Document:

<PAGE>

                                                                     Exhibit 4.2

                                    BYLAWS

                                      OF

                           AASTROM BIOSCIENCES, INC.

                                      -1-
<PAGE>

                                    BYLAWS
                                      OF
                           AASTROM BIOSCIENCES, INC.

                               ARTICLE I GENERAL
                               -----------------

     Section I.1    The name, location of principal office, and purposes of the
Corporation shall be as set forth in the Articles of Incorporation. The powers
of the Corporation and of its directors and shareholders, and all matters
concerning the conduct and regulation of the business of the Corporation, shall
be subject to such provisions in regard thereto, if any, as are set forth in
said Articles of Incorporation.

     Section I.2    All references in these Bylaws to the Articles of
Incorporation shall be construed to mean the Articles of Incorporation of the
Corporation as amended from time to time.

     Section I.3    The registered office of the Corporation may be the same as
the principal office of the Corporation, but in any event must be located in the
State of Michigan, and must be the business office of the registered agent, as
required by the Michigan Business Corporation Act (the "MBCA"). The Corporation
may have business offices at such other places, either within or without the
State of Michigan, as the Board of Directors may designate or as the business of
the Corporation may require from time to time.

                            ARTICLE II SHAREHOLDERS
                            -----------------------

     Section II.1   Annual Meeting. The annual meeting of the shareholders of
                    --------------
the Corporation shall be held at the principal office of the Corporation, or at
such other place as may be set forth in the notice thereof, in August or
September of each year, at a date and time as designated by the Board of
Directors, for the purpose of election of Directors to succeed those whose terms
expire and for the transaction of such other business as may properly come
before the meeting. The Board of Directors, for good and sufficient reasons, may
schedule the annual meeting at any other time, and notice shall be given or
waived as provided in Section 2.4 hereof.

     Section II.2   Special Meetings. Special Meetings of the shareholders (or
                    ----------------
of any specific class thereof), for any purpose or purposes, unless otherwise
prescribed by statute or by the Articles of Incorporation, may be called by the
President and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing of
a shareholder or shareholders owning at least ten percent (10%) of the number of
shares of stock (or, with respect to meetings of a specific class, the number of
shares of such specific class thereof) of the Corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Upon the closing of the first sale of the Corporation's common
stock pursuant to a firmly underwritten registered public offering (the "IPO"),
special meetings of the shareholders may be called only by the President and
shall be called by the President at the request in writing of a majority of the
Directors then in office, and shall be held at such place, on

                                      -2-
<PAGE>

such date, and at such time as the President or shall fix. Business transacted
at special meetings shall be confined to the purpose or purposes stated in the
notice.

     Section II.3   List of Shareholders. The officer who has charge of the
                    --------------------
stock ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of shareholders, a complete list of the shareholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each shareholder and the number of shares registered in the name of
each shareholder. Such list shall be open to the examination of any shareholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
shareholder who is present.

     Section II.4   Notice of Meetings. Written notice of the time, place and
                    ------------------
purposes of the meeting of shareholders shall be given not less than 10 nor more
than 60 days before the date fixed for such meeting to each shareholder of
record entitled to vote at the meeting. Notice shall be deemed duly served when
the same has been personally delivered or deposited in the United States Mail,
with postage fully prepaid, addressed to the shareholder at such shareholder's
address as it appears on the records of the Corporation. Written notice may also
be given by facsimile or telegram, and such notice shall be deemed to be given
when the recipient receives the notice personally, or when confirmation of
transmission of the notice to the shareholder's address as it appears on the
books and records of the Corporation has been delivered to the Corporation or to
the equipment transmitting such notice. Such notice shall be given by or under
the direction of the Secretary of the Corporation, and in the absence or refusal
of the Secretary to give such notice, notice shall be given by or under the
direction of any other officer of the Corporation. No notice need be given of an
adjourned meeting of the shareholders provided the time and place to which such
meeting is adjourned is announced at the meeting at which the adjournment is
taken and at the adjourned meeting only such business is transacted as might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each shareholder of record entitled to vote at the meeting. A waiver of such
notice in writing, signed by a person entitled to said notice, whether before or
after the time of the meeting, shall be deemed equivalent to said notice.
Attendance of a person at a meeting of shareholders, in person or by proxy,
shall constitute a waiver of such notice, except when the attendance is for the
express and sole purpose of objecting to the transaction of any business,
clearly stated at the commencement of the meeting, by reason of a claim that a
meeting was not lawfully called or convened.

     Section II.5   Transaction of Business. At an annual or special meeting
                    -----------------------
of the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before a meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Secretary or other officer of the
Corporation, (b) properly brought before the meeting by or at the direction of
the Board of

                                      -3-
<PAGE>

Directors, (c) properly brought before an annual meeting by a shareholder, or
(d) properly brought before a special meeting by a shareholder, but if, and only
if, the notice of a special meeting provides for business to be brought before
the meeting by shareholders. For business to be properly brought before a
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a shareholder
proposal to be presented at an annual meeting shall be received at the
Corporation's principal executive offices not less than 120 calendar days in
advance of the date that the Corporation's (or the Corporation's predecessor's)
proxy statement was released to shareholders in connection with the previous
year's annual meeting of shareholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, or in the event of a special meeting, notice by the
shareholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. A shareholder's notice to
the Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual or special meeting (a) a brief description of the
business desired to be brought before the annual or special meeting and the
reasons for conducting such business at the special meeting, (b) the name and
address, as they appear on the Corporation's books, of the shareholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the shareholder, and (d) any material interest of the
shareholder in such business.

     Section II.6   Quorum. The holders of a majority of the stock issued and
                    ------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders (or any
specific class thereof) for the transaction of business except as otherwise
provided by statute or by the Articles of Incorporation. If, however, such
quorum shall not be present or represented by any meeting of the shareholders,
the chairman of the meeting or the holders of a majority of shares of stock
entitled to vote thereat who are present, in person or represented by proxy,
shall have the power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented.

     Section II.7   Voting and Record Date. In order that the Corporation may
                    ----------------------
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution of allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be (i) more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor (ii) more than ten (10) days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors for action by shareholder consent in writing without a meeting, nor
(iii) more than sixty (60) days prior to any other action. If a record date is
not fixed (a) the record date for determination of shareholders entitled to vote
at a meeting of shareholders shall be the close of business on the day next
preceding the day on which notice of such meeting is given, and (b) the record
date for determining shareholders for any purpose other

                                      -4-
<PAGE>

than that specified in subdivision (a) shall be the close of business on the day
on which the resolution of the Board relating thereto is adopted. When a
determination of shareholders of record entitled to vote at a meeting of
shareholders has been made as provided in this Section, the determination
applies to any adjournment of the meeting, unless the Board fixes a new record
date under this Section for the adjourned meeting.

