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Cross License Agreement - CytoTherapeutics Inc. and Modex Therapeutics SA

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                                                                  EXECUTION COPY

                             CROSS LICENSE AGREEMENT

                                 BY AND BETWEEN

                             CYTOTHERAPEUTICS, INC.

                                       AND

                            MODEX THERAPEUTICS, S.A.

                            DATED AS OF JULY 10, 1996
<PAGE>   2
                                TABLE OF CONTENTS

1.       DEFINITIONS.....................................................   1
         1.1.     Confidential Information...............................   1
         1.2.     CTI Field..............................................   2
         1.3.     CTI Licensed Products..................................   2
         1.4.     CTI Patents............................................   2
         1.5.     CTI Sublicensee........................................   2
         1.6.     CTI Third Party Royalty Amount.........................   2
         1.7.     CTI Technology.........................................   2
         1.8.     Dollar and $...........................................   2
         1.9.     Field..................................................   2
         1.10.    First Commercial Sale..................................   2
         1.11.    Fully Burdened Manufacturing Cost......................   3
         1.12.    Joint Technology.......................................   3
         1.13.    Licensed Products......................................   3
         1.14.    Modex Field............................................   3
         1.15.    Modex Licensed Products................................   3
         1.16.    Modex Patents..........................................   3
         1.17.    Modex Technology.......................................   3
         1.18.    Modex Sublicensee......................................   4
         1.19.    Modex Third Party Royalty Amount.......................   4
         1.20.    Net Sales..............................................   4
         1.21.    Party..................................................   5
         1.22.    Person.................................................   5
         1.23.    Sublicensees...........................................   5

2.       LICENSE TERMS...................................................   5
         2.1.     License Grant to Modex.................................   5
         2.2.     License Grant to CTI...................................   5
         2.3.     Limited Rights.........................................   5
         2.4.     Joint Technology.......................................   5
                  2.4.1  Modex License to Joint Technology...............   5
                  2.4.2  CTI License to Joint Technology.................   6

         2.5.     Sublicensees...........................................   6
         2.6.     Technology Transfer....................................   6
         2.7.     Other Agreements.......................................   6

3.       ROYALTIES AND MILESTONE PAYMENTS................................   7
         3.1.     Royalties Payable by Modex.............................   7

                                       -i-
<PAGE>   3
         3.2.     Royalties Payable by CTI...............................   7
         3.3.     Milestone Payments.....................................  10
         3.4.     Termination of Royalty Obligations.....................  10
         3.5.     Payment Dates and Statements...........................  10
         3.6.     Records and Accounting.................................  10
         3.7.     Currency of Payments...................................  11
         3.8.     Tax Withholding........................................  11

4.       PATENTS AND TECHNOLOGY..........................................  11
         4.1.     Ownership of Technology................................  11
         4.2.     Modex Technology.......................................  11
         4.3.     Joint Patents..........................................  11
         4.4.     Infringement of Patents................................  12
         4.5.     Survival...............................................  12

5.       CONFIDENTIAL INFORMATION........................................  12
         5.1.     Treatment of Confidential Information..................  12
         5.2.     Release from Restrictions..............................  12
         5.3.     Confidential Agreements................................  13

6.       SUPPLY OF MODEX LICENSED PRODUCT................................  13
         6.1.     General................................................  13
         6.2.     Supply of Modex Licensed Product for Clinical Trials...  13
         6.3.     Supply of Modex Licensed Products for Commercial Sale..  13
         6.4.     Specifications.........................................  15
         6.5.     Additional Manufacturing Facility......................  15

7.       TERM AND TERMINATION............................................  15
         7.1.     Term...................................................  16
         7.2.     Breach.................................................  16
         7.3.     Insolvency or Bankruptcy...............................  16
         7.4.     Effect of Termination..................................  16

8.       MISCELLANEOUS PROVISIONS........................................  17
         8.1.     No Partnership.........................................  17
         8.2.     Assignments............................................  17
         8.3.     Force Majeure..........................................  18
         8.4.     No Trademark Rights....................................  18
         8.5.     Public Announcements...................................  18
         8.6.     Entire Agreement of the Parties; Amendment.............  18
         8.7.     Severability...........................................  18
         8.8.     Captions...............................................  19
         8.9.     Notice and Delivery....................................  19

                                      -ii-
<PAGE>   4
         8.10.    Limitation of Liability................................  19
         8.11.    Modex Indemnification..................................  19
         8.12.    CTI Indemnification....................................  20
         8.13.    Liability Insurance....................................  20
         8.14.    Governing Law..........................................  20

9.       RESOLUTION OF DISPUTES..........................................  20
         9.1.     General................................................  21
         9.2.     Dispute Resolution Process.............................  21
         9.3.     Arbitration Costs......................................  22


                                      -iii-
<PAGE>   5
                             CROSS LICENSE AGREEMENT

         This AGREEMENT, dated as of July 10, 1996 by and between
CYTOTHERAPEUTICS, INC. ("CTI"), a Delaware corporation having its principal
office at Two Richmond Square, Providence, Rhode Island 02906 and MODEX
THERAPEUTIQUES, SA ("Modex"), a Swiss (Vaud) corporation having its principal
office at 27 Rue du Bugnon, 1005 Lausanne.

         WHEREAS, CTI has or may obtain rights to certain technology which CTI
desires to license to Modex and which Modex desires to license from CTI; and

         WHEREAS, Modex has or may obtain rights to certain technology which
Modex desires to license to CTI and which CTI desires to license from Modex; and

         WHEREAS, Modex desires to arrange for CTI to manufacture certain
products to be developed by Modex and CTI wishes to manufacture such products;

         NOW, THEREFORE, CTI and Modex hereby agree as follows:

         1. DEFINITIONS. The following capitalized terms shall have the meanings
given below:

         1.1. "Confidential Information" shall mean any and all information of
or about a Party including all information relating to any technology, product,
process or intellectual property of such Party (including, but not limited to,
owned or licensed intellectual property rights, data, know-how, samples,
technical and non-technical materials, and specifications) as well as any
business plan, financial information, or other confidential commercial
information of or about such other Party. Notwithstanding the foregoing,
specific information shall not be considered "Confidential Information" with
respect to such Party to the extent that the other Party possessing such
information can demonstrate by written record or other suitable physical
evidence that:

         (i)      such specific information was lawfully in such other Party's
                  possession or control prior to the time such information was
                  disclosed to such other Party by the Party to whom the
                  information relates;

         (ii)     such specific information was developed by such other Party
                  without such Party having access to the Confidential
                  Information;

         (iii)    such specific information was lawfully obtained by such other
                  Party from a third Party under no obligation of
                  confidentiality to the Party to whom such information relates;
                  or

                                       -1-


<PAGE>   6
         (iv)     such specific information was at the time it was disclosed or
                  obtained by such other Party, or thereafter became, publicly
                  known otherwise than through a breach by such other Party of
                  such other Party's obligations to the Party to whom such
                  information relates.

