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<SEC-DOCUMENT>0000950123-11-001243.txt : 20110107
<SEC-HEADER>0000950123-11-001243.hdr.sgml : 20110107
<ACCEPTANCE-DATETIME>20110107093923
ACCESSION NUMBER:		0000950123-11-001243
CONFORMED SUBMISSION TYPE:	424B5
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20110107
DATE AS OF CHANGE:		20110107

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			STEMCELLS INC
		CENTRAL INDEX KEY:			0000883975
		STANDARD INDUSTRIAL CLASSIFICATION:	BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836]
		IRS NUMBER:				943078125
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		424B5
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-170300
		FILM NUMBER:		11515844

	BUSINESS ADDRESS:	
		STREET 1:		3155 PORTER DRIVE
		STREET 2:		.
		CITY:			PALO ALTO
		STATE:			CA
		ZIP:			94304
		BUSINESS PHONE:		6504753100

	MAIL ADDRESS:	
		STREET 1:		3155 PORTER DRIVE
		STREET 2:		.
		CITY:			PALO ALTO
		STATE:			CA
		ZIP:			94304

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	CYTOTHERAPEUTICS INC/DE
		DATE OF NAME CHANGE:	19930328
</SEC-HEADER>
<DOCUMENT>
<TYPE>424B5
<SEQUENCE>1
<FILENAME>f57170b5e424b5.htm
<DESCRIPTION>424B5
<TEXT>
<HTML>
<HEAD>
<TITLE>e424b5</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top">PROSPECTUS SUPPLEMENT<BR>
(To Prospectus dated November&nbsp;16, 2010)
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">Filed pursuant to Rule&nbsp;424(b)(5)<BR>
Registration No.&nbsp;333-170300</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>16,000,000 Shares of Common Stock</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><IMG src="f57170b5f5717003.gif" alt="(STEMCELLS LOGO)">
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are offering up to 16,000,000 shares of our common stock in this offering in one or more
separate closings at $1.00 per share. 10,000,000 shares of our common stock will be sold in the
first closing. At the option of the purchasers and subject to certain conditions, we will sell up
to an additional 6,000,000 shares of our common stock at one or more subsequent closings which will
take place no later than the third trading day after February&nbsp;18, 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our common stock is quoted on The Nasdaq Global Market under the symbol &#147;STEM.&#148; On January&nbsp;6, 2011,
the last reported sales price of our common stock on The Nasdaq Global Market was $1.11 per share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Investing in our securities involves a high degree of risk. Before buying any securities, you
should read the discussion of material risks of investing in our common stock under the heading
&#147;Risk factors&#148; beginning on page S-3 of this prospectus supplement.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Neither the Securities and Exchange Commission nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of this prospectus
supplement or the accompanying prospectus. Any representation to the contrary is a criminal
offense.</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Maximum</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Per Share</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Offering Amount</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Offering price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">16,000,000 </TD>
    <TD nowrap>(1)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Placement fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">0.055</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">550,000</TD>
    <TD nowrap>(2)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds, before expenses, to us at the initial closing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">0.945</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">9,450,000</TD>
    <TD nowrap>(2)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds, before expenses, to us at subsequent closings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">1.00</TD>
    <TD nowrap>(2)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">6,000,000</TD>
    <TD nowrap>(2)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Maximum offering amount assuming that the maximum number of shares offered hereby are
sold. As described under &#147;Plan of distribution&#148; below, we are offering 10,000,000 shares of common
stock at the initial closing and may be required to sell up to 6,000,000 shares of common stock at
one or more subsequent closings, subject to certain limitations and qualifications.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>The placement fees are equivalent to 5.5% of the gross proceeds of the initial closing only
($10,000,000).</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Chardan Capital Markets, LLC is acting as placement agent as described in &#147;Plan of distribution,&#148;
below. Delivery of the shares for the initial closing will be made on or about January&nbsp;7, 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We estimate the total expenses of this offering, excluding placement fees, will be approximately
$50,000. Because there is no minimum offering amount required to be purchased in the closings, the
actual offering amount and net proceeds to us in this offering may be substantially less than the
maximum offering amounts set forth above.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Chardan Capital Markets, LLC</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">The date of this prospectus supplement is January&nbsp;7, 2011.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>This prospectus supplement is not complete without, and may not be utilized except in connection
with, the accompanying prospectus dated November&nbsp;16, 2010 and any amendments to such prospectus.
This prospectus supplement provides supplemental information regarding us, updates certain
information contained in the accompanying prospectus and describes the specific terms of this
offering. The accompanying prospectus gives more general information, some of which may not apply
to this offering. We incorporate important information into this prospectus supplement and the
accompanying prospectus by reference. You may obtain the information incorporated by reference
into this prospectus supplement and the accompanying prospectus without charge by following the
instructions under &#147;Where you can find more information.&#148; You should carefully read both this
prospectus supplement and the accompanying prospectus, as well as the additional information
described under &#147;Incorporation of certain documents by reference,&#148; before deciding to invest in
the shares.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>You should rely only on the information contained and incorporated by reference in this prospectus
supplement and the accompanying prospectus. We have not authorized anyone to give you different or
additional information. You should not assume that the information included or incorporated by
reference in this prospectus supplement and accompanying prospectus is accurate as of any date
after the respective dates of the documents containing the information.</B>
</DIV>

<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>TABLE OF CONTENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Prospectus supplement</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">Prospectus supplement summary</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Risk factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Note regarding forward-looking statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Use of proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Price range of common stock</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Dividend policy</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Dilution</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Description of securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Plan of distribution</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-16</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">Where you can find more information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Incorporation of certain documents by reference</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Legal matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Experts</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">S-18</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Prospectus</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Prospectus Summary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk factors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Note Regarding Forward-looking statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Use of proceeds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ratio of earnings to fixed charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Plan of distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Description of Common Stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Description of Preferred Stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Description of Warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Description of Debt Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Legal matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Experts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Where you can find more information</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Incorporation of certain documents by reference</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Unless the context requires otherwise, the words &#147;StemCells,&#148; &#147;we,&#148; &#147;company,&#148; &#147;us&#148; and &#147;our&#148; refer
to StemCells, Inc. and our directly and indirectly wholly-owned subsidiaries.
</DIV>











<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P>
<DIV style="width: 100%; border: 1px solid black; padding: 11px;">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Prospectus supplement summary
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>This summary highlights selected information appearing elsewhere or incorporated by reference
in this prospectus supplement and accompanying prospectus and may not contain all of the
information that is important to you. This prospectus supplement and the accompanying prospectus
include or incorporate by reference information about the common stock we are offering as well as
information regarding our business and detailed financial data. You should read this prospectus
supplement and the accompanying prospectus in their entirety, including the information
incorporated by reference.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>BUSINESS OVERVIEW</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are engaged in researching, developing, and commercializing stem cell therapeutics and
technologies for stem cell-based research, drug discovery and development. Our research and
development efforts primarily support our therapeutic product programs, where we are engaged in
identifying and developing potential cell-based therapeutics which can either restore or support
organ function. In particular, since we relocated our corporate headquarters to California in 1999,
our efforts have been directed at refining our methods for identifying, isolating, culturing, and
purifying the human neural stem cell and human liver engrafting cells (hLEC) and developing these
as potential cell-based therapeutics for the central nervous system (CNS)&nbsp;and the liver,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our CNS Program, our HuCNS-SC&#174; product candidate (purified human neural stem cells) is currently
in clinical development for the treatment of spinal cord injuries and of two neurodegenerative
brain disorders in children, and in pre-clinical development for the treatment of retinal disorders
such as age-related macular degeneration. We have completed a six patient Phase I clinical trial in
infantile and late infantile neuronal ceroid lipofuscinosis (NCL), a lysomal storage disorder often
referred to as Batten disease. The data from this trial showed that the HuCNS-SC cells were well
tolerated, and there was evidence of engraftment and long-term survival of the HuCNS-SC cells. In
October&nbsp;2010, we initiated a second clinical trial in NCL to further assess the safety of HuCNS-SC
cells and to examine their ability to affect the progression of the disease. We are also currently
conducting a Phase I clinical trial to assess the safety and preliminary effectiveness of HuCNS-SC
cells as a treatment for Pelizeaus-Merzbacher Disease (PMD), a myelination disorder in the brain.
Three of the four planned patients for this trial have been enrolled and transplanted with our
HuCNS-SC cells, and we anticipate completing enrollment in early 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our Liver Program, we have identified a subset of our human liver engrafting cells which we
believe may be a candidate for product development, and we are working to purify and characterize
this subset. We have also conducted research on several other cell types and in other areas, which
could lead to other possible product candidates, process improvements or further research
activities. For a brief description of our significant therapeutic research and development
programs, see &#147;Business &#151; Overview &#151; Cellular Medicine Programs&#148; in Part&nbsp;I, Item&nbsp;1 included in
our Annual Report on Form 10-K for the fiscal year ended December&nbsp;31, 2009 (the 2009 10-K).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are also engaged in developing and commercializing applications of our technologies to enable
stem cell-based research, which we believe represent nearer-term commercial opportunities. Our
portfolio of enabling technologies includes cell technologies relating to embryonic stem cells,
induced pluripotent stem (iPS) cells, and tissue-derived (adult)&nbsp;stem cells; expertise and
infrastructure for providing cell-based assays for drug discovery; a cell culture products
business; and an intellectual property portfolio with claims relevant to cell processing,
reprogramming and manipulation, as well as to gene targeting and insertion. Many of our enabling
technologies were acquired in April&nbsp;2009 as part of our acquisition of the operations of Stem Cell
Sciences Plc. For a brief description of our significant enabling technologies programs, see
&#147;Business &#151; Overview &#151; Enabling Technologies Programs&#148; in Part&nbsp;I, Item&nbsp;1 included in our 2009
10-K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2010, we had cash and cash equivalents of approximately $25&nbsp;million.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>OUR CORPORATE INFORMATION</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We were incorporated in Delaware. Our principal executive offices are located at 3155 Porter
Drive, Palo Alto, California 94304, and our telephone number is (650)&nbsp;475-3100. Our website is
located at www.stemcellsinc.com. We have not incorporated by reference into this prospectus
supplement or the accompanying prospectus the information in, or that can be accessed through, our
website, and you should not consider it to be a part of this prospectus supplement or the
accompanying prospectus.
</DIV>




<P align="right" style="font-size: 10pt"><!-- Folio -->S-1<!-- /Folio -->
</DIV>

</div>
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P>
<DIV style="width: 100%; border: 1px solid black; padding: 11px;">

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">The offering
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Common stock we are offering
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Up to 16,000,000 shares</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Common stock to be outstanding after this offering
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Up to 142,969,469 shares</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Use of proceeds
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">We intend to use the net proceeds of this offering for
general corporate purposes, including working capital,
product development and capital expenditures, as well
as
acquisitions and other strategic purposes. See &#147;Use of
proceeds.&#148;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nasdaq Global Market symbol
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">STEM</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The number of shares of common stock shown above to be outstanding after this offering is based on
the 126,969,469 shares outstanding as of September&nbsp;30, 2010 and excludes:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>11,427,099 shares of our common stock subject to options outstanding as of September
30, 2010 having a weighted average exercise price of $2.00 per share;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>4,665,055 shares of our common stock subject to outstanding restricted stock units as
of September&nbsp;30, 2010 having a weighted average grant date fair value of $1.23 per
share;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>4,868,269 shares of our common stock that have been reserved for issuance in
connection with future grants under our stock option plans as of September&nbsp;30, 2010; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>14,344,828 shares of our common stock that have been reserved for issuance upon
exercise of outstanding warrants as of September&nbsp;30, 2010 having a weighted average
exercise price of $2.08 per share.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>







