Exhibit 10.2
EMPLOYMENT AGREEMENT
     This Employment Agreement (“Agreement”) is made as of the 22nd day of
March, 2011, between Aastrom Biosciences, Inc., a Michigan corporation (the
“Company”), and Sharon Watling (the “Executive”).
     WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company on the terms contained herein.
     NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
     1. Position and Duties. The Executive shall serve as the Vice President,
Clinical and Regulatory of the Company, and shall have such other powers and
duties as may from time to time be prescribed by the Chief Executive Officer of
the Company (the “CEO”) or other authorized executive, provided that such duties
are consistent with the Executive’s position or other positions that she may
hold from time to time. The Executive shall devote her full working time and
efforts to the business and affairs of the Company. Notwithstanding the
foregoing, the Executive may engage in religious, charitable or other community
activities as long as such services and activities are disclosed to the Board
and do not materially interfere with the Executive’s performance of her duties
to the Company as provided in this Agreement.
     2. Compensation and Related Matters.
          (a) Base Salary. The Executive’s initial annual base salary shall be
$190,000. The Executive’s base salary shall be redetermined annually by the CEO
in consultation with the Company’s Compensation Committee. The base salary in
effect at any given time is referred to herein as “Base Salary.” The Base Salary
shall be payable in a manner that is consistent with the Company’s usual payroll
practices for senior executives.
          (b) Incentive Compensation. The Executive shall be eligible to receive
cash incentive compensation as determined by the CEO in consultation with the
Company’s Compensation Committee from time to time. The Executive’s target
annual incentive compensation shall be thirty percent (30%) of her Base Salary.
To be eligible for an incentive compensation payment, the Executive must be
employed by the Company on the day such incentive compensation is paid.
          (c) Options. From time to time and at the discretion of management and
the Board of Directors, the Company will grant to the Executive options to
purchase shares of the Company’s common stock at an exercise price equal to the
fair market value of the Company’s common stock on the effective date of grant.
Such options will be subject to the terms and conditions of the Company’s 2009
Stock Option Plan, as may be amended and/or restated from time to time, or such
other similar equity plan and form of stock option agreement, in each case duly
adopted by the Company, and such options will be subject to approval by the
Board of Directors.

 

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          (d) Expenses. The Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by him in performing services
hereunder, in accordance with the policies and procedures then in effect and
established by the Company for its senior executive officers.
          (e) Other Benefits. The Executive shall be entitled to continue to
participate in or receive benefits under all of the Company’s Employee Benefit
Plans in effect on the date hereof, or under plans or arrangements that provide
the Executive with benefits at least substantially equivalent to those provided
under such Employee Benefit Plans. As used herein, the term “Employee Benefit
Plans” includes, without limitation, each pension and retirement plan;
supplemental pension, retirement and deferred compensation plan; savings and
profit-sharing plan; stock ownership plan; stock purchase plan; stock option
plan; life insurance plan; medical insurance plan; disability plan; and health
and accident plan or arrangement established and maintained by the Company on
the date hereof for employees of the same status within the hierarchy of the
Company. The Executive shall be entitled to participate in or receive benefits
under any employee benefit plan or arrangement which may, in the future, be made
available by the Company to its executives and key management employees, subject
to and on a basis consistent with the terms, conditions and overall
administration of such plan or arrangement. Any payments or benefits payable to
the Executive under a plan or arrangement referred to in this Section 2(d) in
respect of any calendar year during which the Executive is employed by the
Company for less than the whole of such year shall, unless otherwise provided in
the applicable plan or arrangement, be prorated in accordance with the number of
days in such calendar year during which she is so employed. Should any such
payments or benefits accrue on a fiscal (rather than calendar) year, then the
proration in the preceding sentence shall be on the basis of a fiscal year
rather than calendar year.
          (f) Vacations. The Executive shall be entitled to accrue up to three
(3) weeks paid vacation days in each year, which shall be accrued ratably. The
Executive shall also be entitled to all paid holidays given by the Company to
its executives.
     3. Termination. The Executive’s employment hereunder may be terminated
without any breach of this Agreement under the following circumstances:
          (a) Death. The Executive’s employment hereunder shall terminate upon
her death.
          (b) Disability. The Company may terminate the Executive’s employment
if she is disabled and unable to perform the essential functions of the
Executive’s then existing position or positions under this Agreement with or
without reasonable accommodation for a period of 180 days (which need not be
consecutive) in any 12-month period. If any question shall arise as to whether
during any period the Executive is disabled so as to be unable to perform the
essential functions of the Executive’s then existing position or positions with
or without reasonable accommodation, the Executive may, and at the request of
the Company shall, submit to the Company a certification in reasonable detail by
a physician selected by the Company to whom the Executive or the Executive’s
guardian has no reasonable objection as to whether the Executive is so disabled
or how long such disability is expected to continue, and such certification
shall for the purposes of this Agreement be conclusive of the issue. The

