	 	 	(1,617	)	 	 	—	 	 	 	(39	)	 	 	—	 	 	 	—	 	 	 	(250	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(250	)
	Amortization of unearned
compensation
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,330	 	 	 	—	 	 	 	1,330	 
	Forfeitures of common stock options
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(418	)	 	 	—	 	 	 	—	 	 	 	418	 	 	 	—	 	 	 	—	 
	Accrued dividends – Class C preferred
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,306	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,306	)
	Accrued dividends – Class E preferred
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(947	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(947	)
	Net loss
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(14,599	)	 	 	(14,599	)
	Unrealized loss on available for
sale securities
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	18	 	 	 	—	 	 	 	—	 	 	 	18	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total comprehensive loss
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(14,581	)
	 	 	 
	Balance at December 31, 2005
	 	 	10,168	 	 	$	68,301	 	 	 	8,118	 	 	$	82	 	 	$	49,081	 	 	$	(250	)	 	$	(17	)	 	$	(809	)	 	$	(130,988	)	 	$	(14,600	)
	 	 	 






See accompanying notes.




4









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Athersys, Inc.








Consolidated Statements of Cash Flows




(In Thousands)




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Years Ended December 31
	 	 	2003	 	2004	 	2005
	 	 	 
	Operating activities
	 	 	 	 	 	 	 	 	 	 	 	 
	Net loss
	 	$	(33,161	)	 	$	(15,154	)	 	$	(14,599	)
	Adjustments to reconcile net loss to net cash
used in operating activities:
	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation
	 	 	1,803	 	 	 	1,297	 	 	 	982	 
	Fixed asset impairment
	 	 	 	 	 	 	 	 	 	 	87	 
	Gain on sale of equipment
	 	 	—	 	 	 	—	 	 	 	(18	)
	Recovery from joint ventures
	 	 	(114	)	 	 	—	 	 	 	—	 
	Purchased in-process research and development
	 	 	9,500	 	 	 	—	 	 	 	—	 
	Compensation – common stock options
	 	 	5,016	 	 	 	3,545	 	 	 	1,330	 
	Amortization of premium (discount) on
available for sale securities and other
	 	 	210	 	 	 	125	 	 	 	(44	)
	Changes in operating assets and liabilities:
	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts receivable
	 	 	39	 	 	 	(119	)	 	 	22	 
	Prepaid expenses and other assets
	 	 	358	 	 	 	(65	)	 	 	10	 
	Accounts payable and accrued expenses
	 	 	322	 	 	 	(1,297	)	 	 	112	 
	 	 	 
	Net cash used in operating activities
	 	 	(16,027	)	 	 	(11,668	)	 	 	(12,118	)
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Investing activities
	 	 	 	 	 	 	 	 	 	 	 	 
	Proceeds of recovery from joint ventures
	 	 	14	 	 	 	—	 	 	 	—	 
	Purchase of available for sale securities
	 	 	(11,639	)	 	 	(12,238	)	 	 	(5,006	)
	Maturities of available for sale securities
	 	 	20,660	 	 	 	18,809	 	 	 	15,563	 
	Proceeds from sale of equipment
	 	 	—	 	 	 	—	 	 	 	23	 
	Purchases of equipment
	 	 	(702	)	 	 	(173	)	 	 	(239	)
	 	 	 
	Net cash provided by investing activities
	 	 	8,333	 	 	 	6,398	 	 	 	10,341	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Financing activities
	 	 	 	 	 	 	 	 	 	 	 	 
	Principal payments on debt
	 	 	(801	)	 	 	(4,148	)	 	 	(199	)
	Proceeds from long-term debt
	 	 	—	 	 	 	7,500	 	 	 	—	 
	Deferred financing costs
	 	 	—	 	 	 	(44	)	 	 	—	 
	Cash released from collateral for debt
	 	 	300	 	 	 	670	 	 	 	—	 
	Repurchase of common and preferred stock held in treasury
	 	 	—	 	 	 	—	 	 	 	(250	)
	Proceeds from issuance of common stock, net
	 	 	39	 	 	 	15	 	 	 	3	 
	 	 	 
	Net cash (used in) provided by financing activities
	 	 	(462	)	 	 	3,993	 	 	 	(446	)
	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Decrease in cash and cash equivalents
	 	 	(8,156	)	 	 	(1,277	)	 	 	(2,223	)
	Cash and cash equivalents at beginning of year
	 	 	12,736	 	 	 	4,580	 	 	 	3,303	 
	 	 	 
	Cash and cash equivalents at end of year
	 	$	4,580	 	 	$	3,303	 	 	$	1,080	 
	 	 	 






See accompanying notes.




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Athersys, Inc.








Notes to Consolidated Financial Statements




Years Ended December 31, 2003, 2004, and 2005




A. Background and Accounting Policies




Background



Athersys, Inc. (Athersys or the Company) is a biopharmaceutical company engaged in the discovery,
validation, development and commercialization of technologies and therapeutic drug programs in one
business segment. Operations consist primarily of research and product development activities.
Prior to 2005, the Company had been considered in the development stage.



The accompanying consolidated financial statements have been prepared on the basis that the Company
will continue as a going concern. Since inception, the Company has incurred annual losses and
negative cash flows from operations and has an accumulated deficit at December 31, 2005. The
Company expects to incur additional operating losses over the next several years. The Company has
limited liquidity and capital resources and must obtain significant additional capital resources in
order to sustain its product development efforts, including preclinical and clinical testing of
anticipated products, pursuit of regulatory approval, and establishment of production capabilities,
and meet other working capital requirements. The Company relies on proceeds from equity and debt
offerings, proceeds from the transfer or sale of intellectual property rights, grant proceeds, and
funding from collaborative arrangements to fund its operations. The Company is currently pursuing
multiple potential collaborative and fundraising opportunities. If the Company exhausts its liquid
assets and is unable to obtain adequate funding, it may be unable to continue operations and meet
contractual obligations. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this uncertainty.



Principles of Consolidation



The consolidated financial statements include the accounts and results of operations of the Company
and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated
in consolidation. Investments in joint ventures and collaborations are accounted for using the
equity method when the Company does not control the investee but has the ability to exercise
significant influence over the investee’s operations and financial policies.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




A. Background and Accounting Policies (continued)




Revenue Recognition



Revenue is recognized over the period that the Company performs its required activities under the
terms of various agreements. Revenue from transactions that do not require future performance
obligations from the Company is recognized as contemplated in the agreements, typically upon
acceptance and when collectibility is reasonably assured. Revenue resulting from the achievement of
milestone events stipulated in the agreements is recognized when the milestone is achieved.



Revenue from grants consists primarily of funding under cost reimbursement programs from federal
and state sources for qualified research and development activities performed by the Company.
Revenue from grants is recorded when earned under the terms of the agreements.



Cash and Cash Equivalents and Restricted Cash



The Company considers all highly liquid investments with a maturity of three months or less, when
purchased, to be cash equivalents. Cash equivalents are primarily invested in money market funds.
The carrying amount of the Company’s cash equivalents approximates fair value due to the short
maturity of the investments.



Research and Development



Research and development expenditures, including direct and allocated overhead expenses, are
charged to expense as incurred. See Note K regarding acquired in-process research and development
in 2003.



Royalties



The Company may be required to remit royalty payments based on product sales to certain parties
under license agreements. The Company has not paid any such royalties for the three-year period
ended December 31, 2005.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




A. Background and Accounting Policies (continued)




Financial Instruments



Management determines the appropriate classification of investment securities at the time of
purchase and reevaluates such designation as of each balance sheet date. The Company’s investments
consist primarily of U.S. government obligations, all of which are classified as
available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of stockholder’s equity. The
amortized cost of the debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization or accretion is included in interest income. Realized
gains and losses on available-for-sale securities are included in interest income. The cost of
securities sold is based on the specific identification method. Interest earned on securities
classified as available-for-sale is included in interest income.



Long-Lived Assets



Equipment is stated at cost. Laboratory and office equipment are depreciated on the straight-line
basis over the estimated useful lives (three to seven years).



Impairment of long-lived assets is recognized when events or changes in circumstances indicate that
the carrying amount of the asset or related group of assets may not be recoverable. If the expected
future undiscounted cash flows are less than the carrying amount of the asset, an impairment loss
is recognized at that time. Measurement of impairment may be based upon appraisal, market value of
similar assets or discounted cash flows. No such impairment losses were recorded in 2003 or 2004.
See Note B regarding an impairment loss recorded in 2005.



Patent Costs and Rights



Patent costs and rights are expensed as incurred. As of December 31, 2005, the Company has filed
for broad intellectual property protection on its proprietary technologies. The Company currently
has numerous U.S. patent applications and corresponding international patent applications related
to its technologies, as well as many issued U.S. and international patents. See Note K regarding
additional patent rights related to patents and patent applications owned by Case Western Reserve
University (CWRU) and the University of Minnesota.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




A. Background and Accounting Policies (continued)




Stock-Based Compensation



The Company has elected to account for its stock-based compensation to employees and members of the
Board of Directors in accordance with the intrinsic value method as described in the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations, as permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. As such, compensation is recorded on the date of issuance
or grant as the excess of the current estimated market value of the underlying stock over the
purchase or exercise price of the stock option. Any unearned compensation is recognized over the
respective vesting periods of the equity instruments, if any, using the graded vesting method as
prescribed by Financial Accounting Standards Board Interpretation No. 28. As required by SFAS 123,
transactions with nonemployees, in which goods or services are the consideration received for the
issuance of equity instruments, are accounted for under the fair value method.



Pro forma information regarding the net loss determined as if the Company had accounted for its
employee and director stock options under the fair value method of SFAS 123 for the years ended
2003, 2004, and 2005 is presented below. The fair value for these options was estimated at the date
of the grant using the Black-Scholes valuation model. The following weighted-average input
assumptions were used in determining the fair value:




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	December 31	 	 
	 	 	2003	 	2004	 	2005
	 	 	 
	Volatility
	 	 	104.0	%	 	 	51.9	%	 	 	49.8	%
	Risk-free interest rate
	 	 	2.6	%	 	 	3.4	%	 	 	3.7	%
	Expected life of option
	 	3-4 years	 	4 years	 	4 years
	Expected dividend yield
	 	 	0.0	%	 	 	0.0	%	 	 	0.0	%






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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




A. Background and Accounting Policies (continued)



For purposes of pro forma disclosures, the estimated fair value of the options is amortized to
expense over the vesting period of the options. The Company’s pro forma information follows (in
thousands):




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Years Ended December 31
	 	 	2003	 	2004	 	2005
	 	 	 
	Net loss:
	 	 	 	 	 	 	 	 	 	 	 	 
	As reported
	 	$	(33,161	)	 	$	(15,154	)	 	$	(14,599	)
	Total stock compensation expense
included in net income, as reported
	 	 	4,061	 	 	 	3,384	 	 	 	1,260	 
	Total stock compensation expense under
the fair value method for all awards
	 	 	(4,309	)	 	 	(3,030	)	 	 	(2,312	)
	 	 	 
	Pro forma
	 	$	(33,409	)	 	$	(14,800	)	 	$	(15,651	)
	 	 	 





The pro forma net loss is not necessarily indicative of potential pro forma effects on results for
future years.



In December 2004, FASB Statement No. 123 (revised 2004), Share-Based Payment, was issued as a
revision to FASB Statement No. 123, Accounting for Stock Options. The new statement is required to
be adopted by nonpublic companies in January 2006. The Company has not yet completed its analysis
of the adoption of this standard.




Comprehensive Loss



Unrealized gains and losses on the Company’s available for sale securities is the only component of
total comprehensive income or loss. Total comprehensive income or loss has been disclosed in the
consolidated statement of changes in stockholders’ equity.




Use of Estimates



The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results could differ from those
estimates.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




B. Equipment



Equipment consists of (in thousands):




	 	 	 	 	 	 	 	 	 
	 	 	December 31
	 	 	2004	 	2005
	 	 	 
	Laboratory equipment
	 	$	5,805	 	 	$	5,755	 
	Office equipment and leasehold improvements
	 	 	3,292	 	 	 	3,321	 
	 	 	 
	 
	 	 	9,097	 	 	 	9,076	 
	Accumulated depreciation
	 	 	(7,308	)	 	 	(8,122	)
	 	 	 
	 
	 	$	1,789	 	 	$	954	 
	 	 	 





In connection with a restructuring in 2005 (also see Note I), the Company reduced the carrying
value of certain laboratory equipment to its realizable value, resulting in an impairment loss of
$87,000. The fair value of the equipment was determined based on prices for similar assets. The
impairment loss is included in restructuring costs in the statement of operations.