         1.2. "CTI Field" shall mean the diagnosis, prevention and treatment of
diseases, conditions and disorders which effect or involve the central nervous
system, including, without limitation, pain.

         1.3. "CTI Licensed Products" shall mean any product (i) the
manufacture, use or sale of which would, absent the license granted by Modex to
CTI herein, infringe an issued patent constituting a part of the Modex Patents
or any portion thereof; or (ii) the manufacture, use or sale of which makes use
of all or a portion of the Modex Technology.

         1.4. "CTI Patents" shall mean any patents (including all additions,
divisions, continuations, continuations-in-part, substitutions, extensions,
patent term extensions and renewals thereof), and patent applications (including
patents issued thereon) that are or become owned by CTI or under which CTI now
has, or in the future obtains, the right to grant licenses to Modex in the Modex
Field during the term of this Agreement.

         1.5. "CTI Sublicensee" shall mean any Person to whom CTI grants a
sublicense of the rights granted to CTI to pursuant to Section 2.2 hereof.

         1.6. "CTI Third Party Royalty Amount" shall mean any amounts CTI may
from time to time be obligated to pay in respect of the sale or other
disposition by Modex or its Sublicensees of Modex Licensed Products.

         1.7. "CTI Technology" shall mean (i) the CTI Patents, and (ii) all
inventions, concepts, processes, information, data, biological materials,
know-how and the like which is Confidential Information of CTI now or hereafter
owned by CTI or under which CTI has, or may in the future have, the right to
grant licenses to Modex that are used or useful in the use or sale of Modex
Licensed Products in the Modex Field. CTI Technology shall not include Modex
Technology or Joint Technology and CTI Technology shall not include any
invention, concept, process, information, data, biological material or know-how
if the foregoing ceases to be Confidential Information of CTI.

         1.8. "Dollar" and "$" shall mean United States dollars.

         1.9. "Field" shall mean collectively the CTI Field and the Modex Field.

         1.10. "First Commercial Sale" shall mean, with respect to each Licensed
Product in each country, the first bona fide, arms' length sale of such Licensed
Product in such country following receipt of all regulatory approvals necessary
to commence regular, commercial scale

                                       -2-


<PAGE>   7
sales of such Licensed Product in such country. Sales prior to receipt of all
approvals necessary to commence commercial sales, such as so-called "named
patient sales" and "compassionate use" sales, shall not be First Commercial
Sales.

         1.11. "Fully Burdened Manufacturing Cost" shall mean the actual cost of
the production of a Licensed Product or other implant, which shall be comprised
of the sum of (a) the cost of goods produced as determined in accordance with
United States generally accepted accounting principles as consistently applied
by CTI, including, but not limited to, direct labor, packaging, shipping and
insurance costs, and material and product testing costs incurred in connection
with the manufacture or quality control testing of Modex Licensed Products or
other implants, as well as overhead and amortized capital depreciation allocated
to the manufacture of Modex Licensed Products or other implants in accordance
with United States generally accepted accounting principles as consistently
applied by CTI, and (b) all royalties (earned or paid up) and other amounts
payable to third parties under license(s) taken by CTI in connection with such
Modex Licensed Products, to the extent such royalties or other amounts are not
included in the CTI Third Party Royalty Amount.

         1.12. "Joint Technology" -- see Section 4.1.

         1.13. "Licensed Products" shall mean collectively the CTI Licensed
Products and the Modex Licensed Products.

         1.14. "Modex Field" shall mean the diagnosis, prevention and treatment,
through encapsulated cell therapy, of diabetes, obesity or anemia. The Modex
Field shall not include the diagnosis, prevention or treatment of diabetes
utilizing encapsulated primary islet cells.

         1.15. "Modex Licensed Products" shall mean any product (i) the
manufacture, use or sale of which would, absent the license granted by CTI to
Modex herein, infringe an issued patent constituting a part of the CTI Patents,
or any portion thereof, or (ii) the manufacture, use or sale of which makes the
use of all or a portion of the CTI Technology.

         1.16. "Modex Patents" shall mean any patents (including all additions,
divisions, continuations, continuations-in-part, substitutions, extensions,
patent term extensions and renewals thereof), and patent applications (including
patents issued thereon) that are or become owned by Modex or under which Modex
now has, or in the future obtains, the right to grant licenses to CTI in the CTI
Field during the term of this Agreement.

         1.17. "Modex Technology" shall mean (i) the Modex Patents, and (ii) all
inventions, concepts, processes, information, data, biological materials,
know-how and the like which is Confidential Information of Modex now or
hereafter owned by Modex or under which Modex has, or may in the future have,
the right to grant licenses to CTI that are used or useful in the use,
manufacture or sale of CTI Licensed Products in the CTI Field. Modex Technology
shall not include CTI Technology or Joint Technology and Modex Technology shall
not include any

                                       -3-


<PAGE>   8
invention, concept, process, information, data, biological material, or know-how
if the foregoing ceases to be Confidential Information of Modex.

         1.18. "Modex Sublicensee" shall mean any Person to whom Modex grants a
sublicense of the rights granted to Modex pursuant to Section 2.1 hereof.

         1.19. "Modex Third Party Royalty Amount" shall mean any amounts Modex
may from time to time be obligated to pay in respect of the sale or other
disposition by CTI or its Sublicensees of the CTI Licensed Products.

         1.20. "Net Sales" shall mean as to any period for each Licensed Product
in a given country, the gross invoiced sales price for all such Licensed Product
sold or commercially disposed of for value in such country by a Party, or such
Party's Sublicensees, in arm's length sales to independent third parties in that
period, after deduction of the following items incurred by a Party or such
Party's Sublicensees, as the case may be, during such period with respect to
sales of Licensed Products hereunder regardless of the 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 country in which such sale
occurred:

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

         (ii)     credits or allowances given or made for rejection or return of
                  previously sold Licensed Products actually taken or allowed;

         (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 (including, without limitation, disposition in connection with the
delivery of other products or services) 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 sale to an independent third Party for such Licensed Product, or if
there is none, for the most similar Licensed Product for which there is a
transaction. Net Sales shall also include any consideration received by a Party
or its Sublicensees in respect of the sale, distribution or transfer of a
Licensed Product other than in the course of clinical trials.

                                       -4-


<PAGE>   9
         1.21. "Party" shall mean each of CTI and Modex and their respective
successors and permitted assigns.

         1.22. "Person" shall mean any person, entity, organization or body.