</TABLE>
</DIV>
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</DIV>

</div>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>
<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Risk factors
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Investing in our common stock involves a high degree of risk. In addition to the risks related
to our business set forth in the accompanying prospectus and the other information included and
incorporated by reference in this prospectus supplement and accompanying prospectus, you should
carefully consider the risks described below before purchasing our common stock. If any of the
following risks actually occurs, our business, results of operations and financial condition will
likely suffer. As a result, the trading price of our common stock may decline, and you might lose
part or all of your investment.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks Related to our Business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Any adverse development relating to our HuCNS-SC product candidate, such as a significant clinical
trial failure, could substantially depress our stock price and prevent us from raising additional
capital.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At present our ability to progress as a company is significantly dependent on a single product
candidate, our HuCNS-SC cells (purified human neural stem cells), and on early stage clinical
trials. Any clinical, regulatory or other development that significantly delays or prevents us from
completing any of our trials, any material safety issue or adverse side effect to any study
participant in any of these trials, or the failure of these trials to show the results expected
would likely depress our stock price significantly and could prevent us from raising the
substantial additional capital we will need to further develop our cell technologies. Moreover, any
material adverse occurrence in our first clinical trials could substantially impair our ability to
initiate clinical trials to test our HuCNS-SC cells in other potential indications. This, in turn,
could adversely impact our ability to raise additional capital and pursue our planned research and
development efforts.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We have limited capital resources and we may not obtain the significant additional capital needed
to sustain our research and development efforts.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have limited liquidity and capital resources and must obtain significant additional capital
resources in order to sustain our product development efforts, acquire businesses, technologies and
intellectual property rights which may be important to our business, continue preclinical and
clinical testing of our therapeutic products, pursue regulatory approvals, acquire capital
equipment, laboratory and office facilities, establish production capabilities, maintain and
enforce our intellectual property portfolio, and support our general and administrative expenses
and other working capital requirements. In addition, we will require additional capital resources
to continue to develop and grow our enabling cell technologies programs. We rely on cash reserves
and proceeds from equity and debt offerings, proceeds from the transfer, license, lease, or sale of
our intellectual property rights, equipment, facilities, or investments, and government grants and
funding from collaborative arrangements, if obtainable, to fund our operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to pursue opportunities for additional fundraising in the future through equity or
debt financings, corporate alliances or combinations, grants or collaborative research
arrangements, or any combination of these. However, external financing in the current financial
environment may be particularly difficult, and the source, timing and availability of any future
fundraising will depend principally upon market conditions, and, more specifically, on progress in
our research, preclinical and clinical development programs. Funding may not be available when
needed &#151; at all or on terms acceptable to us. While we actively manage our programs and resources
in order to conserve cash between fundraising opportunities, our existing capital resources, and
the funds from this offering may not be sufficient to fund our operations beyond the next twelve
months. If we exhaust our cash reserves and are unable to realize adequate additional fundraising,
we may be unable to meet operating obligations and be required to initiate bankruptcy proceedings
or delay, scale back or eliminate some or all of our research and product development programs.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our product development programs are based on novel technologies and are inherently risky.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to the risks of failure inherent in the development of products based on new
technologies. The novel nature of these therapies creates significant challenges in regard to
product development and optimization, manufacturing, government regulation, third party
reimbursement, and market acceptance. For example, the pathway to regulatory approval for
cell-based therapies, including our therapeutic product candidates, may be more complex and lengthy
than the pathway for conventional drugs. These challenges may prevent us from developing and
commercializing products on a timely or profitable basis or at all.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our technologies are at early stages of discovery and development, and we may fail to develop any
commercially acceptable or profitable products.</I></B>
</DIV>





