þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended June 30, 2005 | ||
or | ||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Michigan
|
94-3096597 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Document | Form 10-K Reference | |
Proxy Statement for the Annual Meeting of Shareholders
scheduled for November 2, 2005 |
Items 10, 11, 12, 13 and 14 of Part III |
2
Item 1. | Business |
| Local bone regeneration such as is needed in fractures, spinal fusion, and jaw bone reconstruction | |
| Vascular (blood vessel) regeneration in limb ischemia resulting from diabetes and other diseases |
3
Tissue Repair Cells (TRCs) |
4
Aastroms Single-Pass Perfusion for Human Cell Growth |
The AastromReplicell System |
5
Tissue Repair Cell Products |
6
Current Activities |
7
Cell Manufacturing |
AastromReplicell System Components |
8
9
10
Research and License Agreements |
Regulatory Process in the United States |
11
Product Approval in the United States |
12
Regulatory Process in Europe |
Clinical Trials in the European Union |
13
Product Approval in the European Union |
14
15
Name | Age | Position | ||||
R. Douglas Armstrong, Ph.D.
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52 | Chief Executive Officer and Chairman of the Board of Directors | ||||
Robert J. Bard, J.D., R.A.C.
|
54 |
Vice President Regulatory Affairs and Quality Systems |
||||
Gerald D. Brennan, Jr., J.D.
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54 | Vice President Administrative and Financial Operations and Chief Financial Officer | ||||
James A. Cour
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49 | President and Chief Operating Officer | ||||
Brian S. Hampson
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48 | Vice President Product Development | ||||
Janet M. Hock, B.D.S., Ph.D.
|
61 |
Vice President Global Research and Chief Scientific Officer |
16
17
Item 2. | Properties |
Item 3. | Legal Proceedings |
Item 4. | Submission Of Matters To A Vote Of Security Holders |
18
Item 5. | Market for Registrants Common Equity and Related Shareholder Matters |
High | Low | ||||||||
Year ended June 30, 2004:
|
|||||||||
1st Quarter
|
$ | 1.83 | $ | .79 | |||||
2nd Quarter
|
1.66 | 1.25 | |||||||
3rd Quarter
|
1.76 | 1.27 | |||||||
4th Quarter
|
1.36 | .80 | |||||||
Year ended June 30, 2005:
|
|||||||||
1st Quarter
|
.97 | .63 | |||||||
2nd Quarter
|
1.66 | .84 | |||||||
3rd Quarter
|
4.05 | 1.37 | |||||||
4th Quarter
|
3.13 | 1.90 |
Number of Securities | ||||||||||||
Number of Securities to be | Weighted Average | Remaining Available for | ||||||||||
Issued upon Exercise of | Exercise Price of | Future Issuance | ||||||||||
Outstanding Options, | Outstanding Options, | Under Equity | ||||||||||
Warrants and Rights | Warrants and Rights | Compensation Plans | ||||||||||
Equity compensation plans approved by security holders
(employees and directors)
|
4,085,953 | $ | 1.55 | 4,056,962 | ||||||||
Equity compensation plans not approved by security holders
(financings or services related)
|
495,868 | $ | 1.74 | | ||||||||
Balance, June 30, 2005
|
4,581,821 | $ | 1.57 | 4056,962 | (1) | |||||||
(1) | Includes shares issuable under the 2004 Omnibus Equity Incentive Plan. |
19
Item 6. | Selected Financial Data |
Year Ended June 30, | March 24, 1989 | |||||||||||||||||||||||||
(Inception) to | ||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | June 30, 2005 | |||||||||||||||||||||
Statement of Operations Data:
|
||||||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||||
Product sales and rentals
|
$ | 85,000 | $ | 80,000 | $ | 314,000 | $ | 49,000 | $ | 387,000 | $ | 1,118,000 | ||||||||||||||
Research and development agreements
|
| | 10,000 | 75,000 | | 2,105,000 | ||||||||||||||||||||
Grants
|
814,000 | 797,000 | 520,000 | 1,178,000 | 522,000 | 8,048,000 | ||||||||||||||||||||
Total revenues
|
899,000 | 877,000 | 844,000 | 1,302,000 | 909,000 | 11,271,000 | ||||||||||||||||||||
Costs and expenses:
|
||||||||||||||||||||||||||
Cost of product sales and rentals(1)
|
13,000 | 202,000 | 893,000 | 280,000 | 148,000 | 2,793,000 | ||||||||||||||||||||
Research and development
|
4,983,000 | 5,428,000 | 5,647,000 | 6,289,000 | 7,206,000 | 100,643,000 | ||||||||||||||||||||
Selling, general and administrative
|
2,482,000 | 3,528,000 | 4,017,000 | 5,390,000 | 5,972,000 | 39,489,000 | ||||||||||||||||||||
Total costs and expenses
|
7,478,000 | 9,158,000 | 10,557,000 | 11,959,000 | 13,326,000 | 142,925,000 | ||||||||||||||||||||
Loss from operations
|
(6,579,000 | ) | (8,281,000 | ) | (9,713,000 | ) | (10,657,000 | ) | (12,417,000 | ) | (131,654,000 | ) | ||||||||||||||
Other income (expense):
|
||||||||||||||||||||||||||
Other income
|
| | | | 12,000 | 1,249,000 | ||||||||||||||||||||
Interest income
|
653,000 | 342,000 | 134,000 | 169,000 | 594,000 | 5,965,000 | ||||||||||||||||||||
Interest expense
|
| | | | | (267,000 | ) | |||||||||||||||||||
Net loss
|
$ | (5,926,000 | ) | $ | (7,939,000 | ) | $ | (9,579,000 | ) | $ | (10,488,000 | ) | $ | (11,811,000 | ) | $ | (124,707,000 | ) | ||||||||
Net loss applicable to common shares
|
$ | (5,926,000 | ) | $ | (7,939,000 | ) | $ | (9,579,000 | ) | $ | (10,488,000 | ) | $ | (11,811,000 | ) | |||||||||||
Net loss per common share (basic and diluted)
|
$ | (.17 | ) | $ | (.19 | ) | $ | (.19 | ) | $ | (.14 | ) | $ | (.13 | ) | |||||||||||
Weighted average number of common shares outstanding (basic and
diluted)
|
34,030,000 | 42,121,000 | 50,984,000 | 73,703,000 | 93,541,000 | |||||||||||||||||||||
June 30, | ||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||||
Balance Sheet Data:
|
||||||||||||||||||||||||
Cash, cash equivalents and short-term investments
|
$ | 10,659,000 | $ | 9,605,000 | $ | 10,512,000 | $ | 16,926,000 | $ | 32,414,000 | ||||||||||||||
Working capital
|
10,715,000 | 10,597,000 | 11,273,000 | 17,274,000 | 32,275,000 | |||||||||||||||||||
Total assets
|
11,905,000 | 11,553,000 | 12,155,000 | 18,166,000 | 33,897,000 | |||||||||||||||||||
Deficit accumulated during the development stage
|
(85,858,000 | ) | (93,797,000 | ) | (103,376,000 | ) | (113,864,000 | ) | (125,675,000 | ) | ||||||||||||||
Total shareholders equity
|
10,894,000 | 10,803,000 | 11,575,000 | 17,608,000 | 33,028,000 |
(1) | Cost of product sales and rentals for the years ended June 30, 2002, June 30, 2003, June 30, 2004 and June 30, 2005 includes a charge of $202,000, $748,000, $253,000 and $9,000 for excess inventories, respectively. |
20
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
| Local bone regeneration such as is needed in fractures, spinal fusion, and jaw bone reconstruction | |
| Vascular (blood vessel) regeneration in limb ischemia resulting from diabetes and other diseases |
21
22
| AastromReplicell System (ARS) Inventories Based upon market conditions and our historical experience with the ARS product line, the carrying value of our aggregate ARS inventories is reduced if such inventories are held in excess of twelve months without sale because the probability-weighted selling price of the aggregate inventories declines after inventory has been on-hand for more than twelve months. We continue to reduce the aggregate carrying value of ARS inventories over the ensuing six months if the inventories are not sold. The carrying value of ARS inventories under evaluation at potential customer sites are not reduced so long as the estimated selling price (less selling costs) exceeds the carrying value of the inventories under evaluation. Pursuant to this accounting policy we recorded provisions to reduce the carrying value of the ARS inventories by $253,000 and $9,000 in fiscal years ending June 30, 2004 and 2005, respectively. Additionally, in fiscal year 2005, we recorded a charge of $90,000 to research and development expense for excess ARS inventories that were re-deployed for clinical use. As of June 30, 2005, the carrying value of our ARS inventories was reduced to zero. Based upon our current business strategy, we do not expect to generate revenues from the sale of ARS inventories in future periods. | |
| Cell Cassette and Base Medium Inventories We maintain cell cassette and base medium inventories for sale to existing customers and clinical sites. We evaluate the net realizable value of these inventories considering expected future sales quantities, prices and timing, and considering the limited shelf life of these inventories. |
23
24
Year Ended June 30, | ||||||||||||
R&D Project | 2003 | 2004 | 2005 | |||||||||
TRCs
|
$ | 2,721,000 | $ | 4,133,000 | $ | 5,916,000 | ||||||
Other
|
2,926,000 | 2,156,000 | 1,290,000 | |||||||||
Total
|
$ | 5,647,000 | $ | 6,289,000 | $ | 7,206,000 | ||||||
25
26
Payments Due by Period | ||||||||||||||||||||
Less then | 1 3 | 3 5 | More then | |||||||||||||||||
Contractual Obligations | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||
Purchase order commitments
|
$ | 247,000 | $ | 247,000 | $ | | $ | | $ | | ||||||||||
Total
|
$ | 247,000 | $ | 247,000 | $ | | $ | | $ | | ||||||||||
27
28
29
30
| continued scientific progress in our research, clinical and development programs; | |
| costs and timing of conducting clinical trials and seeking regulatory approvals; | |
| competing technological and market developments; | |
| our ability to establish additional collaborative relationships; and | |
| the effect of commercialization activities and facility expansions if and as required. |
| clinical trial results | |
| the amount of our cash resources and our ability to obtain additional funding | |
| announcements of research activities, business developments, technological innovations or new products by us or our competitors | |
| entering into or terminating strategic relationships | |
| changes in government regulation | |
| disputes concerning patents or proprietary rights |
31
| changes in our revenues or expense levels | |
| public concern regarding the safety, efficacy or other aspects of the products or methodologies we are developing | |
| news or reports from other stem cell, cell therapy or tissue engineering companies | |
| reports by securities analysts | |
| status of the investment markets |
32
33
| potential strategic collaborations with others | |
| future capital needs |
34
| adequacy of existing capital to support operations for a specified time | |
| product development and marketing plan | |
| clinical trial plans and anticipated results | |
| anticipation of future losses | |
| replacement of manufacturing sources | |
| commercialization plans | |
| revenue expectations and operating results |
35
Item 8. | Financial Statements and Supplementary Data |
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37 | ||||
38 | ||||
39 | ||||
40 | ||||
41 | ||||
42 | ||||
59 |
36
37
June 30, | |||||||||||
2004 | 2005 | ||||||||||
ASSETS | |||||||||||
CURRENT ASSETS:
|
|||||||||||
Cash and cash equivalents
|
$ | 16,926,000 | $ | 14,408,000 | |||||||
Short-term investments
|
| 18,006,000 | |||||||||
Receivables, net
|
244,000 | 193,000 | |||||||||
Inventories
|
389,000 | 116,000 | |||||||||
Other current assets
|
273,000 | 421,000 | |||||||||
Total current assets
|
17,832,000 | 33,144,000 | |||||||||
PROPERTY AND EQUIPMENT, NET
|
334,000 | 753,000 | |||||||||
Total assets
|
$ | 18,166,000 | $ | 33,897,000 | |||||||
LIABILITIES AND SHAREHOLDERS EQUITY | |||||||||||
CURRENT LIABILITIES:
|
|||||||||||
Accounts payable and accrued expenses
|
$ | 382,000 | $ | 533,000 | |||||||
Accrued employee benefits
|
176,000 | 336,000 | |||||||||
Total current liabilities
|
558,000 | 869,000 | |||||||||
COMMITMENTS AND CONTINGENCIES (Note 5 and 6)
|
|||||||||||
SHAREHOLDERS EQUITY:
|
|||||||||||
Common Stock, no par value; shares authorized
150,000,000; shares issued and outstanding
81,373,191 and 102,328,785, respectively
|
131,472,000 | 158,703,000 | |||||||||
Deficit accumulated during the development stage
|
(113,864,000 | ) | (125,675,000 | ) | |||||||
Total shareholders equity
|
17,608,000 | 33,028,000 | |||||||||
Total liabilities and shareholders equity
|
$ | 18,166,000 | $ | 33,897,000 | |||||||
38
Year Ended June 30, | March 24, 1989 | |||||||||||||||||
(Inception) to | ||||||||||||||||||
2003 | 2004 | 2005 | June 30, 2005 | |||||||||||||||
REVENUES:
|
||||||||||||||||||
Product sales and rentals
|
$ | 314,000 | $ | 49,000 | $ | 387,000 | $ | 1,118,000 | ||||||||||
Research and development agreements
|
10,000 | 75,000 | | 2,105,000 | ||||||||||||||
Grants
|
520,000 | 1,178,000 | 522,000 | 8,048,000 | ||||||||||||||
Total revenues
|
844,000 | 1,302,000 | 909,000 | 11,271,000 | ||||||||||||||
COSTS AND EXPENSES:
|
||||||||||||||||||
Cost of product sales and rentals
|
145,000 | 27,000 | 139,000 | 554,000 | ||||||||||||||
Cost of product sales and rentals provision for
excess inventories
|
748,000 | 253,000 | 9,000 | 2,239,000 | ||||||||||||||
Research and development
|
5,647,000 | 6,289,000 | 7,206,000 | 100,643,000 | ||||||||||||||
Selling, general and administrative
|
4,017,000 | 5,390,000 | 5,972,000 | 39,489,000 | ||||||||||||||
Total costs and expenses
|
10,557,000 | 11,959,000 | 13,326,000 | 142,925,000 | ||||||||||||||
LOSS FROM OPERATIONS
|
(9,713,000 | ) | (10,657,000 | ) | (12,417,000 | ) | (131,654,000 | ) | ||||||||||
OTHER INCOME (EXPENSE):
|
||||||||||||||||||
Other income
|
| | 12,000 | 1,249,000 | ||||||||||||||
Interest income
|
134,000 | 169,000 | 594,000 | 5,965,000 | ||||||||||||||
Interest expense
|
| | | (267,000 | ) | |||||||||||||
Total other income
|
134,000 | 169,000 | 606,000 | 6,947,000 | ||||||||||||||
NET LOSS
|
$ | (9,579,000 | ) | $ | (10,488,000 | ) | $ | (11,811,000 | ) | $ | (124,707,000 | ) | ||||||
NET LOSS PER SHARE (Basic and Diluted)
|
$ | (.19 | ) | $ | (.14 | ) | $ | (.13 | ) | |||||||||
Weighted average number of common shares outstanding (Basic and
Diluted)
|
50,984,000 | 73,703,000 | 93,541,000 | |||||||||||||||
39
Deficit | ||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||
Preferred Stock | Common Stock | During the | Total | |||||||||||||||||||||
Development | Shareholders | |||||||||||||||||||||||
Shares | Amount | Shares | Amount | Stage | Equity | |||||||||||||||||||
BALANCE, MARCH 24, 1989 (Inception)
|
| $ | | | $ | | $ | | $ | | ||||||||||||||
Net loss and comprehensive loss
|
(92,829,000 | ) | (92,829,000 | ) | ||||||||||||||||||||
Issuance of common stock for cash, services and license rights
|
1,195,124 | 2,336,000 | 2,336,000 | |||||||||||||||||||||
Issuance of Series A through Series E Preferred Stock
for cash, net of issuance costs of $342,000
|
9,451,766 | 34,218,000 | 34,218,000 | |||||||||||||||||||||
Issuance of Series E Preferred Stock at $17.00 per
share
|
205,882 | 3,500,000 | (3,500,000 | ) | | |||||||||||||||||||
Exercise of stock options and warrants, and issuance of stock
under Employee Stock Purchase Plan
|
2,989,260 | 927,000 | 927,000 | |||||||||||||||||||||
Issuance of Stock Purchase Rights for cash in September 1995 and
March 1996
|
3,500,000 | 3,500,000 | ||||||||||||||||||||||
Principal payment received under shareholder note receivable
|
31,000 | 31,000 | ||||||||||||||||||||||
Initial public offering of common stock at $7.00 per share,
net of issuance costs of $2,865,000
|
3,250,000 | 19,885,000 | 19,885,000 | |||||||||||||||||||||
Conversion of preferred stock
|
(11,865,648 | ) | (55,374,000 | ) | 21,753,709 | 55,374,000 | | |||||||||||||||||
Compensation expense related to stock options granted
|
654,000 | 654,000 | ||||||||||||||||||||||
Issuance of 5.5% Convertible Preferred Stock at
$5.00 per share, net of issuance costs of $1,070,000
|
2,200,000 | 9,930,000 | 9,930,000 | |||||||||||||||||||||
Issuance of 1998 Series I Convertible Preferred Stock at
$1,000 per share, net of issuance costs of $460,000
|
5,000 | 4,540,000 | 40,404 | 149,000 | 4,689,000 | |||||||||||||||||||
Issuance of 1999 Series III Convertible Preferred Stock at
