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                                                                     EXHIBIT 4.2

                                SUMMA INDUSTRIES

                 SERIES A PREFERRED STOCK PURCHASE AGREEMENT

      THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is
made and entered into as of December 14, 2001, by and among Summa Industries, a
Delaware corporation (the "Company"), and the parties listed on the Schedule of
Investors attached hereto as EXHIBIT A (each, an "Investor" and collectively,
the "Investors").

      WHEREAS, the Company desires to raise additional capital by the issuance
and sale of 5,000 shares of its authorized but unissued shares of Series A
Preferred Stock, $.001 par value (the "Shares") pursuant to the terms of this
Agreement to (i) partially fund the acquisition by the Company of the assets of
the Genesta Manufacturing division of Pavaco Plastics Inc., a corporation
organized under the laws of the Province of Ontario (the "Acquisition"), and
(ii) use any remaining funds for general corporate purposes; and

      WHEREAS, the Investors desire to purchase, and the Company desires to sell
to the Investors, the Shares on the terms and conditions set forth herein.

      NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and conditions set forth in this Agreement, the parties agree as
follows:

      1.    PURCHASE AND SALE OF THE SHARES.

            1.1 AUTHORIZATION. The Company has authorized the sale and issuance
of 5,000 shares of Series A Preferred Stock, with the Shares having the rights,
privileges, preferences and restrictions as stated in the Certificate of
Designations of the Series A Preferred Stock of the Company (the "Certificate of
Designations") attached as EXHIBIT B to this Agreement and in the Certificate of
Incorporation of the Company (the "Certificate of Incorporation"), a copy of
which has been made available to the Investors.

            1.2 ISSUANCE AND SALE OF SHARES. Subject to the terms and conditions
hereof, each Investor agrees, severally and not jointly, to purchase, and the
Company agrees to issue and sell to each such Investor, at the Closing (as
defined in SECTION 1.4) the number of Shares set forth opposite the name of such
Investor on the Schedule of Investors at a purchase price equal to $1,000 per
share (the "Purchase Price"). The total purchase price payable by each Investor
for the number of Shares that such Investor is hereby agreeing to purchase is
set forth opposite the name of such Investor under the heading "Investment
Amount" on the Schedule of Investors. The aggregate purchase price payable by
the Investors to the Company for all of the Shares is $5.0 million.

            1.3 AUTHORIZATION OF WARRANTS. The Company has authorized the
issuance to Investors of warrants to purchase shares of the Company's common
stock (the "Warrants") in the form attached as EXHIBIT C to this Agreement if
and only if the Company's ratio of net debt (total debt less cash and cash
equivalents) to trailing twelve month earnings before interest, taxes,
depreciation and amortization ("EBITDA"), adjusted to include the trailing
twelve month

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EBITDA of closed acquisitions, at the end of any fiscal quarter exceeds 3.0
times (a "Warrant Trigger"). Upon the occurrence of a Warrant Trigger, the
Company shall promptly issue to Investors Warrants in an amount equal to 5%
of the number of shares into which the then outstanding Shares would convert
at the conversion price as set forth in the Certificate of Designations. The
exercise price for the Warrants shall be the conversion price and the
Warrants may be exercised by means of net exercise conversion or other
equivalent cashless exercise. The Warrants will have a life of 5 years. The
cumulative total number of warrants issued shall not exceed 25% of the number
of shares into which the originally issued Shares would convert.

            1.4   CLOSING; DELIVERY.

                  (a) CLOSING. Upon satisfaction of the conditions set forth in
SECTIONS 5 AND 6, the closing of the purchase and sale of the Shares shall take
place at the offices of Shartsis, Friese & Ginsburg LLP, 18th Floor, One
Maritime Plaza, San Francisco, CA 94111, on December 14, 2001 (the "Closing
Date"), at 10:00 a.m., or at such other time and place as the parties may agree
(the "Closing").

                  (b) DELIVERIES. Subject to the terms of this Agreement, at the
Closing the Company will deliver to each Investor listed on the Schedule of
Investors a single stock certificate representing the number of Shares of
preferred stock set forth opposite the name of such Investor on the Schedule of
Investors under the heading "Shares of Series A Preferred Stock" against payment
of the purchase price of the Shares purchased by each such Investor set forth
opposite the name of such Investor on the Schedule of Investors under the
heading "Investment Amount" by wire transfer of immediately available funds to
such account as the Company shall designate in writing.

      2.    REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby represents and warrants to each Investor that, except as set
forth on the schedules attached hereto and except as set forth in any report,
schedule, form, statement and other document filed by the Company with the
Securities and Exchange Commission (the "SEC") (together with other documents
that revise or supersede earlier filed documents, the "SEC Reports"):

            2.1   ORGANIZATION; STANDING AND POWER. The Company (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, (b) has all requisite corporate power and authority to
own and operate its properties and to carry on its businesses as presently
conducted and as proposed to be conducted and (c) is duly qualified and in good
standing to do business as a foreign corporation in each and every jurisdiction
where its assets are located and wherever such qualification is necessary to
carry out its business and operations, except where the failure to so qualify or
be in good standing would not have a material adverse effect on the condition
(financial or otherwise), business, operations, assets or results of operations
of the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect"). The Company has all requisite corporate power and authority to execute
and deliver, and perform all of its obligations under this Agreement, and the
Certificate of Designations, the Registration Rights Agreement (defined in
SECTION 4.5 hereof) and the Warrants (collectively, the "Related Documents").

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            2.2   CAPITALIZATION; RESERVED STOCK, PREEMPTIVE RIGHTS. The
total authorized capital stock of the Company consists of (i) 10,000,000
shares of common stock, $.001 par value, of which 4,366,336 shares of common
stock are issued and outstanding as of November 30, 2001 and (ii) 5,000,000
shares of preferred stock, $.001 par value, of which no shares are
outstanding as of the date hereof. All issued and outstanding shares of
common stock have been duly and validly issued, are fully paid and
nonassessable and have been issued in accordance with all applicable federal
and state securities laws. Except for (a) approximately 1.1 million shares of
common stock reserved for issuance on conversion of options which are
outstanding or reserved for issuance under the Company's stock option plans,
(b) 250,000 shares of common stock reserved for issuance under a pending
amendment to the Company's stock option plans subject to stockholder
approval, and (c) 40,000 shares of common stock reserved for issuance as
partial consideration for the Acquisition, no other shares have been reserved
for issuance and, except for options issuable pursuant to the Company's stock
option plans and this Agreement, there are no outstanding options, warrants
or other rights to subscribe for or purchase from the Company any shares of
its capital stock or any securities convertible into or exchangeable for its
capital stock. There are no preemptive rights or rights of first refusal or
similar rights which are binding on the Company permitting any person to
subscribe for or purchase from the Company shares of its capital stock
pursuant to any provision of law, the certificate of incorporation or bylaws
of the Company or by agreement or otherwise. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect
of each class and series of authorized capital stock of the Company are as
set forth in the certificate of incorporation of the Company, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable against the Company and in
accordance with all applicable laws, rules and regulations.

            2.3   AUTHORIZATION; NO CONFLICT AND BINDING OBLIGATION.

                  (a) The execution and delivery by the Company of this
Agreement, the Related Documents, the performance of the Company's
obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby (including the issuance and
delivery of the Shares, the Common Stock issuable upon conversion of the
Shares (the "Conversion Shares") and, if required from time to time, the
Warrants (collectively referred to herein as the "Securities")) have been
duly authorized by all necessary corporate action on the part of the Company,
and will not, either prior to or as a result of the consummation of the
transactions contemplated by this Agreement and the Related Documents: (i)
violate any law or any governmental rule or regulation applicable to the
Company, any provision of the certificate of incorporation or bylaws of the
Company, or any contract, indenture, agreement or other instrument to which
the Company is a party, or by which the Company or any of its assets or
properties are bound or (ii) be in conflict with, result in a breach of, or
constitute (after the giving of notice or lapse of time or both) a default
under, or result in the creation or imposition of any lien of any nature
whatsoever upon any of the property or assets of the Company pursuant to the
provisions of any contract, indenture, agreement or other instrument to which
the Company is a party or by which its assets or property is bound, except
where such violation, conflict, breach or default likely would not have,
individually or in the aggregate, a Material Adverse Effect, or where prior
consent has been obtained. The Company is not required to obtain any
approval, consent or authorization from, or to file any declaration or
statement with, any governmental instrumentality or agency in connection with
or as a condition to the execution, delivery or

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performance of this Agreement (including the issuance and delivery of the
Securities) or the other Related Documents, other than (i) approval of the
Board of Directors of the Company, which has been obtained, (ii) the filing
of the Certificate of Designations with the Delaware Secretary of State, and
(iii) the filings of a Form D and Form 8-K with the SEC and any applicable
state securities law filings, which filing or filings, as the case may be,
will be made in accordance with applicable laws and regulations. No other
corporate action on the part of the Company is necessary to authorize the
execution, delivery and performance of this Agreement and the other Related
Documents and the consummation of the transactions contemplated hereby and
thereby. All consents necessary for the Company to perform its respective
obligations hereunder have been obtained.

                  (b) The Agreement has been duly executed and delivered by the
Company, the other Related Documents, when executed by the Company, shall be
duly executed and delivered by the Company, and each of the Agreement and the
other Related Documents (on their execution) is the legally valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.

                  (c) The Shares being purchased hereunder, when issued, sold,
paid for and delivered in accordance with the terms of this Agreement will be
duly and validly issued, fully paid and non-assessable, and free and clear of
any restrictions on transfer (other than restrictions under the Securities Act
of 1933, as amended (the "Securities Act"), and state securities laws or
restrictions imposed by agreement with the Investors or restrictions created by
the Investors) and any claims, liens, pledges, options, security interests,
trusts, encumbrances or other rights or interests of any other person, unless
set forth in this Agreement. The Conversion Shares and the shares of common
stock issuable on exercise of the Warrants (the "Warrant Shares"), if and when
issued in accordance with the terms of this Agreement, will be duly and validly
issued, fully paid and non-assessable, and free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws or restrictions imposed by agreement with the Investors or
restrictions created by the Investors) and any claims, liens, pledges, options,
security interests, trusts, encumbrances or other rights or interests of any
other person, unless set forth in this Agreement. The Company has reserved such
number of shares of its Common Stock necessary for issuance upon conversion of
the Shares and exercise of the Warrants (assuming that the maximum number of
Warrants that could be issued are issued).

