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                                                                   Exhibit 10.80

                              EMPLOYMENT AGREEMENT

      This Employment Agreement (the "Agreement") is entered into as of August
27, 2004, by and between AASTROM BIOSCIENCES, INC., a Michigan corporation
("Employer"), and R. DOUGLAS ARMSTRONG, PH.D. ("Employee").

                                    RECITALS

      A. Employer and Employee are parties to certain written employment and/or
benefits-related agreements as follows: (i) Employee Retention and Severance
Agreement dated February 9, 1999; (ii) Pay to Stay Severance Agreement dated as
of October 15, 1999; and (iii) Agreement Regarding Pay-To-Stay dated as of April
28, 2000 (collectively, the "Written Agreements").

      B. Employer is also entitled to certain employee benefits as have been
approved by Employer's Board of Directors from time to time during the course of
Employee's employment (collectively, the "Additional Benefits").

      C. Employer and Employee desire to incorporate into a single document the
terms and conditions of the Written Agreements and the Additional Benefits as
set forth herein.

      D. Employer and Employee intend that this Agreement shall supersede in
their entirety the Written Agreements and the Additional Benefits, which Written
Agreements and Additional Benefits, and any other written or oral employment
and/or benefits-related agreement, are, by this Agreement, hereby terminated in
their entirety.

                                   AGREEMENTS

      1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:

            "Accountants" shall be defined as set forth in Section 6.3.

            "Acquiring Corporation" shall be as defined as set forth in Section
9.2.

            "Cash Severance Payment" shall be defined as set forth in Section
6.3.

            "Cause" means the occurrence of any of the following events, as
determined by the Board of Directors of Employer, in good faith:

            (i) Employee's theft, material act of dishonesty or fraud, or
intentional falsification of any records of Employer;

            (ii) Employee's breach of the Aastrom Biosciences, Inc. Restated
Employee Proprietary Information and Invention Agreement or any other agreement
with the Employer covering the use or disclosure of confidential or proprietary
information of Employer, the ownership of intellectual property or restrictions
on competition;

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            (iii) Employee's gross negligence or willful misconduct in the
performance of Employee's assigned duties (but not mere unsatisfactory
performance); or

            (iv) Employee's conviction (including any plea of guilty or nolo
contendere) of a crime causing material harm to the reputation or standing of
Employer or which materially impairs Employee's ability to perform his duties
for Employer.

            "Change in Control" shall mean the occurrence of 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 "Exchange Act")), other
than a trustee or other fiduciary holding securities of Employer under an
employee benefit plan of Employer, becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of Employer representing 50% or more of (A) the outstanding shares of
common stock of Employer or (B) the combined voting power of Employer's
then-outstanding securities;

            (ii) Employer is party to a merger or consolidation which results in
the holders of voting securities of Employer 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 Employer or such surviving
entity outstanding immediately after such merger or consolidation;

            (iii) the sale or disposition of all or substantially all of
Employer's assets (or consummation of any transaction having similar effect);

            (iv) a change in the composition of the Board of Directors of
Employer within a three-year period as a result of which fewer than a majority
of the directors are Incumbent Directors.

            "Code" means the Internal Revenue Code of 1986, as amended, and any
successor thereto, and any applicable regulations promulgated thereunder.

            "Disability" means that:

            (i) Employee has been incapacitated by bodily injury, illness or
disease so as to be prevented thereby from effectively performing Employee's
duties;

            (ii) Such 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 long-term, which shall mean a period exceeding twelve (12) months.

            "Employer" means Aastrom Biosciences, Inc., a Michigan corporation,
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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            "Incumbent Director" means a director who either (i) is a director
of Employer as of the Effective Date of this Agreement, or (ii) is elected, or
nominated for election, to the Board of Directors with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination.

            "Successor" means Employer and any successor or assign to
substantially all of its business and/or assets.

