CONVERTIBLE LOAN COMMITMENT BET.

EXHIBIT 10.29





CONVERTIBLE LOAN COMMITMENT AGREEMENT





This Agreement is entered into as of October 15, 1996, by and between Aastrom Biosciences, Inc., a Michigan corporation (the "Company"), and The State Treasurer of the State of Michigan, Custodian of the Michigan Public School Employees' Retirement System, State Employees' Retirement System, Michigan State Police Retirement System, and Michigan Judges Retirement System(the "State"), as follows:



1. Definitions.

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"Funding Request" is defined in Section 2.3 hereof.



"IPO" shall mean an initial public offering of stock by the Company which is registered with the United States Securities and Exchange Commission, resulting in the sale of securities aggregating to at least $10 million.



"Loan" or "Loans" are described in Section 2 hereof.



"Maturity Date" is defined in Section 2.5 hereof.



"Qualifying Financing" shall mean any one of the following:



i. the Company entering into (or completing) a term sheet agreement (or other agreement) with investors or an underwriter by the Maturity Date, which provides for: (a) a scheduled closing by February 1, 1998, (b) a public sale (i.e., an IPO) or private sale of equity securities of the Company, the gross proceeds from which equity sale is to aggregate to at least $10 million, (c) the proceeds of the sale are not designated by the investor for specified limited purposes, (d) the price per share for the sale is set by mutual agreement between the Company and new investors who invest at least $1 million, and (e) the sale of equity securities actually is consummated by February 1, 1998; or



ii. the Company entering into (or completing) a term sheet agreement (or other agreement) by the Maturity Date for the merger or sale of the Company at a value of at least $85 million, with (a) a scheduled closing for the merger or sale to be by February 1, 1998, and (b) the merger or sale actually is consummated by February 1, 1998; or



iii. the Company's Board of Directors adopting an Operational Plan for the Company to continue its operations in the ordinary course of business through December 31, 1998, funded by the Company's own cash flow and other resources, without requiring outside equity or debt investment in the Company.







2. Loan Commitment.

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2.1. In accordance with and subject to the terms of this Agreement, the State agrees to make Loans to the Company, in accordance with Funding Requests, up to an aggregate principal balance owing on the Loans not to exceed $5 million.



2.2. Each Loan shall be for an amount not less than $1 million principal.



2.3. Each Funding Request shall be in writing and shall be submitted by the Company to the State requesting a Loan to be made from the State to the Company in 45 days from the date of the Funding Request (or such longer period as may be specified by the Company). The Company may not submit a Funding Request prior to October 15, 1996, nor after September 1, 1997. The Company may not submit more than three (3) Funding Requests.



2.4. As a precondition to the Company's first Funding Request, the Company must first have requested and obtained (or be in the process of obtaining) all of the $5 million equity investment from Cobe Laboratories, Inc. ("Cobe") for purchasing Series F preferred stock.



2.5. Each Loan shall be evidenced by a promissory note signed and delivered by the Company to the State, specifying the principal amount of the Loan as specified in the Funding Request, in the form of the promissory note attached hereto as Exhibit A. As specified in more detail in said promissory note, (a) simple interest shall accrue at 10% per annum and be payable with principal at maturity, (b) the Company shall have an option to prepay any or all of the principal and/or accrued interest at any time, without penalty, (c) in lieu of the Company repaying the promissory note in cash, the Company shall have the option to satisfy the promissory note by converting any unpaid principal and accrued interest owing on the promissory note into equity stock of the Company, in accordance with the provisions set forth in the promissory note, (d) if the Company does not elect to convert the promissory note into equity, then all principal and accrued interest owing on the promissory note shall mature and be fully due and payable on the Maturity Date, which shall be the earlier of (i) 60 days following consummation of the Company's IPO or Qualifying Financing or (ii) 12 months following the date when the State makes the first Loan to the Company, and all promissory notes shall have this same Maturity Date, (e) the Company's obligations on the promissory notes shall be senior to or in parity with all other unsecured debt owed by the Company, and (f) within 15 days following completion of an IPO or Qualifying Financing, the Company shall give written notice to the State specifying whether the Company will (i) repay the promissory note at the Maturity Date, or (ii) convert the promissory note into equity stock of the Company.





