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                                                                  EXHIBIT 4.7

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW
TOWARD RESALE OR DISTRIBUTION. THIS WARRANT MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE
REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT.

                                 STEMCELLS, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.: MD-005                                  Number of Shares Issuable:
                                                               20,000

Date of Issuance:  August 3, 2000

     StemCells, Inc., a Delaware corporation (the "Company"), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, May Davis Group, Inc., the registered holder hereof or
its permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 5:00 P.M. Eastern Standard Time on
the Expiration Date (as defined herein) twenty thousand (20,000) fully paid,
nonassessable shares of Common Stock (as defined herein) of the Company (the
"Warrant Shares") at the Warrant Exercise Price per share provided in Section
l(b) below;

     Section 1.

     (a) LETTER AGREEMENT. This Warrant is one of the warrants (the "Warrants")
issued pursuant to Section 3.4 of the Placement Agency Agreement between the
Company and May Davis Group, Inc., dated as of July 31, 2000 (the "AGENCY
AGREEMENT").

     (b) DEFINITIONS. The following words and terms as used in this Warrant
shall have the following meanings:

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          (i) "COMMON STOCK" means (i) the Company's common stock, par value .01
per share, and (ii) any capital stock into which such Common Stock shall have
been changed or any capital stock resulting from a reclassification of such
Common Stock.

          (ii) "EXPIRATION DATE" means the date five (5) years from the date of
the issuance of the Warrant or, if such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in the City of
New York or the State of New York (a "Holiday"), the next preceding date that is
not a Holiday.

          (iii) "PERSON" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

          (iv) "SECURITIES ACT" means the Securities Act of 1933, as amended.

          (v) "WARRANT" shall mean this warrant and all warrants issued in
              exchange, transfer or replacement of any thereof.

          (vi) "WARRANT EXERCISE PRICE" shall be equal to $5.0375, subject to
               adjustment as hereinafter provided.

          (vii) "WARRANT SHARES" means the shares of Common Stock issuable upon
                exercise of this Warrant.

     (b) OTHER DEFINITIONAL PROVISIONS.

          (i) Except as otherwise specified herein, all references herein (A)
     to the Company shall be deemed to include the Company's successors and
     (B) to any applicable law defined or referred to herein, shall be deemed
     references to such applicable law as the same may have been or may be
     amended or supplemented from time to time.

          (ii) When used in this Warrant, the words "herein," "hereof," and
     "hereunder," and words of similar import, shall refer to this Warrant as
     a whole and not to any provision of this Warrant, and the words
     "Section," "Schedule," and "Exhibit" shall refer to Sections of, and
     Schedules and Exhibits to, this Warrant unless otherwise specified.

          (iii) Whenever the context so requires, the neuter gender includes
     the masculine or feminine, and the singular number includes the plural,
     and vice versa.

     Section 2. EXERCISE OF WARRANT.

     (a) Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any business day or after the opening of
business on the date hereof and prior to 5:00 P.M. Eastern Standard Time on

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the Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto, of such holder's election to
exercise this Warrant, which notice shall specify the number of Warrant Shares
to be purchased, (ii) (A) payment to the Company of an amount equal to the
Warrant Exercise Price multiplied by the number of Warrant Shares as to which
the Warrant is being exercised (plus any applicable issue or transfer taxes)
(the "Aggregate Exercise Price") in cash or by check or wire transfer, or (B) by
notifying the Company that it should subtract from the number of Warrant Shares
Issuable to the holder upon such exercise an amount of warrant shares having a
last reported sale price (as reported by Bloomberg), or, if the foregoing is not
appliclable, the fair market value (in either case, the "Per Share Value"), on
the trading day immediately preceding the date of the subscription notice equal
the Aggregate Exercise Price of the Warrant shares for which this warrant is
being exercised (a "Cashless Exercise"), and (iii) the surrender of this
Warrant, to a common carrier for delivery to the Company as soon as practicable
following such date (but in any case prior to 5:00 P.M. Eastern Standard Time on
the Expiration Date), this Warrant (or an indemnification undertaking with
respect to this Warrant in the case of its loss, theft, or destruction);
provided that if such Warrant Shares are to be issued in any name other than
that of the registered holder of this Warrant, such issuance shall be deemed a
transfer and the provisions of Section 7 shall be applicable. In the event of
any exercise of the rights represented by this Warrant in compliance with this
Section 2, a certificate or certificates for the Warrant Shares so purchased, in
such denominations as may be requested by the holder hereof and registered in
the name of, or as directed by, the holder, shall be delivered at the Company's
expense to, or as directed by, such holder as soon as practicable after such
rights shall have been so exercised, and in any event no later than five (5)
business days after the Company's receipt of the Exercise Notice, the Aggregate
Exercise Price and this Warrant (or indemnification undertaking with respect to
this Warrant in the case of its loss, theft or destruction) Upon delivery of the
Exercise Notice, this Warrant (or such indemnification undertaking) and
Aggregate Exercise Price referred to in clause (ii) (A) above or notification to
the Company of a Cashless Exercise referred to in clause (ii) (B) above, the
holder of this Warrant shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date of delivery of the certificates
evidencing such Warrant Shares. In the case of a dispute as to the determination
of the Warrant Exercise Price or the Average Market Price of a security or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the holder the number of shares of Common Stock that is not disputed and
shall submit the disputed determinations or arithmetic calculations to the
holder via facsimile within five (5) business days of receipt of the holder's
subscription notice. If the holder and the Company are unable to agree upon the
determination of the Warrant Exercise Price or Average Market Price or
arithmetic calculation of the Warrant Shares within five (5) business days of
such disputed determination or arithmetic calculation being submitted to the
holder, then the Company shall immediately submit via facsimile (i) the disputed
determination of the Warrant Exercise Price or the Average Market Price to an
independent, reputable investment banking firm or (ii) the disputed arithmetic
calculation of the Warrant Shares to its independent, outside accountant. The
Company shall cause the investment banking firm or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the holder of the results no later than five business days from the time it
receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be deemed
conclusive absent manifest error and the Company shall be liable for the costs
and expenses related to such determination or calculation.

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     (b) Unless the rights represented by this Warrant shall have expired or
shall have been fully exercised, the Company shall, as soon as practicable and
in any event no later than five (5) business days after any exercise and at its
own expense, issue a new Warrant identical in all respects to the Warrant
exercised except (i) it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under the Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised, and (ii) the holder thereof shall be deemed for all corporate
purposes to have become the holder of record of such Warrant Shares immediately
prior to the close of business on the date on which the Warrant is surrendered
and payment of the amount due in respect of such exercise and any applicable
taxes is made, irrespective of the date of delivery of certificates evidencing
such Warrant Shares, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Company are properly closed, such
person shall be deemed to have become the holder of such Warrant Shares at the
opening of business on the next succeeding date on which the stock transfer
books are open. Upon presentation of a duly executed Subscription Form in the
Form of Exhibit A to this Warrant, the holder shall be entitled to exercise this
Warrant in whole or in part, if the holder shall have previously exercised and
surrendered this Warrant and the Company shall not have issued a new Warrant
representing the number of shares issuable following such prior exercise.

     (c) No fractional shares of Common Stock are to be issued upon the exercise
of this Warrant, but rather the number of shares of Common Stock issued upon
exercise of this Warrant shall be rounded down to the nearest whole number and
the Company shall pay to the Holder in lieu of such fractional share cash in an
amount in proportion to the Per Share Value on the date of payment.

     (d) If the Company shall fail for any reason or for no reason to issue to
holder on a timely basis as described under this Section 2 a certificate for the
number of shares of Common Stock to which the holder is entitled upon the
holder's exercise of this Warrant, the Company shall, upon notice from the
holder and in lieu of any other remedies under this Agreement or otherwise
available to such holder pay as liquidated damages in cash to such holder for
each day such issuance is not timely effected an amount equal to .25% of the
product of (A) the sum of the number of shares of Common Stock not issued to the
holder on a timely basis and to which the holder is entitled, and (B) the sum
derived by subtracting (1) the Warrant exercise price then in effect, from (2)
the Closing Bid Price of the Common Stock on the last possible date which the
Company could have issued Common Stock to the holder without violating this
Section 2.

