AMEND AND REST. 1992 INCENT & NON-QUAL STOCK OPTION PLAN

AASTROM BIOSCIENCES, INC.

AMENDED AND RESTATED

1992 INCENTIVE AND

NON-QUALIFIED STOCK OPTION PLAN

(AS AMENDED EFFECTIVE OCTOBER 30, 1996)





Section 1. Purpose.



The purpose of the 1992 Incentive and Non-qualified Stock Option Plan (the "Plan") of Aastrom Biosciences, Inc. (the "Company") is to encourage stock ownership by directors, officers, employees of and consultants to the Company and its Affiliates and others who directly or indirectly provide goods or services to the Company and its Affiliates by issuing options to purchase shares of the Company's stock ("Options," and individually an "Option"), enabling such persons to acquire or increase their proprietary interest in the Company and thereby encouraging them to remain in the employ or remain directors of or consultants to the Company and its Affiliates or continue providing goods or services to the Company and its Affiliates. The term "Affiliates" as used herein shall include any parent corporation or subsidiary corporation as defined in Sections 424(e) and (f) respectively of the Internal Revenue Code of 1986, as amended (the "Code"). The Options issued pursuant to the Plan are intended to constitute either incentive stock options within the meaning of Section 422 of the Code, or non-qualified stock options, at the discretion of the Option Committee (as hereinafter defined) of the board of directors of the Company (the "Board of Directors") at the time of grant. The type of Options granted will be specified in the letter of grant to the person who is granted the Options (the "Optionee"). The terms of this Plan shall be incorporated in the grant letter.



Section 2. Administration.



The Plan will be administered by the Board of Directors or a committee of two or more members of the Board or Directors (such member or the Board of Directors acting as Plan administrators shall be referred to herein as the "Option Committee"). If the Company or an Affiliate is a "publicly held corporation" within the meaning of Section 162(m) of the Code, the Board may establish a Committee of "outside directors" within the meaning of Section 162(m) to approve the grant of any Option which might reasonably be anticipated to result in the payment of employee remuneration that would otherwise exceed the limit on employee remuneration deductible for income tax purposes pursuant to Section 162(m).





The interpretation and construction by the Option Committee of any provision of the Plan will be final. Anything herein to the contrary notwithstanding, no member of the Board of Directors or the Option Committee will be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it.



Section 3. Eligibility.



Directors, officers and employees of the Company and its Affiliates who are expected to make significant contributions to the long term success of the Company are eligible to receive incentive stock options under the Plan, as may be determined from time to time by the Option Committee. Directors, officers and employees of and consultants to the Company and its Affiliates, and others who directly or indirectly provide goods or services to the Company and its Affiliates, are eligible to receive non-qualified options under the Plan, as may be determined from time to time by the Option Committee. A director, officer, employee, consultant or other person who is granted an Option is an Optionee (which term also includes the Optionee's legal representative under Section 5(g) hereof). An Optionee may be granted more than one Option.



For purposes of the foregoing paragraph, "employees" shall include prospective employees to whom Options are granted in connection with written offers of employment with the Company or one of its Affiliates, and "consultants" shall include prospective consultants to whom Options are granted in connection with written offers of engagement with the Company or one of its Affiliates.



Any person who is not an employee on the date of Option grant may only be granted a non-qualified stock option. A director who is not an employee or officer of or consultant to the Company or its Affiliates, or who does not directly or indirectly provide goods or services to the Company or its Affiliates, shall not be eligible to receive non-qualified stock options.



Notwithstanding the foregoing, no director of the Company who is not also an employee of the Company may be granted an Option at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").



Section 4. Stock.



The stock subject to an Option will be shares of the Company's authorized but unissued or reacquired Common Stock, no par value (the "Shares"). Options shall not be issued with respect to more than One Million



Nine Hundred Thousand (1,900,000) Shares, after giving effect to the two-for- three reverse stock split approved by the Board of Directors on April 30, 1996, and subject to further adjustment as provided in Section 5(i) hereof. If an outstanding Option for any reason expires or is terminated or canceled or Shares acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Company, the Shares allocable to the unexercised portion of such Option, or such repurchased Shares, shall again be available for issuance under the Plan.



