Document:

<PAGE>

                                                                   EXHIBIT 10.84
                                                                     (Exhibit A)

                           AASTROM BIOSCIENCES, INC.
                          2004 STOCK OPTION AGREEMENT

      Aastrom Biosciences, Inc. has granted to the individual (the "OPTIONEE")
named in the Notice of Grant of Stock Option (the "NOTICE") to which this Stock
Option Agreement (the "OPTION AGREEMENT") is attached an option (the "OPTION")
to purchase certain shares of Stock upon the terms and conditions set forth in
the Notice and this Option Agreement. The Option has been granted pursuant to
and shall in all respects be subject to the terms and conditions of the Aastrom
Biosciences, Inc. 2004 Stock Option Plan (the "PLAN"), as amended to the Date of
Option Grant, the provisions of which are incorporated herein by reference. By
signing the Notice, the Optionee: (a) represents that the Optionee has received
copies of, and has read and is familiar with the terms and conditions of, the
Notice, the Plan and this Option Agreement, (b) accepts the Option subject to
all of the terms and conditions of the Notice, the Plan and this Option
Agreement, and (c) agrees to accept as binding, conclusive and final all
decisions or interpretations of the Board upon any questions arising under the
Notice, the Plan or this Option Agreement.

      1.    DEFINITIONS AND CONSTRUCTION.

            1.1 DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Notice or the Plan.

            1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.

      2.    TAX CONSEQUENCES.

            2.1 TAX STATUS OF OPTION. This Option is intended to have the tax
status designated in the Notice.

                  (a) INCENTIVE STOCK OPTION. If the Notice so designates, this
Option is intended to be an Incentive Stock Option within the meaning of Section
422(b) of the Code, but the Company does not represent or warrant that this
Option qualifies as such. The Optionee should consult with the Optionee's own
tax advisor regarding the tax effects of this Option and the requirements
necessary to obtain favorable income tax treatment under Section 422 of the
Code, including, but not limited to, holding period requirements. (NOTE TO
OPTIONEE: If the Option is exercised more than three (3) months after the date
on which you cease to be an Employee (other than by reason of your death or
permanent and total disability as defined in Section 22(e)(3) of the Code), the
Option will be treated as a Nonstatutory Stock Option and not as an Incentive
Stock Option to the extent required by Section 422 of the Code.)

                                     - 1 -
<PAGE>

                                                                     (Exhibit A)

                  (b) NONSTATUTORY STOCK OPTION. If the Notice so designates,
this Option is intended to be a Nonstatutory Stock Option and shall not be
treated as an Incentive Stock Option within the meaning of Section 422(b) of the
Code.

            2.2 ISO FAIR MARKET VALUE LIMITATION. If the Notice designates this
Option as an Incentive Stock Option, then to the extent that the Option
(together with all Incentive Stock Options granted to the Optionee under all
stock option plans of the Participating Company Group, including the Plan)
becomes exercisable for the first time during any calendar year for shares
having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000),
the portion of such options which exceeds such amount will be treated as
Nonstatutory Stock Options. For purposes of this Section 2.2, options designated
as Incentive Stock Options are taken into account in the order in which they
were granted, and the Fair Market Value of stock is determined as of the time
the option with respect to such stock is granted. If the Code is amended to
provide for a different limitation from that set forth in this Section 2.2, such
different limitation shall be deemed incorporated herein effective as of the
date required or permitted by such amendment to the Code. If the Option is
treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option
in part by reason of the limitation set forth in this Section 2.2, the Optionee
may designate which portion of such Option the Optionee is exercising. In the
absence of such designation, the Optionee shall be deemed to have exercised the
Incentive Stock Option portion of the Option first. Separate certificates
representing each such portion shall be issued upon the exercise of the Option.
(NOTE TO OPTIONEE: If the aggregate Exercise Price of the Option (that is, the
Exercise Price multiplied by the Number of Option Shares) plus the aggregate
exercise price of any other Incentive Stock Options you hold (whether granted
pursuant to the Plan or any other stock option plan of the Participating Company
Group) is greater than $100,000, you should contact the Chief Financial Officer
of the Company to ascertain whether the entire Option qualifies as an Incentive
Stock Option.)

      3.    ADMINISTRATION.

            All questions of interpretation concerning this Option Agreement
shall be determined by the Board. All determinations by the Board shall be final
and binding upon all persons having an interest in the Option. Any Officer shall
have the authority to act on behalf of the Company with respect to any matter,
right, obligation, or election which is the responsibility of or which is
allocated to the Company herein, provided the Officer has apparent authority
with respect to such matter, right, obligation, or election.

      4.    EXERCISE OF THE OPTION.

            4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Vesting Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the number of Vested Shares less the number of shares previously acquired
upon exercise of the Option. In no event shall the Option be exercisable for
more shares than the Number of Option Shares.

            4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of

                                     - 2 -
<PAGE>

                                                                     (Exhibit A)

Stock for which the Option is being exercised and such other representations and
agreements as to the Optionee's investment intent with respect to such shares as
may be required pursuant to the provisions of this Option Agreement. The written
notice must be signed by the Optionee and must be delivered in person, by
certified or registered mail, return receipt requested, by confirmed facsimile
transmission, or by such other means as the Company may permit, to the Chief
Financial Officer of the Company, or other authorized representative of the
Participating Company Group, prior to the termination of the Option as set forth
in Section 6, accompanied by full payment of the aggregate Exercise Price for
the number of shares of Stock being purchased. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice and the aggregate
Exercise Price.

            4.3 PAYMENT OF EXERCISE PRICE.

                  (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check or cash equivalent, (ii) by tender to the Company, or attestation to the
ownership, of shares of Stock owned by the Optionee having a Fair Market Value
not less than the aggregate Exercise Price, (iii) by means of a Cashless
Exercise, as defined in Section 4.3(b), or (iv) by any combination thereof.

                  (b) LIMITATIONS ON FORMS OF CONSIDERATION.

                        (i) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender or attestation would
constitute a violation of the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock. Unless otherwise provided by
the Board, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock unless such shares either have
been owned by the Optionee for more than six (6) months (and not used for
another Option exercise by attestation during such period) or were not acquired,
directly or indirectly, from the Company.

                        (ii) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
delivery of a properly executed notice together with irrevocable instructions to
a broker providing for the assignment to the Company of the proceeds of a sale
or loan with respect to some or all of the shares being acquired upon the
exercise of the Option (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to time
by the Board of Governors of the Federal Reserve System). The Company reserves,
at any and all times, the right, in the Company's sole and absolute discretion,
to establish, decline to approve or terminate any program or procedure.

            4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection

                                     - 3 -
<PAGE>

                                                                     (Exhibit A)

with the Option, including, without limitation, obligations arising upon (i) the
exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in
part, of any shares acquired upon exercise of the Option, (iii) the operation of
any law or regulation providing for the imputation of interest, or (iv) the
lapsing of any restriction with respect to any shares acquired upon exercise of
the Option. The Option is not exercisable unless the tax withholding obligations
of the Participating Company Group are satisfied. Accordingly, the Company shall
have no obligation to deliver shares of Stock until the tax withholding
obligations of the Participating Company Group have been satisfied by the
Optionee.

            4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, in the names of the heirs of the Optionee.

            4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.

            4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.

      5.    NONTRANSFERABILITY OF THE OPTION.

            The Option may be exercised during the lifetime of the Optionee only
by the Optionee or the Optionee's guardian or legal representative and may not
be assigned or transferred in any manner except by will or by the laws of
descent and distribution. Following the death of the Optionee, the Option, to
the extent provided in Section 7, may be exercised by

                                     - 4 -
<PAGE>

                                                                     (Exhibit A)

the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.

      6.    TERMINATION OF THE OPTION.

            The Option shall terminate and may no longer be exercised after the
first to occur of (a) the Option Expiration Date, (b) the last date for
exercising the Option following termination of the Optionee's Service as
described in Section 7, or (c) a Change in Control to the extent provided in
Section 8.

      7.    EFFECT OF TERMINATION OF SERVICE.

            7.1 OPTION EXERCISABILITY.

                  (a) DISABILITY. If the Optionee's Service terminates because
of the Disability of the Optionee, the Option, to the extent unexercised and
exercisable on the date on which the Optionee's Service terminated, may be
exercised by the Optionee (or the Optionee's guardian or legal representative)
at any time prior to the expiration of twelve (12) months after the date on
which the Optionee's Service terminated, but in any event no later than the date
of expiration of the Option's term as set forth in the Option Agreement
evidencing such Option (the "OPTION EXPIRATION DATE").

                  (b) DEATH. If the Optionee's Service terminates because of the
death of the Optionee, the Option, to the extent unexercised and exercisable on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee's legal representative or other person who acquired the right to
exercise the Option by reason of the Optionee's death at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.