C. Notes Receivable From Related Parties



The Company has a note receivable from an officer with an unpaid principal balance of $100,000 in
connection with a loan made in May 2002. Under the terms of the note, interest accrues on the
unpaid principal at approximately 5% per annum. Principal and accrued interest is to be paid on
demand or on May 20, 2007. Also, the Company has a note receivable from the former owner of MCL LLC
(MCL) with an unpaid principal balance of $511,000 as a result of the merger between the Company
and MCL (see Note K) in November 2003. Under the terms of the note, interest accrues on the unpaid
principal at approximately 5% per annum for at least the first two years of the note, at which time
the accrual of interest is dependent on certain events at the Company, as defined in the note
agreement. In November 2005, interest on the note ceased to accrue. Principal and accrued interest
is repayable (i) out of a percentage of proceeds, as defined, from the sale of shares of the
Company’s stock held by the note holder as he elects to sell his shares, and (ii) out of a
percentage of a milestone that may be due to the holder, as defined, which the Company has the
right to offset as repayment on the note. If the proceeds that are subject to repayment of the note
are insufficient to repay the principal and interest in full, then any remaining balance due will
be forgiven by the Company after the holder has sold all shares of the Company’s stock and the
holder is no longer entitled to any milestone consideration related to the merger.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




D. Financial Instruments




Investments



The following is a summary of available for sale securities (in thousands):




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Gross	 	Gross	 	Estimated
	 	 	Amortized	 	Unrealized	 	Unrealized	 	Fair
	 	 	Cost	 	Losses	 	Gains	 	Value
	 	 	 
	December 31, 2004:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	U.S. government obligations
	 	$	14,011	 	 	$	(35	)	 	$	—	 	 	$	13,976	 
	 	 	 
	December 31, 2005:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	U.S. government obligations
	 	$	3,498	 	 	$	(17	)	 	$	—	 	 	$	3,481	 
	 	 	 





The Company had no significant realized gains or losses on the sale of available for sale
securities for any of the periods presented. The net unrealized losses on available for sale
securities is included as a component of accumulated other comprehensive income in stockholders’
equity and was $(35,000) and $(17,000) as of December 31, 2004 and 2005, respectively.



The amortized cost of available for sale securities approximates fair value at December 31, 2004
and 2005, and all maturities are due in one year or less. Actual maturities may differ from
contractual maturities because the issuers of the securities may have the right to repay the
obligations without prepayment penalties.




Financing Arrangements



The Company leases office and laboratory space under an operating lease. The Company entered into
the lease in April 1, 2000, and a letter agreement in 2003, which together provide the Company
options to renew the lease in six-month increments through March 2009 at the initial rental rate.
The Company has executed its option to renew through September 2006. Rent expense for the facility
was approximately $267,000 in each of 2003, 2004, and 2005. The future annual minimum lease
commitment at December 31, 2005, is approximately $200,000 for 2006.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




D. Financial Instruments (continued)



A summary of the Company’s long-term debt outstanding is as follows (in thousands):




	 	 	 	 	 	 	 	 	 
	 	 	December 31
	 	 	2004	 	2005
	 	 	 
	Notes payable to lenders
	 	$	7,414	 	 	$	7,215	 
	Less – current portion
	 	 	199	 	 	 	2,531	 
	 	 	 
	 
	 	$	7,215	 	 	$	4,684	 
	 	 	 





In 2004, the Company repaid all of its notes payable and its revolving credit line with a bank. In
November 2004, the Company entered into a note payable of which $7,500,000 was drawn upon in two
tranches by December 31, 2004. The proceeds of the note are unrestricted and used for general
corporate purposes.



The notes payable to lenders are payable in 30 monthly payments after the initial interest-only
period that expired December 1, 2005, with a fixed interest rate of 13% and a maturity date of
June 1, 2008. A terminal payment of $487,500 (6.5% of the borrowings) is due June 1, 2008. The debt
has no financial covenants, and is secured by substantially all of the Company’s assets.
Intellectual property, however, was initially subject only to a negative pledge with an automatic
spring lien available to the lenders in the event the cash balance fell below a defined threshold.
No spring lien was in effect for intellectual property at December 31, 2004 or 2005. However, in
February 2006, a lien was placed on intellectual property in accordance with the agreement. The
lien can be released in accordance with the agreement upon the achievement of certain levels of
financing.



Deferred financing costs of $44,000 were capitalized in 2004 in connection with the note, which are
being amortized over the term of the note using the effective interest method. As of December 31,
2004 and 2005, the unamortized deferred financing costs were $42,000 and $24,000, respectively.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




D. Financial Instruments (continued)



The lenders have the right to receive a milestone payment of either $1,500,000 or $2,250,000
(depending on the timing of milestone achievement) upon the Company’s initial public offering,
sale, merger, or dissolution, as defined. The milestone payment is payable in cash; however, if the
milestone payment relates to an initial public offering, the Company may elect to pay 75% of such
milestone in common stock at the per share public offering price. No amounts have been recorded in
relation to the milestone payments as of December 31, 2005.



The lenders also have the right to receive a warrant upon the Company’s initial public offering,
sale, merger, or next financing event with financial investors. The warrants will be issued in an
amount equal to 7% of loans advanced, and will be exercisable for the type of equity instrument
issued in the financing event (or common stock if initial public offering, sale or merger) with an
exercise price equal to the price per share in the financing. No warrants were issued as of
December 31, 2005.



Fair value of the Company’s long-term debt at December 31, 2005, is not determinable due to lack of
marketability of the fixed-rate debt. Interest expense is representative of cash paid for all
periods presented.



The scheduled maturities of long-term debt are as follows (in thousands):




	 	 	 	 	 
	2006
	 	$	2,531	 
	2007
	 	 	2,884	 
	2008
	 	 	1,800	 
	 
	 	 	 
	 
	 	$	7,215	 
	 
	 	 	 






E. Income Taxes



At December 31, 2005, the Company had net operating loss and research and development tax credit
carryforwards of approximately $91,646,000 and $5,132,000, respectively, for income tax purposes.
Such losses and credits may be used to reduce future taxable income and tax liabilities and expire
at various dates between 2012 and 2026.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




E. Income Taxes (continued)



Significant components of the Company’s deferred tax assets are as follows (in thousands):




	 	 	 	 	 	 	 	 	 
	 	 	December 31
	 	 	2004	 	2005
	 	 	 
	Net operating loss carryforwards
	 	$	26,813	 	 	$	31,160	 
	Research and development credit carryforwards
	 	 	4,351	 	 	 	5,132	 
	Compensation expense
	 	 	4,261	 	 	 	4,224	 
	Equity in loss of joint ventures
	 	 	3,241	 	 	 	3,077	 
	Other
	 	 	195	 	 	 	381	 
	 	 	 
	Total deferred tax assets
	 	 	38,861	 	 	 	43,974	 
	Valuation allowance for deferred tax assets
	 	 	(38,861	)	 	 	(43,974	)
	 	 	 
	Net deferred tax assets
	 	$	—	 	 	$	—	 
	 	 	 





Because of the Company’s cumulative losses, the deferred tax assets have been fully offset by a
valuation allowance. The Company has not paid income taxes for the three-year period ended
December 31, 2005.




F. Capitalization



In 2004, the Company issued a warrant to purchase 19,500 shares of the Company’s common stock at
$15.60 per share related to consulting services provided in 2003. Using the fair value method and
Black-Scholes valuation model, the value of the warrant and consulting services was approximately
$189,000.



In 2005, the Company purchased shares of the Company’s common stock, Class F Convertible Preferred
stock and Class A Convertible Preferred Stock from a stockholder, and the shares are held in
treasury at December 31, 2005.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




F. Capitalization (continued)



The following shares of common stock were reserved for future issuance (in thousands):




	 	 	 	 	 	 	 	 	 
	 	 	December 31
	 	 	2004	 	2005
	 	 	 
	Stock option plans
	 	 	7,641	 	 	 	7,453	 
	Conversion of Class A, B, C, D, E, F, and G
preferred stock
	 	 	12,380	 	 	 	10,763	 
	Conversion of Blank Check preferred stock
	 	 	250	 	 	 	250	 
	Warrants to purchase common stock
	 	 	1,111	 	 	 	715	 
	 	 	 
	 
	 	 	21,382	 	 	 	19,181	 
	 	 	 






G. Joint Ventures



On October 21, 1999, the Company entered into an agreement with Elan to establish a joint venture
company (Athersys Newco, Ltd.). Athersys contributed $12,015,000 to Athersys Newco, Ltd. as the
purchase price for 12,015 shares of its common stock, representing an 80.1% interest. Athersys
Newco, Ltd. paid a license fee of $15,000,000 to Elan for the use of a drug delivery technology.
While Athersys owns 80.1% of the outstanding common stock of Athersys Newco, Ltd., Elan has
retained significant minority investor rights that are considered “substantive participating
rights” as defined in EITF 96-16. Therefore, Athersys does not consolidate the financial statements
of Athersys Newco, Ltd., but instead accounts for its investment in Athersys Newco, Ltd. under the
equity method. As of December 31, 2004 and 2005, Athersys Newco, Ltd. had no significant assets,
liabilities, stockholders’ equity or results of operations.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




G. Joint Ventures (continued)



In September 2001, Athersys contributed $44,000 to Oculus Pharmaceuticals, Inc. (Oculus) as the
purchase price for shares of its Series B Convertible Preferred Stock, representing an initial
interest of 53.3%. Athersys currently owns a 50.2% interest in Oculus, as a result of the
settlements described below. Athersys accounts for its investment in Oculus under the equity method
due to significant minority investor rights (i.e., “substantive participating rights,” as defined
by EITF 96-16) retained by the other investors. During 2002, Athersys recognized approximately
$91,000 as its share of the Oculus net loss, which exceeded the Company’s investment in and
advances to the joint venture. In 2003, Athersys received $125,000 in settlement proceeds from
Oculus as part of its wind up activities, which were accounted for as a return on investment and
are included in ‘equity in loss and recoveries from joint ventures’ on the Company’s 2003 statement
of operations. Consistent with its wind-up strategy, Oculus will remain in existence as a dormant
entity only as long as it is necessary to serve as a pass through of any milestone-based
consideration and final distribution to its remaining shareholders. In January 2006, a milestone
was achieved and Athersys expects to receive an additional $100,000 of stock-based settlement
proceeds from Oculus. As of December 31, 2004 and 2005, Oculus had no significant assets,
liabilities, stockholders’ equity or results of operations.




H. Convertible Preferred Stock



Each share of the Company’s preferred stock, except for Class E Convertible Preferred Stock, is
convertible at the stockholders’ option at any time into one share of Athersys common stock,
subject to adjustment if the fair value of each share of common stock is less than the stated value
of the convertible preferred shares, as defined. When and if declared, all classes of preferred
stock, except for Class C Convertible Preferred Stock and Class E Convertible Preferred Stock, have
a non-cumulative dividend rate of 8% per annum. Dividends on the Class C Convertible Preferred
Stock are cumulative at a rate of 8% per annum. Preferred stockholders, except for Class E
Preferred Stockholders, are entitled to the number of votes they would have upon conversion of
their preferred shares into common stock.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




H. Convertible Preferred Stock (continued)



The Class E Convertible Preferred Stock has limited voting rights and liquidation rights with a 7%
cumulative dividend payable in cash or in-kind, which ceased to accrue in October 2005. Each share
Class E Preferred Stock may automatically convert into 50.5 shares of Athersys common stock upon
certain conditions, including an initial public offering of the Company.



In the event of liquidation of the Company, holders of Class A, B, C, D, E, F, and G convertible
preferred stock shall have liquidation preferences of $0.64, $1.25, $3.67, $1.35, $19.80 (on an as
converted basis), $12.00 and $1.85 per share, respectively, together with any declared, but unpaid,
or accrued dividends over holders of common stock. The Class F Preferred Stock has a liquidation
preference over the other classes of Preferred Stock.