Section 5. Terms and Conditions of Options.



Each Option granted pursuant to the Plan will be authorized by the Option Committee and will be evidenced by a notice (the "Option Notice") in such form as the Option Committee may from time to time determine. Each Option Notice will include the information required in subparagraphs (a), (b) and (c) of this Section 5 and will be in conformity with and will incorporate by reference all other terms and conditions of the Plan, including the following terms and conditions:



(a) Number of Shares. The number of Shares subject to the Option will be stated in the Option Notice.



(b) Exercise Price. In the case of incentive stock options, the price per Share payable on the exercise of the Option will be stated in the Option Notice and will be not less than 100% of the fair market value per share of the outstanding shares of Common Stock of the Company on the date the Option is granted, without regard to any restriction other than a restriction which will never lapse. In the case of a non-qualified stock option, the price per Share payable upon exercise of the Option shall be stated in the Option Notice and will be not less than 85% of the fair market value per share of the outstanding shares of Common Stock of the Company on the date the Option is granted, without regard to any restriction other than a restriction which will never lapse. Unless the Company's Common Stock is quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or listed on a recognized securities exchange, the fair market value, for purposes of complying with the foregoing sentence with respect to incentive stock options, shall be as determined by the Option Committee in its sole discretion. If the Company's Common Stock is either quoted on NASDAQ or listed on a recognized securities exchange, the fair market value shall be the representative closing price of the stock as obtained from NASDAQ or such recognized securities exchange on the date of the grant of the Option, or if there is no such quotation on the date of the grant of the Option on the preceding business day.



(c) Form of Option. The Option Notice will state whether the Option granted is an incentive stock option or a non-qualified stock



option, and will constitute a binding determination as to the form of Option granted. At the discretion of the Option Committee, the Option Notice may require the Optionee to execute a Stock Transfer Restriction and Buy-Out Agreement, or such other agreements as the Option Committee considers appropriate.



(d) Payment. The price payable on the exercise of the Option in whole or in part will be equal to the Option price multiplied by the number of Shares as to which the Option is exercisable, and shall be paid in full upon exercise of any Option, either (i) in cash, (ii) at the discretion of the Option Committee either at the time the Option is granted or exercised, by delivering to the Company Shares having a fair market value, as of the close of business on the day preceding such delivery, equal to the aggregate exercise price of the Shares being purchased on exercise of the Options, (iii) by a combination of such cash and shares, or (iv) any other form of legal consideration that may be acceptable to the Option Committee. In the case of any deferred payment arrangement, interest shall be payable at least annually at the minimum applicable federal rate under Section 1274(d) of the Code to avoid imputed interest to the Company under the Code.



Anything to the contrary herein notwithstanding, all payments required to be made by the Company hereunder to an Optionee, his legal representative, his heir or devisee, shall be subject to the withholding of such amounts as the Company may determine that it is required to withhold pursuant to any applicable federal, state or local law or regulation. To the extent provided in the terms of the Option, and to the extent allowed under the Exchange Act, the Optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of such Option by one or more of the following: (1) tender of a cash payment; (2) authorization of the Company to withhold Shares otherwise to be issued pursuant to the Option of a value not in excess of the withholding tax obligation; or (3) delivering to the Company unencumbered Shares owned by the Optionee of a value not in excess of the withholding tax obligation.



(e) Notwithstanding any other provision of this Plan:



(i) No Option shall be granted under this Plan more than ten (10) years after April 30, 1996. Notwithstanding the foregoing, if the maximum number of Shares issuable pursuant to the Plan as provided in Section 4 has been increased at any time (other than pursuant to Section 5(i)), all Options shall be granted, if at all, no later than the last day preceding the tenth (10th) anniversary of the earlier of (a) the date on which the latest such increase in the maximum number of Shares issuable under the Plan was approved by the stockholders of the Company or (b) the date such amendment was adopted by the Board of Directors.