            "Termination Upon Change in Control" means the occurrence of either
of the following events:

            (i) termination by Employer of Employee's employment for any reason
other than Cause during the period commencing thirty (30) days prior to the date
that Employer 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 Employee from all capacities in which
Employee is then rendering service to Employer within twelve (12) months
following a Change in Control;

provided, however, that Termination Upon Change in Control shall not include any
termination of Employee's employment which is (1) for Cause, or (2) a result of
Employee's death or Disability.

      2. EMPLOYMENT. Employer hereby engages Employee, and Employee hereby
accepts such engagement, upon the terms and conditions set forth herein.

      3. DUTIES. Employee is engaged as President and Chief Executive Officer.
Employee shall perform faithfully and diligently the duties customarily
performed by persons in the position for which employee is engaged, together
with such other reasonable and appropriate duties as Employer shall designate
from time to time. Employee shall devote Employee's full business time and
efforts to the rendition of such services and to the performance of such duties.
As a full-time employee of Employer, Employee shall not be entitled to provide
consulting services or other business or scientific services to any other party,
without the prior written consent of Employer.

      4. COMPENSATION AND FRINGE BENEFITS.

      4.1 BASE SALARY. During the term of this Agreement, as compensation for
the proper and satisfactory performance of all duties to be performed by
Employee hereunder, Employer shall pay to Employee a salary of Three Hundred
Sixteen Thousand Five Hundred Seventy Two and 00/100 Dollars ($316,572.00) per
year, payable in arrears in equal bi-weekly installments, less required
deductions for state and federal withholding tax, Social Security and all other
employee taxes and payroll deductions. The base salary shall be subject to
review and adjustment on an annual basis at the sole discretion of the Board of
Directors of the Company or committee of the Board of Directors, with the first
such review being July 1, 2005.

      4.2 CUSTOMARY FRINGE BENEFITS. Employee shall be entitled to such fringe
benefits as Employer customarily makes available to employees of Employer
engaged in the same or similar

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position as Employee ("Fringe Benefits"). Such Fringe Benefits may include
vacation leave, sick leave, and health insurance coverage. Employer reserves the
right to change the Fringe Benefits on a prospective basis, at any time,
effective upon delivery of written notice to Employee.

      4.3 DISABILITY COVERAGE. Employee shall be entitled to long-term
disability insurance coverage to the greatest extent available for purchase by
the Employer, up to an annual benefit not greater than the Employee's then
current base salary.

      4.4 VACATION. Employee is entitled to twenty (20) days of vacation in each
calendar year.

      4.5 ACCUMULATION. Employee shall earn and accumulate unused vacation and
sick leave in accordance with the Company's policy in effect from time to time.
Further, Employee shall not be entitled to receive payments in lieu of Fringe
Benefits, other than for unused vacation leave earned and accumulated at the
time the employment relationship terminates.

      5. TERM.

      5.1 COMMENCEMENT. The employment relationship pursuant to this Agreement
shall commence on the date as of which this Agreement was executed as set forth
above.

      5.2 TERMINATION AT WILL. Employer and Employee acknowledge and agree that
Employer's employment currently is "at will" and that their employment
relationship may be terminated by either party at any time, with or without
Cause.

      6. PAYMENTS UPON TERMINATION.

      6.1 PAYMENT OF COMPENSATION UPON TERMINATION. Upon termination of
Employee's employment with the Company, Employee shall be entitled to be paid
his base salary through the effective date of such termination, as full
compensation for any and all claims of Employee under this Agreement or
otherwise, except as set forth in Section 6.2, 6.3 and 7.

      6.2 PAYMENT OF SEVERANCE UPON TERMINATION.

            6.2.1 SEVERANCE. In the event Employee's employment is terminated by
Employer without Cause, then Employer shall pay to Employee a lump sum severance
payment equal to eighteen (18) months of Employee's then current salary rate,
less customary payroll deductions, unless Employee is also entitled to a payment
of severance under Section 6.3, in which case no severance shall be payable
under this Section 6.2.1.

