EXHIBIT 10.46
AASTROM BIOSCIENCES, INC.
EXECUTIVE RETENTION AND SEVERANCE AGREEMENT
This Executive Retention and Severance Agreement (the "Agreement") is made
and entered into, effective as of February 2, 1999 (the "Effective Date"), by
and between Aastrom Biosciences, Inc., a Michigan corporation (the "Company"),
and R. Xxxxxxx Xxxxxxxxx, Ph.D., an individual ("Executive").
RECITALS
A. Executive presently serves as the President and Chief Executive Officer
of the Company and performs significant strategic and management
responsibilities necessary to the continued conduct of the Company's business
and operations.
B. The Board of Directors of the Company (the "Board") has determined at
its Board meeting held on January 28, 1999, that it is in the best interests of
the Company and its shareholders to assure that the Company will have the
continued dedication and objectivity of Executive, notwithstanding the
possibility or occurrence in the future of a Change in Control (as defined
below) event for the Company.
C. The Board believes that it is important to provide Executive with
certain severance benefits upon the circumstances described below, in order to
provide Executive with enhanced financial security and provide sufficient
incentive and encouragement to Executive to remain with the Company, even though
there is no Change of Control event scheduled or pending at this time.
D. Certain capitalized terms used in the Agreement are defined in Section
5 below.
AGREEMENT
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Executive by the Company, the
parties agree as follows:
1. Terms of Employment. The Company and Executive acknowledge and
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agree that (a) Executive's employment currently is "at will" and that their
employment relationship may be terminated by either party at any time, with or
without cause, and (b) Executive is entitled to a six-months severance pay
pursuant to the terms of the original hiring letter agreement for Executive's
employment with the Company. Executive agrees to devote his full business time,
energy and skill to his duties with the Company. These duties shall include,
but not be limited to, any duties consistent with Executive's position which may
be assigned to Executive from time to time.
2. Existing Stock Options.
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a. Repurchase Right. The Company previously granted to Executive two
stock options which are fully exercisable by Executive at this time. However,
the Company retains a right to repurchase shares purchased by Executive upon
exercise of the options, which repurchase right lapses on a prorata basis over
the 24-month period immediately following the date of the grant of the stock
options. Accordingly, said repurchase right lapses by July 2000 for one option
and by November 2000 for the second option.
b. Assumption of Options. Notwithstanding any provision to the
contrary contained in any agreement evidencing an option to purchase shares of
the capital stock of the Company granted by the Company to Executive, in the
event of a Change in Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), shall either assume the Company's rights and
obligations under all then-outstanding options granted to Executive or
substitute for such options substantially equivalent options for the Acquiring
Corporation's stock.
c. Cessation of Repurchase Right. Subject to the limitation set forth
in Section 4, in the event that the Acquiring Corporation fails to assume the
Company's rights and obligations under Executive's outstanding options or
substitute for such options in connection with the Change in Control,
Executive's outstanding options shall cease to be subject to the Company's
repurchase right as of the date of the Change in Control. Further, if the
Acquiring Corporation does so assume the outstanding options or substitute new
equivalent options, but there is a Termination Upon Change of Control, then all
outstanding options granted to Executive by the Company or any member of the
Company Group shall cease to be subject to the repurchase right as of the date
of Executive's termination of employment.
3. Severance Benefits.
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a. Termination Upon Change in Control. In the event of Executive's
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Termination Upon Change in Control, in addition to all compensation and benefits
earned by Executive through the date of Executive's termination of employment,
Executive shall be paid a lump sum payment (the "Cash Severance Payment") equal
to the maximum whole dollar amount which, when added to all other compensation
and benefits treated as parachute payments, if any, under Section 280G of the
Code, does not result in any compensation or benefit pursuant to this Agreement
becoming subject to an excise tax pursuant to Section 4999 of the Code. Unless
the Company and Executive otherwise agree in writing, within thirty (30) days
after the date of the Executive's termination of employment, the amount of the
Cash Severance Payment shall be determined and reported in writing to the
Company and Executive by independent public accountants agreed to by the Company
and Executive (the "Accountants"). Such determination by the Accountants shall
be conclusive and binding upon the Company and Executive for all purposes. For
the purposes of such determination, the Accountants may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. The Company and Executive shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make their required determination. The Company shall bear all fees and expenses
the Accountants may reasonably charge in connection with their services
contemplated by this Section 3(b). The Company shall pay the Cash Severance
Payment to the Executive within ten (10) days after the date of the Accountants'
report of their determination.