            2.4   SECURITIES LAW EXEMPTION. Assuming the truth and accuracy of
each Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Shares, the Conversion Shares and, if required, the Warrants and
the Warrant Shares as contemplated by this Agreement are and will be exempt from
the registration requirements of the Securities Act and applicable state
securities laws, and neither the Company nor any authorized agent acting on its
behalf has taken or will take any action hereafter that would cause the loss of
such exemption.

            2.5   NON-CONTRAVENTION. The Company is not in violation or
breach of or in default with respect to, any provision of any contract,
agreement, instrument, lease, license, arrangement or understanding to which
it is a party, except for violations, breaches or defaults

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that likely would not have, individually or in the aggregate, a Material
Adverse Effect. Each such contract, agreement, instrument, lease, license,
arrangement and understanding is in full force and effect and is the legal,
valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
limiting creditors' rights generally or by equitable principles relating to
enforceability.

            2.6   SEC REPORTS. The Company has timely filed all SEC Reports
with the SEC since November 1, 2000. The Company has made available to the
Investors true and complete copies of the SEC Reports. As of their respective
filing dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Reports. None of the SEC
Reports contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading as of their respective filing dates, except to the
extent corrected by a subsequently filed SEC Report.

            2.7   LITIGATION. Except as disclosed or referenced in Item 1
"Environmental Matters" to the Company's most recent Annual Report on Form
10-K, there is no action, suit, arbitration or other proceeding or, to the
Company's knowledge, any investigation pending or threatened in which an
unfavorable outcome, ruling or finding in any said matter likely would have a
Material Adverse Effect. The foregoing includes, without limitation, any such
action, suit, proceeding or investigation that questions this Agreement or
the other Related Documents or the right of the Company to execute, deliver
and perform under same.

            2.8 FINANCIAL STATEMENTS. The financial statements of the Company
included in the SEC Reports (a) complied as of their respective dates of filing
with the SEC in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto, (b)
have been prepared (i) in accordance with generally accepted accounting
principles ("GAAP") (except, in the case of unaudited statements, as permitted
by Regulation S-X promulgated by the SEC), (ii) on a consistent basis for all
periods presented (except as may be indicated in the notes thereto), and (iii)
in accordance with the books and records of the Company, (c) are complete and
correct in all material respects, and (d) fairly present in all material
respects the financial condition of the Company as at such dates, and the
results of operations and cash flows for the periods stated (subject, in the
case of unaudited statements, to normal year-end audit adjustments).

            2.9 USE OF PROCEEDS. The net proceeds from the sale of the Shares
shall be used solely for the following: (a) to fund the cash portion of the
Acquisition and related expenses, and (b) the remainder shall be used to pay
existing indebtedness owed to banks or similar financial institutions. Except as
provided in SECTION 4.12, the proceeds from the sale of the Shares may not be
used to redeem, repurchase or otherwise acquire any shares of preferred stock,
common stock or other equity securities issued by the Company.

            2.10 DISCLOSURE. This Agreement and Exhibits hereto, the other
Related Documents and all other documents delivered to the Investors in
connection herewith or

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therewith at the Closing, do not contain any untrue statement of a
material fact, or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. There are no facts that, individually or in the aggregate,
that likely would have a Material Adverse Effect that has not been disclosed
to the Investors in this Agreement (including the Exhibits hereto), the other
Related Documents, the SEC Reports or any other documents made available to
Investors during due diligence, or delivered to the Investors in connection
herewith or therewith at the Closing.

            2.11  BROKERS AND FINDERS.  The Company has not employed any
broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement that would be entitled to a
broker's, finder's or similar fee or commission in connection herewith and
therewith

            2.12  NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
Securities Act of the issuance of the Securities to the Investors. The issuance
of the Securities to the Investors will not be integrated with any past issuance
of the Company's securities for purposes of the Securities Act or any applicable
rules of Nasdaq.

            2.13  NO MATERIAL ADVERSE CHANGE.  Since August 31, 2001, there
has not been:

                  (a) any changes in the assets, liabilities, financial
condition or operations of the Company from that reflected in the financial
statements referred to in SECTION 2.8 hereof which has had or would be
reasonably expected to have a Material Adverse Effect;

                  (b) any material change, except in the ordinary course of
business, in the contingent obligations of the Company whether by way of
guarantee, endorsement, indemnity, warranty or otherwise; or

                  (c) any damage, destruction or loss, whether or not covered by
insurance, that would have a Material Adverse Effect.

            2.14  NASDAQ COMPLIANCE. The Common Stock is listed on Nasdaq, and
the Company has taken no action designed to or likely to have the effect of
suspension of or delisting the Common Stock from Nasdaq. Within the time
required by Nasdaq, the Company shall have applied for the listing of the
Conversion Shares and Warrant Shares, if required by Nasdaq, in each case, upon
Nasdaq and shall maintain, at its expense, so long as any of the Conversion
Shares or Warrant Shares are outstanding, such listing of all Conversion Shares
from time to time issuable hereunder and all Warrant Shares from time to time
issuable upon exercise of the Common Stock Warrants.

            2.15  CONTRACTS. The material contracts of the Company are in full
force and effect on the date hereof, and neither the Company nor, to the
Company's knowledge, any other party to such contracts is in breach of or
default under any of such contracts which breach or default would reasonably be
expected to have a Material Adverse Effect. For purposes of this Section, a
contract shall be "material" if aggregate payments to be made or received
thereunder exceed $100,000.

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            2.16  TAXES. The Company has filed all necessary federal, state and
foreign income and franchise tax returns due prior to the date hereof, or has
received valid extensions thereof, and has paid or accrued all taxes shown as
due thereon, and the Company has no knowledge of any material unpaid tax
deficiency which has been validly and finally assessed against it.

            2.17  INVESTMENT COMPANY. The Company is not, and after consummation
of the sale of the Shares will not be, an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for an investment company,
or, to its knowledge, a company "controlled by" an "investment company" (other
than any Investor) within the meaning of the Investment Company Act of 1940, as
amended.

            2.18  SUBSIDIARIES. Except as set forth in the exhibits to the
Company's most recent Form 10-K and except for a corporation newly formed to
complete the Acquisition, the Company does not own or control, directly or
indirectly, any interest in any other corporation, partnership, limited
liability company, association, or other business entity. The Company is not a
participant in any joint venture, partnership or similar arrangement.

            2.19  S-3 ELIGIBILITY. The Company has been subject to the
requirements of the Exchange Act for more than twelve months and has timely
filed all reports required to be filed with the SEC pursuant to the Exchange Act
since before such time period. The Company believes it is currently eligible to
register the resale of its securities for persons other than the issuer on a
registration statement on Form S-3 under the Securities Act.

            2.20  PLEDGE OF SHARES. The Company acknowledges and agrees that the
Shares, Conversion Shares, Warrant and Warrant Shares may be pledged by Investor
to commercial lenders, banks, savings and loan associations, insurance
companies, pension funds, mutual funds, brokerage houses, and/or other similar
financial institutions in connection with a bona fide margin agreement or other
loan secured by the Shares, Conversion Shares, Warrants and/or Warrant Shares.
Notwithstanding anything herein, the pledge of Shares, Conversion Shares,
Warrants or Warrant Shares shall not be deemed to be a transfer, sale or
assignment of the Shares, Conversion Shares, Warrants or Warrant Shares
hereunder, and no Investor effecting a pledge of Shares, Conversion Shares,
Warrants or Warrant Shares shall be required to provide the Company with any
notice thereof or otherwise make any delivery to the Company pursuant to this
Agreement. The Company hereby agrees to execute and deliver such reasonable
documentation as a pledgee of the Shares, Conversion Shares, Warrants or Warrant
Shares may reasonably request in connection with a pledge of such securities to
such pledgee by Investor, at Investor's sole expense. Should any Shares actually
be required to be transferred hereunder, the Investor shall first comply with
the provisions of SECTION 4.4 (Rights of First Offer).

            2.21  INSURANCE. The Company maintains and will continue to maintain
insurance of the types and in the amounts that the Company reasonably believes
is prudent and adequate for its business, all of which insurance is in full
force and effect.

      3.    REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.  Each Investor,
severally but not jointly, represents and warrants to the Company that:

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            3.1  INVESTMENT INTENT. The Investor is acquiring the Securities
pursuant to this Agreement with its own funds for its own account and not as a
nominee or agent for the account of any other person. No other person has any
interest, beneficial or otherwise, in any of the Securities to be purchased by
the Investor. Except as provided herein, the Investor is not obligated to
transfer any Securities to any other person, nor does the Investor have any
agreement or understanding with any other person to do so. The Investor is
purchasing the Securities for investment purposes and not with a present view to
the sale or distribution of any Securities, by public or private sale or other
disposition, and the Investor has no present intention of selling, granting any
participation in or otherwise distributing or disposing of any of the
Securities. The Investor further represents that the Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or any third person, with
respect to any of the Securities. Notwithstanding the foregoing, the disposition
of the Investor's property shall be at all times within the Investor's own
control, and the Investor's right to sell or otherwise dispose of all or any
part of the Securities purchased by it pursuant to an effective registration
statement under the Securities Act or under an exemption under the Securities
Act shall not be prejudiced. Nothing herein shall prevent the distribution of
any Securities to any member, partner or stockholder, former member, partner or
stockholder of the Investor in compliance with the Securities Act and applicable
state "blue sky" laws.

