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Ancillary Stock Option Plan - Aastrom Biosciences Inc.

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                          ANCILLARY STOCK OPTION PLAN

          THIS ANCILLARY STOCK OPTION PLAN (the "Ancillary Plan") is made as of
August 6, 1991, by Aastrom Biosciences, Inc. (the "Company"), with respect to
the facts set forth below.

                                    RECITALS

          A.   On August 15, 1989, the Company formally approved the 1989 Stock
Option Plan (the "1989 Plan"), pursuant to which the Board of Directors of the
Company (the "Board") is authorized to grant tax qualified "incentive stock
options" to employees of the Company or its affiliates and tax nonqualified
"supplemental stock options" to employees, officers, employed directors and
consultants of the Company or its affiliates.

          B.   In order to advance the growth and prosperity of the Company, the
Board believes that it is in the best interests of the Company to also grant
stock options on certain occasions to certain parties and persons selected by
the Board who are not otherwise eligible to receive stock options under the
terms of the 1989 Plan.

                                   AGREEMENT

          NOW, THEREFORE, Company hereby authorizes and establishes this
Ancillary Plan, pursuant to the terms and conditions set forth below.

          1.   Purpose.  The purpose of the Ancillary Plan is to advance the
growth and prosperity of the Company and its shareholders by providing
incentives to certain parties and persons selected by the Board who are not
otherwise eligible to receive stock options under the 1989 Plan.  The stock
options granted pursuant to this Ancillary Plan shall be treated as
"nonqualified tax options" under the U.S. Internal Revenue Code.

          2.   Term.     The term of this Ancillary Plan shall commence on the
date set forth above and shall terminate upon resolution by the Board.

          3.   Shares of Stock Subject to this Ancillary Plan.  The shares of
Common Stock which may be issued pursuant to the Ancillary Plan upon exercise of
stock options shall not exceed in the aggregate Fifty Thousand (50,000) shares
of the Company's Common Stock, unless otherwise approved by the Board by vote of
not less than two thirds (2/3) of the Board.  Such shares of Common Stock shall
be authorized and unissued shares.  The shares allocated to this Ancillary Plan
and the stock options granted pursuant to this Ancillary Plan are in addition
to, and not part of, the shares allocated to and granted pursuant to the 1989
Plan.
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          4.   Administration of the Plan.  The Board shall administer the
Ancillary Plan, select the persons to whom stock options shall be granted,
determine the number of shares of Common Stock to be optioned and awarded,
determine the purchase price per share of Common Stock deliverable upon the
exercise of a stock option, determine the method of payment upon the exercise of
an option, and interpret, construe and implement the provisions of this
Ancillary Plan.  An option may be exercisable at any time from time to time,
subject to such timing, performance criteria, conditions and restrictions as
determined by the Board on a case by case basis for each option as set forth in
the Stock Option Agreements.

          5.   Stock Option Agreements.  The granting of stock options shall be
evidenced by a Stock Option Agreement, containing such terms and conditions as
the Board of Directors shall deem appropriate.  The provisions of the Stock
Option Agreements granted pursuant to this Ancillary Plan need not be identical,
may be similar to or different from the form of Stock Option Agreements granted
under the 1989 Plan, and may be customized as determined by the Board on a case
by case basis.

          6.   Amendment of this Ancillary Plan.  This Ancillary Plan may, at
any time or from time to time, be terminated, modified or amended by the Board.

          7.   Approval.  Approved by the Board on August 6, 1991.



 
                                                /s/ R. DOUGLAS ARMSTRONG
                                                --------------------------
                                                R. Douglas Armstrong, Ph.D
                                                             President/CEO
<PAGE>
 
                       ANCILLARY STOCK OPTION AGREEMENT

                                           Optionee:

     AASTROM Biosciences, Inc., formerly known as Ann Arbor Stromal, Inc., (the 
"Company"), pursuant to its Ancillary Stock Option Plan dated August 6, 1991 
(the "Plan"), has granted to you, the Optionee named above, an option to 
purchase shares of the common stock of the Company ("Common Stock").  This 
option is not intended to qualify and will not be treated as an "incentive stock
option" within the meaning of Section 422A of the Internal Revenue code of 1986,
as amended from time to time (the "Code").  The date of grant of this option is 
as of _________________, ____.

     The grant hereunder is a matter of separate inducement and agreement in 
connection with your services to the Company and not in lieu of any other 
compensation for services, and is intended to comply with the provisions of Rule
701 promulgated by the Securities and Exchange Commission under the Securities 
Act of 1933, as amended (the "Act"), and applicable state law exemptions from 
registration.

