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Development Collaboration and License Agreement - Genetech Inc. and CytoTherapeutics Inc.

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                            DEVELOPMENT COLLABORATION

                              AND LICENSE AGREEMENT


         This Agreement is made and entered into as of the 22nd day of November
1996 (the "Effective Date") by and between Genentech, Inc., a corporation
organized and existing under the laws of the State of Delaware ("Genentech"),
and CytoTherapeutics, Inc., a corporation organized and existing under the laws
of the State of Delaware ("CTI").

WHEREAS:

         Genentech has particular expertise in the areas of molecular biology,
production of monoclonal antibodies, assay development and the use of
recombinant DNA technology to construct mammalian cell lines capable of
producing various proteins useful in treating human disorders, including, NGF,
NT4/5, NT3, CT-1, Neurturin and other neurotrophic factors, and in developing
and commercializing products based on such proteins; and

         CTI has particular expertise in the area of cellular therapies based on
proprietary membrane encapsulation technologies and in the development and
application of implantable delivery systems for biologically active products for
the treatment of central nervous system disorders; and

         Genentech and CTI wish to develop products for the treatment of
Parkinson's Disease, initially using Neurturin, and potentially also using NGF,
NT3, NT4/5 and/or CT-1, all on the terms and conditions set forth herein.


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NOW, THEREFORE, Genentech and CTI agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

1        CERTAIN DEFINITIONS.

         1.1 "ACCOUNTING PERIOD" shall mean (i) initially the period from the
date of First Commercial Introduction of a Licensed Product approved for sale by
an appropriate regulatory agency until the end of the first full calendar
quarter after the First Commercial Introduction occurred, and (ii) thereafter,
each subsequent calendar quarter.

         1.2 "AFFILIATE" shall mean any entity or person which controls, is
controlled by, or is under common control with Genentech or CTI. For purposes of
this Section 1.2, "control" shall mean in the case of corporate entities, the
direct or indirect ownership of greater than one-half (1/2) of the shares of
stock or participating shares entitled to vote for the election of directors.

         1.3 "BIOLOGICS LICENSE APPLICATION" shall mean a U.S. License
application for a well characterized biologic as provided under applicable U.S.
laws and regulations.

         1.4 "CLINICAL DEVELOPMENT EXPENSES" shall mean all expenses incurred
during development of Licensed Product(s) subsequent to analysis of the results
of the Initial Clinical Trial, as directed by the Development Committee,
including, without limitation, the costs of conducting ongoing research and
development directly related to obtaining regulatory approvals; conducting human
clinical trials other than the Initial Clinical Trial (including the cost of
Clinical Product for such trials); refining the design of the Licensed Product;
manufacturing process development and modifications fairly allocated to Licensed
Product; cell line research; cell banking; stability studies; toxicology,
carcinogenicity and immunology studies; developing QA/QC procedures and
obtaining regulatory approvals (as required by this Agreement). "Clinical


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Development Expenses" shall not include any expenses included in "Development
Expenses", "Fully Burdened Manufacturing Cost", "Launch Expenses", "Phase IV
Clinical Trial Expenses", "Cost of Sales" or "Sales, General and Administrative
Expense", and in every case shall only include costs directly allocable to
Licensed Product in accordance with U.S. generally accepted accounting
principles consistently applied.

         1.5 "CLINICAL DEVELOPMENT PROGRAM" shall mean the program described in
Article IV of this Development Agreement.

         1.6 "CLINICAL PRODUCT" shall mean Licensed Product used in clinical
studies in humans.

         1.7 "COMMERCIAL PRODUCT" shall mean Licensed Product commercially sold
or used.

         1.8 "COMMON STOCK" shall mean CTI's common stock, par value $0.01 per
share.

         1.9 "COST OF SALES" shall be comprised of (i) cost of goods sold,
defined as Fully Burdened Manufacturing Cost, during such Accounting Period plus
any additional costs incurred in preparing the Licensed Product for commercial
sale or other disposition during such Accounting Period, (ii) royalties owed to
third parties by Genentech as a result of manufacture, use or sales of Licensed
Product (except for royalties included in Fully Burdened Manufacturing Cost) and
(iii) any other reasonable and customary expenses includable in this category of
costs in accordance with generally accepted accounting principles in the U.S.
The determination of the "Cost of Sales" shall be subject to approval by the
Finance Committee under Section 8.08. The foregoing shall be determined in
accordance with U.S. generally accepted accounting principles consistently
applied.

         1.10 "CT-1" shall mean the human protein cardiotrophin-1, having the
amino acid sequence set forth in Exhibit D-1 attached hereto, and any substitute
molecule to which the Parties mutually agree.

         1.11 "CTI KNOWHOW" shall mean all proprietary information, methods,



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biological materials, processes, techniques and data, whether or not patentable,
owned, controlled or licensed by CTI, to the extent related to the manufacture,
use or sale of Licensed Product in the Territory and, in the case where licensed
by CTI, which CTI is free to transfer or disclose without violating contractual
obligations to third parties.

         1.12 "CTI PATENTS" shall mean (i) those United States patents and
patent applications listed on Exhibit A hereto, and any other patents or patent
applications throughout the world owned, or licensed by CTI with the right to
grant sublicenses, as of the Effective Date (except that the right to grant
sublicenses may be as of the Effective Date or at any future time) that are
necessary to make, have made, use or sell Licensed Product, (ii) any future
patents and patent applications throughout the world that CTI owns, or licenses
from a third party with the right to grant sublicenses (at any time) that are
necessary to make, have made, use or sell Licensed Product, (iii) all foreign
counterparts of United States patents and patent applications described in (i)
above, (iv) all patents that issue on applications described in (i), (ii) and
(iii) above, and (v) all substitutions, extensions (including patent term
extensions), reissues, renewals, divisions, continuations, and
continuations-in-part of any of the foregoing but only to the extent that with
respect to any such patent or patent applications described in clauses (i)
through (v) above, the licenses granted in this Agreement could not be practiced
without infringing such patent or patent application. "CTI Patents" shall
include, without limitation, CTI's rights under patents jointly owned pursuant
to Section 7.04.

         1.13 "DEVELOPMENT COMMITTEE" shall mean the committee organized and
acting pursuant to Article II of this Agreement.

         1.14 "DEVELOPMENT EXPENSES" shall mean all expenses incurred by CTI at
the direction of the Development Committee subsequent to the Effective Date, but
prior to the date, if any, that Genentech determines to initiate the Clinical
Development Program after the review under Section 4.05(b), including, without
limitation, the costs of conducting ongoing research and development directly
related to obtaining regulatory approvals, conducting the Initial Clinical Trial
(including the costs of Clinical Product for such trial); refining the design of
the Licensed Product; manufacturing process development and modifications fairly
allocated to Licensed Product; cell line research; and developing QA/QC
procedures. "Development Expenses" shall not



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include any expenses included in "Clinical Development Expenses", "Fully
Burdened Manufacturing Cost", "Launch Expenses", "Phase IV Clinical Trial
Expenses", "Cost of Sales" or "Sales, General and Administrative Expense", and
in every case shall only include costs directly allocable to Licensed Product in
accordance with U.S. generally acceptable accounting principles consistently
applied. The Development Expenses anticipated by the Parties are contained in
the budget attached to the Development Plan (Exhibit F).

         1.15 "DEVELOPMENT PROGRAM" shall mean the program described in Article
III.

         1.16 "ENCAPSULATION TECHNOLOGY" shall have the meaning set forth in
Exhibit B.

         1.17 "FACTOR(S)" shall mean Neurturin. Subject to Section 3.01, the
Parties may consider adding NGF, NT4/5, NT3 and/or CT-1 to the definition of
"Factor(s)" during the term of this Agreement.

         1.18 "FACTOR-BASED PATENTS" shall mean Genentech's right, title and
interest in those third party patents covering one or more Factor(s) and the DNA
encoding it or them or the use of any of the foregoing which are licensed by
Genentech, which Genentech has the right to sublicense, and which, in the
absence of such license, would be infringed by the manufacture, use or sale of
Licensed Product.

         1.19 "FDA" shall mean the U.S. Food and Drug Administration.

         1.20 "FIELD OF USE" shall mean the treatment of Parkinson's Disease
[ * ]  but shall not include  [ * ]. For the purposes of this Agreement, [ * ]

         1.21 "FIRST COMMERCIAL INTRODUCTION" shall mean the date of the first
commercial sale to an independent third party by Genentech or a permitted
sublicensee of Genentech of a Licensed Product following approval of a
Submission.


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         1.22 "FULLY BURDENED MANUFACTURING COST" shall mean the actual cost of
the production of either Clinical Product or Commercial Product, as the case may
be, which shall be comprised of the sum of (a) the cost of goods produced as
determined in accordance with U.S. generally accepted accounting principles as
consistently applied by CTI, including, but not limited to, direct labor,
packaging, and material and product testing costs incurred in connection with
the manufacture or quality control testing of Clinical Product or Commercial
Product, startup and validation costs associated with manufacturing capacity
under this Agreement incurred prior to the first approval of a Submission for a
Licensed Product, as well as overhead and amortized capital depreciation
allocated in accordance with U.S. generally accepted accounting principles as
consistently applied by CTI, and (b) all royalties (earned or paid up) payable
to third parties under license(s) taken by CTI to patents or patent applications
that, but for such license(s), would be infringed by the manufacture of Licensed
Product. The determination of "Fully Burdened Manufacturing Cost" shall be
subject to review by the Finance Committee under Section 8.08. In the case of
any paid-up licenses, the cost of such licenses shall be fairly allocated
between Licensed Product and other product(s) giving rise to payment obligations
under such license.

         1.23 "GENENTECH KNOWHOW" shall mean all proprietary information,
methods, biological materials, processes, techniques and data, whether or not
patentable, owned, controlled or licensed by Genentech to the extent related to
the manufacture, use or sale of Licensed Product and, in the case where licensed
by Genentech, which Genentech is free to transfer or disclose without violating
contractual obligations to third parties.

         1.24 "GENENTECH PATENTS" shall mean (i) those United States patents and
patent applications listed on Exhibit C hereto, and any other patents or patent
applications throughout the world owned, or licensed by Genentech with the right
to grant sublicenses as of the Effective Date (except that the right to grant
sublicenses may be as of the Effective Date or at any future time) that are
necessary to make, have made, use or sell Licensed Product, (ii) any future
patents and patent applications throughout the world that Genentech owns, or
licenses from a third party with the right to grant sublicenses (at any time),
that are necessary to make, have made, use or sell Licensed Product, (iii) all
foreign counterparts of United States patents and patent applications described
in (i) above, (iv) all patents that issue on applications described in (i), (ii)
and (iii) above, and (v) all substitutions, extensions (including patent term



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extensions), reissues, renewals, divisions, continuations, and
continuations-in-part of any of the foregoing, but only to the extent that with
respect to any such patent or patent applications described in clauses (i)
through (v) above, the licenses granted in this Agreement could not be practiced
without infringing such patent or patent application. "Genentech Patents" shall
include, without limitation, the Factor-Based Patents and Genentech's rights
under patents jointly owned pursuant to Section 7.04.

         1.25 "INITIAL CLINICAL TRIAL" shall mean the initial clinical trial of
Licensed Product as referred to in Exhibit F.

         1.26 "KNOWHOW" shall mean CTI Knowhow or Genentech Knowhow, or both or
either, as the context requires.

         1.27 "LAUNCH EXPENSES" shall mean promotional and training expenses
incurred by Genentech or its permitted sublicensees for the period from [ * ]
of such market launch. All such "Launch Expenses" shall be included to the
extent directly allocable to Licensed Product in accordance with U.S. generally
accepted accounting principles consistently applied, subject to approval by the
Finance Committee under Section 8.08.


         1.28 "LICENSED PRODUCT" shall mean any product of commercial value or
utility in the Field of Use which contains mammalian cells producing one or more
Factor(s), which cells are encapsulated through use of the Encapsulation
Technology.

         1.29 "MAJOR MARKET COUNTRY" shall mean, in the singular, any of France,
Germany, Italy, the United Kingdom or the United States, and, in the plural, all
of such countries.

         1.30 "NET PROFIT" shall mean for each Accounting Period, Net Sales in
that Accounting Period less the sum of the Cost of Sales, and Sales, General and
Administrative Expense (including Launch Expenses and Phase IV Clinical Trial
Expenses) during such Accounting Period. To the extent that minimum purchases of
Licensed Product by Genentech pursuant to Section 4.06 are not included in Cost
of Sales by expiration of product life, the cost of such purchases shall also be
subtracted from Net Sales for the purpose of calculating Net Profit; provided,
however, that if the


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Licensed Product so purchased is subsequently sold, the cost so subtracted shall
be added back to Net Profit. Such calculation shall not take into account income
tax. However, the foregoing shall not be intended to double-count such purchases
for purposes of Net Profits.

         1.31 "NET SALES" shall mean as to each Accounting Period, the gross
invoiced sales price charged for all Licensed Products sold or commercially
disposed of for value by Genentech or any of its permitted sublicensees in arm's
length sales to independent third parties in that Accounting Period, after
deduction of the following items incurred by Genentech or any of its permitted
sublicensees during such Accounting Period with respect to sales of Licensed
Products hereunder regardless of the Accounting Period in which such sales were
made, provided that such items are included in the price charged, and do not
exceed reasonable and customary amounts in the market in which such sale
occurred:

         (i) trade, cash and quantity discounts or rebates actually taken or
allowed;

         (ii) credits or allowances given or made for rejection or return of,
and for uncollectible amounts on, previously sold Licensed Products or for
retroactive price reductions;

         (iii) any tax or government charge (including any tax such as a value
added or similar tax or government charge other than an income tax) levied on
the sale, transportation or delivery of a Licensed Product and borne by the
seller thereof; and

         (iv) any charges for freight or insurance billed to the final customer.

If a Licensed Product is sold, leased or otherwise commercially disposed of for
value in a transaction that is not an arm's length transaction with an
independent third party, and is not for resale, etc. to an independent party in
an arm's length transaction, then the gross sales price in such transaction
shall be deemed to be the greater of the actual sales price or the gross sales
price in the most similar substantially contemporaneous arm's length transaction
with an independent third party for such Licensed Product, or if there is none,
for the most similar Licensed Product for which there is such a transaction.




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         1.32 "NEURTURIN" shall mean the human protein Neurturin, having the
amino acid sequence set forth in Exhibit D-2 attached hereto, and any substitute
molecule to which the Parties mutually agree.

         1.33 "NEURTURIN MTA" shall mean that certain Material Transfer
Agreement dated as of October 2, 1996, with respect to Neurturin, a copy of
which is attached as Exhibit G. For purposes of this Agreement, the Neurturin
MTA is hereby incorporated herein in its entirety by this reference, and in the
event of any conflict between the terms of the Neurturin MTA and this Agreement,
the terms of the Neurturin MTA shall govern.

         1.34 "NEW DRUG APPLICATION" shall mean a U.S. license application for a
drug product under applicable U.S. laws and regulations.

         1.35 "NGF" shall mean the human protein nerve growth factor, having the
amino acid sequence set forth in Exhibit D-4 attached hereto, and any substitute
molecule to which the Parties mutually agree.

         1.36 "NGF AGREEMENT" shall mean that certain Development Collaboration
and License Agreement, dated as of February 1, 1994, between the Parties.

         1.37 "NT3" shall mean the human protein neurotrophin 3, having the
amino acid sequence set forth in Exhibit D-5 attached hereto, and any substitute
molecule to which the Parties mutually agree.

         1.38 "NT 4/5" shall mean the human protein neurotrophin factor 4/5,
having the amino acid sequence set forth in Exhibit D-3 attached hereto, and any
substitute human molecule to which the Parties mutually agree.

         1.39 "PARKINSON'S DISEASE" shall mean the disease in humans known as
Parkinson's disease and any related syndromes or symptoms. Parkinson's disease
is an idiopathic, progressive, neurodegenerative disorder characterized
clinically by resting tremor, rigidity, slowness of movement (bradykinesia),
paucity of movement (hypokinesia) and degeneration of dopaminergic neurons in
the substantia nigra and/or their projections into the striatum.



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         1.40 "PARTY" shall mean Genentech or CTI and, when used in the plural,
shall mean both Genentech and CTI.

         1.41 "PATENT RIGHTS" shall mean CTI Patents and Genentech Patents, or
either, as the context may require.

         1.42 "PHASE II CLINICAL DEVELOPMENT EXPENSES" shall mean all Clinical
Development Expenses incurred by CTI or its permitted sublicenses from
[ * ].

         1.43 "PHASE III CLINICAL DEVELOPMENT EXPENSES" shall mean all Clinical
Development Expenses incurred by CTI or Genentech or their respective permitted
sublicensees [ * ] for Licensed Product in each of the United States, all
countries of the European Union and Japan.

         1.44 "PHASE II CLINICAL TRIAL" shall mean a clinical trial in humans of
a Licensed Product designed to confirm initial safety data and provide initial
efficacy data which provides the basis for a Phase III Clinical Trial in the
United States; Phase II Clinical Trial(s) are expected to be conducted prior to
any Phase III Clinical Trial.

         1.45 "PHASE III CLINICAL TRIAL" shall mean a trial in humans of both
the safety and efficacy of a Licensed Product for a specific indication or
indications in patients having the disease or condition under study directed
toward receipt of approval by the appropriate regulatory authority for marketing
of such Licensed Product for such specific indication or indications.

         1.46 "PHASE IV CLINICAL TRIAL EXPENSES" shall mean all costs and
expenses incurred by Genentech or its permitted sublicensees associated with any
clinical trial of a Licensed Product after the first approval of a Submission by
the FDA for such Licensed Product where such trial is required by the FDA. All
such "Phase IV Clinical Trial Expenses" shall be included to the extent directly
allocable to Licensed Product in accordance with U.S. generally accepted
accounting principles consistently applied, subject to approval by the Finance
Committee under Section 8.08.


* Confidential Treatment Requested

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         1.47 "SALES, GENERAL AND ADMINISTRATIVE EXPENSE" shall mean all costs
incurred for the sales and marketing of a Licensed Product and for all related
general, administrative and other matters not a part of Cost of Sales, in
accordance with U.S. generally accepted accounting principles consistently
applied, subject to approval by the Finance Committee under Section 8.08.
"Sales, General and Administrative Expense" shall include expenses included in
"Launch Expenses" and "Phase IV Clinical Trial Expenses".

         1.48 "STOCK PURCHASE AGREEMENT" shall mean the agreement attached as
Exhibit E.

         1.49 "SUBMISSION" shall mean the submission to an appropriate
regulatory authority (such as the FDA) of appropriate applications seeking
approval of the marketing and, when appropriate, approval of the pricing, of a
Licensed Product, e.g., an "NDA" or a "BLA".

         1.50 "TERRITORY" shall mean all the countries of the world.

         1.51 "U.S. PHASE III CLINICAL DEVELOPMENT EXPENSES" shall mean all
Phase III Clinical Development Expenses incurred for clinical development of
Licensed Product(s) by CTI or Genentech or their respective permitted
sublicensees for approval to market and sell Licensed Products in the United
States.

         It is the intent of the Parties that "U.S. Phase III Clinical
Development Expenses" shall only include those clinical expenses necessary for
obtaining approval(s) to market and sell Licensed Products in the United States.

         1. 52 "U.S. PHASE III CLINICAL TRIAL" shall mean a Phase III Clinical
Trial in the United States.

         1.53 "20 DAY AVERAGE" shall mean, in each instance, a price per share
equal to the average over a period of twenty (20) consecutive trading days
immediately prior to a given act or date agreed on by the Parties (as evidenced
by this Agreement, the Stock Purchase Agreement or other mutual written
agreement of the Parties) of the average of each day's high and low price per
share of CTI's Common Stock in the NASDAQ National Market System or, if not
there quoted, on a national



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securities market or exchange on which CTI is then traded and agreed upon by the
Parties.

                                   ARTICLE II

                              DEVELOPMENT COMMITTEE

         2.01 CREATION OF THE DEVELOPMENT COMMITTEE. The Parties hereby agree to
the creation of a Development Committee which shall consist of three
representatives of each Party. Within sixty (60) days following the Effective
Date, each Party shall notify the other Party of its initial appointees to the
Development Committee. Each Party shall be free to change its representatives
upon written notice to the other Party.