b. Relocation Costs. Upon any termination of Executive's employment
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with the Company, except for a termination for Cause by the Company, the Company
shall reimburse Executive for the costs for Executive to relocate to another
city in the United States, up to an aggregate of $50,000 of relocation costs, to
the extent said relocation costs are incurred within one year following the
termination of employment. Any tax payable with respect to said relocation cost
reimbursement shall be the responsibility of Executive.
c. Continued Medical Coverage. Executive shall be entitled to elect
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continued medical insurance coverage in accordance with applicable provisions of
the Consolidated Budget Reconciliation Act of 1985 ("COBRA").
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4. Excess Parachute Payment. In the event that any payment or benefit
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received or to be received by Executive pursuant to this Agreement or otherwise
would subject Executive to any excise tax pursuant to Section 4999 of the Code
due to the characterization of such payment or benefit as an excess parachute
payment under Section 280G of the Code, Executive may elect in his sole
discretion to reduce the amounts of any payments or benefits otherwise called
for under this Agreement in order to avoid such characterization.
5. Definition of Terms. Capitalized terms used in this Agreement shall
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have the following meanings:
a. "Cause" means the occurrence of any of the following, as determined
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by the Board, in good faith:
i. Executive's theft, material act of dishonesty or fraud, or
intentional falsification of any records of any member of the Company Group;
ii. Executive's improper use or disclosure of confidential or
proprietary information of any member of the Company Group;
iii. Executive's gross negligence or willful misconduct in the
performance of Executive's assigned duties (but not mere unsatisfactory
performance); or
iv. Executive's conviction (including any plea of guilty or nolo
contendere) of a crime of moral turpitude causing material harm to the
reputation or standing of the Company Group or which materially impairs
Executive's ability to perform his duties with the Company Group.
b. "Change in Control" shall means the occurrence of any of the
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following:
i. any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other
than a trustee or other fiduciary holding securities of the Company under an
employee benefit plan of the Company, becomes the "beneficial owner" (as defined
in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of (A) the outstanding shares
of common stock of the Company or (B) the combined voting power of the Company's
then-outstanding securities;
ii. the Company is party to a merger or consolidation which
results in the holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation;
iii. the sale or disposition of all or substantially all of the
Company's assets (or consummation of any transaction having similar effect);
iv. a change in the composition of the Board of Directors of the
Company within a three-year period as a result of which fewer than a majority of
the directors are Incumbent Directors; or
v. the dissolution or liquidation of the Company by the Acquiring
Corporation (but not a dissolution by the Company when there is no actual or
contemplated Change of Control).
c. "Code" means the Internal Revenue Code of 1986, as amended or any
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successor thereto, and any applicable regulations promulgated thereunder.
d. "Company" means Aastrom Biosciences, Inc., a Michigan corporation,
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and, following a Change in Control, any Successor that agrees to assume all of
the terms and provisions of this Agreement, or a Successor which otherwise
becomes bound by operation of law to this Agreement.