     (e) The Company shall not affect any exercise of any Warrant and no holder
of any Warrant shall have the right to exercise any Warrant pursuant to Section
2 to the extent that after giving effect to such exercise such person (together
with such Persons affiliates) (A) would beneficially owned in excess of 4.9% of
the outstanding shares of Common Stock following such conversion and (B) would
have acquired, through exercise of any Warrant or otherwise, in excess of 4.9%
of the outstanding shares of the Common Stock following such exercise during the
60-day period ending on and including such exercise date. For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by a
person and its affiliates or acquired by a person and its affiliates, as the
case may be, shall include the number of shares of Common Stock issuable upon
the exercise of the Warrants with respect to which the determination of such
sentence is being made, but shall exclude the number of shares of Common Stock
which would be issuable upon

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(i) exercise of the remaining, non exercisable Warrants beneficially owned by
such person and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
subject to limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by such Person and its affiliates. Except as
set forth in the preceding sentence, for purposes of this section 2(e),
beneficial ownership shall be calculated in accordance with Section 13 (d) of
the Securities Exchange Act of 1934, as amended. Notwithstanding anything to the
contrary contained herein, each Exercise Notice shall constitute a
representation by the holder submitting such Exercise Notice that, after giving
effect to such Exercise Notice (A) the holder will not beneficially own (as
determined in accordance with this Section 2(e)) and (B) during the 60-day
period ending on and including such exercise date, the holder will not have
acquired, through exercise of any Warrant or otherwise, a number of shares of
Common Stock in excess of 4.9% of the outstanding shares of Common Stock as
reflected in the Company's most recent Form 10-Q or Form 10-K, as the case may
be, or more recent public release or other public notice by the Company setting
forth the number of Shares of Common Stock outstanding, but after giving effect
to exercise of any Warrant by such holder since the date as of which such
numbers of outstanding shares of the Common Stock was reported, and the Company
shall be entitled to rely solely on the foregoing representation in complying
with this Section 2(e).

     Section 3. COVENANTS AS TO COMMON STOCK. The Company hereby covenants and
agrees as follows:

     (a) A Warrant issued in substitution for or replacement of this Warrant
will upon issuance be duly authorized and validly issued.

     (b) All Warrant Shares which may be issued upon the exercise as set forth
herein of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.

     (c) During the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized and reserved at
least the number of shares of Common Stock needed to provide for the exercise of
the rights then represented by this Warrant and the par value of said shares
will at all times be less than or equal to the applicable Warrant Exercise
Price.

     (d) The Company shall promptly secure the listing of the shares of Common
Stock issuable upon exercise of this Warrant upon each national securities
exchange or automated quotation system, if any, or over-the-counter-bulletin
board upon which shares of Common Stock are then listed or quoted (subject to
official notice of the over-the-counter bulletin board of issuance upon exercise
of this Warrant) and shall maintain, so long as any other shares of Common Stock
shall be so listed or quoted, such listing or quotation of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list or obtain quotation on each such national securities
exchange, automated quotation system or over-the-counter bulletin board, as the
case may be, and shall maintain such listing in quotation of, any other shares
of capital stock of the Company issuable upon the exercise of this Warrant if
and so long as any shares of the same class shall be listed on such national
securities exchange, automated quotation system or over-the-counter bulletin
board.

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

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

     (g) If at any time when the registration statement referred to in the
Agency Agreement is not effective the Company proposes to file with the
Securities and Exchange Commission a registration statement relating to an
offering for its own account or the account of others under the Securities Act
of any of its Securities (other than on Form S-4 or Form S-8 (or their
equivalents at such time) relating to securities to be issued solely in
connection with any acquisition of, or strategic transaction with, any entity or
business or equity securities issuable in connection with stock option or other
employee benefit plans) the Company shall promptly send to the Holder's written
notice of the Company's intention to file a registration statement and of the
holder's rights under this section and, if within five (5) days after receipt of
such notice, the holder hereof shall so request in writing, the Company shall
include in such registration statement all or any part of the Common Stock
underlying this Warrant the holder requests to be registered; provided, however,
that the foregoing shall not apply to any registration statement if the holders
of the securities to be registered thereon have a right to exclude the Warrant
Shares from such registration statement. If a registration pursuant this section
is to be an underwritten public offering and the managing underwriters advise
the Company in writing, that in their reasonable good faith opinion, marketing
or other factors dictate that a limitation on the number of shares of Company
common stock which may be included in the registration statement is necessary to
facilitate and not adversely affect the proposed offering, then the Company
shall include in such registration: (1) first, all securities the Company
proposes to sell for its own account, (2) second, up to the full number of
securities proposed to be registered for the account of the holders of
securities entitled to inclusion of their securities requested to be registered
by the holder hereof and other holders of securities entitled to participate in
the registration, as of the date hereof, drawn from them pro rata based on the
number each has requested to be included in such registration. Any holder of a
Warrant or Warrant Shares who wishes to participate in such registration must
execute such agreements and take such actions as are customarily executed or
taken by selling stockholders in connection with a registration.

     Section 4. TAXES. The Company shall not be required to pay any tax or taxes
attributable to the initial issuance of the Warrant Shares or any permitted
transfer involved in the issue or delivery

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of any certificates for Warrant Shares in a name other than that of the
registered holder hereof or upon any permitted transfer of this Warrant.

     Section 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant.

     In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on such holder to purchase any securities or as a
stockholder of the Company, whether such liabilities are asserted by the Company
or by creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this Warrant with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.

     Section 6. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by the
acceptance hereof, represents (and any assignor shall represent) that it is
acquiring this Warrant and the Warrant Shares for its own account for investment
purposes and not with a view to, or for sale in connection with, any
distribution hereof, and not with any present intention of distributing any of
the same. The holder of this Warrant further represents (and any assignor shall
represent), by acceptance hereof, that, as of this date, such holder is an
"accredited investor" as such term is defined in Rule 501(a)(1) of Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act
(an "Accredited Investor"). Upon exercise of this Warrant, the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of the Warrant that the Company receive such other representations as
the Company considers reasonably necessary to assure the Company that the
issuance of its securities upon exercise of the Warrant shall not violate any
United States Federal or state securities laws.

     Section 7. OWNERSHIP AND TRANSFER.

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

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thereof for all purposes, notwithstanding any notice to the contrary, but in all
events recognizing any transfers made in accordance with the terms of this
Warrant.

     (b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall subject to the
conditions set forth in Section 6 above and Section 7(c) below.

     (c) The holder of this Warrant understands that this Warrant and the
Warrant Shares have not been and are not expected to be, registered under the
Securities Act or any state securities laws, and may not be offered for sale,
sold, assigned or transferred unless (a) subsequently registered thereunder, or
(b) such holder shall have delivered to the Company an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company, to the
effect that the securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration. Any
sale of such securities made in reliance on Rule 144 promulgated under the
Securities Act may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Securities and Exchange Commission
thereunder; and neither the Company nor any other person is under any obligation
to register the Series A Preferred Share Warrants under the Securities Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder except as set forth in Section 7(d) below. All Warrants and
Warrant Shares shall bear a legend in substantially the form set forth at the
beginning hereof until the Company receives a satisfactory opinion of counsel
that such legend is no longer required.

     (d) The Company shall register the Warrant Shares for resale under the
Securities Act pursuant to the Registration Rights Agreement dated as of July
31, 2000, by and between the Company and the Buyers listed on the signature page
thereto (the "Registration Rights Agreement").

     Section 8. ADJUSTMENT OF WARRANT EXERCISE PRICE. In order to prevent
dilution of the rights granted under this Warrant, the Warrant Exercise Price
shall be adjusted from time to time as follows:

     (a) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR COMBINATION OF
COMMON STOCK. If the Company at any time after the date of issuance of this
Warrant, subdivides (by any stock split, stock dividend, re-capitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Warrant Exercise Price in effect immediately prior
to such subdivision will be proportionately reduced and the number of shares of
Common Stock obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this Warrant
combines (by combination, reverse stock split or otherwise) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Warrant Exercise Price in effect immediately prior to such combination will be
proportionately increased and the number of shares of Common Stock obtainable
upon exercise of this Warrant will be proportionately decreased.

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     (b) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets to another Person or other
similar transaction which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as in "Organic Change." Prior to the consummation of any Organic
Change, the Company will make appropriate provision (in form and substance
reasonably satisfactory to the holders of a majority of the Warrants then
outstanding) to insure that, upon the consummation of such Organic Change, each
of the holders of the Warrants will thereafter have the right to acquire and
receive upon exercise hereof in lieu of the Common Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of the Warrants had such Organic Change not taken
place. In any such case, the Company will make appropriate provision (in form
and substance reasonably satisfactory to the holders of a majority of the
Warrants then outstanding) with respect to such holders' rights and interests to
insure that the provisions of this Section 8(b) will thereafter be applicable to
the Warrants.

     (c) NOTICES.

          (i)  Immediately  upon any  adjustment of the Warrant  Exercise  Price
pursuant to this Section 8, the Company will give written  notice thereof to the
holder of this Warrant,  setting forth in reasonable  detail and  certifying the
calculation of such adjustment.

          (ii) The  Company  will  give  written  notice  to the  holder of this
Warrant at least ten (10) days prior to the date on which the Company closes its
books or takes a record (A) with  respect to any dividend or  distribution  upon
the Common Stock, (B) with respect to any pro rata subscription offer to holders
of  Common  Stock or (C) for  determining  rights to vote  with  respect  to any
Organic Change,  dissolution or liquidation,  except that in no event shall such
notice be provided to such holder prior to such information  being made known to
the public.

