Document:

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                                                                    Exhibit 10.2

                          REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 4, 2001, (this
"AGREEMENT") is made by and between STEMCELLS, INC., a Delaware corporation (the
"COMPANY"), and the entity named on the signature page hereto (the "INITIAL
PURCHASER").

                              W I T N E S S E T H:

     WHEREAS, the Initial Purchaser and the Company are parties to that certain
subscription agreement ("SUBSCRIPTION AGREEMENT") dated the date hereof,
pursuant to which the Company, among other things, issued (a) shares of the
Company's 3% Cumulative Convertible Preferred Stock (the "PREFERRED SHARES")
which shall be convertible into shares of the Company's common stock ("COMMON
STOCK"), par value $.01 per share (such shares are hereinafter referred to as
"COMMON SHARES") pursuant to the certificate of designations ("CERTIFICATE")
related thereto and (b) warrants ("WARRANTS" and, together with the Preferred
Shares, the "SECURITIES") to purchase shares of Common Stock ("WARRANT SHARES")
in accordance with the Warrants; and

     WHEREAS, to induce the Initial Purchaser to execute and deliver the
Subscription 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 with respect to the Common
Shares and the Warrant Shares;

     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 the Initial
Purchaser hereby agree as follows:

     1. DEFINITIONS.

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

          "1934 ACT" means the Securities Exchange Act of 1934, as amended.

          "PURCHASER" or "PURCHASERS" means the Initial Purchaser and any
Permitted Transferee who agrees to become bound by the provisions of this
Agreement, or a similar agreement relating to Common Shares or Warrant Shares,
in accordance with Section 9 hereof.

          "MAJORITY HOLDERS" means those Purchasers who hold a majority in
interest of the Securities and the Registrable Securities.

          "PERMITTED TRANSFEREE" means any person (1) who is an "accredited
investor" as defined in Regulation D under the 1933 Act, and (2) who,
immediately following the assignment of rights under this Agreement holds (x) at
least 50,000 shares of Common Stock, (y) Warrants which at the time of such
transfer are exercisable for at least 50,000 shares of Common Stock, or

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(z) Preferred Shares which at the time of such transfer are convertible into at
least 50,000 shares of Common Stock, or any combination thereof (the 50,000
share amounts referred to in this definition being subject to equitable
adjustment from time to time on terms reasonably acceptable to the Majority
Holders for (i) stock splits, (ii) stock dividends, (iii) combinations, (iv)
capital reorganizations, (v) issuance to all holders of Common Stock of rights
or warrants to purchase shares of Common Stock and (vi) similar events relating
to the Common Stock, in each such case which occur on or after the Closing
Date).

          "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 SEC.

          "REGISTRABLE SECURITIES" means (a) the Common Shares and the Warrant
Shares, held by any Purchaser, upon conversion of the Preferred Shares or
exercise of the Warrants, as applicable, or upon any stock split, stock
dividend, recapitalization or similar event with respect to such Common Shares
or Warrant Shares; (b) any securities issued or issuable to a Purchaser upon the
conversion, exercise or exchange of any Preferred Shares, Warrants, Common
Shares or Warrant Shares; and (c) any other security of the Company issued as a
dividend or other distribution with respect to, in exchange for, or in
replacement of, Registrable Securities. As to any particular securities, such
securities shall cease to be Registrable Securities when they have been sold
pursuant to an effective registration statement or in compliance with Rule 144
or are eligible to be sold pursuant to subsection (k) of Rule 144 (without
giving effect to the cashless exercise feature of the Warrants).

          "REGISTRATION PERIOD" means the period from the Closing Date to the
earlier of (i) the date which is five years after the SEC Effective Date, (ii)
the date on which each Purchaser may sell all of its Registrable Securities
without registration under the 1933 Act pursuant to subsection (k) of Rule 144,
without (A) restriction on the manner of sale or the volume of securities which
may be sold in any period, (B) the requirement for the giving of any notice to,
or the making of any filing with, the SEC and (C) giving effect to the cashless
exercise feature of the Warrants, and (iii) the date on which the Purchasers no
longer beneficially own any Registrable Securities.

          "REGISTRATION STATEMENT" means a registration statement of the Company
under the 1933 Act, including any amendment thereto, required to be filed by the
Company pursuant to this Agreement.

          "RULE 144" means Rule 144 promulgated under the 1933 Act or any other
similar rule or regulation of the SEC that may at any time permit a holder of
any securities to sell securities of the Company to the public without
registration under the 1933 Act.

          "SEC" means the United States Securities and Exchange Commission.