            3.2  NO PUBLIC OFFERING. The Investor is able to bear the economic
risk of its investment in the Securities. The Investor is aware that it must be
prepared to hold the Securities for an indefinite period and that the Securities
have not been, and when issued will not be, registered under the Securities Act
or registered or qualified under any state securities law, on the ground that
the Securities are being issued by the Company without any public offering
within the meaning of Section 4(2) of the Securities Act. The Investor
understands that the Company's reliance on such exemption is predicated on the
Investors' representations set forth herein. The Investor realizes that the
basis for the exemption may not be present if, notwithstanding such
representations, the Investor has in mind merely acquiring the Securities for a
fixed or determinable period in the future, or for a market rise, or for sale if
the market does not rise. The Investor does not have any such intention.

            3.3  RECEIPT OF INFORMATION. The Investor believes that it has
received all the information it considers necessary or appropriate for
deciding whether to purchase the Securities. The Investor has had an
opportunity to discuss the terms and conditions of the offering of the
Securities and the Company's business, management and financial affairs with
the Company's management and to obtain additional information necessary to
verify the accuracy of any information furnished to the Investor or to which
the Investor had access. The Investor is not subscribing for the Securities
as a result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio or any solicitation of a subscription by
any person not previously known to the Investor in connection with
investments in securities generally. The Investor acknowledges that none of
the information, if any, received from management of the Company during
Investor's due diligence is soliciting information.

            3.4  SECURITIES WILL BE "RESTRICTED SECURITIES". The Investor
understands that the Securities (and any common stock issued on the conversion
or exercise thereof) will be

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"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act and, accordingly, that the Securities may not be sold,
transferred or otherwise disposed of and must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption
from such registration is available. The Investor is aware that the
Securities (and any common stock issued on the conversion or exercise
thereof) may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless the conditions of that Rule are met.

            3.5  ACCREDITED INVESTOR. The Investor has been advised or is aware
of the provisions of Regulation D under the Securities Act relating to the
accreditation of investors, and the Investor is an "accredited investor" as
defined in Rule 501 of Regulation D promulgated under the Securities Act.

            3.6  SOPHISTICATION OF THE INVESTOR. The Investor has such knowledge
and experience in financial and business matters that the Investor is capable of
evaluating the merits and risks of the investment contemplated by this Agreement
and has the capacity to protect its own interests. The Investor acknowledges
that investment in the Securities is highly speculative and involves a
substantial and high degree of risk of loss of the Investor's entire investment.
The Investor has adequate means of providing for current and anticipated
financial needs and contingencies, is able to bear the economic risk of the
investment for an indefinite period of time and has no need for liquidity of the
investment in the Securities and could afford a complete loss of such
investment. The Investor represents that it has not been organized for the
purpose of acquiring the Securities.

            3.7  BROKERS' FEES. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of the Investor.

            3.8  ORGANIZATION. The Investor is a limited partnership or other
entity duly organized, validly existing and in good standing in the jurisdiction
of its formation. The Investor has all requisite power and authority to execute,
deliver and perform all of its obligations of this Agreement and the Related
Documents. The Investor represents that it is domiciled in the State of
California.

            3.9  AUTHORIZATION; NO CONFLICT; AND BINDING EFFECT.

                 (a) The execution and delivery of this Agreement and the
Related Documents, the performance of the Investor's obligations hereunder
and thereunder and the consummation of the transactions contemplated hereby
or thereby have been duly authorized by all necessary action on the part of
the Investor and will not, either prior to or as a result of the consummation
of the transactions contemplated by this Agreement: (i) violate any law or
any governmental rule or regulation applicable to the Investor, any provision
of the organizational documents of the Investor, or any contract, indenture,
agreement or other instrument to which the Investor is a party, or by which
the Investor or any of its assets or properties are bound, or (ii) be in
conflict with, result in a breach of, or constitute (after the giving of
notice or lapse of time or both) a default under, or result in the creation
or imposition of any lien of any nature whatsoever upon any of the property
or assets of the Investor pursuant to the provisions of any contract,
indenture, agreement or other instrument to which the Investor is a party or
by which its assets or

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property is bound, except where such violation, conflict, breach or default
likely would not have, individually or in the aggregate, a material adverse
effect on the financial condition, business, operations, assets or results of
operations of the Investor . The Investor shall obtain any approval, consent
or authorization from, and file any declaration or statement with, any
governmental instrumentality or agency required in connection with or as a
condition to the execution, delivery or performance of this Agreement. No
other action on the part of the Investor is necessary to authorize the
execution, delivery and performance of this Agreement and the Related
Documents and the consummation of the transactions contemplated hereby and
thereby.

                 (b) Upon the execution and delivery by the Investor, this
Agreement and the Related Documents shall constitute the legal, valid and
binding obligations of the Investor enforceable against the Investor in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, liquidation, reorganization, moratorium or
other laws relating to or limited creditors' rights generally or by equitable
principles relating to enforceability.

      4.    CERTAIN COVENANTS AND AGREEMENTS.

            4.1  EFFORTS. Each of the Company and each Investor shall
cooperate and use commercially reasonable efforts to take, or cause to be
taken, all appropriate action, and to make, or cause to be made, all filings
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the other Related Documents, including, without limitation, commercially
reasonable efforts to (i) obtain, prior to the Closing Date, all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company, and (ii)
defend against and respond to any action, suit, proceeding or investigation
relating to the transactions contemplated by this Agreement and the other
Related Documents, in each case as are necessary for consummation of the
transactions contemplated by this Agreement, the other Related Documents and
to fulfill the conditions to the sale and issuance of the Securities.

            4.2  NO INTEGRATION. The Company will not make any offers or
sales of any security (other than the Securities and the securities issued in
connection with the Acquisition) under circumstances that would cause the
offering of the Securities to be integrated with any other offering of
securities by the Company.

            4.3  CONDUCT OF BUSINESS OF THE COMPANY. During the period from the
date hereof to the time of the Acquisition, the Company will conduct its
operations in the ordinary course of business consistent with past practice,
and, to the extent consistent therewith and with no less diligence and effort
than would be applied in the absence of this Agreement, will seek to preserve
intact its current business organizations, keep available the service of its
current officers and key employees and preserve its relationships with key
customers, suppliers and others having business dealings with it to the end that
goodwill and ongoing businesses shall not be materially impaired between the
date hereof and the time of the Acquisition. Without limiting the generality of
the foregoing, except as otherwise expressly provided in this Agreement, prior
to the time of the Acquisition, the Company will not, without the prior written
consent of the Investors (which consent shall not be unreasonably withheld):

<Page>

                 (a)  amend its certificate of incorporation or bylaws (or
other similar governing instrument), except by filing the Certificate of
Designations;

                 (b)  split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock, make any other actual, constructive or deemed distribution in respect of
its capital stock or otherwise make any payments to stockholders in their
capacity as such, or redeem or otherwise acquire any of its securities or any
securities of any of subsidiaries;

                 (c)  adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company;

                 (d)  alter, through merger, liquidation, reorganization,
restructuring or any other fashion, the corporate structure of ownership of
the Company;

                 (e)    (i) incur or assume any long-term or short-term debt
or issue any debt securities, except for borrowings under existing lines of
credit, restructuring portions of existing debt via replacement with real
estate secured long-term debt, or equipment leases in the ordinary course of
business; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations
of any other person except in the ordinary course of business consistent with
past practice; (iii) make any loans, advances or capital contributions to or
investments in any other person (other than customary loans or advances to
employees in each case in the ordinary course of business consistent with
past practice); or (iv) pledge or otherwise encumber shares of capital stock
of Company;

                  (f)   except as may be required as a result of a change in
law or in generally accepted accounting principles, change any of the
accounting principles or practices used by it;

                  (g)   revalue in any material respect any of its assets,
including without limitation writing down the value of inventory or
writing-off notes or accounts receivable other than in the ordinary course of
business;

                  (h)   except for the Acquisition, acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership or
other business organization or division thereof or any equity interest therein
or be acquired (by merger, consolidation or acquisition of stock or assets) by
any other person or entity;

                  (i)   settle or compromise any pending or threatened suit,
action or claim (i) that relates to the transactions contemplated hereby or (ii)
the settlement or compromise of which likely would have a Material Adverse
Effect;

                  (j)   take or agree in writing or otherwise to take any of
the actions that would make any of the representations or warranties of
Company contained in this Agreement materially untrue or incorrect; or

<Page>

                  (k)   knowingly take any action that would result in a failure
to maintain the trading of Company's common stock on The Nasdaq National Market.

            4.4   RIGHTS OF FIRST OFFER.

                  (a)  In the event any Investor intends to sell all or any
portion of the Shares or the common shares into which the Shares are converted,
or, if applicable, the Warrants or the common shares into which the Warrants are
converted, then, in each such case the Investor will first offer (the "Right of
First Offer") the securities to the Company in writing (the "Offer Notice") at a
given price (the "Offer Price"). If the Company fails to respond within two (2)
business days after receipt of the Offer Notice or declines the offer in writing
during such period, the Investor may sell the securities offered to a third
party within one hundred and twenty days (120) thereafter at a price not less
than ninety percent (90%) of the Offer Price. If the Company accepts the Offer
Notice, the Company shall pay the Offer Price to the Investor in exchange for
the securities offered within twenty (20) days thereafter; provided that, if the
Company accepts the Offer Notice and fails to pay the Offer Price within such
twenty (20) day period, all Rights of First Offer shall thereupon terminate.

                  (b)  Notwithstanding SUBSECTION 4.4(a) to the contrary, the
Company shall have no Right of First Offer, and an Investor shall not be
required to provide an Offer Notice, in connection with any sale or transfer of
the Shares, Conversion Shares, Warrants or Warrant Shares to a transferee or
assignee of such securities that (i) is a subsidiary, parent, current or former
partner, current or former limited partner, current or former member, current or
former manager or stockholder of an Investor or (ii) is an entity controlling,
controlled by or under common control, or under common investment management,
with an Investor, including without limitation a corporation, partnership or
limited liability company that is a direct or indirect parent or subsidiary of
the Investor. The Right of First Offer shall survive all such transfers and be
binding on all such transferees.