$1,000 per share, net of issuance costs of $280,000
|
3,000 | 2,720,000 | 49,994 | 90,000 | 2,810,000 | |||||||||||||||||||
Issuance of common stock, net of issuance costs of $258,000
|
14,331,669 | 24,725,000 | 24,725,000 | |||||||||||||||||||||
Dividends and yields on preferred stock
|
466,000 | 148,568 | 502,000 | (968,000 | ) | | ||||||||||||||||||
Repurchase and retirement of Common Shares outstanding
|
(32,171 | ) | (73,000 | ) | (73,000 | ) | ||||||||||||||||||
BALANCE, JUNE 30, 2002
|
| | 43,726,557 | 104,600,000 | (93,797,000 | ) | 10,803,000 | |||||||||||||||||
Net loss and comprehensive loss
|
(9,579,000 | ) | (9,579,000 | ) | ||||||||||||||||||||
Exercise of stock options and issuance of stock under Employee
Stock Purchase Plan
|
38,723 | 15,000 | 15,000 | |||||||||||||||||||||
Compensation expense related to stock warrants granted
|
| 335,000 | 335,000 | |||||||||||||||||||||
Issuance of common stock, net of issuance costs of $342,000
|
21,047,142 | 10,001,000 | 10,001,000 | |||||||||||||||||||||
BALANCE, JUNE 30, 2003
|
| | 64,812,422 | 114,951,000 | (103,376,000 | ) | 11,575,000 | |||||||||||||||||
Net loss and comprehensive loss
|
(10,488,000 | ) | (10,488,000 | ) | ||||||||||||||||||||
Exercise of stock purchase warrants
|
236,534 | 121,000 | 121,000 | |||||||||||||||||||||
Exercise of stock options and issuance of stock under Employee
Stock Purchase Plan
|
45,919 | 24,000 | 24,000 | |||||||||||||||||||||
Issuance of stock under Direct Stock Purchase Plan
|
5,453 | 5,000 | 5,000 | |||||||||||||||||||||
Compensation expense related to stock options and warrants
granted
|
| 425,000 | 425,000 | |||||||||||||||||||||
Issuance of common stock, net of issuance costs of $1,294,000
|
16,272,863 | 15,946,000 | 15,946,000 | |||||||||||||||||||||
BALANCE, JUNE 30, 2004
|
| | 81,373,191 | 131,472,000 | (113,864,000 | ) | 17,608,000 | |||||||||||||||||
Net loss and comprehensive loss
|
(11,811,000 | ) | (11,811,000 | ) | ||||||||||||||||||||
Exercise of stock purchase warrants
|
2,043,826 | 2,873,000 | 2,873,000 | |||||||||||||||||||||
Exercise of stock options and issuance of stock under Employee
Stock Purchase Plan
|
1,593,442 | 897,000 | 897,000 | |||||||||||||||||||||
Issuance of stock under Direct Stock Purchase Plan
|
23,452 | 38,000 | 38,000 | |||||||||||||||||||||
Compensation expense related to stock options granted
|
| 160,000 | 160,000 | |||||||||||||||||||||
Issuance of common stock, net of issuance costs of $5,629,000
|
17,294,874 | 23,263,000 | 23,263,000 | |||||||||||||||||||||
BALANCE, JUNE 30, 2005
|
| $ | | 102,328,785 | $ | 158,703,000 | $ | (125,675,000 | ) | $ | 33,028,000 | |||||||||||||
40
Year Ended June 30, | March 24, 1989 | |||||||||||||||||||
(Inception) to | ||||||||||||||||||||
2003 | 2004 | 2005 | June 30, 2005 | |||||||||||||||||
OPERATING ACTIVITIES:
|
||||||||||||||||||||
Net loss
|
$ | (9,579,000 | ) | $ | (10,488,000 | ) | $ | (11,811,000 | ) | $ | (124,707,000 | ) | ||||||||
Adjustments to reconcile net loss to net cash used for operating
activities:
|
||||||||||||||||||||
Depreciation and amortization
|
119,000 | 125,000 | 167,000 | 3,738,000 | ||||||||||||||||
Loss on property held for resale
|
| | | 110,000 | ||||||||||||||||
Amortization of discounts and premiums on investments
|
| | (68,000 | ) | (611,000 | ) | ||||||||||||||
Stock compensation expense
|
335,000 | 425,000 | 160,000 | 1,584,000 | ||||||||||||||||
Inventories write downs and reserves
|
748,000 | 253,000 | 9,000 | 2,239,000 | ||||||||||||||||
Stock issued pursuant to license agreement
|
| | | 3,300,000 | ||||||||||||||||
Provision for losses on accounts receivable
|
| 4,000 | 9,000 | 165,000 | ||||||||||||||||
Changes in assets and liabilities:
|
||||||||||||||||||||
Receivables
|
(249,000 | ) | 100,000 | 42,000 | (403,000 | ) | ||||||||||||||
Inventories
|
(253,000 | ) | 164,000 | 264,000 | (2,451,000 | ) | ||||||||||||||
Other current assets
|
59,000 | (86,000 | ) | (148,000 | ) | (400,000 | ) | |||||||||||||
Accounts payable and accrued expenses
|
(183,000 | ) | (24,000 | ) | 151,000 | 533,000 | ||||||||||||||
Accrued employee benefits
|
13,000 | 2,000 | 160,000 | 336,000 | ||||||||||||||||
Net cash used for operating activities
|
(8,990,000 | ) | (9,525,000 | ) | (11,065,000 | ) | (116,567,000 | ) | ||||||||||||
INVESTING ACTIVITIES:
|
||||||||||||||||||||
Organizational costs
|
| | | (73,000 | ) | |||||||||||||||
Purchase of short-term investments
|
| | (25,938,000 | ) | (88,062,000 | ) | ||||||||||||||
Maturities of short-term investments
|
1,000,000 | | 8,000,000 | 70,667,000 | ||||||||||||||||
Property and equipment purchases
|
(119,000 | ) | (157,000 | ) | (586,000 | ) | (3,658,000 | ) | ||||||||||||
Proceeds from sale of property held for resale
|
| | | 400,000 | ||||||||||||||||
Net cash provided by (used for) investing activities
|
881,000 | (157,000 | ) | (18,524,000 | ) | (20,726,000 | ) | |||||||||||||
FINANCING ACTIVITIES:
|
||||||||||||||||||||
Net proceeds from issuance of preferred stock
|
| | | 51,647,000 | ||||||||||||||||
Net proceeds from issuance of common stock
|
10,016,000 | 16,096,000 | 27,071,000 | 97,746,000 | ||||||||||||||||
Repurchase of common stock
|
| | | (49,000 | ) | |||||||||||||||
Payments received for stock purchase rights
|
| | | 3,500,000 | ||||||||||||||||
Payments received under shareholder notes
|
| | | 31,000 | ||||||||||||||||
Principal payments under capital lease obligations
|
| | | (1,174,000 | ) | |||||||||||||||
Net cash provided by financing activities
|
10,016,000 | 16,096,000 | 27,071,000 | 151,701,000 | ||||||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
1,907,000 | 6,414,000 | (2,518,000 | ) | 14,408,000 | |||||||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
8,605,000 | 10,512,000 | 16,926,000 | | ||||||||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 10,512,000 | $ | 16,926,000 | $ | 14,408,000 | $ | 14,408,000 | ||||||||||||
SUPPLEMENTAL CASH FLOW INFORMATION:
|
||||||||||||||||||||
Interest paid
|
$ | | $ | | $ | | $ | 267,000 | ||||||||||||
Equipment acquired under capital lease obligations
|
$ | | $ | | $ | | $ | 1,174,000 |
41
1. | Organization and Summary of Significant Accounting Policies |
42
| AastromReplicell System (ARS) Inventories Based upon market conditions and our historical experience with the ARS product line, the carrying value of its aggregate ARS inventories is reduced if such inventories are held in excess of twelve months without sale because the probability-weighted selling price of the aggregate inventories declines after inventory has been on-hand for more than twelve months. We continue to reduce the aggregate carrying value of ARS inventories over the ensuing six months if the inventories are not sold. The carrying value of ARS inventories under evaluation at potential customer sites are not reduced so long as the estimated selling price (less selling costs) exceeds the carrying value of the inventories under evaluation. Pursuant to this accounting policy we recorded provisions to reduce the carrying value of the ARS inventories by $253,000 and $9,000 in fiscal years ending June 30, 2004 and 2005, respectively. Additionally, in fiscal year 2005, we recorded a charge of $90,000 to research and development expense for excess ARS inventories that were re-deployed for clinical use. As of June 30, 2005, the carrying value of our ARS inventories was reduced to zero. Based upon our current business strategy, we do not expect to generate revenues from the sale of ARS inventories in future periods. | |
| Cell Cassette and Base Medium Inventories We maintain cell cassette and base medium inventories for sale to existing customers and clinical sites. We evaluate the net realizable value of these inventories considering expected future sales quantities, prices and timing, and considering the limited shelf life of these inventories. |
43
Year Ended June 30, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
Reported net loss
|
$ | (9,579,000 | ) | $ | (10,488,000 | ) | $ | (11,811,000 | ) | ||||
Add: Stock-based employee compensation expense included in
reported net loss
|
| 372,000 | 160,000 | ||||||||||
Deduct: Stock-based employee compensation expense determined
under fair value based method for all awards
|
(829,000 | ) | (1,352,000 | ) | (721,000 | ) | |||||||
Pro forma net loss
|
$ | (10,408,000 | ) | $ | (11,468,000 | ) | $ | (12,372,000 | ) | ||||
Earnings per share:
|
|||||||||||||
As reported
|
$ | (.19 | ) | $ | (.14 | ) | $ | (.13 | ) | ||||
Pro forma
|
$ | (.20 | ) | $ | (.16 | ) | $ | (.13 | ) |
44
Year Ended June 30, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Dividend rate
|
None | None | None | |||||||||
Expected stock price volatility
|
120% | 60% | 72% | |||||||||
Risk-free interest rate
|
2.5% - 3.3% | 3.1% - 3.9% | 3.5% - 3.9% | |||||||||
Expected life of options
|
5 years | 5 years | 5 years |
45
2. | Selected Balance Sheet Information |
June 30, | ||||||||
2004 | 2005 | |||||||
Machinery and equipment
|
$ | 1,610,000 | $ | 1,405,000 | ||||
Office equipment
|
1,050,000 | 807,000 | ||||||
Leasehold improvements
|
622,000 | 622,000 | ||||||
Equipment in process
|
| 111,000 | ||||||
Equipment under lease to third parties
|
217,000 | | ||||||
3,499,000 | 2,945,000 | |||||||
Less accumulated depreciation and amortization
|
(3,165,000 | ) | (2,192,000 | ) | ||||
$ | 334,000 | $ | 753,000 | |||||
46
June 30, | |||||||||
2004 | 2005 | ||||||||
Accounts payable
|
$ | 186,000 | $ | 216,000 | |||||
Accrued expenses:
|
|||||||||
Clinical studies
|
8,000 | 48,000 | |||||||
Professional services
|
87,000 | 124,000 | |||||||
Manufacturing and engineering
|
47,000 | 53,000 | |||||||
Deferred revenue
|
42,000 | | |||||||
Other
|
12,000 | 92,000 | |||||||
$ | 382,000 | $ | 533,000 | ||||||
3. | Shareholders Equity |
47
Options Available | Weighted Average | Options | |||||||||||||||
Options | for Grant Under | Exercise Price | Exercisable | ||||||||||||||
Outstanding | Option Plans | Per Share | at Period End | ||||||||||||||
March 24, 1989 (Inception)
|
|||||||||||||||||
Options authorized
|
| 8,049,927 | |||||||||||||||
Options terminated with approval of 2001 Plan
|
| (808,206 | ) | ||||||||||||||
Options canceled
|
(2,544,244 | ) | 2,444,244 | $ | 3.79 | ||||||||||||
Options granted
|
7,920,965 | (7,820,965 | ) | $ | 2.02 | ||||||||||||
Options exercised
|
(1,847,619 | ) | | $ | .43 | ||||||||||||
Balance, June 30, 2002
|
3,529,102 | 1,865,000 | $ | 1.58 | 1,331,815 | ||||||||||||
Options authorized
|
| | |||||||||||||||
Options terminated with approval of 2001 Plan
|
| (254,080 | ) | ||||||||||||||
Options canceled
|
(402,830 | ) | 402,830 | $ | 1.56 | ||||||||||||
Options granted
|
1,223,650 | (1,223,650 | ) | $ | .38 | ||||||||||||
Options exercised
|
(4,163 | ) | | $ | 1.15 | ||||||||||||
Balance, June 30, 2003
|
4,345,759 | 790,100 | $ | 1.24 | 1,925,884 | ||||||||||||
Options authorized
|
| 2,000,000 | |||||||||||||||
Options terminated with approval of 2001 Plan
|
| (3,333 | ) | ||||||||||||||
Options canceled
|
(203,333 | ) | 203,333 | $ | .41 | ||||||||||||
Options granted
|
819,000 | (819,000 | ) | $ | 1.60 | ||||||||||||
Options exercised
|
(5,000 | ) | | $ | 1.20 | ||||||||||||
Balance, June 30, 2004
|
4,956,426 | 2,171,100 | $ | 1.33 | 3,118,094 | ||||||||||||
Options authorized
|
| 3,000,000 | |||||||||||||||
Options abandoned with approval of 2004 Plan
|
| (734,425 | ) | ||||||||||||||
Options canceled
|
(727,159 | ) | 296,612 | $ | 1.16 | ||||||||||||
Options granted
|
1,410,750 | (676,325 | ) | $ | 1.33 | ||||||||||||
Options exercised
|
(1,554,064 | ) | | $ | .84 | ||||||||||||
Balance, June 30, 2005
|
4,085,953 | 4,056,962 | $ | 1.55 | 1,782,871 | ||||||||||||
48
Weighted | ||||||||||||||||||||
Average Exercise | ||||||||||||||||||||
Number of | Remaining | Price of | ||||||||||||||||||
Options | Contractual | Weighted Average | Number | Exercisable | ||||||||||||||||
Range of Exercise Prices | Outstanding | Life Years | Exercise Price | Exercisable | Options | |||||||||||||||
$ .31 - $ .99
|
1,325,484 | 8.0 | $ | .64 | 444,251 | $ | .60 | |||||||||||||
$1.05 - $2.05
|
1,762,536 | 7.8 | $ | 1.35 | 521,687 | $ | 1.36 | |||||||||||||
$2.44 - $2.95
|
673,400 | 5.3 | $ | 2.91 | 661,400 | $ | 2.91 | |||||||||||||
$3.20 - $4.75
|
324,533 | 1.3 | $ | 3.20 | 155,533 | $ | 3.20 | |||||||||||||
4,085,953 | $ | 1.55 | 1,782,871 | $ | 1.92 | |||||||||||||||
49
50
Issuance under stock option and stock purchase plans
|
14,411,240 | |||
Issuance under stock purchase warrants
|
5,253,549 | |||
19,664,789 | ||||
Year Ended June 30, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Loss before income taxes
|
$ | 9,579,000 | $ | 10,488,000 | $ | 11,811,000 | ||||||
Federal statutory rate
|
34 | % | 34 | % | 34 | % | ||||||
Taxes computed at federal statutory Rate
|
(3,257,000 | ) | (3,566,000 | ) | (4,015,000 | ) | ||||||
State taxes, net of federal taxes
|
| | (354,000 | ) | ||||||||
Increase (decrease) in taxes from:
|
||||||||||||
Stock compensation
|
114,000 | 145,000 | (80,000 | ) | ||||||||
Other, net
|
5,000 | 5,000 | (85,000 | ) | ||||||||
Valuation allowance
|
3,138,000 | 3,416,000 | 4,534,000 | |||||||||
Reported income taxes
|
$ | | $ | | $ | | ||||||
June 30, | ||||||||
2004 | 2005 | |||||||
Net operating loss carryforwards
|
$ | 16,650,000 | $ | 21,200,000 | ||||
Research and development credit carryforwards
|
485,000 | 685,000 | ||||||
Inventories
|
451,000 | 435,000 | ||||||
Property and equipment
|
(145,000 | ) | 130,000 | |||||
Other, net
|
(84,000 | ) | 100,000 | |||||
Total deferred tax assets
|
17,357,000 | 22,550,000 | ||||||
Valuation allowance
|
(17,357,000 | ) | (22,550,000 | ) | ||||
Net deferred tax assets
|
$ | | $ | | ||||
51
5. | Licenses, Royalties and Collaborative Agreements and Commitments |
6. | Operating Lease and Purchase Order Commitments |
52
7. | Employee Savings Plan |
8. | Quarterly Financial Data (Unaudited) |
Year Ended June 30, 2005 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Fiscal Year | |||||||||||||||
Revenues
|
$ | 187,000 | $ | 374,000 | $ | 252,000 | $ | 96,000 | $ | 909,000 | ||||||||||
Loss from operations
|
(2,709,000 | ) | (2,550,000 | ) | (3,553,000 | ) | (3,605,000 | ) | (12,417,000 | ) | ||||||||||
Net loss
|
(2,649,000 | ) | (2,453,000 | ) | (3,349,000 | ) | (3,360,000 | ) | (11,811,000 | ) | ||||||||||
Net loss per common share
|
(.03 | ) | (.03 | ) | (.03 | ) | (.03 | ) | (.13 | ) |
Year Ended June 30, 2004 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Fiscal Year | |||||||||||||||
Revenues
|
$ | 300,000 | $ | 376,000 | $ | 416,000 | $ | 210,000 | $ | 1,302,000 | ||||||||||
Loss from operations
|
(2,886,000 | ) | (2,440,000 | ) | (2,528,000 | ) | (2,803,000 | ) | (10,657,000 | ) | ||||||||||
Net loss
|
(2,838,000 | ) | (2,403,000 | ) | (2,500,000 | ) | (2,747,000 | ) | (10,488,000 | ) | ||||||||||
Net loss per common share
|
(.04 | ) | (.03 | ) | (.03 | ) | (.03 | ) | (.14 | ) |
53
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
Item 9B. | Other Information |
54
Item 10. | Directors and Executive Officers of the Registrant |
Item 11. | Executive Compensation |
Item 12. | Security Ownership of Certain Beneficial Owners and Management |
Item 13. | Certain Relationships and Related Transactions |
Item 14. | Principal Accountant Fees and Services |
55
Item 15. | Exhibits and Financial Statement Schedule |
1. Financial Statements (see Item 8). | |
2. All information is included in the Financial Statements or Notes thereto. | |
3. Exhibits: |
See Exhibit Index. |
56
Aastrom Biosciences, Inc. |
By: | /s/ R. Douglas Armstrong, Ph.D. |
|
|
R. Douglas Armstrong, Ph.D. | |
Chief Executive Officer and Chairman | |
(Principal Executive Officer) |
Signature | Title | |||
/s/ R. Douglas
Armstrong, Ph.D. |
Chief Executive Officer and Chairman (Principal Executive Officer) |
|||
/s/ Gerald D.
