Document:

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                                                                   EXHIBIT 10.55

                          REGISTRATION RIGHTS AGREEMENT

         THIS REGISTRATION RIGHTS AGREEMENT, dated as of June 21, 2001, (this
"Agreement") is made by and between STEMCELLS, INC., a Delaware corporation (the
"Company"), and the entity named on the signature page hereto (the "Initial
Investor" or "Holder").

                              W I T N E S S E T H:

         WHEREAS, the Initial Investor and the Company are parties to that
certain subscription agreement ("Prior Subscription Agreement") dated as of July
31, 2000, pursuant to which the Company, among other things, issued shares of
the Company's Common Stock to the Buyer and granted the Buyer the option
("Option") to purchase additional shares of Common Stock pursuant to Section 5
of the Prior Subscription Agreement; and

         WHEREAS, in connection with the Initial Investor's exercise of such
Option on June 8, 2001, the Initial Investor and the Company entered into a
Subscription Agreement, dated as of June 21, 2001 (the "Subscription
Agreement"), pursuant to which the Company has agreed, upon the terms and
subject to the conditions of the Subscription Agreement, to issue and sell to
the Initial Investor shares (the "Common Shares") of Common Stock, $.01 par
value (the "Common Stock"), of the Company, and to issue a Callable Warrant (the
"Callable Warrant") and a Common Stock Purchase Warrant, Class A (the "Class A
Warrant") (collectively, the "Warrants") to purchase shares (the "Warrant
Shares") of Common Stock; and

         WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws with respect to the Common
Shares and the Warrant Shares;

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:

1.       DEFINITIONS.

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

                  "Investor" or "Investors" means the Initial Investor and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement, or a similar agreement relating to Common Shares, Callable Warrants,
Class A Warrants or Warrant Shares, in accordance with Section 9 hereof.

                  "Majority Holders" means those Investors who hold a majority
in interest of the Registrable Securities.
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                  "1934 Act" means the Securities Exchange Act of 1934, as
amended.

                  "Permitted Transferee" means any person (1) who is an
"accredited investor" as defined in Regulation D under the 1933 Act, and (2)
who, immediately following the assignment of rights under this Agreement holds
(x) at least 50,000 shares of Common Stock or (y) Warrants which at the time of
such transfer are exercisable for at least 50,000 shares of Common Stock, or any
combination thereof (the 50,000 share amounts referred to in this definition
being subject to equitable adjustment from time to time on terms reasonably
acceptable to the Majority Holders for (i) stock splits, (ii) stock dividends,
(iii) combinations, (iv) capital reorganizations, (v) issuance to all holders of
Common Stock of rights or warrants to purchase shares of Common Stock and (vi)
similar events relating to the Common Stock, in each such case which occur on or
after the Closing Date).

                  "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the SEC.

                  "Registrable Securities" means the Common Shares and the
Warrant Shares, whether held by the Initial Investor or any other Investor. As
to any particular securities, such securities shall cease to be Registrable
Securities when they have been sold pursuant to an effective registration
statement or in compliance with Rule 144 or are eligible to be sold pursuant to
subsection (k) of Rule 144.

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

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

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

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

                  "SEC Effective Date" means the date the Registration Statement
is declared effective by the SEC.

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

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

         2. REGISTRATION.

                  (a) Mandatory Registration. (1) The Company shall prepare and,
on or prior to the date which is 45 days after the Closing Date, file with the
SEC a Registration Statement on Form S-1 (or Form S-3, if the Company is
eligible to use such form), which, on the date of filing with the SEC, covers
the resale by the Initial Investor of a number of shares of Common Stock at
least equal to the greater of (A) 900,000 shares of Common Stock or (B) the sum
of (x) the number of Common Shares PLUS (y) the number of Warrant Shares
issuable upon the exercise in full of the Callable Warrant PLUS (z) the number
of Warrant Shares equal to 175% of the number of shares of Common Stock issuable
upon the exercise of the Class A Warrant, determined as if the First Adjustment
Date (as defined in the Class A Warrant) occurred on the Closing Date and the
Class A Warrant was otherwise exercised in full for cash in accordance with the
terms thereof on the Trading Day prior to the SEC Filing Date (in each case
determined without regard to the limitations on beneficial ownership contained
in the Warrants). If at any time the number of shares of Common Stock included
in the Registration Statement required to be filed as provided in the first
sentence of this Section 2(a) shall be insufficient to cover all of the number
of Warrant Shares issuable upon exercise of the unexercised portion of the
Warrants, then promptly, but in no event later than 30 days after such
insufficiency shall occur (or, if later, 30 days after the date upon which the
Company first becomes eligible to file a Registration Statement therefor if such
ineligibility resulted from the indeterminate number of shares of Common Stock),
the Company shall file with the SEC an additional Registration Statement on Form
S-1 (or Form S-3, if the Company is eligible to use such form) (which shall not
constitute a post-effective amendment to the Registration Statement filed
pursuant to the first sentence of this Section 2(a)), covering such number of
shares of Common Stock as shall be sufficient to permit such exercise. The
Company shall use its best efforts to have such additional Registration
Statement declared effective as soon as possible thereafter, and in any event by
the 90th day following notice that such Registration Statement is required. For
all purposes of this Agreement such additional Registration Statement shall be
deemed to be the Registration Statement required to be filed by the Company
pursuant to Section 2(a) of this Agreement, and the Company and the Investors
shall have the same rights and obligations with respect to such additional
Registration Statement as they shall have with respect to the initial
Registration Statement required to be filed by the Company pursuant to this
Section 2(a). Without the written consent of the Majority Holders, the
Registration Statement shall not include securities to be sold for the account
of any selling security holder other than the Investors and the holders of the
registration rights described in Schedule 11(a).

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

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registration rights described in Schedule 11(a), (w) pursuant to compensation
plans for employees, directors, officers, advisers or consultants of the Company
and in accordance with the terms of such plans, (x) upon exercise of conversion,
exchange, purchase or similar rights issued, granted or given by the Company and
outstanding as of the date of this Agreement and disclosed in the SEC Reports or
the Subscription Agreement, (y) pursuant to a public offering underwritten on a
firm commitment basis registered under the 1933 Act or (z) as part of a
transaction involving a strategic alliance, acquisition of stock or assets,
merger, collaboration, joint venture, partnership or other similar arrangement
of the Company with another corporation, partnership or other business entity
(A) which is engaged in a business similar, complementary or related to the
business of the Company or (B) pursuant to which the Company issues securities
with the primary purpose to directly or indirectly acquire, license or otherwise
become entitled to use technology relevant to or useful in the Company's
business, so long as in each case of this clause (z) the Board of Directors of
the Company by resolution duly adopted (and a copy of which shall be furnished
to the Investor promptly after adoption) duly approves such transaction in
accordance with its duties under applicable law (each of the forgoing
transactions a "Board Approved Transaction").

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

                  (c) Certain Payments. If: (1) the initial Registration
Statement is not filed on or prior to the 45th day following the Closing Date
(if the Company files such Registration Statement without affording the Holder
the opportunity to review and comment on the same as required by Section 3(h)
hereof, the Company shall not be deemed to have satisfied this clause (1)), or
(2) the initial Registration Statement filed hereunder is not declared effective
by the Commission on or prior to the 90th day following the Closing Date (the
"Effectiveness Required Date"), or (3) after a Registration Statement is filed
with and declared effective by the SEC, such Registration Statement ceases to be
effective as to a material portion of the Registrable Securities at any time
prior to the expiration of the Registration Period without being succeeded
within ten business days by an amendment to such Registration Statement or by a
subsequent Registration Statement filed with and declared effective by the SEC,
or (4) the Common Stock shall be delisted or suspended from trading on the
Nasdaq National Market or on any exchange or other principal market for the
Common Stock for more than three (3) business days (which need not be
consecutive days), or (5) the exercise rights of the Holders pursuant to the
Warrants are suspended for any reason, or (6) an amendment to a Registration
Statement is not filed by the Company with the SEC within ten business days of
the SEC's notifying the Company that such amendment is required in order for
such Registration Statement to be declared effective (any such failure or breach
being referred to as an "Event," and for purposes of clauses (1), (2) and (5)
the date on which such Event occurs, for purposes of clauses (3) and (6) the
date upon which

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such 10 day period is exceeded, or for purposes of clause (4) the date on which
such three business day period is exceeded, being referred to as "Event Date"),
then, on the Event Date and each monthly anniversary thereof until the
applicable Event is cured, the Company shall pay to each Holder 1.5% of the
purchase price paid by such Holder pursuant to the Purchase Agreement, in cash,
("Delay Payments"). If the Company fails to pay any Delay Payments pursuant to
this Section in full within seven (7) days after the date payable, the Company
will pay interest thereon at a rate of 18% per annum (or such lesser maximum
amount that is permitted to be paid by applicable law) to the Holder, accruing
daily from the date such Delay Payments are due until such amounts, plus all
such interest thereon, are paid in full. The Delay Payments pursuant to the
terms hereof shall apply on a pro-rata basis for any portion of a month prior to
the cure of an Event. The Delay Payments shall not preclude the Holder from
seeking appropriate additional damages and remedies for any such Events.

