<PAGE>

                                                                     EXHIBIT 4.1

                         SECURITIES PURCHASE AGREEMENT


     SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February 28,
2000, by and among Aastrom Biosciences, Inc., a Michigan corporation, with
headquarters located at 24 Frank Lloyd Wright Drive, Ann Arbor, Michigan 48106
("Company"), and each of the purchasers set forth on the signature pages hereto
(the "Buyers").

     WHEREAS:

     A.  The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");

     B.  The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, two million two
hundred sixty-four thousand one hundred fifty-one (2,264,151) units (the
"Units"), each Unit consisting of (i) one (1) share of the Company's common
stock, no par value (the "Common Stock"), and (ii) one-half (.5) detachable
warrants in the form attached hereto as Exhibit "A" (each, a "Warrant" and,
collectively, the "Warrants"), each Warrant exercisable for one (1) share of
Common Stock (subject to adjustment as provided in the Warrants), for a per Unit
purchase price of Two Dollars and 65/100 ($2.65), or an aggregate purchase price
of Six Million Dollars ($6,000,000).  The shares of Common Stock that are
included in the Units, together with any shares of Common Stock issued in
replacement thereof or as a dividend thereon or otherwise with respect thereto,
and any shares of Common Stock issuable pursuant to Section 2(c) of the
Registration Rights Agreement (as defined below), are hereinafter referred to as
the "Common Shares."  The shares of Common Stock issuable upon exercise of or
otherwise pursuant to the Warrants are hereinafter collectively referred to as
the "Warrant Shares."  The Common Shares, the Warrants and the Warrant Shares
are sometimes hereinafter collectively referred to as the "Securities;"

     C.  Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, the number of Units as is set forth immediately below its name
on the signature pages hereto;

     D.  Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "B" (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws; and
<PAGE>

     NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:

     1.   Purchase and Sale of Units and Warrants.
          ---------------------------------------

          (a) Purchase of Units.  On the Closing Date (as defined below), the
              -----------------
Company shall issue and sell to each Buyer and each Buyer severally agrees to
purchase from the Company such number of Units as is set forth immediately below
such Buyer's name on the signature pages hereto.

          (b) Form of Payment.  On the Closing Date (as defined below), (i) each
              ---------------
Buyer shall pay the purchase price for the Units to be issued and sold to it at
the Closing (as defined below) (the "Purchase Price") by wire transfer of
immediately available funds to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates for
the Common Shares and duly executed Warrants representing the number of Units
set forth immediately below such Buyer's name on the signature pages hereto and
(ii) the Company shall deliver such certificates and Warrants duly executed on
behalf of the Company, to such Buyer, against delivery of such Purchase Price.

          (c) Closing Date.  Subject to the satisfaction (or waiver) of the
              ------------
conditions thereto set forth in Section 7 and Section 8 below, the date and time
of the issuance and sale of the Units pursuant to this Agreement (the "Closing
Date") shall be 12:00 noon Eastern Standard Time on February 29, 2000 or such
other mutually agreed upon date and time.  The closing of the transaction
contemplated by this Agreement (the "Closing") shall occur on the Closing Date
at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers LLP, 260 South
Broad Street, Philadelphia, Pennsylvania 19102, or at such other location as may
be agreed to by the parties.

     2.   Buyers' Representations and Warranties.  Each Buyer severally (and not
          --------------------------------------
jointly) represents and warrants to the Company solely as to such Buyer that:

          (a) Investment Purpose.  The Buyer is purchasing the Securities for
              ------------------
its own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the 1933 Act; provided, however, that by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.

          (b) Accredited Investor Status.  The Buyer is an "accredited investor"
              --------------------------
as that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").

          (c) Reliance on Exemptions.  The Buyer understands that the Securities
              ----------------------
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements,
<PAGE>

acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.

          (d) Information.  The Buyer and its advisors, if any, have been
              -----------
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors.  The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company.  Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below.  The Buyer has reviewed the risk factors discussed
in the Company's SEC Documents (as defined below) and understands that its
investment in the Securities involves a significant degree of risk.

          (e) Governmental Review.  The Buyer understands that no United States
              -------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.

          (f) Transfer or Re-sale.  The Buyer understands that (i) except as
              -------------------
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be reasonably acceptable to the
Company) to the effect that the Securities to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration, (c) so long as
the Buyer otherwise complies with applicable securities laws, the Securities are
sold or transferred to an "affiliate"(as defined in Rule 144 promulgated under
the 1933 Act (or a successor rule) ("Rule 144")) or (d) the Securities are sold
pursuant to Rule 144; (ii) any sale of such Securities made in reliance on Rule
144 may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any re-sale of such Securities under circumstances
in which the seller (or the person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement).  Notwithstanding the foregoing or anything else contained
herein to the contrary, nothing herein shall restrict the Securities from being
pledged as collateral in connection with a bona fide margin account or other
                                           ---- ----
lending arrangement.

