Document:

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                                                                     Exhibit 4.2

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.

                                 STEMCELLS, INC.

                                     WARRANT

Warrant No. [_______] Dated: December 4, 2001

     STEMCELLS, INC., a Delaware corporation (the "COMPANY"), hereby certifies
that, for value received, RIVERVIEW GROUP, L.L.C., or its registered assigns
("HOLDER"), is entitled, subject to the terms set forth below, to purchase from
the Company a total of 350,877 shares of common stock, $.01 par value per share
(the "COMMON STOCK"), of the Company (each such share, a "Warrant Share" and all
such shares, the "WARRANT SHARES") at an exercise price equal to $3.42 per share
(as adjusted from time to time as provided in Section 9, the "EXERCISE PRICE"),
at any time and from time to time from and after the date hereof and through and
including December 4, 2005 (the "EXPIRATION DATE"), and subject to the following
terms and conditions:

     1. REGISTRATION OF WARRANT. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.

     2. REGISTRATION OF TRANSFERS AND EXCHANGES.

          (a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Transfer Agent
or to the Company at the office specified in or pursuant to Section 3(b). Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "NEW WARRANT"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New

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Warrant by the transferee thereof shall be deemed the acceptance of such
transferee of all of the rights and obligations of a holder of a Warrant.

          (b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.

     3. DURATION, EXERCISE AND REDEMPTION OF WARRANTS.

          (a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:00 P.M., New York City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 5:00
P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value.

          (b) Subject to Sections 5, 10 and 11, upon surrender of this Warrant,
with the Form of Election to Purchase attached hereto duly completed and signed,
to the Company at its address for notice set forth in Section 12 and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in the manner provided hereunder, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends except either (i) in the event that a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective, and the
Warrant Shares are not freely transferable without volume restrictions pursuant
to Rule 144(k) promulgated under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or (ii) if this Warrant shall have been issued pursuant to a
written agreement between the original Holder and the Company, as required by
such agreement. Any person so designated by the Holder to receive Warrant Shares
shall be deemed to have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.

     A "DATE OF EXERCISE" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.

          (c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. In the event that
the Warrant is not exercised in full, the number of Warrant Shares shall be
reduced by the number of such Warrant Shares for which this Warrant is
exercised, and the Company at its expense, within five (5) business days issue
and deliver to the Holder a New Warrant in the name of the Holder or as the
Holder may request, reflecting such adjusted Warrant Shares.

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          (d) In lieu of delivering physical certificates representing the
Warrant Shares issuable upon conversion of this Warrant, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the Holder, the
Company shall use its best efforts to cause its transfer agent to electronically
transmit the Warrant Shares issuable upon exercise to the Holder, by crediting
the account of the Holder's prime broker with DTC through its Deposit Withdrawal
Agent Commission ("DWAC") system. The time periods for delivery described above
shall apply to the electronic transmittals through the DWAC system. The Company
agrees to coordinate with DTC to accomplish this objective.

     4. REGISTRATION RIGHTS. This Warrant and the Holder hereof are entitled to
the benefits of, and subject to the terms and condition of and obligations
under, that certain Registration Rights Agreement dated the date hereof between
the Company and the original Holder (the "REGISTRATION RIGHTS AGREEMENT").

     5. FRACTIONAL SHARES. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this Warrant. The
number of full Warrant Shares which shall be issuable upon the exercise of this
Warrant shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of this Warrant so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section, be issuable on
the exercise of this Warrant, the Company shall pay an amount in cash equal to
the fair market value of such share as of the Date of Exercise multiplied by
such fraction.

     6. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.

     7. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.

     8. RESERVATION OF WARRANT SHARES. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 9). The Company covenants that all Warrant Shares that
shall be so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price in

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accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.

     9. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section. Upon each such adjustment of the Exercise
Price pursuant to this Section, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.

          (a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock or on any other class of capital stock payable in
shares of Common Stock (except dividends or distributions paid on preferred or
other senior stock), (ii) subdivide outstanding shares of Common Stock into a
larger number of shares, or (iii) combine outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision or combination, and shall apply to successive
subdivisions and combinations.