                  (d) Piggy-Back Registrations. If at any time the Company shall
determine to prepare and file with the SEC a registration statement relating to
an offering for its own account or the account of others under the 1933 Act of
any of its equity securities, other than a registration statement registering
securities issued (1) pursuant to compensation plans for employees, directors,
officers, advisers or consultants of the Company and in accordance with the
terms of such plans or (2) as part of a Board Approved Transaction, the Company
shall send to each Investor who is entitled to registration rights under this
Agreement written notice of such determination and, if within five (5) business
days after receipt of such notice, an Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities the Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company, the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' judgment, such limitation is
necessary to effect an orderly public distribution, then the Company shall be
obligated to include in such Registration Statement only such limited portion of
the Registrable Securities with respect to which the Investor has requested
inclusion hereunder. Any exclusion of Registrable Securities shall be made pro
rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Investors; provided, however, that the Company shall not exclude any Registrable
Securities unless the Company has first excluded all outstanding securities the
holders of which are not entitled by right to inclusion of securities in such
Registration Statement; and provided further, however, that, after giving effect
to the immediately preceding proviso, any exclusion of Registrable Securities
shall be made pro rata with holders of other securities having the right to
include such securities in the Registration Statement, based on the number of
securities for which registration is requested except to the extent such pro
rata exclusion of such other securities is prohibited under any written
agreement entered into by the Company with the holder of such other securities
prior to the date of this Agreement, in which case such other securities shall
be excluded, if at all, in accordance with the terms of such agreement. No right
to registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. The
obligations of the Company under this Section 2(d) may be waived as to all
Investors by the Majority Holders and as to a particular Investor by such
Investor and shall expire after the Company has afforded the opportunity for the
Investor(s) to exercise registration rights under this Section 2(d) for two
registrations; provided, however, that any Investor who shall have had any
Registrable Securities excluded from any Registration

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

                  (e) Eligibility for Form S-3. The Company shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to obtain and/or maintain eligibility for the use of Form S-3.

         3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall:

                  (a) prepare promptly, and file with the SEC not later than 45
days after the Closing Date, a Registration Statement with respect to the number
of Registrable Securities provided in Section 2(a), and thereafter to use its
best efforts to cause each Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing but in any
event on or prior to the Effectiveness Required Date, and keep the Registration
Statement effective pursuant to Rule 415 at all times during the Registration
Period; submit to the SEC, within three Business Days after the Company learns
that no review of the Registration Statement will be made by the staff of the
SEC or that the staff of the SEC has no further comments on the Registration
Statement, as the case may be, a request for acceleration of effectiveness of
the Registration Statement to a time and date not later than 48 hours after the
submission of such request; notify the Investors of the effectiveness of the
Registration Statement on the date the Registration Statement is declared
effective; and the Company represents and warrants to, and covenants and agrees
with, the Investors that the Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein), at the time it is first
filed with the SEC, at the time it is ordered effective by the SEC and at all
times during which it is required to be effective hereunder other than any
period after which the Company notifies the Investors pursuant to Section 3(f)
until the time when the Investors may again sell Registrable Securities pursuant
to the Registration Statement (and each such amendment and supplement at the
time it is filed with the SEC and at all times during which it is available for
use in connection with the offer and sale of the Registrable Securities) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein, or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading;

                  (b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement until such time
as

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all of such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement;

                  (c) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel, (1) 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 (2) such number of copies
of a prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor; notwithstanding the foregoing, prior to such disclosure
and review, the Company shall notify the Holders if any portion of such
documents contains material non-public information, in which case the Holders
may decline to review such documents or portions thereof (the "Right to Decline
Review");

                  (d) use commercially reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such securities or blue sky laws of such jurisdictions as the Investors who hold
a majority in interest of the Registrable Securities being offered reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times until the end of the Registration Period, (iii) take such other actions as
may be necessary to maintain such registrations and qualifications in effect at
all times during the Registration Period and (iv) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Company shall not be required
in connection therewith or as a condition thereto (I) to qualify to do business
in any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (II) to subject itself to general taxation in any such
jurisdiction, (III) to file a general consent to service of process in any such
jurisdiction, (IV) to provide any undertakings that cause more than nominal
expense or burden to the Company or (V) to make any change in its Certificate of
Incorporation or by-laws, which in each case the Board of Directors of the
Company determines in good faith to be contrary to the best interests of the
Company and its stockholders;

                  (e) in the event that the Registrable Securities are being
offered in an underwritten offering pursuant to Section 2(d), enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering;

                  (f) as promptly as practicable after becoming aware of such
event or circumstance, notify each Investor of any event or circumstance of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and use its commercially reasonable
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue

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statement or omission, file such supplement or amendment with the SEC at such
time as shall permit the Investors to sell Registrable Securities pursuant to
the Registration Statement as promptly as practicable, and deliver a number of
copies of such supplement or amendment to each Investor as such Investor may
reasonably request;

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

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

                  (i) make generally available to its security holders as soon
as practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the 1933 Act) covering a twelve-month period beginning not later
than the first day of the Company's fiscal quarter next following the effective
date of the Registration Statement;

                  (j) [Omitted];

                  (k) make available for inspection by any Investor, and any
attorney, accountant or other agent retained by any such Investor (collectively,
the "Inspectors"), all pertinent financial and other records, pertinent
corporate documents and properties of the Company (collectively, the "Records"),
as shall be reasonably necessary to enable each Investor to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction or (iii) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory

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to the Company) with the Company with respect thereto, substantially in the form
of this Section 3(k). Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at the Company's own expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, the
Records deemed confidential. The Company shall hold in confidence and shall not
make any disclosure of information concerning an Investor provided to the
Company pursuant to Section 4(e) hereof unless (i) disclosure of such
information is necessary to comply with federal or state securities laws or
applicable rules and regulations of Nasdaq or other market or exchange, (ii) the
disclosure of such information is necessary to avoid or correct a misstatement
or omission in any Registration Statement, (iii) the release of such information
is ordered pursuant to a subpoena or other order from a court or governmental
body of competent jurisdiction or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or, to the
knowledge of the Company, any other agreement. Each party agrees that it shall,
upon learning that disclosure of such information concerning another party is
sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to such other party and allow such other
party, at such other party's own expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such information;

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

                  (m) provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;

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

                  (o) during the period the Company is required to maintain
effectiveness of the Registration Statement pursuant to Section 3(a), the
Company shall not bid for or purchase any Common Stock or any right to purchase
Common Stock or attempt to induce any person to

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purchase any such security or right if such bid, purchase or attempt would in
any way limit the right of the Investors to sell Registrable Securities by
reason of the limitations set forth in Regulation M under the 1934 Act; and

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

         4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:

                  (a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities.

                  (b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;

                  (c) In the event Investors holding a majority in interest of
the Registrable Securities being registered determine to engage the services of
an underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement;

                  (d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor 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 Investor's possession of the prospectus covering such
Registrable Securities current at the time of receipt of such notice;

                  (e) No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such

                                       10
<PAGE>

arrangements, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and (iii) agrees to
pay its pro rata share of all underwriting discounts and commissions and other
fees and expenses of investment bankers and any manager or managers of such
underwriting and legal expenses of the underwriters applicable with respect to
its Registrable Securities, in each case to the extent not payable by the
Company pursuant to the terms of this Agreement; and

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

         5. EXPENSES OF REGISTRATION. All reasonable expenses (other than
underwriting discounts and commissions and other fees and expenses of investment
bankers engaged by Investors and other than brokerage commissions), incurred in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees and the fees and disbursements
of counsel for the Company and one legal counsel for the Investors (in addition
to the payment of the Initial Investor's expenses to the extent provided in the
Subscription Agreement), shall be borne by the Company.

         6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:

                  (a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the 1933
Act or the 1934 Act, any underwriter (as defined in the 1933 Act) for the
Investors, the directors, if any, of such underwriter and the officers, if any,
of such underwriter, and each person, if any, who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act (each, an "Indemnified
Person"), against any losses, claims, damages, liabilities or expenses (joint or
several) incurred (collectively, "Claims") to which any of them may become
subject under the 1933 Act, the 1934 Act or otherwise, insofar as such Claims
(or actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements or omissions in
or violations with respect to the Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereof or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any state securities law
or any rule or regulation under the 1933 Act, the 1934 Act

                                       11
<PAGE>

or any state securities law (the matters in the foregoing clauses (i) through
(iii) being, collectively, "Violations"). Subject to the restrictions set forth
in Section 6(d) with respect to the number of legal counsel, the Company shall
reimburse the Investors and the other Indemnified Persons, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (I) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement, the prospectus or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) with respect to any preliminary prospectus shall not inure to
the benefit of any Indemnified Person if the untrue statement or omission of
material fact contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if such prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; and (III) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.

                  (b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to indemnify and hold
harmless, to the same extent and in the same manner set forth in Section 6(a),
the Company, each of its directors, each of its officers who signs the
Registration Statement, each person, if any, who controls the Company within the
meaning of the 1933 Act or the 1934 Act, any underwriter and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder or
underwriter within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an "Indemnified Party"), against any Claim
to which any of them may become subject, under the 1933 Act, the 1934 Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement or any post-effective amendment thereof, or any prospectus included
therein; and such Investor will reimburse any legal or other expenses reasonably
incurred by any Indemnified Party, promptly as such expenses are incurred and
are due and payable, in connection with investigating or defending any such
Claim; provided, however, that the indemnity agreement contained in this Section
6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
as does not exceed the amount of the proceeds to such Investor from the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this

                                       12
<PAGE>

Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in
the prospectus, as then amended or supplemented.

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

                  (d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof 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 Person or the Indemnified Party, as
the case may be; provided, however, that an Indemnified Person or 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 Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. In such event, the Company shall pay for only one
separate legal counsel for the Investors; such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities
included in the Registration Statement to which the Claim relates. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person or Indemnified Party under this Section
6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

         7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6, (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any seller of Registrable Securities
who was not guilty of such fraudulent misrepresentation and (c) contribution by
any seller of Registrable Securities shall be limited in amount to the amount by
which the net amount of proceeds received by such seller from the sale of such
Registrable Securities exceeds the purchase price paid by such seller for such
Registrable Securities.

                                       13
<PAGE>

         8. REPORTS UNDER 1934 ACT. With a view to making available to the
Investors the benefits of Rule 144, the Company agrees to:

                  (a) make and keep public information available, as those terms
are understood and defined in Rule 144;

                  (b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act; and

                  (c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and the
1934 Act or describing any failure to so comply, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule 144
without registration.