         2.02 MEETINGS. So long as the development collaboration activities set
forth in Articles III and IV are on-going or contemplated by the Parties, the
Development Committee shall meet regularly at least once a quarter, unless
otherwise agreed by the members of the Development Committee. Additional
meetings may be called by either Party on 10 days' notice to the other and,
unless otherwise agreed, all meetings shall alternate between the offices of the
Parties.

         2.03 DUTIES. Subject to the other terms of this Agreement (including,
without limitation, Section 4.05), the Development Committee shall be
responsible for directing the Development Program and Clinical Development
Program, making the decisions it is required to make pursuant to the terms of
this Agreement and making recommendations to the Parties regarding other
decisions necessary or appropriate to implement this Agreement (including,
without limitation, adjustments to the budget in case of expenses necessary for
work not originally contemplated by the budget, but later agreed upon by the
Parties).

         All decisions and recommendations of the Development Committee shall
require the agreement of a majority of the representatives of each Party to be
effective. In the event the representatives of the two Parties cannot agree on a
matter, the vote of the Genentech representatives shall decide matters except
that (i) the vote of the CTI representatives shall decide matters [ * ] and
(ii) both


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Parties shall [ * ] after its commencement (and assuming that Genentech has
determined that it should commence, after the review under Section 4.05(c)). If
one Party objects to such a decision made by the representatives of the other
Party, a member of senior management of each Party shall confer and resolve the
dispute. For this purpose, a "member of senior management" shall be a
management-level employee who has the authority to bind a Party. If the members
of senior management do not resolve such dispute within 60 days of such
objection, the Parties shall attempt to resolve such dispute in accordance with
Sections 11.19 and 11.20.

         Any material decision of the Development Committee (e.g., budget and/or
timeline for approvals) shall be reduced to a writing agreed to by both Parties.

                                   ARTICLE III

                               DEVELOPMENT PROGRAM

         3.01. OBJECTIVES OF THE PARTIES. The Parties agree that the goal under
this Agreement is the development of Licensed Products. The initial Factor to be
investigated shall be Neurturin. The Parties may agree on investigating other
Factor(s) in addition to or instead of Neurturin, based on the data and results
arising from the "Development Plan" (as defined below) for Licensed Product
containing Neurturin as the only Factor. If the Parties agree on Factor(s) in
addition to or other than Neurturin for the definition of "Factor(s)," they
shall so indicate in a writing signed by both Parties.

         The Parties further agree that the Development Program consists of the
development plan attached hereto as Exhibit F (the "Development Plan"), which
includes, among other items, the primate efficacy study and large animal study
described therein and the Initial Clinical Trial. The Development Committee
shall revise the work comprising the Development Program from time to time as
necessary, including, if agreed, to reflect development of Licensed Products in
addition to or other than Licensed Products containing only Neurturin as a
Factor. If the Parties decide to develop Licensed Products beyond Licensed
Product containing only Neurturin as a Factor, they shall agree on a
"Development Plan" for such Licensed Product(s), including a budget and time
line.


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         In the case of any conflict between the Development Plan and this
Agreement, the provisions of this Agreement shall control.

         3.02 INITIAL DEVELOPMENT OBLIGATIONS OF CTI. CTI agrees to contribute
the following materials and to commit the time and efforts of the number of its
full-time equivalent research staff set forth in the Development Plan to use
their reasonable best efforts to accomplish the following for Neurturin and, if
relevant, any other Factor(s) which the Parties agree upon under Section 3.01,
consistent with the plans of the Development Committee:

         (i)      determine the diffusion of such Factor(s) in a large animal
                  model;

         (ii)     develop a cell line(s) producing the relevant Factor(s) for
                  clinical development which is suitable for master cell banking
                  and which has been approved by the Development Committee;

         (iii)    encapsulate the cell line(s) producing the relevant Factor(s)
                  and, as the following are required to meet requirements of the
                  FDA and other applicable regulatory agencies, provide:
                  documentation regarding the stability of production of such
                  Factor(s), the extent of such Factor(s) release and the
                  release of non-Factor proteins and other biomolecules by the
                  encapsulated cell line(s) and lack of contamination of such
                  encapsulated cell line by viruses, prions and bacteria;

         (iv)     conduct pre-clinical development activities, including animal
                  experiments and IND-enabling toxicology, safety and
                  pharmacokinetic studies, as directed by the Development
                  Committee;

         (v)      file a U.S. IND or other appropriate regulatory application(s)
                  to conduct the Initial Clinical Trial;

         (vi)     conduct the Initial Clinical Trial; and

         (vii)    pay for all Development Expenses (except for internal
                  Genentech costs incurred pursuant to Section 3.03).



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         CTI shall keep the Development Committee informed of the identities of
the CTI research staff members who are committed to the Development Program and
shall provide documentation of expenses as requested by the Development
Committee. Genentech shall have the right one time annually, upon written
request and after reasonable notice, to audit the time allocations of the
research staff committed to the Development Program and other documentation of
expenses incurred.

         3.03 INITIAL DEVELOPMENT OBLIGATIONS OF GENENTECH. Genentech agrees to
contribute the following and to use its reasonable best efforts to accomplish
the following for Neurturin and, if relevant, any other Factor(s) which the
Parties agree on under Section 3.01, consistent with the plans of the
Development Committee:

         (i)      supply antibodies (monoclonal and polyclonal), cDNA and/or
                  genomic clones, plasmids, protein(s), ELISA and other assay
                  materials and methods, provided such materials and methods are
                  within the Genentech Knowhow and relate to the Factor(s)
                  currently under development hereunder;

         (ii)     provide funding in the form of an equity investment within 30
                  days of the date of execution of this Agreement by both
                  Parties, as set forth in Section 8.01;

         (iii)    assist, as reasonably requested by CTI, with experimental
                  design and evaluation and, [ * ] of injected animals;

         (iv)     assist, as reasonably requested by CTI, with the selection and
                  optimization of the cell line(s) producing relevant Factor(s)
                  to be used in Licensed Products; and

         (v)      assist, as reasonably requested by CTI, in CTI's filing of
                  regulatory applications (as described in Section 3.02 (v)) by
                  allowing CTI to cross reference or otherwise get the benefit
                  of relevant Genentech regulatory filings, if any.


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         3.04 TERM OF DEVELOPMENT PROGRAM. Unless otherwise agreed in writing by
the Parties, the Development Program shall have a duration of three (3) years.
At the earlier of the end of the term of the Development Program or the
completion of the Initial Clinical Trial, Genentech will decide whether to
continue the Development Program, proceed to the Clinical Development Program,
or terminate the program, all as provided in Section 4.05.

                                   ARTICLE IV

                          CLINICAL DEVELOPMENT PROGRAM

         4.01 OBJECTIVES OF CLINICAL DEVELOPMENT PROGRAM. The Parties agree that
the "Clinical Development Program" includes, among other items, all human
clinical studies of Licensed Products directed toward approval of a Submission
in the United States (after the Initial Clinical Trial), manufacturing scale-up
and other work to develop and commercialize Licensed Products. The Parties agree
that the success of the Clinical Development Program depends on the achievement
of the following objectives:

         (i)      performing any further pre-clinical studies required to
                  complete the comprehensive data package necessary to make
                  regulatory filings;

         (ii)     scaling up the manufacturing process so that it can be used to
                  make Clinical Product and Commercial Product;

         (iii)    performing clinical studies designed to obtain regulatory
                  approval for the sale of Licensed Product(s); and

         (iv)     filing Submissions to obtain approvals to market and sell
                  Licensed Products, provided that the product labeling for all
                  Licensed Product shall be in the name of Genentech or as
                  Genentech or its permitted sublicensees may reasonably
                  designate (consistent with applicable law and regulation).
                  Each Party agrees to take such further actions as to
                  regulatory matters as are appropriate and reasonably requested
                  by the other Party to carry out the purposes of this Agreement
                  (including, without limitation, adjusting the name of the
                  Party(s) in which regulatory filings



                                       16
<PAGE>   17
                  are made).

         The Parties further agree that the initial goal of the Clinical
Development Program is to file Submissions to gain approvals to market and sell
Licensed Product in the Major Market Countries, in each case, as soon as is
commercially and technically reasonable from the date of the decision of
Genentech, if any, to continue the Clinical Development Program after the Phase
II Clinical Trial after the review pursuant to Section 4.05(c).

         4.02 OBLIGATIONS OF GENENTECH IN THE CLINICAL DEVELOPMENT PROGRAM.
Genentech shall provide the following assistance and be responsible for the
following items in the conduct of the Clinical Development Program:

         (i)      perform and pay for clinical studies designed to obtain
                  regulatory approval for the sale of Licensed Product(s)
                  outside the United States;

         (ii)     make regulatory filings in the name of Genentech (or its
                  permitted sublicensees) with regulatory authorities to obtain
                  approvals to market and sell Licensed Products outside the
                  United States;

         (iii)    be responsible for all regulatory matters with respect to
                  Licensed Products outside the United States, subject to
                  Sections 4.01(iv) and 4.03(vi);

         (iv)     provide financing for CTI, if needed, pursuant to Section
                  4.07;

         (v)      assist, as reasonably requested by CTI, in CTI's filing of
                  regulatory applications (as described in Section 4.01(iv)) by
                  allowing CTI to cross reference or otherwise get the benefit
                  of relevant Genentech regulatory filings, if any, solely for
                  use in connection with the development or manufacture of
                  Licensed Product; and

         (vi)     conduct and pay for any Phase IV Clinical Trials, subject to
                  the other terms of this Agreement relating to sharing of Net
                  Profits.


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<PAGE>   18
         4.03 OBLIGATIONS OF CTI IN THE CLINICAL DEVELOPMENT PROGRAM. CTI shall
provide the following assistance and be responsible for the following items in
the conduct of the Clinical Development Program as set forth in the Development
Plan:

         (i)      upon Genentech's decision(s), if any, to proceed with the
                  Clinical Development Program after the reviews pursuant to
                  Sections 4.05(b) and 4.05(c), conduct Phase II Clinical
                  Trial(s) and U.S. Phase III Clinical Trial(s) as directed by
                  the Development Committee;

         (ii)     pay all Phase II Clinical Development Expenses pursuant to
                  Section 4.07(b);

         (iii)    pay [ * ] of U.S. Phase III Clinical Development Expenses
                  pursuant to Section 4.07(c);

         (iv)     be responsible for all regulatory matters with respect to
                  Licensed Product in the United States, pursuant to Section
                  4.01 (iv) above;

         (v)      develop a commercial-scale manufacturing process to produce
                  Clinical Product and then Commercial Product for the first
                  U.S. Phase III Clinical Trial at a time that is mutually
                  agreed upon by both Parties, but no later than [ * ] after
                  Genentech commits, if at all, to commence the first Phase III
                  Clinical Trial after the review pursuant to Section 4.05(c);
                  and

         (vi)     assist, as reasonably requested by Genentech or its permitted
                  sublicensees, in filing of regulatory applications (as
                  described in Sections 4.01(iv)) by allowing Genentech and its
                  permitted sublicensees to cross reference or otherwise get the
                  benefit of relevant CTI regulatory filings, if any, solely for
                  use in connection with the development, use or sale of
                  Licensed Product.

         Each Party shall keep records of all Clinical Development Expenses
incurred by it and shall provide the other Party with a reasonably detailed
accounting setting forth such Clinical Development Expenses within sixty (60)
days of the end of each calendar quarter during which such expenses are
incurred. Each Party shall have the


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<PAGE>   19
right, one time annually, upon written request and after reasonable notice, to
audit the other Party's records of its Clinical Development Expenses.

         Neither CTI nor Genentech shall be responsible for expenses incurred by
the other Party not in the agreed-upon budgets for Clinical Development
Expenses.

         4.04 SHARING OF DATA. Each Party shall promptly and thoroughly disclose
to the other all information and data relating to Licensed Products (but
excluding information regarding fiber or implant manufacture and any Factor(s)
not currently under development hereunder) resulting from any activities
undertaken as a result of the Development Program or the Clinical Development
Program. In addition, each Party shall promptly disclose to the other Party all
safety and toxicity information it obtains on the Factor(s) currently under
development hereunder from human clinical studies or pre-clinical studies (where
such clinical or pre-clinical data is or should, under applicable laws and
regulations, be filed as part of a U.S. IND or as part of a subsequent
regulatory document including a Submission). Absent agreement to the contrary,
all such information and data shall be considered Genentech or CTI Knowhow, as
the case may be, and held confidential pursuant to Section 9.01.

         4.05 REVIEW OF RESULTS; GENENTECH RIGHTS. The Parties shall review the
results of each of the following promptly upon completion of the following:

         (a)      The [ * ] (as each are described in the Development Plan);

         (b)      The Initial Clinical Trial; and

         (c)      The first Phase II Trial which will allow the Parties to meet
                  with the FDA to discuss the first U.S. Phase III Clinical
                  Trial.

Genentech shall have the right in its sole discretion to decide whether or not
the Parties shall continue the development of Licensed Product hereunder, after
each of the reviews set forth in clauses (a), (b) and (c) above; as provided in
Section 2.03 above, after a Genentech decision (if any) to proceed forward after
the review under Section 4.05(c), both Parties shall have an equal vote in
decisions affecting a U.S. Clinical Phase III Trial. If Genentech decides to
continue the development of Licensed


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<PAGE>   20
Product after each of the reviews referred to above, the Parties shall proceed
with the Development Program (in the case of (a)) or the Clinical Development
Program (in the case of (b) and (c)). If Genentech decides not to proceed with
the Development Program and Clinical Development Program, as the case may be,
the Parties shall in good faith consider alternatives, including without
limitation, modifying the Development Program and Clinical Development Program
and/or licensing CTI to make, use and sell Licensed Product, or terminating this
Agreement under Section 10.06(a). Notwithstanding the foregoing, Genentech shall
not be obligated to grant CTI a license. If the Parties do not agree to work
together further as provided in Section 10.06(a), either Party shall have the
right to terminate this Agreement pursuant to Section 10.06(a).

         4.06 SUPPLY AGREEMENT. Genentech and CTI shall negotiate in good faith
a supply agreement for Clinical Product for Genentech and its permitted
sublicensees for clinical trials outside the United States at such time as
Genentech believes it is appropriate but no later than [ * ] after a decision
by Genentech, if any, under Section 4.05(b) to proceed with the Clinical
Development Program (the "Clinical Supply Agreement") and a supply agreement for
Commercial Product for Genentech and its permitted sublicensees (the "Commercial
Supply Agreement") at such time as the Development Committee believes it is
appropriate, provided that negotiations for the Commercial Supply Agreement
shall begin no later than the commencement of the first Phase II Clinical Trial
and conclude no later than [ * ] prior to the expected commencement of the
first Phase III Clinical Trial. The Parties shall use their best efforts to
conclude the Clinical Supply Agreement within 90 days after Genentech's
decision, if any, under Section 4.05(b) to proceed forward with the Clinical
Development Program. CTI shall have the obligation to supply Genentech and its
permitted sublicensees as provided herein and in such supply agreements. For
purposes of this Agreement and each Supply Agreement, for supply of Clinical
Product and Commercial Product by CTI to Genentech and its permitted
sublicensees, CTI shall be entitled to CTI's Fully Burdened Manufacturing Cost
for such Clinical Product, and, commencing with the First Commercial
Introduction of the Licensed Product that is such Commercial Product, CTI's
Fully Burdened Manufacturing Cost for such Commercial Product. The parties
recognize that as part of such supply, there will be risks due to carrying
inventory. Inside the United States, the Parties will apportion that inventory
risk in proportion to the relevant profit participation of each Party pursuant
to Sections 8.02 and 8.04. Outside the United States, such inventory risk

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<PAGE>   21
shall be borne by Genentech pursuant to Sections 8.03 and 8.04. For these
purposes, "inventory risk" shall be the risk of loss for Licensed Product
subsequent to delivery of such Licensed Product to Genentech pursuant to a
binding purchase order from Genentech.

         At the time the Parties begin to negotiate the Commercial Supply
Agreement, they shall negotiate and agree in good faith a cap on both CTI's
Fully Burdened Manufacturing Costs and Genentech's Sales, General and
Administrative Expense. If either Party subsequently determines in good faith
that its costs for these items will exceed the agreed upon cap, subject to
review and approval by the Finance Committee, the Parties shall agree in writing
to adjust the cap upward to equal the actual costs, for the period of time in
which they exceed that cap.

         At the time the Parties enter into either Supply Agreement, they shall
discuss whether and under what terms Genentech may purchase a joint ownership
interest in the facilities producing Licensed Product.

         In addition to the above terms, the Commercial Supply Agreement shall
contain a provision setting forth the minimum purchases that Genentech and its
permitted sublicensees (in the aggregate) shall be required to make thereunder
and the minimum supply capacity CTI must maintain to supply Licensed Product
hereunder. Genentech, on behalf of itself and its permitted sublicensees, shall
make first estimates (based on market projections) for purposes of required
minimum purchases at the time of Genentech's entering into the Supply Agreement,
and annually thereafter. CTI intends to use such estimates to determine the
capacity of the plant it must build. Accordingly, CTI will not be required to
produce more than [ * ] but shall be required to produce at least [ * ], of
Genentech's purchase estimate, on behalf of itself and its permitted
sublicensees, made closest to, but not less than, 18 months prior to First
Commercial Introduction for each of the first three years that it supplies
Commercial Product to Genentech and its permitted sublicensees. Actual purchases
of Licensed Product supplied by CTI shall be pursuant to firm purchase orders
from Genentech, but for purposes of maintaining the foregoing capacity
protections for each Party in the Commercial Supply Agreement the Parties shall
agree upon appropriate percentages beyond which such firm orders for supply of
Licensed Product may not vary (above or below) the [ * ] range of the previously
provided estimates, and CTI shall be obligated to supply, and Genentech (on
behalf of itself and its permitted sublicensees)


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<PAGE>   22
shall be obligated to purchase at least [ * ] of amounts of Licensed Product
under such firm purchase orders in accordance with the foregoing and the
"inventory risk" provisions set forth above in this Section 4.06. Genentech
shall be permitted to revise its minimum purchase projections yearly, but such
revision shall not affect the maximum amount of Commercial Product CTI must
supply for the first three years. The Supply Agreement shall also provide for
good faith, rolling forecasts covering a time period of at least 24 months with
maximum supply obligations determined so as to allow Genentech and its permitted
sublicensees to meet market needs and allow CTI reasonable time to build,
validate and obtain approval of necessary facilities to supply Licensed Products
in the Territory. The Supply Agreement shall contain a provision to protect CTI
against idle plant capacity after expansion of such facilities, to the extent
such facilities were built to supply such Licensed Product (with reasonable
apportionment where other parties, including CTI, are also supplied by such
plant capacity). The Supply Agreement shall provide that CTI shall treat
Genentech and its permitted sublicensees as CTI's highest priority customer for
supply of Licensed Product, and shall provide for flexibility for Genentech and
its permitted sublicensees to change purchase orders and require CTI to promptly
replace non-conforming or otherwise defective product supplied thereunder.

         In addition, each Supply Agreement shall contain provisions regarding
breach similar to those set forth in this Agreement, including those governing
the transfer of manufacturing technology from CTI to Genentech for manufacture
of Licensed Product in the Territory and shall provide that a breach under such
Supply Agreement shall be a breach hereunder. During the period of such a
transfer, CTI shall continue to treat Genentech on behalf of it and its
permitted sublicensees as its highest priority customer for supply of Licensed
Product. The Parties agree that the technology transfer will involve the need
for CTI employees to train Genentech employees. CTI will pay the salaries of its
employees doing such training, and Genentech will pay the salaries of its
employees receiving such training as well as all expenses incurred in
constructing a Genentech facility for producing Licensed Product.