          "SEC EFFECTIVE DATE" means the date the Registration Statement is
declared effective by the SEC.

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          "SEC FILING DATE" means the date the Registration Statement is first
filed with the SEC pursuant to Section 2(a).

          (b) Capitalized terms defined in the introductory paragraph or the
recitals to this Agreement shall have the respective meanings therein provided.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.

     2. REGISTRATION.

          (a) MANDATORY REGISTRATION.

               (1) The Company shall prepare and, on or prior to the date which
is 30 days after the Closing Date, file with the SEC a Registration Statement on
Form S-3 (or, if the Company is not eligible to use such form at the time of
filing with the SEC, Form S-1) which, on the date of filing with the SEC, covers
the resale by the Initial Purchaser of a number of shares of Common Stock equal
to the sum of (x) 150% of the number of Common Shares issuable upon conversion
of the Preferred Shares at the then applicable Conversion Price (as defined in
the Certificate) PLUS (y) the number of Warrant Shares issuable upon exercise in
full of the Warrants (in each case determined without regard to the limitations
on beneficial ownership contained in the Certificate and Warrants). If at any
time the number of shares of Common Stock included in the Registration Statement
required to be filed as provided in the first sentence of this Section 2(a)
shall be insufficient to cover all of the Common Shares and Warrant Shares
issuable upon conversion of the Preferred Shares and exercise of the unexercised
portion of the Warrants, then promptly, but in no event later than 30 days after
such insufficiency shall occur, the Company shall file with the SEC an
additional Registration Statement on Form S-3 (or, if the Company is not
eligible to use such form at the time of filing with the SEC, Form S-1) (which
shall not constitute a post-effective amendment to the Registration Statement
filed pursuant to the first sentence of this Section 2(a)), covering such number
of shares of Common Stock as shall be sufficient to permit such exercise. The
Company shall use its best efforts to have such additional Registration
Statement declared effective as soon as possible thereafter. For all purposes of
this Agreement such additional Registration Statement shall be deemed to be the
Registration Statement required to be filed by the Company pursuant to Section
2(a) of this Agreement, and the Company and the Purchasers shall have the same
rights and obligations with respect to such additional Registration Statement as
they shall have with respect to the initial Registration Statement required to
be filed by the Company pursuant to this Section 2(a). Without the written
consent of the Majority Holders, the Registration Statement shall not include
securities to be sold for the account of any selling security holder other than
the Purchasers and the holders of the registration rights described in Schedule
11(a). As of the date of this Agreement, the Company is eligible to file the
Registration Statement on Form S-3.

               (2) Prior to the SEC Effective Date or during any time subsequent
to the SEC Effective Date when the Registration Statement for any reason is not
available for use by any Purchaser for the resale of any Registrable Securities
hereunder, the Company shall not file any other registration statement or any
amendment thereto with the SEC under the 1933 Act or request the acceleration of
the effectiveness of any other registration statement previously filed with the
SEC, other than any registration statement registering securities issued (v) to

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holders of registration rights described in Schedule 11(a), (w) pursuant to
compensation plans for employees, directors, officers, advisers or consultants
of the Company and in accordance with the terms of such plans, (x) upon exercise
of conversion, exchange, purchase or similar rights issued, granted or given by
the Company and outstanding as of the date of this Agreement and disclosed in
the SEC Reports or the Subscription Agreement, (y) pursuant to a public offering
underwritten on a firm commitment basis registered under the 1933 Act or (z) as
part of a transaction involving a strategic alliance, acquisition of stock or
assets, merger, collaboration, joint venture, partnership or other 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
the Company's business, so long as in each case of this clause (z) the Board of
Directors of the Company by resolution duly adopted (and a copy of which shall
be furnished to the Purchaser promptly after adoption) duly approves such
transaction in accordance with its duties under applicable law (each of the
forgoing transactions a "BOARD APPROVED TRANSACTION").

               (b) CERTAIN OFFERINGS. If any offering pursuant to a Registration
Statement pursuant to Section 2(d) hereof involves an underwritten offering,
Purchasers who hold a majority in interest of the Registrable Securities
(including for this purpose the Securities convertible into or exercisable for
such Registrable Securities) subject to such underwritten offering shall have
the right to select one legal counsel. The Purchasers who hold the Registrable
Securities (including for this purpose the Securities convertible into or
exercisable for such Registrable Securities) to be included in such underwriting
shall pay all underwriting discounts and commissions and other fees and expenses
of any investment banker or bankers and manager or managers (other than fees and
expenses relating to registration of Registrable Securities under federal or
state securities laws, which are payable by the Company pursuant to Section 5
hereof) with respect to such Registrable Securities and the fees and expenses of
such legal counsel so selected by the Purchasers.

               (c) CERTAIN PAYMENTS. So long as any Securities or Registrable
Securities remain outstanding, if an Event (as defined below) shall occur, then
(x) on each of the first month anniversary of the Event Date, the second month
anniversary of the Event Date and the third month anniversary of the Event Date,
unless and until the applicable Event is cured, the Company shall pay in cash to
each Purchaser a default payment at the rate of 1.5% per month of the purchase
price paid by such Purchaser pursuant to the Subscription Agreement and (y) on
the fourth month anniversary of the Event Date and each monthly anniversary
thereafter, unless and until the applicable Event is cured, the Company shall
pay in cash to each Purchaser a default payment at the rate of 2.0% per month of
the purchase price paid by such Purchaser pursuant to the Subscription Agreement
(collectively, the "DELAY PAYMENTS"). The Delay Payments pursuant to the terms
hereof shall apply on a pro-rata basis for any portion of a month prior to the
cure of an Event. By way of example, if an Event is cured 15 days after the
Event Date, the Company shall owe an amount to each Purchaser equal to such
Purchaser's purchase price multiplied by 1.5% multiplied by 15 divided by 30. If
the Company fails to pay any Delay Payments pursuant to this Section in full
within seven (7) days after the date payable, the Company will pay interest on
such Delay Payments at a rate of 12% per annum (or such lesser maximum amount
that is permitted to be paid by applicable law) to the Purchaser, accruing daily

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from the date such Delay Payments are due until such amounts, plus all such
interest thereon, are paid in full. The Delay Payments shall not preclude the
Purchaser from seeking appropriate additional damages and remedies for any such
Events. Each of the following failures or breaches shall constitute an "EVENT":

          (i) the initial Registration Statement is not filed on or prior to the
30th day following the Closing Date (if the Company files such Registration
Statement without affording the Purchaser the opportunity to review and comment
on the same as required by Section 3(h) hereof, subject to the Company's
obligation under Regulation FD under the 1934 Act, the Company shall be deemed
not to have satisfied this clause (i));

          (ii) the initial Registration Statement filed hereunder is not
declared effective by the Commission on or prior to the later of (A) the 75th
day following the Closing Date (provided that the Company shall have filed a
notice of acceleration with the SEC within five Trading Days of its receipt of
notification that the SEC does not plan to review the Registration Statement)
and (B) in the event of an SEC review of the Registration Statement, the 150th
day following the Closing Date (the "EFFECTIVENESS REQUIRED DATE");

          (iii) after a Registration Statement is filed with and declared
effective by the SEC, such Registration Statement ceases to be effective as to a
material portion of the Registrable Securities at any time prior to the
expiration of the Registration Period without being succeeded within twenty (20)
Trading Days by an amendment to such Registration Statement or by a subsequent
Registration Statement filed with and declared effective by the SEC,

          (iv) the Common Stock shall be delisted or suspended from trading on
the Nasdaq National Market or on any exchange or other principal market for the
Common Stock (other than a general suspension of trading on such market) for
more than ten (10) consecutive Trading Days;

          (v) the exercise rights of the Warrantholders pursuant to the Warrants
or the conversion rights of the holders of Preferred Shares pursuant to the
Preferred Shares are suspended or not complied with by the Company in accordance
with the terms of the Warrants and/or the Preferred Shares due to a breach by
the Company of its obligations under any of the Transaction Documents (as
defined in the Subscription Agreement), and such suspension or non-compliance
shall continue uncured for a period of 5 Trading Days after notice thereof is
given by any such Purchaser to the Company;

          (vi) an amendment to a Registration Statement is not filed by the
Company with the SEC within twenty (20) Trading Days of the SEC's notifying the
Company that such amendment is required in order for such Registration Statement
to be declared effective; or

          (vii) after a Registration Statement is filed with and declared
effective by the SEC, any Purchaser is unable to sell Registrable Securities for
any reason under the Registration Statement for more than fifteen (15) Trading
Days or an aggregate of thirty (30)

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Trading Days in a 12-month period after notice of any such inability is given by
any such Purchaser to the Company.

          For purposes of clause (i), the date upon which such thirty (30) day
period is exceeded, for purposes of clause (ii), the date upon which such 75th
day or 150th day (as applicable) is exceeded, for purposes of clause (iii) and
(vi), the date upon which such twenty (20) Trading Day period is exceeded, for
purposes of clause (iv), the date upon which such ten (10) Trading Day period is
exceeded, for purposes of clause (v), the date upon which such five (5) Trading
Day period is exceeded, or for purposes of clause (vii) the date on which such
fifteen (15) Trading Day period or thirty (30) Trading Day period (as
applicable) is exceeded, is hereby referred to as the "EVENT DATE").

          (d) PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and 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 a registration statement registering
securities issued (1) pursuant to compensation plans for employees, directors,
officers, advisers or consultants of the Company and in accordance with the
terms of such plans or (2) as part of a Board Approved Transaction, the Company
shall send to each Purchaser who is entitled to registration rights under this
Agreement written notice of such determination and, if within five (5) Trading
Days after receipt of such notice, a Purchaser shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities the Purchaser 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, such limitation is
necessary to effect an orderly 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 the Purchaser has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among the Purchasers seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Purchasers; 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 by right to inclusion of
securities in such Registration Statement; 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, based
on the number of securities for which registration is requested except to the
extent such pro rata exclusion of such other securities is prohibited under any
written agreement entered into by the Company with the holder of such other
securities prior to the date of this Agreement, in which case such other
securities shall be excluded, if at all, in accordance with the terms of such
agreement. 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. The obligations of the Company under this Section 2(d) may be waived as
to all Purchasers by the Majority Holders and as to a particular Purchaser by
such Purchaser and shall expire after the Company has afforded the opportunity
for each Purchaser to exercise registration rights under this Section 2(d) for
two registrations; provided, however, that any Purchaser who shall have had any
Registrable

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Securities excluded from any Registration Statement in accordance with this
Section 2(d) shall be entitled to include in an additional Registration
Statement filed by the Company the Registrable Securities so excluded.
Notwithstanding any other provision of this Agreement, if the Registration
Statement required to be filed pursuant to Section 2(a) of this Agreement shall
have been ordered effective by the SEC and the Company shall have maintained the
effectiveness of such Registration Statement as required by this Agreement and
if the Company shall otherwise have complied in all material respects with its
obligations under this Agreement, then the Company shall not be obligated to
register any Registrable Securities on such Registration Statement referred to
in this Section 2(d).

          (e) ELIGIBILITY FOR FORM S-3. The Company shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
obtain and/or maintain 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:

          (a) prepare promptly, and file with the SEC not later than 30 days
after the Closing Date, a Registration Statement with respect to the number of
Registrable Securities provided in Section 2(a), and thereafter to use its best
efforts to cause each Registration Statement relating to Registrable Securities
to become effective as soon as possible after such filing but in any event on or
prior to the Effectiveness Required Date, and keep the Registration Statement
effective pursuant to Rule 415 at all times during the Registration Period;
submit to the SEC, within three Trading Days after the Company learns that no
review of the Registration Statement will be made by the staff of the SEC or
that the staff of the SEC has no further comments on the Registration Statement,
as the case may be, a request for acceleration of effectiveness of the
Registration Statement to a time and date not later than 48 hours after the
submission of such request; notify the Purchasers of the effectiveness of the
Registration Statement on the date the Registration Statement is declared
effective; and the Company represents and warrants to, and covenants and agrees
with, the Purchasers that the Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein), (i) at the time it
is first filed with the SEC, (ii) at the time it is ordered effective by the SEC
and (iii) at all times during which it is required to be effective hereunder
other than any period after which the Company notifies the Purchasers pursuant
to Section 3(f) until the time when the Purchasers may again sell Registrable
Securities pursuant to the Registration Statement (and each such amendment and
supplement at the time it is filed with the SEC and at all times during which it
is available for use in connection with the offer and sale of the Registrable
Securities) 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, in light of the circumstances in which they were made, not
misleading;

          (b) 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 the Registration 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

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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;

          (c) furnish to each Purchaser 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 thereto,
each preliminary prospectus and prospectus and each amendment or supplement
thereto, 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 relating to such Registration Statement, 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 Purchaser may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Purchaser; notwithstanding the foregoing, prior to such disclosure
and review, the Company shall notify the Purchasers if any portion of such
documents contains material non-public information, in which case the Purchasers
may decline to review such documents or portions thereof (the "RIGHT TO DECLINE
REVIEW"), provided that nothing in this Agreement shall require the Company to
provide any non-public information regarding the Company to the Initial
Purchaser except to the extent that the disclosure of such additional
information to the Initial Purchaser is consistent with Regulation FD under the
1934 Act.

          (d) use commercially reasonable efforts to (i) register and qualify
the Registrable Securities covered by the Registration Statement under such
securities or blue sky laws of such jurisdictions as the Purchasers who hold a
majority in interest of the Registrable Securities (including for this purpose
the Securities convertible into or exercisable for such 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 at all times until the end of 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 (I) to qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (II) to subject
itself to general taxation in any such jurisdiction, (III) to file a general
consent to service of process in any such jurisdiction, (IV) to provide any
undertakings that cause more than nominal expense or burden to the Company or
(V) to make any change in its Certificate of Incorporation or by-laws, which in
each case the Board of Directors of the Company determines in good faith to be
contrary to the best interests of the Company and its stockholders;

          (e) in the event that the Registrable Securities are being offered in
an underwritten offering pursuant to Section 2(d), 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 or
circumstance, notify each Purchaser of any event or circumstance of which the
Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in

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effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use its commercially reasonable efforts promptly to prepare a
supplement or amendment to the Registration Statement to correct such untrue
statement or omission, file such supplement or amendment with the SEC at such
time as shall permit the Purchasers to sell Registrable Securities pursuant to
the Registration Statement as promptly as practicable, and deliver a number of
copies of such supplement or amendment to each Purchaser as such Purchaser may
reasonably request;

          (g) as promptly as practicable after becoming aware of such event,
notify each Purchaser who holds Registrable Securities (including for this
purpose the Securities convertible into or exercisable for such Registrable
Securities) being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the SEC of any stop order or other
suspension of effectiveness of the Registration Statement at the earliest
possible time;

          (h) not less than five Trading Days prior to the filing of the
Registration Statement or any related prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to the
Purchasers and their counsel copies of all such documents proposed to be filed,
which documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of such Purchasers and their counsel
(subject to the Right to Decline Review), and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond to
such inquiries as shall be necessary, in the reasonable opinion of respective
counsel to such to conduct a reasonable investigation within the meaning of the
1933 Act. The Company shall not file the Registration Statement or any such
prospectus or any amendments or supplements thereto to which the Purchasers of a
majority of the Registrable Securities and their counsel shall reasonably object
in good faith.

          (i) make generally available to its security holders as soon as
practical, 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) make available for inspection by any Purchaser, and any attorney,
accountant or other agent retained by any such Purchaser (collectively, the
"INSPECTORS"), all pertinent financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "RECORDS"), as shall
be reasonably necessary to enable each Purchaser 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 a Purchaser) 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
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction or (iii) the information in such
Records has been

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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(j). Each Purchaser 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 the Company's own
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, the Records deemed confidential. The Company shall hold
in confidence and shall not make any disclosure of information concerning a
Purchaser provided to the Company pursuant to Section 4(e) hereof unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws or applicable rules and regulations of Nasdaq or other market or
exchange, (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, to the knowledge of the Company, any other
agreement. Each party agrees that it shall, upon learning that disclosure of
such information concerning another party is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such other party and allow such other party, at such other party's own
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information;

          (k) use its commercially reasonable efforts (i) to cause all the
Registrable Securities covered by the Registration Statement to be listed on the
Nasdaq National Market or such other principal securities market on which
securities of the same class or series issued by the Company are then listed or
traded or (ii) if securities of the same class or series as the Registrable
Securities are not then listed on the Nasdaq National Market or any such other
securities market, to cause all of the Registrable Securities covered by the
Registration Statement to be listed on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq SmallCap Market;

          (l) 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;

          (m) cooperate with the Purchasers who hold Registrable Securities
being offered and the Securities exercisable for or convertible into such
Registrable Securities to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
Purchasers may reasonably request and registered in such names as the Purchasers
may request; and, within three Trading Days after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the Company
shall deliver to the transfer agent for the Registrable Securities (with copies
to the Purchasers whose Registrable Securities are included in such Registration
Statement) an instruction substantially in the form attached hereto as EXHIBIT 1
and shall cause legal counsel selected by the Company to deliver to the
Purchasers an opinion of

                                       10
<PAGE>

such counsel in the form attached hereto as EXHIBIT 2 (with a copy to the
Company's transfer agent);

          (n) during the period the Company is required to maintain
effectiveness of the Registration Statement pursuant to Section 3(a), the
Company shall not bid for or purchase any Common Stock or any right to purchase
Common Stock or attempt to induce any person to purchase any such security or
right if such bid, purchase or attempt would in any way limit the right of the
Purchasers to sell Registrable Securities by reason of the limitations set forth
in Regulation M under the 1934 Act; and

          (o) take all other reasonable actions requested by the Majority
Holders necessary to expedite and facilitate disposition by the Purchasers of
the Registrable Securities pursuant to the Registration Statement.