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

                  10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended only with the written consent of the Majority Holders
and the Company and, subject to the penultimate sentence of Section 2(d), the
observance by the Company of any provision of

                                       14
<PAGE>

this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Majority Holders. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.

         11. MISCELLANEOUS.

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

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

                  (c) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.

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

                  (e) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

                  (f) This Agreement shall be enforced, governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State. In the event
that any provision of this Agreement is invalid or

                                       15
<PAGE>

unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof. Each
party hereby consents to the exclusive jurisdiction and venue of the federal and
state courts located in New York, New York in any action or proceeding arising
hereunder and to service of process by certified mail, return receipt requested
(which shall constitute "personal service").

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

                  (h) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.

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

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

                  (k) [Omitted]

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

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

                  (n) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.

                                       16
<PAGE>

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

                                 STEMCELLS, INC.

                                 By: /s/ Martin M. McGlynn
                                     ------------------------------------
                                      Name:  Martin M. McGlynn
                                      Title: President, Chief Executive Officer

       THE INITIAL INVESTOR:     MILLENNIUM PARTNERS, L.P.

                                 By: /s/ Terry Feeny
                                     ------------------------------------
                                      Name:  Terry Feeny
                                      Title: Chief Financial Officer

                                       17
<PAGE>

                                                                  EXHIBIT 1
                                                                      TO
                                                                  REGISTRATION
                                                                RIGHTS AGREEMENT

                              [Company Letterhead]

                                     [Date]

[TRANSFER AGENT'S NAME AND ADDRESS]

Ladies and Gentlemen:

         This letter shall serve as our irrevocable authorization and direction
to you (1) to transfer or re-register the certificates for the shares of Common
Stock, $.01 par value (the "Common Stock"), of STEMCELLS, INC., a Delaware
corporation (the "Company"), represented by certificate numbers _______ and
_______ for an aggregate of _______ shares (the "Outstanding Shares") of Common
Stock presently registered in the name of [Name of Investors] upon surrender of
such certificate(s) to you, notwithstanding the legend appearing on such
certificates, and (2) to issue shares (the "Warrant Shares") of Common Stock to
or upon the order of the holder from time to time on exercise of the Callable
Warrant, Common Stock Purchase Warrants, Class A (collectively, the "Warrants")
exercisable for Common Stock issued by the Company upon receipt by you of a
subscription form from such holder in the form enclosed herewith. The transfer
or re-registration of the certificates for the Outstanding Shares by you should
be made at such time as you are requested to do so by the record holder of the
Outstanding Shares. The certificate issued upon such transfer or re-registration
should be registered in such name as requested by the holder of record of the
certificate surrendered to you and should not bear any legend which would
restrict the transfer of the shares represented thereby. In addition, you are
hereby directed to remove any stop-transfer instruction relating to the
Outstanding Shares. Certificates for the Warrant Shares should not bear any
restrictive legend and should not be subject to any stop-transfer restriction.

         Contemporaneously with the delivery of this letter, the Company is
delivering to you the following:

                  (a) a list showing the name and address of each holder of
record of the Warrants and the date of issuance, Warrant number, and, in the
case of the Callable Warrant, the initial fixed number of shares issuable upon
exercise thereof;

                  (b) the form of subscription relating to the exercise of the
Warrants; and

                  (c) an opinion of Iris Brest, Vice President and General
Counsel of the Company, as to registration of the Outstanding Shares and the
Warrant Shares for resale under the Securities Act of 1933, as amended.
<PAGE>

         Should you have any questions concerning this matter, please contact
me.

                                Very truly yours,

                                STEMCELLS, INC.

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

Enclosures
cc:      [Names of Investors]
<PAGE>

                                                                   EXHIBIT 2
                                                                     TO
                                                                  REGISTRATION
                                                                RIGHTS AGREEMENT

                                                  [SEC Effective Date]

[Names and Addresses of Investors]

                                 STEMCELLS, INC.

                             SHARES OF COMMON STOCK

Ladies and Gentlemen:

         I am Vice President and General Counsel of STEMCELLS, INC., a Delaware
corporation (the "Company"), and I understand that the Company has sold to
[Names of Investors] (the "Holders") an aggregate of ________ shares (the
"Common Shares") of the Company's Common Stock, $.01 par value (the "Common
Stock"), and issued to the Holders a Callable Warrant, a Common Stock Purchase
Warrant, Class A (collectively, the "Warrants"). The Common Shares were sold,
and the Warrants were issued, to the Holders pursuant to a Subscription
Agreement, dated as of June 21, 2001, by and between Millennium Partners, L.P.
(the "Initial Investor") and the Company (the "Subscription Agreement").
Pursuant to the Registration Rights Agreement, dated as of June 21, 2001, by and
between the Company and the Initial Investor (the "Registration Rights
Agreement") entered into in connection with the purchase by the Initial Investor
of the Common Shares, the Company agreed with each Holder, among other things,
to register for resale (1) the Common Shares and (2) the shares (the "Warrant
Shares") of Common Stock issuable upon exercise of the Warrants under the
Securities Act of 1933, as amended (the "1933 Act"), upon the terms provided in
the Registration Rights Agreement. The Common Shares and the Warrant Shares are
referred to herein collectively as the "Shares." Pursuant to the Registration
Rights Agreement, on _______, _____ the Company filed a Registration Statement
on Form ___ (File No. __________) (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") relating to the Shares, which
names the Holders as selling stockholders thereunder.

         [Other introductory and scope of examination language to be inserted]

         Based on the foregoing, I am of the opinion that:

         (1) Since the Closing Date, the Company has timely filed with the SEC
all forms, reports and other documents required to be filed with the SEC under
the Securities 1934 Act of 1934, as amended (the "1934 Act"). All of such forms,
reports and other documents complied,

<PAGE>

when filed, in all material respects, with all applicable requirements of the
1933 Act and the 1934 Act;

         (2) The Registration Statement and the Prospectus contained therein
(other than the financial statements and financial schedules and other financial
and statistical information contained or incorporated by reference therein, as
to which I have not been requested to and do not express any opinion) comply as
to form in all material respects with the applicable requirements of the 1933
Act and the rules and regulations promulgated thereunder; and

         (3) The Registration Statement has become effective under the 1933 Act,
to the best of my knowledge after due inquiry, no stop order proceedings with
respect thereto have been instituted or threatened by the SEC. The Shares have
been registered under the 1933 Act and may be resold by the respective Holders
pursuant to the Registration Statement.

         I have participated in the preparation of the Registration Statement
and the Prospectus, including review and discussions with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company, and your representatives at which the contents of
the Registration Statement and the Prospectus contained therein and related
matters were discussed, and, although I am not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus contained therein, on
the basis of the foregoing, nothing has come to my attention that leads me to
believe either that the Registration Statement at the time the Registration
Statement became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus contained in
the Registration Statement, as of its date, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that I have not
been requested to and do not express any view with respect to the financial
statements and schedules and other financial and statistical data included or
incorporated by reference in the Registration Statement or the Prospectus
contained therein).

         Paragraph (3) of this opinion may be relied upon by ____________,
Transfer Agent and Registrar (the "Transfer Agent"), as if addressed to the
Transfer Agent.

                                     Very truly yours,

cc:      [TRANSFER AGENT]<PAGE>

================================================================================
                                                                   EXHIBIT 10.56

                             SUBSCRIPTION AGREEMENT

                            DATED AS OF JUNE 21, 2001

                                 BY AND BETWEEN

                                 STEMCELLS, INC.

                                       AND

                            MILLENNIUM PARTNERS, L.P.

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

                         COMMON STOCK, CALLABLE WARRANTS

                                       AND

                         COMMON STOCK PURCHASE WARRANTS

================================================================================
<PAGE>

                  THIS SUBSCRIPTION AGREEMENT, dated as of June 21, 2001, (this
"Agreement") by and between STEMCELLS, INC., a Delaware corporation (the
"Company"), with headquarters located at 3155 Porter Drive, Palo Alto,
California 94304, and Millennium Partners, L.P., a Cayman Islands limited
partnership (the "Buyer").

                              W I T N E S S E T H:

                  WHEREAS, the Buyer and the Company are parties to that certain
subscription agreement, dated as of July 31, 2000 (the "Prior Subscription
Agreement"), pursuant to which the Company, among other things, issued shares of
the Company's Common Stock to the Buyer and granted the Buyer the option
("Option") to purchase additional shares of Common Stock pursuant to Section 5
of the Prior Subscription Agreement;

                  WHEREAS, on June 8, 2001, the Buyer exercised all of its
remaining Option to purchase, upon the terms and subject to the conditions of
this Agreement and the terms of Section 5 of the Prior Subscription Agreement,
shares of Common Stock, $.01 par value (the "Common Stock"), of the Company
having an aggregate purchase price of Two Million Dollars ($2,000,000); and

                  WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D as promulgated by the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");

                  NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

                  1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.

(a) SUBSCRIPTION. The Buyer hereby agrees to purchase from the Company, and the
Company hereby agrees to sell to the Buyer, the number of shares (the "Common
Shares") of Common Stock set forth on the signature page of this Agreement at
the price per share and for the aggregate purchase price set forth on the
signature page of this Agreement (the "Purchase Price"). The Purchase Price
shall be payable in United States dollars. In connection with the purchase of
the Common Shares by the Buyer, the Company shall issue to the Buyer, at the
closing on the Closing Date (as defined herein), (1) Callable Warrants in the
form attached hereto as ANNEX I (the "Callable Warrants") to purchase the number
of shares of Common Stock set forth therein (subject to adjustment as provided
in the Callable Warrants) and (2) Common Stock Purchase Warrants, Class A, in
the form attached hereto as ANNEX II (the "Class A Warrants") to purchase the
number of shares of Common Stock set forth therein (subject to adjustment as
provided in the Class A Warrants). The Callable Warrants and the Class A
Warrants are referred to herein collectively as the "Warrants." The shares of
Common Stock issuable upon exercise of the Warrants are referred to herein as
the "Warrant Shares." The Common Shares and the Warrant Shares are referred to
herein collectively as the "Shares." The Shares and the Warrants are referred to
herein collectively as the "Securities."
<PAGE>

(b)      THE CLOSING.