The authorized, issued and outstanding Class A, B, C, D, E, F, and G shares of convertible
preferred stock were as follows (in thousands, except per share data):




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Shares	 	 	Issuance	 	 	Aggregate	 
	 	 	Shares	 	 	Issued and	 	 	Price	 	 	Liquidation	 
	 	 	Authorized	 	 	Outstanding	 	 	Per Share	 	 	Preference	 
	 	 	 
	Class A
	 	 	3,939	 	 	 	3,939	 	 	$	0.64	 	 	$	2,500	 
	Class B
	 	 	320	 	 	 	320	 	 	$	1.25	 	 	 	399	 
	Class C
	 	 	4,116	 	 	 	2,766	 	 	$	3.67	 	 	 	10,143	 
	Class D
	 	 	150	 	 	 	150	 	 	$	1.35	 	 	 	202	 
	Class E
	 	 	18	 	 	 	12	 	 	$	1,000	 	 	 	12,015	 
	Class F
	 	 	4,000	 	 	 	3,958	 	 	$	12.00	 	 	 	47,500	 
	Class G
	 	 	640	 	 	 	640	 	 	$	1.85	 	 	 	1,183	 
	 	 	   	 	 	 	 	 	 	 
	December 31, 2002 – 2004
	 	 	13,183	 	 	 	11,785	 	 	 	 	 	 	$	73,942	 
	 	 	   	 	 	 	 	 	 	 






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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




H. Convertible Preferred Stock (continued)




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Shares	 	 	Issuance	 	 	Aggregate	 
	 	 	Shares	 	 	Issued and	 	 	Price	 	 	Liquidation	 
	 	 	Authorized	 	 	Outstanding	 	 	Per Share	 	 	Preference	 
	 	 	 
	Class A
	 	 	3,939	 	 	 	2,739	 	 	$	0.64	 	 	$	1,753	 
	Class B
	 	 	320	 	 	 	320	 	 	$	1.25	 	 	 	399	 
	Class C
	 	 	4,116	 	 	 	2,766	 	 	$	3.67	 	 	 	10,143	 
	Class D
	 	 	150	 	 	 	150	 	 	$	1.35	 	 	 	202	 
	Class E
	 	 	18	 	 	 	12	 	 	$	1,000	 	 	 	12,015	 
	Class F
	 	 	4,000	 	 	 	3,541	 	 	$	12.00	 	 	 	42,492	 
	Class G
	 	 	640	 	 	 	640	 	 	$	1.85	 	 	 	1,183	 
	 	 	   	 	 	 	 	 	 	 
	December 31, 2005
	 	 	13,183	 	 	 	10,168	 	 	 	 	 	 	$	68,187	 
	 	 	   	 	 	 	 	 	 	 





There were no issuances of preferred stock in 2003 through 2005.



In addition, the Company had 250,000 shares of Blank Check Preferred Stock authorized at
December 31, 2004 and 2005, that are not included in the table above. These shares were not issued
or outstanding at December 31, 2004 or 2005.




I. Stock Option Plans and Restructurings



In 1995, the Company adopted the 1995 Incentive Plan of Athersys, Inc. (the 1995 Plan). The 1995
Plan provides for the grant of incentive stock options, nonqualified stock options, stock bonus
awards and restricted shares for employees, directors and consultants. The 1995 Plan carried a
10-year term and expired in November 2005. No new awards can be granted under the 1995 Plan, but
outstanding awards will continue in full force and effect according to their terms. As of December
31, 2005, 3,024,125 shares of common stock are reserved to cover outstanding awards under the 1995
Plan. The options generally vest over periods ranging from three to four years and generally expire
at the end of ten years.




19









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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




I. Stock Option Plans and Restructurings (continued)



In 2000, the Company adopted the 2000 Stock Incentive Plan (the 2000 Plan). The 2000 Plan provides
for the grant of incentive stock options, nonqualified stock options, appreciation rights,
performance units, performance shares, restricted shares and deferred shares. The payment of
dividend equivalents on awards granted under the plan is also permitted. As of December 31, 2005,
4,374,304 shares of common stock were authorized for issuance under the 2000 Plan. The options
generally vest over periods ranging from three to four years and generally expire at the end of ten
years.



In 2003, the Company completed a restructuring that involved a reduction in force and an internal
prioritization on certain therapeutic development opportunities. In connection with the
restructuring, the Company granted 55,250 (49,250 in 2003 and 6,000 in 2004) options to certain
employees who were terminated. The stock options were granted under a separate plan approved by the
Company’s Board of Directors, and therefore were not granted under the 1995 Plan or the 2000 Plan.
There are no additional options reserved under this plan. The options are immediately exercisable
and expire at the end of five years. Total stock compensation recognized related to these options,
measured primarily using the fair value method, was approximately $472,000 in 2003 and $56,000 in
2004. The total cost of the 2003 restructuring, which primarily includes the above stock
compensation expense and severance payments, was $1,076,000 in 2003 and $107,000 in 2004, and is
disclosed separately on the statement of operations.



In 2005, the Company completed a restructuring that involved a reduction in force and the
refocusing of the Companies internal activities, which was completed by December 31, 2005. The
total cost of the 2005 restructuring, which primarily consists of severance payments, reduction of
equipment carrying values, and reversal of stock option compensation, was $251,000 in 2005, and is
disclosed separately on the statement of operations. At December 31, 2005, the severance liability
was $36,000, which was paid in 2006. Also see Note B.



In 2003, the term of an option agreement with an officer of the Company was extended from
five years to ten years. The modified option was fully vested at the time of the modification, and
the extension of the term was the only revision to the original terms of the award. The Company
recognized approximately $2.3 million of stock compensation expense in 2003 as a result of this
modification.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




I. Stock Option Plans and Restructurings (continued)



A summary of the Company’s stock option activity and related information is as follows (in
thousands, except per share data):




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Weighted	 	Weighted
	 	 	 	 	 	 	Average	 	Average
	 	 	Number	 	Exercise	 	Fair
	 	 	of Options	 	Price	 	Value
	 	 	 
	Outstanding January1, 2003
	 	 	4,010	 	 	 	3.50	 	 	 	3.26	 
	Granted below deemed market value
	 	 	997	 	 	 	4.08	 	 	 	10.97	 
	Granted equal to deemed market value
	 	 	100	 	 	 	13.00	 	 	 	9.33	 
	Exercised
	 	 	(8	)	 	 	5.19	 	 	 	3.47	 
	Forfeited
	 	 	(565	)	 	 	5.61	 	 	 	5.91	 
	 	 	 
	Outstanding December 31, 2003
	 	 	4,534	 	 	 	3.58	 	 	 	4.75	 
	Granted below deemed market value
	 	 	6	 	 	 	4.67	 	 	 	9.44	 
	Granted equal to deemed market value
	 	 	25	 	 	 	13.00	 	 	 	5.85	 
	Exercised
	 	 	(5	)	 	 	2.85	 	 	 	1.69	 
	Forfeited
	 	 	(403	)	 	 	6.87	 	 	 	6.70	 
	 	 	 
	Outstanding December 31, 2004
	 	 	4,157	 	 	 	3.32	 	 	 	4.58	 
	Granted equal to deemed market value
	 	 	41	 	 	 	13.00	 	 	 	5.55	 
	Exercised
	 	 	(2	)	 	 	1.50	 	 	 	0.85	 
	Forfeited
	 	 	(324	)	 	 	4.80	 	 	 	4.36	 
	 	 	 
	Outstanding December 31, 2005
	 	 	3,872	 	 	$	3.30	 	 	$	4.61	 
	 	 	 






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	December 31, 2005
	 	 	Options Outstanding	 	Options Exercisable
	 	 	 	 	 	 	Weighted	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Average	 	Weighted	 	 	 	 	 	Weighted
	 	 	Number	 	Remaining	 	Average	 	Number	 	Average
	 	 	of	 	Contractual	 	Exercise	 	of	 	Exercise
	Exercise Price	 	Options	 	Life	 	Price	 	Options	 	Price
	 
	$1.00-1.20

	 	 	280	 	 	 	4.0	 	 	$	1.07	 	 	 	280	 	 	$	1.07	 
	$1.50-1.65

	 	 	1,737	 	 	 	2.1	 	 	$	1.52	 	 	 	1,737	 	 	$	1.52	 
	$2.50-3.00

	 	 	592	 	 	 	3.2	 	 	$	2.52	 	 	 	592	 	 	$	2.52	 
	$3.25-7.00

	 	 	857	 	 	 	6.4	 	 	$	3.95	 	 	 	611	 	 	$	3.98	 
	$8.00-15.60

	 	 	406	 	 	 	5.3	 	 	$	12.24	 	 	 	337	 	 	$	12.03	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	3,872	 	 	 	 	 	 	 	 	 	 	 	3,557	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




I. Stock Option Plans and Restructurings (continued)



Options exercisable at December 31, 2003, 2004, and 2005, were approximately 3,442,000, 3,517,000,
and 3,557,000, respectively.




J. Profit Sharing Plan and 401(k) Plan



The Company has a profit sharing and 401(k) plan that covers substantially all employees. The Plan
allows for discretionary contributions by the Company. The Company made no contributions to this
Plan in 2003, 2004, or 2005.




K. License and Acquisition Agreements



In 1995, the Company entered into a Sponsored Research Agreement and a License Agreement with CWRU
(the Agreements) related to the SMC Technology, which provided the Company with an exclusive
worldwide license to the technology. As of December 31, 2005, several patents have been issued to
CWRU related to this technology.



In 2003, the Company received $1,500,000 related to a settlement and termination of a collaborative
agreement and a nonexclusive license to specific cell lines generated in connection with the
terminated collaboration. Of the $1,500,000, $500,000 was recognized as license fee revenue and
$1,000,000 was recognized as other income related to the settlement in 2003.



In 2002, the Company entered into an agreement with MCL related to the multipotent adult stem cell
(MAPC) technology. Under the terms of the Agreements, in exchange for a worldwide exclusive license
to the technology and an option to effect a merger of MCL into a wholly owned subsidiary of the
Company, the Company paid a license and option fee to MCL. In November 2003, the Company exercised
its option and closed the merger. The Company formed a wholly owned subsidiary, ReGenesys LLC, as
the entity into which MCL merged. The results of operations of ReGenesys LLC have been included
since the effective date of the merger.



The total purchase price for the merger of $9,500,000 consisted of 730,770 shares of common stock
valued at $13.00 per share. Further, the Company may be required to issue up to an additional
115,386 shares of the Company’s common stock and up to $1,000,000, payable in cash or shares of
common stock at the holders’ option, in the event that certain milestones relating to the MAPC
technology are achieved.




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Athersys, Inc.




Notes to Consolidated Financial Statements (continued)




K. License and Acquisition Agreements (continued)



The acquisition was accounted for using the purchase method of accounting. Since MCL was a holding
company for the intellectual property with no operations, there were no tangible assets acquired or
liabilities assumed. However, the Company recorded a $9,500,000 charge to in-process research and
development. The amount was equivalent to the value of the consideration tendered for the
technology and was expensed in 2003 due to the early stage of development of the MAPC technology.
Also, in connection with the merger, the Company loaned $511,000 to the former owner of MCL. See
Note C.



Also, the Company has certain funding commitments to sponsor research activities at the University
of Minnesota, among others, related to the MAPC technology. The Company has an exclusive license
from the University of Minnesota to improvements made by the University of Minnesota to the MAPC
technology.