     4. OBLIGATIONS OF THE PURCHASERS. In connection with the registration of
the Registrable Securities, the Purchasers 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 Purchaser that such Purchaser 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.

          (b) Each Purchaser by such Purchaser'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
Statement hereunder, unless such Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from the Registration Statement;

          (c) In the event Purchasers holding a majority in interest of the
Registrable Securities (including for this purpose the Securities exercisable
for or convertible into such Registrable Securities) being registered determine
to engage the services of an underwriter, each Purchaser agrees to enter into
and perform such Purchaser'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 Purchaser has notified the Company in writing of such Purchaser's election
to exclude all of such Purchaser's Registrable Securities from the Registration
Statement;

          (d) Each Purchaser 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 Purchaser will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Purchaser'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 Purchaser shall deliver to the Company (at the expense of the
Company)

                                       11
<PAGE>

or destroy (and deliver to the Company a certificate of destruction) all copies
in such Purchaser's possession of the prospectus covering such Registrable
Securities current at the time of receipt of such notice;

          (e) No Purchaser may participate in any underwritten registration
hereunder unless such Purchaser (i) agrees to sell such Purchaser's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Purchasers entitled hereunder to approve such arrangements, (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 other fees and expenses of investment
bankers and any manager or managers of such underwriting and legal expenses of
the underwriters applicable with respect to its Registrable Securities, in each
case to the extent not payable by the Company pursuant to the terms of this
Agreement; and

          (f) Each Purchaser agrees to take all reasonable actions necessary to
comply with the prospectus delivery requirements of the 1933 Act applicable to
its sales of Registrable Securities and to assist the Company in carrying out
its obligations hereunder.

     5. EXPENSES OF REGISTRATION. All reasonable expenses (other than
underwriting discounts and commissions and other fees and expenses of investment
bankers engaged by Purchasers and other than brokerage commissions), incurred in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees and the fees and disbursements
of counsel for the Company (in addition to the payment of the Initial
Purchaser's expenses to the extent provided in the Subscription Agreement),
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 and
hold harmless each Purchaser, the directors, officers and partners, if any, of
such Purchaser, each person, if any, who controls any Purchaser within the
meaning of the 1933 Act or the 1934 Act, any underwriter (as defined in the 1933
Act) for the Purchasers, the directors, officers and partners, if any, of such
underwriter, and each person, if any, who controls any such underwriter within
the meaning of the 1933 Act or the 1934 Act, against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"CLAIMS") to which any of them may become subject under the 1933 Act, the 1934
Act or otherwise, insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
of the following: (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein 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

                                       12
<PAGE>

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 state securities law
or any rule or regulation under the 1933 Act, the 1934 Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
6(d) with respect to the number of legal counsel, the Company shall reimburse
the Purchasers and the other persons indemnified under this Section 6(a),
promptly as such expenses are incurred and are due payable, for any 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 under this Section 6(a) or expressly for use
in connection with the preparation of the Registration Statement, the prospectus
or any such amendment thereof or supplement thereto, if such prospectus was
timely made available by the Company pursuant to Section 3(c) hereof; (II) with
respect to any preliminary prospectus shall not inure to the benefit of any
indemnified person under this Section 6(a) if the untrue statement or omission
of material fact contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if such prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; and (III) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the indemnified person
referred to in this Section 6(a) and shall survive the transfer of the
Registrable Securities by the Purchasers pursuant to Section 9.

          (b) In connection with any Registration Statement in which a Purchaser
is participating, each such Purchaser agrees to indemnify and hold harmless, to
the same extent and in the same manner set forth in Section 6(a), the Company,
each of its directors, officers and partners 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,
officers, partners or any person who controls such stockholder or underwriter
within the meaning of the 1933 Act or the 1934 Act, 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, 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
Purchaser expressly for use in connection with such Registration Statement or
any post-effective amendment thereof, or any prospectus included therein; and
such Purchaser will reimburse any legal or other expenses reasonably incurred by
any indemnified person under this Section 6(b), promptly as such expenses are
incurred and are due and payable, 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 Purchaser,
which consent shall not be unreasonably withheld; provided, further, however,
that each Purchaser shall be liable under this Section 6(b) for only that amount
of a Claim as does not exceed the amount of the proceeds to such Purchaser from
the sale of the Registrable Securities pursuant to such Registration Statement
that resulted in such Claim. Such indemnity shall remain in full force and

                                       13
<PAGE>

effect regardless of any investigation made by or on behalf of any indemnified
person under this Section 6(b) and shall survive the transfer of the Registrable
Securities by the Purchasers 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 person under this Section 6(b) 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) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information so furnished in writing by such persons
expressly for inclusion in the Registration Statement.

