ANCILLARY STOCK OPTION PLAN

EXHIBIT 10.3



ANCILLARY STOCK OPTION PLAN



THIS ANCILLARY STOCK OPTION PLAN (the "Ancillary Plan") is made as of August 6, 1991, by Aastrom Biosciences, Inc. (the "Company"), with respect to the facts set forth below.





A. On August 15, 1989, the Company formally approved the 1989 Stock Option Plan (the "1989 Plan"), pursuant to which the Board of Directors of the Company (the "Board") is authorized to grant tax qualified "incentive stock options" to employees of the Company or its affiliates and tax nonqualified "supplemental stock options" to employees, officers, employed directors and consultants of the Company or its affiliates.



B. In order to advance the growth and prosperity of the Company, the Board believes that it is in the best interests of the Company to also grant stock options on certain occasions to certain parties and persons selected by the Board who are not otherwise eligible to receive stock options under the terms of the 1989 Plan.





NOW, THEREFORE, Company hereby authorizes and establishes this Ancillary Plan, pursuant to the terms and conditions set forth below.



1. Purpose. The purpose of the Ancillary Plan is to advance the growth and prosperity of the Company and its shareholders by providing incentives to certain parties and persons selected by the Board who are not otherwise eligible to receive stock options under the 1989 Plan. The stock options granted pursuant to this Ancillary Plan shall be treated as "nonqualified tax options" under the U.S. Internal Revenue Code.



2. Term. The term of this Ancillary Plan shall commence on the date set forth above and shall terminate upon resolution by the Board.



3. Shares of Stock Subject to this Ancillary Plan. The shares of Common Stock which may be issued pursuant to the Ancillary Plan upon exercise of stock options shall not exceed in the aggregate Fifty Thousand (50,000) shares of the Company's Common Stock, unless otherwise approved by the Board by vote of not less than two thirds (2/3) of the Board. Such shares of Common Stock shall be authorized and unissued shares. The shares allocated to this Ancillary Plan and the stock options granted pursuant to this Ancillary Plan are in addition to, and not part of, the shares allocated to and granted pursuant to the 1989 Plan.

4. Administration of the Plan. The Board shall administer the Ancillary Plan, select the persons to whom stock options shall be granted, determine the number of shares of Common Stock to be optioned and awarded, determine the purchase price per share of Common Stock deliverable upon the exercise of a stock option, determine the method of payment upon the exercise of an option, and interpret, construe and implement the provisions of this Ancillary Plan. An option may be exercisable at any time from time to time, subject to such timing, performance criteria, conditions and restrictions as determined by the Board on a case by case basis for each option as set forth in the Stock Option Agreements.



5. Stock Option Agreements. The granting of stock options shall be evidenced by a Stock Option Agreement, containing such terms and conditions as the Board of Directors shall deem appropriate. The provisions of the Stock Option Agreements granted pursuant to this Ancillary Plan need not be identical, may be similar to or different from the form of Stock Option Agreements granted under the 1989 Plan, and may be customized as determined by the Board on a case by case basis.



6. Amendment of this Ancillary Plan. This Ancillary Plan may, at any time or from time to time, be terminated, modified or amended by the Board.



7. Approval. Approved by the Board on August 6, 1991.









/s/ R. DOUGLAS ARMSTRONG

--------------------------

R. Douglas Armstrong, Ph.D

President/CEO

ANCILLARY STOCK OPTION AGREEMENT



Optionee:



AASTROM Biosciences, Inc., formerly known as Ann Arbor Stromal, Inc., (the "Company"), pursuant to its Ancillary Stock Option Plan dated August 6, 1991 (the "Plan"), has granted to you, the Optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option is not intended to qualify and will not be treated as an "incentive stock option" within the meaning of Section 422A of the Internal Revenue code of 1986, as amended from time to time (the "Code"). The date of grant of this option is as of _________________, ____.



The grant hereunder is a matter of separate inducement and agreement in connection with your services to the Company and not in lieu of any other compensation for services, and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"), and applicable state law exemptions from registration.



The details of your option are as follows:



1. The total number of shares of Common Stock subject to this option is

_____________________. Subject to the limitations contained herein,

including without limitation Section 5 hereof, this option shall be

exercisable with respect to each installment shown below on or after

the date of vesting applicable to such installment, as follows:



Number of Shares Date of Earliest Exercise

---------------- ------------------------

(Installment) (Vesting) Ancillary Stock Option Agreement Page 2





2. a. The exercise price of this option is ___________ per share, being

not less than the fair market value of the Common Stock on the

date of grant of this option.



b. Payment of the exercise price per share is due in full in cash

(including check) upon exercise of all or any part of each

installment which has become exercisable by you. Notwithstanding

the foregoing, this option may be exercised pursuant to a program

developed under Regulation T as promulgated by the Federal

Reserve Board which results in the receipt of cash (or check) by

the Company prior to the issuance of Common Stock.



3. The minimum number of shares with respect to which this option may be

exercised at any one time is one hundred (100) except (a) as to an

installment subject to ...