S-1

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As filed with the Securities and Exchange Commission on March 8, 2002

Registration No. 333-              

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

MITOKOR, INC.
(Exact name of Registrant as specified in its charter)

Delaware (After Reincorporation)	2834	33-0472944
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Number)	(I.R.S. Employer Identification No.)

11494 Sorrento Valley Road
San Diego, California 92121
(858) 793-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

Walter H. Moos, Ph.D.
Chief Executive Officer and Chairman of the Board of Directors
MitoKor, Inc.
11494 Sorrento Valley Road
San Diego, California 92121
(858) 793-7800
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

Scott M. Stanton, Esq.
Christian Waage, Esq.
Gray Cary Ware & Freidenrich LLP
4365 Executive Dr., Suite 1100
San Diego, CA 92121
(858) 677-1400 Gary J. Kocher, Esq.
Preston Gates & Ellis LLP
701 5th Avenue, Suite 5000
Seattle, WA 98104
(206) 623-7580

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

        If any of the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. / /

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / /

        If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / /

        If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / /

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee
Common Stock, $0.001 par value	$60,000,000	$5,520

(1)

Estimated solely for the purposes of determining the registration fee pursuant to Rule 457(o) promulgated under the Securities Act.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Subject to completion, dated March 8, 2002

The information in this prospectus is not complete and may be changed. We may not sell any of these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PROSPECTUS

            Shares

Common Stock

This is an initial public offering of common stock by MitoKor, Inc. We are selling            shares of common stock. We estimate that the initial public offering price will be between $            and $            per share.

No public market currently exists for our common stock. We have applied for listing of our common stock on the Nasdaq National Market under the symbol "MITO."

	Per Share	Total
Initial public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds to MitoKor, before expenses	$	$

We have granted the underwriters an option for a period of 30 days to purchase up to                        additional shares of our common stock.

Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 5.

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. Any representation to the contrary is a criminal offense.

RBC CAPITAL MARKETS
	LAZARD
		LEGG MASON WOOD WALKER
			Incorporated
				GERARD KLAUER MATTISON

            , 2002

TABLE OF CONTENTS

	Page
Prospectus Summary	1
Risk Factors	5
Forward Looking Statements	18
Use of Proceeds	19
Dividend Policy	19
Capitalization	20
Dilution	21
Selected Consolidated Financial Data	22
Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Business	33
Management	53
Related Party Transactions	66
Principal Stockholders	68
Description of Capital Stock	71
Shares Eligible for Future Sale	74
Underwriting	76
Legal Matters	78
Experts	78
Where You Can Find Additional Information	79
Index to Financial Statements	F-1

        Our registered and other trademarks and servicemarks include AlphaTaxin™, Mimotopes™, MitoKor®, MitoMetrics™, MultiPin®, NeuroStat™, PepSets®, Pioneering Mitochondrial Medicine™ and SynPhase®. This prospectus also refers to trademarks and trade names of other organizations.

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PROSPECTUS SUMMARY

This summary highlights information appearing in other sections of this prospectus. This summary is not complete and does not contain all of the information you should consider before buying shares in this offering. You should read this entire prospectus carefully, including "Risk Factors" and our consolidated financial statements, before making an investment decision.

MitoKor, Inc.

Our Company

        We focus on the discovery and development of drugs for the treatment of major diseases and conditions associated with mitochondrial dysfunction. Mitochondria are specialized cellular substructures that are essential to human life, and more than 75 diseases have been linked directly or indirectly to mitochondrial dysfunction. We integrate our broad biology and chemistry capabilities to identify mitochondrial drug targets and therapeutic leads and to advance product candidates into the clinic, either independently or in collaboration with our strategic partners. We have one drug in a Phase III clinical trial for Alzheimer's disease and a second drug in Phase I for Parkinson's disease. In addition, we are advancing a number of preclinical lead compounds toward the clinic in stroke, obesity, diabetes, osteoarthritis, glaucoma and other diseases. We currently have agreements with major pharmaceutical and biotechnology companies, including Wyeth (formerly American Home Products Corporation), Pfizer Inc, and Chiron Corporation. We also maintain relationships with numerous academic centers.

        Mitochondria generate nearly all of the cell's energy and participate in many cellular pathways, including metabolism and cell death. The tissues of the body that rely most heavily on mitochondria are composed of long-lived, energy demanding cell types, like those found in the brain, muscles and the pancreas. Mitochondrial dysfunction may be an inevitable part of the aging process, and is associated with large patient populations that have significant unmet medical needs.

Our Market Opportunity

        We have identified a number of potential commercial applications for our mitochondrial research including:

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drug candidates for major diseases;



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new protein targets for drug discovery;



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disease-relevant models;



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high-throughput screens and high-content assays for drug discovery and methods of assessing potential drug toxicity;



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human gene and protein databases and bioinformatics software;



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specialized chemical libraries;



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drug delivery approaches; and



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diagnostic markers and research tools.

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Our Strategy

        Our goal is to leverage our leading position in mitochondrial research to develop and commercialize drugs, research tools and diagnostic products. To achieve our objectives, we are implementing the following strategies:

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discover and internally develop product candidates to treat major diseases linked to mitochondrial dysfunction;



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leverage our comprehensive and integrated mitochondrial research platform;



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pursue additional strategic relationships with leading pharmaceutical and biotechnology companies;



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protect and enhance our intellectual property;



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acquire additional complementary businesses, product candidates and technologies; and



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pursue expedited paths to develop and commercialize drugs.

Our Products

        We are currently developing drugs for neurological disorders, metabolic diseases and other degenerative conditions and diseases. We have an agreement with Wyeth relating to a drug currently in a Phase III clinical trial for Alzheimer's disease. Our Parkinson's disease drug candidate is in Phase I, and we continue to develop our stroke treatment candidate, which is in late-stage preclinical studies. We have had a successful drug discovery collaboration with Pfizer for more than three years in the area of neurodegenerative disease. In addition, we have identified multiple drug candidates for the treatment of obesity and diabetes, and two classes of compounds have shown early success and are advancing through preclinical studies. Our mitochondrial research has also yielded drug discovery targets and preclinical therapeutic leads in osteoarthritis, glaucoma, Friedreich's ataxia and cancer.

        Our chemistry products and services are sold through our subsidiary, Mimotopes Pty. Ltd. Mimotopes has long been one of the largest suppliers of custom peptides and related kits, and more recently has become a major supplier of small molecule non-peptide combinatorial and medicinal chemistry libraries, services and tools. Mimotopes also contributes significantly to our internal drug discovery efforts.

Our Technology

        We have developed a comprehensive and integrated set of technologies to study mitochondria and their role in health and disease. We work at many levels of the drug discovery and development process, from fundamental research to clinical trials. We apply our proprietary technologies to uncover genomic and proteomic links between mitochondria and disease and to determine whether modulation of mitochondrial function might provide treatment. We use these links to identify and validate drug discovery targets. We leverage our mitochondrial expertise to develop and implement high-throughput screens and high-content assays for the discovery of novel drug candidates. We believe this broad set of skills and technologies will allow us to continue to expand our product pipeline and to attract additional pharmaceutical and biotechnology partners.

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The Offering

Common stock offered by MitoKor	shares
Common stock to be outstanding after this offering	shares
Use of proceeds	Working capital and general corporate purposes, including research and development and potential acquisitions of products, technologies or companies.
Proposed Nasdaq National Market symbol	MITO

        The number of shares of common stock outstanding after the offering is based on the number of shares outstanding as of December 31, 2001 and does not include:

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1,997,379 shares of common stock issuable as of December 31, 2001, upon the exercise of outstanding stock options a weighted average exercise price of $1.08 per share;



•

shares of common stock to be reserved prior to completion of this offering for issuance under our employee stock purchase plan;



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562,910 shares of common stock reserved, as of December 31, 2001, for future grants under our existing stock option plans and additional shares to be reserved under our 2002 Stock Option Plan prior to completion of this offering; and



•

330,230 shares of common stock issuable as of December 31, 2001, upon the exercise of outstanding warrants with a weighted average exercise price of $5.89 per share.

        Unless otherwise noted, all information in this prospectus assumes:

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The conversion of all outstanding shares of our redeemable convertible preferred stock into 13,356,792 shares of common stock and the exercise of warrants to purchase 67,042 shares of common stock immediately prior to the closing of this offering;



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our reincorporation in Delaware prior to the effectiveness of this offering;



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no exercise of the underwriters' over-allotment option; and



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no exercise of outstanding options to purchase shares of our common stock after December 31, 2001.

        We were incorporated in California in 1991 as Applied Genetics and changed our name to MitoKor in 1996. Prior to the effective date of this offering, we will reincorporate in Delaware and change our name to MitoKor, Inc. Our principal offices are located at 11494 Sorrento Valley Road, San Diego, California 92121. Our telephone number is (858) 793-7800. Our website address is www.mitokor.com. This reference to our website is not an active hyperlink, nor is the information contained in our website incorporated by reference into this prospectus, and it does not constitute part of this prospectus.

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Summary Consolidated Financial Data
(in thousands, except per share data)

        The tables below summarize financial data of MitoKor set forth in more detail elsewhere in this prospectus. You should read this information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the MitoKor financial statements and the related notes included in this prospectus.

	Years Ended December 31,
	1999			2000			2001
Consolidated Statement of Operations Data:
Revenue	$	3,580		$	8,337		$	8,548
Operating costs and expenses		8,606			17,788			30,221
Loss from operations		(5,026	)		(9,451	)		(21,673	)
Net loss	$	(4,526	)	$	(9,198	)	$	(21,113	)
Loss per common share, basic and diluted	$	(26.77	)	$	(49.03	)	$	(85.95	)
Number of shares used in per share computations, basic and diluted		169			188			246
Pro forma loss per common share, basic and diluted (unaudited)							$	(1.76	)
Pro forma number of shares in per share computations, basic and diluted (unaudited)								12,019

	December 31, 2001
	Actual			Pro forma as adjusted
				(unaudited)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	15,008		$
Working capital		11,276
Total assets		31,298
Long-term debt, less current portion		1,613			1,613
Redeemable convertible preferred stock		73,609			—
Total stockholders' deficit		(49,281	)

The preceding table presents a summary of our balance sheet as of December 31, 2001:

•

on an actual basis; and

•

on a pro forma as adjusted basis to give effect to the automatic conversion of all of our outstanding shares of redeemable convertible preferred stock into common stock, the exercise of warrants to purchase 67,042 shares of common stock and the sale of                         shares of common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses.

        See Note 2 of the notes to MitoKor's consolidated financial statements included elsewhere in this prospectus for an explanation of the determination of the number of shares used in computing per share data.

        Pro forma basic and diluted loss per share has been calculated assuming the conversion of all previously outstanding shares of redeemable convertible preferred stock as if the stock had been converted on January 1, 2001, or at the date of original issuance, if later.

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RISK FACTORS

You should carefully consider the following risk factors and all of the other information included in this prospectus before purchasing our common stock. Investing in our common stock involves a high degree of risk. Additional risks and uncertainties that are not yet identified or that we currently think are immaterial may also materially adversely affect our business and financial condition in the future. Any of the following risks could materially adversely affect our business, operating results or financial condition and could result in a complete loss of your investment.

Risks Related to Our Business

We have a history of net losses, and because we expect to continue to incur net losses, we may never become profitable.

        We have incurred net losses each year since our inception, including a net loss of approximately $21.1 million for the year ended December 31, 2001. As of that date, we had an accumulated deficit of approximately $53.6 million. We expect these losses to continue and anticipate negative cash flow for the foreseeable future. The size of these net losses will depend, in part, on the rate of growth, if any, in our revenue and on the level of our expenses. Our research and development expenditures and general and administrative costs have exceeded our revenue to date, and we expect to spend significant additional amounts to fund research and development in order to enhance our core technologies and product development. As a result, we expect that our operating expenses will increase significantly in the near term and, consequently, we will need to generate significant additional revenue to achieve profitability. If we do not increase our revenue, our financial performance may be adversely affected and the price of our common stock may decline.

If clinical trials for our products are unsuccessful or delayed, we will be unable to meet our anticipated development and commercialization timelines.

        Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective for use in humans. Conducting clinical trials is a lengthy, time-consuming and expensive process. We have a drug that is currently in a Phase III clinical trial relating to the use of estrogens to delay the onset or slow the progression of dementia in post-menopausal women. Completion of this and other clinical trials may take several years or more. Our commencement and rate of completion of clinical trials may be delayed by many factors, including:

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lack of efficacy during the clinical trials;



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unforeseen safety issues;



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slower than expected rates of patient recruitment;



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government or regulatory delays;



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inability to adequately follow patients after treatment; and



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inability to manufacture sufficient quantities of materials for use in clinical trials.

        The results from preclinical testing and early clinical trials are often not predictive of results obtained in later clinical trials. A number of new drugs have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary

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regulatory approvals. Data obtained from preclinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including perceived defects in the design of clinical trials and changes in regulatory policy during product development.

        Any delays in, or termination of, our clinical trials will materially and adversely affect our development and commercialization timelines, which would cause our stock price to decline. Any of these events would also impede our ability to obtain additional financing.

If we or our collaborators fail to obtain regulatory approval for our product candidates in a timely manner, our financial performance will be materially adversely affected.

        We or our collaborators must obtain regulatory approval before marketing or selling any of our product candidates in any major world pharmaceutical market. In the United States, we must obtain approval of the Food and Drug Administration, or FDA, for each drug and each indication that we intend to commercialize. The FDA approval process is typically lengthy and expensive, and approval is never certain. Products marketed, manufactured or distributed abroad are also subject to foreign government regulation. We have several product candidates in various stages of preclinical and clinical development. None of our product candidates has received regulatory approval to be commercially marketed and sold in the indications we are pursuing. If we fail to obtain regulatory approval, we will be unable to market and sell our products for the indications we are pursuing. We cannot predict with certainty if or when we might submit any of our product candidates for regulatory approval. Once we submit our product candidates for review, we cannot assure you that the FDA or other regulatory agencies will grant approvals on a timely basis or at all. If regulatory approval is delayed or denied, our financial performance will be materially adversely affected.

Reduction in research and development budgets and government funding may impact our sales.

        Customers for our combinatorial chemistry and custom peptide products and services include researchers at pharmaceutical and biotechnology companies, academic institutions and government and private laboratories. Fluctuations in the research and development budgets of these researchers and their organizations could have a significant effect on the demand for our products. Research and development budgets fluctuate due to changes in available resources, spending priorities and institutional budgetary policies. Our business could be seriously damaged by any significant decrease in life sciences research and development expenditures by pharmaceutical and biotechnology companies, academic institutions or government and private laboratories.

        In recent years, the U.S. pharmaceutical industry has undergone substantial downsizing and consolidation. Further mergers or corporate consolidations in the pharmaceutical industry could cause us to lose existing customers and potential future customers, which could have a material adverse effect on our business, financial condition and results of operations.

        A significant portion of our sales has been to researchers, universities, government laboratories and private foundations whose funding is dependent upon grants from government agencies such as the U.S. National Institutes of Health, or NIH, and similar domestic and international agencies. Although the level of research funding has increased during the past several years, we cannot assure you that this trend will continue. Government funding of research and development is subject to the political process, which is inherently fluid and unpredictable.

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Also, government proposals to reduce or eliminate budgetary deficits have sometimes included reduced allocations to the NIH and other government agencies that fund research and development activities. A reduction in government funding for the NIH or other government research agencies could seriously damage our business.

        Our customers generally receive funds from approved grants at particular times of the year, as determined by the federal government. Grants have, in the past, been frozen for extended periods or have otherwise become unavailable to various institutions without advance notice. The timing of the receipt of grant funds affects the timing of purchase decisions by our customers and, as a result, can cause fluctuations in our revenue and operating results.

We have limited experience in developing, manufacturing and marketing products and may be unable to commercialize proprietary products.

        For some of our product candidates, we will rely on our corporate collaborators to develop and commercialize products based on our research and development efforts. In order for us to commercialize products, we will need to significantly enhance our capabilities with respect to product development, and establish manufacturing and marketing capabilities, either directly or through outsourcing or licensing agreements. We may not be able to enter into such outsourcing or licensing agreements on commercially reasonable terms, if at all.

        We intend to rely on relationships with one or more large pharmaceutical companies with established distribution systems and direct sales forces to market our initial product candidates. However, we cannot guarantee that we will be able to enter into or maintain agreements with these companies on acceptable terms, if at all. The determination of our commercialization strategy with respect to a product candidate will depend on a number of factors, including the extent to which:

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we have funded the development of the product candidate independently;



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our agreement with our collaborators permits us to exercise marketing or promotion rights with respect to the product candidate;



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our product candidates compare with competitive products with respect to labeling, pricing and therapeutic effect; and



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we establish an in-house sales and distribution capability.

        These factors will be difficult to assess until additional information is known and are otherwise outside of our control. Therefore, we may change commercialization strategies by entering into agreements with our collaborators or third parties after we have incurred significant expenses in developing internal sales and distribution capabilities. A change of this nature could result in increased expenses or delays in commercialization and our financial performance may be adversely affected.

Our failure to achieve milestones under collaborative agreements or to develop our products may cause our revenue to decrease and lead to a failure to commercialize our products.

        A significant portion of our revenue to date has been derived from collaborative research and development agreements. A significant portion of our future revenue depends on the continuation of the research funding component of these collaborations. If we are unable to successfully achieve milestones or if either we or our partners fail to develop successful products, we will not earn the royalty and milestone revenue contemplated under our collaborative agreements. Additionally, if

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we are unable to enter into new collaborative agreements on commercially acceptable terms, our revenue and product development efforts may be adversely affected.

We are deploying a novel approach to drug discovery and we may not be able to develop commercially successful products.

        We are pursuing a mitochondrial approach to drug discovery. Our research and operations thus far have allowed us to identify a number of novel product targets and candidates for use by our collaborators and our own internal development programs. We are not certain, however, of the commercial value of any of our current or future targets and candidates, and we may not be successful in expanding the scope of our research into other commercially viable areas. Significant research and development, financial resources and personnel will be required to capitalize on our technology and to develop commercially viable products.

Our drugs may not be accepted by physicians, patients, third-party payors or the medical community in general, even if we obtain regulatory approvals to commercialize our drugs.

        We cannot be sure that any drug successfully developed by us, independently or with our collaborative partners, will be accepted by the pharmaceutical market. Any future products we develop may compete with drugs manufactured and marketed by major pharmaceutical companies. The degree of market acceptance of any drugs we develop depends on a number of factors, including:

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our demonstration of the clinical efficacy and safety of our drugs;



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the advantages and disadvantages of our drugs compared to existing therapies;



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the reimbursement policies of government and third-party payors; and



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the effectiveness of our marketing and distribution strategies.

        The failure of physicians, patients, third-party payors or the medical community in general to accept and utilize the drugs we develop will have an adverse affect on our business.

If we require additional capital, we may be unable to raise these funds on favorable terms, if at all.

        Our future capital requirements will be substantial, and will depend on many factors including:

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payments received under collaborative agreements;



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the progress and scope of our collaborative and independent research and development projects; and



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the filing, prosecution and enforcement of patent claims.

        We believe that our current cash balances, together with the net proceeds of this offering and anticipated collaboration, product and service revenue will be sufficient to fund our operations for at least the next twelve months. Unforeseen changes to our current operating plan may require us to consume available capital more rapidly than we expect. If our capital resources are insufficient to meet future capital requirements, we will have to raise additional funds. We may be unable to raise sufficient additional capital on favorable terms, if at all. The sale of equity or convertible debt securities in the future will be dilutive to our stockholders, and debt financing arrangements

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may require us to pledge certain assets and enter into covenants that would restrict our ability to incur further indebtedness. If we are unable to obtain adequate funds on reasonable terms or obtain extensions to existing collaboration agreements or new collaboration agreements, we may be required to discontinue or delay our clinical trials, preclinical studies and research programs or to obtain funds on unattractive terms which could have a material adverse effect on our business and cause our stock price to decline.

Our competitors may develop products or technologies that place ours at a significant disadvantage.

        Mitochondrial research is a rapidly evolving field. We face, and will continue to face, intense competition from large biotechnology and pharmaceutical companies, as well as academic research institutions, clinical reference laboratories and government agencies that are pursuing research activities similar to ours. Some of our competitors have entered into collaborations with leading companies, including some of our existing collaborators. Our future success will depend on our ability to maintain a competitive position with respect to technological advances.

        Our chemistry business is also subject to intense competition from other suppliers of tools and kits to research institutions and commercial biotechnology and pharmaceutical companies. Our current products compete in highly competitive markets and any products that we develop will compete in highly competitive markets. Further, our competitors may be more effective at developing commercial products. Many of our competitors have greater capital resources, larger research and development staffs and facilities, and more extensive product manufacturing and marketing capabilities. As a result, our competitors may be able to more easily develop or acquire technologies and products that would place our technologies and products, and those of our collaborators, at a significant disadvantage.

If we are unable to adequately protect our intellectual property, others may be able to use our technology, which could adversely affect our ability to compete in the market.

        Our success will depend in part on our ability to obtain patents and maintain adequate protection of our intellectual property. The patent positions of biotechnology companies, including our patent position, are generally uncertain and involve complex legal and factual questions. We will be able to protect our intellectual property rights from unauthorized use by others only to the extent that our technologies are protected by valid and enforceable patents or are effectively maintained as trade secrets. The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States and many companies have encountered significant problems in protecting and defending their intellectual property rights in foreign jurisdictions. We apply for patents directed to our technologies and products as we deem appropriate. However, these applications may be challenged or may fail to result in issued patents. We and our collaborators require publication of research and other results to gain credibility in the industry. However, publication of those results can have an adverse impact on our ability to obtain patent protection on inventions directed to those results. We have instituted controls to prevent inadvertent disclosure of potentially invalidating research results, but these controls may not prevent invalidating disclosures from occurring. Even if we are successful in obtaining patents directed to our technologies, our collaborators may have ownership claims or rights to obtain licenses to those patents, reducing their value to us. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or

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alternative technologies or design around our patents. In addition, our patents may be challenged, narrowed, or invalidated, and may fail to provide us with any competitive advantages. Finally, we do not always control the manner in which our technologies are protected and enforced; in many of our academic agreements and certain of our corporate agreements, our partner controls significant elements of the patent acquisition and enforcement processes.

        We also rely on trade secret protection for our confidential and proprietary information. We have taken security measures to protect our proprietary information and trade secrets, but these measures may not provide adequate protection. While we seek to protect our proprietary information by entering into confidentiality agreements with employees, collaborators and consultants, we cannot guarantee that our proprietary information will not be disclosed, or that we can adequately protect our trade secrets. In addition, our competitors may independently develop substantially equivalent proprietary information or may otherwise gain access to our trade secrets.

Litigation or third-party claims of intellectual property infringement could require us to spend substantial time and money, which would adversely affect our ability to develop and commercialize products.

        Our commercial success depends in part on our ability to avoid infringing patents and proprietary rights of third parties. Other parties have filed, and in the future are likely to file, patent applications involving mitochondria and mitochondrial dysfunction. If our operations require the use or access to technology patented by others, we may have to obtain a license for this technology, which may not be available on commercially reasonable terms, if at all.

        We may be accused of employing proprietary technology of others without authorization. In addition, other parties may obtain patents that relate to our technologies and claim that our use of these technologies infringes their patents. Regardless of merit, these claims could require us to incur substantial costs, and divert the attention of management and technical personnel, in defending ourselves against any such claims or enforcing our patents. In the event that a successful claim of infringement is brought against us, we may be required to pay damages and obtain licenses from other parties. We may not be able to obtain these licenses on reasonable terms, if at all. Defense of any lawsuit or failure to obtain any of these licenses could adversely affect our ability to develop and commercialize products.

        Third-party intellectual property rights may also affect our relationships with our corporate collaborators. We may be required to pay for damages and other costs incurred by our collaborators in the event their use of our products and technologies causes them to incur damages to third parties. Some of our royalty-bearing collaboration agreements would also allow our collaborators to reduce royalty payments to us in the event they are required to obtain a license to third-party intellectual property in order to commercialize products developed under the collaboration agreements.

We depend on the efforts of our collaborators and others for the future success of our business.

        Our future success depends in part on the efforts and abilities of our collaborators to assist us in the commercialization of our products. We have limited or no control over the resources that our collaborators may choose to devote to our joint efforts. Our collaborators may breach or terminate their agreements with us or fail to perform their obligations thereunder. Despite the contractual obligations of our collaborators to use their good faith efforts to develop our products, they may fail to devote sufficient resources to the development, manufacture, marketing or sale of

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our products. Our collaborators could also become our competitors in the future. If our collaborators develop competing products, preclude us from entering into collaborations with their competitors, or terminate their agreements with us prematurely, our product development efforts could be delayed and may fail to lead to commercialized products. We depend on licenses and sublicenses of intellectual property from third parties to exercise our rights and fulfill our obligations under some of our collaboration agreements, and events affecting those licenses and sublicenses could have adverse effects on our collaboration agreements.

Conflicts with our collaborators could jeopardize the outcome of our collaborative agreements and our ability to commercialize products.

        We conduct proprietary research programs in specific areas that are not covered by our current collaborative agreements. Our pursuit of opportunities in these areas could result in conflicts with our collaborators if they assert that our internal activities overlap with the exclusive areas stated in our collaborative agreements. Moreover, disagreements with our collaborators could develop over rights to our intellectual property. Any conflict with our collaborators could lead to the termination of our collaborative agreements, delay collaborative activities, reduce our ability to renew agreements or obtain future collaboration agreements or result in litigation or arbitration and would negatively impact our relationship with existing collaborators and may adversely affect our ability to commercialize our products.

We may have difficulties managing our growth.

        We will need to expand and effectively manage our operations and facilities in order to successfully complete our existing collaborative agreements, facilitate additional collaborations and pursue future internal research, development and commercialization efforts. We expect to significantly increase our rate of growth to meet our strategic objectives. If our growth accelerates, it will place a strain on our management and existing infrastructure. In addition, we will be required to expand our management capabilities and enhance our operating and financial systems to effectively manage our growth. If we continue to grow, the number and skills of our management and scientific personnel and our infrastructure may be inadequate.

The loss of key personnel or the inability to attract and retain additional personnel could impair our ability to expand our operations.

        We are highly dependent on the principal members of our management and scientific staff, the loss of whose services might adversely impact the achievement of our objectives and the continuation of existing collaborations. In addition, recruiting and retaining qualified scientific personnel to perform future research and development work will be critical to our success. There is currently a shortage of employees with mitochondrial, biotechnology or pharmaceutical expertise, and this shortage is likely to continue. If we are unable to attract and retain experienced personnel, our business could suffer and our stock price could decline.

We may be sued for product liability, and our insurance coverage may not be sufficient.

        We may be held liable if any product we develop or our collaborators develop causes injury or is found otherwise unsuitable during product testing, manufacturing, marketing or sale. We may also be required to pay damages and other costs incurred by our collaborators in the event their use of our products and technologies causes them to incur damages to third parties, or, in some cases, when our use of their products or technologies causes them to incur damages to third

11

parties. Although we have general liability and product liability insurance, this insurance may not fully cover our potential liabilities. Inability to maintain sufficient insurance coverage at an acceptable cost or to otherwise protect ourselves against potential product liability claims could prevent or inhibit the commercialization of products developed by us or our collaborators.

Our focus on a particular market opportunity may result in our failure to capitalize on more profitable products.

        Our limited financial and managerial resources require us to focus on product candidates in specific indications and to forego opportunities with regard to other products. While our technologies may permit us to work in many areas, resource commitments may require trade-offs resulting in delays in the development of certain programs or research areas, which may place us at a competitive disadvantage. Our decisions about resource allocation may not lead to the development of viable commercial products and may divert resources from more profitable market opportunities.

International unrest or foreign currency fluctuations could adversely affect our results.

        Our chemistry business sells and markets its products and services throughout the world. Our international revenue represented 50% of product revenues in 2000 and 2001. We expect that international revenue will continue to account for a significant percentage of our revenue for the foreseeable future.

        Risks arising from our international business include:

•

general economic and political conditions in the markets in which we operate;



•

potential increased costs associated with overlapping tax structures;



•

potential trade restrictions and exchange controls;



•

more limited protection for intellectual property rights in some countries;



•

difficulties and costs associated with staffing and managing foreign operations;



•

uncertain effects of the implementation in Europe of a unified currency;



•

unexpected changes in regulatory requirements;



•

difficulties of compliance with a wide variety of foreign laws and regulations;



•

longer accounts receivable cycles in certain foreign countries; and



•

import and export licensing requirements.

        Our chemistry business is in part conducted in Australian dollars and other foreign currencies rather than U.S. dollars, which is our reporting currency. We recognize foreign currency gains or losses arising from our operations in the period incurred. As a result, currency fluctuations among the U.S. dollar and the currencies in which we do business have caused and will continue to cause foreign currency transaction gains and losses. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates. For more information see "Management's Discussion and Analysis of Financial Condition and Results of Operations."

12

Changes in the U.S. and international health care industry could adversely affect our revenue.

        The U.S. and international health care industries are subject to changing political, economic and regulatory influences that may significantly affect the purchasing practices and pricing of pharmaceuticals. Cost containment measures, whether instituted by health care providers or imposed by government health administration regulators or new regulations, could result in greater selectivity in the purchase of drugs. In addition, in many major markets outside the United States, pricing approval is required before sales can commence. As a result, significant uncertainty exists as to the reimbursement status of approved health care products.

Our business is subject to the uncertainty of pharmaceutical pricing and reimbursement for the costs of product development.

        Our business may be materially adversely affected by the continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means. There is an increasing emphasis on managed care and group purchasing in the United States, and this trend will continue to put downward pressure on pharmaceutical pricing. These changes could decrease the price of our products which may have a material adverse effect on our financial performance. Further, to the extent that these changes affect our corporate collaborators, our ability to commercialize our products may be materially adversely affected.

        Our ability to commercialize pharmaceutical products may depend in part on the extent to which reimbursement for the costs of these products and related treatments will be available from government health-administration authorities, private health insurers and other third-party payors. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and third-party payors are increasingly challenging the prices charged for medical products and services. Government and third-party payors have discretion to determine whether to use our products and how much to pay for our products. There can be no assurance that any government or third-party insurance coverage will be available to patients for any products we develop. Government and other third-party payors are increasingly attempting to contain health care costs by limiting both coverage and reimbursement for new therapeutic products. Government payments under Medicare and Medicaid programs are important to our business since many of our products are intended to treat diseases that usually occur in the elderly, who are covered by these government programs. If adequate coverage and reimbursement levels are not provided by government and third-party payors for our products, the market acceptance of these products would be materially adversely affected.

We may be unable to enroll sufficient patients and clinical investigators to complete our clinical trials.

        The rate of completion of our clinical trials, and those of our collaborators, is significantly dependent upon the rate of patient and clinical investigators enrollment. Patient enrollment is a function of many factors, including:

•

efforts of the sponsor and clinical sites to facilitate timely enrollment;



•

patient referral practices of physicians;



•

design of the protocol;



•

eligibility criteria for the study in question;

13

•

perceived risks and benefits of the drug under study;



•

the size of the patient population;



•

availability of competing therapies;



•

availability of clinical trial sites; and



•

proximity of and access by patients to clinical sites.

        We may have difficulty obtaining sufficient patient enrollment or clinician participation to conduct our clinical trials as planned, and we may need to expend substantial additional funds to obtain access to resources or delay or modify our plans significantly. These considerations may lead us to consider the termination of ongoing clinical trials or development of a product for a particular indication.

Our collaborations with scientific advisors and academic institutions may be subject to restriction and change.

        We work with scientific advisors and academic collaborators who assist us in our research and development efforts. These scientists are not our employees and may have other commitments that limit their availability and their rights to fully assign their work product to us. If there is a conflict of interest between their work for us and their work for another entity, we may lose their services. In addition, although our scientific advisors and academic collaborators sign agreements not to disclose our confidential information, it is possible that valuable proprietary knowledge may become publicly known and compromise our competitive advantage.

We are exposed to risks associated with acquisitions.

        In 2000, we acquired the Mimotopes business from Chiron Corporation. In 2001, we acquired Apollo BioPharmaceutics, Inc. We may acquire additional businesses with complementary products, services or technologies. Acquisitions involve numerous risks, including, but not limited to:

•

difficulties and increased costs in connection with integration of the personnel, operations, technologies and products of acquired companies;



•

diversion of management's attention from other operational matters;



•

lack of synergy, or the inability to realize expected synergies, resulting from the acquisition;



•

the potential loss of key employees and collaborators of acquired companies;



•

differences in foreign laws, business practices, statutes, regulations and tax provisions;



•

impairment of acquired intangible assets as a result of technological advancements or worse-than-expected performance of acquired companies; and



•

exposure to fluctuations in foreign currency.

        Mergers and acquisitions are inherently risky, and the inability to effectively manage these risks could have a materially adverse affect on our financial performance.

14

We use hazardous chemicals and radioactive and biological materials in our business and any claims relating to improper handling, storage or disposal of these materials could be time consuming and costly.

        Our research and development processes involve the regulated use of hazardous materials, including chemical, radioactive and biological materials. Our operations produce hazardous waste products. We cannot fully eliminate the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials. In the event of an accident, we may be liable for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our insurance coverage and our total assets. Compliance with environmental laws and regulations may be expensive, and current or future environmental regulations, including possible penalties and fines for non-compliance, may impair our research, development and production efforts.

        In addition, our collaborators may use hazardous materials in connection with our collaborative efforts. In the event of a lawsuit or investigation, we could be held responsible for any injury caused to persons or property by exposure to, or release of, these hazardous materials used by these parties. Further, we may be required to indemnify our collaborators against all damages and other liabilities arising out of our development activities or products produced in connection with these collaborations.

Risks Related to This Offering

Our quarterly results of operations may fluctuate, and any deviation from levels expected by securities analysts or investors could cause our stock price to decline.

        Our quarterly operating results have fluctuated in the past and are likely to fluctuate in the future. A number of factors, many of which we cannot control, could subject our operating results and stock price to volatility, including:

•

recognition or payment of licensing or other fees;



•

decisions of our collaborators regarding the exercise of options in our collaboration agreements;



•

acceptance of our technologies and platforms;



•

success rates of our discovery efforts leading to achievement of milestones and payment of royalties;



•

introduction of new technologies or products by our competitors;



•

timing and willingness of collaborators to commercialize our products;



•

our ability to enter into new collaborative relationships;



•

changes in accounting standards or principles;



•

termination or non-renewal of existing collaborations; and



•

general and industry-specific economic conditions that may affect our collaborators' research and development expenditures.

15

        Due to the possibility of fluctuations in our revenue and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. As a result, in some future quarters, our operating results may not meet the expectations of stock market analysts and investors, which could result in a decline in our stock price.

Our stock price could be volatile, and your investment could suffer a decline in value.

        The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:

•

actual or anticipated variations in quarterly operating results;



•

results of clinical trials;



•

announcements of technological innovations by us or our competitors;



•

new products or services introduced or announced by us or our competitors;



•

changes in financial estimates by securities analysts;



•

conditions or trends in the biotechnology and pharmaceutical industries;



•

announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;



•

additions or departures of key personnel; and



•

sales of our common stock.

        In addition, the stock market in general, and the Nasdaq National Market and the market for biotechnology companies in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, there has been particular volatility in the market prices of securities of life sciences companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of management's attention and resources.

Future sales of our common stock may depress our stock price.

        The market price of our common stock could decline as a result of sales of substantial amounts of our common stock in the public market after the closing of this offering, or even the perception that such sales could occur. There will be                        shares of common stock outstanding immediately after this offering, or                        shares if the representatives of the underwriters exercise their over-allotment option in full. Of these shares, the following will be available for sale in the public market as follows:

                    shares will be eligible for sale upon completion of this offering; and

                    shares will be eligible for sale upon the expiration of lock-up agreements, beginning 180 days after the date of this prospectus.

16

Some of our existing stockholders can exert control over us and may not make decisions that are in the best interests of all stockholders.

        After this offering, our officers, directors and principal stockholders will together control approximately    % of our outstanding common stock. As a result, these stockholders, acting together, would be able to exert significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in control of our company, even when a change may be in the best interests of our stockholders. In addition, the interests of these stockholders may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, these stockholders could cause us to enter into transactions or agreements that you would not approve.

Management may invest or spend the proceeds of this offering in ways that do not yield returns or with which you may not agree.

        Management will retain broad discretion over the use of proceeds from this offering. Stockholders may not agree with management's chosen expenditures, and our use of the proceeds may not yield a significant return, or any return at all. Management intends to use the proceeds from this offering for working capital and other general corporate purposes, research and development and to finance potential acquisitions or investments. Actual uses may vary substantially from our currently planned uses, however, due to unforeseen changes in circumstances, including changes in the economy or our industry, potential product liability or intellectual property litigation, changes in our business strategy or unexpected business opportunities. Additionally, we may not be able to invest these funds effectively, which would adversely affect our financial returns.

As a new investor, you will experience immediate and substantial dilution.

        Investors purchasing shares of our common stock in this offering will pay more for their shares than the amount paid by existing stockholders who acquired shares prior to this offering. Accordingly, if you purchase common stock in this offering, you will incur immediate dilution in pro forma net tangible book value of approximately $            per share. If the holders of outstanding options or warrants exercise those options or warrants, you will incur further dilution. See "Dilution."

Anti-takeover provisions in our Certificate of Incorporation, our Bylaws and under Delaware law may discourage or prevent a change of control.

        Provisions of our Certificate of Incorporation, our Bylaws and Section 203 of the Delaware General Corporation Law could delay or prevent a change of control of MitoKor, which could adversely affect the market price of our common stock. These provisions could prevent the consummation of a transaction in which our stockholders could receive a substantial premium over the current market price for their shares.

17

FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These statements involve known and unknown risks, uncertainties and other factors, including the risks outlined under the section entitled "Risk Factors," which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•

marketing and commercialization of our products and technologies under development;



•

our estimates regarding our capital requirements and our needs for additional financing;



•

plans for future products, technologies and services and for enhancements of existing products, technologies and services;



•

our patent applications and licensed technology regarding our products and technology;



•

our ability to attract customers and establish license and collaboration agreements; and



•

sources of revenue and anticipated revenue, including licenses of our intellectual property, collaborative agreements and the continued viability and duration of those agreements.

        In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intent," "may," "might," "ongoing," "plan," "potential," "project," "should," "will," "would," or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus, and we are not obligated to update any of these forward-looking statements after the date of this prospectus to conform such statements to actual results, unless required by law.

        You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

        This prospectus contains statistical data regarding the biotechnology and genomics business sectors that we obtained from industry and scientific publications. These publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Although we believe that the publications are reliable, we have not independently verified their data.

18

USE OF PROCEEDS

        The net proceeds to MitoKor from the sale of the shares of common stock we are offering will be approximately $         million, at an assumed initial public offering price of $            per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses, or $            if the underwriters' over-allotment option is exercised in full.

        We intend to use the net proceeds of this offering for working capital and other general corporate purposes, including potential acquisitions of products, technologies or companies.

        While we from time to time engage in preliminary discussions with respect to acquisitions, we are not currently a party to any agreements, understandings or commitments with respect to such transactions. Pending the uses described herein, we will invest the net proceeds in short-term, interest bearing, investment grade securities.

        Based on our current operating plan, we anticipate that the net proceeds of this offering, together with expected interest income and funds from operations, will be sufficient to finance our capital requirements for at least the next 12 months. This estimate is based on assumptions that could be negatively impacted by the matters discussed in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources."

DIVIDEND POLICY

        We have never declared or paid any cash dividends on our common stock and do not anticipate paying such cash dividends in the foreseeable future. We currently anticipate that we will retain all of our future earnings for use in the development and expansion of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our results of operation, financial condition and other factors as our board of directors, in its discretion, deems relevant. Additionally, our loan documents contain covenants restricting our ability to pay cash dividends.

19

CAPITALIZATION

        The following table sets forth our actual and pro forma as adjusted capitalization as of December 31, 2001. The pro forma as adjusted information gives effect to the automatic conversion of all outstanding shares of redeemable convertible preferred stock into 13,356,792 shares of common stock, which will take place upon the closing of this offering. The pro forma as adjusted information also reflects the exercise of outstanding common stock warrants that expire on the closing of this offering into 67,042 shares of common stock for aggregate net proceeds to us of approximately $96,000. The pro forma as adjusted column also gives effect to the receipt of the net proceeds from the sale of            shares of common stock at an assumed initial public offering price of $                  per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses. This table should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus.

				As of December 31, 2001
				Actual			Pro forma as adjusted
				(In thousands except share and per share data)
Long-term debt, less current portion				$	1,613		$	1,613
Redeemable convertible preferred stock, $0.001 par value: 20,000,000 shares authorized and 12,882,254 shares issued and outstanding, actual; no shares authorized, issued and outstanding pro forma as adjusted				$	73,609		$	—
Stockholders' equity:
	Preferred stock, $0.001 par value: no shares authorized, issued and outstanding actual, 5,000,000 shares authorized and no shares issued and outstanding, pro forma as adjusted.				—			—
	Common stock, $0.001 par value: 25,000,000 shares authorized and 267,071 shares issued and outstanding, actual; 75,000,000 shares authorized and            shares issued and outstanding pro forma as adjusted				—
	Additional paid-in capital				7,058
	Unearned stock-based compensation				(2,009	)		(2,009	)
	Accumulated other comprehensive loss				(737	)		(737	)
	Accumulated deficit				(53,593	)		(53,593	)
		Total stockholders' equity (deficit)			(49,281	)
			Total capitalization	$	24,328		$

        The number of shares of common stock outstanding after the offering is based on the number of shares outstanding as of December 31, 2001 and does not include:

•

1,997,379 shares of common stock issuable as of December 31, 2001, upon the exercise of outstanding stock options with a weighted average exercise price of $1.08 per share;



•

shares of common stock to be reserved prior to completion of this offering for issuance under our employee stock purchase plan;



•

562,910 shares of common stock reserved, as of December 31, 2001, for future grants under our existing stock option plans and additional shares of common stock to be reserved under our 2002 Stock Option Plan prior to the completion of this offering; and



•

330,230 shares of common stock issuable as of December 31, 2001, upon the exercise of outstanding warrants with a weighted average exercise price of $5.89 per share.

20

DILUTION

        Our pro forma net tangible book value as of December 31, 2001 was $13.7 million or $1.00 per share of common stock. Pro forma net tangible book value per share is determined by dividing the net tangible book value (total tangible assets less total liabilities) by the number of outstanding shares of common stock at that date, assuming the conversion of all outstanding shares of preferred stock into shares of common stock and the exercise of outstanding warrants to purchase 67,042 shares of common stock that expire as of the closing of this offering. Without taking into account any other changes in pro forma net tangible book value other than the sale of shares of our common stock in this offering (after deducting estimated underwriting discounts and commissions and estimated offering expenses), the pro forma net tangible book value at December 31, 2001 would be $            million or $            per share. Upon the completion of this offering, there will be an immediate increase in pro forma net tangible book value to existing stockholders of $                        per share and an immediate dilution to new investors of $                        per share. The following table illustrates the per share dilution:

Assumed initial public offering price per share				$
	Pro forma net tangible book value per share as of December 31, 2001	$	1.00
	Increase in pro forma net tangible book value per share attributable to new investors
Pro forma net tangible book value per share after offering
Dilution in pro forma net tangible book value per share to new investors				$

        The following table sets forth on a pro forma basis as of December 31, 2001 the difference between the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by the existing stockholders and by the new investors before deducting estimated underwriting discounts and commissions and our estimated offering expenses:

		Shares Purchased			Total Consideration
								Average Price Per Share
		Number	Percent		Amount	Percent
Existing stockholders				%	$		%	$
New investors
	Total		100.0	%	$	100.0	%	$

        The number of shares of common stock outstanding after the offering is based on the number of shares outstanding as of December 31, 2001 and does not include:

•

1,997,379 shares of common stock issuable as of December 31, 2001, upon the exercise of outstanding stock options with a weighted average exercise price of $1.08 per share;



•

shares of common stock to be reserved prior to the completion of this offering for issuance under our employee stock purchase plan;



•

562,910 shares of common stock reserved, as of December 31, 2001, for future grants under our existing stock option plans and additional shares of common stock to be reserved under our 2002 Stock Option Plan prior to the completion of this offering; and



•

330,230 shares of common stock issuable as of December 31, 2001, upon the exercise of outstanding warrants with a weighted average exercise price of $5.89 per share.

21

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

        The following selected consolidated financial data presented below for the fiscal years ended June 30, 1997 and 1998, the six-month period ended December 31, 1998 and the fiscal years ended December 31, 1999, 2000 and 2001 are derived from our financial statements that have been audited by PricewaterhouseCoopers LLP, independent accountants. Our consolidated balance sheets as of December 31, 2000 and 2001, and the related consolidated statement of operations and cash flows for each of the three years ended December 31, 2001, are included elsewhere in this prospectus. The selected consolidated financial data set forth below contains only a portion of our financial statements, and should be read in conjunction with the MitoKor audited financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

				Years ended June 30,						Six months ended December 31, 1998			Years ended December 31,
				1997			1998						1999			2000			2001
Consolidated Statement of Operations Data:
	Revenue:
		Collaboration		$	—		$	—		$	511		$	3,312		$	5,488		$	4,728
		Product			—			—			—			—			2,760			3,526
		Service			47			—			200			116			—			246
		Other			—			—			118			152			89			48
			Total revenue		47			—			829			3,580			8,337			8,548
	Operating costs and expenses:
		Research and development			3,035			3,822			2,731			6,416			10,117			12,330
		Cost of products sold			—			—			—			—			1,181			1,182
		Sales and marketing			—			—			—			—			1,096			1,091
		General and administrative			1,186			1,609			1,024			2,183			4,192			5,885
		Stock-based compensation(3)			—			—			—			7			915			2,533
		Purchased in-process research and development			—			—			—			—			287			7,200
			Total operating costs and expenses		4,221			5,431			3,755			8,606			17,788			30,221
	Loss from operations				(4,174	)		(5,431	)		(2,926	)		(5,026	)		(9,451	)		(21,673	)
	Other income (expense):
		Interest income			319			1,107			480			860			801			820
		Interest expense			(56	)		(199	)		(129	)		(362	)		(509	)		(429	)
		Other income (expense), net			—			(8	)		—			3			63			132
			Total other income (expense)		263			900			351			501			355			523
	Loss before income taxes				(3,911	)		(4,531	)		(2,575	)		(4,525	)		(9,096	)		(21,150	)
	Income tax provision (benefit)				—			—			—			1			102			(37	)
		Net loss		$	(3,911	)	$	(4,531	)	$	(2,575	)	$	(4,526	)	$	(9,198	)	$	(21,113	)
	Loss per common share, basic and diluted(1)			$	(34.16	)	$	(27.08	)	$	(15.36	)	$	(26.77	)	$	(49.03	)	$	(85.95	)
	Number of shares in per share computations, basic and diluted				115			167			168			169			188			246
	Pro forma loss per common share, basic and diluted (unaudited)(2)																		$	(1.76	)
	Pro forma number of shares in per share computations, basic and diluted (unaudited)(2)																			12,019

22

		June 30,						December 31,
		1997			1998			1998			1999			2000			2001
Consolidated Balance Sheet Data:
	Cash, cash equivalents and short-term investments	$	20,038		$	15,056		$	13,999		$	11,691		$	24,138		$	15,008
	Working capital		19,479			13,961			11,653			9,596			18,161			11,276
	Total assets		20,914			17,319			17,960			14,648			31,506			31,298
	Long-term debt, less current portion		519			978			948			2,251			1,644			1,613
	Redeemable convertible preferred stock		31,213			31,225			33,216			33,293			54,890			73,609
	Total stockholders' deficit		(11,596	)		(16,113	)		(18,704	)		(23,219	)		(32,008	)		(49,281	)

(1)

The diluted net loss per share computation excludes potential shares of common stock (redeemable convertible preferred stock, options to purchase common stock and warrants to purchase common stock), as their effect would be antidilutive. See Note 2 of notes to MitoKor's consolidated financial statements for a detailed explanation of the determination of the shares used in computing basic and diluted net loss per share.