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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have incurred significant operating losses and negative cash flows since inception. We have
not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain
profitability in the future. We have yet to develop any therapeutic products that have been
approved for marketing, and we do not expect to become profitable within the next several years,
but rather expect to incur additional and increasing operating losses. Before commercializing any
therapeutic product, we will need to obtain regulatory approval from the FDA or from equivalent
foreign agencies after conducting extensive preclinical studies and clinical trials that
demonstrate that the product candidate is safe and effective. Except for the NCL trial we completed
at Oregon Health &#038; Science University (OHSU), and our currently ongoing PMD trial at University of
California, San Francisco Childrens Hospital, we have had no experience conducting human clinical
trials. We expect that none of our cell-based therapeutic product candidates will be commercially
available for several years, if at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While the FDA has approved our IND to conduct a Phase I clinical trial for PMD and we
submitted a protocol to the FDA for a second NCL trial designed to further assess the safety of
HuCNS-SC cells in NCL, there can be no assurance that our clinical trials will be completed or
result in a successful outcome.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may elect to delay or discontinue studies or clinical trials based on unfavorable results.
Any product developed from, or based on, cell technologies may fail to:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>survive and persist in the desired location;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide the intended therapeutic benefit;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>engraft into existing tissue in the desired manner; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>achieve therapeutic benefits equal to, or better than, the standard of treatment at the
time of testing.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, our therapeutic products may cause undesirable side effects. Results of
preclinical research in animals may not be indicative of future clinical results in humans.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ultimately if regulatory authorities do not approve our products or if we fail to maintain
regulatory compliance, we would be unable to commercialize our products, and our business and
results of operations would be harmed. Even if we do succeed in developing products, we will face
many potential obstacles such as the need to develop or obtain manufacturing, marketing and
distribution capabilities. Furthermore, because transplantation of cells is a new form of therapy,
the marketplace may not accept any products we may develop.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Moreover, because our cell-based therapeutic products will be derived from tissue of
individuals other than the patient (that is, they will be &#147;non-self&#148; or &#147;allogeneic&#148; transplant
products), patients will likely require the use of immunosuppressive drugs. While immunosuppression
is now standard in connection with allogeneic transplants of various kinds, such as heart or liver
transplants, long-term maintenance on immunosuppressive drugs can result in complications such as
infection, cancer, cardiovascular disease, and renal dysfunction. An immunosuppression regimen was
used with our therapeutic product candidate in our Phase I clinical trial for NCL, and is included
in the protocol for our ongoing Phase I clinical trial for PMD.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our success will depend in large part on our ability to develop and commercialize products that
treat diseases other than neuronal ceroid lipofuscinosis (Batten disease) and Pelizeaus-Merzbacher
Disease (PMD).</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we have initially focused on evaluating our neural stem cell product for the
treatment of infantile and late infantile NCL (Batten disease) and for Pelizeaus-Merzbacher
Disease, these diseases are rare and the markets for treating these diseases are small.
Accordingly, even if we obtain marketing approval for our HuCNS-SC product candidate for infantile
and late infantile NCL or for PMD, in order to achieve profitability, we will likely need to obtain
approval to treat additional diseases that present more significant market opportunities.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Acquisitions of companies, businesses or technologies may substantially dilute our stockholders and
increase our operating losses.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may make acquisitions of businesses, technologies or intellectual property rights or
otherwise modify our business model in ways we believe to be necessary, useful or complementary to
our current business. For example, on April&nbsp;1, 2009 we acquired substantially all of the operating
assets and liabilities of Stem Cell Sciences Plc (SCS). Any such acquisition or change in business
activities may require assimilation of the operations, products or product candidates and personnel
of the acquired business and the
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">training and integration of its employees, and could substantially increase our operating
costs, without any offsetting increase in revenue. Acquisitions may not provide the intended
technological, scientific or business benefits and could disrupt our operations and divert our
limited resources and management&#146;s attention from our current operations, which could harm our
existing product development efforts. We would likely issue equity securities to pay for any other
future acquisitions. The issuance of equity securities for an acquisition could be substantially
dilutive to our stockholders. In addition, our results of operations may suffer because of
acquisition-related costs or the post-acquisition costs of funding the development of an acquired
technology or product candidates or operation of the acquired business, or due to amortization or
impairment costs for acquired goodwill and other intangible assets. Any investment made in, or
funds advanced to, a potential acquisition target could also significantly adversely affect our
results of operation and could further reduce our limited capital resources. Any acquisition or
action taken in anticipation of a potential acquisition or other change in business activities
could substantially depress the price of our stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Costs and disruptions from the management of the acquired SCS business may impair our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;1, 2009, we acquired substantially all of the operating assets and liabilities of
SCS, including its former subsidiaries in England and Australia. To realize the anticipated
benefits of this acquisition, we must successfully manage and coordinate business operations in
multiple geographies, which is frequently a complex, costly and time-consuming process. Therefore,
we expect to devote a significant amount of our management&#146;s time and attention to managing our
operations outside the United States. As a result, we may have difficulty maintaining employee
morale and retaining key employees, consultants and collaborators. We may also encounter
incompatible methods, practices or policies or unanticipated difficulties integrating information
technology, communications and other systems. Managing our consolidated operations may also entail
numerous operational, legal and financial risks and uncertainties, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>incurrence or assumption of material liabilities, including unanticipated ones;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>assumption of pre-existing contractual obligations and obligations owed by the acquired
SCS business to customers and research collaborators, which may not be profitable to our
business or deemed consistent with our development plans;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>diversion of resources and management attention from our existing businesses and
technologies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inability to retain key employees of any acquired businesses or hire enough qualified
personnel to staff any new or expanded operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>impairment or loss of relationships with key customers or collaborators; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>exposure to new and unanticipated federal, state, local, and foreign legal requirements,
which may impact our research and development programs on a consolidated basis.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our failure to address these risks and uncertainties successfully in the future could harm our
business and prevent our achievement of anticipated growth, which could have an adverse effect on
our financial condition and results of operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We have payment obligations resulting from real property owned or leased by us in Rhode Island,
which diverts funding from our cell-based therapeutics research and development and enabling cell
technologies programs.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to our reorganization in 1999 and the consolidation of our business in California, we
carried out our former encapsulated cell therapy programs in Lincoln, Rhode Island, where we also
had our administrative offices. Although we have vacated the Rhode Island facilities, we remain
obligated to make lease payments and payments for operating costs for our former science and
administrative facility, which we have leased through June&nbsp;30, 2013. These costs, before sub-tenant
rental income, amounted to approximately $1,400,000 in 2010; our rent payments will increase over
the term of the lease, and our operating costs may increase as well. In addition to these costs of
our former science and administrative facility, we are obligated to make debt service payments and
payments for operating costs of approximately $411,000 per year for our former encapsulated cell
therapy pilot manufacturing facility, which we own. We have currently subleased a portion of the
science and administrative facility, and we are seeking to sublease the remaining portion, but we
cannot be sure that we will be able to keep any part of the facility subleased for the duration of
our obligation. We are currently seeking to sublease the pilot manufacturing facility, but may not
be able to sublease or sell the facility in the future. These continuing costs significantly reduce
our cash resources and adversely affect our ability to fund further development of our cell
technologies. In addition, changes in real estate market conditions and assumptions regarding the
length of time it may take us to either fully sublease, assign or sell our remaining interest in
the our former research facility in Rhode Island may have a significant
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">impact on and cause large variations in our quarter to quarter results of operations. In 1999,
in connection with exiting our former research facility in Rhode Island, we created a reserve for
the estimated lease payments and operating expenses related to it. The reserve is periodically
re-evaluated and adjusted based on assumptions relevant to real estate market conditions and the
estimated time until we can either fully sublease, assign or sell our remaining interests in the
property. At September&nbsp;30, 2010, the reserve was $3,673,000. For the nine months ended September
30, 2010, we incurred $898,000 in operating expenses net of sub-tenant income for this facility.
Expenses for this facility will fluctuate based on changes in tenant occupancy rates and other
operating expenses related to the lease. Even though it is our intent to sublease, assign, sell, or
otherwise divest ourselves of our interests in the facility at the earliest possible time, we
cannot determine with certainty a fixed date by which such events will occur. In light of this
uncertainty, based on estimates, we will periodically re-evaluate and adjust the reserve, as
necessary, and we may make significant adverse adjustments to the reserve in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We may be unable to obtain partners to support our product development efforts when needed to
commercialize our technologies.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity and debt financings alone may not be sufficient to fund the cost of developing our cell
technologies, and we may need to rely on partnering or other arrangements to provide financial
support for our product development efforts. In addition, in order to successfully develop and
commercialize our technologies, we may need to enter into various arrangements with corporate
sponsors, pharmaceutical companies, universities, research groups, and others. With the exception
of our distribution agreements with Millipore Corporation, we have no such agreements. While we
have engaged, and expect to continue to engage, in discussions regarding such arrangements, we may
fail to obtain any such agreement on terms acceptable to us. Even if we enter into such
arrangements, we may not be able to satisfy our obligations under them or renew or replace them
after their original terms expire. Furthermore, these arrangements may require us to grant rights
to third parties, such as exclusive marketing rights to one or more products, may require us to
issue securities to our collaborators and may contain other terms that are burdensome to us or
result in a decrease in our stock price.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we are unable to protect our patents and proprietary rights, our business, financial condition
and results of operations may be materially harmed.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We either own or exclusively license a number of patents and pending patent applications
related to various stem and progenitor cells, including human neural stem cell cultures, as well as
methods of deriving and using them. We also own or exclusively license a number of patents and
patent applications related to certain mammalian pluripotent and multipotent stem cells, cellular
reprogramming, genetic manipulation of stem cells, the creation of genetically engineered animals
used for research, technologies that facilitate the identification and isolation of specific stem
cell types, and media formulations for the culture of stem cells. The process of obtaining patent
protection for products such as those we propose to develop is highly uncertain and involves
complex and continually evolving factual and legal questions. The governmental authorities that
consider patent applications can deny or significantly reduce the patent coverage requested in an
application either before or after issuing the patent. For example, under the procedures of the
European Patent Office, third parties may oppose our issued European patents during the relevant
opposition period. These proceedings and oppositions could result in substantial uncertainties and
cost for us, even if the eventual outcome is favorable to us, and the outcome might not be
favorable to us. In the United States, third parties may seek to invalidate or render unenforceable
issued patents through a U.S. PTO reexamination process or through the courts; currently six of our
patents are the subject of litigation. In addition, changes to the laws protecting intellectual
property rights could adversely impact the perceived or actual value of our Company. Consequently,
we do not know whether any of our pending applications will result in the issuance of patents,
whether any of our issued patents will be invalidated or restricted, whether any existing or future
patents will provide sufficient protection or significant commercial advantage, or whether others
will circumvent these patents, whether or not lawfully. In addition, our patents may not afford us
adequate protection from competing products. Moreover, because patents issue for a limited term,
our patents may expire before we can commercialize a product covered by the issued patent claims or
before we can utilize the patents profitably. Some of our most important patents begin to expire in
2015.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we learn of third parties who infringe our patent rights, we may decide to initiate legal
proceedings to enforce these rights. Patent litigation, including the pending litigation to which
we are a party, is inherently unpredictable and highly risky and may result in unanticipated
challenges to the validity or enforceability of our intellectual property, antitrust claims or
other claims against us, which could result in the loss of these intellectual property rights.
Litigation proceedings can be very time-consuming for management and are also very costly and the
parties we bring actions against may have significantly greater financial resources than our own.
We may not prevail in these proceedings and if we do not prevail we could be liable for damages as
well as the costs and attorney fees of our opponents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proprietary trade secrets and unpatented know-how are also important to our research and
development activities. We cannot be
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">certain that others will not independently develop the same or similar technologies on their
own or gain access to our trade secrets or disclose such technology or that we will be able to
meaningfully protect our trade secrets and unpatented know-how. We require our employees,
consultants and significant scientific collaborators and sponsored researchers to execute
confidentiality agreements upon the commencement of an employment or consulting relationship with
us. These agreements may, however, fail to provide meaningful protection or adequate remedies for
us in the event of unauthorized use, transfer or disclosure of such information or technology.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If we are unable to obtain necessary licenses to third-party patents and other rights, we may not
be able to commercially develop our expected products.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A number of pharmaceutical, biotechnology and other companies, universities and research
institutions have filed patent applications or have received patents relating to cell therapy, stem
and progenitor cells and other technologies potentially relevant to, or necessary for, our expected
products. We cannot predict which, if any, of these applications will issue as patents or how many
of these issued patents will be found valid and enforceable. There may also be existing issued
patents which we are currently unaware of which would be infringed by the commercialization of one
or more of our product candidates. If so, we may be prevented from commercializing these products
unless the third party is willing to grant a license to us. We may be unable to obtain licenses to
the relevant patents at a reasonable cost, if at all, and may also be unable to develop or obtain
alternative non-infringing technology. If we are unable to obtain such licenses or develop
non-infringing technology at a reasonable cost, our business could be significantly harmed. Also,
any infringement lawsuits commenced against us may result in significant costs, divert our
management&#146;s attention and result in an award against us for substantial damages, or potentially
prevent us from continuing certain operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are aware of intellectual property rights held by third parties that relate to products or
technologies we are developing. For example, some aspects of our cell-based therapeutic product
candidates involve the use of growth factors, antibodies and other reagents that may, in certain
cases, be the subject of third party rights. Before we commercialize any product using these growth
factors, antibodies or reagents, we may need to obtain license rights from third parties or use
alternative growth factors, antibodies and reagents that are not then the subject of third party
patent rights. We currently believe that the commercialization of our products as currently planned
will not infringe these third party rights, or, alternatively, that we will be able to obtain
necessary licenses or otherwise use alternative non-infringing technology. However, third parties
may nonetheless bring suit against us claiming infringement. If we are unable to prove that our
technology does not infringe their patents, or if we are unable to obtain necessary licenses or
otherwise use alternative non-infringing technology, we may not be able to commercialize any
products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have obtained rights from companies, universities and research institutions to
technologies, processes and compounds that we believe may be important to the development of our
products. These licensors, however, may cancel our licenses or convert them to non-exclusive
licenses if we fail to use the relevant technology or otherwise breach these agreements. Loss of
these licenses could expose us to the risk that our technology infringes the rights of third
parties. We can give no assurance that any of these licenses will provide effective protection
against our competitors.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We compete with companies that have significant advantages over us.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for therapeutic products to treat diseases of, or injuries to, the central nervous
system (CNS)&nbsp;is large and competition is intense. The majority of the products currently on the
market or in development are small molecule pharmaceutical compounds, and many pharmaceutical
companies have made significant commitments to the CNS field. We believe cellular therapies, if
proven safe and effective, will have unique properties that will make them desirable over small
molecule drugs, none of which currently replace damaged tissue. However, any cell-based therapeutic
to treat diseases of, or injuries to, the CNS is likely to face intense competition from small
molecule, biologics, as well as medical devices. We expect to compete with a host of companies,
some of which are privately owned and some of which have resources far greater than ours.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the liver field, there are no broad-based therapies for the treatment of liver disease at
present. The primary therapy is liver transplantation, which is limited by the availability of
matched donor organs. Liver-assist devices, when and if they become available, could also be used
to help patients while they await suitably matched organs for transplantation. Liver
transplantation may remain the standard of care even if we successfully develop a cellular therapy.
In addition, new therapies may become available before we successfully develop a cell-based therapy
for liver disease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The life science and research markets are each highly competitive. Most of our competitors
have greater financial resources than we do, making them better equipped to license technologies
and intellectual property from third parties or to fund research and development, manufacturing and
marketing efforts. Our competitors can be expected to continue to improve the design and
performance of their products and to introduce new products with competitive price and performance
characteristics. In order to compete successfully in these markets, we will likely need to continue
to invest in research and development, sales and marketing and
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">customer service and support. We cannot assure you that we will have sufficient resources to
continue to make such investments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The research market is heavily dependent on government funding, and changes in government funding
can adversely affect revenues for our enabling technologies.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our customers include researchers at academic institutions, pharmaceutical and biotechnology
companies and government laboratories, all of whom fund much of their stem cell research using
government monies, such as grants. A number of these customers, for example, are dependent for
their funding upon grants from U.S. government agencies, such as the U.S. National Institutes of
Health (NIH)&nbsp;and agencies in other countries. The level of government funding of research and
development is unpredictable. Research and development spending of our customers can fluctuate
based on spending priorities and, as was experienced in 2009 and 2010, general economic conditions.
There have been instances when NIH grants have been frozen or otherwise unavailable for extended
periods. The availability of governmental research funding may also continue to be adversely
affected by the current economic downturn. Any reduction or delay in governmental funding could
cause our customers to delay or forego purchases or reallocate their budgets in a manner adverse to
us, in which case our anticipated revenues could be materially lower.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Development of our technologies is subject to, and restricted by, extensive government regulation,
which could impede our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development efforts, as well as any ongoing or future clinical trials, and
the manufacturing and marketing of any products we may develop, will be subject to, and restricted
by, extensive regulation by governmental authorities in the United States and other countries. The
process of obtaining FDA and other necessary regulatory approvals for human therapeutics is
lengthy, expensive and uncertain. FDA and other legal and regulatory requirements applicable to the
development and manufacture of the cells and cell lines required for our preclinical and clinical
products could substantially delay or prevent us from producing the cells needed to initiate
additional clinical trials. We or our collaborators may fail to obtain the necessary approvals to
commence or continue clinical testing or to manufacture or market our potential products in
reasonable time frames, if at all. In addition, the U.S. Congress and other legislative bodies may
enact regulatory reforms or restrictions on the development of new therapies that could adversely
affect the regulatory environment in which we operate or the development of any products we may
develop.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We base our research and development on the use of human stem and progenitor cells obtained
from human tissue, including fetal tissue. The U.S. federal and state governments and other
jurisdictions impose restrictions on the acquisition and use of fetal tissue, including those
incorporated in federal Good Tissue Practice, or GTP, regulations. These regulatory and other
constraints could prevent us from obtaining cells and other components of our products in the
quantity or quality needed for their development or commercialization of both therapeutic products
and certain of our enabling cell technologies. These restrictions change from time to time and may
become more onerous. Additionally, we may not be able to identify or develop reliable sources for
the cells necessary for our potential products &#151; that is, sources that follow all state and
federal laws and guidelines for cell procurement. Certain components used to manufacture our stem
and progenitor cell product candidates will need to be manufactured in compliance with the FDA&#146;s
Good Manufacturing Practices, or GMP. Accordingly, we will need to enter into supply agreements
with companies that manufacture these components to GMP standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Noncompliance with applicable requirements both before and after product marketing approval,
if any, can subject us, our third party suppliers and manufacturers, and our other collaborators to
administrative and judicial sanctions, such as, among other things, warning letters, fines and
other monetary payments, recall or seizure of products, criminal proceedings, suspension or
withdrawal of regulatory approvals, interruption or cessation of clinical trials, total or partial
suspension of production or distribution, injunctions, limitations on or the elimination of claims
we can make for our products, and refusal of the government to enter into supply contracts or fund
research, or delay in approving or refusal to approve new drug applications.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We are dependent on the services of key personnel.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are highly dependent on the principal members of our management and scientific staff,
including our chief executive officer, our vice presidents, and the heads of key departments or
functions, and on some of our outside consultants, including the members of our scientific advisory
board. Although we have entered into employment agreements with some of these individuals, they
may terminate their agreements at any time. In addition, our operations are dependent upon our
ability to attract and retain additional qualified scientific and management personnel. We may not
be able to attract and retain the personnel we need on acceptable terms given the competition for
experienced personnel among pharmaceutical, biotechnology and health care companies, universities
and research institutions.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our activities involve hazardous materials and experimental animal testing; improper handling of
these animals and materials by our employees or agents could expose us to significant legal and
financial penalties.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development activities involve the controlled use of test animals as well as
hazardous chemicals and potentially hazardous biological materials such as human tissue. Their use
subjects us to environmental and safety laws and regulations such as those governing laboratory
procedures, exposure to blood-borne pathogens, use of laboratory animals, and the handling of
biohazardous materials. Compliance with current or future laws and regulations may be expensive and
the cost of compliance could adversely affect us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we believe that our safety procedures for using, handling, storing, and disposing of
hazardous and potentially hazardous materials comply with the standards prescribed by applicable
state, federal and international law , the risk of accidental contamination or injury from these
materials cannot be eliminated. In the event of such an accident or of any violation of these or
future laws and regulations, state or federal authorities could curtail our use of these materials;
we could be liable for any civil damages that result, the cost of which could be substantial; and
we could be subjected to substantial fines or penalties. In addition, any failure by us to control
the use, disposal, removal, or storage, or to adequately restrict the discharge, or to assist in
the cleanup, of hazardous chemicals or hazardous, infectious or toxic substances could subject us
to significant liability. Any such liability could exceed our resources and could have a material
adverse effect on our business, financial condition and results of operations. Moreover, an
accident could damage our research and manufacturing facilities and operations and result in
serious adverse effects on our business.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Natural disasters and violent acts of public protest may cause damage or disruption to us and our
employees, facilities, information systems, vendors, and customers.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operations are concentrated in Northern California. The western United States has
experienced a number of earthquakes, wildfires, flooding, landslides and other natural disasters in
recent years. These occurrences could damage or destroy our facilities which may result in
interruptions to our business and losses that exceed our insurance coverage. In addition, we know
that certain individuals are strenuously opposed to certain types of medical research, including
embryonic stem cell research engaged in by both us and many of our customers. Acts of both legal
and illegal public protest, including picketing and bioterrorism, could affect the markets in which
we operate and our business operations. Any of these events could cause a decrease in both our
actual and anticipated revenue, earnings and cash flows.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The development, manufacturing and commercialization of cell-based therapeutic products expose us
to product liability claims, which could lead to substantial liability.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By developing and, ultimately, commercializing therapeutic products, we are exposed to the
risk of product liability claims. Product liability claims against us could result in substantial
litigation costs and damage awards against us. We have obtained liability insurance that covers our
clinical trials, and we will need to increase our insurance coverage if and when we begin
commercializing products. We may not be able to obtain insurance on acceptable terms, if at all,
and the policy limits on our insurance policies may be insufficient to cover our liability.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The manufacture of cell-based therapeutic products is novel, highly regulated, critical to our
business, and dependent upon specialized key materials.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The manufacture of cell-based and related products is complicated and difficult, dependent
upon substantial know-how and subject to the need for continual process improvements to be
competitive. Our manufacturing experience is limited and the technologies are comparatively new. In
addition, our ability to scale-up manufacturing to satisfy the various requirements of our planned
clinical trials, such as GTP, GMP and release testing requirements, is uncertain. Manufacturing
disruptions may occur and despite efforts to regulate and control all aspects of manufacturing, the
potential for human or system failure remains. Manufacturing irregularities or lapses in quality
control could have a serious adverse effect on our reputation and business, which could cause a
significant loss of stockholder value. Many of the materials that we use to prepare our cell-based
and related products are highly specialized, complex and available from only a limited number of
suppliers or derived from a biological origin. At present, some of our material requirements are
single sourced, and the loss of one or more of these sources may adversely affect our business if
we are unable to obtain alternatives or alternative sources at all or upon terms that are
acceptable to us.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Because health care insurers and other organizations may not pay for our products or may impose
limits on reimbursements, our ability to become profitable could be adversely affected.</I></B>
</DIV>





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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In both domestic and foreign markets, sales of potential therapeutic products are likely to
depend in part upon the availability and amounts of reimbursement from third-party health care
payor organizations, including government agencies, private health care insurers and other health
care payors, such as health maintenance organizations and self-insured employee plans. There is
considerable pressure to reduce the cost of therapeutic products. Government and other third party
payors are increasingly attempting to contain health care costs by limiting both coverage and the
level of reimbursement for new therapeutic products and by refusing, in some cases, to provide any
coverage for uses of approved products for disease indications for which the FDA or other relevant
authority has not granted marketing approval. Moreover, in some cases, government and other third
party payors have refused to provide reimbursement for uses of approved products for disease
indications for which the FDA or other relevant authority has granted marketing approval.
Significant uncertainty exists as to the reimbursement status of newly approved health care
products or novel therapies such as ours. Even if we obtain regulatory approval to market our
products, we can give no assurance that reimbursement will be provided by such payors at all or
without substantial delay or, if such reimbursement is provided, that the approved reimbursement
amounts will be sufficient to enable us to sell products we develop on a profitable basis. Changes
in reimbursement policies could also adversely affect the willingness of pharmaceutical companies
to collaborate with us on the development of our cellular technologies. In certain foreign markets,
pricing or profitability of prescription pharmaceuticals is subject to government control. We also
expect that there will continue to be a number of federal and state proposals to implement
government control over health care costs. Efforts to change regulatory and reimbursement standards
are likely to continue in future legislative sessions. We do not know what legislative proposals
federal or state governments will adopt or what actions federal, state or private payors for health
care goods and services may take in response to such proposals or legislation. We cannot predict
the effect of government control and health care reimbursement practices on our business.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Ethical and other concerns surrounding the use of stem or progenitor-based cell therapy may
negatively affect regulatory approval or public perception of our product candidates, which could
reduce demand for our products or depress our stock price.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The use of stem cells for research and therapy has been the subject of debate regarding
related ethical, legal and social issues. Although these concerns have mainly been directed to the
use of embryonic stem cells, which we are not presently pursuing for therapeutic use, the
distinction between embryonic and non-embryonic stem cells is frequently overlooked; moreover, our
use of human stem or progenitor cells from fetal sources might raise these or similar concerns. In
addition, we are continuing the development of embryonic stem cells and iPS cells as potential
research tools, and we may in the future explore their applicability as cell-based therapeutic
products. Negative public attitudes toward stem cell therapy could result in greater governmental
regulation of stem cell therapies, which could harm our business. For example, concerns regarding
such possible regulation could impact our ability to attract collaborators and investors. Also,
existing regulatory constraints on the use of embryonic stem cells may in the future be extended to
use of fetal stem cells, and these constraints might prohibit or restrict us from conducting
research or from commercializing products. Existing and potential government regulation of
embryonic tissue may lead researchers to leave the field of stem cell research or the country
altogether, in order to assure that their careers will not be impeded by restrictions on their
work. Similarly, these factors may induce graduate students to choose other fields less vulnerable
to changes in regulatory oversight, thus exacerbating the risk that we may not be able to attract
and retain the scientific personnel we need in face of the competition among pharmaceutical,
biotechnology and health care companies, universities and research institutions for what may become
a shrinking class of qualified individuals.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Restrictions on the use of human embryonic stem cells, including public and political opposition to
the use of these cells, could harm our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of our research includes testing cells derived from embryonic tissue. While we are not
currently developing human embryonic stem cells as potential therapeutic products, legal
restrictions on the use of human embryonic stem cells could impede our ability to develop
worthwhile non-therapeutic products for research. Furthermore, we may in the future explore the
applicability of embryonic stem cells as cell-based therapeutic products. The use of these cells
could give rise to ethical and social commentary adverse to us, which could harm the market price
of our common stock. Additional government-imposed restrictions on the use of embryos or human
embryonic stem cells in research and development could also cause an adverse effect on us by
harming our ability to establish important partnerships or collaborations, delaying or preventing
the development of certain non-therapeutic products, and causing a decrease in the price of our
stock or by otherwise making it more difficult for us to raise additional capital. These risks
could have unanticipated adverse consequences on our business.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our corporate documents and Delaware law contain provisions that could make it difficult for us to
be acquired in a transaction that might be beneficial to our stockholders.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors has the authority to issue shares of preferred stock and to fix the
rights, preferences, privileges, and
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">restrictions of these shares without stockholder approval. These provisions in our corporate
documents, along with certain provisions under Delaware law, may make it more difficult for a third
party to acquire us or discourage a third party from attempting to acquire us, even if the
acquisition might be beneficial to our stockholders.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risks Related to the Securities Market</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our stock price has been, and will likely continue to be, highly volatile, which may negatively
affect our ability to obtain additional financing in the future.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market price per share of our common stock has been and is likely to continue to be highly
volatile due to the risks and uncertainties described in this section of this prospectus
supplement, as well as other factors, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to develop and test our technologies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to patent or obtain licenses to necessary technologies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>conditions and publicity regarding the industry in which we operate, as well as the
specific areas our product candidates seek to address;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competition in our industry;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>economic and other external factors or other disasters or crises;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>price and volume fluctuations in the stock market at large that are unrelated to our
operating performance; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>comments by securities analysts, or our failure to meet market expectations.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Over the two-year period ended December&nbsp;31, 2010, the trading price of our common stock as
reported on the Nasdaq Global Market ranged from a high of $3.07 to a low of $0.75 per share. As a
result of this volatility, an investment in our stock is subject to substantial risk. Furthermore,
the volatility of our stock price could negatively impact our ability to raise capital or acquire
businesses or technologies.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>We are contractually obligated to issue shares in the future, diluting the interest of current
stockholders.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2010, there were outstanding warrants to purchase 14,344,828 shares of our
common stock, at a weighted average exercise price of $2.08 per share, outstanding options to
purchase 11,427,099 shares of our common stock, at a weighted average exercise price of $2.00 per
share, and outstanding restricted stock units for 4,665,055 shares of our common stock. We expect
to issue additional options and restricted stock units to purchase shares of our common stock to
compensate employees, consultants and directors, and may issue additional shares to raise capital,
to acquire other companies or technologies, to pay for services, or for other corporate purposes.
Any such issuances will have the effect of diluting the interest of current stockholders.
</DIV>

<P align="right" style="font-size: 10pt"><!-- Folio -->S-11<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="103"></A>
</DIV>
<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Note regarding forward-looking statements
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This prospectus supplement, the accompanying prospectus, any free writing prospectus used in
connection with this offering and the documents incorporated by reference herein and therein may
contain forward-looking statements within the meaning of Section&nbsp;27A of the Securities Act and
Section&nbsp;21E of the Securities Exchange Act that involve substantial risks and uncertainties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Such statements include, without limitation, all statements as to expectation or belief and
statements as to our future results of operations; the progress of our research, product
development and clinical programs; the need for, and timing of, additional capital and capital
expenditures; partnering prospects; costs of manufacture of products; the protection of, and the
need for, additional intellectual property rights; effects of regulations; the need for additional
facilities; and potential market opportunities. Our actual results may vary materially from those
contained in such forward-looking statements because of risks to which we are subject, including
uncertainty as to whether the U.S. Food and Drug Administration (FDA)&nbsp;or other regulatory
authorities will permit us to proceed or continue with clinical testing of proposed products
despite the novel and unproven nature of our technologies; the risk that our initial clinical trial
and any other clinical trials or studies could be substantially delayed beyond their expected dates
or cause us to incur substantial unanticipated costs; uncertainties in our ability to obtain the
capital resources needed to continue our current research and development operations and to conduct
the research, preclinical development and clinical trials necessary for regulatory approvals; the
uncertainty regarding our ability to obtain a corporate partner or partners, if needed, to support
the development and commercialization of our potential cell-based therapeutics products; the
uncertainty about the design of current and future clinical trials and whether we will receive the
necessary support of a clinical trial site and its institutional review board to pursue current and
future clinical trials in NCL, PMD or in proposed therapies for other diseases or conditions; the
uncertainty regarding the outcome of our proposed clinical trial in NCL and any other clinical
trials or studies we may conduct in the future; the uncertainty regarding the validity and
enforceability of our issued patents; the uncertainty whether any products that may be generated in
our cell-based therapeutics programs will prove clinically safe and effective; the uncertainty
regarding our ability to commercialize a therapeutic product and its ability to successfully
compete with other products on the market; the uncertainty whether we will achieve revenue from
product sales or become profitable; uncertainties regarding our obligations with respect to our
former encapsulated cell therapy facilities in Rhode Island; obsolescence of our technologies;
competition from third parties; intellectual property rights of third parties; litigation risks;
and other risks to which we are subject.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All forward-looking statements attributable to us or to persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements and risk factors set forth in &#147;Risk
factors&#148; in this prospectus supplement and the risk factors disclosed in Part&nbsp;I, Item&nbsp;1A of and
elsewhere in our Annual Report on Form 10-K for the fiscal year ended December&nbsp;31, 2009.
</DIV>







<P align="left" style="font-size: 10pt"><!-- Folio -->S-12<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Use of proceeds
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We estimate that the maximum net proceeds from the sale of 16,000,000 shares at a price of
$1.00 per share would be approximately $15.4&nbsp;million, after deducting the estimated expenses. As
described under &#147;Plan of distribution&#148; below, we are offering 10,000,000 shares of common stock at
the initial closing and may be required, at the purchasers&#146; option, to sell up to an additional
6,000,000 shares of common stock at one or more subsequent closings to occur no later than no later
than the third trading day after February&nbsp;18, 2011, subject to certain limitations and
qualifications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We intend to use the net proceeds of this offering for general corporate purposes, including
working capital, capital expenditures, research and development expenditures and clinical trial
expenditures. A portion of the net proceeds may also be used for the acquisition of businesses,
products and technologies that are complementary to ours, or for other strategic purposes.
</DIV>

<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Price range of common stock
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our common stock trades on The Nasdaq Global Market under the symbol &#147;STEM.&#148; The following
table sets forth, for the periods indicated, the high and low intraday sales prices per share of
our common stock as reported by The Nasdaq Global Market. These prices do not include retail
markups, markdowns or commissions.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">High</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Low</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fiscal year ending December&nbsp;31, 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Second quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Third quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fourth quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.02</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fiscal year ending December&nbsp;31, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Second quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.89</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Third quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fourth quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.78</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fiscal year ending December&nbsp;31, 2011</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">First quarter (through January&nbsp;5, 2011)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.07</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The last reported sales price of our common stock on The Nasdaq Global Market on January&nbsp;6, 2011
was $1.11 per share. As of January&nbsp;6, 2011, there were outstanding 127,351,715 shares of our
common stock.
</DIV>

<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Dividend policy
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have never declared or paid any cash dividends on our common stock. We anticipate that we
will continue to retain our earnings, if any, for use in the operation of our business.
Accordingly, we do not expect to pay any cash dividends on our common stock for the foreseeable
future.
</DIV>






<P align="right" style="font-size: 10pt"><!-- Folio -->S-13<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Dilution
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If you invest in our common stock, you will experience dilution to the extent of the
difference between the price per share you pay in this offering and the net tangible book value per
share of our common stock immediately after this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our net tangible book value as of September&nbsp;30, 2010 was approximately $18&nbsp;million, or $0.14 per
share of common stock. Net tangible book value per share is equal to our total tangible assets
minus total liabilities, all divided by the number of shares of common stock outstanding as of
September&nbsp;30, 2010. Assuming we sell 16,000,000 shares of common stock, the maximum number of
shares we are offering pursuant to this prospectus supplement, at an offering price of $1.00 per
share, and after deducting our estimated offering expenses payable by us, our as adjusted net
tangible book value would have been approximately $34&nbsp;million, or approximately $0.23 per share of
common stock, as of January&nbsp;5, 2011. This represents an immediate increase in net tangible book
value of approximately $0.09 per share to existing stockholders and an immediate dilution of
approximately $0.77 per share to new investors. The following table illustrates this calculation on
a per share basis:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Offering price for one share of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net tangible book value per share as of September&nbsp;30, 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase per share attributable to the offering</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">As adjusted net tangible book value per share after this offering</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.23</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dilution per share to new investors</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The above illustration of dilution per share to investors participating in this offering assumes no
exercise of outstanding options to purchase our common stock or outstanding warrants to purchase
shares of our common stock. The exercise of outstanding options and warrants having an exercise
price less than the offering price will increase dilution to new investors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The number of shares of common stock shown above to be outstanding after this offering is based on
the 126,969,469 shares outstanding as of September&nbsp;30, 2010 and excludes:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>11,427,099 shares of our common stock subject to options outstanding as of September
30, 2010 having a weighted average exercise price of $2.00 per share;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>4,665,055 shares of our common stock subject to outstanding restricted stock units as
of September&nbsp;30, 2010 having a weighted average grant date fair value of $1.23 per
share;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>4,868,269 shares of our common stock that have been reserved for issuance in
connection with future grants under our stock option plans as of September&nbsp;30, 2010; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>14,344,828 shares of our common stock that have been reserved for issuance upon
exercise of outstanding warrants as of September&nbsp;30, 2010 having a weighted average
exercise price of $2.08 per share.</TD>
</TR>








