<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES EXCHANGE
ACT OF 1934
for the quarterly period ended December 31, 1999
-----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES EXCHANGE
ACT OF 1934
for the transition period from _____ to ______
Commission file number 0-22025
----------------------------------------------------------
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 28,252,043
<PAGE>
(Class) Outstanding at February 8, 2000
2
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AASTROM BIOSCIENCES, INC.
Quarterly Report on Form 10-Q
December 31, 1999
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
----
<S> <C>
a) Consolidated Condensed Balance Sheets as of June 30, 1999 and
December 31, 1999 3
b) Consolidated Condensed Statements of Operations for the three and six
months ended December 31, 1998 and 1999 and for the period from March 24,
1989 (Inception) to December 31, 1999 4
c) Consolidated Condensed Statements of Cash Flows for the six months
ended December 31, 1998 and 1999 and for the period from March 24,
1989 (Inception) to December 31, 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 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX 20
</TABLE>
3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1999
---------- ------------
Assets (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,528,000 $ 3,550,000
Receivables 113,000 140,000
Inventory 1,144,000 41,000
Prepaid expenses and other 253,000 318,000
------------ ------------
Total current assets 9,038,000 4,049,000
PROPERTY, NET 502,000 384,000
------------ ------------
Total assets $ 9,540,000 $ 4,433,000
============ ============
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 836,000 $ 1,135,000
Accrued employee expenses 193,000 424,000
------------ ------------
Total current liabilities 1,029,000 1,559,000
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; shares authorized -
5,000,000; shares issued and outstanding - 7,000
and 5,550 respectively 6,588,000 5,418,000
Common stock, no par value; shares authorized -
40,000,000; shares issued and outstanding -
16,980,161 and 19,996,396, respectively 72,257,000 73,639,000
Deficit accumulated during the development stage (70,334,000) (76,183,000)
------------ ------------
Total shareholders' equity 8,511,000 2,874,000
------------ ------------
Total liabilities and shareholders' equity $ 9,540,000 $ 4,433,000
============ ============
</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 OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended March 24, 1989
December 31, December 31, (Inception) to
------------------------- --------------------------- December 31,
1998 1999 1998 1999 1999
---------- ---------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Product sales and rentals $ - $ 55,000 $ - $ 169,000 $ 203,000
Grants 207,000 349,000 370,000 620,000 3,856,000
Research and development agreements - - - - 2,020,000
----------- ---------- ---------- ----------- -----------
Total revenues 207,000 404,000 370,000 789,000 6,079,000
----------- ---------- ---------- ----------- -----------
COSTS AND EXPENSES:
Cost of product sales and rentals - 21,000 - 1,251,000 1,257,000
Research and development 3,165,000 1,869,000 6,258,000 3,479,000 68,280,000
Selling, general and administrative 696,000 698,000 1,347,000 1,859,000 16,595,000
----------- ---------- ---------- ----------- ------------
Total costs and expenses 3,861,000 2,588,000 7,605,000 6,589,000 86,132,000
----------- ---------- ---------- ----------- ------------
LOSS FROM OPERATIONS (3,654,000) (2,184,000) (7,235,000) (5,800,000) (80,053,000)
----------- ---------- ---------- ----------- ------------
OTHER INCOME (EXPENSE):
Other income 1,237,000 - 1,237,000 - 1,237,000
Interest income 142,000 58,000 363,000 139,000 3,848,000
Interest expense (1,000) - (3,000) - (267,000)
----------- ---------- ---------- ----------- ------------
Other income 1,378,000 58,000 1,597,000 139,000 4,818,000
----------- ---------- ---------- ----------- ------------
NET LOSS $(2,276,000) $(2,126,000) $(5,638,000) $(5,661,000) $(75,235,000)
=========== ========== =========== =========== ============
COMPUTATION OF NET LOSS APPLICABLE TO COMMON SHARES:
Net loss $(2,276,000) $(2,126,000) $(5,638,000) $(5,661,000)
Dividends and yields on preferred stock (63,000) (92,000) (283,000) (188,000)
---------- ----------- ----------- -----------
Net loss applicable to Common Shares $(2,339,000) $(2,218,000) $(5,921,000) $(5,849,000)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE (Basic and
Diluted) $ (.16) $ (.12) $ (.42) $ (.34)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 14,271,000 17,782,000 13,978,000 17,383,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AASTROM BIOSCIENCES, INC.
