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Indemnification Agreement - Aastrom Biosciences Inc.

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                           INDEMNIFICATION AGREEMENT


     This Agreement is made as of __________, between Aastrom Biosciences, Inc.,
a Michigan corporation (the "Company"), and those certain officers and directors
of the Company designated on the signature page of this Agreement as Indemnitees
(hereinafter referred to individually as an "Indemnitee" and collectively as the
"Indemnitees").

                                    RECITALS

          A.  It is essential to the Company to attract and retain as directors
and officers the most capable persons available.

          B.  Both the Company and Indemnitees recognize the increased risk of
litigation and other claims being asserted against directors and officers of
companies in today's environment.

          C.  While basic protection against undue risk of personal liability of
directors and officers may be provided through insurance coverage, it has become
increasingly difficult to obtain such insurance on terms providing reasonable
protection at reasonable cost.
 
          D.  The Restated Articles of Incorporation and the Bylaws of the
Company permit the Company to indemnify and advance expenses to its directors
and officers to the full extent permitted by law; and Indemnitees have been
serving and continue to serve as directors and officers of the Company in part
in reliance on such Restated Articles of Incorporation and Bylaws.

          E.  In recognition of Indemnitees' need for substantial protection
against personal liability, the increasing difficulty in obtaining satisfactory
insurance coverage, and Indemnitees' reliance on the aforesaid Restated Articles
of Incorporation and Bylaws, and in part to provide Indemnitees with specific
contractual assurance that the protection promised by the Restated Articles of
Incorporation and Bylaws will be available to Indemnitees (regardless of, among
other things, any amendment to or revocation of such Restated Articles of
Incorporation or Bylaws or any change in the composition of the Company's Board
of Directors), the Company wishes to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitees to the fullest
extent permitted by law and as set forth in this Agreement, and, to the extent
insurance coverage is maintained, for the continued coverage of Indemnitees
under the Company's directors' and officers', liability insurance policies.

     NOW, THEREFORE, in consideration of Indemnitees' service to the
<PAGE>
 
Company, or Indemnitees' service to another enterprise at the request of the
Company, the parties hereto agree as follows:

          1.  Certain Definitions.  As used herein, the following terms shall
              -------------------
refer to the following events or have the following meanings, as the case may
be:

               a.  Change in Control is an event which shall be deemed to have
                   -----------------
occurred if any one or more of the following events occur: (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) hereafter becomes the "beneficial owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of the Company
representing twenty percent or more of the total voting power represented by the
Company's then outstanding Voting Securities, excluding, however, a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or a corporation owned directly or indirectly by the shareholders of the Company
in substantially the same proportions as their ownership of stock of the
Company; or (ii) during any period of two consecutive years, individuals who, at
the beginning of such period, constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds of the directors then still in office, cease for any reason to constitute
a majority of the Board of Directors; or (iii) the shareholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the Voting Securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into Voting Securities of
the surviving entity) at least 80 percent of the total voting power represented
by the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or (iv) the shareholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all the Company's assets.

               b.  Claim means (i) any threatened, pending or completed action,
                   -----
suit or proceeding, whether civil, criminal, administrative or investigative, or
(ii) any inquiry or investigation, whether instituted by the Company or any
other party, that any of the Indemnitees in good faith believes might lead to
the institution of any such action, suit or proceeding.

               c.  Expenses means, without limitation, attorneys' fees and all
                   --------
other costs, expenses and obligations paid or incurred in connection with (i)
investigating, defending, being a witness in or participating in (including on
appeal), any Claim relating to any Indemnifiable Event, or (ii) preparing to
defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
<PAGE>
 
               d.  Indemnifiable Event means any event or occurrence related to
                   -------------------
the fact that any of the Indemnitees is or was a director, officer, employee,
agent, trustee or fiduciary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, trustee, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, or by reason of anything done or not done by any of the
Indemnitees in any such capacity for which under applicable law a California
corporation may indemnify Indemnitees, as such law exists from time to time.

               e.  Indemnitees means the officers and directors of the Company
                   -----------
as of the date of this Agreement and any future duly elected officers and
directors of the Company designated on and executing the signature page of this
Agreement as Indemnitees. "Indemnitee" means any one of the Indemnitees.

               f.  Independent Legal Counsel means an attorney or firm of
                   -------------------------
attorneys, selected in accordance with the provisions of Section 3, who shall
not have otherwise performed services within the last three years for the
Company or the Indemnitee seeking indemnification (other than services with
respect to matters concerning the rights of any of the Indemnitees under this
Agreement).

               g.  Reviewing Party means (i) Independent Legal Counsel or (ii)
                   ---------------
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
who is not a party to the particular Claim for which Indemnitee is seeking
indemnification.

               h.  Voting Securities means any securities of the Company
                   -----------------                                    
which entitle their holders to vote generally in the election of directors.