(2)

Includes the weighted average number of shares resulting from the assumed conversion into common stock of all outstanding shares of redeemable convertible preferred stock upon the closing of this offering. See Note 2 of notes to MitoKor's consolidated financial statements for a detailed explanation of the determination of the shares used in computing pro forma net loss per share. The diluted pro forma net loss per share computation excludes potential shares of common stock (options to purchase common stock and warrants to purchase common stock).

(3)

Stock-based compensation:

		Years ended June 30,
						Six months ended December 31, 1998		Years ended December 31,
		1997		1998				1999		2000		2001
Research and development		$	—	$	—	$	—	$	7	$	645	$	1,162
General and administrative			—		—		—		—		270		1,371
	Total stock-based compensation	$	—	$	—	$	—	$	7	$	915	$	2,533

23

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled Risk Factors and elsewhere in this prospectus. Our consolidated financial data includes Mimotopes and other consolidated subsidiaries.

Overview

        We focus on the discovery and development of drugs for the treatment of major diseases and conditions associated with mitochondrial dysfunction. We are advancing a number of product candidates through preclinical studies and clinical trials. We have agreements with major pharmaceutical and biotechnology companies and maintain relationships with numerous academic centers. We also operate a chemistry business, Mimotopes, that supports our research and development activities and provides chemistry products and services internationally to biotechnology and pharmaceutical companies and academic and government laboratories.

        We have derived our collaboration revenue from license fees and research funding received under our collaboration agreements. Our collaboration agreements typically provide for some or all of the following:

•

upfront payments;



•

research funding;



•

milestone payments contingent upon achievement of specific objectives; and



•

royalties upon the commercialization of products.

        Payments by Pfizer and Chiron have accounted for all of our collaboration revenue to date. The research funding component of the Pfizer agreement is scheduled to expire in May 2002, and the Chiron agreement is scheduled to expire in February 2003. If specific objectives are met, however, we will receive milestone and royalty payments after the termination of the Pfizer research and development agreement. To continue receiving research funding after expiration of these agreements, we must obtain extensions to the existing agreements or enter into new collaboration agreements with these or other companies.

        Our product revenue is derived from sales by our wholly-owned subsidiary, Mimotopes. Mimotopes' products include custom peptides and peptide libraries, products for solid-phase combinatorial chemistry and the custom synthesis of peptidomimetics and other compounds. Mimotopes' products are sold primarily in the United States, Europe, Asia and Australia. We use a direct sales force for Mimotopes' sales efforts in the United States and elsewhere and also sell through distributors in Europe and Asia. We derived approximately 50% of our product revenue in 2001 from sales to customers outside the United States. Currently, we derive our service revenue from chemistry services provided under short-term contracts on a fee-for-service basis by Mimotopes. Other revenue consists of revenue derived from government grants and services that are not core to our business.

        Research and development expense consists primarily of salaries, benefits, consumable expenses, professional fees and external collaboration costs related to our clinical trials, preclinical

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studies and research programs. We expect our research and development expense to increase significantly as we expand our research programs, develop additional product candidates, and expand clinical trial activities for our current product candidates.

        Cost of products sold consists primarily of direct materials, direct labor, benefits and indirect costs related to generating product revenue. These indirect costs include indirect labor, materials and supplies, depreciation and occupancy costs. We expect our cost of products sold to fluctuate based on changes in the mix of products sold and changes in the foreign exchange rate between the Australian dollar and the U.S. dollar.

        Sales and marketing expense consists primarily of salaries, benefits, travel and other sales support and marketing functions for Mimotopes' direct sales personnel. We expect our sales and marketing expense to increase as we increase the size of our direct sales force.

        General and administrative expense consists primarily of salaries, benefits, and expenses for our finance, business development, human resources and internal systems support personnel. In addition, general and administrative expense includes professional fees, depreciation, amortization of goodwill and occupancy costs. We expect that the expansion of our operations and costs associated with being a public reporting company will increase our general and administrative expense in the near term.

        Stock-based compensation expense is a non-cash expense that represents the amortized portion of the unearned stock-based compensation recorded within stockholders' equity in connection with the grant of stock options to employees and non-employee consultants in 1999, 2000 and 2001. These options were considered compensation because the deemed fair value of the underlying common stock on the date of grant was greater than the exercise prices. We are amortizing the unearned compensation associated with stock options granted to employees on an accelerated basis over the vesting period of the related options, which is generally five years. As of December 31, 2001, we had $2.0 million of unearned stock-based compensation associated with employee stock options to be amortized. This unearned stock-based compensation balance will be amortized as follows: $1.0 million during 2002, $557,000 during 2003, $296,000 during 2004 and $107,000 during 2005. The amount of unearned stock-based compensation amortization actually recognized in future periods could decrease if options for which accrued but unvested compensation has been recorded are forfeited.

        Stock-based compensation expense related to stock options granted to non-employee consultants is recognized as services are rendered. At each reporting date, we revalue the stock-based compensation expense related to unvested non-employee options using the Black-Scholes option-pricing model. As a result, stock-based compensation expense will fluctuate with changes in the fair market value of our common stock. In connection with the grant of stock options to non-employee consultants, we recorded stock-based compensation expense of $406,000 and $524,000 for the years ended December 31, 2000 and 2001.

        Purchased in-process research and development represents the value of acquired research projects expensed upon completion of our acquisitions of Mimotopes and Apollo. In February 2000, we acquired the Mimotopes business from Chiron in exchange for cash, debt and preferred stock. The transaction was accounted for as a purchase. In June 2001, we acquired all of the outstanding stock of Apollo in a merger pursuant to which we paid cash and issued shares of our preferred stock and warrants to acquire shares of our preferred stock. We accounted for the merger as a purchase transaction. The Apollo merger agreement also provides for the potential

25

issuance of additional shares of our stock and warrants to purchase our stock depending upon the timing of the completion of this offering and the average trading price of our common stock over the 60 trading days following the effectiveness of this offering. If this offering is not declared effective on or before September 22, 2002, then the former Apollo securityholders will be entitled to receive contingent consideration valued at $1,475,000, and we recorded such consideration as part of the purchase price, allocated to goodwill. If this offering is declared effective prior to that time and the average trading price of our common stock over the 60 trading days after effectiveness is $20 per share or more, then the former Apollo securityholders will not be entitled to receive any of the contingent consideration. If this offering is declared effective prior to September 22, 2002, and the average trading price over the 60 days after effectiveness is $10 per share or less, then the former Apollo securityholders will be entitled to receive 335,940 shares of our stock and warrants to purchase 62,098 shares of our stock. If the average trading price is between $10 and $20 per share, the amount of contingent consideration will be adjusted proportionately. We will record a further $1,475,000 increase in the purchase price, allocated to goodwill, if the offering is declared effective on or before September 22, 2002. As a result, the total goodwill recorded in the transaction may be increased from $8.4 million to $9.9 million.

        Our current tax provision consists primarily of foreign taxes paid by Mimotopes in Australia. Our deferred benefit represents amortization of acquired intangible assets. We incurred net operating losses for the years ended December 31, 1999, 2000 and 2001 and, accordingly, we did not pay any federal or state income taxes in the United States. As of December 31, 2001, we had federal net operating loss carry-forwards of approximately $35.8 million, which begin to expire in 2007. As of December 31, 2001, we had net operating loss carry-forwards for state purposes of approximately $6.8 million, which begin to expire in 2005. We have not recorded any benefit from the future use of loss carry-forwards for these periods or for any other period since inception because of uncertainty surrounding their realization. In addition, if we are able to utilize our net operating loss carry-forwards, they will be subject to substantial annual limitations pursuant to Section 382 of the Internal Revenue Code, and similar state provisions.

        We have incurred significant operating losses since our inception. As of December 31, 2001, our accumulated deficit was $53.6 million, and total stockholders' deficit was $49.3 million. We expect to incur additional operating losses in the near term as we continue to expand our research programs, develop additional product candidates and expand clinical trial activities for our current product candidates.

        We anticipate that our quarterly results of operations will fluctuate for several reasons, including the timing and extent of our research and development efforts, the timing and extent of the addition of new employees and infrastructure, the timing of upfront, milestone and royalty payments and the timing and outcome of regulatory approvals.

Critical Accounting Policies

        Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for

26

making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        Our critical accounting policies include revenue recognition and accounting for in-process research and development.

        Revenue recognition. Collaboration revenue includes amounts earned under our collaborative agreements including up-front fees, research funding, milestone payments and royalties. Up-front payments received in advance of performance obligations are deferred and recognized over the related performance period. Amounts received for research funding for a specified number of full time researchers are recognized as revenue as the services are performed. Milestone payments will be recognized upon completion of the related substantive technical milestones. Royalty payments will be recognized as earned. To date, we have not received any milestone or royalty payments. Product revenue is recognized when title and risk of loss pass to the customer, generally upon shipment. Service revenue is recognized as the services are performed according to the provisions of the underlying agreements. Our revenue has fluctuated from year-to-year and will likely continue to be highly volatile.

        In-process research and development. In connection with our acquisitions of Mimotopes and Apollo, we determined that a portion of the amount we paid in those transactions was in consideration for in-process research and development. The in-process research and development projects at Apollo at the acquisition date consisted of efforts to evaluate drugs for the treatment of stroke and Parkinson's disease. In-process research and development projects at Mimotopes at the acquisition date consisted of projects to develop new peptide products and new solid phase organic chemistry products. In-process research and development was expensed upon acquisition because technological feasibility had not been established and no future alternative uses for the technologies existed. Our valuation of the in-process research and development in both transactions involved estimates and judgments, and if we make additional acquisitions in the future we may be required to make similar judgments

        The fair value for each in-process research and development project was determined by estimating the resulting net cash flows from the products under development once they achieve technological feasibility, discounting the net cash flows to present value using discount rates reflecting expected return requirements, and applying the percentage completion of the projects at the acquisition date thereto. Our estimates of future net cash flows were based on anticipated cash flows from collaborative agreements and commercialization of products. With respect to the discount rates used in the valuation approach, in-process technology represents a mix of near and mid-term prospects for the acquired businesses and imparts a level of uncertainty as to their prospects. A reasonable expectation of return on the incomplete technology would be higher than that of completed technology due to these inherent risks. As a result, the earnings associated with incomplete technology were discounted using a 50% rate for Apollo and a 30% rate for Mimotopes.

        The in-process research and development projects acquired in the Apollo and Mimotopes transactions continue to progress, in all material respects, in a manner consistent with the original assumptions that we used to value the in-process research and development. If these projects are not developed, our future revenue and profitability may be adversely affected.

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Comparison of Years Ended December 31, 2001 and 2000

        Revenue.    Total revenue increased to $8.5 million in 2001 from $8.3 million in 2000. The increase in 2001 resulted from an increase in product and service revenue, offset by a decrease in collaboration and other revenue. Collaboration revenue decreased to $4.7 million in 2001 from $5.5 million in 2000. This decrease was due to a decrease in research funding payments earned under both the Pfizer and Chiron agreements. Product revenue increased 28% to $3.5 million in 2001 from $2.8 million in 2000. The increase was attributable to an increase in demand for peptide products, as well as Mimotopes generating a full year of product sales in 2001, compared to only eleven months of revenue in 2000. Service revenue increased to $246,000 in 2001 from $0 in 2000. This was a new source of revenue in 2001 related to services not offered in 2000. Other revenue decreased to $48,000 in 2001 from $89,000 in 2000.

        Research and development.    Research and development expense increased 22% to $12.3 million in 2001 from $10.1 million in 2000. The increase was primarily attributable to increased staffing and other personnel costs to support our clinical trials, preclinical studies and research programs.

        Cost of products sold.    Cost of products sold of $1.2 million remained constant from 2000 to 2001. As a percentage of product revenue, cost of products sold decreased from 43% in 2000 to 34% in 2001. The decrease as a percentage of product revenue was due to a more profitable mix of products sold by Mimotopes in 2001, production efficiencies and a change in the foreign exchange rate between the Australian dollar and the U.S. dollar. The average foreign exchange rate of the Australian dollar to the U.S. dollar changed to $0.518 in 2001 from $0.575 in 2000.

        Sales and marketing.    Sales and marketing expense of $1.1 million remained constant from 2000 to 2001. Mimotopes incurred a full year of sales and marketing expense in 2001, compared to only eleven months of expense in 2000, however the increase was offset by a change in the foreign exchange rate between the Australian dollar and the U.S. dollar.

        General and administrative.    General and administrative expense increased 40% to $5.9 million in 2001 from $4.2 million in 2000. The increase was primarily attributable to costs for additional personnel and increased professional fees as we expanded our business. To a lesser extent, the increase resulted from goodwill amortization of $362,000 incurred as a result of our acquisition of Apollo in June 2001.

        Purchased in-process research and development.    Purchased in-process research and development in 2001 relates to our acquisition of Apollo in June 2001. Purchased in-process research and development in 2000 relates to our acquisition of the Mimotopes business in February 2000.

        Interest income.    Interest income increased 2% to $820,000 in 2001 from $801,000 in 2000. The increase is primarily attributable to higher average cash balances in 2001 as compared to 2000, offset by lower interest rates in 2001.

        Interest expense.    Interest expense decreased 16% to $429,000 in 2001 from $509,000 in 2000. The decrease is primarily attributable to interest accruing on lower note payable balances in 2001, specifically the note payable issued in connection with the acquisition of the Mimotopes business that was paid in full in 2001.

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Comparison of Years Ended December 31, 2000 and 1999

        Revenue.    Total revenue increased 133% to $8.3 million in 2000 from $3.6 million in 1999. The increase was primarily attributable to $4.8 million of collaboration revenue and product revenue generated by Mimotopes, which we did not own in 1999, offset by a decrease in service and other revenue of $179,000.

        Research and development.    Research and development expense increased 58% to $10.1 million in 2000 from $6.4 million in 1999. The increase was attributable to expenses of $1.7 million incurred by Mimotopes, which we did not own in 1999. The increase was also related to increased staffing and other personnel costs to support our preclinical studies and research programs.

        Cost of products sold.    Cost of products sold increased to $1.2 million in 2000. Cost of products sold was generated entirely by Mimotopes, which we did not own in 1999.

        Sales and marketing.    Sales and marketing expense increased to $1.1 million in 2000. Sales and marketing expense was generated entirely by Mimotopes, which we did not own in 1999.

        General and administrative.    General and administrative expense increased 92% to $4.2 million in 2000 from $2.2 million in 1999. The increase is primarily attributable to expenses of $1.4 million generated by Mimotopes, which we did not own in 1999. The increase is also due to increased staffing and personnel costs necessary to support our growth.

        Interest income.    Interest income decreased 7% to $801,000 in 2000 from $860,000 in 1999. The decrease is primarily attributable to lower average cash balances in 2000 as compared to 1999.

        Interest expense.    Interest expense increased 41% to $509,000 in 2000 from $362,000 in 1999. The increase is primarily attributable to interest expense on higher note payable balances in 2000, specifically the note payable issued in connection with acquisition of the Mimotopes business.

Our Segment Results

        Management makes operating decisions and assesses performance for two business segments. Our pharmaceutical research and development segment consists of the research and development activities carried out by MitoKor. This segment is developing drug candidates and other products for diseases linked to mitochondrial dysfunction and generates revenue through collaboration agreements. Our chemistry business segment consists of the operating and research and development activities carried out by Mimotopes. This segment generates revenue through chemistry collaborations and services and the sale of custom peptides and peptide libraries, products for solid-phase combinatorial chemistry, and related kits and materials. Prior to the acquisition of the Mimotopes business in February 2000, we operated in a single segment. The

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following table sets forth our operating results by segment for the years ended December 31, 2000 and 2001.

	Years ended December 31,
	2000			2001
	(in thousands)
Pharmaceutical Research and Development
Revenue	$	3,490		$	3,321
Operating costs and expenses		12,415			25,253
Operating income (loss)		(8,925	)		(21,932	)
Chemistry Business
Revenue	$	5,183		$	5,839
Operating costs and expenses		5,709			5,580
Operating income (loss)		(526	)		259

        Intersegment revenue and expense was $336,000 in 2000, and $612,000 in 2001. Intersegment activities relate to contracted chemistry services performed by the chemistry business segment and general and administrative functions performed by the pharmaceutical research and development segment, both of which are eliminated in consolidation.

Liquidity and Capital Resources

        Since inception, we have financed our business primarily through private placements of preferred stock, revenue from our collaboration agreements, product revenue, debt financing and interest income. As of December 31, 2001, we had received $58.4 million in net proceeds from the sales of equity securities.

        As of December 31, 2001, we had cash, cash equivalents and short-term investments of approximately $15.0 million compared to approximately $24.1 million at December 31, 2000. This decrease in cash balances is primarily attributable to cash used for operating activities, equipment purchases and our acquisition of Apollo, offset by proceeds from the sale of our preferred stock. Our funds are currently invested in operating accounts, marketable debt securities and money market funds.

        In the year ended December 31, 2001, our operating activities used cash of $9.1 million. Our net loss for the year was $21.1 million. Non-cash items and changes in operating assets and liabilities were $12.0 million consisting mainly of purchased in-process research and development, depreciation and amortization and stock-based compensation expense. Our investing activities provided cash of $8.7 million and consisted primarily of proceeds from net sales of short-term investments, offset by purchases of property and equipment and the acquisition of Apollo. Our financing activities provided cash of $3.6 million and consisted primarily of the sale of preferred stock to private investors, offset by net repayments of debt.

        In the year ended December 31, 2000, our operating activities used cash of $4.0 million. Our net loss for the year was $9.2 million. Non-cash items and changes in operating assets and liabilities were $5.2 million consisting mainly of depreciation and amortization, stock-based compensation expense, purchased in-process research and development and increases in certain liabilities. Our investing activities used cash of $10.3 million and consisted primarily of net

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purchases of short-term investments, purchases of property and equipment and the acquisition of Mimotopes. Our financing activities provided cash of $18.4 million and consisted primarily of the sale of preferred stock to private investors.

        At December 31, 2001, our long-term debt is secured by the specific equipment financed. In accordance with that debt we must maintain certain monthly liquidity ratios as well as various non-financial covenants, which also restrict us from paying dividends. Our credit agreement requires that we maintain a minimum liquidity of unrestricted cash and short-term investments equal to the greater of six months cash burn or 1.5 times the outstanding loan balance. A violation of this liquidity covenant would give the lender the right to require that we pledge cash collateral equal to the outstanding loan balance. The cash collateral would be released as soon as our liquidity returned to compliance.

        We expect to have negative cash flows from operations through at least 2003. We expect to incur increasing research and development expenses, as well as expenses for additional personnel and clinical and preclinical efforts. Our future capital requirements will depend on a number of factors, including our ability to obtain research funding under current and future collaboration agreements, the resources we devote to developing and supporting our product candidates, continued progress of our research and development of product candidates, the need to acquire licenses to new technology and the availability of other financing.

        We believe that our current cash balances, together with the net proceeds of this offering and anticipated collaboration, product and service revenue will be sufficient to fund our operations through at least the next 12 months. In the event that we are unable to complete this offering, extend our agreement with Pfizer, sign a new collaborative research and development agreement, or raise additional equity or debt financing, we would delay or discontinue our clinical trials, preclinical studies and research programs to reduce our expenditures to enable us to fund our operations for at least the next 12 months. We are subject to significant variation in the timing and amount of our revenue and results of operations from period to period. There can be no assurance that additional equity or debt financing, if required, will be available on acceptable terms, or at all. In the event that we do raise additional equity financing, investors in this offering will be further diluted.

Recent Accounting Pronouncements

        In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations (FAS 141), and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (FAS 142). FAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under FAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of FAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, we are required to adopt FAS 142 effective January 1, 2002. The adoption of this new accounting pronouncement is expected to have a significant impact on our consolidated financial position and results of operations. As of December 31, 2001, we had unamortized goodwill and unidentified intangibles of $8.7 million. Based on the current level of goodwill, annual amortization expense of $925,000 will no longer be

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recorded. Amortization expense associated with goodwill for the years ending December 31, 2000 and 2001 were $90,000 and $445,000, respectively. The FAS 142 initial impairment test is not expected to result in a material write-down in fiscal year 2002.

        In August 2001, the FASB issued FAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. FAS 144 replaces FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of. The FASB issued FAS 144 to establish a single accounting model, based on the framework established in FAS 121, as FAS 121 did not address the accounting for a segment of a business accounted for as a discontinued operation under APB 30, Reporting The Results of Operations — Reporting The Effects of Disposal of a Segment of a Business, and Extraordinary Unusual and Infrequently Occurring Events and Transactions. FAS 144 also resolves significant implementation issues related to FAS 121. We do not expect the adoption of FAS 144 for long-lived assets held for use to have a material impact on our consolidated financial position or results of operations because the impairment assessment under FAS 144 is largely unchanged from FAS 121. However, we cannot determine the potential effects that adoption of FAS 144 will have on our consolidated financial position or results of operations with respect to future disposal decisions.

Qualitative and Quantitative Disclosure about Market Risk

Interest Rate Risk

        We invest our excess cash in investment-grade, interest bearing securities. The primary objective of our investment activities is to preserve principal while at the same time improving yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high-quality debt instruments of financial institutions and corporations and U.S. government securities with maturities no longer than 18 months. Due to the short-term nature of these investments, we believe that we are not subject to any material market risk exposure. We have not entered into any derivative contracts.

        We are subject to interest rate risk on our debt obligations. Long-term debt obligations have fixed and variable interest rates indexed to the prime rate. Interest rates on these instruments approximate current market rates as of December 31, 2001. Based on debt obligations outstanding as of December 31, 2001, if a 10% change in interest rates were to occur subsequent to this date, this change would not have material effect on our statement of financial position, results of operations, or cash flows.

Foreign Currency Risk

        Our ownership of Mimotopes exposes us to foreign exchange risk. The functional currency of our subsidiary is the Australian dollar. Accordingly, all assets and liabilities of our subsidiary are translated at the current exchange rate at the balance sheet date. Revenue and expense components are translated at weighted average exchange rates in effect during the period. Gains and losses resulting from foreign currency translation are included as a component of our stockholders' equity. Other foreign currency transaction gains and losses are included in our results of operations and, to date, have not been significant. We have not hedged exposures in foreign currencies or any other derivative financial instrument.

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BUSINESS

Overview

        We focus on the discovery and development of drugs for the treatment of major diseases and conditions associated with mitochondrial dysfunction. Mitochondria are specialized cellular substructures that are essential to human life, and more than 75 diseases have been linked directly or indirectly to mitochondrial dysfunction. We integrate our broad biology and chemistry capabilities to identify mitochondrial drug targets and therapeutic leads and to advance product candidates into the clinic, either independently or in collaboration with our strategic partners. We have one drug in a Phase III clinical trial for Alzheimer's disease and a second drug in Phase I for Parkinson's disease. In addition, we are advancing a number of preclinical lead compounds toward the clinic in stroke, obesity, diabetes, osteoarthritis, glaucoma and other diseases. We currently have agreements with major pharmaceutical and biotechnology companies, including Wyeth, Pfizer and Chiron. We also maintain relationships with numerous academic centers.

Background and Opportunity

The Critical Role of Mitochondria in Human Health and Disease

        Mitochondria are specialized cellular substructures that are essential to human life. They utilize more than 90% of inhaled oxygen, generate nearly all of the cell's energy and participate in many cellular pathways, including metabolism and cell death. Mitochondria are essential to cell growth and function because they convert carbohydrates, fats and proteins from food into the body's principal form of energy, adenosine triphosphate, or ATP. The biological process that creates ATP involves a series of mitochondrial protein complexes known as the electron transport chain. The tissues of the body that rely most heavily on mitochondria are composed of long-lived, energy demanding cell types, like those found in the brain, muscles and the pancreas. As a result, mitochondrial dysfunction has a significant impact on these tissues.

        If the supply of ATP is disrupted, or if mitochondrial activity declines below levels required to sustain normal cellular processes, tissue function can be compromised, threatening a person's health. Even a brief interruption in the supply of oxygen to certain tissues can lead to a rapid depletion of mitochondrial energy levels, resulting in cell injury that can ultimately trigger cell death. One consequence of mitochondrial failure is a form of cell death called apoptosis, which mitochondria initiate by releasing specific cell death-activating proteins. Mitochondria are also the primary cellular source of highly reactive molecules called free radicals that cause cellular stress and can induce apoptosis. Impairment of mitochondrial function can lead to age-related degenerative diseases by weakening cell membranes, increasing the demand for cellular energy and undermining the integrity of the genome.

The Mitochondrial Genome

        In humans, mitochondria are the only parts of the cell other than the nucleus that contain their own genomes. In contrast to the nuclear genome, which has been the focus of so much recent study, the mitochondrial genome is inherited only from the mother. At 16,569 base pairs, the mitochondrial genome is smaller and easier to analyze than the three billion base pairs that comprise the nuclear genome. Both genomes contain instructions, or codes, for mitochondrial proteins, and as a result, proper mitochondrial structure, growth and function depend on the coordinated expression of genes in both the nucleus and mitochondria. Based on various studies,

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we estimate that nuclear genes code for approximately 2,000 mitochondrial proteins, the majority of which have not been well characterized. Alterations in any mitochondrial gene or protein may undermine mitochondrial and cellular viability, so understanding the mitochondrial genome and proteome can provide new avenues for studying, diagnosing and treating disease.

        The mitochondrial genome is particularly vulnerable to genetic alterations, partially because of its proximity to the harsh environment of mitochondrial metabolism, but also because more than 90% of the DNA in the mitochondrial genome codes for proteins and ribonucleic acids, or RNAs. In marked contrast to the nuclear genome, the occurrence of non-coding, or "junk," DNA in the human mitochondrial genome is minimal. The mitochondrial genome is 10 to 20 times more variable than nuclear DNA sequences. As a result, mitochondrial mutations are more common and more likely to have detrimental effects on cellular function. Mitochondrial diseases may result from alterations in mitochondrial genes or proteins, from alterations in nuclear genes or proteins, from a combination of changes or from more complex mechanisms including the detrimental effects of environmental toxins.

Market Opportunity for Mitochondrial Medicine

        Due to the critical role of mitochondria in so many aspects of cellular function, more than 75 diseases have been linked directly or indirectly to mitochondrial dysfunction. Mitochondrial dysfunction may be an inevitable part of the aging process, resulting from a combination of inherited and acquired genetic and functional defects. We believe that the increasing average age of the general population, coupled with a more developed understanding of mitochondria, will give mitochondrial medicine an increasingly important and expanding role in healthcare. The following table sets forth the market opportunities for mitochondrial medicine in the immediate and longer terms, as well as selected diseases and conditions with mitochondrial links, their representative symptoms and mitochondrial mechanisms and pathways.

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Market Opportunities for	•	Drug candidates for major diseases
Mitochondrial Medicine	•	New protein targets for drug discovery
	•	Disease-relevant models
	•	High-throughput screens and high-content assays for drug discovery and methods of assessing potential drug toxicity (MitoMetrics)
	•	Human gene and protein databases and bioinformatics software
	•	Specialized chemical libraries
	•	Drug delivery approaches
	•	Diagnostic markers and research tools
Diseases and Conditions with	•	Alzheimer's disease
Mitochondrial Links	•	Parkinson's disease
	•	Stroke
	•	Obesity
	•	Type II diabetes
	•	Osteoarthritis
	•	Glaucoma
	•	Friedreich's ataxia
	•	Cancer
	•	Other degenerative conditions associated with aging
Symptoms Associated with	•	Neurodegeneration
Mitochondrial Dysfunction	•	Neurological disorders including seizures
	•	Learning disabilities, developmental delays and retardation
	•	Susceptibility to infection
	•	Liver and kidney problems
	•	Insulin and glucose imbalances and diabetic complications
	•	Respiratory problems
	•	Gastrointestinal disorders
	•	Cardiovascular problems, including heart failure
	•	Visual and hearing deficits, including optic neuropathy, retinal degeneration and deafness
	•	Loss of motor control, muscle weakness and skeletomuscular abnormalities
	•	Poor growth
Mitochondrial Mechanisms	•	Bioenergetic and metabolic failure
and Pathways	•	Cellular stress and free radical damage
	•	Cell death pathways, including apoptosis
	•	Mitochondrial, nuclear, or combined mitochondrial and nuclear DNA alterations
	•	Variations in DNA sequence referred to as single nucleotide polymorphisms, or SNPs
	•	Sets of ethnically related SNPs called haplogroups or haplotypes
	•	DNA deletions or repeats
	•	Other mutations

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Our Strategy

        Our goal is to leverage our leading position in mitochondrial research to develop and commercialize drugs, research tools and diagnostic products. To achieve our objectives, we are implementing the following strategies:

        Discover and internally develop product candidates to treat major diseases linked to mitochondrial dysfunction.    We plan to advance product candidates internally to progressively later stages of research and development, which we believe will enable us to optimize the value of selected mitochondrial product candidates. We are conducting internal research directed at treatments for several major disease areas, including neurological and related disorders, metabolic diseases and other degenerative conditions and diseases. This research has resulted in the identification of multiple series of drug leads, some of which have advanced to human clinical trials. We have completed a successful Phase I clinical trial for Parkinson's disease, and we are in late-stage preclinical development for stroke. We are in preclinical research with drug candidates for obesity, diabetes and osteoarthritis, as well as other areas.

        Leverage our comprehensive and integrated mitochondrial research platform.    We plan to leverage our research platform to become the leading provider of mitochondrial drugs, research tools and diagnostic products. We believe we have the most comprehensive and integrated research platform dedicated to the study of mitochondria in health and disease. This platform includes what we believe is the largest complete human mitochondrial genome database in the world, a highly regarded group of advisors in mitochondrial science and a large patent portfolio related to mitochondrial drug discovery. We believe we are the only company to have achieved the critical mass and intellectual capital necessary for the discovery and development of a broad series of novel mitochondrial products.

        Pursue additional strategic relationships with leading pharmaceutical and biotechnology companies.    We are pursuing additional strategic alliances in several areas to fund drug discovery and development and to further advance our core technologies. Our collaborations typically include several types of payments, such as up-front fees, research funding, milestone payments and royalties. Alliances can also provide us with access to research, development and commercialization resources and distribution channels. By focusing each alliance on different technologies, compounds, targets, functional responses or diseases, we are able to pursue and support multiple relationships simultaneously. We are party to an agreement with Wyeth for the development of estrogens to delay the onset or to slow the progression of Alzheimer's disease and certain other dementias, with one drug currently in a Phase III clinical trial. In addition, other pharmaceutical companies and groups have engaged us to run experimental diagnostic assays to support the clinical development of their anti-dementia agents. These studies have provided us with revenues and a large number of well-characterized patient samples. We also collaborate with Pfizer to discover targets and drugs for neurodegenerative diseases, and with Chiron in the area of drug discovery.

        Protect and enhance our intellectual property.    We intend to continue to pursue an aggressive patent strategy to protect our proprietary discoveries. Our early entry into this field has enabled us to establish a substantial intellectual property portfolio that creates barriers to others pursuing mitochondrial research, development and products. We own or have acquired licenses to more than 50 issued U.S. and foreign patents and have more than 160 pending U.S. and foreign patent applications. These cases are directed to a wide range of subject matter including drug targets and

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discovery technologies, drug candidates and their commercial applications, research tools and diagnostic markers.

        Acquire additional complementary businesses, product candidates and technologies.    We intend to continue to seek opportunities to acquire complementary businesses and to license or acquire mitochondrial product candidates and technologies that strengthen our market position. We have acquired two companies, Apollo and Mimotopes, to augment our clinical and preclinical product pipelines and our drug discovery chemistry capabilities.

        Pursue expedited paths to develop and commercialize drugs.    We are also exploring treatments for orphan diseases, which typically have fewer than 200,000 patients. There are a number of incentives for orphan drug development and commercialization in the United States, including government grants, tax credits, and marketing exclusivity. By targeting orphan diseases, we may be able to achieve more rapid and less expensive proof-of-concept in humans. Clinical efficacy in an orphan disease may facilitate the development, commercialization and use of our product candidates in major diseases. Because of the smaller number of patients and physicians in these areas, orphan diseases may also represent the first opportunity for us to market and sell pharmaceutical products on our own, without a collaboration partner.

Our Clinical and Preclinical Development Programs

        We use our technologies to pursue opportunities in markets where products can be developed based on an understanding of mitochondrial function. We have internal as well as collaborative research programs underway in a number of chronic and acute diseases, including neurological and related disorders and metabolic and other diseases associated with mitochondrial dysfunction. The stages of research for these programs range from target identification to human clinical studies, and we are constantly evaluating potential new leads and targets in our various research programs. Our clinical and preclinical studies are outlined below.

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Product Pipeline

Major Neurological Disorders

        We are investigating the role of mitochondria in major neurological disorders with a focus on neurodegeneration, including Alzheimer's disease, Parkinson's disease and stroke. We believe the increasing average age of the population will lead to increased demand for new therapies that treat these diseases.

        Alzheimer's Disease.    We have a license agreement with Wyeth related to the development of estrogens for Alzheimer's disease and certain other dementias. Wyeth is funding a Phase III clinical trial evaluating the use of estrogens to delay the onset and slow the progression of dementia in post-menopausal women. This double-blind, placebo-controlled trial is part of the Women's Health Initiative being conducted under the auspices of the NIH. The enrollment of more than 7,500 women for this six-year trial was completed in 1998. In addition, we have been working with Pfizer since 1998 on neurodegenerative disease research. Both with Pfizer and internally, we apply our mitochondrial research expertise to identify targets related to mitochondrial function and neurodegenerative disease that can be used in screens to discover potential drug candidates for therapeutic intervention. We have identified multiple targets and compound series that address neurodegenerative disease.

        The most common form of dementia, Alzheimer's disease, is a progressive neurodegenerative disease causing memory loss, language deterioration, cognitive impairment and eventually death. Approximately 20 million people worldwide have been diagnosed with Alzheimer's disease. It afflicts approximately 10% of people over age 65 and nearly 50% of people over 85. While there are few drugs on the market today for this disease and their effectiveness is limited, worldwide sales of prescription drugs to treat Alzheimer's disease were $670 million in 2000.

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        The majority of Alzheimer's disease patients exhibit mitochondrial defects, including metabolic changes and reduced activity of cytochrome oxidase, which is complex IV of the mitochondrial electron transport chain, an essential component in the cell's energy production process. Researchers have succeeded in linking the brain cell damage and death that are hallmarks of Alzheimer's disease to these mitochondrial defects. Published reports have shown that the complex IV defect in Alzheimer's patients is transferred into engineered cell lines. These reports provide evidence that the observed defects may result from alterations in mitochondrial DNA. In addition, evidence from a number of studies indicates that estrogens affect mitochondrial function and that estrogen-based hormone replacement therapy delays the onset of Alzheimer's disease in post-menopausal women. Recent published studies with Alzheimer's disease animal models also show that estrogens significantly reduce the accumulation of brain amyloid plaques, a hallmark of the disease.

        Parkinson's Disease.    We have successfully completed a Phase I trial for Parkinson's disease with an estrogen we have designated MITO-4509. This compound is a component of marketed hormone replacement products, but it has minimal feminizing activity. Our future trials will assess the ability of this compound to moderate the symptoms and progression of Parkinson's disease.

        Parkinson's disease causes tremor, rigidity and diminished quality of life. It is an age-related, neurodegenerative disorder affecting an estimated 1.5 million patients in the United States today and approximately 1% of people over age 60. Worldwide sales of prescription drugs to treat Parkinson's disease totaled $607 million in 2000. However, the effectiveness of these drugs is limited by side-effects, loss of efficacy over time and little impact on disease progression.

        Published reports suggest that Parkinson's disease is associated with defective mitochondrial function. Several studies have shown that patients with Parkinson's disease have a defect in complex I of the mitochondrial electron transport chain, which is a key component of energy production. In addition, a Parkinson's disease-like syndrome can be induced in humans and in animals by mitochondrial toxins that impair the function of complex I. Cells from Parkinson's disease subjects exhibit selective defects in the activity of complex I. The transfer of this defect into engineered cell lines suggests that the metabolic defect of Parkinson's disease has a mitochondrial genetic origin. It has also been shown that the inhibition of complex I is associated with abnormal aggregation of alpha-synuclein and other cellular proteins that are pathological hallmarks of Parkinson's disease.

        Stroke.    We have developed a late-stage preclinical product called NeuroStat that we believe will protect the brain tissue of stroke victims by improving mitochondrial stability. The active ingredient of NeuroStat appears to have a high margin of safety and rapidly achieves high drug blood levels after a single subcutaneous injection. This should allow paramedics to administer NeuroStat at the initial point of care soon after a stroke when at-risk brain cells may still be saved from dying. Our proprietary approach may also yield drug candidates and targets for congestive heart failure and heart attacks, where mitochondrial failure causes a series of events similar to what happens with a stroke.

        Stroke is caused by a sudden loss of blood supply to the brain, resulting in cell death, paralysis and other complications. It is estimated that each year more than 600,000 Americans suffer a stroke and approximately 160,000 die from its consequences. Approximately 67% of all strokes occur in people over age 65. Worldwide sales of prescription stroke therapies totaled $447 million in 2000. However, there are very few marketed drugs for the treatment of stroke, and they are designed to re-establish blood flow to the affected region, not to preserve the viability of at-risk brain cells. As a result, their effectiveness is limited.

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        When blood supply to the brain is compromised in a stroke, a catastrophic drop in mitochondrial ATP production occurs. This leads to cellular and metabolic imbalances, including altered intracellular calcium levels, that precipitate the breakdown and death of nearby brain cells. Brain cells surrounding this area will subsequently die unless salvaged by prompt therapeutic intervention to restore mitochondrial activity.

Metabolic Diseases

        We are engaged in research on the role of mitochondria in major metabolic disorders with a focus on obesity and diabetes. We are conducting preclinical studies on the contribution of mitochondrial dysfunction to these diseases and developing new targets and drug candidates for therapeutic intervention.

        Obesity.    We have identified novel compounds, such as MITO-3108, that are currently in preclinical development for the treatment of obesity. We have overcome certain toxicity problems previously known to occur with this class of compounds, which appear to lower the body-weight set point in multiple species. We believe these compounds represent therapeutic advances because they reduce body weight by modulating the body's own regulatory system, rather than by altering caloric utilization.

        Obesity represents a significant health problem in the United States as a risk factor for the development of a number of major diseases, including diabetes, heart disease, hypertension, osteoarthritis, cancer and a variety of psychological disorders. In 1999, 61% of U.S. adults were overweight or obese. Worldwide sales of prescription therapies for obesity totaled $736 million in 2000. The few therapies available are limited in their effectiveness and have other drawbacks, including safety issues and side effects.

        Physiological studies and genetic mouse models indicate that most species actively regulate body weight around a set point that is both genetically and environmentally determined. We believe this may be accomplished, in part, by regulating the number and efficiency of mitochondria. We are studying factors responsible for the regulation of mitochondrial mass, with the aim of developing agents capable of controlling mitochondrial replication.

        Diabetes.    We have developed novel compounds for the treatment of type II diabetes, including MITO-4183, that we have advanced to preclinical animal studies. These compounds block a novel mitochondrial ion channel that regulates insulin secretion. We have also identified peptides that target a mitochondrial enzyme complex and increase insulin secretion. Both of our approaches represent potential therapeutic advances over marketed diabetes drugs, because our compounds should affect insulin secretion only when glucose levels are elevated, which mimics normal functioning of the body's regulatory systems after a meal.

        Diabetes results from the body's inability to adequately secrete insulin and process glucose. Approximately 90% of diabetic patients suffer from type II diabetes, or non-insulin dependent diabetes mellitus, which can result in blindness, stroke, kidney failure, amputation, nerve damage and often premature death. More than 18% of the U.S. population age 65 and older, or approximately 6 million people, has diabetes. Worldwide sales of prescription type II diabetes therapies totaled $4.2 billion in 2000. Among other drawbacks, the administration of currently available diabetes therapeutics can be inconvenient, requiring frequent injections and dosing at every meal.

        Our research suggests that mitochondrial dysfunction plays a role in a significant percentage of patients with diabetes. For example, diabetes frequently occurs in association with diseases

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caused by mutations or deletions in mitochondrial DNA. These mutations reduce energy production while increasing cellular stress. Moreover, we believe that the presumed role of apoptotic processes in the death of pancreatic beta-cells and the major involvement of mitochondria in essentially all forms of cell death strengthen the mitochondrial connection in diabetes. We have demonstrated in preclinical studies that glucose-stimulated insulin secretion, which normally occurs after a meal to regulate blood sugar levels, is tightly controlled by mitochondrial ATP production, and not by ATP from other cellular sources. We have also shown that metabolic defects observed in many patients can be traced to a decline in mitochondrial function.

Other Diseases

        We continue to use our integrated drug discovery capabilities to evaluate new disease indications and to identify likely therapeutic targets. We are engaged in the preclinical research and development of drugs to treat other degenerative conditions and diseases associated with mitochondrial dysfunction, including osteoarthritis, glaucoma, Friedreich's ataxia and cancer.

        Osteoarthritis.    We have identified novel and potent compounds, such as MITO-2227, for the treatment of osteoarthritis. This compound improves mitochondrial function in cartilage and chondrocytes, the cells that cushion joints. Our compounds have the potential to be disease-modifying, rather than simply treating secondary aspects of the disease, such as pain. Osteoarthritis is a leading cause of physical disability in the United States.

        Glaucoma.    Several of our mitochondrial compounds, including MITO-4565, have shown an ability to block cell death pathways and retinal degeneration and are being studied in preclinical models of glaucoma and other eye diseases. Glaucoma is a common ophthalmic disease associated with increased pressure within the eye, affecting more than 3 million Americans, and causing blindness in more than 120,000 people.

        Friedreich's Ataxia.    We have filed an orphan drug application with the FDA related to AlphaTaxin as a treatment for Friedreich's ataxia. Friedreich's ataxia is characterized by coordination problems such as clumsy or awkward movements and unsteadiness and is the most common inherited ataxia. Friedreich's ataxia is caused by a mutation in a nuclear gene that codes for a mitochondrial protein.

        Cancer.    We have identified potential anti-cancer drugs and targets that we are currently researching. Our cancer program is based on considerable published evidence that mitochondrial energy production and mitochondrial cell death pathways are altered in cancer cells.

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Our Technologies

        We have developed an extensive set of integrated technologies to study mitochondria and their connections to diseases. Our technology platform facilitates the identification of gene and protein targets and markers associated with disease. This comprehensive and integrated platform provides the basis for us to discover and develop mitochondrial drugs, research tools and diagnostic products.

Mitochondrial Proteomics

        We use a combination of proprietary and other advanced technologies to access and profile the mitochondrial proteome and to identify proteins with potential commercial importance as novel drug targets or diagnostic markers. Using our mitochondrial expertise and proprietary sample preparation techniques, we isolate highly purified mitochondria from cells and tissues and separate the mitochondria into sub-components. We then identify mitochondrial proteins in each fraction using a combination of customized gel electrophoresis, solid-phase affinity separation and mass spectrometry. We use these methodologies to analyze low abundance and difficult-to-obtain membrane proteins. Using engineered cell lines and other disease models, we perform differential protein expression experiments to study mitochondrial involvement in disease and to identify additional drug targets and diagnostic markers.

        We have developed proprietary bioinformatics software that enables us to search public and private databases for genes and proteins related to mitochondrial function. This software leverages our knowledge of amino acid sequences that the cell uses for the trafficking of proteins to mitochondria and of sequences associated with particular protein functions. We also search our proprietary mitochondrial genome databases to identify changes that may be associated with disease. We analyze these genes and proteins to identify new drug targets or diagnostic markers. Once we define a gene or protein sequence of potential interest, we clone, express, purify and determine the function of the resulting protein and its relevance to disease.

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Mitochondrial Genomics

        We use a combination of proprietary and other technologies to identify alterations in mitochondrial and nuclear genes that may contribute to mitochondrial dysfunction and disease. We collect blood and tissue samples from individuals with neurodegenerative and metabolic diseases and from healthy individuals of the same age. We then sequence and catalogue the entire mitochondrial genome from each individual. We also compare the sequences of individuals from the same geographical location or from the same ethnic group to identify SNPs that are specific to that population, or haplogroups. After common patterns of SNPs are identified, we are able to focus on the remaining unique polymorphisms or mutations that we believe are associated with disease. We have sequenced the complete mitochondrial genomes of over 850 individuals, which we believe represents the largest human database of this kind in the world. We have identified more than 550 haplogroup-related SNPs and more than 2,000 unique SNPs that we are examining for association with disease. We have identified significant associations between mitochondrial SNPs and major diseases, including Alzheimer's disease.

        We also use a broad array of advanced gene expression technologies to identify genes that may be associated with disease. We accomplish this by comparing RNA levels in diseased and normal cells or tissues to identify genes that are over-expressed or under-expressed. From this work, we have filed patents directed to more than 50 distinct genes and proteins.

High-Throughput Mitochondrial Screening

        To identify novel compounds that interact with our drug targets, we have designed a number of sophisticated high-throughput screens. These screens utilize a series of proprietary reagents to evaluate mitochondrial binding, displacement or inhibitory characteristics when a test compound is introduced. In addition to binding protocols, we currently employ a large number of assays that model parameters of mitochondrial function, such as membrane potential, calcium uptake, ATP levels and mitochondrial free radical generation. We have developed a high-throughput screen capable of detecting mitochondrial stability and function in intact cells.

High-Content Mitochondrial Assays

        We have developed high-content assays using an advanced bioenergetics system for real-time, simultaneous measurement of mitochondrial respiration, swelling, membrane potential and ion flux. This can be done in the presence or absence of trigger molecules that activate or inhibit pathways of interest. This technology provides detailed data about how a potential drug affects the "health" and metabolic state of mitochondria, and about the function of novel genes and proteins. We use this assay system to study and optimize compounds identified using high-throughput screens, and we iteratively optimize the activity of lead compounds through structure-activity studies. Drug candidates with the desired level of activity are advanced to studies in engineered cell lines and animal disease models.