2.6. The parties acknowledge that the Company is obligated, pursuant to previously existing agreements, to offer to many of the Company's existing shareholders the right to participate and invest in the same convertible debt commitment as is set forth in this Agreement. In the event any of the Company's other shareholders elect to so participate, then the $5 million level of the State's commitment shall be reduced on a dollar for dollar basis by each dollar committed by another shareholder for this convertible debt investment. The number of Commitment Stock Warrants (hereinafter described) grant to the State shall also be reduced on a prorata basis to the extent the Company's other shareholders elect to so participate. For example, if the other shareholders commit in the aggregate to $1 million convertible debt on the same terms as set forth in this Agreement, then the State's commitment level pursuant to this Agreement shall be reduced from $5 million to $4 million, and the Commitment Stock Warrant shall be reduced from 104,167 warrant shares to 83,334 warrant shares (i.e., a one-fifth reduction).



2.7. Once the Company has submitted a Funding Request to the State in accordance with the foregoing, and met the conditions as specified in Section 3 hereof, the State shall make the requested loan to the Company by wiring funds to the Company's bank account, pursuant to wire transfer instructions furnished to the State by the Company.



2.8. Upon the Company completing an IPO, the State's obligation to make further loan advances will terminate.



3. Conditions for Each Loan. As a condition to the State's

------------------------ obligation to make each Loan in accordance with the Company's Funding Request, the Company shall submit to the State the following:



a. the promissory note for said Loan, duly signed by the Company, with authority for the State to insert the date on said promissory note when the State advances the Loan proceeds to the Company;



b. a certificate signed by the President and the Chief Financial Officer of the Company certifying that, (i) the Company is not in material default under any of the Company's material obligations, and (ii) to the best of their knowledge and belief, all items of the information furnished to the State (via Joseph Taylor or such other representative as may be designed by the State), including without limitation, financial statements, minutes of Board meetings, draft Registration Statement on Form S-1 for the Company, dated August 1996, as supplemented by an update dated as of October 3, 1996 (collectively called the "Disclosure Statement"), and all other written materials and oral information, remain true and correct, and, when read together, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading, and (iii) the Company's



Board of Directors has authorized the officers of the Company to execute and deliver the promissory note, and (iv) the Company has previously requested and obtained (or is in the process of obtaining) $5 million of equity funding from Cobe pursuant to that certain Stock Purchase Commitment Agreement between Cobe and the Company.



4. Equity Conversion. In lieu of the Company repaying the promissory

----------------- notes in cash, the Company shall have the option to convert any unpaid principal and interest owing on the promissory notes into equity stock of the Company, in accordance with the following provisions:



a. if, by the Maturity Date, the Company has an IPO or another Qualifying Financing, then the Company has the option to convert the principal and interest owing on the promissory notes into the Company's capital stock, consisting of common stock issued pursuant to the IPO or the preferred stock or other equity issued by the Company pursuant to the Qualifying Financing, at a conversion price equal to 90% of the price paid by the other investors in the IPO or Qualifying Financing (without deduction for underwriter's commissions and discounts).



b. if, by the Maturity Date, the Company has not yet had an IPO or another Qualifying Financing, and if the Company does not repay the promissory notes in cash by the Maturity Date, then the principal and accrued interest owing on the promissory notes shall be converted into a new series of the Company's preferred stock (to be designated as Series G preferred stock), at $4.65 per share, which preferred stock shall have a liquidation preference and conversion price of $4.65 per share, with a liquidation preference senior to all other preferred stock existing at the time of issuance of the Series G preferred stock, and with other rights, preferences and privileges comparable to the Company's Series E preferred stock. Said Series G preferred stock will include a customary weighted average anti-dilution protection provision applicable to the Company's next following sale of preferred stock of at least $1 million to new investors.



c. In the event the "Qualifying Financing" is an "Operational Plan" as described in subparagraph (iii) of the definition of a Qualifying Financing, , then the equity securities into which the principal and interest owing on the promissory notes shall be converted pursuant to Section 4 hereof shall be a new series of the Company's preferred stock (Series G) having rights, preferences and privileges comparable to those of the Company's Series E preferred stock, but with a conversion price and liquidation preference being equal to 90% of the then current fair market value of the Company's then most recently issued preferred stock sold to cash investors (excluding stock sold to RPR), and with a liquidation preference senior to all other preferred stock existing at the time of issuance of the Series G preferred stock. Said fair market value of said preferred stock shall be determined by mutual agreement between the Company and the State, but if no



mutual agreement can be reached, then said fair market value shall be determined by a nationally recognized investment banking firm which is mutually selected by the Company and the State, with the fees for obtaining said valuation determination to be borne equally by the Company and the State. Said Series G preferred stock will include a customary weighted average anti-dilution protection provision applicable to the Company's next following sale of preferred stock of at least $1 million to new investors.



