<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999, OR
------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO ______
Commission file number 0-22025
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AASTROM BIOSCIENCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 94-3096597
- ---------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
24 Frank Lloyd Wright Dr.
P.O. Box 376
Ann Arbor, Michigan 48106
- ---------------------------------------- ----------------------------
(Address of principal executive offices) (Zip code)
(734) 930-5555
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] - Yes [_] - No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
COMMON STOCK, NO PAR VALUE 16,994,125
(Class) Outstanding at November 8, 1999
<PAGE>
AASTROM BIOSCIENCES, INC.
Quarterly Report on Form 10-Q
September 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
<S> <C>
a) Consolidated Condensed Balance Sheets as of June 30, 1999 and
September 30, 1999 3
b) Consolidated Condensed Statements of Operations for the three
months ended September 30, 1998 and 1999 and for the period from
March 24, 1989 (Inception) to September 30, 1999 4
c) Consolidated Condensed Statements of Cash Flows for the three
months ended September 30, 1998 and 1999 and for the period from
March 24, 1989 (Inception) to September 30, 1999 5
d) Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
------------ -------------
Assets (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,528,000 $ 5,015,000
Receivables 113,000 193,000
Inventory 1,144,000 70,000
Prepaid expenses and other 253,000 528,000
------------ -------------
Total current assets 9,038,000 5,806,000
PROPERTY, NET 502,000 448,000
------------ -------------
Total assets $ 9,540,000 $ 6,254,000
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 836,000 $ 1,057,000
Accrued employee expenses 193,000 197,000
------------ -------------
Total current liabilities 1,029,000 1,254,000
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; shares
authorized - 5,000,000; shares issued
and outstanding - 7,000 6,588,000 6,684,000
Common stock, no par value; shares
authorized - 40,000,000; shares issued
and outstanding - 16,980,161 and
16,994,125, respectively 72,257,000 72,281,000
Deficit accumulated during the development stage (70,334,000) (73,965,000)
------------ -------------
Total shareholders' equity 8,511,000 5,000,000
------------ -------------
Total liabilities and shareholders' equity $ 9,540,000 $ 6,254,000
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
March 24, 1989
Three months ended (Inception) to
September 30, September 30,
--------------------------
1998 1999 1999
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES:
Product sales and rentals $ - $ 114,000 $ 148,000
Grants 163,000 271,000 3,507,000
Research and development agreements - - 2,020,000
------------ ----------- ------------
Total revenues 163,000 385,000 5,675,000
------------ ----------- ------------
COSTS AND EXPENSES:
Cost of product sales and rentals - 1,230,000 1,236,000
Research and development 3,093,000 1,610,000 66,411,000
Selling, general and administrative 651,000 1,161,000 15,897,000
------------ ----------- ------------
Total costs and expenses 3,744,000 4,001,000 83,544,000
------------ ----------- ------------
LOSS FROM OPERATIONS (3,581,000) (3,616,000) (77,869,000)
------------ ----------- ------------
OTHER INCOME (EXPENSE):
Interest income 221,000 81,000 3,790,000
Interest expense (2,000) - (267,000)
Other income - - 1,237,000
------------ ----------- ------------
Total other income 219,000 81,000 4,760,000
------------ ----------- ------------
NET LOSS $ (3,362,000) $(3,535,000) $(73,109,000)
============ =========== ============
COMPUTATION OF NET LOSS APPLICABLE TO COMMON SHARES:
Net loss $ (3,362,000) $(3,535,000)
Dividends and yields on Preferred Stock (220,000) (96,000)
------------ -----------
Net loss applicable to Common Shares $ (3,582,000) $(3,631,000)
============ ===========
NET LOSS PER COMMON SHARE (Basic and Diluted) $ (.27) $ (.21)
============ ===========
Weighted average number of common shares outstanding 13,384,000 16,985,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
March 24, 1989
Three months ended (Inception) to
September 30, September 30,
--------------------------
1998 1999 1999
----------- ----------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(3,362,000) $(3,535,000) $ (73,109,000)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 87,000 181,000 2,865,000
Loss on property held for resale - - 110,000
Amortization of discounts and premiums on investments (47,000) - (453,000)
Stock compensation expense 4,000 5,000 544,000
Stock issue pursuant to license agreement - - 2,200,000
Changes in assets and liabilities:
Receivables (16,000) (80,000) (217,000)
Inventory - 1,074,000 (70,000)
Prepaid expenses 78,000 (275,000) (528,000)
Accounts payable and accrued expenses 37,000 221,000 1,057,000
Accrued employee expenses - 4,000 197,000
----------- ----------- --------------
Net cash used for operating activities (3,219,000) (2,405,000) (67,404,000)
----------- ----------- --------------
INVESTING ACTIVITIES:
Organizational costs - - (73,000)
Purchase of short-term investments (1,000,000) - (44,464,000)
Maturities of short-term investments 3,600,000 - 44,917,000
Capital purchases (44,000) (127,000) (2,576,000)
Proceeds from sale of property held for resale - - 400,000
----------- ----------- --------------
Net cash provided by (used for) investing activities 2,556,000 (127,000) (1,796,000)
----------- ----------- --------------
FINANCING ACTIVITIES:
Issuance of preferred stock 4,689,000 - 51,647,000
Issuance of Common Stock 34,000 19,000 20,260,000
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 (17,000) - (1,174,000)
----------- ----------- --------------
Net cash provided by financing activities 4,706,000 19,000 74,215,000
----------- ----------- --------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,043,000 (2,513,000) 5,015,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,078,000 7,528,000 -
----------- ----------- --------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 6,121,000 $ 5,015,000 $ 5,015,000
=========== =========== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 2,000 - $ 267,000
Additions to capital lease obligations - - 1,174,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
Aastrom Biosciences, Inc. (Aastrom) was incorporated in March 1989
(Inception) and is in the development stage. The Company operates its
business in one reportable segment - research and product development,
conducted both on its own behalf and in connection with various
collaborative research and development agreements with others, involving
the development and sale of processes and products for the ex vivo
production of human cells for use in cell and ex vivo gene therapy.
Successful future operations are subject to several technical and business
risks, including satisfactory product development, obtaining regulatory
approval and market acceptance for its products and the Company's ability
to obtain future funding.
2. Basis of Presentation
The condensed financial statements included herein have been prepared by
the Company without audit according to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The financial statements reflect,
in the opinion of management, all adjustments necessary to present fairly
the financial position and results of operations as of and for the periods
indicated. The results of operations for the three months ended September
30, 1999, are not necessarily indicative of the results to be expected for
the full year or for any other period.
The consolidated financial statements include the accounts of Aastrom and
its wholly-owned subsidiary, Zellera AG (Zellera) which is located in
Berlin, Germany, (collectively, the Company). All significant inter-company
transactions and accounts have been eliminated in consolidation.
These financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K, as filed with the Securities and Exchange Commission.
3. Net Loss Per Common Share
Net loss per common share is computed using the weighted-average number of
common shares outstanding during the period. Common equivalent shares are
not included in the per share calculation where the effect of their
inclusion would be anti-dilutive.
6
<PAGE>
The computation of net loss per common share reflects dividends and yields
on the Company's outstanding preferred stock which affect only the
computation of net loss per common share and are not included in the
computation of net loss for the period.