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Schedule 3.9 (continued)

Consolidated Statement of Operations

Period Ended March 31, 2006

(in thousands)




	 	 	 	 	 
	 	 	Year-to-Date	 
	 	 	(unaudited)	 
	Revenue
	 	$	629	 
	 
	 	 	 	 
	Costs and Expenses
	 	 	 	 
	Research & Development
	 	 	2,432	 
	General & Administrative
	 	 	653	 
	Common stock options expense
	 	 	(40	)
	Depreciation & Other
	 	 	155	 
	 
	 	 	 
	Total Costs & Expenses
	 	 	3,200	 
	 
	 	 	 
	 
	 	 	 	 
	Operating Loss
	 	 	(2,571	)
	 
	 	 	 	 
	Other Income, net
	 	 	(212	)
	 
	 	 	 	 
	 
	 	 	 
	Net Loss
	 	$	(2,783	)
	 
	 	 	 






 









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Schedule  3.9 (continued)

Consolidated Balance Sheet

March 31, 2006

(in thousands)




	 	 	 	 	 
	 	 	March 31, 2006	 
	 	 	(unaudited)	 
	Current Assets
	 	 	 	 
	 
	 	 	 	 
	Cash and investments
	 	$	2,027	 
	 
	 	 	 	 
	Accounts receivable, net
	 	 	236	 
	 
	 	 	 	 
	Prepaid expenses and other
	 	 	206	 
	 
	 	 	 
	Total Current Assets
	 	 	2,469	 
	 
	 	 	 	 
	Property and Equipment, net
	 	 	803	 
	 
	 	 	 	 
	Notes Receivable
	 	 	683	 
	 
	 	 	 	 
	Other
	 	 	105	 
	 
	 	 	 	 
	 
	 	 	 
	Total Assets
	 	$	4,060	 
	 
	 	 	 
	 
	 	 	 	 
	Current Liabilities
	 	 	 	 
	Accounts Payable & Accrued Expense
	 	$	1,364	 
	Loans — Short Term
	 	 	2,615	 
	 
	 	 	 
	Total Current Liabilities
	 	 	3,979	 
	 
	 	 	 	 
	Long-Term Liabilities
	 	 	 	 
	Loans — Long Term
	 	 	3,998	 
	Accrued Dividends
	 	 	13,836	 
	 
	 	 	 
	Total Long-Term Liabilities
	 	 	17,834	 
	 
	 	 	 	 
	Capital
	 	 	 	 
	Common Stock, net
	 	 	82	 
	Preferred Stock, net
	 	 	68,301	 
	Treasurey Stock
	 	 	(250	)
	Additional Paid in Capital
	 	 	48,440	 
	Deferred Compensation
	 	 	(547	)
	Comprehensive Income
	 	 	(6	)
	Retained Earnings
	 	 	(133,773	)
	 
	 	 	 
	Total Capital
	 	 	(17,753	)
	 
	 	 	 
	Total Liabilities & Capital
	 	$	4,060	 
	 
	 	 	 






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Schedule 3.9 (continued)

Consolidated Statement of Cash Flows

Period Ended March 31, 2006

(in thousands)




	 	 	 	 	 
	 	 	Year-to-Date	 
	 	 	(unaudited)	 
	Cash Flows from Operating Activities
	 	 	 	 
	Net Income/(Loss)
	 	$	(2,783	)
	Adjustments to reconcile net loss to cash used in operating activities:
	 	 	 	 
	Depreciation
	 	 	155	 
	Expense — common stock options
	 	 	(40	)
	Amortization of discount of available for sale securities
	 	 	(6	)
	Changes in working capital 
	 	 	 	 
	Accounts receivable
	 	 	392	 
	Other current assets
	 	 	164	 
	Accounts payable and accrued expenses
	 	 	158	 
	 
	 	 	 
	Net cash provided by (used in) operations
	 	 	(1,960	)
	 
	 	 	 	 
	Investing Activities
	 	 	 	 
	Sale of available for sale securities
	 	 	2,000	 
	Capital expenditures
	 	 	(4	)
	 
	 	 	 
	Net cash provided by (used in) investing
	 	 	1,996	 
	 
	 	 	 	 
	Financing Activities
	 	 	 	 
	Repayments of debt
	 	 	(601	)
	Proceeds from issuance of common stock
	 	 	6	 
	 
	 	 	 
	Net cash provided by (used in) financing
	 	 	(595	)
	 
	 	 	 	 
	 
	 	 	 
	Net increase (decrease) in cash
	 	 	(559	)
	 
	 	 	 	 
	Cash — Beginning of period
	 	 	1,080	 
	 
	 	 	 
	Cash — End of period
	 	$	521	 
	 
	 	 	 








 




			
	*	 	Excludes investments of $1.5 million at March 31, 2006.




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Schedule 3.11




Changes





	1.	 	In February 2006, the Company’s lenders perfected a security interest on the Company’s
intellectual property in accordance with the Company’s obligations under the Loan and
Security Agreement, and Supplement, dated as of November 2, 2004, by and among the Company,
Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., and Costella Kirsch IV,
L.P.






	2.	 	In April 2006, the Board of Directors authorized the Company to forgive a promissory
note issued to Dr. Van Bokkelen in the amount of $100,000 plus accrued interest.






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Schedule 3.14




Title to Assets, Properties and Rights





	1.	 	Loan and Security Agreement, and Supplement, dated as of November 2, 2004, by and among
the Company, Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., and
Costella Kirsch IV, L.P.






	2.	 	Promissory Notes made by the Company and Advanced Biotherapeutics, Inc., on behalf of
Venture Lending & Leasing IV, Inc., and Costella Kirsch IV, L.P., dated November 12, 2004
(numbers CK-001 and 4035-001), and dated December 29, 2004 (numbers CK-002 and 4035-002).






	3.	 	UCC Financing Statements of the Company and Advanced Biotherapeutics, Inc. naming
Venture Lending & Leasing IV, Inc., as agent, as secured party.






	4.	 	Intellectual Property Security Agreement, dated as of February 14, 2006, by and between
Athersys, Inc. and Venture Lending & Leasing IV, Inc.






	5.	 	Control Agreement Concerning Deposit Accounts, dated as of November 2, 2004, by and
among the Company, Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc.,
Costella Kirsch IV, L.P., and National City Bank.






	6.	 	Account Control Agreement, dated as of November 2, 2004, by and among the Company,
Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., Costella Kirsch IV,
L.P., and NatCity Investments.




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Schedule 3.17




Employee Matters




ERISA





	 	1.	 	Athersys, Inc.’s Plus Group Health Insurance Plan
	 
	 	2.	 	Athersys, Inc. Accidental Death & Dismemberment, Dental, Short-Term & Long-Term
Disability & Life Insurance Plan.
	 
	 	3.	 	Athersys, Inc. Profit Sharing & 401(k) Plan
	 
	 	4.	 	The Company’s Flexible Benefits Plan, effective January 1, 2001.





Employment Matters





	 	1.	 	Amended and Restated Employment agreement dated April 1, 1998 by and between Athersys,
Inc. and Gil Van Bokkelen.
	 
	 	2.	 	Amended and Restated Employment agreement dated April 1, 1998 by and between Athersys,
Inc. and John Harrington.
	 
	 	3.	 	Employment agreement dated May 22, 1998 by and between Athersys, Inc. and Laura
Campbell.
	 
	 	4.	 	Employment agreement dated May 22, 1998 by and between Athersys, Inc. and Robert Perry.
	 
	 	5.	 	Employment agreement dated May 22, 1998 by and between Athersys, Inc. and Rakesh
Ramachandran.
	 
	 	6.	 	Employment agreement dated May 22, 1998 by and between Athersys, Inc. and Bruce Sherf.
	 
	 	7.	 	Employment agreement dated September 25, 2000 by and between Athersys, Inc., Advanced
Biotherapeutics, Inc. and Kurt Brunden.
	 
	 	8.	 	Employment agreement dated October 3, 2003 by and between Athersys, Inc., Advanced
Biotherapeutics, Inc. and Robert Deans, Ph.D.
	 
	 	9.	 	Employment agreement dated January 1, 2004 by and between Athersys, Inc., Advanced
Biotherapeutics, Inc. and Anne Brown.
	 
	 	10.	 	Employment agreement dated January 1, 2004 by and between Athersys, Inc., Advanced
Biotherapeutics, Inc. and William Lehmann.




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	 	11.	 	Employment agreement dated January 1, 2005 by and between Athersys, Inc., Advanced
Biotherapeutics, Inc. and Judith Hubbard.
	 
	 	12.	 	Form Incentive agreement – entered into with six members of senior-level employees.
	 
	 	13.	 	Form Incentive agreement – entered into with five members of director-level employees.
	 
	 	14.	 	Form Incentive agreement – entered into with twenty-three staff-level employees.






27










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Exhibit A



THIS CONVERTIBLE PROMISSORY NOTE AND THE SECURITIES ISSUABLE UPON REPAYMENT OR CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT UNDER ANY
CIRCUMSTANCES BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OF
THE UNITED STATES OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.



THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN SECTION 1.4. PAYMENT OF THIS NOTE IS
SUBJECT TO THE TERMS OF SUCH SECTION AND IS SUBORDINATE TO THE PAYMENT OF ALL “SENIOR DEBT” (AS
SUCH TERM IS DEFINED IN SECTION 1.4).




ATHERSYS, INC.



CONVERTIBLE PROMISSORY NOTE




	 	 	 
	U.S. $5,000,000.00

	 	May 5, 2006
	 

	 	Cleveland, Ohio






          FOR VALUE RECEIVED, the undersigned, Athersys, Inc., a Delaware corporation, with its
principal office at 3201 Carnegie Avenue, Cleveland, Ohio 44115-2634 (the “Company”),
unconditionally promises to pay to Angiotech Pharmaceuticals, Inc., a British Columbia corporation
(“Angiotech”), or its permitted assigns, transferees and successors (collectively, the “Holder”),
on May 5, 2012, the sixth (6th) anniversary of the Original Issue Date (as defined
below) (the “Maturity Date”), at such place as may be designated in writing by the Holder, the
principal sum of Five Million Dollars (U.S. $5,000,000.00), together with interest thereon accrued
at a rate per annum equal to 5.0% (computed on the basis of a three hundred sixty-five (365)-day
year and based upon the number of days actually elapsed, such interest to be compounded annually),
from and after the date of this Note (the “Original Issue Date”). This Note is delivered pursuant
to Section 1.2 of that certain Note Purchase Agreement, dated as of the date hereof (the
“Original Issue Date”), between the Company and Angiotech (the “Purchase Agreement”).




ARTICLE 1: PAYMENTS AND OTHER PAYMENT TERMS.




     1.1 Principal and Interest. The entire outstanding principal balance of this Note,
together with all accrued interest thereon (the “Repayment Amount”), shall be due and payable on
the Maturity Date. Subject to the terms of this Note, the Company has the option to satisfy
payment of all or a portion of the Repayment Amount either in cash or in shares of Common Stock,
par value $0.01 per share, of the Company (“Common Stock”), or a combination of both so long as the
Common Stock is (a) listed on a national securities exchange or (b) quoted on the Nasdaq National
Market or the Nasdaq SmallCap Market, or any similar successor organizations. If the Company
repays all or a portion of the Repayment Amount in shares of Common Stock,



 









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the number of such shares to be issued for such Repayment Amount shall be equal to the
quotient of (x) the portion of the Repayment Amount to be paid in shares of Common Stock, divided
by (y) the average of the Closing Price per share of Common Stock on each of the twenty (20)
consecutive Trading Days ending on the third Trading Day immediately preceding the Maturity Date.
All shares of Common Stock that may be issued in connection with the repayment of amounts owed
under this Note shall be validly issued, fully paid and nonassessable. Notwithstanding anything
contained herein to the contrary, the Company shall only be entitled to satisfy payment of all or a
portion of the Repayment Amount in shares of Common Stock if the number of shares of Common Stock
issuable in connection with such payment, together with any other shares of Common Stock
beneficially owned by the Holder (other than shares of Common Stock issuable under this Note),
would not in the aggregate exceed 19.99% of the outstanding shares of Common Stock on an
as-converted basis. For purposes of this Note, (i) the “Closing Price” on any date of
determination shall mean (A) the closing sale price of the Common Stock as of the close of the
principal trading session (or, if no closing price is reported, the last reported sale price) per
share on the principal national securities exchange on which the Common Stock is listed on such
date or (B) if the Common Stock is not listed for trading on a national securities exchange on any
such date, the last closing sale price per share as reported on the Nasdaq National Market or the
Nasdaq SmallCap Market, or any similar successor organizations, as applicable, and (ii) “Trading
Day” shall mean a day on which the Common Stock is not suspended from trading on any national
securities exchange or association at the close of business and has traded at least once on the
national securities exchange or association that is the primary market for the trading of the
Common Stock.



     1.2 Prepayments. This Note may not be prepaid in whole or in part at any time prior
to the Maturity Date.



     1.3 Cancellation of Note. Upon payment in full of the outstanding principal balance
of this Note and accrued and unpaid interest thereon, this Note will be automatically cancelled and
the Company’s payment obligations hereunder will be extinguished.