Disease-Relevant Mitochondrial Models

        We have developed patented technologies that allow us to produce disease-relevant mitochondrial models. We produce human models of mitochondrial dysfunction in cybrid and other engineered cell lines. We create cybrid cells by fusing platelets with cells that have been treated to remove their mitochondrial DNA. Since platelets contain mitochondria but have no nucleus, the fusion process should transfer only mitochondrial DNA to the recipient cells. The

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phenotype, or biochemistry, of a cybrid is then assessed using a variety of proprietary and other technologies to determine if the engineered cell line exhibits characteristics of disease. When a cybrid displays the characteristics of a patient's disease, this suggests that there is a mitochondrial genetic link to the disease. Cybrids model some of the features of major disease phenotypes. Published data on Alzheimer's cybrids show various defects consistent with Alzheimer's disease, including metabolic changes and elevated levels of beta-amyloid, a protein associated with the disease.

        Through our network of scientific collaborations, we have access to animal disease models that have been treated with mitochondrial toxins and that are useful in identifying drug candidates. Parkinson's disease-like abnormalities in animals have been induced with agents that block electron transport chain complex I. We also study naturally occurring animal disease models, such as a strain of guinea pigs that spontaneously develops osteoarthritis of the joints with aging and a strain of diabetic mice.

Combinatorial and Medicinal Chemistry

        We have substantial chemistry resources for lead discovery and drug candidate optimization. We use our proprietary MultiPin, solid-phase parallel synthesis and other advanced technologies to rapidly develop combinatorial libraries of drug-like molecules and peptides for primary screening. In many instances, we have based our initial chemistry on natural products or marketed drugs that are known to bind to proteins that are similar to our targets. This is an effective approach to drug development because the efficacy and safety of these classes of molecules are often already well established in animal or human studies. In addition, we have medicinal chemistry capabilities that allow us to synthesize variations of leads to optimize their desirable properties. In-house chemistry resources give us greater confidentiality, better availability and quality control and tighter focus on potential mitochondrial drug leads, thereby improving our chances for successful and competitive lead development.

Mimotopes

        Our wholly-owned subsidiary, Mimotopes, is a pioneer in combinatorial chemistry and is one of the world's largest suppliers of custom peptides. Mimotopes has developed a considerable range of proprietary technologies for peptide and small molecule non-peptide drug discovery research. Mimotopes' broad combinatorial and medicinal chemistry capabilities are a key part of MitoKor's integrated drug discovery platform. Mimotopes' chemists contribute to the design and synthesis of potential drug candidates and libraries for MitoKor's internal research programs. Mimotopes' peptide expertise has also contributed to MitoKor's assay design and target validation.

        Mimotopes develops, markets and sells chemistry products and services internationally to biotechnology and pharmaceutical companies and academic and government laboratories. Mimotopes works with its customers to pursue drug discovery, genomics, proteomics, antibody, vaccine and other research. Mimotopes' expertise in polymer science and grafted plastics enables the design and manufacture of various solid-phase and affinity separation research tools. Mimotopes' products include SynPhase products for solid-phase combinatorial synthesis, PepSets peptide libraries for the mapping of epitopes, the parts of proteins that induce immune responses, and the custom synthesis of peptidomimetics and other compounds.

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Our Corporate and Academic Collaborations

        We have entered into collaborations with major corporations and leading academic institutions and researchers.

Corporate Collaborations

        Through corporate collaborations, we typically obtain license fees and research funding and the opportunity to receive milestone payments and royalties from research results and subsequent product development and commercialization.

        Wyeth.    We are party to a license agreement with Wyeth. Under the agreement, Wyeth holds an exclusive, worldwide license, as well as options to obtain a license under certain of our patents to develop certain estrogens and estrogen-like compounds for the treatment of human neurodegenerative disease, including Alzheimer's disease and certain other dementias. Wyeth is funding a Phase III clinical trial evaluating the use of estrogens to delay the onset and slow the progression of Alzheimer's disease and certain other dementias in post-menopausal women. Wyeth paid an up-front license fee upon execution of the agreement. In addition, the agreement provides for us to receive option exercise fees, preclinical and clinical milestone payments and royalty and other payments following the commercial approval of any products developed and launched by Wyeth under this agreement. Wyeth is obligated to use commercially reasonable efforts to develop and commercialize one or more products under this agreement. Wyeth retains the right to terminate this agreement on a product-by-product basis. Written notice requirements are either 90 days or 360 days depending on the country and the status of Wyeth's product marketing efforts. If the agreement is so terminated by Wyeth, the licensed patent rights revert to us.

        Pfizer.    In November 1998, we entered into a three-year collaborative research and development agreement and a license agreement with Pfizer. The original term of the research and development agreement was later extended for an additional period ending May 2002. Under the agreements, we collaborate on drug discovery and Pfizer provides funding for our research. Pfizer has accepted multiple targets developed by us that address neurodegenerative disease. We received an upfront cash payment and an equity investment of $2.0 million from Pfizer upon the signing of the agreements. The agreements also provide for us to receive preclinical and clinical milestones and royalty payments based on net sales of any human or veterinary therapeutic products launched by Pfizer using our targets. Pfizer's milestone and royalty obligations continue after the expiration of the research and development agreement. If Pfizer chooses to develop any of the compounds we identify under the research and development agreement, we will assign the rights to those compounds to Pfizer; in turn, Pfizer is obligated to use reasonable efforts to develop and commercialize products.

        Chiron.    In February 2000, we entered into a three-year drug discovery collaboration with Chiron. Under this agreement, we provide technical assistance and chemical synthesis services to generate compounds for use by Chiron in the discovery, development and commercialization of small molecule agents. Chiron funds the efforts of a number of our chemists in support of their drug discovery projects. Typically, we work on specific target-based programs with Chiron, producing variations of compounds that have shown activity in primary screens. All of the resulting compounds are the property of Chiron. All chemical methods remain the property of MitoKor. Chiron also receives a non-exclusive license to the chemical methods and improvements, with the right to sublicense its license rights.

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Academic Collaborations

        Through academic collaborations, we gain cost-effective access to new technologies and expertise important to the further development of our technologies and products. Our network of academic advisors and collaborators consists of experts in a variety of disciplines involved in research related to mitochondrial biology, genetics and medicine, and the development of pharmaceutical products. We collaborate with leading academic institutions and highly respected researchers in mitochondrial science. For many of these academic collaboration agreements, we have either joint ownership rights or options to negotiate for exclusive license rights to the resulting technology.

        University of California, San Diego.    Our collaboration with J. Olefsky, M.D., initially funded through a grant awarded in 1997, focuses on the study of mitochondrial defects in type II diabetes in an effort to further explore the role of mitochondria in this disease. This collaboration was extended and also expanded to include animal testing of one of our type II diabetes drug candidates.

        University of California, San Diego, and San Diego Veterans Affairs Medical Center.    In 2000, we were awarded a grant to develop novel treatments for osteoarthritis in collaboration with the laboratory of R. Terkeltaub, M.D.

        University of California, San Diego.    In 2001, we were awarded a grant with S. Subramaniam, Ph.D., to partly fund the development of bioinformatics methods and tools and an annotated database related to the identity and function of mitochondrial proteins. This effort is intended to support our ongoing proteomics and genomics projects and the results are expected to contribute to the selection and validation of mitochondrial proteins as potential drug discovery targets.

        Buck Institute for Age Research, and University of California, San Francisco.    We collaborate with B. Gibson, Ph.D., on mitochondrial proteomics research, including the fractionation, sequencing and identification of proteins present in human mitochondria. This collaboration was funded initially by a two-year grant that began in 1998. The collaboration exploits mass spectrometric technologies to study normal tissue as well as the consequences of metabolic dysfunction and cellular stress in degenerative disorders such as Alzheimer's disease, including the identification of proteins that are up- or down-regulated in response to cellular stress. These approaches aim to uncover new molecular targets for drug discovery.

        University of Oregon, Eugene.    Dr. R. Capaldi has worked with us as a consultant since 2000 in the area of mitochondrial proteomics. We have an agreement with the University of Oregon that will provide us with access to separation technologies and materials (including proprietary monoclonal antibodies) developed in his laboratory to aid in our effort to completely define the normal human mitochondrial proteome.

        University of North Texas, Fort Worth.    We fund research at the University of North Texas Health Science Center in the laboratory of J. Simpkins, Ph.D. We have the right to obtain licenses to technology and inventions that result from the sponsored program.

        Indian Institute of Science, Bangalore.    Since 1999, we have supported a team of organic chemists, led by S. Chandrasekaran, Ph.D., and U. Maitra, Ph.D., who synthesize novel intermediates that we then use in our drug discovery program. They also scale-up compounds of

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interest. We retain rights to all compounds developed within the program. The Indian Institute of Science retains rights to certain synthetic processes.

        Stanford University.    We have maintained a relationship with the laboratory of M. Fuller, Ph.D., since 1999 on a novel class of mitochondrial proteins.

        Washington University, St Louis.    We fund research at Washington University School of Medicine in the laboratory of D. Covey, Ph.D. We have the right to obtain licenses to technology and inventions that result from the sponsored program. In addition, we have an exclusive worldwide license to certain technology developed by Dr. Covey and his collaborators.

        University of Bristol, England.    Since 2000, we have been funding studies in the laboratory of A. Halestrap, Ph.D., for research into the biochemistry of a mitochondrial target for drug discovery.

        Ohio State University, Columbus.    Since 1999, we have been working with D. Pfeiffer, Ph.D., on a collaborative project directed toward the cloning and expression of novel mitochondrial proteins of interest as potential targets for drug discovery.

        University of Virginia, Charlottesville.    We have collaborated for many years with our scientific founder, W. D. Parker, Jr., M.D., and his colleagues, to study the role of mitochondria in Alzheimer's and Parkinson's diseases and other central nervous system disorders. We are currently involved with Dr. Parker in aspects of a mitochondrial population genetics study.

Medical Research Council (United Kingdom) and the University of Newcastle upon Tyne. In 2000, we first entered into a collaboration with Dr. D. Turnbull. Under our current agreements, we will receive samples of purified DNA isolated from normal and diseased brain tissue that will enable us to jointly explore possible connections between defective brain mitochondria and neurodegenerative diseases.

        University of Florida.    We have a worldwide license from the University of Florida Research Foundation, Inc. to certain technology developed at the University of Florida School of Medicine related to a method of protection against cell loss using polycyclic phenols, including estrogens. We are obligated to pay an annual license maintenance fee and royalties based on product sales.

        University of Kentucky.    We have an exclusive worldwide license from the University of Kentucky Research Foundation to certain technology developed at the University of Kentucky School of Medicine related to a method of protection against brain cell loss using vitamin D derivatives and compounds which bind the vitamin D receptor. We are obligated to pay royalties on product sales.

        University of Vermont, Burlington.    We have been sponsoring research activities in the laboratory of R. Galbraith, M.D., Ph.D., at the University of Vermont to study the effects of certain of our compounds in animals.

Competition

        The pharmaceutical and biotechnology industries are intensely competitive. Other companies, academic institutions, governmental agencies and other research organizations are marketing and/or developing products for the treatment of the same diseases and conditions as our drug candidates. Many of these entities have substantially greater financial resources, larger research

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and development staffs, and more extensive marketing and manufacturing capabilities than we do. In addition, some of them have considerable experience in preclinical testing, clinical trials and other regulatory approval procedures, while our experience in these areas is limited. We also face intense competition for collaborative arrangements with pharmaceutical and biotechnology companies, relationships with academic and research institutions and licenses to additional technologies.

        Many companies are working on the same diseases and conditions that we are through various approaches not based on mitochondria, such as the role of beta-amyloid in Alzheimer's disease, but there is limited competition in the field of mitochondria. Because of the critical role of mitochondria in cellular function, we believe mitochondria are an ideal focal point for the identification of drug discovery targets, diagnostic markers and therapeutic products.

        Although certain of our competitors may be larger and better funded, we believe that our mitochondrial expertise, our intellectual property portfolio, our scientific staff and our relationships with the leading academics and institutions in this area give us a competitive advantage.

Government Regulation

        The FDA and comparable regulatory agencies in state and local jurisdictions and in foreign countries impose substantial requirements upon the clinical development, manufacture and marketing of pharmaceutical products. These agencies and other federal, state and local entities regulate research and development activities and the testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of our potential products.

        The process required by the FDA before our products may be marketed in the U.S. generally involves the following:

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preclinical laboratory and animal tests;



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submission of an investigational new drug application, or IND, which must become effective before clinical trials may begin;



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adequate and well-controlled human clinical trials in three phases to establish the safety and efficacy of the proposed drug for its intended use; and



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FDA approval of a new drug application, or NDA, or biologics license application, or BLA.

        The testing and approval process requires substantial time, effort, and financial resources, and we cannot be certain that any approvals for any of our potential products will be granted on a timely basis, if at all.

        Prior to commencing clinical trials, which are typically conducted in three sequential phases, we must submit an IND application to the FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the trial. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Our submission of an IND may not result in FDA authorization to commence a clinical trial. Further, an independent institutional review board at the medical centers proposing to conduct the clinical trial must review and approve the plan for any clinical trial before it commences.

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        We may not successfully complete any of the three phases of testing of any of our potential products within any specific time period, if at all. Furthermore, the FDA or an institutional review board may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

        The results of product development, preclinical studies and clinical studies are submitted to the FDA as part of an NDA or BLA. The FDA may deny an NDA or BLA if the applicable regulatory criteria are not satisfied or may require additional clinical data and Phase IV studies. Even if such data are submitted, the FDA may ultimately decide that the NDA or BLA does not satisfy the criteria for approval. Once issued, the FDA may withdraw product approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products which have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.

        Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes a number of years and the actual time required may vary substantially, based upon the type, complexity and novelty of the product or indication. Government regulation may delay or prevent marketing of potential products or new indications for a considerable period of time and impose costly procedures upon our activities. Success in early stage clinical trials does not assure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Since our products are likely to involve the application of new technologies and may be based upon a new therapeutic approval, our products may be subject to substantial additional review by governmental regulatory authorities which may result in a slower FDA approval process than for products using more conventional technologies. Even if a product receives regulatory approval, the approval is limited to the specific conditions for which use and efficacy was demonstrated in the clinical trial. Additional clinical trials and separate FDA approval would be necessary to use the product for any other condition. Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product, costly recalls or even complete withdrawal of the product from the market. Delays in obtaining, or failures to obtain additional regulatory approvals for any of our products would have a material adverse effect on our business.

        Any products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with good manufacturing practices, which impose certain procedural and documentation requirements upon us and our third party manufacturers. We cannot be certain that we or our suppliers will be able to comply with the good manufacturing practices regulations and other FDA regulatory requirements.

        The FDA may grant orphan drug designation to drugs intended to treat a "rare disease or condition," which is generally a disease or condition that affects fewer than 200,000 individuals. Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use

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are disclosed publicly by the FDA. Orphan drug designation does not in principle convey any advantage in, or shorten the duration of, the regulatory review and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, which means the FDA may not approve any other applications to market the same drug for the same indication, except in limited circumstances, for seven years.

        Outside the United States, our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within the European Community, or EC, registration procedures are available to companies wishing to market a product in more than one EC member state. If the regulatory authority is satisfied that adequate evidence of safety, quality and efficacy has been presented, a marketing authorization will be granted. This foreign regulatory approval process involves all of the risks associated with FDA clearance.

        Even after regulatory approval is obtained from the FDA or applicable foreign agencies, our products will be subject to additional governmental controls. Reimbursement for pharmaceuticals under governmental payor programs such as Medicare and Medicaid is regulated by governmental agencies that administer those programs and reimbursement authorization does not automatically follow FDA approval. The government, third-party payors and other insurance programs also have discretion to determine whether to use our products and how much to pay for our products. In some foreign markets, the pricing and profitability of prescription pharmaceuticals, such as our products, is regulated by the foreign governments. In addition, the distribution and dispensing of our products will be regulated by applicable prescription and dispensing laws.

        Our research and development activities are also regulated under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substance Control Act and similar federal, state and local statutes and regulations relating to our use of hazardous chemicals and radioactive and biological materials. These laws regulate our use, handling, storage and disposal of regulated substances and impose liability for non-compliance, contamination and associated injury and damage.

Intellectual Property and Proprietary Rights

        To establish and protect our proprietary technologies and targets, we rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality provisions in our contracts. Our patent strategy is designed to provide us with freedom to operate and facilitate commercialization of our current and future products and create barriers to entry to others pursuing mitochondrial research, development and products.

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        As of January 25, 2002, in the aggregate, including our Mimotopes subsidiary, we owned or had exclusive licenses to a total of 35 issued U.S. utility patents, together with two allowed cases and over 43 pending U.S. applications, with foreign counterparts comprising 16 issued utility patents, plus three allowed cases, and 117 applications filed outside the United States in numerous geographical territories. Issued patents or patents that might issue from the pending patent applications we own would have terms extending beyond 2012.

        In the United States, as of January 25, 2002, excluding Mimotopes, we owned or had exclusive licenses to issued utility patents and patent applications representing 53 families of subject matter, including 30 issued U.S. patents in 16 families, plus two more cases that have been allowed (one in an additional family), and more than 41 pending U.S. applications in 36 families. As of January 25, 2002, outside of the United States and excluding Mimotopes, we owned or had exclusive licenses to six issued utility patents in four families, plus three more allowed cases in three additional families, and have 113 pending cases, involving 40 families, on file in multiple jurisdictions.

        On January 25, 2002, in the United States, Mimotopes owned or had exclusive licenses to utility patents or patent applications in six families, including five issued U.S. patents in four families and two pending U.S. applications in two additional families. Outside the United States, Mimotopes owned or had exclusive licenses to on January 25, 2002, 10 issued utility patents in four families and had four pending cases in two families on file in various countries, including Australia.

        On January 25, 2002, in the United States, Mimotopes also owned design patents or patent applications in seven families, including seven issued U.S. patents. Outside the United States, Mimotopes owned on January 25, 2002, 30 issued design patents in seven families and has 12 pending cases in five families on file in certain countries, including Australia.

        During the normal course of business, we periodically evaluate our intellectual property portfolio relative to our then current product offerings and technologies. Hence, it is possible that one or more of the above utility and/or design patents and/or applications, as well as the trademarks and/or servicemarks below, may be abandoned or withdrawn as certain methods or product items are discontinued or replaced by a next-generation technology, product design or nomenclature.

        In addition, at January 25, 2002, we owned nine trademarks or servicemarks registered in the United States, most of which are also registered in Australia and some of which are also registered or pending in several other foreign jurisdictions, including the European Community, Japan and certain other countries; six of these marks are the property of Mimotopes. Applications by MitoKor or Mimotopes for six additional trademarks or servicemarks are either pending or in process in the United States.

        We also rely in part on trade secret protection of our intellectual property. We attempt to protect our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. Our employees and consultants also sign agreements requiring that they assign to us their interests in patents and other intellectual property arising from their work for us. All employees sign an agreement not to engage in any conflicting employment or activity during their employment with us, and not to disclose or misuse our confidential information. However, it is possible that these agreements may be breached or invalidated and if so, there may not be an adequate corrective remedy available. Accordingly, we cannot assure you that employees,

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consultants or third parties will not breach the confidentiality provisions in our contracts or infringe or misappropriate our patents, trade secrets and other proprietary rights, and the measures we are taking to protect our proprietary rights may not be adequate.

        Our intellectual property gives us the right only to exclude others from using it. It does not offer any protection against claims from third parties that elements of our technologies and products infringe their intellectual property rights. We have received correspondence regarding the possible infringement of certain patents. We are in the process of negotiating with the other party to resolve this issue. In the future, third parties may file claims asserting that our technologies or products infringe on their intellectual property. We cannot predict whether third parties will assert such claims against us or whether those claims will harm our business. If we are forced to defend against such claims, whether they are with or without merit and whether they are resolved in favor of or against us, we may face costly litigation and diversion of our management's attention and resources. As a result of such disputes, we may have to develop costly non-infringing technology, or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable to us, or at all, which could seriously harm our business or financial condition.

Legal Proceedings

        From time to time, we may be involved in litigation relating to claims arising out of our operations. As of the date of this prospectus, we are not a party to any material legal proceedings.

Employees

        As of December 31, 2001, we had 130 full-time employees, 74 of whom were in research and development, 19 of whom were in manufacturing, 11 of whom were in sales and marketing, and 26 of whom were in general and administrative capacities. We also retain outside consultants. None of our employees is represented by a labor union, and we consider our employee relations to be good.

Facilities

        We currently lease approximately 30,000 square feet of office and laboratory facilities in San Diego, California, under two leases that expire in June 2007. We also lease approximately 20,000 square feet near Melbourne, Australia, under a lease that expires in September 2002, with an option to renew. We believe that our existing facilities are adequate to meet our immediate needs and that suitable additional space will be available in the future on commercially reasonable terms as needed.

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MANAGEMENT

Directors and Officers

        The following table provides information concerning directors, executive officers and other corporate officers of MitoKor as of December 31, 2001:

Name	Age	Position
Executive Officers
Walter H. Moos, Ph.D.	47	Chief Executive Officer and Chairman of the Board of Directors
Ronald E. Deane	67	Chief Business Officer, MitoKor, and Chairman of the Board of Directors, Mimotopes Pty. Ltd.
Craig A. Johnson	40	Chief Financial Officer, Vice President, Finance and Administration
Corporate Officers
Neil Howell, Ph.D.	55	Vice President, Research
Katherine Gordon, Ph.D.	47	Senior Vice President
Robert J. Leonard	50	Vice President
Andrew Milner, Ph.D.	47	Managing Director, Mimotopes Pty. Ltd.
Thomas G. Sanders, Ph.D.	61	Vice President, Business Development
Barry Wolitzky, Ph.D.	46	Vice President, Preclinical Research and Development
Directors
Michael Callaghan (1)(2)	49	Director
Jean Deleage, Ph.D.(2)	61	Director
Standish M. Fleming (1)(2)	54	Director
Alan S. Rosenthal, M.D.	62	Director
Richard S. Schneider, Ph.D.(1)	61	Director
Jerry A. Weisbach, Ph.D.	68	Director

(1)

Member of audit committee.

(2)

Member of compensation committee.

Walter H. Moos, Ph.D., joined MitoKor as Chairman and Chief Executive Officer in January 1997. From October 1991 to January 1997, he was employed at Chiron Corporation where he was an executive officer, and last held the position of Vice President of Research and Development in the Technologies Division. From 1982 to 1991, Dr. Moos held several positions at the Parke-Davis Pharmaceuticals Research Division of the Warner-Lambert Company, last holding the position of Vice President, Neuroscience and Biological Chemistry. In addition to serving as Chairman of the MitoKor board of directors, Dr. Moos currently serves on the boards of directors of Rigel Pharmaceuticals, Inc., a public company, Axiom Biotechnologies, Inc., and the Biotechnology Industry Organization. He has edited several books, helped to found multiple journals, and has published over 100 manuscripts and patents. In addition, Dr. Moos has held adjunct faculty positions at the University of Michigan, Ann Arbor, and the University of California, San Francisco, and currently serves on several academic and related advisory

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committees. Dr. Moos holds an A.B. from Harvard University and received his Ph.D. in chemistry from the University of California at Berkeley in 1982.

Ronald E. Deane joined MitoKor in February 2000 in connection with the acquisition of Mimotopes Pty. Ltd. Mr. Deane was appointed as MitoKor's Chief Business Officer in December 2000, served as Managing Director of Mimotopes during 2000 and 2001 and currently serves as Chairman of Mimotopes' board of directors. Mr. Deane has more than 35 years of experience in the pharmaceutical and biotechnology industries with companies including Upjohn, Boots and Bristol-Myers. Mr. Deane has more recently held several senior management positions in sales, marketing and administration at Commonwealth Serum Laboratories. Mr. Deane joined Coselco Mimotopes upon its formation in 1989 and became Managing Director in 1993 where he led Mimotopes to its present position as a leader in the combinatorial chemistry and peptide markets.

Craig A. Johnson joined MitoKor as Corporate Controller in 1994 and was named Director of Finance and Administration in 1996, and Vice President of Finance and Administration in 1998. He has served as Chief Financial Officer since December 2000. Prior to joining MitoKor, Mr. Johnson was employed by several early-stage technology companies in the capacity of Chief Financial Officer or Corporate Controller. Mr. Johnson was employed by the accounting firm of Price Waterhouse LLP from 1984 to 1988. He received his B.B.A. in accounting from the University of Michigan and is a Certified Public Accountant.

Neil Howell, Ph.D., has served in the capacity of Vice President of Research since September 2000. Dr. Howell continues to serve as an adjunct professor at the Department of Radiation Oncology, University of Texas Medical Branch at Galveston. Previously, he held several faculty positions at the University of Texas and at Harvard Medical School. Dr. Howell is an expert in mitochondrial biology and genetics with research interests in the biochemical and neurobiological basis of mitochondrial diseases. Recently this has led to an enhanced emphasis on the analysis of the human mitochondrial genome as the genetic basis for disease. Dr. Howell has published in excess of 100 manuscripts in peer-reviewed journals and has been a member of NIH and National Science Foundation committees. Dr. Howell holds a B.A. from the University of Kansas and received his Ph.D. in molecular biology from the University of Wisconsin.

Katherine Gordon, Ph.D., joined MitoKor in June 2001 in connection with the acquisition of Apollo and has served as the President, chief executive and a director of Apollo from its inception. Prior to founding Apollo in 1992, Dr. Gordon was an Associate Director at Genzyme Corporation. At Genzyme, she launched a business unit for deriving therapeutic proteins from the milk of transgenic animals. From 1984 to 1989, Dr. Gordon was employed at Integrated Genetics. Dr. Gordon has over 15 years of experience in the biotechnology industry and has numerous publications and issued patents to her credit. Dr. Gordon currently serves on the boards of directors of BioTime, Inc., a public company, and one privately held company. She obtained her Ph.D. from Wesleyan University in 1982 and was a post-doctoral fellow at Yale University.

Robert J. Leonard joined MitoKor in June 2001 in connection with the acquisition of Apollo and has served as Vice President of Business Development at Apollo since 1996 and was a director of Apollo from 1995 to 2001. Previously, Mr. Leonard was Chief Executive Officer of Endocon, Inc., a company that he founded in 1981 for the commercialization of controlled release drug delivery systems for therapeutic use in humans and animals. From 1975 through 1979, Mr. Leonard was founder and President of Robert J. Leonard & Company, Inc., a privately held

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corporation specializing in medical and health care marketing services. Mr. Leonard has served on the boards of directors of a number of biomedical and healthcare companies.

Andrew Milner, Ph.D., joined Mimotopes Pty. Ltd. as General Manager in 2000 and has served as Managing Director since 2001. From 1998 to 2000, Dr. Milner served at Zeneca Pharmaceuticals, with responsibility for pricing, reimbursement, and market access for all Zeneca products within Australia. Following the merger of Zeneca and Astra, Dr. Milner joined Synermedica Pty. Ltd. as Director of Development and Commercialization. From 1989 to 1998, Dr. Milner held various positions at Daratech Pty. Ltd., an agricultural and veterinary biotechnology company, including Project Director and later Operations Manager. Previously, Dr. Milner held a number of positions at the Victorian Institute of Animal Science, including Head of Molecular Biology. Dr. Milner completed his Ph.D. at John Curtin School of Medical Research, Australian National University, in 1983.

Thomas G. Sanders, Ph.D., joined MitoKor in March 1998 as Executive Director of Business and Corporate Development and has served as Vice President of Business Development since January 1999. From 1983 to 1998, Dr. Sanders held a variety of management positions related to licensing and technology transfer, corporate strategic alliances, mergers and acquisitions, patent and research administration and manufacturing at Chiron Corporation, including Director of Technology Alliances and Transfer and Director of Business Development. Dr. Sanders has been a faculty member in the Departments of Biology and Biochemistry at Lake Forest College and Princeton University where he pursued research in developmental and molecular genetics and behavioral biology. Dr. Sanders is an author or co-author of multiple publications related to developmental genetics and biochemistry or behavior genetics. Dr. Sanders received a B.A. in biology from Williams College and M.S. and Ph.D. degrees in biochemistry from the University of Illinois, Urbana/Champaign.

Barry A. Wolitzky, Ph.D., joined MitoKor in March 2001 as Vice President, Preclinical Research and Development. From 1999 to 2001, Dr. Wolitzky was employed at Coelacanth Corporation, a combinatorial chemistry company, as Vice President of Biology Discovery, and helped to establish a number of strategic alliances and drug discovery collaborations. From 1986 to 1999, Dr. Wolitzky held a number of research positions at Hoffman-La Roche, most recently as Director of Oncology and Associate Director of Preclinical Research and Development. Dr. Wolitzky is a cell and molecular biologist with considerable experience in immunology, inflammation and oncology and has published over 40 manuscripts. He earned his Bachelor's, Master's and Doctoral degrees in Cell and Molecular Biology from the State University of New York at Buffalo.

Michael Callaghan is a Senior Vice President of MDS Capital Corp. and joined MitoKor as a director in 1996. Prior to joining MDS Capital Corp. in 1992, Mr. Callaghan was active in several general management positions. Mr. Callaghan began his career with Ernst & Young where he became a Chartered Accountant. He serves as a director of Systems Xcellence, Inc., a public transaction and processing software company, Ciphergen Biosystems, Inc., a public biotechnology company, and a number of other private companies. He was also a director of Apollo BioPharmaceutics, Inc. prior to its acquisition by MitoKor. He received a B.A. from McGill University and an M.B.A. from York University.

Jean Deleage, Ph.D., joined MitoKor as a director in 1996. Dr. Deleage is a founder and managing director of Alta Partners, a venture capital firm. In 1979, Dr. Deleage founded Burr, Egan, Deleage & Co., a venture capital firm, and currently serves as a managing director.

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Dr. Deleage was the founder of Sofinnova, a venture capital organization. He currently serves on the boards of directors of Aclara Biosciences, Inc., Kosan Biosciences Inc., Rigel Pharmaceuticals, Inc., Telik, Inc., and several other privately-held companies. Dr. Deleage received a Baccalaureate in France, a Master's Degree in electrical engineering and a Ph.D. in economics from the Sorbonne.

Standish M. Fleming joined MitoKor as a director in 1995. Since April 1993, Mr. Fleming has been a general partner of Forward Ventures, a venture capital firm. He also served in an advisory position with Forward Ventures from February 1992 through April 1993. Prior to that, Mr. Fleming joined Ventana, a venture capital firm, in 1986 and served as a fund manager from January 1990 through January 1992. Mr. Fleming received a B.A. in English from Amherst College and an M.B.A. from the University of California, Los Angeles. He currently serves on the boards of directors of Triangle Pharmaceuticals, Inc., a public pharmaceutical company, and several privately held companies.

Alan S. Rosenthal, M.D., joined MitoKor as a director in 2000. Dr. Rosenthal has served as President and Chief Scientific Officer of SalmediX since 2000. From 1993 to 2000, Dr. Rosenthal served as Vice President of Scientific Affairs and Technologies and Vice President of Pharmaceutical Discovery at Abbott Laboratories. Prior to that, he served as Senior Vice President, Scientific Affairs and Vice President, Research and Development for Boehringer Ingelheim from 1986 to 1993 and as Vice President, Immunology and Inflammation Research for Merck, Sharp and Dohme Research Laboratories from 1978 to 1986. Prior to joining Merck, Sharp and Dohme, Dr. Rosenthal spent 12 years at the National Institute of Allergy and Infectious Diseases and the National Heart Institute. Dr. Rosenthal currently serves on the boards of directors of Avidex Limited and The Immune Response Corporation, and as a scientific or business advisor to Advent Venture Partners, Mediphase Venture Partners, and Structural GenomiX, as well as acting as a pharmaceutical and biotech industry consultant and scientific advisor to various companies in his capacity as President of Oracle Consulting Limited. Dr. Rosenthal received his B.A. and M.D. from Vanderbilt University.

Richard S. Schneider, Ph.D., joined MitoKor as a director in 1997. Dr. Schneider served as a Managing Member of Domain Associates, a venture capital firm, from 1990 until his retirement in 2001. Prior to joining Domain Associates, Dr. Schneider served as a Vice President of 3i Ventures Corporation, a venture capital firm, from 1986 to 1990. From 1983 to 1989, Dr. Schneider served as President of Biomedical Consulting Associates, Inc. Dr. Schneider was founder and Vice President from 1967 to 1983 of Syva Company, subsequently a division of Syntex Corporation. Dr. Schneider currently serves on the boards of directors of Landec, Inc. and SonoSite, Inc., two public companies, and a number of other privately held companies.

Jerry A. Weisbach, Ph.D., joined MitoKor as a director in 2001. He currently serves as a director on the boards of InKine Pharmaceutical Company, Inc., Neose Technologies Inc., and various private companies, and as a consultant to pharmaceutical and biotechnology companies. From 1988 to 1994, Dr. Weisbach was Director of Technology Transfer at the Rockefeller University and has been an adjunct professor there since 1988. Dr. Weisbach served as Vice President of Warner-Lambert Company from 1981 to 1987 and President of its Pharmaceutical Research Division from 1979 to 1987. He was responsible for all pharmaceutical research and development activities of Warner-Lambert. Prior to joining Warner-Lambert in 1979, Dr. Weisbach was employed at Smith, Kline and French Laboratories where he was Vice President, Research.

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Dr. Weisbach received his B.A. in chemistry from Brooklyn College and his M.A. and Ph.D. degrees from Harvard University.

Executive Officers and Directors

        All directors hold office until the next annual meeting of our stockholders and until their successors have been duly elected and qualified. Executive officers are elected and serve at the discretion of our board of directors. There are no family relationships among our directors and executive officers.

Board Committees

        Our board of directors has an audit committee, compensation committee and research committee. Our audit committee reviews our internal accounting procedures and consults with and reviews the services provided by our independent accountants. Messrs. Callaghan, Fleming and Schneider are the current members of our audit committee.

        Our compensation committee reviews and makes recommendations to our board of directors concerning the compensation and benefits of all of our officers, administers our stock option plans and establishes and reviews general policies relating to the compensation and benefits of our employees. Messrs. Callaghan, Deleage and Fleming are the current members of our compensation committee.

        Our research committee meets annually to review and make recommendations to management concerning our research and development programs. Messrs. Fleming, Rosenthal and Weisbach are the current members of our research committee.

Compensation Committee Interlocks and Insider Participation

        None of the members of our compensation committee is or has been one of our officers or employees or an officer or employee of one of our subsidiaries. No interlocking relationship exists between our board of directors or compensation committee and the board of directors or compensation committee of any other entity, nor has any interlocking relationship existed in the past. For information concerning transactions between us and Messrs. Callaghan, Deleage and Fleming, or their affiliates, see "Related Party Transactions."

Compensation of Directors

        Our non-employee directors are reimbursed for expenses incurred in connection with attending board and committee meetings, but are not compensated in cash for their services as board or committee members. Upon their election to our board of directors, we typically grant non-employee directors an initial option to purchase 20,000 shares of our common stock at the then fair market value pursuant to the terms of our 2000 Outside Director Stock Option Plan. Additionally, each outside director is automatically granted an option to purchase 5,000 shares of our common stock on each anniversary date of such individual's election or appointment as an non-employee director, provided that he or she remains an outside director on the anniversary date. See "Stock Plans — 2000 Outside Director Stock Option Plan."

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Limitations on Liability and Indemnification Matters

        Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act.

        As permitted by the Delaware General Corporation Law, our certificate of incorporation, which will be effective upon the closing of this offering, includes a provision that permits the elimination of personal liability of our directors for monetary damages for breach of fiduciary duty as a director, except for liability:

•

for any breach of the director's duty of loyalty to us or our stockholders;



•

for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;



•

for unlawful payments of dividends or unlawful stock repurchases or redemptions, as provided under Section 174 of the Delaware General Corporation Law; or



•

for any transaction from which the director derived an improper personal benefit.

        As permitted by the Delaware General Corporation Law, our certificate of incorporation and our bylaws, both of which will become effective upon the closing of this offering, provide that:

•

we are authorized to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law, so long as such person acted in good faith and in a manner the person reasonably believed to be in or not opposed to our best interests, and with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful;



•

we are permitted to indemnify our other employees and agents to the extent that we indemnify our officers and directors, unless otherwise required by law, our certificate of incorporation, our bylaws or agreements;



•

the rights conferred in our certificate of incorporation and bylaws are not exclusive; and



•

we are permitted to advance expenses, as incurred, to our directors and officers in connection with a legal proceeding to the fullest extent permitted by Delaware law, subject to certain limited exceptions.

        We have also entered into separate indemnity agreements with our current directors, executive officers and other corporate officers to give such directors, executive officers and other corporate officers additional contractual assurances regarding the scope of the indemnification set forth in our certificate of incorporation and our bylaws and to provide additional procedural protections which may, in some cases, be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. The indemnity agreements may require us, among other things, to indemnify such directors, executive officers and other corporate officers against liabilities that may arise by reason of their status or service as directors, executive officers or corporate officers and to advance expenses they spend as a result of any proceeding against them as to which they could be indemnified.

        At present, there is no pending material litigation or proceeding involving any of our directors, executive officers, other corporate officers, other employees or agents for which

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indemnification is sought, nor are we aware of any threatened material litigation or proceeding that may result in claims for such indemnification.

Executive Compensation

        The following table summarizes the compensation paid to or earned by our Chief Executive Officer and each of our two other most highly compensated executive officers whose aggregate compensation during the fiscal year ended December 31, 2001 exceeded $100,000.

Summary Compensation Table

				Long-Term Compensation Awards
	Annual Compensation
Name and Principal Position(s)				Securities Underlying Options (#)
	Salary ($)
Walter H. Moos, Ph.D Chairman of the Board and Chief Executive Officer	$	300,000		177,000
Ronald E. Deane Chief Business Officer		167,367	(1)	20,000
Craig A. Johnson Chief Financial Officer and Vice President, Finance and Administration		160,020		—

(1)

Of this amount, $21,534 was paid to Mr. Deane by Mimotopes where he last served as Managing Director. The remaining $145,833 was paid to Mr. Deane by MitoKor for his services as Chief Business Officer.

Option Grants in Last Fiscal Year

        The following table sets forth certain information with respect to stock options granted to the individuals named above in the Summary Compensation Table during the fiscal year ended December 31, 2001, including the potential realizable value over the ten-year term of the options, based on assumed rates of stock appreciation of 5% and 10%, compounded annually. These assumed rates of appreciation comply with the rules of the Securities and Exchange Commission and do not represent our estimate or projection of our future common stock prices. Actual gains, if any, on stock option exercises will be dependent on the future performance of our common stock and overall stock market conditions. These amounts represent assumed rates of appreciation in the value of our common stock from the deemed fair market value of $7.50 per share as of December 31, 2001.

        In the fiscal year ended December 31, 2001, we granted options to purchase up to an aggregate of 734,830 shares of our common stock to employees, directors and consultants. All options were granted under our 1993 Stock Option Plan or our 2000 Outside Director Stock Option Plan at exercise prices at or above the fair market value of our common stock on the date of grant, as determined in good faith by our board of directors. All options have a term of ten

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years. The percentage of total options granted is based upon an aggregate of 734,830 options granted during 2001.

	Individual Grants
		Percent of Total Options Granted to Employees In Last Fiscal Year (%)					Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term
	Number of Shares Underlying Options Granted (#)
Name				Exercise Price ($/share)		Expiration Date
							5%		10%
Walter H. Moos, Ph.D.	177,000	24	%	$	2.00	2/1/2011	$	835,440	$	2,115,150
Ronald E. Deane	20,000	3	%	$	2.00	2/1/2011		94,400		239,000
Craig A. Johnson	—	0	%		—	—		—		—

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

        The following table sets forth for the individuals named above in the Summary Compensation Table their option exercises for the fiscal year ended December 31, 2001, and exercisable and unexercisable options held by them as of December 31, 2001.

        The "Value of Unexercised In-the-Money Options at December 31, 2001" is based on a value of $2.00 per share, the fair market value of our common stock as of December 31, 2001, as determined by our board of directors, less the per share exercise price, multiplied by the number of shares issued upon exercise of the option. All options were granted under our 1993 Stock Option Plan.

			Number of Securities Underlying Unexercised Options At December 31, 2001 (#)
					Value of Unexercised In-the-Money Options at December 31, 2001 ($)(1)
	Shares Acquired On Exercise (#)
Name		Value Realized
			Exercisable	Unexercisable	Exercisable		Unexercisable
Walter H. Moos, Ph.D.	none	none	270,920	239,680	$	452,385	$	81,915
Ronald E. Deane	none	none	7,000	33,000		8,400		15,600
Craig A. Johnson	none	none	67,077	52,923		100,117		64,610

(1)

Fair market value as of December 31, 2001 was determined by our board of directors and is based upon its assessment of our overall business, business prospects and financial condition at that time. The board considered, among other things, the illiquid nature of our common stock, the price paid for shares of our preferred stock in arm's-length transactions and our financial performance and operating results at the time.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

        We entered into an employment letter agreement with Walter H. Moos, Ph.D., on December 11, 1996. Pursuant to the terms of this agreement, Dr. Moos is currently serving as an at-will employee of MitoKor. Under the terms of this agreement, Dr. Moos was to initially receive a base salary of $250,000 and, subject to the approval of our board of directors, options to purchase our common stock. In addition, Dr. Moos receives use of a company residence and

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vehicle. If Dr. Moos' employment is terminated by us without cause or voluntarily by him following a constructive reduction in his responsibilities, he shall be entitled to a lump sum payment equal to his annual base salary plus any earned bonuses and the vesting of his stock options will accelerate by twelve months.

        We entered into an employment letter agreement with Ronald E. Deane on March 15, 2001. Pursuant to the terms of this agreement, Mr. Deane is currently serving as an at-will employee of MitoKor. Under the terms of this agreement, Mr. Deane is to receive a base salary of $175,000 and is eligible to receive a cash bonus of up to 30% of his base salary. In addition, subject to his acceptance of employment, our board of directors granted Mr. Deane an option to purchase up to 20,000 shares of our common stock.

Stock Plans

Amended and Restated 1993 Stock Option Plan

        Our Amended and Restated 1993 Stock Option Plan authorizes the administrator to grant awards in the form of incentive stock options, within the meaning of Section 422 of the United States Internal Revenue Code, and nonstatutory stock options. While incentive stock options may be granted only to employees, including officers and employee directors, nonstatutory stock options may be granted to employees, consultants and non-employee directors. The Amended and Restated 1993 Stock Option Plan is administered by our board of directors or a duly appointed committee of the board. Subject to the provisions of the plan, the administrator determines the persons to whom options are to be granted, the number of shares subject to each option and all other terms and conditions of the options. As of December 31, 2001, options to purchase 1,871,059 shares of our common stock were outstanding under the plan. Options granted under the Amended and Restated 1993 Stock Option Plan will remain outstanding in accordance with their terms, but our board of directors has determined that no further options will be granted under the 1993 Plan after the effective date of this offering. In the event of our merger with another corporation or another transfer of control event, the acquiring corporation may assume outstanding options or substitute new options of equivalent value. Any stock options not assumed by the acquiring corporation or exercised prior to a transfer of control will terminate upon the transfer of control.

2000 Outside Directors Stock Option Plan

        Our 2000 Outside Directors Stock Option Plan was initially adopted by our board of directors in September 2000 and approved by our stockholders in October 2000. The purpose of the plan is to attract and retain the best available non-employee directors, to provide them additional incentives and, therefore, to promote the success of our business. A total of 250,000 shares of our common stock are authorized and reserved for issuance under the plan. Appropriate adjustments will be made to the share reserve, to the award formulas described below and to awards outstanding under the plan in the event of any change in our capital structure. If any award granted under the 2000 Outside Directors Stock Option Plan expires or terminates, or if we repurchase any shares issued pursuant to an award, the shares subject to the terminated portion and any repurchased shares will again become available for issuance under the plan. As of December 31, 2001, options to purchase 125,000 shares were outstanding under the 2000 Outside Directors Stock Option Plan, 20,000 shares had been issued upon exercise of options, and 105,000 shares were available for future grant.

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        The 2000 Outside Directors Stock Option Plan provides for an initial, automatic grant of an option to purchase 20,000 shares of our common stock to each non-employee director when such director is first elected to our board of directors. The plan also provides for an annual grant of an option to purchase 5,000 shares of our common stock to each non-employee director on each anniversary of (i) the date on which the plan was adopted, for persons serving as non-employee directors on such date, or (ii) the date of initial election or appointment as a non-employee director for persons first elected or appointed after the plan was initially adopted. Each initial and annual option will have an exercise price per share equal to the fair market value of a share of our common stock on the date of grant and will have a term of ten years. Initial options granted to newly elected non-employee directors will vest and become exercisable in equal monthly installments over a four year period, while annual options granted to continuing non-employee directors will vest and become exercisable in twelve equal monthly installments. All options granted under the 2000 Outside Directors Stock Option Plan will be nonstatutory stock options. They must be exercised, if at all, within 12 months after a non-employee director's termination of service with us by reason of death or disability and otherwise within six months after termination of service, but in no event later than the expiration of the option's term.

        Stock options granted under the 2000 Outside Directors Stock Option Plan are not transferable by a director other than by will or the laws of descent and distribution. In the event of our merger with another corporation or similar change in control event, each outstanding initial and annual option will become fully vested and exercisable. The plan provides that the acquiring corporation may assume our outstanding options or substitute new options of equivalent value. However, if the acquiring corporation refuses to assume or substitute for our outstanding options, then the outstanding options will terminate upon the change in control to the extent not previously exercised.

        Unless terminated sooner by our board of directors, the 2000 Outside Directors Stock Option Plan terminates automatically when all shares available for issuance under the plan have been issued. Our board of directors has the authority to amend or terminate the plan, subject to stockholder approval of any amendment increasing the maximum number of shares issuable under the plan or as otherwise required by law. Generally, no amendment or termination may adversely affect any outstanding award without the consent of the affected director.

2002 Stock Option Plan

        Our 2002 Stock Option Plan was adopted by our board of directors in                        2002 and we anticipate stockholder approval of the 2002 Stock Option Plan in                         2002. A total of                         shares of our common stock are authorized and reserved for issuance under the 2002 Stock Option Plan. As of                        , 2002, no options to purchase shares of our common stock were outstanding under the 2002 Stock Option Plan. The cumulative number of shares authorized for issuance under the 2002 Stock Option Plan will be increased automatically on January 1, 2003 and each January 1 thereafter during the term of the plan by an amount equal to the lesser of (a) 5% of the outstanding shares of our common stock on the immediately preceding December 31 or (b) a lesser amount determined by our board of directors. However, the portion of each such annual increase that may be issued upon the exercise of incentive stock options may not exceed                         shares. Appropriate adjustments will be made to the foregoing limits and to awards outstanding under the plan in the event of any change in our capital structure. If any award granted under the 2002 Stock Option Plan expires or terminates or if we repurchase any

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shares issued pursuant to an award, the shares subject to the terminated portion and any repurchased shares will again become available for issuance under the plan.

        The 2002 Stock Option Plan is administered by our board of directors or by a committee of the board, who determine, consistent with the provisions of the plan, the persons to whom awards are granted and all of the terms and conditions of awards. The administrator has the authority to construe and interpret the terms of the plan and awards granted under it and to amend or terminate the plan, subject to stockholder approval of any amendment increasing the maximum number of shares issuable under the plan or as otherwise required by law. Generally, no amendment or termination may adversely affect any outstanding award without the consent of the affected participant.

        The 2002 Stock Option Plan authorizes the administrator to grant awards in the form of incentive stock options, nonstatutory stock options, and restricted stock awards. While incentive stock options may be granted only to employees, including officers and employee directors, other awards may be granted to employees, consultants and non-employee directors.

        The exercise price per share of incentive stock options granted under the 2002 Stock Option Plan must be at least equal to the fair market value of a share of our common stock on the date of grant, while the exercise price per share of nonstatutory stock options must be at least 85% of such fair market value. However, the exercise price per share of an incentive stock option granted to any participant who owns stock possessing more than 10% of the voting power of all classes of our outstanding capital stock or that of any subsidiary corporation must equal at least 110% of the fair market value of a share of our common stock on the grant date, and the term of such incentive stock option must not exceed five years. The terms of all other options granted under the 2002 Stock Option Plan may not exceed ten years. The administrator has the discretion to determine the vesting provisions and exercise requirements, if any, of all options granted under the plan. Unless longer periods are authorized by the administrator, options granted under the 2002 Stock Option Plan generally must be exercised, if at all, within six months after an optionee's termination of service due to death or disability and otherwise within 90 days after an optionee's termination of service, but in no event later than the expiration of the option's term. Options granted under the plan generally are not transferable by an optionee other than by will or the laws of descent and distribution, except that, with the consent of the administrator, an optionee may transfer a nonstatutory stock option to certain family members or entities established for their benefit.

        Awards of restricted stock may be made under the 2002 Stock Option Plan either in the form of a restricted stock purchase right or a restricted stock bonus. Restricted stock purchase rights are exercisable at prices determined by the administrator, while restricted stock bonuses are granted in consideration of services rendered to us. Awards of restricted stock may be made subject to vesting restrictions and other conditions as established by the administrator and are not transferable by the participant until vested. Vesting may be based on the participant's continued service with us or the attainment of one or more performance goals established by the administrator, similar to those described below in connection with performance shares and units. While the participant will have voting rights and the right to receive dividends or other distributions paid with respect to the restricted stock, any dividends or distributions paid in stock are subject to the same vesting restrictions as the original award. Unless otherwise provided by the administrator, if a participant's service with us terminates for any reason, the participant will forfeit any then unvested shares acquired as a restricted stock bonus, and we will have the option

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to repurchase for the amount of the participant's original purchase price any then unvested shares acquired by exercise of a restricted stock purchase right.

        In the event of our merger with another corporation or another change in control event, the acquiring corporation may assume outstanding awards or substitute new awards of equivalent value. Any stock options not assumed by the acquiring corporation or exercised prior to a change in control will terminate upon the change in control. The plan authorizes the administrator to provide in any award for acceleration of vesting in connection with a change in control to such extent and upon as terms as the administrator determines.

2002 Employee Stock Purchase Plan

        Our 2002 Employee Stock Purchase Plan was adopted by our board of directors in                        2002, and we anticipate stockholder approval in                         2002. A total of                         shares of our common stock are authorized and reserved for issuance under the plan, cumulatively increased on January 1, 2003 and each January 1 thereafter through January 1, 2012 by an amount equal to the lesser of (a) 2% of the outstanding shares of our common stock on the immediately preceding December 31, (b)                           shares, or (c) a lesser amount determined by our board of directors. Appropriate adjustments will be made to these limits and to purchase rights outstanding under the plan in the event of any change in our capital structure. If any purchase right granted under the 2002 Employee Stock Purchase Plan expires or terminates, the shares subject to the unexercised portion will again become available for issuance under the plan.

        The 2002 Employee Stock Purchase Plan is intended to qualify under Section 423 of the United States Internal Revenue Code. It will be administered by our board of directors or by a committee of the board, who have the authority to interpret and apply its provisions. The plan will generally be implemented through sequential, overlapping 24-month offering periods, although offering periods of up to 27 months are permitted. Offering periods generally start on the first trading day on or after May 1 and November 1 of each year, except that the first offering period will commence on the effective date of this offering and end on or about April 30, 2004. Each offering period will consist of four purchase periods of approximately 6 months duration.

        Employees, including officers and employee directors, are eligible to participate in the 2002 Employee Stock Purchase Plan if they are customarily employed by us or any participating subsidiary for more than 20 hours per week and more than five months in any calendar year. However, any employee who immediately after receiving the grant of a purchase right would own or hold options to purchase stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock may not be granted a purchase right under the plan. Furthermore, no employee may accrue rights to purchase shares under the plan at a rate which exceeds $25,000 worth of stock, measured at the beginning of the offering period, for each calendar year in which the purchase right is outstanding at any time. Purchase rights granted under the 2002 Employee Stock Purchase Plan are not transferable by a participant other than by will or the laws of descent and distribution.

        The plan permits participants to purchase our common stock through payroll deductions of up to 15% of the participant's compensation. Such amounts are applied to the purchase from us of shares of our common stock at the end of each purchase period at a price which is generally 85% of the lower of the fair market value of the common stock on either the first day of the offering period or the purchase date. The maximum number of shares a participant may purchase

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in any 24-month offering period is the lesser of 5,000 shares or a number of shares determined by dividing $50,000 by the fair market value of a share of our common stock at the beginning of the offering period. Participants may voluntarily end their participation at any time during an offering period, and participation ends automatically upon termination of employment with us.

        The plan provides that, in the event of our merger with another corporation or similar change in control event, each outstanding purchase right may be assumed by the acquiring corporation. If the acquiring corporation refuses to assume the outstanding purchase rights, the offering period then in progress will be shortened and a new purchase date will be set prior to the change in control. The 2002 Employee Stock Purchase Plan will terminate when all of the authorized shares have been issued, unless terminated earlier by our board of directors. The board of directors has the authority to amend or terminate the plan, subject to stockholder approval of any amendment increasing the maximum number of shares issuable under the plan or as otherwise required by law. Generally, no amendment or termination of the plan may adversely affect any outstanding purchase right without the consent of the affected participant.

        The 1993 Plan, the 2000 Plan, the 2002 Plan and the 2002 Purchase Plan are not exclusive. Our board of directors may grant stock and performance incentives or other compensation, in stock or cash, under other authority or plans which we may adopt in the future.

401(k) Plan

        Effective July 1994, we established a deferred compensation plan pursuant to Section 401(k) of the Internal Revenue Code. Prior to January 1, 2002, the 401(k) Plan allowed all eligible employees to contribute up to 15% of their pretax earnings, not to exceed amounts allowed under the Internal Revenue Code. Such contribution percentage has been increased to a maximum of 25% effective January 1, 2002. The 401(k) Plan allows us to make voluntary matching contributions. To date, we have not made any contributions.

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RELATED PARTY TRANSACTIONS

        The following is a description of transactions since January 1, 1999, to which we have been a party and in which any director, executive officer or holder of more than 5% of our capital stock had or will have a direct or indirect material interest, other than compensation arrangements, which are described under "Management." See "Principal Stockholders" for more detail regarding the relationship of these parties to our directors, executive officers and principal stockholders.

        In August and September 2000, we sold in a private placement 2,511,681 shares of Series F convertible preferred stock in exchange for an aggregate purchase price of $18,837,608 in cash. In connection with such offering, entities managed by Alta Partners, which is associated with Jean Deleage, Ph.D., one of our directors, purchased an aggregate of 200,001 shares of Series F convertible preferred stock. Entities managed by Domain Associates which is associated with Richard S. Schneider, Ph.D., one of our directors, purchased an aggregate of 200,000 shares of Series F convertible preferred stock. Entities managed by Forward Ventures, which is associated with Standish M. Fleming, one of our directors, purchased an aggregate of 533,334 shares of Series F convertible preferred stock. Neuroscience Partners Limited Partnership, an entity managed by MDS Capital Corp., which is associated with Michael Callaghan, one of our directors, purchased 266,668 shares of Series F convertible preferred stock.

        In June 2001, we issued an aggregate of 1,847,625 shares of Series G convertible preferred stock and warrants to purchase 279,397 shares of Series G convertible preferred stock and paid cash consideration in the amount of $1,057,000 in connection with the merger with Apollo BioPharmaceutics, Inc. In connection with this transaction, Neuroscience Partners Limited Partnership, an entity managed by MDS Capital Corp., received 219,294 shares of our Series G convertible preferred stock, warrants to purchase 44,718 shares of our Series G convertible preferred stock and cash consideration of approximately $79,700. Michael Callaghan, one of our directors, is associated with MDS Capital Corp.

        In November 2001, we sold in a private placement 833,341 shares of Series F-1 convertible preferred stock in exchange for an aggregate purchase price of $6,250,057 in cash. In connection with such offering, entities managed by Alta Partners, which is associated with Jean Deleage, Ph.D., one of our directors, purchased an aggregate of 133,334 shares of Series F-1 convertible preferred stock. Domain Partners III, L.P., an entity managed by Domain Associates, which is associated with Richard S. Schneider, Ph.D., one of our directors, purchased 33,334 shares of Series F-1 convertible preferred stock. Entities managed by MDS Capital Corp., which is associated with Michael Callaghan, one of our directors, purchased an aggregate of 33,333 shares of Series F-1 preferred stock.

        We entered into other agreements in connection with the purchases of our preferred stock described above. Under one of these agreements, our Amended and Restated Investors' Rights Agreement, certain of our stockholders acquired registration rights. See "Description of Capital Stock—Registration Rights" for a description of these registration rights. Further, we agreed with our stockholders on restrictions on the issuance and transfer of shares of our capital stock, rights of first refusal and voting rights relating to the election of directors, all of which restrictions and rights are not applicable to, and will terminate upon the closing of, this offering.

        Certain stock option grants to our directors and executive officers are described in this prospectus under the caption "Management—Option Grants in Last Fiscal Year."

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        We have entered into indemnification agreements with certain of our officers and directors containing provisions which may require us to, among other things, indemnify our officers and directors against certain liabilities that may arise by reason of their status or service as officers and directors (other than liabilities arising from willful misconduct of a culpable nature) and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. For a description of limitations of liability and certain indemnification arrangements with respect to our directors and officers, see "Management—Limitations on Liability and Indemnification Matters."

        We believe that the transactions described above were on terms no less favorable than could be obtained from unaffiliated parties.

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PRINCIPAL STOCKHOLDERS

        The following table sets forth certain information concerning the beneficial ownership of the shares of our common stock as of December 31, 2001, and as adjusted to give effect to the sale of            shares of common stock in this offering assuming (a) conversion of all of our outstanding shares of convertible preferred stock into common stock and (b) no exercise of the underwriters' over-allotment option, by:

•

each person MitoKor knows to be the beneficial owner of 5% or more of the outstanding shares of its common stock;



•

each executive officer listed in the Summary Compensation Table;



•

each director of MitoKor; and



•

all executive officers and directors of MitoKor as a group.

        Except in cases where community property laws apply or as indicated in the footnotes to this table, MitoKor believes that each stockholder identified in the table possesses sole voting and investment power with respect to all shares of common stock shown as beneficially owned by such stockholder. Unless otherwise noted below, the address of the individuals listed below is the address of MitoKor appearing on the cover of the registration statement of which this prospectus is part.

				Percentage of Total Outstanding Shares of Common Stock Beneficially Owned(1)
			Shares Issuable Pursuant to Options Exercisable Within 60 Days of December 31, 2001
Name and Address of Beneficial Owner		Outstanding Shares of Common Stock		Prior to the Offering		After the Offering
5% or greater stockholders:
	Entities managed by Alta Partners(2) One Embarcadero Center Suite 4050 San Francisco, CA 94111	1,784,669	—	13.1	%
	Entities managed by Forward Ventures(3) 9393 Towne Centre Drive Suite 200 San Diego, CA 92121	1,581,915	—	11.6	%
	Entities managed by Domain Associates(4) One Palmer Square Princeton, NJ 08542	1,483,334	—	10.9	%
	Entities managed by MDS Capital Corp.(5) 100 International Blvd. Toronto, Ontario Canada M9W 6J6	1,519,644	—	11.1	%

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				Percentage of Total Outstanding Shares of Common Stock Beneficially Owned(1)
			Shares Issuable Pursuant to Options Exercisable Within 60 Days of December 31, 2001
Beneficial Owners		Outstanding Shares of Common Stock		Prior to the Offering		After the Offering
Directors and Named Executive Officers:
	Walter H. Moos, Ph.D.	16,000	323,000	2.4	%
	Ronald E. Deane	—	12,000	*
	Craig A. Johnson	—	71,351	*
	Michael Callaghan(6)	1,519,644	16,666	11.2	%
	Jean Deleage, Ph.D.(7)	1,784,669	16,666	13.2	%
	Standish M. Fleming(8)	1,581,915	16,666	11.7	%
	Alan S. Rosenthal, M.D.	—	21,785	*
	Richard S. Schneider, Ph.D.(9)	758,334	16,666	5.7	%
	Jerry A. Weisbach, Ph.D.	—	18,833	*
Executive officers and directors as a group (9 persons as a group):		5,660,562	513,633	43.7	%

*

Represents less than 1%.

(1)

Applicable percentage ownership is based on 13,623,863 shares of our common stock outstanding as of December 31, 2001. Beneficial ownership is determined in accordance with the rules of the SEC, based on factors including voting and investment power with respect to shares, subject to the applicable community property laws. Shares of our common stock subject to options or warrants currently exercisable, or exercisable within 60 days after December 31, 2001, are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other person.

(2)

Includes 1,739,837 shares held by Alta California Partners, L.P. and 44,832 shares held by Alta Embarcadero Partners, LLC.

(3)

Includes 320,858 shares held by Forward Ventures II, L.P., 575,687 shares held by Forward Ventures III, Institutional Partners, L.P., 152,036 shares held by Forward Ventures III, L.P, 491,654 shares held by Forward Ventures IV, L.P. and 41,680 shares held by Forward Ventures IV B, L.P.

(4)

Includes 737,435 shares held by Domain Partners III, L.P., 20,899 shares held by DP III Associates, L.P., 100,000 shares held by 3i Bioscience Investment Trust plc, and 625,000 shares held by Hare & Co. as custodian for 3i Bioscience Investment Trust plc. Domain Associates is the manager of Domain Partners III, L.P. and DP III Associates, L.P. and the venture capital advisor to 3i Bioscience Investment Trust plc, and disclaims beneficial ownership of these shares. Richard Schneider, Ph.D., is a general partner of One Palmer Square Associates III, L.P., the general partner of Domain Partners III, L.P. and DP III Associates, L.P., and disclaims beneficial ownership of these shares except to the extent of his proportionate pecuniary interest therein.

(5)

Includes 296,696 shares held by MDS Health Ventures (PC) Inc., 182,071 shares held by MDS Health Venture (TC) Inc., and 996,159 shares and warrants to purchase 44,718 shares held by Neuroscience Partners Limited Partnership.

(6)

Includes 1,474,926 shares and warrants to purchase 44,718 shares held by entities managed by MDS Capital Corp. Mr. Callaghan, as an officer of MDS Capital Corp., may be deemed to have

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voting and investment power over these shares. Mr. Callaghan disclaims beneficial ownership of such shares, except to the extent of his proportionate pecuniary interest therein.

(7)

Includes 1,784,669 shares held by entities affiliated with Alta Partners. Dr. Deleage, as managing general partner of Alta Partners, may be deemed to have voting and investment power over these shares. Dr. Deleage disclaims beneficial ownership of such shares, except to the extent of his proportionate pecuniary interest therein.

(8)

Includes 1,581,915 shares held by entities affiliated with Forward Ventures. Mr. Fleming, as a managing general partner of Forward Ventures, may be deemed to have voting and investment power over these shares. Mr. Fleming disclaims beneficial ownership of such shares, except to the extent of his proportionate pecuniary interest therein.

(9)

Includes 737,435 shares owned by Domain Partners III, L.P. and 20,899 shares owned by DP III Associates, L.P. Dr. Schneider, as a general partner of One Palmer Square Associates III, L.P., the general partner of Domain Partners III. L.P. and DP III Associates, L.P., may be deemed to have voting and investment power over these shares. Dr. Schneider disclaims beneficial ownership of such shares, except to the extent of his proportionate pecuniary interest therein.

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DESCRIPTION OF CAPITAL STOCK

        Upon the closing of this offering, our authorized capital stock, after giving effect to the conversion of all outstanding shares of preferred stock into common stock, will consist of 75,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. Upon the conversion, the preferred stock will be canceled and retired and removed from our authorized capital stock. The following summary of certain provisions of our common stock and preferred stock is not complete and a full understanding requires a review of our certificate of incorporation and bylaws that are included as exhibits to the registration statement of which this prospectus forms a part, and the provisions of applicable law.

Common Stock

        As of December 31, 2001 there were 13,623,863 shares of common stock outstanding held by approximately 180 stockholders of record, assuming the automatic conversion of each outstanding share of our preferred stock upon the closing of this offering. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders and do not have cumulative voting rights. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they so choose. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by our board of directors out of funds legally available therefore. See "Dividend Policy."

        In the event of a liquidation, dissolution or winding up of MitoKor, after payment of all of our debts and liabilities and subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to share ratably in all assets. Our common stock has no preemptive or conversion rights or other subscription rights, and there are no redemptive or sinking funds provisions applicable to our common stock. We have received full payment for all outstanding shares of our common stock and cannot require our stockholders to make further payments on the stock. Our common stock to be outstanding upon completion of this offering will have the same status.

Preferred Stock

        Upon the closing of this offering, all outstanding shares of our convertible preferred stock will be converted into shares of our common stock. Under our certificate of incorporation, which will become effective upon the closing of this offering, 5,000,000 shares of undesignated preferred stock will be authorized. Our board of directors has the authority, without further action by the stockholders, to issue from time to time the preferred stock in one or more series and to fix the number of shares, designations, preferences, powers, and relative, participating, optional or other special rights and the qualifications or restrictions thereof. The preferences, powers, rights and restrictions of different series of our preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions, and purchase funds and other matters. The issuance of shares of our preferred stock could decrease the amount of earnings and assets available for distribution to the holders of our common stock or affect adversely the rights and powers, including voting rights, of the holders of our common stock, and may have the effect of delaying, deferring or preventing a change in

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control of MitoKor. See Note 8 to financial statements for a description of the currently outstanding preferred stock.

Warrants

        Upon the completion of this offering, we will have outstanding warrants to purchase an aggregate of 330,230 shares of our common stock at a weighted average exercise price of $5.89 per share. Warrants for 7,000 shares expire on March 22, 2003, warrants for 11,333 shares expire on June 15, 2004, warrants for 8,000 shares expire on June 21, 2006, warrants for 16,000 shares expire on May 16, 2007, warrants for 8,500 shares expire on the fifth anniversary date of the closing of this offering, and warrants for 279,397 shares expire on June 22, 2011.

Registration Rights

        Pursuant to the Amended and Restated Investors' Rights Agreement dated November 9, 2001, the holders of approximately 13,356,792 shares of our common stock, and the holders of warrants to purchase an aggregate of 330,230 shares of our common stock, and their permitted transferees, are entitled to certain rights with respect to the registration of these shares under the Securities Act. Beginning 180 days after the closing of this offering, if requested by the holders of at least 25% of these shares, we may be required to register their shares for public resale. We are required to effect up to two such demand registrations. In addition, if we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights, these holders are entitled to notice of such registration and are entitled to include their shares in such registration. The holders of these shares may also require us to register all or a portion of these shares on Form S-3 under the Securities Act at any time after we become eligible to file a registration statement on such form. All such registration rights are subject to conditions and limitations specified in the agreement, including the right of the underwriters of an offering to limit the number of shares to be included in such registration.

        We are generally required to bear all of the expenses of these registrations, except underwriting fees, discounts and commissions. Registration of any of our shares of common stock entitled to these registration rights would result in the shares becoming freely tradable without restriction under the Securities Act. Upon the closing of this offering and under the terms of our Amended and Restated Investors' Rights Agreement, these registration rights will terminate with respect to the shares owned by a stockholder if the stockholder holds less than 1% of the then outstanding shares of our common stock and all of the stockholder's shares are entitled to be resold without restriction under Rule 144 promulgated under the Securities Act or at the latest, seven years from the date of the closing of this offering.

Delaware Anti-takeover Law and Certain Charter Provisions

        Upon the closing of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a

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period of three years following the date that the stockholder became an interested stockholder unless:

•

prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;



•

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding, those shares owned by persons who are directors and also officers, and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or



•

on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

        A "business combination" includes a merger, asset or stock sale or other transaction resulting in financial benefit to the stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of a corporation's outstanding voting stock. This provision may have the effect of delaying, deterring or preventing a change in control of MitoKor without further actions by our stockholders.

        Our certificate of incorporation and bylaws, both of which will become effective upon the closing of this offering, include a number of provisions that may have the effect of deterring or impeding hostile takeovers or changes in control or management. These provisions include:

•

our board of directors is classified into 3 classes of directors with staggered 3-year terms;



•

the authority of our board of directors to issue up to 5,000,000 shares of undesignated preferred stock and to determine the rights, preferences and privileges of these shares, without stockholder approval;



•

all stockholder actions must be effected at a duly called meeting of stockholders and not by written consent; and



•

the elimination of cumulative voting.

        Such provisions may have the effect of delaying or preventing a change in control.

Transfer Agent and Registrar

        The transfer agent and registrar for the common stock is                .

Nasdaq National Market Listing

        We have applied for the listing of our shares on the Nasdaq National Market under the trading symbol "MITO."

73

SHARES ELIGIBLE FOR FUTURE SALE

        Prior to this offering, there has been no public market for our common stock. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.

•

Upon the closing of this offering, we will have outstanding an aggregate of approximately            shares of common stock.



•

Of these shares, the            shares of common stock to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless the shares are held by any of our "affiliates" as such term is defined in Rule 144 of the Securities Act, in which case only they may only be sold in compliance with the limitations described below.



•

All remaining shares held by our existing stockholders were issued and sold by us in private transactions and are eligible for public sale only if registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below.

Lock-up Agreements

        Our existing stockholders will collectively hold an aggregate of approximately 13,690,905 shares of common stock upon the closing of this offering after giving effect to the conversion of our outstanding redeemable convertible preferred stock and exercise of certain of the outstanding warrants to purchase shares of our capital stock. The holders of an aggregate of approximately                        shares of our common stock have signed lock-up agreements which prevent them from selling any common stock owned by them for a period of 180 days from the date of this prospectus without the prior written consent of RBC Capital Markets. In addition, holders of outstanding options to acquire approximately                        shares of our common stock and holders of warrants to purchase approximately                        shares of our capital stock have entered into similar lock-up agreements with the underwriters. RBC Capital Markets may in its sole discretion and at any time without notice release some or all of the shares subject to lock-up agreements prior to the expiration of the 180-day period. When determining whether or not to release shares from the lock-up agreements, RBC Capital Markets will consider, among other factors, the stockholder's reasons for requesting the release, the number of shares for which the release is being requested and market conditions at the time. As a result of lock-up agreements with the underwriters and subject to the provisions of Rule 144 and Rule 701 under the Securities Act, approximately            additional outstanding shares of common stock will be eligible for sale in the public market upon expiration of the lock-up period.

Rule 144

        In general, under Rule 144 of the Securities Act, beginning 90 days after the date of this prospectus a person deemed to be our "affiliate," or a person holding restricted shares who beneficially owns shares that were not acquired from us or any of our "affiliates" within the

74

previous year, is entitled to sell within any three-month period a number of shares that does not exceed the greater of either 1% of the then outstanding shares of our common stock, or approximately                         shares immediately after this offering assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or warrants, or the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing with the Securities and Exchange Commission of a notice on Form 144 with respect to such sale. Sales under Rule 144 of the Securities Act are also subject to prescribed requirements relating to the manner of sale, notice and availability of current public information about us. However, if a person, or persons whose shares are aggregated, is not deemed to be our affiliate at any time during the 90 days immediately preceding the sale, he or she may sell his or her restricted shares under Rule 144(k) without regard to the limitations described above, if at least two years have elapsed since the later of the date the shares were acquired from us or any of our "affiliates."

Rule 701

        In general, under Rule 701 of the Securities Act as currently in effect, any of our directors, employees, consultants or advisors who purchased shares from us in connection with a compensatory stock or option plan or written employment agreement is eligible to resell such shares 90 days after the effective date of the offering in reliance on Rule 144, by complying with the applicable requirements of Rule 144 other than the holding period conditions. On the date 90 days after the effective date of this offering, options to purchase approximately            shares of common stock will be vested and exercisable and upon exercise and after expiration of the 180-day lock-up period following the date of this prospectus, may be sold pursuant to Rule 701.

Stock Plans

        We intend to file one or more registration statements on Form S-8 under the Securities Act to register shares of our common stock issued or reserved for issuance under our stock option and employee stock purchase plans. The first such registration statement is expected to be filed soon after the date of this prospectus and will automatically become effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions with us or the lock-up restrictions described above.

Registration Rights

        Beginning 180 days after this offering, certain of our existing stockholders will be entitled to rights to cause us to register the sale of shares of our common stock that they hold under the Securities Act. Registration of such shares under the Securities Act would generally result in such shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of such registration. However, shares purchased by any of our affiliates would not be freely tradeable. See "Risk Factors — Future sales of our common stock may depress our stock price."

75

UNDERWRITING

General

        MitoKor and the underwriters for the offering named below have entered into an underwriting agreement concerning the shares being offered. Subject to conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. RBC Dain Rauscher Inc., Lazard Frères & Co. LLC, Legg Mason Wood Walker, Inc. and Gerard Klauer Mattison & Co., Inc. are the representatives of the underwriters.

Underwriters		Number of Shares
RBC Dain Rauscher Inc.
Lazard Frères & Co. LLC
Legg Mason Wood Walker, Inc.
Gerard Klauer Mattison & Co., Inc.
	Total

Over-Allotment Option

        If the underwriters sell more shares than the total number set forth in the table above, the underwriters have a 30-day option to buy from us up to an additional            shares at the initial public offering price less the underwriting discounts and commissions to cover these sales. If any shares are purchased under this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

Commissions and Discounts

        The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase up to an additional            shares.

		No Exercise	Full Exercise
Per Share
	Total

        We estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $                  .

        Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $                  per share from the initial public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to $                  per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms.

Discretionary Accounts

        The representatives have advised us that the underwriters do not intend to confirm any sales to any accounts over which they exercise discretionary authority.

76

No Sales of Similar Securities

        MitoKor, its directors, officers and certain of its stockholders have agreed with the underwriters not to offer, sell, contract to sell, hedge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement, other than on Form S-8, under the Securities Act relating to, any of its common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, without the prior written consent of RBC Dain Rauscher Inc.

Nasdaq National Market Listing

        We have applied for listing of our common stock on the Nasdaq National Market under the symbol "MITO".

No Prior Public Market

        Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated by us and the representatives. The principal factors to be considered in determining the initial public offering price include:

•

the information set forth in this prospectus and otherwise available to the representatives;



•

the history and the prospects for the industry in which we compete;



•

the ability of our management;



•

our prospects for future earnings, the present state of our development, and our current financial position;



•

the general condition of the securities markets at the time of this offering; and



•

the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies.

Short Sales, Stabilizing Transactions and Penalty Bids

        In order to facilitate this offering, RBC Dain Rauscher Inc., on behalf of the underwriters, may purchase and sell shares of common stock in the open market. These transactions may include stabilizing transactions, syndicate covering transactions and the imposition of penalty bids.

•

A "stabilizing transaction" is a bid for or purchase of shares on behalf of the underwriters while the offering is in progress for the purpose of preventing or retarding a decline in the market price of the common stock.



•

A "syndicate covering transaction" is the bid for or purchase of shares in the open market on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with this offering. A syndicate short position will result if the underwriters decide to sell shares of common stock in excess of the number of shares to be purchased by the underwriters in this offering. Covered short sales are sales of shares made in an amount up to the number of shares represented by the underwriters' over-allotment option. Transactions to close out the covered syndicate short involve either purchases of the common stock in the open market after the distribution has been completed or the exercise of the over-allotment option. In determining the source of shares to close out the covered

77

short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. The underwriters may also make "naked" short sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. Similar to other purchase transactions, the underwriters' purchases to cover the underwriting syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock.

•

A "penalty bid" is an arrangement permitting the representatives to reclaim the selling concession otherwise accruing to an underwriter or syndicate member in connection with the offering if the common stock originally sold by such underwriter or syndicate member is purchased by the representatives in a syndicate covering transaction and has therefore not been effectively placed by such underwriter or syndicate member.

        Any of these activities may cause the price of the common stock to be higher than the price that otherwise would exist in the open market in the absence of these transactions. These transactions may be effected on the Nasdaq National Market or in the over-the-counter market, or otherwise and, if commenced, may be discontinued at any time.

Indemnification and Other Agreements with Underwriters

        We have agreed to indemnify the several underwriters against some liabilities, including liabilities under the Securities Act and to contribute to payments that the underwriters may be required to make in respect thereof.

        RBC Dain Rauscher Inc. acted as placement agent for our Series F-1 Preferred Stock financing for which it received customary compensation, including 33,334 shares of our Series F-1 Preferred Stock. In connection with the same transaction, we sold 34,668 shares of our Series F-1 Preferred Stock to DRW Venture Partners, LP, an affiliate of RBC Dain Rauscher Inc., at the same price and on the same terms made available to all other purchasers of our Series F-1 preferred stock. In addition, we are also party to an agreement with RBC Dain Rauscher Inc. under which we receive ongoing financial advisory and investment banking services to us for merger and acquisition activities.

LEGAL MATTERS

        The validity of the common stock offered by this prospectus will be passed upon for MitoKor by Gray Cary Ware & Freidenrich LLP, San Diego, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Preston Gates & Ellis LLP, Seattle, Washington. Attorneys employed by Gray Cary Ware & Freidenrich LLP, or an investment partnership of which they are the beneficial owners, hold an aggregate of 6,668 shares of our common stock.

EXPERTS

        The financial statements of MitoKor as of December 31, 2000 and 2001 and for each of the three years in the period ended December 31, 2001 included in this prospectus have been so

78

included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

        The financial statements of Apollo as of December 31, 1999 and 2000 and for each of the two years in the period ended December 31, 2000 included in this prospectus have been so included in reliance on the report of BDO Seidman, LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

        We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to our common stock offered by this prospectus. When used in this prospectus, the term "registration statement" includes amendments to the registration statement as well as the exhibits, schedules, financial statements and notes filed as part of the registration statement. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement. This prospectus omits information contained in the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock offered by this prospectus, reference is made to the registration statement. Statements herein concerning the contents of any contract or other document are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed with the SEC an exhibit to the registration statement, each such statement being qualified by and subject to such reference in all respects. With respect to each such document filed with the SEC as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matter involved.

        As a result of the offering hereunder, we will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance with such laws, will file reports and other information with the SEC. Reports, registration statements, proxy statements, and other information filed by us with the SEC can be inspected and copied at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's Regional Offices: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained at prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov.

        We intend to furnish holders of our common stock with annual reports containing, among other information, audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited condensed financial information for the first three quarters of each fiscal year. We intend to furnish other reports as it may determine or as may be required by law.

79

INDEX TO FINANCIAL STATEMENTS
MitoKor, Inc.

	Page
MitoKor, Inc.
Consolidated Financial Statements
Report of Independent Accountants	F-2
Consolidated Balance Sheets as of December 31, 2000 and 2001	F-3
Consolidated Statements of Operations for the years ended December 31, 1999, 2000 and 2001	F-4
Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Deficit for the years ended December 31, 1999, 2000 and 2001	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001	F-6
Notes to Consolidated Financial Statements	F-7
Apollo BioPharmaceutics, Inc.
Financial Statements
Report of BDO Seidman, LLP	F-34
Balance Sheets as of December 31, 2000 and 1999	F-35
Statements of Operations for the years ended December 31, 2000 and 1999	F-36
Statements of Changes in Stockholders' Equity (Deficit) for the years ended December 31, 2000 and 1999	F-37
Statements of Cash Flows for the years ended December 31, 2000 and 1999	F-38
Notes to Financial Statements	F-39
Apollo BioPharmaceutics, Inc.
Unaudited Interim Financial Statements
Unaudited Balance Sheet as of March 31, 2001	F-46
Unaudited Statements of Operations for the three months ended March 31, 2001 and 2000	F-47
Unaudited Statements of Cash Flows for the three months ended March 31, 2001 and 2000	F-48
Notes to Unaudited Interim Financial Statements	F-49
Unaudited Pro Forma Condensed Combined Statement of Operations
Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2001	F-51
Notes to Unaudited Pro Forma Condensed Combined Statement of Operations	F-52

F-1

Report of Independent Accountants

To the Board of Directors and Stockholders of MitoKor:

The recapitalization described in Note 1 to the financial statements has not been consummated at March 7, 2002. When it has been consummated, we will be in a position to furnish the following report:

"In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in redeemable convertible preferred stock and stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of MitoKor, Inc. and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion."

PricewaterhouseCoopers LLP

San Diego, California
March 7, 2002

F-2

MITOKOR, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001

			2000			2001			Pro Forma Stockholders' Equity 2001 (Note 2)
									(unaudited)
ASSETS
Current assets
	Cash and cash equivalents		$	10,044,000		$	13,453,000
	Short-term investments			14,094,000			1,555,000
	Accounts receivable, net			630,000			632,000
	Inventories			91,000			62,000
	Other current assets			252,000			489,000
		Total current assets		25,111,000			16,191,000
Property and equipment, net				3,801,000			4,037,000
Intangible assets, net				2,330,000			10,734,000
Other non-current assets				264,000			336,000
			$	31,506,000		$	31,298,000
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
	Accounts payable		$	1,044,000		$	1,171,000
	Accrued compensation			931,000			805,000
	Other accrued liabilities			602,000			516,000
	Deferred revenue			1,134,000			849,000
	Current portion of long-term debt			3,239,000			1,574,000
		Total current liabilities		6,950,000			4,915,000
Long-term debt, less current portion				1,644,000			1,613,000
Deferred tax liability				—			388,000
Other non-current liabilities				30,000			54,000
		Total liabilities		8,624,000			6,970,000
Commitments and contingencies (Note 12)
Redeemable convertible preferred stock, $0.001 par value—20,000,000 shares authorized; 19,810,163 shares designated at December 31, 2001; 10,201,288 and 12,882,254 shares issued and outstanding at December 31, 2000 and 2001, respectively; liquidation preference $75,261,000 at December 31, 2001				54,890,000			73,609,000
Stockholders' equity (deficit)
Common stock, $0.001 par value—25,000,000 shares authorized; 201,991 and 267,071 shares issued and outstanding at December 31, 2000 and 2001, respectively 13,623,863 pro forma at December 31, 2001.				—			—		$	14,000
Additional paid-in-capital				1,436,000			7,058,000			80,653,000
Unearned compensation				(433,000	)		(2,009,000	)		(2,009,000	)
Accumulated other comprehensive loss				(531,000	)		(737,000	)		(737,000	)
Accumulated deficit				(32,480,000	)		(53,593,000	)		(53,593,000	)
		Total stockholders' equity (deficit)		(32,008,000	)		(49,281,000	)	$	24,328,000
			$	31,506,000		$	31,298,000

The accompanying notes are an integral part of these financial statements

F-3

MITOKOR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

			1999			2000			2001
Revenue
	Collaboration		$	3,312,000		$	5,488,000		$	4,728,000
	Product			—			2,760,000			3,526,000
	Service			116,000			—			246,000
	Other			152,000			89,000			48,000
		Total revenue		3,580,000			8,337,000			8,548,000
Operating costs and expenses
	Research and development			6,416,000			10,117,000			12,330,000
	Cost of products sold			—			1,181,000			1,182,000
	Sales and marketing			—			1,096,000			1,091,000
	General and administrative			2,183,000			4,192,000			5,885,000
	Stock-based compensation (1)			7,000			915,000			2,533,000
	Purchased in-process research and development			—			287,000			7,200,000
		Total operating costs and expenses		8,606,000			17,788,000			30,221,000
Loss from operations				(5,026,000	)		(9,451,000	)		(21,673,000	)
Other income (expense)
	Interest income			860,000			801,000			820,000
	Interest expense			(362,000	)		(509,000	)		(429,000	)
	Other income (expense), net			3,000			63,000			132,000
		Total other income (expense)		501,000			355,000			523,000
Loss before income taxes				(4,525,000	)		(9,096,000	)		(21,150,000	)
Income tax provision (benefit)				1,000			102,000			(37,000	)
	Net loss		$	(4,526,000	)	$	(9,198,000	)	$	(21,113,000	)
Loss per common share, basic and diluted			$	(26.77	)	$	(49.03	)	$	(85.95	)
Number of shares in per share calculations, basic and diluted				169,000			188,000			246,000
Pro forma loss per common share (unaudited), basic and diluted (Note 2)									$	(1.76	)
Pro forma number of shares in per share calculations (unaudited), basic and diluted										12,019,000

(1)

Stock-based compensation

Research and development		$	7,000	$	645,000	$	1,162,000
General and administrative			—		270,000		1,371,000
	Total stock-based compensation	$	7,000	$	915,000	$	2,533,000

The accompanying notes are an integral part of these financial statements

F-4

MITOKOR, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

	Redeemable Convertible Preferred Stock											Accumulated Other Comprehensive Income / (Loss)
				Common Stock
							Additional Paid-In Capital		Unearned Compensation						Accumulated Deficit			Total Stockholders' Deficit
	Shares	Amount		Shares	Amount
Balance at December 31, 1998	7,189,607	$	33,216,000	167,694	$	—	$	91,000	$	(25,000	)	$	(14,000	)	$	(18,756,000	)	$	(18,704,000	)
Net loss																(4,526,000	)		(4,526,000	)
Change in unrealized gain on investments available for sale													4,000						4,000
Total comprehensive loss																			(4,522,000	)
Exercise of common stock options				2,512		—													—
Amortization of unearned compensation										7,000									7,000
Issuance of warrants to purchase Series E redeemable convertible preferred stock			77,000																—
Issuance of options to purchase common stock in connection with consulting arrangement, at fair value								1,000		(1,000	)								—
Balance at December 31, 1999	7,189,607		33,293,000	170,206		—		92,000		(19,000	)		(10,000	)		(23,282,000	)		(23,219,000	)
Net loss																(9,198,000	)		(9,198,000	)
Change in unrealized gain on investments available for sale													37,000						37,000
Foreign currency translation adjustment													(558,000	)					(558,000	)
Total comprehensive loss																			(9,719,000	)
Exercise of common stock options				31,785		—		15,000											15,000
Issuance of Series E redeemable convertible preferred stock in connection with Mimotopes Pty. Ltd. Acquisition (Note 3)	500,000		3,000,000																—
Issuance of Series F redeemable convertible preferred stock, net of issuance costs of $240,000	2,511,681		18,597,000
Non-cash stock-based compensation related to options granted								1,329,000		(414,000	)								915,000
Balance at December 31, 2000	10,201,288		54,890,000	201,991		—		1,436,000		(433,000	)		(531,000	)		(32,480,000	)		(32,008,000	)
Net loss																(21,113,000	)		(21,113,000	)
Change in unrealized gain on investments available for sale													(7,000	)					(7,000	)
Reclassification adjustment for realized gain													(15,000	)					(15,000	)
Foreign currency translation adjustment													(184,000	)					(184,000	)
Total comprehensive loss																			(21,319,000	)
Exercise of common stock options				65,080		—		38,000											38,000
Issuance of warrants to purchase Series F redeemable convertible preferred stock			46,000
Issuance of Series G redeemable convertible preferred stock in connection with Apollo BioPharmaceutics, Inc. Acquisition (Note 3)	1,847,625		11,338,000					1,260,000											1,260,000
Issuance of warrants to purchase Series G redeemable convertible preferred stock in connection with Apollo acquisition, at fair value			1,937,000					215,000											215,000
Issuance of Series F-1 redeemable convertible preferred stock, net of issuance costs of $852,000	833,341		5,398,000
Non-cash stock-based compensation related to options granted								4,109,000		(1,576,000	)								2,533,000
Balance at December 31, 2001	12,882,254	$	73,609,000	267,071	$	—	$	7,058,000	$	(2,009,000	)	$	(737,000	)	$	(53,593,000	)	$	(49,281,000	)

The accompanying notes are an integral part of these financial statements

F-5

MITOKOR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

			1999			2000			2001
Cash flows from operating activities
Net loss			$	(4,526,000	)	$	(9,198,000	)	$	(21,113,000	)
Adjustments to reconcile net loss to net cash used in operating activities
	Depreciation and amortization			743,000			1,884,000			1,982,000
	Amortization of intangible assets			—			374,000			813,000
	Purchased in-process research and development			—			287,000			7,200,000
	Stock-based compensation expense			7,000			915,000			2,533,000
	Non-cash interest income related to amortization of premiums/discounts on investments — net			161,000			(17,000	)		27,000
	Non-cash interest expense related to debt discount amortization			19,000			189,000			140,000
	Gain on disposal of equipment			—			—			(6,000	)
	Realized gain on sale of investments			—			—			(15,000	)
	Changes in
		Interest receivable		89,000			(21,000	)		117,000
		Accounts receivable		—			(521,000	)		(16,000	)
		Inventories		—			21,000			22,000
		Other current assets		(74,000	)		(98,000	)		(207,000	)
		Other non-current assets		—			—			(95,000	)
		Accounts payable		(139,000	)		651,000			(84,000	)
		Other accrued liabilities		(34,000	)		340,000			(60,000	)
		Accrued compensation		(50,000	)		426,000			(89,000	)
		Deferred revenue		(383,000	)		720,000			(225,000	)
		Deferred tax liability		—			—			(10,000	)
		Other non-current liabilities		—			12,000			26,000
Net cash used in operating activities				(4,187,000	)		(4,036,000	)		(9,060,000	)
Cash flows from investing activities
	Purchases of property and equipment			(2,279,000	)		(787,000	)		(2,370,000	)
	Purchases of short-term investments			(3,958,000	)		(13,874,000	)		(3,050,000	)
	Proceeds from sale of short-term investments			8,342,000			5,488,000			15,438,000
	Proceeds from sale of property and equipment			—			—			10,000
	Acquisition of a business, net of cash acquired			—			(1,171,000	)		(1,320,000	)
Net cash provided by (used in) investing activities				2,105,000			(10,344,000	)		8,708,000
Cash flows from financing activities
	Proceeds from issuances of notes payable and warrants			2,326,000			738,000			1,582,000
	Repayment of notes payable			(536,000	)		(940,000	)		(3,372,000	)
	Proceeds from issuances of redeemable convertible preferred stock, net of issuance costs			—			18,597,000			5,398,000
	Proceeds from issuances of common stock			—			15,000			38,000
Net cash provided by financing activities				1,790,000			18,410,000			3,646,000
Effect of exchange rate changes on cash				—			(44,000	)		115,000
Net increase (decrease) in cash and cash equivalents				(292,000	)		3,986,000			3,409,000
Cash and cash equivalents at beginning of period				6,350,000			6,058,000			10,044,000
Cash and cash equivalents at end of period			$	6,058,000		$	10,044,000		$	13,453,000
Supplemental disclosure of cash flow information
	Cash paid for interest		$	186,000		$	302,000		$	307,000
	Income taxes paid		$	—		$	—		$	106,000
Supplemental schedule of non-cash investing and financing activities
	Preferred stock issued for acquisition of a business (Note 3)		$	—		$	3,000,000		$	12,598,000
	Warrants issued for acquisition of a business (Note 3)		$	—		$	—		$	2,152,000
	Note payable issued for acquisition of a business, net of discount (Note 3)		$	—		$	1,729,000		$	—
	Unrealized gain (loss) on investment securities		$	4,000		$	37,000		$	(7,000	)
	Warrants issued in connection with bank financing (Note 7)		$	77,000		$	—		$	46,000

The accompanying notes are an integral part of these financial statements

F-6

MITOKOR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

1.    Organization and Nature of Operations

The Company and its Capital Resources

        MitoKor Inc. (the "Company" or "MitoKor") is a biotechnology company focused on the discovery and development of drugs for the treatment of major diseases and conditions associated with mitochondrial dysfunction. The Company is advancing a number of product candidates through preclinical studies and clinical trials. MitoKor has agreements with major pharmaceutical and biotechnology companies and maintains relationships with numerous academic centers. The Company also operates a chemistry business, Mimotopes Pty. Ltd. ("Mimotopes"), that supports internal research and development activities and provides chemistry products and services internationally to biotechnology and pharmaceutical companies and academic and government laboratories.

        In February 2002, the Company's Board of Directors authorized the reincorporation of the Company in the State of Delaware. The reincorporation is expected to be certified by the State of Delaware before the effective date of the Company's proposed initial public offering ("IPO"). These financial statements have been retroactively restated to reflect the reincorporation.

        At December 31, 2001, the Company had an accumulated deficit of approximately $53,593,000. For the year ended December 31, 2001, the Company had a net loss and operating cash outflows of $21,113,000 and $9,060,000, respectively. The Company's success depends on the successful completion of research and development activities, development of approved saleable products based on this research, and obtaining the funds necessary to fund these activities (through collaboration agreements or the sale of debt or equity securities).

        Management believes that current cash balances, together with the net proceeds of the IPO and anticipated collaboration, product and service revenue will be sufficient to fund the Company's operations through at least the next twelve months. In the event that the Company is unable to complete the IPO, extend its agreement with Pfizer Inc. ("Pfizer") (which is due to expire May 2002), sign a new collaborative research and development agreement, or raise additional equity or debt financing, management would delay or discontinue clinical trials, preclinical studies and research programs to reduce expenditures to enable current cash reserves to fund operations for at least the next twelve months. There can be no assurance that additional equity or debt financing, if required, will be available on acceptable terms, or at all.

2.    Summary of Significant Accounting Policies

        Significant accounting policies followed in the preparation of these financial statements are as follows:

Unaudited Pro Forma Consolidated Stockholders' Equity

        If the IPO contemplated by the Company is consummated as presently anticipated, all of the redeemable convertible preferred stock as of the closing will automatically convert into 13,356,792 shares of common stock based on the shares of redeemable convertible preferred stock outstanding at December 31, 2001. The unaudited pro forma stockholders' equity as of

F-7

December 31, 2001 reflects this conversion as if such conversion had occurred on December 31, 2001.

Principles of Consolidation

        The accompanying consolidated financial statements include the accounts of MitoKor and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Segment Information

        The Company determines its reportable segments based on the information its senior management uses to allocate resources and assess financial performance of the business. The Company has two reportable segments: the pharmaceutical research and development segment and the chemistry business segment.

Use of Estimates

        The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In addition, significant estimates are inherent in the valuation of purchased in-process research and development. Actual results could differ from those estimates.