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Executive shall cooperate with any reasonable request of the physician in
connection with such certification. If such question shall arise and the
Executive shall fail to submit such certification, the Company’s determination
of such issue shall be binding on the Executive. Nothing in this Section 3(b)
shall be construed to waive the Executive’s rights, if any, under existing law
including, without limitation, the Family and Medical Leave Act of 1993, 29
U.S.C. §2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. §12101
et seq.
          (c) Termination by Company for Cause. The Company may terminate the
Executive’s employment hereunder for Cause by a vote of the Board at a meeting
of the Board called and held for such purpose. For purposes of this Agreement,
“Cause” shall mean: (i) conduct by the Executive constituting a material act of
misconduct in connection with the performance of her duties, including, without
limitation, misappropriation of funds or property of the Company or any of its
subsidiaries or affiliates other than the occasional, customary and de minimis
use of Company property for personal purposes; (ii) the commission by the
Executive of any felony or a misdemeanor involving moral turpitude, deceit,
dishonesty or fraud, or any conduct by the Executive that would reasonably be
expected to result in material injury or reputational harm to the Company or any
of its subsidiaries and affiliates if she were retained in her position;
(iii) continued non-performance by the Executive of her duties hereunder (other
than by reason of the Executive’s physical or mental illness, incapacity or
disability) which has continued for more than 15 days following written notice
of such non-performance from the CEO; (iv) a breach by the Executive of any of
the provisions contained in Section 7 of this Agreement; (v) a material
violation by the Executive of the Company’s written employment policies, or
(vi) failure to cooperate with a bona fide internal investigation or an
investigation by regulatory or law enforcement authorities, after being
instructed by the Company to cooperate, or the willful destruction or failure to
preserve documents or other materials known to be relevant to such investigation
or the inducement of others to fail to cooperate or to produce documents or
other materials in connection with such investigation.
          (d) Termination Without Cause. The Company may terminate the
Executive’s employment hereunder at any time without Cause. Any termination by
the Company of the Executive’s employment under this Agreement which does not
constitute a termination for Cause under Section 3(c) and does not result from
the death or disability of the Executive under Section 3(a) or (b) shall be
deemed a termination without Cause.
          (e) Termination by the Executive. The Executive may terminate her
employment hereunder at any time for any reason, including but not limited to
Good Reason. For purposes of this Agreement, “Good Reason” shall mean that the
Executive has complied with the “Good Reason Process” (hereinafter defined)
following the occurrence of any of the following events: (i) a material
diminution in the Executive’s responsibilities, authority or duties; (ii) a
material diminution in the Executive’s Base Salary except for across-the-board
salary reductions based on the Company’s financial performance similarly
affecting all or substantially all senior management employees of the Company;
(iii) a material change in the geographic location of the Company’s offices from
its present location; or (iv) the material breach of this Agreement by the
Company. “Good Reason Process” shall mean that (i) the Executive reasonably
determines in good faith that a “Good Reason” condition has occurred; (ii) the
Executive notifies the Company in writing of the first occurrence of the Good
Reason condition within 15 days of the first occurrence of such condition;
(iii) the Executive cooperates