                  (1) TIMING. Subject to the fulfillment or waiver of the
conditions set forth in Section 6 hereof, the purchase and sale of the Common
Shares and Warrants shall take place at a closing (the "CLOSING") on the date
hereof or such other date as the Buyer and the Company may agree upon (the
"Closing Date") at the offices of Kleinberg, Kaplan, Wolff & Cohen, P.C.

                  (2) FORM AND TIMING OF PAYMENT. The Buyer shall pay the
Purchase Price for the Common Shares by delivering (A) 75% of the Purchase Price
to the Company on the Closing Date and (B) 25% of the Purchase Price to the
Company on the date on which the Registration Statement (as defined in the
registration rights agreement, dated as of June 21, 2001, between the Company
and the Buyer (the "Registration Rights Agreement")) becomes effective (or such
later date which is two (2) business days after Buyer receives written notice of
the date of such effectiveness). Upon Closing, the Company shall deliver (A)
instructions to its registrar and transfer agent regarding the issuance of the
certificates for all the Common Shares and shall cause its registrar and
transfer agent to deliver such certificates to Buyer as soon as possible after
Closing and (B) the Warrants, registered in the corporate securities records of
the Company and on the certificates in the name of the Buyer or its nominee, to
the Buyer (or Kleinberg, Kaplan, Wolff & Cohen, P.C. on behalf of the Buyer).

(c) METHOD OF PAYMENT. Payment of the Purchase Price for the Common Shares shall
be made in U.S. Dollars by wire transfer of funds to an account designated by
the Company.

                           As  used in this Agreement, the term "Business Day"
means any day other than a Saturday, Sunday or other day on which commercial
banks in the City of New York are authorized or required by law to remain
closed.

                  2.    BUYER REPRESENTATIONS, WARRANTIES, ETC.

                  The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:

                  (a) ACCREDITED BUYER STATUS; SOPHISTICATED BUYER. The Buyer is
         an "accredited investor" as that term is defined in Rule 501(a) of
         Regulation D under the 1933 Act. The Buyer has such knowledge and
         experience in financial and business matters that it is capable of
         evaluating the merits and risks of investment in the Common Shares, the
         Warrants and Warrant Shares.

                  (b) INFORMATION. The Buyer and its advisors, if any, have been
         furnished with all materials relating to the business, finances and
         operations of the Company which have been requested and materials
         relating to the offer and sale of the Common Shares, the Warrants and
         Warrant Shares which have been requested by the Buyer. The Buyer and
         its advisors, if any, have been afforded the opportunity to ask
         questions of the Company. Neither such inquiries nor any other due
         diligence investigations conducted by the Buyer or its advisors, if
         any, or its representatives shall modify, amend or affect the Buyer's
         right to rely on the Company's representations and warranties contained
         in Section 3 below. The Buyer understands that its investment in the
         Common Shares, the Warrants and

                                       2
<PAGE>

         Warrant Shares involves a high degree of risk. The Buyer has sought
         such accounting, legal and tax advice as it has considered necessary to
         make an informed investment decision with respect to its acquisition of
         the Common Shares, the Warrants and Warrant Shares.

                  (c) LEGENDS. The Company shall issue certificates for the
         Common Shares, the Warrants and Warrant Shares to the Buyer without any
         legend except as described herein. The Buyer covenants that, in
         connection with any transfer of Shares by the Buyer pursuant to the
         registration statement contemplated by the Registration Rights
         Agreement, it will comply with the applicable prospectus delivery
         requirements of the 1933 Act, provided that copies of a current
         prospectus relating to such effective registration statement are or
         have been supplied to the Buyer.

                  (d) AUTHORIZATION; ENFORCEMENT. Each of this Agreement and the
         Registration Rights Agreement has been duly and validly authorized,
         executed and delivered on behalf of the Buyer and is a valid and
         binding agreement of the Buyer enforceable against the Buyer in
         accordance with its terms, subject as to enforceability to general
         principles of equity and to applicable bankruptcy, insolvency,
         reorganization, moratorium, liquidation and other similar laws relating
         to, or affecting generally, the enforcement of applicable creditors'
         rights and remedies. The Buyer has the requisite corporate power and
         authority to enter into and perform its obligations under this
         Agreement and the Registration Rights Agreement and each other
         agreement entered into by the parties hereto in connection with the
         transactions contemplated by this Agreement.

                  (e) NO CONFLICTS. The execution, delivery and performance of
         this Agreement and the Registration Rights Agreement by the Buyer and
         the consummation by the Buyer of the transactions contemplated hereby
         and thereby will not result in a violation of the certificate of
         incorporation, by-laws or other documents of organization of the Buyer.

                  (f) INVESTMENT REPRESENTATION. The Buyer is purchasing the
         Common Shares and the Warrants for its own account and not with a view
         to distribution in violation of any securities laws. The Buyer has been
         advised and understands that neither the Common Shares, the Warrants
         nor the Warrant Shares issuable upon exercise thereof have been
         registered under the 1933 Act or under the "blue sky" laws of any
         jurisdiction and may be resold only if registered pursuant to the
         provisions of the 1933 Act or if an exemption from registration is
         available, except under circumstances where neither such registration
         nor such an exemption is required by law. The Buyer has been advised
         and understands that the Company, in issuing the Common Shares and the
         Warrant, is relying upon, among other things, the representations and
         warranties of the Buyer contained in this Section 3 in concluding that
         such issuance is a "private offering" and is exempt from the
         registration provisions of the 1933 Act.

                                       3
<PAGE>

                  (g) RULE 144. The Buyer understands that there is no public
         trading market for the Warrants and that none is expected to develop.
         The Buyer understands that the Common Shares, the Warrants and the
         Warrant Shares received upon conversion or exercise thereof must be
         held indefinitely unless and until registered under the 1933 Act or an
         exemption from registration is available. The Buyer is aware of the
         provisions of Rule 144 promulgated under the 1933 Act.

                  (h) RELIANCE BY THE COMPANY. The Buyer understands that the
         Common Shares and the Warrants are being offered and sold in reliance
         on a transactional exemption from the registration requirements of
         Federal and state securities laws and that the Company is relying upon
         the truth and accuracy of the representations, warranties, agreements,
         acknowledgments and understandings of the Buyer set forth herein in
         order to determine the applicability of such exemptions and the
         suitability of the Buyer to acquire the Common Shares and the Warrants.

                  3.    COMPANY REPRESENTATIONS, WARRANTIES, ETC.

                  The Company represents and warrants to, and covenants and
agrees with, the Buyer that, except as set forth in the schedules attached
hereto:

                  (a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE EFFECT.
         The Company is a corporation duly incorporated and existing in good
         standing under the laws of the State of Delaware and has the requisite
         corporate power to own its properties and to carry on its business as
         now being conducted. The Company does not have any Subsidiary other
         than StemCells California, Inc. (the "SUBSIDIARY". The Subsidiary is
         duly organized, and validly existing and in good standing under the
         laws of its jurisdiction of formation. Except where specifically
         indicated to the contrary, all references in this Agreement to
         Subsidiary shall be deemed to refer to the Subsidiary of the Company.
         The Company is duly qualified as a foreign corporation to do business
         and is in good standing in every jurisdiction in which the nature of
         the business conducted or property owned by it makes such qualification
         necessary other than those in which the failure so to qualify would not
         have a Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any
         adverse effect on the business, operations, properties, prospects or
         financial condition of the Company and its Subsidiary, which is (either
         alone or together with all other adverse effects) material to the
         Company and its Subsidiary, taken as a whole, and any material adverse
         effect on the transactions contemplated under this Agreement, the
         Certificate, and the Registration Rights Agreement, or any other
         agreement or document contemplated hereby or thereby.

                  (b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all
         requisite corporate power and authority to enter into and perform this
         Agreement, the Registration Rights Agreement and the Warrants
         ("TRANSACTION DOCUMENTS") and to issue the Common Shares and the
         Warrants in accordance with the terms

                                       4
<PAGE>

         hereof, (ii) the execution and delivery of this Agreement, the
         Registration Rights Agreement, and the Warrants by the Company and the
         consummation by it of the transactions contemplated hereby and thereby,
         including the issuance of the Common Shares and the Warrants, have been
         duly authorized by all necessary corporate action, and no further
         consent or authorization of the Company or its Board of Directors (or
         any committee or subcommittee thereof) or stockholders is required,
         (iii) this Agreement, the Registration Rights Agreement, and the
         Warrants have been duly executed and delivered by the Company, (iv)
         this Agreement, the Registration Rights Agreement, and the Warrants
         constitute valid and binding obligations of the Company enforceable
         against the Company in accordance with their terms, except (A) as such
         enforceability may be limited by applicable bankruptcy, insolvency,
         reorganization, moratorium, liquidation or similar laws relating to, or
         affecting generally the enforcement of creditors' rights and remedies
         or by other equitable principles of general application, and (B) to the
         extent the indemnification provisions contained in this Agreement and
         the Registration Rights Agreement may be limited by applicable federal
         or state securities laws and (v) the Common Shares, the Warrants, and
         the Warrant Shares issuable upon the exercise thereof have been duly
         authorized and, upon issuance thereof and payment therefor in
         accordance with the terms of this Agreement, the Common Shares, the
         Warrants, and the Warrant Shares issuable upon the exercise thereof
         will be validly issued, fully paid and non-assessable, free and clear
         of any and all liens, claims and encumbrances.