         4.07 (a) FUNDING OF DEVELOPMENT THROUGH THE INITIAL CLINICAL TRIAL.
Pursuant to Section 8.01(a), Genentech has agreed to purchase the agreed-upon
amount of Common Stock to provide funding for Development Expenses. If CTI
reasonably determines that Development Expenses will exceed those previously
agreed-upon, it shall notify Genentech. The Parties shall meet and agree if
additional


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<PAGE>   23
Development Expenses beyond those agreed-upon will be required. If the Parties
agree additional Development Expenses will be incurred and on the amount of such
additional Development Expenses, to the extent that such agreed-upon CTI
Development Expenses will exceed the funding provided by Genentech's equity
purchase pursuant to Section 8.01(a), Genentech shall purchase sufficient
additional equity, pursuant to an agreement in the form of the Stock Purchase
Agreement and at a price equal to one hundred percent (100%) of the 20 Day
Average of CTI's Common Stock, to fund in advance, the remainder of such
agreed-upon CTI Development Expenses. In no case shall CTI be required to fund
such additional expenses unless Genentech, in fact, makes the additional equity
purchase contemplated hereunder to cover such Development Expenses.

         If the amount of funding received by CTI pursuant to Sections 4.07(a)
and 8.01(a) exceeds the Development Expenses incurred by CTI through the
completion of analysis of the results of the Initial Clinical Trial or as of any
earlier termination of the Development Program or this Agreement, CTI shall
provide written notice to Genentech of the amount of such "overfunding". CTI
shall apply such "overfunding" to the Clinical Development Expenses to be
incurred by CTI under Section 4.07(b), except as otherwise provided hereinbelow,
and except that if such "overfunding" totals [ * ] or less, CTI shall be
entitled to retain such excess and shall not be required to apply it against any
future work under this Agreement or against redemption of CTI's Common Stock as
otherwise provided hereinbelow. Subject to the foregoing, if the amount of such
funding under Sections 4.07(a) and 8.01(a) exceeds the Development Expenses
incurred by CTI and CTI cannot apply such "overfunding" to the Clinical
Development Expenses to be incurred because (i) Genentech has determined
pursuant to Section 4.05 not to proceed forward with the Clinical Development
Program or (ii) this Agreement has been terminated at any time for any other
reason (except termination by CTI in accordance with this Agreement due to
Genentech's uncured default, in which case the provisions of this paragraph
shall apply except that CTI shall be entitled to retain "overfunding" in an
amount equal to CTI's already incurred costs for its work under this Agreement),
then Genentech shall have the rights and CTI the obligations set forth
hereinbelow. If Genentech so requests in writing within sixty (60) days after,
as applicable, Genentech's decision under Section 4.05 not to proceed forward or
the effective date of termination of this Agreement (except as otherwise
provided above with respect to Genentech's uncured default), within thirty (30)
days after such request CTI shall pay such overfunding



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<PAGE>   24
amount to Genentech against Genentech's delivery to CTI of that number of shares
of CTI's Common Stock equal to such overfunding amount divided by the price for
such Common Stock paid by Genentech under Section 8.01(a) (or, if such
overfunding is attributable only to CTI's receipt of additional funding from
Genentech under 4.07(a), the price paid for such Common Stock under Section
4.07(a)). In calculating the overfunding amount, CTI shall calculate the total
amount of expenses incurred by CTI hereunder based on the total expenses
incurred for performance of the tasks approved by the Development Committee
(without regard to categories of budgeted amounts).

         (b) FUNDING OF DEVELOPMENT THROUGH PHASE II CLINICAL TRIAL ANALYSIS.
Upon Genentech's decision pursuant to Section 4.05(b) to commence the Clinical
Development Program, pursuant to Section 8.01(b) Genentech will purchase Common
Stock pursuant to an agreement in the form of the Stock Purchase Agreement, in
an amount equal to the agreed-upon Phase II Clinical Development Expenses. If
CTI reasonably determines that its Phase II Clinical Development Expenses will
exceed those previously agreed-upon (subject to the following paragraph), it
shall notify Genentech. The Parties shall meet and agree if additional Phase II
Clinical Development Expenses beyond those agreed-upon will be required. If the
Parties agree additional Phase II Clinical Development Expenses will be incurred
and on the amount of such additional expenses, to the extent that such
agreed-upon CTI Phase II Clinical Development Expenses will exceed the funding
provided by Genentech's equity purchase pursuant to Section 8.01(b), Genentech
shall purchase sufficient additional equity, pursuant to an agreement in the
form of the Stock Purchase Agreement and at a price equal to one hundred percent
(100%) of the 20 Day Average of CTI's Common Stock, to fund, in advance, the
remainder of such agreed-upon CTI Phase II Clinical Development Expenses. In no
case shall CTI be required to fund such additional Phase II Clinical Development
Expenses unless Genentech, in fact, makes the additional equity purchase
contemplated hereunder to cover such Phase II Clinical Development Expenses.

         If the amount of funding received by CTI pursuant to Sections 4.07(a)
and (b) and 8.01(b) exceeds the Development Expenses and Clinical Development
Expenses incurred by CTI through the completion of analysis of the results of
the last Phase II Clinical Trial of a Licensed Product prior to commencement of
funding under Section 4.07(d), or as of any earlier termination of the Clinical
Development Program or this






                                       24
<PAGE>   25
Agreement, CTI shall provide written notice to Genentech of the amount of such
"overfunding". CTI shall apply such "overfunding" to CTI's share of the U.S.
Phase III Clinical Development Expenses to be borne by CTI pursuant to Section
4.07(d), except that if such "overfunding" totals [ * ] or less, CTI shall be
entitled to retain such excess and shall not be required to apply it against any
future work under this Agreement or redemption of CTI's Common Stock as
otherwise provided hereinbelow. Subject to the foregoing, if the amount of
funding under Sections 4.07(a) and (b) and 8.01(b) exceeds the Development
Expenses and Clinical Development Expenses incurred by CTI and CTI cannot apply
such "overfunding" to its share of the U.S. Phase III Clinical Development
Expenses to be borne by CTI because (i) Genentech has determined pursuant to
Section 4.05 not to proceed forward with the Clinical Development Program or
(ii) this Agreement has been terminated at any time for any other reason (except
termination by CTI in accordance with this Agreement due to Genentech's uncured
default, in which case the provisions of this paragraph shall apply except that
CTI shall be entitled to retain "overfunding" in an amount equal to CTI's
already incurred costs for its work under this Agreement), then Genentech shall
have the rights and CTI the obligations set forth hereinbelow. If Genentech so
requests in writing within sixty (60) days after, as applicable, Genentech's
decision under Section 4.05 not to proceed forward or the effective date of
termination of this Agreement (except as otherwise provided above with respect
to Genentech's uncured default), within thirty (30) days after such request CTI
shall pay such overfunding amount to Genentech against Genentech's delivery to
CTI of that number of shares of CTI's Common Stock equal to such overfunding
amount divided by the price for such Common Stock paid by Genentech under
Section 8.01(b) (or, if such overfunding is attributable only to CTI's receipt
of additional funding from Genentech under 4.07(b), the price paid for such
Common Stock under 4.07(b)). In calculating the overfunding amount, CTI shall
calculate the total amount of expenses incurred by CTI hereunder based on the
total expenses incurred for performance of the tasks approved by the Development
Committee (without regard to categories of budgeted amounts).

         (c) RECORDS. In connection with any application of "overfunding" to
future work or redemption of CTI Common Stock as provided in Sections 4.07(a) or
(b), CTI shall keep complete and accurate records of its expenses hereunder, and
Genentech shall have the right, upon written request after reasonable notice, to
have an independent certified public accountant reasonably acceptable to CTI,
review such records for the

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<PAGE>   26
purposes of verifying such "overfunding", if any. This right may not be
exercised more than once in any calendar year. Results of such review shall be
made available to both Parties. The provisions of Sections 4.07(a), (b) and (c)
regarding overfunding shall survive any termination of this Agreement.

         (d) FUNDING OF U.S. PHASE III CLINICAL DEVELOPMENT EXPENSES. If
Genentech decides to continue the Clinical Development Program after the review
under Section 4.05(c), the Parties shall agree on a budget for U.S. Phase III
Clinical Development Expenses. As provided below in this Section 4.07(d), CTI
shall pay [ * ] of the agreed-upon U.S. Phase III Clinical Development Expenses;
such [ * ] shall be financed by Genentech providing CTI with a revolving line of
credit in the principal amount of the to be agreed-upon [ * ] of U.S. Phase III
Clinical Development Expenses (less the amount of any overfunding, if any,
applied by CTI as provided in Section 4.07(b)), which line of credit shall bear
interest on the outstanding principal amount at a rate equal to LIBOR (as quoted
for one month in The Wall Street Journal) plus [ * ] compounded quarterly.
Subject to Section 10.07(a), such revolving loan shall be repaid in full (and
shall not be available for further borrowing by CTI) within [ * ] days after the
earlier of (i) seven (7) years from the date funds are first drawn down under
such line of credit or (ii) the earlier of (A) of the completion of the analysis
of all U.S. Phase III Clinical Trial(s) directed by the Development Committee,
(B) termination of the last U.S. Phase III Trial (if terminated prior to its
term), or (C) termination of this Agreement (as provided in Section 10.07
(a)(ii)). Notwithstanding the foregoing, under the loan documentation to be
entered into by the Parties, in the event of any event of default under such
loan documentation, including any CTI failure to repay the total amount of the
loan (principal plus interest) then outstanding, Genentech shall have the right
to convert the total amount of the loan outstanding into registered shares of
Common Stock of CTI.

         Such revolving loan may be prepaid by CTI at any time; CTI shall give
Genentech at least [ * ] days notice of any such prepayment. CTI may make any
payment under such loan in whole or in part by issuing to Genentech shares of
CTI stock, which shall be valued at price per share equal to one hundred percent
(100%) of the 20 Day Average of CTI's Common Stock. The loan under the revolving
line of credit shall be unsecured and fully subordinated to all other CTI
liabilities.

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<PAGE>   27
         At the time, if any, that Genentech elects to proceed under Section
4.05(c) to a U.S. Phase III Clinical Trial, the Parties shall agree on any
additional necessary terms of the line of credit.

         The Parties expect to pay for U.S. Phase III Clinical Development
Expenses equally. The Parties shall invoice each other for actual U.S. Phase III
Clinical Development Expenses; [ * ] is payable by Genentech. Genentech shall
pay the full amount it owes under such invoices and shall draw down from the
line of credit the amount CTI owes under such invoices, as contemplated by this
Section 4.07(d). If at any time either Party has paid more than its share of
such expenses, as provided in this Agreement, the Parties shall fairly adjust
the reimbursement of such expenses.

         Each Party shall keep complete and accurate records of the latest three
(3) years of its U.S. Phase III Clinical Development Expenses. Each Party shall
have the right at its own expense to have an independent certified public
accountant, reasonably acceptable to the other Party, review such records upon
reasonable notice and during reasonable business hours for the purposes of
verifying reimbursement hereunder. This right may not be exercised more than
once in any calendar year. Results of such review shall be made available to
both Parties. If the review reflects an overpayment of U.S. Phase III Clinical
Development Expenses by either Party, any such overpayment shall be promptly
remitted to the other Party with interest as provided in Section 8.04. If the
overpayment is equal to or greater than five percent (5%) of invoiced U.S. Phase
III Clinical Development Expenses, the overpaying Party shall be entitled to
have the other Party pay all of the costs of such review. The provisions of this
Section 4.07(d) shall survive termination of this Agreement.

                                    ARTICLE V

                                 GRANT OF RIGHTS

         5.01 GRANT BY CTI. CTI hereby grants to Genentech, under the CTI Patent
Rights and CTI Knowhow, (i) a co-exclusive license (with CTI) to [ * ] such
Patent Rights and Knowhow for [ * ] of Licensed Products in the United States
in accordance with the Development Program agreed upon by the Parties, and
(ii) an


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<PAGE>   28
exclusive license (even as to CTI) to [ * ] Licensed Products in the Territory
outside the United States, and to [ * ] Licensed Products throughout the
Territory and (iii) in the event that manufacturing technology is transferred to
Genentech pursuant to Section 10.04, an exclusive license to [ * ] Licensed
Products in the Territory.

         5.02 GRANT BY GENENTECH. Genentech hereby grants to CTI, under the
Genentech Patent Rights and Genentech Knowhow, (i) a [ * ] to use such Patent
Rights and Knowhow for [ * ] of Licensed Products in the Territory in accordance
with the Development Program agreed upon by the Parties, and (ii) an [ * ]
license for the [ * ] of Licensed Products in the Territory up through review of
results of the primate efficacy study and diffusion study referred to in Section
4.05 (a), and (iii) if and only if Genentech elects to continue development
after the review under Section 4.05(a), an [ * ] of Licensed Products in the
Territory up through the review of results of the Initial Clinical Trial, and
(iv) if and only if Genentech elects to continue development after the review
under Section 4.05(b), an [ * ] of Licensed Products in the Territory up through
review of results of the relevant Phase II Clinical Trial and (v) if and only if
Genentech elects to continue development after the review under Section 4.05(c),
an [ * ] Licensed Products in the Territory for supply to Genentech and its
permitted sublicensees hereunder (so long as [ * ] are met and CTI is not in
breach under this Agreement).

         5.03 DUE DILIGENCE. Genentech and CTI shall use due diligence in
developing and seeking marketing approvals for Licensed Products as contemplated
by this Agreement. As used in this Section 5.03, "due diligence" shall mean a
reasonable effort consistent with sound business judgment and shall include all
steps reasonably necessary to enable and facilitate the development and
marketing of Licensed Products. In particular, CTI shall use its reasonable best
efforts to complete the work under the Development Program within the three (3)
year term specified in Section 3.04, and, if Genentech elects to proceed
forward with development after the reviews under Sections 4.05(b) and (c), to
complete the first Phase II Clinical Trial and the first U.S. Phase III
Clinical Trial in accordance with timelines agreed upon by the Parties.


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         5.04 SUBLICENSES. Neither Genentech nor CTI shall have the right to
grant sublicenses to third parties under the licenses received under Sections
5.01 or 5.02 unless otherwise mutually agreed in writing; provided, however,
that (i) Genentech may grant sublicenses of its rights hereunder to Affiliates
without obtaining CTI's consent and (ii) Genentech may sublicense the rights
granted to it hereunder to market and sell Licensed Product in the Territory to
any third party without obtaining CTI's consent. Any permitted sublicensee shall
commit in writing to abide by all applicable terms and conditions of this
Agreement. Each party shall be responsible for compliance by its sublicensee(s)
with such sublicensee's obligations under its sublicense.

         5.05 OTHER MOLECULES. During the term of this Agreement, CTI agrees
that it will [ * ].

                                   ARTICLE VI

                         MARKETING OF LICENSED PRODUCT

         6.01 MARKETING RESPONSIBILITIES. Genentech shall have the sole
responsibility for sales and marketing of Licensed Product in the Territory.

         6.02 MARKETING DUE DILIGENCE. In addition to the due diligence
obligations of the Parties set forth in Section 5.03, Genentech agrees to use
its reasonable best efforts to market and sell Licensed Product throughout the
Territory, provided that with respect to a given country or territory in the
Territory, approvals to market and sell Licensed Product have been received in
such country or territory.


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                                   ARTICLE VII

                         PATENTS, KNOWHOW AND INVENTIONS

         7.01 OWNERSHIP. Genentech shall retain sole title to the Genentech
Knowhow and the Genentech Patent Rights as presently existing and as developed
or invented by Genentech or on its behalf during the term of this Agreement, and
shall have sole title to any improvements to the CTI Knowhow or CTI Patent
Rights developed or invented solely by Genentech or on its behalf during the
term of this Agreement. CTI shall retain sole title to the CTI Knowhow and the
CTI Patent Rights as presently existing and as developed or invented by CTI or
on its behalf during the term of this Agreement, and shall have sole title to
any improvements to the Genentech Knowhow or Genentech Patent Rights developed
or invented solely by CTI or on its behalf during the term of this Agreement.
The Parties shall jointly own any improvements to any Knowhow or Patent Rights
developed or invented by both Parties or on their behalf during the term of this
Agreement. Designation of inventor(s) on any patent application is a matter of
applicable laws, and shall be solely within the discretion of qualified patent
counsel of Genentech and CTI to determine in accordance with applicable laws of
inventorship and competent evidence of the Parties.

         7.02 PURSUIT OF SOLE PATENT APPLICATIONS.

         Each Party shall, to the extent it elects to do so and at its own cost
and expense, prepare, file, prosecute and maintain patent applications and
patents covering (i) any of its own Knowhow or solely owned improvements to its
Knowhow or Patent Rights (under Section 7.01), or (ii) any improvements to its
own Knowhow or Patent Rights developed and owned solely by the other Party
(under Section 7.01). Neither Party shall withdraw or abandon any of such Patent
Rights or any of such applications and/or resulting Patent Rights without
providing the other Party a free of charge option for a period of 90 days to
assume the prosecution and/or maintenance thereof at its own expense.

         7.03 RESIDUAL RIGHTS; GRANT BACK. Subject to the grant of exclusive
rights under Article V during the term of this Agreement, each Party shall be
free to use,




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<PAGE>   31
license and/or transfer as it sees fit (i) its own Patent Rights and Knowhow,
(ii) any improvements to its own Patent Rights or Knowhow solely owned by it
under Section 7.01, (iii) its interest in jointly owned improvements to Knowhow
or Patent Rights under Section 7.01, and (iv) its interest in Joint Patent
Rights under Section 7.04. During the term of this Agreement, Genentech hereby
grants back to CTI an exclusive (except as to Genentech under Article V) right
and license to use, sublicense and/or transfer as CTI sees fit any improvements
to CTI Knowhow or CTI Patent Rights solely owned by Genentech under Section
7.01, and during the term of this Agreement CTI hereby grants back to Genentech
an exclusive (except as to CTI under Article V) right and license to use,
sublicense and/or transfer as Genentech sees fit any improvements to Genentech
Knowhow or Genentech Patent Rights solely owned by CTI under Section 7.01. Each
Party shall notify the other Party promptly if it solely develops or invents any
improvements to the other Party's Knowhow or Patent Rights as contemplated in
Section 7.01.

         7.04 JOINT PATENTS. In the event that it is determined, in accordance
with Section 7.01, that both: (i) employees or agents of Genentech or any other
persons obliged to assign such invention to Genentech, and (ii) employees or
agents of CTI or any other persons obliged to assign such invention to CTI, are
joint inventors of an invention, the Parties shall jointly own patents,
inventor's certificates and applications therefor covering such invention.
Genentech shall prosecute all such patents claiming Factors, and CTI shall
prosecute all such patents claiming the Encapsulation Technology. If a patent
claims both Factors and the Encapsulation Technology, Genentech shall determine
whether and how to prosecute any such potential patent application and be
responsible for all costs incurred in prosecution. In making such determination,
Genentech shall take into account the interests of both Parties and CTI shall
have the right to file (or continue, as the case may be) at its expense, a
patent application claiming the Encapsulation Technology to the extent that
Genentech decides not to file or to continue to prosecute a patent application
claiming such Encapsulation Technology. Notwithstanding the foregoing, the
Parties shall assist each other to the maximum extent reasonable in securing
intellectual property rights resulting from activities conducted hereunder.
Either Party may withdraw from or abandon any jointly-owned patent or patent
application, on notice to the other providing a free-of-charge option to assume
the prosecution and/or maintenance thereof at its own cost and expense.





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<PAGE>   32
         7.05 INFRINGEMENT OF SOLE PATENTS. If a Party considers that any of the
Patent Rights of the other is being infringed by a third party, the former shall
promptly notify the latter and shall provide it with any evidence of any
infringement which is reasonably available. The Party owning the Patent Rights
shall have the first opportunity at its own expense to attempt to remove such
infringement by appropriate steps including suit. In such event, the other Party
will assist in taking such steps, including suit, within reasonable limits, and
any amount recovered as a result thereof shall be for the account of the Party
owning the Patent Rights. In the event the Party owning the Patent Rights fails
to take appropriate steps, including suit and legal action with respect to any
such infringement within a period of six months following such notice of
infringement, the other Party shall have the right to take any appropriate
steps, including suit, against the infringer at its own expense and in its name.
In such event, the owner of the Patent Rights shall assist the Party bringing
suit as reasonably requested and shall permit the Party bringing suit to use its
name in the suit. The expenses reasonably incurred in taking such steps,
including suit and legal action, and any amount recovered as a result thereof
shall be for the account of the Party taking such action, and the Party not
taking such action shall be reimbursed for its out-of pocket expenses in
connection with such suit or action.

