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December 23, 1996

Ms. Cheryl K. Lawton
51 Sherbrooke Road
Newton, MA  02158

Dear Cheryl,

It is with pleasure that I extend to you an offer to join Creative BioMolecules,
Inc. The terms of this offer are summarized below.



Title and Duties:          Vice President and General Counsel, reporting to the
                           President of the Company. Your duties will be
                           determined by the President, consistent with your
                           position.

Term:                      Commencing on January 13, 1997, and continuing
                           thereafter until terminated by either you or the
                           Company under the provisions of this letter
                           agreement.

Salary:                    Base salary of $12,500.00 per month, payable in
                           accordance with the Company's standard payroll
                           Practices. Salary amount to be reviewed annually.

Sign-on Bonus:             You will be eligible for a $10,000 sign-on bonus,
                           payable after the completion of 30 days starting with
                           your commencement of employment ("Commencement
                           Date").

Bonus:                     You will be eligible for a first year bonus up to 20%
                           of your base salary. The payment of a bonus will
                           reflect substantial completion of reasonable goals
                           and objectives which we will mutually determine. A
                           bonus will not be paid even if objectives have been
                           achieved, if the Company decides not to pay Company
                           bonuses in a given year. Future bonus arrangements
                           will be determined on an annual basis by mutual
                           agreement.



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Ms. Cheryl K. Lawton
December 23, 1996
Page Two




Equity Participation:      Subject to the approval of the Board of Directors,
                           you will be granted stock options under the Company's
                           1987 Stock Plan to purchase an aggregate of 70,000
                           shares of Common Stock, with the exercise price to be
                           the fair market value of the Common Stock on the date
                           of grant as determined by the Board of Directors. The
                           options will vest annually over a four year period
                           and will be subject to the other terms and conditions
                           of the option agreement(s) to be entered into between
                           you and the Company. Such agreement(s) will include a
                           provision permitting exercise of the options with
                           payment made by you through a loan from the Company.
                           The agreement(s) will also include a provision for
                           acceleration of the vesting of the options,
                           substantially as follows:

                           "In case of (i) any consolidation or merger of the
                           Company with or into any other corporation or
                           corporations (other than a merger with a wholly-owned
                           subsidiary or a merger in which stockholders of the
                           Company have beneficial ownership of more than 50% of
                           the share capital of the surviving company, (ii) a
                           sale of all or substantially all of the assets of the
                           Company or (iii) the acquisition by a third party
                           (together with its affiliates or persons acting in
                           concert with) of beneficial ownership of more than
                           fifty percent (50%) of the share capital of the
                           Company, then immediately prior to the consummation
                           of any such transaction this option shall become
                           fully exercisable."

Benefits:                  Benefits to include:

                           -group health and dental insurance
                           -group life and AD&D insurance
                           -group short and long term disability insurance
                           -401(k) savings plan
                           -3 weeks vacation, under the Company's standard
                           policy


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Ms. Cheryl K. Lawton
December 23, 1996
Page Three




                           The Company will also reimburse you for any
                           reasonable out-of-pocket business expenses you incur
                           in the course of your employment, subject to
                           documentation in accordance with Company policies.

Severance Package:         If your employment with the Company is terminated at
                           any time during the 12-month period after the
                           Commencement Date, for any reason other than your
                           resignation or termination by the Company for "cause"
                           (as defined below), the company will continue to pay
                           your base salary and provide you with health, dental,
                           and life insurance benefits for 6 months after the
                           effective date of such employment termination. As
                           used in this letter agreement, "cause" shall mean (i)
                           illegal, dishonest or negligent conduct which
                           constitutes a breach of your obligations under this
                           agreement, or which involves an improper use of the
                           funds or assets of the Company, or (ii) any conduct
                           which is likely to have a material adverse impact on
                           the goodwill, reputation or business of the Company.

Confidentiality and
Inventions Assignment:     You agree to be bound by the terms of the Company's
                           confidentiality and inventions assignment provisions,
                           pursuant to a separate agreement to be signed by the
                           Company prior to the Commencement Date. You also
                           hereby represent and warrant that you have no
                           commitments or obligations inconsistent with this
                           agreement, including such confidentiality and
                           inventions assignment provisions, and you hereby
                           agree to indemnify and hold the Company harmless
                           against any claim based upon circumstances alleged to
                           be inconsistent with such representation and
                           warranty.


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Ms. Cheryl K. Lawton
December 23, 1996
Page Four

Governing Law and
Miscellaneous
Provisions:                This agreement shall be governed by and construed
                           under the laws of the Commonwealth of Massachusetts,
                           without application of the conflicts of law
                           provisions thereof. This agreement, including the
                           above-referenced stock option agreement and the
                           confidentiality and inventions assignment agreement,
                           embodies the entire agreement and understanding
                           between you and the Company regarding the subject
                           matter hereof. This agreement shall not be modified
                           or amended except by an instrument in writing signed
                           by you and the Company. The Company may assign its
                           rights and obligations under this agreement to any
                           person or entity who succeeds to all of the Company's
                           business or that aspect of the Company's business in
                           which you are principally involved. your rights and
                           obligations under this agreement may not be assigned
                           without the prior written consent of the Company.
                           Subject to the foregoing, this agreement shall be
                           binding upon and inure of the benefit of the Company
                           and any parent, subsidiary or other affiliate, and
                           their respective successors and assigns and shall be
                           binding upon and inure to the benefit of you and your
                           heirs, executors, administrators and assigns. This
                           agreement may be executed in one or more counterparts
                           each of which shall be deemed to be an original, but
                           all of which together shall constitute one and the
                           same instrument.

Should you wish to discuss any aspect of this employment offer, please feel free
to contact me. If the terms of employment are acceptable, please sign this
letter (a copy for your files is enclosed) and return it to me.

We believe that Creative BioMolecules will provide an exciting and stimulating
work environment, and look forward to your arrival.

Sincerely,
                                                        Agreed to:

/s/ Michael M. Tarnow
---------------------
Michael M. Tarnow                                      /s/ Cheryl K. Lawton
President & Ceo                                        -------------------------
                                                       Cheryl K. Lawton

Enclosure