4. Operational Changes
In September and October 1999, the Company began implementation of
reductions in its operations designed to decrease operating expenses and to
align the Company's resources with its focus on pursuing corporate
strategic alternatives, including a possible merger or acquisition. The
Company has retained Salomon Smith Barney to assist with this process. As
part of these operational changes, expansion of European marketing
activities for the AastromReplicell(TM) System were suspended and U.S.
clinical trial programs have been reduced while strategic partnering is
pursued. Accordingly, costs and expenses for the quarter ended September
30, 1999 include cost of product sales of $1,230,000, consisting
principally of AastromReplicell(TM) System inventory that was written down.
The operational changes are expected to reduce recurring operating expenses
by an estimated 30%. Staff and operations that are required for product
support, technology transfer and key management to support the merger and
acquisition process have been retained. Grant-funded research activities
will also continue, as well as preparatory activities for clinical trials
in adult cord blood transplantation and in the treatment of severe
osteoporosis. The Company expects to report severance and other costs
related to these operational changes in its results for the quarter ending
December 31, 1999.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Since its inception, the Company has been in the development stage and engaged
in research and product development, conducted principally on its own behalf,
but also in connection with various collaborative research and development
agreements with others. Due to funding limitations, the Company has suspended
the expansion of the initial product launch in Europe of the
AastromReplicell(TM) Cell Production System (System). Accordingly, the Company
does not expect to generate positive cash flows from operations for at least the
next several years, and even then, only if funding is obtained and marketing
activities can be resumed. Unless more significant product sales commence, the
Company expects that its revenue sources will continue to be limited to grant
revenue and research funding, milestone payments and licensing fees from
potential future corporate collaborators. The timing and amount of such future
cash payments and revenues, if any, will be subject to significant fluctuations,
based in part on the success of the Company's research activities, the receipt
of necessary regulatory approvals, the timing of the achievement of certain
other milestones and the extent to which associated costs are reimbursed under
grants or other arrangements. Additionally, with the initiation of planned
reductions in the Company's operations, the potential for revenues from these
sources will be reduced. A portion of the Company's revenues from product sales
will be subject to the Company's obligation to make aggregate royalty payments
of up to 2% to certain licensors of its technology. Research and development
expenses may fluctuate due to the timing of expenditures for the varying stages
of the Company's research, product development and clinical development
programs. Generally, product development expenses for the AastromReplicell(TM)
System have decreased as the product has progressed into general production and
market launch. Following receipt of sufficient funding, clinical development
activities, although currently reduced, and related costs are expected to
increase to complete U.S. pivotal clinical trials. Similarly, if the Company
resumes marketing activities, marketing and other general and administrative
expenses are expected to increase in support of European marketing activities.
Under the Company's license agreement with Immunex, the $1,000,000 annual
renewal fees due in March 1998 and 1999 were each paid through the issuance of
$1,100,000 of the Company's common stock. An additional $1,000,000 renewal fee
is due in March 2000 and the Company has negotiated for the payment of this fee
through the issuance of common stock. As a result of these and other factors,
the Company's results of operations have fluctuated and are expected to continue
to fluctuate significantly from year to year and from quarter to quarter and
therefore may not be comparable to or indicative of the result of operations for
any future periods.
In May 1999, the Company formed Zellera AG (Zellera) as a wholly-owned
subsidiary based in Berlin, Germany. The formation of Zellera is intended to
provide access to additional funding and collaboration opportunities in new
product areas. Initial funding for Zellera is being pursued, which is planned
to consist of a combination of investment capital and loans and subsidies from
the German government. With this potential funding, Zellera would have access
to Aastrom's intellectual property base for human cell therapies and would
develop new product
8
<PAGE>
areas. This funding, if obtained, will be used to support Zellera's own
operations, but is not expected to directly support Aastrom.
Over the past several years, the Company's net loss has primarily increased,
consistent with the growth in the Company's scope and size of operations. Given
the current financing alternatives available to the Company in the U.S. and
European capital markets, the Company believes that a business combination can
best achieve the objective of leveraging its product line into broader market
opportunities. Accordingly, operational changes were implemented in September
and October 1999 which are intended to align the Company's existing resources to
best support the corporate partnering direction. The operational changes are
expected to reduce recurring operating expenses by an estimated 30%. Staff and
operations that are required for product support, technology transfer and key
management to support the merger and acquisition process have been retained.
Grant-funded research activities will also continue, as well as preparatory
activities for clinical trials in adult cord blood transplantation and in the
treatment of severe osteoporosis. The Company has suspended further European
marketing of the AastromReplicell(TM) System and has reduced its U.S. clinical
trial programs while strategic partnering is pursued. The Company expects to
report severance and other costs related to these operational changes in its
results for the quarter ending December 31, 1999.
If the Company resumes expanded operations, a future growth in employee
headcount will be necessary to address requirements in the areas of product and
customer support, research, clinical and regulatory affairs, quality systems,
sales and marketing and administration. Assuming capital is available to
finance such growth, the Company's operating expenses will increase as a result.
At least until such time as the Company enters into arrangements providing
research and development funding or achieves greater product sales, the Company
will continue to incur net operating losses. The Company has never been
profitable and does not anticipate having net income unless and until
significant product sales commence, which is unlikely to occur until the Company
obtains significant additional funding. Through September 30, 1999, the Company
has accumulated losses of $73,109,000. There can be no assurance that the
Company will be able to achieve profitability on a sustained basis, if at all,
obtain the required funding or complete a corporate partnering or acquisition
transaction.
Results of Operations
Revenues for the quarter ended September 30, 1999 were $385,000 compared to
$163,000 in 1998. The revenues for the first quarter of fiscal year 2000
include product sales of $114,000 for AastromReplicell(TM) System therapy kits
and equipment rentals. There were no product sales or rental revenues in the
quarter ended September 30, 1998. Grant revenues increased from $163,000 in
1998 to $271,000 in 1999, reflecting increased activities under grant funded
programs.
Costs and expenses for the quarter ended September 30, 1999 were $4,001,000,
compared to $3,744,000 in 1998. Costs and expenses for the quarter ended
September 30, 1999 include cost of product sales of $1,230,000, consisting
principally of AastromReplicell(TM) System inventory that was written down with
the suspension of marketing activities discussed above. Otherwise,
9
<PAGE>
1999 expenses reflect a decline in research and development expense for the
AastromReplicell(TM) System from $3,093,000 in 1998 to $1,610,000 in 1999 as the
product line reached the European marketplace. Selling, general and
administrative expense increased from $651,000 in 1998 to $1,161,000 in 1999,
relating to increased European marketing costs for the AastromReplicell(TM)
System and other European activities.
Interest income was $81,000 for the quarter ended September 30, 1999 compared to
$221,000 in 1998. This decrease corresponds to a decrease in the level of cash,
cash equivalents and short-term investments during the 1999.
The Company's net loss was $3,535,000, or $.21 per common share for the quarter
ended September 30, 1999 compared to $3,362,000, or $.27 per common share in
1998. This increase is primarily the result of increased costs and expenses and
decreased interest income in 1999, partially offset by product sales and
rentals. The computations of net loss per common share include adjustments for
dividends and yields on outstanding preferred stock. These adjustments affect
only the computation of net loss per common share and are not included in the
net loss for the periods
Liquidity and Capital Resources
The Company has financed its operations since inception primarily through public
and private sales of its equity securities, which, from inception through June
30, 1999, have totaled approximately $78,965,000 and, to a lesser degree,
through grant funding, payments received under research agreements and
collaborations, interest earned on cash, cash equivalents, and short-term
investments, and funding under equipment leasing agreements.
The Company's combined cash, cash equivalents and short-term investments totaled
$5,015,000 at September 30, 1999, a decrease of $2,513,000 from June 30, 1999.
The primary uses of cash, cash equivalents and short-term investments during the
quarter ended September 30, 1999 included $2,405,000 to finance the Company's
operations and working capital requirements and $127,000 in capital equipment
additions.
The Company's future cash requirements will depend on many factors, including
the outcome of strategic partnering and corporate alliance discussions,
continued scientific progress in its research and development programs, the
scope and results of clinical trials, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing, prosecuting and enforcing
patents, competing technological and market developments and the cost of product
commercialization. The Company does not expect to generate a positive cash flow
from operations for at least the next several years due to the expected spending
for research and development programs and the cost of commercializing its
product candidates, as well as the suspension of marketing activities as a
result of limited resources. The Company intends to seek additional funding
through research and development, or distribution and marketing, agreements with
suitable corporate collaborators, grants and through public or private financing
transactions. The Company is attempting to obtain such additional funding. If
such additional funding cannot be obtained, the Company will be forced to
further substantially reduce the scope and size of its
10
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operations and has only a very limited amount of capital to sustain its
operations, even at a reduced scale. This is a forward-looking statement which
could be negatively impacted by funding limitations and other factors discussed
under this heading and under the caption "Business Risks" in the Company's
Annual Report on Form 10-K. The Company expects that its primary sources of
capital for the foreseeable future will be through potential collaborative
arrangements and through the public or private sale of its debt or equity
securities. There can be no assurance that such collaborative arrangements, or
any public or private financing, will be available on acceptable terms, if at
all, or can be sustained. Several factors will affect the Company's ability to
raise additional funding, including, but not limited to, market volatility of
the Company's Common Stock and economic conditions affecting the public markets
generally or some portion or all of the technology sector, including the
biotechnology sector. If adequate funds are not available, the Company will be
required to further delay, reduce the scope of, or eliminate one or more of its
research and development programs, curtail capital expenditures and further
reduce or terminate other operating activities, which may have a material
adverse effect on the Company's business. See "Business Risks--Future Capital
Needs; Uncertainty of Additional Funding" in the Company's 1999 Annual Report on
Form 10-K and Notes to Financial Statements included herein.
11
<PAGE>
Certain Business Considerations
History of Operating Losses/Need for Additional Capital
The Company is a development stage company and there can be no assurance that
its product candidates for cell therapy will be successful. The Company has not
yet completed the development and clinical trials of any of its product
candidates and, accordingly, has not yet begun to generate significant revenues
from the commercialization of any of its product candidates in planned principal
markets. The Company expects to incur significant operating losses until
commercialization of its product candidates, primarily owing to its research and
development programs, including pre-clinical studies and clinical trials. The
development of the Company's products will require the Company to raise
substantial additional funds or to seek collaborative partners, or both, to
finance related research and development activities. The Company has an
immediate need for additional funding, and there can be no assurance that any
such additional funding will be available to the Company on reasonable terms, or
at all. Several factors will affect the Company's ability to raise necessary
additional funding, including market volatility of the Company's stock and
economic conditions affecting the public markets generally or some portion or
all of the technology sector, including biotechnology. If adequate funds are not
available, the Company will be required to further delay or terminate research
and development programs, curtail capital expenditures, and reduce or terminate
business development and other operating activities any of which would have a
material adverse effect on the Company's business. The Company has the
authority, without shareholder approval, to issue additional shares of preferred
stock and to fix the rights, preferences, privileges and restrictions of these
shares without any further vote or action by our shareholders. This authority,
together with certain provisions of the Company's charter documents, may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of our company.
This effect could occur even if our shareholders consider the change in control
to be in their best interest. The Company may be required to issue shares of
preferred stock to raise additional capital. These shares may have rights that
provide for preferential payment to the holder of the preferred shares before
payments are made to holders of the common stock. Thus, in the event of a
business combination, the holders of the preferred stock may receive a
disproportionate percentage of the total consideration received.
Potential Strategic Partnerships
The AastromReplicell(TM) System consists of an automated clinical system
designed to enable hospitals to produce patient-specific cells for use in the
treatment of a broad range of diseases. The Company believes that with diverse
fields of use, the overall market development and customer interface plans for
distribution and support will benefit from the consolidation of the product line
under disease-specific programs, and the Company is seeking such strategic
partners. There can be no assurance that the Company will be able to enter into
a new marketing and distribution relationship on acceptable terms with a
partner, if at all, or that if such a marketing and distribution partnership is
achieved, it will result in the successful commercialization and distribution of
the Company's technologies and product candidates.
12
<PAGE>
Failure to enter into such a new relationship, and further delays in the
planning or implementation of distribution or marketing activities while a new
partnership is sought, will have a material adverse effect on the Company's
business, financial condition and results of operations.
Product Development Uncertainties
Commercialization of the Company's technology and product candidates, including
its lead product candidate, the AastromReplicell(TM) System, will require
additional research and development by the Company as well as substantial
clinical trials. There can be no assurance that the Company will successfully
complete development of the AastromReplicell(TM) System or its other product
candidates for its planned principal markets, or successfully market its
technologies or product candidates, which lack of success would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company or its potential collaborators may encounter problems
or delays relating to research and development, market development, clinical
trials, regulatory approval and intellectual property rights of the Company's
technologies and product candidates. The Company's initial product development
efforts are primarily directed toward obtaining regulatory approval to market
the AastromReplicell(TM) System as an alternative, or improvement, to currently
used stem cell collection methods. These existing stem cell collection methods
have been widely practiced for a number of years, and there can be no assurance
that any of the Company's technologies or product candidates will be accepted by
the marketplace as readily as these or other competing processes and
methodologies, or at all. The Company also plans to pursue through strategic
relationships, clinical applications of the AastromReplicell(TM) System into
emerging cell therapies being developed by others. There can be no assurance
that such strategic relationships, if established, will successfully lead to
commercial applications of the AastromReplicell(TM) System.
Uncertainties of Clinical Trials
The approval of the U.S. Food and Drug Administration (the "FDA") will be
required before commercial sales of the Company's product candidates may
commence in the U.S. As a result of funding limitations, the Company has
reduced or suspended its clinical trial activities which were designed to
demonstrate the safety and biological activity of cells produced in the
AastromReplicell(TM) System in a limited number of patients. If these trials
are resumed and the results are successful, the Company intends to use these
results to seek approval from the FDA to commence commercial sales in the U.S.
for approved indications. Additionally, the results from completed clinical
studies and ongoing and future clinical studies, if positive, are intended to
support future marketing activities of the AastromReplicell(TM) System in
Europe. The patients enrolled in these trials will have undergone extensive
chemotherapy or radiation therapy treatments prior to infusion of cells produced
in the AastromReplicell(TM) System. Such treatments will have substantially
weakened these patients and may have irreparably damaged their blood and immune
systems. Due to these and other factors, it is possible that these patients may
die or suffer severe complications during the course of the current trials or
future trials. For example, in the trials to date, some of the patients who
have been in the transplant recovery process have died from complications
related to the patient's clinical condition that, according to the
13
<PAGE>
physicians involved, were unrelated to the AastromReplicell(TM) System
procedure. The Company may experience delays in patient accruals in its current
clinical trials or in future clinical trials, which could result in increased
costs associated with the clinical trials or delays in receiving regulatory
approvals and commercialization, if any. The results of pre-clinical studies and
early clinical trials of the Company's product candidates may not necessarily be
indicative of results that will be obtained from subsequent or more extensive
clinical trials. Further, there can be no assurance that pre-pivotal or pivotal
clinical trials of any of the Company's product candidates will demonstrate the
safety, reliability and efficacy of such products, or of the cells produced in
such products, to the extent necessary to obtain required regulatory approvals
or market acceptance. There can be no assurance that, even after the
expenditures of substantial time and financial resources, regulatory approval
will be obtained for any products developed by the Company.