          (g) Legends.  The Buyer understands that the Warrants and, until such
              -------
time as the Common Shares and Warrant Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement or otherwise may be
sold pursuant to Rule 144 without any restriction as to the number of securities
as of a particular date that can then be immediately sold, the Common Shares and
Warrant Shares, may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):

                                      -3-
<PAGE>

          "The securities represented by this certificate have not
          been registered under the Securities Act of 1933, as
          amended. The securities may not be sold, transferred or
          assigned in the absence of an effective registration
          statement for the securities under said Act, or an opinion
          of counsel, in form, substance and scope reasonably
          acceptable to the Company, that registration is not required
          under said Act or unless sold pursuant to Rule 144 under
          said Act."

          The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon which
it is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective registration
statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold and the manner of such sale, or (b) such
holder provides the Company with an opinion of counsel, in form, substance and
scope reasonably acceptable to the Company, to the effect that a public sale or
transfer of such Security may be made without registration under the 1933 Act
and such sale or transfer is effected or (c) such holder provides the Company
with reasonable assurances that such Security can be sold pursuant to Rule 144.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable requirements for delivery of a prospectus, and the plan of
distribution described therein, contained in an effective registration
statement, if any, or if relying on clause (c) of the preceding sentence, with
the requirements of Rule 144.

          (h) Authorization; Enforcement. This Agreement and the Registration
              --------------------------
Rights Agreement have been duly and validly authorized.  This Agreement has been
duly executed and delivered on behalf of the Buyer, and this Agreement
constitutes, and upon execution and delivery by the Buyer of the Registration
Rights Agreement, such agreement will constitute, valid and binding agreements
of the Buyer enforceable in accordance with their terms.

          (i) Residency.  The Buyer is a resident of the jurisdiction set forth
              ---------
immediately below such Buyer's name on the signature pages hereto.

          (j) Additional Funding.  The Buyer acknowledges that in addition to
              ------------------
the equity funding to be received by the Company pursuant to this Agreement, the
Company will need to raise additional capital in the near future and that there
can be no assurance that the Company will be successful doing so or that the
price per share for such future capital raises will be favorable to the Company
or the holders of its securities.

     3.   Representations and Warranties of the Company.  The Company represents
          ---------------------------------------------
and warrants to each Buyer that:

                                      -4-
<PAGE>

          (a) Organization and Qualification.  The Company is a corporation duly
              ------------------------------
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
The Company has no Subsidiaries (as defined below).  The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature of
the business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect.  "Material Adverse Effect" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, or
(iii) on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith.  "Subsidiaries" means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, any equity or other ownership
interest.

          (b) Authorization; Enforcement.  (i) The Company has all requisite
              --------------------------
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement and the Warrants and to consummate the
transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Common Shares and
Warrants and the issuance and reservation for issuance of the Warrant Shares
issuable upon exercise of or otherwise pursuant to the Warrants) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its shareholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes, and upon execution and delivery by
the Company of the Registration Rights Agreement and the Warrants, each of such
agreement and instruments will constitute, a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms.

          (c) Capitalization.  As of the date hereof, the authorized capital
              --------------
stock of the Company consists of (i) forty million (40,000,000) shares of Common
Stock of which 28,257,668 shares are issued and outstanding, 1,657,152 shares
are reserved for issuance pursuant to the Company's stock option and stock
purchase plans, 69,444 shares are reserved for issuance pursuant to securities
(other than the Warrants) exercisable for, or convertible into or exchangeable
for shares of Common Stock and 2,264,151 (2x currently required) shares are
reserved for issuance upon exercise of the Warrants (subject to adjustment
pursuant to the Company's covenant set forth in Section 4(h) below); and (ii)
five million (5,000,000) shares of preferred stock, none of which are issued and
outstanding, five thousand (5,000) of which are designated as 1998 Series I
Convertible Preferred Stock, none of which are issued and outstanding, and three
thousand (3,000) of which are designated as the 1999 Series III Convertible
Preferred Stock, none of which are issued and outstanding.  All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable.  Except as disclosed
on Schedule 3(c), no

                                      -5-
<PAGE>

shares of capital stock of the Company are subject to preemptive rights or any
other similar rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company.
Except as disclosed in Schedule 3(c), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company, (ii)
there are no agreements or arrangements under which the Company is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement and the Registration Rights Agreement dated
May 27, 1999 by and among the Company and RGC International Investors, LDC) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Common Shares, the
Warrants, or the Warrant Shares. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof ("Certificate of Incorporation"), the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto. The Company shall provide the
Buyer with a written update of this representation signed by the Company's Chief
Executive or Chief Financial Officer on behalf of the Company as of the Closing
Date.