          2.   Basic Indemnification Arrangement.
               --------------------------------- 

               a.  Indemnification.  In the event Indemnitee was, is or
                   ---------------                                     
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, a Claim by reason of an
Indemnifiable Event, the Company shall indemnify Indemnitee, to the fullest
extent permitted by law and as soon as practicable (but in any event no later
than thirty days after written demand is presented to the Company), against any
and all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim.  If requested by Indemnitee, the
Company shall advance (within two business days of such request) any and all
Expenses to Indemnitee (an "Expense Advance").

               b.  Exception; Determination That Indemnification or
                   --------------------------------------------- --
Advances Not Permitted.  Except as provided in Section 2(c), the obligations of
----------------------                                                         
the Company
<PAGE>
 
under Section 2(a) shall be subject to the condition that a Reviewing Party
shall not have determined that Indemnitee would not be permitted to be
indemnified under applicable law.  Except as provided in Section 2(c), the
obligation of the Company under Section 2(a) to make an Expense Advance shall be
subject to the condition that, if, when and to the extent a Reviewing Party
determines that Indemnitee would not be permitted to be indemnified under
applicable law, the Indemnitee shall reimburse the Company for all such Expense
Advances theretofore paid.  For purposes of this Section 2(b), if the Reviewing
Party is Independent Legal Counsel, then any such determination shall be
rendered in the form of a written opinion.

               c.  Initiation of Action Concerning Right to Indemnification. In
                   --------------------------------------------------------
the event Indemnitee has commenced or thereafter commences legal proceedings in
a court of competent jurisdiction to secure a determination that Indemnitee
should be indemnified under applicable law, any determination made by a
Reviewing Party that Indemnitee would not be permitted to be indemnified under
applicable law shall not be binding and Indemnitee shall not be required to
reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto. Indemnitee shall have the right to
commence litigation in any court in the State of Michigan having subject matter
jurisdiction and in which venue is proper in order to seek an initial
determination by the court as to whether Indemnitee is entitled to
indemnification and Expense Advances hereunder or in order to challenge an
unfavorable determination by a Reviewing Party, including the legal or factual
bases for such unfavorable determination. The Company hereby consents to service
of process and to appear in any such proceeding. Unless contested by the
Indemnitee as contemplated by this Section 2(c), any determination by a
Reviewing Party shall be conclusive and binding on the Company and Indemnitee.

               d.  Reviewing Party.  For purposes of this Section 2, the
                   ---------------                                      
Reviewing Party shall be selected by the Board of Directors in circumstances
where there has not been a Change in Control.  In circumstances where there has
been a Change in Control (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control), the Reviewing Party shall be the Independent
Legal Counsel referenced in Section 3.

          3.   Change in Control.  The Company agrees that if there is a Change
               -----------------                                               
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), then with respect to all matters
thereafter arising concerning the rights of Indemnitee under this Agreement or
any other agreement or Company Bylaw now or hereafter in effect relating to
Claims for Indemnifiable Events, the Company shall seek legal advice only from
Independent Legal Counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld).  Such Independent Legal
Counsel, among other things, shall render its
<PAGE>
 
written opinion to the Company and Indemnitee as to whether and to what extent
the Indemnitee would be permitted to be indemnified under applicable law.  The
Company agrees to pay the reasonable fees of Independent Legal Counsel and to
fully indemnify such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or such counsel's engagement pursuant hereto.

          4.  Indemnification for Additional Expenses.  In connection with any
              ---------------------------------------                         
action brought by Indemnitee for (i) indemnification or advance payment of
Expenses under this Agreement or any other agreement or Company Bylaw now or
hereafter in effect relating to Claims for Indemnifiable Events and/or (ii)
recovery under any directors' and officers' liability insurance policy
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance payment of Expenses
or insurance recovery, as the case may be, the Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) which are
incurred by Indemnitee and, if requested by Indemnitee, shall (within two
business days of such request) advance such expenses to Indemnitee.