Cash, Cash Equivalents and Short-Term Investments

        The Company considers all investments in money market mutual funds, commercial paper and corporate and government bonds and notes with original maturities from the date of purchase of 90 days or less to be cash equivalents. Investments with original maturities beyond 90 days are considered to be short-term investments. Investments are classified as available-for-sale and are carried at fair value. Unrealized gains and losses, if any, are reported as a component of accumulated other comprehensive loss. The cost of investments classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in interest income. Realized gains and losses are included in other income. The cost of securities sold is based on the specific identification method.

Inventories

        Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis.

F-8

Property and Equipment

        Property and equipment is stated at cost and depreciated using the straight-line method over the following estimated useful lives:

Property and Equipment	Life (years)
Office Equipment	3-5
Computer Equipment	3
Lab Equipment	3-11

        Tenant improvements are depreciated over the lesser of 10 years or the life of the related lease. When assets are retired or sold, the assets and accumulated depreciation are removed from the respective accounts and any gain or loss is recognized in other income (expense). Depreciation and amortization expense for the years ended December 31, 1999, 2000 and 2001 is $743,000, $1,884,000 and $1,982,000, respectively.

Intangible Assets

        Intangible assets are comprised of acquired developed technology and goodwill. Developed technologies acquired in the Mimotopes and Apollo acquisitions are amortized on a straight-line basis over their respective useful lives of five and twenty years, respectively. Goodwill represents the excess of purchase price over the value assigned to the tangible and identifiable intangible net assets of businesses acquired. Goodwill is being amortized on a straight-line basis over its estimated useful life of ten years; however, see "Recently Issued Accounting Standards" for a discussion of the accounting for goodwill beginning in 2002. Amortization expense for the years ended December 31, 1999, 2000 and 2001 is $0, $374,000 and $813,000, respectively.

Long-Lived Assets

        The Company assesses potential impairments of its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized if the sum of the expected future undiscounted cash flows before interest from the use of the asset is less than the net book value of the asset. The amount of the impairment loss, if any, will generally be measured as the difference between the net book value of the assets and their estimated fair values. No such impairment losses have been recorded by the Company.

Revenue Recognition

        The Company recognizes revenue on an accrual basis when amounts are considered collectible, evidence of an arrangement exists and fees are fixed and determinable. Any amounts received in advance of performance are recorded as deferred revenue until earned.

        Collaboration revenue includes amounts earned under the Company's collaborative agreements including up-front fees, research funding, milestone payments and royalties. Up-front payments which are received in advance of performance obligations are deferred and recognized over the related performance period. Amounts received for research funding for a specified

F-9

number of full time researchers are recognized as revenue as the services are performed. Milestone payments will be recognized upon completion of the related substantive technical milestones. Royalty payments will be recognized as earned. To date, the Company has not received any milestone or royalty payments.

        Product revenue consists of sales of custom compounds and is recognized when title and risk of loss pass to the customer, generally upon shipment. Service revenue consists of fees received under short-term chemistry service contracts and is recognized as the services are performed according to the provisions of the underlying agreements.

Research and Development

        Research and development costs are expensed in the period incurred. Research and development costs consist of salaries, contracted research and development costs and allocations of administrative expenses.

Disclosures about Fair Value of Financial Instruments

        The carrying amounts of the Company's financial instruments approximate their related fair values based on either the short-term nature of the instruments or current interest rates available to the Company for similar instruments.

Foreign Currency Translation

        The financial statements of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of foreign subsidiaries are translated at the rate of exchange at the balance sheet date. Income and expense items are translated at the average rate of exchange during the reporting period. Gains and losses resulting from foreign currency translation are included as a component of other comprehensive loss. Other foreign transaction gains and losses are included in our results of operations.

Net Loss per Share and Unaudited Pro Forma Net Loss per Share

        Basic and diluted net loss per share have been computed using the weighted-average number of shares of common stock outstanding during the period. The Company has excluded from the computation of diluted loss per share those shares issuable on conversion of redeemable convertible preferred stock, as well as shares issuable upon the exercise of outstanding stock options and warrants because these securities are antidilutive for all periods presented.

        Pro forma basic and diluted net loss per share, as presented in the statements of operations, have been computed as described above and also give effect, even if antidilutive, to potential common shares from the convertible redeemable preferred stock that will automatically convert upon the closing of the Company's proposed IPO (using the if-converted method) from the date of issuance.

F-10

        The following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per share (unaudited):

		Years Ended December 31,
		1999			2000			2001
Net loss		$	(4,526,000	)	$	(9,198,000	)	$	(21,113,000	)
Basic and diluted:
	Weighted-average shares used in computing basic and diluted net loss per share		169,000			188,000			246,000
	Basic and diluted net loss per share	$	(26.77	)	$	(49.03	)	$	(85.95	)
	Pro forma (unaudited) net loss							$	(21,113,000	)
Shares used above									246,000
Pro forma adjustment to reflect weighted-average effect of assumed conversion of redeemable convertible preferred stock									11,773,000
Weighted-average shares used in computing pro forma basic and diluted net loss per common share									12,019,000
Pro forma basic and diluted net loss per common share								$	(1.76	)

        The number of potential common shares excluded from the calculation of diluted net loss per share, prior to application of the treasury stock method for stock options and warrants is as follows:

	Years Ended December 31,
	1999	2000	2001
Redeemable convertible preferred stock	7,664,145	10,675,826	13,356,792
Stock options	1,246,961	1,367,213	1,997,379
Common stock warrants	67,042	67,042	67,042
Redeemable convertible preferred stock warrants	42,833	42,833	330,230
	9,020,981	12,152,914	15,751,443

Stock-Based Compensation

        The Company measures compensation expense for its employee stock-based compensation plan using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees, and provides pro forma disclosures of net income (loss) as if a fair value method had been applied in measuring compensation expense. Accordingly, compensation cost for stock awards is measured as the excess, if any, of the fair value of the Company's common stock for financial reporting purposes at the date of grant over the amount an employee must pay to acquire the stock. Compensation cost is amortized over

F-11

the related vesting periods using an accelerated method in accordance with Financial Accounting Standards Board ("FASB") Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans. Accrued compensation costs for unvested awards that are forfeited are reversed against compensation expense or unearned stock-based compensation, as appropriate, in the period of forfeiture.

        Stock-based awards issued to non-employees are accounted for using a fair value method and are remeasured to fair value at each period end until the earlier of the date that performance by the non-employee is complete or a performance commitment has been obtained. The fair value of awards to non-employees is estimated using the Black-Scholes option pricing model. Compensation cost associated with non-employee options is recognized over the related vesting period using an accelerated method in accordance with FASB Interpretation No. 28.

Income Taxes

        Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is computed for the expected future impact of differences between the financial reporting and income tax bases of assets and liabilitites and for the expected future tax benefit to be derived from tax credits and loss carryforwards. Deferred income tax expense or benefit represents the net change during the year in the deferred income tax asset or liability. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Comprehensive Income (Loss)

        Comprehensive income (loss) is defined as the change in the equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on marketable securities. The Company presents other comprehensive income (loss) in its consolidated statements of stockholders' equity.

Concentrations of Credit Risk

        Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable. The Company invests its excess cash primarily in marketable debt securities of corporations and financial institutions with strong credit ratings. The Company has established guidelines relative to diversification and maturities to maintain safety and liquidity of its short-term investments. Accounts receivable are generally unsecured. The Company performs on-going credit evaluations of its customers and maintains an allowance for potential credit losses as considered necessary.

F-12

        During the years ended December 31, 1999, 2000 and 2001, revenue from Pfizer Inc. (recognized by the pharmaceutical research and development segment) accounted for approximately 92%, 42% and 38%, respectively, of total revenue. During the years ended December 31, 2000 and 2001, revenue from Chiron Corporation (recognized by the chemistry business segment) accounted for approximately 24% and 17%, respectively, of total revenue. No other customers accounted for 10% or more of the Company's total revenue for the periods indicated. At December 31, 2000, two customers accounted for 19% and 10% of net accounts receivable. At December 31, 2001, one customer accounted for 10% of net accounts receivable.

Recently Issued Accounting Standards

        In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 ("FAS 141"), Business Combinations and Statement of Financial Accounting Standards No. 142 ("FAS 142"), Goodwill and Other Intangible Assets. FAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under FAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of FAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the provisions of FAS 142 are effective January 1, 2002. As of December 31, 2001, we have unamortized goodwill of $8,719,000. Based on the current level of goodwill, annual amortization expense of $925,000 will no longer be recorded beginning with the adoption of FAS 142 on January 1, 2002. Amortization expense associated with goodwill for the years ended December 31, 2000 and 2001 is $90,000 and $445,000, respectively. Management has not yet completed the FAS 142 initial impairment test.

        In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 144 ("FAS 144") Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Although FAS 144 supersedes Statement of Financial Accounting Standard No. 121 ("FAS 121"), Accounting for the Impairment of Long-Lived Assets to Be Disposed of, it retains many of the fundamental provisions of FAS 121. FAS 144 also supersedes the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 ("APB 30"), Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, it retains the requirement in APB 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of, by sale, abandonment, or in a distribution to owners, or is classified as held for sale. FAS 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The adoption of FAS 144 is not expected to have a significant effect on the Company's consolidated financial statements.

F-13

3.    Acquisitions

Apollo BioPharmaceutics, Inc.

        In June 2001, the Company acquired all of the outstanding stock of Apollo BioPharmaceutics, Inc. ("Apollo") This acquisition was accounted for as a purchase. Total consideration for the acquisition of $16,342,000 is comprised of the following:

Cash		$	1,057,000
Series G redeemable convertible preferred stock and warrants			14,750,000
Transaction costs			535,000
	Purchase price	$	16,342,000

        In connection with the acquisition, the Company issued 1,511,685 Series G redeemable convertible preferred stock and warrants to purchase 279,397 shares of Series G redeemable convertible preferred stock.

        The Series G redeemable convertible preferred stock was valued at $7.50 per share, totaling $12,598,000 and the Series G redeemable convertible preferred stock warrants issued were valued at $2,152,000. The Series G redeemable convertible preferred stock warrants were valued using the Black-Scholes option pricing model with the following assumptions: fair value of underlying common stock of $7.50 per share; dividend yield of 0%; volatility of 99%; a risk-free interest rate of 5.63% and a contractual life of ten years. Of the 279,397 Series G warrants issued, 141,614 had strike prices ranging from $2.23 to $4.33 and 137,783 had strike prices ranging from $7.81 to $9.78. All the Series G redeemable convertible preferred stock warrants were outstanding and fully vested at December 31, 2001. In addition, the agreement provides for the issuance of up to 335,940 shares of Series G redeemable convertible preferred stock and warrants to purchase 62,098 shares of Series G redeemable convertible preferred stock, contingent upon (i) the timing of the effectiveness of the Company's IPO and (ii) the trading price of the Company's common stock for 60 trading days following the effectiveness of the IPO. If the IPO is not declared effective on or before September 22, 2002, then the Company will issue an additional 167,970 shares of Series G redeemable convertible preferred stock and warrants to purchase 31,049 shares of Series G redeemable convertible preferred stock. The Company valued these additional shares and warrants at $1,475,000, which reflects the fair value at the date of acquisition of the contingent shares and warrants that will be issued to the former Apollo securityholders, if the IPO does not occur before September 22, 2002, and recorded such amount as part of the original purchase consideration. In the event the IPO is declared effective before September 22, 2002, the Company could be required to issue to the former Apollo securityholders between zero and 335,940 shares of common stock and additional warrants to purchase 62,098 shares of common stock depending upon the trading price of the Company's common stock for 60 days after the IPO is declared effective. Accordingly, if the IPO is declared effective, the Company will record additional purchase consideration of $1,475,000.

F-14

        The purchase price was allocated based on the fair value of the tangible and intangible assets and liabilities acquired, resulting in the following allocation:

Developed technology		$	1,000,000
In-process research and development			7,200,000
Other tangible assets			351,000
Assumed liabilities			(242,000	)
Deferred tax liability			(398,000	)
	Sub-total		7,911,000
Residual—goodwill			8,431,000
	Total	$	16,342,000

        Purchased in-process research and development was expensed upon acquisition because technological feasibility had not been established and no future alternative uses existed. The fair values for each of the in-process research and development projects were determined by estimating the resulting net cash flows from such products after their completion and commercialization, discounting the net cash flows to present value, and applying the percentage of completion of the projects thereto. In-process research and development consisted of efforts to evaluate drugs for the treatment of stroke and cardioprotection valued at $1,500,000, and Parkinson's disease valued at $5,700,000.

Chiron Technologies Pty. Ltd.

        In February 2000, the Company's Mimotopes subsidiary acquired substantially all of the assets and liabilities of Chiron Technologies Pty. Ltd. a subsidiary of Chiron Corporation ("Chiron"). This acquisition was accounted for as a purchase. Total consideration for the acquisition of $5,900,000 is comprised of the following:

Cash		$	1,000,000
Series E redeemable convertible preferred stock			3,000,000
Present value of non-interest bearing note			1,729,000
Transaction costs			171,000
	Total	$	5,900,000

F-15

        The Series E redeemable convertible preferred stock issued in the acquisition was valued at $6.00 per share. The purchase price was allocated based on the fair value of the tangible and intangible assets and liabilities acquired, resulting in the following allocation:

Developed technology		$	2,104,000
In-process research and development			287,000
Property and equipment			2,455,000
Other tangible assets			483,000
Assumed liabilities			(504,000	)
	Sub-total		4,825,000
Residual—goodwill			1,075,000
	Total	$	5,900,000

        Purchased in-process research and development was expensed upon acquisition because technological feasibility had not been established and no future alternative uses existed. The fair values for each of the in-process research and development projects were determined by estimating the resulting net cash flows from such products after their completion and commercialization, discounting the net cash flows to present value, and applying the percentage of completion of the projects thereto. In-process research and development consisted of projects to develop new peptide products valued at $51,000, and new solid-phase organic chemistry products valued at $236,000.

        The unaudited pro forma results of operations below present the impact on our results of operations as if the Apollo acquisition had occurred on January 1, 2000, and the Mimotopes acquisition had occurred on January 1, 1999, instead of on their respective acquisition dates:

	Year ended December 31,
	1999						2000						2001
	Historical			Pro Forma Combined			Historical			Pro Forma Combined			Historical			Pro Forma Combined
Total revenue	$	3,580,000		$	8,992,000		$	8,337,000		$	8,337,000		$	8,548,000		$	8,548,000
Net loss		(4,526,000	)		(6,440,000	)		(9,198,000	)		(12,453,000	)		(21,113,000	)		(15,182,000	)
Basic and diluted net loss per share	$	(26.77	)	$	(38.09	)	$	(49.03	)	$	(66.38	)	$	(85.95	)	$	(61.80	)

F-16

4.    Short-term Investments

        Short-term investments are comprised entirely of marketable debt securities of corporations and financial institutions. The estimated fair value of available-for-sale securities by contractual maturity is as follows:

	December 31,
	2000		2001
Due within one year	$	11,608,000	$	1,555,000
Due after one year		2,486,000		—
	$	14,094,000	$	1,555,000

        At December 31, 2000 and 2001, the carrying value of the Company's short-term investments are as follows:

		2000		2001
Cost		$	13,902,000	$	1,502,000
Gross unrealized holding gains			27,000		5,000
Interest receivable			165,000		48,000
	Carrying value	$	14,094,000	$	1,555,000

F-17

5.    Composition of Certain Balance Sheet Captions

		December 31,
		2000			2001
Accounts receivable, net
	Trade accounts receivable	$	577,000		$	599,000
	Other receivables		71,000			59,000
	Allowance for doubtful accounts		(18,000	)		(26,000	)
		$	630,000		$	632,000
Property and equipment, net
	Office equipment	$	604,000		$	853,000
	Computer equipment		352,000			400,000
	Lab equipment		3,934,000			5,333,000
	Tenant improvements		3,029,000			3,494,000
			7,919,000			10,080,000
	Less accumulated depreciation and amortization		(4,118,000	)		(6,043,000	)
		$	3,801,000		$	4,037,000
Intangible assets
	Goodwill	$	910,000		$	9,239,000
	Less accumulated amortization		(87,000	)		(520,000	)
			823,000			8,719,000
	Developed technology		1,845,000			2,688,000
	Less accumulated amortization		(338,000	)		(673,000	)
			1,507,000			2,015,000
		$	2,330,000		$	10,734,000
Accrued compensation
	Accrued paid time off	$	350,000		$	461,000
	Other		581,000			344,000
		$	931,000		$	805,000
Other accrued liabilities
	Income taxes payable	$	241,000		$	158,000
	Other		361,000			358,000
		$	602,000		$	516,000

F-18

6.    Collaborative Research and Licensing and Royalty Agreements

Pfizer Inc

        In November 1998, the Company entered into a collaborative research and development agreement with Pfizer to discover and develop molecules that affect selected mitochondrial targets, focusing on the treatment and prevention of neurodegenerative disease. Under the terms of the agreement, Pfizer funds research performed by the Company for a specific number of full time researchers through May 2002, unless extended for an additional term. Concurrent with the research and development agreement, the Company also entered into a license and royalty agreement with Pfizer pursuant to which the Company granted Pfizer an exclusive license to sell certain products developed in connection with the collaborative research and development agreement in exchange for event-based milestone and royalty payments specified in the license and royalty agreement. To date, no milestones have been achieved and the Company has not recognized any royalty income associated with the agreement.

        Total revenue recognized during the years ended December 31, 1999, 2000 and 2001, related to this agreement is $3,312,000, $3,460,000 and $3,271,000, respectively.

        Concurrent with the execution of this agreement, Pfizer purchased 333,334 shares of Series E redeemable convertible preferred stock for $2,000,000. If certain contractual milestones are met.

Chiron Corporation

        Concurrent with the acquisition of the Mimotopes business from Chiron, in February 2000, the Company entered into a collaborative research and development agreement with Chiron. In accordance with the agreement, the Company will provide research services and technical assistance for the synthesis and design of molecules in support of Chiron's drug discovery programs. Chiron will fund research performed by the Company for specified number of researchers through February 2003.

        Total revenue recognized during the years ended December 31, 2000 and 2001 related to this agreement is $2,028,000 and $1,433,000, respectively.

Costs Incurred

        The Company does not currently maintain cost accounting systems to track costs on an individual project basis. Estimated aggregate costs incurred in connection with collaborative agreements during the years ended December 31, 1999, 2000 and 2001 are $2,444,000, $3,641,000 and $3,446,000, respectively. These costs are estimated based on estimated average full-time equivalent researchers providing services under the Company's collaborative agreements.

F-19

7.    Long-term Debt

        The Company's notes payable to banks and financing companies represent equipment financing agreements and are collateralized by the equipment financed. Interest rates on the notes are expressed based on annual rates. Payments on the notes (except the note payable to stockholder) are due monthly.

		December 31,
		2000			2001
Note payable to bank, bearing interest at bank's prime rate plus 1%, 5.75% at December 31, 2001 with interest only payments through December 2001, due December 2004 ("Note A")		$	—		$	1,582,000
Note payable to bank, bearing interest at bank's prime rate through June 2000, 9.47% thereafter, with interest only payments through June 2000, principal and interest payments through June 2003 ("Note B")			1,722,000			1,000,000
Note payable to financing company, stated interest rates ranging from 8.30% to 9.55%, effective interest rates ranging from 14.16% to 14.50%, principal and interest payments through September 2003 ("Note C")			288,000			207,000
Note payable to bank, bearing interest at bank's prime rate, 9.50% and 4.75% at December 31, 2000 and 2001, respectively, principal and interest payments due April 2003 ("Note D")			255,000			165,000
Various notes payable to banks and financing companies, bearing interest rates between 4.75% and 9.51%, due between January 2001 and July 2003			778,000			300,000
Note payable to stockholder (Note 3)			2,000,000			—
Total			5,043,000			3,254,000
Less unamortized discount			(160,000	)		(67,000	)
Less current portion			(3,239,000	)		(1,574,000	)
	Non-current portion	$	1,644,000		$	1,613,000

        In December 2001, the Company entered into Note A, which entitles the Company to borrow up to $2,000,000. In connection with Note A, the Company issued to the lender a fully vested, exercisable warrant to purchase 8,000 shares of Series F redeemable convertible preferred stock. The Company recorded a related debt discount equal to the fair value of the warrants of $46,000, which is being amortized to interest expense. At December 31, 2001, $418,000 is available for future equipment financing through April 30, 2002.

F-20

        In June 1999, the Company entered into Note B and issued the lender a fully vested, exercisable warrant to purchase 11,333 shares of Series E redeemable convertible preferred stock. The Company recorded a related debt discount equal to the fair value of the warrants of $46,000, which is being amortized to interest expense.

        In December 1999, the Company entered into Note C. At maturity, a balloon payment equal to $100,000 becomes payable. In addition, the Company issued the lender a fully vested, exercisable warrant to purchase 8,500 shares of Series E redeemable convertible preferred stock. The Company recorded a debt discount of $31,000, related to the warrants and balloon payment, which is being amortized to interest expense.

        In March 1998, the Company entered into Note D. In connection with Note D, the Company issued the lender a fully vested, exercisable warrant to purchase 7,000 shares of Series D redeemable convertible preferred stock. The Company recorded a related debt discount equal to the fair value of the warrants of $12,000, which is being amortized to interest expense.

        In December 1996, the Company entered into a note which was repaid in full in January 2001. In connection with this note, the Company issued the lender a fully vested, exercisable warrant to purchase 16,000 shares of Series C redeemable convertible preferred stock. The Company recorded a related debt discount equal to the fair value of the warrants of $24,000, which was amortized to interest expense.

        All warrants discussed above are outstanding at December 31, 2001.

        In accordance with the bank debt agreements, the Company must maintain certain monthly liquidity ratios, various non-financial covenants, and is restricted from paying dividends.

        Aggregate maturities of notes payable are as follows:

2002		$	1,608,000
2003			1,087,000
2004			559,000
			3,254,000
Less unamortized discount			(67,000	)
	Total	$	3,187,000

F-21

8.    Redeemable Convertible Preferred Stock

        The Company's outstanding redeemable convertible preferred stock consists of the following:

	December 31,
	2000		2001
Series A-1 redeemable convertible preferred stock, $0.001 par value, 52,000 authorized, issued and outstanding at December 31, 2000 and 2001, liquidation preference of $650,000	$	623,000	$	623,000
Series B through B-4 redeemable convertible preferred stock, $0.001 par value, 160,800 shares authorized, issued and outstanding at December 31, 2000 and 2001, liquidation preference of $4,020,000		3,955,000		3,955,000
Series C redeemable convertible preferred stock, $0.001 par value, 3,308,431 authorized, 3,292,431 issued and outstanding at December 31, 2000 and 2001, liquidation preference of $10,560,000		10,501,000		10,501,000
Series D through D-1 redeemable convertible preferred stock, $0.001 par value, 6,716,084 authorized, 3,351,042 issued and outstanding at December 31, 2000 and 2001, liquidation preference of $16,085,000		16,032,000		16,032,000
Series E redeemable convertible preferred stock, $0.001 par value, 853,167 authorized, 833,334 issued and outstanding at December 31, 2000 and 2001, liquidation preference of $5,000,000		4,991,000		4,991,000
Series F through F-1 redeemable convertible preferred stock, $0.001 par value, 6,519,681 authorized, 2,511,861 and 3,345,022 issued and outstanding at December 31, 2000 and 2001, respectively, liquidation preference of $25,088,000		18,597,000		23,995,000
Series G redeemable convertible preferred stock, $0.001 par value, 2,200,000 authorized, zero and 1,847,625 issued and outstanding at December 31, 2000 and 2001, respectively, liquidation preference of $13,857,000		—		11,338,000
Warrants to purchase redeemable convertible preferred stock		191,000		2,174,000
	$	54,890,000	$	73,609,000

        In the event of any liquidation, dissolution, or winding up of the Company, the holders of the redeemable convertible preferred stock are entitled to receive, prior and in preference to any distributions to common stockholders, the liquidation preferences stated above, plus all declared but unpaid dividends. After payment of these amounts, remaining assets and funds of the Company will be distributed to the common stockholders on a pro rata basis. A sale of the Company's assets or an acquisition of the Company by another entity is deemed a liquidation.

        The holder of each share of redeemable convertible preferred stock is entitled to one vote for each share of common stock into which it would convert. The holders of Series A-1 and Series B through B-4 redeemable convertible preferred stock are entitled, voting as a single class, to elect two directors to the Company's board; the holders of Series C redeemable convertible preferred stock are entitled, voting as a single class, to elect two directors to the Company's board; and the

F-22

holders of Series D through D-1, Series E, Series F through F-1 and Series G redeemable convertible preferred stock are entitled, voting as a single class, to elect one director to the Company's board.

        The Company has reserved 13,356,792 for the conversion of redeemable convertible preferred stock. The redeemable convertible preferred stock is subject to certain antidilution adjustments and has voting rights equal to the common stock issuable upon conversion. Each share of redeemable convertible preferred stock shall automatically convert into common stock upon the closing of an initial public offering of the Company at a price equal to or exceeding $10.00 per share and with net proceeds to the Company equal to or exceeding $15,000,000, or upon vote or written consent of at least 66.67% of the redeemable convertible preferred stock holders. Holders of the redeemable convertible preferred stock shall be entitled to receive, when and if declared by the Board of Directors, a non-cumulative dividend in preference to any dividends declared on common stock as follows. The table below summarized the conversion and dividends mentioned above:

	Conversion ratio	Non-cumulative dividends per share
Series A-1	2.17	$	1.00
Series B	3.57		2.00
Series B-1	4.09		2.00
Series B-2	3.41		2.00
Series B-3	2.13		2.00
Series B-4	3.99		2.00
Series C	1.00		0.26
Series D, D-1	1.00		0.38
Series E	1.00		0.48
Series F, F-1, G	1.00		0.60

        To date, no dividends have been declared. The Company's debt agreements restrict it from paying dividends.

Warrants

        During June 1993, in connection with the issuance of notes payable that were subsequently converted into Series B convertible preferred stock, the Company issued a warrant to purchase 3,200 shares of common stock at $25.00 per share. The warrant is currently exercisable and expires 30 days after Food and Drug Administration approval of a product developed by the Company for diagnosing Alzheimer disease.

        During May 1996, in connection with the sale of the Series C convertible preferred stock, the Company issued to common stockholders warrants to purchase 63,842 shares of common stock at $0.25 per share. The warrants are currently exercisable and expire in May 2006.

F-23

        The Company also issued warrants in connection with its equipment financing agreements (Note 7) and its acquisition of Apollo (Note 3).

        The Company has reserved 67,042 shares of common stock, 16,000 shares of Series C redeemable convertible preferred stock, 7,000 shares of Series D redeemable convertible preferred stock, 19,833 shares of Series E redeemable convertible preferred stock, 8,000 shares of Series F redeemable convertible preferred stock and 279,397 shares of Series G redeemable convertible preferred stock for issuance upon exercises of outstanding common and redeemable convertible preferred stock warrants.

9.    Stock Options

MitoKor 2000 Outside Directors Stock Option Plan

        In 2000, the Board of Directors approved the MitoKor 2000 Outside Directors Stock Option Plan ("2000 Plan") for outside directors of the Company, which provides for the issuance of up to 250,000 shares of common stock in the form of nonqualified stock options. Nonqualified stock options may not be granted with exercise prices less than 85% of the fair market value of the stock on the grant date. Initial option grants typically vest 25% per year and annual option grants vest ratably over one year. Options granted under the 2000 Plan have a term of up to ten years. At December 31, 2001, options to purchase 105,000 shares were available for grant under the 2000 Plan.

MitoKor 1993 Stock Option Plan

        In 1993, the Board of Directors approved the MitoKor 1993 Stock Option Plan ("1993 Plan") for selected employees, directors and consultants, which provides for the issuance of up to 2,460,000 shares of common stock in the form of nonqualified or incentive stock options. Nonqualified stock options may not be granted with exercise prices less than 85% of the fair market value of the stock on the grant date. Incentive stock options may not be granted with exercise prices less than 100% of the fair market value of the stock on the grant date. Options typically vest 25% per year for employees. Options granted under the 1993 Plan may have a term of up to ten years. At December 31, 2001, options to purchase 457,910 shares were available for grant under the 1993 Plan.

F-24

        A summary of stock option activity for all plans is as follows:

		Number of Options		Weighted Average Exercise Price
Balance, December 31, 1998		1,001,479		$	0.44
	Granted	249,700		$	0.80
	Exercised	(2,512	)	$	0.26
	Canceled	(1,706	)	$	0.77
Balance, December 31, 1999		1,246,961		$	0.51
	Granted	240,200		$	1.02
	Exercised	(31,785	)	$	0.48
	Canceled	(88,163	)	$	0.61
Balance, December 31, 2000		1,367,213		$	0.59
	Granted	734,830		$	1.97
	Exercised	(65,080	)	$	0.58
	Canceled	(39,584	)	$	1.49
Balance, December 31, 2001		1,997,379		$	1.08

        The number of options exercisable at December 31, 1999, 2000 and 2001 is 499,799, 737,580 and 979,411, respectively.

        The following table summarizes information about stock options outstanding at December 31, 2001.

Options Outstanding					Options Exercisable
Exercise Price	Number Outstanding	Weighted Average Remaining Life (years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.25 - $0.50	709,799	5.19	$	0.28	676,905	$	0.27
$0.80 - $1.50	595,650	8.07	$	0.95	227,909	$	0.85
$2.00 - $3.75	691,930	9.11	$	2.02	74,597	$	2.20
$0.25 - $3.75	1,997,379	7.41	$	1.08	979,411	$	0.55

F-25

        The weighted-average grant-date fair value of options granted during the periods for all plans at December 31, 1999, 2000 and 2001 is as follows:

	Year Ended December 31,
	1999		2000		2001
Exercise price equal to fair value of common stock on the grant date	$	0.14	$	—	$	—
Exercise price less than fair value of common stock on the grant date	$	—	$	3.94	$	5.83

        During the years ended December 31, 2000 and 2001, in connection with the grant of various stock options to employees and directors, the Company recorded unearned stock-based compensation of $739,000 and $3,630,000, respectively, representing the difference between the exercise price and the estimated fair value of the Company's common stock for financial reporting purposes on the date such stock options were granted. Unearned compensation is included as a reduction of stockholders' equity and is being amortized to expense over the vesting period of the options in accordance with FASB Interpretation No. 28. During the years ended December 31, 1999, 2000 and 2001, the Company recorded amortization of unearned stock-based compensation on employee and director options in the amount of $0, $302,000 and $2,009,000, respectively, which has been charged to operations during the period.

        Included in total stock-based compensation for the year ended December 31, 2000 is $207,000 related to the accleration of vesting of options in connection with the termination of certain employees.

        During the years ended December 31, 1999, 2000 and 2001, in connection with the grant of stock options granted to non-employee consultants, the Company recorded stock-based compensation expense in the amounts of $7,000, $406,000 and $524,000, respectively.

        The fair value of each non-employee consultant option grant was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

	December 31,
	1999		2000		2001
Dividend yield	0	%	0	%	0	%
Expected volatility	90	%	99	%	99	%
Risk-free interest rate	5.98	%	6.00	%	6.00	%
Contractual life (years)	2		6 - 10		5 - 10

Pro Forma Disclosure

        The Company applies APB 25 and related Interpretations in accounting for employee and director options granted. Had compensation cost been determined based on the fair value method,

F-26

the Company's net loss at December 31, 1999, 2000 and 2001 would have increased to the pro forma amounts indicated below:

		December 31,
		1999			2000			2001
Net loss
	As reported	$	(4,526,000	)	$	(9,198,000	)	$	(21,113,000	)
	Pro forma		(4,542,000	)		(9,226,000	)		(21,282,000	)
Loss per common share, basic and diluted
	As reported	$	(26.77	)	$	(49.03	)	$	(85.95	)
	Pro forma	$	(26.87	)	$	(49.18	)	$	(86.64	)

        The fair value of each employee option grant was determined on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	December 31,
	1999		2000		2001
Dividend yield	0	%	0	%	0	%
Expected volatility	0	%	0	%	0	%
Risk-free interest rate	5.89	%	5.72	%	4.60	%
Expected life (years)	5		4		4

        The fair value of each director option was determined on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	December 31,
	2000		2001
Dividend yield	0	%	0	%
Expected volatility	0	%	0	%
Risk-free interest rate	5.72	%	3.80	%
Expected life (years)	2		2

10.  Employee Benefit Plans

MitoKor 401(k) Plan

        Effective July 1994, the Company established a deferred compensation plan (the "401(k) Plan") pursuant to Section 401(k) of the Internal Revenue Code. Prior to January 1, 2002, the 401(k) Plan allowed all eligible employees to contribute up to 15% of their pretax earnings, not to exceed amounts allowed under the Internal Revenue Code. Such contribution percentage has been increased to a maximum of 25% effective January 1, 2002. The 401(k) Plan allows the Company to make voluntary matching contributions. To date, no contributions have been made by the Company.

F-27

Retirement Fund

        The Company is required by Australian law to contribute to a government mandated retirement fund (the "Fund") for its Mimotopes employees. The Company is required to contribute a base amount equal to 8% of gross salary for all eligible employees.

        The Company will also contribute an additional 7% of gross salary to the Fund if the employee contributes a minimum of 5% of gross salary. Employees are immediately vested in the additional 7% contribution. Total contributions made to the Fund during the years ended December 31, 2000 and 2001 is $338,000 and $377,000, respectively. Contributions to the Fund are expensed in the period incurred.

Long-Service Leave

        All full-time employees of Mimotopes are entitled to three additional months of vacation upon providing ten years of continuous service ("long-service leave"). The Company accrues for this obligation as services are provided. The liability for long-service leave is recognized and measured as the present value of expected future payments to be made with respect to the services provided by employees up to the reporting date, considering expected future salary levels, and employee turnover and periods of service. Expected future payments are discounted using interest rates on Australian government guaranteed securities with maturities that approximate the estimated future cash outflows.

11.  Income Taxes

        The components of the income tax provision (benefit) are as follows:

		1999			2000			2001
Current
	Federal	$	—		$	—		$	—
	State		1,000			1,000			1,000
	Foreign		—			236,000			160,000
Total current provision			1,000			237,000			161,000
Deferred
	Federal		(1,587,000	)		(2,743,000	)		(3,970,000	)
	State		(457,000	)		(938,000	)		(1,149,000	)
	Foreign		—			(136,000	)		(198,000	)
Total deferred benefit			(2,044,000	)		(3,817,000	)		(5,317,000	)
Change in valuation allowance			2,044,000			3,682,000			5,119,000
Income tax provision (benefit)		$	1,000		$	102,000		$	(37,000	)

F-28

        The components of loss before income taxes are as follows:

	1999			2000			2001
United States	$	(4,525,000	)	$	(8,067,000	)	$	(21,088,000	)
Foreign		—			(1,029,000	)		(62,000	)
	$	(4,525,000	)	$	(9,096,000	)	$	(21,150,000	)

        A reconciliation of income taxes to the amount computed by applying the statutory federal income tax rate to the net loss is summarized as follows:

	1999			2000			2001
Amounts computed at statutory federal rate	$	(1,539,000	)	$	(3,093,000	)	$	(7,191,000	)
Purchased in-process research and development		—			98,000			2,448,000
State taxes		(300,000	)		(619,000	)		(841,000	)
Change in valuation allowance of deferred tax assets		2,044,000			3,682,000			5,119,000
Federal research and development credits		(213,000	)		(276,000	)		(308,000	)
Stock-based compensation		2,000			102,000			460,000
Goodwill amortization		—			—			116,000
Permanent items		7,000			168,000			45,000
Other		—			40,000			115,000
	$	1,000		$	102,000		$	(37,000	)

        United States income taxes and foreign withholding taxes were not provided for undistributed earnings for Mimotopes. The Company intends to reinvest these earnings indefinitely in operations outside the United States.

F-29

        Net deferred tax assets (liabilities) are comprised of the following components:

	2000			2001
Net operating loss carryforwards	$	9,048,000		$	12,593,000
Research and development credit carryforwards		1,450,000			1,890,000
Capitalized research and development costs		1,041,000			1,547,000
Property and equipment		537,000			949,000
Acquired intangibles		—			(388,000	)
Accrued liabilities		—			379,000
Stock-based compensation		—			715,000
Other		709,000			125,000
		12,785,000			17,810,000
Less valuation allowance		(12,521,000	)		(17,864,000	)
	$	264,000		$	(54,000	)

        Based on a number of factors, including the lack of earnings history and the fact that the Company competes in a developing market that is characterized by rapidly changing technology, management believes there is sufficient uncertainty regarding the realization of deferred tax assets in the United States of America such that a full valuation allowance has been provided.

        At December 31, 2001, the Company had net operating loss carryforwards for federal and state tax purposes of approximately $35,715,000 and $5,364,000, respectively, and research and development credit carryforwards for federal and state tax purposes of approximately $1,065,000, and $1,251,000, respectively. The federal net operating loss and research and development credit carryforwards begin to expire in 2009. The state net operating loss carryforwards begin to expire in 2005, and the state research and development credit carryforwards have no expiration date.

        Pursuant to Section 382 of the Internal Revenue Code, approximately $4,296,000 of the Company's federal net operating loss carryforwards are subject to a general annual limitation of approximately $286,000 due to cumulative changes in ownership of more than 50% which occurred in 1996. The utilization of net operating loss carryforwards and research and development credits generated subsequent to May 1996 may also be subject to a separate annual limitation if it is determined that an additional Section 382 ownership change occurred subsequent to May 1996.

F-30

12.  Commitments and Contingencies

Commitments

        The Company leases its facilities and certain equipment under non-cancelable operating leases. Future payments under these lease agreements are as follows:

Year Ending December 31,
2002	$	671,000
2003		788,000
2004		820,000
2005		853,000
2006		887,000
2007		452,000
	$	4,471,000

        Rent expense under non-cancelable operating leases is accounted for on a straight line basis and totaled $309,000, $421,000 and $468,000 for the years ended December 31, 1999, 2000 and 2001, respectively.

Contingencies

        The Company has received correspondence regarding the possible infringement of certain patents. Management is in the process of negotiating with the other party, and does not expect this to have a material adverse effect on the Company's financial position or results of operations. The Company's exposure, if any, cannot be determined with certainty, and it is reasonably possible that the ultimate resolution could differ from management's expectations.

13.  Segment Information

        The Company has two reportable segments organized along functional lines. The Pharmaceutical Research and Development ("PR&D") segment is developing therapeutics for diseases linked to mitochondrial dysfunction and generates revenue through collaborative research and development agreements. The Chemistry Business ("CB") segment generates revenue through chemistry collaborations and services and the sale of custom peptides and peptide libraries, products for solid-phase combinatorial chemistry, and related kits and materials.

F-31

        The Company evaluates the performance of its segments based on revenue and operating income. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Segment data includes intersegment revenue, which is based on prevailing market rates or an approximation thereof. The tables below presents information about reportable segments for the years ended December 31, 2000 and 2001, respectively. Prior to the acquisition of the Mimotopes business in 2000, the Company operated as a single segment.

			PR&D			CB			Reconciling Items			Total
2000
Revenue
	Collaboration		$	3,460,000		$	2,297,000		$	(269,000	)	$	5,488,000
	Product			—			2,800,000			(40,000	)		2,760,000
	Service			27,000			—			(27,000	)		—
	Other			3,000			86,000			—			89,000
		Total revenue		3,490,000			5,183,000			(336,000	)		8,337,000
Operating costs and expenses				12,415,000			5,709,000			(336,000	)		17,788,000
Income (loss) from operations			$	(8,925,000	)	$	(526,000	)	$	—		$	(9,451,000	)
Depreciation and amortization			$	1,380,000		$	878,000		$	—		$	2,258,000
Stock-based compensation				915,000			—			—			915,000
Purchased in-process research and development				—			287,000			—			287,000
Total assets				29,055,000			6,689,000			(4,238,000	)		31,506,000
2001
Revenue
	Collaboration		$	3,295,000		$	2,008,000		$	(574,000	)	$	4,729,000
	Product			—			3,538,000			(12,000	)		3,526,000
	Service			26,000			246,000			(26,000	)		246,000
	Other			—			48,000			—			48,000
		Total revenue		3,321,000			5,839,000			(612,000	)		8,548,000
Operating costs and expense				25,253,000			5,580,000			(612,000	)		30,221,000
Income (loss) from operations			$	(21,932,000	)	$	259,000		$	—		$	(21,673,000	)
Depreciation and amortization			$	1,877,000		$	918,000		$	—		$	2,795,000
Stock-based compensation				2,533,000			—			—			2,533,000
Purchased in-process research and developments				7,200,000			—			—			7,200,000
Total assets				30,634,000			6,877,000			(6,213,000	)		31,298,000

F-32

        Reconciling items for the years ended December 31 were comprised as follows:

		2000			2001
Revenue
	Elimination of intersegment revenue	$	(336,000	)	$	(612,000	)
Operating expense
	Elimination of intersegment expense		(336,000	)		(612,000	)
Total assets
	Elimination of intersegment accounts receivable		(67,000	)		(42,000	)
	Elimination of investment in subsidiaries		(4,171,000	)		(6,171,000	)
		$	(4,238,000	)	$	(6,213,000	)

        The Company distinguishes revenue from external customers by geographic areas based on customer location. Revenue information by geographic area for the years ended December 31 was as follows:

	2000		2001
United States	$	7,080,000	$	6,641,000
Foreign		1,257,000		1,907,000
	$	8,337,000	$	8,548,000

        Long-lived assets by geographic area as of December 31 were as follows:

	2000		2001
United States	$	2,076,000	$	11,461,000
Foreign		4,319,000		3,646,000
	$	6,395,000	$	15,107,000

F-33

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and
Stockholders of Apollo BioPharmaceutics, Inc.
Cambridge, Massachusetts

        We have audited the accompanying balance sheets of Apollo BioPharmaceutics, Inc. as of December 31, 2000 and 1999, and the related statements of operations, changes in stockholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Apollo BioPharmaceutics, Inc. at December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Note 5 of the notes to financial statements, the Company changed its method of revenue recognition during 2000.

/s/ BDO Seidman, LLP

Boston, Massachusetts
February 26, 2001

F-34

APOLLO BIOPHARMACEUTICS, INC.

BALANCE SHEETS
DECEMBER 31, 2000 AND 1999

			2000			1999
ASSETS
Current:
	Cash and cash equivalents		$	1,279,031		$	1,159,833
	Prepaid expenses and other			36,656			50,259
	Receivables			40,233			17,152
	Employee loan receivable, current portion (Note 3)			1,617			2,990
		Total current assets		1,357,537			1,230,234
Equipment, net of accumulated depreciation of $6,923 in 2000 and $5,356 in 1999				2,119			3,686
Other assets:
	Patents, net of accumulated amortization of $17,121 in 2000 and $4,598 in 1999 (Note 2)			155,207			96,692
	Employee loan receivable, less current portion (Note 3)			8,527			7,256
	Deposits			990			990
		Total other assets		164,724			104,938
			$	1,524,380		$	1,338,858
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	301,330		$	119,120
	Deferred royalties (Note 5)			154,285			180,000
	Deferred license fees (Note 5)			906,250			—
		Total current liabilities		1,361,865			299,120
Commitments (Notes 4 and 5)
Stockholders' equity (Notes 4 and 5):
	Preferred stock — $.01 par value; 1,000,000 shares authorized, 70,000 Series A convertible preferred shares issued at December 31, 2000 and 1999 (Liquidation preference $280,000 at December 31, 2000)			700			700
	Common stock — $.02 par value; 20,000,000 shares authorized, 2,950,398 shares issued at December 31, 2000 and 1999			59,008			59,008
	Additional paid-in capital			3,384,965			3,376,395
	Accumulated deficit			(3,282,158	)		(2,396,365	)
		Total stockholders' equity		162,515			1,039,738
			$	1,524,380		$	1,338,858

See accompanying notes to financial statements.

F-35

APOLLO BIOPHARMACEUTICS, INC.

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

			2000			1999
License fees (Note 5)			$	1,775,715		$	3,063,200
Cost of revenues (Note 5)				212,500			390,000
		Gross profit		1,563,215			2,673,200
Operating expenses:
	Research and development (Note 5)			493,296			309,392
	General and administrative			530,586			674,215
	Depreciation and amortization			14,090			6,165
		Total operating expenses		1,037,972			989,772
Operating income				525,243			1,683,428
Interest income (expense):
	Interest income			45,640			61,805
	Interest expense			(7,457	)		(3,487	)
		Interest, net		38,183			58,318
		Income (loss) before income taxes and cumulative effect of change in accounting principle		563,426			1,741,746
Income taxes (Note 6)				—			27,835
		Income (loss) before cumulative effect of change in accounting principle		563,426			1,713,911
Cumulative effect of change in accounting principle (Note 5)				(1,449,219	)		—
Net income (loss)			$	(885,793	)	$	1,713,911

See accompanying notes to financial statements.

F-36

APOLLO BIOPHARMACEUTICS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(NOTES 4 AND 5)
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

		Preferred Stock			Common Stock
								Additional Paid-in Capital		Accumulated Deficit
		Shares	Amount		Shares	Amount							Total
Balance, December 31, 1998		70,000	$	700	2,892,336	$	57,847	$	3,287,560	$	(4,110,276	)	$	(764,169	)
	Exercise of warrants	—		—	58,062		1,161		88,835		—			89,996
	Net income	—		—	—		—		—		1,713,911			1,713,911
Balance, December 31, 1999		70,000		700	2,950,398		59,008		3,376,395		(2,396,365	)		1,039,738
	Fair value of stock options granted	—		—	—		—		8,570		—			8,570
	Net loss	—		—	—		—		—		(885,793	)		(885,793	)
Balance, December 31, 2000		70,000	$	700	2,950,398	$	59,008	$	3,384,965	$	(3,282,158	)	$	162,515

See accompanying notes to financial statements.

F-37

APOLLO BIOPHARMACEUTICS, INC.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

					2000			1999
Cash flows from operating activities:
	Net income (loss)				$	(885,793	)	$	1,713,911
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization				14,090			6,165
		Fair value of stock options granted				8,570			—
		Changes in operating assets and liabilities:
			Prepaid expenses and other			13,603			(44,019	)
			Receivables			(23,081	)		(16,820	)
			Other assets			102			(3,370	)
			Accounts payable and accrued expenses			182,210			(372,500	)
			Employee payable			—			(167,699	)
			Deferred royalties			(25,715	)		—
			Deferred license fees			906,250			—
				Net cash provided by operating activities		190,236			1,115,668
Cash flows from investing activities:
	Increase in patents					(71,038	)		(101,290	)
				Net cash provided by investing activities		(71,038	)		(101,290	)
Cash flows from financing activities:
	Exercise of common stock warrants					—			89,996
				Net cash provided by financing activities		—			89,996
Net increase in cash and cash equivalents						119,198			1,104,374
Cash and cash equivalents, beginning of year						1,159,833			55,459
Cash and cash equivalents, end of year					$	1,279,031		$	1,159,833
Supplemental disclosures of cash flow information:
	Interest paid				$	7,457		$	17,629
	Income taxes paid				$	—		$	19,206

See accompanying notes to financial statements.