          (d) Issuance of Shares.  The Common Shares are duly authorized and,
              ------------------
upon issuance in accordance with the terms of this Agreement will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances with respect to the issue thereof and shall not be subject to
preemptive rights or, except as disclosed on Schedule 3(d) hereof, other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof.  The Warrant Shares are duly authorized and reserved
for issuance, and, when issued upon exercise of the Warrants in accordance with
the terms thereof, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances and will not be subject to
preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof.

          (e) Acknowledgment of Dilution.  The Company understands and
              --------------------------
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Warrant Shares upon exercise of the Warrants.  The Company
further acknowledges that its obligation to issue the Warrant Shares upon
exercise of or otherwise pursuant to the Warrants in accordance with this
Agreement and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.

          (f) Series of Preferred Stock.  The terms, designations, powers,
              -------------------------
preferences and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of each series of preferred stock
of the Company are as stated in the Certificate of

                                      -6-
<PAGE>

Incorporation, the Certificates of Designation filed to create the series of
preferred stock referred to in Section 3(c) and the Bylaws.

          (g) No Conflicts.  The execution, delivery and performance of this
              ------------
Agreement, the Registration Rights Agreement and the Warrants by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Common Shares and
the Warrants and the issuance and reservation for issuance of the Warrant
Shares) will not (i) conflict with or result in a violation of any provision of
the Certificate of Incorporation or By-laws or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect).  The Company is not in violation of
its Certificate of Incorporation, By-laws or other organizational documents and
the Company is not in default (and no event has occurred which with notice or
lapse of time or both could put the Company in default) under, and the Company
has not taken any action or failed to take any action that would give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party or by which
any property or assets of the Company is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect.  The business of the Company is not being conducted, and shall not be
conducted so long as a Buyer owns any of the Securities, in violation of any
law, ordinance or regulation of any governmental entity, which violations
individually or in the aggregate would have a Material Adverse Effect.  Except
(i) as specifically contemplated by this Agreement and the Registration Rights
Agreement, (ii) as required under the 1933 Act and any applicable state
securities laws, and (iii) for filings with Nasdaq (as defined below), the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, or self regulatory organization or stock market or third party in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement or the Warrants in accordance with
the terms hereof or thereof or to issue and sell the Common Shares and the
Warrants in accordance with the terms hereof and to issue the Warrant Shares
upon exercise of or otherwise pursuant to the Warrants.  Except as disclosed in
Schedule 3(g), all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence have
been obtained or effected on or prior to the date hereof.  Except as disclosed
in Schedule 3(g), the Company is not in violation of the listing requirements of
the Nasdaq National Market ("Nasdaq") applicable to continued listings and does
not reasonably anticipate that the Common Stock will be delisted by Nasdaq in
the foreseeable future.  Except for anticipated losses as described in the SEC
Documents (as defined below), the

                                      -7-
<PAGE>

Company is unaware of any facts or circumstances which might give rise to any of
the foregoing.

          (h) SEC Documents; Financial Statements.  Since February 6, 1997, the
              -----------------------------------
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents").  The Company has delivered or made
available to each Buyer true and complete copies of the SEC Documents, except
for such exhibits and incorporated documents.  As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.  None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated under applicable
law (except for such statements as have been amended or updated in subsequent
filings prior to the date hereof).  As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto.  Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles, consistently applied, during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).  Except as set forth in Schedule (h) hereof
and the financial statements of the Company included in the SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to June 30, 1999 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the Company.

          (i) Absence of Certain Changes.  Except for operating losses or
              --------------------------
changes incurred in the normal course of business and as disclosed in the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999
or in any press release or SEC Document filed after the date of filing of such
quarterly report, since June 30, 1999, there has been no material adverse change
and no material adverse development in the assets, liabilities, business,
properties, operations, financial condition, results of operations or prospects
of the Company.

                                      -8-
<PAGE>

          (j) Absence of Litigation.  There is no action, suit, claim,
              ---------------------
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company, or its
officers or directors in their capacity as such, that could have a Material
Adverse Effect.  Schedule 3(j) contains a complete list and summary description
of any pending or, to the Company's knowledge, threatened proceeding against or
affecting the Company, without regard to whether it would have a Material
Adverse Effect.  Except as set forth on Schedule 3(j), the Company is unaware of
any facts or circumstances which might give rise to any of the foregoing.