          (b) In case of any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification or share exchange, and the Holder
shall be entitled upon such event to receive such amount of securities or
property as such Holder would have been entitled to receive if such Holder had
exercised this Warrant immediately prior to such reclassification or share
exchange (net of the applicable Exercise Price). The terms of any such
reclassification or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities or property set forth in
this Section 9(b) upon any exercise following any such reclassification or share
exchange.

          (c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
9(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date

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less the then fair market value at such record date of the portion of such
assets or evidence of indebtedness so distributed applicable to one outstanding
share of Common Stock as determined by the Company's independent certified
public accountants that regularly examine the financial statements of the
Company (an "APPRAISER").

          (d) If at any time the Company or any subsidiary thereof shall issue
shares of Common Stock or rights, warrants, options or other securities or debt
that is convertible into or exchangeable for shares of Common Stock ("COMMON
STOCK EQUIVALENTS"), entitling any person or entity to acquire shares of Common
Stock at a price per share less than the market price of the Common Stock at the
time of issuance, forthwith upon such issue or sale, the Exercise Price shall be
reduced to the price (calculated to the nearest cent) determined by multiplying
the Exercise Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such issuance, and (ii) the number of shares of
Common Stock which the aggregate consideration received (or to be received,
assuming exercise or conversion in full of such Common Stock Equivalents) for
the issuance of such additional shares of Common Stock would purchase at the
Exercise Price, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares. For purposes hereof, all shares of Common Stock that are
issuable upon conversion, exercise or exchange of Common Stock Equivalents shall
be deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such Common Stock or Common
Stock Equivalents are issued. However, upon the expiration of any Common Stock
Equivalents the issuance of which resulted in an adjustment in the Exercise
Price pursuant to this Section, the Exercise Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of this
Section after the issuance of such Common Stock Equivalents) had the adjustment
of the Exercise Price made upon the issuance of such Common Stock Equivalents
been made on the basis of offering for subscription or purchase only that number
of shares of the Common Stock actually purchased upon the exercise of such
Common Stock Equivalents actually exercised. Notwithstanding anything herein to
the contrary, (x) issuances of any stock or stock options under any bona fide
employee benefit plan or compensation arrangement of the Company and (y)
issuances of shares of Common Stock or Common Stock Equivalents with respect to
a Board Approved Transaction (as defined herein), shall not be subject to the
provisions of this Section.

     A "BOARD APPROVED TRANSACTION" is a transaction involving a strategic
alliance, acquisition of stock or assets, merger, collaboration, joint venture,
partnership or 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 the Company's Board of Directors by
resolution duly adopted approves such transaction in accordance with its duties
under applicable law.

          (e) In case of any (1) merger or consolidation of the Company with or
into another Person, or (2) sale by the Company of more than one-half of the
assets of the Company

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(on a market value basis) in one or a series of related transactions, or (3)
tender or other offer or exchange (whether by the Company or another Person)
pursuant to which holders of Common Stock are permitted to tender or exchange
their shares for other securities, stock, cash or property of the Company or
another Person; then the Holder shall have the right, upon or after such
transfer, merger, consolidation, sale, offer or exchange, to (A) exercise this
Warrant for the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of Common Stock following such
merger, consolidation or sale, and the Holder shall be entitled to receive such
amount of securities, cash and property as the Common Stock for which this
Warrant could have been exercised immediately prior to such merger,
consolidation or sales would have been entitled, (B) in the case of a merger or
consolidation, require the surviving entity to issue to the Holder a warrant
entitling the Holder to acquire shares of such entity's common stock, which
warrant shall have terms identical MUTATIS MUTANDIS (including with respect to
exercise) to the terms of this Warrant and shall entitle the holder thereof to
all of the rights and privileges set forth herein and in the agreements pursuant
to which this Warrant was issued (including, without limitation, as such rights
relate to the acquisition, transferability, registration and listing of such
shares of stock or other securities issuable upon exercise thereof) MUTATIS
MUTANDIS, or (C) in the event of an exchange or tender offer or other
transaction contemplated by clause (3) of this Section 9(e), tender or exchange
this Warrant for such securities, stock, cash and other property receivable upon
or deemed to be held by holders of Common Stock that have tendered or exchanged
their shares of Common Stock following such tender or exchange, and the Holder
shall be entitled upon such exchange or tender to receive such amount of
securities, cash and property as the shares of Common Stock for which this
Warrant could have been exercised immediately prior to such tender or exchange
would have been entitled (net of the applicable Exercise Price). In the case of
clause (B), the exercise price applicable for the newly issued warrant shall be
based upon the amount of securities, cash and property that each share of Common
Stock would receive in such transaction and the Exercise Price immediately prior
to the effectiveness or closing date for such transaction. The terms of any such
merger, sale, consolidation, tender or exchange shall include such terms so as
to continue to give the Holder the right to receive the securities, cash and
property set forth in this Section upon any conversion or exercise following
such event. This provision shall similarly apply to successive such events.

          (f) For the purposes of this Section 9, the following clauses shall
also be applicable:

               (i) RECORD DATE. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.

               (ii) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company.

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          (g) All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.

          (h) If (i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or (ii) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock; or (iii) the
Company shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; or (iv) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then the
Company shall cause to be mailed to each Holder at their last addresses as they
shall appear upon the Warrant Register, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, grant of rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.

     10. PAYMENT OF EXERCISE PRICE. The Holder shall pay the Exercise Price in
one of the following manners:

          (a) CASH EXERCISE. The Holder may deliver immediately available funds;
or

          (b) CASHLESS EXERCISE. At any time after the earlier to occur of the
SEC Effective Date or the Effectiveness Required Date (as such terms are defined
in the Registration Rights Agreement), when a registration statement covering
the resale of the Warrant Shares and naming the Holder as a selling stockholder
thereunder is not then effective or sales may not be effected for any reason
pursuant to such registration statement and related prospectus, the Holder may
surrender this Warrant to the Company together with a notice of cashless
exercise, in which event the Company shall issue to the Holder the number of
Warrant Shares determined as follows:

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

                           X = the number of Warrant Shares to be issued
                  to the Holder.

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                           Y = the number of Warrant Shares with respect to
                           which this Warrant is being exercised.

                           A = the average of the closing sale prices of the
                           Common Stock for the five (5) trading days
                           immediately prior to (but not including) the Date of
                           Exercise.

                           B = the Exercise Price.

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date of this Warrant.

     11. CERTAIN EXERCISE RESTRICTIONS.

          (a) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by the Holder upon
exercise pursuant to the terms hereof shall not exceed a number that, when added
to the total number of shares of Common Stock deemed beneficially owned by such
Holder (other than by virtue of the ownership of securities or rights to acquire
securities that have limitations on the Holder's right to convert, exercise or
purchase similar to the limitation set forth herein), together with all shares
of Common Stock deemed beneficially owned (other than by virtue of the ownership
of securities or rights to acquire securities that have limitation set forth
herein) by the Holder's "affiliates" (as defined in Rule 144 of the Securities
Act) ("AGGREGATION PARTIES"), that would be aggregated for purposes of
determining whether a group under Section 13(d) of the Securities Exchange Act
of 1934, as amended, exists would exceed 9.99% of the total issued and
outstanding shares of the Common Stock (the "RESTRICTED OWNERSHIP PERCENTAGE").
Each Holder shall have the right (w) at any time and from time to time to reduce
its Restricted Ownership Percentage immediately upon notice to the Company and
(x) (subject to waiver) at any time and from time to time, to increase its
Restricted Ownership Percentage immediately in the event of the announcement as
pending or planned, of a merger or consolidation of the Company, a sale of all
or substantially all of the assets of the Company or the acquisition by any
third party (and/or such party's Aggregation Parties) of at least 51% of the
Company's outstanding Common Stock. The Company's obligation to issue shares of
Common Stock which would exceed such limited shall be suspended to the extent
necessary until such time, if any, as shares of Common Stock may be issued in
compliance with such restrictions.