Brennan, Jr. |
Vice President Administrative and Financial Operations and Chief Financial Officer (Principal Financial and Accounting Officer) |
|||
/s/ Linda M. Fingerle |
Director | |||
/s/ Timothy M. Mayleben |
Director | |||
/s/ Stephen G. Sudavar |
Director | |||
/s/ Susan L. Wyant |
Director |
57
Number | Notes | |||||||
3 | .1 | D | Restated Articles of Incorporation of Aastrom, as amended | |||||
3 | .2 | Bylaws, as amended. | ||||||
10 | .1# | A | Form of Indemnification Agreement. | |||||
10 | .2# | A | Amended and Restated 1992 Incentive and Non-Qualified Stock Option Plan and forms of agreements thereunder. | |||||
10 | .3# | A | 1996 Outside Directors Stock Option Plan and forms of agreements thereunder. | |||||
10 | .20# | A | Form of Employment Agreement. | |||||
10 | .21 | A | License Agreement, dated July 17, 1992, between J.G. Cremonese and Aastrom and related addenda thereto dated July 14, 1992 and July 7, 1993. | |||||
10 | .26 | A | License Agreement, dated March 13, 1992, between Aastrom and the University of Michigan and amendments thereto dated March 13, 1992, October 8, 1993 and June 21, 1995. | |||||
10 | .27# | A | Employee Proprietary Information and Invention Agreement, effective June 1, 1991, between Aastrom and R. Douglas Armstrong. | |||||
10 | .70 | B | Seventh Amendment to Office Lease. | |||||
10 | .72# | B | Aastrom Biosciences 2001 Stock Option Plan. | |||||
10 | .76 | C | Master Supply Agreement with Astro Instrumentation, LLC | |||||
10 | .77 | E | Supply Agreement between Aastrom and Moll Industries, Inc., dated December 16, 2003 | |||||
10 | .78# | F | Employment Agreement with James Cour dated June 11, 2004. | |||||
10 | .79# | F | Employment Agreement with Janet Hock dated September 1, 2004. | |||||
10 | .80# | F | Employment Agreement with R. Douglas Armstrong dated August 27, 2004. | |||||
10 | .81# | F | Amended and Restated Employment Agreement with Brian Hampson dated August 27, 2004. | |||||
10 | .82# | F | 2004 Omnibus Equity Incentive Plan. | |||||
10 | .83# | G | Employment Agreement with Robert Bard dated March 1, 2005. | |||||
10 | .84# | Form of Option and Restricted Stock Award Agreements for Grants under 2004 Omnibus Equity Incentive Plan. | ||||||
10 | .85 | Employee Compensation Guidelines. | ||||||
10 | .86# | Employment Agreement with Gerald D. Brennan, Jr. dated June 10, 2005. | ||||||
10 | .87 | Amendment dated December 5, 2002 to License Agreement with the University of Michigan. | ||||||
21 | Subsidiaries of Registrant. | |||||||
23 | .1 | Consent of Independent Registered Public Accounting Firm. | ||||||
31 | Rules 13a-14(a) and 14d-14(a) Certifications. | |||||||
32 | Section 1350 Certifications. |
A | Incorporated by reference to Aastroms Registration Statement on Form S-1 (No. 333-15415), declared effective on February 3, 1997. | |
B | Incorporated by reference to Aastroms Annual Report on Form 10-K for the year ended June 30, 2002. | |
C | Incorporated by reference to Aastroms Annual Report on Form 10-K for the year ended June 30, 2003. | |
D | Incorporated by reference to Aastroms Quarterly Report on Form 10-Q for the quarter ended September 30, 2003. | |
E | Incorporated by reference to Aastroms Annual Report on Form 10-K for the year ended June 30, 2004. | |
F | Incorporated by reference to Aastroms Quarterly Report on Form 10-Q for the quarter ended September 30, 2004. | |
G | Incorporated by reference to Aastroms Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. | |
# | Management contract or compensatory plan or arrangement covering executive officers or directors of Aastrom. |
58
Years Ended June 30, | ||||||||||||||
2003 | 2004 | 2005 | ||||||||||||
Allowance for Doubtful Accounts:
|
||||||||||||||
Balance at beginning of year
|
$ | 34,000 | $ | 31,000 | $ | 7,000 | ||||||||
Additions charged to income
|
| 4,000 | 9,000 | |||||||||||
Write-offs, net of recoveries
|
(3,000 | ) | (28,000 | ) | | |||||||||
Balance at end of year
|
$ | 31,000 | $ | 7,000 | $ | 16,000 | ||||||||
Years Ended June 30, | ||||||||||||||
2003 | 2004 | 2005 | ||||||||||||
Reserve for Obsolescence and Excess Inventories:
|
||||||||||||||
Balance at beginning of year
|
$ | 202,000 | $ | 950,000 | $ | 1,203,000 | ||||||||
Additions charged to income
|
748,000 | 253,000 | 9,000 | |||||||||||
Reductions(1)
|
| | (39,000 | ) | ||||||||||
Balance at end of year
|
$ | 950,000 | $ | 1,203,000 | $ | 1,173,000 | ||||||||
(1) | Reflects the elimination of reserve upon the sale of the related inventories. |
59
EXHIBIT 3.2 BYLAWS OF AASTROM BIOSCIENCES, INC.
BYLAWS OF AASTROM BIOSCIENCES, INC. ARTICLE I GENERAL Section I.1 The name, location of principal office, and purposes of the Corporation shall be as set forth in the Articles of Incorporation. The powers of the Corporation and of its directors and shareholders, and all matters concerning the conduct and regulation of the business of the Corporation, shall be subject to such provisions in regard thereto, if any, as are set forth in said Articles of Incorporation. Section I.2 All references in these Bylaws to the Articles of Incorporation shall be construed to mean the Articles of Incorporation of the Corporation as amended from time to time. Section I.3 The registered office of the Corporation may be the same as the principal office of the Corporation, but in any event must be located in the State of Michigan, and must be the business office of the registered agent, as required by the Michigan Business Corporation Act (the "MBCA"). The Corporation may have business offices at such other places, either within or without the State of Michigan, as the Board of Directors may designate or as the business of the Corporation may require from time to time. ARTICLE II SHAREHOLDERS Section II.1 Annual Meeting. The annual meeting of the shareholders of the Corporation shall be held at the principal office of the Corporation, or at such other place as may be set forth in the notice thereof, in August or September of each year, at a date and time as designated by the Board of Directors, for the purpose of election of Directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting. The Board of Directors, for good and sufficient reasons, may schedule the annual meeting at any other time, and notice shall be given or waived as provided in Section 2.4 hereof. Section II.2 Special Meetings. Special Meetings of the shareholders (or of any specific class thereof), for any purpose or purposes, unless otherwise prescribed by statute or by the Articles of Incorporation, may be called by the President and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of a shareholder or shareholders owning at least ten percent (10%) of the number of shares of stock (or, with respect to meetings of a specific class, the number of shares of such specific class thereof) of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Upon the closing of the first sale of the Corporation's common stock pursuant to a firmly underwritten registered public offering (the "IPO"), special meetings of the shareholders may be called only by the President and shall be called by the President at the request in writing of a majority of the Directors then in office, and shall be held at such place, on such date, and at such time as the President or shall fix. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice. -1-
Section II.3 List of Shareholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. Section II.4 Notice of Meetings. Written notice of the time, place and purposes of the meeting of shareholders shall be given not less than 10 nor more than 60 days before the date fixed for such meeting to each shareholder of record entitled to vote at the meeting. Notice shall be deemed duly served when the same has been personally delivered or deposited in the United States Mail, with postage fully prepaid, addressed to the shareholder at such shareholder's address as it appears on the records of the Corporation. Written notice may also be given by facsimile or telegram, and such notice shall be deemed to be given when the recipient receives the notice personally, or when confirmation of transmission of the notice to the shareholder's address as it appears on the books and records of the Corporation has been delivered to the Corporation or to the equipment transmitting such notice. Such notice shall be given by or under the direction of the Secretary of the Corporation, and in the absence or refusal of the Secretary to give such notice, notice shall be given by or under the direction of any other officer of the Corporation. No notice need be given of an adjourned meeting of the shareholders provided the time and place to which such meeting is adjourned is announced at the meeting at which the adjournment is taken and at the adjourned meeting only such business is transacted as might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. A waiver of such notice in writing, signed by a person entitled to said notice, whether before or after the time of the meeting, shall be deemed equivalent to said notice. Attendance of a person at a meeting of shareholders, in person or by proxy, shall constitute a waiver of such notice, except when the attendance is for the express and sole purpose of objecting to the transaction of any business, clearly stated at the commencement of the meeting, by reason of a claim that a meeting was not lawfully called or convened. Section II.5 Transaction of Business. At an annual or special meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Secretary or other officer of the Corporation, (b) properly brought before the meeting by or at the direction of the Board of Directors, (c) properly brought before an annual meeting by a shareholder, or (d) properly brought before a special meeting by a shareholder, but if, and only if, the notice of a special meeting provides for business to be brought before the meeting by shareholders. -2-
For business to be properly brought before a meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder proposal to be presented at an annual meeting shall be received at the Corporation's principal executive offices not less than 120 calendar days in advance of the date that the Corporation's (or the Corporation's predecessor's) proxy statement was released to shareholders in connection with the previous year's annual meeting of shareholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous year's proxy statement, or in the event of a special meeting, notice by the shareholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual or special meeting (a) a brief description of the business desired to be brought before the annual or special meeting and the reasons for conducting such business at the special meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the shareholder, and (d) any material interest of the shareholder in such business. Section II.6 Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders (or any specific class thereof) for the transaction of business except as otherwise provided by statute or by the Articles of Incorporation. If, however, such quorum shall not be present or represented by any meeting of the shareholders, the chairman of the meeting or the holders of a majority of shares of stock entitled to vote thereat who are present, in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. Section II.7 Voting and Record Date. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution of allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be (i) more than sixty (60) nor less than ten (10) days before the date of such meeting, nor (ii) more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors for action by shareholder consent in writing without a meeting, nor (iii) more than sixty (60) days prior to any other action. If a record date is not fixed (a) the record date for determination of shareholders entitled to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice of such meeting is given, and (b) the record date for determining shareholders for any purpose other than that specified in subdivision (a) shall be the close of business on the day on which the resolution of the Board relating thereto is adopted. When a determination of shareholders of record entitled to vote at a meeting of shareholders has been made as provided in this Section, the determination applies to any adjournment of the meeting, unless the Board fixes a new record date under this Section for the adjourned meeting. -3-
Section II.8 Proxies. A proxy, given by a shareholder to another person, authorizing such other person to vote the shares of such shareholder, shall be in writing and signed by the shareholder or his authorized agent or representative. A proxy shall not be valid after the expiration of three (3) years from its date unless otherwise provided therein. All proxies shall be filed with the Secretary at or before the meeting at which they are intended to be used. A proxy shall be deemed sufficient if it appears on its face to confer the requisite authority and is signed by the owner of the stock to be voted. No witnesses to the execution of any proxy shall be required. Section II.9 Inspectors. The Board of Directors, in advance of a shareholders meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at a shareholders meeting may, and on request of a shareholder entitled to vote thereat shall, appoint one or more inspectors. In case a person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine challenges and questions arising in connection with the right to vote, count and tabulate votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or a shareholder entitled to vote thereat, the inspectors shall make and execute a written report to the person presiding at the meeting of any of the facts found by them and matters determined by them. The report shall be prima facie evidence of the facts stated and of the vote as certified. Section II.10 Action by Written Consent. The shareholders of the Corporation shall have the ability to take action without a meeting only as provided in the Articles of Incorporation. Section II.11 Voting of Shares by Certain Holders. (a) Voting by Trustee or Fiduciary. Shares standing in the name of any person as trustee or other fiduciary may be voted and all rights incident thereto may be exercised only by the trustee or other fiduciary, in person or by proxy, and without proof of authority. (b) Voting of Pledged Stock. Unless the Corporation has specific written instructions to the contrary, from the pledgee and pledgor, pledged stock may be voted by the pledgor only. (c) Voting by Guardian of Incompetent. Shares standing in the name of a person adjudged incompetent may be voted and all rights incident thereto may be exercised only by his guardian, in person or by proxy. -4-
(d) Voting by Executor or Administrator. Shares standing in the name of a deceased person may be voted and all rights incident thereto may be exercised only by his executor or administrator, in person or by proxy. (e) Voting by Guardian of Minor. Shares standing in the name of a minor may be voted and all rights incident thereto may be exercised by his guardian, in person or by proxy, or in the absence of such representation by his guardian, by the minor, in person or by proxy, whether or not the Corporation has notice, actual or constructive, of the nonage or the appointment of a guardian, and whether or not a guardian has been in fact appointed. (f) Voting of Shares in Name of Corporation. Shares standing in the name of a corporation, domestic or foreign, may be voted or represented and all rights incident thereto may be exercised on behalf of that corporation by the persons described in any of the following subdivisions: (1) Any officer of the Corporation authorized so to do by the Bylaws of that Corporation. (2) Any person authorized so to do by resolution of the Board of Directors or a duly authorized committee of the Board of Directors of that Corporation. (3) Any person authorized so to do by proxy or power of attorney duly executed by the President or Vice President and Secretary or Assistant Secretary of that Corporation. However, such shares may be voted or represented by the persons described in any subdivision only in the absence of vote or representation by the persons described in a preceding subdivision of this subparagraph. (g) Voting Shares in Names of Two or More Persons. Shares standing in the names of two or more persons shall be voted or represented in accordance with the vote or consent of the majority of the persons in whose names the shares stand. If only one such person is present in person or by proxy, he may vote all the shares, and all the shares standing in the names of such persons are represented for the purpose of determining a quorum. This applies to the voting of shares by two or more administrators, executors, trustees, or other fiduciaries, unless the instrument or order of court appointing them otherwise directs. ARTICLE III BOARD OF DIRECTORS Section III.1 General Powers. The property, affairs and business of the Corporation shall be managed by the Board of Directors. Section III.2 Number, Qualification and Term of Office. Unless otherwise provided in the Articles of Incorporation, the Board of Directors shall be divided into three classes, as nearly equal in numbers as the then total number of directors constituting the entire Board of Directors permits, with the term of office of one class expiring each year. -5-
The term of office of directors in the first class shall expire at the first annual meeting of shareholders after their election, the term of office of directors in the second class shall expire at the second annual meeting of shareholders after their election, and the term of office of directors in the third class shall expire at the third annual meeting of shareholders after their election. The directors elected at the 1994 Annual Shareholders Meeting will be classified into terms of one, two or three years, by resolution of the Board of Directors. At each annual meeting of shareholders after such classification of the Board of Directors, a number of directors equal to the number of the class whose term expires at the meeting shall be elected to hold office until the third succeeding annual meeting. Directors shall hold office until the next election of the class for which such directors shall have been chosen and until their successors are elected and qualified, except in the case of the death, resignation or removal of any Director. Directors need not be shareholders of the Corporation. The size of the Board of Directors shall be within the range of five to nine directors, with the exact size to be fixed from time to time by resolution of the Board of Directors. Section III.3 Vacancies. The shareholders may, at any meeting called for such purpose, by a vote of a majority of the capital stock issued and outstanding and entitled to vote thereon, remove any Director from office, with or without cause. Any Director may resign by written notice to the President, such resignation to be effective upon its receipt by the President or at such subsequent time as may be specified in the notice of resignation. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of Directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and Directors so chosen shall hold office for a term expiring at the next annual meeting of shareholders at which the term of office of the class to which they have been elected expires, except in the case of death, resignation or removal of any Director. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. Acceptance of resignation shall not be necessary for it to be effective. Section III.4 Meetings of the Board of Directors. The Board of Directors shall hold an annual meeting immediately following the annual shareholders meeting, for the purpose of electing officers and for the transaction of such other business as may properly come before the meeting. No notice of such annual meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, unless said meeting is held, by a consent of a majority of the Directors of such new Board, at a time and place other then at the place of holding and immediately following the annual meeting of shareholders. Special meetings of the Board of Directors may be held at any place either within or without the State of Michigan at any time pursuant to resolution adopted by the Board of Directors or upon call of the President or any two (2) officers. Section III.5 Notice of Meetings. Notice of meetings of Directors shall be given or waived in the same manner as notice of meetings of shareholders, as provided in Section 2.4, except that notice of Directors meetings shall be given not later than two (2) nor more than ten (10) days prior to such meetings. -6-
Section III.6 Quorum and Required Vote of Board. A majority of the total number of Directors shall constitute a quorum for the transaction of business, and the act of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. Amendment of these Bylaws by the Board requires the vote of not less than a majority of the members of the Board then in office. Section III.7 Telephonic Meetings. A member of the Board or of a committee designated by the Board may participate in a meeting by means of conference telephone or similar communications equipment by which all persons participating in the discussion can hear each other. Participation in a meeting pursuant to this provision constitutes presence in person at the meeting. Section III.8 Board Action Without Meeting. If all of the Directors then constituting the Board of Directors of the Corporation or of any committee of the Board of Directors shall severally and/or collectively consent in writing to any action to be taken, such action shall have the same effect as though it had been authorized at a duly called and properly held meeting of the Board of Directors or such committee. Such written consent shall be filed with the minutes of the proceedings of the Board. Section III.9 Committees. The Board of Directors may, by resolution or resolutions, passed by a majority of the whole Board of Directors, designate one or more committees, each committee to consist of one (1) or more of the Directors of the Corporation, which, to the extent provided in said resolution or resolutions or in other provisions of these Bylaws, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have the power to authorize the seal of the Corporation to be affixed to all papers which may require it. Section III.10 Compensation. By resolution of the Board of Directors, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board, and may be paid a fixed sum for attendance. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of the committees shall be allowed similar compensation for attending committee meetings. Section III.11 Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as Secretary of the meeting before the adjournment thereof, or by registered mail to such Secretary immediately after the adjournment thereof. This shall not apply to a Director who voted in favor of such action. ARTICLE IV OFFICERS AND AGENTS Section IV.1 General. The Corporation shall have a President, a Secretary, and a Treasurer, and, if desired, a Chairman of the Board and one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. All officers of the Corporation shall be elected by the Directors and shall hold office until their successors are elected and qualified. -7-
The Corporation may also have such other officers, agents and factors as may be deemed necessary for the transaction of the business of the Corporation, who shall be chosen in such manner and hold their offices for such terms and have such authority and duties as may be determined by the Board of Directors. The Board of Directors may secure the fidelity of any and/or all of such officers by bond or otherwise and may also provide for the qualification of any or all of such officers before any person authorized by law to administer an oath. The Board of Directors, by resolution, may require any or all of the officers of the Corporation to give bonds, in favor of the Corporation, with sufficient surety or sureties, and in such amounts as the Board of Directors may fix, conditioned on the faithful performance of the duties of their respective offices. The President shall be chosen from among the Directors. Any two offices except those of President and Vice President may be held by the same person but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Subject to these Bylaws, each officer shall have in addition to the duties and powers herein set forth, such duties and powers as are commonly incident to his office, and such duties and powers as the Board of Directors shall from time to time designate. In all cases where the duties of any officer, agent or employee are not specifically prescribed by the Bylaws or by the Board of Directors, such officer, agent or employee shall obey the orders and instructions of the President. Compensation of the officers shall be as authorized by the Board of Directors. Section IV.2 Duties of the President. The President shall, subject to the direction and under the supervision of the Board of Directors, be the chief executive officer of the Corporation and shall have general and active control of its affairs and business and general supervision over its officers, agents and employees. The President shall also appoint and discharge all subordinate agents and employees and fix their salaries, subject to review by the Board of Directors, and shall designate their duties. He shall preside at all meetings of the shareholders and, unless a Chairman of the Board has been elected, at all meetings of the Board of Directors, at which he is present. The President shall have custody of the Treasurer's bond, if any. Section IV.3 Duties of the Chairman of the Board. The Board of Directors may elect or appoint a Chairman of the Board. The Chairman of the Board shall, if present, preside at all meetings of the Board of Directors and shall exercise and perform such other powers and duties as may be assigned to him from time to time by the Board of Directors or prescribed by these Bylaws. Section IV.4 Duties of the Vice President. The Board of Directors may elect or appoint one or more Vice Presidents. The Vice Presidents, if such be elected, shall, subject to the direction and under the supervision of the President, be the assistant chief executive officer of the Corporation and shall assist the President in the general and active control of its affairs in business. The Vice Presidents shall perform all the duties of the President in case of the absence or disqualification of the President. Any of such Vice Presidents shall preside at all meetings of the shareholders in the absence or unavailability of the President. -8-