     Section II.8   Proxies. A proxy, given by a shareholder to another person,
                    -------
authorizing such other person to vote the shares of such shareholder, shall be
in writing and signed by the shareholder or his authorized agent or
representative. A proxy shall not be valid after the expiration of three (3)
years from its date unless otherwise provided therein. All proxies shall be
filed with the Secretary at or before the meeting at which they are intended to
be used. A proxy shall be deemed sufficient if it appears on its face to confer
the requisite authority and is signed by the owner of the stock to be voted. No
witnesses to the execution of any proxy shall be required.

     Section II.9   Inspectors. The Board of Directors, in advance of a
                    ----------
shareholders meeting, may appoint one or more inspectors to act at the meeting
or any adjournment thereof. If inspectors are not so appointed, the person
presiding at a shareholders meeting may, and on request of a shareholder
entitled to vote thereat shall, appoint one or more inspectors. In case a person
appointed fails to appear or act, the vacancy may be filled by appointment made
by the Board of Directors in advance of the meeting or at the meeting by the
person presiding thereat. The inspectors shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine challenges and questions arising
in connection with the right to vote, count and tabulate votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the person
presiding at the meeting or a shareholder entitled to vote thereat, the
inspectors shall make and execute a written report to the person presiding at
the meeting of any of the facts found by them and matters determined by them.
The report shall be prima facie evidence of the facts stated and of the vote as
certified.

     Section II.10  Action by Written Consent. The shareholders of the
                    --------------------------
Corporation shall have the ability to take action without a meeting only as
provided in the Articles of Incorporation.

     Section II.11  Voting of Shares by Certain Holders.
                    -----------------------------------

               (a)  Voting by Trustee or  Fiduciary.  Shares  standing in the
                    -------------------------------
name of any person as trustee or other fiduciary may be voted and all rights
incident thereto may be exercised only by the trustee or other fiduciary, in
person or by proxy, and without proof of authority.

               (b)  Voting of Pledged Stock.  Unless the Corporation has
                    -----------------------
specific written instructions to the contrary, from the pledgee and pledgor,
pledged stock may be voted by the pledgor only.

                                      -5-
<PAGE>

               (c)  Voting by Guardian of  Incompetent.  Shares standing
                    ----------------------------------
adjudged in the name of a person incompetent may be voted and all rights
incident thereto may be exercised only by his guardian, in person or by proxy.

               (d)  Voting by Executor or  Administrator.  Shares standing in
                    ------------------------------------
the name of a deceased person may be voted and all rights incident thereto may
be exercised only by his executor or administrator, in person or by proxy.

               (e)  Voting by  Guardian of Minor.  Shares  standing in the name
                    ----------------------------
of a minor may be voted and all rights incident thereto may be exercised by his
guardian, in person or by proxy, or in the absence of such representation by his
guardian, by the minor, in person or by proxy, whether or not the Corporation
has notice, actual or constructive, of the nonage or the appointment of a
guardian, and whether or not a guardian has been in fact appointed.

               (f)  Voting of Shares in Name of Corporation. Shares standing in
                    ---------------------------------------
the name of a corporation, domestic or foreign, may be voted or represented and
all rights incident thereto may be exercised on behalf of that corporation by
the persons described in any of the following subdivisions:

                        (1)   Any officer of the Corporation authorized so to do
by the Bylaws of that Corporation.

                        (2)   Any person authorized so to do by resolution of
the Board of Directors or a duly authorized committee of the Board of Directors
of that Corporation.

                        (3)   Any person authorized so to do by proxy or power
of attorney duly executed by the President or Vice President and Secretary or
Assistant Secretary of that Corporation.

                    However, such shares may be voted or represented by the
persons described in any subdivision only in the absence of vote or
representation by the persons described in a preceding subdivision of this
subparagraph.

               (g)  Voting Shares in Names of Two or More Persons.  Shares
                    ---------------------------------------------
standing in the names of two or more persons shall be voted or represented in
accordance with the vote or consent of the majority of the persons in whose
names the shares stand. If only one such person is present in person or by
proxy, he may vote all the shares, and all the shares standing in the names of
such persons are represented for the purpose of determining a quorum. This
applies to the voting of shares by two or more administrators, executors,
trustees, or other fiduciaries, unless the instrument or order of court
appointing them otherwise directs.

                        ARTICLE III BOARD OF DIRECTORS
                        ------------------------------

                                      -6-
<PAGE>

     Section III.1  General Powers.  The property,  affairs and business of the
                    --------------
Corporation shall be managed by the Board of Directors.

     Section III.2  Number, Qualification and Term of Office. Unless
                    ----------------------------------------
otherwise provided in the Articles of Incorporation, the Board of Directors
shall be divided into three classes, as nearly equal in numbers as the then
total number of directors constituting the entire Board of Directors permits,
with the term of office of one class expiring each year. The term of office of
directors in the first class shall expire at the first annual meeting of
shareholders after their election, the term of office of directors in the second
class shall expire at the second annual meeting of shareholders after their
election, and the term of office of directors in the third class shall expire at
the third annual meeting of shareholders after their election. The directors
elected at the 1994 Annual Shareholders Meeting will be classified into terms of
one, two or three years, by resolution of the Board of Directors. At each annual
meeting of shareholders after such classification of the Board of Directors, a
number of directors equal to the number of the class whose term expires at the
meeting shall be elected to hold office until the third succeeding annual
meeting. Directors shall hold office until the next election of the class for
which such directors shall have been chosen and until their successors are
elected and qualified, except in the case of the death, resignation or removal
of any Director. Directors need not be shareholders of the Corporation. The size
of the Board of Directors shall be within the range of five to nine directors,
with the exact size to be fixed from time to time by resolution of the Board of
Directors.