          (d) Each party entitled to indemnification under this Section 6 (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any such Claim as to which indemnity may be sought 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
selected by the Indemnifying Party but reasonably acceptable to the Indemnified
Party; provided, however, that an 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 Party and the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Purchasers; such legal counsel shall be selected
by the Purchasers holding a majority in interest of the Registrable Securities
(including for this purpose the Securities exercisable for or convertible into
such Registrable Securities) included in the Registration Statement to which the
Claim relates. 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 Party under
this Section 6, except to the extent that the Indemnifying Party is 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 (a) 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, (b) 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 (c) contribution by
any Purchaser shall be limited in amount to the amount by which the net amount
of proceeds received by such Purchaser (if any) from the sale of such

                                       14
<PAGE>

Registrable Securities that resulted in such Claim exceeds the purchase price
paid by such Purchaser for such Registrable Securities.

     8. REPORTS UNDER 1934 ACT. With a view to making available to the
Purchasers the benefits of 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; and

          (c) furnish to each Purchaser so long as such Purchaser owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and the
1934 Act or describing any failure to so comply, (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 Purchasers to sell such securities pursuant to Rule 144
without registration.

     9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Purchasers to any Permitted Transferee only if:
(a) the Purchaser agrees in writing with such Permitted Transferee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (b) except as otherwise provided in the
Subscription Agreement, the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (i) the name and
address of such Permitted Transferee and (ii) the securities with respect to
which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment the further disposition of
such securities by such Permitted Transferee is restricted under the 1933 Act
and applicable state securities laws, and (d) at or before the time the Company
receives the written notice contemplated by clause (b) of this sentence (or such
later time within ten Business Days after the Company approves a Permitted
Transferee pursuant to the Subscription Agreement), such Permitted Transferee
agrees in writing with the Company to be bound by all of the provisions
contained herein and in the Subscription Agreement. In connection with any such
transfer the Company shall, at the cost and expense of the Permitted Transferee,
promptly after such assignment take such actions as shall be reasonably
acceptable to the Initial Purchaser and such Permitted Transferee to assure that
the Registration Statement and related prospectus are available for use by such
Permitted Transferee for sales of the Registrable Securities in respect of which
the rights to registration have been so assigned; provided, however, that the
Company shall not be required to breach any other obligation hereunder in taking
such actions. In connection with any such assignment, each Purchaser shall have
the right to assign to such Permitted Transferee such Purchaser's rights under
the Subscription Agreement by notice of such assignment to the Company.
Following such notice of assignment of rights under the Subscription Agreement,
the Company shall be obligated to such Permitted Transferee to perform all of
its covenants under the Subscription Agreement as if such Permitted Transferee
were the Buyer under the Subscription Agreement.

                                       15
<PAGE>

     10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may
be amended only with the written consent of the Majority Holders and the Company
and, subject to the penultimate sentence of Section 2(d), the observance by the
Company of any provision of this Agreement may be waived (either generally or in
a particular instance and either retroactively or prospectively) only with the
written consent of the Majority Holders. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Purchaser and the
Company.

     11. MISCELLANEOUS.

          (a) Neither the Company nor any of its subsidiaries has entered, as of
the date hereof, nor shall the Company or any of its subsidiaries, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Purchasers in
this Agreement or otherwise conflicts with the provisions hereof. Except as and
to the extent specified in Schedule 11(a) hereto, neither the Company nor any of
its subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person.

          (b) Except as and to the extent specified in Schedule 11(a) hereto and
except with the written consent of the Majority Holders, neither the Company nor
any of its security holders (other than the Purchasers in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not after the date
hereof enter into any agreement providing any such right to be so included to
any of its security holders.

          (c) 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.

          (d) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission (with answer back
confirmation) or other means) (i) if to the Company, at 3155 Porter Drive, Palo
Alto, California 94304, Attention: Chief Executive Officer, facsimile number
(650) 475-3101 with a copy to Ropes & Gray, One International Place, Boston,
Massachusetts, 02110, Attention: Geoffrey B. Davis, Esq., (facsimile number
(617) 951-7050), (ii) if to the Initial Purchaser, at 666 Fifth Avenue, New
York, New York 10103, facsimile number (212) 841-6302 with a copy to Kleinberg,
Kaplan, Wolff & Cohen, P.C., 551 Fifth Avenue, New York, New York 10176,
Attention: Stephen M. Schultz, Esq., (facsimile number (212) 986-8866), and
(iii) if to any other Purchaser, at such address as such Purchaser shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective upon receipt.