     1.4 Priority. Notwithstanding anything to the contrary contained herein, the Company
agrees, and the Holder agrees by accepting this Note, that the principal amount of the indebtedness
evidenced by this Note, together with any interest (including any interest accruing after the
commencement of any action or proceeding under any bankruptcy, insolvency or other similar law, and
any interest that would have accrued but for the commencement of any such proceeding, whether or
not any such interest is allowed as an enforceable claim in such proceeding), and premium and any
other amount (including any fee or expense) due hereon or payable, if any, with respect hereto,
including any such amounts payable by any guarantor hereof, is subordinate and junior in right of
payment to all Senior Debt to the extent provided in this Note and in the manner and to the extent
set forth in that certain Subordination Agreement, dated as of May 5, 2006 (or as set forth in any
successor subordination agreement), among Angiotech, Venture Lending & Leasing IV, Inc. (“VLL”) and
Costella Kirsch IV, L.P. (“Costella Kirsch”). For purposes of this Note, “Senior Debt” shall mean
the principal amount of any indebtedness of the Company now outstanding or hereafter amended,
refinanced, created or incurred pursuant to the Loan and Security Agreement, dated as of November
2, 2004, by and among the Company, Venture Lending & Leasing IV, Inc. and Costella Kirsch IV, L.P.,
on the terms and conditions currently in effect thereunder, together with any interest (including
any



 









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interest accruing after the commencement of any action or proceeding under any bankruptcy,
insolvency or other similar law, and any interest that would have accrued but for the commencement
of any such proceeding, whether or not any such interest is allowed as an enforceable claim in such
proceeding) and premium or other amount (including any fee or expense) due thereon or payable with
respect thereto.



ARTICLE 2: CONVERSION.




     2.1 Automatic Conversion. Upon the consummation of any Bona Fide Equity Financing,
this Note and the Repayment Amount owed hereunder shall automatically and simultaneously be
converted into such number of shares of Company capital stock of the same class and series issued
in such Bona Fide Equity Financing (the “Financing Shares”) that shall be equal to the quotient
obtained by dividing (a) the Repayment Amount by (b) a price per share equal to 1.10 times the
price per share paid for the Financing Shares in the Bona Fide Equity Financing (the “Conversion
Price”); provided, however, that if the number of shares of Company capital stock
issuable upon such conversion, together with any other shares of Company capital stock beneficially
owned by the Holder (other than shares of Company capital stock issuable under this Note or any
other convertible debt security), would in the aggregate exceed 19.99% of the outstanding shares of
Common Stock on an as-converted basis, then this Note and the Repayment Amount owed hereunder shall
not be automatically converted in connection with such Bona Fide Equity Financing, although this
Note and the Repayment Amount hereunder shall be convertible in connection with any subsequent Bona
Fide Equity Financing, subject to the foregoing proviso. For purposes of this Note, “Bona Fide
Equity Financing” shall mean an issuance by Athersys for its own account of its capital stock, in a
single transaction or a series of related transactions, in exchange for cash and as part of a bona
fide equity financing of Athersys with financial investors in an aggregate amount equal to or
greater than Fifteen Million Dollars ($15,000,000.00), excluding (x) the issuance of its capital
stock upon the exercise of any rights, options, warrants or other securities exercisable for its
capital stock, (y) the issuance of its capital stock upon conversion of securities convertible into
its capital stock and (z) the issuance of its securities that do not constitute capital stock that
are exercisable for or convertible into its capital stock.



     2.2 Mechanics of Conversion. As promptly as practicable, but in no event later than
three (3) business days following the consummation of the Bona Fide Equity Financing, subject to
Section 3.3, the Company shall issue and deliver to the Holder (a) a certificate for the
number of shares of Company capital stock issuable upon the conversion of this Note, and (b) a cash
payment in respect of any fractional shares of Company capital stock pursuant to Section
2.3.



     2.3 Fractional Shares. No fractional shares of Company capital stock will be issued
in connection with any conversion hereunder, but in lieu of such fractional shares the Company
shall make a cash payment therefor in an amount equal to the product obtained by multiplying (a)
the Conversion Price by (b) such fractional number of shares.



     2.4 Taxes on Conversion. The Company shall pay any documentary, stamp, or similar
issue or transfer tax due on the issue of shares of its capital stock upon the conversion of this
Note.



 









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     2.5 No Impairment. The Company will not, by amended of its certificate of
incorporation or bylaws (collectively, the “Constituent Documents”) or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or otherwise, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed under this Note by the Company, but will at all times in good faith
assist in the carrying out, to the extent possible, of all of the provisions of this Article 2 and
in the taking of any and all action(s) as may be necessary or advisable in order to protect the
rights of the Holder against impairment. This provision shall not restrict the Company from
otherwise amending and/or restating its Constituent Documents in accordance with applicable law.



ARTICLE 3: SECURITIES MATTERS.




     3.1 Restricted Securities. By acceptance hereof, the Holder understands and agrees
that this Note and the shares of Company capital stock issuable upon repayment or conversion hereof
are “restricted securities” under the federal securities laws inasmuch as they are being acquired
from the Company in a transaction not involving a public offering under the Securities Act of 1933
(the “Securities Act”) and that under such laws and applicable regulations such securities may be
resold in the absence of registration under the Securities Act only in certain limited
circumstances.



     3.2 Legends. It is understood that this Note and each certificate evidencing shares
of Company capital stock issued upon repayment or conversion shall bear appropriate legends
pursuant to the Securities Act.



     3.3 Stockholders’ Agreement. By acceptance hereof, the Holder understands and agrees
that before any shares of Company capital stock shall be issued to the Holder in connection with
any conversion of this Note pursuant to Article 2, as a condition precedent to the issuance
of any such shares of capital stock, the Company may require that the Holder (a) execute a joinder
agreement to that certain Amended and Restated Stockholders’ Agreement, dated as of April 28, 2000,
as amended, by and among the Company and its stockholders (the “Stockholders’ Agreement”) pursuant
to which the Holder agrees to bound by the terms and conditions of the Stockholders’ Agreement and
(b) agree to be bound by any additional stockholders’ agreement, right of first refusal, co-sale
agreement, voting agreement, investor rights agreement, registration rights agreement or any other
agreement among all or certain stockholders of the Company that may then be in effect. Holder
shall be entitled to all of the rights, benefits and privileges, if any, provided for under such
agreements for the holders of the Financing Shares.



ARTICLE 4: TRANSFER RESTRICTIONS




     4.1 The Holder shall not sell, assign, transfer, pledge or dispose of all or any part of this
Note, by operation of law or otherwise; provided, however, that notwithstanding
anything to the contrary in the Purchase Agreement or this Note, the Holder may pledge as
collateral this Note or the Financing Shares issued to Holder without the consent of the Company,
as may be required by the Holder to satisfy the terms and conditions of any bona fide credit
agreement, loan



 









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agreement or similar agreement or arrangement to which the Holder or any affiliate of the
Holder is or may become a party.



     4.2 Notwithstanding anything in this Note to the contrary, the Holder may transfer all or any
part of the Note to any person or corporation (profit or nonprofit), partnership, limited liability
company, association, trust or other entity that controls, is controlled by, or under common
control with, the Holder, so long as such transferee consents in writing to be bound by the terms
and conditions of this Note.



ARTICLE 5: EVENTS OF DEFAULT.




     The occurrence of any of the following events with respect to the Company shall constitute an
event of default under this Note (an “Event of Default”). The Company shall notify the Holder in
writing within five (5) business days following the occurrence of any Event of Default.



     5.1 The Company fails to make any payment of principal or interest as required hereunder.



     5.2 Pursuant to or within the meaning of applicable law relating to insolvency or relief of
debtors (a “Bankruptcy Law”), the Company (a) commences a voluntary case or proceeding, (b)
consents to the entry of an order for relief against it in an involuntary case, (c) consents to the
appointment of a trustee, receiver, assignee, liquidator or similar official, (d) makes an
assignment for the benefit of its creditors, or (e) admits in writing its inability to pay its
debts as they become due.



     5.3 A court of competent jurisdiction enters an order or decree under any Bankruptcy Law that
(a) is for relief against the Company in an involuntary case, (b) appoints a trustee, receiver,
assignee, liquidator or similar official for the Company’s properties, or (c) orders the
liquidation of the Company, and in each case the order or decree is not dismissed within forty-five
(45) days.



     5.4 (a) Angiotech terminates that certain Strategic Alliance Agreement, dated as of May 5,
2006, by and between the Company and Angiotech (the “Alliance Agreement”) pursuant to Section
16.2(a) of the Alliance Agreement and (b) Angiotech is not continuing the development and
commercialization of any “Clinical Development Candidates” or “Cell Therapy Products” (as each term
is defined in the Alliance Agreement) pursuant to Article 6 of the Alliance Agreement.



     5.5 (a) (i) The Regents of the University of Minnesota (the “University”) terminate that
certain Exclusive License Agreement, dated as of May 17, 2002, by and between the University and
the Company (as assignee of ReGenesys, LLC, the successor to MCL LLC) (the “License”), pursuant to
Section 8.1 of the License or (ii) the Company terminates the License pursuant to Section 8.2 of
the License and (b) the Company shall have been unable to obtain the letter agreement with the
University described in Section 8.2(f) of that certain Sublicense Agreement, dated as of May 5,
2006, by and between the Company and Angiotech.



 









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ARTICLE 6: REMEDIES IN THE EVENT OF DEFAULT.




     6.1 Upon the occurrence of an Event of Default, the Holder may, at its option, declare the
aggregate amount of principal and interest outstanding under this Note immediately due and payable
by providing written notice to the Company; provided, that such demand will be in addition
to all other rights and remedies of the Holder under this Note and under applicable law.



     6.2 The Company shall pay all costs and expenses incurred by or on behalf of the Holder in
connection with the Holder’s exercise of any or all of its rights and remedies under this Note,
including, without limitation, reasonable attorneys’ fees.



     6.3 In the case of any Event of Default under this Note that is continuing and has not been
waived in writing by the Holder, this Note will continue to bear interest at the interest rate
otherwise in effect hereunder plus 1% per annum (but in any event not in excess of the maximum rate
of interest permitted by applicable law).



ARTICLE 7: MISCELLANEOUS.




     7.1 Advice of Counsel. Angiotech and the Company have each consulted, or have the
opportunity to consult, counsel of their choice regarding this Note and have participated in the
drafting of this Note, and each acknowledges and agrees that this Note shall not be deemed to have
been drafted by one of Angiotech or the Company and will be construed accordingly.



     7.2 Severability. In the event that any provisions of this Note are determined to be
invalid or unenforceable by a court of competent jurisdiction, the remainder of the Note shall
remain in full force and effect without such provision. Any provision of this Note held invalid or
unenforceable only in part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.



     7.3 Waivers and Amendments; Preservation of Remedies. No waiver by the Holder of any
right or remedy under this Note shall be effective unless in a writing signed by the Holder.
Neither the failure nor any delay in exercising any right, power or privilege under this Note will
operate as a waiver of such right, power or privilege and no single or partial exercise of any such
right, power or privilege by the Holder will preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right of the Holder arising out of this Note may be
discharged by the Holder, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing, signed by the Holder; (b) no waiver that may be given by the Holder will be
applicable except in the specific instance for which it is given; and (c) no notice to or demand on
the Company will be deemed to be a waiver of any obligation of the Company or of the right of the
Holder to take further action without notice or demand as provided in this Note. The Company
hereby waives presentment, demand, protest and notice of dishonor, protest, diligence, filing suit,
nonpayment and all other notice. The rights and remedies herein provided are cumulative and are
not exclusive of any rights or remedies which any party may otherwise have at law or in equity.



 









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     7.4 Headings. The captions to the several Articles and Sections hereof are not a part
of this Note, but are included merely for convenience of reference only and shall not affect its
meaning or interpretation.