     Section III.3  Vacancies. The shareholders may, at any meeting called for
                    ---------
such purpose, by a vote of a majority of the capital stock issued and
outstanding and entitled to vote thereon, remove any Director from office, with
or without cause. Any Director may resign by written notice to the President,
such resignation to be effective upon its receipt by the President or at such
subsequent time as may be specified in the notice of resignation. Subject to the
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
Directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification or other cause may be filled only by a
majority vote of the directors then in office, though less than a quorum, and
Directors so chosen shall hold office for a term expiring at the next annual
meeting of shareholders at which the term of office of the class to which they
have been elected expires, except in the case of death, resignation or removal
of any Director. No decrease in the number of Directors constituting the Board
of Directors shall shorten the term of any incumbent Director. Acceptance of
resignation shall not be necessary for it to be effective.

     Section III.4  Meetings of the Board of Directors. The Board of Directors
                    ----------------------------------
shall hold an annual meeting immediately following the annual shareholders
meeting, for the purpose of electing officers and for the transaction of such
other business as may properly come before the meeting. No notice of such annual
meeting shall be necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present, unless said meeting
is held, by a consent of a majority of the Directors of such new Board, at a
time and place other then at the place of holding and immediately following the
annual meeting of shareholders. Special meetings of the Board of Directors may
be held at any place either within or without the State of Michigan at any

                                      -7-
<PAGE>

time pursuant to resolution adopted by the Board of Directors or upon call of
the President or any two (2) officers.

     Section III.5  Notice of Meetings. Notice of meetings of Directors shall
                    ------------------
be given or waived in the same manner as notice of meetings of shareholders, as
provided in Section 2.4, except that notice of Directors meetings shall be given
not later than two (2) nor more than ten (10) days prior to such meetings.

     Section III.6  Quorum and Required Vote of Board. A majority of the total
                    ---------------------------------
number of Directors shall constitute a quorum for the transaction of business,
and the act of a majority of the Directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors. Amendment of these
Bylaws by the Board requires the vote of not less than a majority of the members
of the Board then in office.

     Section III.7  Telephonic Meetings. A member of the Board or of a committee
                    -------------------
designated by the Board may participate in a meeting by means of conference
telephone or similar communications equipment by which all persons participating
in the discussion can hear each other. Participation in a meeting pursuant to
this provision constitutes presence in person at the meeting.

     Section III.8  Board Action Without Meeting. If all of the Directors then
                    ----------------------------
constituting the Board of Directors of the Corporation or of any committee of
the Board of Directors shall severally and/or collectively consent in writing to
any action to be taken, such action shall have the same effect as though it had
been authorized at a duly called and properly held meeting of the Board of
Directors or such committee. Such written consent shall be filed with the
minutes of the proceedings of the Board.

     Section III.9  Committees. The Board of Directors may, by resolution or
                    ----------
resolutions, passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one (1) or more of the
Directors of the Corporation, which, to the extent provided in said resolution
or resolutions or in other provisions of these Bylaws, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Corporation, and may have the power to authorize the seal of
the Corporation to be affixed to all papers which may require it.

     Section III.10 Compensation. By resolution of the Board of Directors, the
                    ------------
Directors may be paid their expenses, if any, of attendance at each meeting of
the Board, and may be paid a fixed sum for attendance. No such payment shall
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of the committees shall be allowed
similar compensation for attending committee meetings.

     Section III.11 Presumption of Assent. A Director of the Corporation who is
                    ---------------------
present at a meeting of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or

                                      -8-
<PAGE>

unless he shall file his written dissent to such action with the person acting
as Secretary of the meeting before the adjournment thereof, or by registered
mail to such Secretary immediately after the adjournment thereof. This shall not
apply to a Director who voted in favor of such action.

                        ARTICLE IV OFFICERS AND AGENTS
                        ------------------------------

     Section IV.1   General. The Corporation shall have a President, a
                    -------
Secretary, and a Treasurer, and, if desired, a Chairman of the Board and one or
more Vice Presidents, Assistant Secretaries and Assistant Treasurers. All
officers of the Corporation shall be elected by the Directors and shall hold
office until their successors are elected and qualified. The Corporation may
also have such other officers, agents and factors as may be deemed necessary for
the transaction of the business of the Corporation, who shall be chosen in such
manner and hold their offices for such terms and have such authority and duties
as may be determined by the Board of Directors. The Board of Directors may
secure the fidelity of any and/or all of such officers by bond or otherwise and
may also provide for the qualification of any or all of such officers before any
person authorized by law to administer an oath. The Board of Directors, by
resolution, may require any or all of the officers of the Corporation to give
bonds, in favor of the Corporation, with sufficient surety or sureties, and in
such amounts as the Board of Directors may fix, conditioned on the faithful
performance of the duties of their respective offices. The President shall be
chosen from among the Directors. Any two offices except those of President and
Vice President may be held by the same person but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. Subject to these
Bylaws, each officer shall have in addition to the duties and powers herein set
forth, such duties and powers as are commonly incident to his office, and such
duties and powers as the Board of Directors shall from time to time designate.
In all cases where the duties of any officer, agent or employee are not
specifically prescribed by the Bylaws or by the Board of Directors, such
officer, agent or employee shall obey the orders and instructions of the
President. Compensation of the officers shall be as authorized by the Board of
Directors.

     Section IV.2   Duties of the President. The President shall, subject to
                    -----------------------
the direction and under the supervision of the Board of Directors, be the chief
executive officer of the Corporation and shall have general and active control
of its affairs and business and general supervision over its officers, agents
and employees. The President shall also appoint and discharge all subordinate
agents and employees and fix their salaries, subject to review by the Board of
Directors, and shall designate their duties. He shall preside at all meetings of
the shareholders and, unless a Chairman of the Board has been elected, at all
meetings of the Board of Directors, at which he is present. The President shall
have custody of the Treasurer's bond, if any.

     Section IV.3   Duties of the Chairman of the Board. The Board of
                    -----------------------------------
Directors may elect or appoint a Chairman of the Board. The Chairman of the
Board shall, if present, preside at all meetings of the Board of Directors and
shall exercise and perform such other powers and duties as may be assigned to
him from time to time by the Board of Directors or prescribed by these Bylaws.

     Section IV.4   Duties of the Vice President. The Board of Directors may
                    ----------------------------
elect or appoint one or more Vice Presidents. The Vice Presidents, if such be
elected, shall, subject to the direction

                                      -9-
<PAGE>

and under the supervision of the President, be the assistant chief executive
officer of the Corporation and shall assist the President in the general and
active control of its affairs in business. The Vice Presidents shall perform all
the duties of the President in case of the absence or disqualification of the
President. Any of such Vice Presidents shall preside at all meetings of the
shareholders in the absence or unavailability of the President.