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in good faith with the Company’s efforts, for a period not less than 15 days
following such notice (the “Cure Period”), to remedy the condition;
(iv) notwithstanding such efforts, the Good Reason condition continues to exist;
and (v) the Executive terminates her employment within 15 days after the end of
the Cure Period. If the Company cures the Good Reason condition during the Cure
Period, Good Reason shall be deemed not to have occurred.
          (f) Notice of Termination. Except for termination as specified in
Section 3(a), any termination of the Executive’s employment by the Company or
any such termination by the Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a “Notice
of Termination” shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon.
          (g) Date of Termination. “Date of Termination” shall mean: (i) if the
Executive’s employment is terminated by her death, the date of her death;
(ii) if the Executive’s employment is terminated on account of disability under
Section 3(b) or by the Company for Cause under Section 3(c), the date on which
Notice of Termination is given; (iii) if the Executive’s employment is
terminated by the Company under Section 3(d), 30 days after the date on which a
Notice of Termination is given; (iv) if the Executive’s employment is terminated
by the Executive under Section 3(e) without Good Reason, 30 days after the date
on which a Notice of Termination is given, and (v) if the Executive’s employment
is terminated by the Executive under Section 3(e) with Good Reason, the date on
which a Notice of Termination is given after the end of the Cure Period.
Notwithstanding the foregoing, in the event that the Executive gives a Notice of
Termination to the Company, the Company may unilaterally accelerate the Date of
Termination and such acceleration shall not result in a termination by the
Company for purposes of this Agreement.
     4. Compensation Upon Termination.
          (a) Termination Generally. If the Executive’s employment with the
Company is terminated for any reason, the Company shall pay or provide to the
Executive (or to her authorized representative or estate) any earned but unpaid
base salary, incentive compensation earned but not yet paid, unpaid expense
reimbursements, accrued but unused vacation and any vested benefits the
Executive may have under any employee benefit plan of the Company (the “Accrued
Benefit”) on or before the time required by law but in no event more than
30 days after the Executive’s Date of Termination.
          (b) Termination by the Company Without Cause or by the Executive with
Good Reason. If the Executive’s employment is terminated by the Company without
Cause as provided in Section 3(d), or the Executive terminates her employment
for Good Reason as provided in Section 3(e), then the Company shall, through the
Date of Termination, pay the Executive her Accrued Benefit. In addition:
          (i) subject to the Executive signing a general release of claims in
favor of the Company and related persons and entities in a form and manner
satisfactory to the Company (the “Release”) within the 21-day period following
the Date of Termination and the expiration of the seven-day revocation period
for the Release, the Company shall pay the Executive an amount equal to nine
(9) months of the Executive’s

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Base Salary (the “Severance Amount”). The Severance Amount shall be paid out in
substantially equal installments in accordance with the Company’s payroll
practice over nine (9) months, beginning on the first payroll date that occurs
30 days after the Date of Termination. Solely for purposes of Section 409A of
the Internal Revenue Code of 1986, as amended (the “Code”), each installment
payment is considered a separate payment. Notwithstanding the foregoing, if the
Executive breaches any of the provisions contained in Section 7 of this
Agreement, all payments of the Severance Amount shall immediately cease; and
          (ii) upon the Date of Termination, all stock options and other
stock-based awards held by the Executive in which the Executive would have
vested if she had remained employed for an additional nine (9) months following
the Date of Termination shall vest and become exercisable or nonforfeitable as
of the Date of Termination; and
          (iii) subject to the Executive’s copayment of premium amounts at the
active employees’ rate, the Executive may continue to participate in the
Company’s group health, dental and vision program for nine (9) months; provided,
however, that the continuation of health benefits under this Section shall
reduce and count against the Executive’s rights under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended (“COBRA”).
     5. Change in Control Payment. The provisions of this Section 5 set forth
certain terms of an agreement reached between the Executive and the Company
regarding the Executive’s rights and obligations upon the occurrence of a Change
in Control of the Company. These provisions are intended to assure and encourage
in advance the Executive’s continued attention and dedication to her assigned
duties and her objectivity during the pendency and after the occurrence of any
such event. These provisions shall apply in lieu of, and expressly supersede,
the provisions of Section 4(b) regarding severance pay and benefits upon a
termination of employment, if such termination of employment occurs within
twelve (12) months after the occurrence of the first event constituting a Change
in Control. These provisions shall terminate and be of no further force or
effect beginning twelve (12) months after the occurrence of a Change in Control.
          (a) Change in Control. If within twelve (12) months after a Change in
Control, the Executive’s employment is terminated by the Company without Cause
as provided in Section 3(d) or the Executive terminates her employment for Good
Reason as provided in Section 3(e), then,
          (i) subject to the signing of the Release by the Executive within
30 days after the Date of Termination and the expiration of the seven-day
revocation period for the Release, the Company shall pay the Executive a lump
sum in cash in an amount equal to twelve (12) months of the Executive’s current
Base Salary (or the Executive’s Base Salary in effect immediately prior to the
Change in Control, if higher). Such payment shall be paid on the first payroll
date that occurs 30 days after the Date of Termination; and