          (k) Patents, Copyrights, etc.  To the best of the Company's knowledge,
              ------------------------
the Company owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("Intellectual Property") necessary to enable it to conduct
its business as now operated (and, except as set forth in Schedule 3(k) hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened which challenges
the right of the Company with respect to any Intellectual Property necessary to
enable it to conduct its business as now operated (and, except as set forth in
Schedule 3(k) hereof, to the best of the Company's knowledge, as presently
contemplated to be operated in the future); to the best of the Company's
knowledge, the Company's current and intended products, services and processes
do not infringe on any Intellectual Property or other rights held by any person;
and the Company is unaware of any facts or circumstances which might give rise
to any of the foregoing.  The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of its Intellectual Property.

          (l) No Materially Adverse Contracts, Etc.  The Company is not subject
              ------------------------------------
to any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation which in the judgment of the Company's officers has or
is expected in the future to have a Material Adverse Effect.  Except as set
forth on Schedule 3(l), the Company is not a party to any contract or agreement
which in the judgment of the Company's officers has or is expected to have a
Material Adverse Effect.

          (m) Tax Status.  Except as set forth on Schedule 3(m), the Company has
              ----------
made or filed all federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good faith and has set
aside on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply.  There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.  The Company has not executed a
waiver with respect to the statute of limitations relating to

                                      -9-
<PAGE>

the assessment or collection of any foreign, federal, state or local tax. Except
as set forth on Schedule 3(m), none of the Company's tax returns is presently
being audited by any taxing authority.

          (n) Certain Transactions.  Except as set forth on Schedule 3(n) and
              --------------------
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.

          (o) Disclosure.  All information relating to or concerning the Company
              ----------
set forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.  Other than the transactions contemplated by this Agreement, no
event or circumstance has occurred or exists with respect to the Company or its
business, properties, prospects, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purpose that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).

          (p) Acknowledgment Regarding Buyers' Purchase of Securities.  The
              -------------------------------------------------------
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby.  The Company further acknowledges that no
Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and that any statement made by any Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Buyers' purchase of the Securities and has not been relied
upon by the Company, its officers or directors in any way.  The Company further
represents to each Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.

          (q) No Integrated Offering.  Neither the Company, nor any of its
              ----------------------
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require

                                      -10-
<PAGE>

registration under the 1933 Act of the issuance of the Securities to the Buyers.
Except as set forth on Schedule 3(q) hereof, the issuance of the Securities to
the Buyers will not be integrated with any other issuance of the Company's
securities (past, current or future) for purposes of any stockholder approval
provisions applicable to the Company or its securities.

          (r) No Brokers.  The Company has taken no action which would give rise
              ----------
to any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby.

          (s) Permits; Compliance.  The Company is in possession of all
              -------------------
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to carry on its business as it is now being
conducted (collectively, the "Company Permits"), except where the failure to
possess such Company Permit would not have a Material Adverse Effect, and there
is no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits.  The Company is not in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since June 30, 1999, the Company has not received any notification with respect
to possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.

          (t) Environmental Matters.
              ---------------------

              (i)  Except as set forth in Schedule 3(t), there are, to the
Company's knowledge, with respect to the Company or any predecessor of the
Company, no past or present violations of Environmental Laws (as defined below),
releases of any material into the environment, actions, activities,
circumstances, conditions, events, incidents, or contractual obligations which
may give rise to any common law environmental liability or any liability under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
or similar federal, state, local or foreign laws and the Company has not
received any notice with respect to any of the foregoing, nor is any action
pending or, to the Company's knowledge, threatened in connection with any of the
foregoing. The term "Environmental Laws" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

              (ii) Other than those that are or were stored, used or disposed of
in compliance with applicable law, no Hazardous Materials are contained on or
about any real property

                                      -11-
<PAGE>

currently owned, leased or used by the Company, and no Hazardous Materials were
released on or about any real property previously owned, leased or used by the
Company during the period the property was owned, leased or used by the Company,
except in the normal course of the Company's business.

              (iii)  To the Company's knowledge, there are no underground
storage tanks on or under any real property owned, leased or used by the Company
that are not in compliance with applicable law.

          (u) Title to Property.  The Company has good and marketable title in
              -----------------
fee simple to all real property and good and marketable title to all personal
property owned by it which is material to the business of the Company, in each
case free and clear of all liens, encumbrances and defects except such as are
described in Schedule 3(u) or such as would not have a Material Adverse Effect.
Any real property and facilities held under lease by the Company is held by it
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.

          (v) Insurance.  The Company is insured by insurers of recognized
              ---------
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company is engaged.  The Company has no reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a Material
Adverse Effect.