         1.23. "Sublicensees" shall mean collectively the CTI Sublicensees and
the Modex Sublicensees.

         2. LICENSE TERMS

         2.1. License Grant to Modex. Subject to the terms and conditions of
this Agreement, CTI hereby grants to Modex an exclusive, royalty-bearing,
worldwide license, including the right to grant sublicenses, under the CTI
Technology to use, sell and have sold Modex Licensed Products in the Modex
Field.

         2.2. License Grant to CTI. Subject to the terms and conditions of this
Agreement, Modex hereby grants to CTI (i) an exclusive, royalty-free, worldwide
license, including the right to grant sublicenses, under the Modex Technology to
manufacture, and have manufactured, the Modex Licensed Products, and (ii) an
exclusive, royalty-bearing, worldwide license, including the right to grant
sublicenses, under the Modex Technology to manufacture, have manufactured, use,
sell and have sold CTI Licensed Products in the CTI Field.

         2.3. Limited Rights. The rights granted hereunder shall be limited to
the rights expressly stated to be granted hereunder and no additional right or
licenses are implied. Without limiting the generality of the foregoing, nothing
in this Agreement shall be construed to grant (i) to Modex rights under any CTI
Technology to sell or have sold any products other than the Modex Licensed
Products in the Modex Field or (ii) to CTI (A) rights under any Modex Technology
to make or have made any products other than the Modex Licensed Products or (B)
rights under any Modex Technology to make, have made, use, sell or have sold any
products other than the CTI Licensed Products in the CTI Field, except as
provided in (A) above.

         2.4. Joint Technology. Subject to the provisions of this Section 2.4,
each Party shall have the right to exploit the Joint Technology without being
obligated to account to the other Party.

         2.4.1 Modex License to Joint Technology. In the event during the term
of this Agreement Modex desires to obtain exclusive rights to the Joint
Technology to use, sell and have sold products in the Modex Field, Modex shall
give notice to CTI of its desire and CTI shall agree not to use, sell or have
sold products in the Modex Field utilizing the Joint Technology or any portion
thereof. In such event, Modex shall pay to CTI a royalty equal to [*** *******
****] of Net Sales for each such product. Such royalties shall be subject to and
payable in accordance with the provisions of Section 3.


           *  This confidential portion has been omitted and filed
                        sperately with the Commission            

      
                                       -5-


<PAGE>   10
         2.4.2 CTI License to Joint Technology. In the event during the term of
this Agreement CTI desires to obtain exclusive rights to the Joint Technology to
make, have made, use, sell and have sold products in the CTI Field, CTI shall
give notice to Modex of its desire and Modex shall agree not to make, have made,
use, sell or have sold products in the CTI Field utilizing the Joint Technology
or any portion thereof. In such event, CTI shall pay to Modex a royalty equal to
[*** ******* ****] of Net Sales for each such product. Such royalties shall be
subject to and payable in accordance with the provisions of Section 3.

         2.5. Sublicensees. Each Party shall give notice to the other of any
Sublicensee appointed by it. The Party appointing a Sublicensee shall be
responsible for all obligations of such Sublicensee hereunder, including without
limitation their obligation to pay royalties on sales of Licensed Products, and
the obligation of such Sublicensees not to sell Licensed Products outside, in
the case of the Modex Sublicensees, the Modex Field, and, in the case of CTI
Sublicenses, the CTI Field. In the event that the license granted to Modex
hereunder by CTI shall terminate for any reason, any Sublicensee under any such
terminated license shall continue automatically to have the rights and license
previously licensed by CTI to Modex under such terminated license and shall be
entitled to enforce such rights and license directly against CTI, provided that
any such Sublicensee agrees in writing with CTI that CTI shall be entitled to
enforce the provisions of such terminated license directly against such
Sublicensee. In the event that the license granted to CTI hereunder by Modex
shall terminate for any reason, any Sublicensee under any such terminated
license shall continue automatically to have the rights and license previously
licensed by Modex to CTI under such terminated license and shall be entitled to
enforce such rights and license directly against Modex, provided that any such
Sublicensee agrees in writing with Modex that Modex shall be entitled to enforce
the provisions of such terminated license directly against such Sublicensee. At
the request of either Party, the other Party shall enter into a direct
contractual arrangement with any Sublicensee of the requesting Party providing
for such Sublicensee to have such rights and obligations as described in the two
preceding sentences, effective upon any termination of the license granted
hereunder from the requested Party to the requesting Party.

         2.6. Technology Transfer. Each Party shall, at its own expense, provide
the other Party with reasonable cooperation in order to permit each such Party
to exploit the rights granted to it hereunder.

         2.7. Other Agreements. Nothing in this Agreement (including without
limitation the provisions of Section 2) shall limit in any way, and the rights
of the parties to this Agreement are subject to, and may be limited by, the
rights and licenses set forth in (i) the Development Collaboration and License
Agreement dated as of March 10, 1994 between CTI and Genentech, Inc., as such
agreement may be amended from time to time, and (ii) the Development, License
and Marketing Agreement dated March 30, 1995 between the Company and Astra AB,
as such agreement may be amended from time to time.


           *  This confidential portion has been omitted and filed
                        sperately with the Commission            

                                       -6-


<PAGE>   11
         3.       ROYALTIES AND MILESTONE PAYMENTS

         3.1. Royalties Payable by Modex. Except as otherwise provided herein,
following the First Commercial Sale of each Modex Licensed Product, Modex shall
pay to CTI a royalty equal to (i) [*** ******* ****] of Net Sales for each Modex
Licensed Product in each calendar quarter, plus (ii) any CTI Third Party Royalty
Amount payable in respect of such Modex Licensed Products. The royalty payable
shall be calculated separately for each country and for each Modex Licensed
Product. Modex shall be responsible for the payment of, and shall remit to CTI,
all royalties payable to CTI hereunder. No multiple royalties shall be payable
because the manufacture, use or sale of any Modex Licensed Product (i) shall be
covered by more than one CTI Patent and/or any patent included in Joint
Technology or (ii) uses or incorporates more than one aspect of the CTI
Technology and/or Joint Technology or both (i) and (ii) apply.

         3.2. Royalties Payable by CTI. Except as otherwise provided herein,
following the First Commercial Sale of each CTI Licensed Product, CTI shall pay
to Modex a royalty equal to (i) [*** ******* ****] of Net Sales for each CTI
Licensed Product in each calendar quarter, plus (ii) the Modex Third Party
Royalty Amount payable in respect of such CTI Licensed Products. The royalty
payable shall be calculated separately for each country and for each CTI
Licensed Product. CTI shall be responsible for the payment of, and shall remit
to Modex, all royalties payable to Modex hereunder. No multiple royalties shall
be payable because the manufacture, use or sale of any CTI Licensed Product (i)
shall be covered by more than one Modex Patent and/or any patent included in
Joint Technology or (ii) uses or incorporates more than one aspect of the Modex
Technology and/or Joint Technology or both (i) and (ii) apply.

