CYTOTHERAPEUTICS, INC.
                               Two Richmond Square
                              Providence, RI 02906



Irving L. Weissman
Pathology B-257
Stanford Medical School
Stanford, CA  94305

Fred H. Gage
Laboratory of Genetics
10010 N. Torrey Pines Road
La Jolla, CA  92037

         Re:      Conduct of StemCells Research

Dear Irv and Rusty:

         In connection with your agreeing to become consultants to
CytoTherapeutics, Inc. ("CTI") pursuant to Consulting Agreements between each of
you and the Company of even date herewith and the award to you pursuant to such
Agreements of certain Options, we have agreed as follows regarding the conduct
of certain research expected to have a material impact on the vesting of such
options and a number of related matters. The provisions of this Agreement shall
become effective on the closing of the acquisition of StemCells, Inc.
("SCI") by CTI.

1.   Funding and Control of StemCells Research

     a.       SCI shall become the stem cells research arm of CTI. All stem
              cells research to be conducted or contracted for by CTI or SCI
              shall be conducted or contracted for through SCI; development
              work may be conducted or contracted for at CTI.

     b.       The stem cells research program to be conducted by SCI through
              June 30, 1999 shall be conducted as provided in the Research
              Plan (the "Research Plan") in the form attached hereto as
              Exhibit 1. All stem cells research shall be conducted in
              accordance with the Research Plan. Any changes in the Research
              Plan must be approved by the Research Committee (as defined
              below).

     c.       The Research Committee shall consist of two persons chosen by
              the Scientific Founders (initially, Weissman and Gage), two
              persons chosen by CTI (initially, Richard Rose and Seth
              Rudnick) and a fifth, independent member appointed by

<PAGE>

              the Scientific Founders, subject to the reasonable approval of
              CTI. The term "Scientific Founders" shall refer to two of you,
              provided, however, that if any one of you should resign
              without Good Reason or be terminated for Cause (as such terms
              are defined in your Consulting Agreements), the term
              Scientific Founders shall mean the remaining one of you.

     d.       The Research Committee shall meet at least quarterly to review
              progress under the Research Plan and make any adjustments to
              the Research Plan which the Committee deems necessary or
              desirable to the Research Plan, provided that there shall be
              no reduction in the agreed upon level of expenditures in the
              initial Research Plan without the consent of at least four
              members of the Committee.

     e.       The initial Research Plan and any modifications or
              continuations of the Research Plan subsequently adopted by the
              Research Committee shall have as a priority the achievement of
              research goals directly related to CTI's overall product
              development efforts and shall provide for CTI to support stem
              cell research on a basis that is commercially reasonable.

     f.       The initial Research Plan allocates resources to specific
              research programs and sets objective goals (the "Initial
              Goals") for these programs. Prior to June 30, 1999 and each
              June 30 thereafter through June 30, 2001, the Research
              Committee shall determine the Research Plan for the following
              twelve month period, and set objective goals, reasonably based
              on the Research Plan, to be achieved during such period. For
              so long as the Initial Goals and any subsequently adopted
              goals are achieved, the Research Committee shall continue to
              control all stem cells research conducted at CTI and SCI and
              CTI shall continue to fund such research at the level called
              for in the Research Plan adopted by the Committee (provided
              such funding shall not increase by more than 25% per year
              without the approval of CTI). CTI may, however, at any time
              after September 1, 1999

              i.       cease funding of the neural stem cells research
                       program or reduce the level of funding for such
                       program below the level of funding provided for such
                       program in the Research Plan or exercise control
                       itself over the neural stem cells research program by
                       accelerating the vesting of all unvested
                       Performance-Based Incentive Options related to the
                       achievement of all milestones, other than milestones
                       that are, at such time, time-barred and therefore no
                       longer achievable;

              ii.      cease funding of the non-neural stem cells research
                       program or reduce the level of funding for such
                       program below the level of funding provided for such
                       program in the Research Plan or exercise control
                       itself over the non-neural stem cells research
                       program by transferring to the Scientific Founders or
                       their assigns all intellectual property created in
                       the non-neural

