<PAGE>

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.

                                 STEMCELLS, INC.

                                CALLABLE WARRANT

Warrant No. CW-1  Dated: July 31, 2000


                  STEMCELLS, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, MILLENNIUM PARTNERS, L.P., or its
registered assigns ("Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company a total of 101,587 shares of common stock,
$.01 par value per share (the "Common Stock"), of the Company (each such share,
a "Warrant Share" and all such shares, the "Warrant Shares") at an exercise
price equal to $4.7250 per share (as adjusted from time to time as provided in
Section 9, the "Exercise Price"), at any time and from time to time from and
after the date hereof and through and including July 31, 2005 (the "Expiration
Date"), and subject to the following terms and conditions:

                  1. REGISTRATION OF WARRANT. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.

                  2. REGISTRATION OF TRANSFERS AND EXCHANGES.

                           (a)      The Company  shall  register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Transfer Agent or to the Company at the office specified in or pursuant
to Section 3(b). Upon any such registration or transfer, a new warrant to
purchase Common Stock, in substantially the form of this Warrant (any such new
warrant, a "New Warrant"), evidencing the portion of this Warrant so transferred
shall be issued to the transferee and a New Warrant evidencing the remaining
portion of this Warrant not so

<PAGE>

transferred, if any, shall be issued to the transferring Holder. The acceptance
of the New Warrant by the transferee thereof shall be deemed the acceptance of
such transferee of all of the rights and obligations of a holder of a Warrant.

                           (b)      This Warrant is exchangeable, upon the
surrender hereof by the Holder to the office of the Company specified in or
pursuant to Section 3(b) for one or more New Warrants, evidencing in the
aggregate the right to purchase the number of Warrant Shares which may then be
purchased hereunder. Any such New Warrant will be dated the date of such
exchange.

                  3. DURATION, EXERCISE AND REDEMPTION OF WARRANTS.

                           (a)      This Warrant shall be exercisable by the
registered Holder on any business day before 5:00 P.M., New York City time, at
any time and from time to time on or after the date hereof to and including the
Expiration Date. At 5:00 P.M., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value.

                           (b)      Subject to Sections 2(b), 5 and 10, upon
surrender of this Warrant, with the Form of Election to Purchase attached hereto
duly completed and signed, to the Company at its address for notice set forth in
Section 13 and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, in the manner
provided hereunder, all as specified by the Holder in the Form of Election to
Purchase, the Company shall promptly (but in no event later than 3 business days
after the Date of Exercise (as defined herein)) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends except (i) either in
the event that a registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder is not then
effective or the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act of
1933, as amended (the "Securities Act"), or (ii) if this Warrant shall have been
issued pursuant to a written agreement between the original Holder and the
Company, as required by such agreement. Any person so designated by the Holder
to receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant.

                           A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.

                           (c)      This Warrant shall be exercisable, either in
its entirety or, from time to time, for a portion of the number of Warrant
Shares. If less than all of the Warrant Shares which may be purchased under this
Warrant are exercised at any time, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced by
this Warrant.


                                       2
<PAGE>

                           (d)      In lieu of delivering physical certificates
representing the Warrant Shares issuable upon conversion of this Warrant,
provided the Company's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer ("FAST") program, upon
request of the Holder, the Company shall use its best efforts to cause its
transfer agent to electronically transmit the Warrant Shares issuable upon
exercise to the Holder, by crediting the account of the Holder's prime broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The
time periods for delivery described above shall apply to the electronic
transmittals through the DWAC system. The Company agrees to coordinate with DTC
to accomplish this objective.

                           (e)      Commencing at any time after the date of the
issuance of this Warrant, the Company shall have the right, upon fifteen (15)
days notice to the Holder, to cancel this Warrant in full effective on such 15th
day (the "Cancellation Date"). The Holder may exercise this Warrant at any time
prior to the Cancellation Date. On the Cancellation Date, the Company shall pay
in full and complete satisfaction of its obligations under the remaining portion
of this Warrant to the Holder an amount in cash equal to (i) the number of
shares of Common Stock then issuable hereunder multiplied by (ii) $7.875, as
such number shall be appropriately adjusted for stock splits, recapitalizations
and similar events minus the applicable Exercise Price as of the Cancellation
Date, and the Holder shall surrender this Warrant to the Company for
cancellation.