          (iii) The Company will also give written  notice to the holder of this
Warrant  at least ten (10) days prior to the date on which any  Organic  Change,
dissolution or liquidation will take place.

     Section 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as the Warrant so lost, stolen, mutilated or destroyed.

     Section 11. NOTICE. Any notices, consents, waivers, or other communications
required or permitted to be given under the terms of this Warrant must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested; or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers for such communications shall be:

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                 If to the Company:   StemCells, Inc.
                                      525 Del Rey Avenue
                                      Suite C
                                      Sunnyvale CA. 94086
                                      Attention: George Dunbar, President & CEO
                                      Telephone: (408) 731-8670
                                      Facsimile: (408) 731-8674

                 With a copy to:      Ropes & Gray
                                      One International Place
                                      Boston, MA 02110
                                      Attention:  Geoffrey B. Davis, Esq.
                                      Telephone: (617) 951-7000
                                      Facsimile:  (617) 951-7050

If to a holder of this Warrant, to it at the address set forth below such
holder's signature on the signature page hereof. Each party shall provide five
(5) days' prior written notice to the other party of any change in address or
facsimile number.

     Section 12. AMENDMENTS. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party or holder hereof against which enforcement of such change, waiver,
discharge or termination is sought.

     Section 13. DATE. The date of this Warrant is August 3, 2000. This Warrant,
in all events, shall be wholly void and of no effect after 5:00 P.M. Eastern
Standard Time on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.

     Section 14. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omitted to perform any act herein required to be performed
by it, only if the Company has obtained the written consent of the holders of
Warrants representing a majority of the shares of Common Stock obtainable upon
exercise of the Warrants then outstanding, provided that no such action may
increase the Warrant Exercise Price of the Warrants or decrease the number of
shares or class of stock obtainable upon exercise of any warrants with out the
written consent of the holder of such warrant.

     Section 15. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings
of the several sections of this Warrant are for convenience of reference only
and shall not limit or otherwise affect the meaning hereof. This Warrant shall
be governed by and interpreted under the laws of the State of New York, without
giving effect to any choice of law or conflict of law provision.

     This Warrant has been duly executed by the Company as of the date first set
forth above.

                                       10
<PAGE>

                                 STEMCELLS, INC.

                                 By:
                                    -------------------------------
                                 Name:
                                 Title:

May Davis Group, Inc.

By:
   -------------------------------
Name:
     -----------------------------
Title:
      ----------------------------
Address:
        --------------------------

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

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

                                       11
<PAGE>

                                    EXHIBIT A

                              FORM OF SUBSCRIPTION

     (Complete and sign only exercise of the Warrant in whole or in part.)

TO: StemCells, Inc.

     The undersigned, the holder of the attached Warrant to which this Form of
Subscription applies, hereby irrevocably elects to exercise the purchase rights
represented by such warrant for and to purchase thereunder _______ shares of
Common Stock, par value $.01 per share (the "Shares"), from StemCells, Inc. (or
such other securities issuable pursuant to the terms of the Warrant) and either:
(i) herewith makes payment of $_______ therefor in cash or by certified or
official bank check or (ii) elects to make payment upon a cashless basis
pursuant to Section 2(b) of the Warrant and hereby exercises ______ Warrants and
the Per Share Value for purposes hereof is $_______. The undersigned hereby
requests that the certificate(s) representing such securities be issued in the
name(s) and delivered t the address(es) as follows:

Name:
                            ---------------------------------------
Address:
                            ---------------------------------------
Social Security Number:
                            ---------------------------------------
Deliver to:
                            ---------------------------------------
Address:
                            ---------------------------------------

     This the foregoing subscription evidences an exercise of the Warrant to
purchase fewer than all of the Shares (or other securities issuable pursuant to
the terms of the Warrant) to which the undersigned is entitled under such
warrant, please issue a new warrant, of like tenor, relating to the remaining
portion of the securities issuable upon exercise of such warrant (or other
securities issuable pursuant to the terms of such warrant) in the name(s), and
deliver the same to the address(es), as follow:

Name:
                            ---------------------------------------
Address:
                            ---------------------------------------

                            ---------------------------------------
Dated:
                            ---------------------------------------

-------------------------          -------------------------------------------
(Name of Holder)                   (Social Security or Taxpayer Identification
                                    Number of Holder, if applicable)

-----------------------------
(Signature of Holder or Authorized
Signatory)

Signature Guaranteed:
                     -------------------------------------

                                       12
<PAGE>

                                    EXHIBIT B

                              FORM OF WARRANT POWER

     FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
____________________________________________ Federal Identification No.______, a
warrant to purchase shares of the capital stock of StemCells, Inc. a Delaware
corporation, represented by warrant certificate No._________, standing in the
name of the undersigned on the books of said corporation. The undersigned does
hereby irrevocably constitute and appoint ____________________________, attorney
to transfer the warrants of said corporation, with full power of substitution in
the premises.

Dated:
      ---------------------------------

                                              By:
                                                 ---------------------------
                                              Its:
                                                  --------------------------

                                       13<PAGE>

                                                                   EXHIBIT 4.8

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.

                                       Right to Purchase the Specified Number of
                                       Shares of Common Stock of StemCells, Inc

                                 STEMCELLS, INC.

                     COMMON STOCK PURCHASE WARRANT, CLASS A

NO. A-1

                  STEMCELLS, INC., a Delaware corporation (the "Company"),
hereby certifies that, for value received, Millennium Partners, L.P. or its
registered assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time during the
Exercise Period (such capitalized term and all other capitalized terms used
herein having the respective meanings provided herein), the Specified Number of
fully paid and nonassessable shares of Common Stock at a purchase price per
share equal to the Purchase Price. The number of such shares of Common Stock is
subject to adjustment as provided in this Warrant.

                  As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:

                  "Adjustment Date" means any of the First Adjustment Date and
each date which occurs every 90 days after the First Adjustment Date through and
including the date which is 810 days after the Issuance Date.

                  "Adjustment Factor" means 1.015.

                  "Adjustment Shares" means the number of shares of Common
Stock, determined on each Adjustment Date in accordance with Section 1.3(a), to
be added to the Specified Number on each Adjustment Date in accordance with
Section 1.3(b).

                  "Auditors" means Ernst & Young LLP or such other firm of
independent public accountants of recognized national standing as shall have
been engaged by the Company to audit its financial statements.

<PAGE>

                  "Average Market Price" means the arithmetic average of the ten
(10) lowest Market Prices during the applicable Measurement Period.

                  "Cash and Cash Equivalent Balances" of any person on any date
shall be determined from such person's books maintained in accordance with
Generally Accepted Accounting Principles, and means, without duplication, the
sum of (1) the cash accrued by such person and its subsidiaries on a
consolidated basis on such date and available for use by such person and its
subsidiaries on such date and (2) all assets which would, on a consolidated
balance sheet of such person and its subsidiaries prepared as of such date in
accordance with Generally Accepted Accounting Principles, be classified as cash
or cash equivalents, less the amount thereof which secures any outstanding
indebtedness of such person or its subsidiaries.

                  "Callable Warrant" means the Callable Warrant, issued by the
Company pursuant to the Subscription Agreement.

                  "Class A Warrant Shares" means those shares of Common Stock
issued upon exercise of this Warrant (subject to equitable adjustment from time
to time on terms reasonably acceptable to the Holder for stock splits, stock
dividends, combinations, recapitalizations, reclassifications, distributions,
Tender Offers and similar events occurring after the Issuance Date).

                  "Commission" means the Securities and Exchange Commission.

                  "Common Shares Held" as of any date means the sum of (1) the
number of Initial Shares which are then held by the Holder plus (2) the number
of Class A Warrant Shares which are then held by the Holder plus (3) the number
of shares of Common Stock which are issuable upon exercise of this Warrant
immediately prior to the determination of the number of Adjustment Shares
pursuant to Section 1.3(a).

                  "Common Stock" means the Company's Common Stock, $.01 par
value per share, as authorized on the date hereof, and any other securities into
which or for which the Common Stock may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.

                  "Company" shall include StemCells, Inc., a Delaware
corporation, and any corporation that shall succeed to or assume the obligations
of StemCells, Inc. hereunder in accordance with the terms hereof.

                  "Control Notice" means a notice given by the Company to the
Holder, in accordance with Section 1.5(b), (i) stating that a Share Limitation
Event has occurred by reason of events which are not solely within the control
of the Company and (ii) enclosing an executed copy of an Auditors'
Determination.

                  "Exercise Period" means the period commencing on the First
Adjustment Date and ending thirty (30) days following the Last Adjustment Date.