(ii) No incentive stock option granted under this Plan shall be exercisable later than ten (10) years from the date of grant.



(iii) No Option granted to any Optionee shall be treated as an incentive stock option, to the extent such Option would cause the aggregate fair market value (determined as of the date of grant of each such Option) of the Shares with respect to which incentive stock options are exercisable by such Optionee for the first time during any calendar year to exceed $100,000. For purposes of determining whether an incentive stock option would cause the aggregate fair market value of the Shares to exceed the $100,000 limitation, such incentive stock options shall be taken into account in the order granted. For purposes of this subsection, incentive stock options include all incentive stock options under all plans of the Company (or one of its Affiliates) that are incentive stock option plans within the meaning of Section 422 of the Code. If the Code is amended to provide for a different limitation from that set forth in this subsection, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code.



(iv) Options granted pursuant to this Plan may be exercised in any order elected by the Optionee whether or not the Optionee holds any unexercised Options under this Plan or any other Plan of the Company.



(v) Notwithstanding any provision herein to the contrary, no incentive stock option shall be granted under this Plan to any person who, at the time of the grant of such Option, owns stock possessing more than 10% of the total combined voting power of all classes of the stock of the Company or any affiliate, unless the option price at the time the Option is granted is at least 110 percent (110%) of the fair market value of the stock, and subject to the condition that the Option expires five years from the Option grant date.



(vi) No Option granted under this Plan may be transferred except by will or by the laws of descent and distribution.



(f) Term and Exercise of Options.



(i) Subject to the provisions of Section 5(e)(i), (ii) and (v) hereof, Options granted hereunder may be exercisable in whole or in part at such time or times as the Option Committee shall designate when granting such Options. However, no Option granted to a prospective employee or prospective consultant may become exercisable prior to the date on which such person commences service with the Company or one of its Affiliates.





(ii) Unless sooner terminated as provided in this Plan, each Option shall expire no later than ten years from the date of grant and shall be void and unexercisable thereafter. An Option may be exercised only by the Optionee and may not be exercised by any other person except as provided in Section 5(g) hereof.



(g) Termination of Options Granted to Employees and Directors.



(i) Except as provided herein and unless otherwise specified in the Option Notice, Options shall terminate when the Optionee ceases to be employed by the Company or ceases to be a director of the Company.



(ii) Unless otherwise specified in the Option Notice, upon the death of an Optionee while in the employ of the Company or while a director of the Company, Options held by such Optionee which are exercisable on the date of his or her death shall be exercisable by his or her executor(s) or administrator(s) for a period of eighteen (18) months following the date of such Optionee's death.



(iii) Unless otherwise specified in the Option Notice, upon termination of an Optionee's employment with the Company (or if the Optionee is a director only, upon termination of the Optionee's term of office, or if the Optionee is both an employee and a director, upon termination of both) for any reason other than "Cause," as defined in Section 5(g)(v), or for retirement or permanent disability as set forth in Section 5(g)(iv) with respect to non- qualified stock options, Options exercisable by such Optionee on the date of termination of employment shall be exercisable by the Optionee (or in the case of the Optionee's death subsequent to termination of employment, by the Optionee's executor(s) or administrator(s)) for a period of three (3) months from the date of such Optionee's termination of employment.



(iv) Solely with respect to non-qualified stock options, unless otherwise specified in the Option Notice, upon termination of an Optionee's employment with the Company (or if the Optionee is a director only, upon termination of the Optionee's term of office, or if the Optionee is an employee and a director, upon termination of both) for reasons of retirement or permanent disability, non-qualified stock options exercisable by the Optionee on the date of termination of employment shall be exercisable by such Optionee (or in the case of the Optionee's death subsequent to termination of employment, by the Optionee's executor(s) or administrator(s)) for a period of one (1) year from the date of such Optionee's termination of employment; provided, however, that if such



Optionee shall commence any employment during this one (1) year period with a competitor of the Company (including, but not limited to, full or part-time employment or independent consulting work), as determined solely in the judgment of the Board of Directors, all Options held by such Optionee which have not yet been exercised shall terminate immediately upon commencement thereof.