                  4. REGISTRATION RIGHTS. This Warrant and the Holder hereof are
entitled to the benefits of, and subject to the terms and condition of and
obligations under, that certain Registration Rights Agreement dated the date
hereof between the Company and the original Holder (the "Registration Rights
Agreement").

                  5. Intentionally left blank.

                  6. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Warrant or
receiving Warrant Shares upon exercise hereof.

                  7. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.

                  8. RESERVATION OF WARRANT SHARES. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant


                                       3
<PAGE>

as herein provided, the number of Warrant Shares which are then issuable and
deliverable upon the exercise of this entire Warrant, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holder (taking into account the adjustments and restrictions of Section 9). The
Company covenants that all Warrant Shares that shall be so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable.

                  9. CERTAIN ADJUSTMENTS. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section. Upon each such adjustment of the
Exercise Price pursuant to this Section, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.

                           (a)      If the Company, at any time while this
Warrant is outstanding, (i) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or on any other
class of capital stock payable in shares of Common Stock (except dividends or
distributions paid on preferred or other senior stock), (ii) subdivide
outstanding shares of Common Stock into a larger number of shares, or (iii)
combine outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price shall be multiplied by a fraction of which the numerator shall be
the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding after
such event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination, and shall
apply to successive subdivisions and combinations.

                           (b)      In case of any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common Stock
is converted into other securities, cash or property, then the Holder shall have
the right thereafter to exercise this Warrant only into the shares of stock and
other securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification or share exchange, and the Holder
shall be entitled upon such event to receive such amount of securities or
property as such Holder would have been entitled to receive if such Holder had
exercised this Warrant immediately prior to such reclassification or share
exchange (net of the applicable Exercise Price). The terms of any such
reclassification or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities or property set forth in
this Section 9(b) upon any exercise following any such reclassification or share
exchange.

                           (c)      If the Company, at any time while this
Warrant is outstanding, shall distribute to all holders of Common Stock (and not
to holders of this Warrant) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security


                                       4
<PAGE>

(excluding those referred to in Sections 9(a), (b) and (d)), then in each such
case the Exercise Price shall be determined by multiplying the Exercise Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Exercise Price determined as of the record date
mentioned above, and of which the numerator shall be such Exercise Price on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Company's independent
certified public accountants that regularly examine the financial statements of
the Company (an "Appraiser").

                           (d)      If at any time the Company or any subsidiary
thereof, as applicable with respect to Common Stock Equivalents (as defined
below), shall issue shares of Common Stock or rights, warrants, options or other
securities or debt that is convertible into or exchangeable for shares of Common
Stock ("COMMON STOCK EQUIVALENTS"), entitling any person or entity to acquire
shares of Common Stock at a price per share less than the market price of the
Common Stock at the time of issuance, except with respect to a Board Approved
Transaction (as defined herein), forthwith upon such issue or sale, the Exercise
Price shall be reduced to the price (calculated to the nearest cent) determined
by multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance, and (ii) the number
of shares of Common Stock which the aggregate consideration received (or to be
received, assuming exercise or conversion in full of such Common Stock
Equivalents) for the issuance of such additional shares of Common Stock would
purchase at the Exercise Price, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. For purposes hereof, all shares of Common Stock that
are issuable upon conversion, exercise or exchange of Common Stock Equivalents
shall be deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such Common Stock or Common
Stock Equivalents are issued. However, upon the expiration of any Common Stock
Equivalents the issuance of which resulted in an adjustment in the Exercise
Price pursuant to this Section, the Exercise Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of this
Section after the issuance of such Common Stock Equivalents) had the adjustment
of the Exercise Price made upon the issuance of such Common Stock Equivalents
been made on the basis of offering for subscription or purchase only that number
of shares of the Common Stock actually purchased upon the exercise of such
Common Stock Equivalents actually exercised. Notwithstanding anything herein to
the contrary, issuances of any stock or stock options under any bona fide
employee benefit plan or compensation arrangement of the Company, shall not be
subject to the provisions of this Section.