                  "First Adjustment Date" means the date which is 180 days after
the Issuance Date.

                                       2
<PAGE>

                  "Generally Accepted Accounting Principles" for any person
means the generally accepted accounting principles and practices applied by such
person from time to time in the preparation of its audited financial statements.

                  "Holder Repurchase Price" means, for each share of Common
Stock which may not be issued upon exercise of this Warrant by reason of the
Shareholder Approval Rule in accordance with Section 1.4 (c), 120% of the
greater of: (x) the arithmetic average of the Market Price on each of the five
consecutive Trading Days immediately prior to and including the expiration of
the 75-day period referred to in Section 1.4(c) or the Repurchase Date referred
to in Section 1.4(b), as the case may be, (y) the arithmetic average of the
Market Price on each of the five consecutive Trading Days immediately prior to
the repurchase date pursuant to Section 1.4(c) or Section 1.4(b) and (z) if
determined prior to the First Adjustment Date, the price per share paid by the
Holder for the shares of Common Stock purchased on the Issuance Date pursuant to
the Subscription Agreement or, if determined on or after the First Adjustment
Date, the most recent Adjustment Price (subject to equitable adjustment from
time to time on terms reasonably acceptable to the Holder for stock splits,
stock dividends, combinations, recapitalizations, reclassifications,
distributions, Tender Offers and similar events occurring after the Issuance
Date).

                  "Initial Shares" means those shares of Common Stock purchased
by the Holder on the Issuance Date pursuant to the Subscription Agreement
(subject to equitable adjustment from time to time on terms reasonably
acceptable to the Holder for stock splits, stock dividends, combinations,
recapitalizations, reclassifications, distributions, Tender Offers and similar
events occurring after the Issuance Date), excluding shares issuable pursuant to
the Callable Warrant.

                   "Issuance Date" means the first date of original issuance of
this Warrant.

                  "Market Price" of the Common Stock on any date means the
closing bid price for one share of Common Stock on such date on the first
applicable among the following: (a) the national securities exchange on which
the shares of Common Stock are listed which constitutes the principal securities
market for the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the
principal market for the Common Stock on such date, or (c) the Nasdaq SmallCap,
if the Nasdaq SmallCap constitutes the principal securities market for the
Common Stock on such date, in any such case as reported by Bloomberg, LP.;
provided, however, that if during any Measurement Period or other period during
which the Market Price is being determined:

                                      (i) The Company shall declare or pay a
                   dividend or make a distribution to all holders of the
                   outstanding Common Stock in shares of Common Stock or fix any
                   record date for any such action, then the Market Price for
                   each day in such Measurement Period or such other period
                   which day is prior to the earlier of (1) the date fixed for
                   the determination of stockholders entitled to receive such
                   dividend or other distribution and (2) the date on which
                   ex-dividend trading in the Common Stock with respect to such
                   dividend or distribution begins shall be reduced by
                   multiplying the Market Price (determined without regard to
                   this proviso) for each such day in such Measurement Period or
                   such other period by a fraction, the numerator of which shall
                   be the number of shares of Common Stock outstanding at the
                   close of business on the earlier of (1) the record date

                                       3
<PAGE>

                   fixed for such determination and (2) the date on which
                   ex-dividend trading in the Common Stock with respect to such
                   dividend or distribution begins and the denominator of which
                   shall be the sum of such number of shares and the total
                   number of shares constituting such dividend or other
                   distribution;

                                      (ii) The Company shall issue rights or
                   warrants to all holders of its outstanding shares of Common
                   Stock, or fix a record date for such issuance, which rights
                   or warrants entitle such holders (for a period expiring
                   within forty-five (45) days after the date fixed for the
                   determination of stockholders entitled to receive such rights
                   or warrants) to subscribe for or purchase shares of Common
                   Stock at a price per share less than the Market Price
                   (determined without regard to this proviso) for any day in
                   such Measurement Period or such other period which day is
                   prior to the end of such 45-day period, then the Market Price
                   for each such day shall be reduced so that the same shall
                   equal the price determined by multiplying the Market Price
                   (determined without regard to this proviso) by a fraction,
                   the numerator of which shall be the number of shares of
                   Common Stock outstanding at the close of business on the
                   record date fixed for the determination of stockholders
                   entitled to receive such rights or warrants plus the number
                   of shares which the aggregate offering price of the total
                   number of shares so offered would purchase at such Market
                   Price, and the denominator of which shall be the number of
                   shares of Common Stock outstanding on the close of business
                   on such record date plus the total number of additional
                   shares of Common Stock so offered for subscription or
                   purchase. In determining whether any rights or warrants
                   entitle the holders to subscribe for or purchase shares of
                   Common Stock at less than the Market Price (determined
                   without regard to this proviso), and in determining the
                   aggregate offering price of such shares of Common Stock,
                   there shall be taken into account any consideration received
                   for such rights or warrants, the value of such consideration,
                   if other than cash, to be determined in good faith by a
                   resolution of the Board of Directors of the Company;

                                      (iii) The outstanding shares of Common
                   Stock shall be subdivided into a greater number of shares of
                   Common Stock or a record date for any such subdivision shall
                   be fixed, then the Market Price of the Common Stock for each
                   day in such Measurement Period or such other period which day
                   is prior to the earlier of (1) the day upon which such
                   subdivision becomes effective and (2) the date on which
                   ex-dividend trading in the Common Stock with respect to such
                   subdivision begins shall be proportionately reduced, and
                   conversely, in case the outstanding shares of Common Stock
                   shall be combined into a smaller number of shares of Common
                   Stock, the Market Price for each day in such Measurement
                   Period or such other period which day is prior to the earlier
                   of (1) the date on which such combination becomes effective
                   and (2) the date on which trading in the Common Stock on a
                   basis which gives effect to such combination begins, shall be
                   proportionately increased;

                                      (iv) The Company shall, by dividend or
                   otherwise, distribute to all holders of its Common Stock
                   shares of any class of capital stock of the Company

                                       4
<PAGE>

                   (other than any dividends or distributions to which clause
                   (i) of this proviso applies) or evidences of its
                   indebtedness, cash or other assets (including securities, but
                   excluding any rights or warrants referred to in clause (ii)
                   of this proviso and dividends and distributions paid
                   exclusively in cash and excluding any capital stock,
                   evidences of indebtedness, cash or assets distributed upon a
                   merger or consolidation) (the foregoing hereinafter in this
                   clause (iv) of this proviso called the "Securities"), or fix
                   a record date for any such distribution, then, in each such
                   case, the Market Price for each day in such Measurement
                   Period or such other period which day is prior to the earlier
                   of (1) the record date for such distribution and (2) the date
                   on which ex-dividend trading in the Common Stock with respect
                   to such distribution begins shall be reduced so that the same
                   shall be equal to the price determined by multiplying the
                   Market Price (determined without regard to this proviso) by a
                   fraction, the numerator of which shall be the Market Price
                   (determined without regard to this proviso) for such date
                   less the fair market value (as determined in good faith by
                   resolution of the Board of Directors of the Company) on such
                   date of the portion of the Securities so distributed or to be
                   distributed applicable to one share of Common Stock and the
                   denominator of which shall be the Market Price (determined
                   without regard to this proviso) for such date. If the Board
                   of Directors of the Company determines the fair market value
                   of any distribution for purposes of this clause (iv) by
                   reference to the actual or when issued trading market for any
                   Securities comprising all or part of such distribution, it
                   must in doing so consider the prices in such market on the
                   same day for which an adjustment in the Market Price is being
                   determined.