         7.06 INFRINGEMENT OF JOINT PATENT RIGHTS. In the event that any
jointly-owned Patent Right shall be infringed, then the Parties agree to consult
with each other as to the best manner in which to proceed. Should the Parties
fail to agree on a joint program of action and the understanding relating
thereto with respect to distribution of expenses and recoveries, then either
Party shall have the right to enforce such jointly-owned patent at its sole
expense and any recovery shall be first applied to reimbursing the Party for the
out-of-pocket expenses incurred in bringing such suit or action and the
remainder, if any, shall be divided appropriately between the Parties with
reference to the relative monetary injury suffered by each by reason of the past
infringement for which said amounts are recovered. The other Party shall agree
to be joined in such suit and may, at its option, be represented by counsel of
its choosing and at its own expense.

         7.07 THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. Subject to the other
terms of this Agreement, each of the Parties shall be responsible for [ * ]
hereunder. Each Party shall promptly notify the other Party of it becoming aware
of


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<PAGE>   33
any payments which will be due to third parties on account of intellectual
property rights and the amount of such payments.

         [ * ]

         7.08 SURVIVAL. Sections 7.01, 7.02, 7.03 and 7.04 shall survive the
termination or expiration of this Agreement.

                                  ARTICLE VIII

                           PAYMENTS AND PROFIT SHARING

         8.01 EQUITY INVESTMENT.

          (a) Initial Equity Purchase. Pursuant to an agreement in the form of
the Stock Purchase Agreement, Genentech shall purchase Eight Million Three
Hundred Thousand Dollars ($8,300,000) worth of CTI Common Stock on the date
approximately thirty (30) days after the execution of this Agreement by both
Parties, at a price per share equal to one hundred ten percent (110%) of the 20
Day Average of CTI's Common Stock. For purposes of the foregoing, the Parties
agree that the 20 Day Average shall be calculated using the 10 trading days
prior to the public announcement of this Agreement and the 10 trading days on
and after the announcement of this Agreement. In addition Genentech shall
purchase additional stock, if necessary, pursuant to Section 4.07(a), at a
price per share equal to one hundred percent (100%) of the 20-Day Average of
CTI's Common Stock on a purchase date to be agreed upon.

         (b) Phase II Equity Purchase. Pursuant to an agreement in the form of
the Stock Purchase Agreement, if Genentech has decided to proceed with the
Clinical Development Program after the review under Section 4.05(b), and prior
to starting the first Phase II Clinical Trial, if at all, Genentech shall
purchase CTI Common Stock in an amount equal to the agreed-upon Phase II
Clinical Development Expenses, at a price equal to one hundred percent (100%) of
the 20 Day Average of CTI's Common Stock. In addition Genentech shall purchase
additional stock, if necessary, pursuant to


* Confidential Treatment Requested

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<PAGE>   34
Section 4.07(b), at a price per share equal to one hundred percent (100%) of the
20-Day Average of CTI's Common Stock on a purchase date to be agreed upon.

         8.02 NET PROFITS INSIDE THE UNITED STATES. Commencing with the First
Commercial Introduction of a Licensed Product in the United States and subject
to the other terms of this Agreement, during the term of this Agreement, CTI
shall be entitled to [ * ] of the Net Profits for each Licensed Product sold or
disposed of for value in the United States by Genentech and its permitted
sublicensees and Genentech shall be entitled to [ * ] of such Net Profits; CTI
shall also be entitled to payment for such License Product, if supplied by CTI
hereunder, as provided in Section 4.06 and the Commercial Supply Agreement.

         If in any Accounting Period "Net Profits" are negative, such loss
shall, for CTI, be carried forward and offset against CTI's share of future Net
Profits. Such loss shall bear interest on the outstanding principal amount at a
rate equal to LIBOR (for one month as quoted in The Wall Street Journal) plus
[ * ] compounded quarterly.

         8.03 NET SALES OUTSIDE THE UNITED STATES. Commencing with the First
Commercial Introduction of the Licensed Product outside the United States and
subject to the other terms hereof (including, without limitation, Section
10.04), during the term of this Agreement, Genentech agrees to pay CTI, as
consideration for the rights granted hereunder, [ * ] of Net Sales of Licensed
Product by Genentech and its sublicensees in the Territory outside the United
States and (ii) payment for such Licensed Product, if supplied by CTI hereunder,
as provided in Section 4.06 and the Commercial Supply Agreement.

         8.04 PAYMENT DATES AND STATEMENTS. Within sixty (60) days of the end of
each Accounting Period in which Net Sales occurred for purposes of Section 8.02
and ninety (90) days of the end of each Accounting Period in which Net Sales
occurred for purposes of Section 8.03, Genentech shall calculate all amounts
owed by Genentech to CTI under Section 8.02 or 8.03 and shall send to CTI the
net amount owed to CTI or, if appropriate, a statement of the loss carried
forward by Genentech on behalf of CTI plus interest thereon as specified herein.
Such payment shall be accompanied by a statement for the Accounting Period
showing the calculation of the amount owed and for each country in the
Territory, the total Net Sales of each Licensed Product by


* Confidential Treatment Requested


                                       34
<PAGE>   35
Genentech and its permitted sublicensees, the exchange rate used to directly
convert any of the above amounts into U.S. Dollars, and, in the case of Net
Sales inside the United States, the Cost of Sales for each Licensed Product
during that Accounting Period, the Sales, General and Administrative Expense
(and the calculation thereof), the Launch Expenses, the Phase IV Clinical Trial
Expenses, the Net Profit, and the amount of any CTI loss carried forward. For
purposes of determining when a sale of a Licensed Product occurs, the sale shall
be deemed to occur on the date the Licensed Product is shipped to a third party.
Any payment owed under Section 8.02 or 8.03 that is not paid on or before the
date such payment is due under this Agreement shall bear interest, to the extent
permitted by applicable law, at two percentage points (2%) over the prime rate
of interest as reported by Bank of America NT&SA in San Francisco, California
from time to time, calculated on the number of days such payment is delinquent.

         8.05 RECORDS AND ACCOUNTING

         (a) Genentech and its permitted sublicensees shall keep complete and
accurate records of the latest three (3) years of Net Sales and, for sales of
Licensed Products in the United States, Cost of Sales, Sales, General and
Administrative Expense, Launch Expenses and Phase IV Clinical Trial Expenses.
CTI shall have the right at its own expense to have an independent, certified
public accountant, reasonably acceptable to Genentech (or any relevant
sublicensee), review such records upon reasonable notice and during reasonable
business hours for the purposes of verifying royalties payable to CTI, Net
Sales, and Net Profits. This right may not be exercised more than once in any
calendar year. Results of such review shall be made available to both Parties.
If the review reflects an underpayment of royalties or Net Profits to CTI, such
underpayment shall be promptly remitted to CTI with interest as provided in
Section 8.04. If the underpayment is equal to or greater than five percent (5%)
of Net Profits that was otherwise due, CTI shall be entitled to have Genentech
pay all of the costs of such review. If the review reflects an overpayment of
royalties and Net Profits to CTI, royalties and Net Profits for the period of
such overpayment shall be recalculated and any amount due to Genentech shall be
promptly paid.

         (b) CTI and its permitted sublicensees shall keep complete and accurate
records of the latest three (3) years of Fully Burdened Manufacturing Cost, and
shall provide Genentech with a report setting forth all such items within
forty-five (45) days of





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<PAGE>   36
the end of each Accounting Period. Genentech shall have the right at its own
expense to have an independent, certified public accountant, reasonably
acceptable to CTI, review such records upon reasonable notice and during
reasonable business hours for the purposes of verifying the Fully Burdened
Manufacturing Cost. This right may not be exercised more than once in any
calendar year. Results of such review shall be made available to both Parties.
If the review reflects an overpayment of the Fully Burdened Manufacturing Cost
to CTI, such overpayment shall be promptly refunded to Genentech with interest
as provided in Section 8.04. If the overpayment is equal to or greater than five
percent (5%) of the Fully Burdened Manufacturing Cost, Genentech shall be
entitled to have CTI pay all of the costs of such review. If the review reflects
underreporting of CTI's Fully Burdened Manufacturing Cost, Fully Burdened
Manufacturing Cost for the period of such underreporting shall be re-calculated
and any amounts due to CTI shall be promptly paid.

         8.06 CURRENCY OF PAYMENTS. All payments under this Agreement shall be
made in United States Dollars by check or wire transfer (or such other
reasonable means as a receiving Party may direct) to such bank account as may be
designated from time to time. Any payments due hereunder on Net Sales outside of
the United States shall be payable in United States Dollars calculated pursuant
to U.S. generally accepted accounting principles consistently applied at the
rate of exchange of the currency of the country in which the Net Sales were
made, with such rate as is equal to the average of the rates reported in The
Wall Street Journal for the first and last business day of the Accounting Period
for which the Net Profit Amount or royalties are payable.

         8.07 TAX WITHHOLDING. If any withholding taxes are required under the
applicable laws of any country or any applicable treaty on royalty payments made
hereunder, the selling Party will pay such taxes to the proper taxing authority
and such tax payment will be deducted by the selling Party from the royalty
payable to the owed Party. Written documentation of any such payment sufficient
to satisfy the reasonable requirements of an appropriate tax authority
concerning an application by the owed Party for a foreign tax credit for such
payment or for similar treatment shall be secured and sent to the owed Party.
The selling Party agrees to take such reasonable and lawful steps as the owed
Party may request to minimize the amount of withholding taxes that must be paid
pursuant to any applicable treaty to the extent permitted by such treaty. If
either Party to this Agreement, by reason of the assignment of its rights



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<PAGE>   37
under this Agreement, as specified in Section 11.02, increases the withholding
tax payable by the non-assigning Party in any taxing jurisdiction, then the
assigning Party agrees to pay the non-assigning Party an amount which, net of
any tax benefits which the non-assigning Party may use, would be the same as if
the assignment had not occurred.

         8.08 FINANCE COMMITTEE.

         In connection with the sharing of Net Profits contemplated under
Section 8.02, within thirty (30) days after Genentech's notice of exercise of
its right to continue the Clinical Development Program after the review under
Section 4.05(c), the Parties will establish a joint finance committee (the
"Finance Committee"), to be comprised of two (2) representatives appointed and
replaced by each Party. Such representatives will include individuals with
expertise and responsibilities in the areas of accounting, cost allocation,
budgeting or financial reporting. The Finance Committee will meet as requested
by either Party by notice to the other Party (but in any event not more
frequently than quarterly), at such times and locations as are reasonably
acceptable to the Parties. All decisions and recommendations of the Finance
Committee shall require the agreement of a majority of the representatives of
each Party to be effective. In the event the representatives of the two Parties
cannot agree on a matter, a member of senior management of each party shall
confer and resolve the dispute. For this purpose, a "member of senior
management" shall be a management-level employee who has the authority to bind a
Party. If the members of senior management do not resolve such dispute within 60
days of such objection, the Parties shall attempt to resolve such dispute in
accordance with Sections 11.19 and 11.20. The Finance Committee shall address
financial, budgeting and accounting issues which arise in connection with the
sharing of Net Profits contemplated under Section 8.02 above (including, without
limitation, review of the Parties' respective cost structures and generally
accepted accounting principles and other practical aspects of implementation of
the terms of this Agreement and the amount of Cost of Sales, Fully Burdened
Manufacturing Cost, Sales, General and Administrative Expense, Launch Expenses
and Phase IV Clinical Trial Expenses) and the proper allocation of such costs in
determining Net Profits. The Finance Committee (if any) automatically will cease
to operate upon the expiration of the term of this Agreement.


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<PAGE>   38
                                   ARTICLE IX

                   CONFIDENTIALITY AND DISTRIBUTION OF KNOWHOW

         9.01 NON-DISCLOSURE. Except to the extent expressly authorized by this
Agreement, the Parties agree that, for the term of this Agreement and for seven
years thereafter (15 years in the case of manufacturing technology), the
receiving Party shall keep completely confidential and shall not publish or
otherwise disclose and shall not use for any purpose other than as contemplated
by this Agreement any information furnished to it by the other Party pursuant to
this Agreement (other than to employees or consultants on a need-to-know and
confidential basis), except to the extent that it can be established by the
receiving Party by competent proof that such information:

         (a) was already known to the receiving Party, other than under an
obligation of confidentiality, at the time of disclosure by the other Party;

         (b) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving Party;

         (c) became generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the receiving Party in breach of this Agreement; or

         (d) was subsequently lawfully disclosed to the receiving Party by a
third party.

         Information that is disclosed other than in written form shall be
subject to the terms of this Section 9.01 only if confirmed in writing within
thirty (30) days of disclosure and specifying that such information is subject
to this Agreement. Each Party may disclose the other's information to the extent
such disclosure is reasonably necessary in filing or prosecuting patent
applications, prosecuting or defending litigation, complying with applicable
governmental regulations or conducting clinical trials, provided that, if a
Party proposes to make any such disclosure of the other Party's secret or
confidential information, it will give reasonable advance notice to the other
Party of such disclosure and, save to the extent inappropriate in the case of
patent applications, will use its best efforts to secure confidential treatment
of such information required to be disclosed. A Party may disclose confidential
information to



                                       38
<PAGE>   39
a potential sublicensee or assignee to the extent reasonably required to
negotiate a sublicense or assignment permitted hereunder; provided, however,
that such potential sublicensee or assignee shall first execute a binding
confidentiality agreement of term and scope at least as restrictive as the terms
of this Article IX, and which confidentiality agreement shall expressly provide
that the non-disclosing Party is intended to be a third-party beneficiary
thereof.

         9.02 PUBLICATION. Notwithstanding Section 9.01, each Party shall be
free to publish the results of its activities conducted hereunder, to the extent
that publication will not result in the disclosure of otherwise confidential
data or Knowhow and will not conflict with the terms of the Neurturin MTA.
Subject to the foregoing, at least 30 days prior to making any such publication
(14 days in the case of an abstract), the publishing Party shall provide the
other Party a draft of the proposed publication to afford an opportunity for
comment and securing of intellectual property rights. Publication shall be
delayed an additional 30 days to permit filing of patent applications upon
request. Neither Party may publish the other's Knowhow without the prior written
consent of the other Party.

         9.03 DISTRIBUTION OF KNOWHOW.

         Neither Party shall transfer any of the other Party's Knowhow
(including without limitation, any Factors or genetic materials encoding
therefor provided by such other Party or any proprietary information of such
other Party under Section 9.01) to any third party without the express prior
consent of the Party which provided such Knowhow, provided either Party may make
such disclosures as are required by law or a court order (but before any such
required disclosure it shall notify the other Party) or as are required as part
of regulatory submissions or as required in sublicensing (provided that in cases
of sublicensing, the entity receiving such Knowhow agrees to confidentiality and
nonuse provisions at least as restrictive as those in this Article IX).


                                    ARTICLE X

                              TERM AND TERMINATION

         10.01 TERM. The term of this Agreement shall commence as of the
Effective



                                       39
<PAGE>   40
Date set forth above. Unless sooner terminated pursuant to Sections 10.02,
10.03, 10.05 or 10.06, the term of this Agreement, the licenses granted in
Sections 5.01 and 5.02 and Genentech's obligations with respect to Net Profits
and royalties under Sections 8.02 and 8.03 shall expire on a [ * ] years from
the date of First Commercial Introduction in that country. Subject to the other
terms of this Agreement (including this Section 10.01), upon expiration of this
Agreement on such country-by-country and Licensed Product-by-Licensed Product
basis, Genentech shall have a perpetual, fully paid up, non-exclusive right and
license under the CTI Knowhow and CTI Patent Rights, and any improvements
thereto solely or jointly owned by CTI under Section 7.01, to develop, make,
have made, use and sell such Licensed Products in such country in the Territory,
and a perpetual, fully paid up, exclusive right and license in such country in
the Territory to improvements to the Genentech Knowhow or Genentech Patent
Rights solely developed or invented and solely owned by CTI under Section 7.01.
Subject to the other terms of this Agreement, upon expiration of this Agreement
CTI shall have a perpetual, fully paid-up, exclusive right and license in such
country in the Territory to improvements to the CTI Knowhow or CTI Patent Rights
solely developed or invented and solely owned by Genentech under Section 7.01.
No later than [ * ] prior to the expiration of the term of the licenses
granted hereunder, the Parties shall discuss the status of their relationship
and shall agree, if Licensed Product is still being marketed hereunder anywhere
in the world solely by Genentech or its sublicensee(s), either to extend the
Supply Agreements or to transfer manufacturing technology and all necessary
licenses to Genentech. Any such extended Supply Agreement(s) shall provide for a
supply price of [ * ] of (i) Fully Burdened Manufacturing Cost plus [ * ] or
(ii) the cap on Fully Burdened Manufacturing Cost agreed upon pursuant to
Section 4.06. If no agreement is reached on supply prior to two years before
such expiration, CTI shall transfer all necessary manufacturing technology in
CTI's possession or control and grant all necessary licenses under the CTI
Patents and CTI Knowhow (including any improvements hereunder) to Genentech
(with right to sublicense) for the nonexclusive rights to make, have made, use
and sell Licensed Product then under sale in the Field of Use in the Territory
(but for no other purpose) and CTI shall permit Genentech and its sublicensees
to reference or otherwise get the benefit of any necessary regulatory filings
necessary to permit such manufacture and sale of Licensed Product. All such
licenses shall be fully paid up (subject to the cost reimbursement provided
below). In the event of a transfer of such technology and granting all necessary
licenses to


* Confidential Treatment Requested

                                       40
<PAGE>   41
Genentech upon the expiration of this Agreement, Genentech shall reimburse CTI
for all reasonable costs incurred by it as part of such transfer, and Genentech
shall be responsible for the payment of all royalties and other amounts
contractually required to be paid by CTI to third parties on account of such
manufacture, use or sale by Genentech or its sublicensees.

         10.02 BREACH. Failure by either Party to comply with any of its
material obligations contained in this Agreement shall entitle the other Party
to give to the Party in default notice specifying the nature of the default and
requiring it to make good such default. If such default is not cured within 60
days after the receipt of such notice, the notifying Party shall be entitled,
without prejudice to any of its other rights conferred on it by this Agreement,
in addition to any other remedies available to it by law or in equity, to
terminate this Agreement unless the defaulting Party shall cure such default
within said 60 days. The right of either Party to terminate this Agreement, as
hereinabove provided, shall not be affected in any way by its waiver of failure
to take action with respect to any previous default.

         10.03 INSOLVENCY OR BANKRUPTCY. Either Party may, in addition to any
other remedies available to it by law or in equity, terminate this Agreement by
written notice to the other Party in the event the other Party shall have become
insolvent or bankrupt, or shall have made an assignment for the benefit of its
creditors, or there shall have been appointed a trustee or receiver of the other
Party or for all or a substantial part of its property, or any case or
proceeding shall have been commenced or some other action taken by or against
the other Party in bankruptcy or seeking reorganization, liquidation,
dissolution, winding-up, arrangement, composition or readjustment of its debts
or any other relief under any bankruptcy, insolvency, reorganization or other
similar act or law of any jurisdiction now or hereafter in effect or there shall
have been issued a warrant of attachment, execution, distraint or similar
process against any substantial part of the property of the other Party, and any
such event shall have continued for 60 days undismissed, unbounded and
undischarged; provided, however, that no such right to terminate shall pertain
solely by virtue of a voluntary reorganization for the purpose of solvent
amalgamation or reconstruction.

         10.04 TRANSFER OF TECHNOLOGY. (a) Upon termination of this Agreement
due to Genentech's fundamental breach (including, without limitation, a failure
to pay CTI Net Profits or royalties on Net Sales owed hereunder) or bankruptcy,
the licenses





                                       41
<PAGE>   42
granted in Article V to Genentech shall terminate, and, Genentech shall grant to
CTI a Territory-wide, exclusive license to develop, make, have made, use and
sell Licensed Product in the Field of Use in the Territory (but for no other
purpose) under the Genentech Patents and Knowhow solely or jointly owned by
Genentech with CTI hereunder (including any improvements hereunder) with the
right to sublicense and the right to reference or otherwise get the benefit of
any necessary regulatory filings of Genentech or its sublicensees, and, upon the
request of CTI, Genentech shall transfer to CTI any technology in its possession
or control under the scope of such license and necessary for CTI to develop,
make, have made, use or sell Licensed Product in the Field of Use in the
Territory (but for no other purpose). CTI shall pay Genentech royalties in the
amount of [ * ] of Net Sales of Licensed Product by CTI and its sublicensees
and shall be responsible for all of Genentech's obligations hereunder. In
addition to the royalties to be paid to Genentech, CTI shall be responsible for
reimbursing Genentech for the payment of all royalties and other amounts
contractually required to be paid by Genentech to third parties on account of
such manufacture, sale or use of Licensed Product by CTI or its sublicensees.