                           A "Board Approved Transaction" is a transaction
involving a strategic alliance, acquisition of stock or assets, merger,
collaboration, joint venture, partnership or similar arrangement of the Company
with another corporation, partnership or other business entity (A) which is
engaged in a business similar complementary or related to the business of the
Company or (B) pursuant to which the Company issues securities with the primary
purpose to directly or indirectly acquire, license or otherwise become entitled
to use technology relevant to or useful in


                                       5
<PAGE>

the Company's business, so long as the Company's Board of Directors by
resolution duly adopted approves such transaction in accordance with its duties
under applicable law.

                           (e)      In case of any (1) merger or consolidation
of the Company with or into another Person, or (2) sale by the Company of more
than one-half of the assets of the Company (on a market value basis) in one or a
series of related transactions, or (3) tender or other offer or exchange
(whether by the Company or another Person) pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
stock, cash or property of the Company or another Person; then the Holder shall
have the right thereafter to (A) exercise this Warrant for the shares of stock
and other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and the
Holder shall be entitled upon such event or series of related events to receive
such amount of securities, cash and property as the Common Stock for which this
Warrant could have been exercised immediately prior to such merger,
consolidation or sales would have been entitled, (B) in the case of a merger or
consolidation, require the surviving entity to issue to the Holder a warrant
entitling the Holder to acquire shares of such entity's common stock, which
warrant shall have terms identical MUTATIS MUTANDIS (including with respect to
exercise) to the terms of this Warrant and shall be entitled to all of the
rights and privileges set forth herein and the agreements pursuant to which this
Warrant was issued (including, without limitation, as such rights relate to the
acquisition, transferability, registration and listing of such shares of stock
or other securities issuable upon exercise thereof), or (C) in the event of an
exchange or tender offer or other transaction contemplated by clause (3) of this
Section 9(e), tender or exchange this Warrant for such securities, stock, cash
and other property receivable upon or deemed to be held by holders of Common
Stock that have tendered or exchanged their shares of Common Stock following
such tender or exchange, and the Holder shall be entitled upon such exchange or
tender to receive such amount of securities, cash and property as the shares of
Common Stock for which this Warrant could have been exercised immediately prior
to such tender or exchange would have been entitled as would have been issued
(net of the applicable Exercise Price). In the case of clause (B), the exercise
price applicable for the newly issued warrant shall be based upon the amount of
securities, cash and property that each share of Common Stock would receive in
such transaction and the Exercise Price immediately prior to the effectiveness
or closing date for such transaction. The terms of any such merger, sale,
consolidation, tender or exchange shall include such terms so as continue to
give the Holder the right to receive the securities, cash and property set forth
in this Section upon any conversion or exercise following such event. This
provision shall similarly apply to successive such events.

                           (f)      For the purposes of this Section 9, the
following clauses shall also be applicable:

                                    (i)     RECORD  DATE.  In case the  Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them (A) to receive a dividend or other distribution payable in Common
Stock or in securities convertible or exchangeable into shares of Common Stock,
or (B) to subscribe for or purchase Common Stock or securities convertible or
exchangeable into shares of Common Stock, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of such
other distribution or


                                       6
<PAGE>

the date of the granting of such right of subscription or purchase, as the case
may be.

                                    (ii)    TREASURY  SHARES.  The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.

                           (g)      All calculations under this Section 9 shall
be made to the nearest cent or the nearest 1/100th of a share, as the case may
be.

                           (h)      If (i) the Company shall declare a dividend
(or any other distribution) on its Common Stock; or (ii) the Company shall
declare a special nonrecurring cash dividend on or a redemption of its Common
Stock; or (iii) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; or (iv) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; or (v) the Company shall
authorize the voluntary dissolution, liquidation or winding up of the affairs of
the Company, then the Company shall cause to be mailed to each Holder at their
last addresses as they shall appear upon the Warrant Register, at least 30
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, grant of rights or
warrants, or if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, share
exchange, dissolution, liquidation or winding up; provided, however, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.