     Section IV.5   Duties of the Secretary. The Secretary shall: (a) keep the
                    -----------------------
minutes of the proceedings of the shareholders and of the Board of Directors in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the Corporation and
ensure that the seal of the Corporation is affixed to all documents the
execution of which on behalf of the Corporation under its seal is duly
authorized; (d) keep a register of the post office address of each shareholder
which shall be furnished to the Secretary by such shareholder; and (e) perform
all duties incident to the office of secretary and such other duties as from
time to time may be assigned to him by the President or by the Board of
Directors. The Secretary also shall have charge of the stock ledger (which may,
however, be kept by any transfer agent or agents of the Corporation under the
direction of the Secretary), the original or duplicate of which shall, at all
times, during the usual hours for business, be open to the examination of every
shareholder at the principal office or place of business of the Corporation in
Michigan. In the absence of the Secretary from any meeting, a temporary
Secretary shall be chosen, who shall be sworn to the faithful discharge of his
duty and shall record the proceedings of such meeting in the aforesaid books.

     Section IV.6   Duties of the Treasurer. The Treasurer shall, subject to
                    -----------------------
the direction and under the supervision of the Board of Directors, the President
and the Vice President, have the care and custody of the funds and valuable
papers of the Corporation, except his own bond, and he shall have power to
endorse for deposit or collection all notes, checks, drafts and other
obligations for the payment of money to the Corporation or its order. He shall
keep, or cause to be kept, at the principal office of the Corporation accurate
books of account, which shall be the property of the Corporation. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and Directors, when they so direct, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.

     Section IV.7   Assistant Secretaries and Assistant Treasurers. The
                    ----------------------------------------------
Assistant Secretary or Assistant Secretaries, in the absence or disability of
the Secretary, shall perform the duties and exercise the powers of the
Secretary. The Assistant Treasurer or Assistant Treasurers, in the absence or
disability of the Treasurer, shall perform the duties and exercise the powers of
the Treasurer. Any Assistant Treasurer, if required by the Board, shall keep in
force a bond as provided in Section 4.1. The Assistant Secretaries and Assistant
Treasurers, in general, shall exercise and perform such other powers and duties
as shall be assigned to them by the Secretary or by the Treasurer, respectively,
or by the Board of Directors or the President.

     Section IV.8   Vacancies. The Board of Directors may, at any meeting
                    ---------
called for the purpose, by vote of a majority of their number, remove from
office any officer of the Corporation,

                                      -10-
<PAGE>

with or without cause. Any officer may resign by written notice to the
President, which resignation may be effective upon its receipt by the President
or at such subsequent time as may be specified in the notice of resignation,
PROVIDED, HOWEVER, that the resignation of the President shall be submitted to
the Board of Directors. The Board of Directors may, at any meeting, accept the
resignation of any officer or remove or accept the resignation of any agent or
member of a committee, and may fill such vacancy for the unexpired term and
until the successor thereof shall be duly elected and qualified. Acceptance of
resignation shall not be necessary for it to be effective.

                            ARTICLE V CAPITAL STOCK
                            -----------------------

     Section V.1    Issuance. The shares of capital stock of the Corporation
                    --------
shall be issued by the Board of Directors in such amounts, at such times, for
such consideration, and on such terms and conditions as the Board shall deem
advisable, subject to the provisions of the Articles of Incorporation of the
Corporation and the further provisions of these Bylaws.

     Section V.2    Stock Certificates. The shares of the capital stock of the
                    ------------------
Corporation shall be represented by certificates signed and sealed in accordance
with the provisions of the laws of the State of Michigan. Certificates shall
have a form and content complying with the laws of the State of Michigan and
approved by the Board of Directors of the Corporation. Certificates of stock
shall bear the signature of the President, and shall be signed by the Secretary,
Assistant Secretary, or any other officer appointed by the Board of Directors
for the purpose, to be known as an Authorized Officer. The signatures of the
officers may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the Corporation itself or its
employee. In case an officer who has signed or whose facsimile signature has
been placed upon a certificate ceases to be such officer before the certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer at the date of issue. Each certificate shall recite on its
face the stock represented thereby is transferable only upon the books of the
Corporation properly endorsed. A certificate representing shares issued by a
corporation which is authorized to issue shares of more than one class shall set
forth on its face or back or state that the Corporation will furnish to a
shareholder upon request and without charge a full statement of the designation,
relative rights, preferences and limitations of the shares of each class
authorized to be issued, and if the Corporation is authorized to issue any class
of shares in series, the designation, relative rights, preferences and
limitations of each series so far as the same have been prescribed and the
authority of the Board to designate and prescribe the relative rights,
preferences and limitations of other series.

     Section V.3    Transfers. Upon surrender to the Corporation or the
                    ---------
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.

                                      -11-
<PAGE>

     Section V.4    Ownership. The Corporation shall be entitled to treat the
                    ---------
person in whose name any share of stock is registered as the owner thereof for
purposes of dividends and other distributions in the course of business, or in
the case of recapitalization, consolidation, merger, reorganization, sale of
assets, liquidation or otherwise and for the purpose of votes, approvals and
consents by shareholders, and for the purpose of notice to shareholders, and for
all other purposes whatever, and shall not be bound to recognize any equitable
or other claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice thereof, save as expressly
required by the laws of the State of Michigan.

     Section V.5    Replacement of Certificates. Upon the presentation to the
                    ---------------------------
Corporation of a proper affidavit attesting the loss, destruction or mutilation
of any certificate for shares of stock of the Corporation, the Board of
Directors may direct the issuance of a new certificate in lieu of and to replace
the certificate so alleged to be lost, destroyed and mutilated. The Board of
Directors may require as a condition precedent to the issuance of a new
certificate any or all of the following, to wit: (a) Additional evidence of the
loss, destruction or mutilation claimed; (b) Advertisement of the loss in such
manner as the Board of Directors may direct or approve; (c) A bond or agreement
of indemnity, in such form and amount and with such surety (or without surety)
as the Board of Directors may direct or approve; or (d) The order or approval of
a court.

     Section V.6    Transfer Agent and Registrar. The Board of Directors may
                    ------------------------------
appoint a transfer agent and a registrar for the registration of transfers of
its securities.

     Section V.7    Regulations. The Board of Directors shall have power and
                    -----------
authority to make all such rules and regulations as the Board shall deem
expedient regulating the issue, transfer and registration of certificates for
shares of this Corporation.