                  (c) OTHER TERMINATION OF SERVICE. If the Optionee's Service
terminates for any reason, except Disability or death, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
Service terminated, may be exercised by the Optionee at any time prior to the
expiration of three (3) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.

            7.2 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.

            7.3 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth

                                     - 5 -
<PAGE>

                                                                     (Exhibit A)

(10th) day following the date on which a sale of such shares by the Optionee
would no longer be subject to such suit, (ii) the one hundred and ninetieth
(190th) day after the Optionee's termination of Service, or (iii) the Option
Expiration Date.

      8.    CHANGE IN CONTROL.

            8.1 DEFINITIONS.

                  (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company: (i) the
direct or indirect sale or exchange in a single or series of related
transactions by the shareholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.

                  (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, a "TRANSACTION")
wherein the shareholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting securities of the Company or, in the case of a Transaction
described in Section 8.1(a)(iii), the corporation or other business entity to
which the assets of the Company were transferred (the "TRANSFEREE"), as the case
may be. For purposes of the preceding sentence, indirect beneficial ownership
shall include, without limitation, an interest resulting from ownership of the
voting securities of one or more corporations or other business entities which
own the Company or the Transferee, as the case may be, either directly or
through one or more subsidiary corporations or other business entities. The
Board shall have the right to determine whether multiple sales or exchanges of
the voting securities of the Company or multiple Ownership Change Events are
related, and its determination shall be final, binding and conclusive.

            8.2 EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change
in Control, the surviving, continuing, successor, or purchasing corporation or
other business entity or parent thereof, as the case may be (the "ACQUIRING
CORPORATION"), may, without the consent of the Optionee, either assume the
Company's rights and obligations under the Option or substitute for the Option a
substantially equivalent option for the Acquiring Corporation's stock. In the
event the Acquiring Corporation elects not to assume the Company's rights or
obligations under the Option or substitute for the Option in connection with the
Change in Control, and provided that the Optionee's Service has not terminated
prior to such date, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of ten (10) days prior to the date of the
Change in Control. Any exercise of the Option that was permissible solely by
reason of this Section 8.2 shall be conditioned upon the consummation of the
Change in Control. The Option shall terminate and cease to be outstanding
effective as of the date of the Change in Control to the extent that the Option
is neither assumed or substituted for by the Acquiring Corporation in connection
with the Change in Control nor exercised as of the date of the Change

                                     - 6 -
<PAGE>

                                                                     (Exhibit A)

in Control. Notwithstanding the foregoing, shares acquired upon exercise of the
Option prior to the Change in Control and any consideration received pursuant to
the Change in Control with respect to such shares shall continue to be subject
to all applicable provisions of this Option Agreement except as otherwise
provided herein. Furthermore, notwithstanding the foregoing, if the corporation
the stock of which is subject to the Option immediately prior to an Ownership
Change Event described in Section 8.1(a)(i) constituting a Change in Control is
the surviving or continuing corporation and immediately after such Ownership
Change Event less than fifty percent (50%) of the total combined voting power of
its voting stock is held by another corporation or by other corporations that
are members of an affiliated group within the meaning of Section 1504(a) of the
Code without regard to the provisions of Section 1504(b) of the Code, the Option
shall not terminate unless the Board otherwise provides in its discretion.

            8.3 FAIR MARKET VALUE LIMITATION. If the Notice designates this
Option as an Incentive Stock Option, should the exercisability of this Option be
accelerated in connection with a Change in Control in accordance with Section
8.2, then to the extent that the aggregate Fair Market Value of the shares of
Stock with respect to which the Optionee may exercise the Option for the first
time during the calendar year of such acceleration, when added to the aggregate
Fair Market Value of the shares subject to any other options designated as
Incentive Stock Options granted to the Optionee under all stock option plans of
the Participating Company Group prior to the Date of Option Grant with respect
to which such options are exercisable for the first time during the same
calendar year, exceeds One Hundred Thousand Dollars ($100,000) (or such other
limit, if any, imposed by Section 422 of the Code), the portion of the Option
which exceeds such amount shall be treated as a Nonstatutory Stock Option. For
purposes of the preceding sentence, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of shares of stock shall be determined as of the time the
option with respect to such shares is granted

      9.    ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.

            In the event of any stock dividend, stock split, reverse stock
split, recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a
majority of the shares which are of the same class as the shares that are
subject to the Option are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its discretion.
Notwithstanding the foregoing, any fractional share resulting from an adjustment
pursuant to this Section 9 shall be rounded down to the nearest whole number,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding and
conclusive.

                                     - 7 -
<PAGE>

                                                                     (Exhibit A)

      10.   RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT.

            The Optionee shall have no rights as a shareholder with respect to
any shares covered by the Option until the date of the issuance of a certificate
for the shares for which the Option has been exercised (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company). No adjustment shall be made for dividends, distributions
or other rights for which the record date is prior to the date such certificate
is issued, except as provided in Section 9. If the Optionee is an Employee, the
Optionee understands and acknowledges that, except as otherwise provided in a
separate, written employment agreement between a Participating Company and the
Optionee, the Optionee's employment is "at will" and is for no specified term.
Nothing in this Option Agreement shall confer upon the Optionee any right to
continue in the Service of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's Service
as an Employee or Consultant, as the case may be, at any time.

      11.   NOTICE OF SALES UPON DISQUALIFYING DISPOSITION.

            The Optionee shall dispose of the shares acquired pursuant to the
Option only in accordance with the provisions of this Option Agreement. In
addition, if the Notice designates this Option as an Incentive Stock Option, the
Optionee shall (a) promptly notify the Chief Financial Officer of the Company if
the Optionee disposes of any of the shares acquired pursuant to the Option
within one (1) year after the date the Optionee exercises all or part of the
Option or within two (2) years after the Date of Option Grant and (b) provide
the Company with a description of the circumstances of such disposition. Until
such time as the Optionee disposes of such shares in a manner consistent with
the provisions of this Option Agreement, unless otherwise expressly authorized
by the Company, the Optionee shall hold all shares acquired pursuant to the
Option in the Optionee's name (and not in the name of any nominee) for the
one-year period immediately after the exercise of the Option and the two-year
period immediately after Date of Option Grant. At any time during the one-year
or two-year periods set forth above, the Company may place a legend on any
certificate representing shares acquired pursuant to the Option requesting the
transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate pursuant to the preceding sentence.

      12.   LEGENDS.

            The Company may at any time place legends referencing any applicable
federal, state or foreign securities law restrictions, as well as a legend
reflecting the effect of a disqualifying disposition (as described in Section 11
above) if the Option is an Incentive Stock Option, on all certificates
representing shares of stock subject to the provisions of this Option Agreement.
The Optionee shall, at the request of the Company, promptly present to the
Company any and all certificates representing shares acquired pursuant to the
Option in the possession of the Optionee in order to carry out the provisions of
this Section.

                                     - 8 -
<PAGE>

                                                                     (Exhibit A)

      13.   MISCELLANEOUS PROVISIONS.

            13.1 BINDING EFFECT. Subject to the restrictions on transfer set
forth herein, this Option Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, administrators,
successors and assigns.

            13.2 TERMINATION OR AMENDMENT. The Board may terminate or amend the
Plan or the Option at any time; provided, however, that except as provided in
Section 8.2 in connection with a Change in Control, no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation or is
required to enable the Option, if designated an Incentive Stock Option in the
Notice, to qualify as an Incentive Stock Option. No amendment or addition to
this Option Agreement shall be effective unless in writing.

            13.3 NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given (except to the extent
that this Option Agreement provides for effectiveness only upon actual receipt
of such notice) upon personal delivery or upon deposit in the United States Post
Office, by registered or certified mail, with postage and fees prepaid,
addressed to the other party at the address shown below that party's signature
on the Notice or at such other address as such party may designate in writing
from time to time to the other party.

            13.4 INTEGRATED AGREEMENT. The Notice, this Option Agreement and the
Plan constitute the entire understanding and agreement of the Optionee and the
Participating Company Group with respect to the subject matter contained herein
or therein and supersedes any prior agreements, understandings, restrictions,
representations, or warranties among the Optionee and the Participating Company
Group with respect to such subject matter other than those as set forth or
provided for herein or therein. To the extent contemplated herein or therein,
the provisions of the Notice and the Option Agreement shall survive any exercise
of the Option and shall remain in full force and effect.

            13.5 APPLICABLE LAW. This Option Agreement shall be governed by the
laws of the State of Michigan as such laws are applied to agreements between
Michigan residents entered into and to be performed entirely within the State of
Michigan.