                  10. PAYMENT OF EXERCISE PRICE. The Holder shall pay the
Exercise Price in one of the following manners:

                           (a)      CASH EXERCISE. The Holder may deliver
immediately available funds; or

                           (b)      CASHLESS EXERCISE. At any time after the
earlier to occur of the SEC Effective Date (as defined in the Registration
Rights Agreement) and the date the initial registration statement filed pursuant
to the Registration Rights Agreement is declared effective by the Commission,
when a registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder is not then effective, the
Holder may surrender this Warrant to the Company together with a notice of
cashless exercise, in which


                                       7
<PAGE>

event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:


                           X = Y [(A-B)/A]
                     where:
                           X = the number of Warrant Shares to be issued
                     to the Holder.

                           Y = the number of Warrant Shares with respect to
                           which this Warrant is being exercised.

                           A = the average of the closing sale prices of the
                           Common Stock for the five (5) trading days
                           immediately prior to (but not including) the Date of
                           Exercise.

                           B = the Exercise Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date of this Warrant.

                  11.      CERTAIN EXERCISE RESTRICTIONS.

                           (a)      Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon exercise pursuant to the terms hereof shall not exceed a number
that, when added to the total number of shares of Common Stock deemed
beneficially owned by such Holder (other than by virtue of the ownership of
securities or rights to acquire securities that have limitations on the Holder's
right to convert, exercise or purchase similar to the limitation set forth
herein), together with all shares of Common Stock deemed beneficially owned
(other than by virtue of the ownership of securities or rights to acquire
securities that have limitation set forth herein) by the Holder's "affiliates"
(as defined in Rule 144 of the Securities Act) ("Aggregation Parties"), that
would be aggregated for purposes of determining whether a group under Section
13(d) of the Securities Exchange Act of 1934, as amended, exists would exceed
9.99% of the total issued and outstanding shares of the Common Stock (the
"Restricted Ownership Percentage"). Each Holder shall have the right (w) at any
time and from time to time to reduce its Restricted Ownership Percentage
immediately upon notice to the Company and (x) (subject to waiver) at any time
and from time to time, to increase its Restricted Ownership Percentage
immediately in the event of the announcement as pending or planned, of a merger
or consolidation of the Company, a sale of all or substantially all of the
assets of the Company or the acquisition by any third party (and/or such party's
Aggregation Parties) of at least 51% of the Company's outstanding Common Stock.

                           (b)      The Holder covenants at all times on each
day (each such day being referred to as a "Covenant Day") as follows: during the
balance of such Covenant Day and the succeeding sixty-one (61) days (the balance
of such Covenant Day and the succeeding 61


                                       8
<PAGE>

days being referred to as the "Covenant Period") such Holder will not acquire
shares of Common Stock pursuant to any right (including exercise of this
Warrant) existing at the commencement of the Covenant Period to the extent the
number of shares so acquired by such Holder and its Aggregation Parties
(ignoring all dispositions) would exceed:


                           (x)      the Restricted Ownership Percentage of the
                                    total number of shares of Common Stock
                                    outstanding at the commencement of the
                                    Covenant Period;

                           MINUS

                           (y)      the number of share of Common Stock owned by
                                    such Holder and its Aggregation Parties at
                                    the commencement of the Covenant Period.

                  A new and independent covenant will be deemed to be given by
the Holder as of each moment of each Covenant Day. No covenant will terminate,
diminish or modify any other covenant. The Holder agrees to comply with each
such covenant.

                  The Company's obligation to issue shares of Common Stock which
would exceed such limited shall be suspended to the extent necessary until such
time, if any, as shares of Common Stock may be issued in compliance with such
restrictions.

                  12. FRACTIONAL SHARES. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable on the exercise of this Warrant, the Company shall pay an amount in
cash equal to the Exercise Price multiplied by such fraction.