          (w) Internal Accounting Controls.  The Company maintains a system of
              ----------------------------
internal accounting controls sufficient, in the judgment of the Company's board
of directors, to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

          (x) Foreign Corrupt Practices.  Neither the Company, nor any director,
              -------------------------
officer, agent, employee or other person acting on behalf of the Company has, in
the course of his actions for, or on behalf of, the Company, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.

          (y) No Investment Company.  The Company is not, and upon the issuance
              ---------------------
and sale of the Securities as contemplated by this Agreement and the Warrants
will not be, an

                                      -12-
<PAGE>

"investment company" required to be registered under the Investment Company Act
of 1940 (an "Investment Company"). The Company is not controlled by an
Investment Company.

          (z) Solvency.  The Company (both before and after giving effect to the
              --------
transactions contemplated by this Agreement) is solvent (i.e., its assets have a
                                                         ----
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently subject to Schedule 3(z), the Company has no information that would
lead it to reasonably conclude that the Company would not have, nor does it
intend to take any action that would impair, its ability to pay its debts from
time to time incurred in connection therewith as such debts mature.

     4    COVENANTS.
          ---------

          (a) Best Efforts.  The parties shall use their best efforts to satisfy
              ------------
timely each of the conditions described in Section 7 and 8 of this Agreement.

          (b) Form D; Blue Sky Laws.  The Company agrees to file a Form D with
              ---------------------
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing.  The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
Closing under applicable securities or "blue sky" laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Buyer on or prior to the
Closing Date.

          (c) Reporting Status; Eligibility to Use Form S-3.  The Company's
              ---------------------------------------------
Common Stock is registered under Section 12(g) of the 1934 Act.  So long as any
Buyer beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination.  The Company currently meets, and will take all
necessary action to continue to meet, the "registrant eligibility" requirements
set forth in the general instructions to Form S-3.

          (d) Use of Proceeds.  The Company shall use the proceeds from the sale
              ---------------
of the Common Shares and the Warrants in the manner set forth in Schedule 4(d)
attached hereto and made a part hereof and shall not, directly or indirectly,
use such proceeds for any loan to or investment in any other corporation,
partnership, enterprise or other person that is not controlled by the Company
prior to the transfer of such proceeds.

          (e) Additional Equity Capital.  Subject to the exceptions described
              -------------------------
below, the Company will not, without the prior written consent of Rose Glen
Capital Management, L.P. ("RGC"), (i) register (other than pursuant to the
Registration Rights Agreement) any equity financing (including debt financing
with an equity component) or (ii) otherwise allow any public resales of equity
interests in the Company's securities, issued after February 25, 2000, pursuant
to

                                      -13-
<PAGE>

Rule 144 or otherwise, during the period (the "Lock-up Period") beginning on the
Closing Date and ending ninety (90) days from the date the Registration
Statement (as defined in the Registration Rights Agreement) is declared
effective (plus any trading days after the Registration Statement is declared
effective and prior to such 90th day during which sales cannot be made
thereunder) (the limitations referred to in this sentence are referred to as the
"Capital Raising Limitations"). The Capital Raising Limitations shall not apply
to any transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant to Rule
415 under the 1933 Act), (ii) issuances of securities as consideration for a
merger, consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company, (iii) issuances of Common Stock and
warrants to purchase Common Stock in connection with a bona fide credit facility
in an aggregate principal amount equal to at least Fifteen Million Dollars
($15,000,000), provided that the exercise price of such warrants is not less
than the lower of (A) the closing price of the Common Stock on the principal
securities exchange on which the Common Stock is then listed or admitted for
trading on the trading day prior to conversion (but in no event less than $2.65
per share) and (B) $6.00, (v) issuances of securities in connection with an
investment in the Company for which more than fifty percent (50%) of the
proceeds are provided by an investor engaged as its principal business in the
biotechnology, medical device or pharmaceutical industry or (vi) issuances to
one other entity of the same securities that the Company is issuing to the
Buyers pursuant to this Agreement as disclosed in Schedule 3(c) hereof. The
Capital Raising Limitations also shall not apply to the issuance of securities
upon exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof or to the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option or stock purchase plan previously in effect or approved
by a majority of the Company's disinterested directors.

          (f) Expenses.  The Company shall reimburse RGC for all reasonable
              --------
expenses incurred by it in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, attorneys'
and consultants' fees and expenses. The Company's obligation to reimburse Rose
Glen's expenses under this Section 4(f) and the Registration Rights Agreement
shall be limited to an aggregate of Fifteen Thousand Dollars ($15,000).

          (g) Financial Information.  The Company agrees to send the following
              ---------------------
reports to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes available
or gives to such stockholders.