     7.5 Merger, Etc. In case of (a) any merger or consolidation of the Company with or
into another entity, (b) any transaction or series of related transactions in which 50% or more of
the voting power of the Company is transferred or sold, either by the Company or its stockholders
(other than in connection with an Equity Financing) or (c) any transaction or series of related
transactions in which all or substantially all the assets of the Company are sold, transferred or
disposed of (any such merger, consolidation or transaction or series of related transactions
described in (a), (b) or (c) above, an “Extraordinary Transaction”), in each case prior to the
conversion of this Note pursuant to Article 2, then such successor entity, if other than
the Company, or purchasing entity shall assume all of the obligations of the Company under this
Note, and such successor or purchasing entity shall succeed to and be substituted for the Company
with the same effect as if it had been named herein as the Company; provided,
however, that, at the Holder’s sole election, if the Company is not the successor entity
and, in case of a merger or consolidation, the holders of shares of voting capital stock of the
Company outstanding immediately prior to such merger or consolidation do not continue to hold at
least a majority of the total voting power represented by the shares of voting capital stock of the
surviving entity outstanding immediately after such merger or consolidation, the Holder may convert
all of the Repayment Amount immediately prior to the consummation of any such Extraordinary
Transaction into (x) if an Equity Financing has occurred after the Original Issue Date, such number
of shares of Company capital stock of the same class and series issued in the Company’s most recent
Equity Financing that shall be equal to the quotient obtained by dividing (i) the Repayment Amount
by (ii) a price per share equal to the price per share paid for the shares of capital stock issued
in the Company’s most recent Equity Financing or (y) if an Equity Financing has not occurred after
the Original Issue Date, such number of shares of Common Stock that shall be equal to the quotient
obtained by dividing (i) 120% of the Repayment Amount by (ii) the Extraordinary Transaction’s
implied price per share as determined by the Company in good faith taking into account all
transaction consideration (including any debt and other liabilities assumed) divided by all common
stock equivalents, including options, warrants and other securities convertible into Common Stock,
reasonably expected to be converted prior to the close of such transaction. In the event that the
Company and the Holder disagree on the Extraordinary Transaction’s implied price per common stock
equivalent, then, at the Holder’s request, the Company and the Holder shall select a mutually
acceptable investment bank to determine the implied price per share. For purposes of this Note,
“Equity Financing” shall mean an issuance by Athersys for its own account of its capital stock, in
a single transaction or a series of related transactions, in exchange for cash and as part of a
bona fide equity financing of Athersys with financial investors, excluding (i) the issuance of its
capital stock upon the exercise of any rights, options, warrants or other securities exercisable
for its capital stock, (ii) the issuance of its capital stock upon conversion of securities
convertible into its capital stock and (iii) the issuance of its securities that do not constitute
capital stock that are exercisable for or convertible into its capital stock. The Company shall
provide the Holder with written notice of any such transaction or series of transactions not less
than twenty (20) calendar days prior to the consummation thereof.



 









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     7.6 Successors. This Note shall be binding upon the Company and its successors and
permitted assigns.



     7.7 Governing Law. This Note will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.



     7.8 Notices. Any notice required or permitted to be given hereunder shall be given in
accordance with the Purchase Agreement.



[Signature page follows]




 









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     IN WITNESS WHEREOF, the Company has caused its duly authorized representative to execute this
Note on the date first above written.



	 	 	 	 	 
	 	ATHERSYS, INC.

 	 
	 	By:  	
 	 
	 	 	Name:  	Gil Van Bokkelen 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 



[Signature Page to Convertible Promissory Note]





 









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Exhibit B




May 5, 2006




Angiotech Pharmaceuticals, Inc.

1618 Station St.

Vancouver, British Columbia

Canada V6A 1B6



Re: $5,000,000 Convertible Promissory Note of Athersys, Inc.




Ladies and Gentlemen:




          We have acted as counsel for Athersys, Inc., a Delaware corporation (the “Company”), in
connection with the purchase from the Company by Angiotech Pharmaceuticals, Inc. (“Angiotech”),
pursuant to the Note Purchase Agreement, dated as of May 5, 2006 (the “Purchase Agreement”), by and
between the Company and Angiotech, of a convertible promissory note in the aggregate principal
amount of $5,000,000 (the “Note”). This letter is furnished to Angiotech pursuant to Section
2.1(a)(v) of the Purchase Agreement. Except as otherwise defined herein, terms used in this letter
but not otherwise defined herein are used as defined in the Purchase Agreement.




          In connection with the opinions expressed herein, we have examined such documents, records and
matters of law as we have deemed relevant or necessary for purposes of such opinions. Based on the
foregoing, and subject to the further limitations, qualifications and assumptions set forth herein,
we are of the opinion that:





	 	1.	The Company is a corporation existing and in good standing under the laws
of the State of Delaware, with the corporate power and authority to own its
properties and conduct its business as now conducted. The Company is qualified to
do business and is in good standing as a foreign corporation in each jurisdiction
and as of the dates listed on Exhibit A attached hereto.
	 
	 	2.	The authorized capital stock of the Company as of the date hereof
consisted of 53,432,350 shares, consisting of (i) 40,000,000 shares of common stock,
par value $.01 per share (“Common Stock”), (ii) 3,939,000 shares of Class A
Convertible Preferred Stock, par value $.01 per share (“Class A Preferred”), (iii)
319,800 shares of Class B Convertible Preferred Stock, par value $.01 per share
(“Class B Preferred”), (iv) 4,116,000 shares of Class C Convertible Preferred Stock,
par value $.01 per share (“Class C Preferred”), (v) 150,000 shares of Class D
Convertible Preferred Stock, par value $.01 per share (“Class D Preferred”), (vi)
18,100 shares of Class E Convertible Preferred Stock, par value $.01 per share




 









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Angiotech Pharmaceuticals, Inc.

May 5, 2006

Page 2




JONES DAY





(“Class E Preferred”), (vii) 4,000,000 shares of Class F Convertible Preferred Stock, par
value $.01 per share (“Class F Preferred”), (viii) 639,450 shares of Class G
Convertible Preferred Stock, par value $.01 per share (“Class G Preferred”), and
(ix) 250,000 shares of preferred stock, par value $.01 per share (“Blank Check
Preferred”). All of the issued and outstanding shares of Class A Preferred, Class B
Preferred, Class C Preferred, Class D Preferred, Class E Preferred, Class F
Preferred and Class G Preferred have been authorized by all necessary corporate
action of the Company and are validly issued, fully paid and nonassessable. The
730,770 shares of Common Stock issued on November 4, 2003 pursuant to the terms of
the Agreement and Plan of Merger, dated as of November 3, 2003, by and among the
Company, ReGenesys, LLC, MCL LLC and Leo T. Furcht, M.D. have been authorized by all
necessary corporate action of the Company and are validly issued, fully paid and
nonassessable. To our Actual Knowledge, except as identified on Exhibit B
attached hereto, there are no preemptive rights, options, warrants, conversion
privileges or other rights outstanding to purchase or otherwise obtain from the
Company any capital stock of the Company.




	 	3.	 	The Purchase Agreement has been authorized by all necessary corporate
action of, and executed and delivered by, the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
	 
	 	4.	 	The Note has been authorized by all necessary corporate action of, and
executed by, the Company, and, when the Note is delivered against payment therefor
in accordance with the terms of the Purchase Agreement, will have been validly
issued and delivered by the Company and will constitute a valid and binding
obligation of the Company, enforceable against the Company in accordance with its
terms.
	 
	 	5.	 	No consent, approval, authorization or order of, or filing with, any
governmental agency or body or any court is required in connection with the
execution, delivery or performance of the Purchase Agreement or in connection with
the issuance or sale of the Note by the Company to Angiotech, except as may be
required under (i) state securities or blue sky laws or (ii) the Securities Act of
1933 (the “Securities Act”).
	 
	 	6.	 	The execution, delivery and performance of the Purchase Agreement by the
Company and the issuance and sale of the Note by the Company will not violate any
law or regulation known to us to be generally applicable to transactions of this
type, or any order or decree of any court, arbitrator or governmental agency that is
binding upon the Company or its property or violate or result in a default under





 









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Angiotech Pharmaceuticals, Inc.

May 5, 2006

Page 3




JONES DAY





any of the terms and provisions of the certificate of incorporation or
by-laws of the Company or any agreement to which the Company is a party or bound
(this opinion being limited (i) to those orders and decrees identified in the
Company’s Disclosures Schedules to the Purchase Agreement, which orders and decrees
are identified on Exhibit C attached hereto, and to those agreements
identified on Exhibit D attached hereto and (ii) in that we express no
opinion with respect to any violation (a) not readily ascertainable from the face of
any such order, decree or agreement, (b) arising under or based upon any cross
default provision insofar as it relates to a default under an agreement not
identified on Exhibit D attached hereto, or (c) arising as a result of any
violation of any agreement or covenant by failure to comply with any financial or
numerical requirement requiring computation).




	 	7.	It is not necessary in connection with the offer and sale of the Note to
Angiotech under the Purchase Agreement to register the Note under the Securities
Act.





          We are not acting as counsel for the Company in any pending litigation in which the Company is
a party, and we have not had referred to us by the Company for legal representation any matter that
we believe might be deemed to be overtly threatened litigation in which the Company may become a
party.




          The statement set forth in the preceding sentence is limited to those matters that the Company
has referred to us for legal representation or about which the Company has consulted us as counsel
and with respect to which we have given substantive attention subsequent to January 1, 2005. We
have identified those matters by making inquiry of lawyers presently in our firm who, according to
our records, have been engaged in legal services on behalf of the Company during that period and by
examining certain current records that we maintain for our internal operations. In that process,
we have not undertaken any independent review of documents or records concerning the Company that
are in our possession.




          The opinions set forth above are subject to the following limitations, qualifications and
assumptions:




          We have assumed, for purposes of the opinions expressed herein, the legal capacity of all
natural persons executing documents, the genuineness of all
signatures, the authenticity of original and certified documents and the conformity to original or certified
copies of all copies submitted to us as conformed or reproduction copies. For the purposes of the
opinions expressed herein, we also have assumed that Angiotech has authorized, executed and
delivered the documents to which it is a party and that each of such documents is the valid,
binding and enforceable obligation of Angiotech.




          As to any facts relevant to our opinions, we have relied upon and assume the accuracy of
certificates of officers of the Company, and we have also relied upon and assume the



 









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Angiotech Pharmaceuticals, Inc.

May 5, 2006

Page 4



JONES DAY



accuracy of the representations and warranties contained in the Purchase Agreement from the Company
and Angiotech, and compliance on the part of the Company and Angiotech with their respective
covenants and agreements contained therein.




          The opinions expressed in paragraph 1 above with respect to the existence, good standing and
foreign qualification to do business of the Company are based solely on certificates of public
officials as to factual matters or legal conclusions set forth therein.




          Our opinions set forth in paragraphs 3 and 4 above with respect to the enforceability of the
documents or securities referred to in such opinions are subject to: (i) bankruptcy, insolvency,
reorganization, fraudulent transfer and fraudulent conveyance, voidable preference, moratorium or
other similar laws, and related regulations and judicial doctrines from time to time in effect
relating to or affecting creditors’ rights and remedies generally; (ii) general equitable
principles, whether such principles are considered in a proceeding at law or in equity; (iii) the
qualification that we express no opinion as to the validity, binding effect or enforceability of
any provision in any document (A) relating to indemnification, contribution or exculpation in
connection with violations of any securities laws or statutory duties or public policy, or in
connection with willful, reckless or unlawful acts or gross negligence of the indemnified or
exculpated party or the party receiving contribution, (B) relating to forum selection to the extent
the forum is a federal court, (C) relating to forum selection to the extent that any relevant
action or proceeding does not arise out of or relate to such document or to the extent that the
enforceability of any such provision is to be determined by any court other than a court of the
State of Delaware, (D) relating to choice of governing law to the extent that the enforceability of
any such provision is to be determined by any court other than a court of the State of Delaware or
may be subject to constitutional limitations, (E) waiving any rights to trial by jury or (F)
specifying that provisions thereof may be waived only in writing, to the extent that an oral
agreement or an implied agreement by trade practice or course of conduct has been created that
modifies any provision of such documents; and (iv) the effect of applicable rules of law that (A)
provide that forum selection clauses in contracts are not necessarily binding on the court(s) in
the forum selected, (B) may, where less than all of a contract may be unenforceable,
limit the enforceability of the balance of the contract to circumstances in which the
unenforceable portion is not an essential part of the agreed exchange, or that permit a court to
reserve to itself a decision as to whether any provision of any agreement is severable, and (C)
govern and afford judicial discretion regarding the determination of damages and entitlement to
attorneys’ fees and other costs.




          In rendering the opinions set forth in paragraph 7 above, we have assumed (i) that the offer
and sale of the Note will be conducted solely in the manner contemplated by the Purchase Agreement
and (ii) the accuracy and completeness of the respective representations and warranties of the
Company and Angiotech and compliance with their respective covenants and




 








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Angiotech Pharmaceuticals, Inc.

May 5, 2006

Page 5




JONES DAY



agreements as set forth in the Purchase Agreement, it being understood that no opinion is hereby
expressed as to any resale of the Note.