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e. "Company Group" means the Company and each parent or subsidiary
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corporation of the Company.
f. "Good Reason" means the occurrence of any of the following
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conditions following a Change in Control, without Executive's informed written
consent, which condition(s) remain(s) in effect ten (10) days after written
notice to the Company from Executive of such condition(s):
i. assignment of Executive to responsibilities or duties that are
not a Substantive Functional Equivalent of the position which Executive occupied
prior to the Change in Control;
ii. a material decrease in Executive's base salary or target bonus
amount (subject to applicable performance requirements with respect to the
actual amount of bonus compensation earned by Executive);
iii. any failure by the Company to (A) continue to provide
Executive with the opportunity to participate, on terms no less favorable than
those in effect for the benefit of any employee group which customarily includes
a person holding the employment position or a comparable position with the
Company Group then held by Executive, in any benefit or compensation plans and
programs, including, but not limited to, the Company Group's life, disability,
health, dental, medical, savings, profit sharing, stock purchase and retirement
plans, if any, in which Executive was participating immediately prior to the
date of the Change in Control, or their equivalent, or (B) provide Executive
with all other fringe benefits (or their equivalent) from time to time in effect
for the benefit of any employee group which customarily includes a person
holding the employment position or a comparable position with the Company Group
then held by Executive;
iv. the relocation of Executive's work place for the Company to a
location more than 25 miles from the location of the work place prior to the
Change in Control, or the imposition of travel requirements substantially more
demanding of Executive that such travel requirements existing immediately prior
to the Change in Control; or
v. any material breach of this Agreement by the Company.
g. "Incumbent Director" means a director who either (i) is a director
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of the Company as of the Effective Date of this Agreement, or (ii) is elected,
or nominated for election, to the Board with the affirmative votes of at least a
majority of the Incumbent Directors at the time of such election or nomination,
but (iii) was not elected or nominated in connection with an actual or
threatened proxy contest relating to the election of directors to the Company.
h. "Permanent Disability" means that:
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i. Executive has been incapacitated by bodily injury, illness or
disease so as to be prevented thereby from engaging in the performance of
Executive's duties;
ii. such total incapacity shall have continued for a period of six
(6) consecutive months; and
iii. such incapacity will, in the opinion of a qualified physician,
be permanent and continuous during the remainder of the Executive's life.
i. "Substantive Functional Equivalent" means an employment position
occupied by Executive after a Change in Control that:
i. is in a substantive area of competence consistent with
Executive's experience and not materially different from the position occupied
by Executive prior to the Change in Control;
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ii. requires Executive to serve in a role and perform duties that
are functionally equivalent to those performed prior to the Change in Control
(such as, executive officer);
iii. carries a title that does not connote a lesser rank or
corporate role than the title held by Executive prior to the Change in Control;
iv. does not otherwise constitute a material, adverse change in
Executive's responsibilities or duties, as measured against Executive's
responsibilities or duties prior to the Change in Control, causing it to be of
materially lesser rank or responsibility;
v. is identified as an executive officer, for purposes of the
rules promulgated under Section 16 of the Securities Exchange Act of 1934, as
amended, of a publicly traded Successor having net assets and annual revenues no
less than those of the Company prior to the Change in Control; and
vi. reports directly to a board chairman, committee or board of
directors of the Successor that is no less senior than the board chairman,
committee or board, as the case may be, to whom Executive reported at the
Company prior to the Change in Control.
j. "Successor" means the Company as defined above and any successor or
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assign to substantially all of its business and/or assets.
k. "Termination Upon Change in Control" means the occurrence of either
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of the following events:
i. termination by the Company Group of Executive's employment for
any reason other than Cause during the period commencing thirty (30) days prior
to the date that the Company first considered conducting negotiations leading to
the Change in Control event, and ending on the date which is twelve (12) months
after the Change in Control; or
ii. any resignation by the Executive from all capacities in which
Executive is then rendering service to the Company Group within twelve (12)
months following a Change in Control;
provided, however, that Termination Upon Change in Control shall not include any
termination of Executive's employment which is (1) for Cause, or (2) a result of
Executive's death or Disability.
6. Resignation. Executive's entitlement to any compensation or benefits
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under Section 3 (other than compensation and benefits earned by Executive
through the date of Executive's termination of employment) is conditioned upon
Executive's resignation from all capacities in which Executive is then rendering
services to the Company Group, including from the Board and any committees
thereof on which Executive serves.