(a development stage company)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended March 24, 1989
December 31, (Inception) to
---------------------------- December 31,
1998 1999 1999
------------ ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(5,638,000) $(5,661,000) $(75,235,000)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 175,000 245,000 2,929,000
Loss on property held for resale - - 110,000
Write-down of inventory -
Amortization of discounts and premiums on investments (70,000) - (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 (8,000) (27,000) (164,000)
Inventory - 1,103,000 (41,000)
Prepaid expenses 169,000 (65,000) (318,000)
Accounts payable and accrued expenses 316,000 299,000 1,135,000
Accrued employee expenses (5,000) 231,000 424,000
----------- ----------- ------------
Net cash used for operating activities (5,057,000) (3,870,000) (68,869,000)
----------- ----------- ------------
INVESTING ACTIVITIES:
Organizational costs - - (73,000)
Purchase of short-term investments (1,000,000) - (44,464,000)
Maturities of short-term investments 9,200,000 - 44,917,000
Capital purchases (62,000) (127,000) (2,576,000)
Proceeds from sale of property held for resale - - 400,000
----------- ----------- ------------
Net cash provided by (used for) investing activities 8,138,000 (127,000) (1,796,000)
----------- ----------- ------------
FINANCING ACTIVITIES:
Issuance of preferred stock 4,689,000 - 51,647,000
Issuance of Common Stock 39,000 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 (35,000) - (1,174,000)
----------- ----------- ------------
Net cash provided by financing activities 4,693,000 19,000 74,215,000
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 7,774,000 (3,978,000) 3,550,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,078,000 7,528,000 -
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 9,852,000 $ 3,550,000 $ 3,550,000
=========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 3,000 - $ 267,000
Additions to capital lease obligations - - 1,174,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
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 the Company's continued ability to obtain future funding,
satisfactory product development, obtaining regulatory approval and market
acceptance for its products. In May, 1999, Aastrom formed its German-based
subsidiary, Zellera AG ("Zellera"), in an effort to provide access to new
sources of capital. Funding obtained by Zellera, if any, is now expected to
fund only the operations of Zellera and not expected to be available to
fund the operations of Aastrom. As a result, in September and October 1999,
management implemented significant organizational changes designed to
reduce headcount and operating expenses and to align the Company's
resources with its focus on pursuing corporate strategic alternatives,
including a possible merger or acquisition, to provide operating capital.
Management has concluded that further deferral of operations, including
additional reductions in workforce, would negatively impact the process of
identifying potential collaborative partners and initiating an alliance.
Accordingly, management has not implemented further cost reduction
measures, although may need to do so in the future. If additional funding
can not be obtained on a timely basis, it is likely that the Company would
not be able to continue its operations through June 30, 2000.
As part of these operational changes, expansion of European marketing
activities for the AastromReplicell/TM/ Cell Production System
("AastromReplicell/TM/ System") were suspended and U.S. clinical trial
programs have been significantly reduced while strategic alliances are
pursued.
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
7
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three and six months ended December 31, 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 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 amended on Form 8-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. 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. Preferred Stock
In July 1998 and May 1999, the Company completed the sale of 5,000 shares
of its 1998 Series I Convertible Preferred Stock ("Series I Preferred"),
and 3,000 shares of its 1999 Series III Convertible Preferred Stock
("Series III Preferred"), respectively (collectively, the "Preferred
Stock"), for aggregate net proceeds of $7,260,000. During the three months
ended December 31, 1999, 1,450 shares of Series III Preferred were
converted into 3,002,271 shares of common stock. As of December 31, 1999,
there were 4,000 shares of Series I Preferred and 1,550 shares of Series
III Preferred shares outstanding. As of February 7, 2000 all remaining
Series I Preferred and Series III Preferred converted into an aggregate of
7,954,647 shares of common stock.
5. Subsequent Events
In January 2000, the Company received $233,000 from the exercise of
warrants to purchase 300,000 shares of common stock and executed a
convertible loan agreement for $250,000. The aggregate proceeds of $483,000
will be used to help finance operations during ongoing strategic partnering
discussions.
