REGISTRATION RIGHTS AGREEMENT

EXHIBIT 10.2







REGISTRATION RIGHTS AGREEMENT



REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of July 2, 1998, 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 shares of its 1998 Series I Convertible Preferred Stock (the "SERIES I PREFERRED STOCK") and 1998 Series II Preferred Stock (the "SERIES II PREFERRED STOCK" and, collectively with the Series I Preferred Stock, the "PREFERRED STOCK") that are convertible into shares (the "CONVERSION SHARES") of the Company's common stock, no par value (the "COMMON STOCK"), upon the terms and subject to the limitations and conditions set forth in the Certificate of Designations, Rights, Preferences, Privileges and Restrictions with respect to the Series I Preferred Stock (the "SERIES I CERTIFICATE OF DESIGNATION") and the Certificate of Designations, Rights, Preferences, Privileges and Restrictions with respect to the Series II Preferred Stock (the "SERIES II CERTIFICATE OF DESIGNATION" and, collectively with the Series I Certificate of Designation, the "CERTIFICATE OF DESIGNATIONS"); 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.

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(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 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 the Conversion Shares (including any shares issued pursuant to Articles V, VII.E(b) and VII.F of the Certificate of Designations) issued or issuable 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.



(iv) "REGISTRATION STATEMENT" means a registration statement 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.

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(a) Mandatory Registration. The Company shall prepare, and, on or prior

---------------------- to the date which is twenty (20) business days after the Date of the First 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 underlying the Preferred Stock issued or issuable at the First Closing and the Second Closing pursuant to the Securities Purchase Agreement, which Registration Statement, to the extent allowable under the 1933 Act and the rules 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 conversion of the Preferred Stock (i) to prevent dilution resulting from stock splits, stock dividends or similar transactions or (ii) by reason of changes in the Conversion Price of the Preferred Stock in accordance with the terms thereof. The number of shares of Common Stock initially included in such Registration Statement shall be no less than one and one-half (1 1/2) times the sum of the number of Conversion Shares that are then issuable upon conversion of the Preferred Stock, without regard to any limitation on the Investor's ability to convert the Preferred Stock. The Company acknowledges that the number of shares initially included in the Registration Statement represents a good faith estimate of the maximum number of shares issuable upon conversion of the Preferred Stock.



(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.





(c) Payments 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(s) 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 with respect to the First Closing or if, after the Registration Statement has been declared effective by the SEC, sales 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 make payments 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, at its election, by providing the Investors with written notice of such election within two (2) business days following the first day of any such delay in or reduction of their ability to sell the Registrable Securities, either:



(1) pay to each holder of the Preferred Stock or Registerable

Securities an amount equal to the then outstanding principal amount of the

Preferred Stock (and, in the case of holders of Registerable Securities,

the principal amount of Preferred Stock from which such Registerable

Securities were converted) ("AGGREGATE SHARE PRICE") multiplied by two

hundredths (.02) times 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 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) that

sales 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 , 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. (For example, if the Registration Statement becomes

effective one (1) month after the end of such 120-day period, the Company

would pay $20,000 for each $1,000,000 of Aggregate





Share Price. If thereafter, sales could not be made pursuant to the

Registration Statement for an additional period of one (1) month, the

Company would pay an additional $20,000 for each $1,000,000 of Aggregate

Share Price.) Such amounts shall be paid in cash within five (5) 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; or



(2) increase the AApplicable Premium@ (as defined in Article IV.C of

the Certificate of Designations) to an amount equal to fifteen percent

(15%) per annum of the Stated Value (as defined in the Certificate of

Designations) for: (i) the period beginning on the end of such 120-day

period and ending on the date the Registration Statement 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) each period during which sales 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, but excluding any days during an Allowed Delay (as

defined in Section 3(f)); and (iii) each period during which 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.



(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 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,

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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

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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 available in the event the Company fails to timely file,

obtain effectiveness or maintain effectiveness of the 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.

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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) business 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, 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 without restriction (including without limitation as to volume by each holder thereof) without registration under the 1933 Act (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 Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement 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 Statement 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 Statement. In the event the number of shares available under a Registration Statement filed pursuant to this Agreement is insufficient to cover all of the Registrable Securities issued or issuable upon conversion of the Preferred Stock, 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 all of the Registrable Securities, 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. The provisions of Section 2(c) above shall be applicable with respect to such obligation, with the one hundred twenty (120) days running from the day after the date on which the Company reasonably first determines (or reasonably should have determined) the need therefor.



(c) The Company shall furnish to each Investor whose Registrable Securities are included in the 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 the Registration Statement and any amendment there ...