                  (c) If the Series A Redemption Price (as defined in the
Certificate of Designations) is otherwise required to be paid on any Redemption
Date (as defined in the Certificate of Designations) under Section 3 of the
Certificate of Designations and if for any reason or no reason at all it is not
so paid, then the Right of First Offer shall terminate.

            4.5   REGISTRATION.  The Investors shall possess the registration
rights set forth on EXHIBIT D attached hereto.

            4.6   RESERVATION OF SHARES. The Company shall continuously reserve
such number of shares of its Common Stock as necessary for issuance upon
conversion of the Shares and exercise of the Warrants (assuming that the maximum
number of Warrants that could be issued are issued).

            4.7   REPORTING STATUS. The Company shall timely file all reports
required to be filed with the SEC pursuant to the Exchange Act, and so long as
Investor beneficially owns any Shares or Warrant Shares, the Company shall not
terminate its status as an issuer subject to the reporting obligations under the
Exchange Act even if the rules and regulations thereunder would

<Page>

otherwise permit such termination; provided that, the Company obligations
under this Section shall cease upon a Liquidation Event (as defined in the
Certificate of Designations).

            4.8   SECURITIES COMPLIANCE. If applicable, the Company shall notify
the Principal Market (defined below), in accordance with its rules and
regulations, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required by applicable law,
rule and regulation, for the legal and valid issuance of the Conversion Shares
and the Warrant Shares to the Investor or subsequent holders. "Principal Market"
shall mean initially the Nasdaq National market and shall include the American
Stock Exchange, the Nasdaq Small-Cap Market and the New York Stock Exchange if
the Company becomes listed and trades on such market or exchange after the date
hereof.

            4.9   REGISTRATION AND LISTING. The Company shall cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all material respects with its reporting and filing
obligations under the Exchange Act, will comply with all requirements related to
any registration statement filed pursuant to this Agreement, and will not take
any action or file any document (whether or not permitted by the Securities Act
or the Exchange Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market and shall provide the Purchaser with
copies of any correspondence to or from such Principal Market which questions or
threatens delisting of the Common Stock, within three (3) Trading Days of the
Company's receipt thereof, until the Investor has disposed of all of the Shares,
Conversion Shares, Warrants and Warrant Shares; provided that, the Company
obligations under this Section shall cease upon a Liquidation Event (as defined
in the Certificate of Designations).

            4.10  TRANSFER INSTRUCTIONS.

                  (a) Provided that the Company's transfer agent is
participating in The Depository Trust Company's (the "DTC") Fast Automated
Securities Transfer Program (or such other similar programs for the electronic
transfer of securities as may from time-to-time be implemented), and the
transferee of the Conversion Shares and/or Warrant Shares is eligible to receive
shares through the DTC, the Company shall instruct its transfer agent to process
all transfers of Conversion Shares, sales of Conversion Shares, and exercises of
Warrants by an Investor (each a "Transaction") on an expedited basis, with such
transfer being made through share credits to one or more balance accounts at the
DTC, in such name and in such denominations as specified by such Investor, no
later than the second (2nd) business day after receipt by the Company of (i) the
Shares, Conversion Shares, Warrants or Warrant Shares, as applicable, and (ii) a
completed Reissuance Notice, the form of which is attached hereto as EXHIBIT E
("Reissuance Notice"), including a representation by Investor contained therein
that such transfer will be made in compliance with all applicable securities
laws. For purposes hereof, "receipt by the Company" shall mean receipt at the
corporate office of the Company as such address is designated on the signature
page hereto (as may be updated in accordance with SECTION 8.4 hereof), with
facsimile copy of the Reissuance Notice addressed to the President of

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the Company at the facsimile number designated on the signature page hereto
(as may be updated in accordance with SECTION 8.4 hereof), and additional
facsimile copy of the Reissuance Notice addressed to the General Counsel of
the Company at (949) 852-7316 (as may be updated in accordance with SECTION
8.4 hereof). The foregoing facsimile copies shall be sent on the same day as
the Reissuance Notice is sent by Investor.

                  (b) If the electronic transfer of shares is not offered by the
Company's transfer agent, or if the electronic transfer of shares is not
available for any given transaction, then the Company shall instruct its
transfer agent to process all Transactions on an expedited basis, with delivery
to the Investor (or its designee) of the certificates to be issued as a result
of the Transaction no later than the second (2nd) business day after receipt by
the Company of (i) the Shares, Conversions Shares, Warrants or Warrant Shares,
as applicable, and (ii) a completed Reissuance Notice.

                  (c) The Company shall bear all costs and expenses resulting
from processing the Transactions on an expedited basis. Until such time as all
shares of Common Stock have been delivered in connection with any given
Transaction and any replacement certificate(s) or replacement Warrant(s) are
delivered as requested by Investor, the Company's general counsel (or if there
is none, the Company's most senior executive officer) shall use his/her best
efforts to ensure that the Transaction is completed, including but not limited
to contacting the Company's transfer agent on a daily basis for the purpose of
having the Transaction completed.

            4.11  FAILURE TO TIMELY TRANSFER. The Company shall pay a cash
penalty to the requesting Investor(s) each time Conversion Shares or Warrant
Shares, if any, are not delivered to the party entitled to receive such
securities within the applicable time period provided elsewhere for delivery of
such securities; provided that, the Company shall have a four (4) day grace
period following the applicable time period for delivery in one instance (the
"Grace Period"). In each instance that delivery of the Conversion Shares or
Warrant Shares, if any, has not been made on a timely basis, including following
any Grace Period, and for any continuing failure to deliver thereafter, the
Company shall pay the Investor (or Investors if more than one have made such
request) an aggregate penalty equal to $25,000 plus $1,000 per day commencing on
the tenth (10th) day after the due date until such delivery is made; provided
that, no penalty shall be assessed for transfers of fewer than 1,250 Conversion
Shares or Warrant Shares in the aggregate, as adjusted for any stock dividends,
combinations, splits or reverse splits, subdivisions, consolidations or
reclassifications. The Company's general counsel (or if there is none, the
Company's most senior executive officer) shall use his/her best efforts to
ensure that the delivery is made, including but not limited to contacting the
Company's transfer agent on a daily basis.

            4.12 INDEMNIFICATION. The Company shall defend, protect, indemnify
and hold harmless each Investor and each of their stockholders, partners,
members, officers, directors, employees and representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including

<Page>

reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(A) any misrepresentation or breach of any representation or warranty made by
the Company in this Agreement or any other certificate, instrument or
document contemplated hereby or thereby, or (B) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement or any
other certificate, instrument or document contemplated hereby or thereby. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under
this Section 4.11 shall be the same as those set forth in Section 1.5 of the
Registration Rights Agreement, including, without limitation, those
procedures with respect to the settlement of claims and the Company's rights
to assume the defense of claims.

            4.13 ACCOUNT/REPURCHASE. The Company shall hold the aggregate
Purchase Price ($5,000,000) in a separate, interest bearing account until the
Acquisition is consummated. Such funds may be released from the account to fund
the Acquisition. After the Acquisition has been consummated, the remaining funds
in the account shall be used in accordance with SECTION 2.9 hereof. If the
Acquisition is not consummated within thirty (30) days of the Closing, the
Company shall return the aggregate Purchase Price, together with all accrued
interest, to the Investors on the thirty-first (31st) day following the Closing.
Upon return of such funds to the Investors, (i) the Investors shall return the
Shares to the Company, (ii) the Registration Rights Agreement shall be deemed
terminated, (iii) the Investors' rights to receive Warrants shall be deemed
terminated; and (iv) this Agreement shall be deemed terminated, except for the
rights of indemnification set forth in SECTION 4.12.

            4.14  AMENDMENT TO BYLAWS.  The Company shall amend its Bylaws as
provided in EXHIBIT F within thirty (30) days  following the Acquisition.

      5.    THE INVESTORS' CONDITIONS TO THE CLOSING.  Each Investor's
obligation to purchase and pay for the Shares is subject to the fulfillment
to such Investor's satisfaction, prior to or at the Closing, of the following
conditions:

            5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in SECTION 2 shall be true and correct when
made and as of the Closing with the same effect as though such representations
and warranties had been made on and as of the date of the Closing.

            5.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed by it or with which it is required to have complied
with on or before the Closing.

            5.3 CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained
all consents, licenses, permits, orders, authorizations, waivers and the like
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and the other Related Documents (except for such as may be
properly obtained subsequent to the Closing).

<Page>

            5.4 OPINION OF COUNSEL.  The Investors shall have received the
opinion of General Counsel to the Company, dated the date of the Closing,
reasonably acceptable to the Investors.

            5.5 STOCK CERTIFICATES.  The Company shall have delivered to the
Investors the stock certificates representing their respective shares of Series
A Preferred Stock as set forth in EXHIBIT A attached hereto.

            5.6 CERTIFICATE OF DESIGNATIONS. The Company shall have delivered to
the Investors the Certificate of Designations as filed with the Secretary of
State of the State of Delaware in the form attached hereto as EXHIBIT B.

            5.7 EXPENSES. The Company shall pay the Investors due diligence and
other expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including reasonable legal fees and expenses of Investors'
legal counsel and travel expenses) in an amount not to exceed $50,000.

            5.8 COMPLIANCE CERTIFICATE. The Company shall deliver to the
Investors at the Closing, relating to the purchase of Shares, a certificate
signed by an officer of the Company stating that the Company has complied with
or satisfied each of the conditions to the Investors' obligation to consummate
the Closing set forth in SECTIONS 5.1 through 5.3, unless waived in writing by
the Investor.

      6.    THE COMPANY'S CONDITIONS TO THE CLOSING.  The Company's
obligation to consummate the Closing and to issue and sell the Shares to each
of the Investors at the Closing is subject to the fulfillment to the
Company's satisfaction, prior to or at such Closing, of the following
conditions:

            6.1   REPRESENTATIONS AND WARRANTIES.  The representations and
warranties of each Investor contained in SECTION 3 hereof shall be true and
correct on and as of the Closing.