8
<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 initial product launch in Europe of the AastromReplicell/TM/ 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
implementation of 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
valued at $1,100,000. 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.
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 were intended to align the Company's existing resources
to best support the
9
<PAGE>
corporate partnering direction. 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
have also continued, 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.
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 December 31, 1999, the Company
has accumulated losses of $75,235,000. 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 and six-month period ended December 31, 1999 were
$404,000 and $789,000, respectively, compared to $207,000 and $370,000 for the
same periods in 1998. Revenues in 1999 include product sales of $55,000 and
$169,000 for the quarter and six months ended December 31, 1999 relating to
sales of the AastromReplicell/TM/ System therapy kits, equipment and rentals.
Revenues decreased in the quarter ended December 1999 compared to the quarter
ended September 30, 1999, as European marketing activities for the
AastromReplicell/TM/ System were suspended. There were no product sales or
rental revenues in 1998. Grant revenues increased to $349,000 and $620,000 for
the quarter and six months ended December 31, 1999, up from $207,000 and
$370,000 for the same periods in 1998, reflecting increased activities under
grant funded programs.
Costs and expenses for the quarter ended December 31, 1999 decreased to
$2,588,000, compared to $3,861,000 in 1998 and decreased to $6,589,000 for the
six months ended December 31, 1999 from $7,605,000 in 1998. The overall
decrease in costs and expenses during 1999 reflects a decrease in research and
development expense to $1,869,000 and $3,479,000 for the quarter and six months
ended December 31, 1999, respectively, from $3,165,000 and $6,258,000 for the
same periods in 1998. These decreased expenses reflect a decline in research and
development expense for the AastromReplicell/TM/ System as the product line
reached the European marketplace. Cost of product sales and rentals for the six
months ended December 31, 1999 totaled $1,251,000, consisting principally of
AastromReplicell/TM/ System inventory that was written down with the suspension
of marketing activities in September 1999. Selling, general and administrative
expense increased to $1,859,000 for the six months ended December 31, 1999
10
<PAGE>
from $1,347,000 in 1998, relating to increased European marketing costs for the
AastromReplicell/TM/ System and other European activities during the first
quarter. With the suspension of European marketing activities, these expenses
were relatively consistent for the three months ended December 31, 1999 compared
to the same period in 1998.
Interest income was $58,000 and $139,000 for the quarter and six months ended
December 31, 1999, respectively, compared to $142,000 and $363,000 for the same
periods in 1998. These decreases correspond to decreases in the level of
invested cash and cash equivalents during 1999.
The net loss for the quarter ended December 31, 1999 was $2,126,000, or $.12 per
common share, compared to a net loss of $2,276,000, or $.16 per common share for
the same period in 1998. The net loss for the six months ended December 31,
1999 was $5,661,000, or $.34 per common share compared to $5,638,000, or $.42
per common share in 1998. The net loss for the six months ended December 31,
1998 includes other income of $1,237,000 representing a one-time payment
received from Cobe BCT (Cobe) in connection with the termination of the
Company's marketing and distribution agreement with Cobe in November 1998. 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.
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
December 31, 1999, have totaled approximately $79,057,000 and, to a lesser
degree, through grant funding, payments received under research agreements and
collaborations, interest income, and funding under equipment leasing agreements.
The Company's combined cash and cash equivalents totaled $3,550,000 at December
31, 1999, a decrease of $3,978,000 from June 30, 1999. The primary uses of cash
and cash equivalents during the six months ended December 31, 1999 included
$3,870,000 to finance the Company's operations and working capital requirements
and $127,000 in capital equipment additions. Successful future operations are
subject to several technical and business risks, including the Company's
continued ability to obtain future funding, satisfactory product development,
obtaining regulatory approval and market acceptance for its products. If
additional funding can not be obtained on a timely basis, it is likely that the
Company will not be able to continue its operations through June 30, 2000.
The Company's future cash requirements will depend on many factors, including
the outcome of strategic partnering and corporate alliance discussions, the
availability of resources, 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
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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 in the near future, the Company will be forced to
substantially reduce the scope and size of its 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, uncertainties inherent in the capital raising process and
other factors discussed under this heading and under the caption "Business
Risks" in the Company's Annual Report on Form 10-K, as amended. 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 that such collaborative agreements
could 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, as amended on Form 8-K, and Notes to Financial Statements included
herein.