     Section V.8    Dividends. The Board of Directors, in its discretion from
                    ---------
time to time, may declare dividends upon the capital stock from the surplus of
the Corporation as permitted by the MBCA, subject to the Articles of
Incorporation.

     Section V.9    Reserves. Before payment of any dividend, there may be set
                    --------
aside out of any funds of the Corporation available for dividends such sum or
sums as the Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the Directors shall think conducive to the interest of
the Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.

              ARTICLE VI INDEMNIFICATION OF OFFICERS, DIRECTORS,
              --------------------------------------------------
                             EMPLOYEES AND AGENTS
                             --------------------

     Section VI.1   Indemnification of Directors and Officers: Claims by Third
                    ----------------------------------------------------------
Parties. The Corporation shall, to the fullest extent authorized or permitted by
-------
the MBCA or other applicable law, as the same presently exists or may hereafter
be amended, indemnify a director or officer (the

                                      -12-
<PAGE>

"Indemnitee") who was or is a party or is threatened to be made a party to a
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative and whether formal or informal, other
than an action by or in the right of the Corporation, by reason of the fact that
he or she is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, or other enterprise, whether for profit or
not, against expenses, including attorneys' fees, judgments, penalties, fines,
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with the action, suit, or proceeding, if the Indemnitee acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation or its shareholders, and with respect to a
criminal action or proceeding, if the Indemnitee had no reasonable cause to
believe his or her conduct was unlawful. The termination of an action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, does not, of itself, create a presumption that the
Indemnitee did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the Corporation or its
shareholders, and, with respect to a criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.

     Section VI.2   Indemnification of Directors and Officers: Claims Brought
                    ---------------------------------------------------------
By or In the Right of the Corporation. The Corporation shall, to the fullest
-------------------------------------
extent authorized or permitted by the MBCA or other applicable law, as the same
presently exists or may hereafter be amended, indemnify a director or officer
(the "Indemnitee") who was or is a party to or is threatened to be made a party
to a threatened, pending, or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, or other enterprise, whether for profit or
not, against expenses, including actual and reasonable attorneys' fees, and
amounts paid in settlement incurred by the person in connection with the action
or suit, if the Indemnitee acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Corporation or its shareholders. However, indemnification under this Section
shall not be made for a claim, issue, or matter in which the Indemnitee has been
found liable to the Corporation unless and only to the extent that the court in
which the action or suit was brought has determined upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, the Indemnitee is fairly and reasonably entitled to indemnification for
the expenses which the court considers proper.

     Section VI.3   Actions by the Indemnitee. Notwithstanding the provisions
                    -------------------------
of Sections 6.1 and 6.2, the Corporation shall not indemnify an Indemnitee in
connection with any action, suit, proceeding or claim (or part thereof) brought
or made by such Indemnitee; unless such action, suit, proceeding or claim (or
part thereof) (i) was authorized by the Board of Directors of the Corporation,
or (ii) was brought or made to enforce this Article and such Indemnitee has been
successful in such action, suit, proceeding or claim (or part thereof).

                                      -13-
<PAGE>

     Section VI.4   Approval of Indemnification. An indemnification under
                    ---------------------------
Sections 6.1 or 6.2 hereof, unless ordered by a court, shall be made by the
Corporation only as authorized in the specific case upon it determination that
indemnification of the Indemnitee is proper in the circumstances because such
Indemnitee has met the applicable standard of conduct set forth in Sections 6.1
and 6.2. This determination shall be made in any of the following ways:

               (a)  By a majority vote of a quorum of the Board consisting of
Directors who were not parties to the action, suit, or proceeding.

               (b)  If the quorum described in subdivision (a) is not
obtainable, then by a majority vote of it committee of Directors who are not
parties to the action. The committee shall consist of not less than two (2)
disinterested Directors.

               (c)  By independent legal counsel in a written opinion.

               (d)  By the shareholders.

     Section VI.5   Advancement of Expenses. Expenses incurred in defending a
                    -----------------------
civil or criminal action, suit, or proceeding described in Section 6.1 or 6.2
above shall be paid by the Corporation in advance of the final disposition of
the action, suit, or proceeding upon receipt of an undertaking by or on behalf
of the Indemnitee to repay the expenses if it is ultimately determined that the
Indemnitee is not entitled to be indemnified by the Corporation. The undertaking
shall be by unlimited general obligation of the person on whose behalf advances
are made but need not be secured.

     Section VI.6   Partial Indemnification. If an Indemnitee is entitled to
                    -----------------------
indemnification under Section 6.1 or 6.2 for a portion of expenses including
attorneys' fees, judgments, penalties, fines, and amounts paid in settlement,
but not for the total amount thereof, the Corporation shall indemnify the
Indemnitee for the portion of the expenses, judgments, penalties, fines, or
amounts paid in settlement for which the Indemnitee is entitled to be
indemnified.

     Section VI.7   Indemnification of Employees and Agents. Any person who is
                    ---------------------------------------
not covered by the foregoing provisions of this Article and who is or was an
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
may be indemnified to the fullest extent authorized or permitted by the MBCA or
other applicable law, as the same exists or may hereafter be amended, but in the
case of any such amendment, only to the extent such amendment permits the
Corporation to provide broader indemnification rights than before such
amendment, but in any event only to the extent authorized at any time or from
time to time by the Board of Directors.

     Section VI.8   Other Rights of Indemnification. The indemnification or
                    -------------------------------
advancement of expenses provided under Sections 6.1 to 6.7 is not exclusive of
other rights to which a person seeking indemnification or advancement of
expenses may be entitled under the Articles of

                                      -14-
<PAGE>

Incorporation, Bylaws, or a contractual agreement. However, the total amount of
expenses advanced or indemnified from all sources combined shall not exceed the
amount of actual expenses incurred by the person seeking indemnification or
advancement of expenses. The indemnification provided for in Sections 6.1 to 6.7
continues as to a person who ceases to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of the person.

     Section VI.9   Definitions. "Other enterprises" shall include employee
                    -----------
benefit plans; "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and "serving at the request of the
corporation" shall include any service as a director, officer, employee, or
agent of the corporation which imposes duties on, or involves services by, the
director, officer, employee, or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner he or she reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be considered to have acted
in a manner "not opposed to the best interests of the corporation or its
shareholders" as referred to in Sections 6.1 and 6.2.