Section IV.5 Duties of the Secretary. The Secretary shall: (a) keep the minutes of the proceedings of the shareholders and of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation and ensure that the seal of the Corporation is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; and (e) perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. The Secretary also shall have charge of the stock ledger (which may, however, be kept by any transfer agent or agents of the Corporation under the direction of the Secretary), the original or duplicate of which shall, at all times, during the usual hours for business, be open to the examination of every shareholder at the principal office or place of business of the Corporation in Michigan. In the absence of the Secretary from any meeting, a temporary Secretary shall be chosen, who shall be sworn to the faithful discharge of his duty and shall record the proceedings of such meeting in the aforesaid books. Section IV.6 Duties of the Treasurer. The Treasurer shall, subject to the direction and under the supervision of the Board of Directors, the President and the Vice President, have the care and custody of the funds and valuable papers of the Corporation, except his own bond, and he shall have power to endorse for deposit or collection all notes, checks, drafts and other obligations for the payment of money to the Corporation or its order. He shall keep, or cause to be kept, at the principal office of the Corporation accurate books of account, which shall be the property of the Corporation. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and Directors, when they so direct, an account of all his transactions as Treasurer and of the financial condition of the Corporation. Section IV.7 Assistant Secretaries and Assistant Treasurers. The Assistant Secretary or Assistant Secretaries, in the absence or disability of the Secretary, shall perform the duties and exercise the powers of the Secretary. The Assistant Treasurer or Assistant Treasurers, in the absence or disability of the Treasurer, shall perform the duties and exercise the powers of the Treasurer. Any Assistant Treasurer, if required by the Board, shall keep in force a bond as provided in Section 4.1. The Assistant Secretaries and Assistant Treasurers, in general, shall exercise and perform such other powers and duties as shall be assigned to them by the Secretary or by the Treasurer, respectively, or by the Board of Directors or the President. Section IV.8 Vacancies. The Board of Directors may, at any meeting called for the purpose, by vote of a majority of their number, remove from office any officer of the Corporation, with or without cause. Any officer may resign by written notice to the President, which resignation may be effective upon its receipt by the President or at such subsequent time as may be specified in the notice of resignation, PROVIDED, HOWEVER, that the resignation of the President shall be submitted to the Board of Directors. The Board of Directors may, at any meeting, accept the resignation of any officer or remove or accept the resignation of any agent or member of a committee, and may fill such vacancy for the unexpired term and until the successor thereof shall be duly elected and qualified. Acceptance of resignation shall not be necessary for it to be effective. -9-
ARTICLE V CAPITAL STOCK Section V.1 Issuance. The shares of capital stock of the Corporation shall be issued by the Board of Directors in such amounts, at such times, for such consideration, and on such terms and conditions as the Board shall deem advisable, subject to the provisions of the Articles of Incorporation of the Corporation and the further provisions of these Bylaws. Section V.2 Stock Certificates. The shares of the capital stock of the Corporation shall be represented by certificates signed and sealed in accordance with the provisions of the laws of the State of Michigan. Certificates shall have a form and content complying with the laws of the State of Michigan and approved by the Board of Directors of the Corporation. Certificates of stock shall bear the signature of the President, and shall be signed by the Secretary, Assistant Secretary, or any other officer appointed by the Board of Directors for the purpose, to be known as an Authorized Officer. The signatures of the officers may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or its employee. In case an officer who has signed or whose facsimile signature has been placed upon a certificate ceases to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. Each certificate shall recite on its face the stock represented thereby is transferable only upon the books of the Corporation properly endorsed. A certificate representing shares issued by a corporation which is authorized to issue shares of more than one class shall set forth on its face or back or state that the Corporation will furnish to a shareholder upon request and without charge a full statement of the designation, relative rights, preferences and limitations of the shares of each class authorized to be issued, and if the Corporation is authorized to issue any class of shares in series, the designation, relative rights, preferences and limitations of each series so far as the same have been prescribed and the authority of the Board to designate and prescribe the relative rights, preferences and limitations of other series. Section V.3 Transfers. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section V.4 Ownership. The Corporation shall be entitled to treat the person in whose name any share of stock is registered as the owner thereof for purposes of dividends and other distributions in the course of business, or in the case of recapitalization, consolidation, merger, reorganization, sale of assets, liquidation or otherwise and for the purpose of votes, approvals and consents by shareholders, and for the purpose of notice to shareholders, and for all other purposes whatever, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have notice thereof, save as expressly required by the laws of the State of Michigan. -10-
Section V.5 Replacement of Certificates. Upon the presentation to the Corporation of a proper affidavit attesting the loss, destruction or mutilation of any certificate for shares of stock of the Corporation, the Board of Directors may direct the issuance of a new certificate in lieu of and to replace the certificate so alleged to be lost, destroyed and mutilated. The Board of Directors may require as a condition precedent to the issuance of a new certificate any or all of the following, to wit: (a) Additional evidence of the loss, destruction or mutilation claimed; (b) Advertisement of the loss in such manner as the Board of Directors may direct or approve; (c) A bond or agreement of indemnity, in such form and amount and with such surety (or without surety) as the Board of Directors may direct or approve; or (d) The order or approval of a court. Section V.6 Transfer Agent and Registrar. The Board of Directors may appoint a transfer agent and a registrar for the registration of transfers of its securities. Section V.7 Regulations. The Board of Directors shall have power and authority to make all such rules and regulations as the Board shall deem expedient regulating the issue, transfer and registration of certificates for shares of this Corporation. Section V.8 Dividends. The Board of Directors, in its discretion from time to time, may declare dividends upon the capital stock from the surplus of the Corporation as permitted by the MBCA, subject to the Articles of Incorporation. Section V.9 Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interest of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VI INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS Section VI.1 Indemnification of Directors and Officers: Claims by Third Parties. The Corporation shall, to the fullest extent authorized or permitted by the MBCA or other applicable law, as the same presently exists or may hereafter be amended, indemnify a director or officer (the "Indemnitee") who was or is a party or is threatened to be made a party to a threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal, other than an action by or in the right of the Corporation, by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, whether for profit or not, against expenses, including attorneys' fees, judgments, penalties, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit, or proceeding, if the Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, and with respect to a criminal action or proceeding, if the Indemnitee had no reasonable cause to believe his or her conduct was unlawful. The termination of an action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, and, with respect to a criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. -11-
Section VI.2 Indemnification of Directors and Officers: Claims Brought By or In the Right of the Corporation. The Corporation shall, to the fullest extent authorized or permitted by the MBCA or other applicable law, as the same presently exists or may hereafter be amended, indemnify a director or officer (the "Indemnitee") who was or is a party to or is threatened to be made a party to a threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, whether for profit or not, against expenses, including actual and reasonable attorneys' fees, and amounts paid in settlement incurred by the person in connection with the action or suit, if the Indemnitee acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders. However, indemnification under this Section shall not be made for a claim, issue, or matter in which the Indemnitee has been found liable to the Corporation unless and only to the extent that the court in which the action or suit was brought has determined upon application that, despite the adjudication of liability but in view of all circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnification for the expenses which the court considers proper. Section VI.3 Actions by the Indemnitee. Notwithstanding the provisions of Sections 6.1 and 6.2, the Corporation shall not indemnify an Indemnitee in connection with any action, suit, proceeding or claim (or part thereof) brought or made by such Indemnitee; unless such action, suit, proceeding or claim (or part thereof) (i) was authorized by the Board of Directors of the Corporation, or (ii) was brought or made to enforce this Article and such Indemnitee has been successful in such action, suit, proceeding or claim (or part thereof). Section VI.4 Approval of Indemnification. An indemnification under Sections 6.1 or 6.2 hereof, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon it determination that indemnification of the Indemnitee is proper in the circumstances because such Indemnitee has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. This determination shall be made in any of the following ways: (a) By a majority vote of a quorum of the Board consisting of Directors who were not parties to the action, suit, or proceeding. (b) If the quorum described in subdivision (a) is not obtainable, then by a majority vote of it committee of Directors who are not parties to the action. The committee shall consist of not less than two (2) disinterested Directors. (c) By independent legal counsel in a written opinion. (d) By the shareholders. -12-
Section VI.5 Advancement of Expenses. Expenses incurred in defending a civil or criminal action, suit, or proceeding described in Section 6.1 or 6.2 above shall be paid by the Corporation in advance of the final disposition of the action, suit, or proceeding upon receipt of an undertaking by or on behalf of the Indemnitee to repay the expenses if it is ultimately determined that the Indemnitee is not entitled to be indemnified by the Corporation. The undertaking shall be by unlimited general obligation of the person on whose behalf advances are made but need not be secured. Section VI.6 Partial Indemnification. If an Indemnitee is entitled to indemnification under Section 6.1 or 6.2 for a portion of expenses including attorneys' fees, judgments, penalties, fines, and amounts paid in settlement, but not for the total amount thereof, the Corporation shall indemnify the Indemnitee for the portion of the expenses, judgments, penalties, fines, or amounts paid in settlement for which the Indemnitee is entitled to be indemnified. Section VI.7 Indemnification of Employees and Agents. Any person who is not covered by the foregoing provisions of this Article and who is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, may be indemnified to the fullest extent authorized or permitted by the MBCA or other applicable law, as the same exists or may hereafter be amended, but in the case of any such amendment, only to the extent such amendment permits the Corporation to provide broader indemnification rights than before such amendment, but in any event only to the extent authorized at any time or from time to time by the Board of Directors. Section VI.8 Other Rights of Indemnification. The indemnification or advancement of expenses provided under Sections 6.1 to 6.7 is not exclusive of other rights to which a person seeking indemnification or advancement of expenses may be entitled under the Articles of Incorporation, Bylaws, or a contractual agreement. However, the total amount of expenses advanced or indemnified from all sources combined shall not exceed the amount of actual expenses incurred by the person seeking indemnification or advancement of expenses. The indemnification provided for in Sections 6.1 to 6.7 continues as to a person who ceases to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of the person. Section VI.9 Definitions. "Other enterprises" shall include employee benefit plans; "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and "serving at the request of the corporation" shall include any service as a director, officer, employee, or agent of the corporation which imposes duties on, or involves services by, the director, officer, employee, or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be considered to have acted in a manner "not opposed to the best interests of the corporation or its shareholders" as referred to in Sections 6.1 and 6.2. -13-
Section VI.10 Application to a Resulting or Surviving Corporation or Constituent Corporation. The definition for "corporation" found in Section 569 of the MBCA, as the same exists or may hereafter be amended, is and shall be, specifically excluded from application to this Article. The indemnification and other obligations of the Corporation set forth in this Article shall be binding upon any resulting or surviving corporation after any merger or consolidation of the Corporation. Notwithstanding anything to the contrary contained herein or in Section 569 of the MBCA, no person shall be entitled to the indemnification and other rights set forth in this Article for acting as a director or officer of another corporation prior to such other corporation entering into a merger or consolidation with the Corporation. Section VI.11 Contract With the Corporation. The right to indemnification conferred in this Article VI shall be deemed to be a contract between the Corporation and each director or officer who serves in any such capacity at any time while this Article VI is in effect, and any repeal or modification of any such law or of this Article VI shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. In the event this Article is repealed or modified, the Corporation shall give written notice thereof to the directors and officers and any such repeal or modification shall not be effective for a period of sixty (60) days after such notice is delivered. Section VI.12 Liability Insurance. The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against and incurred by such person in any such capacity or arising out of such person's status as such, regardless of whether the Corporation would have the power to indemnify such person against such liability under the provisions of the MBCA. Section VI.13 Severability. Each and every paragraph, sentence, term and provision of this Article VI shall be considered severable in that, in the event a court finds any paragraph, sentence, term or provision to be invalid or unenforceable, the validity and enforceability, operation, or effect of the remaining paragraphs, sentences, terms, or provisions shall not be affected, and this Article VI shall be construed in all respects as if the invalid or unenforceable matter had been omitted. Section VI.14 Enforcement. If a claim under this Article is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the MBCA for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. -14-
Neither the failure of the Corporation (including its Board of Directors, a committee thereof, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because such claimant has met the applicable standard of conduct set forth in the MBCA nor an actual determination by the Corporation (including its Board of Directors, a committee thereof, independent legal counsel, or its shareholders) that the claimant has not met applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. ARTICLE VII EXECUTION OF PAPERS The officers of the Corporation may sell any or all of its holdings of stock, bonds, or securities of other corporations, or government securities; sign all deeds, mortgages, assignments of mortgages, discharges of mortgages, bills of sale, leases and other conveyances and transactions of any interest in property, real, personal or mixed, to the extent that the Board of Directors of the Corporation may from time to time specify in resolutions approved by the Board. The Board may in any instance designate the officers and agents who shall have authority to execute any contract, conveyance or other instrument on behalf of the Corporation, and may also ratify and affirm such execution. Any such instrument or document shall be binding on the Corporation if executed by the President or a Vice President. In addition, any such instrument or document shall be binding on the Corporation if signed by any other officer designated by the Board on behalf of the Corporation. ARTICLE VIII BANKING Section VIII.1 Bank Accounts. The Board of Directors shall by resolution designate the bank or banks in which the funds of the Corporation shall be deposited, and such funds shall be deposited in the name of the Corporation and shall be subject to checks drawn as authorized by resolution of the Board of Directors. Section VIII.2 Borrowing. To the extent authorized by law, the Corporation may, wherever its general interests and corporate purpose require the same, borrow money and issue its promissory notes, debentures or bonds for the repayment thereof with interest, and may in like case mortgage, pledge or encumber its property as security for its debts or other lawful engagements. ARTICLE IX VOTING STOCK IN OTHER CORPORATIONS Unless otherwise ordered by the Board of Directors, the President shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meetings of shareholders of any corporation in which this Corporation may hold stock, and at any such meeting shall possess and may exercise any and all of the rights and powers incident to the ownership of such stock, PROVIDED, HOWEVER, that such rights shall be exercised in the best interests of this Corporation. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons, but the same shall not be effective unless actually received by such other corporation prior to the meeting of shareholders in which such other person is to act. The President, or in his absence or disability, a Vice President of the Corporation, may authorize from time to time the signature and issuance of proxies to vote such stock of other corporations owned by this Corporation, and all such proxies shall be signed in the name of this Corporation by the President or Vice President and the Secretary or Assistant Secretary, or by any two officers authorized by the Board of Directors. -15-
ARTICLE X SUBSIDIARIES The Board of Directors may establish, reorganize and/or dissolve wholly- or partly-owned subsidiaries of the Corporation. The Articles of Incorporation and Bylaws of any such subsidiary shall not, without approval of the shareholders of this Corporation, substantially differ from the Articles of Incorporation and Bylaws, respectively, of this Corporation. ARTICLE XI FISCAL YEAR Except as from time to time otherwise provided by the Board of Directors, the fiscal year of the Corporation shall end on the last day of June. ARTICLE XII CORPORATE BOOKS AND RECORDS The Corporation shall keep books and records of account and minutes of the proceedings of its shareholders, Board of Directors and executive committees, if any. The books, records and minutes may be kept outside this state. The Corporation shall keep at its registered office, or at the office of its transfer agent within or without this state, records containing the names and addresses of all shareholders, the number, class and series of shares held by each and the dates when they respectively became holders of record thereof. Any of such books, records or minutes may be in written form or in any other form capable of being converted into written form within a reasonable time. The Corporation shall convert into written form without charge any such record not in such form, upon written request of a person entitled to inspect them. ARTICLE XIII AMENDMENTS Except as otherwise expressly provided in the Articles of Incorporation or in these Bylaws, these Bylaws may be altered, amended or repealed by any duly adopted resolution of the Board of Directors or at any annual or special meeting of the shareholders. If the amendment is to be adopted at a special meeting of the shareholders, the notice thereof shall specify the subject matter of the proposed alteration, amendment or repeal and the Articles of these Bylaws to be affected thereby. Bylaws adopted by the Directors may be altered or repealed by the Directors or shareholders. Provided, further, that neither the time nor the place for the election of Directors shall be changed within sixty (60) days next preceding the day on which any election of Directors is to be held, and provided further that a notice of any such change shall be given to each shareholder at least twenty (20) days before the next election is held, in person or by letter mailed to his last known post office address. ATTEST: ---------------------------------------- Alan M. Wright, SECRETARY Includes amendments approved through May 11, 2005 -16-
EXHIBIT 10.84 (Exhibit A) AASTROM BIOSCIENCES, INC. 2004 STOCK OPTION AGREEMENT Aastrom Biosciences, Inc. has granted to the individual (the "OPTIONEE") named in the Notice of Grant of Stock Option (the "NOTICE") to which this Stock Option Agreement (the "OPTION AGREEMENT") is attached an option (the "OPTION") to purchase certain shares of Stock upon the terms and conditions set forth in the Notice and this Option Agreement. The Option has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Aastrom Biosciences, Inc. 2004 Stock Option Plan (the "PLAN"), as amended to the Date of Option Grant, the provisions of which are incorporated herein by reference. By signing the Notice, the Optionee: (a) represents that the Optionee has received copies of, and has read and is familiar with the terms and conditions of, the Notice, the Plan and this Option Agreement, (b) accepts the Option subject to all of the terms and conditions of the Notice, the Plan and this Option Agreement, and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Notice, the Plan or this Option Agreement. 1. DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Notice or the Plan. 1.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 2. TAX CONSEQUENCES. 2.1 TAX STATUS OF OPTION. This Option is intended to have the tax status designated in the Notice. (a) INCENTIVE STOCK OPTION. If the Notice so designates, this Option is intended to be an Incentive Stock Option within the meaning of Section 422(b) of the Code, but the Company does not represent or warrant that this Option qualifies as such. The Optionee should consult with the Optionee's own tax advisor regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. (NOTE TO OPTIONEE: If the Option is exercised more than three (3) months after the date on which you cease to be an Employee (other than by reason of your death or permanent and total disability as defined in Section 22(e)(3) of the Code), the Option will be treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to the extent required by Section 422 of the Code.) - 1 -
