<PAGE>


                                                                    Exhibit 10.4

     THIS AGREEMENT, dated as of December 4, 2001, (this "Agreement") by and
between STEMCELLS, INC., a Delaware corporation (the "Company"), with
headquarters located at 3155 Porter Drive, Palo Alto, California 94304, and
Millennium Partners, L.P., a Cayman Islands limited partnership ("Millennium")
and Riverview Group, L.L.C., a Delaware limited liability company ("Riverview").

                              W I T N E S S E T H:

     WHEREAS, the parties hereto desire to enter into this Agreement on the
terms hereinafter set forth;

     NOW, THEREFORE, in exchange for consideration hereby acknowledged as
received the parties hereto hereby agree as follows:

     1. DEFINITIONS. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in that certain Subscription
Agreement to which Riverview Group, L.L.C. and the Company are parties, dated as
of December 4, 2001.

     2. CERTAIN TRADING RESTRICTIONS.

          (a) Each of Millennium and Riverview agree, as to itself only, that on
and after the Closing Date until such time that neither Millennium nor Riverview
holds any Securities, neither Millennium nor Riverview will engage in any short
sales or other hedging transactions (including swaps, options or derivative
securities) relating to shares of Common Stock unless (A) at the time of any
such transaction, the Company is in breach of its obligations to register the
resale of the Registrable Securities (as defined in the Registration Rights
Agreement) pursuant to the Registration Rights Agreement or any other shares
pursuant to which the Company has a similar registration obligation to
Millennium and/or Riverview, or (B) in the event that such transaction is to
take place after the 120th day following the Closing Date, the holders of the
Securities and/or Registrable Securities are not then able to sell the shares of
Common Stock pursuant to an effective Registration Statement (as defined in the
Registration Rights Agreement) and a deliverable prospectus.

          (b) Notwithstanding the foregoing, Millennium and Riverview may engage
in short sales and/or hedging activity at any time so long as (x) after the date
hereof, Millennium and Riverview (in the aggregate) may not sell short a number
of shares of Common Stock in excess of the number of shares of Common Stock then
issuable upon conversion in full of the Preferred Shares, (y) no such short
sales shall be at a per share price below $2.00 (as such figure shall be
appropriately adjusted for any stock splits, reorganizations or similar events),
and (z) the aggregate amount of such short sales made on any one day shall not
exceed 5% of the total trading volume on such day. The limitations contained in
clauses (x), (y) and (z) above of this paragraph shall only apply to short sales
under this paragraph (b).

          (c) The covenant contained in this Agreement shall supersede all
existing agreements between the Company and Millennium and/or Riverview
regarding restrictions on trading of the Company's capital stock by Millennium
and/or Riverview.


<PAGE>


     3. NON-PUBLIC INFORMATION. Notwithstanding anything to the contrary in any
Transaction Document or any other agreement between Millennium and/or Riverview
and the Company, the Company shall not be required to provide any non-public
information regarding the Company to Millennium and/or Riverview except to the
extent that the disclosure of such additional information to such entity is
consistent with Regulation FD under the Securities Act.


     IN WITNESS WHEREOF, this Agreement has been duly executed by Millennium,
Riverview and the Company by their respective officers or other representatives
thereunto duly authorized on the respective dates set forth below.


                               MILLENNIUM PARTNERS, LP


                               By: /s/ Terry Feeney
                                  -----------------------------------
                                  Name: Terry Feeney
                                  Title: Chief Operating Officer

                               RIVERVIEW GROUP, L.L.C.


                               By: /s/ Terry Feeney
                                  -----------------------------------
                                  Name: Terry Feeney
                                  Title: Chief Operating Officer

                               Address: 666 Fifth Avenue
                                        New York, New York  10103
                               Facsimile:  (212) 841-6302


                               STEMCELLS, INC.



                               By: /s/ Martin McGlynn
                                  -----------------------------------
                                  Name: Martin McGlynn
                                  Title: President and CEO




                                       2