     Section VI.10  Application to a Resulting or Surviving Corporation or
                    ------------------------------------------------------
Constituent Corporation. The definition for "corporation" found in Section 569
-----------------------
of the MBCA, as the same exists or may hereafter be amended, is and shall be,
specifically excluded from application to this Article. The indemnification and
other obligations of the Corporation set forth in this Article shall be binding
upon any resulting or surviving corporation after any merger or consolidation of
the Corporation. Notwithstanding anything to the contrary contained herein or in
Section 569 of the MBCA, no person shall be entitled to the indemnification and
other rights set forth in this Article for acting as a director or officer of
another corporation prior to such other corporation entering into a merger or
consolidation with the Corporation.

     Section VI.11  Contract With the Corporation. The right to indemnification
                    -----------------------------
conferred in this Article VI shall be deemed to be a contract between the
Corporation and each director or officer who serves in any such capacity at any
time while this Article VI is in effect, and any repeal or modification of any
such law or of this Article VI shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought or threatened based
in whole or in part upon any such state of facts. In the event this Article is
repealed or modified, the Corporation shall give written notice thereof to the
directors and officers and any such repeal or modification shall not be
effective for a period of sixty (60) days after such notice is delivered.

     Section VI.12  Liability Insurance. The Corporation shall have the power
                    -------------------
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against and incurred by such
person in any such capacity or arising out of such person's status as such,
regardless of whether the Corporation would have the power to indemnify such
person against such liability under the provisions of the MBCA.

                                      -15-
<PAGE>

     Section VI.13  Severability. Each and every paragraph, sentence, term
                    ------------
and provision of this Article VI shall be considered severable in that, in the
event a court finds any paragraph, sentence, term or provision to be invalid or
unenforceable, the validity and enforceability, operation, or effect of the
remaining paragraphs, sentences, terms, or provisions shall not be affected, and
this Article VI shall be construed in all respects as if the invalid or
unenforceable matter had been omitted.

     Section VI.14  Enforcement. If a claim under this Article is not paid in
                    -----------
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim, and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the MBCA for the Corporation to indemnify the claimant for the amount claimed,
but the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, a committee
thereof, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because such claimant has met the
applicable standard of conduct set forth in the MBCA nor an actual determination
by the Corporation (including its Board of Directors, a committee thereof,
independent legal counsel, or its shareholders) that the claimant has not met
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.

                        ARTICLE VII EXECUTION OF PAPERS
                        -------------------------------

          The officers of the Corporation may sell any or all of its holdings of
stock, bonds, or securities of other corporations, or government securities;
sign all deeds, mortgages, assignments of mortgages, discharges of mortgages,
bills of sale, leases and other conveyances and transactions of any interest in
property, real, personal or mixed, to the extent that the Board of Directors of
the Corporation may from time to time specify in resolutions approved by the
Board. The Board may in any instance designate the officers and agents who shall
have authority to execute any contract, conveyance or other instrument on behalf
of the Corporation, and may also ratify and affirm such execution. Any such
instrument or document shall be binding on the Corporation if executed by the
President or a Vice President. In addition, any such instrument or document
shall be binding on the Corporation if signed by any other officer designated by
the Board on behalf of the Corporation.

                             ARTICLE VIII BANKING
                             --------------------

     Section VIII.1 Bank Accounts. The Board of Directors shall by resolution
                    -------------
designate the bank or banks in which the funds of the Corporation shall be
deposited, and such funds shall be

                                      -16-
<PAGE>

deposited in the name of the Corporation and shall be subject to checks drawn as
authorized by resolution of the Board of Directors.

     Section VIII.2  Borrowing. To the extent authorized by law, the Corporation
                     ---------
may, wherever its general interests and corporate purpose require the same,
borrow money and issue its promissory notes, debentures or bonds for the
repayment thereof with interest, and may in like case mortgage, pledge or
encumber its property as security for its debts or other lawful engagements.

                 ARTICLE IX VOTING STOCK IN OTHER CORPORATIONS
                 ---------------------------------------------

          Unless otherwise ordered by the Board of Directors, the President
shall have full power and authority on behalf of the Corporation to attend and
to act and to vote at any meetings of shareholders of any corporation in which
this Corporation may hold stock, and at any such meeting shall possess and may
exercise any and all of the rights and powers incident to the ownership of such
stock, PROVIDED, HOWEVER, that such rights shall be exercised in the best
interests of this Corporation. The Board of Directors may, by resolution, from
time to time confer like powers upon any other person or persons, but the same
shall not be effective unless actually received by such other corporation prior
to the meeting of shareholders in which such other person is to act. The
President, or in his absence or disability, a Vice President of the Corporation,
may authorize from time to time the signature and issuance of proxies to vote
such stock of other corporations owned by this Corporation, and all such proxies
shall be signed in the name of this Corporation by the President or Vice
President and the Secretary or Assistant Secretary, or by any two officers
authorized by the Board of Directors.

                            ARTICLE X SUBSIDIARIES
                            ----------------------

          The Board of Directors may establish, reorganize and/or dissolve
wholly- or partly-owned subsidiaries of the Corporation. The Articles of
Incorporation and Bylaws of any such subsidiary shall not, without approval of
the shareholders of this Corporation, substantially differ from the Articles of
Incorporation and Bylaws, respectively, of this Corporation.

                            ARTICLE XI FISCAL YEAR
                            ----------------------

          Except as from time to time otherwise provided by the Board of
Directors, the fiscal year of the Corporation shall end on the last day of June.

                    ARTICLE XII CORPORATE BOOKS AND RECORDS
                    ---------------------------------------

          The Corporation shall keep books and records of account and minutes of
the proceedings of its shareholders, Board of Directors and executive
committees, if any. The books, records and minutes may be kept outside this
state. The Corporation shall keep at its registered office, or at the office of
its transfer agent within or without this state, records containing the names
and addresses of all shareholders, the number, class and series of shares held
by each and the dates when they respectively became holders of record thereof.
Any of such books, records or minutes

                                      -17-
<PAGE>

may be in written form or in any other form capable of being converted into
written form within a reasonable time. The Corporation shall convert into
written form without charge any such record not in such form, upon written
request of a person entitled to inspect them.