</TABLE>
</DIV>
<P align="left" style="font-size: 10pt"><!-- Folio -->S-14<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Description of securities
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In this offering, we are offering a maximum of 16,000,000 shares of common stock to be sold
initially at a price of $1.00 per share. Shares will not be issued or certificated. We are
offering 10,000,000 shares at the initial closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The purchasers also receive a right to purchase, at their election, up to an additional 6,000,000
shares in the aggregate at one or more subsequent closings, which will take place no later than the
third trading day after February&nbsp;18, 2011, subject to certain conditions. Any such election to
purchase additional shares may be exercised no more than three times by each purchaser, in minimum
increments of 600,000 shares per purchaser and per exercise, by written notice from such purchaser
to us setting forth the number of shares to be purchased.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The material terms and provisions of our common stock are described under the caption &#147;Description
of Common Stock&#148; starting on page 9 of the accompanying prospectus.
</DIV>








<P align="right" style="font-size: 10pt"><!-- Folio -->S-15<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Plan of distribution
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In connection with this offering, we entered into a letter agreement with Chardan Capital
Markets, LLC (&#147;Chardan&#148;), in which we agreed to pay a placement fee to Chardan equal to 5.5% of the
gross proceeds received by us at the initial closing, payable at the time of the initial closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table shows the per share and total placement fee we will pay to Chardan in
connection with the sale of 10,000,000 shares of common stock at the initial closing.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR></TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.055</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">550,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have entered into a common stock purchase agreement (the &#147;Purchase Agreement&#148;) with certain
investors with respect to the shares being purchased (the &#147;Purchasers&#148;). The Purchase Agreement
(i)&nbsp;provides that we will issue to the Purchasers an aggregate of 10,000,000 shares of our common
stock at the initial closing and (ii)&nbsp;provides an option to the Purchasers to buy up to an
additional 6,000,000 shares of our common stock at one or more subsequent closings, which will
occur no later than the third trading day after February&nbsp;18, 2011, subject to certain limitations
and qualifications. The offering price at the initial closing and any subsequent closings will
equal $1.00 per share. The Purchase Agreement contains representations and warranties and
covenants for each party, which must be true and have been performed at the applicable closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This is a brief summary of the material provisions of the Purchase Agreement and does not purport
to be a complete statement of its terms and conditions. A copy of the form of the Purchase
Agreement will be filed with the SEC and incorporated by reference into the registration statement
of which this prospectus supplement forms a part.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We estimate the total expenses of this offering that will be payable by us will be approximately
$600,000, which includes the placement fee, legal and printing costs and various other fees
associated with registering and listing the common stock. After deducting our estimated offering
expenses, we expect the net proceeds from this offering to be approximately $15.4&nbsp;million, assuming
the sale of all 16,000,000 shares of common stock. It is possible that fewer than all of the
shares we are offering pursuant to this prospectus supplement will be sold, in which case our net
proceeds would be reduced.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NO SALES OF SIMILAR SECURITIES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the Purchase Agreement, we have agreed not to offer, sell, contract to sell or
otherwise dispose of or hedge our common stock or securities convertible into or exercisable or
exchangeable for our common stock for a period of 30 calendar days following the initial closing or
30 calendar days following any subsequent closing, unless the sale price in such financing is more
than the offering price in respect of this offering. However, these restrictions do not prohibit
us from issuing securities in connection with a joint venture, licensing, strategic alliance or
similar arrangement or from issuing securities to service providers, consultants, employees or
directors in the ordinary course or pursuant to any of our equity incentive plans, and do not
prohibit Cantor Fitzgerald from selling our securities pursuant to the controlled equity offering
sales agreement between us and Cantor Fitzgerald.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NASDAQ GLOBAL MARKET</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our common stock is quoted on The Nasdaq Global Market under the symbol &#147;STEM.&#148;
</DIV>








<P align="left" style="font-size: 10pt"><!-- Folio -->S-16<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Where you can find more information
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We file annual, quarterly and current reports, proxy statements and other information with the
SEC. Our SEC filings are available to the public over the Internet at the SEC&#146;s website at
<I>http://www.sec.gov</I>. The SEC&#146;s website contains reports, proxy and information statements and other
information regarding issuers, such as us, that file electronically with the SEC. You may also read
and copy any document we file with the SEC at the SEC&#146;s Public Reference Room at 100 F Street,
N.E., Room&nbsp;1580, Washington, D.C. 20549. You may also obtain copies of these documents at
prescribed rates by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of its Public Reference Room.
</DIV>

<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Incorporation of certain documents by reference
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The SEC allows us to &#147;incorporate by reference&#148; into this prospectus supplement the
information we have filed with the SEC. The information we incorporate by reference into this
prospectus supplement is an important part of this prospectus supplement. Any statement in a
document we incorporate by reference into this prospectus supplement or the accompanying prospectus
will be considered to be modified or superseded to the extent a statement contained in this
prospectus supplement or any other subsequently filed document that is incorporated by reference
into this prospectus supplement modifies or supersedes that statement. The modified or superseded
statement will not be considered to be a part of this prospectus supplement or accompanying
prospectus, as applicable, except as modified or superseded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We incorporate by reference into this prospectus supplement the information contained in the
documents listed below, which is considered to be a part of this prospectus supplement:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our Annual Report on Form 10-K for the year ended December&nbsp;31, 2009;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our Quarterly Reports on Form 10-Q for the quarterly periods ending March&nbsp;31, 2010,
June&nbsp;30, 2010 and September&nbsp;30, 2010;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our Current Reports on Form 8-K filed with the SEC on February&nbsp;11, 2010, May&nbsp;7,
2010, June&nbsp;7, 2010, June&nbsp;9, 2010, June&nbsp;30, 2010, August&nbsp;10, 2010, August&nbsp;13, 2010,
August&nbsp;19, 2010, September&nbsp;21, 2010, October&nbsp;7, 2010, October&nbsp;28, 2010, November&nbsp;4,
2010, November&nbsp;23, 2010, December&nbsp;10, 2010, and January&nbsp;6, 2011;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our Proxy Statement on Schedule&nbsp;14A filed with the SEC on April&nbsp;13, 2010; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the description of our common stock and related rights contained in our registration
statements on Form 8-A (file no. 000-19871) filed under the Exchange Act, including any
amendment or report filed for the purpose of updating such description.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We also incorporate by reference all documents filed pursuant to Sections&nbsp;13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this prospectus supplement and prior to the termination of
this offering; provided, however, that we are not incorporating any information furnished under
Item&nbsp;2.02, Item&nbsp;7.01 or Item&nbsp;9.01 of any current report on Form 8-K we may subsequently file.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Statements made in this prospectus supplement or the accompanying prospectus or in any document
incorporated by reference in this prospectus supplement or the accompanying prospectus as to the
contents of any contract or other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or other document
filed as an exhibit to the documents incorporated by reference, each such statement being qualified
in all material respects by such reference.
</DIV>





<P align="right" style="font-size: 10pt"><!-- Folio -->S-17<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Experts
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">You may request a copy of these filings, at no cost, by writing or telephoning us at the following
address:
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">StemCells, Inc.<BR>
3155 Porter Drive<BR>
Palo Alto, CA 94304<BR>
Attention: Investor Relations<BR>
Phone: (650)&nbsp;475-3100<BR>
email: irpr@stemcellsinc.com
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Copies of these filings are also available, without charge, on our Internet website at
<I>www.stemcellsinc.com </I>after they are filed electronically with the SEC.
</DIV>

<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Legal matters
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Various legal matters with respect to the validity of the shares of common stock offered by
this prospectus supplement will be passed upon for us by Ropes &#038; Gray LLP.
</DIV>

<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 12pt; margin-top: 12pt">Experts
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The financial statements and management&#146;s assessment of the effectiveness of internal control
over financial reporting incorporated by reference in this prospectus and elsewhere in the
registration statement have been audited by Grant Thornton LLP, independent registered public
accountants, as indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
</DIV>





<P align="left" style="font-size: 10pt"><!-- Folio -->S-18<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
    <TD width="5%"></TD>
    <TD width="30%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top">PROSPECTUS
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top" style="color: #FF0000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">$100,000,000</DIV>


<DIV align="center" style="font-size: 18pt; margin-top: 18pt"><B>STEMCELLS, INC.</B>
</DIV>


<DIV align="Center" style="font-size: 12pt; margin-top: 6pt">Common Stock<BR>
Preferred Stock<BR>
Warrants<BR>
Debt Securities<BR>
<B>&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may offer to the public, from time to time, in one or more series or issuances:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>shares of our common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>shares of our preferred stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>warrants to purchase shares of our common stock, preferred stock and/or debt securities;
or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>debt securities consisting of debentures, notes or other evidences of indebtedness.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus provides a general description of the securities we may offer. Each time we
sell securities, we will provide specific terms of the securities offered in a supplement to this
prospectus. The prospectus supplement may also add, update or change information contained in this
prospectus. This prospectus may not be used to consummate a sale of securities unless accompanied
by the applicable prospectus supplement. You should read both this prospectus and any prospectus
supplement together with additional information described under the heading &#147;Where You Can Find
More Information&#148; before you make your investment decision.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will sell these securities directly to our stockholders or to purchasers or through agents
on our behalf or through underwriters or dealers as designated from time to time. If any agents or
underwriters are involved in the sale of any of these securities, the applicable prospectus
supplement will provide the names of the agents or underwriters and any applicable fees,
commissions or discounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock is traded on the Nasdaq Global Market under the symbol &#147;STEM.&#148; On
November&nbsp;1, 2010, the closing price of our common stock was $0.88.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Investing in our securities involves certain risks. Please carefully consider &#147;Risk
Factors&#148; on page 5 and other information included and incorporated by reference in this
prospectus, and in any applicable prospectus supplement, for a discussion of the factors you should
consider carefully before deciding to purchase our securities</B>.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal offense.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;&#95;</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">The
date of this prospectus is November 16, 2010
</DIV>








<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Page</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">Prospectus Summary</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Note Regarding Forward-Looking Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Ratio of Earnings to Fixed Charges</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Plan of Distribution</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Description of Common Stock</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Description of Preferred Stock</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Description of Warrants</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">Description of Debt Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Legal Matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Experts</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Where You Can Find More Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">18</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Incorporation of Certain Documents by Reference</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">18</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>





<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus is part of a registration statement that we filed with the Securities and
Exchange Commission (the &#147;SEC&#148;) utilizing a &#147;shelf&#148; registration process. Under this shelf process,
we may sell different types of securities described in this prospectus in one or more offerings.
This prospectus provides you with a general description of the securities we may offer. Each time
we offer securities, we will provide a prospectus supplement and attach it to this prospectus. The
prospectus supplement will contain specific information about the nature of the persons offering
securities and the terms of the securities being offered at that time. The prospectus supplement
may also add, update or change information contained in this prospectus. You should read both this
prospectus and any prospectus supplement, including all documents incorporated herein by reference,
together with additional information described under the headings &#147;Where You Can Find More
Information&#148; and &#147;Incorporation of Certain Documents By Reference.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus does not contain all of the information that is in the registration statement.
We omitted certain parts of the registration statement from this prospectus as permitted by the
SEC. We refer you to the registration statement and its exhibits for additional information about
us and the securities that may be sold under this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All references in this prospectus to &#147;StemCells,&#148; the &#147;Company,&#148; &#147;we,&#148; &#147;us,&#148; or &#147;our&#148; mean
StemCells, Inc. and its subsidiaries unless we state otherwise or the context otherwise requires.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should rely only on the information contained or incorporated by reference in this
prospectus. We have not authorized anyone to provide you with different information. If anyone
provides you with different or inconsistent
information, you should not rely on it. We are not making an offer to sell these
securities in any jurisdiction where the offer is not permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery
of this prospectus or the time of any sale of our securities. Our business, financial condition,
results of operations, and prospects may have changed since such date.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>