            6.2.2 RELOCATION COSTS. In the event Employee's employment is
terminated by Employer without Cause, or the Employee, at the request of the
Company, relocates his principal place of employment more than 50 miles from Ann
Arbor, Michigan, then Employer shall reimburse Employee for the costs for
Employee to relocate his principal place of employment to another city in the
United States, up to an aggregate of $50,000 of relocation costs, including
closing costs on the sale of Employee's Michigan residence, payable upon
forwarding of standard relocation receipts that are not being reimbursed by
another third party or provided as a

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relocation allowance associated with a new position, 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 Employee.

            6.2.3 CONTINUED MEDICAL COVERAGE. In the event Employee's employment
is terminated, then Employee shall be entitled to elect continued medical
insurance coverage in accordance with applicable provisions of the Consolidated
Budget Reconciliation Act of 1985 ("COBRA").

      6.3 PAYMENT OF SEVERANCE UPON TERMINATION UPON CHANGE IN CONTROL. In the
event of Employee's Termination Upon Change in Control, in addition to all
compensation and benefits earned by Employee through the date of Employee's
termination of employment, Employee 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 Employer and Employee otherwise agree in writing,
within thirty (30) days after the date of the Employee's termination of
employment, the amount of the Cash Severance Payment shall be determined and
reported in writing to Employer and Employee by independent public accountants
agreed to by Employer and Employee (the "Accountants"). Such determination by
the Accountants shall be conclusive and binding upon Employer and Employee 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. Employer and Employee 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 6.3. Employer shall pay the Cash
Severance Payment to the Employee within ten (10) days after the date of the
Accountants' report of their determination.

      6.4 RIGHT TO TERMINATE. Employer retains and reserves the right to
terminate the employment of Employee at any time, with or without Cause. For
avoidance of doubt, said severance payment shall not be owed if Employee's
termination is for Cause, or if Employee voluntarily terminates employment for
reasons other than as specified in Section 6.3 hereof.

      6.5 NO LIABILITY. No director, officer or shareholder of Employer shall
have any personal liability for the payment of any severance to Employee.

      6.6 RESIGNATION. Employee's entitlement to any compensation or benefits
under this Section 6 (other than compensation and benefits earned by Employee
through the date of Employee's termination of employment) is conditioned upon
Employee's resignation from all capacities in which Employee is then rendering
services to Employer, including from the Board of Directors and any committees
thereof on which Employee serves.

      6.7 EXCLUSIVE REMEDY. The parties acknowledge and agree that the payments
specified in this Agreement constitute Employee's sole and exclusive remedy for
any alleged injury or other damages arising out of a termination of Employee's
employment under

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circumstances described herein. Accordingly, as a condition to receipt of said
payments, Employee shall sign a customary and reasonable release form, in the
form attached hereto as Exhibit A, pursuant to which Employee acknowledges and
agrees that Employee has no claims against Employer or any director, officer,
shareholder or agent of Employer, or any successor in interest to Employer, with
respect to any employment matters or termination of employment (excepting only
for accrued salary, accrued vacation leave and reimbursement of customary
business expenses incurred on behalf of Employer, all in the ordinary course of
business, or any incentive sale bonus or relocation bonus to which Employee may
be entitled, if any).

      7. INCENTIVE SALE BONUS.

      7.1 GENERAL. In the event of a Change in Control described in subsection
(ii) or (iii) of the definition of Change in Control, then Employee shall be
entitled to participate in an incentive sale bonus pool (the "Bonus Pool").

      7.2 FUNDING OF BONUS POOL. The Bonus Pool shall be funded by a portion of
the net proceeds realized by Employer from a Change in Control described in
subsection (ii) or (iii) of the definition of Change in Control, after all
liabilities of Employer are satisfied. Said net proceeds may consist of cash,
stock or other consideration when and as paid by the acquirer. The Bonus Pool
shall be funded in increments consisting of 30% of the first million of net
proceeds, 25% of the second million of net proceeds, 15% of the third million of
net proceeds, and 10% of all additional net proceeds up to an aggregate of $25
million of net proceeds.