          5.  Partial Indemnity; Expenses.  If Indemnitee is entitled under
              ---------------------------                                  
any provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, judgments, fines, penalties or amounts paid in settlement
of a Claim but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion to which Indemnitee is
entitled.  Moreover, notwithstanding any other provision of this Agreement, to
the extent that Indemnitee has been successful on the merits or otherwise in
defense (including dismissal without prejudice) of any or all Claims relating in
whole or in part to an Indemnifiable Event, or in defense of any issue or matter
relating in whole or in part to an Indemnifiable Event, Indemnitee shall be
indemnified against all Expenses incurred in connection therewith.

          6.  Burden of Proof.  In connection with any determination by a
              ---------------                                            
Reviewing Party as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not entitled to indemnification.

          7.  No Presumptions.  For purposes of this Agreement, the
              ---------------                                      
termination of any claim, action, suit or proceeding by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or did have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.  Neither the failure of a Reviewing Party to have
made a determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by a Reviewing
Party that Indemnitee has not met such standard of conduct or did not have
<PAGE>
 
such belief, prior to the commencement of legal proceedings by Indemnitee as
contemplated in Section 2(c), shall be a defense to Indemnitee's claim or create
a presumption that Indemnitee has not met any particular standard of conduct or
did not have any particular belief.

          8.  Nonexclusivity, Etc.  The rights of the Indemnitees hereunder
              --------------------                                         
shall be in addition to any other rights Indemnitees may have under the
Company's Restated Articles of Incorporation, Bylaws, the applicable corporate
law, or otherwise.  To the extent that a change in the applicable corporate law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's Restated Articles
of Incorporation, Bylaws and this Agreement, it is the intent of the parties
hereto that Indemnitees shall enjoy by this Agreement the greater benefits so
afforded by such change.

          9.  Liability Insurance.  To the extent the Company maintains an
              -------------------                                         
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitees shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.

         10.  Period of Limitations.  No legal action shall be brought and no
              ---------------------                                          
claim or cause of action shall be asserted by or in the right of the Company
against any of the Indemnitees, Indemnitees' spouses, heirs, executors or
personal or legal representatives after the expiration of two years from the
date of accrual of such claim or cause of action. Any claim or cause of action
of the Company shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two-year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such
claim or cause of action, such shorter period shall govern.

         11.  Amendments, Etc.  Any amendment to this Agreement necessitated
              ---------------                                               
by the election of a person who is not a party to this Agreement to the position
of director and/or officer of the Company need only by executed by the Company
and such person as an Indemnitee; provided, however, that no other supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by all of the parties hereto.  No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.

         12.  Subrogation.  In the event of payment under this Agreement, the
              -----------                                                    
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of any of the Indemnitees.  Indemnitees shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Company
effectively to bring suit to enforce such rights.
<PAGE>
 
         13.  No Duplication of Payments.  The Company shall not be liable
              --------------------------                                  
under this Agreement to make any payment in connection with any Claim made
against any of the Indemnitees to the extent any of the Indemnitees has
otherwise actually received payment (under any insurance policy, Bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.

         14.  Binding Effect, Etc.  This Agreement shall be binding upon and
              --------------------                                          
inure to the benefit of and be enforceable by the parties hereto and their
respective successors (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company), assigns, spouses, heirs, executors and personal
and legal representatives.  This Agreement shall continue in effect regardless
of whether Indemnitees continue to serve as officers and directors of the
Company or of any other enterprise at the Company's request.

         15.  Severability.  The provisions of this Agreement shall be
              ------------                                            
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) is held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable in any
respect. The validity and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
and shall remain enforceable to the fullest extent permitted by laws.

         16.  Counterparts.  This Agreement may be executed in any number of
              ------------                                                  
identical counterparts, each of which shall be deemed to be an original, and all
of which together shall be deemed to be one and the same instrument when each
party has signed one such counterpart.

         17.  Governing Law.  This Agreement shall be governed by and
              -------------                                          
construed and enforced in accordance with the laws of the State of Michigan.

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

                                   AASTROM BIOSCIENCES, INC.           
                                                                       
                                                                       
                                   By:________________________________ 
                                   R. Douglas Armstrong, Ph.D.,        
                                   President                            
<PAGE>
 
     The following officers and directors are covered by this Agreement as
Indemnitees:



______________________________            ______________________________
Name:                                     Name:                         
Title:                                    Title:                        
                                                                        
                                                                        
                                                                        
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Name:                                     Name:                         
Title:                                    Title:                        
                                                                        
                                                                        
                                                                        
______________________________            ______________________________
Name:                                     Name:                         
Title:                                    Title: