Document:

<PAGE>

                                                                     EXHIBIT 4.2

                         REGISTRATION RIGHTS AGREEMENT

     REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February 28,
2000, by and among Aastrom Biosciences, Inc., a Michigan corporation, with its
headquarters located at 24 Frank Lloyd Wright Drive, Ann Arbor, Michigan 48106
(the "Company"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "Initial Investors").

     WHEREAS:

     A.  In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) 2,264,151 units (the
"Units"), each Unit consisting of (i) one share of the Company's common stock,
no par value (the "Common Stock"), and (ii) one-half (.5) warrant (the
"Warrants"), each Warrant to acquire one (1) share of Common Stock, upon the
terms and subject to the limitations and conditions set forth in the Warrants
dated February 28, 2000; and

     B.  To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:

     1.  DEFINITIONS.
         -----------

         a.    As used in this Agreement, the following terms shall have the
following meanings:

               (i)   "Investors" means the Initial Investors and any transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.

               (ii)  "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering
<PAGE>

securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").

               (iii) "Registrable Securities" means (A) the Common Shares issued
pursuant to the Securities Purchase Agreement and (B) the Warrant Shares issued
or issuable upon exercise of or otherwise pursuant to the Warrants, and any
shares of capital stock issued or issuable as a dividend on or in exchange for
or otherwise with respect to any of the foregoing (including, without
limitation, any shares of Common Stock issued or issuable pursuant to Section
2(c) hereof).

               (iv)  "Registration Statement(s)" means a registration
statement(s) of the Company under the 1933 Act.

          b.   Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.

     2.   REGISTRATION.
          ------------

          a.   Mandatory Registration.  The Company shall prepare, and, on or
               ----------------------
prior to the date which is thirty (30) days after the date of the Closing under
the Securities Purchase Agreement (the "Closing Date"), file with the SEC a
Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities, which Registration Statement, to the
extent allowable under the 1933 Act and the rules and regulations promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon exercise of or otherwise pursuant to the Warrants to
prevent dilution resulting from stock splits, stock dividends or similar
transactions.  The number of shares of Common Stock initially included in such
Registration Statement shall be no less than the sum of (x) the aggregate number
of Common Shares issued pursuant to the Securities Purchase Agreement and (y)
two (2) times the aggregate number of Warrant Shares that are then issuable upon
exercise of or otherwise pursuant to the Warrants, without regard to any
limitation on the Investor's ability to exercise the Warrants.  The Company
acknowledges that the number of shares initially included in the Registration
Statement represents the Common Shares plus a good faith estimate of the maximum
number of shares issuable upon exercise of the Warrants.

          b.   Underwritten Offering.  If any offering pursuant to a
               ---------------------
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of a
majority-in-interest of the Initial Investors, shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company.
<PAGE>

          c.  Issuance of Additional Common Stock by the Company.  The Company
              --------------------------------------------------
shall use its best efforts to obtain effectiveness of the Registration Statement
as soon as practicable.  If (i) the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not declared effective by the SEC within one hundred twenty (120)
days after the Closing Date or if, after the Registration Statement has been
declared effective by the SEC, sales of all of the Registrable Securities cannot
be made pursuant to the Registration Statement, or (ii) the Common Stock is not
listed or included for quotation on the Nasdaq National Market ("Nasdaq"), the
Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange (the
"NYSE") or the American Stock Exchange (the "AMEX") after being so listed or
included for quotation, then the Company will issue Additional shares of Common
Stock to the Investors in such amounts and at such times as shall be determined
pursuant to this Section 2(c) as partial relief for the damages to the Investors
by reason of any such delay in or reduction of their ability to sell the
Registrable Securities (which remedy shall not be exclusive of any other
remedies available at law or in equity).  Without limiting the generality of the
preceding sentence, the Company shall issue to each holder of Registrable
Securities an amount of Common Stock equal in value to (x) the aggregate
purchase price paid by such holder pursuant to the Securities Purchase Agreement
(or upon exercise of the Warrants) for the Common Shares and Warrant Shares held
by such holder at the time of an event specified in clause (i) or (ii) above
(the "Aggregate Purchase Price"), multiplied by the Applicable Percentage (as
defined below), multiplied by (y) the sum of:  (i) the number of months
(prorated for partial months) after the end of such 120-day period and prior to
the date the Registration Statement required to be filed pursuant to Section
2(a) is declared effective by the SEC; provided, however, that there shall be
                                       --------  -------
excluded from such period any delays which are solely attributable to changes
required by the Investors in the Registration Statement with respect to
information relating to the Investors, including, without limitation, changes to
the plan of distribution, or to the failure of the Investors to conduct their
review of the Registration Statement pursuant to Section 3(h) below in a
reasonably prompt manner; (ii) the number of months (prorated for partial
months) during the Registration Period (as defined below) that sales of all of
the Registrable Securities cannot be made pursuant to the Registration Statement
after the Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance with
the terms of this Agreement (including Section 3(b) hereof or otherwise), but
excluding any days during an Allowed Delay (as defined in Section 3(f)); and
(iii) the number of months (prorated for partial months) that the Common Stock
is not listed or included for quotation on the Nasdaq, Nasdaq SmallCap, NYSE or
AMEX or that trading thereon is halted after the Registration Statement has been
declared effective.  The term "Applicable Percentage" means one and one-half
hundredths (.015).  (For example, if the Registration Statement becomes
effective one (1) month after the end of such 120-day period, the Company would
issue $15,000 worth of Common Stock for each $1,000,000 of Aggregate Purchase
Price.  If thereafter, and after excluding an Allowed Delay, sales could not be
made pursuant to the Registration Statement for an additional period of one (1)
month, the Company would issue an additional $15,000 worth of Common Stock for
each $1,000,000 of Aggregate Purchase Price.)  The shares of Common Stock will
be valued at the lesser of (A) $2.65 and (B) 95% of the average of the closing
bid prices of such shares for the five (5) consecutive trading days ending on
the trading day immediately preceding the date of

                                      -3-
<PAGE>

issuance (which shares of Common Stock shall be Registrable Securities (but do
not necessarily need to be registered at the time of issue if the Registration
Statement is not then effective)). The Company shall deliver such shares of
Common Stock not later than two (2) days after the end of each period that gives
rise to such obligation, provided that, if any such period extends for more than
thirty (30) days, interim payments shall be made for each such thirty (30) day
period. For clarification purposes, the obligations of the Company under this
Section 2(c) shall only be satisfied in Common Stock and not by the payment of
cash.

          d.   Piggy-Back Registrations.  Subject to the last sentence of this
               ------------------------
Section 2(d), if at any time prior to the expiration of the Registration Period
(as hereinafter defined) the Company shall determine to file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit.  Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
                                                    --------  -------
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
                                                                    --------
further, however, that, after giving effect to the immediately preceding
-------  -------
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights.  No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof.  If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering.  Notwithstanding anything to the contrary set forth herein, the
registration rights of the Investors pursuant to this Section 2(d) shall only be

                                      -4-
<PAGE>

available in the event the Company fails to timely file, obtain effectiveness or
maintain effectiveness of any Registration Statement to be filed pursuant to
Section 2(a) in accordance with the terms of this Agreement.

          e.   Eligibility for Form S-3.  The Company represents and warrants
               ------------------------
that it meets the registrant eligibility and transaction requirements for the
use of Form S-3 for registration of the sale by the Initial Investors and any
other Investors of the Registrable Securities and the Company shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to maintain such eligibility for the use of Form S-3.

     3.   OBLIGATIONS OF THE COMPANY.
          --------------------------

     In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:

          a.   The Company shall prepare promptly, and file with the SEC not
later than twenty (20) days after the Closing Date, a Registration Statement
with respect to the number of Registrable Securities provided in Section 2(a),
and thereafter use its best efforts to cause such Registration Statement
relating to Registrable Securities to become effective as soon as possible after
such filing (but in no event later than one hundred twenty (120) days after the
Closing Date), and keep the Registration Statement effective pursuant to Rule
415 at all times until such date as is the earlier of (i) the date on which all
of the Registrable Securities have been sold and (ii) the date on which the
Registrable Securities (in the opinion of counsel to the Company, reasonably
satisfactory in form and substance to the Initial Investors) may be immediately
sold to the public without registration or restriction (including without
limitation as to volume by each holder thereof) (the "Registration Period"),
which Registration Statement (including any amendments or supplements thereto
and prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.

          b.  The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statements and the prospectus used in connection with the Registration
Statements as may be necessary to keep the Registration Statements effective at
all times during the Registration Period, and, during such period, comply with
the provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements.  In the event that on any
Trading Day (as defined below) (such Trading Day being a "Registration Trigger
Date") the number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover all of the Registrable
Securities (based on the number of Common Shares then held by Investors and the
number of Warrant Shares issued or issuable upon exercise of or otherwise
pursuant to the Warrants, without giving effect to any limitations on the
Investors' ability to exercise

                                      -5-
<PAGE>

the Warrants), the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefore, if applicable),
or both, so as to cover in the aggregate two hundred percent (200%) of all of
the Registrable Securities so issued or issuable (without giving effect to any
limitations on exercise contained in the Warrants) as of the Registration
Trigger Date, in each case, as soon as practicable, but in any event within
twenty (20) business days after the necessity therefor arises (based on the
market price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof but in any event within one hundred
twenty (120) days. The provisions of Section 2(c) above shall be applicable with
respect to the Company's obligations under this Section 3(b).

          c.   The Company shall furnish to each Investor whose Registrable
Securities are included in a Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.  The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any post-
effective amendment.  The Company will promptly respond to any and all comments
received from the SEC, with a view towards causing each Registration Statement
or any amendment thereto to be declared effective by the SEC as soon as
practicable and shall file an acceleration request as soon as practicable
following the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that any such Registration Statement or any
amendment thereto will not be subject to review.

          d.   The Company shall use reasonable efforts, to the extent required,
to (i) register and qualify the Registrable Securities covered by the
Registration Statements under such other securities or "blue sky" laws of such
jurisdictions in the United States as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request, (ii)
prepare and file in those jurisdictions such amendments (including post-
effective amendments) and supplements to such registrations and qualifications
as may be necessary to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
--------  -------
therewith or as a condition thereto to (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (b) subject itself to general

                                      -6-
<PAGE>

taxation in any such jurisdiction, (c) file a general consent to service of
process in any such jurisdiction, (d) provide any undertakings that cause the
Company undue expense or burden, or (e) make any change in its charter or
bylaws, which in each case the Board of Directors of the Company determines to
be contrary to the best interests of the Company and its stockholders.

          e.   In the event Investors who hold a majority-in-interest of the
Registrable Securities being offered in the offering  (with the approval of a
majority-in-interest of the Initial Investors) select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.

          f.   As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in any
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to any Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than twenty (20) consecutive
trading days (or a total of not more than forty (40) trading days in any twelve
(12) month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, in the best interests of the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.

          g.   The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of any Registration
Statement, and, if such an order is issued, to obtain the withdrawal of such
order at the earliest possible moment and to notify each Investor who holds
Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the resolution
thereof.

          h.   The Company shall permit a single firm of counsel designated by
the Initial Investors to review such Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration of
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement without
prior notice to such counsel.

                                      -7-
<PAGE>

The sections of such Registration Statement covering information with respect to
the Investors, the Investor's beneficial ownership of securities of the Company
or the Investors intended method of disposition of Registrable Securities shall
conform to the information provided to the Company by each of the Investors.

          i.   The Company shall make generally available to its security
holders as soon as practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.

          j.   At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with any Registration Statement (i) an opinion, dated as of
such date, from counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the underwriters, if any, and the
Investors and (ii) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and the Investors.

          k.   The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
                                                       --------  -------
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement.  The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k).  Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent

                                      -8-
<PAGE>

disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.

          l.   The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.

          m.   The Company shall use its best efforts to (i) cause all the
Registrable Securities covered by the Registration Statement to be listed on
each national securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) to the extent the securities of the same class or series are not then
listed on a national securities exchange, secure the designation and quotation,
of all the Registrable Securities covered by the Registration Statement on the
Nasdaq or, if not eligible for the Nasdaq, on the Nasdaq SmallCap and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities.

          n.   The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.

          o.   The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to such Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may reasonably request, and, within three
(3) business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors

                                      -9-
<PAGE>

whose Registrable Securities are included in such Registration Statement) an
instruction in the form attached hereto as Exhibit 1 and an opinion of such
counsel in the form attached hereto as Exhibit 2.

          p.   At the request of the holders of a majority-in-interest of the
Registrable Securities, the Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.

          q.   From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company to
include any of their securities in any Registration Statement under Section 2(a)
hereof or any amendment or supplement thereto under Section 3(b) hereof without
the consent of the holders of a majority-in-interest of the Registrable
Securities. In addition, the Company shall not offer any securities for its own
account or the account of others in any Registration Statement under Section
2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof
without the consent of the holders of a majority-in-interest of the Registrable
Securities.

          r.   The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
following their transfer pursuant to the Registration Statement.

     4.  OBLIGATIONS OF THE INVESTORS.
         ----------------------------

     In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:

          a.   It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request.  At least three
(3) business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.

          b.   Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.

                                     -10-
<PAGE>

          c.  In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.

          d.  Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.

          e.  No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.

          f.  The underwriters in connection with any firm commitment public
offering of the Company's common stock resulting in gross proceeds of at least
$20,000,000 led by at least one of the underwriters listed on Schedule 4(f)
attached hereto and made a part hereof, shall have the right to require that the
Investors enter into an agreement restricting the Investors from selling Common
Stock pursuant to the Registration Statement held by such Investors in any
public sale for a period not to exceed ninety (90) days following the closing of
such underwriting, if they deem this to be reasonably necessary to effect such
underwritten public offering; provided that all executive officers and directors
shall have also agreed to identical (or more restrictive) restrictions.  The
Investors shall be subject to no more than one such restriction during the
Registration Period.

     5.   EXPENSES OF REGISTRATION.
          ------------------------

                                      -11-
<PAGE>

     All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and subject to Section 4(f) of the Purchase Agreement,
the reasonable fees and disbursements of one counsel selected by the Initial
Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne by the
Company.

     6.   INDEMNIFICATION.
          ---------------

     In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

          a.  To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any underwriter
(as defined in the 1933 Act) for the Investors, and (iv) the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations").  Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of such Registration Statement or any such amendment thereof or
supplement thereto; (ii) shall not apply to amounts paid in settlement of

                                      -12-
<PAGE>

any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld; and (iii) with
respect to any preliminary prospectus, shall not inure to the benefit of any
Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.

          b.  In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, each person, if any, who controls
the Company within the meaning of the 1933 Act or the 1934 Act, any underwriter
and any other stockholder selling securities pursuant to the Registration
Statement or any of its directors or officers or any person who controls such
stockholder or underwriter within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the 1933 Act,
the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon
any Violation by such Investor, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and subject to Section 6(c) such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
                                                --------  -------
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
          --------  -------  -------
this Agreement (including this Section 6(b) and Section 7) for only that amount
as does not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement.  Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.

          c.  Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made

                                      -13-
<PAGE>

against any indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof, and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume control of the defense thereof with counsel mutually satisfactory to
the indemnifying party and the Indemnified Person or the Indemnified Party, as
the case may be; provided, however, that an Indemnified Person or Indemnified
                 --------  -------
Party shall have the right to retain its own counsel with the fees and expenses
to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a majority-in-
interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

     7.   CONTRIBUTION.
          ------------

     To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that (i) no
                                          --------  -------
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.

                                      -14-
<PAGE>

     8.   REPORTS UNDER THE 1934 ACT.
          --------------------------

     With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:

          a.  make and keep public information available, as those terms are
understood and defined in Rule 144;

          b.  file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and

          c.  furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the 1933 Act and
the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.

     9.   ASSIGNMENT OF REGISTRATION RIGHTS.
          ---------------------------------

     The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.

     10.  AMENDMENT OF REGISTRATION RIGHTS.
          --------------------------------

     Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with

                                      -15-
<PAGE>

written consent of the Company, each of the Initial Investors (to the extent
such Initial Investor still owns Registrable Securities) and Investors who hold
a majority interest of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.

     11.  MISCELLANEOUS.
          -------------

          a.  A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities.  If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.

          b.  Any notices required or permitted to be given under the terms
hereof 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 and shall be effective five days after being placed in
the mail, if mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party.  The addresses for such
communications shall be:

     If to the Company:

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

     With copy to:

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

If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.

                                      -16-
<PAGE>

          c.  Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

          d.  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.

          e.  This Agreement, the Securities Purchase Agreement and the Warrants
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein.  This Agreement, the
Securities Purchase Agreement and the Warrants supersede all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof and thereof.

          f.  Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.

          g.  The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

          h.  This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement.  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.

          i.  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.

                                      -17-
<PAGE>

          j.  Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the Warrants then outstanding have been exercised for
Registrable Securities.

          k.  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.

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

          m.  In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law.  Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.

          n.  The initial number of Registrable Securities included in any
Registration Statement and each increase to the number of Registrable Securities
included therein shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be.  In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included in a Registration Statement for such transferor.  Any shares
of Common Stock included in a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors.  For the avoidance of doubt,
the number of Registrable Securities held by an Investor shall be determined as
if all Warrants then outstanding and held by an Investor were exercised for
Registrable Securities.

                                      -18-
<PAGE>

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

AASTROM BIOSCIENCES, INC.

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

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

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

                                      -19-<PAGE>

                                                                     EXHIBIT 4.3

     THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
     NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  EXCEPT
     AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED
     AS OF FEBRUARY 28, 2000, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE
     SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
     STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN
     FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
     TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS
     SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

     Right to Purchase 1,132,075 Shares of Common Stock, no par value per share

                            STOCK PURCHASE WARRANT

     THIS CERTIFIES THAT, for value received, RGC International Investors, LDC
or its registered assigns, is entitled to purchase from Aastrom Biosciences,
Inc., a Michigan corporation (the "Company"), at any time or from time to time
during the period specified in Paragraph 2 hereof, One Million One Hundred
Thirty-Two Thousand Seventy-Five (1,132,075) fully paid and nonassessable shares
of the Company's Common Stock, no par value per share (the "Common Stock"), at
an initial exercise price of  $3.695 per share (the "Exercise Price"); provided,
                                                                       --------
however, on each February 29 and August 29 following the date hereof (each, a
-------
"Reset Date"), commencing August 29, 2000, the Exercise Price then in effect
shall be reset, if lower, to the average of the Closing Bid Prices of the Common
Stock for the five (5) Trading Days ending on the Trading Day immediately
preceding such Reset Date, but in no event shall the Exercise Price be less than
$1.60 (subject to adjustment for stock splits, combinations and similar events)
(the "Floor Price").  If the Exercise Price is reduced as a result of the resets
in the foregoing sentence, the number of shares into which this Warrant is
exercisable shall be proportionately increased in accordance with the provisions
of Section 4(d).  Notwithstanding the foregoing, so long as (A) the Registration
Statement
<PAGE>

(as defined in the Registration Rights Agreement (as defined below)) required to
be filed and to be effective pursuant to the Registration Rights Agreement is
then in effect and has been in effect for at least 30 days prior to the ten (10)
Trading Day period referred to below and sales of all of the Registrable
Securities (as defined in the Registration Rights Agreement) can be made
thereunder, (B) the Company has a sufficient number of shares of Common Stock
reserved for issuance upon full exercise of this Warrant and (C) the shares of
Common Stock issuable upon exercise of this Warrant are traded on the Nasdaq
National Market ("Nasdaq"), the Nasdaq SmallCap Market (the "Nasdaq SmallCap"),
the New York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX"), if
the average of the Closing Bid Prices of the Common Stock for any ten (10)
consecutive Trading Days exceeds $6.47 (subject to adjustment for stock splits,
combinations and similar events), the Exercise Price then in effect shall not be
subject to further resets pursuant to the proviso in the first sentence of this
paragraph.

     The term "Warrant Shares," as used herein, refers to the shares of Common
Stock purchasable hereunder.  The Warrant Shares and the Exercise Price are
subject to adjustment as provided in Paragraph 4 hereof.  The term Warrants
means this Warrant and the other warrants issued pursuant to that certain
Securities Purchase Agreement, dated February 28, 2000, by and among the Company
and the Buyers listed on the execution page thereof (the "Securities Purchase
Agreement").

     This Warrant is subject to the following terms, provisions, and conditions:

     1.  Manner of Exercise; Issuance of Certificates; Payment for Shares.
         ----------------------------------------------------------------
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement.  The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares (or
an election to effect a Cashless Exercise has been made) as set forth above.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
holder hereof within a reasonable time, not exceeding two (2) business days,
after this Warrant shall have been so exercised.  The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder or such other name as shall be
designated by such holder.  If

                                      -2-
<PAGE>

this Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the holder a new Warrant representing the number of
shares with respect to which this Warrant shall not then have been exercised.

          Notwithstanding anything in this Warrant to the contrary, in no event
shall the holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the holder of this Warrant and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unexercised Warrants and the unexercised or unconverted portion
of any other securities of the Company subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (ii) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portions
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by the holder of this Warrant and its
affiliates of more than 9.9% of the outstanding shares of Common Stock.  For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (i) hereof.  Notwithstanding anything else contained herein to the
contrary, this paragraph may not be amended without (i) written consent of the
Company and the holder of this Warrant and (ii) the approval of a majority of
the votes cast by all stockholders holding Common Stock of the Company.

     2.   Period of Exercise.  This Warrant is exercisable at any time or from
          ------------------
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement (the "Issue Date")
and before 5:00 p.m., New York City time on the third (3rd) anniversary of the
Issue Date (the "Exercise Period").  Notwithstanding the foregoing, if, at any
time after February 29, 2001, the Closing Bid Price (as defined below) of the
Common Stock on Nasdaq (or, if the Common Stock is not then traded on Nasdaq,
the principal trading market for the Common Stock on such date) is greater than
$7.39 (subject to adjustment for stock splits, combinations and similar events)
for a period (the "Trading Day Period") of ten (10) consecutive Trading Days (as
defined below), then, so long as (i) all of the shares of Common Stock issuable
upon exercise of or otherwise pursuant to this Warrant are then (x) authorized
and reserved for issuance, (y) registered for re-sale under the Securities Act
by the holder of this Warrant (or may otherwise be able to be resold publicly
without registration or restriction) and (z) eligible to be traded on Nasdaq,
the Nasdaq SmallCap, the NYSE or the AMEX and (ii) there is not then a
continuing Repurchase Event (as defined in the Securities Purchase Agreement),
this Warrant shall expire on the 30th day following the last day of the Trading
Day Period (the "Expiration Date"); provided, however, the Expiration Date shall
be delayed by one (1) Trading Day for each Trading Day occurring prior thereto
and prior to the full exercise of this Warrant that (i) any Registration
Statement (as defined in the Registration Rights Agreement, dated as of February
28, 2000, between the Company and RGC International Investors, LDC (the
"Registration Rights Agreement")) required to be filed and to be effective
pursuant to, and in accordance with the time periods specified in, the
Registration Rights Agreement

                                      -3-
<PAGE>

is not effective or sales of all of the Registrable Securities (as defined in
the Registration Rights Agreement) otherwise cannot be made thereunder during
the Registration Period (as defined in the Registration Rights Agreement)
(whether by reason of the Company's failure to properly supplement or amend the
prospectus included therein in accordance with the terms of the Registration
Rights Agreement or otherwise), (ii) any Repurchase Event (as defined in the
Securities Purchase Agreement) exists, without regard to whether any cure
periods shall have run or (iii) the Company is in breach of any of its
obligations pursuant to Section 4(h) of the Securities Purchase Agreement.

     3.   Certain Agreements of the Company.  The Company hereby covenants and
          ---------------------------------
agrees as follows:

          (a) Shares to be Fully Paid.  All Warrant Shares will, upon issuance
              -----------------------
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.

          (b) Reservation of Shares.  During the Exercise Period, the Company
              ---------------------
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.

          (c) Listing.  The Company shall promptly secure the listing of the
              -------
shares of Common Stock issuable upon exercise of this Warrant 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 upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.

          (d) Certain Actions Prohibited.  The Company will not, by amendment of
              --------------------------
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant.  Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

                                      -4-
<PAGE>

          (e) Successors and Assigns.  This Warrant will be binding upon any
              ----------------------
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.

     4.   Antidilution Provisions.  During the Exercise Period, the Exercise
          -----------------------
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.

     In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.

          (a) Adjustment of Exercise Price and Number of Shares upon Issuance of
              ------------------------------------------------------------------
Common Stock.  Except as otherwise provided in Paragraphs 4(c) and 4(e) hereof,
------------
if and whenever on or after the Issue Date of this Warrant, the Company issues
or sells, or in accordance with Paragraph 4(b) hereof is deemed to have issued
or sold, any shares of Common Stock for no consideration or for a consideration
per share (before deduction of reasonable expenses or commissions or
underwriting discounts or allowances in connection therewith) less than the
Exercise Price in effect on the date of issuance (or deemed issuance) of such
Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive
Issuance, the Exercise Price will be reduced to a price determined by
multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Exercise Price in effect
immediately prior to the Dilutive Issuance, and (ii) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.

          (b) Effect on Exercise Price of Certain Events.  For purposes of
              ------------------------------------------
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:

              (i)  Issuance of Rights or Options.  If the Company in any manner
                   -----------------------------
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Exercise Price in effect on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share.  For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any,

                                      -5-
<PAGE>

payable to the Company upon the exercise of all such Options, plus, in the case
of Convertible Securities issuable upon the exercise of such Options, the
minimum aggregate amount of additional consideration payable upon the conversion
or exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.

               (ii)  Issuance of Convertible Securities.  If the Company in any
                     ----------------------------------
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Exercise Price in effect on the date of
issuance of such Convertible Securities, then the maximum total number of shares
of Common Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share.  For the purposes of the preceding sentence, the "price
per share for which Common Stock is issuable upon such conversion or exchange"
is determined by dividing (i) the total amount, if any, received or receivable
by the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities.  No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.

               (iii) Change in Option Price or Conversion Rate.  If there is a
                     -----------------------------------------
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.

               (iv)  Treatment of Expired Options and Unexercised Convertible
                     --------------------------------------------------------
Securities.  If, in any case, the total number of shares of Common Stock
----------
issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or

                                      -6-
<PAGE>

Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof), never been issued.

               (v)  Calculation of Consideration Received.  If any Common Stock,
                    -------------------------------------
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale.  In
case any Common Stock, Options or Convertible Securities are issued or sold for
a consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt.  In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be.  The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.

               (vi) Exceptions to Adjustment of Exercise Price.  No adjustment
                    ------------------------------------------
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; (iii) upon the exercise of the Warrants; (iv) upon the issuance of
Common Stock in a firm commitment underwritten public offering led by at least
one of the underwriters listed on Schedule 4(f) of the Registration Rights
Agreement (as defined below); and (v) issuances of securities to any investor
engaged as its principal business in the biotechnology, medical device or
pharmaceutical industry.

          (c)  Subdivision or Combination of Common Stock. If the Company at any
               ------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced.  If the Company at
any time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.

                                      -7-
<PAGE>

          (d)  Adjustment in Number of Shares.  Upon each adjustment of the
               ------------------------------
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price; provided, however, that no
                                                    --------  -------
adjustment to the number of shares of Common Stock into which this Warrant is
exercisable shall be made pursuant to this Section 4(d) when there are
adjustments to the Exercise Price pursuant to this Section 4 which would cause
the Exercise Price to be less than the Floor Price.

          (e)  Consolidation or Merger.
               -----------------------

               (i)  In case of any consolidation of the Company with, or merger
of the Company into any other corporation, then as a condition of such
consolidation or merger, adequate provision will be made whereby the holder of
this Warrant will have the right to acquire and receive upon exercise of this
Warrant in lieu of the shares of Common Stock immediately theretofore acquirable
upon the exercise of this Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable upon exercise
of this Warrant had such consolidation or merger not taken place. In any such
case, the Company will make appropriate provision to insure that the provisions
of this Paragraph 4 hereof will thereafter be applicable as nearly as may be in
relation to any shares of stock or securities thereafter deliverable upon the
exercise of this Warrant. Subject to subparagraph (ii) below, the Company will
not effect any consolidation or merger unless prior to the consummation thereof,
the successor corporation (if other than the Company) (the "Surviving Entity")
assumes by written instrument the obligations under this Paragraph 4 and the
obligations to deliver to the holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the holder
may be entitled to acquire.

               (ii) In the event of a Qualified Merger Transaction (as defined
below) or a Transfer of Control Transaction (as defined below) and
notwithstanding anything to the contrary contained in this Section 4(e), so long
as on the date the Optional Redemption Notice (as defined below) is delivered
and at all times thereafter up to the Optional Redemption Date (as defined
below) (a) the Registration Statement (as defined in the Registration Rights
Agreement), required to be filed and be effective pursuant to the Registration
Rights Agreement is then in effect and has been in effect for at least 30 days
prior thereto (other than for any period prior to the date of delivery of the
Optional Redemption Notice) and sales of all of the Registrable Securities (as
defined in the Registration Rights Agreement) can be made thereunder, (b) the
Company has a sufficient number of authorized shares of Common Stock reserved
for issuance upon full exercise of this Warrant and (c) the shares of Common
Stock issuable upon exercise of this Warrant are traded on Nasdaq, the Nasdaq
SmallCap, the NYSE or the AMEX, then the Company shall have the right,
exercisable on not less than twenty (20) Trading Days written notice prior to
the consummation of the Qualified

                                      -8-
<PAGE>

Merger Transaction or Transfer of Control Transaction to the holder of this
Warrant (which notice may not be sent to the holder of this Warrant until the
Company is permitted to redeem this Warrant pursuant to this Section 4(e)(ii)
(other than the requirement to deliver such notice) or at any time when there is
material non-public information regarding the Company that has not been publicly
announced or prior to the public announcement of such Qualified Merger
Transaction or Transfer of Control Transaction), to redeem this Warrant
simultaneously with the consummation of the Qualified Merger Transaction or
Transfer of Control Transaction in accordance with this Section 4(e)(ii). A
notice (the "Optional Redemption Notice") of any redemption hereunder (an
"Optional Redemption") shall be delivered to the holder of this Warrant at its
registered address appearing on the books and records of the Company and shall
state (1) that the Company is exercising its right to redeem this Warrant and
(2) the then current projected date of redemption, which date and time shall be
the effective date of the Qualified Merger Transaction (the "Optional Redemption
Date"), provided that the Company shall promptly notify the holder of this
Warrant in writing if the projected date of redemption is changed. On the
Optional Redemption Date, the Company shall make payment of the Optional
Redemption Amount (as defined below) to or upon the order of the holder of this
Warrant as specified by the holder in writing to the Company at least one (1)
business day prior to the Optional Redemption Date. If the Company exercises its
right to redeem this Warrant in accordance with this Section 4(e)(ii), the
Company shall make payment to the holder of this Warrant of an amount in cash
(the "Optional Redemption Amount") equal to 90% of the Black-Scholes Amount (as
defined herein) multiplied by the number of shares of Common Stock for which
this Warrant was exercisable (without regard to any limitations on exercise
herein contained) on the date immediately preceding the date of such Qualified
Merger Transaction or Transfer of Control Transaction. In the case of a
Qualified Merger Transaction, the Company may, at its option, pay the Optional
Redemption Amount in a number of shares of common stock of the Surviving Entity
(the "Survivor Common Stock") equal to the Optional Redemption Amount divided by
95% of the average of the lowest Closing Bid Prices for any five (5) Trading
Days (which need not be consecutive) during the fifteen (15) Trading Day period
ending one Trading Day prior to the Optional Redemption Date; provided that such
                                                              --------
shares of Survivor Common Stock paid to the holder of this Warrant pursuant to
this sentence (i) are traded on Nasdaq, the NYSE or the AMEX and (ii) may be
immediately resold by the holder of this Warrant to the public without
registration or restriction.  Notwithstanding anything to the contrary contained
herein, if, in the case of a Qualified Merger Transaction, the price paid per
share of Common Stock is greater than or equal to 130% of the then effective
Exercise Price (but in no event lower than $2.65 (subject to adjustment for
stock splits, combinations and similar events)), or, in the case of a Transfer
of Control Transaction, the average of the Closing Bid Prices for the twenty
(20) Trading Day notice period during which the Company may give its Optional
Redemption Notice is greater than or equal to 130% of the then effective
Exercise Price (but in no event lower than $2.65 (subject to adjustment for
stock splits, combinations and similar events)), the Company shall not be
permitted to redeem this Warrant pursuant to this Section 4(e)(ii) and this
Warrant shall be exercised simultaneously with the consummation of the Qualified
Merger Transaction or Transfer of Control Transaction, as applicable, in
accordance with the terms of Section 1.  Notwithstanding the delivery of an
Optional Redemption Notice, the holder of this Warrant shall at all times prior
to the Optional Redemption Date maintain the right to exercise all or any
portion of this Warrant in accordance with the terms

                                      -9-
<PAGE>

of Section 1 and any portion so exercised after receipt of an Optional
Redemption Notice and prior to the Optional Redemption Date set forth in such
notice and payment of the aggregate Optional Redemption Amount shall be deducted
from the portion of this Warrant which is otherwise subject to redemption
pursuant to such notice. If the Company delivers an Optional Redemption Notice
and fails to pay the Optional Redemption Amount due to the holder of this
Warrant on the Optional Redemption Date, the Company (or any successor thereto
including the Surviving Entity) shall forever forfeit its right to redeem this
Warrant pursuant to this Section 4(e)(ii).

The "Black-Scholes Amount" shall be an amount determined by calculating the
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg (as defined below) online page, using the
following variable values:  (i) the current market price of the Common Stock
equal to the closing trade price on the last Trading Day prior to the date the
Optional Redemption Notice is received by the holder of this Warrant; (ii)
volatility of the Common Stock equal to the volatility of the Common Stock
during the one hundred (100) Trading Day period ending on the Trading Day prior
to the date the Optional Redemption Notice is received by the holder of this
Warrant; (iii) a risk free rate equal to the interest rate on the United States
treasury bill or treasury note with a 90-day maturity on the Trading Day prior
to the date the Optional Redemption Notice is received by the holder of this
Warrant; and (iv) an exercise price equal to the Exercise Price on the date the
Optional Redemption Notice is received by the holder of this Warrant.  In the
event such calculation function is no longer available utilizing the Bloomberg
(as defined below) online page, the holder of this Warrant shall calculate such
amount in good faith using the closest available alternative mechanism and
variable values to those available utilizing the Bloomberg (as defined below)
online page for such calculation function and shall provide a copy of such
calculation to the Company.

               (iii)  "Qualified Merger Transaction" shall mean a consolidation
of the Company with, or merger of the Company into any other corporation where
the Company is not the surviving entity and in which the Company is required as
a condition of such transaction to redeem or force the exercise of the Warrants.

               (iv)   "Transfer of Control Transaction" shall mean the sale or
exchange of shares of Common Stock constituting more than fifty percent (50%) of
the total outstanding Common Stock, calculated on a fully diluted basis. For
purposes of such calculation, all shares of Common Stock issuable upon the
conversion, exercise or exchange of any securities of the Company shall be
deemed to be outstanding.

          (f)  Distribution of Assets. In case the Company shall declare or make
               ----------------------
any distribution of its assets (including cash) to holders of Common Stock as a
partial liquidating dividend, by way of return of capital or otherwise, then,
after the date of record for determining shareholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been

                                      -10-
<PAGE>

payable to the holder had such holder been the holder of such shares of Common
Stock on the record date for the determination of shareholders entitled to such
distribution.

          (g)  Notice of Adjustment.  Upon the occurrence of any event which
               --------------------
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.  Such calculation shall be certified
by the chief financial officer of the Company.

          (h)  Minimum Adjustment of Exercise Price.  No adjustment of the
               ------------------------------------
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.

          (i)  No Fractional Shares. No fractional shares of Common Stock are to
               --------------------
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.

          (j)  Other Notices.  In case at any time:
               -------------

               (i)   the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;

               (ii)  the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;

               (iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to, another
corporation or entity; or

               (iv)  there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;

then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the

                                      -11-
<PAGE>

case of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, notice of the date (or, if not then
known, a reasonable approximation thereof by the Company) when the same shall
take place. Such notice shall also specify the date (or if not then known, the
best estimate of such date) on which the holders of Common Stock shall be
entitled to receive such dividend, distribution, or subscription rights or to
exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least 30 days prior to the record date or the date on which
the Company's books are closed in respect thereto. Failure to give any such
notice or any defect therein shall not affect the validity of the proceedings
referred to in clauses (i), (ii), (iii) and (iv) above.

          (k)  Certain Events.  If any event occurs of the type contemplated by
               --------------
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the holder
of this Warrant shall be neither enhanced nor diminished by such event.

          (l)  Certain Definitions.
               -------------------

               (i)  "Common Stock Deemed Outstanding" means the number of shares
                     -------------------------------
of Common Stock actually outstanding (not including shares of Common Stock held
in the treasury of the Company), plus (x) pursuant to Paragraph 4(b)(i) hereof,
the maximum total number of shares of Common Stock issuable upon the exercise of
Options, as of the date of such issuance or grant of such Options, if any, and
(y) pursuant to Paragraph 4(b)(ii) hereof, the maximum total number of shares of
Common Stock issuable upon conversion or exchange of Convertible Securities, as
of the date of issuance of such Convertible Securities, if any.