      7.3 EMPLOYEE SHARE OF BONUS POOL. Employee shall be entitled to a 50.0%
share of the Bonus Pool.

      7.4 VOLUNTARY TERMINATION BY EMPLOYEE. In the event that Employee
voluntarily terminates employment with Employer prior to the completion of a
Change in Control described in subsection (ii) or (iii) of the definition of
Change in Control, then Employee shall not be entitled to any share of the Bonus
Pool. Alternatively, if Employer decides to terminate Employee for reasons other
than "Cause", then Employee shall be entitled to receive Employee's designated
share of the Bonus Pool when it becomes payable.

      8. RELOCATION BONUS. In the event that Employer requests Employee to
relocate his principal place of employment more than 50 miles from Ann Arbor,
Michigan and Employee stays employed with Employer for one (1) year after such
relocation, then the Employer shall pay to Employee a relocation bonus equal to
six (6) months of Employee's then current salary rate, less customary payroll
deductions, to be paid immediately upon completion of the one year of
employment. Further, if the Company terminates Employee's employment without
Cause during said one (1) year period after a relocation, then this relocation
bonus shall nevertheless still be payable in full even though the employment did
not continue for the one (1) year period.

      9. STOCK OPTIONS; REPURCHASE RIGHT.

      9.1 VESTING. The parties agree that the following unvested stock options
granted by Employer to Employee prior to April 30, 2000 were accelerated and
immediately vested as of such date:

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<TABLE>
<CAPTION>
                                                  OPTIONS
                    EXERCISE           -------------------------------
DATE OF GRANT        PRICE             QUALIFIED         NON-QUALIFIED
-------------        -----             ---------         -------------
<S>                 <C>                <C>               <C>
12/15/99            $0.8438             118,518                   -
12/15/99            $0.8438                   -             198,482
</TABLE>

      9.2 ACKNOWLEDGMENT REGARDING STOCK OPTIONS. Except as set forth in Section
9.1, this Agreement shall not be deemed to modify the provisions of any stock
options granted by Employer to Employee on or before the date hereof.

      10. GENERAL PROVISIONS.

      10.1 ATTORNEYS' FEES. In the event of any dispute or breach arising with
respect to this Agreement, the party prevailing in any negotiations or
proceedings for the resolution or enforcement thereof shall be entitled to
recover from the losing party reasonable expenses, attorneys' fees and costs
incurred therein.

      10.2 AMENDMENT. No amendment or modification of the terms or conditions of
this Agreement shall be valid unless in writing and signed by both parties
hereto. There shall be no implied-in-fact contracts modifying the terms of this
Agreement. However, the noncumulation of benefits provision of Section 10.6
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.

      10.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the employment of Employee, other than
relating to the Employer's stock option grants to Employee, the Employer's
inventions, trade secrets, and proprietary and confidential information,
competition with the Employer and solicitation of the Employer's employees. This
Agreement supersedes all prior agreements, understandings, negotiations and
representation with respect to the employment relationship, including, without
limitation, the Written Agreements and the Additional Benefits, each of which is
hereby terminated in its entirety. This Agreement is not intended to and shall
not affect, limit or terminate any plans, programs, or arrangements of Employer
that are regularly made available to a significant number of employees or
officers of the Employer.

      10.4 SUCCESSORS AND ASSIGNS.

            10.4.1 Successors of Employer. Employer shall require any Successor,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession or assignment had taken place.
Failure of Employer to obtain such agreement shall be a material breach of this
Agreement.

            10.4.2 Acknowledgment by Company. If, after a Change in Control,
Employer (or any Successor) fails to reasonably confirm that it has performed
the obligation described in Section 10.4.1 within ten (10) days after written
notice from Employee, Employee shall be entitled to terminate Employee's
employment with Employer, and to receive the benefits provided under this
Agreement in the event of Termination Upon Change in Control.

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            10.4.3 Heirs and Representatives of Employee. This Agreement shall
inure to the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees.

      10.5 NO LIMITATION OF REGULAR BENEFIT PLANS. This Agreement is not
intended to and shall not affect, limit or terminate any plans, programs, or
arrangements of Employer that are regularly made available to a significant
number of employees or officers of Employer, including without limitation
Employer's stock option plans.