         (b) Upon termination of this Agreement due to CTI's fundamental breach
(e.g., failure to supply Licensed Product as provided herein or in the Supply
Agreement(s)) or bankruptcy, the licenses granted to CTI in Article V shall
terminate, and, CTI shall grant to Genentech a Territory-wide, exclusive license
to develop, make, have made, use and sell Licensed Product in the Field of Use
in the Territory (but for no other purpose) under the CTI Patents and Knowhow,
solely or jointly owned hereunder by CTI with Genentech (including any
improvements hereunder) with the right to sublicense and the right to reference
or otherwise get the benefit of any necessary regulatory filings of CTI or its
sublicensees, and upon the request of Genentech, CTI shall transfer to Genentech
any technology in its possession or control under the scope of such license and
necessary for Genentech to develop, make, have made, use and sell Licensed
Product in the Field of Use in the Territory (but for no other purpose).
Genentech shall pay CTI royalties in the amount of [ * ] of Net Sales of
Licensed Product in the Field of Use in the Territory by Genentech and its
sublicensees and shall be responsible for all of CTI's obligations hereunder. In
addition to the royalties to be paid to CTI, Genentech shall be responsible for
reimbursing CTI for payment of all royalties and other amounts contractually
required to be paid by CTI to third parties on account of such manufacture, sale
or use of Licensed Product by Genentech or its sublicensees, but Genentech shall
be entitled to


* Confidential Treatment Requested

                                       42
<PAGE>   43
offset against such royalty and other payments to CTI all of Genentech's
out-of-pocket costs and expenses incurred in constructing facilities to
manufacture Licensed Product in the Territory and obtaining approval of an
establishment license application or equivalent regulatory approval of such
manufacturing facilities. Genentech's right to offset its out-of-pocket costs of
construction and approval shall be limited to those expenses reasonably incurred
related to constructing a facility similar to the plant being used by CTI to
produce Licensed Product hereunder. CTI shall have the option, in lieu of the
foregoing offsets, of transferring to Genentech the ownership and/or control of
the plant (with all liabilities incurred in connection with the construction,
validation and approval of such plant) it is using at the time to supply
Licensed Product hereunder. Genentech may reasonably refuse to accept such
transfer, in which case Genentech's right to offset shall continue. Genentech
may request that CTI transfer its technology to a third party solely for the
manufacture of Licensed Product. CTI may reasonably withhold its consent to a
transfer to a particular third party, but may not reject all possible reasonable
third party candidates for such a transfer put forth by Genentech. During the
period of such a transfer, CTI shall treat Genentech as its first priority
customer for supply of Licensed Product. The Parties agree that the technology
transfer will involve the need for CTI employees to train Genentech or its third
party designee's employees. CTI will pay the salaries of its employees doing
such training but will not be responsible for the payment of the salaries of
Genentech or third party employees receiving training. Genentech will be
responsible for all other obligations of CTI under this Agreement.

         10.05 MUTUAL AGREEMENT. The Parties may terminate any development
program or this Agreement by mutual agreement at any time.

         10.06 SPECIAL TERMINATION RIGHTS.

         (a) If Genentech elects not to continue the Development Program or the
Clinical Development Program pursuant to Section 4.05 and the Parties do not
agree to a new program hereunder within ninety (90) days, either Party may
terminate this Agreement on ninety (90) days written notice to the other Party.

         (b)(i) With respect to any Licensed Product, CTI may provide Genentech
with a written notice at any time within thirty (30) days of Genentech's
election under Section 4.05(b) to proceed with the Phase II Clinical Trial, of
CTI's election not to proceed



                                       43
<PAGE>   44
further with the Clinical Development Program for such Licensed Product. After
such notice, CTI shall have no further obligation to develop such Licensed
Product or fund any costs hereunder for such Licensed Product, except as
provided herein. Genentech shall have the option for a period of one hundred
twenty (120) days after CTI's notice, [ * ] CTI shall continue to develop such
Licensed [ * ] (and approval of the costs to be incurred) and the terms and
conditions of this Agreement (including CTI's obligation to manufacture and
supply, and Genentech's obligation to purchase, Licensed Product hereunder)
shall remain in full force and effect, except that in lieu of the sharing of Net
Profits on Net Sales of Licensed Products in the United States under Section
8.02 and the royalty on Net Sales of Licensed Products in the Territory outside
the United States under Section 8.03, CTI shall be entitled to a royalty of only
[ * ] of Net Sales of such Licensed Products by Genentech and its permitted
sublicensees in the Territory, and its Fully Burdened Manufacturing Cost for
such Licensed Product, if supplied by CTI hereunder. CTI shall be obligated to
repay the full amount of the loan outstanding at a date to be agreed upon but in
any event no later than [ * ] from each [ * ] to CTI thereunder. At CTI's
election, such [ * ] shall be in cash and/or stock (pursuant to an agreement in
the form of the Stock Purchase Agreement) valued at the 20 Day Average.

         (ii) With respect to any Licensed Product, CTI may provide Genentech
with a written notice at any time within thirty (30) days of Genentech's
election under Section 4.05(c) to proceed with any Phase III Clinical Trial, of
CTI's election not to proceed further with the Clinical Development Program for
such Licensed Product. After such notice, CTI shall have no further obligation
to develop such Licensed Product or fund any costs hereunder for such Licensed
Product, except as provided herein. Genentech shall have the option for a period
of one hundred twenty (120) days after CTI's notice, to [ * ]. If Genentech
elects to make such loan, CTI shall continue to develop such Licensed [ * ]
(and approval of the costs to be incurred) and the terms and conditions of this
Agreement (including CTI's obligation to manufacture and supply, and Genentech's
obligation to purchase, such Licensed Product hereunder) shall remain in full
force and effect, except that in lieu of the sharing of Net Profits on


* Confidential Treatment Requested

                                       44
<PAGE>   45
Net Sales of Licensed Products in the United States under Section 8.02 and the
royalty on Net Sales of Licensed Products in the Territory outside the United
States under Section 8.03, CTI shall be entitled to a royalty of only [ * ]
of Net Sales of Licensed Products by Genentech and its sublicensees in the
United States, a royalty of only [ * ] of Net Sales of Licensed Products by
Genentech and its sublicensees in the Territory outside the United States, and
its Fully Burdened Manufacturing Cost for such Licensed Product, if supplied by
CTI hereunder. CTI shall be obligated to [ * ] at a date to be agreed upon but
in any event no later than five (5) years from each transfer of funds to CTI
thereunder. At CTI's election, such [ * ] shall be in cash and/or stock
(pursuant to an agreement in the form of the Stock Purchase Agreement) valued at
the 20 Day Average.

         10.07  EFFECT OF TERMINATION.

         (a) Equity Purchases/Line of Credit. If this Agreement is terminated,
(i) any equity purchase previously made by Genentech pursuant to Section 8.01
shall not be affected (subject to Sections 4.07(a) and (b) regarding
overfunding), (ii) if such termination is not a result of Genentech's uncured
default, CTI shall within one hundred eighty (180) days repay in full (in stock
at a price equal to the 20 Day Average and/or in cash, at CTI's election) any
outstanding loan balance (principal and interest) under the line of credit
referred to in Section 4.07(d), and (iii) if such termination is a result of
Genentech's uncurled default, CTI shall within one hundred eighty (180) days
repay (in stock at a price equal to the 20 Day Average and/or in cash, at CTI's
election) in [ * ] under the line of credit referred to in Section 4.07(d).

         (b) Materials/Knowhow. Except as otherwise provided herein, upon
termination of this Agreement, each Party shall destroy (and provide a
certificate of destruction) or return to the other Party, all Knowhow provided
by the other Party including all biological materials and proprietary
information provided by the other Party.

         (c) Improvements. On any termination of this Agreement, Genentech shall
have a perpetual, fully paid up, exclusive right and license in the Territory to
improvements to the Genentech Knowhow or Genentech Patent Rights solely
developed or invented and solely owned by CTI under Section 7.01, and CTI shall
have a perpetual, fully


* Confidential Treatment Requested

                                       45
<PAGE>   46
paid up, exclusive right and license in the Territory to improvements to the CTI
Knowhow or CTI Patent Rights solely developed or invented and solely owned by
Genentech under Section 7.01, and each Party shall promptly transfer any such
improvements that are in its possession or control to the other Party.

         (d) Sublicenses. If this Agreement is terminated by one Party upon the
breach of the other Party (the "Breaching Party"), all permitted sublicenses
shall continue in force, provided that in the case of the Breaching Party's
sublicensees, such sublicensee(s) cure the breach of the Breaching Party and
agree to be responsible for the obligations of the Breaching Party.

         (e) Access to Regulatory Documents. Except as otherwise provided
herein, upon termination of this Agreement neither Party shall have any right to
cross-reference or otherwise obtain the benefit of any regulatory filings made
by the other Party.

         10.08 SURVIVAL OF CERTAIN PROVISIONS. The provisions of Article VIII
(to the extent any payment obligations have accrued prior to termination), IX
and XI and Sections 10.04, 10.07 and 10.09 shall survive any termination or
expiration of this Agreement.

         10.09 ACCRUED RIGHTS, SURVIVING OBLIGATIONS. Termination,
relinquishment or expiration of this Agreement for any reason shall be without
prejudice to any rights which shall have accrued to the benefit of either Party
prior to such termination, or expiration. Such termination, relinquishment or
expiration shall not relieve either Party from obligations which are expressly
indicated to survive termination or expiration of this Agreement.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

         11.01 NO PARTNERSHIP. Nothing in this Agreement is intended or shall be
deemed to constitute a partnership, agency, employer, employee or joint venture
relationship between the Parties. No Party shall incur any debts or make any



                                       46
<PAGE>   47
commitments for the other.

         11.02 ASSIGNMENTS. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder shall be assignable by any Party or by
operation of law or otherwise without the prior written consent of the other;
provided, however, that either Party may assign its rights and delegate its
obligations under this Agreement, without the consent of the other Party, to any
direct or indirect wholly-owned subsidiary or to any successor by merger or sale
of substantially all of its assets to which this Agreement relates (e.g., one or
more Factors) in a manner such that the assignor shall remain liable and
responsible for the performance and observance of all its duties and obligations
hereunder, or if the assignor disappears because of such transaction, the
assignee must agree to abide by the terms and conditions of this Agreement. This
Agreement shall be binding upon the successors and permitted assigns of the
Parties and the name of a Party appearing herein shall be deemed to include the
names of such Party's successor's and permitted assigns to the extent necessary
to carry out the intent of this Agreement. Any assignment not in accordance with
this Section 11.02 shall be void.

         11.03 REPRESENTATIONS AND WARRANTIES. Each Party warrants and
represents to the other Party that, to the best of the representing and
warranting Party's knowledge: (i) it is free to enter into this Agreement; (ii)
so doing will not violate any other agreement to which it is party; and (iii) it
currently has the right to grant the licenses granted hereunder. Neither Party
makes any representation or warranty that any patent applications licensed
hereunder will issue as patents or that any patent licensed hereunder is valid
or enforceable or that the exercise of the licenses granted hereunder will not
infringe the rights of any third party.

         11.04. FORCE MAJEURE. Neither Party shall be liable to the other for
loss or damages or shall have any right to terminate this Agreement for any
default or delay (including, without limitation, an inability to supply Licensed
Product) attributable to any act of God, earthquake, flood, fire, explosion,
strike, lockout, labor dispute, casualty or accident, war, revolution, civil
commotion, act of public enemies, blockage or embargo, injunction, law, order,
proclamation, regulation, ordinance, demand or requirement of any government or
subdivision, authority (including, without limitation, drug regulatory
authorities) or representative of any such government, or any other cause beyond
the reasonable control of such Party, if the Party affected shall give



                                       47
<PAGE>   48
prompt notice of any such cause to the other Parties. The Party given such
notice shall thereupon be excused from such of its obligations hereunder as it
is so disabled and for 30 days thereafter. Notwithstanding the foregoing,
nothing in this Section 11.04 shall excuse or suspend the obligation to make any
payment due hereunder in the manner and at the time provided.

         11.05 NO TRADEMARK RIGHTS. No right, express or implied, is granted by
this Agreement to use in any manner any trade name or trademark of CTI or
Genentech in connection with the performance of this Agreement or the
exploitation of any license granted hereunder.

         11.06 PUBLIC ANNOUNCEMENTS. The Parties shall consult and obtain mutual
consent before making any public announcement concerning this Agreement or the
subject matter hereof, except as required by law or applicable rules or
regulations. Copies of press releases or similar written communications
containing a Party's name shall be provided to that Party prior to release.

         11.07 ENTIRE AGREEMENT OF THE PARTIES; AMENDMENT. This Agreement, the
Neurturin MTA, and the Stock Purchase Agreement(s) to be entered into as
provided herein constitute and contain the entire understanding and agreement of
the Parties with respect to the subject matter hereof and cancel and supersede
any and all prior negotiations, correspondence, understandings and agreements,
whether verbal or written, between the Parties respecting the subject matter
hereof, including the NGF Agreement except for those sections of the NGF
Agreement which are intended to survive expiration or termination, all of which
remain in full force and effect. No waiver, modification or amendment of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each of the Parties.

         11.08 SEVERABILITY. In the event any one or more of the provisions of
this Agreement should for any reason be held by any court or authority having
jurisdiction over this Agreement or either of the Parties to be invalid, illegal
or unenforceable, such provision or provisions shall be validly reformed by
addition or deletion of wording as appropriate to avoid such result and as
nearly as possible approximate the intent of the Parties and, if unreformable,
shall be divisible and deleted in such jurisdiction; elsewhere, this Agreement
shall not be affected.



                                       48
<PAGE>   49
         11.09 CAPTIONS. The captions to this Agreement are for convenience
only, and are to be of no force or effect in construing or interpreting any of
the provisions of this Agreement.

         11.10 NOTICE AND DELIVERY. Any notice, requests, delivery, approval or
consent required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been sufficiently given if delivered in
person, transmitted by telegraph or telecopier (with confirmed answer-back) or
sent by registered air mail letter to the Party (which notice shall be
considered effective five days after it is sent) to whom it is directed at its
address shown below or such other address as such party shall have last given by
notice to the other Party.

IF TO CTI, ADDRESSED TO:

CytoTherapeutics, Inc.
Two Richmond Square
Providence, RI 02906
Attention: President
Telephone: (401 ) 272-3310
Telecopier: (401 ) 272-3485
with a copy addressed to the General Counsel

IF TO GENENTECH, ADDRESSED TO:

Genentech, Inc.
460 Point San Bruno Boulevard
South San Francisco, CA 94080
Attention: Corporate Secretary
Telephone: (415) 225-1000
Telecopier: (415) 952-9881

         11.11 LIMITATION OF LIABILITY. Neither Party shall be liable to the
other for indirect, incidental or consequential damages arising out of any of
the terms or conditions of this Agreement or with respect to their performance
or lack thereof.




                                       49
<PAGE>   50
         11.12 GENENTECH INDEMNIFICATION. Genentech shall indemnify, defend and
hold harmless CTI and its officers, directors, Affiliates, employees and agents
from and against all third party costs, claims, suits, expenses (including
reasonable attorneys' fees) and damages arising out of or resulting from any
willful or negligent act or omission by Genentech related to the subject matter
of this Agreement or the use by or administration to any person of any Licensed
Product that arises out of sales of Licensed Product by Genentech (except where
such cost, claim, suit, expense or damage arose or resulted from any negligent
act or omission by CTI or its sublicensees or from any defect in the manufacture
of Licensed Product by CTI or its sublicensees which was not discovered by
Genentech), provided that CTI gives reasonable notice to Genentech of any such
claim or action, tenders the defense of such claim or action to Genentech and
assists Genentech at Genentech's expense in defending such claim or action and
does not compromise or settle such claim or action without Genentech's prior
written consent.

         11.13 CTI INDEMNIFICATION. CTI shall indemnify, defend and hold
harmless Genentech and its officers, directors, Affiliates, employees and agents
from and against all third party costs, claims, suits, expenses (including
reasonable attorney's fees) and damages arising out of or resulting from any
willful or negligent act or omission by CTI relating to the subject matter of
this Agreement (except where such cost, claim, suit, expense or damage arose or
resulted from any negligent act or omission by Genentech or its sublicensees) or
from any defect in the manufacture of Licensed Product by CTI or its
sublicensees which was not discovered by Genentech, provided that Genentech
gives reasonable notice to CTI of any such claims or action, tenders the defense
of such claim or action to CTI and assists Genentech at Genentech's expense in
defending such claim or action and does not compromise or settle such claim or
action without Genentech's prior written consent.

         11.14 LIABILITY INSURANCE. Each Party shall maintain (i) prior to the
first clinical trial in humans of any Licensed Product conducted by or on behalf
of a Party comprehensive general and products liability and completed operations
insurance with at least a Best-rated A-XIV insurance company covering that
Party's activities related to this Agreement in an amount of not less than
$3,000,000 per occurrence and annual aggregate and (ii) during the remaining
term of this Agreement either (1) net worth of no less than $100,000,000 or (2)
comprehensive general and products


                                       50
<PAGE>   51
liability and completed operations insurance covering that Party's activities
related to this Agreement in an amount of not less than $3,000,000 per
occurrence and annual aggregate. Upon request, each Party shall provide to the
other satisfactory evidence of that Party's compliance with this provision. The
obligations under this Section 11.14 shall terminate upon the expiration of the
statute of limitations applicable to any liability covered by the
above-referenced insurance.

         11.15 NO AGENCY. Nothing herein shall be deemed to constitute either
Party as the agent or representative of the other Party, or both Parties as
joint venturers or partners for any purpose. Each Party shall be an independent
contractor, not an employee or partner of the other. Neither Party shall be
responsible for the acts or omissions of the other Party, and neither Party will
have authority to speak for, represent or obligate the other Party in any way
without prior written authority from the other Party.

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

         11.17 JOINT DRAFTING. This Agreement was jointly drafted and prepared
by both Parties hereto and no presumption in favor of or against either Party
hereto shall be deemed to exist with respect to the interpretation of any
provision to this Agreement.

         11.18 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California as applied to contracts
entered into and wholly performed within the State of California by California
residents.

         11.19 MEDIATION. The Parties agree that the prompt resolution of
disputes that may arise hereunder is of critical importance. In the case of a
dispute hereunder which the Parties fail to resolve, including, if applicable,
after referral to a "member of senior management" pursuant to Sections 2.03 or
8.08, either side may demand mediation by written notice to the other. Within 10
business days of the giving of such notice, the Parties shall agree on an
unaffiliated mediator, failing agreement within such 10 days, the Party
requesting mediation shall select the mediator from a list of mediators provided
by both Parties. Within 30 days of the choice of the mediator, each Party shall



                                       51
<PAGE>   52
submit to the other and the mediator, a brief of 20 pages or less outlining its
position. Within five business days of the exchange of briefs, the mediation
shall be held at a time and place to be selected by the Party that did not
request the mediation. In no event shall the duration of the mediation be
greater than one day unless otherwise agreed by the Parties. Each Party shall
bear all of its own expenses incurred in connection with the mediation and the
Parties shall share equally the fees and expenses of the mediator.