<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PROSPECTUS SUPPLEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The following is a summary of selected information contained elsewhere or incorporated by
reference in this prospectus. It does not contain all of the information that you should consider
before buying our securities. You should read this entire prospectus carefully, especially the
section entitled &#147;Risk Factors&#148; and the consolidated financial statements and the notes to the
consolidated financial statements incorporated by reference.</I>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Our Company</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are engaged in researching, developing, and commercializing stem cell therapeutics and
technologies for stem cell-based research, drug discovery and development. Our research and
development efforts primarily support our therapeutic product programs, where we are engaged in
identifying and developing potential cell-based therapeutics which can either restore or support
organ function. In particular, since we relocated our corporate headquarters to California in 1999,
our efforts have been directed at refining our methods for identifying, isolating, culturing, and
purifying the human neural stem cell and human liver engrafting cells (hLEC) and developing these
as potential cell-based therapeutics for the central nervous system (CNS)&nbsp;and the liver,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our CNS Program, our HuCNS-SC<SUP style="FONT-size: 85%; vertical-align: text-top">&#174;</SUP> product candidate (purified human neural stem
cells) is currently in clinical development for two neurodegenerative brain disorders, and our goal
is to initiate clinical testing of our HuCNS-SC cells for spinal cord injury in 2011 and for
degenerative retinal disorders in 2012. We have completed a six patient Phase I clinical trial in
infantile and late infantile neuronal ceroid lipofuscinosis (NCL), a lysomal storage disorder often
referred to as Batten disease. The data from this trial showed that the HuCNS-SC cells were well
tolerated, and there was evidence of engraftment and long-term survival of the HuCNS-SC cells. In
October&nbsp;2010, we initiated a second clinical trial in NCL to further assess the safety of HuCNS-SC
cells and to examine their ability to affect the progression of the disease. We are also currently
conducting a Phase I clinical trial to assess the safety and preliminary effectiveness of HuCNS-SC
cells as a treatment for Pelizeaus-Merzbacher Disease (PMD), a myelination disorder in the brain.
Two of the four planned patients for this trial have been enrolled and transplanted with our
HuCNS-SC cells, and we anticipate completing enrollment in early 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our Liver Program, we have identified a subset of our human liver engrafting cells which we
believe may be a candidate for product development, and we are working to purify and characterize
this subset. We have also conducted research on several other cell types and in other areas,
which could lead to other possible product candidates, process improvements or further research
activities. For a brief description of our significant therapeutic research and development
programs, see &#147;Business &#151; Overview &#151; Cellular Medicine Programs&#148; in Part&nbsp;I, Item&nbsp;1 included in
our Annual Report on Form 10-K for the fiscal year ended December&nbsp;31, 2009 (the 2009 10-K).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also engaged in developing and commercializing applications of our technologies to
enable stem cell-based research, which we believe represent nearer-term commercial opportunities.
Our portfolio of enabling technologies includes cell technologies relating to embryonic stem cells,
induced pluripotent stem (iPS) cells, and tissue-derived (adult)&nbsp;stem cells; expertise and
infrastructure for providing cell-based assays for drug discovery; a cell culture products
business; and an intellectual property portfolio with claims relevant to cell processing,
reprogramming and manipulation, as well as to gene targeting and insertion. Many of our enabling
technologies were acquired in April&nbsp;2009 as part of our acquisition of the operations of Stem Cell
Sciences Plc. For a brief description of our significant enabling technologies programs, see
&#147;Business &#151; Overview &#151; Enabling Technologies Programs&#148; in Part&nbsp;I, Item&nbsp;1 included in our 2009
10-K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal executive offices are located at StemCells, Inc., 3155 Porter Drive, Palo Alto,
CA 94304 and our phone number is (650)&nbsp;475-3100.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>RISK FACTORS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>You should consider the &#147;Risk Factors&#148; included and incorporated by reference in this
prospectus and any applicable prospectus supplement, including the risk factors incorporated by
reference from our most recent Annual Report on </I><I>Form 10-K</I><I> for this fiscal year ended December&nbsp;31,
2009, filed with the SEC on March&nbsp;11, 2010, as updated by our Quarterly Reports on </I><I>Form 10-Q</I><I> and
our other filings with the SEC pursuant to Sections&nbsp;</I><I>13(a)</I><I>, </I><I>13(c)</I><I>, 14 or </I><I>15(d)</I><I> of the Securities
Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;) filed after such annual report. The risks
and uncertainties we describe are not the only ones facing us. Additional risks not presently known
to us, or that we currently deem immaterial, may also impair our business operations. If any of
these risks were to occur, our business, financial condition, or results of operations would likely
suffer. In that event, the trading price of our common stock could decline, and you could lose all
or part of your investment.</I>
</DIV>
<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>NOTE REGARDING FORWARD-LOOKING STATEMENTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus and the documents incorporated in this prospectus by reference may contain
&#147;forward-looking statements&#148;. Except for strictly historical information contained herein, matters
discussed in this report constitute forward-looking statements. Generally, these statements may be
identified by the use of forward-looking words or phrases such as &#147;anticipate,&#148; &#147;believe,&#148; &#147;could,&#148;
&#147;estimate,&#148; &#147;expect,&#148; &#147;intend,&#148; &#147;look forward,&#148; &#147;may,&#148; &#147;planned,&#148; &#147;potential,&#148; &#147;should,&#148; &#147;will,&#148;
and &#147;would,&#148; and similar terms. These forward-looking statements reflect our current expectations
and are based upon currently available data. The Private Securities Litigation Reform Act of 1995
provides a &#147;safe harbor&#148; for such forward-looking statements. In order to comply with the terms of
the safe harbor, we note that a variety of factors could cause actual results and experience to
differ materially from the anticipated results or other expectations expressed in the
forward-looking statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Such statements include, without limitation, all statements as to expectation or belief and
statements as to our future results of operations; the progress of our research, product
development and clinical programs; the need for, and timing of, additional capital and capital
expenditures; partnering prospects; costs of manufacture of products; the protection of, and the
need for, additional intellectual property rights; effects of regulations; the need for additional
facilities; and potential market opportunities. Our actual results may vary materially from those
contained in such forward-looking statements because of risks to which we are subject, including
uncertainty as to whether the U.S. Food and Drug Administration (FDA)&nbsp;or other regulatory
authorities will permit us to proceed or continue with clinical testing of proposed products despite the novel
and unproven nature of our technologies; the risk that our initial clinical trial and any other
clinical trials or studies could be substantially delayed beyond their expected dates or cause us
to incur substantial unanticipated costs; uncertainties in our ability to obtain the capital
resources needed to continue our current research and development operations and to conduct the
research, preclinical development and clinical trials necessary for regulatory approvals; the
uncertainty regarding our ability to obtain a corporate partner or partners, if needed, to support
the development and commercialization of our potential cell-based therapeutics products; the
uncertainty about the design of current and future clinical trials and whether we will receive the
necessary support of a clinical trial site and its institutional review board to pursue current and
future clinical trials in NCL, PMD or in proposed therapies for other diseases or conditions; the
uncertainty regarding the outcome of our proposed clinical trial in NCL and any other clinical
trials or studies we may conduct in the future; the uncertainty regarding the validity and
enforceability of our issued patents; the uncertainty whether any products that may be generated in
our cell-based therapeutics programs will prove clinically safe and effective; the uncertainty
regarding our ability to commercialize a therapeutic product and its ability to successfully
compete with other products on the market; the uncertainty whether we will achieve revenue from
product sales or become profitable; uncertainties regarding our obligations with respect to our
former encapsulated cell therapy facilities in Rhode Island; obsolescence of our technologies;
competition from third parties; intellectual property rights of third parties; litigation risks;
and other risks to which we are subject. All forward-looking statements attributable to us or to
persons acting on our behalf are expressly qualified in their entirety by the cautionary statements
and risk factors set forth in &#147;Risk Factors&#148; in this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The forward-looking statements included in this prospectus represent our estimates as of the
date of this prospectus. We specifically disclaim any obligation to update these forward-looking
statements in the future. These forward-looking statements should not be relied upon as
representing our estimates or views as of any date subsequent to the date of this prospectus.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>USE OF PROCEEDS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise provided in the applicable prospectus supplement, we intend to use the net
proceeds from the sale of the securities covered by this prospectus for general corporate purposes,
which may include working capital, capital expenditures, research and development expenditures,
clinical trial expenditures, acquisitions of new technologies or businesses, and investments.
Additional information on the use of net proceeds from the sale of securities covered by this
prospectus may be set forth in the prospectus supplement relating to the specific offering.
</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>RATIO OF EARNINGS TO FIXED CHARGES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our earnings are inadequate to cover fixed charges. The following table sets forth the dollar
amount of the coverage. We have not included a ratio of earnings to combined fixed charges and
preferred stock dividends because we do not have any preferred stock outstanding.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Nine</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Months</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #ffffff"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>30, 2010</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23"><B>(in thousands)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ratio of earnings
to fixed charges
(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deficiency of
earnings available
to cover fixed
charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(13,726</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(20,927</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(27,107</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(31,307</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(29,156</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">(18,110</TD>
    <TD align="left">)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>In each of the periods presented, our earnings were insufficient to cover fixed charges and
accordingly ratios are not presented.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PLAN OF DISTRIBUTION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may sell securities in any of the ways described below, including any combination thereof:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to or through underwriters or dealers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>through one or more agents; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>directly to purchasers or to a single purchaser.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The distribution of the securities may be effected from time to time in one or more
transactions:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>at a fixed price, or prices, which may be changed from time to time;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>at market prices prevailing at the time of sale;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>at prices related to such prevailing market prices; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>at negotiated prices.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each prospectus supplement will describe the method of distribution of the securities and any
applicable restrictions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The prospectus supplement with respect to the securities of a particular series will describe
the terms of the offering of the securities, including the following:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the name or names of any underwriters, dealers or agents and the amounts of
securities underwritten or purchased by each of them;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the initial public offering price of the securities and the proceeds to us and
any discounts, commissions or concessions allowed or reallowed or paid to dealers;
and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any securities exchanges on which the securities may be listed.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any initial public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time. In no event will any underwriter or dealer
receive fees, commissions and markups, which, in the aggregate, would exceed eight percent of the
price of the securities being registered.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Only the agents or underwriters named in the prospectus supplement are agents or underwriters
in connection with the securities being offered.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may authorize underwriters, dealers or other persons acting as our agents to solicit offers
by certain institutions to purchase securities from us pursuant to delayed delivery contracts
providing for payment and delivery on the date stated in the prospectus supplement. Each contract
will be for an amount not less than, and the aggregate amount of securities sold pursuant to such
contracts shall not be less nor more than, the respective amounts stated in the prospectus
supplement. Institutions with whom the contracts, when authorized, may be made include commercial
and savings banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but shall in all cases be subject to our approval.
Delayed delivery contracts will be subject only to those conditions set forth in the prospectus
supplement, and the prospectus supplement will set forth any commissions we pay for solicitation of
these contracts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Agents, underwriters and other third parties described above may be entitled to
indemnification by us against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments which the agents or underwriters may be required
to make in respect thereof. Agents, underwriters and such other third parties may be customers of,
engage in transactions with, or perform services for us in the ordinary course of business.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One or more firms, referred to as &#147;remarketing firms,&#148; may also offer or sell the securities,
if the prospectus supplement so indicates, in connection with a remarketing arrangement upon their
purchase. Remarketing firms will act as principals for their own accounts or as our agents. These
remarketing firms will offer or sell the securities in accordance with the terms of the securities.
The prospectus supplement will identify any remarketing firm and describe the terms of its
agreement, if any, with us and the remarketing firm&#146;s compensation. Remarketing firms may be
deemed to be underwriters in connection with the securities they remarket. Remarketing firms may
be entitled under agreements that may be entered into with us to indemnification by us against
certain civil liabilities, including liabilities under the Securities Act, and may be customers of,
engage in transactions with or perform services for us in the ordinary course of business.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of the underwriters may use this prospectus and the accompanying prospectus supplement
for offers and sales related to market-making transactions in the securities. These underwriters
may act as principal or agent in these transactions, and the sales will be made at prices related
to prevailing market prices at the time of sale.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The securities may be new issues of securities and may have no established trading market. The
securities may or may not be listed on a national securities exchange. Underwriters may make a
market in these securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. We can make no assurance as to the liquidity of, or the
existence of trading markets for, any of the securities.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain persons participating in this offering may engage in overallotment, stabilizing
transactions, short covering transactions and penalty bids in accordance with rules and regulations
under the Exchange Act. Overallotment involves sales in excess of the offering size, which create
a short position. Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Short covering transactions involve
purchases of the securities in the open market after the distribution is completed to cover short
positions. Penalty bids permit the underwriters to reclaim a selling concession from a dealer when
the securities originally sold by the dealer are purchased in a covering transaction to cover short
positions. Those activities may cause the price of the securities to be higher than it would
otherwise be. If commenced, the underwriters may discontinue any of the activities at any time.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>DESCRIPTION OF COMMON STOCK</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summary of the terms of our common stock is subject to and qualified in its
entirety by reference to our charter and by-laws, copies of which are on file with the SEC as
exhibits to previous SEC filings. Please refer to &#147;Where You Can Find More Information&#148; below for
directions on obtaining these documents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have authority to issue 250,000,000 shares of common stock. As of November 1, 2010, we
had 127,029,870 shares of common stock outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>General</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of common stock are entitled to one vote per share on matters on which our
stockholders vote. There are no cumulative voting rights. Holders of common stock are entitled to
receive dividends, if declared by our board of directors, out of funds that we may legally use to
pay dividends. If we liquidate or dissolve, holders of common stock are entitled to share ratably
in our assets once our debts and any liquidation preference owed to any then-outstanding preferred
stockholders are paid. Our certificate of incorporation does not provide the common stock with any
redemption, conversion or preemptive rights. All shares of common stock that are outstanding as of
the date of this prospectus and, upon issuance and sale, all shares we are offering by this
prospectus, will be fully-paid and nonassessable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Transfer Agent and Registrar</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Nasdaq Global Market</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common stock is listed for quotation on the Nasdaq Global Market under the symbol &#147;STEM.&#148;
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>DESCRIPTION OF PREFERRED STOCK</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have authority to issue 1,000,000 shares of undesignated preferred stock. As of
November 1, 2010, no shares of our preferred stock were outstanding. The following summary of certain
provisions of our preferred stock does not purport to be complete. You should refer to our restated
certificate of incorporation and our amended and restated by-laws, both of which are included as
exhibits to the registration statement we have filed with the SEC in connection with this offering.
The summary below is also qualified by provisions of applicable law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our board of directors is authorized, without stockholder approval, from time to time, to
issue shares of preferred stock in series and may, at the time of issuance, subject to Delaware law
and our charter and by-laws, determine the rights, preferences and limitations of each series,
including voting rights, dividend rights and redemption and liquidation preferences. Satisfaction
of any dividend preferences of outstanding shares of preferred stock would reduce the amount of
funds available for the payment of dividends on shares of our common stock. Holders of shares of
preferred stock may be entitled to receive a preference payment in the event of any liquidation,
dissolution or winding-up of our company before any payment is made to the holders of shares of our
common stock. In some circumstances, the issuance of shares of preferred stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of our securities or the removal of incumbent management. Upon the
affirmative vote of our board of directors, without stockholder approval, we may issue shares of
preferred stock with voting and conversion rights which could adversely affect the holders of
shares of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we offer a specific series of preferred stock under this prospectus, we will describe the
terms of the preferred stock in the prospectus supplement for such offering and will file a copy of
the certificate establishing the terms of the preferred stock with the SEC. To the extent required,
this description will include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the title and stated value;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the number of shares offered, the liquidation preference per share and the purchase
price;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the dividend rate(s), period(s) and/or payment date(s), or method(s) of calculation for
such dividends;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>whether dividends will be cumulative or non-cumulative and, if cumulative, the date from
which dividends will accumulate;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the procedures for any auction and remarketing, if any;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the provisions for a sinking fund, if any;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the provisions for redemption, if applicable;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any listing of the preferred stock on any securities exchange or market;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>whether the preferred stock will be convertible into our common stock, and, if
applicable, the conversion price (or how it will be calculated) and conversion period;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>whether the preferred stock will be exchangeable into debt securities, and, if
applicable, the exchange price (or how it will be calculated) and exchange period;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>voting rights, if any, of the preferred stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a discussion of any material and/or special U.S. federal income tax considerations
applicable to the preferred stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the relative ranking and preferences of the preferred stock as to dividend rights and
rights upon liquidation, dissolution or winding up of the affairs of StemCells, Inc.; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any material limitations on issuance of any class or series of preferred stock ranking
senior to or on a parity with the series of preferred stock as to dividend rights and
rights upon liquidation, dissolution or winding up of StemCells, Inc.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preferred stock offered by this prospectus will, when issued, be fully paid and
nonassessable and will not have, or be subject to, any preemptive or similar rights.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Transfer Agent and Registrar</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transfer agent and registrar for any series or class of preferred stock will be set forth
in the applicable prospectus supplement.
</DIV>