         3.3. Milestone Payments. On achievement of each of the milestones
specified in Schedule A at any time prior to January 1, 2011, CTI shall issue to
Modex the number of shares of CTI Common Stock specified therein with respect to
such milestone. The number of shares of CTI Common Stock issuable in regard to
any milestone shall be appropriately adjusted to reflect any stock dividend,
stock split, reverse stock split, recapitalization or similar transaction by
CTI.

         (a)      Regulation S Shares and Private Placement Shares. Modex
                  understands and agrees that the issuance of the shares of CTI
                  Common Stock to Modex provided for hereunder will not be
                  registered under the U.S. Securities Act of 1933, as amended
                  (the "Securities Act"), or any foreign securities laws. Except
                  to the extent that Modex notifies CTI in connection with the
                  achievement of any milestone that Modex is unable, with
                  respect to some or all of the shares of CTI Common Stock to be
                  issued to Modex on achievement of such milestone, to comply
                  with the restrictions contained in subparagraph (b) below,
                  such shares of CTI Common Stock shall be issued to Modex by
                  CTI in reliance upon Regulation S under the Securities Act and
                  shall be subject only to the


           *  This confidential portion has been omitted and filed
                        sperately with the Commission            


                                       -7-


<PAGE>   12
                  restrictions contained in such subparagraph (b); any such
                  shares so issued pursuant to Regulation S are referred to
                  herein as the "Regulation S Shares." Any shares of CTI Common
                  Stock (the "Private Placement Shares") to be issued to Modex
                  hereunder other than Regulation S Shares shall be issued to
                  Modex by CTI pursuant to the so-called "private placement"
                  exemption to the registration requirements of the Securities
                  Act under Section 4(2) of the Securities Act and shall be
                  subject to the restrictions contained in subparagraph (c)
                  below.

         (b)      Restrictions Applicable to Regulation S Shares. During the 40
                  day period commencing on the date of issuance of Regulation S
                  Shares to Modex (the "Restricted Period"), Modex agrees not to
                  offer or sell any Regulation S Shares (i) in the United States
                  or (ii) to or for the account or benefit of a "U.S. Person"
                  (as defined in Rule 902(o) of Regulation S). Modex
                  acknowledges and agrees that CTI will not authorize any
                  transfer or sale of any Regulation S Shares in the United
                  States or to a U.S. Person other than in accordance with
                  Regulation S and U.S. federal securities laws. In connection
                  with the issuance to Modex of any Regulation S Shares, Modex
                  will not engage in any prearranged transfer of any such shares
                  by Modex to any purchaser located in the United States or any
                  purchaser who is a U.S. Person or take any other action which
                  is part of any plan or scheme to evade the registration
                  provisions of the Securities Act. During the Restricted
                  Period, Modex will not enter into any arrangement or
                  understanding to resell any Regulation S Shares, or enter into
                  any put option, short position or similar instrument or
                  position with respect to such Shares. The Regulation S Shares
                  may be transferred by Modex to consultants or employees of
                  Modex provided (i) that any such transfer occurs outside the
                  United States, (ii) that any such transferee is not a U.S.
                  Person and is not acquiring such CTI Common Stock for the
                  account or benefit of a U.S. Person and (iii) that any such
                  transferee is bound or agrees to be bound by the same
                  restrictions applicable to Modex with respect to such shares
                  hereunder (including the provisions of subparagraph (d)). Each
                  certificate representing Regulation S Shares shall bear a
                  legend in substantially the form set forth below:

                           The securities represented by this certificate have
                           not been registered under the U.S. Securities Act of
                           1933, as amended (the "Securities Act"), and have
                           been issued pursuant to an exemption from the
                           registration requirements of the Securities Act
                           pursuant to Regulation S under the Securities Act.
                           These shares cannot be transferred, offered or sold
                           in the United States or to a U.S. Person (as that
                           term is defined in Regulation S) unless any such
                           transfer, offer or sale is registered under

                                       -8-






<PAGE>   13
                           the Securities Act or is exempt from such
                           registration. The offer or sale of these shares to a
                           U.S. Person (as such term is defined in Regulation S)
                           or in the United States is subject to certain
                           restrictions as set forth in a Cross License
                           Agreement dated July 10, 1996 between the issuer and
                           the original holder of these shares, a copy of which
                           will be made available to any subsequent holder by
                           the issuer upon request.

         (c)      Restrictions Applicable to Private Placement Shares. Modex
                  acknowledges and agrees that the Private Placement Shares are
                  being transferred to Modex pursuant to an exemption from the
                  registration requirements of the Securities Act and
                  accordingly, must be held indefinitely by Modex unless they
                  are later transferred in a transaction that is either
                  registered under the Securities Act or exempt from such
                  registration. Modex agrees not to sell or otherwise dispose of
                  the Private Placement Shares in violation of the provisions of
                  the Securities Act. Modex understands that CTI is under no
                  obligation to register the Private Placement Shares under the
                  Securities Act or to file for or comply with an exemption from
                  registration, and recognizes that exemptions from
                  registration, in any case, are limited and may not be
                  available when Modex may wish to sell, transfer or dispose of
                  the shares. Modex acknowledges that the Private Placement
                  Shares are "restricted securities" as such term is defined in
                  Rule 144 under the Securities Act and may be transferred under
                  such Rule only in compliance with the terms and conditions of
                  such Rule, including the holding periods provided for therein.
                  The Private Placement Shares may be transferred by Modex to
                  consultants or employees of Modex provided that any such
                  transferee is bound or agrees to be bound by the same
                  restrictions applicable to Modex with respect to such shares
                  hereunder (including the provisions of subparagraph (d)). Each
                  certificate representing Private Placement Shares shall bear a
                  Legend substantially the form set forth below:

                           The shares of stock represented by this certificate
                           have not been registered under the Securities Act of
                           1933, as amended, and may not be sold, signed,
                           pledged or otherwise transferred in the absence of an
                           effective Registration Statement under the Securities
                           Act covering such transfer or an opinion of counsel
                           satisfactory to the issuer that registration under
                           such Act is not required.