         11.20 ARBITRATION. In the event that the parties are unable to resolve
a dispute within 30 days after the commencement of mediation efforts under
Section 11.19, either Party may submit the matter to nonbinding arbitration in
accordance with the procedures set forth in this Section 11.20. If a party
intends to commence arbitration to resolve a dispute, such Party shall provide
written notice to the other Party of such intention, and shall designate one
arbitrator. Within 10 days of receipt of such notice, the other Party shall
designate in writing a second arbitrator. The two arbitrators so designated
shall, within 10 days thereafter, designate a third arbitrator. The arbitrators
so designated shall not be employees, consultants, officers, directors or
shareholders of or otherwise associated with either Party or an Affiliate of
either Party. The arbitration shall be conducted in accordance with the rules
of, and under the auspices of, the International Chamber of Commerce and the
location of the arbitration shall be a location in the United States selected by
the Party that did not submit the matter to arbitration hereunder. Any such
procedure shall be conducted as a "baseball" arbitration.

         Within 15 days after the designation of the third arbitrator, the
arbitrators and the Parties shall meet at which time each Party shall be
required to set forth in writing the issues which need to be resolved and a
proposed ruling on each such issue.

         The arbitrators shall set a date for a hearing, which shall be no later
than 30 days after the submission of written proposals from each Party, to
discuss each of the issues identified by the Parties. Each Party shall have the
right to be represented by counsel. The arbitrators shall have sole discretion
with regard to the admissibility of any evidence.

         The arbitrators shall use their best efforts to rule on each disputed
issue within 30 days after the completion of the hearings described above. The
arbitrators' ruling



                                       52
<PAGE>   53
shall be, in the absence of fraud or manifest error, binding and conclusive upon
both Parties and may be enforced in a court of competent jurisdiction. The
arbitrators may not award punitive or exemplary damages.

         The arbitrators shall be paid a reasonable fee plus expenses, which
fees and expenses shall be paid as designated by the arbitrators or if the
arbitrators do not so designate such costs shall be shared equally by the
Parties.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by
their respective duly authorized officers as of the day and year set forth
below, each



                                       53
<PAGE>   54
copy of which shall for all purposes be deemed to be an original.

GENENTECH, INC.                       CYTOTHERAPEUTICS, INC.

By: /s/ Illegible Signature           By: /s/ Illegible Signature
    -----------------------               -----------------------
Title: Executive V.P.                 Title: CEO

Date: 11/21/96                        Date: 11/26/96


                                       54
<PAGE>   55
                                    EXHIBIT A
                            CYTOTHERAPEUTICS PATENTS
                            ------------------------

1.       United States Patent No. 4,892,538, entitled "In Vivo Delivery of
         Neurotransmitters by Implanted, Encapsulated Cells", issued January 9,
         1990;
         counterparts issued in Australia, Canada, EPO, Norway;
         other foreign counterparts pending.

2.       United States Patent No. 5,106,627, entitled "Neurological Therapy
         System", issued November 14, 1990;
         United States Patent No. 5,156,844, entitled "Neurological Therapy
         System", issued February 26, 1992;
         counterparts issued in Australia, EPO;
         other foreign counterparts pending.

3.       United States Patent No. 5,487,739, entitled "Implantable Therapy
         Systems and Methods", issued January 30, 1996;
         counterparts issued in Australia, allowed in EPO;
         other foreign counterparts pending.

4.       United States Patent No. 5,158,881, entitled "Cell Capsule Extrusion
         System", issued October 27, 1992;
         United States Patent No. 5,284,761, entitled "Cell Capsule Extrusion
         System", issued February 8, 1994;
         United States Patent No. 5,389,535, entitled "Cell Capsule Extrusion
         System", issued February 14, 1995;
         United States Patent No. 5,283,187, entitled "Cell Capsule Extrusion
         System", issued February 1, 1994;
         counterpart issued in EPO;
         other foreign counterparts pending.

5.       United States Patent No. 5,182,111, entitled "In Vivo Delivery of
         Active Factor By Co-Cultured Cell Implants", issued January 26, 1993;
         counterpart issued in Australia, Canada, allowed in EPO;
         other foreign counterparts pending.

6.       [ * ]

7.       United States Patent No. 5,011,472, entitled "Implantable Delivery
         System for Biological Factors", issued April 30, 1991;

8.       [ * ]

9.       [ * ]

10.      United States Serial No. 08/463.658 entitled "Apparatus and Method for
         Storage and Transportation of Bioartificial Organs", pending.


* Confidential Treatment Requested

<PAGE>   56





                                    EXHIBIT B

                   CYTOTHERAPEUTICS' ENCAPSULATION TECHNOLOGY





<PAGE>   57



                                  CONFIDENTIAL
                                  ------------


                                    EXHIBIT B

                                CYTOTHERAPEUTICS'

                            ENCAPSULATION TECHNOLOGY



This exhibit summarizes the various technology components which have been, or
may in the future be, integrated by CTI in order to provide encapsulated
implants containing living cells for the synthesis and release of therapeutic
products. Generally speaking, CTI creates encapsulated cells containing implants
using a number of techniques and technologies, including the following; each
kind of implant will use various of the following depending on the cell type,
the implant location and the proteins to be released:

     -   BIOMATERIALS - Creation, selection, characterization, purification, and
         validation of implant materials (including without limitation, PAN/PVC,
         PES, polyurethanes, and mesh materials (with and without hydrogels))
         formulation and fabrication and, where necessary, surface modification
         of (E.G., with PEO, PVA, etc.), molecularly-separative membranes (E.G.,
         with appropriate transport properties and sufficient biocompatibility
         for successful encapsulation); selection, treatment, and/or synthesis
         of an intracapsular matrix material suitable to provide physical and
         biochemical support to encapsulated cells; development of [ * ]
         materials beneficial to the encapsulated cells or the host response;
         provision of safe and effective components and materials-of-manufacture
         for the implant, including tether, sealing agents, imaging agents, and
         the like.

     -   CELL BIOLOGY - Procurement, development, and selection of cells capable
         of sustained intracapsular viability and product release including
         without limitation, with primary and genetically modified cells
         techniques for conditioning cells prior to encapsulation; establishment
         and testing of cell banks or cell pools which meet relevant points to
         consider and other regulatory requirements; isolation and subsequent
         manipulation of stem cells, other progenitor cells, and cells derived
         from stem and progenitor cells; methods for controlling the division
         rate of cells within capsules; selection of parent cell lines suitable
         for gene-insertion and subsequent encapsulation; combinations of cells
         for multiple product release or for other purposes; and methods for
         analysis of immune consequences of protein release from encapsulated
         cells.

     -   MOLECULAR BIOLOGY - Engineering of cells capable of stable release of
         polypeptides in sufficient quantity for therapeutic effect; gene
         transfer techniques appropriate for transplantable cells; introduction
         of genetic material which regulates cell growth kinetics or metabolism
         or sensitivity to killing agents or, more generically, introduction of
         genetic materials to modulate the up-regulation and/or the
         down-regulation of target genes.

     -   TRANSGENICS - Creation by transgenic approaches of cells or cell lines





* Confidential Treatment Requested

<PAGE>   58



     suitable for encapsulation which contain foreign genes or a collection of
     foreign genes.


     -   DEVICE DESIGN - Establishment and validation of implant and implant
         fabrication parameters such as cell seeding density, intracapsular
         media, pH, and the like; preparation and validation of the mechanical
         design of the implant and its accessories; packaging, external media,
         and the like; development of insertion methods and techniques;
         development of strengthened implants; sterility assurance.

     -   MANUFACTURING - Establishment and documentation of GMP level procedures
         for procuring materials, fabricating membranes and subassemblies,
         encapsulating, filling, testing, holding, releasing, packaging, and
         shipping implants.


Both immunoisolation and viability are relative terms; their requirements will
vary with implant site, host-donor combination, and therapeutic intent and the
particular forms of encapsulation and related technologies to be used will be
chosen based on these requirements.

Further examples of some of the techniques used by CTI can be seen in the
articles cited below.

Encapsulation Technology includes any proprietary knowhow relating to the
foregoing including the use of individual elements of the above in combination
and inventions and technology covered by CTI Patents.





<PAGE>   59



Zurn, A.D., E.E. Baetge, J.P. Hammang, S.A. Tan and P. Aebischer (1994) Glial
cell line-derived neurotrophic factor (GDNF), a new neurotrophic factor for
motoneurones. NeuroReport 6, 113-118

Scharp, David W., C.J. Swanson, B.J. Olack, P.P. Latta, O.D. Hegre, E.J.
Doherty, F.T. Gentile, K.S. Flavin, M.F. Ansara, and P.E. Lacey (1994)
Protection of Encapsulated Human Islets Implanted Without Immunosuppression in
Patients With Type I or Type II Diabetes and in Nondiabetic Control Subjects.
Diabetes, Vol. 43

Kordower, J.H., S.R. Winn, Y.-T. Liu, E.J. Mufson, J.R. Sladek, Jr., J.P.
Hammang, E.E. Baetge, and D.F. Emerich (1994) The aged monkey basal forebrain:
Rescue and sprouting of axotomized basal forebrain neurons after grafts of
encapsulated cells secreting human nerve growth factor. Proc. Natl. Acad. Sci.
USA, Vol. 91, pp. 1098-1902

Shoichet, M.S., S.R. Winn, S. Athavale, J.M. Harris, and F.T. Gentile (1994)
Poly (ethylene oxide) - Grafted Thermoplastic Membranes for Use as Cellular
Hybrid Bio-Artificial Organs in the Central Nervous System. Biotechnology and
Bioengineering, Vol. 43, Pp. 563-572

Winn, S.R., J.P. Hammang, D.F. Emerich, A. Lee, R.D. Palmiter, and E.E. Baetge
(1994) Polymer-encapsulated cells genetically modified to secrete human nerve
growth factor promote the survival of axotomized septal cholinergic neurons.
Proc. Natl. Acad. Sci. USA, Vol 91, pp. 2324

Joseph, J.M., M.B. Goddard, J. Mills, V. Padrun, A. Zurn, B. Zielinski, J.
Favre, J.P. Gardaz, F. Mosimann, J. Sagen, L. Christenson, and P. Aebischer
(1994) Transplantation of Encapsulated Bovine Chromaffin Cells in the Sheep
Subarchnoid Space a Preclinical Study for the Treatment of Cancer Pain. Cell
Transplantation, Vol. 3, No. 5, pp. 355-364

Aebischer, P., M. Goddard, A.P. Signore, and R.L. Timpson (1994) Functional
Recovery in Hemiparkinsonian Primates Transplanted with Polymer-Encapsulated
PC12 Cells. Experimental Neurology 126, 151-158

Diane Hoffman, X.O. Breadefield, M.P. Short, and P. Aebischer (1993)
Transplantation of Polymer-Encapsulated Cell Line Genetically Engineered to
Release NGF. Experimental Neurology 122, 100-106

Dwaine F. Emerich, B.R. Frydel, T.R. Flanagan, M. Palmatier, S.R. Winn, and L.
Christenson (1993) Transplantation of Polymer Encapsulated PC12 Cells: Use of
Chitosan as an Immobilization Matrix. Cell Transplantation, Vol. 2, pp. 241-249

Dwaine F. Emerich, M.D. Linder, S.R. Winn, E.-Y. Chen, B.R. Frydel, and J.H.
Kordower (1996) Implants of Encapsulated Human CNTF-Producing Fibroblasts
Prevent Behavioral Deficits and Striated Degeneration in a Rodent Model
Huntington's Disease. The Journal of Neuroscience, 16(16):5168-5181




<PAGE>   60



Shelley R. Winn, M.D. Linder, A. Lee, G. Haggett, J.M. Francis, and D.F. Emerich
(1996) Polymer-Encapsulated Genetically Modified Cells Continue to Secrete Human
Nerve Growth Factor for over One Year in Rat Ventricles: Behavioral and
Anatomical Consequences. Experimental Neurology 140, 126-138

Faith A. Kaplan, P.M. Krueger, J. Harvey, and M.B. Goddard (1996) Peripheral
Xenogenic Immunological Response to Encapsulated Bovine Adrenal Chromaffin Cells
Implanted Within the Sheep Lumbar Intrathecal Space. Transplantation, Vol. 61,
1215-1221, No. 8

Mark D. Linder, C.E. Kearns, S.R. Winn, B. Frydel, and D.F. Emerich (1996)
Effects of Intraventricular Encapsulated hNGF-Secreting Fibroblasts in Aged
Rats. Cell Transplantation, Vol. 5, No. 2, 205-223

Frank T. Gentile, E.J. Doherty, D.H. Rein, M.S. Shoichet, S.R. Winn (1995)
Polymer science for macroencapsulation of cells for central nervous system
transplantation. Reactive Polymers 25, 207-227

Jeffrey H. Kordower, Y.-T. Liu, S. Winn, and D.F. Emerich (1995) Encapsulated
PC12 CELL Transplants Into Hemiparkinsonian Monkeys: A Behavioral
Neuroanatomical, and Neurochemical Analysis. Cell Transplantation, Vol., 4, No.
2, pp. 155-171



<PAGE>   61





                                    EXHIBIT C

                              GENENTECH'S' PATENTS




<PAGE>   62





                                    EXHIBIT C
                                GENENTECH PATENTS


The Factor Based Patents claiming Neurturin.



<PAGE>   63





                                   EXHIBIT D-1

                                SEQUENCE FOR CT-1






<PAGE>   64



                                Sequence for CT-1


Met Ser Arg Arg Glu Gly Ser Leu Glu Asp Pro Gln Thr Asp Ser
Ser Val Ser Leu Leu Pro His Leu Glu Ala Lys Ile Arg Gln Thr
His Ser Leu Ala His Leu Leu Thr Lys Tyr Ala Glu Gln Leu Leu
Gln Glu Tyr Val Gln Leu Gln Gly Asp Pro Phe Gly Leu Pro Ser
Phe Ser Pro Pro Arg Leu Pro Val Ala Gly Leu Ser Ala Pro Ala
Pro Ser His Ala Gly Leu Pro Val His Glu Arg Leu Arg Leu Asp
Ala Ala Ala Leu Ala Ala Leu Pro Pro Leu Leu Asp Ala Val Cys
Arg Arg Gln Ala Glu Leu Asn Pro Arg Ala Pro Arg Leu Leu Arg
Arg Leu Glu Asp Ala Ala Arg Gln Ala Arg Ala Leu Gly Ala Ala
Val Glu Ala Leu Leu Ala Ala Leu Gly Ala Ala Asn Arg Gly Pro
Arg Ala Glu Pro Pro Ala Ala Thr Ala Ser Ala Ala Ser Ala Thr
Gly Val Phe Pro Ala Lys Val Leu Gly Leu Arg Val Cys Gly Leu
Tyr Arg Glu Trp Leu Ser Arg Thr Glu Gly Asp Leu Gly Gln Leu
Leu Pro Gly Gly Ser Ala



<PAGE>   65





                                   EXHIBIT D-2

                             SEQUENCE FOR NEURTURIN





<PAGE>   66



                             Sequence for Neurturin


Ala Arg Leu Gly Ala Arg Pro Cys Gly Leu Arg Glu Leu Glu Val
Arg Val Ser Glu Leu Gly Leu Gly Tyr Ala Ser Asp Glu Thr Val
Leu Phe Arg Tyr Cys Ala Gly Ala Cys Glu Ala Ala Ala Arg Val
Tyr Asp Leu Gly Leu Arg Arg Leu Arg Gln Arg Arg Arg Leu Arg
Arg Glu Arg Val Arg Ala Gln Pro Cys Cys Arg Pro Thr Ala Tyr
Glu Asp Glu Val Ser Phe Leu Asp Ala His Ser Arg Tyr His Thr
Val His Glu Leu Ser Ala Arg Glu Cys Ala Cys Val



<PAGE>   67





                                   EXHIBIT D-3

                               SEQUENCE FOR NT 4/5





<PAGE>   68



                               Sequence for NT-4/5


Gly Val Ser Glu Thr Ala Pro Ala Ser Arg
Arg Gly Glu Leu Ala Val Cys Asp Ala Val Ser Gly Trp Val Thr
Asp Arg Arg Thr Ala Val Asp Leu Arg Gly Arg Glu Val Glu Val
Leu Gly Glu Val Pro Ala Ala Gly Gly Ser Pro Leu Arg Gln Tyr
Phe Phe Glu Thr Arg Cys Lys Ala Asp Asn Ala Glu Glu Gly Gly
Pro Gly Ala Gly Gly Gly Gly Cys Arg Gly Val Asp Arg Arg His
Trp Val Ser Glu Cys Lys Ala Lys Gln Ser Tyr Val Arg Ala Leu
Thr Ala Asp Ala Gln Gly Arg Val Gly Trp Arg Trp Ile Arg Ile
Asp Thr Ala Cys Val Cys Thr Leu Leu Ser Arg Thr Gly Arg Ala



<PAGE>   69





                                   EXHIBIT D-4

                                SEQUENCE FOR NGF





<PAGE>   70



                                Sequence for NGF


ser ser ser his pro ile phe his arg gly glu phe ser val cys
asp ser val ser val trp val gly asp lys thr thr ala thr asp
ile lys gly lys glu val met val leu gly glu val asn ile asn
asn ser val phe lys gln tyr phe phe glu thr lys cys arg asp
pro asn pro val asp ser gly cys arg gly ile asp ser lys his
trp asn ser tyr cys thr thr thr his thr phe val lys ala leu
thr met asp gly lys gln ala ala trp arg phe ile arg ile asp
thr ala cys val cys val leu ser arg lys ala val arg



<PAGE>   71





                                   EXHIBIT D-5
                                   -----------

                                SEQUENCE FOR NT-3
                                -----------------





<PAGE>   72



                                Sequence for NT-3


Tyr Ala Glu His Lys Ser His Arg Gly Glu Tyr Ser Val Cys Asp
Ser Glu Ser Leu Trp Val Thr Asp Lys Ser Ser Ala Ile Asp Ile
Arg Gly His Gln Val Thr Val Leu Gly Glu Ile Lys Thr Gly Asn
Ser Pro Val Lys Gln Tyr Phe Tyr Glu Thr Arg Cys Lys Glu Ala
Arg Pro Val Lys Asn Gly Cys Arg Gly Ile Asp Asp Lys His Trp
Asn Ser Gln Cys Lys Thr Ser Gln Thr Tyr Val Arg Ala Leu Thr
Ser Glu Asn Asn Lys Leu Val Gly Trp Arg Trp Ile Arg Ile Asp
Thr Ser Cys Val Cys Ala Leu Ser Arg Lys Ile Gly Arg Thr



<PAGE>   73





                                    EXHIBIT E

                            STOCK PURCHASE AGREEMENT





<PAGE>   74



                                                                  EXECUTION COPY

                         COMMON STOCK PURCHASE AGREEMENT
                         -------------------------------

         This Common Stock Purchase Agreement (the "Agreement") is made and
entered into as of the ____ day of November 1996, by and between
CytoTherapeutics, Inc., a Delaware corporation ("CTI"), and Genentech, Inc., a
Delaware corporation ("Genentech").

                                     Recital
                                     -------

         The parties hereto are entering into to a Development Collaboration and
License Agreement relating to Parkinson's Disease of even date herewith (the
"Development Agreement"), pursuant to which the parties have agreed to
collaborate on the development and commercialization of products consisting of
certain encapsulated-neurotrophic-factor-producing cells for the treatment of
Parkinson's Disease. Pursuant to the terms of the Development Agreement, and
subject to the terms and conditions of this Agreement, Genentech has agreed to
purchase, and CTI has agreed to sell to Genentech, shares of CTI's Common Stock,
$.01 par value ("Common Stock").

                                    Agreement
                                    ---------

         In consideration of the mutual covenants and agreements hereinafter set
forth, the parties to this Agreement agree as follows:

1.       SALE AND PURCHASE OF COMMON STOCK. In reliance upon the representations
and warranties contained herein and subject to the terms and conditions hereof,
CTI agrees to sell and issue to Genentech, and Genentech agrees to purchase from
CTI, at one or more Closings as identified in the table below (each, a
"Closing"), for the aggregate Total Purchase Price (as referred to below) for
such Closing the aggregate number of shares of Common Stock (the "Shares") equal
to the Total Purchase Price for such Closing divided by the Per Share Purchase
Price (as referred to below) for such Closing rounded down to the nearest whole
number as referred to below:




           Purchase/
           Development                                                                 Per Share
Closing    Agr. Provision                     Event             Closing Date           Purchase Price         Total Purchase Price
-------    --------------              ------------------    -------------------       --------------         --------------------

                                                                                              
1.         Initial Equity Purchase     First public          30 days after the         110% of 20 Day         $8,300,000
           [sec. 8.01]*                announcement of       date hereof or on         Average
                                       the signing of the    such other date as
                                       Development           the parties may
                                       Agreement             agree.