            6.2 PERFORMANCE. The Investors shall have performed and complied
with all agreements, obligations, and conditions contained in the Agreement that
are required to be performed by it or them or with which it or they are required
to have complied with on or before the Closing.

            6.3 CONSENTS, PERMITS, AND WAIVERS. The Investors shall have
obtained all consents, licenses, permits, orders, authorizations, waivers and
the like necessary or appropriate for consummation of the transactions
contemplated by this Agreement and the other Related Documents (except for such
as may be properly obtained subsequent to the Closing).

            6.4 SHARES PURCHASED BY OTHER INVESTORS; FUNDS RECEIVED. Each of the
other Investors shall have purchased, in accordance with this Agreement, the
number of Shares set forth opposite its name on the Schedule of Investors, and
the Company shall have received the full amount of the Purchase Price.

<Page>

      7.    TRANSFER OF SECURITIES; LEGENDS.

            7.1. SECURITIES LAW TRANSFER RESTRICTIONS. No Investor shall sell,
assign, pledge, transfer or otherwise dispose or encumber any of the Shares
being purchased by it hereunder, or any underlying shares, except (i) pursuant
to an effective registration statement under the Securities Act or (ii) pursuant
to an available exemption from registration under the Securities Act and
applicable state securities laws. Any transfer or purported transfer of the
Shares in violation of this SECTION 7.1 shall be voidable by the Company. The
Company shall not register any transfer of the Shares, or any underlying shares,
in violation of this SECTION 7.1. The Company may, and may instruct any transfer
agent for the Company, to place such stop transfer orders as may be required on
the transfer books of the Company in order to ensure compliance with the
provisions of this SECTION 7.1.

            7.2.  LEGENDS.  Each certificate representing any of the Shares
(and, if applicable, each certificate representing the underlying shares of
common stock) shall be endorsed with legends in substantially the forms set
forth below:

      THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED, SOLD,
      ASSIGNED, PLEDGED TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE
      OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO
      AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SAID ACT.

      THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
      REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
      PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF
      STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR
      RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. THESE SHARES ARE
      SUBJECT TO A RIGHT OF FIRST OFFER HELD BY THE ISSUER.

            7.3 LEGEND REMOVAL. In the event that (I) a registration statement
covering the Conversion Shares is effective under the Securities Act, (II) the
Company shall receive an opinion of reputable counsel that such legend is not,
or is no longer, required, or (III) all or any portion of the Conversion Shares
are eligible for resale pursuant to the exemption afforded by Rule 144, upon
request from the Investor, the Company shall, or shall instruct its transfer
agent to, remove such legend from the certificate(s) evidencing such Conversion
Shares or issue new certificate(s) representing such Conversion Shares without
such legend in lieu thereof. All fees and expenses in effecting the legend
removal and issuance of new certificates (other than those of counsel to the
Investor) shall be borne by the Company.

<Page>

      8.    MISCELLANEOUS.

            8.1 PUBLIC STATEMENTS OR PRESS RELEASES. None of the parties to this
Agreement shall make, issue, or release any announcement, whether to the public
generally, or to any of its suppliers or customers, with respect to this
Agreement or the other Related Documents or the transactions provided for herein
or therein, or make any statement or acknowledgment of the existence of, or
reveal the status of, this Agreement or the transactions provided for herein,
without the prior consent of the other parties, which shall not be unreasonably
withheld or delayed, PROVIDED, that nothing in this Section shall prevent any of
the parties hereto from making such public announcements as it may consider
necessary in order to satisfy its legal obligations, but to the extent not
inconsistent with such obligations, it shall provide the other parties with an
opportunity to review and comment on any proposed public announcement before it
is made.

            8.2 SURVIVAL OF WARRANTIES. The warranties and representations of
the Company and each Investor contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing for a
period of two (2) years.

            8.3 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investors.
Any amendment or waiver effective in accordance with this Section shall be
binding upon each Investor, his, her or its heirs, representatives or permitted
assigns, and the Company and its heirs, representatives and permitted assigns.

            8.4 NOTICES. Any notice, consent, authorization or other
communication to be given hereunder shall be in writing and shall be deemed duly
given and received when delivered personally or transmitted by facsimile
transmission, three (3) days after being mailed by first class mail, or the next
business day after being deposited for next-day delivery with a nationally
recognized, receipted, overnight delivery service, charges and postage prepaid,
properly addressed to the party to receive such notice at the address(es)
specified on the signature page of this Agreement for the Company and each
Investor (or at such other address as shall be specified by like notice).

            8.5 ENTIRE AGREEMENT. This Agreement (including the Exhibits and the
other Related Documents) contains the entire agreement of the parties and
supersede all prior negotiations, correspondence, term sheets, agreements and
understandings, written and oral, between or among the parties regarding the
subject matter hereof.

            8.6 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the respective heirs, representatives, successors
and permitted assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective heirs, representatives, successors and permitted assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.

<Page>

            8.7 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be unenforceable under applicable law, such
provision shall be replaced with a provision that accomplishes, to the extent
possible, the original business purpose of such provision in a valid and
enforceable manner, and the balance of the Agreement shall be interpreted as if
such provision were so modified and shall be enforceable in accordance with its
terms.

            8.8  GOVERNING LAW.  This Agreement shall be governed by and
construed and interpreted in accordance with the law of the State of
California, without regard to that state's conflict of laws principles.

            8.9  ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement or the other Related
Documents, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and necessary disbursements in addition to any other relief to which such
party may be entitled.

            8.10 INTERPRETATION. This Agreement shall be construed according to
its fair language. The rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement.

            8.11 FURTHER ASSURANCES. Each party shall execute such other and
further certificates, instruments and other documents as may be reasonably
necessary and proper to implement, complete and perfect the transactions
contemplated by this Agreement.

            8.12 COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be
executed in any number of counterparts, each of which shall constitute an
original, and all of which together shall be considered one and the same
agreement. Signatures submitted via facsimile shall be deemed originals for all
purposes.

            8.13 ASSIGNMENT. Each Investor may assign or transfer all or any
part of the Securities acquired hereunder provided that the conditions specified
in SECTION 7 are satisfied, which conditions are, among other things, intended
to insure compliance with the provisions of the Securities Act and state
securities laws in respect of the transfer of any of the Securities acquired
hereunder. The Company shall not assign this Agreement or any rights hereunder
or delegate any duties hereunder. Any attempted or purported assignment or
delegation in violation of the preceding sentence shall be void. Notwithstanding
the foregoing, a change in control of the Company shall not be deemed an
assignment, and the Company may merge with or sell itself to any third party in
its sole and absolute discretion.

            8.14 TITLES AND SUBTITLES.  The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

            8.15 EXCULPATION AMONG INVESTORS. Each Investor agrees that no
Investor nor the respective controlling person, officers, directors, partners,
members, managers, agents or employees of any Investor shall be liable to any
other Investor for any action heretofore or hereafter taken or omitted to be
taken by any of them in connection with the purchase of the

<Page>

Securities or the execution of or performance under any of this
Agreement or the other Related Documents.

            8.16 REPRESENTATION. Each Investor acknowledges that (a) Stadium
Capital Partners, LP retained Shartsis, Friese & Ginsburg LLP ("SF&G") to
represent Stadium Capital Partners, LP and its affiliates (collectively,
"Stadium") in connection with this Agreement, the other Related Documents and
the transaction related hereto and thereto, (b) the interests of Stadium may not
necessarily coincide with the interests of other Investors, (c) SF&G does not
represent any Investor other than Stadium in connection with the transactions
contemplated hereby and thereby, and (d) each Investor has consulted with, or
has had an opportunity to consult with, its own legal counsel and has not relied
on SF&G for legal counsel in connection with this Agreement, the Related
Documents and the transactions related hereto and thereto.

            8.17 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS TO ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.

            8.18 AGGREGATION OF STOCK. All Shares, Conversion Shares, Warrants
and Warrant Shares held or acquired by affiliated entities or persons will be
aggregated together for the purpose of determining the availability of any
rights under this Agreement or any of the Related Documents.

              [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]

<Page>

      IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first set forth above.

                              THE COMPANY

                              SUMMA INDUSTRIES

                              By:         /s/ James R. Swartwout
                                          -------------------------------------
                              Print Name: JAMES R. SWARTWOUT
                              Title:      PRESIDENT
                              Address:    21250 Hawthorne Blvd., Suite 500
                                          Torrance, CA 90503
                              Fax:        (310) 792-7079

                              THE INVESTORS:

                              STADIUM CAPITAL PARTNERS, L.P.

                              By:         /s/ Bradley R. Kent
                                          -------------------------------------
                              Print Name: BRADLEY R. KENT
                              Title:      MANAGING MEMBER, STADIUM CAPITAL
                                          MANAGEMENT LLC
                              Address:    430 Cowper Street, Suite 200
                                          Palo Alto, CA 94301
                              Fax:        (650) 321-4049

                              STADIUM SEPARATE I, L.P.

                              By:          /s/ Bradley R. Kent
                                           ------------------------------------
                              Print Name: BRADLEY R. KENT
                              Title:      MANAGING MEMBER, STADIUM CAPITAL
                                          MANAGEMENT LLC
                              Address:    430 Cowper Street, Suite 200
                                          Palo Alto, CA 94301
                              Fax:        (650) 321-4049

                              STADIUM RELATIVE VALUE PARTNERS, L.P.

<Page>

                              By:         /s/ Bradley R. Kent
                                          -------------------------------------
                              Print Name: BRADLEY R. KENT
                              Title:      MANAGING MEMBER, STADIUM CAPITAL
                                          MANAGEMENT LLC
                              Address:    430 Cowper Street, Suite 200
                                          Palo Alto, CA 94301
                              Fax:        (650) 321-4049

                                    EXHIBITS

A.    List of Investors

B.    Certificate of Designations

C.    Form of Warrant

D.    Registration Rights Agreement

E.    Reissuance Notice

F.    Amendments to Company Bylaws<PAGE>

                                                                    Exhibit 4.18

THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF 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 AND ANY
SECURITIES ACQUIRED UPON THE EXERCISE OF 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, OR AS OTHERWISE PROVIDED FOR IN THIS WARRANT. IN ADDITION, THE
HOLDER OF THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT IS ENTITLED TO CERTAIN REGISTRATION RIGHTS AS SET FORTH IN THIS WARRANT.