(v) Unless otherwise specified in the Option Notice, upon the termination of an Optionee's employment (or if the Optionee is a director only, upon termination of the Optionee's term of office, or if the Optionee is both an employee and a director, upon termination of both) for "Cause," as defined in this Section 5(g)(v), all Options held by such Optionee shall terminate concurrently with receipt by the Optionee of oral or written notice that his or her employment has been terminated. For the purposes of this Plan, termination for "Cause" shall include termination by reason of being convicted of any felony or committing willful and gross negligence or willful and gross misconduct in carrying out duties properly assigned to such Optionee by the Company.



(vi) The Option Notice may provide that the Options issued thereunder may be exercised for one year following the "disability" of the Optionee as such term is defined in Section 22(c)(3) of the Code.



(vii) In the case of a leave of absence taken by an Optionee, the Company shall have the unilateral right to (1) determine whether such leave of absence shall be treated as a termination of employment, and (2) suspend or otherwise delay the time or times at which the Shares subject to the Option would otherwise vest.



(viii) Options granted to employees and directors of the Company and its Affiliates may be terminated at any time by agreement between the Company and the Optionee.



(h) Termination of Options Granted to Non-Employees.



(i) With respect to Options granted to persons who are not employees or directors of the Company or its Affiliates, the Option Notice shall state the conditions, if any, under which the Options shall terminate.



(ii) Options granted to persons who are not employees or directors of the Company or its Affiliates may be terminated at any time by agreement between the Company and the Optionee.







(i) Recapitalization.



(i) Subject to any required action by the stockholders, if any, the number of Shares as to which Options may be granted under this Plan and the number of Shares subject to outstanding Options and the Option prices thereto will be adjusted proportionately for any increase or decrease in the number of outstanding shares of Common Stock of the Company resulting from stock splits and reverse stock splits, but not for stock dividends. The number of Shares will be adjusted to the nearest whole share. Any stock dividend resulting in an increase of five percent (5%) or more in the outstanding Common Stock shall be deemed a stock split.



(ii) If the Company is a party to any merger in which the Company is not the surviving entity, any consolidation or dissolution (other than the merger or consolidation of the Company with one or more of its wholly- owned subsidiaries), the Company, in the discretion of the Option Committee and to the extent permitted by law, (1) will cause any successor corporation to assume the Options outstanding hereunder or substitute similar options to those outstanding hereunder, or (2) will continue such Options in full force and effect. In the event that any successor to the Company in a merger, consolidation or dissolution will not assume the Options or substitute similar Options then, with respect to Options held by Optionees then performing services for the Company, the time for exercising such Options will be accelerated and the Options will be terminated if not exercised prior to the merger, consolidation or dissolution.



(iii) Except as expressly provided in this Section 5(i), the Optionee will have no rights by reason of (1) any subdivision or consolidation of shares of stock of any class of the Company; (2) payment of any stock dividend by the Company; (3) any other increase or decrease in the number of shares of stock of any class of the Company; or (4) by reason of any dissolution, liquidation, merger, consolidation or spin-off of assets or stock of another corporation.



(iv) The grant or existence of any Option shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell or transfer all or any part of its stock or assets.



(j) Rights as a Stockholder. The Optionee will have no rights as a stockholder of the Company with respect to any Shares subject to an Option until such Option has been exercised and a certificate with respect to the Shares purchased upon exercise has been issued to him or



her. No adjustment will be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date the Shares so purchased have been issued. Throughout the term of any Option issued hereunder, the Company shall make available to each Optionee, not less than 120 days after the close of each fiscal year of the Company, upon re ...