         (d)      Market Stand-Off Provisions Applicable to All CTI Shares.
                  Modex hereby acknowledges and agrees that, without the prior
                  written consent of CTI, Modex will not, directly or
                  indirectly, offer, sell, contract to sell, cause or in any way
                  permit to be sold or otherwise dispose of the shares of CTI
                  Common Stock acquired hereunder for a period of 90 days
                  beginning on the effective date of a

                                       -9-


<PAGE>   14



                  registration statement under the Securities Act relating to an
                  underwritten public offering of CTI Common Stock (or
                  securities convertible into such Common Stock) or at such
                  earlier or later time as may be agreed to in writing by the
                  selling stockholders in such offering or stockholders who own
                  in the aggregate at least 20 percent of CTI's outstanding
                  shares of Common Stock immediately prior to such offering.

         3.4. Termination of Royalty Obligations. With respect to each Licensed
Product in each country, the royalty obligations of each of Modex and CTI shall
cease upon the later of (i) the last to expire of the patents covering such
Licensed Product in such country, and (ii) the date that is ten years from the
First Commercial Sale of such Licensed Product.

         3.5. Payment Dates and Statements. Within forty-five (45) days of the
end of each calendar quarter in which Net Sales occur, each Party shall
calculate the royalty amount owed under this Section 3 and shall remit such
amount to the other Party. Such payment shall be accompanied by a statement
showing the calculation of the amount owed for each country, the total Net Sales
of each Licensed Product by country for that quarter, and the exchange rate (as
determined pursuant to Section 3.6) used to directly convert any royalty amounts
into Dollars. For purposes of determining when a sale of a Licensed Product
occurs, the sale shall be deemed to occur on the earlier of: (i) the date the
Licensed Product is shipped by CTI, or (ii) the date of the invoice to the
purchaser of the Licensed Product. Any payment owed under this Section 3 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 in the New York edition
of The Wall Street Journal on the due date of such payment calculated on the
number of days such payment is delinquent.

         3.6. Records and Accounting. Each Party shall keep, and shall cause its
Sublicensees to keep, complete and accurate records of the latest three (3)
years of its Net Sales. Each Party shall have the right annually at its own
expense to have an independent, certified public accountant to which the other
Party has no reasonable objection, review such records upon reasonable notice
and during reasonable business hours for the purposes of verifying royalties
payable to it hereunder and Net Sales by the other Party and its Sublicensees.
Results of such review shall be made available to both parties. If the review
reflects an underpayment of royalties, such underpayment shall be promptly
remitted to the Party to whom such royalties are payable with interest as
provided in Section 3.4. If the underpayment is equal to or greater than five
percent (5%) of the royalty amount that was otherwise due, the Party to whom
such royalties are payable shall be entitled to have the other Party pay all of
the costs of such review. Each Party shall cause its accountant undertaking a
review of the other Party's records pursuant to this Section 3.5 to treat all
information of such Party's records as Confidential Information of such Party
and such accountant shall disclose to its client only such information as is
relevant to determining the accuracy of the royalties paid.


                                      -10-

<PAGE>   15



         3.7. Currency of Payments. All payments under this Agreement shall be
made in Dollars by wire transfer to such bank account as the Party to whom
royalties are payable may designate from time to time. Any payments due
hereunder on Net Sales outside of the United States shall be payable in Dollars
at the rate of exchange of the currency of the country in which the Net Sales
are made as reported in the New York edition of The Wall Street Journal for the
last business day of the quarter for which the royalties are payable. Where
royalties are due hereunder for Net Sales in a country where, by reason of
currency regulations or taxes of any kind, it is illegal for the Party obligated
to transfer royalty payments out of such country for Net Sales in that country,
such royalties shall be deposited in a currency that is permitted for the Party
not able to make the transfer for the benefit or credit of the other Party.

         3.8. Tax Withholding. Modex and CTI shall use all reasonable and legal
efforts to reduce tax withholding on payments made to hereunder. Notwithstanding
such efforts, if the Parties conclude that tax withholdings are required with
respect to payments made hereunder. The Party making such payments shall
withhold the required amount and pay it to the appropriate governmental
authority. In such a case, the Party paying such amount will promptly provide
the other Party with original receipts or other evidence sufficient to allow the
other Party to obtain the benefits of such tax withholdings.

         4.   PATENTS AND TECHNOLOGY

         4.1. Ownership of Technology. Each Party shall retain sole title to any
technology which it develops solely. Except as provided in this Agreement,
neither Party shall have any right to use or license technology to which the
other Party has sole title. Each Party shall own a 50% undivided interest in all
technology, know-how, inventions, concepts, processes and the like (whether or
not patentable) made, conceived, reduced to practice or generated jointly by or
on behalf of both parties ("Joint Technology").

         4.2. Modex Technology. CTI shall prepare, file and prosecute patent
applications claiming any technology which Modex may from time to time develop.
Modex shall reimburse CTI for reasonable expenses incurred by CTI in connection
with such patent application or the maintenance of any patents issuing thereon.
In the event Modex proposes to withdraw or abandon any of such patent
applications, CTI shall have the option for a period of 30 days to assume the
rights to such patent or patent application. Following such abandonment or
withdrawal Modex shall have no further rights under the patent or patent
application in question and no further obligation to pay for the costs
associated therewith, provided that such patent or patent application shall
remain subject to the licenses hereunder.

         4.3. Joint Patents. CTI shall prepare, file and prosecute patent
applications, covering any Joint Technology in the countries of CTI's choice
with appropriate credit to Modex, including naming representatives of Modex as
inventors where appropriate. CTI and Modex shall share equally all of the costs
associated with the preparation, filing and

                                      -11-


<PAGE>   16



prosecution of such patent applications in such countries. The parties shall
assist each other to the maximum extent reasonable in securing intellectual
property rights resulting from their respective research programs. Either Party
may withdraw from or abandon any jointly-owned patent or patent application, on
notice to the other in which case any such patent or patent application shall
become the sole property of the other Party.

         4.4. Infringement of Patents. If a Party has reason to believe that any
of the patents 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 such patent shall
have the first opportunity at its own expense to attempt to resolve 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 first be applied to reimbursing
the Party taking such action for its out-of-pocket expenses, then for
reimbursing the other Party for its out-of-pocket expenses incurred in
connection with such action, and the remainder, if any, shall be for the account
of the Party owning such patent. In the event the Party owning such patent fails
to cause such infringement to cease or institute suit or other 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 filing suit against the infringer at its own
expense and in the name of the Party owning the patent, if necessary. In such
event, the other Party shall assist the Party bringing suit as reasonably
requested and shall permit the Party bringing suit to prosecute such
infringement in the name of the owner of the patent. The expenses reasonably
incurred in taking such steps, including suit and legal action, and any amount
recovered as a result thereof shall be first applied to reimbursing the Party
taking such action for out-of-pocket expenses, and then to reimbursing the Party
not taking such action for its out-of-pocket expenses incurred in connection
with such action, and the remainder, if any, shall be for the account of the
Party taking such action.