European Regulatory Matters
The AastromReplicell(TM) System components, are currently being regulated in
Europe as Class I Sterile, Class IIb, or Class III Medical Devices, under the
authority of the new Medical Device Directives ("MDD") being implemented by
European Union ("EU") member countries. In order for the Company to market its
products in Europe, permission to affix the CE Mark from a Notified Body is
required which certifies that the Company and its operations comply with certain
minimum quality standards and compliance procedures, or, alternatively, that its
manufactured products meet a more limited set of requirements. The Company may
also be required to comply with certain country-specific regulations in order to
market its products. The Company has received approval to affix the CE Mark to
the AastromReplicell(TM) System instrumentation platform and the various
components of the SC-I Therapy Kit for the production of bone marrow derived
cells and the CB-I Therapy Kit used for expansion of umbilical cord blood cells.
While initial approvals have been obtained, there can be no assurance that the
Company and its suppliers will be able to meet the ongoing minimum requirements
necessary to maintain such compliance. The inability to maintain production-
level manufacturing of the AastromReplicell(TM) System or non-compliance with
the ongoing regulatory requirements to permit commercialization would have a
material adverse effect on the Company's business, strategic partnering
activities, financial condition and results of operations. Further, there can
be no assurance that the AastromReplicell(TM) System will continue to be
regulated in Europe under its current status. If the AastromReplicell(TM)
System is not so regulated, the Company could be forced to obtain additional
regulatory approvals and could be subject to additional regulatory requirements
and uncertainty, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
Recent Equity Financings
In July 1998 and May 1999 the Company sold shares of its newly created 1998
Series I Convertible Preferred Stock (the "Series I Preferred") and shares of
its newly created 1999 Series III Convertible Preferred Stock (the "Series III
Preferred"), respectively, to one investor. The Series I Preferred and Series
III Preferred shares are each convertible into a number of shares of common
stock that increases as the current market price of the common stock decreases.
If the
14
<PAGE>
selling shareholder was able to and did convert all of the outstanding Series I
and Series III shares as of November 1, 1999, the selling shareholder would have
received approximately 15.5 million shares of common stock. This number of
shares could become significantly greater in the event of a decrease in the
trading price of the common stock. Existing holders of common stock could
therefore experience substantial dilution of their investment upon conversion of
the Series I Preferred and Series III Preferred shares. The holders of Series I
Preferred and Series III Preferred shares may require the Company to redeem some
or all of those shares. These redemption rights would be triggered if the
Company fails to issue shares of common stock on conversion of the Series I
Preferred or Series III Preferred, if the Company fails to maintain the
effectiveness of a registration statement for the resale of those shares of
common stock, if the Company is subject to bankruptcy or insolvency proceedings,
if the Company fails to maintain its listing on the Nasdaq stock market, or if
the Company fails to obtain shareholder approval of the issuance of the Series
III shares and the conversion of those Series III shares would result in the
issuance of more than 3,084,340 shares of common stock. Any redemption would
reduce our available cash resources, which are already very limited and would
cause the Company to be insolvent. A proposal to approve the issuance of common
shares upon the conversion of the Series III Preferred shares will be voted upon
at the Annual Shareholders Meeting to be held on November 17, 1999. Finally, an
acquisition of the Company or the sale of substantially all of its assets may
require the Company to allocate the first proceeds to payment of the liquidation
preference of the Series I Preferred and Series III Preferred shares. As a
result, it is possible that holders of the common stock would get little, if
any, return from such sale.
Dependence on Third Parties for Materials
The Company currently arranges for the manufacture of its product candidates and
their components, including certain cytokines, serum and media, with third
parties, and expects to continue to do so for the foreseeable future. There can
be no assurance that the Company's supply of such key cytokines, components,
product candidates and other materials will not become limited, be interrupted
or become restricted to certain geographic regions. There can also be no
assurance that the Company will be able to obtain alternative components and
materials from other manufacturers of acceptable quality, or on terms or in
quantities acceptable to the Company, if at all. Additionally, there can be no
assurance that the Company will not require additional cytokines, components and
other materials to manufacture, use or market its product candidates, or that
necessary key components will be available for use by the Company in the markets
where it intends to sell its products. In the event that any of the Company's
key manufacturers or suppliers fail to perform their respective obligations or
the Company's supply of such cytokines, components or other materials becomes
limited or interrupted, the Company would not be able to market its product
candidates on a timely and cost-competitive basis, if at all, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. Certain of the compounds used by the Company in its
current stem cell expansion process involve the use of animal-derived products.
The availability of these compounds for clinical and commercial use may become
limited by suppliers or restricted by regulatory authorities, which may impose a
potential competitive disadvantage for the Company's products compared to
competing products and procedures. There can be no assurance that the Company
will not experience delays or disadvantages related to the future
15
<PAGE>
availability of such materials which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Year 2000 Issues
Many currently installed computer systems and software products cannot
distinguish 20th century dates from 21st century dates. As a result, some
computer systems and/or software will experience operating difficulties unless
they are modified or upgraded to adequately process information involving,
related to, or dependent upon the century change. In light of the potentially
broad effects of the year 2000 on a wide range of business systems, the Company
may be affected. The Company utilizes, and is dependent upon, data processing
computer hardware and software to conduct our business. The Company has
completed an assessment of its own computer systems and based upon this
assessment, believes its computer systems are "Year 2000 compliant;" that is,
its computer systems are capable of adequately distinguishing 21st century dates
from 20th century dates. However, the Company may not have identified all
significant Year 2000 problems in our computer systems, and therefore may be
subject to unknown risk and expense. Based on its internal assessment, the
Company believes that the most likely worst case scenario would involve our
suppliers and manufacturers. The Company has not completely determined the
extent, or completed activities to minimize the risk of the computer systems of
our suppliers and manufacturers not being Year 2000 compliant, or not becoming
compliant on a timely basis. The Company expects to make inquiries with these
suppliers through the end of 1999. Year 2000 problems could prevent any of our
suppliers from timely delivery of products or services that the Company needs.
The Company currently believes that its costs to address the Year 2000 issue
relating to its suppliers will not be material, and that these costs will be
funded from its existing resources. To the extent practical, the Company
intends to identify alternative suppliers and manufacturers in the event our
preferred suppliers cannot deliver products or services that we need on a timely
basis. The Company's expectations of Year 2000 affects and the costs relating
to its suppliers and manufacturers are only estimates, which were derived from
numerous assumptions of future events, including the continued availability of
resources and third-party remediation plans with regard to year 2000 issues.
These estimates may not be correct and actual results could differ materially
from these estimates.
These business considerations, and others, are discussed in more detail and
should be read in conjunction with the Business Risks discussed in the Company's
Annual Report of Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
See Exhibit Index.
(b) Reports on Form 8-K
-------------------
The Company filed a Form 8-K on October 27, 1999.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AASTROM BIOSCIENCES, INC.
Date: November 12, 1999 /s/ R. Douglas Armstrong
-------------------------------------------
R. Douglas Armstrong, Ph.D.
President, Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1999 /s/ Todd E. Simpson
-------------------------------------------
Todd E. Simpson
Vice President, Finance and Administration,
Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
3.1* Restated Articles of Incorporation of the Company.
3.2** Bylaws of the Company.
10.49 Supplemental Agreement by and between Aastrom Biosciences,
Inc. and Bruce W. Husel dated October 5, 1999.
10.50 Supplemental Agreement by and between Aastrom Biosciences,
Inc. and William L. Odell dated October 1, 1999.
10.51 Supplemental Agreement by and between Aastrom Biosciences,
Inc. and Todd E, Simpson dated September 24, 1999.
10.52 Supplemental Agreement by and between Aastrom Biosciences,
Inc. and Alan K. Smith dated September 30, 1999.
10.53 Exclusive financial advisor agreement between Aastrom
Biosciences, Inc. and Salomon Smith Barney Inc., dated
September 10, 1999.
27.1 Financial Data Schedule.
________________________
* Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996, as filed on March 7, 1997.
** Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-15415), declared effective on February 3, 1997.
19
<PAGE>
EXHIBIT 10.49
SUPPLEMENTAL AGREEMENT TO EMPLOYMENT AGREEMENT
This Supplemental Agreement is made by and between Aastrom Biosciences,
Inc., a Michigan Corporation ("Employer") and Bruce W. Husel ("Employee"), with
respect to the existing Employment Agreement pursuant to which Employer has
employed Employee.
RECITALS
A. Employer currently employs Employee as a corporate officer.
B. Employer has previously agreed to provide severance compensation to
Employee under certain circumstances; and a purpose of this Agreement is to
clarify and memorialize the parties' rights and obligations with respect to
severance compensation.
C. This Agreement is also being entered into to provide Employee with
enhanced financial security and to provide sufficient incentives and
encouragement to Employee to remain with Employer, notwithstanding the
possibility of the occurrence in the future of a Change in Control (as defined
below) event for Employer.
D. As used in this Agreement, the following terms shall have the following
meanings:
"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 improper use or disclosure of confidential or
proprietary information of Employer;
(iii) Employee's gross negligence or willful misconduct in the
performance of Employee's assigned duties;
(iv) Employee's conviction (including any plea of guilty or nolo
contendre) of a crime of moral turpitude 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
events:
<PAGE>
(i) All or substantially all of the assets of Employer are sold (and
the pending proposed transactions involving Zellera AG shall not be deemed to
constitute such an event);
(ii) Employer is acquired by another company, by merger or by
acquisition of the stock of the Company, after which the previous shareholders
of Employer own less than 50% of all of the voting stock of the surviving
entity.
WHEREFORE, the parties mutually agree as follow:
1. Severance Pay. In the event of a Change in Control for Employer, if
-------------
Employee's employment by Employer (or the successor-in-interest to Employer) is
terminated for reasons other than Cause within one month before the Change in
Control or within one year after the Change in Control, or if within said one
month or one year period Employee's salary is reduced, or if the Employee's
employment status with respect to general responsibilities is significantly
reduced, (a change in title does not represent a change in responsibilities,
provided the new title is representative of the responsibilities) then Employer
(or the successor-in-interest to Employer) shall pay to Employee a lump sum
severance payment equal to six months of the salary rate which Employer was
paying to Employee immediately prior to the Change in Control. For avoidance of
doubt, said severance payment shall not be owed if Employee's termination is for
Cause, or if Employee voluntarily terminates his employment for reasons other
than a reduction in Employee's status.
2. Exclusive Remedy. The parties acknowledge and agree that the
----------------
severance payment specified in Section 1 hereof constitutes Employee's sole and
exclusive remedy for any alleged injury or other damages arising out of a
termination of his employment under circumstances described in Section 1 hereof.
Accordingly, as a condition to receipt of said severance payment, Employee shall
sign a customary and reasonable release form, pursuant to which Employee
acknowledges and agrees that he has no claims against Employer (or the
successor-in-interest to the Employer) or any director, officer, shareholder or
agent of 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 the Company,
all in the ordinary course of business).
3. General.
-------
(a) Prior Understandings. This Agreement supersedes and replaces all
--------------------
prior agreements and understandings with respect to severance payments upon
termination of Employee's employment with Employer.
(b) Successors. This Agreement shall bind and inure to the benefit of
----------
the parties' successors, assigns, heirs and legal representatives.
2
<PAGE>
(c) Amendments. This Agreement may be modified, amended or superseded
----------
only by a written document signed by both parties.
(d) Tax Withholding. The severance payment to be made pursuant to
---------------
this Agreement will be subject to customary withholding of applicable income and
employment taxes.
(e) 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.
(f) 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.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of October 5, 1999.
EMPLOYER
AASTROM BIOSCIENCES, INC., a
Michigan Corporation
By: \s\ R. Douglas Armstrong, Ph.D.
Its: President and CEO
EMPLOYEE
By: \s\Bruce W. Husel
3
<PAGE>
EXHIBIT 10.50
SUPPLEMENTAL AGREEMENT TO EMPLOYMENT AGREEMENT
This Supplemental Agreement is made by and between Aastrom Biosciences,
Inc., a Michigan Corporation ("Employer") and William L. Odell ("Employee"),
with respect to the existing Employment Agreement pursuant to which Employer has
employed Employee.
RECITALS
A. Employer currently employs Employee as a corporate officer.
B. Employer has previously agreed to provide severance compensation to
Employee under certain circumstances; and a purpose of this Agreement is to
clarify and memorialize the parties' rights and obligations with respect to
severance compensation.
C. This Agreement is also being entered into to provide Employee with
enhanced financial security and to provide sufficient incentives and
encouragement to Employee to remain with Employer, notwithstanding the
possibility of the occurrence in the future of a Change in Control (as defined
below) event for Employer.
D. As used in this Agreement, the following terms shall have the
following meanings:
"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 improper use or disclosure of confidential or
proprietary information of Employer;
(iii) Employee's gross negligence or willful misconduct in the
performance of Employee's assigned duties;
(iv) Employee's conviction (including any plea of guilty or nolo
contendre) of a crime of moral turpitude 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
events:
<PAGE>
(i) All or substantially all of the assets of Employer are sold (and
the pending proposed transactions involving Zellera AG shall not be deemed to
constitute such an event);
(ii) Employer is acquired by another company, by merger or by
acquisition of the stock of the Company, after which the previous shareholders
of Employer own less than 50% of all of the voting stock of the surviving
entity.
WHEREFORE, the parties mutually agree as follow:
1. Severance Pay. In the event of a Change in Control for Employer, if
-------------
Employee's employment by Employer (or the successor-in-interest to Employer) is
terminated for reasons other than Cause within one month before the Change in
Control or within one year after the Change in Control, or if within said one
month or one year period Employee's salary is reduced, or if the Employee's
employment status with respect to general responsibilities is significantly
reduced, (a change in title does not represent a change in responsibilities,
provided the new title is representative of the responsibilities) then Employer
(or the successor-in-interest to Employer) shall pay to Employee a lump sum
severance payment equal to six months of the salary rate which Employer was
paying to Employee immediately prior to the Change in Control. For avoidance of
doubt, said severance payment shall not be owed if Employee's termination is for
Cause, or if Employee voluntarily terminates his employment for reasons other
than a reduction in Employee's status.
2. Exclusive Remedy. The parties acknowledge and agree that the
----------------
severance payment specified in Section 1 hereof constitutes Employee's sole and
exclusive remedy for any alleged injury or other damages arising out of a
termination of his employment under circumstances described in Section 1 hereof.
Accordingly, as a condition to receipt of said severance payment, Employee shall
sign a customary and reasonable release form, pursuant to which Employee
acknowledges and agrees that he has no claims against Employer (or the
successor-in-interest to the Employer) or any director, officer, shareholder or
agent of 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 the Company,
all in the ordinary course of business).
3. General.
-------
(a) Prior Understandings. This Agreement supersedes and replaces all
--------------------
prior agreements and understandings with respect to severance payments upon
termination of Employee's employment with Employer.
(b) Successors. This Agreement shall bind and inure to the benefit of
----------
the parties' successors, assigns, heirs and legal representatives.
2
<PAGE>
(c) Amendments. This Agreement may be modified, amended or superseded
----------
only by a written document signed by both parties.
(d) Tax Withholding. The severance payment to be made pursuant to
---------------
this Agreement will be subject to customary withholding of applicable income and
employment taxes.
(e) 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.
(f) 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.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of October 1, 1999.
EMPLOYER
AASTROM BIOSCIENCES, INC., a
Michigan Corporation
By: \s\ R. Douglas Armstrong, Ph.D.
Its: President and CEO
EMPLOYEE
By: \s\ William L. Odell
3
<PAGE>
EXHIBIT 10.51
SUPPLEMENTAL AGREEMENT TO EMPLOYMENT AGREEMENT
This Supplemental Agreement is made by and between Aastrom Biosciences,
Inc., a Michigan Corporation ("Employer") and Todd E. Simpson ("Employee"), with
respect to the existing Employment Agreement pursuant to which Employer has
employed Employee.
RECITALS
A. Employer currently employs Employee as a corporate officer.
B. Employer has previously agreed to provide severance compensation to
Employee under certain circumstances; and a purpose of this Agreement is to
clarify and memorialize the parties' rights and obligations with respect to
severance compensation.
C. This Agreement is also being entered into to provide Employee with
enhanced financial security and to provide sufficient incentives and
encouragement to Employee to remain with Employer, notwithstanding the
possibility of the occurrence in the future of a Change in Control (as defined
below) event for Employer.
D. As used in this Agreement, the following terms shall have the following
meanings:
"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 improper use or disclosure of confidential or
proprietary information of Employer;
(iii) Employee's gross negligence or willful misconduct in the
performance of Employee's assigned duties ;
(iv) Employee's conviction (including any plea of guilty or nolo
contendre) of a crime of moral turpitude 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
events:
<PAGE>
(i) All or substantially all of the assets of Employer are sold (and
the pending proposed transactions involving Zellera AG shall not be deemed
to constitute such an event);
(ii) Employer is acquired by another company, by merger or by
acquisition of the stock of the Company, after which the previous
shareholders of Employer own less than 50% of all of the voting stock of
the surviving entity.
WHEREFORE, the parties mutually agree as follow:
1. Severance Pay. In the event of a Change in Control for Employer, if
-------------
Employee's employment by Employer (or the successor-in-interest to Employer) is
terminated for reasons other than Cause within one month before the Change in
Control or within one year after the Change in Control, or if within said one
month or one year period Employee's salary is reduced, or if the Employee's
employment status with respect to general responsibilities is significantly
reduced, (a change in title does not represent a change in responsibilities,
provided the new title is representative of the responsibilities) then Employer
(or the successor-in-interest to Employer) shall pay to Employee a lump sum
severance payment equal to six months of the salary rate which Employer was
paying to Employee immediately prior to the Change in Control. For avoidance of
doubt, said severance payment shall not be owed if Employee's termination is for
Cause, or if Employee voluntarily terminates his employment for reasons other
than a reduction in Employee's status.
2. Exclusive Remedy. The parties acknowledge and agree that the
----------------
severance specified in Section 1 hereof constitutes Employee's sole and
exclusive remedy for any alleged injury or other damages arising out of a
termination of his employment under circumstances described in Section 1 hereof.
Accordingly, as a condition to receipt of said severance payment, Employee shall
sign a customary and reasonable release form, pursuant to which Employee
acknowledges and agrees that he has no claims against Employer (or the successor
in-interest to the Employer) or any director, officer, shareholder or agent of
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 the Company, all in the
ordinary course of business).
3. General.
-------
(a) Prior Understandings. This Agreement supersedes and replaces all
--------------------
prior agreements and understandings with respect to severance payments upon
termination of Employee's employment with Employer.
(b) Successors. This Agreement shall bind and inure to the benefit
----------
of the parties' successors, assigns, heirs and legal representatives.
2
<PAGE>
(c) Amendments. This Agreement may be modified, amended or
----------
superseded only by a written document signed by both parties.
(d) Tax Withholding. The severance payment to be made pursuant to
---------------
this Agreement will be subject to customary withholding of applicable income and
employment taxes.
(e) 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.
(f) 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.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of September 24, 1999.
EMPLOYER
AASTROM BIOSCIENCES, INC., a
Michigan Corporation
By: \s\ R. Douglas Armstrong, Ph.D.
Its: President and CEO
EMPLOYEE
By: \s\ Todd E. Simpson
3
<PAGE>
EXHIBIT 10.52
SUPPLEMENTAL AGREEMENT TO EMPLOYMENT AGREEMENT
This Supplemental Agreement is made by and between Aastrom Biosciences,
Inc., a Michigan Corporation ("Employer") and Alan K. Smith ("Employee"), with
respect to the existing Employment Agreement pursuant to which Employer has
employed Employee.
RECITALS
A. Employer currently employs Employee as a corporate officer.
B. Employer has previously agreed to provide severance compensation to
Employee under certain circumstances; and a purpose of this Agreement is to
clarify and memorialize the parties' rights and obligations with respect to
severance compensation.
C. This Agreement is also being entered into to provide Employee with
enhanced financial security and to provide sufficient incentives and
encouragement to Employee to remain with Employer, notwithstanding the
possibility of the occurrence in the future of a Change in Control (as defined
below) event for Employer.
D. As used in this Agreement, the following terms shall have the
following meanings:
"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 improper use or disclosure of confidential or
proprietary information of Employer;
(iii) Employee's gross negligence or willful misconduct in the
performance of Employee's assigned duties;
(iv) Employee's conviction (including any plea of guilty or nolo
contendre) of a crime of moral turpitude 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
events:
<PAGE>
(i) All or substantially all of the assets of Employer are sold (and
the pending proposed transactions involving Zellera AG shall not be deemed to
constitute such an event);
(ii) Employer is acquired by another company, by merger or by
acquisition of the stock of the Company, after which the previous shareholders
of Employer own less than 50% of all of the voting stock of the surviving
entity.