     12. NOTICES. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required

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to be given. The addresses for such communications shall be: (i) if to the
Company, 3155 Porter Drive, Palo Alto, California 94086, with a copy to Ropes &
Gray, One International Place, Boston, Massachusetts, 02110, Attention: Geoffrey
B. Davis, Esq., (facsimile number (617) 951-7050), or (ii) if to the Holder, to
the Holder at the address or facsimile number appearing on the Warrant Register
or such other address or facsimile number as the Holder may provide to the
Company in accordance with this Section, with a copy to Kleinberg, Kaplan, Wolff
& Cohen, P.C., 551 Fifth Avenue, New York, New York 10176, Attention: Stephen M.
Schultz, Esq., (facsimile number (212) 986-8866).

     13. WARRANT AGENT. The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.

     14. MISCELLANEOUS.

          (a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. Subject to the
Subscription Agreement entered into between the Company and the Holder on the
date hereof and applicable securities laws, this Warrant shall be freely
transferable. This Warrant may be amended only in writing signed by the Company
and the Holder and their successors and assigns.

          (b) Subject to Section 14(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.

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

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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.

          (d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.

          (e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

     IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its authorized officer as of the date first indicated above.

                              STEMCELLS, INC.

                              By: /s/ Martin McGlynn
                                  -----------------------------

                              Name: Martin McGlynn
                                  -----------------------------

                              Title: President and CEO
                                  -----------------------------

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                          FORM OF ELECTION TO PURCHASE

To: STEMCELLS, INC.

(1) The undersigned hereby elects to exercise its Warrant for and to purchase
thereunder, ______ shares of Common Stock, [AND HEREWITH MAKES PAYMENT THEREFOR
OF $_______] [OR] [AND ELECTS TO UTILIZE THE CASHLESS EXERCISE PROVISIONS OF
SECTION 10(b) OF THIS WARRANT, RESULTING IN ______ SHARES OF COMMON STOCK
ISSUABLE HEREUNDER].

(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:

                           -------------------------------
                           (Name)

                           -------------------------------
                           (Address)
                           -------------------------------

                           -------------------------------
                           (Tax Identification or Social Security #)

(3) Please issue a New Warrant (as defined in the Warrant) for the unexercised
portion of the attached Warrant in the name of the undersigned or in such other
name as is specified below:

                                     -----------------------------------
                                     (NAME)

                                     -----------------------------------
                                     (SIGNATURE)

                                     -----------------------------------
                                     (DATE)

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

                                     -----------------------------------
                                     (ADDRESS)]

Dated:

------------------------------
Signature

                                       11
<PAGE>

                               FORM OF ASSIGNMENT

           [To be completed and signed only upon transfer of Warrant]

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of StemCells, Inc. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of StemCells, Inc. with full power of
substitution in the premises.

Dated:

---------------, ----

                             ---------------------------------------
                             (Signature must conform in all respects to name of
                             holder as specified on the face of the Warrant)

                             ---------------------------------------
                             Address of Transferee

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

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

In the presence of:

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

                                       12<PAGE>

                                                                    Exhibit 10.1

===============================================================================

                             SUBSCRIPTION AGREEMENT

                          DATED AS OF DECEMBER 4, 2001

                                 BY AND BETWEEN

                                 STEMCELLS, INC.

                                       AND

                             RIVERVIEW GROUP, L.L.C.

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

                           CONVERTIBLE PREFERRED STOCK
                                       AND
                                    WARRANTS

===============================================================================

<PAGE>

     THIS SUBSCRIPTION AGREEMENT, dated this 4th day of December, 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 Riverview Group, L.L.C., a Delaware limited liability
company (the "BUYER").

                              W I T N E S S E T H:

     WHEREAS, the Company desires to sell and issue to the Buyer, and the Buyer
wish to purchase from the Company: (i) shares of the Company's 3% Cumulative
Convertible Preferred Stock, liquidation preference $1,000 per share (all such
shares being "PREFERRED SHARES"), having the rights, designations and
preferences set forth in the Certificate of Designations (the "CERTIFICATE") in
the form of EXHIBIT 1 attached hereto, which Preferred Shares shall be
convertible into the number of shares of the Company's common stock, par value
$.01 per share ("COMMON STOCK") set forth in the Certificate (subject to
adjustment as provided therein); and (ii) one or more warrants (the "WARRANTS")
to purchase in the aggregate the number of shares of Common Stock set forth in
the Warrants (subject to adjustment as provided therein), in the form of EXHIBIT
2 attached hereto;