(Exhibit A) (b) NONSTATUTORY STOCK OPTION. If the Notice so designates, this Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code. 2.2 ISO FAIR MARKET VALUE LIMITATION. If the Notice designates this Option as an Incentive Stock Option, then to the extent that the Option (together with all Incentive Stock Options granted to the Optionee under all stock option plans of the Participating Company Group, including the Plan) becomes exercisable for the first time during any calendar year for shares having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portion of such options which exceeds such amount will be treated as Nonstatutory Stock Options. For purposes of this Section 2.2, options designated as Incentive Stock Options are taken into account in the order in which they were granted, and the Fair Market Value of stock is determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section 2.2, such different limitation shall be deemed incorporated herein effective as of the date required or permitted by such amendment to the Code. If the Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 2.2, the Optionee may designate which portion of such Option the Optionee is exercising. In the absence of such designation, the Optionee shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion shall be issued upon the exercise of the Option. (NOTE TO OPTIONEE: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other Incentive Stock Options you hold (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is greater than $100,000, you should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an Incentive Stock Option.) 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. 4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Vesting Date and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the number of Vested Shares less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares. 4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of - 2 -
(Exhibit A) Stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, by confirmed facsimile transmission, or by such other means as the Company may permit, to the Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in Section 6, accompanied by full payment of the aggregate Exercise Price for the number of shares of Stock being purchased. The Option shall be deemed to be exercised upon receipt by the Company of such written notice and the aggregate Exercise Price. 4.3 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made (i) in cash, by check or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Optionee having a Fair Market Value not less than the aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in Section 4.3(b), or (iv) by any combination thereof. (b) LIMITATIONS ON FORMS OF CONSIDERATION. (i) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months (and not used for another Option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company. (ii) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the delivery of a properly executed notice together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedure. 4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee, and otherwise agrees to make adequate provision for (including by means of a Cashless Exercise to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company Group, if any, which arise in connection - 3 -
(Exhibit A) with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired upon exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired upon exercise of the Option. The Option is not exercisable unless the tax withholding obligations of the Participating Company Group are satisfied. Accordingly, the Company shall have no obligation to deliver shares of Stock until the tax withholding obligations of the Participating Company Group have been satisfied by the Optionee. 4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee. 4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. The Option may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, the Option may not be exercised unless (i) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares subject to the Option shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 4.7 FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent provided in Section 7, may be exercised by - 4 -
(Exhibit A) the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised after the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8. 7. EFFECT OF TERMINATION OF SERVICE. 7.1 OPTION EXERCISABILITY. (a) DISABILITY. If the Optionee's Service terminates because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the date of expiration of the Option's term as set forth in the Option Agreement evidencing such Option (the "OPTION EXPIRATION DATE"). (b) DEATH. If the Optionee's Service terminates because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service terminates for any reason, except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee at any time prior to the expiration of three (3) months after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. 7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. 7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 7.1 of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth - 5 -
(Exhibit A) (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. 8. CHANGE IN CONTROL. 8.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a "TRANSACTION") wherein the shareholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of a Transaction described in Section 8.1(a)(iii), the corporation or other business entity to which the assets of the Company were transferred (the "TRANSFEREE"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2 EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the "ACQUIRING CORPORATION"), may, without the consent of the Optionee, either assume the Company's rights and obligations under the Option or substitute for the Option a substantially equivalent option for the Acquiring Corporation's stock. In the event the Acquiring Corporation elects not to assume the Company's rights or obligations under the Option or substitute for the Option in connection with the Change in Control, and provided that the Optionee's Service has not terminated prior to such date, any unexercised portion of the Option shall be immediately exercisable and vested in full as of ten (10) days prior to the date of the Change in Control. Any exercise of the Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control. The Option shall terminate and cease to be outstanding effective as of the date of the Change in Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change - 6 -
(Exhibit A) in Control. Notwithstanding the foregoing, shares acquired upon exercise of the Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of this Option Agreement except as otherwise provided herein. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the Option immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the Option shall not terminate unless the Board otherwise provides in its discretion. 8.3 FAIR MARKET VALUE LIMITATION. If the Notice designates this Option as an Incentive Stock Option, should the exercisability of this Option be accelerated in connection with a Change in Control in accordance with Section 8.2, then to the extent that the aggregate Fair Market Value of the shares of Stock with respect to which the Optionee may exercise the Option for the first time during the calendar year of such acceleration, when added to the aggregate Fair Market Value of the shares subject to any other options designated as Incentive Stock Options granted to the Optionee under all stock option plans of the Participating Company Group prior to the Date of Option Grant with respect to which such options are exercisable for the first time during the same calendar year, exceeds One Hundred Thousand Dollars ($100,000) (or such other limit, if any, imposed by Section 422 of the Code), the portion of the Option which exceeds such amount shall be treated as a Nonstatutory Stock Option. For purposes of the preceding sentence, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of shares of stock shall be determined as of the time the option with respect to such shares is granted 9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option. If a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the Number of Option Shares and the Exercise Price shall be adjusted in a fair and equitable manner, as determined by the Board, in its discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 9 shall be rounded down to the nearest whole number, and in no event may the Exercise Price be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 9 shall be final, binding and conclusive. - 7 -
(Exhibit A) 10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a shareholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 9. If the Optionee is an Employee, the Optionee understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Optionee, the Optionee's employment is "at will" and is for no specified term. Nothing in this Option Agreement shall confer upon the Optionee any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's Service as an Employee or Consultant, as the case may be, at any time. 11. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, if the Notice designates this Option as an Incentive Stock Option, the Optionee shall (a) promptly notify the Chief Financial Officer of the Company if the Optionee disposes of any of the shares acquired pursuant to the Option within one (1) year after the date the Optionee exercises all or part of the Option or within two (2) years after the Date of Option Grant and (b) provide the Company with a description of the circumstances of such disposition. Until such time as the Optionee disposes of such shares in a manner consistent with the provisions of this Option Agreement, unless otherwise expressly authorized by the Company, the Optionee shall hold all shares acquired pursuant to the Option in the Optionee's name (and not in the name of any nominee) for the one-year period immediately after the exercise of the Option and the two-year period immediately after Date of Option Grant. At any time during the one-year or two-year periods set forth above, the Company may place a legend on any certificate representing shares acquired pursuant to the Option requesting the transfer agent for the Company's stock to notify the Company of any such transfers. The obligation of the Optionee to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate pursuant to the preceding sentence. 12. LEGENDS. The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions, as well as a legend reflecting the effect of a disqualifying disposition (as described in Section 11 above) if the Option is an Incentive Stock Option, on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this Section. - 8 -
(Exhibit A) 13. MISCELLANEOUS PROVISIONS. 13.1 BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 13.2 TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that except as provided in Section 8.2 in connection with a Change in Control, no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such termination or amendment is necessary to comply with any applicable law or government regulation or is required to enable the Option, if designated an Incentive Stock Option in the Notice, to qualify as an Incentive Stock Option. No amendment or addition to this Option Agreement shall be effective unless in writing. 13.3 NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Option Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address shown below that party's signature on the Notice or at such other address as such party may designate in writing from time to time to the other party. 13.4 INTEGRATED AGREEMENT. The Notice, this Option Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein or therein and supersedes any prior agreements, understandings, restrictions, representations, or warranties among the Optionee and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein or therein. To the extent contemplated herein or therein, the provisions of the Notice and the Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 13.5 APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of Michigan as such laws are applied to agreements between Michigan residents entered into and to be performed entirely within the State of Michigan. 13.6 COUNTERPARTS. The Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (TM) Incentive Stock Option Optionee: ___________________________ (TM) Nonstatutory Stock Option Date: _______________________ - 9 -
AASTROM BIOSCIENCES, INC. NOTICE OF GRANT OF 2004 STOCK OPTION __________________ (the "OPTIONEE") has been granted an option (the "OPTION") to purchase certain shares of Stock of Aastrom Biosciences, Inc. pursuant to the Aastrom Biosciences, Inc. 2004 Stock Option Plan (the "Plan"), as follows: DATE OF OPTION GRANT: _________________________ NUMBER OF OPTION SHARES: _________________________ EXERCISE PRICE: __________per share INITIAL VESTING DATE: The date one year after ______________ OPTION EXPIRATION DATE: The date ten (10) years after the Date of Option Grant. TAX STATUS OF OPTION: INCENTIVE Stock Option. VESTED SHARES: Except as provided in the Stock Option Agreement, the number of Vested Shares (disregarding any resulting fractional share) as of any date is determined by multiplying the Number of Option Shares by the "VESTED RATIO" determined as of such date as follows: Vested Ratio Prior to Initial Vesting Date 0 On Initial Vesting Date, provided the Optionee's Service has not terminated prior to such date Plus: For each three full months of the Optionee's continuous Service from Initial Vesting Date until the Vested Ratio equals 1/1, an additional By their signatures below, the Company and the Optionee agree that the Option is governed by this Notice and by the provisions of the Plan and the Stock Option Agreement, both of which are attached to and made a part of this document. The Optionee acknowledges receipt of copies of the Plan and the Stock Option Agreement, represents that the Optionee has read and is familiar with their provisions, and hereby accepts the Option subject to all of their terms and conditions. Aastrom Biosciences, Inc. 24 Frank Lloyd Wright Dr., Lobby L. Ann Arbor, MI 48105 ______________________________ __________________________________ R. DOUGLAS ARMSTRONG, PH.D. CHIEF EXECUTIVE OFFICER ______________________________ _________________________________ DATE DATE
AASTROM BIOSCIENCES, INC. NOTICE OF GRANT OF RESTRICTED STOCK ________________________ (the "PARTICIPANT") has been granted an award (the "AWARD") pursuant to the Aastrom Biosciences, Inc. 2004 Equity Incentive Plan (the "PLAN") of certain shares of Stock (the "SHARES"), as follows: DATE OF GRANT: _______________ TOTAL NUMBER OF SHARES: _______________ VESTED SHARES: Except as provided in the Restricted Stock Agreement and provided that the Participant's Service has not terminated prior to the relevant date, the number of Vested Shares shall cumulatively increase on each respective date set forth below by the number of shares set forth opposite such date, as follows: CUMULATIVE VESTING DATE NO. SHARES VESTING NO. VESTED SHARES - ------------ ------------------ ----------------- By their signatures below or by electronic acceptance or authentication in a form authorized by the Company, the Company and the Participant agree that the Award is governed by this Grant Notice and by the provisions of the Plan and the Restricted Stock Agreement, both of which are made part of this document. The Participant acknowledges that copies of the Plan, Restricted Stock Agreement and the prospectus for the Plan are available on the Company's internal web site and may be viewed and printed by the Participant for attachment to the Participant's copy of this Grant Notice. The Participant represents that the Participant has read and is familiar with the provisions of the Plan and the Restricted Stock Agreement, and hereby accepts the Award subject to all of their terms and conditions. AASTROM BIOSCIENCES, INC. PARTICIPANT By: __________________________ _______________________________ Signature Its: _________________________ _______________________________ Date Address: Domino's Farms, Lobby L _______________________________ 24 Frank Lloyd Wright Drive Address Ann Arbor, MI 48105 _______________________________ ATTACHMENTS: 2004 Equity Incentive Plan, as amended to the Date of Grant; Restricted Stock Agreement; Assignment Separate from Certificate and Plan Prospectus
ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED the undersigned does hereby sell, assign and transfer unto __________________________________________________________________________ ___________________________________________________ (_________________) shares of the Capital Stock of AASTROM BIOSCIENCES, INC. standing in the undersigned's name on the books of said corporation represented by Certificate No. __________________ herewith and does hereby irrevocably constitute and appoint ________________________________ Attorney to transfer the said stock on the books of said corporation with full power of substitution in the premises. Dated: _______________ ___________________________ Signature ___________________________ Print Name Instructions: Please do not fill in any blanks other than the signature line. The purpose of this assignment is to enable the Corporation to exercise its Company Reacquisition Right set forth in the Restricted Stock Agreement without requiring additional signatures on the part of the Participant.
AASTROM BIOSCIENCES, INC. RESTRICTED STOCK AGREEMENT Aastrom Biosciences, Inc. has granted to the Participant named in the Notice of Grant of Restricted Stock (the "GRANT NOTICE") to which this Restricted Stock Agreement (the "AGREEMENT") is attached an Award consisting of Shares subject to the terms and conditions set forth in the Grant Notice and this Agreement. The Award has been granted pursuant to the Aastrom Biosciences, Inc. 2004 Equity Incentive Plan (the "PLAN"), as amended to the Date of Grant, the provisions of which are incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of and represents that the Participant has read and is familiar with the Grant Notice, this Agreement, the Plan and a prospectus for the Plan in the form most recently registered with the Securities and Exchange Commission (the "PLAN PROSPECTUS"), (b) accepts the Award subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Grant Notice, this Agreement or the Plan. 1. DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Grant Notice or the Plan. 1.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 2. ADMINISTRATION. All questions of interpretation concerning the Grant Notice and this Agreement shall be determined by the Committee. All determinations by the Committee shall be final and binding upon all persons having an interest in the Award. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election. 3. THE AWARD. 3.1 GRANT AND ISSUANCE OF SHARES. On the Date of Grant, the Participant shall acquire and the Company shall issue, subject to the provisions of this Agreement, a number of Shares equal to the Total Number of Shares set forth in the Grant Notice. As a condition to the issuance of the Shares, the Participant shall execute and deliver to the Company along with the Grant Notice the Assignment Separate from Certificate duly endorsed (with date and number of shares blank) in the form attached to the Grant Notice.
3.2 NO MONETARY PAYMENT REQUIRED. The Participant is not required to make any monetary payment (other than applicable tax withholding, if any) as a condition to receiving the Shares, the consideration for which shall be past services actually rendered and/or future services to be rendered to a Participating Company or for its benefit. Notwithstanding the foregoing, if required by applicable state corporate law, the Participant shall furnish consideration in the form of cash or past services rendered to a Participating Company or for its benefit having a value not less than the par value of the Shares issued pursuant to the Award. 3.3 BENEFICIAL OWNERSHIP OF SHARES; CERTIFICATE REGISTRATION. The Participant hereby authorizes the Company, in its sole discretion, to deposit the Shares with the Company's transfer agent, including any successor transfer agent, to be held in book entry form during the term of the Escrow pursuant to Section 6. Furthermore, the Participant hereby authorizes the Company, in its sole discretion, to deposit, following the term of such Escrow, for the benefit of the Participant with any broker with which the Participant has an account relationship of which the Company has notice any or all Shares which are no longer subject to such Escrow. Except as provided by the foregoing, a certificate for the Shares shall be registered in the name of the Participant, or, if applicable, in the names of the heirs of the Participant. 3.4 ISSUANCE OF SHARES IN COMPLIANCE WITH LAW. The issuance of the Shares shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. No Shares shall be issued hereunder if their issuance would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance of any Shares shall relieve the Company of any liability in respect of the failure to issue such Shares as to which such requisite authority shall not have been obtained. As a condition to the issuance of the Shares, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 4. VESTING OF SHARES. 4.1 NORMAL VESTING. Except as provided in Section 4.2, the Shares shall vest and become Vested Shares as provided in the Grant Notice. No additional Shares will become Vested Shares following the Participant's termination of Service for any reason. 4.2 ACCELERATION OF VESTING UPON A CHANGE IN CONTROL. In the event of a Change in Control, the vesting of the Shares shall be accelerated in full and the Total Number of Shares shall be deemed Vested Shares effective as of the date of the Change in Control, provided that the Participant's Service has not terminated prior to such date and provided further that the employee has been employed at least one year by the Company at the time of the Change in Control. 2
4.3 FEDERAL EXCISE TAX UNDER SECTION 4999 OF THE CODE. (a) EXCESS PARACHUTE PAYMENT. In the event that any acceleration of vesting pursuant to this Agreement and any other payment or benefit received or to be received by the Participant would subject the Participant to any excise tax pursuant to Section 4999 of the Code due to the characterization of such acceleration of vesting, payment or benefit as an excess parachute payment under Section 280G of the Code, the Participant may elect, in his or her sole discretion, to reduce the amount of any acceleration of vesting called for under this Agreement in order to avoid such characterization. (b) DETERMINATION BY INDEPENDENT ACCOUNTANTS. To aid the Participant in making any election called for under Section 4.3(a), upon the occurrence of any event that might reasonably be anticipated to give rise to the acceleration of vesting under Section 4.2 (an "EVENT"), the Company shall promptly request a determination in writing by independent public accountants selected by the Company (the "ACCOUNTANTS"). Unless the Company and the Participant otherwise agree in writing, the Accountants shall determine and report to the Company and the Participant within twenty (20) days of the date of the Event the amount of such acceleration of vesting, payments and benefits which would produce the greatest after-tax benefit to the Participant. For the purposes of such determination, the Accountants may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Participant shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make their required determination. The Company shall bear all fees and expenses the Accountants may reasonably charge in connection with their services contemplated by this Section. 5. COMPANY REACQUISITION RIGHT. 5.1 GRANT OF COMPANY REACQUISITION RIGHT. Except to the extent otherwise provided in an employment agreement between a Participating Company and the Participant which refers to this Award, in the event that (a) the Participant's Service terminates for any reason or no reason, with or without Cause, or (b) the Participant, the Participant's legal representative, or other holder of the Shares, attempts to sell, exchange, transfer, pledge, or otherwise dispose of (other than pursuant to an Ownership Change Event), including, without limitation, any transfer to a nominee or agent of the Participant, any Shares which are not Vested Shares ("UNVESTED SHARES"), the Company shall automatically reacquire the Unvested Shares, and the Participant shall not be entitled to any payment therefor (the "COMPANY REACQUISITION RIGHT"). 5.2 OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership Change Event, any and all new, substituted or additional securities or other property to which the Participant is entitled by reason of the Participant's ownership of Unvested Shares shall be immediately subject to the Company Reacquisition Right and included in the terms "Shares," "Stock" and "Unvested Shares" for all purposes of the Company Reacquisition Right with the same force and effect as the Unvested Shares immediately prior to the Ownership Change Event. For purposes of determining the number of Vested Shares following an Ownership Change Event, credited Service shall include all Service with any corporation which is a Participating 3