<PAGE>   75




                                                                                        
2.         Additional Initial          Upon mutual           As determined       20 Day Average         To be determined based on
           Equity Purchase, if         agreement on          pursuant to the                            agreed upon additional
           agreed upon [secs. 4.07(a)  additional            Development                                projected expenses under
           and 8.01(a)]*               projected             Agreement                                  the Development
                                       expenses under                                                   Agreement.
                                       the Development                          
                                       Agreement                                

3.         Phase II Equity             Prior to start of     As determined       20 Day Average         To be determined pursuant
           Purchase [sec. 8.01(b)]*    the Clinical          pursuant to the                            to the Development
                                       Development           Development                                Agreement based on agreed
                                       Program               Agreement                                  upon Phase II Clinical
                                                                                                        Development.

4.         Additional Phase II         Upon mutual           As determined       20 Day Average         To be determined based on
           Equity Purchase, if         agreement on          pursuant to                                agreed upon additional
           agreed upon [secs. 4.07(b)  additional            Development                                projected expenses
           and 8.01(b)]*               projected             Agreement                                  exceeding original Phase II
                                       expenses                                                         Equity Purchase amount.
                                       exceeding Phase
                                       II Equity
                                       Purchase amount


     *References are to sections of the Development Agreement.

         Each Closing shall be held at the offices of CTI, Two Richmond Square,
     Providence, Rhode Island 02906 on the date, in the case of the first
     purchase, that is thirty (30) days after the date hereof, or on such other
     date as the parties may agree. Subsequent Closings shall occur at the times
     indicated above and in the Development Agreement. Payment for the Shares
     shall be by wire transfer to an account designated by CTI against the
     delivery by CTI of a stock certificate evidencing the Shares to be sold at
     such Closing. The date of each such Closing is called a "Closing Date."

         The "Per Share Purchase Price" of Shares at each Closing shall be equal
     to the average (the "20 Day Average") of the high and the low price of a
     share of Common Stock on the NASDAQ National Market System or if not there
     quoted on a National Security Exchange or other market on which the Common
     Stock is then traded as agreed upon by the parties) for the twenty (20)
     trading day period preceding the Closing Date for each Closing, except that
     in the case of the first Closing above the 20 Day Average shall be based on
     the ten (10) trading days before and ten (10) trading after the date of the
     first public announcement by the parties of the Development Agreement.

         Other capitalized terms used herein without further definition shall
     have the meanings ascribed thereto in the Development Agreement.


                                       -2-


<PAGE>   76



2.       REPRESENTATIONS AND WARRANTIES OF CTI. Except as set forth on a
Disclosure Schedule (the"Disclosure Schedule"), which shall be updated and
provided to Genentech prior to each Closing, CTI represents and warrants to
Genentech as follows:

                  (a) ORGANIZATION AND STANDING. CTI is a corporation duly
         organized, and validly existing under the laws of the State of Delaware
         and is in good standing under such laws. CTI is duly qualified to do
         business as a foreign corporation in the State of Rhode Island.

                  (b) AUTHORIZATION. This Agreement has been duly authorized,
         executed and delivered by CTI and constitutes the valid and binding
         obligation of CTI, enforceable in accordance with its terms. The Shares
         have been duly authorized and, when delivered against payment therefore
         in accordance with the terms hereof, will be duly and validly issued
         and outstanding, fully paid and nonassessable, and are free to
         Genentech of any liens, encumbrances and restrictions (except as set
         forth in Section 7).

                  (c) AUTHORIZED CAPITAL STOCK. The authorized capital stock of
         CTI consists of 45,000,000 shares of Common Stock, 15,428,576 of which
         were outstanding as of October 31, 1996, and 1,000,000 shares of
         Preferred Stock, $.01 par value (the "Preferred Stock"), none of which
         are outstanding. No person has any right of first refusal or any
         preemptive rights in connection with the issuance of the Shares, or
         with respect to any future, offer sale or issuance of securities by
         CTI.

                  (d) COMPLIANCE WITH OTHER INSTRUMENTS. CTI is not in violation
         of any term of its Certificate of Incorporation or Bylaws, or any
         material agreement, mortgage, indenture, debenture, trust, instrument,
         judgment, decree, order, law, statute, rule or governmental regulation
         to which it is subject (the "Other Instruments"). The execution,
         delivery and performance of this Agreement and the issuance and sale of
         the Shares or the taking of any other action contemplated by this
         Agreement will not result in any violation of or be in conflict with or
         constitute a default (with or without notice, lapse of time or both)
         under any of the Other Instruments.

                  (e) LITIGATION. Except as set forth in the Disclosure Schedule
         or the SEC Documents, there are no litigation, claims, actions,
         proceedings or investigations pending against CTI.

                  (f) GOVERNMENTAL CONSENTS. Except for filings required to
         comply with (i) state and federal securities' laws, and (ii) the NASDAQ
         National Market System, no permit, consent, approval or authorization
         of, or declaration to or filing with, any governmental authority is
         required in connection with the execution, delivery or performance of
         this Agreement or the sale of the Shares pursuant hereto.


                                       -3-


<PAGE>   77



                  (g) SEC DOCUMENTS; FINANCIAL STATEMENTS. CTI has filed all the
         documents (the "SEC Documents") required to be filed by it with the
         Securities and Exchange Commission (the "SEC") under Sections 13,
         14(a), and 15(d) of the Securities Exchange Act of 1934, as amended
         (the "Exchange Act"), since the date on which its last Annual Report on
         Form 10-K was filed. As of their respective filing dates, the SEC
         Documents complied in all material respects with the requirements of
         the Exchange Act or the Securities Act of 1933, as amended (the "Act"),
         as applicable. The SEC Documents did not, as of their respective dates,
         contain any untrue statement of a material fact or omit to state a
         material fact required to be stated therein or necessary to make the
         statements made therein, in light of the circumstances under which they
         were made, not misleading. The financial statements of CTI included in
         such documents (the "Financial Statements") comply as to form in all
         material respects with applicable accounting requirements and with all
         applicable published rules and regulations of the SEC with respect
         thereto. Except as may be indicated in the notes to the Financial
         Statements or, in the case of unaudited statements, as permitted by
         Form 10-Q of the SEC, the Financial Statements have been prepared in
         accordance with generally accepted accounting principles consistently
         applied and fairly present the consolidated financial position of CTI
         at the dates thereof and the consolidated results of its operations and
         consolidated cash flows for the periods then ended (subject, in the
         case of unaudited statements, to normal year-end adjustments).

                  (h) NO MATERIAL CHANGE. Since the end of the most recent
         fiscal quarter of CTI for which a Quarterly Report on Form 10-Q has
         been filed with the SEC, there has been no material adverse change in
         the business, prospects, financial condition, net worth or results of
         operations of CTI, other than changes occurring in the ordinary course
         of business which changes have not, individually or in the aggregate,
         had a material adverse effect on the business, prospects, properties or
         financial condition of CTI.

3.       REPRESENTATIONS AND WARRANTIES OF GENENTECH. Genentech represents and
warrants to CTI that:

                  (a) INVESTMENT INTENT. The Shares are being acquired by
         Genentech solely for its own account, for investment purposes only, and
         with no present intention of distributing, selling or otherwise
         disposing of them.

                  (b) ECONOMIC RISK; SOPHISTICATION. Genentech is able to bear
         the economic risk of an investment in the Shares and can afford to
         sustain a total loss on such investment and has such knowledge and
         experience in financial and business matters that it is capable of
         evaluating the merits and risks of the proposed investment and
         therefore has the capacity to protect its own interests in connection
         with the purchase of the Shares.


                                       -4-


<PAGE>   78



                  (c) AUTHORITY. Genentech has all requisite power and authority
         to enter into this Agreement and perform its obligations hereunder, and
         this Agreement constitutes a valid and binding obligation of Genentech
         enforceable against Genentech in accordance with its terms.

                  (d) ACCREDITED INVESTOR. Genentech is an "accredited investor"
         within the meaning of Rule 501 of Regulation D promulgated under the
         Act.

4.       CONDITIONS.

         4.1      GENENTECH'S CONDITIONS TO CLOSING. Genentech's obligation to
purchase the Shares at each Closing is subject to the satisfaction, prior to or
at such Closing, of the following conditions:

                  (a) REPRESENTATIONS AND WARRANTIES. The representations and
         warranties contained in Section 2 shall be true, correct and complete
         in all material respects on and as of such Closing Date as though made
         on and as of such Closing Date and CTI shall have delivered Genentech
         an updated Disclosure Schedule in advance of such Closing.

                  (b) COMPLIANCE CERTIFICATE. Genentech shall have received a
         certificate of an officer of CTI certifying that CTI has performed and
         complied with all conditions and agreements required to be performed or
         complied with by it prior to such Closing under this Agreement and
         certifying as to the matters set forth in paragraph (a).

                  (c) CERTIFICATES. Genentech shall have received: (i) a copy of
         CTI's Certificate of Incorporation, as amended, certified by the
         Secretary of State of the State of Delaware; (ii) a certificate of the
         Secretary of State of the State of Delaware as to the legal existence
         and good standing of CTI and listing all amendments to CTI's
         Certificate of Incorporation then on file in his office; and (iii) a
         copy, certified by the Secretary of CTI, of the resolutions adopted by
         the directors of CTI authorizing the execution and delivery of this
         Agreement and the Development Agreement, the issuance, sale and
         delivery of the Shares hereunder, and the performance of all other
         obligations of CTI contemplated by this Agreement and the Development
         Agreement.

         4.2      CTI CONDITIONS TO CLOSING. CTI's obligation to issue and sell
the Shares is subject to the satisfaction, prior to or at each Closing, of the
following condition:

                  (a) REPRESENTATIONS AND WARRANTIES. The representation and
         warranties contained in Section 3 shall be true, correct and complete
         in all material respects on and as of such Closing Date as though made
         on and as of such Closing Date.


                                       -5-


<PAGE>   79



5.       INFORMATION. CTI will provide to Genentech copies of all reports
(financial or otherwise) mailed to CTI's stockholders generally. Such reports
shall be sent to Genentech simultaneous with the mailing of such reports to
CTI's other stockholders.

6.       COVENANTS OF GENENTECH AND CTI.  The parties agree as follows:

                  [ * ]

                  [ * ]

                  The term "Restricted Period" shall mean, with respect to each
         period used in calculating a 20 Day Average hereunder, a period
         beginning (10) days prior to the first day used in calculating such 20
         Day Average and ending on the day following the last day used in
         calculating such 20 Day Average.

7.       RESTRICTIONS ON TRANSFER. None of the Shares purchased hereunder shall
be sold, transferred, assigned, pledged, hypothecated or otherwise disposed of
unless and until one of the following events shall have occurred:

* Confidential Treatment Requested

                                       -6-


<PAGE>   80



                  (a) COMPLIANCE WITH THE ACT. Such securities are disposed of
         pursuant to and in conformity with an effective registration statement
         filed with the SEC pursuant to the Act or pursuant to Rule 144 of the
         SEC thereunder; or

                  (b) OPINION OF COUNSEL. Genentech shall have delivered to CTI
         a written opinion by counsel which is reasonably acceptable to CTI to
         the effect that the proposed transfer is exempt from the registration
         and prospectus delivery requirements of the Act.

         The parties hereto further agree that any certificate evidencing the
Shares shall bear the following legend in addition to any legend required to
comply with state securities law:

         THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, HAVE BEEN ACQUIRED FOR INVESTMENT,
         AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
         OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN
         EXEMPTION THEREFROM.

8.       REGISTRATION RIGHTS.

         8.1      CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:

         "REGISTRABLE SECURITIES" shall mean (i) the Shares and (ii) any Common
Stock of CTI issued or issuable with respect to, or in exchange for or in
replacement of (a) the Shares, or (b) other securities convertible into or
exercisable for Common Stock issued upon any stock split, stock dividend,
recapitalization, or similar event; PROVIDED, HOWEVER, that such shares of
Common Stock or other securities shall only be treated as Registrable Securities
for the purposes of Section 8.2 if and for so long as they have not been (A)
sold to or through a broker or dealer or underwriter in a public distribution or
a public securities transaction or (B) otherwise transferred to a transferee in
whose hands such shares are not (1) restricted securities under the Act or (2)
subject to the volume limitations of Rule 144.

         The term "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.

         "REGISTRATION EXPENSES" shall mean all expenses, except as otherwise
stated below, incurred by CTI, in complying with Section 8.2 hereof, including,
without limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for CTI, blue sky fees
and expenses, the expense of any special audits incident to or required by any
such registration (but excluding the compensation of

                                       -7-


<PAGE>   81



regular employees of CTI which shall be paid in any event by CTI) and up to
$25,000 for fees and disbursements of one counsel to the holders of CTI's Common
Stock participating in such registration.

         "SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes and fees applicable to the securities
registered by Genentech and disbursements of counsel to Genentech, if any, in
excess of the $25,000 payable to one counsel for the holders of CTI's Common
Stock participating in such registration as provided in the definition of the
Registration Expenses.

         8.2      PIGGYBACK REGISTRATION RIGHTS.

                  (a)      NOTICE OF REGISTRATION. If, at any time after the
         date that is one (1) year from the initial Closing Date, CTI shall
         determine to register any of its securities, either for its own account
         or the account of a security holder or holders, other than (i) a
         registration relating solely to employee benefit plans, or (ii) a
         registration relating solely to a Rule 145 transaction, CTI will:

                           (i)      promptly give Genentech written notice
                  thereof; and

                           (ii)     include in such registration (and any
                  related qualification under blue sky laws or other
                  compliance), and in any underwriting involved therein, all the
                  Registrable Securities specified in a written request, made
                  within 20 days after receipt of such written notice from the
                  CTI, by Genentech.

                  (b)      UNDERWRITING. If the registration of which CTI gives
         notice is for a registered public offering involving an underwriting,
         CTI shall so advise Genentech as a part of the written notice given
         pursuant to Section 8.2. In such event the right of Genentech to
         registration pursuant to Section 8.2 shall be conditioned upon
         Genentech's participation in such underwriting and the inclusion of
         Registrable Securities in the underwriting to the extent provided
         herein. In such event Genentech (together with all other holders of
         Common Stock proposing to distribute their securities through such
         underwriting and CTI) shall enter into an underwriting agreement in
         customary form with the managing underwriter selected for such
         underwriting by CTI. Notwithstanding any other provision of this
         Section 8.2, if the managing underwriter determines that marketing
         factors require a limitation of the number of shares to be
         underwritten, the managing underwriter may limit the securities to be
         distributed through such underwriting. CTI shall so advise all holders
         of Common Stock distributing their securities through such underwriting
         of such limitation and the number of shares of Genentech's Registrable
         Securities that may be included in the registration and underwriting
         shall be allocated among all such holders in proportion, as nearly as
         practicable, to the respective amounts of securities eligible to be
         included in such registration held by such holders at the time of
         filing the

                                       -8-


<PAGE>   82



         registration statement. To facilitate the allocation of shares in
         accordance with the above provisions, CTI may round the number of
         shares allocated to any holder to the nearest 100 shares. If, in the
         case of a registration initiated pursuant to the exercise by other
         holders of CTI's Common Stock of so-called "demand" registration
         rights, the managing underwriter selected for such registration
         determines that marketing factors require a limitation of the number of
         shares to be underwritten, Genentech shall have no right to include any
         shares of its Registrable Securities in such registration unless all
         shares requested by the holders exercising such "demand" registration
         rights to be included in such registration are permitted to be included
         in such registration. If Genentech disapproves of the terms of any such
         underwriting, Genentech may elect to withdraw therefrom by written
         notice to CTI and the managing underwriter. Any securities excluded or
         withdrawn from such underwriting shall be withdrawn from such
         registration, and shall not be transferred in a public distribution
         prior to 90 days after the effective date of the registration statement
         relating thereto, or such other shorter period of time as the
         underwriters may require.

                  (c) RIGHT TO TERMINATE REGISTRATION. CTI shall have the right
         to terminate or withdraw any registration initiated by it under this
         Section 8.2 prior to the effectiveness of such registration whether or
         not Genentech or any other holder of Common Stock has elected to
         include securities in such registration. The Registration Expenses of
         such withdrawn registration shall be borne by CTI in accordance with
         Section 8.3 hereof.

         8.3      EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with registrations pursuant to this Section 8 shall be borne by
CTI. All Selling Expenses relating to securities registered on behalf of
Genentech shall be borne by Genentech and holders of securities included in such
registration pro rata with CTI and among each other on the basis of the number
of shares so registered.

         8.4      REPRESENTATIONS OF GENENTECH. Notwithstanding anything to the
contrary contained herein, in connection with any underwritten offering,
Genentech shall not be required to make any representations or warranties to or
agreements with CTI or the underwriters except as relate to Genentech, the
Registrable Securities held by it and its intended method of distribution.

         8.5      REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by CTI pursuant to this Section 8 in which
Genentech participates, CTI will keep Genentech advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense CTI will:

                  (a) Prepare and file with the SEC a registration statement
         with respect to such securities and use its best efforts to cause such
         registration statement to become

                                       -9-


<PAGE>   83



         and remain effective for at least one hundred eighty (180) days or
         until the distribution described in the Registration Statement has been
         completed;

                  (b) Prepare and file with the SEC such amendments and
         supplements to such registration statement and the prospectus used in
         connection with such registration statement as may be necessary to
         comply with the provisions of the Act with respect to the disposition
         of all securities covered by such registration statement;

                  (c) Furnish to Genentech and to the underwriters, if any, such
         reasonable number of copies of the registration statement, preliminary
         prospectus, final prospectus and such other documents as Genentech and
         underwriters may reasonably request in order to facilitate the public
         offering of such securities;

                  (d) Use its best efforts to register and qualify the
         securities covered by such registration statement under such other
         securities or "blue sky" laws of such jurisdictions as shall be
         reasonably requested by Genentech, provided that CTI shall not be
         required in connection therewith or as a condition thereto to qualify
         to do business or to file a general consent to service of process in
         any such states or jurisdictions;

                  (e) In the event of any underwritten public offering, enter
         into and perform its obligations under an underwriting agreement, in
         usual and customary form, with the managing underwriter of such
         offering. Genentech shall also enter into and perform its obligations
         under such an agreement;

                  (f) Notify Genentech at any time when a prospectus relating
         thereto is required to be delivered under the Act or the happening of
         any event as a result of which the prospectus included in such
         registration statement, as then in effect, includes an untrue statement
         of a material fact or omits to state a material fact required to be
         stated therein or necessary to make the statements therein not
         misleading in the light of the circumstances then existing;

                  (g) As soon as practicable after the effective date of the
         registration statement, and in any event within 16 months thereafter,
         have "made generally available to its security holders" (within the
         meaning of Rule 158 under the Act) an earnings statement (which need
         not be audited) covering the period of at least twelve months beginning
         after the effective date of the registration statement and otherwise
         complying with Section 11(a) of the Act;

                  (h) Furnish, at the request of Genentech, on the date that
         such Registrable Securities are delivered to the underwriters for sale
         in connection with a registration pursuant to this Section 8 if being
         sold through underwriters, or, if such securities are not being sold
         through underwriters, on the date the registration statement becomes
         effective, (i) an opinion, dated such date, of the counsel representing
         CTI for the

                                       -10-


<PAGE>   84



         purposes of such registration, in form and substance as is customarily
         given to underwriters in an underwritten public offering, addressed to
         the underwriters, if any, and to Genentech and (ii) a letter dated such
         date, from the independent accountants of CTI, in form and substance as
         is customarily given by independent accountants to underwriters in an
         underwritten public offering, addressed to the underwriters, if any,
         and to Genentech; and

                  (i) Make available for inspection by Genentech and any
         underwriter participating in any distribution pursuant to such
         registration statement, and any attorney, accountant or financial
         advisor retained by Genentech or underwriter, financial and other
         pertinent records, pertinent corporate documents and properties of CTI,
         and cause CTI's officers, directors and employees to supply information
         reasonably requested by Genentech, and any such underwriter, attorney,
         accountant or financial advisor in connection with such registration
         statement.