     WHEREAS, the Buyer will have registration rights with respect to the shares
of Common Stock issuable upon conversion of the Preferred Shares or exercise of
the Warrants pursuant to the terms of that certain registration rights agreement
to be entered into between the Company and the Buyer as of the date hereof in
the form of EXHIBIT 3 hereto ("REGISTRATION RIGHTS AGREEMENT"); 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 (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
Preferred Shares set forth on the signature page of this Agreement at the price
per share set forth on the signature page of this Agreement. The shares of
Common Stock issuable upon conversion of the Preferred Shares are referred to
herein as the "COMMON SHARES." In connection with the purchase of the Preferred
Shares by the Buyer, the Company shall issue to the Buyer, at the closing on the
Closing Date (as defined herein) 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 "UNDERLYING SHARES." The Preferred Shares and the Warrants
are referred to herein collectively as the "SECURITIES." The aggregate purchase
price for the Preferred Shares and Warrants, which is set forth on the signature
page of this Agreement, is referred to herein as the "PURCHASE PRICE."

<PAGE>

          (b) THE CLOSING.

               (i) TIMING. Subject to the fulfillment or waiver of the
conditions set forth in Sections 6 and 7 hereof, the purchase and sale of the
Preferred 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.

               (ii) FORM AND TIMING OF PAYMENT. The Buyer shall pay the Purchase
Price for the Preferred Shares and Warrants by delivering the Purchase Price to
the Company on the Closing Date. Upon Closing, the Company shall deliver to the
Buyer (or Kleinberg, Kaplan, Wolff & Cohen, P.C. on behalf of the Buyer) (A) one
or more certificates representing the aggregate Preferred Shares purchased
hereunder by Buyer at the Closing and (B) the Warrants, in each case registered
in the corporate securities records of the Company and on the certificates in
the name of the Buyer or its nominee.

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

     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 Securities and the Underlying 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 Securities and the Underlying 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 Securities and the
Underlying 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 Securities
and Underlying Shares.

          (c) LEGENDS. The Company shall issue certificates for the Securities
and Underlying Shares to the Buyer without any legend except as described
herein. The Buyer covenants that, in connection with any transfer of Underlying
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

                                       2
<PAGE>

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 Securities
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
Securities nor the Underlying Shares issuable upon conversion or 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 Securities, 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.

          (g) RULE 144. The Buyer understands that there is no public trading
market for the Preferred Shares and the Warrants and that none is expected to
develop. The Buyer understands that the Securities and the Underlying Shares
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 Securities
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 Securities.

                                       3
<PAGE>

     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,
the Warrants 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
Certificate, the Registration Rights Agreement and the Warrants (as they may be
amended from time to time, the "TRANSACTION DOCUMENTS") and to issue the
Preferred Shares and the Warrants in accordance with the terms 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 Securities, 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
Certificate, the Registration Rights Agreement, and the Warrants have been duly
executed and delivered by the Company, (iv) this Agreement, the Certificate, 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 Securities and the Underlying Shares issuable upon
the conversion or exercise thereof have been duly authorized and, upon issuance
thereof and payment therefor in accordance with the terms of this Agreement, the
Securities and the Underlying Shares will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, claims and encumbrances.

                                       4
<PAGE>

          (c) CAPITALIZATION. As of the date hereof, following the acceptance of
the Certificate by the Secretary of State of Delaware, the authorized capital
stock of the Company consists of (i) 45,000,000 shares of Common Stock, of which
23,455,137 shares were issued and outstanding, and, 6,700,000 shares are
issuable and reserved for issuance pursuant to the Company's stock option and
purchase plans and committed pursuant to pending acquisitions, and,
approximately 938,530 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 1,800,000 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, (B) 450,000 shares are designated as Junior
Preferred Shares, none of which are issued or outstanding and (C) 5,000
Preferred Shares, all of which are to be issued pursuant to this Agreement. 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), (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
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 1933 Act
(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 any Securities or any Underlying Shares 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 the Preferred
Shares, the Warrants, and the Underlying Shares 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

                                       5
<PAGE>

and regulations and the rules and regulations of the Principal Market (as
defined in the last sentence of this paragraph) 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 its 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 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 Securities 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. "PRINCIPAL MARKET" shall mean the Nasdaq National Market
System or, if the Common Stock ceases to be traded on the Nasdaq National Market
System, such other market on which the Common Stock is then principally listed
or quoted.