         4.5. Survival. This Section 4 shall survive the termination or
expiration of this Agreement.

         5.   CONFIDENTIAL INFORMATION

         5.1. Treatment of Confidential Information. Each Party hereto shall
maintain the Confidential Information of the other Party in confidence, and
shall not disclose, divulge or otherwise communicate such Confidential
Information to others, or use it for any purpose, except pursuant to, and in
order to carry out, the terms and objectives of this Agreement, and each Party
hereby agrees to exercise every reasonable precaution to prevent and restrain
the unauthorized disclosure of such Confidential Information by any of its
directors, officers, employees, consultants, subcontractors, sublicensees or
agents.

         5.2. Release from Restrictions. The provisions of Section 5.1 shall not
apply to any Confidential Information disclosed hereunder which is: required to
be disclosed by the

                                      -12-


<PAGE>   17



receiving Party to comply with applicable laws, or to comply with laws or
regulations (including without limitation testing and marketing regulations), in
each case only to the extent required to carry out the work contemplated by this
Agreement or other legal obligations provided that the receiving Party provides
prior written notice of such disclosure to the other Party and takes reasonable
and lawful actions to avoid and/or minimize the degree of such disclosure.

         5.3. Confidential Agreements. Each Party shall maintain employment
agreements with their respective employees and representatives providing for
confidentiality and nonuse commitments consistent with its obligations hereunder
and will require all of their employees, consultants, agents or others who have
access to any Confidential Information of the other Party to execute
confidentiality agreements covering all Confidential Information subject to
Section 5 and will exercise its reasonable best efforts to obtain compliance
therewith.

         6.   SUPPLY OF MODEX LICENSED PRODUCT

         6.1. General. CTI will have the option to manufacture and supply all or
any portion of the Modex Licensed Products and other implants (e.g. placebos for
clinical trial use) on behalf of Modex, and the Modex Sublicensees, including
Modex Licensed Products and other implants for research, clinical trials and
commercial sale.

         6.2. Supply of Modex Licensed Product for Clinical Trials. The transfer
price to Modex of all Modex Licensed Products and other implants used in the
clinical trials of Modex Licensed Products shall be CTI's Fully Burdened
Manufacturing Cost of such Modex Licensed Products and implants. CTI shall not
be required to supply more than 10 implants in any week through the completion
of Phase II clinical trials and no more than 25 implants per week during Phase
III clinical trials. Modex shall provide CTI with reasonable lead time to
manufacture implants for clinical trial use.

         6.3. Supply of Modex Licensed Products for Commercial Sale.

                  6.3.1 Transfer Price. The transfer price for all Modex
Licensed Products other than those used in such clinical trials shall be
calculated in accordance with the following formula (the "Commercial Transfer
Price"):


         CTP = [****** *******]

             Where: CTP = Commercial Transfer Price

                     FBMC  =    CTI's Fully Burdened Manufacturing Cost of such
                                Modex Licensed Product


           *  This confidential portion has been omitted and filed
                        sperately with the Commission            


                                      -13-

<PAGE>   18




                  6.3.2 Estimate of Need for Modex Licensed Product. At least
two (2) years before the expected first launch of any Modex Licensed Product in
any country, Modex shall inform CTI of its best estimate of the quantity of such
Modex Licensed Product needed by Modex for use or sale during the initial two
(2) years after launch. Such estimates will thereafter be updated annually.

                  To assist CTI in preparing for its supply of Modex Licensed
Product, Modex will provide CTI with the following "signals" for each Licensed
Product:


Signal                  Timing                Forecast
------                  ------                --------
                                      
1       Prior to Phase II studies        Market potential estimates based on
                                         market research.
                                            
2       Prior to Phase III studies       Market potential estimate based on
                                         more comprehensive market research,
                                         targeted indications or suggested by
                                         Phase II data.

3       Prior to 1st Worldwide           Final pre-launch forecast based on  
        NDA filing or similar            extensive market research using Phase
        filing (1-1 1/2 yrs before       III results and considering
        launch)                           reimbursement issues.


                  The estimates given by Modex pursuant to this Paragraph 6.3.2
will be used by CTI only for the purpose of preparing CTI's production capacity
for Modex Licensed Product.

                  6.3.3 Quarterly Forecast. Starting twelve (12) months prior to
the expected first launch, Modex will, before each January 1, April 1, July 1
and October 1, present to CTI a written forecast estimating the monthly
quantities of Modex Licensed Products to be delivered during the next twelve
(12) month period. With such forecast, Modex will provide CTI with a summary of
its inventory, if any.

                  Modex will place firm orders for delivery not less than ninety
(90) days prior to the start of the calendar quarter for which shipment is
ordered, and CTI will be obliged (subject to such orders being within CTI's
supply capacity), to deliver all ordered quantities of Modex Licensed Product by
the delivery date stated in the order, except to the extent that such delivery
would exceed either of the following:

                  (a)      130% of the twelve (12) months forecast for such
                           quarter made twelve (12) months prior to the start of
                           such quarter; and


                                      -14-


<PAGE>   19



                  (b)      120% of the six (6) months forecast for such quarter
                           made six (6) months prior to the start of such
                           quarter.

                  Similarly, such firm order shall not be less than either of
the following:

                  (c)      70% of the twelve (12) months forecast for such
                           quarter made twelve (12) months prior to the start of
                           such quarter; and

                  (d)      80% of the six (6) months forecast for such quarter
                           made six (6) months prior to the start of such
                           quarters.

                  In addition, the firm order for any quarter shall not require
delivery of more than forty percent (40%) of such order in any one month.

                  CTI will, however, make reasonable efforts also to supply
quantities of Modex Licensed Product in excess of forecast amounts if ordered by
Modex.

                  6.3.4 Payment and Delivery Terms. Each delivery of Modex
Licensed Product will be effected ex works (CTI's plant) (Incoterms 1990 as
published by the International Chamber of Commerce). All quantities of Modex
Licensed Product will be delivered in finished form, ready for sale and suitably
packed for transportation. Payment for Modex Licensed Products shall be made
upon delivery.

                  6.3.5 Circumstances Affecting Supply. Each party will promptly
notify the other party of any circumstances that it believes may be of
importance as to CTI's ability to supply Modex with Modex Licensed Product.

         6.4. Specifications. All Modex Licensed Products manufactured by CTI
pursuant to this Agreement shall, upon delivery to Modex, conform to the
specifications for such Modex Licensed Product to be agreed upon by Modex and
CTI.