<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>DESCRIPTION OF WARRANTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may issue warrants to purchase shares of our common stock, preferred stock and/or debt
securities in one or more series together with other securities or separately, as described in the
applicable prospectus supplement. Below is a description of certain general terms and provisions of
the warrants that we may offer. Particular terms of the warrants will be described in the warrant
agreements and the prospectus supplement to the warrants.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The applicable prospectus supplement will contain, where applicable, the following terms of,
and other information relating to, the warrants:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the specific designation and aggregate number of, and the price at which we will issue,
the warrants;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the currency or currency units in which the offering price, if any, and the exercise
price are payable;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the designation, amount and terms of the securities purchasable upon exercise of the
warrants;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if applicable, the exercise price for shares of our common stock and the number of
shares of common stock to be received upon exercise of the warrants;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if applicable, the exercise price for shares of our preferred stock, the number of
shares of preferred stock to be received upon exercise, and a description of that series of
our preferred stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if applicable, the exercise price for our debt securities, the amount of debt securities
to be received upon exercise, and a description of that series of debt securities;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the date on which the right to exercise the warrants will begin and the date on which
that right will expire or, if you may not continuously exercise the warrants throughout
that period, the specific date or dates on which you may exercise the warrants;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>whether the warrants will be issued in fully registered form or bearer form, in
definitive or global form or in any combination of these forms, although, in any case, the
form of a warrant included in a unit will correspond to the form of the unit and of any
security included in that unit;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any applicable material U.S. federal income tax consequences;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the identity of the warrant agent for the warrants and of any other depositaries,
execution or paying agents, transfer agents, registrars or other agents;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the proposed listing, if any, of the warrants or any securities purchasable upon
exercise of the warrants on any securities exchange;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if applicable, the date from and after which the warrants and the common stock,
preferred stock and/or debt securities will be separately transferable;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if applicable, the minimum or maximum amount of the warrants that may be exercised at
any one time;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>information with respect to book-entry procedures, if any;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the anti-dilution provisions of the warrants, if any;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any redemption or call provisions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>whether the warrants are to be sold separately or with other securities as parts of
units; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any additional terms of the warrants, including terms, procedures and limitations
relating to the exchange and exercise of the warrants.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Transfer Agent and Registrar</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transfer agent and registrar for any warrants will be set forth in the applicable
prospectus supplement.
</DIV>
<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>DESCRIPTION OF DEBT SECURITIES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will issue the debt securities offered by this prospectus and any accompanying prospectus
supplement under an indenture to be entered into between us and the trustee identified in the
applicable prospectus supplement. The terms of the debt securities will include those stated in the
indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as
in effect on the date of the indenture. We have filed a copy of the form of indenture as an exhibit
to the registration statement in which this prospectus is included. The indenture will be subject
to and governed by the terms of the Trust Indenture Act of 1939.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may offer under this prospectus up to an aggregate principal amount of $100,000,000 in
debt securities; or if debt securities are issued at a discount, or in a foreign currency, foreign
currency units or composite currency, the principal amount as may be sold for an initial public
offering price of up to $100,000,000. Unless otherwise specified in the applicable prospectus
supplement, the debt securities will represent direct, unsecured obligations of StemCells, Inc. and
will rank equally with all of our other unsecured indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following statements relating to the debt securities and the indenture are summaries,
qualified in their entirety to the detailed provisions of the indenture.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>General</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may issue the debt securities in one or more series with the same or various maturities, at
par, at a premium, or at a discount. We will describe the particular terms of each series of debt
securities in a prospectus supplement relating to that series, which we will file with the SEC.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The prospectus supplement will set forth, to the extent required, the following terms of the
debt securities in respect of which the prospectus supplement is delivered:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the title of the series;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the aggregate principal amount;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the issue price or prices, expressed as a percentage of the aggregate principal amount
of the debt securities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any limit on the aggregate principal amount;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the date or dates on which principal is payable;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the interest rate or rates (which may be fixed or variable) or, if applicable, the
method used to determine such rate or rates;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the date or dates from which interest, if any, will be payable and any regular record
date for the interest payable;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the place or places where principal and, if applicable, premium and interest, is
payable;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the terms and conditions upon which we may, or the holders may require us to, redeem or
repurchase the debt securities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the denominations in which such debt securities may be issuable, if other than
denominations of $1,000 or any integral multiple of that number;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>whether the debt securities are to be issuable in the form of certificated debt
securities (as described below) or global debt securities (as described below);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the portion of principal amount that will be payable upon declaration of acceleration of
the maturity date if other than the principal amount of the debt securities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the currency of denomination;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the designation of the currency, currencies or currency units in which payment of
principal and, if applicable, premium and interest, will be made;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if payments of principal and, if applicable, premium or interest, on the debt securities
are to be made in one or more currencies or currency units other than the currency of
denomination, the manner in which the exchange rate with respect to such payments will be
determined;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if amounts of principal and, if applicable, premium and interest may be determined by
reference to an index based on a currency or currencies or by reference to a commodity,
commodity index, stock exchange index or financial index, then the manner in which such
amounts will be determined;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the provisions, if any, relating to any collateral provided for such debt securities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any addition to or change in the covenants and/or the acceleration provisions described
in this prospectus or in the indenture;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any events of default, if not otherwise described below under &#147;Events of Default&#148;;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the terms and conditions, if any, for conversion into or exchange for shares of common
stock or preferred stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any depositaries, interest rate calculation agents, exchange rate calculation agents or
other agents; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the terms and conditions, if any, upon which the debt securities shall be subordinated
in right of payment to other indebtedness of StemCells, Inc.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may issue discount debt securities that provide for an amount less than the stated
principal amount to be due and payable upon acceleration of the maturity of such debt securities in
accordance with the terms of the indenture. We may also issue debt securities in bearer form, with
or without coupons. If we issue discount debt securities or
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">debt securities in bearer form, we will describe material U.S. federal income tax considerations
and other material special considerations which apply to these debt securities in the applicable
prospectus supplement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may issue debt securities denominated in or payable in a foreign currency or currencies or
a foreign currency unit or units. If we do, we will describe the restrictions, elections, and
general tax considerations relating to the debt securities and the foreign currency or currencies
or foreign currency unit or units in the applicable prospectus supplement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exchange and/or Conversion Rights</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may issue debt securities which can be exchanged for or converted into shares of common
stock or preferred stock. If we do, we will describe the terms of exchange or conversion in the
prospectus supplement relating to these debt securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Transfer and Exchange</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may issue debt securities that will be represented by either:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;book-entry securities,&#148; which means that there will be one or more global securities
registered in the name of a depositary or a nominee of a depositary; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;certificated securities,&#148; which means that they will be represented by a certificate
issued in definitive registered form.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will specify in the prospectus supplement applicable to a particular offering whether the
debt securities offered will be book-entry or certificated securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Certificated Debt Securities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If you hold certificated debt securities, you may transfer or exchange such debt securities at
the trustee&#146;s office or at the paying agent&#146;s office or agency in accordance with the terms of the
indenture. You will not be charged a service charge for any transfer or exchange of certificated
debt securities but may be required to pay an amount sufficient to cover any tax or other
governmental charge payable in connection with such transfer or exchange.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You may effect the transfer of certificated debt securities and of the right to receive the
principal of, premium, and/or interest, if any, on the certificated debt securities only by
surrendering the certificate representing the certificated debt securities and having us or the
trustee issue a new certificate to the new holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Global Securities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we decide to issue debt securities in the form of one or more global securities, then we
will register the global securities in the name of the depositary for the global securities or the
nominee of the depositary, and the global securities will be delivered by the trustee to the
depositary for credit to the accounts of the holders of beneficial interests in the debt
securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The prospectus supplement will describe the specific terms of the depositary arrangement for
debt securities of a series that are issued in global form. None of our company, the trustee, any
payment agent or the security registrar will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership interests in a global
debt security or for maintaining, supervising or reviewing any records relating to these beneficial
ownership interests.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>No Protection in the Event of Change of Control</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The indenture does not have any covenants or other provisions providing for a put or increased
interest or otherwise that would afford holders of debt securities additional protection in the
event of a recapitalization transaction, a change of control of StemCells, Inc., or a highly
leveraged transaction. If we offer any covenants or
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">provisions of this type with respect to any debt securities covered by this prospectus, we will
describe them in the applicable prospectus supplement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Covenants</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless otherwise indicated in this prospectus or a prospectus supplement, the debt securities
will not have the benefit of any covenants that limit or restrict our business or operations, the
pledging of our assets or the incurrence by us of indebtedness. We will describe in the applicable
prospectus supplement any material covenants in respect of a series of debt securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Consolidation, Merger and Sale of Assets</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have agreed in the indenture that we will not consolidate with or merge into any other
person or convey, transfer, sell or lease our properties and assets substantially as an entirety to
any person, unless:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the person formed by the consolidation or into or with which we are merged or the person
to which our properties and assets are conveyed, transferred, sold or leased, is a
corporation organized and existing under the laws of the U.S., any state or the District of
Columbia or a corporation or comparable legal entity organized under the laws of a foreign
jurisdiction and, if we are not the surviving person, the surviving person has expressly
assumed all of our obligations, including the payment of the principal of and, premium, if
any, and interest on the debt securities and the performance of the other covenants under
the indenture; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>immediately before and immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time or both, would become an event
of default, has occurred and is continuing under the indenture.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Events of Default</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless otherwise specified in the applicable prospectus supplement, the following events will
be events of default under the indenture with respect to debt securities of any series:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we fail to pay any principal or premium, if any, when it becomes due;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we fail to pay any interest within 30&nbsp;days after it becomes due;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we fail to comply with any other covenant in the debt securities or the indenture for 60
days after written notice specifying the failure from the trustee or the holders of not
less than 25% in aggregate principal amount of the outstanding debt securities of that
series; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>certain events involving bankruptcy, insolvency or reorganization of StemCells, Inc. or
any of our significant subsidiaries.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trustee may withhold notice to the holders of the debt securities of any series of any
default, except in payment of principal of or premium, if any, or interest on the debt securities
of a series, if the trustee considers it to be in the best interest of the holders of the debt
securities of that series to do so.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If an event of default (other than an event of default resulting from certain events of
bankruptcy, insolvency or reorganization) occurs, and is continuing, then the trustee or the
holders of not less than 25% in aggregate principal amount of the outstanding debt securities of
any series may accelerate the maturity of the debt securities. If this happens, the entire
principal amount, plus the premium, if any, of all the outstanding debt securities of the affected
series plus accrued interest to the date of acceleration will be immediately due and payable. At
any time after the acceleration, but before a judgment or decree based on such acceleration is
obtained by the trustee, the holders of a majority in aggregate principal amount of outstanding
debt securities of such series may rescind and annul such acceleration if:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all events of default (other than nonpayment of accelerated principal, premium or
interest) have been cured or waived;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all lawful interest on overdue interest and overdue principal has been paid; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the rescission would not conflict with any judgment or decree.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, if the acceleration occurs at any time when we have outstanding indebtedness
which is senior to the debt securities, the payment of the principal amount of outstanding debt
securities may be subordinated in right of payment to the prior payment of any amounts due under
the senior indebtedness, in which case the holders of debt securities will be entitled to payment