                                      For purposes of this clause (iv) and
                   clauses (i) and (ii) of this proviso, any dividend or
                   distribution to which this clause (iv) is applicable that
                   also includes shares of Common Stock, or rights or warrants
                   to subscribe for or purchase shares of Common Stock to which
                   clause (i) or (ii) of this proviso applies (or both), shall
                   be deemed instead to be (1) a dividend or distribution of the
                   evidences of indebtedness, assets, shares of capital stock,
                   rights or warrants other than such shares of Common Stock or
                   rights or warrants to which clause (i) or (ii) of this
                   proviso applies (and any Market Price reduction required by
                   this clause (iv) with respect to such dividend or
                   distribution shall then be made) immediately followed by (2)
                   a dividend or distribution of such shares of Common Stock or
                   such rights or warrants (and any further Market Price
                   reduction required by clauses (i) and (ii) of this proviso
                   with respect to such dividend or distribution shall then be
                   made), except that any shares of Common Stock included in
                   such dividend or distribution shall not be deemed
                   "outstanding at the close of business on the date fixed for
                   such determination" within the meaning of clause (i) of this
                   proviso;

                                      (v) The Company or any subsidiary of the
                   Company shall (x) by dividend or otherwise, distribute to all
                   holders of its Common Stock cash in (or fix any record date
                   for any such distribution), or (y) repurchase or reacquire
                   shares of its Common Stock for, in either case, an aggregate
                   amount that, combined with (1) the aggregate amount of any
                   other such distributions to all holders of its Common Stock
                   made exclusively in cash after the Issuance Date

                                       5
<PAGE>

                   and within the 12 months preceding the date of payment of
                   such distribution, and in respect of which no adjustment
                   pursuant to this clause (v) has been made, (2) the aggregate
                   amount of any cash plus the fair market value (as determined
                   in good faith by a resolution of the Board of Directors of
                   the Company) of consideration paid in respect of any
                   repurchase or other reacquisition by the Company or any
                   subsidiary of the Company of any shares of Common Stock made
                   after the Issuance Date and within the 12 months preceding
                   the date of payment of such distribution or making of such
                   repurchase or reacquisition, as the case may be, and in
                   respect of which no adjustment pursuant to this clause (v)
                   has been made, and (3) the aggregate of any cash plus the
                   fair market value (as determined in good faith by a
                   resolution of the Board of Directors of the Company) of
                   consideration payable in respect of any Tender Offer by the
                   Company or any of its subsidiaries for all or any portion of
                   the Common Stock concluded within the 12 months preceding the
                   date of payment of such distribution or completion of such
                   repurchase or reacquisition, as the case may be, and in
                   respect of which no adjustment pursuant to clause (vi) of
                   this proviso has been made (such aggregate amount combined
                   with the amounts in clauses (1), (2) and (3) above being the
                   "Combined Amount"), exceeds 10% of the product of the Market
                   Price (determined without regard to this proviso) for any day
                   in such Measurement Period or such other period which day is
                   prior to the earlier of (A) the record date with respect to
                   such distribution and (B) the date on which ex-dividend
                   trading in the Common Stock with respect to such distribution
                   begins or the date of such repurchase or reacquisition, as
                   the case may be, times the number of shares of Common Stock
                   outstanding on such date, then, and in each such case, the
                   Market Price for each such day shall be reduced so that the
                   same shall equal the price determined by multiplying the
                   Market Price (determined without regard to this proviso) for
                   such day by a fraction (i) the numerator of which shall be
                   equal to the Market Price (determined without regard to this
                   proviso) for such day less an amount equal to the quotient of
                   (x) the excess of such Combined Amount over such 10% and (y)
                   the number of shares of Common Stock outstanding on such day
                   and (ii) the denominator of which shall be equal to the
                   Market Price (determined without regard to this proviso) for
                   such day; or

                                      (vi) A Tender Offer made by the Company or
                   any of its subsidiaries for all or any portion of the Common
                   Stock shall expire and such Tender Offer (as amended upon the
                   expiration thereof) shall require the payment to stockholders
                   (based on the acceptance (up to any maximum specified in the
                   terms of the Tender Offer) of Purchased Shares (as defined
                   below)) of an aggregate consideration having a fair market
                   value (as determined in good faith by resolution of the Board
                   of Directors of the Company) that combined together with (1)
                   the aggregate of the cash plus the fair market value (as
                   determined in good faith by a resolution of the Board of
                   Directors of the Company), as of the expiration of such
                   Tender Offer, of consideration payable in respect of any
                   other Tender Offers, by the Company or any of its
                   subsidiaries for all or any portion of the Common Stock
                   expiring within the 12 months preceding the expiration of
                   such Tender Offer and in respect of which no adjustment
                   pursuant to this clause

                                       6
<PAGE>

                   (vi) has been made, (2) the aggregate amount of any cash plus
                   the fair market value (as determined in good faith by a
                   resolution of the Board of Directors of the Company) of
                   consideration paid in respect of any repurchase or other
                   reacquisition by the Company or any subsidiary of the Company
                   of any shares of Common Stock made after the Issuance Date
                   and within the 12 months preceding the expiration of such
                   Tender Offer and in respect of which no adjustment pursuant
                   to clause (v) of this proviso has been made, and (3) the
                   aggregate amount of any distributions to all holders of
                   Common Stock made exclusively in cash within 12 months
                   preceding the expiration of such Tender Offer and in respect
                   of which no adjustment pursuant to clause (v) of this proviso
                   has been made, exceeds 10% of the product of the Market Price
                   (determined without regard to this proviso) for any day in
                   such period times the number of shares of Common Stock
                   outstanding on such day, then, and in each such case, the
                   Market Price for such day shall be reduced so that the same
                   shall equal the price determined by multiplying the Market
                   Price (determined without regard to this proviso) for such
                   day by a fraction, the numerator of which shall be the number
                   of shares of Common Stock outstanding on such day multiplied
                   by the Market Price (determined without regard to this
                   proviso) for such day and the denominator of which shall be
                   the sum of (x) the fair market value (determined as
                   aforesaid) of the aggregate consideration payable to
                   stockholders based on the acceptance (up to any maximum
                   specified in the terms of the Tender Offer) of all shares
                   validly tendered and not withdrawn as of the last time
                   tenders could have been made pursuant to such Tender Offer
                   (the "Expiration Time") (the shares deemed so accepted, up to
                   any such maximum, being referred to as the "Purchased
                   Shares") and (y) the product of the number of shares of
                   Common Stock outstanding (less any Purchased Shares) on such
                   day times the Market Price (determined without regard to this
                   proviso) of the Common Stock on the Trading Day next
                   succeeding the Expiration Time. If the application of this
                   clause (vi) to any Tender Offer would result in an increase
                   in the Market Price (determined without regard to this
                   proviso) for any trade, no adjustment shall be made for such
                   Tender Offer under this clause (vi) for such day.

                  "Measurement Period" means, with respect to any Adjustment
Date, the period of 30 consecutive Trading Days ending on the Trading Day prior
to such Adjustment Date.

                  "Nasdaq" means the Nasdaq National Market.

                  "Nasdaq SmallCap" means the Nasdaq SmallCap Market.

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

                  "1933 Act" means the Securities Act of 1933, as amended.

                  "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the Holder at any time shall be entitled to receive, or shall
have received, on the exercise of this Warrant, in lieu of

                                       7
<PAGE>

or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4.

                   "Purchase Price" means the greater of (x) $.01 per share or
(y) the par value per share of the Common Stock.

                  "Purchased Securities" as of any date means (1) the Initial
Shares which are then held by the Holder, (2) the Class A Warrant Shares which
are then held by the Holder and (3) this Warrant.

                  "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and between the Company and the
original Holder of this Warrant, as amended from time to time in accordance with
its terms.

                   "Registration Statement" shall have the meaning provided in
the Registration Rights Agreement.

                  "Repurchase Date" means the date of repurchase by the Company
of the Securities pursuant to Section 1.4.

                  "Repurchase Notice" means a notice given by the Company to the
Holder pursuant to Section 1.4(b) exercising the Company's right to repurchase
all of the Securities pursuant to Section 1.4(b) which states (1) the number of
shares of Common Stock (including shares issuable upon exercise of this Warrant)
which are to be repurchased, (2) the Repurchase Price and the formula for
determining the same, determined in accordance herewith and (3) the Repurchase
Date.

                  "Repurchase Price" means, for each share of Common Stock
repurchased pursuant to Section 1.4, the product of (x) the arithmetic average
of the Market Price on each of the five consecutive Trading Days ending on and
including the Adjustment Date following which the Repurchase Notice is given
times (y) the Adjustment Factor.

                  "Share Limit" means 3,902,081 shares of Common Stock (subject
to equitable adjustment from time to time on terms reasonably acceptable to the
Holder for stock splits, stock dividends, combinations, recapitalizations,
reclassifications, distributions, Tender Offers and similar events occurring
after the Issuance Date).

                  "Share Limitation Event" means a time at which the Company is
unable to issue all shares of Common Stock otherwise required to be issued upon
exercise of this Warrant by reason of the restrictions set forth in the
Shareholder Approval Rule and the Company has not obtained a waiver thereof.

                  "Shareholder Approval" shall mean the approval by a majority
of the votes cast by the holders of shares of Common Stock (in person or by
proxy) at a meeting of the stockholders of the Company (duly convened at which a
quorum was present), or a unanimous written consent of holders of shares of
Common Stock given without a meeting, of the issuance by the Company of 20% or
more of the Common Stock of the Company outstanding on the

                                       8
<PAGE>

Issuance Date for less than the greater of the book or market value of such
Common Stock, as and to the extent required under the Shareholder Approval Rule.

                  "Shareholder Approval Rule" means Rule 4460(i)(1)(D) of Nasdaq
as in effect from time to time or any successor, replacement or similar rule or
regulation of Nasdaq or any other principal securities market on which the
Common Stock is listed for trading.

                  "Specified Number" means the number of shares of Common Stock
for which this Warrant is exercisable from time to time as determined in
accordance with Section 1.3.