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<PAGE>

                      stem cell research program together with all
                      non-neural Initial Technology (as defined below)
                      (collectively, the "Non-Neural Technology"), as more
                      fully provided below; or

             iii.     so cease or reduce the funding or exercise control
                      itself in regard to both the neural stem cell
                      research program and the non-neural stem cell
                      research program by either (A) transferring the
                      Non-Neural Technology as provided in (ii) above and
                      accelerating the options as provided in (i) above or,
                      at CTI's option, (B) transferring both (x) the
                      intellectual property created in the neural stem cell
                      program together with all neural Initial Technology
                      (collectively, the "Neural Technology," together with
                      the Non-Neural Technology, the "Stem Cell
                      Technology") and (y) the Non-Neural Technology to the
                      Scientific Founders or their assigns as more fully
                      described below.

             Initial Technology shall mean existing in-licensed technology
             of StemCells, Inc. on the date of this Agreement. Any transfer
             of Technology pursuant to this paragraph shall be provided for
             by CTI granting to the Scientific Founders or their assigns an
             exclusive license or, in the case of in-licensed technology,
             an exclusive sublicense, to the Technology (together with the
             benefits of any in-licensed technology and subject to any
             prior out-licenses approved by the Research Committee) in
             consideration of the payment to CTI of cash equal to the total
             funding for all research conducted in the non-neural stem cell
             research program (in the case of a transfer of Non-Neural
             Technology) or the stem cell research program generally (in
             regard to a transfer of Stem Cell Technology). This license
             will be provided for in a commercially reasonable license
             agreement designed to permit the continued development and
             commercialization of the transferred Technology. In the case
             of any transfer of in-licensed technology, any such transfer
             shall be subject to all applicable terms and conditions of the
             in-license. In order to give CTI an on-going interest in the
             successful commercialization of such technology, such license
             agreement will provide for a royalty to be paid to CTI at a
             royalty rate equal to 1% of the net sales of any product whose
             manufacture, use or sale would but for the grant of the
             license infringe on any claim in any issued patent included in
             the licensed Technology (other than the Initial Technology).
             If CTI determines to cease or reduce funding or assume control
             as provided in (ii) or (iii) above, CTI shall promptly notify
             the Scientific Founders and shall give the Scientific Founders
             one year from the date of such notice to arrange financing for
             the transactions described above. The provisions of this
             paragraph shall terminate on the earlier of July 1, 2005 or
             such time as the total funding of stem cell research conducted
             pursuant to the Research Plan shall have exceed $25 million,
             at least $15 million of which shall have been expended for
             non-neural stem cell research.

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<PAGE>

    g.       All stem cells research conducted by CTI shall be under the
             direction of a Director of Stem Cells Research, who shall be
             nominated by the Research Committee, subject to reasonable
             approval by CTI.

2.  Award of Additional Options

    a.       CTI shall award Options to acquire 400,000 shares of CTI
             Common Stock to persons (including, if the Research Committee
             so determines, the Scientific Founders) designated by the
             Research Committee, after consultation with CTI to assure (if
             applicable) consistency with CTI policies regarding the
             granting of options to employees. All persons to whom such
             options are granted shall be persons determined by the
             Research Committee, after consultation with CTI, to be persons
             whom it is critically important to recruit, retain or
             otherwise incent for the stem cells research program described
             above.

3.  Amendment. This Agreement may be amended at any time by a written
    agreement executed by CTI and the Scientific Founders.

                                                                              
    If you agree that the foregoing represents our understanding regarding the
matters described in this letter agreement, please so indicate by signing the
copy of this agreement (which may be executed in more than one counterpart, each
of which shall constitute a single original) and returning it to us.

                                            Very truly yours,

                                            CYTOTHERAPEUTICS, INC.



                                            By:      /s/ Seth Rudnick
                                                ---------------------------
                                                   President

READ AND AGREED:

  /s/ Irving L. Weissman
---------------------------
Irving L. Weissman


  /s/ Fred H. Gage
---------------------------
Fred H. Gage


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Source: OneCLE Business Contracts.