          (h) Reservation of Shares.  The Company shall at all times have
              ---------------------
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for

                                      -14-
<PAGE>

the full exercise of the outstanding Warrants and issuance of the Warrant Shares
in connection therewith (based on the Exercise Price of the Warrants in effect
from time to time). The Company shall not reduce the number of shares of Common
Stock reserved for issuance upon exercise of or otherwise pursuant to the
Warrants without the consent of each Buyer. The Company shall use its best
efforts at all times to maintain the number of shares of Common Stock so
reserved for issuance at no less than two (2) times the number that is then
actually issuable upon full exercise of the Warrants (based on the Exercise
Price of the Warrants in effect from time to time). If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the number
of Warrant Shares issued and issuable upon exercise of or otherwise pursuant to
the Warrants (based on the Exercise Price of the Warrants in effect from time to
time), the Company will promptly take all corporate action necessary to
authorize and reserve a sufficient number of shares, including, without
limitation, calling a special meeting of shareholders to authorize additional
shares to meet the Company's obligations under this Section 4(h), in the case of
an insufficient number of authorized shares, and using its best efforts to
obtain shareholder approval of an increase in such authorized number of shares.

          (i) Listing.  The Company shall promptly secure the listing of the
              -------
Common Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, as long as any Buyer owns
any of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Common Shares and Warrant Shares
from time to time issuable upon exercise of or otherwise pursuant to the
Warrants.  The Company will obtain, as long as any Buyer owns any of the
Securities, and maintain the listing and trading of the Common Stock on Nasdaq,
the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange
("NYSE"), or the American Stock Exchange ("AMEX") and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable.  The Company shall promptly provide to each Buyer
copies of any notices it receives from Nasdaq and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.

          (j) Corporate Existence.  So long as a Buyer beneficially owns any
              -------------------
Securities, the Company shall maintain its corporate existence and shall not
merge or consolidate, except in the event of a merger or consolidation where the
surviving or successor entity (and, if an entity different from the surviving or
successor entity, the entity whose securities into which the Warrants shall
become exercisable pursuant to Section 4(e) of the Warrants) in such transaction
assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith (including the Warrants).

          (k) No Integration.  The Company shall not make any offers or sales of
              --------------
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities

                                      -15-
<PAGE>

to be integrated with any other offering of securities by the Company for the
purpose of any shareholder approval provision applicable to the Company or its
securities.

          (l) Increase in Authorized Shares.  Each Buyer hereby agrees to vote
              -----------------------------
all shares of Common Stock owned by such Buyer in favor of any resolution(s)
soliciting approval of an increase in the authorized Common Stock of the Company
up to 150,000,000 shares.

          (m) Trading Guidelines.  So long as a Buyer holds Common Shares or
              ------------------
Warrants, such Buyer covenants and agrees that it will not create any daily low
trading price in the Common Stock.

          (n) Notice to Company Upon Sale.  Each Buyer shall notify the Company
              ---------------------------
in writing within three business days following the date on which such Buyer no
longer holds any Common Shares or Warrant Shares.

     5.   EVENTS OF DEFAULT.  The intent of the parties hereto is that the
          -----------------
issuance of the Securities hereunder be treated as permanent equity under
generally accepted accounting principles  and should any question arise as to
such treatment, the parties hereto will act in good faith to resolve such
question.  Events of Default (as defined below) will be strictly limited to
items which are within the control of the Company.  If any of the following
events (each, an "Event of Default") shall occur during the period in which any
Buyer (or any permitted assignee of a Buyer's rights hereunder) beneficially
owns any Securities, then the Company shall repurchase the Securities in
accordance with this Section 5.  The following events shall constitute Events of
Default: the Company (A) fails to issue Warrant Shares to the holders of
Warrants upon exercise thereof in accordance with the terms of the Warrants, (B)
fails to transfer or to cause its transfer agent to transfer (electronically or
in certificated form) any certificate for Warrant Shares issued to the holders
of Warrants upon exercise thereof as and when required by this Agreement, the
Warrants and the Registration Rights Agreement or (C) fails to remove any
restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate or any Common Shares or Warrant Shares issued to the
holders as and when required by this Agreement, the Warrants or the Registration
Rights Agreement (or makes any announcement, statement or threat that it does
not intend to honor the obligations described in this paragraph), in any such
case as a result of circumstances within the Company's control, and any such
failure shall continue uncured (or any announcement, statement or threat not to
honor its obligations shall not be rescinded in writing) for ten (10) days after
the Company shall have been notified thereof in writing by any holder of
Securities.