12
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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 common 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. If additional funding
cannot be obtained on a timely basis, it is likely that the Company will not be
able to continue its operations through June 30, 2000. In addition, as June 30,
2000 approaches, the Company's funding alternatives diminish and as a result the
Company may enter into a financing transactions at rates which are at a
substantial discount to market. 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 the 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 the Company. This effect
could occur even if the 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, that it will result in the successful commercialization and
distribution of the Company's technologies and product candidates.
13
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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 ("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
14
<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.
Potential Delisting from Nasdaq
The Company is required to meet certain financial tests (including a minimum bid
price of the Company's common stock of $1.00 and $4 million in tangible net-
worth) to maintain the listing of its common stock on the Nasdaq National
Market. As a result of recent price fluctuations, the Company's common stock
price fell below the $1.00 minimum level and the Company was notified that its
common stock would be delisted if the Company did not regain compliance with
15
<PAGE>
this listing requirement prior to February 16, 2000. On February 1, 2000, and
after review of the trading prices of the Company's common stock by NASDAQ/AMEX,
the Company was informed that its stock had closed above the $1.00 minimum bid
price for at least ten consecutive days and that the matter was considered
closed. There can be no assurance that the Company will be able to maintain its
stock listing on a sustained basis. If the Company's common stock were
delisted, the market price and liquidity of the stock would be impaired.
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 availability
of such materials which would have a material adverse effect on the Company's
business, financial condition and results of operations.
16
<PAGE>
Year 2000 Issues
The Company has not experienced any significant operating difficulties related
to the inability of its computer systems and software products to distinguish
20th century dates from 21st century dates. While such difficulties have not
been experienced, there can be no assurance that complications will not develop
in its own computer systems, or the computer systems of its suppliers or
manufacturers, and therefore the Company may become affected. Such affects may
have a material adverse effect on the Company's business, financial condition or
results of operations.
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, as amended.
17
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
In May 1999 the Company sold 3,000 shares of Series III Preferred for
net proceeds of $2,720,000. The shares of Series III Preferred are
convertible, at the option of the holder, into shares of the Company's
common stock at the lower of (i) $2.34, or (ii) a price based on the
market price of the Company's common stock prior to conversion. During
the quarter ended December 31, 1999, the Company issued 3,002,271
shares of common stock, upon the conversion of 1,450 shares of Series
III Preferred. The shares of common stock issued upon conversion were
issued in a transaction exempt from the registration requirements of
the Securities Act of 1933 by reason of Section 3(a)(9) thereof. These
shares were issued to existing security holders upon conversion of
outstanding securities of the Company in a transaction where no
commission or other remuneration was paid directly or indirectly in
connection with such exchange.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of Aastrom Biosciences,
Inc. was held on November 17, 1999.
(b) At the 1999 Annual Meeting of Shareholders, votes were cast
on matters submitted to the shareholders, as follows:
The election of two directors whose terms expire at the 2002
Annual Meeting of Shareholders.
NOMINEE FOR WITHHELD
------- --- --------
Mary L. Campbell 15,731,080 240,075
Arthur F. Staubitz 15,669,436 301,719
In addition to the election of the above referenced
directors, the following individuals continue as directors;
R. Douglas Armstrong and Joseph A. Taylor as Class III
Directors, whose terms expire at the 2000 Annual Meeting of
Shareholders, and Robert J. Kunze and Stephen G. Emerson, as
Class I Directors, whose terms expire at the 2001 Annual
Meeting of Shareholders.
19
<PAGE>
Approval for the issuance of the Company's common stock upon
the conversion of up to 3,000 shares Series III Preferred.
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
9,708,112 228,946 266,001 5,768,096
Approval of the selection of PricewaterhouseCoopers LLP as
the Company's independent public accountants for the year
ending June 30, 2000.
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
15,913,481 44,075 13,599 0
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 Reports on Form 8-K dated October 27, 1999
and December 10, 1999.