      10.6 NONCUMULATION OF BENEFITS. Employee may not cumulate cash severance
payments under both this Agreement and another agreement. If Employee has any
other binding written agreement with Employer which provides that, upon a Change
in Control or termination of employment, Employee shall receive one or more of
the benefits described in Section 6 of this Agreement (i.e., the payment of cash
compensation), 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.

      10.7 NO ASSIGNMENT OF BENEFITS. The rights of any person to payments or
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 creditors
process, and any action in violation of this Section 10.7 shall be void.

      10.8 NOTICES.

            10.8.1 General. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered, when mailed, if mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid, or when shipped,
if shipped by nationally known reputable overnight delivery service and shipping
charges prepaid. In the case of Employee, notices shall be addressed to Employee
at the home address which he most recently communicated to the Employer, in
writing. In the case of the Employer, notices shall be addressed to its
corporate headquarters, and all notices shall be directed to the attention of
its Secretary.

            10.8.2 Notice of Termination. Any termination by the Employer of
Employee's employment for Cause or by Employee as a result of a voluntary
resignation shall be communicated by a notice of termination to the other party
hereto given in accordance with Subsection 10.8.1. Such notice shall indicate
the specific termination provisions 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.

      10.9 NO DUTY TO MITIGATE. Employee shall not be required to mitigate 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 Employee may receive from any other
source except as otherwise provided herein.

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      10.10 NO REPRESENTATIONS. Employee acknowledges that in entering into this
Agreement Employee is not relying and has not relied on any promise,
representation or statement made by or on behalf of the Employer which is not
set forth in this Agreement.

      10.11 CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Michigan, without regard to its choice of law rules.

      10.12 WAIVER. Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
or prevent that party thereafter from enforcing each and every other provision
of this Agreement.

      10.13 SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be judicially
unenforceable, in whole or in part, the remaining provisions shall nevertheless
be binding and enforceable.

      10.14 TAX WITHHOLDING. The payments to be made pursuant to this Agreement
will be subject to customary withholding of applicable income and employment
taxes.

      10.15 CONSULTATION. Employee acknowledges that this Agreement confers
significant legal rights on Employee, and also involves Employee waiving other
potential rights he might have under other agreements and laws. Employee
acknowledges that Employer has encouraged Employee to consult with Employee's
own legal, tax, and financial advisers before signing the Agreement; and that
Employee has had adequate time to do so before signing this Agreement.

      10.16 COUNTERPARTS. This Agreement may be executed in counterparts, and
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.

      10.17 EXCESS PARACHUTE PAYMENT. In the event that any payment or benefit
received or to be received by Employee pursuant to this Agreement or otherwise
would subject Employee 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, Employee 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.

      10.18 CLAIMS PROCEDURE FOR SEVERANCE PAYMENTS.

            10.18.1 Administrator. The administrator for purposes of the
severance payments provided by Section 6.2 of this Agreement shall be the
Employer ("Administrator"), whose address is 24 Frank Lloyd Wright Dr., P.O. Box
376, Ann Arbor, Michigan 48106, and whose telephone number is 734-930-5555. The
"Named Fiduciary" as defined in Section 402(a)(2) of ERISA, also shall be the
Employer. The Employer shall have the right to designate one or more employees
as the Administrator and the Named Fiduciary at any time, and to change the
address and telephone number of the same. The Employer shall give the Employee
written notice of any change in the Administrator and Named Fiduciary, or in the
address or telephone number of the same.