          Upon the occurrence and during the continuation of any Event of
Default, at the option of the holders of at least fifty percent (50%) of the
then outstanding Common Shares and Warrant Shares by written notice (the
"Default Notice") to the Company of such Event of Default, the Company shall
purchase each holder's outstanding Common Shares and Warrant Shares for an
amount equal to the greater of (1) one hundred twenty percent (120%) of the
product of (x) the number of Units then held by such holder, multiplied by (y)
Two and 65/100 Dollars ($2.65) (subject to adjustment for stock splits, stock
dividends and similar transactions) and (2) the "parity value" of the Common
Shares and Warrant Shares to be repurchased, where parity value means the
product

                                      -16-
<PAGE>

of (a) the number of Common Shares and Warrant Shares to be repurchased
multiplied by (b) the highest Closing Price (as defined below) for the Common
Stock (less the Exercise Price of the Warrants then in effect multiplied by the
number of Warrant Shares to be repurchased) during the period beginning on the
date of first occurrence of the Event of Default and ending one day prior to the
date of payment (the "Stock Repurchase Date") of the Default Amount (the greater
of such amounts being referred to as the "Default Amount"). The Default Amount
shall be payable by the Company within five (5) business days after receipt by
the Company of the Default Notice.

     6.  TRANSFER AGENT INSTRUCTIONS.  The Company shall issue irrevocable
         ---------------------------
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Common Shares and Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
exercise of or otherwise pursuant to the Warrants in accordance with the terms
thereof (the "Irrevocable Transfer Agent Instructions").  Prior to registration
of the Common Shares and Warrant Shares under the 1933 Act or the date on which
the Common Shares or Warrant Shares may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement.  The Company warrants that no
instruction, other than the Irrevocable Transfer Agent Instructions referred to
in this Section 6 and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Common Shares and Warrant Shares, prior to
registration of the Common Shares and Warrant Shares under the 1933 Act or the
date on which the Common Shares or Warrant Shares may be sold pursuant to Rule
144 without any restriction as to the number of securities as of a particular
date that can then be immediately sold), will be given by the Company to its
transfer agent and that the Common Shares and Warrant Shares shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement.  Nothing in
this Section shall affect in any way the Buyer's obligations and agreement set
forth in Section 2(g) hereof to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities and to comply with the plan
of distribution portion of the prospectus contained in the Registration
Statement (as defined in the Registration Rights Agreement).  If a Buyer
provides the Company with (i) an opinion of counsel, reasonably satisfactory to
the Company in form, substance and scope, to the effect that a public sale or
transfer of such Securities may be made without registration under the 1933 Act
and such sale or transfer is effective or (ii) the Buyer provides reasonable
assurances that the Securities can be sold pursuant to Rule 144 and that the
Securities will be sold pursuant to Rule 144, the Company shall permit the
transfer, and, in the case of the Common Shares and Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates, free from any
restrictive legend, in such name and in such denominations as specified by such
Buyer.

     7.  CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.  The obligation of the
         ----------------------------------------------
Company hereunder to issue and sell the Units to a Buyer at the Closing, is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion:

                                      -17-
<PAGE>

          (a) The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.

          (b) The applicable Buyer shall have delivered the Purchase Price for
the Units which it is purchasing in accordance with Section 1(b) above.

          (c) The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.

          (d) No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

     8.   CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.  The obligation of
          -------------------------------------------------
each Buyer hereunder to purchase the Units at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for such Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion:

          (a) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.

          (b) The Company shall have delivered to such Buyer duly executed
certificates (in such denominations as the Buyer shall request) representing the
Common Shares and duly executed Warrants in accordance with Section 1(b) above.

          (c) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.

          (d) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date, and in each case subject
to the schedules referred to in such representations and warranties provided by
the Company as of the Closing Date) and the Company shall have performed,
satisfied and complied in all material respects with the

                                      -18-
<PAGE>

covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. The
Buyer shall have received a certificate or certificates, executed on behalf of
the Company by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer including, but not limited to, those matters
described in Section 3(c) above, and certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.

          (e) No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

          (f) The Company shall have filed all required materials with Nasdaq so
that the Common Shares and the Warrant Shares shall be authorized for quotation
on Nasdaq and trading in the Common Stock on Nasdaq shall not have been
suspended by the SEC or Nasdaq.

          (g) The Buyer shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.

     9.   GOVERNING LAW; MISCELLANEOUS.
          ----------------------------

          (a) Governing Law.  This Agreement shall be governed by and construed
              -------------
in accordance with the laws of the State of Michigan applicable to agreements
made and to be performed in the State of Michigan (without regard to principles
of conflict of laws).  Both parties irrevocably consent to the jurisdiction of
the United States federal courts and the state courts located in Delaware with
respect to any suit or proceeding based on or arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts.  Both parties irrevocably waive
the defense of an inconvenient forum to the maintenance of such suit or
proceeding.  Both parties further agree that service of process upon a party
mailed by first class mail shall be deemed in every respect effective service of
process upon the party in any such suit or proceeding.  Nothing herein shall
affect either party's right to serve process in any other manner permitted by
law.  Both parties agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.