                            ARTICLE XIII AMENDMENTS
                            -----------------------

          Except as otherwise expressly provided in the Articles of
Incorporation or in these Bylaws, these Bylaws may be altered, amended or
repealed by any duly adopted resolution of the Board of Directors or at any
annual or special meeting of the shareholders. The Board of Directors, however,
shall not adopt or alter any Bylaws fixing the number, qualifications,
classifications or term of office of Directors. If the amendment is to be
adopted at a special meeting of the shareholders, the notice thereof shall
specify the subject matter of the proposed alteration, amendment or repeal and
the Articles of these Bylaws to be affected thereby. Bylaws adopted by the
Directors may be altered or repealed by the Directors or shareholders. Provided,
further, that neither the time nor the place for the election of Directors shall
be changed within sixty (60) days next preceding the day on which any election
of Directors is to be held, and provided further that a notice of any such
change shall be given to each shareholder at least twenty (20) days before the
next election is held, in person or by letter mailed to his last known post
office address.

                                     ATTEST:

                                     ------------------------------
                                     TODD E. SIMPSON, SECRETARY

Includes amendments approved through January 29, 1998

                                      -18-<PAGE>

                                                                     Exhibit 4.3

                         SECURITIES PURCHASE AGREEMENT

     SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of June 8, 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, 2,810,305
shares (the "Purchased Shares") of the Company's common stock, no par value (the
"Common Stock") for a per share purchase price equal to $2.135, or an aggregate
purchase price of $6,000,000.  As additional consideration for the purchase of
the Purchased Shares, the Company desires to issue to the Buyers up to 3,348,915
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). The shares of
Common Stock that are included in the Purchased Shares, 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 Purchased Shares and maximum number of Warrants
issuable 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
<PAGE>

provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws;

     E.   In connection with and as a condition to the consummation of the
transactions contemplated by this Agreement, the Company and the Buyers desire
to amend the terms of those certain Warrants, dated as of February 29, 2000,
issued by the Company to the Buyers to purchase up to 1,132,075 shares of Common
Stock (the "Prior Warrants") by executing and delivering at the Closing (as
defined below) an Amendment to Stock Purchase Warrant in the form attached
hereto as Exhibit C (the "Prior Warrant Amendment"); and
          ---------

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

     1.   Purchase and Sale of Purchased Shares and Warrants; Amendment of Prior
          ----------------------------------------------------------------------
Warrants.
--------

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

          (b)  Form of Payment.  On the Closing Date, (i) each Buyer shall pay
               ---------------
the purchase price for the Purchased Shares 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 Purchased Shares and duly executed Warrants, in each case  representing the
number of Purchased Shares or the maximum number of Warrants issuable, as
applicable, as is 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)  Amendment of Prior Warrants.  On the Closing Date, the Company
               ---------------------------
and each Buyer shall amend the Prior Warrant held by such Buyer by executing and
delivering a Prior Warrant Amendment with respect thereto.  In connection with
such amendment, each Buyer shall cause the Prior Warrant held by such Buyer to
be endorsed at the Closing with an additional legend in substantially the
following form:

     "THIS WARRANT HAS BEEN AMENDED PURSUANT TO THE TERMS OF THAT CERTAIN
     AMENDMENT TO STOCK PURCHASE WARRANT, DATED AS OF JUNE 8, 2000 BY AND
     BETWEEN THE COMPANY AND THE HOLDER THEREOF."

          (d)  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

                                      -2-
<PAGE>

Purchased Shares and Warrants pursuant to this Agreement (the "Closing Date")
shall be 12:00 noon Eastern Standard Time on June 8, 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,
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

                                      -3-
<PAGE>

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):

          "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

                                      -4-
<PAGE>

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, the Registration
               --------------------------
Rights Agreement and the Prior Warrant Amendment 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 and the Prior Warrant Amendment, such
agreements 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:

          (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, the Prior Warrant Amendment 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

                                      -5-
<PAGE>

execution and delivery of this Agreement, the Registration Rights Agreement, the
Prior Warrant Amendment 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 stockholders 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, the Prior Warrant Amendment and the Warrants, each of such
agreements 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) 60,000,000 shares of Common Stock and (ii)
5,000,000 shares of preferred stock. As of June 6, 2000, 30,796,104 shares of
Common Stock were issued and outstanding, 2,973,238 shares were reserved for
issuance pursuant to the Company's stock option and stock purchase plans,
2,333,595 shares were reserved for issuance pursuant to securities (other than
the Warrants) exercisable for, or convertible into or exchangeable for shares of
Common Stock and 3,348,915 (maximum number of shares issuable under the
Warrants) shares were reserved for issuance upon exercise of the Warrants
(subject to adjustment pursuant to the Company's covenant set forth in Section
4(h) below). As of June 6, 2000, no shares of the Company's preferred stock were
issued or 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 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 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 as of February 28, 2000, 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

                                      -6-
<PAGE>

of the Closing Date. At the Closing, the Company's chief executive officer shall
certify to the Buyers, in writing, that the representations and warranties set
forth in this Section 3(c) are true and correct as of the Closing Date, except
as set forth in such written certification.

          (d)  Issuance of Common 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)  [Intentionally Omitted]

          (g)  No Conflicts.  The execution, delivery and performance of this
               ------------
Agreement, the Registration Rights Agreement, the Prior Warrant Amendment 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

                                      -7-
<PAGE>

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, the Prior
Warrant Amendment 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 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

                                      -8-
<PAGE>

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 3(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 March 31, 2000 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.

          (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

                                      -9-
<PAGE>

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 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

                                      -10-
<PAGE>

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 registration under the
1933 Act of the issuance of the Securities to the Buyers. 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 including, without limitation, the
shares of Common Stock and warrants issued to the Buyer pursuant to that certain
Securities Purchase Agreement, dated as of February 28, 2000) 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.

                                      -11-
<PAGE>

          (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 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

                                      -12-
<PAGE>

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 "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

                                      -13-
<PAGE>

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"), conduct any equity financing (including debt
financing with an equity component) during the period beginning on the Closing
Date and ending on the date which is three (3) months after the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (the foregoing limitation being referred to herein as the
"Capital Raising Limitation"). The Capital Raising Limitation 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 $15,000,000.00, 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 trading day prior to conversion (but in
no event less than $2.59 (subject to adjustment for stock splits, combinations
and similar events)) and (B) $6.00, or (v) issuances of securities in connection
with an investment in the Company for which more than 50% of the proceeds are
provided by an investor engaged as its principal business in the biotechnology,
medical device or pharmaceutical industry. The Capital Raising Limitation 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.

                                      -14-
<PAGE>

          (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 RGC's
expenses under this Section 4(f) and the Registration Rights Agreement shall be
limited to an aggregate of $15,000.00, $5,000.00 of which was advanced
previously.