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            10.18.2 Claims. The Administrator shall make all determinations as
to the right of any person to receive benefits under this Agreement. Any denial
by the Administrator of a claim for benefits by the Employee ("the claimant")
shall be stated in writing by the Administrator and delivered or mailed to the
claimant within ten (10) days after receipt of the claim, unless special
circumstances require an extension of time for processing the claim. If such an
extension is required, written notice of the extension shall be furnished to the
claimant prior to the termination of the initial 10-day period. In no event
shall such extension exceed a period of ten (10) days from the end of the
initial period. Any notice of denial shall set forth the specific reasons for
the denial, specific reference to pertinent provisions of this Agreement upon
which the denial is based, a description of any additional material or
information necessary for the claimant to perfect the claim, with an explanation
of why such material or information is necessary, and any explanation of claim
review procedures, and the time limits applicable to such procedures, including
a statement of the claimant's right to bring a civil action under ERISA Section
502(a) after exhausting all levels of appeal provided herein, written to the
best of the Administrator's ability in a manner that may be understood without
legal or actuarial counsel.

            10.18.3 Review of Claim Denial. A claimant whose claim for benefits
has been wholly or partially denied by the Administrator may request, within
sixty (60) days following the date of such denial, in a writing addressed to the
Administrator, a review of such denial. The claimant shall be entitled to submit
such issues or comments in writing or otherwise, as the claimant shall consider
relevant to a determination of the claim, and the claimant may include a request
for a hearing in person before the Administrator. Prior to submitting the
request, the claimant shall be entitled to review such documents as are relevant
to the claim. The claimant may, at all stages of review, be represented by
counsel, legal or otherwise, of the claimant's choice. All requests for review
shall be promptly resolved. The Administrator's decision with respect to any
such review shall be set forth in writing and shall be mailed to the claimant
not later than ten (10) days following receipt by the Administrator of the
claimant's request unless special circumstances, such as the need to hold a
hearing, require an extension of time for processing, in which case the
Administrator's decision shall be so mailed not later than twenty (20) days
after receipt of such request.

            10.18.4 Arbitration. A claimant who has followed the procedure in
paragraphs 10.18.2 and 10.18.3 of this Section, but who has not obtained full
relief on the claim for benefits, may, within sixty (60) days following the
claimant's receipt of the Administrator's written decision on review, apply in
writing to the Administrator for arbitration of the claim as provided in Section
10.19.

      10.19 ARBITRATION.

            (a) Either party to this Agreement, after complying with the
requirements of Section 10.18, to the extent applicable, may submit any dispute
under this Agreement for binding arbitration of the dispute before an arbitrator
mutually acceptable to both parties, the arbitration to be held in Ann Arbor,
Michigan, in accordance with the arbitration rules of the American Arbitration
Association, as then in effect, and the rights of claimant under Section 10.18.
If the parties are unable to mutually agree upon an arbitrator, then the
arbitration proceedings shall be held before three arbitrators, one of which
shall be designated by the Employer, one of which

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shall be designated by the claimant and the third of which shall be designated
mutually by the first two arbitrators in accordance with the arbitration rules
referenced above. The arbitrator(s) sole authority shall be to interpret and
apply the provisions of this Agreement; the arbitrator(s) shall not change, add
to, or subtract from, any of the Agreement's provisions. The arbitrator(s) shall
have the power to compel attendance of witnesses at the hearing. Any court
having jurisdiction may enter a judgment based upon such arbitration. Except as
set forth in Section 10.18, the decision of the arbitrator(s) shall be final and
binding on the parties to this Agreement and without appeal to any court. Except
as set forth in Section 10.18, upon execution of this Agreement, the Employee
shall be deemed to have waived any right to commence litigation proceedings
regarding this Agreement outside of arbitration without the express written
consent of the Employer.

            (b) In the case of a dispute relating to severance payments provided
by Section 6.2, the decision of the arbitrator(s) shall be delivered or mailed
to the claimant within sixty (60) days of the claimant's initial request for
review of the denied clam under Section 10.18, unless special circumstances
require an extension of time. If an extension is needed the arbitrator(s) shall,
before the end of the sixty (60) day period, give to the claimant written notice
of the special circumstances requiring the extension and the date by which the
arbitrator(s) expect(s) to render a decision. The extension of time shall not
exceed sixty (60) days from the end of the initial sixty (60) day period.
Notwithstanding the provisions of Section 10.19(b), in the case of a dispute
relating to severance payments provided by Section 6.2, the claimant shall not
be precluded from challenging the arbitrator's decision under Section 502(a) of
ERISA.