                  "Subscription Agreement" means the Subscription Agreement,
dated as of July [ ], 2000, by and between the Company and the original Holder
of this Warrant, as amended from time to time in accordance with its terms.

                  "Tender Offer" means a tender offer or exchange offer.

                  "Total Common Shares" as of any date means the sum of (1) the
number of Initial Shares plus (2) the number of Class A Warrant Shares plus (3)
the number of shares of Common Stock issued pursuant to the Callable Warrant.

                  "Trading Day" means a day on which the principal securities
market for the Common Stock is open for general trading of securities.

                   1. EXERCISE OF WARRANT.

                   1.1 EXERCISE. Subject to the limitations on exercises in
Sections 1.2 and 1.4(a), this Warrant may be exercised by the Holder hereof at
any time or from time to time during the Exercise Period by delivery of the
subscription form annexed hereto (duly executed by the Holder) to the Company
and by making payment, in cash or by certified or official bank check payable to
the order of the Company, in the amount obtained by multiplying (i) the number
of shares of Common Stock designated by the Holder in the subscription form by
(ii) the Purchase Price. If at the request of the Company the subscription form
is delivered to the Company's transfer agent for the Common Stock, the Holder
shall provide a copy of the subscription form to the Company at the time of
exercise and the Company will confirm the exercise instructions given therein by
notice to the Company's transfer agent within one Trading Day after receiving
such subscription form. Upon each exercise of this Warrant, whether by cash or
cashless exercise, the Holder shall not be required to surrender this Warrant to
the Company unless the Holder has no further rights to purchase shares of Common
Stock hereunder. The Holder and the Company shall maintain records showing the
number of shares purchased in connection with each exercise of this Warrant and
the dates of such exercises or shall use such other method, satisfactory to the
Holder and the Company, so as to not require physical surrender of this Warrant
upon each such exercise.

                   (a) CASHLESS EXERCISE. Subject to the limitations on
exercises in Sections 1.2 and 1.4(a), during the Exercise Period and 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 Common
Stock issuable

                                       9
<PAGE>

hereunder 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 event the Company shall issue to the
Holder the number of shares of Common Stock determined as follows:

                           X = Y [(A-B)/A]
                  where:

                           X = the number of shares of Common Stock to be issued
                  to the Holder.

                           Y = the number of shares of Common Stock 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 Purchase Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the shares of Common Stock issued in a cashless
exercise transaction 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 issue date of this Warrant.

                   (b) In lieu of delivering physical certificates representing
the shares of Common Stock issuable upon exercise 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 shares of Common Stock 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.

                   1.2 CERTAIN EXERCISE RESTRICTIONS.

                   (b) 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
limitations on the Holder's right to convert, exercise or purchase similar to
the 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

                                       10
<PAGE>

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 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 50% of the
Company's outstanding Common Stock.

                   (c) 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 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 shares 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 limits 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.

                                       11
<PAGE>

                   1.3 DETERMINATION OF SPECIFIED NUMBER. (a) On each Adjustment
Date, the number of Adjustment Shares shall be computed as follows:

         IF CP less than or equal to ICP, and

                IF CP less than $2.25 and

                           IF CP greater than or equal to MPP, then

                                    CS =  PPSH x 1.015, and

                                    BSH = CS - FSH, and

                                          if the Company elects to pay Holder
                                          B$ = BSH x CP,

                                              AS = CS - BSH - PPSH

                                    or else AS = CS - PPSH

                           but IF CP less than MPP, then

                                    CS = (MPP x PPSH x (1.015)/CP

                                    BSH = CS - FSH, and

                                          if the Company elects to pay Holder
                                          B$ = BSH x CP,

                                    AS = CS - BSH - PPSH

                                          or else AS = CS -PPSH.

                IF CP less than ICP and IF CP greater than or equal to $2.25 and

                           IF CP greater than or equal to MPP, then

                           AS = PPSH x .015

                                 or else AS = [(MPP x PPSH x 1.015)/CP] - PPSH

                IF CP greater than ICP, then AS=0

                                       12
<PAGE>

                  where:

                  AS       =        Adjustment Shares

                  CS       =        Initially calculated Adjustment Shares

                  I$       =        $4,000,000

                  ICP      =        $4.33125

                  BSH      =        Buyout Shares: The number of shares for
                                    which the Company may, in lieu of having the
                                    Specified Number increase by the applicable
                                    number of Adjustment Shares, elect to pay
                                    cash to the Holder in the amount of the
                                    Buyout.

                  FSH      =        Floor Shares (the number of shares that
                                    are not subject to the Company's election to
                                    buyout). The initial value of FSH shall be
                                    set to FSH = 1,777,778. FSH shall be
                                    recalculated at each Adjustment Date by
                                    multiplying the value of FSH as of the
                                    immediately preceding Adjustment Date by
                                    (1 - (SHX/PPSH))

                  B$       =        Buyout Amount.

                  SHX      =        the number of Warrant shares exercised
                                    during the current Adjustment Period.

                  CP       =        the Average Market Price as of the
                                    then-current Adjustment Date.

                  PPSH     =        the number of Common Shares Held as of the
                                    immediately preceding Adjustment Date.

                  MPP      =        the lesser of ICP or the lowest Average
                                    Market Price as of any prior Adjustment Date
                                    (or ICP on the first Adjustment Date).

                  As indicated above, if as of any Adjustment Date the Average
Market Price is below $2.25 (as such number shall be appropriately adjusted for
any stock splits, recapitalizations or similar events), the Company may, in lieu
of having the increase in the Specified Number include the number of Buyout
Shares, elect to pay cash to the Holder in an amount equal to the Buyout Amount
(B$). Such election must be made by written notice to the holders within five
(5) business days after the applicable Adjustment Date and the Company must make
payment therefor in cash (i) within sixty (60) days after the first Adjustment
Date, if applicable and (ii) within five (5) business days after any subsequent
applicable Adjustment Date.

                                       13
<PAGE>

                   (b) Prior to the First Adjustment Date, the Specified Number
shall equal zero. For each Adjustment Date on which the number of Adjustment
Shares determined in accordance with Section 1.3(a) is a positive number,

                   (1) on the First Adjustment Date, the Specified Number shall
equal the number of Adjustment Shares; and

                   (2) on each subsequent Adjustment Date, the Specified Number
shall equal (x) the Specified Number determined on the immediately preceding
Adjustment Date plus (y) the number of Adjustment Shares determined on the
current Adjustment Date less (z) the number of shares of Common Stock for which
this Warrant was exercised during the most recently completed Quarterly Period.

                   (c) The number of Adjustment Shares may not be a negative
number. For each Adjustment Date on which the number of Adjustment Shares
determined in accordance with Section 1.2(a) is zero or would otherwise be a
negative number, the Holder shall not be obligated to transfer any shares of
Common Stock to the Company.

                   (d) On each Adjustment Date or within three Trading Days
thereafter, the Holder shall give an Adjustment Notice in the form attached
hereto to the Company accompanied by the spreadsheet referred to Section 1.3(e)
used to calculate the Adjustment Shares. If the Holder fails to give an
Adjustment Notice within three Trading Days after any Adjustment Date, the
Company may notify the Holder of such failure and, if the Holder does not
deliver such Adjustment Notice within three Trading Days after such notice of
failure is given to the Holder, the Company shall give such Adjustment Notice to
the Holder. Absent manifest error, the Adjustment Notice and such spreadsheet
shall be binding on the Company and the Holder for purposes of making the
determinations required by this Section 1.3. The Company and the Holder shall
use their best efforts to promptly correct any error in any Adjustment Notice.

                   (e) A spreadsheet illustrating the application of the
forgoing is annexed hereto and made a part hereof; such spreadsheet shall be
used in calculating Adjustment Shares pursuant to this Section 1.3.

                   1.4 MAXIMUM SHARE LIMITATION; REPURCHASE RIGHTS. Provided
that the Common Stock is listed for trading on Nasdaq or another market having
the Shareholder Approval Rule or an equivalent rule, and provided that
Shareholder Approval or the equivalent has not been obtained, this Warrant may
not be exercised to purchase shares of Common Stock to the extent, and only to
the extent, such exercise would cause the Total Common Shares of the Holder to
exceed the Share Limit. If such conditions obtain and if an exercise in full of
this Warrant and/or the Callable Warrant would, but for the preceding sentence
and the other limitations contained in Sections 1.1 and 1.2 above, cause the
Total Common Shares to exceed the Share Limit:

                   (a) If (i) (at the time of the Company's exercise of its
right in this sentence) the Company shall be in compliance in all material
respects with its obligations to the Holder (including, without limitation, its
obligations under this Warrant, the Callable Warrant, the

                                       14
<PAGE>

Subscription Agreement and the Registration Rights Agreement), (ii) on the date
the Repurchase Notice is given and at all times until the Repurchase Date, the
Registration Statement is effective and available for use by the Holder for the
resale of all of its Shares of Common Stock previously issued or issuable and
(iii) on the date the Repurchase Notice is given and on the Repurchase Date, the
Company has available unrestricted Cash and Cash Equivalent Balances not less
than the aggregate amount to be paid to repurchase shares of Common Stock
pursuant to Section 1.4 of this Warrant and the Other Class A Warrants, then the
Company shall have the right to repurchase the shares of Common Stock issuable
pursuant to the Warrant and/or the Callable Warrant held by the Holder in
accordance with Section 1.4(b).