F-38

APOLLO BIOPHARMACEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS

1.    Organization and Purpose

        Apollo BioPharmaceutics, Inc. (formerly Apollo Genetics, Inc.) (the "Company"), was incorporated on July 9, 1992. The Company is engaged in the development of proprietary cytoprotective drugs for neurological diseases, such as stroke, Alzheimer's and other applications.

        Through 1998, the Company was considered in the development stage as its efforts were principally devoted to organizational activities, raising capital, research and development and establishing relationships with corporate partners within the pharmaceutical industry. Beginning in 1999 the Company commenced operations and was no longer considered to be a development stage company.

2.    Summary of Accounting Policies

License Fees

        Licensing fees are recognized when they are earned in accordance with the performance requirements and contractual terms of the underlying agreements. Licensing revenue represents amounts paid by companies for the use of or access to the Company's proprietary technology.

Patent and Licensing Costs

        As a result of research and development efforts conducted by the Company, it has applied for and received, and is in the process of applying for, a number of patents to protect proprietary inventions and licenses to use certain intellectual property. Costs incurred in connection with patent applications and licenses were expensed as incurred through December 31, 1998.

        In 1999, the Company entered into a license and option agreement with a company which grants certain patent rights (see Note 5). Therefore, the Company began capitalizing the costs associated with the patents during 1999. The patents are being amortized on a straight-line basis over 15 years. Amortization expense charged to operations was $12,523 in 2000 and $4,598 in 1999.

Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Taxes on Income

        The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets or liabilities are computed based on the differences between the financial statement and income tax basis of assets and liabilities and for loss carryforwards based on enacted tax laws and rates.

F-39

Cash and Cash Equivalents

        The Company considers all highly liquid investments with a maturity of three months or less, when acquired, to be cash equivalents.

Equipment

        Equipment is stated at cost. Depreciation of equipment is computed using the straight-line method over the estimated useful lives of the asset, not exceeding five years.

Long-Lived Assets

        The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Concentrations of Credit Risk

        It is the Company's policy to place its cash and cash equivalents in high quality financial institutions. The Company does not believe significant credit risk exists with respect to these institutions.

Stock-Based Compensation

        The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 123, ("SFAS No. 123") Accounting for Stock Based Compensation which requires disclosure of pro forma effects as if SFAS No. 123 has been adopted. The Company has adopted the disclosure only requirements of SFAS No. 123 and accounts for its employee stock option plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.

Reclassifications

        Certain previously reported amounts have been reclassified in order to conform to the 2000 presentation.

3.    Employee Loan Receivable

        The Company has a note receivable from an employee of the Company. The note bears interest at 9% per year, is due in 2003, and is repayable in installments during its term.

4.    Stockholders' Equity

Preferred Stock

        During 1998, the Company issued 32,500 shares of Series A Convertible Preferred stock in a second closing of a private placement of units for which the Company had received $130,000. Each unit consists of one share of Series A Convertible Preferred stock and a warrant to purchase one-half share of common stock. The terms of the warrants issued as part of this offering are

F-40

discussed more fully below. Each share of Series A Convertible Preferred stock has certain liquidation and dividend preferences and is convertible into common stock at a conversion rate as defined in the agreement. Each preferred share automatically converts into common stock upon an initial public offering of the Company's common stock. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of shares of the Series A Preferred stock then outstanding shall be entitled to be paid out of assets of the Company and available for distribution to its stockholders before any payment shall be made to the holders of common stock, at an amount equal to $4.00 per share.

Option Plan

        The Company has a stock option plan that provides for the issuance of both incentive and nonqualified stock options. This plan provides for the granting of options to purchase not more than 687,096 shares of common stock. The Company also has a 1996 Directors Stock Option Plan that provides for the granting of options to purchase not more than 118,064 shares of the Company's common stock. The exercise price of the incentive options cannot be less than the fair market value at the date of grant, while the exercise price for the nonqualified and Directors plan options is determined by the option committee.

        Option activity for all plans is as follows:

		Number of Shares	Weighted- Average Option Price Per Share
Balance, December 31, 1998		425,933	$	2.26
	Granted	23,224		2.00
Balance, December 31, 1999		449,157		2.35
	Granted	30,000		4.00
Balance, December 31, 2000		479,157	$	2.46

        At December 31, 2000, options to purchase 406,228 shares were exercisable at an average exercise price of $2.36 per share at prices ranging from $1.03 to $4.14 per share. The weighted-average contractual life is 10 years.

        The Company has adopted the disclosure-only provisions of SFAS No. 123 "Accounting for Stock-Based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans.

        If the Company had elected to recognize compensation cost for the plans based on the fair value at the grant date for awards under the plans, consistent with the method prescribed by SFAS No. 123, net income (loss) would have been changed to the pro forma amounts indicated below:

	2000			1999
As reported	$	(885,793	)	$	1,713,911
Pro forma	$	(928,952	)	$	1,659,663

F-41

        The fair value of the Company's stock options used to compute pro forma net income (loss) is the estimated value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for 2000 and 1999: a dividend yield of 0%; expected volatility of .01%, a risk free interest rate of approximately 6.0% in 2000 and 5.5% in 1999; and an expected holding period of ten years.

        The weighted average grant date fair value of options granted was $1.80 and $1.69 per share for the years ended December 31, 2000 and 1999, respectively.

Warrants

        In conjunction with convertible notes issued in 1994 and 1995, the Company issued warrants to purchase 135,483 shares of the Company's common stock. The warrants were exercisable until September 17, 1999 with respect to 87,096 shares and until April 30, 2000 with respect to 48,387 shares, all at the lower of $1.55 per share or the price per share of the common stock at the closing of the next offering of common stock with aggregate gross proceeds of at least $1,000,000. The number of shares which may be purchased upon the exercise of these warrants are subject to adjustment as provided in the warrant agreement for such events as stock splits and stock dividends. On September 15, 1999, warrants were exercised for 58,062 shares of common stock while the remaining warrants expired on September 17, 1999 and April 30, 2000.

        In connection with the Royalty Purchase Agreement described in Note 5, the Company issued warrants for the purchase of 96,773 shares of the Company's common stock. The warrants are exercisable until November, 2003 at an exercise price of $3.61 per share with respect to 67,741 shares of common stock and an exercise price of $4.52 per share with respect to 29,032 shares of common stock. The number of shares which may be purchased upon the exercise of these warrants are subject to adjustment as provided in the warrant agreement for such events as stock splits and stock dividends.

        In conjunction with the Series A Convertible Preferred financing described above, the Company issued warrants to purchase 35,000 shares of common stock. The warrants entitle the holder to purchase common stock, in whole but not in part, for 110% of the price of the Company's stock in an initial public offering. The warrants have a life of three years following an initial public offering by the Company. In the event that the warrants become exercisable upon notice of merger, consolidation or sale of all or substantially all of the Company, the exercise price will be $4.40 per share.

5.    Commitments

Leases

        The Company is subleasing its facilities under a tenant-at-will agreement. Rent expense for the years ended December 31, 2000 and December 31, 1999 amounted to $19,795 and $24,865, respectively.

F-42

Collaborative Agreements

        The Company has entered into various research, license, royalty and consulting agreements to support its research and development activities. These agreements generally expire over several years. Amounts charged to operations in connection with these agreements for the years ended December 31, 2000 and December 31, 1999 amounted to approximately $427,000 and $275,000, respectively. The Company's minimum required payments in connection with these agreements for the years ending 2001 and 2002 are $64,000 and $20,000, respectively.

NPLP Agreement

        In 1996, Neuroscience Partners Limited Partnership ("NPLP"), a limited partnership of which MDS Associés-Neuroscience Inc. ("MDS") is a general partner, invested $500,000 in the Company in exchange for 138,249 shares of common stock.

        Also in 1996, the Company entered into a Royalty Purchase Agreement with NPLP, pursuant to which NPLP provided an additional $500,000 (the "NPLP Development Financing") to the Company. In exchange for the NPLP Development Financing, the Company is obligated to pay NPLP royalties on sales of licenses and other revenues received by the Company in connection with certain products. The Company's obligations to pay royalties cease when royalty payments reach certain aggregate amounts. In connection with the NPLP Development Financing, NPLP received warrants to purchase 96,773 shares of common stock. The warrants are more fully discussed in Note 4. All or any portion (not less than $150,000) of the aggregate amount of the NPLP Development Financing may be converted at any time at the option of MDS into shares of common stock. The conversion price with respect to 50% of the NPLP Development Financing equals the lesser of $4.52 or the price per share of common stock reflected in the Company's most recent equity financing prior to any conversion. The conversion price with respect to the remaining 50% of the NPLP Development Financing equals the lesser of $5.42 or the price per share of common stock reflected in the Company's most recent equity financing prior to any conversion.

        During 1998 the Company had a private placement of 200 shares at $2.00 per share.

        The amount allocated to the royalty obligation will be amortized into income over the expected period of time that the Company is obligated to pay such amounts under the agreement.

AHPC Agreements

        On February 8, 1999, the Company entered into a License and Option Agreement (the "Agreement") with American Home Products Corporation ("AHPC"). The Agreement grants AHPC an exclusive, worldwide license as well as options to obtain a license under certain of the Company's patents to develop certain estrogens and estrogen-like compounds for the treatment of human neurodegenerative disease, including Alzheimer's disease and certain other dementias.

        In partial consideration for the rights and license granted, AHPC paid the Company a license fee of $3,000,000 on the date of the Agreement. The Agreement provides for future revenues that are contingent upon meeting certain milestones and events specified in the Agreement.

F-43

        The $3,000,000 up-front payment was recorded as revenue in 1999. During 2000 the Company adopted Staff Accounting Bulletin 101 "Revenue Recognition in Financial Statements" which requires certain revenue to be deferred and recognized over a performance period rather than when received. The up-front payment will be amortized over a two year period ending February 2001. License fees in 2000 include $1,500,000 related to the upfront payment. The cumulative effect at January 1, 2000 of adopting Staff Accounting Bulletin 101 is deferral (net of associated direct costs) of $1,449,219 of the $3,000,000 up-front payment previously recognized.

        Deferred license fees and related expenses at December 31, 2000 consist of:

	Gross License Fee		Cost of Revenues		Net
Remaining amortization on $3,000,000 up-front payment received in 1999	$	156,250	$	19,531	$	136,719
Option extension payment received in 2000 to be amortized over the 12 month extension period beginning in 2001		750,000		93,750		656,250
	$	906,250	$	113,281	$	792,969

        Cost of revenues consist of required payments under collaborative agreements for up-front, milestone, royalty and other payments received by the Company related to certain property rights.

Cephalon Agreement

        In 2000 the Company entered into an option agreement with Cephalon, Inc. ("Cephalon"), which grants Cephalon the option to obtain a non-exclusive sublicense for the Company's rights to certain patents. The Company recognized $200,000 in license fee revenue in connection with the option agreement, which includes future revenues that are contingent upon Cephalon exercising its option and then meeting certain milestones and events specified in the Agreement.

Employment Agreement

        In 1993, the Company entered into an employment agreement with its president, which expired in 1998. The agreement has been renewed each year for a twelve-month period and currently provides for an annual salary of $160,000 and twelve months of severance pay and expires in November 2001, unless terminated earlier by either party to the agreement. The amounts charged to operations, in connection with this agreement, for the years ended December 31, 2000 and 1999 amounted to $150,000 and $143,000, respectively.

6.    Income Taxes

        Through January 1996, pursuant to the provisions of the Internal Revenue Code, the Company had been deferring all start-up costs because operations, as defined by the Code, had not yet commenced. In addition, the Company has elected to defer all research and development costs and amortize them over a five-year period for tax beginning with the commencement of

F-44

business. Effective February 1996, the Company began generating revenue and commenced operations for tax purposes.

        Accordingly, for tax purposes, the Company is amortizing all start-up and research and development costs incurred through January 1996, over 60 months and from February 1996 forward is expensing operating costs as incurred while continuing to capitalize and amortize research and development costs.

        At December 31, 2000 the Company had a net deferred tax asset of approximately $224,000. The net deferred tax asset is due to the deferral of the start-up costs and research and development costs and net operating loss carryforwards offset by deferred tax liabilities due to deferred income. At December 31, 2000 the Company has approximately $403,000 of net operating loss carryforwards that expire through 2013. The Company has a valuation allowance for the deferred tax asset of $224,000 as future realization is uncertain.

        The Company's provision for income taxes for the year ended December 31, 1999 represents alternative minimum federal taxes and state taxes. There was no provision for income taxes for the year ended December 31, 2000. The Company's effective tax rates differ from amounts computed by applying the statutory federal income tax rate to income (loss) before taxes primarily due to changes in the deferred tax valuation allowance.

        The Internal Revenue Code contains provisions which may limit the net operating loss carryovers and built-in losses available for use in any given year if significant changes in ownership interest of the Company occur.

        Taxes on income consist of the following:

		2000		1999
Current:
	Federal	$	—	$	27,379
	State		—		456
Total		$	—	$	27,835

F-45

APOLLO BIOPHARMACEUTICS, INC.

UNAUDITED INTERIM BALANCE SHEET
MARCH 31, 2001

ASSETS
Current:
	Cash and cash equivalents		$	673,190
	Prepaid expenses and other			90,920
	Receivables			57,629
	Employee loan, current portion			822
		Total current assets		822,561
Equipment (net):				1,728
Other assets:
	Patent, net of amortization			218,180
	Employee loan, non-current portion			23,527
	Deposits			990
		Total other assets		242,697
			$	1,066,986
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
	Accounts payable and accrued expenses		$	266,841
	Deferred royalties and license fees			776,072
		Total current liabilities		1,042,913
Stockholders' equity:
	Preferred stock			700
	Common stock			59,240
	Additional paid-in-capital			3,431,292
	Accumulated defict			(3,467,159	)
		Total stockholders' equity		24,073
			$	1,066,986

F-46

APOLLO BIOPHARMACEUTICS, INC.

UNAUDITED INTERIM STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000

		2001			2000
License fees		$	281,250		$	375,000
Cost of revenues			35,156			46,875
	Gross Profit		246,094			328,125
Operating expenses:
	Research and development		233,655			94,312
	General and administrative		201,690			120,280
	Depreciation and amortization		3,702			2,194
	Total operating expenses		439,047			216,786
Operating income (loss)			(192,953	)		111,339
Interest income (expense):
	Interest income		14,524			14,038
	Interest expense		(962	)		(618	)
	Other income (expense), net		4,179			6,428
Income (loss) before income taxes			(175,212	)		131,187
Provision for income taxes			9,789			—
Net income (loss)		$	(185,001	)	$	131,187

F-47

APOLLO BIOPHARMACEUTICS, INC.

UNAUDITED INTERIM STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000

					2001			2000
Cash flows from operating activities:
	Net income (loss)				$	(185,001	)	$	131,187
	Adjustment to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization				3,702			2,194
		Cumulative effect of accounting change				—			(328,125	)
		Fair value of stock granted				46,559			—
		Changes in operating assets and liabilities:
			Prepaid expenses and other			(54,264	)		26,724
			Receivables			(17,396	)		(15,007	)
			Employee notes receivable			(14,205	)		954
			Accounts payable and accrued expenses			(34,489	)		53,802
			Deferred royalties and license fees			(284,463	)		(6,428	)
				Net cash used by operating activities		(539,557	)		(134,699	)
Cash flows from investing activities:
	Patents					(66,284	)		1,008
				Net cash provided (used) by investing activities		(66,284	)		1,008
Net decrease in cash and cash equivalents						(605,841	)		(133,691	)
Cash and cash equivalents, beginning of period						1,279,031			1,159,833
Cash and cash equivalents, end of period					$	673,190		$	1,026,142

F-48

APOLLO BIOPHARMACEUTICS, INC.

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation:

        The accompanying unaudited interim financial statements of Apollo BioPharmaceutics, Inc. (the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the financial statements and notes thereto included else where in this document for the year ended December 31, 2000. In the opinion of management, the accompanying unaudited financial statements contain all adjustments, consisting of only normal recurring items, necessary for a fair presentation of the Company's financial position as of March 31, 2001 and its results of operations for the quarters ended March 31, 2001 and 2000, respectively. These unaudited interim financial statements are not necessarily indicative of the results to be expected for the entire year.

        The preparation of financial statements in conformity with generally accepted accounting prinicples requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporitng period. Actual results could differ from those estimates.

NOTE 2. Subsequent Event:

        In June 2001, the Company was acquired by MitoKor in exchange for cash of $1,057,000 and 1,511,685 shares of Series G preferred stock of MitoKor and 279,397 warrants to purchase shares of Series G preferred stock of MitoKor.

F-49

UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION

        In June 2001, MitoKor, Inc. acquired all of the outstanding stock of Apollo BioPharmaceutics, Inc. This acquisition was accounted for as a purchase. The purchase price was allocated based on the estimated fair market value of the assets resulting in the following allocation:

Developed technology			$	1,000,000
In-process research and development				7,200,000
Other tangible assets				351,000
Assumed liabilities				(242,000	)
Deferred tax liability				(398,000	)
		Sub-total		7,911,000
Residual — goodwill				8,431,000
	Total		$	16,342,000

        Purchased in-process research and development was expensed upon acquisition because technological feasibility had not been established and no future alternative uses existed. The fair values for each of the in-process research and development projects were determined by estimating the resulting net cash flows from such products after their completion and commercialization, discounting the net cash flows to present value, and applying the percentage completion of the projects thereto.

        The Apollo purchase was structured as a tax-free exchange of stock; therefore, the difference between the fair value of the acquired assets, including tangible assets, and their historical tax bases are not deductible for tax purposes.

        The unaudited pro forma condensed combined statement of operations gives effect to the acquisition of Apollo as if it had occurred on January 1, 2001, by combining the results of operations of Apollo from January 1, 2001 to June 22, 2001 (the acquisition date) with the consolidated results of operations of MitoKor for the year ended December 31, 2001. The unaudited pro forma financial statements do not purport to represent what the results of operations of MitoKor would actually have been if the acquisition had in fact occurred on January 1, 2001, or project the results of operations for any future period.

F-50

UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001

			Historical
			MitoKor			Apollo(6)			Adjustments			Pro Forma
Revenue
	Collaboration		$	4,559,000		$	448,000		$	(448,000	)(1)	$	4,559,000
	Product			3,526,000			—						3,526,000
	Service			281,000			—						281,000
	Other			12,000			—						12,000
		Total revenue		8,378,000			448,000			(448,000	)		8,378,000
Operating costs and expenses
	Research and development			12,160,000			448,000			24,000	(2)		12,632,000
	Cost of product sold			1,182,000			—						1,182,000
	Sales and marketing			1,091,000			—						1,091,000
	General and administrative			5,885,000			420,000			404,000	(3)		6,709,000
	Stock-based compensation			2,533,000			—						2,533,000
	Purchased in-process research and development			7,200,000			—			(7,200,000	)(4)		—
		Total operating costs and expenses		30,051,000			868,000			(6,772,000	)		24,147,000
Loss from operations				(21,673,000	)		(420,000	)		6,324,000			(15,769,000	)
Other income (expense)
	Interest income			820,000			23,000						843,000
	Interest expense			(429,000	)		(3,000	)					(432,000	)
	Other income (expense), net			132,000			20,000						152,000
		Total other income (expense)		523,000			40,000						563,000
Loss before income taxes				(21,150,000	)		(380,000	)		6,324,000			(15,206,000	)
Income tax provision (benefit)				(37,000	)		13,000			—	(5)		(24,000	)
	Net loss		$	(21,113,000	)	$	(393,000	)	$	6,324,000		$	(15,182,000	)
Loss per common share, basic and diluted			$	(85.95	)							$	(61.80	)
Number of shares in per share calculations, basic and diluted				245,648									245,648

See accompanying notes to unaudited pro forma condensed combined statement of operations

F-51

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENT OF OPERATIONS

        The following adjustments were applied to MitoKor Inc.'s historical statement of operations and the statement of operations of Apollo to arrive at the unaudited pro forma condensed combined statement of operations.

(1)

To eliminate the effect of revenue that would not have been recognized if the acquisition had occurred on January 1, 2001. Apollo's historical revenue resulted from the amortization of deferred license fees that were received in 1999 as up-front and option payments and for which no value was assigned by MitoKor in the allocation of the purchase price.

(2)

To record the amortization of developed technology related to the Apollo acquisition over its estimated life of twenty years.

(3)

To record the amortization of the goodwill related to the Apollo acquisition over its estimated useful life of ten years. In connection with the adoption of SFAS 142, Goodwill and Other Intangible Assets, amortization of goodwill will cease to be expensed beginning January 1, 2002.

(4)

To reverse write-off of purchased in-process research and development as it represents a non-recurring charge directly attributable to the acquisition.

(5)

No tax benefit is recognized as it is more likely than not that such benefit will not be realized.

(6)

Reflects the historical results of Apollo for the period from January 1, 2001 to June 22, 2001 (the acquisition date).

F-52

            shares

Common Stock

PRICE $        PER SHARE

RBC CAPITAL MARKETS
	LAZARD
		LEGG MASON WOOD WALKER
			Incorporated
				GERARD KLAUER MATTISON

            , 2002

Until            , 2002 (25 days after the date of this prospectus), all dealers that effect transactions in these shares of common stock may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution.

        The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of the common stock being registered. All amounts shown are estimates except for the registration fee and the NASD filing fee.

Registration fee		$	5,520
NASD filing fee			6,500
Nasdaq National Market listing fee			100,000
Printing and engraving expenses			150,000
Legal fees and expenses			400,000
Accounting fees and expenses			400,000
Transfer agent and registrar fees			10,000
Miscellaneous fees and expenses			27,980
	Total	$	1,100,000

Item 14.    Indemnification of Directors and Officers.

        Section 145 of the Delaware General Corporation Law permits indemnification of directors, officers and other corporate agents under certain circumstances and subject to certain limitations. The registrant's certificate of incorporation and bylaws, which will become effective upon the closing of this offering, provide that the registrant shall indemnify its directors, officers, employees and agents to the full extent permitted by the Delaware General Corporation Law, including circumstances in which indemnification is otherwise discretionary under Delaware law. In addition, the registrant has entered into separate indemnification agreements with its directors and officers which require the registrant, among other things, to indemnify them against certain liabilities which may arise by reason of their status or service (other than liabilities arising from acts or omissions not in good faith or willful misconduct).

        These indemnification provisions and the indemnification agreements entered into between the registrant and its directors and officers may be sufficiently broad to permit indemnification of the registrant's directors and officers for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.

        The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the registrant and its directors and officers, and by the registrant of the underwriters, for certain liabilities, including liabilities arising under the Securities Act, or otherwise.

Item 15.    Recent Sales of Unregistered Securities.

        a)    On various dates between January 1, 1999 and December 31, 2001, the registrant issued options to approximately 100 employees, directors, consultants and other service providers to purchase up to a total of 1,250,518 shares of the registrant's common stock under the registrant's 1993 Stock Option Plan and 2000 Outside Director Stock Option Plan. The exercise prices per

II-1

share ranged from $0.80 to $2.00. No consideration was paid to the registrant by any recipient of any of the foregoing options for the grant of such options. From January 1, 1999 through December 31, 2001, 22 option holders exercised options for an aggregate of 99,377 shares of our common stock. The registrant has received aggregate consideration of approximately $53,500 in connection with the exercise of these options.

        b)    In February 2000, the registrant issued an aggregate of 500,000 shares of Series E convertible preferred stock to Chiron Corporation in connection with the purchase of the Mimotopes business. The shares of Series E convertible preferred stock were issued pursuant to an Asset Purchase Agreement dated February 7, 2000.

        c)    In August and September 2000, the registrant sold 2,511,681 shares of Series F convertible preferred stock to 28 investors in exchange for an aggregate purchase price of $18,837,608 in cash. The shares of Series F convertible preferred stock were sold pursuant to a Series F Preferred Stock Purchase Agreement dated August 24, 2000.

        d)    In June 2001, the registrant issued an aggregate of 1,847,625 shares of Series G convertible preferred stock and warrants to purchase 279,397 shares of Series G convertible preferred stock in connection with the merger with Apollo BioPharmaceutics, Inc. The shares of Series G convertible preferred stock and the warrants to purchase shares of Series G convertible preferred stock were issued in exchange for the outstanding shares of common stock and options and warrants to purchase common stock of Apollo BioPharmaceutics, Inc. pursuant to an Agreement and Plan of Merger and Reorganization dated May 8, 2001.

        e)    In November 2001, the registrant sold an aggregate 833,341 shares of Series F-1 convertible preferred stock to 13 investors in exchange for an aggregate purchase price of $6,250,057 in cash. The shares of Series F-1 convertible preferred stock were sold pursuant to a Series F-1 preferred stock purchase agreement dated November 9, 2001. The registrant issued 33,334 shares of Series F-1 preferred stock to RBC Dain Rauscher Inc., which acted as placement agent in connection with the sale of the registrant's Series F-1 convertible preferred stock, as partial payment of the fees that were payable to RBC Dain Rauscher Inc. for such services.

        The issuances described in Item 15(a) were deemed exempt from registration under the Securities Act in reliance on Rule 701 promulgated thereunder as transactions pursuant to compensatory benefit plans and contracts relating to compensation. In addition, the issuances described in Items 15(b), 15(c), 15(d) and 15(e) were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about the registrant or had access, through employment or other relationships, to such information.

II-2

Item 16.    Exhibits and Financial Statement Schedules.

(a)

Exhibits.

Exhibit Number	Description of Documents
1.1*	Form of Underwriting Agreement
2.1	Asset Purchase Agreement dated February 7, 2000 by and among the registrant, Mimotopes Pty. Ltd., Chiron Corporation and Chiron Technologies Pty. Ltd.
2.2	Agreement and Plan of Merger and Reorganization dated May 8, 2001 by and among the registrant, Mito Acquisition Corp. and Apollo BioPharmaceutics, Inc.
3.1*	Certificate of Incorporation
3.2*	Bylaws
4.1*	Specimen Common Stock Certificate
5.1*	Opinion of Gray Cary Ware & Freidenrich LLP
10.1	Form of Indemnity Agreement for directors and officers
10.2*	1993 Stock Option Plan and forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement thereunder
10.3*	2000 Outside Director Stock Option Plan, terms of Stock Option Agreement and form of Stock Option Grant Agreement thereunder
10.4*	2002 Stock Option Plan, terms of Stock Option Agreement and form of Stock Option Grant Agreement thereunder
10.5*	2002 Employee Stock Purchase Plan and form of subscription agreement thereunder
10.6	Series F Preferred Stock Purchase Agreement dated August 24, 2000 by and among the registrant and the undersigned individuals and entities thereto
10.7	Amended and Restated Investors' Rights Agreement dated as of November 9, 2001 by and among the registrant and the undersigned parties thereto
10.8	Form of Warrant to Purchase Series G Preferred Stock, issued to the former stockholders of Apollo BioPharmaceutics, Inc.
10.9	Form of Warrant to Purchase Series G Preferred Stock, issued to the former option and warrant holders of Apollo BioPharmaceutics, Inc.
10.10	Series F-1 Preferred Stock Purchase Agreement dated November 9, 2001 by and among the registrant and the undersigned individuals and entities thereto
10.11	Employment Letter Agreement dated December 11, 1996, by and between the registrant and Walter H. Moos, Ph.D.
10.12	Employment Letter Agreement dated March 15, 2001 by and between the registrant and Ronald E. Deane
10.13	Standard Industrial Lease dated February 28, 2001 by and between the registrant and Collins Development Company
10.14	Standard Industrial Lease dated February 28, 2001 by and between the registrant and Collins Development Company
10.15	Transfer of Lease dated September 14, 2001 by and among Mimotopes Pty. Ltd., Chiron Technologies Pty. Ltd. and Monash University
10.16	Amended and Restated Loan and Security Agreement dated June 21, 2001 by and between the registrant and Silicon Valley Bank
10.17	Warrant to Purchase Series F Preferred Stock dated June 21, 2001 issued by the registrant to Silicon Valley Bank

II-3

10.18	Equipment Loan and Security Agreement dated as of December 15, 1999 by and between the registrant and MMC/GATX Partnership No. 1
10.19	Warrant to Purchase Shares of Series E Preferred Stock dated December 15, 1999 issued by the registrant to Meier Mitchell & Company
10.20*+	License and Royalty Agreement dated November 4, 1998 by and between the registrant and Pfizer Inc.
10.21*+	Services Agreement for Chiron Corporation dated February 7, 2000 by and between Mimotopes Pty. Ltd. and Chiron Corporation
10.22*+	License and Option Agreement dated February 8, 1999 by and between Apollo BioPharmaceutics, Inc. and American Home Products Corporation acting through its Wyeth-Ayerst Laboratories Division
21.1	Subsidiaries of the registrant
23.1	Consent of PricewaterhouseCoopers LLP
23.2*	Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
23.3	Consent of BDO Seidman, LLP
24.1	Power of Attorney (see page II-6)

*

To be filed by amendment.

+

Confidential treatment requested.

(b)

Financial Statement Schedules.

        No schedules have been filed because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Item 17. Undertakings

        The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, statement or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

        The undersigned registrant hereby undertakes that:

        (1)  For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in

II-4

reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

        (2)  For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of San Diego, State of California, on the 8th day of March, 2002.

MITOKOR, INC.
By:	/s/  WALTER H. MOOS, PH.D. Walter H. Moos, Ph.D. Chief Executive Officer and Chairman of the Board of Directors

POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Walter H. Moos, Ph.D., and Craig Johnson or either of them, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this registration statement, including post-effective amendments and any and all new registration statements filed pursuant to Rule 462 under the Securities Act in connection with or related to the offering contemplated by this registration statement as amended, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorney-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

Signature	Title	Date
/s/  WALTER H. MOOS, PH.D. Walter H. Moos, Ph.D.	Chief Executive Officer and Chairman of the Board of Directors	March 8, 2002
/s/  CRAIG JOHNSON Craig Johnson	Chief Financial Officer and Vice President, Finance and Administration	March 8, 2002
/s/  MICHAEL CALLAGHAN Michael Callaghan	Director	March 8, 2002
/s/  JEAN DELEAGE, PH.D. Jean Deleage, Ph.D.	Director	March 8, 2002

II-6

/s/  STANDISH M. FLEMING Standish M. Fleming	Director	March 8, 2002
/s/  ALAN S. ROSENTHAL, M.D. Alan S. Rosenthal, M.D.	Director	March 8, 2002
/s/  RICHARD S. SCHNEIDER, PH.D. Richard S. Schneider, Ph.D.	Director	March 8, 2002
/s/  JERRY A. WEISBACH, PH.D. Jerry A. Weisbach, Ph.D.	Director	March 8, 2002

II-7

INDEX TO EXHIBITS

Exhibit Number	Description of Documents
1.1*	Form of Underwriting Agreement
2.1	Asset Purchase Agreement dated February 7, 2000 by and among the registrant, Mimotopes Pty. Ltd., Chiron Corporation and Chiron Technologies Pty. Ltd.
2.2	Agreement and Plan of Merger and Reorganization dated May 8, 2001 by and among the registrant, Mito Acquisition Corp. and Apollo BioPharmaceutics, Inc.
3.1*	Certificate of Incorporation
3.2*	Bylaws
4.1*	Specimen Common Stock Certificate
5.1*	Opinion of Gray Cary Ware & Freidenrich LLP
10.1	Form of Indemnity Agreement for directors and officers
10.2*	1993 Stock Option Plan and forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement thereunder
10.3*	2000 Outside Director Stock Option Plan, terms of Stock Option Agreement and form of Stock Option Grant Agreement thereunder
10.4*	2002 Stock Option Plan, terms of Stock Option Agreement and form of Stock Option Grant Agreement thereunder
10.5*	2002 Employee Stock Purchase Plan and form of subscription agreement thereunder
10.6	Series F Preferred Stock Purchase Agreement dated August 24, 2000 by and among the registrant and the undersigned individuals and entities thereto
10.7	Amended and Restated Investors' Rights Agreement dated as of November 9, 2001 by and among the registrant and the undersigned parties thereto
10.8	Form of Warrant to Purchase Series G Preferred Stock, issued to the former stockholders of Apollo BioPharmaceutics, Inc.
10.9	Form of Warrant to Purchase Series G Preferred Stock, issued to the former option and warrant holders of Apollo BioPharmaceutics, Inc.
10.10	Series F-1 Preferred Stock Purchase Agreement dated November 9, 2001 by and among the registrant and the undersigned individuals and entities thereto
10.11	Employment Letter Agreement dated December 11, 1996, by and between the registrant and Walter H. Moos, Ph.D.
10.12	Employment Letter Agreement dated March 15, 2001 by and between the registrant and Ronald E. Deane
10.13	Standard Industrial Lease dated February 28, 2001 by and between the registrant and Collins Development Company
10.14	Standard Industrial Lease dated February 28, 2001 by and between the registrant and Collins Development Company
10.15	Transfer of Lease dated September 14, 2001 by and among Mimotopes Pty. Ltd., Chiron Technologies Pty. Ltd. and Monash University
10.16	Amended and Restated Loan and Security Agreement dated June 21, 2001 by and between the registrant and Silicon Valley Bank
10.17	Warrant to Purchase Series F Preferred Stock dated June 21, 2001 issued by the registrant to Silicon Valley Bank
10.18	Equipment Loan and Security Agreement dated as of December 15, 1999 by and between the registrant and MMC/GATX Partnership No. 1
10.19	Warrant to Purchase Shares of Series E Preferred Stock dated December 15, 1999 issued by the registrant to Meier Mitchell & Company

10.20*+	License and Royalty Agreement dated November 4, 1998 by and between the registrant and Pfizer Inc.
10.21*+	Services Agreement for Chiron Corporation dated February 7, 2000 by and between Mimotopes Pty. Ltd. and Chiron Corporation
10.22*+	License and Option Agreement dated February 8, 1999 by and between Apollo BioPharmaceutics, Inc. and American Home Products Corporation acting through its Wyeth-Ayerst Laboratories Division
21.1	Subsidiaries of the registrant
23.1	Consent of PricewaterhouseCoopers LLP
23.2*	Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
23.3	Consent of BDO Seidman, LLP
24.1	Power of Attorney (see page II-6)

*

To be filed by amendment.

+

Confidential treatment requested.

QuickLinks

TABLE OF CONTENTS
PROSPECTUS SUMMARY
MitoKor, Inc.
The Offering
Summary Consolidated Financial Data (in thousands, except per share data)
RISK FACTORS
Risks Related to Our Business
Risks Related to This Offering
FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
DIVIDEND POLICY
CAPITALIZATION
DILUTION
SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
MANAGEMENT
Summary Compensation Table
RELATED PARTY TRANSACTIONS
PRINCIPAL STOCKHOLDERS
DESCRIPTION OF CAPITAL STOCK
SHARES ELIGIBLE FOR FUTURE SALE
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND ADDITIONAL INFORMATION
INDEX TO FINANCIAL STATEMENTS MitoKor, Inc.
Report of Independent Accountants
MITOKOR, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 2001
MITOKOR, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
MITOKOR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
MITOKOR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
INDEPENDENT AUDITORS' REPORT
APOLLO BIOPHARMACEUTICS, INC. BALANCE SHEETS DECEMBER 31, 2000 AND 1999
APOLLO BIOPHARMACEUTICS, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
APOLLO BIOPHARMACEUTICS, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (NOTES 4 AND 5) FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
APOLLO BIOPHARMACEUTICS, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
APOLLO BIOPHARMACEUTICS, INC. NOTES TO FINANCIAL STATEMENTS
APOLLO BIOPHARMACEUTICS, INC. UNAUDITED INTERIM BALANCE SHEET MARCH 31, 2001
APOLLO BIOPHARMACEUTICS, INC. UNAUDITED INTERIM STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
APOLLO BIOPHARMACEUTICS, INC. UNAUDITED INTERIM STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
APOLLO BIOPHARMACEUTICS, INC. NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
SIGNATURES
POWER OF ATTORNEY
INDEX TO EXHIBITS

EX-2.1

                                                                    Exhibit 2.1


                            ASSET PURCHASE AGREEMENT


                                  by and among


                                     MITOKOR

                               MIMOTOPES PTY. LTD.

                               CHIRON CORPORATION

                                       and

                          CHIRON TECHNOLOGIES PTY. LTD.

                                February 7, 2000





                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

1.  PURCHASE AND SALE..........................................................1
    1.1   Agreement to Sell....................................................1
    1.2   Agreement to Purchase................................................1
    1.3   The Purchase Price...................................................2
    1.4   Payment of Purchase Price............................................2
    1.5   Assumption of Liabilities............................................2
2.  CLOSING; DELIVERIES ON THE CLOSING.........................................3
    2.1   Closing Date.........................................................3
    2.2   Deliveries on the Closing Date.......................................3
3.  REPRESENTATIONS AND WARRANTIES OF CHIRON AND CTPL..........................5
    3.1   Organization, Standing and Power.....................................6
    3.2   Authority; Required Filings and Consents.............................6
    3.3   Capital Structure of CTPL............................................7
    3.4   Financial Statements.................................................7
    3.6   Absence of Certain Changes or Events.................................7
    3.6   Tangible Assets and Real Property....................................8
    3.7   Intellectual Property................................................9
    3.8   Contracts...........................................................10
    3.9   Labor Difficulties..................................................11
    3.10  Trade Regulation; Customers and Distributors........................11
    3.11  Environmental Matters...............................................12
    3.12  Supply of Going Concern.............................................12
    3.13  Employee Benefit Plans..............................................13
    3.14  Compliance with Laws................................................14
    3.15  Employees and Consultants...........................................14
    3.16  Litigation..........................................................14
    3.17  Restrictions on Business Activities.................................14
    3.18  Title to Purchased Assets...........................................14
    3.19  Governmental Authorization..........................................14
    3.20  Interested Party Transactions.......................................14
    3.21  Investment Representations..........................................15
    3.22  Information; No Misrepresentation...................................16
4.  REPRESENTATIONS AND WARRANTIES OF MITOKOR AND MIMOTOPES...................17
    4.1   Organization and Standing of Mimotopes..............................17
    4.2   Authority; No Conflict; Required Filings and Consents...............17
    4.3   Organization and Standing; Articles and By-Laws of MitoKor..........18
    4.4   Capitalization......................................................18
    4.5   Authorization.......................................................19
    4.6   Patents and Other Proprietary Rights................................19
    4.7   Compliance with Other Instruments, None Burdensome, etc.............20
    4.8   Proprietary Agreements; Employees...................................21
    4.9   Condition of Properties.............................................21
    4.10  Litigation, etc.....................................................21
    4.11  Governmental Consent, etc...........................................22
    4.12  Offering............................................................22


                                      -i-


                                TABLE OF CONTENTS
                                  (continued)

                                                                            PAGE
                                                                            ----

    4.13  Taxes...............................................................22
    4.14  Title...............................................................22
    4.15  Material Contracts and Commitments..................................23
    4.16  Financial Statements................................................23
    4.17  Absence of Changes..................................................23
    4.18  Outstanding Indebtedness............................................24
    4.19  Registration Rights.................................................24
    4.20  Certain Transactions................................................24
    4.21  Corporate Documents; Minute Books...................................24
    4.22  Employee Benefit Plans..............................................24
    4.23  Labor Agreements....................................................24
    4.24  Real Property Holding Corporation...................................25
    4.25  Disclosure..........................................................25
    4.26  Insurance...........................................................25
    4.27  Shareholder Agreements..............................................25
    4.28  Environmental Matters...............................................25
    4.29  Manufacturing Rights................................................26
    4.30  Assumptions, Guaranties, Etc. of Indebtedness of Other Persons......26
    4.31  Material Customers and Suppliers....................................26
5.  ADDITIONAL AGREEMENTS.....................................................26
    5.1   Cooperation.........................................................26
    5.2   Consents............................................................27
    5.3   Brokers or Finders..................................................27
    5.4   Additional Agreements; Reasonable Efforts...........................27
    5.5   Expenses............................................................27
    5.6   Sales, Transfer and Documentary Taxes, etc..........................27
    5.7   Confidentiality.....................................................27
    5.8   Use of Chiron Confidential Information..............................28
    5.9   CTPL Employees......................................................28
    5.10  Affirmative Covenants of MitoKor....................................28
6.  INDEMNIFICATION...........................................................30
    6.1.  Survival of Representations, Warranties, Covenants and Agreements...30
    6.2   Indemnification.....................................................31
    6.3   Limitations on Indemnification......................................32
    6.4   Procedures; No Waiver...............................................32
    6.5   Right of Offset.....................................................32
    6.6   Sole Remedy.........................................................33
7.  NO SOLICITATION OF EMPLOYEES..............................................33
    7.1   Definitions.........................................................33
    7.2   Non-Solicitation of Employees.......................................33
8.  GENERAL PROVISIONS........................................................33
    8.1   Notices.............................................................33
    8.2   Interpretation......................................................35
                                      -ii-


                                TABLE OF CONTENTS
                                  (continued)

                                                                            PAGE
                                                                            ----

    8.3   Counterparts........................................................35
    8.4   Severability........................................................35
    8.5   Entire Agreement....................................................35
    8.6   Governing Law; Venue and Jurisdiction...............................36
    8.7   Assignment..........................................................36
    8.8   Third Party Beneficiaries...........................................36
    8.9   Attorney's Fees.....................................................36
    8.10  Amendment...........................................................36


                                     -iii-




                            ASSET PURCHASE AGREEMENT


         This Asset Purchase Agreement (the "AGREEMENT") is entered into as of
February 7, 2000 (the "AGREEMENT DATE") by and among MitoKor ("MITOKOR"),
Mimotopes Pty. Ltd. ("MIMOTOPES"), Chiron Corporation ("Chiron"), and Chiron
Technologies Pty. Ltd. ("CTPL"). MitoKor, Mimotopes, Chiron and CTPL are
referred to collectively herein as the "PARTIES."

                                    RECITALS

         A. Chiron owns all of the issued and outstanding shares of capital
stock of CTPL.

         B. MitoKor owns all of the issued and outstanding shares of capital
stock Mimotopes.

         C. Mimotopes desires to purchase substantially all of the assets and to
assume certain specified liabilities of CTPL.

         D. Subject only to the limitations and exclusions contained in this
Agreement and on the terms and subject to the conditions hereinafter set forth,
CTPL desires to sell and Mimotopes desires to purchase substantially all of the
assets and to assume certain specified liabilities of CTPL.

         E. Concurrently herewith, Chiron and Mimotopes are entering into a
series of Research and Development Services Contracts in the forms attached
hereto as EXHIBIT A-1, EXHIBIT A-2, and EXHIBIT A-3 (the "R&D AGREEMENTS")
pursuant to which Mimotopes will perform certain research and development
services for the benefit of Chiron.

                                    AGREEMENT

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

    1.   PURCHASE AND SALE

         1.1  AGREEMENT TO SELL. CTPL hereby grants, sells, conveys, assigns,
transfers and as of the date hereof, will deliver to Mimotopes, upon and subject
to the terms and conditions of this Agreement, all right, title and interest of
CTPL in and to all of the assets set forth on SCHEDULE 1.1 attached hereto (the
"PURCHASED ASSETS"). CTPL owns, and has the right to transfer, all of the
Purchased Assets owned by it.

         1.2  AGREEMENT TO PURCHASE. As of the date hereof, Mimotopes shall
purchase the Purchased Assets from CTPL, upon and subject to the terms and
conditions of this Agreement and in reliance on the representations, warranties
and covenants of Chiron and CTPL


                                       1




contained herein, in exchange for the Purchase Price (as defined in Section
1.3). In addition, Mimotopes shall assume as of the date hereof and agree to
pay, discharge or perform, as appropriate, certain specified liabilities and
obligations of CTPL only to the extent and as provided in Section 1.5 of this
Agreement. Except as specifically provided in Section 1.5 hereof, Mimotopes
shall not assume or be responsible for any liabilities or obligations of CTPL.

         1.3  THE PURCHASE PRICE. The consideration for the purchase of the
Purchased Assets and Assumed Liabilities (as defined below) is:

              (a) US$3,000,000 payable to CTPL in accordance with the provisions
of Section 1.4 (the "CASH PAYMENT"); and

              (b) 500,000 shares of MitoKor Series E Convertible Preferred
Stock, which the Parties agree have an aggregate fair market value of
US$3,000,000 (the "SERIES E SHARES," and together with the Cash Payment, the
"PURCHASE PRICE").

         1.4  PAYMENT OF PURCHASE PRICE. Subject to the terms hereof, the
Purchase Price shall be paid by Mimotopes to CTPL as follows:

              (a) As of the date hereof, Mimotopes shall deliver to CTPL, or its
assigns, a certified or bank cheque or bank draft, payable to CTPL, or its
assigns, or wire a transfer to the account of CTPL, or its assigns, in the
amount of US$1,000,000;

              (b) As of the date hereof, Mimotopes shall deliver to CTPL, or its
assigns, an executed stock certificate representing the issuance to CTPL, or its
assigns, of the Series E Shares;

              (c) On the date eighteen (18) months following the Closing Date,
in accordance with a Promissory Note to be executed by Mimotopes and CTPL, or
its assigns (the "PROMISSORY NOTE") attached hereto as EXHIBIT B, Mimotopes
shall deliver to CTPL, or its assigns, a bank cheque or bank draft, payable to
CTPL, or its assigns, or a wire transfer to the account of CTPL, or its assigns,
in the amount of US$1,000,000 ("INSTALLMENT 2"); and

              (d) On the date thirty-six (36) months after the Closing Date, in
accordance with the Promissory Note, Mimotopes shall deliver to CTPL, or its
assigns, a bank cheque or bank draft, payable to CTPL, or its assigns, or a wire
transfer to the account of CTPL, or its assigns, in the amount of US$1,000,000
("INSTALLMENT 3"); PROVIDED, HOWEVER, in the event MitoKor raises cumulative
financing (exclusive of that associated with research and development
collaborations or similar commercial partnerships) after the Closing Date in
excess of US$7,500,000, the payment obligation for Installment 3 will be
accelerated and be due and payable at the later of (i) eighteen (18) months
after the Closing Date, or (ii) within thirty (30) days of the closing of such
financing.

         1.5  ASSUMPTION OF LIABILITIES. As of the date hereof, CTPL shall
convey and assign to Mimotopes, and, subject to required consents of third
parties, Mimotopes shall accept and assume all liabilities of CTPL set forth on
SCHEDULE 1.5 hereto (the "ASSUMED LIABILITIES"). The Assumed Liabilities shall
not include any indebtedness owed to any commercial lending institution, other
than lease financing incurred in the ordinary course of business. CTPL shall


                                       2




remain fully responsible and liable for all obligations and liabilities of CTPL
not specifically set forth on SCHEDULE 1.5. Mimotopes does not in any way or
manner assume or agree to become obligated to satisfy any liability of CTPL
other than the Assumed Liabilities. Mimotopes agrees to assume, satisfy and
perform when due, all liabilities, duties, contracts, agreements and obligations
of CTPL arising or accruing from and after the Closing Date directly related to
the Purchased Assets.