      10.20 ERISA. The severance compensation provided by Section 6.2 of this
Agreement constitutes an unfunded compensation arrangement for a member of a
select group of the Employer's management and any exemptions under ERISA, as
applicable to such an arrangement, shall be applicable to this Agreement.
Section 10.18 through this Section 10.20 apply to the severance compensation
provided by Section 6.2 of this Agreement.

      10.21 REPORTING AND DISCLOSURE. The Employer, from time to time, shall
provide government agencies with such reports concerning this Agreement as may
be required by law, and the Employer shall provide the Employee with such
disclosure concerning this Agreement as may be required by law or as the
Employer may deem appropriate.

      11. EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that
Employee (i) is free to enter into this Agreement and to perform each of the
terms and covenants contained herein, (ii) is not restricted or prohibited,
contractually or otherwise, from entering into and performing this Agreement,
and (iii) will not be in violation or breach of any other agreement by reason of
Employee's execution and performance of this Agreement.

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<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.

                                    EMPLOYER:

                                    Aastrom Biosciences, Inc.

                                    By: ___________________________________
                                         Joseph Taylor
                                         Chairman, Compensation Committee
                                         Board of Directors

                                    EMPLOYEE:

                                    _______________________________________
                                    R. Douglas Armstrong, Ph.D.

                                    Address: 5330 Falkirk Court

                                             Superior, MI  48198

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<PAGE>

                                    EXHIBIT A
                          TO AASTROM BIOSCIENCES, INC.
                              EMPLOYMENT AGREEMENT

                                RELEASE AGREEMENT

      THIS AGREEMENT ("Agreement") is made by and between _____________________
("Executive") and Aastrom Biosciences, Inc. (the "Company").

                                    RECITALS

      A. Executive has terminated employment as an executive officer of Company,
effective __________, ______________.

      B. Executive has been given the opportunity to review this Agreement, to
consult with legal counsel, and to ascertain his rights and remedies.

      C. Executive and Company, without any admission of liability, desire to
settle with finality, compromise, dispose of, and release any and all claims and
demands asserted or which could be asserted arising out of Executive's
employment at and separation from Company.

      In consideration of the foregoing and of the promises and mutual covenants
contained herein, it is hereby agreed between Executive and Company as follows:

                                    AGREEMENT

      1. In exchange for the good and valuable consideration set forth in that
certain Employment Agreement, made as of ______________________, between the
Company and Executive (the "Employment Agreement"), Executive hereby releases,
waives and discharges any and all manner of action, causes of action, claims,
rights, charges, suits, damages, debts, demands, obligations, attorneys fees,
and any and all other liabilities or claims of whatsoever nature, whether in law
or in equity, known or unknown, including, but not limited to, age
discrimination under The Age Discrimination In Employment Act of 1967 (as
amended), employment discrimination prohibited by other federal, state or local
laws, and any other claims, which Executive has claimed or may claim or could
claim in any local, state or federal or other forum, against Company, its
directors, officers, employees, agents, attorneys, successors and assigns as a
result of or relating to Executive's employment at and separation from Company
and as an officer of Company as a result of any acts or omissions by Company or
any of its directors, officers, employees, agents, attorneys, successors or
assigns ("Covered Acts or Omissions") which occurred prior to the date of this
Agreement; excluding only (i) those to compel the payment of amounts due to
Executive as provided in the Employment Agreement, (ii) enforcement of any
rights of Executive under any stock option agreements with the Company or (iii)
those for indemnification under the Company's articles of incorporation, bylaws
or applicable law by reason of his service as an officer or director of the
Company.

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<PAGE>

      2. Executive agrees to immediately return to Company all property, assets,
manuals, materials, information, notes, reports, agreements, memoranda, customer
lists, formulae, data, know-how, inventions, trade secrets, processes,
techniques, and all other assets, materials and information of any kind or
nature, belonging or pertaining to Company ("Company Information and Property"),
including, but not limited to, computer programs and diskettes or other media
for electronic storage of information containing Company Information and
Property, in Executive's possession, and Executive shall not retain copies of
any such Company Information and Property. Executive further agrees that from
and after the date hereof he will not remove from Company's offices any Company
Information and Property, nor retain possession or copies of any Company
Information and Property.