            13.6 COUNTERPARTS. The Notice may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

(TM) Incentive Stock Option                Optionee: ___________________________

(TM) Nonstatutory Stock Option                     Date: _______________________

                                     - 9 -
<PAGE>

                            AASTROM BIOSCIENCES, INC.
                      NOTICE OF GRANT OF 2004 STOCK OPTION

      __________________ (the "OPTIONEE") has been granted an option (the
"OPTION") to purchase certain shares of Stock of Aastrom Biosciences, Inc.
pursuant to the Aastrom Biosciences, Inc. 2004 Stock Option Plan (the "Plan"),
as follows:

      DATE OF OPTION GRANT:     _________________________

      NUMBER OF OPTION SHARES:  _________________________

      EXERCISE PRICE:           __________per share

      INITIAL VESTING DATE:     The date one year after ______________

      OPTION EXPIRATION DATE:   The date ten (10) years after the Date of Option
                                Grant.

      TAX STATUS OF OPTION:     INCENTIVE Stock Option.

      VESTED SHARES: Except as provided in the Stock Option Agreement, the
      number of Vested Shares (disregarding any resulting fractional share) as
      of any date is determined by multiplying the Number of Option Shares by
      the "VESTED RATIO" determined as of such date as follows:

                                                                    Vested Ratio

                                Prior to Initial Vesting Date            0
                                On Initial Vesting Date, provided the Optionee's
                                Service has not terminated prior to such date

                                Plus:
                                For each three full months of the Optionee's
                                continuous Service from Initial Vesting Date
                                until the Vested Ratio equals 1/1, an additional

      By their signatures below, the Company and the Optionee agree that the
Option is governed by this Notice and by the provisions of the Plan and the
Stock Option Agreement, both of which are attached to and made a part of this
document. The Optionee acknowledges receipt of copies of the Plan and the Stock
Option Agreement, represents that the Optionee has read and is familiar with
their provisions, and hereby accepts the Option subject to all of their terms
and conditions.

Aastrom Biosciences, Inc.
24 Frank Lloyd Wright Dr., Lobby L.
Ann Arbor, MI 48105

______________________________     __________________________________
R. DOUGLAS ARMSTRONG, PH.D.
CHIEF EXECUTIVE OFFICER

______________________________     _________________________________
DATE                               DATE

<PAGE>

                            AASTROM BIOSCIENCES, INC.
                       NOTICE OF GRANT OF RESTRICTED STOCK

      ________________________ (the "PARTICIPANT") has been granted an award
(the "AWARD") pursuant to the Aastrom Biosciences, Inc. 2004 Equity Incentive
Plan (the "PLAN") of certain shares of Stock (the "SHARES"), as follows:

      DATE OF GRANT:            _______________

      TOTAL NUMBER OF SHARES:   _______________

      VESTED SHARES: Except as provided in the Restricted Stock Agreement and
      provided that the Participant's Service has not terminated prior to the
      relevant date, the number of Vested Shares shall cumulatively increase on
      each respective date set forth below by the number of shares set forth
      opposite such date, as follows:

<TABLE>
<CAPTION>
                                         CUMULATIVE
VESTING DATE   NO. SHARES VESTING    NO. VESTED SHARES
------------   ------------------    -----------------
<S>            <C>                   <C>
</TABLE>

      By their signatures below or by electronic acceptance or authentication in
a form authorized by the Company, the Company and the Participant agree that the
Award is governed by this Grant Notice and by the provisions of the Plan and the
Restricted Stock Agreement, both of which are made part of this document. The
Participant acknowledges that copies of the Plan, Restricted Stock Agreement and
the prospectus for the Plan are available on the Company's internal web site and
may be viewed and printed by the Participant for attachment to the Participant's
copy of this Grant Notice. The Participant represents that the Participant has
read and is familiar with the provisions of the Plan and the Restricted Stock
Agreement, and hereby accepts the Award subject to all of their terms and
conditions.

AASTROM BIOSCIENCES, INC.             PARTICIPANT

By: __________________________        _______________________________
                                      Signature
Its: _________________________        _______________________________
                                      Date
Address: Domino's Farms, Lobby L      _______________________________
         24 Frank Lloyd Wright Drive  Address
         Ann Arbor, MI 48105          _______________________________

ATTACHMENTS:   2004 Equity Incentive Plan, as amended to the Date of Grant;
               Restricted Stock Agreement; Assignment Separate from Certificate
               and Plan Prospectus

<PAGE>

                      ASSIGNMENT SEPARATE FROM CERTIFICATE

      FOR VALUE RECEIVED the undersigned does hereby sell, assign and transfer
unto __________________________________________________________________________
___________________________________________________ (_________________) shares
of the Capital Stock of AASTROM BIOSCIENCES, INC. standing in the undersigned's
name on the books of said corporation represented by Certificate No.
__________________ herewith and does hereby irrevocably constitute and appoint
________________________________ Attorney to transfer the said stock on the
books of said corporation with full power of substitution in the premises.

Dated: _______________

                                      ___________________________
                                      Signature

                                      ___________________________
                                      Print Name

Instructions: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Corporation to exercise its
Company Reacquisition Right set forth in the Restricted Stock Agreement without
requiring additional signatures on the part of the Participant.

<PAGE>

                            AASTROM BIOSCIENCES, INC.
                           RESTRICTED STOCK AGREEMENT

      Aastrom Biosciences, Inc. has granted to the Participant named in the
Notice of Grant of Restricted Stock (the "GRANT NOTICE") to which this
Restricted Stock Agreement (the "AGREEMENT") is attached an Award consisting of
Shares subject to the terms and conditions set forth in the Grant Notice and
this Agreement. The Award has been granted pursuant to the Aastrom Biosciences,
Inc. 2004 Equity Incentive Plan (the "PLAN"), as amended to the Date of Grant,
the provisions of which are incorporated herein by reference. By signing the
Grant Notice, the Participant: (a) acknowledges receipt of and represents that
the Participant has read and is familiar with the Grant Notice, this Agreement,
the Plan and a prospectus for the Plan in the form most recently registered with
the Securities and Exchange Commission (the "PLAN PROSPECTUS"), (b) accepts the
Award subject to all of the terms and conditions of the Grant Notice, this
Agreement and the Plan and (c) agrees to accept as binding, conclusive and final
all decisions or interpretations of the Committee upon any questions arising
under the Grant Notice, this Agreement or the Plan.

      1.    DEFINITIONS AND CONSTRUCTION.

                  1.1 DEFINITIONS. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to such terms in the Grant Notice or the
Plan.

                  1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Agreement. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

      2.    ADMINISTRATION.

            All questions of interpretation concerning the Grant Notice and this
Agreement shall be determined by the Committee. All determinations by the
Committee shall be final and binding upon all persons having an interest in the
Award. Any Officer shall have the authority to act on behalf of the Company with
respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
Officer has apparent authority with respect to such matter, right, obligation,
or election.

      3.    THE AWARD.

                  3.1 GRANT AND ISSUANCE OF SHARES. On the Date of Grant, the
Participant shall acquire and the Company shall issue, subject to the provisions
of this Agreement, a number of Shares equal to the Total Number of Shares set
forth in the Grant Notice. As a condition to the issuance of the Shares, the
Participant shall execute and deliver to the Company along with the Grant Notice
the Assignment Separate from Certificate duly endorsed (with date and number of
shares blank) in the form attached to the Grant Notice.

<PAGE>

                  3.2 NO MONETARY PAYMENT REQUIRED. The Participant is not
required to make any monetary payment (other than applicable tax withholding, if
any) as a condition to receiving the Shares, the consideration for which shall
be past services actually rendered and/or future services to be rendered to a
Participating Company or for its benefit. Notwithstanding the foregoing, if
required by applicable state corporate law, the Participant shall furnish
consideration in the form of cash or past services rendered to a Participating
Company or for its benefit having a value not less than the par value of the
Shares issued pursuant to the Award.

                  3.3 BENEFICIAL OWNERSHIP OF SHARES; CERTIFICATE REGISTRATION.
The Participant hereby authorizes the Company, in its sole discretion, to
deposit the Shares with the Company's transfer agent, including any successor
transfer agent, to be held in book entry form during the term of the Escrow
pursuant to Section 6. Furthermore, the Participant hereby authorizes the
Company, in its sole discretion, to deposit, following the term of such Escrow,
for the benefit of the Participant with any broker with which the Participant
has an account relationship of which the Company has notice any or all Shares
which are no longer subject to such Escrow. Except as provided by the foregoing,
a certificate for the Shares shall be registered in the name of the Participant,
or, if applicable, in the names of the heirs of the Participant.

                  3.4 ISSUANCE OF SHARES IN COMPLIANCE WITH LAW. The issuance of
the Shares shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. No Shares shall
be issued hereunder if their issuance would constitute a violation of any
applicable federal, state or foreign securities laws or other law or regulations
or the requirements of any stock exchange or market system upon which the Stock
may then be listed. The inability of the Company to obtain from any regulatory
body having jurisdiction the authority, if any, deemed by the Company's legal
counsel to be necessary to the lawful issuance of any Shares shall relieve the
Company of any liability in respect of the failure to issue such Shares as to
which such requisite authority shall not have been obtained. As a condition to
the issuance of the Shares, the Company may require the Participant to satisfy
any qualifications that may be necessary or appropriate, to evidence compliance
with any applicable law or regulation and to make any representation or warranty
with respect thereto as may be requested by the Company.