          (g)  Financial Information.  The Company agrees to make the following
               ---------------------
reports available to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities 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. In addition, the Company agrees to send the
following to each Buyer until such Buyer transfers, assigns or sells all of the
Securities: (I) within one (1) day after release, copies of all press releases
issued by the Company or any of its Subsidiaries; and (II) 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 the maximum number of shares issuable upon
exercise of or otherwise pursuant to the Warrants and issuance of the Warrant
Shares in connection therewith. 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 the maximum number of shares
issuable upon full exercise of the Warrants. If at any time the maximum 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, 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 stockholders 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 stockholder 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), to the extent required by such
exchange or system, 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, the New York
Stock Exchange, or the American Stock Exchange and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules

                                      -15-
<PAGE>

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

          (l)  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.

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

          (n)  Trading Market Limitation. Unless the Company either (i) is
               -------------------------
permitted by the applicable rules and regulations of the principal securities
market on which the Common Stock is listed or traded or (ii) has obtained
approval of the issuance of the Common Shares and Warrant Shares upon exercise
of or otherwise pursuant to the Warrants in accordance with applicable law and
the rules and regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Company or any of
its securities (the "Stockholder Approval"), in no event shall the total number
of Common Shares and Warrant Shares issued upon exercise of or otherwise
pursuant to the Warrants (including any shares of capital stock or rights to
acquire shares of capital stock issued by the Company which are aggregated or
integrated with the Common Shares and Warrant Shares issued or issuable upon
exercise of or otherwise pursuant to the Warrants for purposes of any such rule
or regulation) exceed the maximum number of shares of Common Stock that the
Company can so issue pursuant to any rule of the principal United States
securities market on which the Common Stock trades (including Rule 4460(i) of
the Nasdaq or any successor rule) (the "Maximum Share Amount") which, as of the
Closing Date, shall be 6,159,220 (19.99% of the total shares of Common Stock
outstanding on the Closing Date), subject to equitable adjustments from time to
time for stock splits, stock dividends, combinations, capital reorganizations

                                      -16-
<PAGE>

and similar events relating to the Common Stock occurring after the Closing
Date. In the event that the sum of (x) the aggregate number of shares of Common
Shares actually issued plus the aggregate number of Warrant Shares actually
issued upon exercise of or otherwise pursuant to the outstanding Warrants
(including any shares of capital stock or rights to acquire shares of capital
stock issued by the Company which are aggregated or integrated with the Common
Shares and Warrant Shares issued or issuable upon exercise or otherwise pursuant
to the Warrants) plus (y) the aggregate number of Warrant Shares that remain
                 ----
issuable upon exercise of or otherwise pursuant to the Warrants, represents more
than 100% of the Maximum Share Amount (the "Triggering Event"), the Company will
use its best efforts to seek and obtain Stockholder Approval (or obtain such
other relief as will allow conversions hereunder in excess of the Maximum Share
Amount) as soon as practicable following the Triggering Event, but in no event
later than ninety (90) days following the Triggering Event.

     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 50% of the then outstanding
Common Shares and Warrant Shares (issued or issuable pursuant to the Warrants)
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 (issued or issuable pursuant to the Warrants) for an amount equal
to the greater of (1) 120% of the product of (x) the number of Common Shares and
Warrants (or Warrant Shares issued or issuable pursuant to the Warrants) then
held by such holder, multiplied by (y) $2.135 and (2) the "parity value" of the
Common Shares and Warrant Shares (issued or issuable pursuant to the Warrants)
to be repurchased, where parity value means the product of (a) the number

                                      -17-
<PAGE>

of Common Shares and Warrant Shares (issued or issuable pursuant to the
Warrants) to be repurchased multiplied by (b) the highest Closing Price for the
Common Stock 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 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 trading days
after receipt by the Company of the Default Notice. For purposes of this
Agreement, the term "Closing Price" means, for any security as of any date, the
Closing Bid Price on Nasdaq as reported by Bloomberg Financial Markets or an
equivalent reliable reporting service mutually acceptable to and hereafter
designated by the Buyers and the Company ("Bloomberg") or, if Nasdaq is not the
principal trading market for such security, the Closing Bid Price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or, if no Closing Bid
Price of such security is available in any of the foregoing manners, the average
of the bid prices of any market makers for such security that are listed in the
"pink sheets" by the National Quotation Bureau, Inc. If the Closing Price cannot
be calculated for such security on such date in the manner provided above, the
Closing Price shall be the fair market value as mutually determined by the
Company and the Buyers.

     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

                                      -18-
<PAGE>

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 Purchased Shares and the Warrants 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:

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

          (b)  The applicable Buyer shall have delivered the Purchase Price for
the Purchased Shares and the Warrants 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 Purchased Shares and the Warrants 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, the Prior Warrant
Amendment and the Registration Rights Agreement, and delivered the same to the
Buyers.

          (b)  The Company shall have delivered to such Buyer duly executed
certificates (in such denominations as the Buyer shall request no later than
10:00 a.m. Eastern Time on the last trading day immediately preceding the
Closing Date) representing the Common Shares and duly executed Warrants in
accordance with Section 1(b) above.

                                      -19-
<PAGE>

          (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 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.  Each 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 Buyers 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 Buyers and in substantially the same form as Exhibit D
                                                                 ---------
attached hereto.

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

                                      -20-
<PAGE>

          (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 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 any 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

                                      -21-
<PAGE>

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

          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.

                                      -22-
<PAGE>

          (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.

          (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.

          (n)  Acknowledgment.  Notwithstanding anything to the contrary
               --------------
contained herein or in the Warrant, dated as of February 29, 2000 issued by the
Company to RGC International Investors, LDC (the "Outstanding Warrant"), the
issuance of Securities pursuant to this Agreement shall not result in an
adjustment of the Exercise Price (as defined in the Outstanding Warrant).

                                      -23-
<PAGE>

                 [Remainder of page intentionally left blank]

                                      -24-
<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:   ____________________________________
      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:  _______________________________
           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
      Attn: Legal Department
      Facsimile:  (610) 617-0570
      Telephone:  (610) 617-5900

AGGREGATE SUBSCRIPTION AMOUNT:

      Number of Purchased Shares:                     2,810,305

      Maximum Number of Warrants Issuable:            3,348,915

      Aggregate Purchase Price:                 $  6,000,000.00

                                      -25-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00011-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00011-of-00352.parquet"}]]