Company at the time the Service is rendered, whether or not such corporation is a Participating Company both before and after the Ownership Change Event. 6. ESCROW. 6.1 APPOINTMENT OF AGENT. To ensure that Shares subject to the Company Reacquisition Right will be available for reacquisition, the Participant and the Company hereby appoint the Secretary of the Company, or any other person designated by the Company, as their agent and as attorney-in-fact for the Participant (the "AGENT") to hold any and all Unvested Shares and to sell, assign and transfer to the Company any such Unvested Shares reacquired by the Company pursuant to the Company Reacquisition Right. The Participant understands that appointment of the Agent is a material inducement to make this Agreement and that such appointment is coupled with an interest and is irrevocable. The Agent shall not be personally liable for any act the Agent may do or omit to do hereunder as escrow agent, agent for the Company, or attorney in fact for the Participant while acting in good faith and in the exercise of the Agent's own good judgment, and any act done or omitted by the Agent pursuant to the advice of the Agent's own attorneys shall be conclusive evidence of such good faith. The Agent may rely upon any letter, notice or other document executed by any signature purporting to be genuine and may resign at any time. 6.2 ESTABLISHMENT OF ESCROW. The Participant authorizes the Company to deposit the certificates evidencing the Unvested Shares with the Company's Agent and the Participant agrees to deliver to the Agent an Assignment Separate from Certificate with respect to such Unvested Shares and each such certificate duly endorsed (with date and number of Shares blank) in the form attached to the Notice, to be held by the Agent under the terms and conditions of this Section 6 (the "ESCROW"). Upon the occurrence of a Change in Control or a change, as described in Section 8, in the character or amount of any outstanding stock of the corporation the stock of which is subject to the provisions of this Agreement, any and all new, substituted or additional securities or other property to which the Participant is entitled by reason of his or her ownership of the Shares that remain, following such Change in Control or change described in Section 8, subject to the Company Reacquisition Right shall be immediately subject to the Escrow to the same extent as the Shares immediately before such event. The Company shall bear the expenses of the Escrow. 6.3 DELIVERY OF SHARES TO PARTICIPANT. The Escrow shall continue with respect to any Shares for so long as such Shares remain subject to the Company Reacquisition Right. Upon termination of the Reacquisition Right with respect to Shares, the Company shall so notify the Agent and direct the Agent to deliver such number of Shares to the Participant. As soon as practicable after receipt of such notice, the Agent shall cause to be delivered to the Participant the Shares specified by such notice, and the Escrow shall terminate with respect to such Shares. 4
7. TAX MATTERS. 7.1 TAX WITHHOLDING. (a) IN GENERAL. At the time the Grant Notice is executed, or at any time thereafter as requested by a Participating Company, the Participant hereby authorizes withholding from payroll and any other amounts payable to the Participant, and otherwise agrees to make adequate provision for, any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Participating Company, if any, which arise in connection with the Award, including, without limitation, obligations arising upon (a) the transfer of Shares to the Participant, (b) the lapsing of any restriction with respect to any Shares, (c) the filing of an election to recognize tax liability, or (d) the transfer by the Participant of any Shares. The Company shall have no obligation to deliver the Shares or to release any Shares from the Escrow established pursuant to Section 6 until the tax withholding obligations of the Participating Company have been satisfied by the Participant. (b) WITHHOLDING IN SHARES. The Participant may satisfy all or any portion of a Participating Company's tax withholding obligations by requesting the Company to withhold a number of whole, Vested Shares otherwise deliverable to the Participant or by tendering to the Company a number of whole, Vested Shares or vested shares acquired otherwise than pursuant to the Award having, in any such case, a fair market value, as determined by the Company as of the date on which the tax withholding obligations arise, not in excess of the amount of such tax withholding obligations determined by the applicable minimum statutory withholding rates. Any adverse consequences to the Participant resulting from the procedure permitted under this Section, including, without limitation, tax consequences, shall be the sole responsibility of the Participant. 7.2 ELECTION UNDER SECTION 83(b) OF THE CODE. (a) The Participant understands that Section 83 of the Code taxes as ordinary income the difference between the amount paid for the Shares, if anything, and the fair market value of the Shares as of the date on which the Shares are "substantially vested," within the meaning of Section 83. In this context, "substantially vested" means that the right of the Company to reacquire the Shares pursuant to the Company Reacquisition Right has lapsed. The Participant understands that he or she may elect to have his or her taxable income determined at the time he or she acquires the Shares rather than when and as the Company Reacquisition Right lapses by filing an election under Section 83(b) of the Code with the Internal Revenue Service no later than thirty (30) days after the date of acquisition of the Shares. The Participant understands that failure to make a timely filing under Section 83(b) will result in his or her recognition of ordinary income, as the Company Reacquisition Right lapses, on the difference between the purchase price, if anything, and the fair market value of the Shares at the time such restrictions lapse. The Participant further understands, however, that if Shares with respect to which an election under Section 83(b) has been made are forfeited to the Company pursuant to its Company Reacquisition Right, such forfeiture will be treated as a sale on which there is realized a loss equal to the excess (if any) of the amount paid (if any) by the Participant for the forfeited Shares over the amount realized (if any) upon their forfeiture. If the Participant has paid nothing for the forfeited Shares and has received no payment upon their forfeiture, the Participant 5
understands that he or she will be unable to recognize any loss on the forfeiture of the Shares even though the Participant incurred a tax liability by making an election under Section 83(b). (b) The Participant understands that he or she should consult with his or her tax advisor regarding the advisability of filing with the Internal Revenue Service an election under Section 83(b) of the Code, which must be filed no later than thirty (30) days after the date of the acquisition of the Shares pursuant to this Agreement. Failure to file an election under Section 83(b), if appropriate, may result in adverse tax consequences to the Participant. The Participant acknowledges that he or she has been advised to consult with a tax advisor regarding the tax consequences to the Participant of the acquisition of Shares hereunder. ANY ELECTION UNDER SECTION 83(b) THE PARTICIPANT WISHES TO MAKE MUST BE FILED NO LATER THAN 30 DAYS AFTER THE DATE ON WHICH THE PARTICIPANT ACQUIRES THE SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE PARTICIPANT ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE PARTICIPANT'S SOLE RESPONSIBILITY, EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF. (c) The Participant will notify the Company in writing if the Participant files an election pursuant to Section 83(b) of the Code. The Company intends, in the event it does not receive from the Participant evidence of such filing, to claim a tax deduction for any amount which would otherwise be taxable to the Participant in the absence of such an election. 8. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. Subject to any required action by the stockholders of the Company, in the event of any change in the Stock effected without receipt of consideration by the Company, whether through merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares, or similar change in the capital structure of the Company, or in the event of payment of a dividend or distribution to the stockholders of the Company in a form other than Stock (excepting normal cash dividends) that has a material effect on the Fair Market Value of shares of Stock, appropriate adjustments shall be made in the number and kind of shares subject to the Award, in order to prevent dilution or enlargement of the Participant's rights under the Award. For purposes of the foregoing, conversion of any convertible securities of the Company shall not be treated as "effected without receipt of consideration by the Company." Any fractional share resulting from an adjustment pursuant to this Section shall be rounded down to the nearest whole number. Such adjustments shall be determined by the Committee, and its determination shall be final, binding and conclusive. 9. RIGHTS AS A STOCKHOLDER, DIRECTOR, EMPLOYEE OR CONSULTANT. The Participant shall have no rights as a stockholder with respect to any Shares subject to the Award until the date of the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is 6
prior to the date the Shares are issued, except as provided in Section 8. Subject the provisions of this Agreement, the Participant shall exercise all rights and privileges of a stockholder of the Company with respect to Shares deposited in the Escrow pursuant to Section 6. If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between a Participating Company and the Participant, the Participant's employment is "at will" and is for no specified term. Nothing in this Agreement shall confer upon the Participant any right to continue in the Service of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Participant's Service at any time. 10. LEGENDS. The Company may at any time place legends referencing the Company Reacquisition Right and any applicable federal, state or foreign securities law restrictions on all certificates representing the Shares. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing the Shares in the possession of the Participant in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS SET FORTH IN AN AGREEMENT BETWEEN THIS CORPORATION AND THE REGISTERED HOLDER, OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION." 11. TRANSFERS IN VIOLATION OF AGREEMENT. No Shares may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of, including by operation of law, in any manner which violates any of the provisions of this Agreement and, except pursuant to an Ownership Change Event, until the date on which such shares become Vested Shares, and any such attempted disposition shall be void. The Company shall not be required (a) to transfer on its books any Shares which will have been transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Shares will have been so transferred. In order to enforce its rights under this Section, the Company shall be authorized to give a stop transfer instruction with respect to the Shares to the Company's transfer agent. 12. MISCELLANEOUS PROVISIONS. 12.1 TERMINATION OR AMENDMENT. The Committee may terminate or amend the Plan or this Agreement at any time; provided, however, that no such termination or amendment may adversely affect the Participant's rights under this Agreement without the consent of the Participant unless such termination or amendment is necessary to comply with applicable law or government regulation. No amendment or addition to this Agreement shall be effective unless in writing. 7
12.2 NONTRANSFERABILITY OF THE AWARD. The right to acquire Shares pursuant to the Award shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the Participant or the Participant's beneficiary, except transfer by will or by the laws of descent and distribution. All rights with respect to the Award shall be exercisable during the Participant's lifetime only by the Participant or the Participant's guardian or legal representative. 12.3 FURTHER INSTRUMENTS. The parties hereto agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 12.4 BINDING EFFECT. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer set forth herein, be binding upon the Participant and the Participant's heirs, executors, administrators, successors and assigns. 12.5 DELIVERY OF DOCUMENTS AND NOTICES. Any document relating to participation in the Plan or any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given (except to the extent that this Agreement provides for effectiveness only upon actual receipt of such notice) upon personal delivery, electronic delivery at the e-mail address, if any, provided for the Participant by a Participating Company, or upon deposit in the U.S. Post Office or foreign postal service, by registered or certified mail, or with a nationally recognized overnight courier service, with postage and fees prepaid, addressed to the other party at the address shown below that party's signature to the Grant Notice or at such other address as such party may designate in writing from time to time to the other party. (a) DESCRIPTION OF ELECTRONIC DELIVERY. The Plan documents, which may include but do not necessarily include: the Plan, the Grant Notice, this Agreement, the Plan Prospectus, and any reports of the Company provided generally to the Company's stockholders, may be delivered to the Participant electronically. In addition, the parties may deliver electronically any notices called for in connection with the Escrow and the Participant may deliver electronically the Grant Notice to the Company or to such third party involved in administering the Plan as the Company may designate from time to time. Such means of electronic delivery may include but do not necessarily include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other means of electronic delivery specified by the Company. (b) CONSENT TO ELECTRONIC DELIVERY. The Participant acknowledges that the Participant has read Section 12.5(a) of this Agreement and consents to the electronic delivery of the Plan documents, the Grant Notice and notices in connection with the Escrow, as described in Section 12.5(a). The Participant acknowledges that he or she may receive from the Company a paper copy of any documents delivered electronically at no cost to the Participant by contacting the Company by telephone or in writing. The Participant further acknowledges that the Participant will be provided with a paper copy of any documents if the attempted electronic delivery of such documents fails. Similarly, the Participant understands that the Participant must provide the Company or any designated third party administrator with a paper copy of any 8
documents if the attempted electronic delivery of such documents fails. The Participant may revoke his or her consent to the electronic delivery of documents described in Section 12.5(a) or may change the electronic mail address to which such documents are to be delivered (if Participant has provided an electronic mail address) at any time by notifying the Company of such revoked consent or revised e-mail address by telephone, postal service or electronic mail. Finally, the Participant understands that he or she is not required to consent to electronic delivery of documents described in Section 12.5(a). 12.6 INTEGRATED AGREEMENT. The Grant Notice, this Agreement and the Plan together with any employment, service or other agreement between the Participant and a Participating Company referring to the Award shall constitute the entire understanding and agreement of the Participant and the Participating Company Group with respect to the subject matter contained herein or therein and supersedes any prior agreements, understandings, restrictions, representations, or warranties among the Participant and the Participating Company Group with respect to such subject matter other than those as set forth or provided for herein or therein. To the extent contemplated herein or therein, the provisions of the Grant Notice and the Agreement shall survive any settlement of the Award and shall remain in full force and effect. 12.7 APPLICABLE LAW. This Agreement shall be governed by the laws of the State of Michigan as such laws are applied to agreements between Michigan residents entered into and to be performed entirely within the State of Michigan. 12.8 COUNTERPARTS. The Grant Notice may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9
EXHIBIT 10.85 AASTROM BIOSCIENCES, INC. EMPLOYEE COMPENSATION GUIDELINES AUGUST 12, 2005 1. BACKGROUND Compensation of executives and employees at Aastrom has traditionally been through two mechanisms: - Salary (reviewed on an annual basis) - Stock Option Grant (base grants and annual grants) The use of bonus compensation awards has also been employed (either in the form of cash or stock option grants), which were awarded on a case-by-case basis to recognize a special individual performance that resulted in a material benefit to the Company. In November 2004, the Company's shareholders and Board of Directors approved the Aastrom 2004 Equity Incentive Plan, which authorizes the Company's Board of Directors to establish from time to time a variety of different types of equity compensation programs, including stock options and restricted stock grants. Problems with the stock option grant program resulting from stock price volatility, together with recent changes in the required expense accounting of stock option grants, have led the Compensation Committee to evaluate Restricted Stock Grants as an alternative to the traditional Stock Option awards. In this process, the Committee also desired to introduce more financial incentives that are tied to the performance of the Company and the individual employee. With Aastrom now entering a period with a defined strategic plan, and with a fiscal position more conducive for a different approach to overall compensation, a revised compensation approach is being introduced that is intended to better align employee compensation with progress, and to address some of the inadequacies of the past compensation approach. The new compensation plan consists of two new elements which are added to the employee's salary cash compensation: - Annual Cash Bonus plan (which may be paid currently or deferred) - Long-term Restricted Stock plan. The Annual Cash Bonus Plan is a new element of annual compensation, and the Restricted Stock Plan replaces and enhances the Aastrom stock option program. The new program offers potentially greater financial reward, but having these financial incentives tied to the employee and the Company meeting certain milestones objectives. The result is a significant percentage of the employee's potential compensation being tied to the Company's and the employee's performance. Notwithstanding the terms outlined for these programs, management or the Board of Directors may choose to override the plan if necessary to avoid providing an unanticipated and unintended windfall to a specific employee or, in the alternative, to avoid unfairly penalizing an otherwise deserving employee. 1
All "At Risk" awards are subject to approval of the annual accounts by the Board of Directors. In order to be eligible for any "At Risk" compensation, the employee must still be employed on the date the annual accounts are approved by the Board, with exceptions to be made for employee death and permanent total disability; and with other exceptions to be made at the discretion of management for employee retirement and extraordinary circumstances. NOTE: The Company will continue to additionally use discretionary bonus awards (which may be in stock options, restricted stock, or cash) to recognize special performance and achievement, or to adjust a recognized compensation inequity, that is over and above the Cash Bonus Plan. Further, the Company may also establish one or more specific bonus objectives for which a specific bonus would be paid upon achievement (with payment in the form of cash or equity). 2. DESCRIPTION OF ANNUAL CASH BONUS PLAN For the "at-risk" compensation programs, individual performance goals and corporate performance targets will be established and communicated within the first quarter of each fiscal year, and used as guiding criteria for the level of Annual Cash Bonus and Restricted Stock that will be given to the employee as recognition of the past years performance. Annually, 100% of the Cash Bonus and 60 % of the Restricted Stock award are at risk, and are tied to a combination of corporate and individual performance ("At Risk Compensation"). The Restricted Stock program will have 40 % of the total annual award available that is not at risk, but which vests with the passage of time (a more complete description of the Restricted Stock program is provided in Exhibit 4, entitled "Employee Restricted Stock Grant Program"). The level of Cash Bonus and Restricted Stock award available to each employee varies depending on the employee's position level and Cash Salary Base. Examples of the compensation levels and percentage of total compensation at risk for each management level are set forth in Exhibit 1. Risk to total compensation for senior management is provided in Exhibit 2. A sample calculation is provided in Exhibit 3. The ANNUAL CASH BONUS is a bonus to be paid after the end of the fiscal year and the acceptance of the financial accounts by the Board of directors. All employees at the manager or program manager level or above are eligible for the Cash Bonus program. Individuals promoted or hired into a new eligible level during the year will have their bonus calculated on a pro rata basis. An individual's TARGET CASH BONUS for each position can be determined by multiplying the individual's Cash Salary Base (the base salary for the individual at the beginning of the fiscal year or when an individual is hired or is promoted into a new bonus eligible position) by the assigned percentage based on job classification. 2
TARGET CASH BONUS ----------------- CEO 40 % of Cash Salary Base COO 35 % of Cash Salary Base Senior VP 30 % of Cash Salary Base VP 30 % of Cash Salary Base Senior Director (includes Senior Program Director) 25 % of Cash Salary Base Director (Includes Program Director/Leader) 20 % of Cash Salary Base Manager (Includes Program Manager) 15 % of Cash Salary Base Procedure for Annual Cash Bonus Awards Note: All final amounts will be rounded up to the nearest $10 for more simple administration. Step One: Determination if Affordability Target is Met At completion of the fiscal year, the Board of Directors determine if the Affordability Target has been met, or alternatively if it may be met pending an elective financial event. If the Affordability Target has been met, then the Annual Cash Bonus will be made. If it may be met pending an elective financial event the Annual Cash bonus will be deferred or paid in restricted stock at the election of the Board. If the Affordability Target is otherwise missed, there will be no Annual Cash Bonus Award. The AFFORDABILITY TARGET is the target amount of cash on the balance sheet at the end of the fiscal year, as determined by the Board of Directors within the first quarter of the fiscal year. The Annual Cash Bonus program may be paid only if there is sufficient cash available for corporate needs as determined by the Affordability Target. If the Company misses the Affordability Target, there would be no Annual Cash Bonus. However, in certain limited circumstances the Board may, at its discretion, elect to defer some or all of the cash bonus if the Affordability Target is missed for reasons related to a delayed but expected near term funding event (e.g. equity financing or alliance funding). In certain rare operational circumstances of great progress but with corresponding prudence on use of available cash, the Board also has the discretionary decision to have some or all of the bonus be paid with use of restricted stock. Step Two: Determination of the Company Performance Board of Directors determines the level of Company Performance (from 0 to 100 %, at 10% increments), based on the stated objectives laid out at the start of the previous fiscal year (e.g. Operating Plan objectives and milestones). This percentage will then be used for the calculation formulas for both the Annual Cash Bonus and the Restricted Stock awards. For example, if the total Annual Cash Bonus target is $20,000 and the Company Performance is determined to be 80%, then the Annual Cash Bonus available for applying the Individual Employee Performance measurement is: 20,000 X 0.80 = $16,000 The Company Performance Objectives will be based on objective, measurable, achievable and realistic criteria. However, it is the intent to have the 100% level represent both generally expected as well as challenging reach milestones. 3
Step Three: Determination of the Individual Employee Performance The employee's immediate supervisor determines the level of Individual Employee performance (with review and oversight by the next level of management) for the prior fiscal year. The level of successful accomplishment of his or her performance targets will determine the percentage (0 to 100 %, at 10% increments) of the available risk portion of the Annual Cash Bonus and the Restricted Stock awards that will be made. However, should the Company's performance fail to meet minimum expectations, then none of the employees would be eligible for an Annual Cash Bonus, nor would the employee be eligible for the corporate performance Restricted Stack Award. Generally, not meeting expectations means the Company failing to achieve at least 50% of the performance objectives. The Individual Employee Performance Objectives are developed in a negotiated manner between the individual and his or her supervisor. In the case of the CEO those targets will be negotiated with the Board. Target objectives will be quantifiable, objective, achievable, and realistic. Individual and corporate objectives will generally be reviewed twice during the year, and, if circumstances warrant, may be modified in appropriate circumstances. (For example if patients accrue more rapidly than anticipated in key trials, other objectives would be modified.) However, should an employee's performance fail to meet minimum expectations, then the employee would not be eligible for any Annual Cash Bonus, nor would the employee be eligible for the individual performance Restricted Stack Award. Generally, not meeting expectations means the employee failing to achieve at least 50% of the performance objectives, or has other significant personal performance problems related to his/her job description or Company policies and procedures, as noted through the performance review process. Step Four: Calculation of the Annual Cash Bonus If Aastrom meets its Affordability Target, or the Board chooses to defer the cash payment, then the Annual Cash bonus calculation is as follows: Annual Cash Bonus = [Target Cash Bonus] X [Company Performance percentage] X [Employee Individual Performance percentage]. For Example, assume: The Company meets the Affordability Target and 80 % of the Company Objectives and the individual meets 90 % of his or her Individual Objectives. The actual Cash Bonus would be 72 % of the Target Cash Bonus. 3. GENERAL DESCRIPTION OF EMPLOYEE RESTRICTED STOCK GRANT PROGRAM The principal Long-term Incentive Plan for the Company is the Employee Restricted Stock Grant Program, which is described in greater detail in Exhibit 4. In short, this program provides vesting stock awards, with a large percent "at-risk", and will replace the previous use of base and annual stock option grants. The amount of the restricted stock award is based on a combination of three components: 40 % of the target award is to be an Annual Grant based on continuing employment. The remaining 60 % of the theoretical grant (the "at-risk" award) is divided into two equal pieces. Up to one-half of the at-risk piece (or up to 30 % of the total theoretical award) will be granted based on the Company meeting the Company Performance Objectives. Up to one-half (or 30 % of the total theoretical award) will be granted based on the individual meeting his or her Personal Objectives. Once an award is granted, vesting ownership will occur over a four (4) year annual schedule (25% vesting on each of the next four anniversaries of the grant date). 4
For example, assume the same facts as in the Annual Cash bonus example described above. Assume further that an individual is entitled to a theoretical restricted stock grant of 20,000 shares based on his or her job classification and Cash Salary Base. The actual Restricted Stock Award to an individual employed on approval date would be 18,200 shares. [8,000 shares (40% of 20,000 shares based on employment on the appropriate date) + 4,800 shares (30 % of 20,000 shares X 80 % of Corporate Objectives met) + 5,400 shares (30 % of 20,000 shares X 90 % of the Individual Objectives met.)] 4,550 shares (25% of the grant of 18,200 shares) would vest on each of the next four anniversaries of the grant date if the employee has been and is continued to be employed as of each anniversary date. Further examples and detail are provided in Exhibit 4. Note: All final share award numbers will be rounded up to the nearest 100 shares for more simple administration. For Initial Grant calculations and grants during the employees first partial year, see the explanation in the definitions. 5
Exhibit 1 INCENTIVE COMPENSATION LEVELS BY EMPLOYMENT LEVEL CEO Cash bonus 40% of base,* RSI grant 75% of base* COO Cash bonus 35% of base, RSI grant 60% of base Senior VP Cash bonus 30% of base, RSI grant 50% of base VP Cash bonus 30% of base, RSI grant 45% of base Senior Director Cash bonus 25% of base, RSI grant 30% of base Director Cash bonus 20% of base, RSI grant 25% of base Manager Cash bonus 15% of base, RSI grant 15% of base All other employees RSI grant 10% of base Note: Senior Director includes senior program director, director level includes program leader and manager level includes project managers for incentive purposes. * base means Cash Salary Base for the employee RSI means Restrictive Stock dollar amount 6
Exhibit 2 EXAMPLES OF AT RISK CALCULATION BY LEVEL CEO: A. Assume base salary of $300,000 B. Cash bonus target = Base salary x 40% = $120,000 C. RSI grant in dollars = Base salary x 75% = $225,000 D. RSI grant vests on time basis = $225,000 x .4 = $90,000 E. RSI grant at risk = $225,000 x .6 = $135,000 F. Total Compensation Package = A + B + C = $645,000 G. At Risk Element of Compensation = B + E = $255,000 At Risk portion of Total Compensation = G/F = 39.5% COO A. Assume base salary of $250,000 B. Cash bonus target = Base salary x 35% = $87,500 C. RSI grant in dollars = Base salary x 60% = $150,000 D. RSI grant vests on time basis = $150,000 x .4 = $60,000 E. RSI grant at risk = $150,000 x .6 = $90,000 F. Total Compensation Package = A + B + C = $487,500 G. At Risk Element of Compensation = B + E = $177,500 At Risk portion of Total Compensation = G/F = 36.4% Senior VP A. Assume base salary of $210,000 B. Cash bonus target = Base salary x 30% = $63,000 C. RSI grant in dollars = Base salary x 50% = $105,000 D. RSI grant vests on time basis = $105,000 x .4 = $42,000 E. RSI grant at risk = $105,000 x .6 = $63,000 F. Total Compensation Package = A + B + C = $378,000 G. At Risk Element of Compensation = B + E = $126,000 At Risk portion of Total Compensation = G/F = 33.3% VP A. Assume base salary of $200,000 B. Cash bonus target = Base salary x 30% = $60,000 C. RSI grant in dollars = Base salary x 45% = $90,000 D. RSI grant vests on time basis = $90,000 x .4 = $36,000 E. RSI grant at risk = $90,000 x .6 = $54,000 F. Total Compensation Package = A + B + C = $350,000 G. At Risk Element of Compensation = B + E = $114,000 At Risk portion of Total Compensation = G/F = 32.6% 7
Senior Director A. Assume base salary of $150,000 B. Cash bonus target = Base salary x 25% = $37,500 C. RSI grant in dollars = Base salary x 30% = $45,000 D. RSI grant vests on time basis = $45,000 x .4 = $18,000 E. RSI grant at risk = $45,000 x .6 = $27,000 F. Total Compensation Package = A + B + C = $232,500 G. At Risk Element of Compensation = B + E = $64,500 At Risk portion of Total Compensation = G/F = 27.7% Director A. Assume base salary of $120,000 B. Cash bonus target = Base salary x 20% = $24,000 C. RSI grant in dollars = Base salary x 25% = $30,000 D. RSI grant vests on time basis = $30,000 x .4 = $12,000 E. RSI grant at risk = $30,000 x .6 = $18,000 F. Total Compensation Package = A + B + C = $174,000 G. At Risk Element of Compensation = B + E = $42,000 At Risk portion of Total Compensation = G/F = 21.4% 8
Exhibit 3 SAMPLE CALCULATION FOR ANNUAL INCOME Assume a director-level employee has a $150,000 base salary and the stock price is $2.00 at the beginning and end of the period. Cash Salary Base $150,000 Cash bonus target is 15% = $22,500 RSI target is 25% = $37,500 = 18,750 shares Example 1 Assume at the end of year 1 that Aastrom has sufficient cash at the end of the year to meet its Affordability Target, and has met 70% of its Corporate Objectives Assume the employee met 100% of his or her personal objectives. The employee would receive: 1. A RSI grant at the end of the year of: a. 7,500 shares (40% of 18,750 shares as a result of the passage of a year since grant). b. 3,938 RSI grant as a result of the Company meeting its objectives (18,750 shares x .3 x .7). c. 5,625 RSI grant as result of the employee meeting his or her objectives (18,750 shares x .3 x 1.00). 2. A cash bonus of $15,750 ($22,500 x .7 x 1.00). The RSI grant of 17,063 would vest pro rata on each of the next four anniversaries of the grant date if the employee is still employed. Example 2 Assume Aastrom misses its financial Affordability Target and met 50% of its Corporate Objectives. The employee met 100% of his Personal Performance Objectives. The employee would receive: 1. A RSI grant at the end of the year of: a. 7,500 RSI shares as a result of the passage of a year since targets were set. b. 2,813 RSI shares as a result of the Company meeting 50% of its objectives (18,750 shares x .3 x .5). c. 5,625 RSI shares as a result of the Individual meeting his or her Personal Performance Objectives. 2. There would be no cash bonus. 9
Exhibit 4 AASTROM BIOSCIENCES, INC. EMPLOYEE RESTRICTED STOCK GRANT PROGRAM I. DEFINITIONS A. FAIR MARKET VALUE ["FMV"] - The 4 O'clock closing price per share on the principal exchange on which the Company's Common Stock is traded on the [10th] trading day preceding the Board meeting and/or Grant Date. B. POSITION LEVEL PERCENTAGE ["POSITION%"] - The percentage of an employee's base salary value used to determine the dollar value level of the Total Eligible Grant [see Table I.]. C. TOTAL ELIGIBLE GRANT - ["ELIGIBLE GRANT"] - The maximum grant of Restricted Stock Shares for which an employee is eligible. ELIGIBLE GRANT = POSITION% Times BASE SALARY Divided by FAIR MARKET VALUE D. BASE STOCK AWARD COMPONENT SHARES ["BASE SHARES"] - Forty [40] Percent of the Eligible Grant. E. COMPANY PERFORMANCE COMPONENT SHARES ["CO. PERFORMANCE SHARES"] - Up to Thirty [30] Percent (as determined by the Compensation Committee for officers and by Board of Directors for non-officers) of the Eligible Grant. F. INDIVIDUAL EMPLOYEE PERFORMANCE COMPONENT SHARES ["EMP. PERFORMANCE SHARES"] - Up to Thirty [30] Percent [as determined by Compensation Committee (for officers) or management (for non-officers)] of the Eligible Grant. G. TOTAL GRANT AWARD - The actual number of Restricted Stock Shares to be awarded to the employee determined following assessment of appropriate performance criteria. TOTAL GRANT AWARD = BASE SHARES plus CO. PERFORMANCE SHARES plus EMP. PERFORMANCE SHARES (Note: once the stock grant is awarded, all of the shares remain subject to vesting over the next four years, in equal annual increments while the employee's employment continues.) 10
H. EXAMPLE CALCULATION a. Data Salary: $200,000 Position% : 50% FMV: $2 Co. Performance: 20% Emp. Performance: 25% b. Calculations Total Eligible Grant = [200,000][0.5] / 2 = 50,000 shares Total Grant Award = [50,000 x 0.4] + [50,000 x 0.2] + [50,000 x 0.25] = 42,500 shares II. GRANT CATEGORIES A. INITIAL GRANTS 1. All employees will receive an Initial Restricted Stock Grant when joining the Company. The grant will generally be made at the next meeting of the Compensation Committee, or in the case of newly appointed officers, at the next Board Meeting [or consent action] following the employee's date of hire. 2. In certain circumstances the grant may be pre-approved by the Compensation Committee or Board for an employee and be made on the employees first date of employment. 3. The size of the Initial Grant will equal the BASE SHARES as defined above (Exhibit 4IG). 4. The general vesting schedule for the grant will be four years, with 25% vesting after one year and the remainder of the grant vesting on an annual schedule over the remaining three years. The Compensation Committee may elect to alter this schedule for certain grants. 5. For employees starting during the 1-3 quarters of a year, the Base Share level will be prorated to time (months) remaining in the year. For employees starting in the last quarter of the year, their Initial Grant will be moved to the date of the Annual Grant awards for existing employees. B. ANNUAL GRANTS Annual grants will be awarded equal to the TOTAL GRANT AWARD as defined above (Exhibit 4IG). It is intended that all Annual Grants will be awarded at the start of the fiscal year for all employees. The grant shares will be subject to annual vesting over the four years following the date of the grant. For an employee that has worked less than a full year at the end of the year for which the Annual Grant is being calculated their grant will be prorated. If the employee began in the first quarter of the fiscal year they would receive 100% of the normal grant, in the second quarter they would receive 75% of the normal grant in the third quarter 50% of the normal grant and in the fourth quarter 25% of the normal grant. 11
C. BONUS GRANTS Restricted Stock grants may also be used as a bonus award for an employee. In these occasional cases, the Compensation Committee will determine the appropriate amount and term (with input and guidance from management for non-officer awards). Bonus awards are generally used to reflect an individual's exceptional performance or events that have moved the Company forward in a material way, as well as to recognize other situations when the Compensation committee feels an additional grant is merited for an employee. Bonus Grants will not be included for determination of the size for an Annual Grant. The shares granted will be subject to annual vesting over the four years following the date of the grant. D. APPROVAL FOR PERFORMANCE GRANTS In order to comply with Internal Revenue Code Section 162(m), with respect to any Annual Grant or Bonus Grant to be given to one of the Company's top five officers, if the grant is or was based upon performance criteria, then the grant needs to be approved and awarded by the Company's Compensation Committee (rather than by the Board of Directors) and the performance criteria must be established within the first 90 days of the performance year, and the performance criteria must be one or more of the performance goals criteria listed in the Company's 2004 Equity Incentive Plan. II. DESCRIPTION OF RESTRICTED STOCK A. NATURE OF OWNERSHIP 1. Shares granted are fully registered 2. Shares are deemed outstanding upon Grant; and those held by officers, directors, and employees are included for reporting "inside ownership". 3. Shares are entitled to the same rights [Voting, Dividends, Communications, etc.] as other shares; except there is no right of sale or transfer, which right arises only upon the vesting of such shares. 4. Custody of restricted shares retained by Company Secretary, in escrow, until vested. 5. Vesting occurs annually for 4 years [annual is administratively preferable, due to taxation as explained below], with 25% vested on the first anniversary of grant date, and 25% on the second, third and fourth anniversaries, so long as employment continues. 6. Shares are issued pursuant to a customary Restricted Stock Agreement, and Notice of Grant of Restricted Stock, and Assignment Separated from Certificate. Pursuant to this documentation, which is signed by the employee, the issued shares vest annually over four years, and the unvested shares are held in escrow; and upon termination of employment any unvested shares are cancelled. 12
B. TAXATION UPON VESTING Taxable Value = Number of shares vested times market price at vesting date. Also, the tax basis is set at that same price for determining taxable gain/loss at disposition. Two options for employee: 1. At time of vesting, employee has this income included as W-2 compensation, and employee pays cash for his or her tax rate times the taxable income value of the vested shares, or; 2. At the time of vesting, the employee surrenders an amount of shares equal to the lesser of his or her withholding tax rate, or 28%, times the number of shares. The employee may elect to have additional shares withheld if his or her actual rate is higher than the 28% level, in order to cover all tax expense. This option means that no cash tax payments will be required by the employee. [It should be noted that, in lieu of the foregoing arrangement for the employee to be taxed on the value of the vested shares as they become vested, the employee has the right to elect to be taxed earlier, at the date of the grant, at the value of the shares as of the date of the grant, by filing a Section 83(b) election with the IRS within 30 days after the date of the grant. Most employees do not make this election, since it results in an earlier payment of tax, and since there is no tax rebate if the shares never become vested. A Section 83(b) election might be considered only if there is a high probability that the stock value will increase significantly and that employment will continue over the four-year vesting period.] C. MECHANICS OF TAX WITHHOLDING ON VESTING OF RESTRICTED STOCK. For option B2 above, the employee-vestee will surrender [in effect, sell back to the Company] the number of shares vested multiplied by his or her withholding rate, up to a maximum of 28%. The Company then pays the IRS the monetary value of those shares at the market price at close on the day vesting occurs. Such surrender then increases the amount of shares available to be issued under our Plan, as the shares thusly surrendered disappear. This is because under Michigan law, there is no such thing as "Treasury or Reacquired Stock." The SEC reporting DOES show up, but as a surrender of shares to satisfy taxes on amount vested [separate "reporting code" and footnote on Form 4]. According to our research, in other companies this has NOT been regarded as insiders selling and is a non-event. Furthermore, since annual vesting will occur on our normal grant date, the Company will be also reporting another grant of restricted stock, which under our program will result in a net increase in the employee's holding position. If the Company did not offer this avenue for withholding, then the employee-vestee would have to sell the shares in the open market, which would be reported as a straight sale. There are no additional expense accounting issues, as the expense has already been recognized. 13
D. SUBSEQUENT SEC REPORTING 1. Upon Grant, a Form 4 must be filed within 2 days for officers, directors, and other Control Persons [such as 10% owners]. 2. Upon sale or disposition of Vested Shares, all insider trading rules apply to those covered by such. 14
EXHIBIT 10.86 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is entered into as of June 10, 2005, by and between AASTROM BIOSCIENCES, INC., a Michigan corporation ("Employer"), and Gerald D. Brennan Jr. ("Employee"). RECITALS 1. Employer desires to employ Employee on the terms and conditions set forth in this Agreement. 2. Employee desires to be employed by Employer on the terms and conditions set forth in this Agreement. AGREEMENTS 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings: "Acquiring Corporation" shall mean the surviving, successor or purchasing corporation or parent corporation thereof, in a Change in Control, as the case may be. "Cause" means the occurrence of any of the following events, as determined by the Board of Directors of Employer, in good faith: (i) Employee's theft, material act of dishonesty or fraud, or intentional falsification of any records of Employer; (ii) Employee's breach of the Aastrom Biosciences, Inc. Employee Proprietary Information and Invention Agreement or any other agreement with the Employer covering the use or disclosure of confidential or proprietary information of Employer, the ownership of intellectual property or restrictions on competition; (iii) Employee's gross negligence or willful misconduct in the performance of Employee's assigned duties (but not mere unsatisfactory performance); or (iv) Employee's conviction (including any plea of guilty or nolo contendere) of a crime causing material harm to the reputation or standing of Employer or which materially impairs Employee's ability to perform his duties for Employer. "Change in Control" shall mean the occurrence of any of the following: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than a trustee or other fiduciary holding securities of Employer under an employee benefit plan of Employer, becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Employer representing 50% or more of (A) the outstanding
shares of common stock of Employer or (B) the combined voting power of Employer's then-outstanding securities; (ii) Employer is party to a merger or consolidation which results in the holders of voting securities of Employer outstanding immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of Employer or such surviving entity outstanding immediately after such merger or consolidation; or (iii) the sale or disposition of all or substantially all of Employer's assets (or consummation of any transaction having similar effect). "Disability" means that: (i) Employee has been incapacitated by bodily injury, illness or disease so as to be prevented thereby from effectively performing Employee's duties; (ii) Such incapacity shall have continued for a period of six (6) consecutive months; and (iii) Such incapacity will, in the opinion of a qualified physician, be long-term, which shall mean a period exceeding twelve (12) months. "Employee" means Gerald D. Brennan Jr.. "Employer" means Aastrom Biosciences, Inc., a Michigan corporation, and, following a Change in Control, any Successor that agrees to assume all of the terms and provisions of this Agreement, or a Successor which otherwise becomes bound by operation of law to this Agreement. "Good Reason" means the occurrence of any of the following conditions following a Change in Control, without Employee's informed written consent, which condition(s) remain(s) in effect ten (10) days after written notice to Employer from Employee of such condition(s): (i) assignment of Employee to responsibilities or duties that are not a Substantive Functional Equivalent of the position which Employee occupied prior to the Change in Control; (ii) any decrease in Employee's base salary or target bonus amount (subject to applicable performance requirements with respect to the actual amount of bonus compensation earned by Employee); (iii) any failure by Employer to (A) continue to provide Employee with the opportunity to participate, on terms no less favorable than those in effect for the benefit of any employee group which customarily includes a person holding the employment position or a comparable position with Employer then held by Employee, in any benefit or compensation plans and programs, including, but not limited to, Employer's life, disability, health, dental, medical, savings, 2
profit sharing, stock purchase and retirement plans, if any, in which Employee was participating immediately prior to the date of the Change in Control, or their equivalent, or (B) provide Employee with all other fringe benefits (or their equivalent) from time to time in effect for the benefit of any employee group which customarily includes a person holding the employment position or a comparable position with Employer then held by Employee; (iv) the relocation of Employee's work place for Employer to a location more than 50 miles from the location of the work place prior to the Change in Control, or the imposition of travel requirements substantially more demanding of Employee than such travel requirements existing immediately prior to the Change in Control; or (v) any material breach of this Agreement by Employer. "Relocation Costs" shall mean the following actual out-of-pocket costs incurred by the Employee: (i) Coach class airfare for Employee's family to move from Arlington Heights, Illinois to Ann Arbor, Michigan, or, in the alternative, reimbursement of reasonable automobile operating costs (gas, tolls, etc.), not to exceed the current IRS permitted per mile allowances, for up to two automobiles required to move the Employee's family. (ii) Cost for packing, shipping, and unloading personal household furnishings and belongings from Employee's prior residence to a new residence in Ann Arbor, Michigan, including temporary storage as needed. (iii) Shipment of one personal vehicle from Arlington Heights, Illinois to Ann Arbor, Michigan, via common carrier. (iv) All real estate sales commissions paid by Employee on the sale of a current residence in Arlington Heights, Illinois ("Current Residence"), up to 6% of the gross selling price. (v) Normal and reasonable closing costs incurred by Employee in connection with the sale of a Current Residence if typically paid by the seller. Closing costs shall be defined as transfer taxes, documentary stamp taxes, title insurance premiums, recording charges, appraisals, inspections, attorneys fees, escrow fees and such other normal and reasonable closing costs as are specifically approved by the Chairman and Chief Executive Officer of Employer. Closing Costs shall not include payments required at closing for real property taxes or assessments, or proration of utilities or other prepaid expenses. (vi) The aggregate of all of the above-described costs shall not exceed sixty thousand dollars ($60,000) without prior written agreement of Employer. "Substantive Functional Equivalent" means an employment position occupied by Employee after a Change in Control that: 3
(i) is in a substantive area of competence consistent with Employee's experience and not materially different from the position occupied by Employee prior to the Change in Control; (ii) requires Employee to serve in a role and perform duties that are functionally equivalent to those performed prior to the Change in Control (such as, executive officer); (iii) carries a title that does not connote a lesser rank or corporate role than the title held by Employee prior to the Change in Control; and (iv) does not otherwise constitute a material, adverse change in Employee's responsibilities or duties, as measured against Employee's responsibilities or duties prior to the Change in Control, causing it to be of materially lesser rank or responsibility. "Successor" means Employer and any successor or assign to substantially all of its business and/or assets. 2. EMPLOYMENT. Employer hereby engages Employee, and Employee hereby accepts such engagement, upon the terms and conditions set forth herein. 3. DUTIES. Employee is engaged as Vice President, Administrative and Financial Operations. Employee shall perform faithfully and diligently the duties customarily performed by persons in the position for which employee is engaged, together with such other reasonable and appropriate duties as Employer shall designate from time to time. Employee shall devote Employee's full business time and efforts to the rendition of such services and to the performance of such duties. Employee shall not be entitled to provide consulting services or other business or scientific services to any other party, without the prior written consent of Employer. 4. COMPENSATION AND FRINGE BENEFITS. 4.1 BASE SALARY. During the term of this Agreement, as compensation for the proper and satisfactory performance of all duties to be performed by Employee hereunder, Employer shall pay to Employee a salary of two hundred twelve thousand five hundred dollars ($212,500) per year ("Base Salary"), payable in arrears in equal semi-monthly installments, less required deductions for state and federal withholding tax, Social Security and all other employee taxes and payroll deductions. The Base Salary shall be subject to review and adjustment on an annual basis. 4.2 CUSTOMARY FRINGE BENEFITS. Employee shall be entitled to such fringe benefits as Employer customarily makes available to employees of Employer engaged in the same or similar position as Employee ("Fringe Benefits"). Such Fringe Benefits may include vacation leave, sick leave, and health insurance coverage. Employer reserves the right to change the Fringe Benefits on a prospective basis, at any time, effective upon delivery of written notice to Employee. 4.3 VACATION. Employee is entitled to twenty days of vacation in each calendar year. 4
4.4 ACCUMULATION. Employee shall earn and accumulate unused vacation and sick leave in accordance with the Company's policy in effect from time to time. Further, Employee shall not be entitled to receive payments in lieu of Fringe Benefits, other than for unused vacation leave earned and accumulated at the time the employment relationship terminates. 4.5 RELOCATION COSTS. 4.5.1 Temporary Living Allowance. Employee agrees to relocate Employee's principal domestic residence to within fifty (50) miles of Ann Arbor, Michigan, by December 31, 2005. For so long as Employee maintains Employee's principal domestic residence in Arlington Heights, Illinois, but in no event later than December 31, 2005, Employer will reimburse Employee for the following costs: (i) Employee's actual out-of-pocket housing and related costs (including rent, insurance, utilities, local telephone service, laundry) in Ann Arbor, Michigan, in an aggregate amount of not more than two thousand dollars ($2,000) per calendar month. (ii) Employee's actual out-of-pocket costs for round trip coach airfare travel from Ann Arbor, Michigan, to, Chicago, Illinois up to one such trip per calendar week. Employee shall use reasonable best efforts to obtain the most economical fares available for such trips. 4.5.2 Relocation Costs. Employer shall reimburse Employee for the Relocation Costs. The Employee shall be required to refund and pay to Employer 100% of the Relocation Costs that have been paid by the Employer on the following terms: (i) If Employee's employment with Employer ceases within 18 months after Employee commences full-time employment with Employer (the "Commencement Date"), due to the Employee voluntarily electing to leave the employ of Employer, or Employer terminating the Employee for Cause, Employee hereby agrees to refund and pay to Employer 100% of the Relocation Costs that have been paid by Employer. (ii) If Employer elects to terminate the employment of Employee without Cause, then Employee shall have no obligation to refund any of the Relocation Costs. If Employee's employment terminates due to Employee's death or disability, then Employee shall have no obligation to refund any of the Relocation Costs. (iii) With respect to any of the Relocation Costs which Employee does become obligated to refund to Employer, as specified above, said refund shall be made within six months after the termination of employment. Any portion of the Relocation Costs which are obligated to be refunded by Employee, and which are not refunded within said six (6) months, shall thereafter bear a late payment charge of 10% per annum. 5. TERM. 5.1 COMMENCEMENT. The employment relationship pursuant to this Agreement shall commence at a date to be designated by mutual agreement of the Employer and Employee, but in any event such date shall not be later than July 2, 2005. 5
5.2 TERMINATION AT WILL. Employer and Employee acknowledge and agree that Employer's employment currently is "at will" and that their employment relationship may be terminated by either party at any time, with or without Cause. 6. PAYMENTS UPON TERMINATION. 6.1 PAYMENT OF COMPENSATION UPON TERMINATION. Upon termination of Employee's employment with the Company, Employee shall be entitled to be paid salary as provided in Section 4.1 through the effective date of such termination, as full compensation for any and all claims of Employee under this Agreement or otherwise, except as set forth in Section 6.2. 6.2 PAYMENT OF SEVERANCE UPON TERMINATION. 6.2.1 Severance. In the event Employee's employment is terminated by Employer without Cause, or in the event of Employee's termination of employment for Good Reason within twelve (12) months following a Change in Control, then Employer shall pay to Employee severance payment equal to six months of Employee's then current annual salary rate, less customary payroll deductions. The severance payment shall be paid in equal installments over six months in accordance with the Employer's normal payroll periods, except that severance payments due following a Change in Control shall be paid in a lump sum immediately following the Change in Control. 6.2.2 Continued Medical Coverage. In the event Employee's employment is terminated, then Employee shall be entitled to elect continued medical insurance coverage in accordance with applicable provisions of the Consolidated Budget Reconciliation Act of 1985 ("COBRA"). 6.2.3 Right to Terminate. Employer retains and reserves the right to terminate the employment of Employee at any time, with or without Cause. For avoidance of doubt, said severance payment shall not be owed if Employee's termination is for Cause, if Employee voluntarily terminates employment for reasons other than as specified in Section 6.2.1 hereof or if Employee's employment terminates as a result of Employee's death or disability. 6.2.4 No Liability. No director, officer or shareholder of Employer shall have any personal liability for the payment of any severance to Employee. 6.3 RESIGNATION. Employee's entitlement to any compensation or benefits under this Section 6 (other than compensation and benefits earned by Employee through the date of Employee's termination of employment) is conditioned upon Employee's resignation from all capacities in which Employee is then rendering services to Employer, including from the Board of Directors and any committees thereof on which Employee serves. 6.4 EXCLUSIVE REMEDY. The parties acknowledge and agree that the payments specified herein constitute Employee's sole and exclusive remedy for any alleged injury or other damages arising out of a termination of Employee's employment under circumstances described herein. Accordingly, as a condition to receipt of said payments, Employee shall sign a customary and reasonable release form, in the form attached hereto as Exhibit A, pursuant to which Employee acknowledges and agrees that Employee has no claims against Employer or any director, 6
officer, shareholder or agent of Employer, or any successor in interest to Employer, with respect to any employment matters or termination of employment (excepting only for accrued salary, accrued vacation leave and reimbursement of customary business expenses incurred on behalf of Employer, all in the ordinary course of business, or any incentive sale bonus to which Employee may be entitled, if any). 7. GENERAL PROVISIONS. 7.1 ATTORNEYS' FEES. In the event of any dispute or breach arising with respect to this Agreement, the party prevailing in any negotiations or proceedings for the resolution or enforcement thereof shall be entitled to recover from the losing party reasonable expenses, attorneys' fees and costs incurred therein. 7.2 AMENDMENTS. No amendment or modification of the terms or conditions of this Agreement shall be valid unless in writing and signed by both parties hereto. There shall be no implied-in-fact contracts modifying the terms of this Agreement. However, the noncumulation of benefits provision of Section 7.6 shall apply to any subsequent agreement, unless (i) such provision is explicitly disclaimed in the subsequent agreement, and (ii) the subsequent agreement has been authorized by the Board of Directors of the Employer or a committee thereof. 7.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the employment of Employee, other than relating to the Employer's stock option grants to Employee, the Employer's inventions, trade secrets, and proprietary and confidential information, competition with the Employer and solicitation of the Employer's employees. This Agreement supersedes all prior agreements, understandings, negotiations and representation with respect to the employment relationship. 7.4 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devises and legatees. 7.5 NO LIMITATION OF REGULAR BENEFIT PLANS. This Agreement is not intended to and shall not affect, limit or terminate any plans, programs, or arrangements of Employer that are regularly made available to a significant number of employees or officers of the Employer, including without limitation Employer's stock option plans. 7.6 NONCUMULATION OF BENEFITS. Employee may not cumulate cash severance payments under both this Agreement and another agreement. If Employee has any other binding written agreement with Employer which provides that, upon a Change in Control or termination of employment, Employee shall receive one or more of the benefits described in Sections 6 of this Agreement (i.e., the payment of cash compensation), then with respect to those benefits the aggregate amounts payable under this Agreement shall be reduced by the amounts paid or payable under such other agreements. 7.7 NO ASSIGNMENT OF BENEFITS. The rights of any person to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditors process, and any action in violation of this Section 7.7 shall be void. 7
7.8 NOTICES. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered, when mailed, if mailed by U.S. registered or certified mail, return receipt requested and postage prepaid, or when shipped, if shipped by nationally known reputable overnight delivery service and shipping charges prepaid. In the case of Employee, notices shall be addressed to Employee at the home address which he most recently communicated to the Employer, in writing. In the case of the Employer, notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. 7.9 NO DUTY TO MITIGATE. Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking employment with a new employer or in any other manner), nor shall any such payment be reduced by any earnings that Employee may receive from any other source except as otherwise provided herein. 7.10 NO REPRESENTATIONS. Employee acknowledges that in entering into this Agreement Employee is not relying and has not relied on any promise, representation or statement made by or on behalf of the Employer which is not set forth in this Agreement. 7.11 CHOICE OF LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Michigan, without regard to its choice of law rules. 7.12 WAIVER. Either party's failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement. 7.13 SEVERABLE PROVISIONS. The provisions of this Agreement are severable, and if any one or more provisions may be determined to be judicially unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. 7.14 TAX WITHHOLDING. The payments to be made pursuant to this Agreement will be subject to customary withholding of applicable income and employment taxes. 7.15 CONSULTATION. Employee acknowledges that this Agreement confers significant legal rights on Employee, and also involves Employee waiving other potential rights he might have under other agreements and laws. Employee acknowledges that Employer has encouraged Employee to consult with Employee's own legal, tax, and financial advisers before signing the Agreement; and that Employee has had adequate time to do so before signing this Agreement. 7.16 COUNTERPARTS. This Agreement may be executed in counterparts, and each of which shall be deemed an original, but all of which together will constitute one and the same instrument. 7.17 EXCESS PARACHUTE PAYMENT. In the event that any payment or benefit received or to be received by Employee pursuant to this Agreement or otherwise would subject Employee to 8
due to the characterization of such payment or benefit as an excess parachute payment under Section 280G of the Code, Employee may elect in his sole discretion to reduce the amounts of any payments or benefits otherwise called for under this Agreement in order to avoid such characterization. 7.18 CLAIMS PROCEDURE FOR SEVERANCE PAYMENTS. 7.18.5 Administrator. The administrator for purposes of the severance payments provided by Section 6.2 of this Agreement shall be the Employer ("Administrator"), whose address is 24 Frank Lloyd Wright Dr., P.O. Box 376, Ann Arbor, Michigan 48106, and whose telephone number is 734-930-5555. The "Named Fiduciary" as defined in Section 402(a)(2) of ERISA, also shall be the Employer. The Employer shall have the right to designate one or more employees as the Administrator and the Named Fiduciary at any time, and to change the address and telephone number of the same. The Employer shall give the Employee written notice of any change in the Administrator and Named Fiduciary, or in the address or telephone number of the same. 7.18.6 Claims. The Administrator shall make all determinations as to the right of any person to receive benefits under this Agreement. Any denial by the Administrator of a claim for benefits by the Employee ("the claimant") shall be stated in writing by the Administrator and delivered or mailed to the claimant within ten (10) days after receipt of the claim, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 10-day period. In no event shall such extension exceed a period of ten (10) days from the end of the initial period. Any notice of denial shall set forth the specific reasons for the denial, specific reference to pertinent provisions of this Agreement upon which the denial is based, a description of any additional material or information necessary for the claimant to perfect the claim, with an explanation of why such material or information is necessary, and any explanation of claim review procedures, and the time limits applicable to such procedures, including a statement of the claimant's right to bring a civil action under ERISA Section 502(a) after exhausting all levels of appeal provided herein, written to the best of the Administrator's ability in a manner that may be understood without legal or actuarial counsel. 7.18.7 Review of Claim Denial. A claimant whose claim for benefits has been wholly or partially denied by the Administrator may request, within sixty (60) days following the date of such denial, in a writing addressed to the Administrator, a review of such denial. The claimant shall be entitled to submit such issues or comments in writing or otherwise, as the claimant shall consider relevant to a determination of the claim, and the claimant may include a request for a hearing in person before the Administrator. Prior to submitting the request, the claimant shall be entitled to review such documents as are relevant to the claim. The claimant may, at all stages of review, be represented by counsel, legal or otherwise, of the claimant's choice. All requests for review shall be promptly resolved. The Administrator's decision with respect to any such review shall be set forth in writing and shall be mailed to the claimant not later than ten (10) days following receipt by the Administrator of the claimant's request unless special circumstances, such as the need to hold a hearing, require an extension of time for processing, in which case the Administrator's decision shall be so mailed not later than twenty (20) days after receipt of such request. 9
7.18.8 Arbitration. A claimant who has followed the procedure in paragraphs 7.18.2 and 7.18.3 of this Section, but who has not obtained full relief on the claim for benefits, may, within sixty (60) days following the claimant's receipt of the Administrator's written decision on review, apply in writing to the Administrator for arbitration of the claim as provided in Section 7.19. 7.19 ARBITRATION. (a) Either party to this Agreement, after complying with the requirements of Section 7.18, to the extent applicable, may submit any dispute under this Agreement for binding arbitration of the dispute before an arbitrator mutually acceptable to both parties, the arbitration to be held in Ann Arbor, Michigan, in accordance with the arbitration rules of the American Arbitration Association, as then in effect, and the rights of claimant under Section 7.18. If the parties are unable to mutually agree upon an arbitrator, then the arbitration proceedings shall be held before three arbitrators, one of which shall be designated by the Employer, one of which shall be designated by the claimant and the third of which shall be designated mutually by the first two arbitrators in accordance with the arbitration rules referenced above. The arbitrator(s) sole authority shall be to interpret and apply the provisions of this Agreement; the arbitrator(s) shall not change, add to, or subtract from, any of the Agreement's provisions. The arbitrator(s) shall have the power to compel attendance of witnesses at the hearing. Any court having jurisdiction may enter a judgment based upon such arbitration. Except as set forth in Section 7.18, the decision of the arbitrator(s) shall be final and binding on the parties to this Agreement and without appeal to any court. Except as set forth in Section 7.18, upon execution of this Agreement, the Employee shall be deemed to have waived any right to commence litigation proceedings regarding this Agreement outside of arbitration without the express written consent of the Employer. (b) In the case of a dispute relating to severance payments provided by Section 6.2, the decision of the arbitrator(s) shall be delivered or mailed to the claimant within sixty (60) days of the claimant's initial request for review of the denied claim under Section 7.18 unless special circumstances require an extension of time. If an extension is needed the arbitrator(s) shall, before the end of the sixty (60) day period, give to the claimant written notice of the special circumstances requiring the extension and the date by which the arbitrator(s) expect(s) to render a decision. The extension of time shall not exceed sixty (60) days from the end of the initial sixty (60) day period. Notwithstanding the provisions of Section 7.19(b), in the case of a dispute relating to severance payments provided by Section 6.2, the claimant shall not be precluded from challenging the arbitrator's decision under Section 502(a) of ERISA. 7.20 ERISA. The severance compensation provided by Section 6.2 of this Agreement constitutes an unfunded compensation arrangement for a member of a select group of the Employer's management and any exemptions under ERISA, as applicable to such an arrangement, shall be applicable to this Agreement. Section 7.18, Section 7.19(b) and Section 7.20 apply to the severance compensation provided by Section 6.2 of this Agreement. 10
7.21 REPORTING AND DISCLOSURE. The Employer, from time to time, shall provide government agencies with such reports concerning this Agreement as may be required by law, and the Employer shall provide the Employee with such disclosure concerning this Agreement as may be required by law or as the Employer may deem appropriate. 8. EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that Employee (i) is free to enter into this Agreement and to perform each of the terms and covenants contained herein, (ii) is not restricted or prohibited, contractually or otherwise, from entering into and performing this Agreement, and (iii) will not be in violation or breach of any other agreement by reason of Employee's execution and performance of this Agreement. 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. EMPLOYER: Aastrom Biosciences, Inc. By: ______________________________ Its: _____________________________ EMPLOYEE: ______________________________ Name: ______________________________ Address: ___________________________ ___________________________ 12
EXHIBIT 10.87 [AASTRORM BIOSCIENCES INC LOGO] ________________P.O. Box 376 - Ann Arbor. Michigan 40106 - Ph: 734-93O-5555 - Fax: 734-665-0485 Located at: Domino's Farms, Lobby L December 5, 2002 Maria Sippola-Thiele, Ph.D. University of Michigan Technology Transfer Office 715 East Huron Suite 2 West Ann Arbor, MI 48104. Re: US Patents 5,804,431; 5,654,185; 5,811,274 Dear Maria, Under the terms of the technology License Agreement ("Agreement") between Aastrom and the University of Michigan (UM), dated 3-13-92, Aastrom must pay a royalty on products sold that are based on the above referenced patents. The royalty can be as much as 2%. The royalty rate was provided in addition to a large amount of Aastrom stock, which UM has already received. The rate also recognized that the research leading to this technology would be funded entirely by Aastrom and largely took place in Aastrom facilities. The License Agreement allows Aastrom to sublicense rights these patents provided that the UM royalty provision is maintained. The 2% royalty envisioned therapeutic, applications of the technology, where large margins and royalties in the 7 to 10% range are customary. On the other hand, for research products, royalty rates are customarily in the 1 to 4% range. Aastrom has the opportunity to sublicense the above patents for research applications to Coming However, under this proposed agreement, only a 3.5% royalty will be provided for certain sales of research product. Aastrom would like to move forward with this sublicense agreement, but request that UM adjust the 2% royalty payable to UM in the following way for a research product sublicense. The following language would be used as an amendment to the Aastrom-UM Agreement for the above referenced patents; "Aastrom Biosciences, Inc. (Aastrom) and the University of Michigan (UM) agree to this amendment of the Technology License Agreement (Agreement) dated 3-13-92, such that the royalty to be paid to UM resulting from the sublicense for research products of US patents 5,804,431; 5,654,185; and 5,811,274, will either be the 2% royalty as described in the Agreement, or an amount equal to 35% of the royalty payments received by Aastrom, whichever is less."
AASTROM BIOSCIENCES, INC. Maria Sippola-Thiele December 5, 2002 Page 2 If these terms are acceptable to the University of Michigan, then please so indicate below, and return one copy of this letter. Thank you. Sincerely, /s/ R. Douglas Armstrong - --------------------------- R. Douglas Armstrong, Ph.D. President and Chief Executive Officer cc: Knox Bell, Esq. - Gray Cary Ware Friedenrich Alan Wright - Aastrom Biosciences, Inc. UM HEREBY ACCEPTS AND AGREES TO THE REVISED AGREEMENT TERMS STATED ABOVE. University of Michigan: /s/ Kenneth J. Nisbet Date: 12/10/02 - ------------------------ (Signature) Kenneth J, Nisbat (Name) Executive Director UM Technology Transfer (Title)
1. | I have reviewed this Form 10-K of Aastrom Biosciences, Inc.; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
/s/ R. Douglas Armstrong, Ph.D. | ||
R. Douglas Armstrong, Ph.D. | ||
Chief Executive Officer and Chairman |
1. | I have reviewed this Form 10-K of Aastrom Biosciences, Inc.; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
/s/ Gerald D. Brennan, Jr. | ||
Gerald D. Brennan, Jr. | ||
Vice President Administrative and Financial | ||
Operations and Chief Financial Officer |
(1) | The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and | ||
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ R. Douglas Armstrong, Ph.D. | ||
R. Douglas Armstrong, Ph.D. | ||
Chief Executive Officer and Chairman |
(1) | The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and | ||
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Gerald D. Brennan, Jr. | ||
Gerald D. Brennan, Jr. | ||
Vice President Administrative and Financial | ||
Operations and Chief Financial Officer |