                                 STEMCELLS, INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.:  CF-1                                    Number of Shares Issuable:
                                                                         146,199
Date of Issuance:  December 4, 2001

         StemCells, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Cantor Fitzgerald & Co., the registered holder
hereof or its permitted assigns (the "HOLDER"), 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) 146,199
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(a) below. This Warrant (the "WARRANT") is issued pursuant to
Section 4(b) of the letter agreement between the Company and Cantor Fitzgerald &
Co., dated as of December 3, 2001 (the "ENGAGEMENT AGREEMENT").

      1. DEFINITIONS AND INTERPRETATION.

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

                  (i) "BUSINESS DAY" means any day on which commercial banks in
         New York City are required or permitted to be open for business.

<PAGE>

                  (ii) "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.

                  (iii) "EXCHANGE ACT" means the Securities Exchange Act of
         1934, as amended.

                  (iv) "EXPIRATION DATE" means the date four (4) years from the
         date of the issuance of the Warrant set forth above (unless otherwise
         extended by the Company) 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.

                  (v) "MARKET PRICE" shall mean, on any date specified herein,
         the amount per share of the Common Stock, equal to (a) if such Common
         Stock is then listed or admitted for trading on any national securities
         exchange, the last reported sale price of such Common Stock, regular
         way, on such date or, in case no such sale takes place on such date,
         the average of the closing bid and asked prices thereof, regular way,
         on such date, in either case as officially reported on the principal
         national securities exchange on which such Common Stock is then listed
         or admitted for trading, or (b) if such Common Stock is not then listed
         or admitted for trading on any national securities exchange but is
         designated as a national market system security by the NASD, the last
         reported trading price of the Common Stock on such date, or (c) if such
         Common Stock is not then listed or admitted for trading on any national
         securities exchange and (i) the Common Stock is not designated as a
         national market system security by the NASD or (ii) there shall have
         been no trading on such date, the average of the closing bid and asked
         prices of the Common Stock on such date as shown by the NASD automated
         quotation system or the Nasdaq SmallCap Market, or (d) if such Common
         Stock is not then listed or admitted for trading on any national
         exchange or quoted in the over-the-counter market, the fair value
         thereof (as of a date which is within 20 days of the date as of which
         the determination is to be made) determined in good faith by the Board
         of Directors of the Company.

                  (vi) "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.

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

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

                  (ix) "WARRANT EXERCISE PRICE" shall be equal to $3.42 per
         share of Common Stock, subject to adjustment as hereinafter provided.

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

                                       2
<PAGE>

         (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) Unless the context of this Warrant otherwise requires:
         (1) the words "hereof", "herein" and "hereunder" and words of similar
         import when used in this Warrant shall refer to this Warrant as a whole
         and not to any particular provision of this Warrant, and Section and
         paragraph references are to the Sections and paragraphs of this Warrant
         unless otherwise specified; and (2) the word "including" and words of
         similar import when used in this Warrant shall mean "including, without
         limitation," 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.

      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 after the opening of business
on the date hereof and prior to 5:00 P.M. Eastern Standard Time on the
Expiration Date by:

                  (i) delivery of a written notice, in the form of the exercise
         notice attached as Exhibit A hereto (a "EXERCISE NOTICE"), of such
         holder's election to exercise this Warrant, which notice shall specify
         the number of Warrant Shares to be purchased;

                  (ii) payment to the Company (X) 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 WARRANT EXERCISE PRICE") in cash or by
         check or wire transfer, or (Y) by means of direction to the Company to
         cancel such number of the shares of Common Stock otherwise issuable to
         the holder upon such exercise equal to the number of shares specified
         in the Exercise Notice MULTIPLIED BY the Warrant Exercise Price DIVIDED
         BY the Market Price on the date of exercise, or (Z) by surrender to the
         Company for cancellation certificates representing shares of Common
         Stock of the Company owned by the Holder (properly endorsed for
         transfer in blank) having an aggregate Market Price on the date of the
         exercise of the Warrant equal to some or all of the Aggregate Warrant
         Exercise Price (either subclause (Y) or (Z) immediately preceding, 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

                                       3
<PAGE>

         (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 three (3) Business Days after the Company's receipt of the materials
and payments specified above in this Section 2(a). Upon the Company's receipt of
the materials and payments specified above in this Section 2(a), the Holder
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 Market Price 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 three (3) Business
Days of receipt of the Holder's Exercise Notice. If the Holder and the Company
are unable to agree upon the determination of the Warrant Exercise Price or
Market Price or arithmetic calculation of the Warrant Shares within three (3)
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 Market Price
to an independent, reputable investment banking firm which has not (and whose
affiliates have not) performed any investment banking services for, or had any
other material relationship with, the Company during the immediately preceding
two (2) year period, or (ii) the disputed arithmetic calculation of the Warrant
Shares to an independent, national public accounting firm which has not (and
whose affiliates have not) performed any accounting or consulting services for,
or had any other material relationship with, the Company during the immediately
preceding two (2) year period. The Company shall cause the investment banking
firm, or the accounting firm, 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 accounting firm'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.

         (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 three (3) Business Days after any exercise and at its
own expense, issue a new Warrant identical in all respects to the Warrant
exercised except 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. Upon presentation of a duly executed Exercise Notice, the Holder
shall be entitled to exercise this Warrant in whole or in part, if the Holder
shall have previously exercised and surrendered

                                       4
<PAGE>

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 Market Price of a share of Common Stock on the
date of exercise.

         (d) If the Company shall have failed for any reason (other than
pursuant to a dispute as described in Section 2(a)) or for no reason to issue to
Holder, on or before the day which is five (5) Business Days after the Company's
receipt of the materials and payments described in Section 2(a) hereof, 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 after such fifth Business Day until the date of delivery,
an amount equal to one-quarter of one percent (0.25%) of the product of (A) 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 difference between (1) the Warrant
Exercise Price then in effect and (2) the Market Price of the Common Stock on
the date on which the holder exercised the Warrant with respect to which the
Company has failed to make timely delivery hereunder. Any sums due to holder
pursuant to this Section 2(d) shall be paid by certified funds or wire transfer
simultaneously upon and no later than the delivery to holder of the shares of
Common Stock which have not been delivered to holder on a timely basis and which
gives rise to the Company's obligation to make the payments required by this
Section 2(d).

      3. COVENANTS AS TO COMMON STOCK. As of the date of this Warrant as set
forth in Section 12 below, the Company and, where applicable, the Holder, hereby
represents, warrants, covenants and agrees as follows:

         (a) This Warrant has been duly and validly authorized, executed and
delivered by the Company and constitutes a valid and legally binding agreement
of the Company, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. The execution and delivery by the Company of this Warrant does not,
and the delivery of any Warrant Shares upon the valid exercise of this Warrant
will not, except as would not have a material adverse effect on the business of
the Company: (i) violate any provision of the Certificate of Incorporation or
By-Laws of the Company; (ii) violate any provision of, or result in the
termination or acceleration of, or default under, or entitle any party to
accelerate (whether after the filing of notice or lapse of time or both) any
obligation under, or result in the creation or imposition of any lien, charge,
pledge, security interest or other encumbrance upon any of the assets of the
Company pursuant to any provision of any mortgage, lien, lease, agreement,
license, or instrument, or violate any law, regulation, order, arbitration
award, judgment or decree to which the Company is a party or by which its
property is bound; or (iii) require any governmental consent, authorization,
filing, approval, or exemption.

                                       5
<PAGE>

         (b) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Company has the
power to own its property and to carry on its business as it is now being
conducted. The Company is duly qualified to do business and is in good standing
in the jurisdictions in which the character or location of the properties owned
or leased by the Company or the nature of the business conducted by the Company
makes such qualification necessary, except where the failure to qualify
individually or in the aggregate will not have a material adverse effect on the
business of the Company.

         (c) When issued upon exercise, each Warrant Share will be duly and
validly issued, fully paid, non-assessable and free of preemptive rights. Based
in part upon the representations of the Holder in this Warrant, this Warrant and
any Warrant Shares will be issued in compliance with all applicable federal and
state securities laws, rules and regulations, and the offer, sale and issuance
of this Warrant and the Warrant Shares will constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act.

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

         (e) 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.

         (f) 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.

         (g) The Warrant Shares have been listed upon each national securities
exchange or automated quotation system, if any, or over-the-counter-bulletin
board upon which shares of the Company's Common Stock are currently listed or
quoted (subject to official notice of the over-the-counter bulletin board of
issuance upon exercise of this Warrant) and the Company 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.

         (h) 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

                                       6
<PAGE>

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 Warrant 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.

         (i) 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.

         (j) The Warrant Shares shall be registered with the Securities and
Exchange Commission ("SEC") by their inclusion, and the inclusion of the Holder
as a selling stockholder, in the registration statement on Form S-3 to be filed
with the SEC by the Company with respect to the shares issued on or about the
date hereof to the Riverview Group, L.L.C. The Company and the Holder further
agree as follows:

                  (i) If at any time the number of shares of Common Stock
         included in such registration statement shall be insufficient to cover
         all of the Warrant Shares issuable upon exercise of the unexercised
         portion of the Warrant, then promptly, but in no event later than 30
         days after such insufficiency shall occur, the Company shall file with
         the SEC an additional registration statement on Form S-3 (or, if the
         Company is not eligible to use such form at the time of filing with the
         SEC, Form S-1) (together with the initial registration statement, the
         "REGISTRATION STATEMENTS"), covering such number of shares of Common
         Stock as shall be sufficient to permit such exercise.