          We express no opinion as to the Company’s capital stock that may be issued upon repayment or
conversion of the Note (the “Conversion Shares”), including the authorization or issuance of the
Conversion Shares. Our opinions are limited to those expressly set forth herein, and we express no
opinions by implication.




          In rendering the opinions set forth in paragraphs 4, 5 and 6 above, we have assumed that (i)
the Conversion Shares, prior to issuance, will have authorized by all necessary corporate action of
the Company and reserved for issuance from the applicable class of capital stock of the Company
within the limits of such class of capital stock then remaining authorized but unreserved and
unissued, (ii) no consent, approval, authorization or order of, or filing with, any governmental
agency or body or any court is required in connection with the issuance of the Conversion Shares
and (iii) the issuance of the Conversion Shares will not violate any law or regulation or violate
or result in a default under any of the terms and provisions of the certificate of incorporation or
by-laws of the Company.




          Insofar as matters herein are stated to be to our Actual Knowledge or refer to the state of
our knowledge, our “Actual Knowledge” means the actual knowledge of any lawyer in the Covered
Lawyer Group; and the “Covered Lawyer Group” means Christopher M. Kelly, Michael Solecki, R. Jason
Oblander and Katherine M. Serevitch, those persons being the lawyers currently in our firm who have
given substantive legal attention to the representation of the Company in connection with the
Purchase Agreement and the transactions contemplated thereby.




          The opinions expressed herein are limited to (i) the federal securities laws of the United
States of America and (ii) the General Corporation Law of the State of Delaware, in each case as
currently in effect, and we express no opinion as to the effect of the laws of any other
jurisdiction on the opinions expressed herein.




          This letter is furnished by us to you solely with respect to the purchase of the Note from the
Company, upon the understanding that we are not hereby assuming any professional responsibility to
any other person whatsoever, and that this letter is not to be used, circulated, quoted or
otherwise referred to for any other purpose.




Very truly yours,




 









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Exhibit A




Athersys, Inc.

Foreign Qualifications To Do Business




	 	 	 
	State
	 	Date of Good Standing
	 
	 	 
	California
	 	May 4, 2006
	 	 	 
	Minnesota
	 	May 5, 2006
	 	 	 
	Ohio
	 	May 5, 2006






 









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Exhibit B




Preemptive Rights, Options, Warrants, Conversion Privileges and Other Rights





	1.	 	The rights of first refusal and preemptive rights set forth in the Amended and Restated
Stockholders’ Agreement, dated as of April 28, 2000, by and among Athersys, Inc. and
certain of its stockholders, as amended.
	 
	2.	 	The conversion privileges of the Class A Preferred, Class B Preferred, Class C
Preferred, Class D Preferred, Class E Preferred, Class F Preferred and Class G Preferred.
	 
	3.	 	Outstanding warrants to purchase Common Stock.
	 
	4.	 	Outstanding options to purchase Common Stock.
	 
	5.	 	The right to receive options to purchase Common Stock upon the achievement of specified
performance objectives pursuant to the terms set forth in (a) the Employment Agreement,
dated as of October 3, 2003, by and between Advanced Biotherapeutics, Inc. and Robert
Deans, Ph.D. and (b) the Employment Agreement, dated as of January 1, 2004, by and between
Advanced Biotherapeutics, Inc. and William Lehmann.
	 
	6.	 	The right to receive Common Stock upon the achievement of specified milestones pursuant
to the terms set forth in the Agreement and Plan of Merger, dated as of November 3, 2003,
by and among Athersys, Inc., ReGenesys, LLC, MCL LLC and Leo T. Furcht, M.D.
	 
	7.	 	The right to receive Common Stock in lieu of cash upon the occurrence of certain events
pursuant to the terms set forth in the Loan and Security Agreement, and Supplement thereto,
dated as of November 2, 2004, by and among Athersys, Inc., Advanced Biotherapeutics, Inc.,
Venture Lending & Leasing IV, Inc., and Costella Kirsch IV, L.P.
	 
	8.	 	The right to receive securities of Athersys, Inc. upon the occurrence of certain events
pursuant to the terms set forth in the Loan and Security Agreement, and Supplement thereto,
dated as of November 2, 2004, by and among Athersys, Inc., Advanced Biotherapeutics, Inc.,
Venture Lending & Leasing IV, Inc., and Costella Kirsch IV, L.P.




 









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Exhibit C




Orders and Decrees




None.




 









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Exhibit D




Agreements





	1.	 	Amended and Restated Stockholders’ Agreement, dated as of April 28, 2000, by and among
Athersys, Inc. and certain of its stockholders, as amended.
	 
	2.	 	Amended and Restated Registration Rights Agreement, dated as of April 28, 2000, as
amended as of January 29, 2002 and as of November 19, 2002, by and among Athersys, Inc. and
certain of its stockholders.
	 
	3.	 	Athersys, Inc. Registration Rights Agreement, dated as of October 21, 1999, by and
between Athersys, Inc. and Elan International Services, Ltd.
	 
	4.	 	Warrant Agreement, dated as of October 30, 1998, by and among Athersys, Inc. and
certain of its stockholders.
	 
	5.	 	Warrant Certificate, dated as of March 18, 2004, by and among Athersys, Inc. and
BioEnterprise.
	 
	6.	 	Stock Purchase and Stock Exchange Agreement, dated as of March 19, 1996, by and between
Athersys, Inc. and Michael Gallo.
	 
	7.	 	1995 Incentive Plan of Athersys, Inc., as amended.
	 
	8.	 	2000 Stock Incentive Plan of Athersys, Inc.
	 
	9.	 	Form of Stock Option Agreement for employees and consultants.
	 
	10.	 	Form of Employee Stockholder Agreement for employees.
	 
	11.	 	Form of Optionee Stockholder Agreements for board members and consultants.
	 
	12.	 	Asset Contribution and Assumption of Liabilities Agreement, dated as of March 30, 2000,
by and between Athersys, Inc. and Advanced Biotherapeutics, Inc.
	 
	13.	 	Intercompany Loan Agreement, dated as of September 18, 2002, by and between Athersys,
Inc. and Advanced Biotherapeutics, Inc., as amended July 18, 2005.
	 
	14.	 	Technology and Contract Assignment and Assumption Agreement, effective as of May 5,
2006, by and between Athersys, Inc. and ReGenesys, LLC.
	 
	15.	 	Services Agreement, dated as of November 4, 2003, by and between Athersys, Inc. and
ReGenesys, LLC.




 









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	16.	 	Intellectual Property Rights and Confidentiality Agreement, dated as of November 4,
2003, by and between Athersys, Inc. and Advanced Biotherapeutics, Inc.
	 
	17.	 	Material Transfer and Intellectual Property Disposition Agreement, dated as of April 5,
2004, by and between Athersys, Inc. and the Cleveland Clinic Foundation, as amended.
	 
	18.	 	Research and Material Transfer Agreement, dated as of June 30, 2005, by and between
Athersys, Inc., Advanced Biotherapeutics, Inc., and Case Western Reserve University,
through its faculty member Dr. Jerry Silver.
	 
	19.	 	Master Agreement by and between MPI research, Inc. and Athersys, Inc., dated as of
October 13, 2005, and various Service Agreement Addendums.
	 
	20.	 	Authorization to Proceed agreement, dated as of February 17, 2006, by and between
Athersys, Inc. and Cambrex Bio Science Walkersville, Inc.
	 
	21.	 	Confidentiality and Material Transfer Agreement, dated as of August 4, 2004, by and
between Athersys, Inc. and the Regents of the University of Minnesota, as represented by
Principal Investigator Catherine Verfaillie, MD and the University’s Stem Cell Institute.
	 
	22.	 	Material Transfer Agreement, dated as of April 11, 2006, by and between Athersys, Inc.
and the Regents of the University of Minnesota, through its faculty members Drs. Rosenberg
and Gupta.
	 
	23.	 	Research Agreement, dated as of April 29, 2003, by and between MCL LLC and the Regents
of the University of Minnesota, assumed by ReGenesys, LLC through operation of merger on
November 4, 2003, and Amendment No. 1 dated as of May 1, 2004, Amendment No. 2 dated as of
July 1, 2004, Amendment No. 3 dated as of February 1, 2005, and Amendment No. 4 dated as of
April 25, 2005 (effective as of January 1, 2005).
	 
	24.	 	Exclusive License Agreement, dated as of May 17, 2002, by and between Regents of the
University of Minnesota and MCL LLC, assumed by ReGenesys, LLC through operation of merger
on November 4, 2003.
	 
	25.	 	Ownership Agreement, dated as of May 17, 2002, by and between Regents of the University
of Minnesota and MCL LLC, assumed by ReGenesys, LLC through operation of merger on November
4, 2003.
	 
	26.	 	Confidential Research Agreement, dated as of November 15, 2004, by and between
Athersys, Inc., Advanced Biotherapeutics, Inc. and the Medical
College of Georgia.




 









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	 	 	Research Institute, Inc., as amended on January 9, 2005.
	 
	27.	 	Confidential Research Agreement, dated as of November 1, 2005, by and between Athersys,
Inc. and the Medical College of Georgia Research Institute, Inc.
	 
	28.	 	Research Agreement, dated as of October 22, 2004, by and between Athersys, Inc. and
Oregon Health and Sciences University, as amended on April 13, 2005.
	 
	29.	 	Collaboration Agreement, dated as of May 25, 2004, by and between Athersys, Inc. and
the Juvenile Diabetes Research Foundation International.
	 
	30.	 	Collaboration Agreement, dated as of July 10, 2003, by and between Athersys, Inc. and
Case Western Reserve University, related to the Biomedical Research and Technology Transfer
(BRTT) Trust Funds grant.
	 
	31.	 	Cooperative Research and Development Agreement, dated as of April 22, 2004, by and
between Athersys, Inc. and the Public Heath Service (NHLBI), as amended on September 7,
2005.
	 
	32.	 	Notices of Grant Awards to Company from National Institutes of Health under its Small
Business Innovation Research Program.
	 
	33.	 	Research Agreement, dated as of March 30, 2005, by and between Athersys, Inc. and the
Regents of the University of Minnesota, with Principal Investigator Dr. Wagner.
	 
	34.	 	Multi-Lineage Progenitor Cell Research License, dated as of August 23, 2005, by and
between Athersys, Inc. and BIOE, Inc.
	 
	35.	 	License and Supply Agreement, dated as of August 8, 2005, by and between Mercator, Inc.
(formerly EndoBionics, Inc.) and Athersys, Inc.
	 
	36.	 	Service Agreement, dated as of December 9, 2005, by and between Athersys, Inc. and
Perry Scientific Inc.
	 
	37.	 	Agreement and Plan of Merger, dated as of November 3, 2003, by and among Athersys,
Inc., ReGenesys, LLC, MCL LLC, and Leo T. Furcht, M.D.
	 
	38.	 	Agreement, dated as of November 2, 1999, by and among MCL LLC, Catherine Verfaillie,
Morayma Reyes, and Leo T. Furcht, assumed by ReGenesys, LLC through operation of merger on
November 4, 2003.
	 
	39.	 	Waiver Regarding the Inventor’s Agreement, dated as of January 2, 2003, by and among
MCL LLC, Morayma Reyes, and Athersys, Inc.




 









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	40.	 	Waiver Regarding the Inventor’s Agreement, dated as of October 27, 2002, by and among
MCL LLC, Catherine Verfaillie, Leo T. Furcht, and Athersys, Inc.
	 
	41.	 	Loan Agreement, dated as of November 3, 2003, by and between Athersys, Inc. and Leo T.
Furcht, M.D.
	 
	42.	 	Tax Matters Agreement, dated as of October 27, 2002, by and between Athersys, Inc. and
Leo T. Furcht, M.D.
	 
	43.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 60/147,324 and 60/164,650, dated as of January 31, 2001 by and
between Dr. Catherine Verfaillie, Dr. Leo T. Furcht, Dr. Morayma Reyes, and MCL LLC.
	 
	44.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 60/504,100, dated as of October 23, 2003 by and between Dr.
Catherine Verfaillie, MCL LLC, and the Regents of the University of Minnesota.
	 
	45.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 10/048,757 dated as of October 17, 2003 by and between Dr.
Catherine Verfaillie, Dr. Leo T. Furcht, Dr. Morayma Reyes, MCL LLC. and the Regents of the
University of Minnesota.
	 