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          (ii) notwithstanding anything to the contrary in any applicable option
agreement or stock-based award agreement, all stock options and other
stock-based awards held by the Executive shall immediately accelerate and become
fully exercisable or nonforfeitable as of the Date of Termination; and
          (iii) subject to the Executive’s copayment of premium amounts at the
active employees’ rate, the Executive may continue to participate in the
Company’s group health, dental and vision program for twelve (12) months;
provided, however, that the continuation of health benefits under this Section
shall reduce and count against the Executive’s rights under COBRA.
          (b) Additional Limitation.
          (i) Anything in this Agreement to the contrary notwithstanding, in the
event that the amount of any compensation, payment or distribution by the
Company to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, calculated in a manner consistent with Section 280G of the Code and
the applicable regulations thereunder (the “Severance Payments”), would be
subject to the excise tax imposed by Section 4999 of the Code, the following
provisions shall apply:
          (A) If the Severance Payments, reduced by the sum of (1) the Excise
Tax and (2) the total of the Federal, state, and local income and employment
taxes payable by the Executive on the amount of the Severance Payments which are
in excess of the Threshold Amount, are greater than or equal to the Threshold
Amount, the Executive shall be entitled to the full benefits payable under this
Agreement.
          (B) If the Threshold Amount is less than (x) the Severance Payments,
but greater than (y) the Severance Payments reduced by the sum of (1) the Excise
Tax and (2) the total of the Federal, state, and local income and employment
taxes on the amount of the Severance Payments which are in excess of the
Threshold Amount, then the Severance Payments shall be reduced (but not below
zero) to the extent necessary so that the sum of all Severance Payments shall
not exceed the Threshold Amount. In such event, the Severance Payments shall be
reduced in the following order: (1) cash payments not subject to Section 409A of
the Code; (2) cash payments subject to Section 409A of the Code;
(3) equity-based payments and acceleration; and (4) non-cash forms of benefits.
To the extent any payment is to be made over time (e.g., in installments, etc.),
then the payments shall be reduced in reverse chronological order.
          (ii) For the purposes of this Section 5(b), “Threshold Amount” shall
mean three times the Executive’s “base amount” within the meaning of
Section 280G(b)(3) of the Code and the regulations promulgated thereunder less
one dollar ($1.00); and “Excise Tax” shall mean the excise tax imposed by
Section 4999 of the Code, and any interest or penalties incurred by the
Executive with respect to such excise tax.

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          (iii) The determination as to which of the alternative provisions of
Section 5(b)(i) shall apply to the Executive shall be made by a nationally
recognized accounting firm selected by the Company (the “Accounting Firm”),
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the Date of Termination, if applicable, or
at such earlier time as is reasonably requested by the Company or the Executive.
For purposes of determining which of the alternative provisions of
Section 5(b)(i) shall apply, the Executive shall be deemed to pay federal income
taxes at the highest marginal rate of federal income taxation applicable to
individuals for the calendar year in which the determination is to be made, and
state and local income taxes at the highest marginal rates of individual
taxation in the state and locality of the Executive’s residence on the Date of
Termination, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive.
          (b) Definitions. For purposes of this Section 5, the following terms
shall have the following meanings:
     “Change in Control” shall mean any of the following:
          (i) any “person,” as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the “Act”) (other than the
Company, any of its subsidiaries, or any trustee, fiduciary or other person or
entity holding securities under any employee benefit plan or trust of the
Company or any of its subsidiaries), together with all “affiliates” and
“associates” (as such terms are defined in Rule 12b-2 under the Act) of such
person, shall become the “beneficial owner” (as such term is defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing 50 percent or more of the combined voting power of the Company’s
then outstanding securities having the right to vote in an election of the Board
(“Voting Securities”) (in such case other than as a result of an acquisition of
securities directly from the Company); or
          (ii) the consummation of (A) any consolidation or merger of the
Company where the stockholders of the Company, immediately prior to the
consolidation or merger, would not, immediately after the consolidation or
merger, beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate more than
50 percent of the voting shares of the Company issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any), or
(B) any sale or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or substantially
all of the assets of the Company.
     Notwithstanding the foregoing, a “Change in Control” shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate number of
Voting Securities beneficially owned by any person to 50 percent or more of the
combined voting power of all of the then outstanding Voting