          (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,

                                       6
<PAGE>

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, since December 31, 1998 there has been no adverse change or adverse
development in the business, properties, 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 Securities. 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) in writing or otherwise expressly consents in
writing to the receipt of non-public information (in any case subject to Section
4(k) hereof).

                                       7
<PAGE>

          (k) NO SECURITIES ACT REGISTRATION. The sale and issuance of the
Preferred Shares and Warrants in accordance with terms of this Agreement and the
issuance of the Underlying Shares upon the conversion and/or exercise of the
Securities 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) INTENTIONALLY OMITTED.

          (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.

                                       8
<PAGE>

          (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 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 certificates, authorization or permit.

          (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.

                                       9
<PAGE>

          (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,
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 Underlying Shares issuable upon conversion or exercise of the
Securities 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 the Underlying Shares upon
conversion or exercise of the Securities 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
Securities or Underlying Shares and the Buyer's ownership of the Securities or
Underlying 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.

                                       10
<PAGE>

          (aa) ISSUANCE OF UNDERLYING SHARES. The Underlying Shares are duly
authorized and reserved for issuance and, upon exercise or conversion of the
Warrants or Preferred Shares, respectively, in accordance with the terms
thereof, such Underlying 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 Nasdaq National Market System, the New York
Stock Exchange, the American Stock Exchange or the Nasdaq Small-Cap Market
(collectively, the "APPROVED Markets"), and the holders of such Underlying
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 Nasdaq National Market System.

          (bb) BROKERS. Other than the Company's engagement of Cantor Fitzgerald
& Co., 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. The Company
shall be responsible for any and all payments to Cantor Fitzgerald & Co. related
to such engagement.

     4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

          (a) TRANSFER RESTRICTIONS.

     The Company and the Buyer acknowledge and agree that (i) the Securities
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 Underlying Shares, the Underlying Shares have not been and are not
being registered for resale under the 1933 Act, and the Securities may not be
transferred unless (A) subsequently registered for resale thereunder or (B) 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 and/or Underlying Shares to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration (unless waived) and
(ii) any resale of the Securities and/or Underlying Shares 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 and/or Underlying Shares 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.

               (i) The Buyer acknowledges and agrees that the Preferred Shares
and 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 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.

                                       11
<PAGE>

               (ii) The Buyer further acknowledges and agrees that until such
time as the Underlying Shares have been registered for resale under the 1933 Act
as contemplated by the Registration Rights Agreement, the certificates for the
Underlying 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 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.

               (iii) Once the Registration Statement required to be filed by the
Company pursuant to Section 2 of the Registration Rights Agreement has been
declared effective or once the Underlying Shares may be sold pursuant to Rule
144, thereafter (A) upon request of the Buyer the Company will substitute
certificates without restrictive legend for certificates for all Underlying
Shares 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
(B) the Company shall not place any restrictive legend on certificates for
Underlying Shares or impose any stop-transfer restriction thereon. As used in
this Agreement, "TRADING DAY" means a day on which the Principal Market 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 EXHIBIT 3 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
Underlying Shares and shall provide evidence of such filing to the Buyer. So
long as the Buyer beneficially owns any of the Securities or Underlying Shares,
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 Buyer and
make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act such information as is required for the Buyer to sell the
Securities under Rule 144 promulgated under the Securities Act.

                                       12
<PAGE>

          (f) BLUE SKY LAWS.

     The Company shall take such action as shall be necessary to qualify, or to
obtain an exemption for, the Preferred Shares for sale to the Buyer and the
Warrants for issuance to the Buyer pursuant to this Agreement and the Underlying
Shares for issuance to the Buyer upon conversion of the Preferred Shares or
exercise of the Warrants under such of the securities or "blue sky" laws of
jurisdictions as shall be applicable to the sale of the Preferred Shares and the
issuance of the Warrants pursuant to this Agreement and the issuance to the
Buyer of the Underlying Shares pursuant to the terms of the Securities. The
Company shall furnish copies of all filings, applications, orders and grants or
confirmations of exemptions relating to such securities or "blue sky" laws.

          (g) 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, where the amount is
quantifiable, such reimbursable legal fees and expenses do not exceed, in each
instance, 35% of the amount sought in good faith to be recovered.

          (h) CERTAIN ISSUANCES OF SECURITIES.

     Unless the Company obtains (x) the approval of its stockholders as required
by 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") or (y) 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 Preferred
Shares and issuance of the Warrants to the Buyer or the issuance of the
Underlying Shares for purposes of the Shareholder Approval Rule.

     (i) 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 Preferred Shares set forth in
Section 6 or 7, as the case may be, of this Agreement on or before the Closing
Date.

     (j) INTENTIONALLY OMITTED.

                                       13
<PAGE>

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

     (l) PRESS RELEASE. Immediately following the Closing Date, the Company
shall issue a press release in the form set forth in EXHIBIT 5 hereto. Buyer
shall have the opportunity to review such press release prior to its issuance.
No press release shall name the Buyer except as shall be required by law or
permitted by Buyer. If the Company fails to issue a press release within 1
business day of the Closing Date, the Buyer may issue a press release covering
the Transaction Documents and complying with any legal requirement applicable to
the Buyer and the Company.

     5. CLOSING DATE.

     Subject to the satisfaction or waiver of the conditions set forth in
Sections 6 and 7 below, the date and time of the issuance and sale of the
Preferred Shares and the issuance of the Warrants shall be 4:00 p.m., New York
City time, on the Closing Date.

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

     The Buyer understands that the Company's obligation to sell the Preferred
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 and the Registration Rights Agreement;

          (b) Delivery by the Buyer to the Company of good funds for payment of
100% of the Purchase Price for the Securities in accordance with Section 1
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.

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

     The Company understands that the Buyer's obligation to purchase the
Preferred 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):

                                       14
<PAGE>

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

          (b) The delivery by the Company to the Buyer (or its counsel) of the
Preferred Shares and the 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 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 (i) the Certificate of Incorporation,
as amended, and By-Laws of the Company as in effect on the Closing Date and (ii)
all resolutions of the Board of Directors (and committees thereof) of the
Company relating to this Agreement and the transactions contemplated hereby;

          (e) The 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 EXHIBIT 4
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 any Transaction
Document. 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) Evidence of the acceptance of the Certificate by the Secretary of
the State of Delaware.

          (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.

     8. 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

                                       15
<PAGE>

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 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.

          (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

                                       16
<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: Stephen M. Schultz, 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 Securities
or Underlying Shares 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 and Underlying Shares 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 Preferred 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 Exhibits,
the Transaction Documents and the transactions contemplated hereby and thereby
set forth the entire agreement between the parties hereto with respect to the
subject matter hereof.

          (k) 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.

          (l) 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).

          (m) 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.

          (n) INDEMNIFICATION. In consideration of the Buyer's execution and
delivery of this Agreement, the Registration Rights Agreement and acquiring the
Preferred Shares hereunder

                                       17
<PAGE>

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 (i) 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, (ii) 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, (iii) any cause of action, suit or claim brought or made
against such Indemnitee by a third party and arising out of or resulting from
(A) 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, (B)
any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Underlying Shares or (C)
the status of the Buyer or holder of the Securities or Underlying Shares as an
investor in the Company and (iv) 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 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]

                                       18
<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 PREFERRED SHARES:  5,000

PRICE PER SHARE:  $1,000.00

NUMBER OF WARRANT SHARES:   350,877

AGGREGATE PURCHASE PRICE:  $5,000,000.00

WARRANT EXERCISE PRICE:  $3.42

                                  RIVERVIEW GROUP, L.L.C.

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

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

                                  STEMCELLS, INC.

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

                                       19
<PAGE>

SCHEDULES

Disclosure Schedule

EXHIBITS

Exhibit 1        Form of Certificate
Exhibit 2        Form of Warrants
Exhibit 3        Form of Registration Rights Agreement
Exhibit 4        Form of Opinion of Counsel to Be Delivered on Closing Date
Exhibit 5        Form of Press Release

                                       20

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