         6.5. Additional Manufacturing Facility. If prior to the termination of
Modex' rights and licenses hereunder, the parties determine that CTI will be
required to construct an additional facility to meet the demand for the supply
of Modex Licensed Products, CTI agrees to use reasonable efforts to locate such
facility in Switzerland. CTI's obligation to use reasonable efforts to construct
such facility in Switzerland is subject to CTI's determination that such
facility would be commercially practicable in light of the demand for CTI's
other products and the agreement by the Parties on minimum purchase obligations
on the part of Modex that would make such facility profitable. CTI would be
permitted to utilize any such facility for the manufacture of products other
than Modex Licensed Products.

         7. TERM AND TERMINATION


                                      -15-


<PAGE>   20



         7.1. Term. The term of this Agreement (the "Term") shall commence as of
the Effective Date. Unless sooner terminated pursuant to Section 7.2 or 7.3, the
term of this Agreement shall expire at such time as neither Party shall have any
further obligations to pay royalties on the sale of Licensed Products.

         7.2. Breach. Failure by a 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 cure such default. If such default is not cured within 30 days after the
receipt of such notice (or 90 days in event such breach cannot be reasonably
expected to be cured within 30 days, and the defaulting Party gives notice to
the other Party of its inability to cure such default within a 30 day period and
the defaulting Party thereafter uses reasonable efforts to cure such default as
soon as practicable), the notifying Party shall be entitled, without prejudice
to any of its other rights under this Agreement, and in addition to any other
remedies available to it by law or in equity, to terminate the rights and
licenses of the defaulting Party under Agreement by giving notice to that effect
to the defaulting Party. The right of either Party to terminate the rights and
licenses granted to the other Party under this Agreements as hereinabove
provided, shall not be affected in any way by its waiver or failure to take
action with respect to any previous default.

         7.3. Insolvency or Bankruptcy. Either Party may, in addition to any
other remedies available to it by law or in equity, terminate the rights and
licenses granted to the Other Party under this Agreement by written notice to
the other Party in the event (i) the other Party shall have become insolvent or
bankrupt, or shall have made an assignment for the benefit of its creditors, or
(ii) there shall have been appointed a trustee or receiver of the other Party or
for all or a substantial part of its property, or (iii) 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 or
action 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.

         7.4. Effect of Termination.

         (a)      Upon termination of this Agreement for any reason, nothing
                  herein shall be construed to release either Party from any
                  obligation that matured prior to the effective date of such
                  termination.

         (b)      The termination pursuant to Sections 7.2 or 7.3 of the rights
                  and licenses granted to a Party under this Agreement shall not
                  effect the rights and licenses

                                      -16-


<PAGE>   21



                  of the other Party under this Agreement, provided such other
                  Party continues to comply with its obligations hereunder.

         (c)      Upon the termination of a Party's rights and licenses granted
                  under this Agreement for any reason, the terminated Party
                  shall return and deliver to the other Party all materials and
                  documents developed during the performance of this Agreement,
                  all data and records required by the FDA or other regulatory
                  authorities to be maintained with respect to the sale,
                  storage, handling, shipping and use of the Licensed Products
                  of the other Party, all reimbursement approval files, all
                  documents, data and information related to clinical trials and
                  other studies of Licensed Products required by the FDA or
                  other regulatory authorities, and all copies and facsimiles of
                  such materials, documents, information and files. Such other
                  Party shall have the right to utilize and allow others to
                  utilize all such materials, documents and records in
                  connection with the development, regulatory approval,
                  manufacture and sale of its Licensed Products and the
                  terminated Party shall provide such other Party with
                  reasonable cooperation, including without limitation,
                  providing such other Party with a letter authorizing such
                  other Party to cross reference the terminated Party's files
                  with the FDA or other regulatory body.

         (d)      The provisions of Sections 2.2(i) (License to CTI), 4 (Patents
                  and Technology), 5 (Confidential Information), 8.11 (Modex
                  Indemnification), 8.12 (CTI Indemnification), 8.13 (Liability
                  Insurance) and 14 (Resolution of Disputes) shall survive
                  termination of this Agreement or termination of any Party's
                  rights and licenses for any reason. Provided the rights and
                  licenses granted to Party under this Agreement have not been
                  previously terminated, upon expiration of the Term of this
                  Agreement, the licenses granted to such Party hereunder shall
                  become nonexclusive and royalty free.

         8. MISCELLANEOUS PROVISIONS

         8.1. 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. Neither Party shall incur any debts or make
any commitments for the other.

         8.2. Assignments. Except as otherwise provided herein, neither this
Agreement nor any interest hereunder shall be assignable by either Party by
operation of law or otherwise without the prior written consent of the other;
provided, however, that either Party may assign this Agreement to any
wholly-owned subsidiary or to any successor by merger or sale of substantially
all of its assets to which this Agreement relates 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

                                      -17-


<PAGE>   22



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.

         8.3. 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 prompt
notice of the commencement and cessation of any such cause to the other Party.
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 shall excuse or suspend
the obligation to make any payment due hereunder in the manner and at the time
provided.

         8.4. 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 Modex
in connection with the performance of this Agreement or the exploitation of any
license granted hereunder.

         8.5. Public Announcements. Except as required by law or the rules of
any exchange or quotation system on which a Party's capital stock is then traded
or listed, neither Party will issue any press release or make any public
announcement of the existence or terms of this Agreement without prior
consultation with and approval by the other Party, which consent shall not be
unreasonably withheld or delayed.

         8.6. Entire Agreement of the Parties; Amendment. This Agreement
constitutes and contains the entire understanding and agreement of the parties
and cancel and supersede any and all prior negotiations, correspondence and
understandings and agreements, whether verbal or written, between the parties
respecting the subject matter hereof. 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.

         8.7. 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.


                                      -18-


<PAGE>   23



         8.8. 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.

         8.9. 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 internationally recognized courier, 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, Rhode Island  02906
                           Attention:  Vice President, Licensing
                           Telephone:  (401) 272-3310
                           Telecopier: (401) 272-3485

                           with a copy addressed to the General Counsel

                  If to Modex, addressed to:

                           Modex Therapeutiques, SA
                           27 Rue du Bergnon
                           1005 Lausanne
                           Switzerland
                           Attention:  Patrick Aebischer
                           Telephone:
                           Telecopier:

         8.10. 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.

         8.11. Modex Indemnification. Modex shall indemnify, defend and hold CTI
and each of its officers, directors, employees, agents and consultants (each a
"CTI Indemnitee") harmless from and against all third Party costs, claims,
suits, expenses (including reasonable attorneys' fees) and damages arising out
of or resulting from (i) any breach or failure by Modex in the performance of
its obligations under this Agreement, or (ii) the use by or administration to
any person of any Modex Licensed Products that arises out of sales of Modex
Licensed Products by Modex, or a Modex Sublicensee (except where such cost,
claim,

                                      -19-


<PAGE>   24



suit, expense or damage arose or resulted from any negligence of CTI in the
manufacture of any Modex Licensed Products by CTI, or the failure of CTI to
manufacture Licensed Products in accordance with the specifications for such
products), provided that the CTI Indemnitee gives reasonable notice to Modex of
any such claim or action, tenders the defense of such claim or action to Modex
and assists Modex at Modex's expense in defending such claim or action and does
not compromise or settle such claim or action without Modex's prior written
consent.