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Securities; provided, however, that if any person referred to in this sentence
shall thereafter become the beneficial owner of any additional shares of Voting
Securities (other than pursuant to a stock split, stock dividend, or similar
transaction or as a result of an acquisition of securities directly from the
Company) and immediately thereafter beneficially owns 50 percent or more of the
combined voting power of all of the then outstanding Voting Securities, then a
“Change in Control” shall be deemed to have occurred for purposes of the
foregoing clause (i).
     6. Section 409A.
          (a) Anything in this Agreement to the contrary notwithstanding, if at
the time of the Executive’s separation from service within the meaning of
Section 409A of the Code, the Company determines that the Executive is a
“specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code,
then to the extent any payment or benefit that the Executive becomes entitled to
under this Agreement on account of the Executive’s separation from service would
be considered deferred compensation subject to the 20 percent additional tax
imposed pursuant to Section 409A(a) of the Code as a result of the application
of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and
such benefit shall not be provided until the date that is the earlier of (A) six
months and one day after the Executive’s separation from service, or (B) the
Executive’s death. If any such delayed cash payment is otherwise payable on an
installment basis, the first payment shall include a catch-up payment covering
amounts that would otherwise have been paid during the six-month period but for
the application of this provision, and the balance of the installments shall be
payable in accordance with their original schedule.
          (b) All in-kind benefits provided and expenses eligible for
reimbursement under this Agreement shall be provided by the Company or incurred
by the Executive during the time periods set forth in this Agreement. All
reimbursements shall be paid as soon as administratively practicable, but in no
event shall any reimbursement be paid after the last day of the taxable year
following the taxable year in which the expense was incurred. The amount of
in-kind benefits provided or reimbursable expenses incurred in one taxable year
shall not affect the in-kind benefits to be provided or the expenses eligible
for reimbursement in any other taxable year. Such right to reimbursement or
in-kind benefits is not subject to liquidation or exchange for another benefit.
          (c) To the extent that any payment or benefit described in this
Agreement constitutes “non-qualified deferred compensation” under Section 409A
of the Code, and to the extent that such payment or benefit is payable upon the
Executive’s termination of employment, then such payments or benefits shall be
payable only upon the Executive’s “separation from service.” The determination
of whether and when a separation from service has occurred shall be made in
accordance with the presumptions set forth in Treasury
Regulation Section 1.409A-1(h).
          (d) The parties intend that this Agreement will be administered in
accordance with Section 409A of the Code. To the extent that any provision of
this Agreement is ambiguous as to its compliance with Section 409A of the Code,
the provision shall be read in such a manner so that all payments hereunder
comply with Section 409A of the Code. The parties agree that this Agreement may
be amended, as reasonably requested by either party, and as may be