20
<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: February 14, 2000 /s/ R. Douglas Armstrong
------------------------------------
R. Douglas Armstrong, Ph.D.
President, Chief Executive Officer
(Principal Executive Officer)
Date: February 14, 2000 /s/ Todd E. Simpson
------------------------------------
Todd E. Simpson
Vice President, Finance and
Administration, Chief Financial
Officer
(Principal Financial and
Accounting Officer)
21
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
3.1 * Restated Articles of Incorporation of the Company.
3.2 ** Bylaws of the Company.
10.54 Supplemental Agreement to Employment Agreement between Bruce W.
Husel and Aastrom Biosciences, Inc. dated October 5, 1999.
10.55 Pay to Stay Severance Agreement between R. Douglas Armstrong,
Ph.D. and Aastrom Biosciences, Inc. dated October 15, 1999.
10.56 Form of Pay to Stay Severance Agreement between Aastrom
Biosciences, Inc. and Todd E. Simpson dated October 18, 1999, and
between Aastrom Biosciences, Inc. and Alan Smith dated October
21, 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.
22
<PAGE>
EXHIBIT 10.54
SUPPLEMENTAL AGREEMENT TO EMPLOYMENT AGREEMENT
This Supplemental Agreement is made by and between Aastrom Biosciences,
Inc., a Michigan Corporation ("Employer") and Douglas Smith ("Employee"), with
respect to the existing Employment Agreement pursuant to which Employer has
employed Employee.
RECITALS
A. Employer currently employs Employee as a Program Leader.
B. 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:
(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);
<PAGE>
(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), or if
continued employment requires relocation away from the general Ann Arbor,
Michigan area, then Employer (or the successor-in-interest to Employer) shall
pay to Employee a lump sum severance payment equal to three 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.
(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.
2
<PAGE>
(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 , 1999.
EMPLOYER
AASTROM BIOSCIENCES, INC., a
Michigan Corporation
By: ______________________________
Its:__________________________
EMPLOYEE
By: ______________________________
3
<PAGE>
EXHIBIT 10.55
PAY TO STAY SEVERANCE AGREEMENT
This Agreement is made by and between Aastrom Biosciences, Inc., a Michigan
Corporation ("Employer") and R. Douglas Armstrong ("Employee"), with respect to
the existing Employment Agreement pursuant to which Employer has employed
Employee.
RECITALS
A. Employer currently employs Employee as President and CEO.
B. Employer is experiencing difficult financing circumstances, such that
the job security for Employee with Employer is not favorable. However, Employer
needs to retain the employment services of Employee to enable Employer to try to
implement its business plan during these difficult circumstances.
C. This Agreement is being entered into to provide Employee with
sufficient incentives and encouragements for Employee to remain with Employer,
notwithstanding the possibility of the occurrence in the future of (i) a Change
in Control (as defined below) event for Employer, or (ii) a liquidation of
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 (but not mere unsatisfactory
performance);
(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:
(i) All or substantially all of the assets of Employer are sold;
(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.
-------------
(a) On the condition that Employee continues to remain employed by
Employer for so long as Employer reasonably needs the employment services of
Employee, or up through April 30, 2000, whichever occurs sooner, then upon a
termination of Employee's employment (for reasons other than
<PAGE>
Cause), Employer shall pay to Employee a lump sum severance payment equal to
twelve (12) times Employee's regular monthly base salary plus accrued vacation,
less applicable and customary payroll deductions.
(b) During such employment, Employer shall continue to pay Employee at
Employee's existing salary level; and any reduction or cessation in said salary
payment shall constitute a termination of employment without Cause which
entitles Employee to the severance pay.
(c) If Employee is still employed by the Employer as of April 30,
2000, then Employee will be entitled to the pay to stay severance payment even
if Employee voluntarily terminates employment thereafter.
(d) Employee and Employer acknowledge the continued existence of the
Executive Retention and Severance Agreement dated February 2, 1999 which
addresses any "change in control" situation.
(e) Employer retains and reserves the right to terminate the
employment of Employee at any time, with or without Cause. Upon a termination
without Cause, the severance pay specified in Section 1(a) above shall become
payable. For avoidance of doubt, said severance payment shall not be owed if
Employee's termination is for Cause, or if Employee voluntarily terminates
employment prior to April 30, 2000 for reasons other than a reduction in
Employee's salary.
(f) No director, officer or shareholder of Employer shall have any
personal liability for the payment of any severance to Employee.