                  (ii) The Company shall use its best efforts to cause the
         Registration Statements to become effective as soon as possible after
         the filing of each, and to keep the Registration Statements effective
         pursuant to Rule 415 under the Securities Act at all times until the
         earliest of (A) the date on which all Warrant Shares have been sold by
         the Holder, (B) the date on which all Warrant Shares can be sold (other
         than by a Cashless Exercise) without restriction under Rule 144 under
         the Securities Act, or (C) December 4, 2006 or, if the Holder shall
         have been prohibited from disposing of Warrant Shares pursuant to
         Section 3(j)(xi) hereof, the date which is the number of days such
         prohibition applied after December 4, 2006 (the period beginning on the
         date hereof and ending on the earliest of such dates, the "REGISTRATION
         PERIOD").

                  (iii) The Company shall notify the Holder of the effectiveness
         of the Registration Statements on the date each Registration Statement
         is declared effective. The Company shall prepare and file with the SEC
         such amendments (including post-effective amendments) and supplements
         to the Registration Statements and the prospectus used in connection
         with the Registration Statements as may be necessary to keep the
         Registration Statements effective at all times during the Registration
         Period, and, during the Registration Period,

                                       7
<PAGE>

         comply with the provisions of the Securities Act with respect to the
         disposition of all Warrant Shares until such time as all of such
         Warrant Shares have been disposed of in accordance with the intended
         methods of disposition by the seller or sellers thereof as set forth in
         the Registration Statement.

                  (iv) The Company shall furnish to each Holder whose Warrant
         Shares are included in any Registration Statement and its legal
         counsel, (i) promptly after the same is prepared and publicly
         distributed, filed with the SEC or received by the Company, one copy of
         the Registration Statement and any amendment thereto, each preliminary
         prospectus and prospectus and each amendment or supplement thereto,
         each letter written by or on behalf of the Company to the SEC or the
         staff of the SEC and each item of correspondence from the SEC or the
         staff of the SEC relating to such Registration Statement, and (ii) such
         number of copies of a prospectus, including a preliminary prospectus,
         and all amendments and supplements thereto and such other documents, as
         such Holder may reasonably request in order to facilitate the
         disposition of the Warrant Shares registered on behalf of the Holder.

                  (v) The Company shall notify the Holder of the existence of
         any event or circumstance of which the Company has knowledge, as
         promptly as practicable after becoming aware of such event or
         circumstance, as a result of which the prospectus included in a
         Registration Statement, as then in effect, includes an untrue statement
         of a material fact or omits to state a material fact required to be
         stated therein or necessary to make the statements therein, in light of
         the circumstances under which they were made, not misleading, and use
         its commercially reasonable efforts promptly to prepare a supplement or
         amendment to such Registration Statement to correct such untrue
         statement or omission, file such supplement or amendment with the SEC
         at such time as shall permit the Holder to sell Warrant Shares pursuant
         to such Registration Statement as promptly as practicable, and deliver
         a number of copies of such supplement or amendment to the Holder as the
         Holder may reasonably request.

                  (vi) As promptly as practicable after becoming aware of such
         event, the Company shall notify the Holder of the issuance by the SEC
         of any stop order or other suspension of effectiveness of a
         Registration Statement at the earliest possible time.

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

                                       8
<PAGE>

                  (viii) As of the date hereof, the Company is eligible to file
         the Registration Statement on Form S-3. The Company shall file all
         reports required to be filed by the Company with the SEC in a timely
         manner so as to obtain and/or maintain eligibility for the use of Form
         S-3.

                  (ix) It shall be a condition precedent to the obligations of
         the Company to complete the registration pursuant to this Warrant with
         respect to the Shares that the Holder shall furnish to the Company such
         information regarding itself, the Warrant Shares held by it or to which
         it is entitled to receive upon exercise of the Warrant and the intended
         method of disposition of the Warrant Shares held by it as shall be
         reasonably required to effect the registration of such Warrant
         Shares.

                  (x) The Holder, by its acceptance of the Warrant, agrees to
         cooperate with the Company as reasonably requested by the Company in
         connection with the preparation and filing of the Registration
         Statements hereunder, unless the Holder has notified the Company in
         writing of its election to exclude all of its Warrant Shares from the
         Registration Statement.

                  (xi) The Holder agrees that, upon receipt of any notice from
         the Company of the existence of any event of the kind described in
         clauses (v) or (vi) above, the Holder will immediately discontinue
         disposition of Warrant Shares pursuant to the Registration Statement
         covering such Warrant Shares until the Holder's receipt of the copies
         of the supplemented or amended prospectus contemplated by clauses (v)
         or (vi) above and, if so directed by the Company, the Holder shall
         deliver to the Company (at the expense of the Company) or destroy (and
         deliver to the Company a certificate of destruction) all copies in such
         Holder's possession of the prospectus covering such Warrant Shares
         current at the time of receipt of such notice.

                  (xii) The Holder agrees to take all reasonable actions
         necessary to comply with the prospectus delivery requirements of the
         Securities Act applicable to its sales of Warrant Shares and to assist
         the Company in carrying out its obligations hereunder.

                  (xiii) All reasonable expenses (other than underwriting
         discounts and commissions and other fees and expenses of investment
         bankers engaged by the Holder and other than brokerage commissions),
         incurred in connection with registrations, filings or qualifications
         pursuant to this Section 3(j), including, without limitation, all
         registration, listing and qualifications fees, printers and accounting
         fees and the fees and disbursements of counsel for the Company, shall
         be borne by the Company.

                  (xiv) The provisions of this Section 3(j) shall survive the
         exercise of the Warrant by the Holder.

      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

                                       9
<PAGE>

delivery 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.

      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.

      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 reasonably 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.

      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 thereof for all purposes, notwithstanding any notice to the

                                       10
<PAGE>

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 Sections 3(j) and 6 above and Sections 7(c) and 11
below.

         (c) Except as set forth in Section 3(j), 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. Notwithstanding
anything set forth herein to the contrary, the Company shall not require an
opinion of counsel with respect to any and all transfers, assignments or
sales by and between Cantor Fitzgerald & Co. ("CANTOR"), on the one hand, and
any affiliate or affiliated person (as such terms are defined in Rule 405
under the Securities Act) of Cantor, on the other hand (it being expressly
understood and agreed that such transfers, assignments or sales shall be
conducted in accordance with applicable federal and state securities laws),
and, upon due notice from Cantor or any affiliate of Cantor of any such
transfer, sale or assignment, and delivery to the Company of the duly
executed warrant power in the form of EXHIBIT B attached hereto, the Company
shall immediately direct its transfer agent effect any such transfer, sale or
assignment, provided that in no event shall the legend required by this
Section 7(c) be removed as a result of such a transfer without opinion of
counsel reasonably acceptable to the Company. 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
this Warrant and the Warrant Shares 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 3(j) hereof. All Warrants and
Warrant Shares shall bear a legend in substantially the form set forth below:

         THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF 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 AND ANY SECURITIES ACQUIRED UPON THE
         EXERCISE OF 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

                                       11
<PAGE>

         IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT
         REGISTRATION IS NOT REQUIRED UNDER SAID ACT, OR AS OTHERWISE PROVIDED
         FOR IN THIS WARRANT. IN ADDITION, THE HOLDER OF THIS WARRANT AND ANY
         SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT IS ENTITLED TO
         CERTAIN REGISTRATION RIGHTS AS SET FORTH IN THIS WARRANT.

      8. ADJUSTMENT OF WARRANT EXERCISE PRICE. 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.

         (b) DE MINIMIS ADJUSTMENTS. If the amount of any adjustment of the
Warrant Exercise Price per share required pursuant to Section 8(a) would be less
than one tenth of one percent (0.1%) of the Warrant Exercise Price, such amount
shall be carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate a change in the
Warrant Exercise Price of at least one tenth of one percent (0.1%) of such
Purchase Price. All calculations under this Warrant shall be made to the nearest
0.1 of a cent or to the nearest one-tenth of a share, as the case may be.

         (c) ABANDONED DIVIDEND OR DISTRIBUTION. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Warrant Exercise Price under the terms of this Warrant) and shall, thereafter,
and before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Warrant Exercise Price and number
of shares of Common Stock purchasable upon Warrant exercise by reason of the
taking of such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed.

         (d) ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS,
REORGANIZATION, ETC. In case the Company, on one or more occasions, (i) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (ii) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock shall be changed into or exchanged for
stock or

                                       12
<PAGE>

other securities of any other Person or cash or any other property, or (iii)
shall transfer all or substantially all of its properties or assets to any other
Person, or (iv) shall effect a capital reorganization or reclassification of the
Common Stock, then, and in the case of each such transaction, proper provision
shall be made so that, upon the basis and the terms and in the manner provided
in this Warrant, the Holder of this Warrant, upon the exercise hereof at any
time after the consummation of such transaction, shall be entitled to receive
(at the Aggregate Warrant Exercise Price in effect at the time of such
consummation for all Common Stock issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Stock issuable upon such exercise
prior to such consummation, the highest amount of securities, cash or other
property to which such Holder would actually have been entitled as a shareholder
upon such consummation if such holder had exercised this Warrant immediately
prior thereto, subject to adjustments (subsequent to such consummation) as
nearly equivalent as possible to the adjustments provided for in this Section 8,
PROVIDED that if a purchase, tender or exchange offer shall have been made to
and accepted by the holders of more than 50% of the outstanding shares of the
Company's Common Stock, and if the Holder of this Warrant so designates in a
notice given to the Company on or before the date immediately preceding the date
of the consummation of such transaction, the Holder of this Warrant shall be
entitled to receive the highest amount of securities, cash or other property to
which it would actually have been entitled as a shareholder if the Holder of
this Warrant had exercised such Warrants prior to the expiration of such
purchase, tender or exchange offer and accepted such offer, subject to
adjustments (from and after the consummation of such purchase, tender or
exchange offer) as nearly equivalent as possible to the adjustments provided for
elsewhere in this Section 8. Notwithstanding anything contained in this Warrant
to the contrary, the Company shall not effect any of the transactions described
in subclauses (i) through (iv) of this Section 8(d) unless, prior to the
consummation thereof, each Person (other than the Company) which may be required
to deliver any stock, securities, cash or property upon the exercise of this
Warrant as provided herein shall assume, by written instrument delivered to the
holder of this Warrant, (x) the obligations of the Company under this Warrant,
and (y) the obligation to deliver to the Holder of this Warrant such shares of
stock, securities, cash or property as, in accordance with the foregoing
provisions of this Section 8, the Holder may be entitled to receive.