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necessary to fully comply with Section 409A of the Code and all related rules
and regulations in order to preserve the payments and benefits provided
hereunder without additional cost to either party.
          (e) The Company makes no representation or warranty and shall have no
liability to the Executive or any other person if any provisions of this
Agreement are determined to constitute deferred compensation subject to
Section 409A of the Code but do not satisfy an exemption from, or the conditions
of, such Section.
     7. Confidential Information, Noncompetition and Cooperation.
          (a) Confidential Information. As used in this Agreement, “Confidential
Information” means information belonging to the Company which is of value to the
Company in the course of conducting its business and the disclosure of which
could result in a competitive or other disadvantage to the Company. Confidential
Information includes, without limitation, financial information, reports, and
forecasts; inventions, improvements and other intellectual property; trade
secrets; know-how; designs, processes or formulae; software; market or sales
information or plans; customer lists; and business plans, prospects and
opportunities (such as possible acquisitions or dispositions of businesses or
facilities) which have been discussed or considered by the management of the
Company. Confidential Information includes information developed by the
Executive in the course of the Executive’s employment by the Company, as well as
other information to which the Executive may have access in connection with the
Executive’s employment. Confidential Information also includes the confidential
information of others with which the Company has a business relationship.
Notwithstanding the foregoing, Confidential Information does not include
information in the public domain, unless due to breach of the Executive’s duties
under Section 7(b).
          (b) Confidentiality. The Executive understands and agrees that the
Executive’s employment creates a relationship of confidence and trust between
the Executive and the Company with respect to all Confidential Information. At
all times, both during the Executive’s employment with the Company and after its
termination, the Executive will keep in confidence and trust all such
Confidential Information, and will not use or disclose any such Confidential
Information without the written consent of the Company, except as may be
necessary in the ordinary course of performing the Executive’s duties to the
Company.
          (c) Documents, Records, etc. All documents, records, data, apparatus,
equipment and other physical property, whether or not pertaining to Confidential
Information, which are furnished to the Executive by the Company or are produced
by the Executive in connection with the Executive’s employment will be and
remain the sole property of the Company. The Executive will return to the
Company all such materials and property as and when requested by the Company. In
any event, the Executive will return all such materials and property immediately
upon termination of the Executive’s employment for any reason. The Executive
will not retain with the Executive any such material or property or any copies
thereof after such termination.
          (d) Noncompetition and Nonsolicitation. During the Executive’s
employment with the Company and for twelve (12) months thereafter, regardless of
the reason for the

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termination, the Executive (i) will not, directly or indirectly, whether as
owner, partner, shareholder, consultant, agent, employee, co-venturer or
otherwise, engage, participate, assist or invest in any Competing Business (as
hereinafter defined); (ii) will refrain from directly or indirectly employing,
attempting to employ, recruiting or otherwise soliciting, inducing or
influencing any person to leave employment with the Company (other than
terminations of employment of subordinate employees undertaken in the course of
the Executive’s employment with the Company); and (iii) will refrain from
soliciting or encouraging any customer or supplier to terminate or otherwise
modify adversely its business relationship with the Company. The Executive
understands that the restrictions set forth in this Section 7(d) are intended to
protect the Company’s interest in its Confidential Information and established
employee, customer and supplier relationships and goodwill, and agrees that such
restrictions are reasonable and appropriate for this purpose. For purposes of
this Agreement, the term “Competing Business” shall mean an autologous or
allogeneic cell therapy technology business focused on the development of
therapies for the treatment of severe, chronic cardiovascular diseases conducted
anywhere in the world which is competitive with the business which the Company
or any of its affiliates at any time during the employment of the Executive.
Notwithstanding the foregoing, the Executive may own up to one percent (1%) of
the outstanding stock of a publicly held corporation which constitutes or is
affiliated with a Competing Business.
          (e) Third-Party Agreements and Rights. The Executive hereby confirms
that the Executive is not bound by the terms of any agreement with any previous
employer or other party which restricts in any way the Executive’s use or
disclosure of information or the Executive’s engagement in any business. The
Executive represents to the Company that the Executive’s execution of this
Agreement, the Executive’s employment with the Company and the performance of
the Executive’s proposed duties for the Company will not violate any obligations
the Executive may have to any such previous employer or other party. In the
Executive’s work for the Company, the Executive will not disclose or make use of
any information in violation of any agreements with or rights of any such
previous employer or other party, and the Executive will not bring to the
premises of the Company any copies or other tangible embodiments of non-public
information belonging to or obtained from any such previous employment or other
party.
          (f) Litigation and Regulatory Cooperation. During and after the
Executive’s employment, the Executive shall cooperate fully with the Company in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Company which relate to
events or occurrences that transpired while the Executive was employed by the
Company. The Executive’s full cooperation in connection with such claims or
actions shall include, but not be limited to, being available to meet with
counsel to prepare for discovery or trial and to act as a witness on behalf of
the Company at mutually convenient times. During and after the Executive’s
employment, the Executive also shall cooperate fully with the Company in
connection with any investigation or review of any federal, state or local
regulatory authority as any such investigation or review relates to events or
occurrences that transpired while the Executive was employed by the Company. The
Company shall reimburse the Executive for any reasonable out-of-pocket expenses
incurred in connection with the Executive’s performance of obligations pursuant
to this Section 7(f).