    2.   CLOSING; DELIVERIES ON THE CLOSING

         2.1  CLOSING DATE. The closing of the transactions contemplated by this
Agreement shall occur on and as of the Agreement Date (the "CLOSING DATE").

         2.2  DELIVERIES ON THE CLOSING DATE.

              (a) Mimotopes shall deliver to CTPL:

                  (i)    an officer's certificate of Mimotopes, in the form
attached hereto as EXHIBIT C;

                  (ii)   an officer's certificate of MitoKor, in the form
attached hereto as EXHIBIT D;

                  (iii)  a bank cheque or bank draft, payable to CTPL, or its
assigns, or a wire transfer to the account of CTPL, or its assigns, in the
amount of US$1,000,000;

                  (iv)   a certificate representing the Series E Shares affixed
with the legend set forth in Section 3.21 below;

                  (v)    the Promissory Note;

                  (vi)   the R&D Agreements executed by a duly authorized
officer of Mimotopes;

                  (vii)  the Warehousing and Transportation Agreement in the
form attached hereto as EXHIBIT E (the "BLOOD TESTING AGREEMENT"), executed by a
duly authorized officer of Mimotopes;

                  (viii) the Transition Services Agreement by and among
Mimotopes, Chiron and CTPL in the form attached hereto as EXHIBIT F (the
"TRANSITION AGREEMENT") executed by a duly authorized officer of Mimotopes;

                  (ix)   the Noncompetition Agreement by and between CTPL and
Mimotopes in the form attached hereto as EXHIBIT G (the "CTPL NONCOMPETITION
AGREEMENT") executed by a duly authorized officer of Mimotopes;

                  (x)    the Noncompetition Agreement by and between Chiron and
Mimotopes in the form attached hereto as EXHIBIT H (the "CHIRON NONCOMPETITION
AGREEMENT") executed by a duly authorized officer of Mimotopes;


                                       3




                  (xi)   the Patent and License Agreement by and between Chiron
and Mimotopes in the form attached hereto as EXHIBIT I (the "PATENT AND LICENSE
AGREEMENT") executed by a duly authorized officer of Mimotopes;

                  (xii)  the opinion of MitoKor's counsel in the form attached
hereto as EXHIBIT J;

                  (xiii) evidence of filing of the Articles (defined below) with
the Secretary of State of California;

                  (xiv)  one or more agreements of assumption of the Assumed
Liabilities in form reasonably satisfactory to CTPL and its counsel;

                  (xv)   the Amended and Restated Investors' Rights Agreement in
the form attached hereto as EXHIBIT K (the "RIGHTS AGREEMENT"); and

                  (xvi)  that certain letter agreement between Mimotopes, Chiron
and CTPL, of even date herewith (the "ATTORNEY LETTER") executed by a duly
authorized officer of Mimotopes.

              (b) Chiron and CTPL shall deliver to Mimotopes:

                  (i)    an officer's certificate of Chiron in the form attached
hereto as EXHIBIT L;

                  (ii)   an officer's certificate of CTPL in the form attached
hereto as EXHIBIT M;

                  (iii)  such bills of sale with covenants of warranty,
assignments, endorsements, and other good and sufficient instruments and
documents of conveyance and transfer, in form reasonably satisfactory to
Mimotopes and its counsel as shall be necessary and effective to transfer and
assign to, and vest in, Mimotopes all of CTPL's right, title and interest in and
to the Purchased Assets without liens or other encumbrances, including without
limitation (A) good and valid title in and to all of the Purchased Assets owned
by CTPL, (B) good and valid leasehold interests in and to all of the Purchased
Assets leased by CTPL as lessee, and (C) all of CTPL's rights under all
agreements, contracts, commitments, leases, plans, bids, quotations, proposals,
instruments and other documents included in the Purchased Assets to which CTPL
is a party or by which it has rights on the Closing Date;

                  (iv)   all of the agreements, contracts, commitments, leases,
plans bids, quotations, proposals, instruments, computer programs and software,
databases, related object and source codes, manuals and guidebooks, price books
and price lists, customer and subscriber lists, supplier lists, sales records,
files, correspondences, legal opinions, rulings issued by governmental entities
and other documents, books, records, papers, files, office supplies and data
belonging to CTPL that are part of the Purchased Assets and Assumed Liabilities;
simultaneously with such delivery, all such steps will be taken as may be
required to put Mimotopes in actual possession and operating control of the
Purchased Assets;


                                       4




                  (v)    the R&D Agreements executed by a duly authorized
officer of Chiron;

                  (vi)   the Blood Testing Agreement executed by a duly
authorized officer of Chiron;

                  (vii)  the Transition Agreement executed by the duly
authorized officers of Chiron and CTPL;

                  (viii) the CTPL Noncompetition Agreement executed by a duly
authorized officer of CTPL;

                  (ix)   the Chiron Noncompetition Agreement executed by a duly
authorized officer of Chiron;

                  (x)    the Patent and License Agreement executed by a duly
authorized officer of Chiron;

                  (xi)   the opinion of counsel to CTPL in the form attached
hereto as EXHIBIT N;

                  (xii)  evidence of amendment and termination of that certain
Technology and Know-how Transfer Agreement, dated December 15,1995, as amended
November 23, 1998, by and between Chiron and CTPL and relinquishment of all of
Chiron's rights thereunder; and

                  (xiii) the Attorney Letter executed by duly authorized
officers of Chiron and CTPL.

    3.   REPRESENTATIONS AND WARRANTIES OF CHIRON AND CTPL

         Except as disclosed in the disclosure schedule which references the
specific representations and warranties as to which the exception is made (the
"DISCLOSURE SCHEDULE"), Chiron and CTPL jointly and severally represent and
warrant to Mimotopes as set forth below in this Article 3. The qualifications or
exceptions in the Disclosure Schedule shall be deemed to qualify only
specifically identified sections hereof and sections to which any qualification
or exception is reasonably obviously related.

         In this Agreement, any reference to a "MATERIAL ADVERSE EFFECT" with
respect to any entity or group of entities means a material adverse effect on
the business, assets (including intangible assets), financial condition,
prospects, or results of operations of such entity and its subsidiaries,
individually or in the aggregate with other individual items, in excess of
AU$50,000.

         In this Agreement, any reference to a Party's "knowledge," unless
otherwise qualified, means such Party's actual knowledge after reasonable
inquiry of its directors, officers, and other management level employees
reasonably believed to have knowledge of such matters.


                                       5




         In this Agreement, any reference to the "prospects" of CTPL or its
business, or to CTPL's business "as proposed to be conducted," means such
prospects or business without taking into account the effects of the
transactions contemplated by this Agreement.

         In this Agreement, any reference to the "Business" shall refer to
CTPL's business as being conducted prior to the date of this Agreement, which
includes providing goods and services related to peptide synthesis,
peptide-specific antisera, solid phase peptide and organic chemistry,
combinatorial and medicinal chemistry, compound library generation and related
areas.

         3.1  ORGANIZATION, STANDING AND POWER. CTPL is a proprietary company
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, has all requisite power to own, lease and operate
its properties and to carry on its Business, and is duly qualified to transact
its Business and is in good standing in each jurisdiction in which the nature of
its operations requires such qualification. CTPL has made available to MitoKor
and Mimotopes complete and correct copies of the charter documents of CTPL, in
each case as amended to the date of this Agreement, and copies of all minutes of
meetings and copies of resolutions passed by shareholders, directors and board
committees of CTPL requested by MitoKor and Mimotopes. CTPL is not in violation
of any of the provisions of its charter documents. CTPL does not directly or
indirectly own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.

         3.2  AUTHORITY; REQUIRED FILINGS AND CONSENTS.

              (a) Each of Chiron and CTPL has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by Chiron and CTPL, their respective boards of directors and their respective
shareholders, if necessary under applicable law. This Agreement and all other
documents expressly required to be executed and delivered by Chiron and CTPL
hereunder (collectively, the "TRANSACTION DOCUMENTS") have been or will be duly
executed and delivered by Chiron and CTPL, as applicable, and constitute or will
constitute the valid and binding obligations of Chiron and CTPL, as applicable,
enforceable against Chiron and CTPL, as applicable, in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to creditors'
rights generally, and general principles of equity.

              (b) The execution and delivery of this Agreement and the other
Transaction Documents do not, and the consummation of the transactions
contemplated hereby and thereby will not, (i) conflict with, or result in any
violation or breach of any provision of, the charter documents of either Chiron
or CTPL; (ii) result in any violation or breach of or constitute (with or
without notice or lapse of time, or both) a default under, or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any benefit under, any note, mortgage, indenture, lease, contract or other
agreement or obligation to which Chiron or CTPL is a party or by which Chiron or
CTPL, or any of the Purchased Assets may be bound; or (iii) conflict with or
violate any permit, concession, franchise, license, judgment, order, decree,


                                       6




statute, law, ordinance, rule or regulation applicable to Chiron or CTPL, or any
of the Purchased Assets.

              (c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("GOVERNMENTAL
ENTITY") is required by or with respect to CTPL or the Purchased Assets in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.

         3.3  CAPITAL STRUCTURE OF CTPL.

              (a) As of the date hereof, the authorized capital stock of CTPL
consists of 10,000,000 shares of stock ("CTPL STOCK") of which 9,538,594 shares
are issued and outstanding, all of which are owned by Chiron.

              (b) There are no options, warrants, calls, rights, commitments,
conversion rights or agreements of any character to which CTPL is a party or by
which CTPL is bound obligating CTPL to issue, deliver or sell, or cause to be
issued, delivered or sold, any shares of capital stock of CTPL or securities
convertible into or exchangeable for shares of capital stock of CTPL, or
obligating CTPL to grant, extend or enter into any option, warrant, call, right,
commitment, conversion right or agreement. There are no voting trusts or other
agreements or understandings to which Chiron or CTPL is a party with respect to
the voting of the capital stock of CTPL.

         3.4  FINANCIAL STATEMENTS. CTPL has hereto furnished to MitoKor and
Mimotopes copies of CTPL's unaudited consolidated balance sheet (the "BALANCE
SHEET") as of September 30, 1999 (the "BALANCE SHEET DATE"), and the related
statement of income for the period then ended and, as of the Closing, the Final
Balance Sheet and the related statement of income for the period then ended. All
financial statements referred to in this Section 3.4 ("FINANCIAL STATEMENTS")
are complete and correct, have been prepared in accordance with Australian
generally accepted accounting principles applied on a consistent basis during
the respective periods, and fairly present the consolidated financial condition
of CTPL as at the respective dates thereof and the consolidated results of
operations of CTPL for the respective periods covered by the statements of
income contained therein.

         3.5  ABSENCE OF CERTAIN CHANGES OR EVENTS. Except actions taken in
connection with this Agreement, since October 1, 1999, CTPL has conducted the
Business in the ordinary course and in a manner consistent with past practices
and, since such date, CTPL has not:

              (a) suffered any event or occurrence that has had a Material
Adverse Effect on CTPL or the Purchased Assets;

              (b) suffered any damage, destruction or loss, whether covered by
insurance or not, which in the aggregate has had a Material Adverse Effect on
CTPL or the Purchased Assets;


                                       7




              (c) granted any material increase in the compensation payable or
to become payable by CTPL to its officers or employees other than increases in
the ordinary course of its Business to employees who are not directors or
officers;

              (d) sold, leased, abandoned or otherwise disposed of any real
property, machinery, equipment or other operating property other than in the
ordinary course of its Business;

              (e) sold, assigned, transferred, licensed or otherwise disposed of
any patent, patent right, trademark, trade name, brand name, copyright (or
pending application for any patent, trademark or copyright), invention, work of
authorship, process, know-how, formula or trade secret or interest thereunder or
other material intangible asset;

              (f) except for this Agreement, entered into any material
commitment, agreement or transaction (including without limitation any
borrowing) other than commitments or transactions entered into in the ordinary
course of its Business and the effects of which are not reasonably likely to
have a Material Adverse Effect on CTPL or the Purchased Assets;

              (g) terminated or failed to renew any material commitment,
agreement or transaction other than commitments or transactions allowed to lapse
in the ordinary course of business and the effects of which are not reasonably
likely to have a Material Adverse Effect on CTPL or the Purchased Assets;

              (h) permitted or allowed any of the Purchased Assets to be
subjected to any new mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind, except for liens for current taxes not yet due
and purchase money security interests incurred in the ordinary course of its
Business;

              (i) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets to, or entered into any agreement or
arrangement with, any of its directors, officers or employees, other than
employee compensation and benefits and reimbursement of employment related
business expenses incurred in the ordinary course of its Business; or

              (j) agreed to take any action described in this Section 3.5 or
which would constitute a breach of any of the representations or warranties of
CTPL contained in this Agreement.

         3.6  TANGIBLE ASSETS AND REAL PROPERTY.

              (a) Set forth on SCHEDULE 1.1 is a complete list of the tangible
assets used in the Business as presently conducted (the "MATERIAL TANGIBLE
ASSETS"), CTPL owns or leases all tangible assets and properties listed on
SCHEDULE 1.1. The Material Tangible Assets are fit for their intended purposes,
comply with any statutory or regulatory requirements, and are in good operating
condition and repair, except for reasonable wear and tear that does not
materially affect the use of such assets. CTPL has good and marketable title to
all Material Tangible Assets that it owns, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except as
reflected in SCHEDULE 1.5 and except for (i) liens for current taxes not yet


                                       8




due and payable; (ii) purchase money liens identified in the Disclosure
Schedule; (iii) liens imposed by law; and (iv) liens pursuant to equipment,
vehicle and facility leases identified in the Disclosure Schedule ("PERMITTED
LIENS"). All leases of Material Tangible Assets to which CTPL is a party are in
full force and effect and valid, binding and enforceable against CTPL in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to creditors' rights generally, and general principles of equity. The
Disclosure Schedule sets forth a true and correct list of all such leases, and
true and correct copies of all such leases have been provided to Mimotopes.

              (b) CTPL does not own any real property. The Disclosure Schedule
sets forth a true and complete list of all real property leased by CTPL.
Assuming the due execution and delivery thereof by the other parties thereto,
all such real property leases are in full force and effect and valid, binding
and enforceable against CTPL in accordance with their respective terms, except
as such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to creditors' rights generally, and
general principles of equity. True and correct copies of all such real property
leases have been provided to MitoKor and Mimotopes.

         3.7  INTELLECTUAL PROPERTY.

              (a) CTPL owns, or is licensed or otherwise possesses legally
enforceable rights to use, and the Purchased Assets include (except for
transactions executed in connection with this Agreement), all patents,
trademarks, trade names, service marks and copyrights, and any applications for
and registrations of such patents, trademarks, trade names, service marks, and
copyrights and all processes, formulas, methods, schematics, technology,
know-how, computer software programs, data or applications and tangible or
intangible proprietary information or material that are used in the Business as
currently conducted, or as currently proposed to be conducted, free and clear of
all liens, claims or encumbrances (all of which are referred to as the "CTPL
INTELLECTUAL PROPERTY RIGHTS").

              (b) The Disclosure Schedule contains an accurate and complete
description of (i) all patents and patent applications and all registered
trademarks, trademark applications, trade names, service marks and registered
copyrights included in the CTPL Intellectual Property Rights, including the
jurisdictions in which each such CTPL Intellectual Property Right has been
issued or registered or in which any such application for such issuance and
registration has been filed; (ii) all licenses and sublicenses, distribution
agreements and other agreements to which Chiron or CTPL is a party and pursuant
to which any person is authorized to use any CTPL Intellectual Property Rights
or has the right to manufacture, reproduce, market, or exploit any product of
CTPL (a "CTPL PRODUCT") or any adaptation, translation, or derivative work based
on a CTPL Product or any portion thereof, other than nonexclusive end-user
licenses entered into in the ordinary course of business pursuant to standard
forms of license agreement of CTPL; (iii) all licenses, sublicenses, and other
agreements to which Chiron or CTPL is a party and pursuant to which CTPL is
authorized to use any third party technology, trade secret, know-how, process,
patent, trademark or copyright, including software ("LICENSED INTELLECTUAL
PROPERTY"), which is used in the manufacture of, incorporated in or forms a part
of any CTPL Product or in the conduct of the Business (other than licenses for
off-the-shelf


                                       9




software); (iv) all joint development agreements to which CTPL is a party; and
(v) all agreements with Governmental Entities or other third parties pursuant to
which CTPL has obtained funding for research and development activities.

              (c) CTPL is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Purchased Assets.

              (d) All patents and registered trademarks, service marks and
copyrights claimed by or issued to CTPL are valid, currently maintained and
subsisting. The manufacturing, marketing, licensing or sale of any CTPL Product
does not, to Chiron's or CTPL's knowledge, infringe any patent, trademark
service mark, copyright, trade secret or other proprietary right of any third
party. Neither Chiron nor CTPL (i) has received notice that CTPL has been sued
in any suit, action or proceeding that involves a claim of infringement of any
patent, trademark, service mark, copyright, trade secret or other proprietary
right of any third party; and (ii) has any knowledge of any claim challenging or
questioning the validity or effectiveness of any license or agreement relating
to any CTPL Intellectual Property Rights or Licensed Intellectual Property.

              (e) CTPL has at all times used commercially reasonable efforts to
protect its trade secrets and, to its knowledge, has not acted in such a manner
as to cause the loss of such trade secrets by their release into the public
domain.

              (f) Each person currently or formerly employed by CTPL (including
independent contractors, if any) that has or had access to confidential
information of CTPL has executed and delivered to CTPL a confidentiality and
non-disclosure agreement in one of the standard forms of CTPL. To CTPL's
knowledge, neither the execution or delivery of any such agreement by any such
person, nor the carrying on of the Business as currently conducted has
conflicted with or resulted in a breach of the terms, conditions or provisions
of, or constituted a default under, any contract, covenant or instrument under
which any of such persons is obligated.

         3.8  CONTRACTS.

              (a) CTPL is not a party or subject to any agreement, obligation or
commitment, written or oral:

                  (i)    that is not in the ordinary course of its Business;

                  (ii)   that entitles the other party or parties to end such
agreement, obligation or commitment by reason of any change in the ownership of
the Purchased Assets, or the compliance with any provision of this Agreement;

                  (iii)  that calls for any fixed or contingent payment or
expenditure or any related series of fixed or contingent payments or
expenditures by or to CTPL totaling more than AU$25,000 in any twelve-month
period;


                                       10




                  (iv)   with agents, advisors, salesmen, sales representatives,
independent contractors or consultants that has resulted in payments of more
than AU$20,000 over the last 12 months, or may result in payments of more than
AU$20,000 over the next 12 months;

                  (v)    that restricts CTPL from carrying on anywhere in the
world its Business or any portion thereof as currently conducted;

                  (vi)   to provide funds to or to make any investment in any
other person or entity;

                  (vii)  with respect to obligations as guarantor, surety,
co-signer, endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any other person or entity;

                  (viii) for any line of credit, standby financing, revolving
credit or other similar financing arrangement greater than AU$50,000;

                  (ix)   with any distributor, original equipment manufacturer,
value added remarketer or other person for the distribution of any products
produced by CTPL; or

                  (x)    that contravenes any applicable law.

              (b) CTPL is not in default under or in breach or violation of, nor
is there any valid basis for any claim of default by CTPL under, or breach or
violation by CTPL of, any contract, commitment or restriction to which CTPL is a
party or by which CTPL or any of its respective properties or Purchased Assets
is bound or affected. To the knowledge of Chiron and CTPL, no other party is in
default under or in breach or violation of, nor is there any valid basis for any
claim of default by any other party under, or any breach or violation by any
other party of, any contract, commitment, or restriction to which CTPL is a
party or by which CTPL or any of the Purchased Assets is bound or affected. CTPL
has no reason to believe that it will not be able to comply with the terms or
conditions of any contract to which it is a party without an increase in its
technical or personnel resources allocated to such contract compared to the
resources budgeted by CTPL as of the date of this Agreement or any other
increase in the cost of satisfying any covenants or conditions under such
contract compared to the costs budgeted by CTPL as of the date of this
Agreement.

         3.9  LABOR DIFFICULTIES. There is no strike, labor dispute, slowdown,
or stoppage pending or, to Chiron's and CTPL's knowledge, threatened against
CTPL. CTPL is not now nor has ever been subject to any union organizing
activities or collective bargaining activities. CTPL has not experienced any
work stoppage or other labor difficulty.

         3.10 TRADE REGULATION; CUSTOMERS AND DISTRIBUTORS. All of the prices
charged by CTPL in connection with the marketing or sale of any of its products
or services have been in compliance with all material applicable laws and
regulations. No claims have been asserted or, to Chiron's and CTPL's knowledge,
threatened against CTPL with respect to the wrongful termination of any dealer,
distributor or any other marketing entity, discriminatory pricing, price


                                       11




fixing, unfair competition, false advertising, or any other material violation
of any laws or regulations relating to anti-competitive practices or unfair
trade practices of any kind, and, to CTPL's knowledge, no specific situation,
set of facts, or occurrence provides any reasonable basis for any such claim.
Except as set forth in the Disclosure Schedule, no customer or distributor
accounted for more than five percent (5%) of CTPL's sales during the most
recently completed fiscal year. No customer or distributor that accounted for
revenue to CTPL during its most recently completed fiscal year of US$100,000 or
more has canceled or otherwise terminated its relationship with CTPL during the
last 12 months, nor materially decreased its usage or purchases of the services
or products of CTPL during that period. To Chiron's and CTPL's knowledge, no
customer or distributor of CTPL has any plan or intention to terminate, cancel
or otherwise materially and adversely alter its relationship with CTPL or to
decrease materially or limit its usage or purchase of CTPL's products or
services.

         3.11 ENVIRONMENTAL MATTERS.

              (a) As of the date hereof, no amount of any substance that has
been designated by applicable law or regulation to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, excluding office,
janitorial and similar substances (a "HAZARDOUS MATERIAL"), is present, as a
result of the actions of CTPL or, to Chiron's or CTPL's actual knowledge, as a
result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water, that CTPL has at any time owned, operated, occupied, or leased, except
for Hazardous Materials that are stored in appropriate containers at CTPL's
facilities for use in CTPL's business in compliance with applicable
environmental laws and regulations. To the knowledge of Chiron and CTPL, no
underground storage tanks are present under any property that CTPL has at any
time owned, operated, occupied, or leased.

              (b) At no time has CTPL transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to any Hazardous
Materials (collectively, "HAZARDOUS MATERIALS ACTIVITIES") in violation of any
law, rule, regulation or treaty promulgated by any Governmental Entity.

              (c) CTPL currently holds all environmental approvals, permits,
licenses, clearances and consents (the "ENVIRONMENTAL PERMITS") necessary for
the conduct of its business as such businesses is currently being conducted.

              (d) No action, proceeding, writ, injunction or claim is pending
or, to the knowledge of Chiron or CTPL, threatened concerning any Environmental
Permit or any Hazardous Materials Activity of CTPL. Neither Chiron nor CTPL is
aware of any fact or circumstance which could reasonably be expected to involve
CTPL in any environmental litigation or impose upon CTPL any liability
concerning Hazardous Materials Activities.

         3.12 SUPPLY OF GOING CONCERN. CTPL is selling to Mimotopes all of the
assets that are necessary for the continued operation of the Business and has
conducted the Business on a continual basis until the Closing Date.


                                       12




         3.13 EMPLOYEE BENEFIT PLANS.

              (a) CTPL has set forth in Schedule B to the Attorney Letter (i)
all employee benefit plans, (ii) all superannuation funds, bonus, option,
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar employee benefit plans, and (iii) all unexpired severance
agreements, written or otherwise, for the benefit of, or relating to, any
current or former employee of CTPL (individually, a "CTPL EMPLOYEE PLAN," and
collectively, the "CTPL EMPLOYEE PLANS").

              (b) With respect to each CTPL Employee Plan, CTPL has made
available to MitoKor and Mimotopes a true and correct copy of (i) such CTPL
Employee Plan and (ii) each trust agreement and group annuity contract, if any,
relating to such CTPL Employee Plan.

              (c) Except as set forth in Schedule B to the Attorney Letter, with
respect to the CTPL Employee Plans, individually and in the aggregate, no event
has occurred, and there exists no condition or set of circumstances in
connection with which CTPL could be subject to any liability.

              (d) With respect to the CTPL Employee Plans, individually and in
the aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise properly
footnoted in accordance with Australian generally accepted accounting
principles, on the Financial Statements.

              (e) Except as set forth on Schedule B to the Attorney Letter, CTPL
is not a party to or bound by any oral or written (i) agreement with any
officer, director or other key employee of CTPL, the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving CTPL of the nature contemplated by this Agreement; (ii)
agreement with any officer or director of CTPL providing any term of employment
or compensation guarantee or for the payment of compensation in excess of
AU$100,000 per annum; (iii) agreement or plan, including any option plan,
appreciation plan, or purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement; or (iv) any federal, state or
territory awards or certified agreement in relation to its employees.

              (f) Except as set forth on Schedule B to the Attorney Letter,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director or employee of CTPL from CTPL,
under any of the Employee Plans or otherwise; (ii) materially increase any
benefits otherwise payable under any of the Employee Plans or otherwise; or
(iii) result in the acceleration of the time of payment or vesting of any
benefits.


                                       13




         3.14 COMPLIANCE WITH LAWS. CTPL has complied with, is not in violation
of, and has not received any notices of violation with respect to, any statute,
law or regulation applicable to the ownership or operation of its business,
including compliance with all Australian immigration laws for which
noncompliance would have a Material Adverse Effect on CTPL. All returns,
particulars, resolutions and other documents required to be delivered to the
Australian Securities Commission or another authority have been delivered.

         3.15 EMPLOYEES AND CONSULTANTS. Schedule B to the Attorney Letter
contains a list of the names of all employees and consultants of CTPL as of the
date of this Agreement and their salaries or wages, other compensation, dates of
employment and positions.

         3.16 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or known investigation pending before any agency, court or tribunal
or, to the knowledge of Chiron and CTPL, threatened against CTPL or any of its
respective properties or directors, officers or employees (in their capacities
as such). There is no judgment, decree or order against CTPL or, to the
knowledge of Chiron and CTPL, any of its directors, officers or employees (in
their capacities as such) that could prevent, enjoin or materially alter or
delay any of the transactions contemplated by this Agreement, or that could
reasonably be expected to have a Material Adverse Effect on CTPL or the
Purchased Assets. All litigation to which CTPL is a party as of the date hereof
(or, to the knowledge of Chiron and CTPL, threatened to become a party) is
disclosed in the Disclosure Schedule.

         3.17 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon CTPL that has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or currently proposed business practice of CTPL or the conduct of
the Business as currently conducted.

         3.18 TITLE TO PURCHASED ASSETS. Upon consummation of the transactions
contemplated hereby, Mimotopes will have acquired good and marketable title in
and to, or a valid leasehold interest in, each of the Purchased Assets, free and
clear of all liens, except Permitted Liens.

         3.19 GOVERNMENTAL AUTHORIZATION. CTPL has obtained each governmental
consent, license, permit, grant or other authorization of a Governmental Entity
that is required for the operation of the business of CTPL or the Purchased
Assets (collectively, the "CTPL AUTHORIZATIONS"), and all of such CTPL
Authorizations are in full force and effect.

         3.20 INTERESTED PARTY TRANSACTIONS. No director, officer or employee of
CTPL has any interest in (i) any material equipment or other material property
or asset, real or personal, tangible or intangible, including, without
limitation, any of the CTPL Intellectual Property Rights, used in connection
with or pertaining to the business of CTPL; (ii) any creditor, supplier,
customer, manufacturer, agent, representative, or distributor of CTPL products;
(iii) any entity that competes with CTPL, or with which CTPL is affiliated or
has a business relationship; or (iv) any material agreement, obligation or
commitment, written or oral, to which CTPL is a party; PROVIDED, HOWEVER, that
no such person shall be deemed to have such an interest solely by virtue of
ownership of less than five percent (5%) of the outstanding stock or debt
securities of any company whose stock or debt securities are traded on a
recognized stock exchange.


                                       14




         3.21 INVESTMENT REPRESENTATIONS. In connection with the proposed
issuance of the Series E Shares to Chiron by virtue of CTPL's distribution of
the Series E Shares to Chiron, Chiron and CTPL hereby, jointly and severally,
agree, represent and warrant as follows:

              (a) CTPL intends to transfer all Series E Shares to Chiron as soon
as is practicable after the Closing Date. In the event that CTPL fails to
transfer such stock, for whatever reason, the following representations and
warranties shall apply to CTPL;

              (b) Chiron is obtaining the Series E Shares solely for its own
account for investment and not with a view to, or for resale in connection with,
any distribution thereof within the meaning of the Securities Act of 1933 as
amended (the "ACT"). Chiron further represents that it does not have any present
intention of selling, offering to sell or otherwise disposing of or distributing
the Series E Shares or any portion thereof; and that the entire legal and
beneficial interest of the Series E Shares it is purchasing is being purchased
for, and will be held for the account of, Chiron only and neither in whole nor
in part for any other person.

              (c) Chiron is aware of MitoKor's business affairs and financial
condition and has acquired sufficient information about MitoKor to reach an
informed and knowledgeable decision to acquire the Series E Shares. Chiron
further represents and warrants that it has discussed MitoKor and its plans,
operations and financial condition with its officers, has received all such
information as it deems necessary and appropriate to enable it to evaluate the
financial risk inherent in making an investment in the Series E Shares and has
received satisfactory and complete information concerning the business and
financial condition of MitoKor in response to all inquiries in respect thereof.

              (d) Chiron realizes that its purchase of the Series E Shares will
be a highly speculative investment, and it is able, without impairing its
financial condition, to hold the Series E Shares for an indefinite period of
time and to suffer a complete loss on his investment.

              (e) MitoKor has disclosed to Chiron that:

                  (i)    The sale of the Series E Shares has not been registered
under the Act, and the Series E Shares must be held indefinitely unless a
transfer of it is subsequently registered under the Act or an exemption from
such registration is available, and that MitoKor is under no obligation to
register the Series E Shares;

                  (ii)   MitoKor will make a notation in its records of the
aforementioned restrictions on transfer and legends.

              (f) Chiron is aware of the provisions of Rule 144, promulgated
under the Act, which, in substance, permits limited public resale of "restricted
securities" acquired, directly or indirectly, from the issuer thereof (or an
affiliate of such issuer), in a non-public offering subject to the satisfaction
of certain conditions, including among other things: the resale occurring not
less than one year from the date Chiron has purchased and paid for the Series E
Shares; the availability of certain public information concerning MitoKor; the
sale being through a broker in an unsolicited "broker's transaction" or in a
transaction directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and that any sale of the Series E Shares may
be made by him only in limited amounts during any three-month period not


                                       15




exceeding specified limitations. Chiron further represents that it understands
that at the time it wishes to sell the Series E Shares there may be no public
market upon which to make such a sale, and that, even if such a public market
then exists, MitoKor may not be satisfying the current public information
requirements of Rule 144, and that, in such event, it would be precluded from
selling the Series E Shares under Rule 144 even if the one-year minimum holding
period had been satisfied. Chiron represents that it understands that in the
event all of the requirements of Rule 144 are not satisfied, registration under
the Act or compliance with an exemption from registration will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.

              (g) Chiron acknowledges that the certificate representing the
Series E Shares will bear the following legend:

         "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."

              (h) Without in any way limiting Chiron's representations and
warranties set forth above, Chiron further agrees that it shall in no event make
any disposition of all or any portion of the Series E Shares which it is
purchasing unless and until:

                  (i)    There is then in effect a registration statement under
the Act covering such proposed disposition and such disposition is made in
accordance with said registration statement; or

                  (ii)   Chiron shall have (1) notified MitoKor of the proposed
disposition and furnished MitoKor with a detailed statement of the circumstances
surrounding the proposed disposition, and (2) furnished MitoKor with an opinion
of its own counsel to the effect that such disposition will not require
registration of such shares under the Act, and such opinion of his counsel shall
have been concurred in by counsel for MitoKor and MitoKor shall have advised
Chiron of such concurrence.

         3.22 INFORMATION; NO MISREPRESENTATION. Chiron and CTPL have disclosed
all documents and information known to them that a person would reasonably want
to know in connection with the purchase of the Purchased Assets. No
representation or warranty made by either Chiron or CTPL in this Agreement, or
any written statement, certificate or schedule


                                       16




furnished or to be furnished by or on behalf of either Chiron or CTPL pursuant
to this Agreement, including during any due diligence investigations conducted
by MitoKor or its advisors, when taken together, contains or shall contain any
untrue statement of a material fact or omits or shall omit to state a material
fact required to be stated therein or necessary in order to make such
statements, in light of the circumstances under which they were made, not
misleading. CTPL has delivered or made available to MitoKor and Mimotopes or its
representatives true and complete copies of all documents which are referred to
in this Section 3 or in the Disclosure Schedule.

    4.   REPRESENTATIONS AND WARRANTIES OF MITOKOR AND MIMOTOPES

         Except as set forth on the Schedule of Exceptions (the "SCHEDULE OF
EXCEPTIONS"), MitoKor and Mimotopes jointly and severally represent and warrant
to Chiron and CTPL as set forth below in this Article 4. The qualifications or
exceptions on the Schedule of Exceptions shall be deemed to qualify only
specifically identified Sections hereof and Sections to which any qualification
or exception is reasonably obviously related.

         4.1  ORGANIZATION AND STANDING OF MIMOTOPES. Mimotopes is a proprietary
company duly organized, validly existing and in good standing under the laws of
the jurisdiction of its formation, has all requisite power to own, lease,
license, and operate its properties and to carry on its business as currently
proposed to be conducted, and is duly qualified to transact business and is in
good standing in each jurisdiction in which the nature of its operations
requires such qualification, except where the failure to so qualify has not and
will not have a Material Adverse Effect on Mimotopes. Mimotopes has made
available to CTPL complete and correct copies of the charter documents of
Mimotopes, in each case as amended to the date of this Agreement, and copies of
all minutes of meetings and actions by written consent of shareholders,
directors and board committees of Mimotopes. Mimotopes is not in violation of
any of the provisions of its charter documents. Mimotopes does not directly or
indirectly own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.

         4.2  AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.

              (a) Each of MitoKor and Mimotopes has all requisite corporate
power and authority to enter into this Agreement and the other Transaction
Documents to which each is or will be a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the other Transaction Documents to which each is or will be a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of each of MitoKor and
Mimotopes. This Agreement and the other Transaction Documents to which MitoKor
and Mimotopes are a party have been or will be duly executed and delivered by
MitoKor and Mimotopes and constitute or will constitute the valid and binding
obligations of MitoKor and Mimotopes, enforceable in accordance with their
terms, except as such enforceability may be limited by bankruptcy laws and other
similar laws affecting creditors' rights generally and general principles of
equity.


                                       17




              (b) The execution and delivery by each of MitoKor and Mimotopes of
this Agreement, the other Transaction Documents to which each is or will be a
party do not, and the consummation of the transactions contemplated hereby and
thereby will not, (i) conflict with, or result in any violation or breach of any
provision of the charter documents of MitoKor and Mimotopes, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default under, or give rise to a right of termination, cancellation
or acceleration of any material obligation or loss of any material benefit
under, any note, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which MitoKor or Mimotopes is a party or by which it
or any of their properties or assets may be bound, or (iii) conflict with or
violate any permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to MitoKor or Mimotopes
or any of its properties or assets, except in the case of (ii) and (iii) for any
such conflicts, violations, defaults, terminations, cancellations or
accelerations which would not have a Material Adverse Effect on MitoKor or
Mimotopes.

              (c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to MitoKor or Mimotopes in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for consents, authorizations, filings, approvals and
registrations that, if not obtained or made, would not prevent or materially
alter or delay any of the transactions contemplated by this Agreement or would
not have a Material Adverse Effect on MitoKor or Mimotopes.

         4.3  ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS OF MITOKOR.
MitoKor is a corporation duly organized, validly existing and in good standing
under the laws of the State of California and has all requisite corporate power
and authority to carry on its businesses as now conducted and as proposed to be
conducted. MitoKor is qualified or licensed to do business as a foreign
corporation in all jurisdictions where such qualification or licensing is
required, except where the failure to so qualify would not have a Material
Adverse Effect upon MitoKor. Copies of MitoKor's Articles of Incorporation,
Bylaws, minutes and consents of shareholders and of the Board of Directors are
available for inspection at MitoKor's offices and have been previously provided
to Chiron.

         4.4  CAPITALIZATION. The authorized capital stock of MitoKor is
13,000,000 shares of Common Stock, of which 170,206 shares are issued and
outstanding and 12,000,000 shares of Preferred Stock issuable in series, of
which (i) 52,000 shares are designated Series A-1 Preferred Stock, 52,000 shares
of which are issued and outstanding; (ii) 8,400 shares are designated Series B
Preferred Stock, 7,200 shares of which are issued and outstanding; (iii) 90,000
shares are designated Series B-1 Preferred Stock, 90,000 of which are issued and
outstanding; (iv) 30,000 shares are designated Series B-2 Preferred Stock,
30,000 of which are issued and outstanding; (v) 30,000 shares are designated
Series B-3 Preferred Stock, 30,000 of which are issued and outstanding; (vi)
3,600 shares are designated Series B-4 Preferred Stock, 3,600 of which are
issued and outstanding; (vii) 3,320,000 shares are designated Series C Preferred
Stock, 3,292,431 of which are issued and outstanding; (viii) 3,500,000 shares
are designated Series D Preferred Stock, 3,351,042 of which are issued and
outstanding; (ix) 3,500,000 shares are designated Series D-1 Preferred Stock,
none of which are issued and outstanding; and (x) 900,000 shares are designated
Series E Preferred Shares, 333,334 of which



                                       18




are issued and outstanding. All such issued and outstanding shares have been
duly authorized and validly issued, are fully paid and nonassessable, and were
issued in compliance with all applicable state and federal laws concerning the
issuance of securities. MitoKor has reserved 113,043 shares of Common Stock for
issuance upon the conversion of Series A-1 Preferred Stock, 574,285 shares of
Common Stock for issuance upon the conversion of Series B Preferred Stock,
Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred
Stock and Series B-4 Preferred Stock, 3,320,000 shares of Common Stock for
issuance upon the conversion of Series C Preferred Stock, 3,500,000 shares of
Common Stock for issuance upon the conversion of Series D Preferred Stock,
3,500,000 shares of Common Stock for issuance upon the conversion of Series D-1
Preferred Stock, 900,000 shares of Common Stock for issuance upon the conversion
of Series E Preferred Stock, 67,042 shares of Common Stock for issuance pursuant
to the exercise of outstanding Common Stock purchase warrants, 16,000 shares of
Series C Preferred Stock for issuance pursuant to the exercise of Series C
Preferred Stock purchase warrants, 7,000 shares of Series D Preferred Stock for
issuance pursuant to the exercise of Series D Preferred Stock purchase warrants,
19,833 shares of Series E Preferred Stock for issuance pursuant to the exercise
of Series E Preferred Stock purchase warrants, 1,505,074 shares of Common Stock
for issuance to employees, directors, and consultants pursuant to its Amended
and Restated 1993 Stock Option Plan and 2,480 shares of Common Stock for
issuance upon exercise of nonstatutory options granted by MitoKor in 1991 and
1992. The holders of any and all rights, warrants or conversion rights to
purchase or acquire from MitoKor any of its capital stock, along with the number
of shares of capital stock issuable upon exercise of such rights, are set forth
on the Schedule of Exceptions. Except for such rights, there are no outstanding
rights, warrants, conversion rights or agreements for the purchase or
acquisition from MitoKor of any shares of its capital stock. The rights,
privileges and preferences of the Series E Preferred Stock are as set forth in
the Amended and Restated Articles of Incorporation (the "ARTICLES") attached
hereto as EXHIBIT O.

         4.5  AUTHORIZATION.

              (a) VALID ISSUANCE. The Series E Shares, when issued in compliance
with the provisions of this Agreement and the shares of Common Stock issuable
upon conversion of the Series E Shares when issued in accordance with the
provisions of the Articles, will be duly authorized, validly issued, fully paid
and nonassessable. The Series E Shares are free of any liens or encumbrances
caused or created by MitoKor; provided, however, that, as set forth herein, all
such shares may be subject to restrictions on transfer under state and/or
federal securities laws, and as may be required by future changes in such laws.

              (b) NO PREEMPTIVE RIGHTS. Except as set forth in the Rights
Agreement, no person has any right of first refusal or any preemptive rights in
connection with the issuance of the Series E Shares, the issuance of the Common
Stock upon conversion of the Series E Shares or any future issuances of
securities by MitoKor.

         4.6  PATENTS AND OTHER PROPRIETARY RIGHTS. The Schedule of Exceptions
contains a full and complete list of all patents and patent applications,
trademarks and trademark applications, trade names, service marks and service
mark applications and copyrights owned or used by MitoKor or in which it has any
rights or licenses. MitoKor has entered into agreements with each of its
officers, employees and consultants providing MitoKor, to the extent permitted


                                       19




by law, with title and ownership to patents, patent applications, trade secrets
and inventions conceived, developed, reduced to practice by or at the direction
of such person, solely or jointly, during the period of employment by MitoKor.
Except as described in the Schedule of Exceptions:

              (a) MitoKor owns or possesses adequate licenses or other rights
(or is able to obtain adequate licenses, rights or purchase options on terms
that will not materially and adversely affect its business) to use all patents,
patent applications, trademarks, trademark applications, trade secrets, service
marks, service mark applications, trade names, copyrights, inventions, drawings,
designs, customer lists, proprietary know-how or information, or other rights
with respect thereto (collectively referred to as "MITOKOR PROPRIETARY RIGHTS"),
used in the business of MitoKor, and the same are sufficient to conduct its
business as it has been conducted, is now being conducted and is currently
proposed to be conducted. To the knowledge of MitoKor, the operations of
MitoKor's business as now conducted and as currently proposed to be conducted do
not and will not conflict with or infringe, and no one has asserted to MitoKor
that such operations conflict with or infringes, any proprietary rights claimed,
owned, possessed or used by any third party.

              (b) There are no claims, disputes, actions, proceedings, suits or
appeals pending against MitoKor with respect to any MitoKor Proprietary Rights
(other than those, if any, with respect to which service of process or similar
notice has not yet been made on MitoKor), and, to the knowledge of MitoKor, none
has been threatened against MitoKor. To the knowledge of MitoKor, there are no
facts or alleged facts that would reasonably serve as a basis for any claim that
MitoKor does not have the unrestricted right to use, free of any rights or
claims of others, all MitoKor Proprietary Rights in the development,
manufacture, use, sale or other disposition of any or all products or services
presently being used, furnished or sold in the conduct of the business of
MitoKor or currently contemplated to be used, furnished or sold in the business
of MitoKor.

              (c) To the knowledge of MitoKor, MitoKor Proprietary Rights have
not been infringed by others.

              (d) There are no outstanding options, licenses or agreements of
any kind relating to MitoKor Proprietary Rights, nor is MitoKor bound by or a
party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity.

              (e) Neither the execution nor delivery of this Agreement, nor the
carrying on of MitoKor's business by the employees of MitoKor, nor the conduct
of MitoKor's business as currently proposed, will, to MitoKor's knowledge,
conflict with or result in a breach of the terms, conditions, or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated.


         4.7  COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. MitoKor
is not in violation of any term of its Articles or Bylaws, nor is MitoKor in
violation of or in default in any material respect under the terms of any
mortgage, indenture, contract, agreement,


                                       20




instrument, judgment, or decree, the violation of which would have a Material
Adverse Effect on MitoKor, and to the knowledge of MitoKor, is not in violation
of any order, statute, rule or regulation applicable to MitoKor, the violation
of which would have a Material Adverse Effect on MitoKor. The execution,
delivery and performance of and compliance with this Agreement or the Rights
Agreement, and the issuance of the Series E Shares will not (a) result in any
such violation; or (b) be in conflict with or constitute a default under any
such term; or (c) result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of MitoKor pursuant
to any such term. To the knowledge of MitoKor, there is no such term that has a
Material Adverse Effect on MitoKor, or, so far as MitoKor may now foresee, in
the future may have a Material Adverse Effect on the business, condition,
affairs or operations of MitoKor or any of its properties or assets.

         4.8  PROPRIETARY AGREEMENTS; EMPLOYEES. All technical and management
personnel and consultants presently employed by or hired by MitoKor have
executed an agreement regarding confidentiality and proprietary information, the
form of which has been provided to Chiron. MitoKor is not aware that any of its
employees or consultants are in violation thereof and will use reasonable
efforts to prevent any such violation. MitoKor is not aware that any of its
employees or consultants are obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
MitoKor or that would conflict with MitoKor's business as conducted or as
proposed to be conducted or that would prevent any such employee from assigning
inventions to MitoKor. MitoKor does not believe that it is or will be necessary
for MitoKor to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment or engagement by
MitoKor.

         4.9  CONDITION OF PROPERTIES. All buildings, facilities, machinery,
equipment, fixtures, vehicles and other properties owned, leased or used by
MitoKor (a) are in good operating condition and repair (reasonable wear and tear
excepted); (b) to the best of MitoKor's knowledge, are being operated in
conformity with all applicable building, safety, zoning, environmental, waste;
and other applicable ordinances, laws and regulations; and (c) are adequate and
sufficient for MitoKor's business as presently conducted.

         4.10 LITIGATION, ETC. There is no action, proceeding or investigation
pending against MitoKor or, to MitoKor's knowledge, its officers, directors or
shareholders, or to MitoKor's knowledge, against employees or consultants of
MitoKor (or, to MitoKor's knowledge, any basis therefor or threat thereof) that:
(a) might result, either individually or in the aggregate, in (i) any Material
Adverse Effect in the business, conditions, affairs or operations of MitoKor or
in any of its properties or assets, or (ii) any material adverse impairment of
the right or ability of MitoKor to carry on its business as now conducted or as
proposed to be conducted, or (iii) any material liability on the part of
MitoKor; or (b) questions the validity of this Agreement, the Rights Agreement
or any action taken or to be taken in connection herewith or therewith,
including in each case, without limitation, actions pending or threatened
involving the prior employment of any of MitoKor's employees, the use in
connection with MitoKor's business of any information or techniques allegedly
proprietary to any of its former employees, or their obligations under any
agreements with prior employers. MitoKor is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or


                                       21




government agency or instrumentality. There is no action, suit, proceeding or
investigation by MitoKor currently pending or that MitoKor currently intends to
initiate.

         4.11 GOVERNMENTAL CONSENT, ETC. Based in part upon the representations
and warranties of Chiron and CTPL in Section 3.21 hereof, no consent, approval
or authorization of or designation, declaration or filing with any governmental
authority on the part of MitoKor is required in connection with: (a) the valid
execution and delivery of this Agreement or the Rights Agreement; or (b) the
offer, sale or issuance of the Series E Shares or the issuance of the shares of
Common Stock issuable upon conversion of the Series E Shares, except the filing
of the Articles and, if required, filings or qualifications under applicable
blue sky laws, which filings or qualifications, if required, will have been
timely filed or obtained after the sale of the Series E Shares.