                  (j) Use its best efforts to list the securities covered by
         such registration statement with any securities exchange on which the
         Common Stock of CTI is then listed.

         8.6      INDEMNIFICATION.

                  (a) CTI will indemnify Genentech, each of its officers,
         directors, partners, employees and affiliates, and legal counsel, and
         each person controlling Genentech within the meaning of the Act, with
         respect to which registration, qualification or compliance has been
         effected pursuant to this Section 8, and each underwriter for
         Genentech, if any, and each person who controls any underwriter within
         the meaning of the Act, against all expenses, claims, losses, damages
         or liabilities (joint or several) (or actions in respect thereof),
         including any of the foregoing incurred in settlement of any
         litigation, commenced or threatened, arising out of or based on any
         untrue statement (or alleged untrue statement) of a material fact
         contained in any registration statement, prospectus (preliminary or
         final), offering circular or other document, or any amendment or
         supplement thereto, incident to any such registration, qualification or
         compliance, and any documents filed under state securities laws in
         connection therewith, or any omission (or alleged omission) to state
         therein a material fact required to be stated therein or necessary to
         make the statements therein, in light of the circumstances in which
         they were made, not misleading, or any violation by CTI of the Act, the
         Exchange Act, and state securities laws or any rule or regulation
         promulgated thereunder applicable to CTI in connection with any such
         registration, qualification or compliance, and CTI will reimburse, as
         incurred, Genentech, each of its officers, directors, partners, and
         legal counsel and each person controlling Genentech, each such
         underwriter and each person who controls any such underwriter, for any
         legal and any other expenses reasonably incurred in connection with
         investigating, preparing or defending any such claim, loss, damage,
         liability or action, provided that CTI will not

                                       -11-


<PAGE>   85



         be liable in any such case to the extent that any such claim, loss,
         damage, liability or expense arises out of or is based on any untrue
         statement or omission or alleged untrue statement or omission, made in
         reliance upon and in conformity with written information furnished to
         CTI by an instrument duly executed by Genentech, controlling person or
         underwriter and stated to be specifically for use therein.

                  (b) Genentech will, if Registrable Securities held by
         Genentech are included in the securities as to which such registration,
         qualification or compliance is being effected, indemnify CTI, each of
         its directors, officers, employees, affiliates and legal counsel, each
         underwriter, if any, of CTI's securities covered by such a registration
         statement, each person who controls CTI or such underwriter within the
         meaning of the Act, and each other holder of CTI's securities, each of
         their officers, directors, partners, employees, affiliates and legal
         counsel and each person controlling such holder within the meaning of
         the Act, against all claims, losses, damages and liabilities (or
         actions in respect thereof) arising out of or based on any untrue
         statement or alleged untrue statement) of a material fact contained in
         any such registration statement, prospectus, offering circular or other
         document, or any omission (or alleged omission) to state therein a
         material fact required to be stated therein or necessary to make the
         statements therein not misleading, in each case to the extent, but only
         to the extent, that such untrue statement (or alleged untrue statement)
         or omission (or alleged omission) is made in such registration
         statement, prospectus, offering circular or other document in reliance
         upon and in conformity with written information furnished to CTI by an
         instrument duly executed by Genentech and stated to be specifically for
         use therein, and will reimburse, as incurred, CTI, such other holders,
         such directors, officers, persons, underwriters or control persons for
         any legal or any other expenses reasonably incurred in connection with
         investigating or defending any such claim, loss, damage, liability or
         action to the extent entitled to indemnification hereunder.
         Notwithstanding the foregoing, the liability of Genentech under this
         subsection (b) shall be limited to an amount equal to the net proceeds
         to Genentech of Registrable Securities sold as contemplated herein,
         unless such liability resulted from willful misconduct by Genentech.
         Genentech will not be required to enter into any agreement or
         undertaking in connection with any registration under this Section 8
         providing for any indemnification or contribution on the part of
         Genentech greater than Genentech's obligations under this Section 8.6.

                  (c) Each party entitled to indemnification under this Section
         8.6 (the "Indemnified Party") shall give notice to the party required
         to provide indemnification (the "Indemnifying Party") promptly after
         such Indemnified Party has actual knowledge of any claim as to which
         indemnity may be sought, and shall permit the Indemnifying Party, if it
         so desires, to assume the defense of any such claim or any litigation
         resulting therefrom, provided that counsel for the Indemnifying Party,
         who shall conduct the defense of such claim or litigation, shall be
         approved by the Indemnified Party (whose approval shall not
         unreasonably be withheld), and the Indemnified Party

                                       -12-


<PAGE>   86



         may participate in such defense at such party's expense, and provided
         further that the failure of any Indemnified Party to give notice as
         provided herein shall not relieve the Indemnifying Party of its
         obligations under this Section 8.4, except and only to the extent that
         the failure to give such notice is materially prejudicial to an
         Indemnifying Party's ability to defend such action and provided
         further, that the Indemnifying Party shall not be entitled to assume
         the defense for matters as to which there is a conflict of interest or
         separate and different defenses but shall bear the expense of such
         defense nevertheless. No Indemnified Party shall consent to the entry
         of any judgment or enter into any settlement without the prior written
         consent of the Indemnifying Party, which consent shall not be
         unreasonably withheld; and in no event shall it be unreasonable so to
         withhold consent to entry of any judgment or any settlement which does
         not include as an unconditional term thereof the giving by the claimant
         or plaintiff to such Indemnified Party of a release from all liability
         in respect to such claim or litigation.

         8.7      INFORMATION BY HOLDER. In the event Genentech elects to
include Registrable Securities in any registration, Genentech shall furnish to
CTI such information regarding Genentech, the Registrable Securities held by
them and the distribution proposed by Genentech as CTI may request in writing
and as shall be required in connection with any registration, qualification or
compliance referred to in this Section 8.

         8.8      RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of which may at any time permit the
sale of the restricted securities to the public without registration, CTI agrees
to use its best efforts to:

                  (a) Make and keep public information available, as those terms
         are understood and defined in Rule 144 under the Act, at all times
         during which CTI is subject to the reporting requirements of the Act or
         the Exchange Act;

                  (b) Use its best efforts to file with the SEC in a timely
         manner all reports and other documents required of CTI under the Act
         and the Exchange Act (at all times during which it is subject to such
         reporting requirements); and

                  (c) So long as Genentech owns any Shares, furnish to Genentech
         forthwith upon request a written statement by CTI as to its compliance
         with the reporting requirements of said Rule 144 and of the Act and the
         Exchange Act (at any time during which it is subject to such reporting
         requirements), a copy of the most recent annual or quarterly report of
         CTI, and such other reports and documents of CTI and other information
         in the possession of or reasonably obtainable by CTI as Genentech may
         reasonably request in availing itself of any rule or regulation of the
         SEC allowing Genentech to sell any such securities without
         registration.

         [ * ]

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                                       -13-


<PAGE>   87



[ * ]

9.       MISCELLANEOUS PROVISIONS.

         9.1 NOTICES. All notices, demands or other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered in
person, or by United States mail, certified or registered, with return receipt
requested, or otherwise actually delivered:

                      (i)      if to Genentech, at the address set forth below:

             Genentech, Inc.
             460 Point San Bruno Boulevard
             South San Francisco, CA  94080
             Attention:  Corporate Secretary
             Telephone:  (415) 266-1000
             Telecopier:  (415) 952-9881

                      (ii)     if to CTI, at the address set forth below:

             CytoTherapeutics, Inc.
             Two Richmond Square
             Providence, Rhode Island  02906
             Attention:  General Counsel
             Telephone:  (401) 272-3310
             Telecopier:  (401) 272-3485

with a copy to:

             Ropes & Gray
             30 Kennedy Plaza
             Providence, Rhode Island  02903
             Attention:  Geoffrey B. Davis

*  Confidential Treatment Requested

                                       -14-


<PAGE>   88



or at such other address as may have been furnished by such person in writing to
the other parties. Any such notice, demand or other communication shall be
deemed to have been given on the date actually delivered or as of the date
mailed, as the case may be.

         9.2 SEVERABILITY AND GOVERNING LAW. Should any Section or any part of a
Section within this Agreement be rendered void, invalid or unenforceable by any
court of law for any reason, such invalidity or unenforceability shall not void
or render invalid or unenforceable any other Section or part of a Section in
this Agreement. This Agreement shall be governed by and construed in accordance
with the substantive domestic laws of the State of Delaware.

         9.3 AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
changed, waived, discharged or terminated orally or in writing, without the
written consent of CTI and Genentech.

         9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement, any investigation at any time made, the sale and
purchase of the Shares and payment therefor.

         9.5 EXPENSES. CTI and Genentech shall each bear its own expenses
incurred on its behalf in connection with this Agreement and the transactions
contemplated hereby including fees of legal counsel.

         9.6 ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties and there are no further or other agreements or understandings,
written or oral, in effect between the parties relating to the subject matter
hereof unless expressly referred to herein.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       -15-


<PAGE>   89



         IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.

                                            CYTOTHERAPEUTICS, INC.


                                            By:
                                               ---------------------------------
                                               Title:



                                            GENENTECH, INC.


                                            By:
                                               ---------------------------------
                                               Title:

                                       -16-

<PAGE>   90



                           COMPANY DISCLOSURE SCHEDULE

         The Company has granted an investor rights, similar to preemptive
rights, which provide that if the Company issues additional shares of its stock
or securities convertible into or exchangeable for the Company's stock, the
investor will have the right to purchase, at the then current market price, the
number of shares of the Company's stock necessary to permit the investor to
maintain its ownership percentage of the Company's stock. These rights expire
April 30, 2000 and were granted pursuant to a Nontransferable Warrant for the
Purchase of Shares of Common Stock dated May 1, 1995.

                                       -17-


<PAGE>   91





                                    EXHIBIT F

                                DEVELOPMENT PLAN

                              [including FTE rate]





<PAGE>   92



PARKINSON'S DISEASE PROJECT - NEURTURIN
---------------------------------------

This program is designed to rapidly lead to a clinical study evaluating the
delivery of Neurturin from encapsulated cells in [ * ] patients for the
treatment of Parkinson's Disease.

Definition of Product:
----------------------

Encapsulated cell implant releasing human Neurturin into the ventricular space
for the treatment of Parkinson's Disease.

Description of Product:
-----------------------

[ * ]


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                                                                          Page 1


<PAGE>   93



Objective of the Research and Development Plan
----------------------------------------------

In addition to testing for safety and efficacy in animal models, the research
and clinical plans will help to answer several questions that are central to
effective clinical and commercial development of a Neurturin therapy for
Parkinson's disease:

     [ * ]

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<PAGE>   94



RESEARCH & DEVELOPMENT PLAN:
----------------------------

I.       DIFFUSION OF NEURTURIN IN CSF AND BRAIN PARENCHYMA; ELISA PREPARATION
         ---------------------------------------------------------------------
I-1      Establish and run ELISA (RIA for Neurturin in-house (special reagents
         and protocols provided by Genentech). ELISA to be run on all CSF
         samples, cell lines and cell-loaded devices in vitro and in vivo. (This
         includes transfer and validation in QC.) Initially, we may need to
         establish a bioassay using [ * ].

                  Begin             [ * ]                            [ * ] FTE
                  Complete          [ * ]
                  [ * ]                                              [ * ] FTE

OOP = [ * ] PER YEAR FOR ELISA KITS (WHEN AVAILABLE)

I-2   [ * ]

                  Begin             [ * ]                            [ * ] FTE
                  Complete          [ * ]

OOP = [ * ]

II.   CELL LINE AND DEVICE DEVELOPMENT
      --------------------------------
II-1  [ * ]

                  Begin             [ * ]                            [ * ] FTE
                  Complete          [ * ]

II-2  [ * ]

                  Begin             [ * ]                            [ * ] FTE
                  Complete          [ * ]
                                    [ * ]


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<PAGE>   95



II-3     Evaluate cell line(s) to be employed in clinic for "Points to Consider
         Testing" (PTC).  (Microbiological Associates).

                  Begin             [ * ]                            [ * ] FTE
                  Complete          [ * ]

OOP [ * ]

III.     DEVICE DEVELOPMENT
         ------------------

III-1    [ * ]

                  Begin             [ * ]                            [ * ] FTE
                  Complete          [ * ]

III-2    Technology transfer to production group

                  Begin             [ * ]                            [ * ] FTE
                  Complete          [ * ]

II -3    Clinical device manufacturing for 1st 10 pts.

                  Begin             [ * ]                            [ * ] FTE
                  Complete          [ * ]

OOP =  [ * ]


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<PAGE>   96



IV.      ANIMAL MODELS
         -------------

IV-1     [ * ]

                  Begin             [ * ]                            [ * ] FTE
                  Complete          [ * ]

IV-2     [ * ]

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<PAGE>   97



         (H)  Histology:
                  [ * ]

                  Begin             [ * ]                            [ * ] FTE
                  Complete          [ * ]

IV-3     Monkey studies:
         [ * ]

                  Begin:            [ * ]                            [ * ] FTE
                  Complete:         [ * ]

OOP-  [ * ]

 V-4  [ * ]

                  Begin:            [ * ]                            [ * ] FTE
                  Complete:         [ * ]

OOP = [ * ]

[ * ] THE DECISION TO GO FORWARD WILL BE DETERMINED BY THE STEERING COMMITTEE
AFTER REVIEW OF THE AVAILABLE PRIMATE CSF DISTRIBUTION DATA AND PRIMATE AND
RODENT EFFICACY DATA.


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<PAGE>   98



V.       SAFETY STUDIES
         --------------

These studies will be started when the cell bank is completed for selected
clonal cell lines .

V-1      Evaluate [ * ].

                  Begin:            [ * ]                            [ * ] FTE
                  Complete:         [ * ]

V-2      Perform [ * ].

                  Begin:            [ * ]                            [ * ] FTE
                  Complete:         [ * ]

V-3      Perform [ * ].

                  Begin:            [ * ]                            [ * ] FTE
                  [ * ]

V-4      Perform [ * ].

                  Begin:            [ * ]                            [ * ] FTE
                  Complete:         [ * ]

OOP = [ * ]

OOP = [ * ] (Large animal studies)


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<PAGE>   99



VI.      PARKINSON'S DISEASE CLINICAL TRIAL TO EVALUATE THE POTENTIAL EFFICACY
         ---------------------------------------------------------------------
         OF ICV DELIVERED NEURTURIN
         --------------------------

The initial clinical trial using ICV Neurturin delivery will [ * ].

                  Begin:            [ * ]                            [ * ] FTE
                  Complete:         [ * ]

OOP [ * ]

[ * ]


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<PAGE>   100



We expect that a contract [ * ].

[ * ]

TOTAL FTE = [ * ]
TOTAL OOP = [ * ]

Addendum:  [ * ]
                                    ADDENDUM
                                    --------

I-1      [ * ]

I-2      [ * ]

II-1     [ * ]

II-2     [ * ]

                                                                          Page 9
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<PAGE>   101



         [ * ]

III-1
Details
-------
  [ * ]                                                   [ * ] FTE
  [ * ]                                                   [ * ] FTE
  [ * ]                                                   [ * ] FTE
  [ * ]                                                   [ * ] FTE
Studies
-------
  [ * ]                                                   [ * ] FTE
  [ * ]                                                   [ * ] FTE
  [ * ]                                                   [ * ] FTE

III-2    [ * ]

                  Begin             [ * ]
                  Complete          [ * ]                            [ * ] FTE

         [ * ]                                                           [ * ]
         [ * ]

         [ * ]                                                           [ * ]

III-3    [ * ]

         Phase 1
         -------
         Begin             [ * ]
         Complete          [ * ]                                     [ * ] FTE

         [ * ] FTE.
         [ * ] FTE

IV-2     [ * ]



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<PAGE>   102



IV-3     [ * ]

IV-3     [ * ] FTE

V-1      [ * ]

V-2      [ * ]

V-3      [ * ]

V-4      [ * ]


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<PAGE>   103



VI       [ * ]

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<PAGE>   104



Project: Parkinsons Disease
Date: Thu 11/21/96

[Gant Chart appears here.*]

[Graphical depiction ("Gant Chart") of the project plan for the Parkinson's
Disease research and development project, presenting the tasks and subtasks to
be performed, their estimated start and completion dates, their
interdependencies, and projections for the attainment of project milestones.]

* Confidential Treatment Requested

<PAGE>   105



                                    EXHIBIT G

                                  NEURTURIN MTA



<PAGE>   106



                           MATERIAL TRANSFER AGREEMENT

This MATERIAL TRANSFER AGREEMENT, effective as of this 2nd day of October, 1996
(the "Effective Date"), is by and between Genentech, Inc., having an address of
460 Point San Bruno Blvd., South San Francisco, CA 94080 (hereinafter
"Genentech") and CytoTherapeutics, Inc., having an address of 2 Richmond Square,
Providence, RI 02906 (hereinafter "CytoTherapeutics").

RESEARCH MATERIAL: Genentech agrees to provide the following Research Material
to CytoTherapeutics, for use by CytoTherapeutics solely in connection with the
research described in the attached Research Plan, and subject to the other terms
and conditions of this Agreement:

Human neurturin (protein); DNA encoding human neurturin; and anti-human
neurturin antibody.

1. The Research Material is the sole property of Washington University, St.
Louis, MO. Exclusive worldwide commercial development rights relating to the
Research Material are exclusively licensed by Washington University to Genentech
for purposes of commercial product development.

2. None of the Research Material or any progeny or substantive derivative
thereof shall be transferred by CytoTherapeutics to any third party. Upon
completion of the research described in the Research Plan, or at any time upon
request by Genentech, the Research Material and all progeny and substantive
derivatives thereof and in the possession or under the control of
CytoTherapeutics shall be properly destroyed by CytoTherapeutics (in which case
CytoTherapeutics shall send written confirmation of such destruction to
Genentech) or returned to Genentech, at CytoTherapeutics' option.

3. [ * ]

4. The Research Material will not be administered to humans by CytoTherapeutics,
and will not be used by CytoTherapeutics for any purpose other than the research
described in the Research Plan. The Research Material will not be used by
CytoTherapeutics in any research that is subject to consulting, licensing, or
similar commercial obligations to any third party unless specific, written
permission for such use is first obtained from Genentech.


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<PAGE>   107



5. [ * ]

6. CytoTherapeutics will provide regular written reports to Genentech detailing
the results obtained in the research using the Research Material provided
hereunder while the research is in progress and will provide a final written
report when the research is completed. [ * ]

7. To the extent permitted under applicable laws, CytoTherapeutics agrees to
fully indemnify, defend and hold harmless Washington University, Genentech, and
their respective employees, agents, officers, trustees, faculty, staff,
students, and representatives against all damages, expenses (including without
limitation all legal expenses and attorneys' fees), claims, demands, suits or
other actions arising from the acceptance, use, and/or disposal of the Research
Material by CytoTherapeutics and its employees and agents; provided that the
indemnified party provides timely notice to CytoTherapeutics of the action for
which indemnity is sought and permits CytoTherapeutics at its sole expense to
control the litigation, settlement, or compromise of such action.

8. [ * ]

9. THE RESEARCH MATERIAL PROVIDED HEREUNDER IS EXPERIMENTAL IN NATURE AND IS
PROVIDED "AS-IS" WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR USE.
WASHINGTON UNIVERSITY AND GENENTECH MAKE NO REPRESENTATION AND PROVIDE NO
WARRANTY THAT THE USE OF THE MATERIAL WILL NOT INFRINGE ANY PATENT OR OTHER
PROPRIETARY RIGHTS OF A THIRD PARTY.

10. This Agreement shall be governed by and construed under California law.


* Confidential Treatment Requested

<PAGE>   108



IN WITNESS WHEREOF, the Parties hereto have caused this Material Transfer
Agreement to be executed by their duly authorized officers.

CYTOTHERAPEUTICS, INC                       GENENTECH, INC.


-----------------------------               -----------------------------
Signature                                   Signature


-----------------------------               -----------------------------
Date                                        Date






<PAGE>   109


                                  Research Plan
                                  -------------


[ * ]


* Confidential Treatment Requested