7. Exclusive Remedy. The payments and benefits provided for in Section 3
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shall constitute Executive's sole and exclusive remedy for any alleged injury or
other damages arising out of the cessation of the employment relationship
between Executive and the Company in the event of Executive's Termination Upon
Change in Control. Executive shall be entitled to no other compensation,
benefits, or other payments from the Company as a result of any termination of
employment with respect to which the payments and/or benefits described in
Section 3 have been provided to Executive, except as expressly set forth in this
Agreement or, subject to the provisions of Sections 8 and 15(c), in a duly
executed employment agreement between Company and Executive.
8. Conflict in Benefits; Noncumulation of Benefits.
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a. Effect of Agreement. This Agreement shall supersede all prior
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arrangements, whether written or oral, and understandings regarding the subject
matter of this Agreement and shall be the exclusive agreement for the
determination of any payments due to Executive upon Executive's Termination Upon
Change in Control and accelerated vesting of stock options granted to Executive
by the Company due upon Executive's
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Termination Upon Change in Control or upon nonassumption of such options as
provided in Section 2, except as provided in Subsections(b) and (c) below and
Section 15(c).
b. No Limitation of Regular Benefit Plans. This Agreement is not
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intended to and shall not affect, limit or terminate any plans, programs, or
arrangements of the Company that are regularly made available to a significant
number of employees or officers of the Company, including without limitation the
Company's stock option plans.
c. Noncumulation of Benefits. Executive may not cumulate cash
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severance payments and stock option acceleration benefits under both this
Agreement and another agreement. If Executive has any other binding written
agreement with the Company which provides that, upon a Change in Control or
termination of employment, Executive shall receive one or more of the benefits
described in Sections 2 and 3 of this Agreement (i.e., the payment of cash
compensation or acceleration of vesting of stock options), then with respect to
those benefits the aggregate amounts payable under this Agreement shall be
reduced by the amounts paid or payable under such other agreements.
9. Release of Claims. The Company may condition the stock option
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acceleration described in Section 3(a) and payment of the Cash Severance Payment
described in Section 3(b) upon the delivery by Executive of a signed release of
claims in a form reasonably satisfactory to the Company.
10. Proprietary and Confidential Information. Executive agrees to
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continue to abide by the terms and conditions of the confidentiality and/or
proprietary rights agreement between Executive and the Company.
11. Nonsolicitation.
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a. Agreement Not to Solicit. If the Company performs its obligations
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to deliver the severance benefits set forth in Section 3, then for a period of
one (1) year after Executive's Termination Upon Change of Control, Executive
shall not, directly or indirectly, solicit the services or business of or in any
other manner persuade any employee, distributor, vendor, representative or
customer of the Company to discontinue that person's or entity's relationship
with or to the Company.
b. Other Agreements Not Superseded. Subsection (a) of this Section
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shall not supersede or limit the terms, including more restrictive terms, of any
other agreement by Executive to refrain from competition with or from soliciting
any the employees, distributors, vendors, representatives or customers of
Company.
12. Arbitration.
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a. Disputes Subject to Arbitration. Any claim, dispute or controversy
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arising out of this Agreement, the interpretation, validity or enforceability of
this Agreement or the alleged breach thereof shall be submitted by the parties
to binding arbitration by the American Arbitration Association; provided,
however, that (i) the arbitrator shall have no authority to make any ruling or
judgment that would confer any rights with respect to the trade secrets,
confidential and proprietary information or other intellectual property of the
Company upon Executive or any third party; and (ii) this arbitration provision
shall not preclude the Company from seeking legal and equitable relief from any
court having jurisdiction with respect to any disputes or claims relating to or
arising out of the misuse or misappropriation of the Company's intellectual
property. Judgment may be entered on the award of the arbitrator in any court
having jurisdiction.
b. Site of Arbitration. The site of the arbitration proceeding shall
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be in Ann Arbor, Michigan.
c. Costs and Expenses Borne by Company. All costs and expenses of
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arbitration or litigation, including but not limited to reasonable attorneys
fees and other costs reasonably incurred by Executive, shall be paid by the
Company. Notwithstanding the foregoing, if Executive initiates the arbitration
or litigation, and
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the finder of fact finds that Executive's claims were totally without merit or
frivolous, then Executive shall be responsible for Executive's own attorneys'
fees and costs.