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          (g) Injunction. The Executive agrees that it would be difficult to
measure any damages caused to the Company which might result from any breach by
the Executive of the promises set forth in this Section 7, and that in any event
money damages would be an inadequate remedy for any such breach. Accordingly,
subject to Section 8 of this Agreement, the Executive agrees that if the
Executive breaches, or proposes to breach, any portion of this Agreement, the
Company shall be entitled, in addition to all other remedies that it may have,
to an injunction or other appropriate equitable relief to restrain any such
breach without showing or proving any actual damage to the Company.
     8. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive’s employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
(“AAA”) in Detroit, Michigan in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators. In the event that any
person or entity other than the Executive or the Company may be a party with
regard to any such controversy or claim, such controversy or claim shall be
submitted to arbitration subject to such other person or entity’s agreement.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. This Section 8 shall be specifically enforceable.
Notwithstanding the foregoing, this Section 8 shall not preclude either party
from pursuing a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in which such
relief is appropriate; provided that any other relief shall be pursued through
an arbitration proceeding pursuant to this Section 8.
     9. Consent to Jurisdiction. To the extent that any court action is
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the Superior Court of the State of
Michigan and the United States District Court for the District of Michigan.
Accordingly, with respect to any such court action, the Executive (a) submits to
the personal jurisdiction of such courts; (b) consents to service of process;
and (c) waives any other requirement (whether imposed by statute, rule of court,
or otherwise) with respect to personal jurisdiction or service of process.
     10. Integration. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements between the parties concerning such subject matter, including without
limitation the Employment Agreement by and between the Company and the Executive
dated as of January 14, 2010.
     11. Withholding. All payments made by the Company to the Executive under
this Agreement shall be net of any tax or other amounts required to be withheld
by the Company under applicable law.
     12. Successor to the Executive. This Agreement shall inure to the benefit
of and be enforceable by the Executive’s personal representatives, executors,
administrators, heirs, distributees, devisees and legatees. In the event of the
Executive’s death after her termination of

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employment but prior to the completion by the Company of all payments due him
under this Agreement, the Company shall continue such payments to the
Executive’s beneficiary designated in writing to the Company prior to her death
(or to her estate, if the Executive fails to make such designation).
     13. Enforceability. If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.
     14. Survival. The provisions of this Agreement shall survive the
termination of this Agreement and/or the termination of the Executive’s
employment to the extent necessary to effectuate the terms contained herein.
     15. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
     16. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Company or, in the case of the Company, at its main offices, attention of the
Board.
     17. Amendment. This Agreement may be amended or modified only by a written
instrument signed by the Executive and by a duly authorized representative of
the Company.
     18. Governing Law. This is a Michigan contract and shall be construed under
and be governed in all respects by the laws of the State of Michigan, without
giving effect to the conflict of laws principles of such State. With respect to
any disputes concerning federal law, such disputes shall be determined in
accordance with the law as it would be interpreted and applied by the United
States Court of Appeals for the Sixth Circuit.
     19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.
     20. Successor to Company. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to assume
and agree to perform this Agreement to the same extent that the Company would be
required to perform it if no succession had taken place. Failure of the Company
to obtain an assumption of this Agreement at or prior to the effectiveness of
any succession shall be a material breach of this Agreement.

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     21. Gender Neutral. Wherever used herein, a pronoun in the masculine gender
shall be considered as including the feminine gender unless the context clearly
indicates otherwise.
     IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the date and year first above written.

                  AASTROM BIOSCIENCES, INC.
 
                /s/ TIMOTHY M. MAYLEBEN          
 
  By:   Tim M. Mayleben    
 
  Its:   CEO and President    
 
                EXECUTIVE    
 
                /s/ SHARON WATLING                   Sharon Watling    

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