                                       16
<PAGE>

          (e) 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.

          (f) This Agreement shall be enforced, governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such State. 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. Each party hereby consents to the exclusive
jurisdiction and venue of the federal and state courts located in New York, New
York in any action or proceeding arising hereunder and to service of process by
certified mail, return receipt requested (which shall constitute "personal
service").

          (g) This Agreement, together with each of the Transaction Documents,
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement and the Transaction Documents supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.

          (h) 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.

          (i) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.

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

          (k) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

          (l) The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.

          (m) 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 telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.

                                       17
<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed by their respective officers thereunto duly
authorized as of day and year first above written.

                                       STEMCELLS, INC.

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

        THE INITIAL PURCHASER:         RIVERVIEW GROUP, L.L.C.

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

                                       18<PAGE>

                                                                    Exhibit 10.3

     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 (the "Holder").

                              W I T N E S S E T H:

     WHEREAS, the Holder and the Company are parties to those certain
subscription agreements, dated as of July 31, 2000 and June 21, 2001 (the
"Primary Subscription Agreements"), pursuant to which the Company, among other
things, issued to the Holder two Class A Common Stock Purchase Warrants, No. A-1
("A-1") and No. A-3 ("A-3," and together with A-1, the "Adjustable Warrants"),
which constitute all of the outstanding Class A Common Stock Purchase Warrants;

     WHEREAS, the Holder and the Company desire to restructure in part the
investment effected pursuant to the Primary Subscription Agreement, as
hereinafter set forth, by issuing shares of Common Stock to the Holder pursuant
to the Adjustable Warrants, and canceling each of the Adjustable Warrants;

     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 Holder and the Company agree
as follows:

     1. AGREEMENT TO RESTRUCTURE.

          (a) The parties hereby agree that A-1 is exercisable on a "cashless
exercise" basis as of the date hereof pursuant to Section 1.1(a) of A-1 into
26,101 shares of Common Stock (the "A-1 Warrant Share Number"). The parties
hereby further agree that A-3 is exercisable on a "cashless exercise" basis as
of the date hereof into 150,000 shares of Common Stock (the "A-3 Warrant Share
Number; the sum of the A-1 and A-3 Warrant Share Numbers, 176,101 shares of
Common Stock, is the Warrant Share Number").

          (b) The parties agreed that all of such shares of Common Stock shall
be considered to be Warrant Shares for purposes of the Registration Rights
Agreement.

          (c) The Holder hereby exercises in full A-1 and A-3, on a cashless
exercise basis for the Warrant Share Number.

          (d) Upon execution of this Agreement the Company agrees to deliver to
the Holder unlegended certificates representing the Warrant Share Number of
shares of Common Stock, free and clear of any liens, claims and encumbrances,
such certificates to be registered in the name of the Holder or its designee.
The Holder shall have all the rights with respect to such delivery as are set
forth in Section 2 of the Adjustable Warrant.

          (e) Upon delivery of the shares of Common Stock in accordance with
paragraph (d) above, the Holder shall have no further rights under either
Adjustable Warrant to

<PAGE>

acquire any additional shares of Common Stock, and the Adjustable Warrants shall
be immediately cancelled and of no further effect.

     2. COMPANY REPRESENTATIONS, WARRANTIES, ETC.

     The Company makes the following representations and warranties to the
Holder.

          (a) AUTHORIZATION. The shares of Common Stock issuable upon the
exercise of A-1 and A-3 have been duly authorized and, upon issuance thereof in
accordance with the terms of this Agreement and A-1 and A-3, the shares of
Common Stock will be validly issued, fully paid and non-assessable, free and
clear of any and all liens, claims and encumbrances and shall be covered as
securities registered for resale pursuant to the Registration Statement (No.
333-66692), dated August 3, 2001.

          (b) HOLDING PERIOD. For purposes of Rule 144 promulgated under the
Securities Act, the Company shall not object to the Holder's position that the
shares of Common Stock issuable upon exercise of A-1 and A-3 in cashless
exercise transactions in accordance with the terms of this Agreement shall be
deemed to have been acquired by the Holder, and the holding period for such
shares shall be deemed to have been commenced, on the respective issue dates of
A-1, July 31, 2000, and A-3, June 21, 2001.

     IN WITNESS WHEREOF, this Agreement has been duly executed by the Holder 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

                             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

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