     The details of your option are as follows:

     1.   The total number of shares of Common Stock subject to this option is
          _____________________.  Subject to the limitations contained herein,
          including without limitation Section 5 hereof, this option shall be
          exercisable with respect to each installment shown below on or after
          the date of vesting applicable to such installment, as follows:

          Number of Shares                             Date of Earliest Exercise
          ----------------                             ------------------------
           (Installment)                                       (Vesting)
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Ancillary Stock Option Agreement
Page 2


     2.   a.   The exercise price of this option is ___________ per share, being
               not less than the fair market value of the Common Stock on the
               date of grant of this option.

          b.   Payment of the exercise price per share is due in full in cash
               (including check) upon exercise of all or any part of each
               installment which has become exercisable by you.  Notwithstanding
               the foregoing, this option may be exercised pursuant to a program
               developed under Regulation T as promulgated by the Federal 
               Reserve Board which results in the receipt of cash (or check) by
               the Company prior to the issuance of Common Stock.

     3.   The minimum number of shares with respect to which this option may be
          exercised at any one time is one hundred (100) except (a) as to an
          installment subject to exercise, as set forth in paragraph 1, which
          amounts to fewer than one hundred (100) shares, in which case, as to
          the exercise of that installment, the number of shares in such
          installment shall be the minimum number of shares, and (b) with
          respect to the final exercise of this option this paragraph 3 shall
          not apply.

     4.   Notwithstanding anything to the contrary contained herein, this option
          may not be exercised unless the shares issuable upon exercise of this
          option are then registered under the Act or if such shares are not
          then so registered, the exercise and issuance of such shares would be
          exempt from the registration requirements of the Act.

     5.   The term of this option commences on the date hereof and, unless
          sooner terminated as set forth below, terminates twelve (12) years
          from the date this option is granted. This option shall terminate
          prior to the expiration of its term as follows: this option shall
          terminate three (3) months after the termination of your participation
          in the University of Michigan ex vivo bone marrow project more fully
          described in that certain Option Agreement dated March 24, 1989,
          between the Company, the University of Michigan and H&Q Life Science
          Technology Fund 1 (hereinafter such participation in the ex vivo bone
          marrow project
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Ancillary Stock Option Agreement
Page 3



               shall be referred to as "Employment") for any
               reason or for no reason unless:

               a.  such termination of your Employment is due to
                   your permanent and total disability (within
                   the meaning of Section 422A(c)(7) of the
                   Code), in which event the option shall
                   terminate on the earlier of the termination
                   date set forth above or one (1) year
                   following such termination of Employment; or

               b.  such termination of Employment is due to your
                   death, in which event the option shall
                   terminate on the earlier of the termination
                   date set forth above or eighteen (18) months
                   after your death; or

               c.  during any part of such three (3) month
                   period the option is not exercisable solely
                   because of the condition set forth in
                   paragraph 4 above, in which event the option
                   shall not terminate until the earlier of the
                   termination date set forth above or until it
                   shall have been exercisable for an aggregate
                   period of three (3) months after the
                   termination of Employment; or

               d.  exercise of the option within three (3)
                   months after termination of your Employment
                   would result in liability under section 16
                   (b) of the Securities Exchange Act of 1934,
                   in which case the option will terminate on
                   the earlier of (i) the tenth (10th) day after
                   the last date upon which exercise would
                   result in such liability or (ii) six (6)
                   months and ten (10) days after the
                   termination of your Employment; or

               e.  such termination of your Employment is a
                   temporary leave of absence occasioned by your
                   resuming studies at the University of
                   Michigan toward a doctorate degree, in which
                   event vesting of installments of this option
                   as set forth in Section 1 scheduled for any
                   date after the date on which the leave of
                   absence commenced (the "Leave Date") will be
                   suspended, and the vesting schedule set forth
                   in Section 1 shall be deemed to have been
                   amended as follows.  Should you Employment
       
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Ancillary Stock Option Agreement
Page 4



             resume at any time during the two (2) year
             period after the Leave Date, vesting of
             installments of this option will resume, with
             the first suspended installment vesting on
             the date that your Employment resumes, the
             second suspended installment vesting 3 months
             thereafter, and so on, so that each
             succeeding suspended installment vests 3
             months after the date on which the previous
             suspended installment vested.  If your
             Employment does not resume during the two (2)
             year period after the Leave Date, this option
             will be deemed to have terminated on the
             Leave Date, and only those shares that vested
             on or prior to the Leave Date will be
             exercisable.

         f.  The termination of this option pursuant to
             this Section 5 shall apply only to those
             shares not yet vested according to the
             schedule contained in Section 1 herein, and
             any provision herein or in the Plan
             notwithstanding, shall not apply to such
             vested shares.  Any shares that have vested
             hereunder shall remain exercisable for the
             twelve (12) year period specified in this
             Section 5.

             However, this option may be exercised
             following termination of Employment only as
             to that number of shares as to which it was
             exercisable under the provisions of paragraph
             1 of this option on the date of termination
             of Employment.