                   (b) To exercise its repurchase right, the Company shall give
a Repurchase Notice, not more frequently than once in any period of 180
consecutive days, on the Trading Day immediately following an Adjustment Date.
If the Repurchase Notice is timely given, the Company shall be obligated to
repurchase such portion of the shares issuable pursuant to this Warrant and/or
the Callable Warrant (in proportions designated by the Holder) which exceed the
Share Limit on a Repurchase Date which is not less than 20 Trading Days or more
than 30 Trading Days after the date of the Repurchase Notice, if this Warrant
and/or the Callable Warrant is to be repurchased pursuant to this Section 1.4,
the Company shall repurchase such Warrants as if such Warrants had been
exercised, to the extent of the portion of the Warrants being repurchased, on
the Repurchase Date and the shares of Common Stock issuable upon such exercise
were held directly by the Holder and were being repurchased. On the Repurchase
Date, the Company shall make payment to the Holder of the applicable Repurchase
Price multiplied by the number of shares of Common Stock to be repurchased in
immediately available funds to such account as specified by the Holder in
writing to the Company at least one Trading Day prior to the Repurchase Date,
provided that if such payment is not so made on the Repurchase Date, the Company
shall be obligated to repurchase such number of shares at a purchase price equal
to the Holder Repurchase Price per share. Notwithstanding anything to the
contrary in the foregoing provisions of this Section 1.4, prior to the
Repurchase Date, or such later date on which the Repurchase Price is paid, the
Holder shall be free to exercise this Warrant as long as such exercise does not
violate the first sentence of this Section 1.4.

                   (c) If the Company does not timely give a Repurchase Notice
pursuant to subsection (b) above, the Company shall have the option by written
notice to the Holder, and the Holder shall have the right to require the Company
by written notice, to seek the Shareholder Approval applicable to an issuance of
shares in excess of the Share Limit ("Excess Shares") as soon as possible, but
in any event, not later than the 75th day after such election or the Holder's
demand, and if the Company shall have failed to receive Shareholder Approval
within five (5) Business Days of such 75th day, the Company shall, on such fifth
Business Day, pay cash to such Holder in an amount equal to the Holder
Repurchase Price multiplied by the number of Excess Shares. If the Company fails
to pay the Holder Repurchase Price in full pursuant to this Section 1.4 within
seven days after the date payable, the Company will pay interest thereon at a
rate of 18% per annum or such lesser maximum amount that is permitted to be paid
by applicable law, to the Holder, accruing daily from such fifth Business Day
until such amount, plus all such interest thereon, is paid in full.

                   2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. (a) As
soon as practicable after the exercise of this Warrant, and in any event within
three Trading Days

                                       15
<PAGE>

thereafter, the Company at its expense (including the payment by it of any
applicable issue or stamp taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as the Holder (upon payment by the Holder of
any applicable transfer taxes) may direct, a certificate or certificates for the
number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, in such
denominations as may be requested by the Holder, plus, in lieu of any fractional
share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then current fair market value (as reasonably
determined by the Company) of one full share, together with any other stock or
other securities and property (including cash, where applicable) to which the
Holder is entitled upon such exercise pursuant to Section 1 or otherwise. Upon
exercise of this Warrant as provided herein, the Company's obligation to issue
and deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the Holder to
enforce the same, any waiver or consent with respect to any provision thereof,
the recovery of any judgment against any person or any action to enforce the
same, any failure or delay in the enforcement of any other obligation of the
Company to the Holder, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder or any other person
of any obligation to the Company, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder in
connection with such exercise. If the Company fails to issue and deliver the
certificates for the Common Stock to the Holder pursuant to the first sentence
of this paragraph as and when required to do so, in addition to any other
liabilities the Company may have hereunder and under applicable law, the Company
shall pay or reimburse the Holder on demand for all out-of-pocket expenses
including, without limitation, reasonable fees and expenses of legal counsel
incurred by the Holder as a result of such failure.

                   (b) If the Company fails to deliver to the Holder a
certificate or certificates representing the shares of Common Stock pursuant to
Section 2(a) by the third Trading Day after each date of exercise of this
Warrant, the Company shall pay to the Holder, in cash, as liquidated damages and
not as a penalty, $5,000 for each day after such third Trading Day until such
certificates are delivered. The payment and acceptance of any cash penalty shall
not preclude the Holder from proceeding under the next paragraph 2(c); provided
that any amounts actually paid to the Holder under this paragraph 2(b) herein
shall be deducted (but not below zero) from the amount otherwise recoverable
under paragraph 2(c) below.

                   (c) In addition to any other rights available to the Holder,
but subject to paragraph 2(b) above, if the Company fails to deliver to the
Holder a certificate or certificates representing shares of Common Stock
pursuant to Section 2(a) by the third Trading Day after the date of exercise of
this Warrant, and if after such third Trading Day the Holder purchases (in an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the shares of Common Stock which the
Holder anticipated receiving upon such exercise (a "Buy-In"), then the Company
shall pay (1) in cash to the Holder the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock that the Company was required to deliver
pursuant to Section 2(a) to deliver to the Holder in connection with the
exercise at issue by (B) the Market Price at the time of the sale giving rise to
such purchase obligation and (2) deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied with
its

                                       16
<PAGE>

exercise and delivery obligations under Section 2(a). For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted exercise of shares of Common Stock with a
Market Price on the date of exercise totaled $10,000, under clause (A) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice and appropriate
documentation indicating the amounts payable to the Holder in respect of the
Buy-In.

                   3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
RECLASSIFICATION, ETC. In case at any time or from time to time after the
Issuance Date, all the holders of Common Stock (or Other Securities) shall have
received, or (on or after the record date fixed for the determination of
stockholders eligible to receive) shall have become entitled to receive, without
payment therefor,

                   (b) other or additional stock or other securities or property
(other than cash) by way of dividend, or

                   (c) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or

                   (d) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,

other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 5), then and in each such case the Holder shall be entitled to
receive, at the same time as holders of Common Stock, the amount of stock and
other securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3) which the Holder would have received
if on the date thereof the Holder had been the holder of record of the Specified
Number, after giving effect to all adjustments called for during such period by
Section 4. Notwithstanding anything in this Section 3 to the contrary, no
adjustments pursuant to this Section 3 shall actually be made until the
cumulative effect of the adjustments called for by this Section 3 since the date
of the last adjustment actually made would change the amount of stock or other
securities and property which the Holder would hold by more than 1%.

                   4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER, ETC.
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 book 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 sale would have been
entitled, (B) in the case of a merger

                                       17
<PAGE>

or consolidation, (x) 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 (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
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, 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.
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 Purchase
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 redemption following such event. This provision shall similarly
apply to successive such events.

                   5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event that
after the Issuance Date the Company shall (i) issue additional shares of Common
Stock as a dividend or other distribution on outstanding Common Stock, (ii)
subdivide or reclassify its outstanding share of Common Stock, or (iii) combine
its outstanding share of Common Stock into a smaller number of shares of Common
Stock, then, in each event, the Specified Number shall, simultaneously with the
happening of such event, be adjusted by multiplying the Specified Number in
effect immediately prior to such event by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately after such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event, and the product so obtained shall
thereafter be the Specified Number then in effect. The Specified Number, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 5.

                   6. FURTHER ASSURANCES. Subject to the terms hereof, the
Company will take all action that may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
stock, free from all taxes, liens and charges with respect to the issue thereof,
on the exercise of all or any portion of this Warrant from time to time
outstanding.

                   7. NOTICES OF RECORD DATE, ETC. In the event of

                   (a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend on, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or

                                       18
<PAGE>

                   (b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to or
consolidation or merger of the Company with or into any other person (other than
a wholly-owned subsidiary of the Company), or

                   (c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,

then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or Other
Securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall also state that the action in question or the
record date is subject to the effectiveness of a registration statement under
the 1933 Act, or a favorable vote of stockholders, if either is required. Such
notice shall be mailed at least ten days prior to the date specified in such
notice on which any such action is to be taken or the record date, whichever is
earlier.