under the terms prescribed in the instruments evidencing the senior indebtedness and the indenture.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If an event of default resulting from certain events of bankruptcy, insolvency or
reorganization occurs, the principal, premium and interest amount with respect to all of the debt
securities of any series will be due and payable immediately without any declaration or other act
on the part of the trustee or the holders of the debt securities of that series.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The holders of a majority in principal amount of the outstanding debt securities of a series
will have the right to waive any existing default or compliance with any provision of the indenture
or the debt securities of that series and to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee, subject to certain limitations specified in the
indenture.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No holder of any debt security of a series will have any right to institute any proceeding
with respect to the indenture or for any remedy under the indenture, unless:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the holder gives to the trustee written notice of a continuing event of default;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the holders of at least 25% in aggregate principal amount of the outstanding debt
securities of the affected series make a written request and offer reasonable indemnity to
the trustee to institute a proceeding as trustee;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the trustee fails to institute a proceeding within 60&nbsp;days after such request; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the holders of a majority in aggregate principal amount of the outstanding debt
securities of the affected series do not give the trustee a direction inconsistent with
such request during such 60-day period.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These limitations do not, however, apply to a suit instituted for payment on debt securities
of any series on or after the due dates expressed in the debt securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Modification and Waiver</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time, we and the trustee may, without the consent of holders of the debt
securities of one or more series, amend the indenture or the debt securities of one or more series,
or supplement the indenture, for certain specified purposes, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to provide that the surviving entity following a change of control of StemCells, Inc.
permitted under the indenture will assume all of our obligations under the indenture and
debt securities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to provide for certificated debt securities in addition to uncertificated debt
securities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to comply with any requirements of the SEC under the Trust Indenture Act of 1939;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to cure any ambiguity, defect or inconsistency, or make any other change that does not
materially and adversely affect the rights of any holder; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to appoint a successor trustee under the indenture with respect to one or more series.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time we and the trustee may, with the consent of holders of at least a majority
in principal amount of the outstanding series of debt securities, amend or supplement the indenture
or the debt securities of such series, or waive compliance in a particular instance by us with any
provision of the indenture or the debt securities. We may not, however, without the consent of each
holder affected by such action, modify or supplement the indenture or the debt securities or waive
compliance with any provision of the indenture or the debt securities in order to:
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reduce the amount of debt securities whose holders must consent to an amendment,
supplement, or waiver to the indenture or such debt security;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reduce the rate of or change the time for payment of interest;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reduce the principal of or change the stated maturity of the debt securities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make any debt security payable in money other than that stated in the debt security;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>change the amount or time of any payment required or reduce the premium payable upon any
redemption, or change the time before which no such redemption may be made;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>waive a default in the payment of the principal of, premium, if any, or interest on the
debt securities or a redemption payment;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>waive a redemption payment with respect to any debt securities or change any provision
with respect to redemption of debt securities; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>take any other action otherwise prohibited by the indenture to be taken without the
consent of each holder affected by the action.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Defeasance of Debt Securities and Certain Covenants in Certain Circumstances</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The indenture permits us, at any time, to elect to discharge our obligations with respect to
one or more series of debt securities by following certain procedures described in the indenture.
These procedures will allow us either:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to defease and be discharged from any and all of our obligations with respect to any
debt securities except for the following obligations (which discharge is referred to as
&#147;legal defeasance&#148;):</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;to register the transfer or exchange of such debt securities;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;to replace temporary or mutilated, destroyed, lost or stolen debt securities;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)&nbsp;to compensate and indemnify the trustee; or
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)&nbsp;to maintain an office or agency in respect of the debt securities and to hold monies for
payment in trust; or
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to be released from our obligations with respect to the debt securities under certain
covenants contained in the indenture, as well as any additional covenants which may be
contained in the applicable supplemental indenture (which release is referred to as
&#147;covenant defeasance&#148;).</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to exercise either defeasance option, we must deposit with the trustee or other
qualifying trustee, in trust for that purpose:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>money;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U.S. Government Obligations (as described below) or Foreign Government Obligations (as
described below) which through the scheduled payment of principal and interest in
accordance with their terms will provide money; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a combination of money and/or U.S. Government Obligations and/or Foreign Government
Obligations sufficient in the written opinion of a nationally-recognized firm of
independent accountants to provide money;</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">which in each case specified above, provides a sufficient amount to pay the principal of, premium,
if any, and interest, if any, on the debt securities of the series, on the scheduled due dates or
on a selected date of redemption in accordance with the terms of the indenture.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, defeasance may be effected only if, among other things:
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of either legal or covenant defeasance, we deliver to the trustee an opinion
of counsel, as specified in the indenture, stating that as a result of the defeasance
neither the trust nor the trustee will be required to register as an investment company
under the Investment Company Act of 1940;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of legal defeasance, we deliver to the trustee an opinion of counsel stating
that we have received from, or there has been published by, the Internal Revenue Service a
ruling to the effect that, or there has been a change in any applicable federal income tax
law with the effect that (and the opinion shall confirm that), the holders of outstanding
debt securities will not recognize income, gain or loss for U.S. federal income tax
purposes solely as a result of such legal defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner, including as a result of prepayment,
and at the same times as would have been the case if legal defeasance had not occurred;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of covenant defeasance, we deliver to the trustee an opinion of counsel to
the effect that the holders of the outstanding debt securities will not recognize income,
gain or loss for U.S. federal income tax purposes as a result of covenant defeasance and
will be subject to U.S. federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if covenant defeasance had not occurred; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>certain other conditions described in the indenture are satisfied.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we fail to comply with our remaining obligations under the indenture and applicable
supplemental indenture after a covenant defeasance of the indenture and applicable supplemental
indenture, and the debt securities are declared due and payable because of the occurrence of any
undefeased event of default, the amount of money and/or U.S. Government Obligations and/or Foreign
Government Obligations on deposit with the trustee could be insufficient to pay amounts due under
the debt securities of the affected series at the time of acceleration. We will, however, remain
liable in respect of these payments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The term &#147;U.S. Government Obligations&#148; as used in the above discussion means securities which
are direct obligations of or non-callable obligations guaranteed by the United States of America
for the payment of which obligation or guarantee the full faith and credit of the United States of
America is pledged.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The term &#147;Foreign Government Obligations&#148; as used in the above discussion means, with respect
to debt securities of any series that are denominated in a currency other than U.S. dollars (1)
direct obligations of the government that issued or caused to be issued such currency for the
payment of which obligations its full faith and credit is pledged or (2)&nbsp;obligations of a person
controlled or supervised by or acting as an agent or instrumentality of such government the timely
payment of which is unconditionally guaranteed as a full faith and credit obligation by that
government, which in either case under clauses (1)&nbsp;or (2), are not callable or redeemable at the
option of the issuer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Regarding the Trustee</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will identify the trustee with respect to any series of debt securities in the prospectus
supplement relating to the applicable debt securities. You should note that if the trustee becomes
a creditor of StemCells, Inc., the indenture and the Trust Indenture Act of 1939 limit the rights
of the trustee to obtain payment of claims in certain cases, or to realize on certain property
received in respect of any such claim, as security or otherwise. The trustee and its affiliates may
engage in, and will be permitted to continue to engage in, other transactions with us and our
affiliates. If, however, the trustee acquires any &#147;conflicting interest&#148; within the meaning of the
Trust Indenture Act of 1939, it must eliminate such conflict or resign.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The holders of a majority in principal amount of the then outstanding debt securities of any
series may direct the time, method and place of conducting any proceeding for exercising any remedy
available to the trustee. If an event of default occurs and is continuing, the trustee, in the
exercise of its rights and powers, must use the degree of care and skill of a prudent person in the
conduct of his or her own affairs. Subject to that provision, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the request of any of the
holders of the debt securities, unless they have offered to the trustee reasonable indemnity or
security.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>LEGAL MATTERS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The validity of the issuance of the securities offered hereby will be passed upon for us by
Ropes &#038; Gray LLP, Boston, Massachusetts. The validity of any securities will be passed upon for
any underwriters or agents by counsel that we will name in the applicable prospectus supplement.
</DIV>
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>EXPERTS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements, and management&#146;s assessment of the effectiveness of
internal control over financial reporting, have been incorporated by reference herein and in the
registration statement in reliance upon the reports of Grant Thornton LLP, independent registered
public accountants upon the authority of said firm as experts in accounting and auditing.
</DIV>
<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>WHERE YOU CAN FIND MORE INFORMATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We file annual, quarterly reports and special reports, proxy statements, and other information
with the SEC. We make these documents publicly available, free of charge, on our website at
www.stemcellsinc.com as soon as reasonably practicable after filing such documents with the SEC.
You can read our SEC filings, including the registration statement, on the SEC&#146;s website at
http://www.sec.gov. You also may read and copy any document we file with the SEC at its public
reference facility at:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Public Reference Room<BR>
100 F Street N.E.<BR>
Washington, DC 20549.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Please call the SEC at 1-800-732-0330 for further information on the operation of the public
reference facilities.
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This prospectus is part of a registration statement on Form S-3 filed by us with the SEC. This
prospectus does not contain all of the information set forth in the registration statement, certain
parts of which are omitted in accordance with the rules and regulations of the SEC. Statements
contained in this prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of that contract or
other document filed as an exhibit to the registration statement. For further information about us
and the securities offered by this prospectus, we refer you to the registration statement and its
exhibits and schedules which may be obtained as described herein.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SEC allows us to &#147;incorporate by reference&#148; the information contained in documents that we
file with them, which means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference is considered to be part of this
prospectus, and information in documents that we file later with the SEC will automatically update
and supersede information in this prospectus. We incorporate by reference the documents listed
below into this prospectus, and any future filings made by us with the SEC under Section&nbsp;13(a),
13(c), 14 or 15(d) of the Exchange Act until the offering of all of the securities by this
prospectus is completed, including all filings made after the date of this initial registration
statement and prior to its effectiveness. We hereby incorporate by reference the following
documents (File No.&nbsp;000-19871):
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our Annual Report on Form 10-K for the year ended December&nbsp;31, 2009 (File No.&nbsp;000-19871);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our Quarterly Reports on Form 10-Q for the quarters ended March&nbsp;31, 2010, June&nbsp;30, 2010
and September&nbsp;30, 2010 (File No.&nbsp;000-19871);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our Current Reports on Form 8-K filed on February&nbsp;11, 2010, May&nbsp;7, 2010, June&nbsp;7, 2010,
June&nbsp;9, 2010, June&nbsp;30, 2010, August&nbsp;10, 2010, August&nbsp;13, 2010, August&nbsp;19, 2010, September
21, 2010, October&nbsp;7, 2010, and October 28, 2010 (File No.&nbsp;000-19871);</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our Definitive Proxy Statement on Schedule&nbsp;14A filed on April&nbsp;13, 2010; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The description of our common stock contained in our registration statements
on Form 8-A filed August&nbsp;3, 1998, under the Exchange Act, including any amendment or
report filed for the purpose of updating such description.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will provide each person to whom a prospectus is delivered a copy of all of the information
that has been incorporated by reference in this prospectus but not delivered with the prospectus.
You may obtain copies of these filings, at no cost, through the &#147;Investor Relations&#148; section of our
website (<U>www.stemcellsinc.com</U>), and you may request copies at no cost, by writing or telephoning us
at the following address:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">StemCells, Inc.<BR>
3155 Porter Drive<BR>
Palo Alto, Ca 94304<BR>
Attention: Investor Relations<BR>
Phone: (650)&nbsp;475-3100<BR>
email: irpr@stemcellsinc.com
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information contained on our website is not a part of this prospectus.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
</DIV>




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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 12pt; margin-top: 18pt"><B>$100,000,000</B>
</DIV>


<DIV align="center" style="font-size: 18pt; margin-top: 6pt"><B>StemCells, Inc.</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 6pt"><B>Common Stock<BR>
Preferred Stock<BR>
Warrants<BR>
Debt Securities</B>
</DIV>


<DIV align="center" style="font-size: 12pt; margin-top: 6pt"><B>PROSPECTUS</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">November
16, 2010
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have not authorized any dealer, salesperson or other person to give any information or represent
anything not contained in this prospectus. You must not rely on any unauthorized information. If
anyone provides you with different or inconsistent information, you should not rely on it. This
prospectus does not offer to sell any shares in any jurisdiction where it is unlawful. Neither the
delivery of this prospectus, nor any sale made hereunder, shall create any implication that the
information in this prospectus is correct after the date hereof.
</DIV>




<P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="f57170b5f5717003.gif" alt="(STEMCELLS LOGO)">
</DIV>



<P align="right" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>



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`
end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