                  (c) CAPITALIZATION. As of the date hereof, the authorized
         capital stock of the Company consists of (i) 45,000,000 shares of
         Common Stock, of which, as of May 31, 2001, 21,470,385 shares were
         issued and outstanding, and, as of the date hereof, 6,748,502 shares
         are issuable and reserved for issuance pursuant to the Company's stock
         option and purchase plans and committed pursuant to pending
         acquisitions, and, as of the date hereof, other than pursuant to the
         Prior Subscription Agreement and the Warrants issued in connection
         therewith and the Warrants issued to the Buyer on August 30, 2000,
         approximately 947,300 shares are issuable pursuant to securities (other
         than options and purchase plans referred to above), exercisable or
         exchangeable for, or convertible into, shares of Common Stock, and
         approximately 1,369,600 shares are reserved for issuance pursuant to
         such securities and (ii) 1,000,000 shares of preferred stock, of which,
         as of the date hereof, (A) 2,626 shares are currently designated as 6%
         Cumulative Convertible Preferred Stock, 1,500 shares of which are
         issued and outstanding and (B) 450,000 shares are designated as Junior
         Preferred Shares, none of which are issued or outstanding. All of such
         outstanding shares have been, or upon issuance will be, validly issued,
         fully paid and nonassessable. As of the date hereof, except as
         disclosed in SCHEDULE 3(c) or pursuant to the Prior Subscription
         Agreement and Warrants issued pursuant thereto, (i) no shares of the
         Company's capital stock are subject to preemptive rights or any other
         similar rights or any liens or encumbrances suffered or permitted by
         the Company, (ii) there are no outstanding debt securities, (iii) there
         are no outstanding options, warrants, scrip, rights to subscribe to,
         calls or commitments of any character whatsoever relating to, or
         securities or rights convertible into, any shares of capital stock of
         the

                                       5
<PAGE>

         Company or its Subsidiary, or contracts, commitments, understandings or
         arrangements by which the Company or its Subsidiary is or may become
         bound to issue additional shares of capital stock of the Company or its
         Subsidiary or options, warrants, scrip, rights to subscribe to, calls
         or commitments of any character whatsoever relating to, or securities
         or rights convertible into, any shares of capital stock of the Company
         or its Subsidiary, (iv) there are no agreements or arrangements under
         which the Company or its Subsidiary is obligated to register the sale
         of any of their securities under the Securities Act of 1933, as amended
         ("Securities Act" or "1933 Act") (except the Registration Rights
         Agreement and except as set forth on SCHEDULE 3(c)), (v) there are no
         outstanding securities of the Company or its Subsidiary which contain
         any redemption or similar provisions, and there are no contracts,
         commitments, understandings or arrangements by which the Company or its
         Subsidiary is or may become bound to redeem a security of the Company
         or its Subsidiary, (vi) there are no securities or instruments
         containing anti-dilution or similar provisions that will be triggered
         by the issuance of the Common Shares or the Warrants as described in
         this Agreement or the Warrants and (vii) the Company does not have any
         stock appreciation rights or "phantom stock" plans or agreements or any
         similar plan or agreement. The Company has furnished to the Buyer true
         and correct copies of the Company's Certificate of Incorporation, as
         amended and as in effect on the date hereof (the "CERTIFICATE OF
         INCORPORATION"), and the Company's By-laws, as in effect on the date
         hereof (the "BY-LAWS").

                  (d) NO CONFLICTS. The execution, delivery and performance of
         the Transaction Documents by the Company and the consummation by the
         Company of the transactions contemplated hereby and thereby and the
         issuance of Common Shares, the Warrants, and the Warrant Shares
         underlying the Warrants will not (i) result in a violation of the
         Certificate of Incorporation, any certificate of designations,
         preferences and rights of any outstanding series of preferred stock of
         the Company or the By-laws; (ii) conflict with, or constitute a default
         (or an event which with notice or lapse of time or both would become a
         default) under, or give to others any rights of termination, amendment,
         acceleration or cancellation of, any agreement, indenture or instrument
         to which the Company or its Subsidiary is a party, or (iii) result in a
         violation of any law, rule, regulation, order, judgment or decree
         (including United States federal and state securities laws and
         regulations and the rules and regulations of the Nasdaq National Market
         (the "PRINCIPAL MARKET") or other principal securities exchange or
         trading market on which the Common Stock is traded or listed)
         applicable to the Company or its Subsidiary or by which any property or
         asset of the Company or its Subsidiary is bound or affected. Neither
         the Company nor its Subsidiary is in violation of any term of, or in
         default under, (x) its certificate of incorporation, any certificate of
         designations, preferences and rights of any outstanding series of
         preferred stock or By-laws or their organizational charter or by-laws,
         respectively, (y) any material contract, agreement, mortgage,
         indebtedness, indenture, instrument, or (z) any judgment, decree or
         order or any statute, rule or regulation applicable to the Company or
         its Subsidiary, the non-compliance with which (in the cases of (y) and
         (z)) would cause a Material Adverse Effect. Except as specifically
         contemplated by this

                                       6
<PAGE>

         Agreement and as required under the 1933 Act or state "blue sky" laws,
         the Company is not required to obtain any consent, authorization or
         order of, or make any filing or registration with, any court,
         governmental agency or any regulatory or self-regulatory agency in
         order for it to execute, deliver or perform any of its obligations
         under, or contemplated by, the Transaction Documents or the issuance of
         the Common Shares and the Warrants in accordance with the terms hereof
         or thereof. All consents, authorizations, orders, filings and
         registrations which the Company is required to obtain pursuant to the
         preceding sentence have been obtained or effected on or prior to the
         date hereof, or in the case of post-sale filings, will be made promptly
         after the date hereof. The Company complies with and is not in
         violation of the listing requirements of the Principal Market as in
         effect on the date hereof in all material respects and on the Closing
         Date and is not aware of any existing facts which provide a basis for
         delisting or suspension of the Common Stock by the Principal Market.

                  (e) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31,
         1998, the Company has filed all reports, schedules, forms, statements
         and other documents required to be filed by it with the SEC pursuant to
         the reporting requirements of the Securities Exchange Act of 1934, as
         amended (the "1934 Act") (all of the foregoing filed prior to the date
         hereof and all exhibits included therein and financial statements and
         schedules thereto and documents incorporated by reference therein being
         hereinafter referred to as the "SEC DOCUMENTS"). As of their respective
         dates, the SEC Documents complied in all material respects with the
         requirements of the 1934 Act and the rules and regulations of the SEC
         promulgated thereunder applicable to the SEC Documents, and none of the
         SEC Documents, at the time they were filed with the SEC, 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 dates, the financial
         statements of the Company included in the SEC Documents complied as to
         form in all material respects with applicable accounting requirements
         and the published rules and regulations of the SEC with respect
         thereto. Such financial statements have been prepared in accordance
         with generally accepted accounting principles, consistently applied,
         during the periods involved (except (i) as may be otherwise indicated
         in such financial statements or the notes thereto, or (ii) in the case
         of unaudited interim statements, to the extent they may exclude
         footnotes or may be condensed or summary statements) and fairly present
         in all material respects the financial position of the Company as of
         the dates thereof and the results of its operations and cash flows for
         the periods then ended (subject, in the case of unaudited statements,
         to normal year-end audit adjustments). Neither the Company nor its
         Subsidiary or any of their officers, directors, employees or agents
         have provided the Buyer with any material, nonpublic information which
         was not publicly disclosed prior to the date hereof.

                  (f) ABSENCE OF CERTAIN CHANGES. Except as set forth in the SEC
         Documents identified on Schedule 3(f) hereto, since December 31, 1998
         there has been no adverse change or adverse development in the
         business, properties,

                                       7
<PAGE>

         assets, operations, financial condition, prospects, liabilities or
         results of operations of the Company or its Subsidiary which has had
         or, to the knowledge of the Company or its Subsidiary, is reasonably
         likely to have a Material Adverse Effect. The Company has not taken any
         steps, and does not currently expect to take any steps, to seek
         protection pursuant to any bankruptcy law nor does the Company or its
         Subsidiary have any knowledge or reason to believe that its creditors
         intend to initiate involuntary bankruptcy proceedings.

                  (g) ABSENCE OF LITIGATION. There is no action, suit,
         proceeding, inquiry or investigation before or by any court, public
         board, government agency, self-regulatory organization or body pending
         or, to the knowledge of the Company or its Subsidiary, threatened
         against or affecting the Company, the Common Stock or any of the
         Company's Subsidiary or any of the Company's or the Company's
         Subsidiary's officers or directors in their capacities as such, which
         individually and in the aggregate, respectively, would be reasonably
         likely to result in liability to the Company in excess of $50,000 and
         $100,000, respectively.

                  (h) ACKNOWLEDGMENT REGARDING BUYER'S PURCHASE OF SHARES. The
         Company acknowledges and agrees that the Buyer is acting solely in the
         capacity of arm's length purchaser with respect to the Transaction
         Documents and the transactions contemplated hereby and thereby. The
         Company further acknowledges that the Buyer is not acting as financial
         advisor or fiduciary of the Company (or in any similar capacity) with
         respect to the Transaction Documents and the transactions contemplated
         hereby and thereby, and any advice given by the Buyer or any of its
         respective representatives or agents in connection with the Transaction
         Documents and the transactions contemplated hereby and thereby is
         merely incidental to the Buyer's purchase of the Common Shares. The
         Company further represents to the Buyer that the Company's decision to
         enter into the Transaction Documents has been based solely on the
         independent evaluation by the Company and its representatives.

                  (i) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
         CIRCUMSTANCES. No event, liability, development or circumstance has
         occurred or exists with respect to the Company or its Subsidiary or
         their respective business, properties, prospects, operations or
         financial condition, that would be required to be disclosed by the
         Company under applicable securities laws in a registration statement
         filed with the SEC relating to an issuance and sale by the Company of
         its Common Stock and which has not been publicly disclosed.

                  (j) NO INSIDE INFORMATION. The Company has not provided and,
         the Company shall not provide, the Buyer with any non-public
         information, except to the extent that the Buyer exercises its right to
         review a registration statement containing material non-public
         information (after receiving written notice of the existence of such
         content) and except in the case of the Buyer's exercising rights
         pursuant to Section 4(i) of the Prior Subscription Agreement.

                                       8
<PAGE>

                  (k) NO SECURITIES ACT REGISTRATION. The sale and issuance of
         the Common Shares and Warrants in accordance with terms of this
         Agreement and the issuance of Warrant Shares upon exercise of the
         Warrants are exempt from registration under the 1933 Act.

                  (l) EMPLOYEE RELATIONS. Neither the Company nor its Subsidiary
         is involved in any labor dispute nor, to the knowledge of the Company
         or its Subsidiary, is any such dispute threatened, the effect of which
         would be reasonably likely to result in a Material Adverse Effect.
         Neither the Company nor its Subsidiary is a party to a collective
         bargaining agreement. The Company and its Subsidiary believe that
         relations between the Company and its Subsidiary and their respective
         employees are good. No executive officer (as defined in Rule 501(f) of
         the 1933 Act) whose departure would be adverse to the Company has
         notified the Company that such officer intends to leave the Company or
         otherwise terminate such officer's employment with the Company.

                  (m) INTELLECTUAL PROPERTY RIGHTS. The Company and its
         Subsidiary own or possess adequate rights or licenses to use all
         trademarks, trade names, service marks, service mark registrations,
         service names, patents, patent rights, copyrights, inventions,
         licenses, approvals, governmental authorizations, trade secrets and
         rights necessary to conduct their respective businesses as now
         conducted. None of the Company's trademarks, trade names, service
         marks, service mark registrations, service names, patents, patent
         rights, copyrights, inventions, licenses, approvals, government
         authorizations, trade secrets or other intellectual property rights
         have expired or terminated, or are expected to expire or terminate
         within two (2) years from the date of this Agreement except as would
         not have a Material Adverse Effect. The Company and its Subsidiary do
         not have any knowledge of any infringement by the Company or its
         Subsidiary of trademark, trade name rights, patents, patent rights,
         copyrights, inventions, licenses, service names, service marks, service
         mark registrations, trade secret or other similar rights of others, or
         of any such development of similar or identical trade secrets or
         technical information by others, and no claim, action or proceeding has
         been made or brought against, or to the Company's knowledge, is
         threatened against, the Company or its Subsidiary regarding trademarks,
         trade name rights, patents, patent rights, inventions, copyrights,
         licenses, service names, service marks, service mark registrations,
         trade secrets or other infringement. The Company and its Subsidiary
         have taken reasonable security measures to protect the secrecy,
         confidentiality and value of all of their intellectual properties.

                  (n) SHAREHOLDER APPROVAL RULE. Other than pursuant to the
         Prior Subscription Agreement or the August 30, 2000 Subscription
         Agreement, the Company has not issued any shares of Common Stock or
         shares of any series of preferred stock or other securities convertible
         into, exchangeable for or otherwise entitling the holder to acquire
         shares of Common Stock which may be subject to Rule 4350(i)(1)(D) of
         Nasdaq as in effect from time to time or any successor, replacement or
         similar provision thereof or of any other market on which the Common
         Stock is listed for trading (the "Shareholder Approval Rule") and which

                                       9
<PAGE>

         would be integrated with the sale of the Common Shares to the Buyer or
         the issuance of Warrant Shares upon exercise of the Warrants for
         purposes of the Shareholder Approval Rule.

                  (o) ENVIRONMENTAL LAWS. The Company and its Subsidiary (i) are
         in compliance with any and all applicable foreign, federal, state and
         local laws and regulations relating to the protection of human health
         and safety, the environment or hazardous or toxic substances or wastes,
         pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received
         all permits, licenses or other approvals required of them under
         applicable Environmental Laws to conduct their respective businesses
         and (iii) are in compliance with all terms and conditions of any such
         permit, license or approval where such noncompliance or failure to
         receive permits, licenses or approvals referred to in clauses (i), (ii)
         or (iii) above could have, individually or in the aggregate, a Material
         Adverse Effect.

                  (p) TITLE. The Company and its Subsidiary have good and
         marketable title in fee simple to all real property and good and
         marketable title to all personal property owned by them which is
         material to the business of the Company and its Subsidiary, in each
         case free and clear of all liens, encumbrances and defects except such
         as are described in SCHEDULE 3(p) or in the SEC Documents listed in
         SCHEDULE 3(p) or such as do not materially and adversely affect the
         value of such property and do not interfere with the use made and
         proposed to be made of such property by the Company or its Subsidiary.
         Any real property and facilities held under lease by the Company or its
         Subsidiary are held by them under valid, subsisting and enforceable
         leases with such exceptions as are not material and do not interfere
         with the use made and proposed to be made of such property and
         buildings by the Company and its Subsidiary.

                  (q) INSURANCE. The Company and its Subsidiary are insured by
         insurers of recognized financial responsibility against such losses and
         risks and in such amounts as management of the Company believes to be
         prudent and customary in the businesses in which the Company and its
         Subsidiary are engaged. Neither the Company nor any such Subsidiary has
         been refused any insurance coverage sought or applied for and neither
         the Company nor any such Subsidiary has any reason to believe that it
         will not be able to renew its existing insurance coverage as and when
         such coverage expires or to obtain similar coverage from similar
         insurers as may be necessary to continue its business at a cost that
         would not materially and adversely affect the condition, financial or
         otherwise, or the earnings, business or operations of the Company and
         its Subsidiary taken as a whole.

                  (r) REGULATORY PERMITS. The Company and its Subsidiary possess
         all material certificates, authorizations and permits issued by the
         appropriate federal, state or foreign regulatory authorities, necessary
         to conduct their respective businesses, and neither the Company nor any
         such Subsidiary has received any notice of proceedings relating to the
         revocation or modification of any such certificate, authorization or
         permit.

                                       10
<PAGE>

                  (s) INTERNAL ACCOUNTING CONTROLS. The Company and its
         Subsidiary maintain a system of internal accounting controls sufficient
         to provide reasonable assurance that (i) transactions are executed in
         accordance with management's general or specific authorizations, (ii)
         transactions are recorded as necessary to permit preparation of
         financial statements in conformity with generally accepted accounting
         principles and to maintain asset accountability, (iii) access to assets
         is permitted only in accordance with management's general or specific
         authorization and (iv) the recorded accountability for assets is
         compared with the existing assets at reasonable intervals and
         appropriate action is taken with respect to any differences.

                  (t) FOREIGN CORRUPT PRACTICES ACT. Neither the Company, nor
         any director, officer, agent, employee or other person acting on behalf
         of the Company or any Subsidiary has, in the course of acting for, or
         on behalf of, the Company, directly or indirectly used any corporate
         funds for any unlawful contribution, gift, entertainment or other
         unlawful expenses relating to political activity; directly or
         indirectly made any direct or indirect unlawful payment to any foreign
         or domestic government official or employee from corporate funds;
         violated or is in violation of any provision of the U.S. Foreign
         Corrupt Practices Act of 1977, as amended, or any similar treaties of
         the United States; or directly or indirectly made any bribe, rebate,
         payoff, influence payment, kickback or other unlawful payment to any
         foreign or domestic government or party official or employee.

                  (u) TAX STATUS. The Company and its Subsidiary has made or
         filed all United States federal and state income and all other tax
         returns, reports and declarations required by any jurisdiction to which
         it is subject and (i) has paid all taxes and other governmental
         assessments and charges, shown or determined to be due on such returns,
         reports and declarations, except those being contested in good faith
         and (ii) has set aside on its books provisions reasonably adequate for
         the payment of all taxes for periods subsequent to the periods to which
         such returns, reports or declarations apply. There are no unpaid taxes
         claimed to be due by the taxing authority of any jurisdiction, and the
         Company is not aware of any basis for any such claim.

                  (v) CERTAIN TRANSACTIONS. Except as set forth in the SEC
         Documents filed on EDGAR at least thirty (30) Trading Days prior to the
         date hereof and except for arm's length transactions pursuant to which
         the Company makes payments in the ordinary course of business upon
         terms no less favorable than the Company could obtain from third
         parties and other than the grant of stock options disclosed on SCHEDULE
         3(c), none of the officers, directors or employees of the Company is
         presently a party to any transaction with the Company or its Subsidiary
         (other than for services as employees, consultants, officers and
         directors), including any contract, agreement or other arrangement
         providing for the furnishing of services to or by, providing for rental
         of real or personal property to or from, or otherwise requiring
         payments to or from any officer, director or such employee or, to the
         knowledge of the Company, any corporation,

                                       11
<PAGE>

         partnership, trust or other entity in which any officer, director or
         any such employee has a substantial interest or is an officer,
         director, trustee or partner.

                  (w) DILUTIVE EFFECT. The Company understands and acknowledges
         that the number of Common Shares issuable upon exercise of the Warrants
         purchased pursuant to this Agreement will increase in certain
         circumstances. The Company further acknowledges that, subject to such
         limitations as are expressly set forth in the Transaction Documents,
         its obligation to issue Common Shares upon exercise of the Warrants
         purchased pursuant to this Agreement, is absolute and unconditional
         regardless of the dilutive effect that such issuance may have on the
         ownership interests of other shareholders of the Company.

                  (x) APPLICATION OF TAKEOVER PROTECTIONS. There are no
         anti-takeover provisions contained in the Company's Certificate of
         Incorporation or otherwise which will be triggered as a result of the
         transactions contemplated by this Agreement, including, without
         limitation, the Company's issuance of the Common Shares and the Buyer's
         ownership of the Common Shares.

                  (y) RIGHTS PLAN. The Company confirms that no provision of the
         Company's rights plan will, under any present or future circumstances,
         delay, prevent or interfere with the performance of any of the
         Company's obligations under the Transaction Documents and such plan
         will not be "triggered" by such performance.