      4.    VESTING OF SHARES.

                  4.1 NORMAL VESTING. Except as provided in Section 4.2, the
Shares shall vest and become Vested Shares as provided in the Grant Notice. No
additional Shares will become Vested Shares following the Participant's
termination of Service for any reason.

                  4.2 ACCELERATION OF VESTING UPON A CHANGE IN CONTROL. In the
event of a Change in Control, the vesting of the Shares shall be accelerated in
full and the Total Number of Shares shall be deemed Vested Shares effective as
of the date of the Change in Control, provided that the Participant's Service
has not terminated prior to such date and provided further that the employee has
been employed at least one year by the Company at the time of the Change in
Control.

                                       2
<PAGE>

                  4.3 FEDERAL EXCISE TAX UNDER SECTION 4999 OF THE CODE.

                  (a) EXCESS PARACHUTE PAYMENT. In the event that any
acceleration of vesting pursuant to this Agreement and any other payment or
benefit received or to be received by the Participant would subject the
Participant to any excise tax pursuant to Section 4999 of the Code due to the
characterization of such acceleration of vesting, payment or benefit as an
excess parachute payment under Section 280G of the Code, the Participant may
elect, in his or her sole discretion, to reduce the amount of any acceleration
of vesting called for under this Agreement in order to avoid such
characterization.

                  (b) DETERMINATION BY INDEPENDENT ACCOUNTANTS. To aid the
Participant in making any election called for under Section 4.3(a), upon the
occurrence of any event that might reasonably be anticipated to give rise to the
acceleration of vesting under Section 4.2 (an "EVENT"), the Company shall
promptly request a determination in writing by independent public accountants
selected by the Company (the "ACCOUNTANTS"). Unless the Company and the
Participant otherwise agree in writing, the Accountants shall determine and
report to the Company and the Participant within twenty (20) days of the date of
the Event the amount of such acceleration of vesting, payments and benefits
which would produce the greatest after-tax benefit to the Participant. For the
purposes of such determination, the Accountants may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. The Company and the Participant 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.

      5.    COMPANY REACQUISITION RIGHT.

                  5.1 GRANT OF COMPANY REACQUISITION RIGHT. Except to the extent
otherwise provided in an employment agreement between a Participating Company
and the Participant which refers to this Award, in the event that (a) the
Participant's Service terminates for any reason or no reason, with or without
Cause, or (b) the Participant, the Participant's legal representative, or other
holder of the Shares, attempts to sell, exchange, transfer, pledge, or otherwise
dispose of (other than pursuant to an Ownership Change Event), including,
without limitation, any transfer to a nominee or agent of the Participant, any
Shares which are not Vested Shares ("UNVESTED SHARES"), the Company shall
automatically reacquire the Unvested Shares, and the Participant shall not be
entitled to any payment therefor (the "COMPANY REACQUISITION RIGHT").

                  5.2 OWNERSHIP CHANGE EVENT. Upon the occurrence of an
Ownership Change Event, any and all new, substituted or additional securities or
other property to which the Participant is entitled by reason of the
Participant's ownership of Unvested Shares shall be immediately subject to the
Company Reacquisition Right and included in the terms "Shares," "Stock" and
"Unvested Shares" for all purposes of the Company Reacquisition Right with the
same force and effect as the Unvested Shares immediately prior to the Ownership
Change Event. For purposes of determining the number of Vested Shares following
an Ownership Change Event, credited Service shall include all Service with any
corporation which is a Participating

                                       3
<PAGE>

Company at the time the Service is rendered, whether or not such corporation is
a Participating Company both before and after the Ownership Change Event.

      6.    ESCROW.

                  6.1 APPOINTMENT OF AGENT. To ensure that Shares subject to the
Company Reacquisition Right will be available for reacquisition, the Participant
and the Company hereby appoint the Secretary of the Company, or any other person
designated by the Company, as their agent and as attorney-in-fact for the
Participant (the "AGENT") to hold any and all Unvested Shares and to sell,
assign and transfer to the Company any such Unvested Shares reacquired by the
Company pursuant to the Company Reacquisition Right. The Participant understands
that appointment of the Agent is a material inducement to make this Agreement
and that such appointment is coupled with an interest and is irrevocable. The
Agent shall not be personally liable for any act the Agent may do or omit to do
hereunder as escrow agent, agent for the Company, or attorney in fact for the
Participant while acting in good faith and in the exercise of the Agent's own
good judgment, and any act done or omitted by the Agent pursuant to the advice
of the Agent's own attorneys shall be conclusive evidence of such good faith.
The Agent may rely upon any letter, notice or other document executed by any
signature purporting to be genuine and may resign at any time.

                  6.2 ESTABLISHMENT OF ESCROW. The Participant authorizes the
Company to deposit the certificates evidencing the Unvested Shares with the
Company's Agent and the Participant agrees to deliver to the Agent an Assignment
Separate from Certificate with respect to such Unvested Shares and each such
certificate duly endorsed (with date and number of Shares blank) in the form
attached to the Notice, to be held by the Agent under the terms and conditions
of this Section 6 (the "ESCROW"). Upon the occurrence of a Change in Control or
a change, as described in Section 8, in the character or amount of any
outstanding stock of the corporation the stock of which is subject to the
provisions of this Agreement, any and all new, substituted or additional
securities or other property to which the Participant is entitled by reason of
his or her ownership of the Shares that remain, following such Change in Control
or change described in Section 8, subject to the Company Reacquisition Right
shall be immediately subject to the Escrow to the same extent as the Shares
immediately before such event. The Company shall bear the expenses of the
Escrow.

                  6.3 DELIVERY OF SHARES TO PARTICIPANT. The Escrow shall
continue with respect to any Shares for so long as such Shares remain subject to
the Company Reacquisition Right. Upon termination of the Reacquisition Right
with respect to Shares, the Company shall so notify the Agent and direct the
Agent to deliver such number of Shares to the Participant. As soon as
practicable after receipt of such notice, the Agent shall cause to be delivered
to the Participant the Shares specified by such notice, and the Escrow shall
terminate with respect to such Shares.

                                       4
<PAGE>

      7.    TAX MATTERS.

                  7.1 TAX WITHHOLDING.

                  (a) IN GENERAL. At the time the Grant Notice is executed, or
at any time thereafter as requested by a Participating Company, the Participant
hereby authorizes withholding from payroll and any other amounts payable to the
Participant, and otherwise agrees to make adequate provision for, any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company, if any, which arise in connection with
the Award, including, without limitation, obligations arising upon (a) the
transfer of Shares to the Participant, (b) the lapsing of any restriction with
respect to any Shares, (c) the filing of an election to recognize tax liability,
or (d) the transfer by the Participant of any Shares. The Company shall have no
obligation to deliver the Shares or to release any Shares from the Escrow
established pursuant to Section 6 until the tax withholding obligations of the
Participating Company have been satisfied by the Participant.

                  (b) WITHHOLDING IN SHARES. The Participant may satisfy all or
any portion of a Participating Company's tax withholding obligations by
requesting the Company to withhold a number of whole, Vested Shares otherwise
deliverable to the Participant or by tendering to the Company a number of whole,
Vested Shares or vested shares acquired otherwise than pursuant to the Award
having, in any such case, a fair market value, as determined by the Company as
of the date on which the tax withholding obligations arise, not in excess of the
amount of such tax withholding obligations determined by the applicable minimum
statutory withholding rates. Any adverse consequences to the Participant
resulting from the procedure permitted under this Section, including, without
limitation, tax consequences, shall be the sole responsibility of the
Participant.

                  7.2 ELECTION UNDER SECTION 83(b) OF THE CODE.

                  (a) The Participant understands that Section 83 of the Code
taxes as ordinary income the difference between the amount paid for the Shares,
if anything, and the fair market value of the Shares as of the date on which the
Shares are "substantially vested," within the meaning of Section 83. In this
context, "substantially vested" means that the right of the Company to reacquire
the Shares pursuant to the Company Reacquisition Right has lapsed. The
Participant understands that he or she may elect to have his or her taxable
income determined at the time he or she acquires the Shares rather than when and
as the Company Reacquisition Right lapses by filing an election under Section
83(b) of the Code with the Internal Revenue Service no later than thirty (30)
days after the date of acquisition of the Shares. The Participant understands
that failure to make a timely filing under Section 83(b) will result in his or
her recognition of ordinary income, as the Company Reacquisition Right lapses,
on the difference between the purchase price, if anything, and the fair market
value of the Shares at the time such restrictions lapse. The Participant further
understands, however, that if Shares with respect to which an election under
Section 83(b) has been made are forfeited to the Company pursuant to its Company
Reacquisition Right, such forfeiture will be treated as a sale on which there is
realized a loss equal to the excess (if any) of the amount paid (if any) by the
Participant for the forfeited Shares over the amount realized (if any) upon
their forfeiture. If the Participant has paid nothing for the forfeited Shares
and has received no payment upon their forfeiture, the Participant

                                       5
<PAGE>

understands that he or she will be unable to recognize any loss on the
forfeiture of the Shares even though the Participant incurred a tax liability by
making an election under Section 83(b).