               (ii) "Market Price," as of any date, (i) means the average of the
                     ------------
last reported sale prices for the shares of Common Stock on Nasdaq for the five
(5) Trading Days immediately preceding such date as reported by Bloomberg
Financial Markets or an equivalent reliable reporting service mutually
acceptable to and hereafter designated by the holder of this Warrant and the
Company ("Bloomberg"), or (ii) if Nasdaq is not the principal trading market for
the shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as reported
by Bloomberg, or (iii) if market value cannot be calculated as of such date on
any of the foregoing bases, the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the Company
or (b) at the option and expense of a majority-in-interest of the holders of the
outstanding Warrants, by an independent investment bank of nationally recognized
standing in the valuation of businesses similar to the business of the Company.
The manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.

                                      -12-
<PAGE>

               (iii) "Common Stock," for purposes of this Paragraph 4, includes
                      ------------
the Common Stock, no par value per share, and any additional class of stock of
the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, no par value per share, in respect of which
this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.

               (iv)  "Closing Bid Price" means, for any security as of any date,
                      -----------------
the closing bid price on Nasdaq as reported by 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 Bid Price
cannot be calculated for such security on such date in the manner provided
above, the Closing Bid Price shall be the fair market value as mutually
determined by the Company and the holder of this Warrant.

               (v)   "Trading Day" means any day on which the Common Stock is
                      -----------
traded for any period on Nasdaq, or on the principal securities exchange or
other securities market on which the Common Stock is then being traded.

     5.   Issue Tax.  The issuance of certificates for Warrant Shares upon the
          ---------
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.

     6.   No Rights or Liabilities as a Shareholder.  This Warrant shall not
          -----------------------------------------
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company.  No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

     7.   Transfer, Exchange, and Replacement of Warrant.
          ----------------------------------------------

                                      -13-
<PAGE>

          (a) Restriction on Transfer.  This Warrant and the rights granted to
              -----------------------
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement.  Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary.
Notwithstanding anything to the contrary contained herein, the registration
rights described in Paragraph 8 are assignable only in accordance with the
provisions of the Registration Rights Agreement.

          (b) Warrant Exchangeable for Different Denominations.  This Warrant is
              ------------------------------------------------
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.

          (c) Replacement of Warrant.  Upon receipt of evidence reasonably
              ----------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

          (d) Cancellation; Payment of Expenses.  Upon the surrender of this
              ---------------------------------
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company.  The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the holder of this
Warrant or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Paragraph 7.

          (e) Register.  The Company shall maintain, at its principal executive
              --------
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.

          (f) Exercise or Transfer Without Registration.  If, at the time of the
              -----------------------------------------
surrender of this Warrant in connection with any exercise, transfer, or exchange
of this Warrant, this Warrant (or, in the case of any exercise, the Warrant
Shares issuable hereunder), shall not be registered under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as
a condition of allowing such exercise, transfer, or exchange, (i) that the
holder or transferee of this

                                      -14-
<PAGE>

Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.

     8.  Registration Rights.  The initial holder of this Warrant (and certain
         -------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.

     9.  Notices.  All notices, requests, and other communications required or
         -------
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder.  All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 24 Frank Lloyd Wright
Drive, P.O. Box 376, Ann Arbor, Michigan 48106, Attention: Chief Executive
Officer, or at such other address as shall have been furnished to the holder of
this Warrant by notice from the Company.  Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail or by recognized overnight mail courier as provided above.  All notices,
requests, and other communications shall be deemed to have been given either at
the time of the receipt thereof by the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier upon
deposit with the United States Post Office or such overnight mail courier, if
postage is prepaid and the mailing is properly addressed, as the case may be.

     10. Governing Law.  THIS WARRANT 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

                                      -15-
<PAGE>

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.

     11.  Miscellaneous.
          -------------

          (a) Amendments.  This Warrant and any provision hereof may only be
              ----------
amended by an instrument in writing signed by the Company and the holder hereof.

          (b) Descriptive Headings.  The descriptive headings of the several
              --------------------
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.

          (c) Cashless Exercise.  Notwithstanding anything to the contrary
              -----------------
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise").  In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.

                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -16-
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.

                                    AASTROM BIOSCIENCES, INC.

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

                                    Dated as of February 29, 2000

                                      -17-
<PAGE>

                          FORM OF EXERCISE AGREEMENT

                                                        Dated: ________ __, ____

To: Aastrom Biosciences, Inc.

     The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________.  Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:

                                   Name: _______________________________________

                                   Signature: __________________________________
                                   Address:   __________________________________
                                              __________________________________

                                   Note:  The above signature should correspond
                                          exactly with the name on the face of
                                          the within Warrant.

and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.

     The above signatory represents and warrants that all offers and sales by
the above signatory of the securities issuable to the above signatory upon
exercise of this Warrant shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
<PAGE>

                              FORM OF ASSIGNMENT

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:

Name of Assignee                   Address                          No of Shares
----------------                   -------                          ------------

, and hereby irrevocably constitutes and appoints ______________ _______________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.

Dated: ________ __, ____

In the presence of:

_________________________

                                   Name: _______________________________________

                                   Signature: __________________________________

                                   Title of Signing Officer or Agent (if any):

                                   Address: ____________________________________
                                            ____________________________________
                                            ____________________________________

                                   Note: The above signature should correspond
                                         exactly with the name on the face of
                                         the within Warrant.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00002-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00002-of-00352.parquet"}]]