WHEREFORE, the parties mutually agree as follow:
1. Severance Pay. In the event of a Change in Control for Employer, if
-------------
Employee's employment by Employer (or the successor-in-interest to Employer) is
terminated for reasons other than Cause within one month before the Change in
Control or within one year after the Change in Control, or if within said one
month or one year period Employee's salary is reduced, or if the Employee's
employment status with respect to general responsibilities is significantly
reduced, (a change in title does not represent a change in responsibilities,
provided the new title is representative of the responsibilities) then Employer
(or the successor-in-interest to Employer) shall pay to Employee a lump sum
severance payment equal to six months of the salary rate which Employer was
paying to Employee immediately prior to the Change in Control. For avoidance of
doubt, said severance payment shall not be owed if Employee's termination is for
Cause, or if Employee voluntarily terminates his employment for reasons other
than a reduction in Employee's status.
2. Exclusive Remedy. The parties acknowledge and agree that the
----------------
severance payment specified in Section 1 hereof constitutes Employee's sole and
exclusive remedy for any alleged injury or other damages arising out of a
termination of his employment under circumstances described in Section 1 hereof.
Accordingly, as a condition to receipt of said severance payment, Employee shall
sign a customary and reasonable release form, pursuant to which Employee
acknowledges and agrees that he has no claims against Employer (or the
successor-in-interest to the Employer) or any director, officer, shareholder or
agent of 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 the Company,
all in the ordinary course of business).
3. General.
-------
(a) Prior Understandings. This Agreement supersedes and replaces all
--------------------
prior agreements and understandings with respect to severance payments upon
termination of Employee's employment with Employer.
(b) Successors. This Agreement shall bind and inure to the benefit of
----------
the parties' successors, assigns, heirs and legal representatives.
2
<PAGE>
(c) Amendments. This Agreement may be modified, amended or superseded
----------
only by a written document signed by both parties.
(d) Tax Withholding. The severance payment to be made pursuant to
---------------
this Agreement will be subject to customary withholding of applicable income and
employment taxes.
(e) 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.
(f) 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.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of September 30, 1999.
EMPLOYER
AASTROM BIOSCIENCES, INC., a
Michigan Corporation
By: \s\ R. Douglas Armstrong, Ph.D.
Its: President and CEO
EMPLOYEE
By: \s\ Alan K. Smith
3
<PAGE>
EXHIBIT 10.53
September 10, 1999
Aastrom Biosciences, Inc.
24 Frank Lloyd Wright Drive
Lobby L
Ann Arbor, MI 48105
Attention: R. Douglas Armstrong, Ph.D.
President and CEO
Ladies and Gentlemen:
We are pleased that Aastrom Biosciences, Inc. (the "Company") has chosen
to engage Salomon Smith Barney Inc. ("SSB") as its exclusive financial adviser
in connection with a possible Transaction involving the Company. We look
forward to working with you on this engagement, and have set forth below the
agreed upon terms of our engagement.
Scope of Engagement. As we have discussed, in the course of our
-------------------
engagement as your exclusive financial adviser, we will perform such financial
advisory and investment banking services for the Company in connection with the
proposed Transaction as are customary and appropriate in transactions of this
type and as you reasonably request. For purposes of this agreement,
"Transaction" means, whether in one or a series of transactions, the sale,
transfer or other disposition, directly or indirectly, of all or a significant
portion of the business, assets or securities of the Company, whether by way of
a merger or consolidation, reorganization, recapitalization or restructuring,
tender or exchange offer, negotiated purchase, leveraged buyout, minority
investment or partnership, collaborative venture or otherwise, or any other
extraordinary corporate transaction involving the sale or disposition of all or
a significant portion of the Company. It is the intention of the Company to
sell all or a majority of its business, assets or securities.
Excluded from the definition of Transaction are (i) the Company's pending
activities with its subsidiary, Zeller AG, (ii) the issuance of the Company's
stock to Immunex in satisfaction of a $1,000,000 annual fee owed by the Company,
(iii) small corporate licensing transactions, and (iv) the Company's sale of
stock for raising working capital financing.
Notwithstanding anything herein to the contrary, if SSB does in fact assist the
Company with a Transaction for less than a majority of the business, assets or
securities of the Company, then the Company and SSB will set a mutually
agreeable fair fee for the services rendered by SSB, in lieu of the Schedule A
Transaction Fee.
<PAGE>
If SSB and the Company believe it to be advisable, we will assist you in
preparing a memorandum, for distribution to potential buyers selected by SSB and
the Company, describing the Company and its business, operations, properties,
financial condition and prospects.
If so requested by the Company, SSB will render, in accordance with our
customary practices, an opinion (the "Opinion") as to the fairness, from a
financial point of view, to the Company or to the holders of common stock of the
Company, as the case may be, of the consideration to be received in the
Transaction (or in the case of a Transaction that involves an exchange of
securities of the Company or its subsidiaries, the exchange ratio), it being
understood that the form and substance of such Opinion will be in our sole
judgment, and that we may qualify the Opinion in any manner that we believe
appropriate. The fee set forth in Schedule A covers this Opinion.
The Company authorizes SSB to negotiate and execute on the Company's behalf
confidentiality agreements with potential parties to a Transaction and to
deliver confidential memoranda or other data furnished to SSB by the Company for
distribution to such parties. The form of the confidentiality agreement, the
parties to whom the Company's confidential memoranda and other data are given,
and the extent of the Company's confidential materials to be given, shall all be
subject to the Company's prior approval.
Fees and Expenses. For our services hereunder, the Company will pay to SSB the
- -----------------
following cash fees:
(a) a fee determined in accordance with Schedule A hereto, payable
promptly upon consummation of a Transaction; plus
(b) if in connection with the termination or abandonment of a proposed
Transaction during the term of this agreement or within one year thereafter,
the Company receives any so-called "termination," "break-up," "topping" or
similar fee or payment (including any characterized as expense reimbursement
and any judgment for damages or amount in settlement of any dispute as a
result of any termination or other failure to consummate the Transaction) or
any profit arising from any shares (or option to acquire shares or assets) of
any prospective purchaser or any of its affiliates acquired in connection
with the Transaction, a termination fee equal to 15% of all such fees or
profits, payable in cash promptly upon receipt of any such compensation by
the Company.
In addition to any fees that may be payable to SSB hereunder and regardless of
whether any Transaction is proposed or consummated, the Company will promptly
reimburse SSB, from time to time upon request, for all reasonable travel and
other out-of-pocket expenses incurred in performing our services hereunder,
including reasonable fees and expenses of outside legal counsel in connection
with rendering the Opinion and as otherwise expressly agreed by the Company.