13. Successors and Assigns.
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a. Successors of the Company. The Company shall require any
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successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, expressly, absolutely and unconditionally to assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Failure of the Company to obtain such agreement shall be a
material breach of this Agreement.
b. Acknowledgment by Company. If, after a Change in Control, the
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Company (or any Successor) fails to reasonably confirm that it has performed the
obligation described in Section 13(a) within ten (10) days after written notice
from Executive, Executive shall be entitled to terminate Executive's employment
with the Company for Good Reason, and to receive the benefits provided under
this Agreement in the event of Termination Upon Change in Control.
c. Heirs and Representatives of Executive. This Agreement shall
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inure to the benefit of and be enforceable by the Executive's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees.
14. Notices.
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a. General. Notices and all other communications contemplated by
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this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of Executive, mailed
notices shall be addressed to Executive at the home address which he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.
b. Notice of Termination. Any termination by the Company of
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Executive's employment for Cause or by Executive as a result of a voluntary
resignation or resignation for Good Reason shall be communicated by a notice of
termination to the other party hereto given in accordance with Subsection 14(a).
Such notice shall indicate the specific termination provision in this Agreement
relied upon, shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated, and
shall specify the termination date (which shall be not more than 15 days after
the giving of such notice).
15. Miscellaneous Provisions.
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a. No Duty to Mitigate. Executive shall not be required to mitigate
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the amount of any payment contemplated by this Agreement (whether by seeking
employment with a new employer or in any other manner), nor shall any such
payment be reduced by any earnings that Executive may receive from any other
source except as otherwise provided herein.
b. No Representations. Executive acknowledges that in entering into
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this Agreement, Executive is not relying and has not relied on any promise,
representation or statement made by or on behalf of the Company which is not set
forth in this Agreement.
c. Amendment. This Agreement may be modified, amended or superseded
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only by a supplemental written agreement signed with the same formality as this
Agreement by Executive and by the Company. However, the noncumulation of
benefits provision of Section 8(c) shall apply to any subsequent agreement,
unless (i) such provision is explicitly disclaimed in the subsequent agreement,
and (ii) the subsequent agreement has been authorized by the Board or a
committee thereof.
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d. Waiver. No waiver by either party of any breach of, or of
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compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
e. Choice of Law. The validity, interpretation, construction and
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performance of this Agreement shall be governed by the laws of the State of
Michigan.
f. Validity. If any one or more of the provisions (or any part
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thereof) of this Agreement shall be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions (or any part thereof) shall not in any way be affected or impaired
thereby.
g. No Assignment of Benefits. The rights of any person to payments or
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benefits under this Agreement shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this subsection (g) shall be void.
h. Tax Withholding. All payments made pursuant to this Agreement will
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be subject to withholding of applicable income and employment taxes.
i. Counterparts. This Agreement may be executed in counterparts, each
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of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
j. Consultation with Legal and Financial Advisors. Executive
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acknowledges that this Agreement confers significant legal rights, and may also
involve the waiver of rights under other agreements; that Company has encouraged
Executive to consult with Executive's personal legal and financial advisers; and
that Executive has had adequate time to consult with Executive's advisers before
signing this agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
AASTROM BIOSCIENCES, INC.
By: /s/ Xxxxxx X. Xxxxx
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Title: Chairman
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EXECUTIVE
/s/ R. Xxxxxxx Xxxxxxxxx, Ph.D.
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R. Xxxxxxx Xxxxxxxxx, Ph.D.
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