                  (z) OBLIGATIONS ABSOLUTE. Each of the Company and the Buyer
         agrees that, subject only to the conditions, qualifications and
         exceptions (if any) specifically set forth in the Transaction
         Documents, its obligations under the Transaction Documents are
         unconditional and absolute. Except to the extent (if any) specifically
         set forth in the Transaction Documents, each party's obligations
         thereunder are not subject to any right of set off, counterclaim, delay
         or reduction.

                  (aa) ISSUANCE OF COMMON SHARES. The Common Shares are duly
         authorized and reserved for issuance and, upon exercise of the Warrants
         in accordance with the terms thereof, such Common Shares will be
         validly issued, fully paid and non-assessable, free and clear of any
         and all liens, claims and encumbrances, and entitled to be traded on
         the Principal Market or the New York Stock Exchange or the American
         Stock Exchange, or the Nasdaq small cap market (collectively with the
         Principal Market, the "APPROVED MARKETS"), and the holders of such
         Common Shares shall be entitled to all rights and preferences accorded
         to a holder of Common Stock. As of the date of this Agreement, the
         outstanding shares of Common Stock are currently listed on the
         Principal Market.

                  (bb) BROKERS. The Company has taken no action which would give
         rise to any claim by any person for brokerage commissions, finder's
         fees or similar payments by the Buyer relating to this Agreement or the
         transactions contemplated hereby.

                                       12
<PAGE>

                  4.    CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

                  (a) TRANSFER RESTRICTIONS. The Company and the Buyer
acknowledge and agree that (A) the Shares and the Warrants have not been and are
not being registered under the provisions of the 1933 Act and, except as
provided in the Registration Rights Agreement with respect to the resale of the
Shares, the Shares have not been and are not being registered for resale under
the 1933 Act, and the Securities may not be transferred unless (i) subsequently
registered for resale thereunder or (ii) the Buyer 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 or
transferred may be sold or transferred pursuant to an exemption from such
registration (unless waived) and (B) any resale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act ("Rule 144") may be made
only in accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any such resale of 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 used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules and regulations of the SEC
thereunder.

                  (b) RESTRICTIVE LEGEND. (1) The Buyer acknowledges and agrees
that the Warrants shall bear a restrictive legend in substantially the following
form:

         The securities represented by this certificate have not been registered
         under the Securities Act of 1933, as amended. The securities have been
         acquired for investment and may not be resold, transferred or assigned
         in the absence of an effective registration statement for the
         securities under the Securities Act of 1933, as amended, or an opinion
         of counsel that registration is not required under said Act.

                           (2) The Buyer further acknowledges and agrees that
until such time as the Shares have been registered for resale under the 1933 Act
as contemplated by the Registration Rights Agreement, the certificates for the
Shares may bear a restrictive legend in substantially the following form:

         The securities represented by this certificate have not been registered
         under the Securities Act of 1933, as amended. The securities have been
         acquired for investment and may not be resold, transferred or assigned
         in the absence of an effective registration statement for the
         securities under the Securities Act of 1933, as amended, or an opinion
         of counsel that registration is not required under said Act.

                           (3) Once the Registration Statement required to be
filed by the Company pursuant to Section 2 of the Registration Rights Agreement
has been declared effective, thereafter (1) upon request of the Buyer the
Company will substitute certificates without restrictive legend for certificates
for all Shares issued prior to the date such Registration Statement is declared
effective by the SEC which bear such restrictive legend and remove any
stop-transfer restriction relating thereto promptly, but in no event later than
three Trading Days (as defined herein) after surrender of such certificates by
the Buyer and (2) the Company shall not place any restrictive legend on
certificates for Warrant Shares or impose any stop-transfer restriction thereon.
As used in this Agreement, "Trading Day" means a day on whichever of (x) the
national securities exchange, (y) Nasdaq or (z) the Nasdaq SmallCap Market (if
at the time

                                       13
<PAGE>

such market constitutes the principal securities market for the Common Stock) is
open for general trading.

                  (c) REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to
enter into the Registration Rights Agreement in the form attached hereto as
ANNEX III on or before the Closing Date.

                  (d) FORM D. The Company agrees to file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to the Buyer promptly after such filing. The Buyer agrees to cooperate with the
Company in connection with such filing and, upon request of the Company, to
provide all information relating to the Buyer reasonably required for such
filing.

                  (e) AUTHORIZATION FOR TRADING; REPORTING STATUS. On or before
the Closing Date, the Company shall, if required, file a notification for
listing of additional shares with the Nasdaq relating to the Shares and shall
provide evidence of such filing to the Buyer. So long as the Buyer beneficially
owns any of the Shares or the Warrants, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to Section 13(a) or 15(d) of the Exchange Act; provided, however, that
if the Company is not required to file reports pursuant to such sections, it
will prepare and furnish to the Purchasers and make publicly available in
accordance with Rule 144(c) promulgated under the Securities Act such
information as is required for the Purchasers to sell the Securities under Rule
144 promulgated under the Securities Act.

                  (f) USE OF PROCEEDS. Neither the Company nor any Subsidiary
owns or has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System ("margin stock"). The proceeds of sale of the Shares will be used for
general working capital purposes and in the operation of the Company's business.
None of such proceeds will be used, directly or indirectly (1) to make any loan
to or investment in any other person (other than financing the Company's
subsidiaries in the ordinary course of business or in connection with an
acquisition of another corporation or business or assets of another corporation
or business) or (2) for the purpose, whether immediate, incidental or ultimate,
of purchasing or carrying any margin stock or for the purpose of maintaining,
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any stock that is currently a margin stock or for any other purpose
which might constitute the transactions contemplated by this Agreement a
"purpose credit" within the meaning of such Regulation G. Neither the Company
nor any agent acting on its behalf has taken or will take any action which might
cause this Agreement or the transactions contemplated hereby to violate
Regulation G, Regulation T or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the 1934 Act, in each case as in effect
now or as the same may hereafter be in effect.

                  (g) BLUE SKY LAWS. The Company shall take such action as shall
be necessary to qualify, or to obtain an exemption for, the Common Shares for
sale to the Buyer and the Warrants for issuance to the Buyer pursuant to this
Agreement and the Warrant Shares for issuance to the Buyer upon exercise of the
Warrants under such of the securities or "blue sky"

                                       14
<PAGE>

laws of jurisdictions as shall be applicable to the sale of the Common Shares
and the issuance of the Warrants pursuant to this Agreement and the issuance to
the Buyer of Warrant Shares upon exercise of the Warrants. The Company shall
furnish copies of all filings, applications, orders and grants or confirmations
of exemptions relating to such securities or "blue sky" laws.

                  (h) EXPENSES. The parties shall each bear their own expenses
in connection with this Agreement, the other Transaction Documents and the
transactions contemplated hereby and thereby. In addition, the Company or the
Buyer, as the case may be, shall pay on demand all expenses incurred by the
other party, including reasonable attorneys' fees and expenses, as a consequence
of, or in connection with any default or breach of any of the defaulting or
breaching party's obligations set forth in any of such agreements or instruments
and the enforcement of any right of, including the collection of any payments
due, the other party under any of such agreements or instruments, including any
action or proceeding relating to such enforcement, or any order, injunction or
other process seeking to restrain a party from paying any amount due the other
party, in which the other party prevails, provided that such reimbursable legal
fees and expenses do not exceed, in each instance, 35% of the amount sought in
good faith to be recovered.

                  (i) CERTAIN ISSUANCES OF SECURITIES. Unless the Company
obtains the approval of its stockholders as required by the Shareholder Approval
Rule or a waiver thereof from Nasdaq, the Company will not issue any shares of
Common Stock or shares of any series of preferred stock or other securities
convertible into, exchangeable for, or otherwise entitling the holder to
acquire, shares of Common Stock which would be subject to the requirements of
the Shareholder Approval Rule and which would be integrated with the sale of the
Common Shares and issuance of the Warrants to the Buyer or the issuance of
Warrant Shares upon exercise of the Warrants for purposes of the Shareholder
Approval Rule.

                  (j) CERTAIN TRADING RESTRICTIONS. The Buyer agrees that on and
after the Closing Date until the Buyer no longer holds any Securities, the Buyer
will not engage in any short sales or other hedging transactions (including
swaps, options or derivative securities) relating to the Shares; unless at the
time of any such transaction the Company is then in breach of its obligations to
have the Buyer's Securities duly registered under the Registration Rights
Agreement; and PROVIDED, HOWEVER, the Buyer may engage in such short sales
and/or hedging activity provided that (i) after the date hereof the Buyer may
not sell short a number of shares in excess of the number of Warrant Shares then
issuable upon exercise of the Callable Warrants, (ii) no such short sales shall
be at a per share price below $3.9375 (as such figure shall be appropriately
adjusted for any stock splits, recapitalizations or similar events), and (iii)
the aggregate amount of such short sales made on any one day shall not exceed 5%
of the total trading volume on such day.

                  (k) COMMERCIALLY REASONABLE EFFORTS. Each of the parties shall
use commercially reasonable efforts timely to satisfy each of the conditions to
the other party's obligations to sell and purchase the Common Shares set forth
in Section 7 or 8, as the case may be, of this Agreement on or before the
Closing Date.

                                       15
<PAGE>

                  5.    INTENTIONALLY LEFT BLANK.

                  6.    CLOSING DATE.

                  Subject to the satisfaction or waiver of the conditions set
forth in Sections 7 and 8 below, the date and time of the issuance and sale of
the Common Shares and the issuance of the Warrants shall be 12:00 noon, New York
City time, on the Closing Date.