         8.12. CTI Indemnification. CTI shall indemnify, defend and hold Modex
and each of its officers, directors, employees, agents and consultants (each a
"Modex Indemnitee") harmless from and against all third Party costs, claims,
suits, expenses (including reasonable attorney's fees) and damages arising out
of or resulting from (i) any breach or failure by CTI in the performance of its
obligations under this Agreement, or (ii) the use by or administration to any
CTI Licensed Products that arises out of sales of CTI Licensed Products by CTI
or a CTI Sublicense, or (iii) any negligence of CTI in the manufacture of
Licensed Products by CTI, or the failure of CTI to manufacture Licensed Products
in accordance with the specifications for such products, provided that such
Modex Indemnitee gives reasonable notice to CTI of any such claims or action,
tenders the defense of such claim or action to CTI and assists CTI at CTI's
expense in defending such claim or action and does not compromise or settle such
claim or action without CTI's prior written consent.

         8.13. Liability Insurance. The parties agree that CTI will attempt to
have Modex covered by CTI's product liability insurance and Modex shall
reimburse CTI for its proportionate share of any premiums associated therewith.
In the event CTI is unable to arrange for such coverage, each Party shall
maintain (subject to availability at a price common in the industry) (i) prior
to the first commercial sale of a Licensed product comprehensive general and
products liability and completed operations insurance with a Best-rated A-XIV
insurance company covering that Party's activities related to this Agreement in
an amount of not less than $1,000,000 and (ii) during the remaining term of this
Agreement either (1) net worth of no less than $50,000,000 or (2) comprehensive
general and products liability and completed operations insurance covering that
Party's activities related to this Agreement in an amount of not less than
$5,000,000. Upon request, each Party shall provide to the other satisfactory
evidence of that Party's compliance with this provision. The obligations under
this Section 7.13 shall terminate upon the expiration of the statute of
limitations applicable to any liability covered by the above-referenced
insurance.

         8.14. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Rhode Island without regard to the
conflict of laws provisions thereof.

         9. RESOLUTION OF DISPUTES


                                      -20-


<PAGE>   25



         9.1. General. In acknowledgment of the benefit to both parties to
resolve differences quickly and efficiently with as little disruption of each
parties' business as possible, the parties agree to abide by the following
provisions in connection with any dispute that should arise between the parties
with respect to any matter relating to this Agreement, including any questions
regarding the existence, validity or termination thereof.

         9.2.     Dispute Resolution Process.

         (a)      Mediation. In the event of any dispute between the parties
                  with respect to any matter relating to this Agreement, the
                  parties shall first use their best efforts to resolve such
                  dispute among themselves. Prior to seeking any third Party to
                  resolve a dispute, the principal executive officers of CTI and
                  Modex shall meet in a private meeting in New York, New York
                  for at least one-half (1/2) of a day to attempt to resolve the
                  dispute. If the parties are unable to resolve the dispute
                  within 30 days after the principal executive officers have
                  met, the parties will then seek the assistance of one or more
                  unaffiliated third parties to assist in mediating the dispute.

         (b)      Selection of Arbitrators. In the event that the parties are
                  unable to resolve a dispute within 30 days after commencement
                  of mediation efforts, either Party may submit the matter to
                  binding arbitration in accordance with the procedures set
                  forth in this Section 14.2. 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. Except as modified by the provisions of this
                  Section 9, 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 New York, New York. The language of such
                  arbitration shall be English and all notices and written
                  submissions provided in such proceeding shall be in English.

         (c)      Written Proposals. 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. Written submissions shall be
                  limited to 30 pages of text (not including exhibits which may
                  include copies of agreements, or extracts from books and
                  records, but not testimony affidavits).


                                      -21-


<PAGE>   26



         (d)      Hearing. The arbitrators shall set a date for a hearing, which
                  shall be no later than 20 days after the submission of written
                  proposals, 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. Unless otherwise
                  determined by unanimous agreement of the arbitrators the
                  hearing shall be concluded in one day.

         (e)      Ruling. The arbitrators shall use their best efforts to rule
                  on each disputed issue within 20 days after the completion of
                  the hearings described in subsection (d) above. The
                  arbitrators shall, by majority decision, select the ruling
                  proposed by one of the Parties as the arbitrators' ruling. The
                  arbitrators' ruling 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.

         9.3. Arbitration Costs. 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.


                                      -22-


<PAGE>   27



         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 copy of which shall for all purposes be deemed to be an
original.

                             CYTOTHERAPEUTICS, INC.


                             By:/s/ Seth A. Rudnick
                                ----------------------------------
                             Seth A. Rudnick, Chairman, President
                             and Chief Executive Officer

                             Date:   July 10, 1996
                                  --------------------------------

                             MODEX THERAPEUTIQUES, SA


                             By:/s/ Patrick Aebischer
                                ----------------------------------
                                Title: President

                             Date:  July 10, 1996
                                  --------------------------------

                             By:/s/  Max Wilhelm
                                ----------------------------------
                                Title: Director

                             Date: July 10, 1996
                                  --------------------------------
                                 

                                      -23-


<PAGE>   28


                                                                      Schedule A




                                                                                                   
                                                 Total Shares of CTI Common         
                                                 Stock To Be received as   
                                                 Consideration by Modex for
Event                                            License Back to CTI       
-----                                            -------------------       
                                                
                                                       
Pigs off insulin for 90 days                             8,000


Commencement of Phase I trial for                       12,000
diabetes product

Commencement of Phase III trial for                     40,000
diabetes product

Market approval for diabetes product                    40,000

The earlier of (a) delivery for at least                 8,000
90 days of 300 units per day of EPO
in a large animal model or functional
evidence of a therapeutic benefit of
EPO in a large animal model or (b)
commencement of a Phase I clinical
trial in humans

Commencement of Phase I trial for                       12,000
anemia product (payable in addition to
previous milestone if previous
milestone is achieved through Phase I
clinical trial)

Commencement of Phase III trial for                     40,000
anemia product

Market approval for anemia product                      40,000

The earlier of (a) FaFa rat returned to                  8,000
normal body weight or (b)
demonstrated weight loss in a large
animal model or in humans

Commencement of Phase I trial for                       12,000
obesity product

Commencement of Phase III trial for                     40,000
obesity product

Market approval for obesity product                     40,000

Total                                                  300,000