2. Incentive Sale Bonus.
--------------------
(a) In the event Employer ultimately sells its assets, or participates
in a merger or acquisition transaction, then Employee shall be entitled to
participate in an incentive sale Bonus Pool as described below.
(b) The Bonus Pool shall be funded by a portion of the net proceeds
realized by Employer from said sale of assets, merger or acquisition
transaction, after all liabilities of Employer are satisfied. Said net proceeds
may consist of cash, stock or other consideration when and as paid by the
acquirer.
(c) The Bonus Pool shall be funded in increments consisting of 30% of
the first million of net proceeds, 25% of the second million of net proceeds,
15% of the third million of net proceeds, and 10% of all additional net proceeds
up to an aggregate of $25 million net proceeds.
(d) Employee shall be entitled to a 50.0% share of the Bonus Pool,
excepting certain circumstances involving additional employees being included in
the Bonus Pool, in which case the employee's percent share of the Bonus Pool may
be reduced on a pro rata basis with other Bonus Pool participants by up to
1.00%.
(e) In the event that Employee voluntarily terminates employment with
Employer prior to the substantial completion of the transaction for Employer's
sale of assets or merger or acquisition, then Employee shall not be entitled to
any share of the Bonus Pool, Alternatively, if Employer decides to terminate
-
Employee for reasons other than "Cause," then Employee shall still be entitled
to receive Employee's designated share of the Bonus Pool when it becomes payable
to all other Bonus Pool members.
3. Accelerated Vesting of Stock Options. The parties acknowledge and
------------------------------------
agree that for all unvested stock options granted by Employer to Employee, and
for all stock subject to Employer's buy-back right, there shall be accelerated
and immediately vesting upon Employer terminating employment of Employee without
Cause, or upon a termination of employment pursuant to Section 1(a) or (b).
2
<PAGE>
4. 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 any director,
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 the Company, all in the
ordinary course of business, or any incentive sale bonus to which Employee may
be entitled, if any).
5. No Duplication. To the extent that Employee is entitled to receive
--------------
severance pay for a "Change of Control" and/or for this "pay to stay"
arrangement, and/or for any other reason, the severance payments shall not be
cumulative, but rather Employee shall be entitled to receive whichever one is
the highest amount specified in any agreement or policy applicable to Employee,
but not more than one single severance pay amount.
6. 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.
(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) No Personal Liability. No director, officer or shareholder of
---------------------
Employer shall have any personal liability for the payment of any severance to
Employee.
(f) 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.
(g) 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 ___________________, 1999.
EMPLOYER
AASTROM BIOSCIENCES, INC.,
a Michigan Corporation
By:________________________________
Its:_______________________________
EMPLOYEE
___________________________________
R. Douglas Armstrong
3
<PAGE>
EXHIBIT 10.56
PAY TO STAY SEVERANCE AGREEMENT
This Agreement is made by and between Aastrom Biosciences, Inc., a Michigan
Corporation ("Employer") and _______________ ("Employee"), with respect to the
existing Employment Agreement pursuant to which Employer has employed Employee.
RECITALS
A. Employer currently employs Employee as _________________________
___________.
B. Employer is experiencing difficult financing circumstances, such that
the job security for Employee with Employer is not favorable. However, Employer
needs to retain the employment services of Employee to enable Employer to try to
implement its business plan during these difficult circumstances.
C. This Agreement is being entered into to provide Employee with
sufficient incentives and encouragements for Employee to remain with Employer,
notwithstanding the possibility of the occurrence in the future of (i) a Change
in Control (as defined below) event for Employer, or (ii) a liquidation of
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 (but not mere unsatisfactory
performance);
(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:
(i) All or substantially all of the assets of Employer are sold;
(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.
-------------
<PAGE>
(a) On the condition that Employee continues to remain employed by
Employer for so long as Employer reasonably needs the employment services of
Employee, or up through April 30, 2000, whichever occurs sooner, then upon a
termination of Employee's employment (for reasons other than Cause), Employer
shall pay to Employee a lump sum severance payment equal to six times Employee's
regular monthly base salary plus accrued vacation, less applicable and customary
payroll deductions.