                  13. NOTICES. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
525 Del Rey Avenue, Suite C, Sunnyvale, California 94086, with a copy to Ropes &
Gray, One International Place, Boston, Massachusetts, 02110, Attention: Geoffrey
B. Davis, Esq., (facsimile number (617) 951-7050), or (ii) if to the Holder, to
the Holder at the address or facsimile number appearing on the Warrant Register
or such other address or facsimile number as the Holder may provide to the
Company in accordance with this Section.


                                       9
<PAGE>

                  14. WARRANT AGENT. The Company shall serve as warrant agent
under this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.

                  15. MISCELLANEOUS.

                           (a)      This Warrant shall be binding on and inure
to the benefit of the parties hereto and their respective successors and
assigns. Subject to the Subscription Agreement and applicable securities laws,
this Warrant shall be freely transferable subject to applicable Securities Laws.
This Warrant may be amended only in writing signed by the Company and the Holder
and their successors and assigns.

                           (b)      Subject to Section 15(a), above, nothing in
this Warrant shall be construed to give to any person or corporation other than
the Company and the Holder any legal or equitable right, remedy or cause under
this Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.

                           (c)      The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. The Company
and the Holder hereby irrevocably submit to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan,
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or that
such suit, action or proceeding is improper. Each of the Company and the Holder
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by certified mail, return
receipt requested, and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.

                           (d)      The headings herein are for convenience
only, do not constitute a part of this Warrant and shall not be deemed to limit
or affect any of the provisions hereof.

                           (e)      In case any one or more of the provisions of
this Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be


                                       10
<PAGE>

a commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.


                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.

                                  STEMCELLS, INC.

                                  By:
                                     ------------------------------------------

                                  Name:
                                     ------------------------------------------

                                  Title:
                                     ------------------------------------------


                                       11
<PAGE>

                          FORM OF ELECTION TO PURCHASE

(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)

To StemCells, Inc:

                  In accordance with the Warrant enclosed with this Form of
Election to Purchase, the undersigned hereby irrevocably elects to purchase
_____________ shares of common stock, $.01 par value per share, of STEMCELLS,
INC. (the "Common Stock") and , if such Holder is not utilizing the cashless
exercise provisions set forth in this Warrant, encloses herewith $________ in
cash, certified or official bank check or checks, which sum represents the
aggregate Exercise Price (as defined in the Warrant) for the number of shares of
Common Stock to which this Form of Election to Purchase relates, together with
any applicable taxes payable by the undersigned pursuant to the Warrant.

                  The undersigned requests that certificates for the shares of
Common Stock issuable upon this exercise be issued in the name of

                                  PLEASE INSERT SOCIAL SECURITY OR
                                  TAX IDENTIFICATION NUMBER


                                  ----------------------------------------------

--------------------------------------------------------------------------------
                         (Please print name and address)




                  If the number of shares of Common Stock issuable upon this
exercise shall not be all of the shares of Common Stock which the undersigned is
entitled to purchase in accordance with the enclosed Warrant, the undersigned
requests that a New Warrant (as defined in the Warrant) evidencing the right to
purchase the shares of Common Stock not issuable pursuant to the exercise
evidenced hereby be issued in the name of and delivered to:


--------------------------------------------------------------------------------
                         (Please print name and address)


                                       12
<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


Dated:            ,                    Name of Holder:
       ----------- --------

                                            (Print)

                                            (By:)
                                            (Name:)
                                            (Title:)
                                            (Signature must conform in all
                                            respects to name of holder as
                                            specified on the face of the
                                            Warrant)


                                       13
<PAGE>

                               FORM OF ASSIGNMENT

           [To be completed and signed only upon transfer of Warrant]

                  FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________ the right represented by the
within Warrant to purchase ____________ shares of Common Stock of StemCells,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of StemCells, Inc. with full power of
substitution in the premises.


Dated:

---------------, ----


                                 ---------------------------------------
                                 (Signature must conform in all respects to name
                                 of holder as specified on the face of the
                                 Warrant)


                                 ---------------------------------------
                                 Address of Transferee

                                 ---------------------------------------

                                 ---------------------------------------



In the presence of:


--------------------------


                                       14