2
<PAGE>
Use of Information. The Company recognizes and confirms that SSB in
------------------
acting pursuant to this engagement will be using publicly available information
and information in reports and other materials provided by others, including,
without limitation, information provided by or on behalf of the Company and any
prospective purchaser, and that SSB does not assume responsibility for and may
rely, without independent verification, on the accuracy and completeness of any
such information. The Company agrees to furnish or cause to be furnished to SSB
all necessary or appropriate information for use in its engagement and hereby
warrants that any information relating to the Company or the Transaction that is
furnished to SSB by or on behalf of the Company will be true and correct in all
material respects and not misleading. The Company agrees that any information
or advice (including, without limitation, the Opinion) rendered by SSB or any of
our representatives in connection with this engagement is for the confidential
use of the Company only in its evaluation of a Transaction and the Company will
not, and will not permit any third party to, use it for any other purpose or
disclose or otherwise refer to such Opinion, advice or information, or to SSB,
in any manner without our prior written consent, except that, in the case of the
Opinion, the Company may reproduce the Opinion in full, and may also include
references to the Opinion and to SSB and its relationship with the Company (in
each case in form and substance as SSB shall approve), in any statement on
Schedule 14D-9 or proxy statement relating to such Transaction that the Company
is required to file under the Securities Exchange Act of 1934 and distribute to
its shareholders. The Company shall notify SSB of any contacts with the Company
made by prospective buyers.
Certain Acknowledgments. The Company acknowledges that SSB has been
-----------------------
retained solely as an advisor to the Company, and not as an advisor to or agent
of any other person, and that the Company's engagement of SSB is as an
independent contractor and not in any other capacity including as a fiduciary.
SSB may, to the extent it deems appropriate, render the services hereunder
through one or more of its affiliates. Neither this engagement, nor the
delivery of any advice in connection with this engagement, is intended to confer
rights upon any persons not a party hereto (including security holders,
employees or creditors of the Company) as against SSB or our affiliates or their
respective directors, officers, agents and employees. SSB may, at our own
expense, place announcements or advertisements in financial newspapers and
journals describing our services hereunder.
Indemnity. SSB and the Company have entered into a separate letter
---------
agreement, dated the date hereof, providing for the indemnification of SSB by
the Company in connection with SSB's engagement hereunder, the terms of which
are incorporated into this agreement in their entirety.
Termination of Engagement. SSB's engagement will commence on the date
-------------------------
hereof and will continue until the earlier of the consummation of a Transaction
and 24 months after the date hereof, unless extended by mutual written consent
or earlier terminated as provided below. Either the Company or SSB may
terminate this agreement at any time, with or without cause, by giving written
notice to the other party; provided, however, that that no such termination will
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affect the matters set out in this section or under the captions
3
<PAGE>
"Use of Information," "Certain Acknowledgments" and "Miscellaneous" or in the
separate letter agreement relating to indemnification. It is expressly agreed
that following the expiration or termination of this agreement, SSB will
continue to be entitled to receive fees as described above that have accrued
prior to such expiration or termination but are unpaid, as well as reimbursement
for expenses as contemplated above. It is also expressly agreed that, if a
Transaction is consummated within 12 months after the date of termination of
this agreement or if a definitive agreement that results in a Transaction is
entered into during such period, and said transaction is between the Company and
a party which was presented by SSB to the Company or a party with whom SSB
conducted negotiations prior to the expiration or termination of SSB's
engagement, then SSB shall be entitled to its full fees as described above.
Miscellaneous. This agreement is governed by the laws of the State of New
-------------
York, without regard to conflicts of law principles, will be binding upon and
inure to the benefit of the Company and SSB and their respective successors and
assigns. The Company and SSB agree to waive trial by jury in any action,
proceeding or counterclaim brought by or on behalf of either party with respect
to any matter whatsoever relating to or arising out of any actual or proposed
transaction or the engagement of or performance by SSB hereunder. The Company
also hereby submits to the jurisdiction of the courts of the State of New York
in any proceeding arising out of or relating to this agreement, including
federal district courts located in such state, agrees not to commence any suit,
action or proceeding relating thereto except in such courts, and waives, to the
fullest extent permitted by law, the right to move to dismiss or transfer any
action brought in such court on the basis of any objection to personal
jurisdiction, venue or inconvenient forum. This agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
We are delighted to accept this engagement and look forward to working
with you on this matter. Please confirm that the foregoing is in accordance
with your understanding of our agreement by signing and returning to us a copy
of this letter.
Very truly yours,
SALOMON SMITH BARNEY INC.
By /s/ Margery B. Fischbein
------------------------
Margery B. Fischbein
Managing Director
4
<PAGE>
Accepted and agreed to as of
the date set forth above:
AASTROM BIOSCIENCES, INC.
By /s/ R. Douglas Armstrong
------------------------
R. Douglas Armstrong, Ph.D.
President and CEO
5
<PAGE>
Schedule A
The Transaction Fee shall be calculated by multiplying the applicable Fee
Percentage and the Transaction Value per share multiplied by the number of fully
diluted shares outstanding (i.e., assuming conversion of outstanding preferred
shares and convertible debt, and exercise of options and warrants which are "in
the money"), provided that in the event of a Transaction Value not specified on
a per share basis, the Transaction Fee will be equivalent in amount to a
Transaction Fee calculated on a Transaction Value per share basis. For
Transaction Values of $3 per share or less, the Fee Percentage shall be 1.50% or
$750,000 whichever is greater; for all other Transaction Values, the Fee
Percentage shall be calculated in accordance with the following table where the
Fee Percentage is interpolated between the intervals of the Transaction Values
per share:
<TABLE>
<CAPTION>
Transaction Value Per Share Fee Percentage
---------------------------- --------------
<S> <C>
$3 per share or less 1.50% or $750,000, whichever is greater
Greater than $3 per share - $4 per share 1.75%
Greater than $4 per share - $5 per share 2.00%
Greater than $5 per share 2.50%
</TABLE>
For the purpose of calculating a Transaction Fee, "Transaction Value" shall
equal the total proceeds and other consideration received (which shall be deemed
to include amounts paid into escrow), and, in the case of a partnership, joint
venture or recapitalization or similar Transaction, contributed or to be
contributed by the Company or its shareholders, in connection with a
Transaction, including, without limitation: (i) cash; (ii) notes, securities and
other property valued at the fair market value thereof; (iii) liabilities,
including all debt, pension liabilities and guarantees owed by the Company and
assumed by the buyer; (iv) the present value of non-contingent payments to be
made in installments; and (v) in the case of any contingent payments (whether or
not related to future earnings or operations), the Company and SSB shall
mutually determine in good faith a value for said contingent payments to reflect
the risks, uncertainties and timing of said contingent payments.
For purposes of computing any fees payable to SSB hereunder, non-cash
consideration shall be valued as follows: (i) publicly traded securities shall
be valued at the average of their closing prices (as reported in the Wall Street
Journal) for the five trading days prior to the closing of the Transaction and
(ii) any other non-cash consideration shall be valued at the fair market value
thereof as determined in good faith by the Company and SSB.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,015,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 70,000
<CURRENT-ASSETS> 5,806,000
<PP&E> 3,109,000
<DEPRECIATION> 2,661,000
<TOTAL-ASSETS> 6,254,000
<CURRENT-LIABILITIES> 1,254,000
<BONDS> 0
0
6,684,000
<COMMON> 72,281,000
<OTHER-SE> (73,965,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,254,000
<SALES> 0
<TOTAL-REVENUES> 385,000
<CGS> 0
<TOTAL-COSTS> 4,001,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,535,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,535,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,535,000)
<EPS-BASIC> (.21)
<EPS-DILUTED> (.21)
</TABLE>