(b) During such employment, Employer shall continue to pay Employee at
Employee's existing salary level; and any reduction or cessation in said salary
payment shall constitute a termination of employment without Cause which
entitles Employee to the severance pay.
(c) If Employee is still employed by the Employer as of April 30,
2000, then Employee will be entitled to the pay to stay severance payment even
if Employee voluntarily terminates employment thereafter.
(d) Employer retains and reserves the right to terminate the
employment of Employee at any time, with or without Cause. Upon a termination
without Cause, the severance pay specified in Section 1(a) above shall become
payable. For avoidance of doubt, said severance payment shall not be owed if
Employee's termination is for Cause, or if Employee voluntarily terminates
employment prior to April 30, 2000 for reasons other than a reduction in
Employee's salary.
(e) No director, officer or shareholder of Employer shall have any
personal liability for the payment of any severance to Employee.
2. Incentive Sale Bonus.
--------------------
(a) In the event Employer ultimately sells its assets, or participates
in a merger or acquisition transaction, then Employee shall be entitled to
participate in an incentive sale Bonus Pool as described below.
(b) The Bonus Pool shall be funded by a portion of the net proceeds
realized by Employer from said sale of assets, merger or acquisition
transaction, after all liabilities of Employer are satisfied. Said net proceeds
may consist of cash, stock or other consideration when and as paid by the
acquirer.
(c) The Bonus Pool shall be funded in increments consisting of 30% of
the first million of net proceeds, 25% of the second million of net proceeds,
15% of the third million of net proceeds, and 10% of all additional net proceeds
up to an aggregate of $25 million net proceeds.
(d) Employee shall be entitled to a [10.0%-12.0%] share of the Bonus
Pool, excepting certain circumstances involving additional employees being
included in the Bonus Pool, in which case the employee's percent share of the
Bonus Pool may be reduced on a pro rata basis with other Bonus Pool participants
by up to 1.00%.
(e) In the event that Employee voluntarily terminates employment with
Employer prior to the substantial completion of the transaction for Employer's
sale of assets or merger or acquisition, then Employee shall not be entitled to
any share of the Bonus Pool, and the Employee's share will go to other Bonus
Pool members per the approved schedule. Alternatively, if Employer decides to
terminate Employee for reasons other than "Cause," then Employee shall still be
entitled to receive Employee's designated share of the Bonus Pool when it
becomes payable to all other Bonus Pool members.
3. Accelerated Vesting of Stock Options. The parties acknowledge and
------------------------------------
agree that for all unvested stock options granted by Employer to Employee, and
for all stock subject to Employer's buy-back right, there shall be accelerated
and immediately vesting upon Employer terminating employment of Employee without
Cause, or upon a termination of employment pursuant to Section 1(a) or (b).
4. Exclusive Remedy. The parties acknowledge and agree that the severane
----------------
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
2
<PAGE>
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 any
director, 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 the Company,
all in the ordinary course of business, or any incentive sale bonus to which
Employee may be entitled, if any).
5. No Duplication. To the extent that Employee is entitled to receive
--------------
severance pay for a "Change of Control" and/or for this "pay to stay"
arrangement, and/or for any other reason, the severance payments shall not be
cumulative, but rather Employee shall be entitled to receive whichever one is
the highest amount specified in any agreement or policy applicable to Employee,
but not more than one single severance pay amount.
6. 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.
(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) No Personal Liability. No director, officer or shareholder of
---------------------
Employer shall have any personal liability for the payment of any severance to
Employee.
(f) 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.
(g) 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 ___________________, 1999.
EMPLOYER
AASTROM BIOSCIENCES, INC.,
a Michigan Corporation
By:________________________________
Its:_______________________________
EMPLOYEE
___________________________________
3
<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 DECEMBER
31, 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> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,550,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 41,000
<CURRENT-ASSETS> 4,049,000
<PP&E> 3,104,000
<DEPRECIATION> 2,720,000
<TOTAL-ASSETS> 4,433,000
<CURRENT-LIABILITIES> 1,559,000
<BONDS> 0
0
5,418,000
<COMMON> 73,639,000
<OTHER-SE> (76,183,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,433,000
<SALES> 0
<TOTAL-REVENUES> 404,000
<CGS> 0
<TOTAL-COSTS> 2,588,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,126,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,126,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,126,000)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