                  (b) The Participant understands that he or she should consult
with his or her tax advisor regarding the advisability of filing with the
Internal Revenue Service an election under Section 83(b) of the Code, which must
be filed no later than thirty (30) days after the date of the acquisition of the
Shares pursuant to this Agreement. Failure to file an election under Section
83(b), if appropriate, may result in adverse tax consequences to the
Participant. The Participant acknowledges that he or she has been advised to
consult with a tax advisor regarding the tax consequences to the Participant of
the acquisition of Shares hereunder. ANY ELECTION UNDER SECTION 83(b) THE
PARTICIPANT WISHES TO MAKE MUST BE FILED NO LATER THAN 30 DAYS AFTER THE DATE ON
WHICH THE PARTICIPANT ACQUIRES THE SHARES. THIS TIME PERIOD CANNOT BE EXTENDED.
THE PARTICIPANT ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS
THE PARTICIPANT'S SOLE RESPONSIBILITY, EVEN IF THE PARTICIPANT REQUESTS THE
COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.

                  (c) The Participant will notify the Company in writing if the
Participant files an election pursuant to Section 83(b) of the Code. The Company
intends, in the event it does not receive from the Participant evidence of such
filing, to claim a tax deduction for any amount which would otherwise be taxable
to the Participant in the absence of such an election.

      8.    ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE.

            Subject to any required action by the stockholders of the Company,
in the event of any change in the Stock effected without receipt of
consideration by the Company, whether through merger, consolidation,
reorganization, reincorporation, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, split-up, split-off, spin-off,
combination of shares, exchange of shares, or similar change in the capital
structure of the Company, or in the event of payment of a dividend or
distribution to the stockholders of the Company in a form other than Stock
(excepting normal cash dividends) that has a material effect on the Fair Market
Value of shares of Stock, appropriate adjustments shall be made in the number
and kind of shares subject to the Award, in order to prevent dilution or
enlargement of the Participant's rights under the Award. For purposes of the
foregoing, conversion of any convertible securities of the Company shall not be
treated as "effected without receipt of consideration by the Company." Any
fractional share resulting from an adjustment pursuant to this Section shall be
rounded down to the nearest whole number. Such adjustments shall be determined
by the Committee, and its determination shall be final, binding and conclusive.

      9.    RIGHTS AS A STOCKHOLDER, DIRECTOR, EMPLOYEE OR CONSULTANT.

            The Participant shall have no rights as a stockholder with respect
to any Shares subject to the Award until the date of the issuance of the Shares
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company). No adjustment shall be made for
dividends, distributions or other rights for which the record date is

                                       6
<PAGE>

prior to the date the Shares are issued, except as provided in Section 8.
Subject the provisions of this Agreement, the Participant shall exercise all
rights and privileges of a stockholder of the Company with respect to Shares
deposited in the Escrow pursuant to Section 6. If the Participant is an
Employee, the Participant understands and acknowledges that, except as otherwise
provided in a separate, written employment agreement between a Participating
Company and the Participant, the Participant's employment is "at will" and is
for no specified term. Nothing in this Agreement shall confer upon the
Participant any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Participant's Service at any time.

      10.   LEGENDS.

            The Company may at any time place legends referencing the Company
Reacquisition Right and any applicable federal, state or foreign securities law
restrictions on all certificates representing the Shares. The Participant shall,
at the request of the Company, promptly present to the Company any and all
certificates representing the Shares in the possession of the Participant in
order to carry out the provisions of this Section. Unless otherwise specified by
the Company, legends placed on such certificates may include, but shall not be
limited to, the following:

      "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
      RESTRICTIONS SET FORTH IN AN AGREEMENT BETWEEN THIS CORPORATION AND THE
      REGISTERED HOLDER, OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON
      FILE AT THE PRINCIPAL OFFICE OF THIS CORPORATION."

      11.   TRANSFERS IN VIOLATION OF AGREEMENT.

            No Shares may be sold, exchanged, transferred, assigned, pledged,
hypothecated or otherwise disposed of, including by operation of law, in any
manner which violates any of the provisions of this Agreement and, except
pursuant to an Ownership Change Event, until the date on which such shares
become Vested Shares, and any such attempted disposition shall be void. The
Company shall not be required (a) to transfer on its books any Shares which will
have been transferred in violation of any of the provisions set forth in this
Agreement or (b) to treat as owner of such Shares or to accord the right to vote
as such owner or to pay dividends to any transferee to whom such Shares will
have been so transferred. In order to enforce its rights under this Section, the
Company shall be authorized to give a stop transfer instruction with respect to
the Shares to the Company's transfer agent.

      12.   MISCELLANEOUS PROVISIONS.

            12.1 TERMINATION OR AMENDMENT. The Committee may terminate or amend
the Plan or this Agreement at any time; provided, however, that no such
termination or amendment may adversely affect the Participant's rights under
this Agreement without the consent of the Participant unless such termination or
amendment is necessary to comply with applicable law or government regulation.
No amendment or addition to this Agreement shall be effective unless in writing.

                                       7
<PAGE>

            12.2 NONTRANSFERABILITY OF THE AWARD. The right to acquire Shares
pursuant to the Award shall not be subject in any manner to anticipation,
alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or
garnishment by creditors of the Participant or the Participant's beneficiary,
except transfer by will or by the laws of descent and distribution. All rights
with respect to the Award shall be exercisable during the Participant's lifetime
only by the Participant or the Participant's guardian or legal representative.

            12.3 FURTHER INSTRUMENTS. The parties hereto agree to execute such
further instruments and to take such further action as may reasonably be
necessary to carry out the intent of this Agreement.

            12.4 BINDING EFFECT. This Agreement shall inure to the benefit of
the successors and assigns of the Company and, subject to the restrictions on
transfer set forth herein, be binding upon the Participant and the Participant's
heirs, executors, administrators, successors and assigns.

            12.5 DELIVERY OF DOCUMENTS AND NOTICES. Any document relating to
participation in the Plan or any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given (except to the extent
that this Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery, electronic delivery at the e-mail address, if
any, provided for the Participant by a Participating Company, or upon deposit in
the U.S. Post Office or foreign postal service, by registered or certified mail,
or with a nationally recognized overnight courier service, with postage and fees
prepaid, addressed to the other party at the address shown below that party's
signature to the Grant Notice or at such other address as such party may
designate in writing from time to time to the other party.

            (a) DESCRIPTION OF ELECTRONIC DELIVERY. The Plan documents, which
may include but do not necessarily include: the Plan, the Grant Notice, this
Agreement, the Plan Prospectus, and any reports of the Company provided
generally to the Company's stockholders, may be delivered to the Participant
electronically. In addition, the parties may deliver electronically any notices
called for in connection with the Escrow and the Participant may deliver
electronically the Grant Notice to the Company or to such third party involved
in administering the Plan as the Company may designate from time to time. Such
means of electronic delivery may include but do not necessarily include the
delivery of a link to a Company intranet or the internet site of a third party
involved in administering the Plan, the delivery of the document via e-mail or
such other means of electronic delivery specified by the Company.

            (b) CONSENT TO ELECTRONIC DELIVERY. The Participant acknowledges
that the Participant has read Section 12.5(a) of this Agreement and consents to
the electronic delivery of the Plan documents, the Grant Notice and notices in
connection with the Escrow, as described in Section 12.5(a). The Participant
acknowledges that he or she may receive from the Company a paper copy of any
documents delivered electronically at no cost to the Participant by contacting
the Company by telephone or in writing. The Participant further acknowledges
that the Participant will be provided with a paper copy of any documents if the
attempted electronic delivery of such documents fails. Similarly, the
Participant understands that the Participant must provide the Company or any
designated third party administrator with a paper copy of any

                                       8
<PAGE>

documents if the attempted electronic delivery of such documents fails. The
Participant may revoke his or her consent to the electronic delivery of
documents described in Section 12.5(a) or may change the electronic mail address
to which such documents are to be delivered (if Participant has provided an
electronic mail address) at any time by notifying the Company of such revoked
consent or revised e-mail address by telephone, postal service or electronic
mail. Finally, the Participant understands that he or she is not required to
consent to electronic delivery of documents described in Section 12.5(a).