     6.  a.  This option may be exercised, to the extent
             specified above, by delivering a notice to
             exercise (in a form designated by the
             Company) together with the exercise price to
             the Secretary of the Company, or to such
             other person as the Company may designate,
             during regular business hours, together with
             such additional documents as the Company may
             then require pursuant to subparagraph 5(f) of
             the Plan.
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Ancillary Stock Option Agreement
Page 5



         b.  By exercising this option you agree that:

             (i)   the Company may require you to enter an arrangement providing
                   for the cash payment by you to the Company of any tax
                   withholding obligation of the Company arising by reason of
                   (1) the exercise of this option; (2) the lapse of any
                   substantial risk of forfeiture to which the shares are
                   subject at the time of exercise; or (3) the disposition of
                   shares acquired upon such exercise;

             (ii)  the Company (or a representative of the underwriters) may, in
                   connection with the first underwritten registration of the
                   offering of any securities of the Company under the Act,
                   require that you not sell or otherwise transfer or dispose of
                   any shares of Common Stock or other securities of the Company
                   during such period (not to exceed one hundred fifty (150)
                   days) following the effective date (the "Effective Date") of
                   the registration statement of the Company filed under the Act
                   as may be requested by the Company or the representative of
                   the underwriters; provided, however, that such restriction
                   shall apply only if, on the Effective Date, you are an
                   officer, director, or owner of more than one percent (1%) of
                   the outstanding securities of the Company. For purposes of
                   this restriction, you will be deemed to own securities which
                   (i) are owned directly or indirectly by you, including
                   securities held for your benefit by nominees, custodians,
                   brokers or pledgees; (ii) may be acquired by you within sixty
                   (60) days of the Effective Date; (iii) are owned directly or
                   indirectly, by or for your brothers or sisters (whether by
                   whole or half blood), spouse, ancestors and lineal
                   descendants; or (iv) are owned, directly or indirectly, by or
                   for a corporation, partnership, estate or trust of which you
                   are a shareholder, partner or
                   




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Ancillary Stock Option Agreement
Page 6



                  beneficiary, but only to the extent of your proportionate
                  interest therein as a shareholder, partner or beneficiary
                  thereof. You further agree that the Company may impose stop-
                  transfer instructions with respect to securities subject to
                  the foregoing restrictions until the end of such period.

     7.  This option is not transferable, except by will or by the laws of
         descent and distribution, and is exercisable during your life only by
         you.

     8.  Upon exercise of the option in whole or in part, you will be required
         to execute a Stock Transfer Restriction and Buy-Out Agreement
         substantially in the form attached hereto, which sets forth
         restrictions on transfer of the Stock and gives the Company the right
         to purchase the Stock under certain circumstances.

     9.  This option is not an employment contract and nothing in this option
         shall be deemed to create in any way whatsoever any obligation on your
         part to continue Employment, or of the Company to employ you.

     10. Any notices provided for in this option or the Plan shall be given in
         writing and shall be deemed effectively given upon receipt or, in the
         case of notices delivered by the Company to you, five (5) days after
         deposit in the United States mail, postage prepaid, addressed to you at
         the address specified below or at such other address as you hereafter
         designate by written notice to the Company.

     11. This option is subject to all the provisions of the Plan, a copy of
         which is attached hereto and its provisions are hereby made a part of
         this option, including without limitation the provisions of paragraph 5
         of the Plan relating to stock option agreements, and is further subject
         to all interpretations, amendments, rules and regulations which may
         from time to time be promulgated and adopted pursuant to the Plan. In
         the event of any conflict between the provisions of this option and
         those of the Plan, the provisions of the Plan shall control.
 
<PAGE>
 
Ancillary Stock Option Agreement
Page 7


     Dated as of the ____ day of _______________________, 19__.

                                       Very truly yours,

                                       AASTROM BIOSCIENCES, INC.



                                       By: 
                                          --------------------------------------
                                          R. Douglas Armstrong, Ph.D.
                                          President/CEO


                                       Duly authorized on behalf of the
                                       Board of Directors



The undersigned:

     a.   Acknowledges receipt of this Agreement and the attachments referenced
          therein and understands that all rights and liabilities with respect
          to this option are set forth in this Agreement and the Plan; and

     b.   Acknowledges that as of the date of grant of this option, this 
          Agreement sets forth the entire understanding between the undersigned
          optionee and the Company its affiliates regarding the acquisition of
          stock in the Company and supersedes all prior oral and written 
          agreements on that subject.


                                       -----------------------------------------
                                       OPTIONEE

                                       

                                       Address: 
                                               ---------------------------------

Attachments:

Ancillary Stock Option Plan dated August 6, 1991

Stock Transfer Restriction and Buy-Out Agreement