                  7.    CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL AND
                        ISSUE.

                  The Buyer understands that the Company's obligation to sell
the Common Shares and issue the Warrants to the Buyer pursuant to this Agreement
is conditioned upon the satisfaction of the following conditions precedent on or
before the Closing Date (any or all of which may be waived by the Company in its
sole discretion):

                  (a) The receipt by the Company of the Buyer's executed
signature page to this Agreement;

                  (b) Delivery by the Buyer to the Company of good funds for
payment of 75% of the Purchase Price for the Common Shares in accordance with
Section 1(b) hereof; and

                  (c) The accuracy in all material respects on the Closing Date
of the representations and warranties of the Buyer contained in this Agreement
as if made on the Closing Date and the performance by the Buyer on or before the
Closing Date of all covenants and agreements of the Buyer required to be
performed on or before the Closing Date, and receipt by the Company of a
certificate, dated the Closing Date, of a duly authorized signatory of the Buyer
confirming such matters and such other matters as the Company may reasonably
request.

                  8.    CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

                  The Company understands that the Buyer's obligation to
purchase the Common Shares and acquire the Warrants on the Closing Date is
conditioned upon the satisfaction of the following conditions precedent on or
before the Closing Date (any or all of which may be waived by the Buyer in its
sole discretion):

                  (a) The receipt by the Buyer of the Company's executed
signature page to this Agreement;

                  (b) Delivery by the Company to the Buyer (or its counsel) of
the certificates for the Common Shares, the Callable Warrants and the Class A
Warrants in accordance with this Agreement;

                  (c) The accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained in this Agreement
as if made on the Closing Date and the performance by the Company on or before
the Closing Date of all covenants and agreements of the Company required to be
performed on or before the Closing Date, and receipt by the Buyer of a
certificate, dated the Closing Date, of the Chief Executive

                                       16
<PAGE>

Officer of the Company confirming such matters and such other matters as the
Buyer may reasonably request;

                  (d) The receipt by the Buyer of a certificate, dated the
Closing Date, of the Secretary of the Company certifying (1) the Certificate of
Incorporation, as amended, and By-Laws of the Company as in effect on the
Closing Date and (2) all resolutions of the Board of Directors (and committees
thereof) of the Company relating to this Agreement and the transactions
contemplated hereby (which may be the same resolutions adopted for the Prior
Subscription Agreement if sufficient in the reasonable opinion of the Company's
counsel);

                  (e) Receipt by the Buyer on the Closing Date of an opinion of
Ropes & Gray, dated the Closing Date, in such form, scope and substance
reasonably satisfactory to the Buyer, to the effect set forth in ANNEX IV
attached hereto.

                  (f) From the date hereof to the Closing Date, trading in the
Company's Common Stock shall not have been suspended by the SEC and trading in
securities generally as reported by Nasdaq shall not have been suspended or
limited, and the Common Stock shall be listed on Nasdaq.

                  (g) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement, the
Warrants or the Registration Rights Agreement. The NASD shall not have objected
or indicated that it may object to the consummation of any of the transactions
contemplated by this Agreement.

                  (h) The Company and the Buyer shall have executed and
delivered the Registration Rights Agreement.

                  (i) The Company shall have delivered to the Buyer such other
documents relating to the transactions contemplated by this Agreement as the
Buyer or its counsel may reasonably request.

                  9.    MISCELLANEOUS.

                  (a) GOVERNING LAW. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the

                                       17
<PAGE>

address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.

                  (b) COUNTERPARTS. This Agreement may be executed in
counterparts and by the parties hereto on separate counterparts, all of which
together shall constitute one and the same instrument. A facsimile transmission
of this Agreement bearing a signature on behalf of a party hereto shall be legal
and binding on such party. Although this Agreement is dated as of the date first
set forth above, the actual date of execution and delivery of this Agreement by
each party is the date set forth below such party's signature on the signature
page hereof. Any reference in this Agreement or in any of the documents executed
and delivered by the parties hereto in connection herewith to (1) the date of
execution and delivery of this Agreement by the Buyer shall be deemed a
reference to the date set forth below the Buyer's signature on the signature
page hereof, (2) the date of execution and delivery of this Agreement by the
Company shall be deemed a reference to the date set forth below the Company's
signature on the signature page hereof and (3) the date of execution and
delivery of this Agreement or the date of execution and delivery of this
Agreement by the Buyer and the Company shall be deemed a reference to the later
of the dates set forth below the signatures of the parties on the signature page
hereof.

                  (c) HEADINGS, ETC. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.

                  (d) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.

                  (e) AMENDMENTS. No amendment, modification, waiver, discharge
or termination of any provision of this Agreement nor consent to any departure
by the Buyer or the Company therefrom shall in any event be effective unless the
same shall be in writing and signed by the party to be charged with enforcement,
and then shall be effective only in the specific instance and for the purpose
for which given. No course of dealing between the parties hereto shall operate
as an amendment of this Agreement.

                  (f) WAIVERS. Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, or any course of dealings between the parties, shall not
operate as a waiver thereof or an amendment hereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or exercise of any other right or power.

                  (g) NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be delivered personally (which shall
include telephone line facsimile transmission with answer back confirmation) or
by courier and shall be effective upon receipt, in the case of the Company
addressed to the Company at its address shown in the introductory paragraph of
this Agreement, Attention: Chief Executive Officer (telephone line facsimile

                                       18
<PAGE>

transmission number (650) 475-3101, with a copy to Ropes & Gray, One
International Place, Boston, Massachusetts, 02110, Attention: Geoffrey B. Davis,
Esq., (facsimile number (617) 951-7050), or, in the case of the Buyer, at its
address or telephone line facsimile transmission number shown on the signature
page of this Agreement, with a copy to Kleinberg, Kaplan, Wolff & Cohen, P.C.,
551 Fifth Avenue, New York, New York 10176, Attn: Peter J. Weisman, Esq.
(facsimile number: (212) 986-8866) or such other address or telephone line
facsimile transmission number as a party shall have provided by notice to the
other party in accordance with this provision.

                  (h) ASSIGNMENT. Prior to the Closing Date, the Buyer may not
assign its rights and obligations under this Agreement. Any transfer of the
Shares or the Warrants by the Buyer after the Closing Date shall be made in
accordance with Section 4. After the Closing Date, the Buyer shall have the
right to assign its rights and obligations under this Agreement in connection
with any transfer of the Securities upon execution by any transferee of an
instrument reasonably satisfactory to the Company pursuant to which the
transferee agrees with the Company to be bound as a Buyer by the terms and
conditions of this Agreement.

                  (i) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations, warranties, covenants and agreements of the Buyer and the
Company contained in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall survive the delivery of and
payment for the Common Shares and shall remain in full force and effect
regardless of any investigation made by or on behalf of them or any person
controlling or advising any of them.

                  (j) ENTIRE AGREEMENT. This Agreement and its Schedules and
Annexes, together with the Prior Subscription Agreement and its Schedules and
Annexes and the documents entered into or delivered in connection therewith or
the transactions contemplated thereby set forth the entire agreement between the
parties hereto with respect to the subject matter hereof.

                                       19
<PAGE>

                  (k) [INTENTIONALLY LEFT BLANK].

                  (l) FURTHER ASSURANCES. Each party to this Agreement will
perform any and all acts and execute any and all documents as may be necessary
and proper under the circumstances in order to accomplish the intents and
purposes of this Agreement and to carry out its provisions.

                  (m) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and
the Buyer shall have the right to approve before issuance any press releases or
any other public statements with respect to the transactions contemplated
hereby; PROVIDED, HOWEVER, that the Company shall be entitled, without the prior
approval of the Buyer, to make any press release or other public disclosure with
respect to such transactions as is required by applicable law or Nasdaq
regulation (although the Buyer shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release and
shall be provided with a copy thereof).

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

                  (o) INDEMNIFICATION. In consideration of the Buyer's execution
and delivery of this Agreement, the Registration Rights Agreement and acquiring
the Common Shares hereunder and in addition to all of the Company's other
obligations under this Agreement or the transaction documents contemplated
hereby, the Company shall defend, protect, indemnify and hold harmless the Buyer
and all of its partners, officers, directors, employees, members and direct or
indirect investors and any of the foregoing person's agents or other
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
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 the other transaction documents contemplated hereby
or any other certificate or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in this
Agreement or the other transaction documents contemplated herein or any other
certificate or document contemplated hereby or thereby, (c) any cause of action,
suit or claim brought or made against such Indemnitee by a third party and
arising out of or resulting from (i) the execution, delivery, performance,
breach by the Company or enforcement of this Agreement or the other transaction
documents contemplated hereby or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Shares or (iii) the status of the Buyer or holder of the Shares or
Warrants as an investor in the Company and (d) the enforcement of this Section.
Notwithstanding the foregoing, Indemnified Liabilities shall not include any
liability of any Indemnitee arising solely out of such Indemnitee's gross
negligence, willful misconduct or fraudulent action(s). 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

                                       20
<PAGE>

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 shall be the same as those set forth in the Registration Rights
Agreement, including, without limitation, those procedures with respect to the
settlement of claims and Company's right to assume the defense of claims.

                            [SIGNATURE PAGE FOLLOWS]

                                       21
<PAGE>

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

NUMBER OF SHARES:  457,750

PRICE PER SHARE:  $4.3692

AGGREGATE PURCHASE PRICE:  $2,000,000.00

                                        MILLENNIUM PARTNERS, LP

                                        By: /s/ Terry Feeny
                                            ------------------------------------
                                             Name:  Terry Feeny
                                             Title: Chief Financial Officer

                                        Date:  As of June 21, 2001

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

                                        STEMCELLS, INC.

                                        By: /s/ Martin M. McGlynn
                                            ------------------------------------
                                             Name:  Martin M. McGlynn
                                             Title: President, Chief
                                                    Executive Officer

                                        Date: As of June 21, 2001

                                       22
<PAGE>

SCHEDULES

Disclosure Schedule

ANNEXES

Annex I                    Form of Callable Warrant
Annex II                   Form of Common Stock Purchase Warrant, Class A
Annex III                  Form of Registration Rights Agreement
Annex IV                   Form of Opinion of Counsel to Be Delivered on
                           Closing Date

                                       23

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