Capitalization and Warrant Instruments

Capitalization

At December 31, 2019 and December 31, 2018, we had 300 million shares of common stock and 10.0 million shares of undesignated preferred stock authorized. No shares of preferred stock have been issued as of December 31, 2019 and 2018.

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



	December 31
	2019	2018
Stock-based compensation plans	30,054	16,096
Healios Warrants to purchase common stock	4,000	18,500
	34,054	34,596

Equity Issuance - Healios

In March 2018, Healios purchased 12,000,000 shares of our common stock for $21.1 million, or approximately $1.76 per share, and the Healios Warrant to purchase up to an additional 20,000,000 shares. In connection with this investment, we entered into an Investor Rights Agreement (the "Investor Rights Agreement") that governs certain rights of Healios and us relating to Healios’ ownership of our common stock. The Investor Rights Agreement provides for customary standstill and voting obligations, transfer restrictions and registration rights for Healios. Additionally, we agree to provide notice to Healios of certain equity issuances and to allow Healios to participate in certain issuances in order maintain its proportionate ownership of our common stock as of the time of such issuance. We further agreed that during such time as Healios beneficially owns more than 5.0% but less than 15.0% of our outstanding common stock, our Board of Directors (the “Board”) will nominate a Healios nominee suitable to us to become a member of the Board, and during such time as Healios beneficially owns 15.0% or more of our outstanding common stock, our Board will nominate two suitable Healios nominees to become members of the Board, at each annual election of directors. Healios nominated an individual to the Board, who was elected at the 2018 annual stockholders’ meeting. As a result of Healios’ investment, Healios became a related party, and the transactions with Healios are separately identified within these financial statements as related party transactions.

At the time of the investment in March 2018, the 20,000,000 Warrant Shares would not become exercisable until the planned collaboration expansion was completed, which at the time included an option to commercialize in China. At the time of the June 2018 expansion, however, the parties had not reached agreement on the option so Athersys agreed to provide Healios with a right of first negotiation with respect to the option, and therefore, the parties bifurcated the Healios Warrant so that 4,000,000 Warrant Shares became exercisable with the June 2018 expansion and the remaining 16,000,000 Warrant Shares would become exercisable if Healios agreed to execute an option for a license in China. As of June 30, 2019, 16,000,000 Warrant Shares were no longer exercisable and expired under the terms of the Healios Warrant, since an option in China was not executed. The 4,000,000 Warrant Shares are exercisable at the greater of $1.76 and the Reference Price (which is generally 110% of the average closing price per share of the Company's common stock for the ten trading days ending on the trading day immediately preceding the date the Warrant is exercised).

The value of the Healios Warrant was considered as an element of compensation in the transaction price of the Healios collaboration expansion. We evaluated the various terms of the Healios Warrant and concluded that it is accounted for as an equity instrument at inception and $5.3 million was computed as the best estimate of the fair value of the Healios Warrant at the time of issuance in March 2018. The fair value was computed using a Monte Carlo simulation model that included probability-weighted estimates of potential milestone points in time that could impact the value of the Healios Warrant during its term. The fair value was recorded as additional paid-in capital in the first quarter of 2018, with the offset being included in other asset related to Healios, and the asset would be included as an element of compensation in the transaction price upon the consummation of the expansion that was proposed in March 2018 under the LOI.

Upon the modification of the Healios Warrant in June 2018 in connection with the expansion of the collaboration that included the bifurcation of the Healios Warrant due to the change related to China rights, we reassessed the fair value of the Healios Warrant immediately before and after the modification using the same valuation methodology, which resulted in no incremental fair value to be recorded. The value of the 4,000,000 Warrant Shares that became exercisable upon the June 2018 expansion of $1.1 million was recorded as a reduction to the revenue recognized for the delivered licenses in June 2018. See Note E. However, since the June 2018 expansion agreements made the exercisability of the 16,000,000 shares underlying the Healios Warrant contingent on entering into an option for a license in China, we considered the ability to apply the $4.2 million value of such Warrant Shares as an element of compensation to be constrained. Therefore, the remaining asset was reversed against additional paid-in-capital.

Equity Purchase Agreement

We have had equity purchase agreements in place since 2011 with Aspire Capital Fund LLC (“Aspire Capital”) that provide us the ability to sell shares to Aspire Capital from time to time, as appropriate. The current agreement with Aspire Capital was entered into in February 2018 and includes Aspire Capital’s commitment to purchase up to an aggregate of $100.0 million of shares of our common stock over a three-year period. The terms of the 2018 equity facility are similar to the previous arrangements, and we issued 450,000 shares of our common stock to Aspire Capital as a commitment fee in February 2018 and filed a registration statement for the resale of 24,700,000 shares of common stock in connection with the equity facility. Also, in connection with this equity facility, in February 2018, Aspire Capital invested $1.0 million in us at $2.00 per share of common stock. During the years ended December 31, 2019, 2018 and 2017, we sold 14,475,000, 8,708,582 and 9,400,000 shares, respectively, to Aspire Capital at average prices of $1.41, $1.78 and $1.75 per share, respectively. In the first quarter of 2020 through March 13, 2020, we generated an additional $5.5 million in proceeds from the use of our equity purchase arrangement.

In November 2019, we entered into a new facility to replace the current facility, which will provide us with the ability to purchase up to an aggregate of $100.0 million of shares of common stock over a three-year period. The terms of the 2019 equity facility are similar to the previous arrangements, and we issued 350,000 shares of common stock to Aspire Capital as a commitment fee in November 2019 and filed a registration statement for the resale of 31,000,000 shares of common stock in connection with the new equity facility.

Open Market Sale Agreement

In May 2019, we entered into an open market sale agreement with Jefferies LLC ("Jefferies"), as sales agent, pursuant to which we could offer and sell, from time to time, through Jefferies, shares of our common stock having an aggregate offering price of up to $50.0 million. The shares could have been offered and sold pursuant to our registration statement on Form S-3 that was declared effective by the SEC on March 21, 2017 but will no longer be effective on March 21, 2020. Because that registration statement on Form S-3 will soon expire, the open market sale agreement with Jefferies will not be operable without additional SEC filings. We did not sell any shares of our common stock under this agreement.

License Agreement and Settlement

In October 2017, we entered into an agreement to settle longstanding intellectual property disagreements with a third-party. As part of the agreement, we were granted a worldwide, non-exclusive license, with the right to sublicense, to the other party’s patents and applications that were at the core of the intellectual property dispute, for use related to the treatment or prevention of disease or conditions using cells. In return, we agreed not to enforce our intellectual property rights against the party with respect to certain patent claims, nor to further challenge the patentability or validity of certain applications or patents. Upon execution of the license and settlement agreement in 2017, we paid $0.5 million and issued 1,000,000 shares of our common stock with a fair value of $2.3 million. In 2018, in accordance with the agreement, we paid an additional $1.0 million and we issued 500,000 additional shares of our common stock related to a patent issuance. This contingent obligation to issue 500,000 shares of common stock was originally recorded in accrued license fee expense on the consolidated balance sheets at December 31, 2017 at a fair value of $0.9 million. The actual issuance of the 500,000 shares in May 2018 was recorded at an actual fair value of $1.2 million, resulting in $0.3 million of additional paid-in-capital and research and development expense in 2018. There will be no royalty, milestone or other payments due to the third-party associated with the development and commercialization of our cell therapy products. Our payment obligations are concluded.