      3. Executive agrees that he shall never make any statement that negatively
affects the goodwill or good reputation of the Company, or any officer or
director of Company, except as required by law, and except that such statements
may be made to members of the Board of Directors of the Company.

      4. Executive covenants and agrees that he shall never commence or
prosecute, or knowingly encourage, promote, assist or participate in any way,
except as required by law, in the commencement or prosecution, of any claim,
demand, action, cause of action or suit of any nature whatsoever against Company
or any officer, director, employee or agent of Company ("Covered Litigation")
that is based upon any claim, demand, action, cause of action or suit released
pursuant to this Agreement or involving or based upon the Covered Acts and
Omissions.

      5. Executive further agrees that he has read this Agreement carefully and
understands all of its terms.

      6. Executive understands and agrees that he was advised to consult with an
attorney and did so prior to executing this Agreement.

      7. Executive understands and agrees that he has been given twenty-one (21)
days within which to consider this Agreement.

      8. Executive understands and agrees that he may revoke this Agreement for
a period of seven (7) calendar days following the execution of this Agreement
(the "Revocation Period"). This Agreement is not effective until this revocation
period has expired. Executive understands that any revocation, to be effective,
must be in writing and either (a) postmarked within seven (7) days of execution
of this Agreement and addressed to Aastrom Biosciences, Inc., 24 Frank Lloyd
Drive, Ann Arbor, Michigan 48105 or (b) hand delivered within seven (7) days of
execution of this Agreement to Aastrom Biosciences, Inc., 24 Frank Lloyd Drive,
Ann Arbor, Michigan 48105. Executive understands that if revocation is made by
mail, mailing by certified mail, return receipt requested, is recommended to
show proof of mailing.

      9. In agreeing to sign this Agreement and separate from Company, Executive
is doing so completely voluntarily and of his own free-will and without any
encouragement or pressure from Company and agrees that in doing so he has not
relied on any oral statements or explanations made by Company or its
representatives.

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      10. Both parties agree not to disclose the terms of this Agreement to any
third party, except as is required by law, or as is necessary for purposes of
securing counsel from either parties' attorneys or accountants.

      11. This Agreement shall not be construed as an admission of wrongdoing by
Company.

      12. This Agreement contains the entire agreement between Executive and
Company regarding the matters set forth herein. Any modification of this
Agreement must be made in writing and signed by Executive and each of the
entities constituting the Company.

      13. This Agreement shall be governed by and construed in accordance with
the domestic laws of the State of Michigan, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Michigan or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Michigan.

      14. In the event any provision of this Agreement or portion thereof is
found to be wholly or partially invalid, illegal or unenforceable in any
judicial proceeding, then such provision shall be deemed to be modified or
restricted to the extent and in the manner necessary to render the same valid
and enforceable, or shall be deemed excised from this Agreement, as the case may
require, and this Agreement shall be construed and enforced to the maximum
extent permitted by law, as if such provision had been originally incorporated
herein as so modified or restricted, or as if such provision had not been
originally incorporated herein, as the case may be.

      15. If there is a breach or threatened breach of the provisions of this
Agreement, Company may, in addition to other available rights and remedies,
apply to any court of competent jurisdiction for specific performance and/or
injunctive relief in order to enforce, or prevent any violation of, any of the
provisions of this Agreement.

      16. In the event that Executive violates the terms of this Agreement, in
addition to other available rights and remedies, the Company shall be released
of all of its remaining obligations under the Severance Agreement.

                                       15
<PAGE>

      The parties hereto have entered into this Agreement as of this __________
day of ___________, ______.

                                    AASTROM BIOSCIENCES, INC.

                                    By: ________________________________

                                    EXECUTIVE

                                    ____________________________________
                                    By: R. Douglas Armstrong, Ph.D.

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