         (e) NOTICES.

                  (i) In each case of any adjustment or readjustment in the
         shares of Common Stock issuable upon the exercise of this Warrant, the
         Company at its expense shall promptly compute such adjustment or
         readjustment in accordance with the terms of this Warrant and prepare a
         certificate, signed by the Chairman of the Board, President or one of
         the Vice Presidents of the Company setting forth such adjustment or
         readjustment and showing in reasonable detail the method of calculation
         thereof and the facts upon which such adjustment or readjustment is
         based, including a statement of (a) the consideration received or to be
         received by the Company for any additional shares of Common Stock
         issued or sold or deemed to have been issued, (b) the number of shares
         of Common Stock outstanding or deemed to be outstanding, and (c) the
         Warrant Exercise Price in effect immediately prior to such adjustment
         and as adjusted and readjusted (if required by Section 8) on account
         thereof. The Company shall forthwith mail a copy of each such
         certificate to each Holder of a Warrant and shall, upon the

                                       13
<PAGE>

         written request at any time of any Holder of a Warrant, furnish to such
         Holder a like certificate setting forth the Warrant Exercise Price at
         the time in effect and showing in reasonable detail how it was
         calculated. The Company shall also keep copies of all such certificates
         at its principal office and shall cause the same to be available for
         inspection at such office during normal business hours by any Holder of
         a Warrant or any prospective purchaser of a Warrant designated by the
         Holder thereof. The Company shall, upon the request in writing of the
         Holder (at the Company's expense) retain independent public accountants
         of recognized national standing in accordance with the provisions of
         Section 2(a) above, and a certificate signed by such accounting firm
         shall be conclusive evidence of the correctness of such adjustment,
         which shall be binding on the Holder and the Company.

                  (ii) The Company shall provide notice at least five (5)
         Business Days prior to each Holder of a Warrant specifying the date or
         expected date on which any of the events described in subclauses (i)
         through (iv) of Section 8(d) hereof is to take place and the time, if
         any such time is to be fixed, as of which the holders of record of
         Common Stock shall be entitled to exchange their shares of Common Stock
         for the securities or other property deliverable upon event.

      9. 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.

      10. 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:

              If to the Company:    StemCells, Inc.
                                    3155 Porter Drive
                                    Palo Alto, CA  94304
                                    Attention:  Martin McGlynn, President & CEO
                                    Telephone:  (650) 475-3100
                                    Facsimile:  (650) 475-3101

                                       14
<PAGE>

              With a copy simultaneously by like means 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, with a copy simultaneously by
like means to each of: (i) Cantor Fitzgerald & Co., 299 Park Avenue, New York,
NY 10171, Attention: Stephen Merkel, Esq., Telephone: (212) 281-6969, Facsimile:
(212) 751-7050, and (ii) Zukerman Gore & Brandeis, LLP, 900 Third Avenue, New
York, NY 10022, Attention: Clifford A. Brandeis, Esq., Telephone: (212)
223-6700, Facsimile: (212) 223-6433. Each party shall provide written notice to
the other party of any change in address or facsimile number.

      11. INDEMNIFICATION AND CONTRIBUTION WITH RESPECT TO REGISTRATION
RIGHTS. If any Warrant Shares are included in any Registration Statement under
the Securities Act pursuant to this Warrant:

         (a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the directors, officers and partners, if any, of such
Holder, each person, if any, who controls any Holder within the meaning of the
Securities Act or the Exchange Act, any underwriter (as defined in the
Securities Act) for the Holders, the directors, officers and partners, if any,
of such underwriter, and each person, if any, who controls any such underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "CLAIMS") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following: (i) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being, collectively, "VIOLATIONS"). Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 11(a): (I) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any person indemnified under this Section
11(a) or expressly for use in connection with the

                                       15
<PAGE>

preparation of any Registration Statement, the prospectus or any such amendment
thereof or supplement thereto; (II) with respect to any preliminary prospectus
shall not inure to the benefit of any person indemnified under this Section
11(a) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented; and (III) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified person referred to in this Section 11(a).

         (b) In connection with any Registration Statement in which a Holder is
participating, each such Holder agrees to indemnify and hold harmless, to the
same extent and in the same manner set forth in Section 11(a), the Company, each
of its directors, officers and partners who signs the Registration Statement,
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act, any underwriter and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors, officers, partners or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Holder expressly for use in
connection with such Registration Statement or any post-effective amendment
thereof, or any prospectus included therein; and such Holder will reimburse any
legal or other expenses reasonably incurred by any indemnified person under this
Section 11(b), promptly as such expenses are incurred and are due and payable,
in connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 11(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Holder, which consent shall not be
unreasonably withheld; provided, further, however, that each Holder shall be
liable under this Section 11(b) for only that amount of a Claim as does not
exceed the amount of the proceeds to such Holder from the sale of the
Registrable Securities pursuant to such Registration Statement that resulted in
such Claim. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of any indemnified person under this
Section 11(b) and shall survive the transfer of the Registrable Securities by
the Holders pursuant to Section 7. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 11(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
indemnified person under this Section 11(b) if the untrue statement or omission
of material fact contained in the preliminary prospectus was corrected on a
timely basis in the prospectus, as then amended or supplemented.

         (c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information so furnished in writing by such persons
expressly for inclusion in any Registration Statement.

                                       16
<PAGE>

         (d) Each party entitled to indemnification under this Section 11 (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any such Claim as to which indemnity may be sought and
the Indemnifying Party shall have the right to participate in, and, to the
extent the Indemnifying Party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
selected by the Indemnifying Party but reasonably acceptable to the Indemnified
Party; provided, however, that an Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the Indemnifying
Party, if, in the reasonable opinion of counsel retained by the Indemnifying
Party, the representation by such counsel of the Indemnified Party and the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnifying Party within a reasonable time of the commencement of any such
action shall not relieve such Indemnifying Party of any liability to the
Indemnified Party under this Section 11, except to the extent that the
Indemnifying Party is prejudiced in its ability to defend such action. The
indemnification required by this Section 11 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.

         (e) To the extent any indemnification by an Indemnifying Party is
prohibited or limited by law, the Indemnifying Party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under this Section 11 to the fullest extent permitted by law; provided, however,
that (i) no contribution shall be made under circumstances where the maker would
not have been liable for indemnification under the fault standards set forth in
Section 11, (ii) no seller of Warrant Shares guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Warrant Shares who was not
guilty of such fraudulent misrepresentation and (iii) contribution by any Holder
shall be limited in amount to the amount by which the net amount of proceeds
received by such Holder (if any) from the sale of such Warrant Shares that
resulted in such Claim exceeds the purchase price paid by such Holder for such
Warrant Shares.

                                       17
<PAGE>

      12. DATE. 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 Sections 3(j), 7
and 11 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.

      13. 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.

      14. 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 laws principles thereof.

      15. JUDICIAL PROCEEDINGS. Any legal action, suit or proceeding brought
against the Company or the Holder with respect to this Warrant may be brought in
any federal court of the Southern District of New York or any state court
located in New York County, State of New York, and by execution and delivery of
this Warrant, the Company and the Holder hereby irrevocably and unconditionally
waives any claim (by way of motion, as a defense or otherwise) of improper
venue, that it is not subject personally to the jurisdiction of such court, that
such courts are an inconvenient forum or that this Warrant or the subject matter
may not be enforced in or by such court. Each of the Company and the Holder
hereby irrevocably and unconditionally consents to the process of any of the
aforementioned courts in any such action, suit or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, at its address
set forth or provided for in Section 10 hereof, such service to become effective
10 days after such mailing. Nothing herein contained shall be deemed to affect
the right of any party to serve process in any manner permitted by law or
commence legal proceedings or otherwise proceed against any other party in any
other jurisdiction to enforce judgment obtained in any action, suit or
proceeding brought pursuant to this Section.

      16. WAIVER OF TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS WARRANT OR UNDER ANY AMENDMENT, WAIVER,
CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE
FUTURE MAY BE DELIVERED IN CONNECTION WITH THIS WARRANT, AND AGREES THAT ANY
SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.

                                       18
<PAGE>

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

                                       StemCells, Inc.

                                       By: /s/ Iris Brest
                                           ------------------------------------
                                           Name:  Iris Brest
                                           Title: General Counsel and Secretary

Cantor Fitzgerald & Co.

By: /s/ Phil Marber
    -------------------------------------------------
   Name:  Phil Marber
          -------------------------------------------
   Title: President
          ------------------------------------------

                                       19
<PAGE>

                                    EXHIBIT A

                             FORM OF EXERCISE NOTICE

     (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
Exercise Notice 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:

         _______ (i) herewith makes payment of $_______ therefor (equal to the
Aggregate Warrant Exercise Price) in cash or by certified or official bank
check; or

         _______ (ii) elects to make payment upon a Cashless Exercise pursuant
to Section 2(a)(Y) of the Warrant and authorizes the Company to cancel such
number of shares as calculated in accordance with such Section 2(a)(Y) of the
Warrant; or

         ________ (iii) elects to make payment upon a Cashless Exercise pursuant
to Section 2(a)(Z) of the Warrant and surrenders herewith certificates
representing the number of shares of Common Stock of the Company as calculated
pursuant to Section 2(a)(Z) of the Warrant.

         The undersigned hereby requests that the certificate(s) representing
such securities be issued in the name(s) and delivered to the address(es) as
follows:

Name:
             -------------------------------------------------------------------
Address:
             -------------------------------------------------------------------
Social Security Number (if applicable):

             -------------------------------------------------------------------
Deliver to:
             -------------------------------------------------------------------
Address:
             -------------------------------------------------------------------

         If the foregoing exercise notice 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)

                                       20
<PAGE>

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

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

                                       21
<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:
                                         --------------------------------------

                                       22

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