            12.6 INTEGRATED AGREEMENT. The Grant Notice, this Agreement and the
Plan together with any employment, service or other agreement between the
Participant and a Participating Company referring to the Award shall constitute
the entire understanding and agreement of the Participant and the Participating
Company Group with respect to the subject matter contained herein or therein and
supersedes any prior agreements, understandings, restrictions, representations,
or warranties among the Participant and the Participating Company Group with
respect to such subject matter other than those as set forth or provided for
herein or therein. To the extent contemplated herein or therein, the provisions
of the Grant Notice and the Agreement shall survive any settlement of the Award
and shall remain in full force and effect.

            12.7 APPLICABLE LAW. This Agreement shall be governed by the laws of
the State of Michigan as such laws are applied to agreements between Michigan
residents entered into and to be performed entirely within the State of
Michigan.

            12.8 COUNTERPARTS. The Grant Notice may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

                                       9<PAGE>
                                                                   EXHIBIT 10.85

                            AASTROM BIOSCIENCES, INC.
                        EMPLOYEE COMPENSATION GUIDELINES
                                 AUGUST 12, 2005

1.   BACKGROUND

Compensation of executives and employees at Aastrom has traditionally been
through two mechanisms:

     -    Salary (reviewed on an annual basis)

     -    Stock Option Grant (base grants and annual grants)

The use of bonus compensation awards has also been employed (either in the form
of cash or stock option grants), which were awarded on a case-by-case basis to
recognize a special individual performance that resulted in a material benefit
to the Company.

In November 2004, the Company's shareholders and Board of Directors approved the
Aastrom 2004 Equity Incentive Plan, which authorizes the Company's Board of
Directors to establish from time to time a variety of different types of equity
compensation programs, including stock options and restricted stock grants.

Problems with the stock option grant program resulting from stock price
volatility, together with recent changes in the required expense accounting of
stock option grants, have led the Compensation Committee to evaluate Restricted
Stock Grants as an alternative to the traditional Stock Option awards. In this
process, the Committee also desired to introduce more financial incentives that
are tied to the performance of the Company and the individual employee. With
Aastrom now entering a period with a defined strategic plan, and with a fiscal
position more conducive for a different approach to overall compensation, a
revised compensation approach is being introduced that is intended to better
align employee compensation with progress, and to address some of the
inadequacies of the past compensation approach.

The new compensation plan consists of two new elements which are added to the
employee's salary cash compensation:

     -    Annual Cash Bonus plan (which may be paid currently or deferred)

     -    Long-term Restricted Stock plan.

The Annual Cash Bonus Plan is a new element of annual compensation, and the
Restricted Stock Plan replaces and enhances the Aastrom stock option program.
The new program offers potentially greater financial reward, but having these
financial incentives tied to the employee and the Company meeting certain
milestones objectives. The result is a significant percentage of the employee's
potential compensation being tied to the Company's and the employee's
performance.

Notwithstanding the terms outlined for these programs, management or the Board
of Directors may choose to override the plan if necessary to avoid providing an
unanticipated and unintended windfall to a specific employee or, in the
alternative, to avoid unfairly penalizing an otherwise deserving employee.

                                        1
<PAGE>
All "At Risk" awards are subject to approval of the annual accounts by the Board
of Directors. In order to be eligible for any "At Risk" compensation, the
employee must still be employed on the date the annual accounts are approved by
the Board, with exceptions to be made for employee death and permanent total
disability; and with other exceptions to be made at the discretion of management
for employee retirement and extraordinary circumstances.

NOTE: The Company will continue to additionally use discretionary bonus awards
(which may be in stock options, restricted stock, or cash) to recognize special
performance and achievement, or to adjust a recognized compensation inequity,
that is over and above the Cash Bonus Plan. Further, the Company may also
establish one or more specific bonus objectives for which a specific bonus would
be paid upon achievement (with payment in the form of cash or equity).

2.   DESCRIPTION OF ANNUAL CASH BONUS PLAN

For the "at-risk" compensation programs, individual performance goals and
corporate performance targets will be established and communicated within the
first quarter of each fiscal year, and used as guiding criteria for the level of
Annual Cash Bonus and Restricted Stock that will be given to the employee as
recognition of the past years performance.

Annually, 100% of the Cash Bonus and 60 % of the Restricted Stock award are at
risk, and are tied to a combination of corporate and individual performance ("At
Risk Compensation"). The Restricted Stock program will have 40 % of the total
annual award available that is not at risk, but which vests with the passage of
time (a more complete description of the Restricted Stock program is provided in
Exhibit 4, entitled "Employee Restricted Stock Grant Program").

The level of Cash Bonus and Restricted Stock award available to each employee
varies depending on the employee's position level and Cash Salary Base. Examples
of the compensation levels and percentage of total compensation at risk for each
management level are set forth in Exhibit 1. Risk to total compensation for
senior management is provided in Exhibit 2. A sample calculation is provided in
Exhibit 3.

The ANNUAL CASH BONUS is a bonus to be paid after the end of the fiscal year and
the acceptance of the financial accounts by the Board of directors. All
employees at the manager or program manager level or above are eligible for the
Cash Bonus program. Individuals promoted or hired into a new eligible level
during the year will have their bonus calculated on a pro rata basis.

An individual's TARGET CASH BONUS for each position can be determined by
multiplying the individual's Cash Salary Base (the base salary for the
individual at the beginning of the fiscal year or when an individual is hired or
is promoted into a new bonus eligible position) by the assigned percentage based
on job classification.

                                        2
<PAGE>
<TABLE>
<CAPTION>
                                                        TARGET CASH BONUS
                                                        -----------------
<S>                                                     <C>
CEO                                                     40 % of Cash Salary Base
COO                                                     35 % of Cash Salary Base
Senior VP                                               30 % of Cash Salary Base
VP                                                      30 % of Cash Salary Base
Senior Director (includes Senior Program Director)      25 % of Cash Salary Base
Director (Includes Program Director/Leader)             20 % of Cash Salary Base
Manager (Includes Program Manager)                      15 % of Cash Salary Base
</TABLE>

Procedure for Annual Cash Bonus Awards

Note: All final amounts will be rounded up to the nearest $10 for more simple
administration.

Step One: Determination if Affordability Target is Met

At completion of the fiscal year, the Board of Directors determine if the
Affordability Target has been met, or alternatively if it may be met pending an
elective financial event. If the Affordability Target has been met, then the
Annual Cash Bonus will be made. If it may be met pending an elective financial
event the Annual Cash bonus will be deferred or paid in restricted stock at the
election of the Board. If the Affordability Target is otherwise missed, there
will be no Annual Cash Bonus Award.

The AFFORDABILITY TARGET is the target amount of cash on the balance sheet at
the end of the fiscal year, as determined by the Board of Directors within the
first quarter of the fiscal year. The Annual Cash Bonus program may be paid only
if there is sufficient cash available for corporate needs as determined by the
Affordability Target. If the Company misses the Affordability Target, there
would be no Annual Cash Bonus. However, in certain limited circumstances the
Board may, at its discretion, elect to defer some or all of the cash bonus if
the Affordability Target is missed for reasons related to a delayed but expected
near term funding event (e.g. equity financing or alliance funding). In certain
rare operational circumstances of great progress but with corresponding prudence
on use of available cash, the Board also has the discretionary decision to have
some or all of the bonus be paid with use of restricted stock.

Step Two: Determination of the Company Performance

Board of Directors determines the level of Company Performance (from 0 to 100 %,
at 10% increments), based on the stated objectives laid out at the start of the
previous fiscal year (e.g. Operating Plan objectives and milestones). This
percentage will then be used for the calculation formulas for both the Annual
Cash Bonus and the Restricted Stock awards.

For example, if the total Annual Cash Bonus target is $20,000 and the Company
Performance is determined to be 80%, then the Annual Cash Bonus available for
applying the Individual Employee Performance measurement is:

     20,000 X 0.80 = $16,000

The Company Performance Objectives will be based on objective, measurable,
achievable and realistic criteria. However, it is the intent to have the 100%
level represent both generally expected as well as challenging reach milestones.

                                        3
<PAGE>
Step Three: Determination of the Individual Employee Performance

The employee's immediate supervisor determines the level of Individual Employee
performance (with review and oversight by the next level of management) for the
prior fiscal year. The level of successful accomplishment of his or her
performance targets will determine the percentage (0 to 100 %, at 10%
increments) of the available risk portion of the Annual Cash Bonus and the
Restricted Stock awards that will be made.

However, should the Company's performance fail to meet minimum expectations,
then none of the employees would be eligible for an Annual Cash Bonus, nor would
the employee be eligible for the corporate performance Restricted Stack Award.
Generally, not meeting expectations means the Company failing to achieve at
least 50% of the performance objectives.

The Individual Employee Performance Objectives are developed in a negotiated
manner between the individual and his or her supervisor. In the case of the CEO
those targets will be negotiated with the Board. Target objectives will be
quantifiable, objective, achievable, and realistic. Individual and corporate
objectives will generally be reviewed twice during the year, and, if
circumstances warrant, may be modified in appropriate circumstances. (For
example if patients accrue more rapidly than anticipated in key trials, other
objectives would be modified.)