                   8. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF
WARRANTS. The Company will at all times reserve and keep available out of its
authorized but unissued shares of capital stock, solely for issuance and
delivery on the exercise of this Warrant, a sufficient number of shares of
Common Stock (or Other Securities) to effect the full exercise of this Warrant
and the exercise, conversion or exchange of any other warrant or security of the
Company exercisable for, convertible into, exchangeable for or otherwise
entitling the holder to acquire shares of Common Stock (or Other Securities),
and if at any time the number of authorized but unissued shares of Common Stock
(or Other Securities) shall not be sufficient to effect such exercise,
conversion or exchange, the Company shall take such action as may be necessary
to increase its authorized but unissued shares of Common Stock (or Other
Securities) to such number as shall be sufficient for such purposes.

                   9. TRANSFER OF WARRANT. This Warrant shall inure to the
benefit of the successors to and assigns of the Holder. This Warrant and all
rights hereunder, in whole or in part, are registrable at the office or agency
of the Company referred to below by the Holder hereof in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed.

                   10. REGISTER OF WARRANTS. The Company shall maintain, at the
principal office of the Company (or such other office as it may designate by
notice to the Holder hereof), a register in which the Company shall record the
name and address of the person in whose name this Warrant has been issued, as
well as the name and address of each successor and prior owner

                                       19
<PAGE>

of such Warrant. The Company shall be entitled to treat the person in whose name
this Warrant is so registered as the sole and absolute owner of this Warrant for
all purposes.

                   11. EXCHANGE OF WARRANT. This Warrant is exchangeable, upon
the surrender hereof by the Holder hereof at the office or agency of the Company
referred to in Section 10, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares of Common Stock which may be subscribed for and purchased hereunder,
each of such new Warrants to represent the right to subscribe for and purchase
such number of shares as shall be designated by said Holder hereof at the time
of such surrender.

                   12. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

                   13. WARRANT AGENT. The Company may, by written notice to the
Holder, appoint the transfer agent and registrar for the Common Stock as the
Company's agent for the purpose of issuing shares of Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1, and the
Company may, by notice to the Holder, appoint an agent having an office in the
United States of America for the purpose of exchanging this Warrant pursuant to
Section 11 and replacing this Warrant pursuant to Section 12, or either of the
foregoing, and thereafter any such exchange or replacement, as the case may be,
shall be made at such office by such agent.

                   14. REMEDIES. The Company stipulates that the remedies at law
of the Holder in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement contained herein or by
an injunction against a violation of any of the terms hereof or otherwise.

                   15. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This Warrant
shall not entitle the Holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder hereof to purchase Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of the Holder for the Purchase Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.

                   16. NOTICES, ETC. All notices and other communications from
the Company to the registered Holder or from the registered Holder to the
Company shall be delivered personally (which shall include telephone line
facsimile transmission with answer back confirmation) or by courier and shall be
effective upon receipt, addressed to each party at the address or telephone line
facsimile transmission number for each party set forth in the Subscription
Agreement or at such other address or telephone line facsimile transmission
number as a party shall have provided to the other party in accordance with this
provision.

                                       20
<PAGE>

                   17. TRANSFER RESTRICTIONS. By acceptance of this Warrant, the
Holder represents to the Company that this Warrant is being acquired for the
Holder's own account and for the purpose of investment and not with a view to,
or for sale in connection with, the distribution thereof, nor with any present
intention of distributing or selling this Warrant or the Common Stock issuable
upon exercise of this Warrant. The Holder acknowledges and agrees that this
Warrant and, except as otherwise provided in the Registration Rights Agreement,
the shares of Common Stock issuable upon exercise of this Warrant (if any) have
not been (and at the time of acquisition by the Holder, will not have been or
will not be), registered under the 1933 Act or under the securities laws of any
state, in reliance upon certain exemptive provisions of such statutes. The
Holder further recognizes and acknowledges that (a) because this Warrant and,
except as provided in the Registration Rights Agreement, the Common Stock
issuable upon exercise of this Warrant (if any) are unregistered, they may not
be eligible for resale, and may only be resold in the future pursuant to an
effective registration statement under the 1933 Act and any applicable state
securities laws, or pursuant to a valid exemption from such registration
requirements and (b) this Warrant and the Common Stock issuable upon the
exercise hereof are subject to the transfer restrictions and other terms,
conditions and obligations set forth in the Registration Rights Agreement and in
the Subscription Agreement. Unless the shares of Common Stock issuable upon
exercise of this Warrant have theretofore been registered for resale under the
1933 Act, the Company may require, as a condition to the issuance of Common
Stock upon the exercise of this Warrant a confirmation as of the date of
exercise of the Holder's representations pursuant to this Section 17.

                   18. LEGEND. Except to the extent required by the Subscription
Agreement, each certificate for shares issued upon exercise of this Warrant
shall be free of any restrictive legend.

                   19. ATTORNEYS' FEES. In any litigation, arbitration or court
proceeding between the Company and Holder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant; provided that the prevailing party may only
recover attorney's fees and expenses aggregating up to 35% of the amount sought
in good faith to be recovered.

                   20. AMENDMENT; WAIVER. This Warrant and any terms hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.

                   21. MISCELLANEOUS. 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

                                       21
<PAGE>

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.

                                       22
<PAGE>

                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed on its behalf by one of its officers thereunto duly authorized.

Dated:  July 31, 2000                              STEMCELLS, INC.

                                                   By:
                                                       -------------------------
                                                   Title:
                                                          ----------------------

                                       23
<PAGE>

                              FORM OF SUBSCRIPTION

                                 STEMCELLS, INC.

                   (To be signed only on exercise of Warrant)

TO:      STEMCELLS, INC.
         525 Del Rey Avenue
         Suite C
         Sunnyvale, California 94086

         Attention:  Chief Financial Officer

                  1. The undersigned Holder of the attached original, executed
Warrant hereby elects to exercise its purchase right under such Warrant with
respect to ______________ shares of Common Stock, as defined in the Warrant, of
StemCells, Inc., a Delaware corporation (the "Company").

                  2. The undersigned Holder elects to pay the aggregate purchase
price for such shares of Common Stock (the "Exercise Shares") (i) by lawful
money of the United States or the enclosed certified or official bank check
payable in United States dollars to the order of the Company in the amount of
$___________, or (ii) by wire transfer of United States funds to the account of
the Company in the amount of $____________, which transfer has been made before
or simultaneously with the delivery of this Form of Subscription pursuant to the
instructions of the Company.

                  3. The undersigned Holder represents and warrants that it is
an accredited investor as defined under Rule 501(a) promulgated under the
Securities Act of 1933, as amended.

                  4. Please issue a stock certificate or certificates
representing the appropriate number of shares of Common Stock in the name of the
undersigned or in such other name as is specified below:

                  Name:
                           -----------------------------
                  Address:
                           -----------------------------

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

                                       24
<PAGE>

                  5. The undersigned Holder hereby represents to the Company
that the exercise of the Warrant elected hereby does not violate Section 1.2 of
the Warrant.

Dated: ___________ ___, ____      HOLDER:

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

                                   By:
                                       -----------------------------------------
                                       (Signature must conform to name of Holder
                                       as specified on the face of the Warrant)

                                   Name:
                                   Title:

                                   Address:
                                            ------------------------------------

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

                                       25
<PAGE>

                                ADJUSTMENT NOTICE

TO:      STEMCELLS, INC.
         525 Del Ray Avenue
         Suite C
         Sunnyvale, California 94086

         Attention:  Chief Financial Officer

         Facsimile No:  408-731-8674

                  This Adjustment Notice is given pursuant to the terms of the
Common Stock Purchase Warrant, Class A, dated July 31, 2000, issued by
STEMCELLS, INC., a Delaware corporation (the "Warrant"). Capitalized terms used
herein and not otherwise defined herein have the respective meanings provided in
the Warrant. Attached hereto is a copy of the spreadsheet used pursuant to
Section 1.3(e) of the Warrant to prepare this notice. The undersigned Holder
hereby notifies the Company as follows:

                   (1)     Adjustment Date:

                   (2)     Computation of number of Adjustment Shares ("AS")
                           pursuant to Section 1.3(a):

                   (a)     Common Shares Held as of prior Adjustment Date:

                   (b)     To determine the Average Market Price, the ten lowest
                           Market Prices during the 30 Trading Days during the
                           Measurement Period were as follows:

                           DATE         PRICE ($)        DATE        PRICE ($)
                           ----         ---------        ----        ---------

                   (c)     Lowest Average Market Price as of any previous
                           Adjustment Date: $________.

                   (d)     Adjustment Shares: ______________

                   (3)     Specified Number on preceding Adjustment Date:
                           __________

                   (4)     Shares issued upon exercises during last Quarterly
                           Period: _____

                   (5)     Specified Number on Adjustment Date: _______________

                                       26
<PAGE>

                                           NAME OF HOLDER:

Date:
      ------------------------             -----------------------------------

                                           By:
                                               -------------------------------
                                               Name:
                                               Title:

                                       27

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