5. Stock Warrants.

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5.1. As consideration for the State entering into this Agreement for a $5 million commitment, the Company shall issue to the State a stock warrant (the "Commitment Stock Warrant") entitling the State to purchase up to 104,167 shares of the Company's common stock (subject to reduction as specified in Section 2.6 hereof), on the following terms:



i. the exercise price shall be the lesser of:



(a) $6.00 share, increasing by $2.00 per share on each anniversary of the date the Company completes its IPO; or



(b) 85% of the fair market value of the Company's stock at the time the stock warrant is exercised, which value shall be determined as follows:



(1) if the Company's common stock is traded in the public stock market at the time the stock warrant is exercised, then said fair market value shall be the public trading price, calculated using the average of the last trading price of the day for the 20 trading days preceding the date of exercise.



(2) if the exercise of the stock warrant is made prior to the Company completing an IPO, then said fair market value shall be the fair market value of the Company's then most recently issued preferred stock sold to cash investors (excluding stock sold to RPR), determined by mutual agreement between the Company and the State. If no such mutual agreement is reached, then the fair market value of said preferred stock shall be determined by a nationally recognized investment banking firm which is mutually selected by the Company and the State, with the fees for such determination to be borne equally between the Company and the State.



ii. The warrant shall become exercisable any time after the earlier of (a) 90 days after the Company completes its IPO or a Qualifying Financing, or (b) October 15, 1999 (provided that this date is not within 90 days



after the IPO is completed, in which event the warrant shall be exercisable at the end of said 90 days).



iii. The warrant shall expire on October 15, 2000, to the extent it has not been exercised prior thereto.



5.2. In addition to the Commitment Stock Warrant, the Company shall also issue to the State a "Funding Stock Warrant" applicable to each increment of Loan funding advanced by the State to the Company pursuant to Section 2 above, based upon a 7.5% coverage formula, namely: 12,500 warrant shares for each $1 million of principal Loan funds advanced, or an aggregate of 62,500 warrant shares if all $5 million of Loan funds are advanced. The terms of said Funding Stock Warrants shall be the same as the terms of the above-described Commitment Stock Warrant.



5.3. The form of the Commitment Stock Warrant and the Funding Stock Warrant shall be as set forth on Exhibit B attached hereto.



6. Piggyback Stock Registration Rights. The shares to be issued by

----------------------------------- the Company to the State pursuant to the conversion of the Loan into equity (Section 4 above), and upon exercise of the stock warrants (Section 5 above), shall have piggyback stock registration rights comparable to those given by the Company to the holders of the Company's Series E preferred stock.



7. General Provisions.

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7.1. Irrevocability; Binding Effect. The State hereby acknowledges

------------------------------ and agrees that the commitment hereunder is irrevocable by the State, except as required by applicable law, and that this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, legal representatives, and permitted assigns.



7.2. Modification. This Agreement shall not be modified or waived

------------ except by an instrument in writing signed by the party against whom any such modification or waiver is sought.



7.3. Notices. A notice or other communication required or permitted

------- to be given hereunder shall be in writing and shall be given by any means, including without limitation, mail, express delivery service, or facsimile. Any notice or other communication shall be deemed given at the time it is received at the party's address set forth on the signature page of this Agreement, or at such other address as the party shall have furnished in writing in accordance with the provisions of this Section 7.3.





7.4. Assignability. This Agreement and the rights, interests and

------------- obligations hereunder are not transferable or assignable by the State, except to an affiliate of the State who qualifies as an "accredited investor". However, the promissory notes, stock warrants and stock issued by the Company to the State may be assigned by the State in accordance with their terms and in accordance with all applicable laws.



7.5. Applicable Law. This Agreement shall be governed by and

-------------- construed in accordance with the internal laws of the State of Michigan, without regard to its conflicts of laws principles.



7.6. Confidentiality. The State acknowledges and agrees that any

--------------- information or data it has acquired from or about the Company, not otherwise properly in the public domain, was received in confidence. The State agrees not to divulge, communicate or disclose, except as may be required by law or for the performance of this Agreement, or use to the detriment of the Company or for the benefit of any other person or persons, or misuse in any way, any confidential information of the Company, including any scientific, technical, trade or business secrets of the Company and any scientific, technical, trade or business materials that are treated by the Company as confidential or proprietary, including, but not limited to, ideas, discoveries, inventions, developments and improvements belonging to the Company and confidential information obtained by or given to the Company about or belonging to third parties.



7.7. Entirety. This Agreement, together with the Exhibits and other

-------- documents referenced herein, constitutes the entire agreement between the State and the Company with respect to the transactions de ...