	46.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 10/467,963 dated as of October 17, 2003 by and between Dr.
Catherine Verfaillie, Dr. Leo T. Furcht, Dr. Morayma Reyes, MCL LLC and the Regents of the
University of Minnesota.
	 
	47.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 60/268,786 dated as of April 13, 2001 by and between Catherine
Verfaillie, Leo T. Furcht, and MCL LLC.
	 
	48.	 	Assignment Agreement in the application for United States Letters Patent, identified by
United States Serial No. 60/269,062 dated as of April 13, 2001 by and between Catherine
Verfaillie, Leo T. Furcht, and MCL LLC.
	 
	49.	 	Assignment Agreement for provisional application identified by United States Serial No.
60/429,631 dated as of October 23, 2003 by and between Dr. Catherine Verfaillie, and MCL
LLC.
	 
	50.	 	Assignment Agreement for provisional application identified by United States Serial No.
60/504,125 dated as of October 23, 2003 by and between Dr. Catherine Verfaillie, and MCL
LLC.




 









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	51.	 	Research Collaboration and License Agreement, dated as of December 8, 2000, by and
between Athersys, Inc. and Bristol-Myers Squibb Company.
	 
	52.	 	Cell Line Collaboration and License Agreement, dated as of July 1, 2002, by and between
Athersys, Inc. and Bristol-Myers Squibb Company, as amended as of January 1, 2006.
	 
	53.	 	Extended Collaboration and License Agreement, dated as of January 1, 2006, by and
between Athersys, Inc. and Bristol-Myers Squibb Company.
	 
	54.	 	Research Collaboration and License Agreement, dated as of November 7, 2001, by and
between Athersys, Inc. and Pfizer Inc.
	 
	55.	 	Research Agreement, dated as of October 2, 2001, by and between Athersys, Inc. and the
University of Rochester, as amended on November 10, 2003 and September 1, 2005.
	 
	56.	 	Cooperative Research and Development Agreement, dated as of September 21, 2000, by and
among Athersys, Inc., the Board of Trustees of the University of Alabama at Birmingham for
the University of Alabama at Birmingham, and The UAB Research Foundation, as amended.
	 
	57.	 	Mutual Termination and Release Agreement, and License Agreement, dated as of December
19, 2003, by and between Athersys, Inc. and 3-Dimensional Pharmaceuticals Inc.
	 
	58.	 	Cross-License Agreement, dated as of September 5, 2003, by and between Athersys, Inc.
and Lexicon Genetics Incorporated.
	 
	59.	 	License Agreement, dated as of November 1, 1995, by and between Case Western Reserve
University and Athersys, Inc.
	 
	60.	 	Memorandum Agreement, dated as of October 22, 1997, by and between Case Western Reserve
University and Athersys, Inc.
	 
	61.	 	License Agreement, dated as of September 2, 2000, by and between Athersys, Inc. and the
University of Iowa.
	 
	62.	 	License Agreement, dated as of April 10, 2002, by and between Athersys, Inc. and PE
Corporation, through its Applied Biosystems Group.
	 
	63.	 	Assignment of License Right, dated as of April 10, 2002, by and between Athersys, Inc.
and Dr. John Harrington, Dr. Chih-Lin Hsieh and Dr. Michael Lieber, as amended.




 









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	64.	 	Joint Venture Agreement, dated as of November 30, 2000, by and between Athersys, Inc.
and President Life Sciences Co., Ltd.
	 
	65.	 	Subscription, Joint Development and Operating Agreement, dated as of October 21, 1999,
by and among Elan Corporation, plc, Elan International Services, Ltd., Elan Pharma
International Limited, Athersys, Inc. and Athersys Newco Ltd.
	 
	66.	 	License Agreement, dated as of October 21, 1999, by and between Athersys, Inc. and
Athersys Newco Ltd.
	 
	67.	 	Funding Agreement, dated as of October 21, 1999, by and among Elan Pharma International
Limited, Elan Corporation, plc, Elan International Services, Ltd. and Athersys, Inc.
	 
	68.	 	Settlement Agreement, dated as of July 2, 2003, by and between Oculus Pharmaceuticals,
Inc. and Athersys, Inc.
	 
	69.	 	Master Services Agreement, dated as of May 2, 2005, by and between Athersys, Inc.,
Advanced Biotherapeutics Inc., and SCYNEXIS, Inc.
	 
	70.	 	Master Agreement, dated as of August 11, 2005, between Athersys, Inc. and Inveresk
Research International Limited/Charles River Laboratories, and various Contract and
Protocol Addendums.
	 
	71.	 	Laboratory Services and Confidentiality Agreement, dated as of April 4, 2004, between
Athersys, Inc. and Charles River Laboratories.
	 
	72.	 	Consultancy Services Agreement, dated as of November 30, 2005, between Athersys, Inc.
and Charles River Laboratories Clinical Services International Limited.
	 
	73.	 	Material Transfer Agreement, MGH Ref. 1790, dated as of May 2, 2005, by and between
Athersys, Inc., Advanced Biotherapeutics Inc., and The General Hospital Corporation d.b.a.
Massachusetts General Hospital.
	 
	74.	 	Non-Exclusive Option Agreement, MGH Case No. 1790, dated as of May 2, 2005, by and
between Athersys, Inc., Advanced Biotherapeutics Inc., and The General Hospital Corporation
d.b.a. Massachusetts General Hospital.
	 
	75.	 	Agreement of Quotation and Protocols, dated as of December 22, 2005, by and between
Athersys, Inc. and Toxicon Corporation.
	 
	76.	 	Biological Materials License Agreement, dated as of December 21, 2000, by and between
Athersys, Inc. and Molecular Devices Corporation.




 









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	77.	 	License Agreement, dated as of June 11, 2001, by and between Athersys, Inc. and
Brookhaven Science Associates, LLC.
	 
	78.	 	Collaborative Research and Development Agreement, dated as of February 9, 2005, by and
between Athersys, Inc. and The Ohio State University.
	 
	79.	 	Various Notices of Grant Awards to Company from National Institutes of Health under its
Small Business Innovation Research Program.
	 
	80.	 	Loan and Security Agreement, and Supplement, dated as of November 2, 2004, by and among
Athersys, Inc., Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., and
Costella Kirsch IV, L.P.
	 
	81.	 	Promissory Notes made by Athersys, Inc. and Advanced Biotherapeutics, Inc., on behalf
of Venture Lending & Leasing IV, Inc., and Costella Kirsch IV, L.P., dated November 12,
2004 (numbers CK-001 and 4035-001), and dated December 29, 2004 (numbers CK-002 and
4035-002).
	 
	82.	 	Intellectual Property Security Agreement, dated as of February 14, 2006, by and between
Athersys, Inc. and Venture Lending & Leasing IV, Inc.
	 
	83.	 	Control Agreement Concerning Deposit Accounts, dated as of November 2, 2004, by and
among Athersys, Inc., Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc.,
Costella Kirsch IV, L.P., and National City Bank.
	 
	84.	 	Account Control Agreement, dated as of November 2, 2004, by and among Athersys, Inc.,
Advanced Biotherapeutics, Inc., Venture Lending & Leasing IV, Inc., Costella Kirsch IV,
L.P., and NatCity Investments.
	 
	85.	 	Engagement Letter, dated as of October 3, 2005, by and between Athersys, Inc. and
Kaufman & Company, LLC.
	 
	86.	 	Engagement Letter, dated as of October 31, 2005, by and between Athersys, Inc. and
Merrill Lynch & Co.
	 
	87.	 	Consulting Agreement, dated as of May 27, 2004, by and between Athersys, Inc., Advanced
Biotherapeutics, Inc., and Jim Shook Research, Inc., as extended.
	 
	88.	 	Consulting Agreement, dated as of October 27, 2002, by and between Athersys, Inc. and
Dr. Catherine Verfaillie, as amended on March 4, 2003.
	 
	89.	 	Consulting Agreement, dated as of February 22, 2005, by and between Athersys, Inc.,
Advanced Biotherapeutics, Inc., and Dr. Pascal Goldschmidt.




 









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	90.	 	Consulting Agreement, dated as of March 6, 2005, by and between Athersys, Inc.,
Advanced Biotherapeutics, Inc., and Dr. Jianyi Zhang.
	 
	91.	 	Consulting Agreement, dated as of March 6, 2005, by and between Athersys, Inc.,
Advanced Biotherapeutics, Inc., and Dr. Ken Walsh.
	 
	92.	 	Consulting Agreement, dated as of March 25, 2005, by and between Athersys, Inc.,
Advanced Biotherapeutics, Inc., and Dr. Michael Simons.
	 
	93.	 	Consulting Agreement, dated as of February 1, 2005, by and between Athersys, Inc.,
Advanced Biotherapeutics, Inc., and Dr. Brian Annex.
	 
	94.	 	Consulting Agreement, dated as of May 10, 2004, by and between Athersys, Inc., Advanced
Biotherapeutics, Inc., and Dr. Gilbert Clincke, as extended on September 28, 2005.
	 
	95.	 	Consulting Agreement, dated as of January 6, 2005, by and between Athersys, Inc.,
Advanced Biotherapeutics, Inc., and Dr. Xavier Pi-Sunyer.
	 
	96.	 	Consulting Agreement, dated as of May 1, 2005, by and between Athersys, Inc., Advanced
Biotherapeutics, Inc. and Dr. Thomas Caskey.
	 
	97.	 	Consulting Agreement, dated as of November 4, 2005, by and between Athersys, Inc.,
Advanced Biotherapeutics, Inc. and Charles E. Piper (CEP Consulting).
	 
	98.	 	Consulting Agreement, dated as of February 7, 2006, by and between Athersys, Inc. and
Biologics Consulting Group, Inc.
	 
	99.	 	Master Service Agreement, dated as of March 9, 2004, by and between Athersys, Inc., and
CATO Research, as extended.
	 
	100.	 	Letter Agreement, dated as of January 22, 2003, by and between Athersys, Inc. and Dr.
George Milne, Jr.
	 
	101.	 	Form of D&O Indemnification Agreement.
	 
	102.	 	Form of Incentive Agreement for employees.
	 
	103.	 	Form of Separation and General Release Agreements for terminated employees.
	 
	104.	 	Promissory Note made by Gil Van Bokkelen on behalf of Advanced Biotherapeutics, Inc.,
dated May 20, 2002.




 









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	105.	 	Lease Agreement, dated as of March 23, 2000, by and between Athersys, Inc. and Sherry
E. Greer and James C. Comella, Trustees, under T/A/D December 21, 1991, as amended, and
notices of lease extensions.
	 
	106.	 	Facilities Use Agreement, dated as of February 18, 2002, by and between Athersys, Inc.
and The MetroHealth System, as amended.
	 
	107.	 	Employment Agreement, dated as of December 1, 1998, by and between Athersys, Inc. and
Gil Van Bokkelen, Ph.D.
	 
	108.	 	Employment Agreement, dated as of December 1, 1998, by and between Athersys, Inc. and
John J. Harrington, Ph.D.
	 
	109.	 	Employment Agreement, dated as of May 22, 1998, by and between Athersys, Inc. and Laura
K. Campbell.
	 
	110.	 	Employment Agreement, dated as of May 22, 1998, by and between Athersys, Inc. and
Robert Perry.
	 
	111.	 	Employment Agreement, dated as of May 22, 1998, by and between Athersys, Inc. and
Rakesh Ramachandran.
	 
	112.	 	Employment Agreement, dated as of May 22, 1998, by and between Athersys, Inc. and Bruce
Sherf.
	 
	113.	 	Employment Agreement, dated as of October 3, 2003, by and between Advanced
Biotherapeutics, Inc. and Robert Deans, Ph.D.
	 
	114.	 	Employment Agreement, dated as of January 1, 2004, by and between Advanced
Biotherapeutics, Inc. and Anne Brown.
	 
	115.	 	Employment Agreement, dated as of January 1, 2004, by and between Advanced
Biotherapeutics, Inc. and William Lehmann.
	 
	116.	 	Employment Agreement, dated as of January 1, 2005, by and between Advanced
Biotherapeutics, Inc. and Judith Hubbard.






 










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Exhibit B

License Agreement




See Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the SEC on June 14, 2007.



 









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Exhibit C

Sublicense Agreement




See Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (Commission No. 000-52108) filed with the SEC on June 14, 2007.