However, should an employee's performance fail to meet minimum expectations,
then the employee would not be eligible for any Annual Cash Bonus, nor would the
employee be eligible for the individual performance Restricted Stack Award.
Generally, not meeting expectations means the employee failing to achieve at
least 50% of the performance objectives, or has other significant personal
performance problems related to his/her job description or Company policies and
procedures, as noted through the performance review process.

Step Four: Calculation of the Annual Cash Bonus

If Aastrom meets its Affordability Target, or the Board chooses to defer the
cash payment, then the Annual Cash bonus calculation is as follows:

   Annual Cash Bonus = [Target Cash Bonus] X [Company Performance percentage]
                 X [Employee Individual Performance percentage].

For Example, assume: The Company meets the Affordability Target and 80 % of the
Company Objectives and the individual meets 90 % of his or her Individual
Objectives. The actual Cash Bonus would be 72 % of the Target Cash Bonus.

3.   GENERAL DESCRIPTION OF EMPLOYEE RESTRICTED STOCK GRANT PROGRAM

The principal Long-term Incentive Plan for the Company is the Employee
Restricted Stock Grant Program, which is described in greater detail in Exhibit
4. In short, this program provides vesting stock awards, with a large percent
"at-risk", and will replace the previous use of base and annual stock option
grants. The amount of the restricted stock award is based on a combination of
three components: 40 % of the target award is to be an Annual Grant based on
continuing employment. The remaining 60 % of the theoretical grant (the
"at-risk" award) is divided into two equal pieces. Up to one-half of the at-risk
piece (or up to 30 % of the total theoretical award) will be granted based on
the Company meeting the Company Performance Objectives. Up to one-half (or 30 %
of the total theoretical award) will be granted based on the individual meeting
his or her Personal Objectives. Once an award is granted, vesting ownership will
occur over a four (4) year annual schedule (25% vesting on each of the next four
anniversaries of the grant date).

                                        4
<PAGE>
For example, assume the same facts as in the Annual Cash bonus example described
above. Assume further that an individual is entitled to a theoretical restricted
stock grant of 20,000 shares based on his or her job classification and Cash
Salary Base. The actual Restricted Stock Award to an individual employed on
approval date would be 18,200 shares. [8,000 shares (40% of 20,000 shares based
on employment on the appropriate date) + 4,800 shares (30 % of 20,000 shares X
80 % of Corporate Objectives met) + 5,400 shares (30 % of 20,000 shares X 90 %
of the Individual Objectives met.)]

4,550 shares (25% of the grant of 18,200 shares) would vest on each of the next
four anniversaries of the grant date if the employee has been and is continued
to be employed as of each anniversary date.

Further examples and detail are provided in Exhibit 4.

Note: All final share award numbers will be rounded up to the nearest 100 shares
for more simple administration.

For Initial Grant calculations and grants during the employees first partial
year, see the explanation in the definitions.

                                        5
<PAGE>
                                    Exhibit 1

                INCENTIVE COMPENSATION LEVELS BY EMPLOYMENT LEVEL

<TABLE>
<S>                   <C>                       <C>
CEO                   Cash bonus 40% of base,*  RSI grant 75% of base*
COO                   Cash bonus 35% of base,   RSI grant 60% of base
Senior VP             Cash bonus 30% of base,   RSI grant 50% of base
VP                    Cash bonus 30% of base,   RSI grant 45% of base
Senior Director       Cash bonus 25% of base,   RSI grant 30% of base
Director              Cash bonus 20% of base,   RSI grant 25% of base
Manager               Cash bonus 15% of base,   RSI grant 15% of base
All other employees                             RSI grant 10% of base
</TABLE>

Note: Senior Director includes senior program director, director level includes
program leader and manager level includes project managers for incentive
purposes.

*    base means Cash Salary Base for the employee

     RSI means Restrictive Stock dollar amount

                                        6
<PAGE>
                                    Exhibit 2

                    EXAMPLES OF AT RISK CALCULATION BY LEVEL

CEO:

A. Assume base salary of $300,000
B. Cash bonus target = Base salary x 40% = $120,000
C. RSI grant in dollars = Base salary x 75% = $225,000
D. RSI grant vests on time basis = $225,000 x .4 = $90,000
E. RSI grant at risk = $225,000 x .6 = $135,000
F. Total Compensation Package = A + B + C = $645,000
G. At Risk Element of Compensation = B + E = $255,000
At Risk portion of Total Compensation = G/F = 39.5%

COO

A. Assume base salary of $250,000
B. Cash bonus target = Base salary x 35% = $87,500
C. RSI grant in dollars = Base salary x 60% = $150,000
D. RSI grant vests on time basis = $150,000 x .4 = $60,000
E. RSI grant at risk = $150,000 x .6 = $90,000
F. Total Compensation Package = A + B + C = $487,500
G. At Risk Element of Compensation = B + E = $177,500
At Risk portion of Total Compensation = G/F = 36.4%

Senior VP

A. Assume base salary of $210,000
B. Cash bonus target = Base salary x 30% = $63,000
C. RSI grant in dollars = Base salary x 50% = $105,000
D. RSI grant vests on time basis = $105,000 x .4 = $42,000
E. RSI grant at risk = $105,000 x .6 = $63,000
F. Total Compensation Package = A + B + C = $378,000
G. At Risk Element of Compensation = B + E = $126,000
At Risk portion of Total Compensation = G/F = 33.3%

VP

A. Assume base salary of $200,000
B. Cash bonus target = Base salary x 30% = $60,000
C. RSI grant in dollars = Base salary x 45% = $90,000
D. RSI grant vests on time basis = $90,000 x .4 = $36,000
E. RSI grant at risk = $90,000 x .6 = $54,000
F. Total Compensation Package = A + B + C = $350,000
G. At Risk Element of Compensation = B + E = $114,000
At Risk portion of Total Compensation = G/F = 32.6%

                                        7
<PAGE>
Senior Director

A. Assume base salary of $150,000
B. Cash bonus target = Base salary x 25% = $37,500
C. RSI grant in dollars = Base salary x 30% = $45,000
D. RSI grant vests on time basis = $45,000 x .4 = $18,000
E. RSI grant at risk = $45,000 x .6 = $27,000
F. Total Compensation Package = A + B + C = $232,500
G. At Risk Element of Compensation = B + E = $64,500
At Risk portion of Total Compensation = G/F = 27.7%

Director

A. Assume base salary of $120,000
B. Cash bonus target = Base salary x 20% = $24,000
C. RSI grant in dollars = Base salary x 25% = $30,000
D. RSI grant vests on time basis = $30,000 x .4 = $12,000
E. RSI grant at risk = $30,000 x .6 = $18,000
F. Total Compensation Package = A + B + C = $174,000
G. At Risk Element of Compensation = B + E = $42,000
At Risk portion of Total Compensation = G/F = 21.4%

                                        8
<PAGE>
                                    Exhibit 3

                      SAMPLE CALCULATION FOR ANNUAL INCOME

Assume a director-level employee has a $150,000 base salary and the stock price
is $2.00 at the beginning and end of the period.

Cash Salary Base $150,000
Cash bonus target is 15% = $22,500
RSI target is 25% = $37,500 = 18,750 shares

Example 1

Assume at the end of year 1 that Aastrom has sufficient cash at the end of the
year to meet its Affordability Target, and has met 70% of its Corporate
Objectives Assume the employee met 100% of his or her personal objectives.

The employee would receive:

1.   A RSI grant at the end of the year of:

     a.   7,500 shares (40% of 18,750 shares as a result of the passage of a
          year since grant).

     b.   3,938 RSI grant as a result of the Company meeting its objectives
          (18,750 shares x .3 x .7).

     c.   5,625 RSI grant as result of the employee meeting his or her
          objectives (18,750 shares x .3 x 1.00).

2.   A cash bonus of $15,750 ($22,500 x .7 x 1.00).

The RSI grant of 17,063 would vest pro rata on each of the next four
anniversaries of the grant date if the employee is still employed.

Example 2

Assume Aastrom misses its financial Affordability Target and met 50% of its
Corporate Objectives. The employee met 100% of his Personal Performance
Objectives.

The employee would receive:

1.   A RSI grant at the end of the year of:

     a.   7,500 RSI shares as a result of the passage of a year since targets
          were set.

     b.   2,813 RSI shares as a result of the Company meeting 50% of its
          objectives (18,750 shares x .3 x .5).

     c.   5,625 RSI shares as a result of the Individual meeting his or her
          Personal Performance Objectives.

2.   There would be no cash bonus.

                                        9
<PAGE>
                                    Exhibit 4

                            AASTROM BIOSCIENCES, INC.
                     EMPLOYEE RESTRICTED STOCK GRANT PROGRAM

I.   DEFINITIONS

A.   FAIR MARKET VALUE ["FMV"] -

     The 4 O'clock closing price per share on the principal exchange on which
     the Company's Common Stock is traded on the [10th] trading day preceding
     the Board meeting and/or Grant Date.