          (b) Counterparts; Signatures by Facsimile.  This Agreement may be
              -------------------------------------
executed in two or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party.  This Agreement, once executed
by a party, may be delivered to the other party hereto by facsimile

                                      -19-
<PAGE>

transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.

          (c)  Headings.  The headings of this Agreement are for convenience of
               --------
reference and shall not form part of, or affect the interpretation of, this
Agreement.

          (d)  Severability. If any provision of this Agreement shall be invalid
               ------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.

          (e)  Entire Agreement; Amendments.  This Agreement and the instruments
               ----------------------------
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters.  No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.

          (f)  Notices.  Any notices required or permitted to be given under the
               -------
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile with confirmation of receipt and
shall be effective five (5) days after being placed in the mail, if mailed by
regular United States mail, or upon receipt, if delivered personally or by
courier (including a recognized overnight delivery service) or by facsimile, in
each case addressed to a party.  The addresses for such communications shall be:

               If to the Company:

               Aastrom Biosciences, Inc.
               24 Frank Lloyd Wright Drive
               P.O. Box 376
               Ann Arbor, Michigan 48106
               Attention:  R. Douglas Armstrong
                           President & Chief Executive Officer
               Facsimile:  (734) 930-5546

               With copy to:

               Gray Cary Ware & Freidenrich LLP
               4365 Executive Drive, Suite 1600
               San Diego, CA  92121-2189
               Attention:  Douglas J. Rein, Esquire
               Facsimile:  (858) 677-1477

                                      -20-
<PAGE>

          If to a Buyer:  To the address set forth immediately below such
Buyer's name on the signature pages hereto.

               With copy to:

               Klehr, Harrison, Harvey, Branzburg & Ellers LLP
               260 South Broad Street
               Philadelphia, PA 19102
               Attention:   Robert W. Cleveland, Esquire
               Facsimile:   (215) 568-6603

          Each party shall provide notice to the other party of any change in
address.

          (g) Successors and Assigns.  This Agreement shall be binding upon and
              ----------------------
inure to the benefit of the parties and their successors and assigns.  Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.

          (h) Third Party Beneficiaries.  This Agreement is intended for the
              -------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

          (i) Survival.  The representations and warranties of the Company and
              --------
the agreements and covenants set forth in Sections 3, 4, 5, 6 and 9 shall
survive the Closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers.

          (j) Publicity.  The Company and each of the Buyers shall have the
              ---------
right to review a reasonable period of time before issuance of any press
releases, SEC, Nasdaq or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
                                                 --------  -------
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, Nasdaq or NASD filings with respect to such
transactions as is required by applicable law and regulations (although each of
the Buyers shall be consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy thereof and be
given an opportunity to comment thereon).

          (k) Further Assurances.  Each party shall do and perform, or cause to
              ------------------
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

                                      -21-
<PAGE>

          (l) No Strict Construction.  The language used in this Agreement will
              ----------------------
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.

          (m) Remedies.  The Company acknowledges that a breach by it of its
              --------
obligations hereunder will cause irreparable harm to each Buyer, by vitiating
the intent and purpose of the transactions contemplated hereby.  Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that each
Buyer shall be entitled, in addition to all other available remedies in law or
in equity, to an injunction or injunctions to prevent or cure any breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions of this Agreement, without the necessity of showing economic loss and
without any bond or other security being required.

                 [Remainder of page intentionally left blank]

                                      -22-
<PAGE>

     IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.

AASTROM BIOSCIENCES, INC.


By: /s/ R. Douglas Armstrong, Ph.D.
    --------------------------------------------
     R. Douglas Armstrong, Ph.D.
     President & Chief Executive Officer


RGC INTERNATIONAL INVESTORS, LDC
By:  Rose Glen Capital Management, L.P., Investment Manager
     By:  RGC General Partner Corp., as General Partner


By: /s/ Wayne D. Bloch
    --------------------------------------------
     Wayne D. Bloch
     Managing Director

RESIDENCE:  Cayman Islands

ADDRESS:

     c/o Rose Glen Capital Management, L.P.
     3 Bala Plaza East, Suite 200
     251 St. Asaphs Road
     Bala Cynwyd, PA 19004
     Facsimile: (610) 617-0570
     Telephone: (610) 617-5900

AGGREGATE SUBSCRIPTION AMOUNT:

     Number of Units:                                2,264,151

     Aggregate Purchase Price:                      $6,000,000

                                      -23-