B.   POSITION LEVEL PERCENTAGE ["POSITION%"] -

     The percentage of an employee's base salary value used to determine the
     dollar value level of the Total Eligible Grant [see Table I.].

C.   TOTAL ELIGIBLE GRANT - ["ELIGIBLE GRANT"] -

     The maximum grant of Restricted Stock Shares for which an employee is
     eligible.

                  ELIGIBLE GRANT = POSITION% Times BASE SALARY
                          Divided by FAIR MARKET VALUE

D.   BASE STOCK AWARD COMPONENT SHARES ["BASE SHARES"] -

     Forty [40] Percent of the Eligible Grant.

E.   COMPANY PERFORMANCE COMPONENT SHARES ["CO. PERFORMANCE SHARES"] -

     Up to Thirty [30] Percent (as determined by the Compensation Committee for
     officers and by Board of Directors for non-officers) of the Eligible Grant.

F.   INDIVIDUAL EMPLOYEE PERFORMANCE COMPONENT SHARES ["EMP. PERFORMANCE
     SHARES"] -

     Up to Thirty [30] Percent [as determined by Compensation Committee (for
     officers) or management (for non-officers)] of the Eligible Grant.

G.   TOTAL GRANT AWARD -

     The actual number of Restricted Stock Shares to be awarded to the employee
     determined following assessment of appropriate performance criteria.

           TOTAL GRANT AWARD = BASE SHARES plus CO. PERFORMANCE SHARES
                          plus EMP. PERFORMANCE SHARES

        (Note: once the stock grant is awarded, all of the shares remain
          subject to vesting over the next four years, in equal annual
             increments while the employee's employment continues.)

                                       10
<PAGE>
H.   EXAMPLE CALCULATION

     a.   Data

          Salary: $200,000      Position% : 50%        FMV: $2
          Co. Performance: 20%  Emp. Performance: 25%

     b.   Calculations

               Total Eligible Grant = [200,000][0.5] / 2 = 50,000 shares

               Total Grant Award = [50,000 x 0.4] + [50,000 x 0.2] +
                         [50,000 x 0.25] = 42,500 shares

II.  GRANT CATEGORIES

     A.   INITIAL GRANTS

          1.   All employees will receive an Initial Restricted Stock Grant when
               joining the Company. The grant will generally be made at the next
               meeting of the Compensation Committee, or in the case of newly
               appointed officers, at the next Board Meeting [or consent action]
               following the employee's date of hire.

          2.   In certain circumstances the grant may be pre-approved by the
               Compensation Committee or Board for an employee and be made on
               the employees first date of employment.

          3.   The size of the Initial Grant will equal the BASE SHARES as
               defined above (Exhibit 4IG).

          4.   The general vesting schedule for the grant will be four years,
               with 25% vesting after one year and the remainder of the grant
               vesting on an annual schedule over the remaining three years. The
               Compensation Committee may elect to alter this schedule for
               certain grants.

          5.   For employees starting during the 1-3 quarters of a year, the
               Base Share level will be prorated to time (months) remaining in
               the year. For employees starting in the last quarter of the year,
               their Initial Grant will be moved to the date of the Annual Grant
               awards for existing employees.

B.   ANNUAL GRANTS

Annual grants will be awarded equal to the TOTAL GRANT AWARD as defined above
(Exhibit 4IG). It is intended that all Annual Grants will be awarded at the
start of the fiscal year for all employees. The grant shares will be subject to
annual vesting over the four years following the date of the grant. For an
employee that has worked less than a full year at the end of the year for which
the Annual Grant is being calculated their grant will be prorated. If the
employee began in the first quarter of the fiscal year they would receive 100%
of the normal grant, in the second quarter they would receive 75% of the normal
grant in the third quarter 50% of the normal grant and in the fourth quarter 25%
of the normal grant.

                                       11
<PAGE>
C.   BONUS GRANTS

Restricted Stock grants may also be used as a bonus award for an employee. In
these occasional cases, the Compensation Committee will determine the
appropriate amount and term (with input and guidance from management for
non-officer awards). Bonus awards are generally used to reflect an individual's
exceptional performance or events that have moved the Company forward in a
material way, as well as to recognize other situations when the Compensation
committee feels an additional grant is merited for an employee. Bonus Grants
will not be included for determination of the size for an Annual Grant. The
shares granted will be subject to annual vesting over the four years following
the date of the grant.

D.   APPROVAL FOR PERFORMANCE GRANTS

     In order to comply with Internal Revenue Code Section 162(m), with respect
to any Annual Grant or Bonus Grant to be given to one of the Company's top five
officers, if the grant is or was based upon performance criteria, then the grant
needs to be approved and awarded by the Company's Compensation Committee (rather
than by the Board of Directors) and the performance criteria must be established
within the first 90 days of the performance year, and the performance criteria
must be one or more of the performance goals criteria listed in the Company's
2004 Equity Incentive Plan.

II.  DESCRIPTION OF RESTRICTED STOCK

A.   NATURE OF OWNERSHIP

     1.   Shares granted are fully registered

     2.   Shares are deemed outstanding upon Grant; and those held by officers,
          directors, and employees are included for reporting "inside
          ownership".

     3.   Shares are entitled to the same rights [Voting, Dividends,
          Communications, etc.] as other shares; except there is no right of
          sale or transfer, which right arises only upon the vesting of such
          shares.

     4.   Custody of restricted shares retained by Company Secretary, in escrow,
          until vested.

     5.   Vesting occurs annually for 4 years [annual is administratively
          preferable, due to taxation as explained below], with 25% vested on
          the first anniversary of grant date, and 25% on the second, third and
          fourth anniversaries, so long as employment continues.

     6.   Shares are issued pursuant to a customary Restricted Stock Agreement,
          and Notice of Grant of Restricted Stock, and Assignment Separated from
          Certificate. Pursuant to this documentation, which is signed by the
          employee, the issued shares vest annually over four years, and the
          unvested shares are held in escrow; and upon termination of employment
          any unvested shares are cancelled.

                                       12
<PAGE>
B.   TAXATION UPON VESTING

Taxable Value = Number of shares vested times market price at vesting date.
Also, the tax basis is set at that same price for determining taxable gain/loss
at disposition.

Two options for employee:

1.   At time of vesting, employee has this income included as W-2 compensation,
     and employee pays cash for his or her tax rate times the taxable income
     value of the vested shares, or;

2.   At the time of vesting, the employee surrenders an amount of shares equal
     to the lesser of his or her withholding tax rate, or 28%, times the number
     of shares. The employee may elect to have additional shares withheld if his
     or her actual rate is higher than the 28% level, in order to cover all tax
     expense. This option means that no cash tax payments will be required by
     the employee.

     [It should be noted that, in lieu of the foregoing arrangement for the
employee to be taxed on the value of the vested shares as they become vested,
the employee has the right to elect to be taxed earlier, at the date of the
grant, at the value of the shares as of the date of the grant, by filing a
Section 83(b) election with the IRS within 30 days after the date of the grant.
Most employees do not make this election, since it results in an earlier payment
of tax, and since there is no tax rebate if the shares never become vested. A
Section 83(b) election might be considered only if there is a high probability
that the stock value will increase significantly and that employment will
continue over the four-year vesting period.]

C.   MECHANICS OF TAX WITHHOLDING ON VESTING OF RESTRICTED STOCK.

For option B2 above, the employee-vestee will surrender [in effect, sell back to
the Company] the number of shares vested multiplied by his or her withholding
rate, up to a maximum of 28%. The Company then pays the IRS the monetary value
of those shares at the market price at close on the day vesting occurs. Such
surrender then increases the amount of shares available to be issued under our
Plan, as the shares thusly surrendered disappear. This is because under Michigan
law, there is no such thing as "Treasury or Reacquired Stock."

The SEC reporting DOES show up, but as a surrender of shares to satisfy taxes on
amount vested [separate "reporting code" and footnote on Form 4]. According to
our research, in other companies this has NOT been regarded as insiders selling
and is a non-event. Furthermore, since annual vesting will occur on our normal
grant date, the Company will be also reporting another grant of restricted
stock, which under our program will result in a net increase in the employee's
holding position.

If the Company did not offer this avenue for withholding, then the
employee-vestee would have to sell the shares in the open market, which would be
reported as a straight sale.

There are no additional expense accounting issues, as the expense has already
been recognized.

                                       13
<PAGE>
D.   SUBSEQUENT SEC REPORTING

1.   Upon Grant, a Form 4 must be filed within 2 days for officers, directors,
     and other Control Persons [such as 10% owners].

2.   Upon sale or disposition of Vested Shares, all insider trading rules apply
     to those covered by such.

                                       14

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00090-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00090-of-00352.parquet"}]]