         4.12 OFFERING. In reliance on the representations and warranties of
Chiron and CTPL in Section 3.21 hereof, the offer, sale and issuance of the
Series E Shares in conformity with the terms of this Agreement will not result
in a violation of the requirements of Section 5 of the Securities Act of 1933,
as amended (the "SECURITIES ACT") or the qualification or registration
requirements of the California Corporate Securities Law of 1968, as amended (the
"LAW") or other applicable blue sky laws, and neither MitoKor nor any authorized
agent acting on its behalf will take any action hereafter that would cause the
loss of such exemption.

         4.13 TAXES. MitoKor has filed all tax returns that are required to have
been filed with appropriate federal, state, county and local governmental
agencies or instrumentalities, except where the failure to do so would not have
a material adverse effect upon MitoKor, taken as a whole. MitoKor has paid or
established reserves for all material income, franchise and other taxes,
assessments, governmental charges, penalties, interest and fines due and payable
by them on or before the Closing. There is no pending dispute with any taxing
authority relating to any of such returns and MitoKor has no knowledge of any
proposed liability for any tax to be imposed upon the properties or assets of
MitoKor for which there is not an adequate reserve reflected in the Financial
Statements (as defined below) or, if adversely determined against MitoKor, would
have a material adverse effect. MitoKor has not elected pursuant to the Internal
Revenue Code of 1986, as amended (the "CODE"), to be treated as a Subchapter S
corporation nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material effect on MitoKor, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets.

         4.14 TITLE. MitoKor owns its properties and assets, including the
properties and assets reflected in the Financial Statements (as defined in
Section 4.16), free and clear of all liens, mortgages, loans or encumbrances
except liens for current taxes, and such encumbrances and liens which arise in
the ordinary course of business and do not materially impair MitoKor's ownership
or use of such property or assets. With respect to the property and assets
leased by MitoKor, MitoKor is in compliance with such leases and holds valid
leasehold interests free and clear of any liens, claims or encumbrances.


                                       22




         4.15 MATERIAL CONTRACTS AND COMMITMENTS. All of the contracts,
mortgages, indentures, agreements, instruments and transactions to which MitoKor
is a party or by which it is bound (including purchase orders to MitoKor or
placed by MitoKor) which involve obligations of, or payments to, MitoKor in
excess of One Hundred Thousand Dollars (US$100,000) and all agreements between
MitoKor and its officers, directors, consultants and employees are set forth on
the Schedule of Exceptions (the "CONTRACTS"), copies of which have been made
available to the Purchaser. All of the Contracts are valid, binding and in full
force and effect in all material respects and enforceable by MitoKor in
accordance with their respective terms in all material respects, subject to the
effect of applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of creditors'
rights and rules or laws concerning equitable remedies. MitoKor is not in
material default under any of such Contracts. To MitoKor's knowledge, no other
party to any of the Contracts is in material default thereunder.

         4.16 FINANCIAL STATEMENTS. MitoKor has delivered to Chiron its audited
financial statements for the fiscal year ended December 31, 1998 and its
unaudited financial statements dated October 31, 1999 (collectively, the
"FINANCIAL STATEMENTS"). The Financial Statements are complete and correct in
all material respects and have been prepared on a consistent basis throughout
the relevant periods. The Financial Statements accurately set out and describe
the financial condition and operating results of MitoKor as of the dates, and
during the periods, indicated therein. Except as set forth in the Financial
Statements, as of the Closing Date MitoKor has no material liabilities of any
nature (matured or unmatured, fixed or contingent). MitoKor maintains and will
continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.

         4.17 ABSENCE OF CHANGES. Except as contemplated by this Agreement since
October 31, 1999: (a) MitoKor has not entered into any transaction which was not
in the ordinary course of business; (b) there has been no material adverse
change in the condition (financial or otherwise) of the business, property,
assets or liabilities of MitoKor other than changes in the ordinary course of
business, none of which, individually or in the aggregate, has been materially
adverse; (c) there has been no damage to, destruction of or loss of physical
property (whether or not covered by insurance) materially adversely affecting
the assets, financial condition, operating results, business or operations of
MitoKor; (d) MitoKor has not declared or paid any dividend or made any
distribution on its stock, or redeemed, purchased or otherwise acquired any of
its stock; (e) MitoKor has not materially changed any compensation arrangement
or agreement with any of its key employees or executive officers, or materially
changed the rate of pay of its employees as a group; (f) MitoKor has not
received notice that there has been a cancellation of an order for MitoKor's
products or a loss of a customer of MitoKor, the cancellation or loss of which
would materially adversely affect the business of MitoKor; (g) MitoKor has not
changed or amended any material contract by which MitoKor or any of its assets
are bound or subject; (h) there has been no resignation or termination of
employment of any key officer or employee of MitoKor and MitoKor does not know
of any impending resignation or termination of employment of any such key
officer or employee; (i) there has been no labor dispute involving MitoKor or
its employees and none is pending or, to the best of MitoKor's knowledge,
threatened; (j) there has been no change, except in the ordinary course of
business, in the material contingent obligations of MitoKor (nor in any
contingent obligation of MitoKor regarding any director, shareholder or key
employee or officer of



                                       23




MitoKor) by way of guaranty, endorsement, indemnity, warranty or otherwise; (k)
there have been no loans made by MitoKor to any of its employees, officers or
directors other than travel advances and other advances made in the ordinary
course of business; (l) there has been no waiver by MitoKor of a valuable right
or of a material debt owing to it; (m) there has not been any satisfaction or
discharge of any lien, claims or encumbrance or any payment of any obligation by
MitoKor, except in the ordinary course of business and which is not material to
the assets, properties, financial condition, operating results or business of
MitoKor; and (n) to the best of the knowledge of MitoKor, there has been no
other event or condition of any character pertaining to and materially adversely
affecting the assets or business of MitoKor.

         4.18 OUTSTANDING INDEBTEDNESS. Except as disclosed in the Financial
Statements, MitoKor has no indebtedness for borrowed money which it has directly
or indirectly created, incurred, assumed or guaranteed, or with respect to which
it has otherwise become liable, directly or indirectly. MitoKor has no material
liability or obligation in excess of US$50,000, absolute or contingent, which is
not shown or provided for in the latest Financial Statements, except obligations
under purchase orders, sales contracts, real property leases, equipment leases
or similar obligations incurred in the ordinary course of business.

         4.19 REGISTRATION RIGHTS. MitoKor has not granted or agreed to grant
any rights to register as that term is defined in the Rights Agreement,
including piggyback registration rights, to any person or entity.

         4.20 CERTAIN TRANSACTIONS. MitoKor is not indebted, directly or
indirectly, to any of its officers, directors, or shareholders or to their
spouses or children, in any amount whatsoever; and none of said officers,
directors or, to MitoKor's knowledge, shareholders, or any member of their
immediate families, are indebted to MitoKor or have any direct or indirect
ownership interest in any firm or corporation with which MitoKor is affiliated
or with which MitoKor has a business relationship (except as a holder of
securities of a corporation whose securities are publicly traded and which is
subject to the reporting requirements of the Securities Exchange Act of 1934, to
the extent of owning not more than two percent (2%) of the issued and
outstanding securities of such corporation). No such officer, director or
shareholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with MitoKor. MitoKor is not
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.

         4.21 CORPORATE DOCUMENTS; MINUTE BOOKS. Except for amendments necessary
to satisfy representations and warranties or conditions contained herein, the
Articles and Bylaws of MitoKor are in the form previously provided to Chiron and
CTPL. The minute books of MitoKor previously made available to Chiron and CTPL
contain a complete summary of all meetings of directors and shareholders since
the time of incorporation of MitoKor.

         4.22 EMPLOYEE BENEFIT PLANS. MitoKor does not have any "employee
benefit plan" as defined in the Employee Retirement Income Security Act of 1974,
as amended.

         4.23 LABOR AGREEMENTS. MitoKor is not bound by or subject to (and none
of its assets or properties is bound by or subject to) any written or oral,
express or implied, contract, commitment or arrangement with any labor union,
and no labor union has requested or, to


                                       24




MitoKor's knowledge, has sought to represent any of the employees,
representatives or agents of MitoKor. There is no strike or other labor dispute
involving MitoKor pending, or to MitoKor's knowledge, threatened, that could
have a Material Adverse Effect on the assets, properties, financial condition,
operating results, or business of MitoKor (as such business is presently
conducted and as it is proposed to be conducted), nor is MitoKor aware of any
labor organization activity involving its employees.

         4.24 REAL PROPERTY HOLDING CORPORATION. MitoKor is not a "real property
holding corporation" within the meaning of Section 897(c)(2) of the United
States Internal Revenue Code of 1986, as amended.

         4.25 DISCLOSURE. No representation or warranty by MitoKor in this
Agreement, or in any document or certificate furnished or to be furnished to the
Purchaser pursuant hereto or in connection with the transactions contemplated
hereby, when taken together, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements made herein and therein, in the light of the circumstances under
which they were made, not misleading.

         4.26 INSURANCE. MitoKor maintains insurance covering property damage
and liability reasonably prudent under commercially reasonable practices.

         4.27 SHAREHOLDER AGREEMENTS. Except as otherwise contemplated by this
Agreement, (a) there are no agreements or arrangements between MitoKor and any
of MitoKor's shareholders or to MitoKor's knowledge, between any of MitoKor's
shareholders that materially and adversely affect any shareholder's ability or
right freely to alienate or vote such shares and (b) to MitoKor's knowledge,
none of MitoKor's shareholders is affiliated with or has any agreements or
arrangements with any customer of, or supplier to, MitoKor.

         4.28 ENVIRONMENTAL MATTERS.

              (a) MitoKor has not caused or allowed, nor has MitoKor contracted
with any party for, the generation, use, transportation, treatment, storage or
disposal of any Hazardous Substances (as defined below) in connection with the
operations of its business or otherwise.

              (b) MitoKor, the operations of its business, and any real property
that MitoKor owns, leases, or otherwise occupies or uses (the "PREMISES") are in
compliance with all applicable Environmental Laws (as defined below) and orders
or directives of any governmental authorities having jurisdiction under such
Environmental Laws including, without limitation, any Environmental Laws or
orders or directives with respect to any cleanup or remediation of any release
or threat of release of Hazardous Substances.

              (c) MitoKor has not received any citation, directive, letter or
other communication, written or oral, or any notice of any proceedings, claims
or lawsuits, from any person, entity or governmental authority arising out of
the ownership or occupation of the Premises, or the conduct of its operations,
nor is it aware of any basis thereof.


                                       25




              (d) MitoKor has obtained and is maintaining in full force and
effect all necessary permits, licenses and approvals required by any
Environmental Laws applicable to the Premises and the business operations
conducted thereon (including operations conducted by tenants on the Premises)
and is in compliance with all such permits, licenses and approvals.

              (e) MitoKor has not caused, or allowed a release, or a threat of
release, of any Hazardous Substance unto, nor to MitoKor's knowledge has the
Premises or any property at or near the Premises ever been subject to a release,
or a threat of a release, of any Hazardous Substance.

         The term, "Environmental Laws" shall mean any federal, state or local
law, ordinance or regulation pertaining to the protection of human health or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq.,
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901,
et seq.

         The term, "Hazardous Substance" includes oil and petroleum products,
asbestos, polychlorinated biphenyls and urea formaldehyde, and any other
materials classified as hazardous or toxic under any Environmental Laws.

         4.29 MANUFACTURING RIGHTS. MitoKor has not granted rights to
manufacture, produce, license or sell its products to any other person and is
not bound by any agreement that affects MitoKor's exclusive right to manufacture
or sell its products.

         4.30 ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS OF OTHER PERSONS.
MitoKor has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on any indebtedness of any other person (including, without
limitation, liability by way of agreement, contingent or otherwise, to purchase,
to provide funds for payment, to supply funds to or otherwise invest in the
debtor, or otherwise to assure the creditor against loss), except for guaranties
by endorsement of negotiable instruments for deposit or collection in the
ordinary course of business.

         4.31 MATERIAL CUSTOMERS AND SUPPLIERS. No material customer of, or
material supplier to, MitoKor has terminated, materially reduced or threatened
to terminate or materially reduce its purchases from or provision of products or
services to MitoKor, as the case may be.

    5.   ADDITIONAL AGREEMENTS

         5.1  COOPERATION. From the date hereof, MitoKor and Mimotopes shall
confer and cooperate with Chiron and CTPL in connection with the dissolution of
CTPL and shall reasonably promptly provide Chiron, CTPL or their counsel with
any information or documentation requested by Chiron or CTPL in good faith in
connection with the liquidation of CTPL. From the date hereof, Chiron shall
confer and cooperate with MitoKor and Mimotopes and shall reasonably promptly
provide MitoKor, Mimotopes or their counsel with any information or
documentation requested from time to time by MitoKor or Mimotopes in good faith.


                                       26




         5.2  CONSENTS. CTPL shall use all reasonable efforts to obtain all
necessary lien releases, consents, waivers and approvals under its material
agreements, contracts, licenses or leases as may be necessary or advisable to
consummate the transactions contemplated by this Agreement. To the extent that
CTPL's rights under any agreement, contract, commitment, or lease or with
respect to any other Purchased Asset to be assigned to Mimotopes hereunder may
not be assigned without the consent of another person which has not been
obtained, this Agreement shall not constitute an agreement to assign the same if
an attempted assignment would constitute a breach thereof or be unlawful, and
CTPL shall obtain any such required consent(s) as promptly as possible. If any
such consent shall not be obtained or if any attempted assignment would be
ineffective or would impair Mimotopes' rights under the Purchased Asset in
question so that Mimotopes would not in effect acquire the benefit of all such
rights, Chiron or CTPL, to the maximum extent permitted by law, shall act after
the Closing Date as Mimotopes' agent in order to obtain for Mimotopes the
benefits thereunder and shall cooperate, to the maximum extent permitted by law,
with Mimotopes in any other reasonable arrangement designed to provide such
benefits to Mimotopes.

         5.3  BROKERS OR FINDERS. The Parties agree that no entity or person has
a claim, directly or indirectly for liability for brokerage, financial advisor
or finder's fees or agent's commissions or any similar charges in connection
with this Agreement.

         5.4  ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. If after the Closing
Date any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest Mimotopes with full title to all of the Purchased
Assets, Chiron and CTPL shall take all such necessary action. In case at any
time after the Closing Date any further action is necessary or desirable to
provide for the assumption by Mimotopes of the Assumed Liabilities, Mimotopes
shall take all such necessary action.

         5.5  EXPENSES. The Parties shall each pay their own legal, accounting
and financial advisory fees and other out-of-pocket expenses related to the
negotiation, preparation and carrying out of this Agreement and the transactions
herein contemplated.

         5.6  SALES, TRANSFER AND DOCUMENTARY TAXES, ETC. CTPL and Mimotopes
agree to split all costs associated with and use commercially reasonable efforts
to minimize all federal, state and local sales, documentary and other stamp duty
or transfer taxes, if any, due as a result of the purchase, sale or transfer of
the Purchased Assets in accordance herewith whether imposed by law on CTPL or
Mimotopes.

         5.7  CONFIDENTIALITY. All information concerning MitoKor or Mimotopes
received by Chiron or CTPL (other than that information which is a matter of
public knowledge) shall not at any time, except in connection with this
Agreement and the transactions contemplated hereby, be used for the advantage
of, or disclosed by, Chiron and CTPL to any third person without the prior
written consent of MitoKor or Mimotopes. All information concerning Chiron or
CTPL received by MitoKor or Mimotopes (other than that information which is a
matter of public knowledge) shall not at any time, except in connection with
this Agreement and the transactions contemplated hereby, be used for the
advantage of, or disclosed by, MitoKor or Mimotopes to any third person without
the prior written consent of Chiron or CTPL. MitoKor, Mimotopes Chiron or CTPL,
may disclose the information on a confidential


                                       27




basis to their affiliates, employees, officers, agents, auditors, investment
bankers, consultants, counsel, directors, present and prospective lenders, and
state and federal regulatory agencies.

         5.8  USE OF CHIRON CONFIDENTIAL INFORMATION. MitoKor and Mimotopes
acknowledge that certain Chiron Confidential Information (as defined below) has
been made available to CTPL's employees in the past on an informal basis and
that such information is highly valuable to Chiron and not included in the
Purchased Assets. MitoKor and Mimotopes agree that it will keep confidential,
will cause its affiliates and employees to keep confidential, and will not use
in the conduct of its business, any Chiron Confidential Information. For
purposes of this Agreement "CHIRON CONFIDENTIAL INFORMATION" shall mean
information in the fields listed on Schedule 5.8 attached hereto to the extent
such information is not (i) known to MitoKor or Mimotopes other than by virtue
of prior confidential disclosure to the employees of CTPL; (ii) disclosed in
published literature, or otherwise generally known to the public through no
fault or omission of MitoKor or Mimotopes; (iii) obtained from a third party
free from any obligation of confidentiality to Chiron; or (iv) independently
developed by employees of MitoKor or Mimotopes.

         5.9  CTPL EMPLOYEES. Chiron and CTPL shall use their commercially
reasonable efforts to encourage CTPL's existing employees to accept employment
with Mimotopes.

         5.10 AFFIRMATIVE COVENANTS OF MITOKOR. MitoKor hereby covenants and
agrees as follows:

              (a) FINANCIAL INFORMATION. Until the first to occur of (a) the
date on which MitoKor is required to file a report with the SEC pursuant to
Section 13(a) of the Exchange Act, by reason of MitoKor having registered any of
its securities pursuant to Section 12(g) of the Exchange Act or (b) quotations
for the Common Stock of MitoKor are reported by the automated quotations system
operated by the National Association of Securities Dealers, Inc. or by an
equivalent quotations system or (c) shares of the Common Stock of MitoKor are
listed on a national securities exchange registered under Section 6 of the
Exchange Act, the Company will furnish to Chiron or CTPL:

                  (i)    as soon as practicable after the end of each fiscal
year, and in any event within 120 days thereafter, consolidated balance sheets
of MitoKor and its subsidiaries, if any, as at the end of such fiscal year, and
consolidated statements of operations and consolidated statements of changes in
financial position (or equivalent cash flow statements if required by the
Financial Accounting Standards Board) of MitoKor and its subsidiaries, if any,
for such year, prepared in accordance with generally accepted accounting
principles, all in reasonable detail and, certified by independent public
accountants of recognized national standing selected by MitoKor, and

                  (ii)   so long as CTPL or Chiron owns an aggregate of at least
thirty percent (30%) of the Preferred Shares acquired in connection with this
Agreement (including any Common Stock issued upon conversion of any Preferred
Shares) as soon as practicable after the end of each month and each quarter
(except the last month and last quarter of the fiscal year), and in any event
within 30 and 45 days, respectively, thereafter, consolidated


                                       28




balance sheets of MitoKor and its subsidiaries, if any, as of the end of such
month or quarter; and consolidated statements of income (or equivalent cash flow
statements if required by the Financial Standards Board), for such month or
quarter and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (except for required footnotes), all in
reasonable detail and signed, subject to changes resulting from year-end audit
adjustments, by the principal financial officer or chief executive officer of
MitoKor, and

                  (iii)  so long as CTPL or Chiron own an aggregate of at least
thirty percent (30%) of the Preferred Shares acquired in connection with this
Agreement (including any Common Stock issued upon conversion of any Preferred
Shares) as soon as practicable after its adoption or approval by MitoKor's Board
of Directors, but not later than the commencement of such fiscal year, an annual
plan for each fiscal year which shall include monthly capital and operating
expense budgets, cash flow statements, projected balance sheets and profit and
loss projections for each such month and for the end of the year, itemized in
such detail as the Board of Directors may reasonably determine. In addition,
within 30 days after the end of each calendar year, MitoKor will provide CTPL or
Chiron with a capitalization table showing (i) all stock of MitoKor issued and
outstanding for each class and series of stock and (ii) all options and warrants
outstanding.

              (b) CONFLICTS OF INTERESTS. MitoKor shall use its best efforts to
ensure that MitoKor's employees, during the term of their employment with
MitoKor, do not engage in activities which would result in a conflict of
interest with MitoKor. MitoKor's obligations hereunder include, but are not
limited to, requiring that MitoKor's employees devote their primary productive
time, ability and attention to the business of MitoKor (provided, however,
MitoKor's employees may engage in other business activity if such activity does
not materially interfere with their obligations to MitoKor), requiring that
MitoKor's employees enter into agreements regarding proprietary information and
confidentiality and preventing MitoKor's employees from engaging or
participating in any business that is in competition with the business of
MitoKor.

              (c) KEY MAN INSURANCE. MitoKor shall use reasonable efforts to
maintain in force, until canceled or modified with the approval of MitoKor's
Board of Directors, insurance policies on the lives of Walter H. Moos and Robert
E. Davis naming MitoKor as holder and beneficiary.

              (d) PROPRIETARY AGREEMENTS. MitoKor will use reasonable efforts to
prevent any employee from violating the confidentiality and proprietary
information agreement entered into between MitoKor and each of its employees.

              (e) FUTURE STOCK ISSUANCES. MitoKor agrees that after the Closing
Date it will not issue any shares of Common Stock (or grant any options,
warrants or other rights to purchase the same) to any employee, officer, or
director except pursuant to written agreements which provide for vesting over a
period of at least forty-eight (48) months (with the initial vesting date to
occur at least after twelve (12) months) and a right of first refusal in favor
of MitoKor in the event of any proposed transfer unless such issuance or grant
is approved by MitoKor's Board of Directors and provided that no such agreement
will require MitoKor to


                                       29




repurchase or redeem any of such shares. This Section 5.11(e) will terminate
upon the termination of Section 5.11(a).

              (f) RULE 144. MitoKor covenants that (i) at all times after
MitoKor first becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, MitoKor will use its best efforts
to comply with the current public information requirements of Rule 144(c)(1)
under the Securities Act; and (ii) at all such times as Rule 144 is available
for use by CTPL or Chiron, MitoKor will furnish CTPL or Chiron upon request with
all information within the possession of MitoKor required for the preparation
and filing of Form 144.

              (g) TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, MitoKor shall not enter into any transaction with any director,
officer, employee or holder of more than 5% of the outstanding capital stock of
any class or series of capital stock of MitoKor, member of the immediate family
(as defined in the instructions to Regulation S-K item 404(a) under the
Securities Act of 1933, as amended) of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
immediate family of any such person, is a director, officer, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof, except for
transactions on customary terms related to such person's employment.

              (h) INSPECTION RIGHTS. So long as CTPL or Chiron own an aggregate
of at least thirty percent (30%) of the Preferred Shares acquired by CTPL or
Chiron at the Closing Date, upon five (5) days' written notice provided to
MitoKor, CTPL or Chiron shall have the right to visit and inspect any of the
properties of MitoKor, and to discuss its affairs, finances and accounts with
its officers, provided that MitoKor shall not be required at any time to
disclose any trade secrets or secret or other proprietary data, know-how or
other information, the disclosure of which MitoKor believes may adversely affect
its business, or any information or data that is classified by the United States
government or any agency or authority thereof. All inspection rights granted by
MitoKor to CTPL or Chiron shall immediately terminate upon the closing of
MitoKor's initial registered underwritten public offering.

         5.11 SALE OF A GOING CONCERN. The parties hereto agree that the
transaction under this Agreement is a supply of a going concern for the purposes
of Section 38-325 of the A New Tax System (Goods and Services Tax) Act of 1999.

    6.   INDEMNIFICATION

         6.1  SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
The representations, warranties, covenants and agreements of Chiron, CTPL and
Mimotopes contained in this Agreement, or in any certificate or other writing
delivered pursuant hereto or in connection herewith will survive the Closing
Date until the expiration of twelve (12) months after the Closing Date or (a)
thirty-six (36) months with respect to the representations and warranties
contained in Section 3.6, 3.7 and 3.11. The representations, warranties,
covenants and agreements made herein by MitoKor and the representations and
warranties made by Chiron and CTPL in Section 3.21 shall survive this Agreement,
notwithstanding any investigation made by Chiron or CTPL. All statements as to
factual matters contained in any certificate or other


                                       30




instrument delivered by or on behalf of MitoKor pursuant hereto or in connection
with the Series E Shares shall be deemed to be representations and warranties by
MitoKor hereunder as of the date of such certificate or instrument. Nothing in
the foregoing sentence shall preclude MitoKor, Mimotopes, Chiron, or CTPL from
bringing an action, or limit in any manner whatsoever any liability MitoKor,
Mimotopes, Chiron, or CTPL have or may have, for fraud or for knowing and
intentional misrepresentations or breach. Notwithstanding the preceding
sentences, any covenant, agreement, representation or warranty in respect of
which indemnity may be sought under Section 6.2 shall survive the time at which
it would otherwise terminate pursuant to the preceding sentences, if notice of
the inaccuracy or breach thereof giving rise to such right to indemnity shall
have been given to the party against whom such indemnity may be sought prior to
such time. This Section 6.1 shall not limit in any way the survival and
enforceability of any covenant or agreement of the parties hereto that by its
terms contemplates performance after the Closing Date, which shall survive for
the respective periods set forth herein.

         6.2  INDEMNIFICATION.

              (a) Chiron and CTPL hereby jointly and severally indemnify MitoKor
and Mimotopes, their respective officers, directors, agents, subsidiaries and
their affiliates (each in its capacity as an indemnified party, an "INDEMNITEE")
against and agrees to hold each of them harmless from any and all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments,
payments, costs and expenses (including, without limitation, expenses of
investigation and attorneys' fees, costs and expenses in connection with any
action, suit, investigation or proceeding) (collectively, "LOSS") incurred or
suffered by any Indemnitee as a result of, incident to or arising out of:

                  (i)    any inaccuracy or breach of any representation or
warranty of Chiron and/or CTPL set forth herein, or in any certificate or other
document delivered in connection herewith or therewith;

                  (ii)   any breach or nonfulfillment by Chiron and/or CTPL of,
or any failure to perform or any noncompliance by Chiron and/or CTPL with, any
covenant, agreement or obligation contained herein, or in any certificate or
other document delivered in connection herewith or therewith;

                  (iii)  the failure of CTPL to assume full responsibility for
any retained liability or any obligation or liability of CTPL; or

                  (iv)   the failure of CTPL to (A) pay all tax liabilities it
has incurred prior to the Closing Date and (B) timely file correct and true
returns and reports required to be filed with any taxing authority.

              (b) MitoKor and Mimotopes hereby jointly and severally indemnify
Chiron and CTPL, their respective officers, directors, agents and affiliates
against, and agree to hold each of them harmless from, any and all Loss incurred
or suffered by Chiron and CTPL, their respective officers, directors, agents or
affiliates arising out of:


                                       31




                  (i)    any inaccuracy or breach of any representation or
warranty of MitoKor and/or Mimotopes set forth herein or in any certificate or
other document delivered in connection herewith or therewith;

                  (ii)   any breach or nonfulfillment by MitoKor and/or
Mimotopes of, any failure to perform or any noncompliance by MitoKor and/or
Mimotopes with, any covenant, agreement or obligation contained herein, or in
any certificate or other document delivered in connection herewith or therewith;
or

                  (iii)  the failure of Mimotopes after the Closing to assume
full responsibility for any Assumed Liability or any obligation of the Business
relating to the Purchased Assets;

         6.3  LIMITATIONS ON INDEMNIFICATION. Neither Chiron nor CTPL shall be
required to make any indemnification payment pursuant to Section 6.2 until such
time as the total amount of all Losses that have been directly or indirectly
suffered or incurred by the Indemnitee or to which the Indemnitee has or has
otherwise become subject, exceeds AU$50,000 in the aggregate. At such time as
the total amount of such Losses exceeds AU$50,000 in the aggregate, the
Indemnitee shall be entitled to be indemnified against the full amount of such
Losses (and not merely the portion of such Losses exceeding AU$50,000). Claims
for indemnity made by the Indemnitee pursuant to this Section 6 shall be limited
to an amount equal to US$1,000,000 plus any reasonable fees (including
attorneys' fees), costs and expenses incurred by Indemnitee in the pursuit or
exercise of its right to indemnification under this Section 6.

         6.4  PROCEDURES; NO WAIVER.

              (a) The party seeking indemnification under Section 6.2 (the
"INDEMNIFIED PARTY") agrees to give prompt notice to the party against whom
indemnity is sought (the "INDEMNIFYING PARTY") of the assertion of any claim, or
the commencement of any suit, action or proceeding in respect of which indemnity
may be sought under such Section. The Indemnifying Party may, and at the request
of the Indemnified Party shall, participate in and control the defense of any
such third party suit, action or proceeding at its own expense. The Indemnifying
Party shall not be liable under Section 6.2 for any settlement effected without
its consent of any claim, litigation, or proceeding in respect of which
indemnity may be sought hereunder.

              (b) No waiver of a closing condition by the Parties shall limit
its rights under Section 6.2.

         6.5  RIGHT OF OFFSET. In accordance with this Section 6, in addition to
any rights now or hereafter granted under applicable law and not by way of
limitation of any such rights not otherwise limited by this Section 6, MitoKor,
Mimotopes and/or any Indemnitee shall have the right to offset any amounts owing
to Chiron or CTPL against any amounts owing to MitoKor, Mimotopes and/or any
Indemnitee from Chiron and CTPL pursuant to this Agreement.


                                       32




         6.6  SOLE REMEDY.

              (a) Other than rights to equitable relief, the sole remedy
available to any Indemnitee for breaches of this Agreement shall be limited to
the rights set forth in this Section 6. The maximum aggregate amount payable by
Chiron or CTPL to any and all Indemnities for any and all Losses arising out of,
or in connection with, this Agreement is the amount specified in Section 6.3.

              (b) The maximum obligation of MitoKor and/or Mimotopes, in the
aggregate, for any and all Losses arising out of, or in connection with this
Agreement, shall not exceed the Purchase Price.

    7.   NO SOLICITATION OF EMPLOYEES

         7.1  DEFINITIONS. For purposes of this Section 7, the following terms
shall have the following meanings:

              (a) "EMPLOYEES" shall mean any employee of CTPL as of, or
immediately prior to the date of this Agreement, during the Employee
Non-Solicitation Period.

              (b) "EMPLOYEE NON-SOLICITATION PERIOD" shall mean, with respect to
Chiron and CTPL, the period commencing on the Closing Date and continuing for a
period of two years after such date; PROVIDED, HOWEVER, that the Employee
Non-Solicitation Period with respect to Chiron and CTPL shall be extended by the
number of days in which either Chiron or CTPL is or was engaged in activities
constituting a breach of Section 7.2.

              (c) The term "person" shall mean any natural person, firm,
partnership, association, corporation, company, limited liability company,
limited partnership, trust, business trust, Governmental Entity or other entity.

         7.2  NON-SOLICITATION OF EMPLOYEES. Chiron and CTPL recognize that the
Employees are a valuable resource of Mimotopes. Accordingly, during the Employee
Non-Solicitation Period, Chiron and CTPL shall not, either alone or in
conjunction with any other person or entity, directly or indirectly solicit,
induce or recruit any Employee hired by Mimotopes to leave the employ of
Mimotopes.

    8.   GENERAL PROVISIONS

         8.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or within seventy-two (72) hours after being mailed by
registered or certified mail (return receipt requested) or sent via facsimile
(with confirmation of receipt) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):


                                       33




              (a) if to MitoKor or Mimotopes:

                  MitoKor
                  11494 Sorrento Valley Road
                  San Diego, CA 92121
                  Attention:  Walter Moos, Chief Executive Officer
                  Fax: (858) 793-7805

                  with copies to:

                  MitoKor Law Department
                  11494 Sorrento Valley Road
                  San Diego, CA  92121
                  Attention: Andrew Granston, Director of Intellectual Property
                  Fax: (858) 793-7805

                  Gray Cary Ware & Freidenrich LLP
                  4365 Executive Drive, Ste. 1600
                  San Diego, CA 92121
                  Attention:  Paul E. Kreutz, Esq.
                  Fax: (858) 677-1477

                  Phillips Fox
                  120 Collins Street
                  Melbourne VIC 3000
                  Australia
                  Attention:  Andrew Chalet
                  Fax: 61 3 9274 5111

              (b) if to CTPL:

                  Chiron Technologies Pty. Ltd.
                  c/o Chiron Corporation Office of the General Counsel
                  4560 Horton Street
                  Emeryville, CA  94611
                  Attention:  Jane Stratton
                  Fax: (510) 654-5360

              (c) if to Chiron:

                  Chiron Corporation Office of the General Counsel
                  4560 Horton Street
                  Emeryville, CA 94611
                  Fax: (510) 654-5360


                                       34




                  with a copy to:

                  Morrison & Foerster, LLP
                  425 Market Street
                  San Francisco, CA  94105
                  Attention: Gavin Grover, Esq.
                  Fax: (415) 268-7522
                  Tel: (415) 268-7000

         8.2  INTERPRETATION. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The phrase "made available" in this Agreement shall mean that the information
referred to has been made available if requested by the party to whom such
information is to be made available. The phrases "the date of this Agreement,"
"the date hereof," and terms of similar import, unless the context otherwise
requires, shall be deemed to refer to the Agreement Date. The word "or" shall
not be exclusive unless clearly stated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Each Party and its
counsel has reviewed this Agreement and provided revisions thereto; the rule of
construction to the effect that ambiguities are construed against the drafter
shall not be used in the interpretation of this Agreement.

         8.3  COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original as against any party
whose signature appears on such counterpart and all of which shall be considered
one and the same agreement and shall become effective when one or more
counterparts have been signed by each of the Parties and delivered to the other
Parties, it being understood that all Parties need not sign the same
counterpart. This Agreement may be executed by facsimile signature as long as
the Party so executing commits to deliver an original signature within 20 days.

         8.4  SEVERABILITY. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The Parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.

         8.5  ENTIRE AGREEMENT. This Agreement (including the schedules and
exhibits hereto and the other documents delivered pursuant hereto) constitutes
the entire agreement among the Parties concerning the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the Parties with respect to the subject matter hereof.


                                       35




         8.6  GOVERNING LAW; VENUE AND JURISDICTION. This Agreement shall be
governed and construed in accordance with the laws of the State of Victoria,
Australia without regard to any applicable conflicts of law principles. Any
legal action arising under this Agreement shall be resolved in the courts
located in the State of Victoria, Australia.

         8.7  ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either of the Parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other Party, such consent to not be unreasonably withheld,
PROVIDED, HOWEVER, that Mimotopes hereby consents to the assignment by CTPL
of its rights, interests or obligations hereunder to Chiron subject to
Chiron's agreement to indemnify Mimotopes against any third-party claims
relating to the assignment.

         8.8  THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement is
intended to confer upon any person other than the parties hereto and their
respective successors and permitted assigns, any rights, remedies or obligations
under, or by reason of this Agreement.

         8.9  ATTORNEY'S FEES. If any Party shall commence any action or
proceeding against another party in order to enforce the provision hereof, or to
recover damages as the result of the alleged breach of any of the provisions
hereof, the prevailing party therein shall be entitled to recover all reasonable
costs incurred in connection therewith, including, but not limited to,
reasonable attorneys' fees.

         8.10 AMENDMENT. This Agreement may be amended, supplemented, or
modified only by an instrument in writing signed on behalf of each of the
Parties hereto.


                  [Remainder of page intentionally left blank.]


                                       36




         IN WITNESS WHEREOF, MitoKor, Mimotopes, Chiron, and CTPL have caused
this Agreement to be signed as of the date first written above.



MITOKOR                                     CHIRON TECHNOLOGIES PTY. LTD.



By: /s/ Walter H. Moos                      By: /s/ Jane Stratton
    ---------------------------------           --------------------------------
     Walter H. Moos
Its: Chief Executive Officer                Its:    Vice President
                                                 -------------------------------


MIMOTOPES PTY. LTD.                         CHIRON CORPORATION



By: /s/ Walter H. Moos                      By: /s/ James R. Sulat
    ---------------------------------           --------------------------------
     Walter H. Moos
Its: Chairman of the Board of Directors     Its:    Vice President and
                                                    Chief Financial Officer
                                                 -------------------------------



                                       37

EX-2.2

                                                                    EXHIBIT 2.2
                            ========================


                 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION


                                     among:


                                    MITOKOR,
                            a California corporation;


                             MITO ACQUISITION CORP.,
                             a Delaware corporation;

                                       and


                         APOLLO BIOPHARMACEUTICS, INC.,
                             a Delaware corporation.








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

                             Dated as of May 8, 2001

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



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






                                TABLE OF CONTENTS



                                                                                  Page
                                                                                  ----
                                                                               
SECTION 1.        THE MERGER.......................................................2
         1.1      Merger of Merger Sub with and into the Company...................2
         1.2      Effect of the Merger.............................................2
         1.3      Closing; Effective Time..........................................2
         1.4      Certificate of Incorporation and Bylaws; Directors and Officers..2
         1.5      Conversion of Shares.............................................3
         1.6      Company Options and Warrants.....................................6
         1.7      Closing of the Company's Transfer Books..........................7
         1.8      Exchange of Certificates; Legends; Escrow........................7
         1.9      Dissenting Shares................................................9
         1.10     Additional Parent Payments at the Closing.......................10
         1.11     Tax Consequences................................................10
         1.12     Accounting Treatment............................................10
         1.13     Further Action..................................................10

SECTION 2.        REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................11
         2.1      Due Organization; No Subsidiaries...............................11
         2.2      Certificate of Incorporation and Bylaws; Records................11
         2.3      Capitalization..................................................12
         2.4      Financial Statements............................................13
         2.5      Absence of Changes..............................................14
         2.6      Ownership of/Title to Assets....................................15
         2.7      Bank Accounts; Receivables......................................16
         2.8      Equipment; Leasehold............................................16
         2.9      Proprietary Assets..............................................16
         2.10     Contracts.......................................................18
         2.11     Liabilities; Fees, Costs and Expenses...........................20
         2.12     Compliance with Legal Requirements..............................20
         2.13     Governmental Authorizations.....................................20
         2.14     Tax Matters.....................................................21
         2.15     Employee and Labor Matters; Benefit Plans.......................22
         2.16     Environmental Matters...........................................24
         2.17     Insurance.......................................................25
         2.18     Related Party Transactions......................................25
         2.19     Legal Proceedings; Orders.......................................26
         2.20     Authority; Binding Nature of Agreement..........................26
         2.21     Non-Contravention; Consents.....................................27
         2.22     Finder's Fee....................................................28
         2.23     Regulatory Approvals............................................28
         2.24     Full Disclosure.................................................28

                                       i



                                TABLE OF CONTENTS
                                   (continued)



                                                                                  Page
                                                                                  ----
                                                                               
SECTION 3.        REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.........28
         3.1      Corporate Existence and Power...................................28
         3.2      Authority; Binding Nature of Agreement..........................29
         3.3      Capitalization..................................................29
         3.4      Parent Financial Statements.....................................30
         3.5      No Conflict.....................................................31
         3.6      Valid Issuance..................................................32
         3.7      No Material Adverse Effect......................................32
         3.8      Legal Proceedings...............................................32
         3.9      Compliance with Legal Requirements..............................32
         3.10     Governmental Authorizations.....................................32
         3.11     Consents........................................................33
         3.12     Full Disclosure.................................................33

SECTION 4.        CERTAIN COVENANTS...............................................33
         4.1      Access and Investigation........................................33
         4.2      Operation of the Company's Business.............................33
         4.3      Notification by Company.........................................36
         4.4      Notification by Parent..........................................36
         4.5      Acquisition Proposals...........................................37
         4.6      Fairness Opinion................................................38

SECTION 5.        ADDITIONAL COVENANTS OF THE PARTIES.............................38
         5.1      Filings and Consents............................................38
         5.2      Information Statement...........................................38
         5.3      Public Announcements............................................40
         5.4      Commercially Reasonable Efforts.................................40
         5.5      Tax Matters.....................................................40
         5.6      Termination of Agreements.......................................40
         5.7      Termination of Employee Plans...................................41
         5.8      Termination of SAR / SEP / IRA Participation....................41
         5.9      FIRPTA Matters..................................................41

SECTION 6.        CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB....41
         6.1      Accuracy of Representations.....................................41
         6.2      Performance of Covenants........................................42
         6.3      Stockholder Approval............................................42
         6.4      Consents........................................................42
         6.5      Agreements and Documents........................................42
         6.6      Conversion of Preferred Stock...................................43
         6.7      No Material Adverse Change......................................43
         6.8      No Restraints...................................................43


                                       ii



                                TABLE OF CONTENTS
                                   (continued)



                                                                                  Page
                                                                                  ----
                                                                               

         6.9      No Governmental Litigation......................................43
         6.10     No Other Litigation.............................................44
         6.11     Termination of Employee Plans...................................44
         6.12     FIRPTA Compliance...............................................44
         6.13     Dissenting Shares...............................................44
         6.14     Parent Stockholder Approval.....................................44
         6.15     Consents and Additional Company Approvals.......................44
         6.16     Consents and Additional Parent and Merger Sub Approvals.........44
         6.17     Company Closing Balance Sheet...................................44

SECTION 7.        CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY..............45
         7.1      Accuracy of Representations.....................................45
         7.2      Performance of Covenants........................................45
         7.3      Documents.......................................................45
         7.4      Company Stockholder Approval....................................46
         7.5      Company Option and Warrant Holder Approval......................46
         7.6      Consents and Additional Company Approvals.......................46
         7.7      Parent Approvals................................................46
         7.8      Consents and Additional Parent and Merger Sub Approvals.........46
         7.9      No Material Adverse Change......................................46
         7.10     No Restraints...................................................46
         7.11     No Governmental Litigation......................................46
         7.12     No Other Litigation.............................................46

SECTION 8.        TERMINATION.....................................................47
         8.1      Termination Events..............................................47
         8.2      Termination Procedures..........................................48
         8.3      Effect of Termination...........................................48

SECTION 9.        ESCROW AND INDEMNIFICATION; LIMITATION OF LIABILITY.............48
         9.1      Escrow Fund.....................................................48
         9.2      Indemnification and Limitation of Liability.....................50
         9.3      Escrow Period; Release From Escrow..............................51
         9.4      Third-Party Claims..............................................52
         9.5      Claims Upon Escrow Fund.........................................52
         9.6      Objections to Claims............................................53
         9.7      Resolution of Conflicts and Arbitration.........................53
         9.8      Stockholders' Agent.............................................54
         9.9      Actions of the Stockholders' Agent..............................55
         9.10     Notice and Defense of Claims made by Company Indemnified Person.55

SECTION  10.      MISCELLANEOUS PROVISIONS........................................56


                                       iii



                                TABLE OF CONTENTS
                                   (continued)



                                                                                  Page
                                                                                  ----
                                                                               

         10.1     Further Assurances..............................................56
         10.2     Fees and Expenses...............................................56
         10.3     Attorneys' Fees.................................................57
         10.4     Notices.........................................................57
         10.5     Time of the Essence.............................................58
         10.6     Headings........................................................58
         10.7     Counterparts....................................................58
         10.8     Governing Law...................................................58
         10.9     Successors and Assigns..........................................58
         10.10    Remedies Cumulative; Specific Performance.......................58
         10.11    Waiver..........................................................58
         10.12    Amendments......................................................59
         10.13    Severability....................................................59
         10.14    Parties in Interest.............................................59
         10.15    Entire Agreement................................................59
         10.16    Reserved........................................................59
         10.17    Construction....................................................59
         10.18    Arbitration.....................................................60


                                       iv


                                    EXHIBITS


Exhibit A  -  Certain definitions

Exhibit B  -  Voting Signatories

Exhibit C  -  Voting Agreement

Exhibit D  -  Form of Employment Agreement

Exhibit E  -  Certificate of Merger

Exhibit F  -  Form of Amended and Restated Articles of Incorporation of
              Surviving Corporation

Exhibit G  -  Form of Restated Bylaws of the Surviving Corporation

Exhibit H  -  Directors and officers of Surviving Corporation

Exhibit I  -  Form of Series G Warrant

Exhibit J  -  Forms of tax representation letters

Exhibit K  -  Form of FIRPTA Statement

Exhibit L  -  Form of Status Letter from Company Equityholders

Exhibit M  -  Form of legal opinion of Palmer & Dodge LLP

Exhibit N  -  Investors' Rights Agreement

Exhibit O  -  Research, Collaboration and License Agreement

Exhibit P     Subscription Form

Exhibit Q  -  Form of legal opinion of Gray Cary Ware & Freidenrich LLP

Exhibit R  -  Amended and Restated Articles of Incorporation of Parent

Exhibit S  -  Escrow Agreement

                                       1




                              AGREEMENT AND PLAN OF
                            MERGER AND REORGANIZATION

         THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("AGREEMENT") is
made and entered into as of May 8, 2001 ("AGREEMENT DATE"), by and among:
MITOKOR, a California corporation ("PARENT"); MITO ACQUISITION CORP., a Delaware
corporation and a wholly owned subsidiary of Parent ("MERGER SUB") and APOLLO
BIOPHARMACEUTICS, INC., a Delaware corporation (the "COMPANY"). Certain
capitalized terms used in this Agreement are defined in EXHIBIT A.

                                    RECITALS

         A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub with and into the Company (the "MERGER") in accordance with and
subject to the terms and conditions of this Agreement and the Delaware General
Corporation Law (the "DGCL"). Upon consummation of the Merger, Merger Sub will
cease to exist, and the Company will become a wholly-owned subsidiary of Parent.

         B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"). For accounting purposes, it is intended that the Merger be
treated as a purchase.

         C. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company and has been adopted by Parent,
as the sole stockholder of Merger Sub.

         D. In connection with the execution and delivery of this Agreement,
those certain stockholders of the Company listed hereto on EXHIBIT B (the
"VOTING SIGNATORIES") are entering into voting agreements in the form attached
hereto as EXHIBIT C (the "VOTING AGREEMENTS") pursuant to which, among other
things, such Voting Signatories agree to vote all shares of capital stock of the
Company owned by them in favor of the Merger.

         E. In connection with the execution and delivery of this Agreement,
certain employees of the Company have previously entered into an employment
agreement in the form attached hereto as EXHIBIT D (the "EXECUTIVE EMPLOYMENT
AGREEMENT") whose effectiveness is subject to, among other things, the
occurrence of the Merger.




                                       1


                                    AGREEMENT

         In consideration of the foregoing premises and the mutual
representations, warranties and covenants of the parties set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Agreement agree
as follows:

SECTION 1. THE MERGER

         1.1 MERGER OF MERGER SUB WITH AND INTO THE COMPANY. Upon the terms and
subject to the conditions set forth in this Agreement and to the applicable
provisions of the DGCL, at the Effective Time (as defined in Section 1.3),
Merger Sub shall be merged with and into the Company, at which time the separate
existence of Merger Sub shall cease and the Company will continue as the
surviving corporation in the Merger (the "SURVIVING CORPORATION").

         1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth
in this Agreement and in the applicable provisions of the DGCL.

         1.3 CLOSING; EFFECTIVE TIME. The closing of the Merger (the "CLOSING")
will take place at a time and on a date to be specified by the parties (the
"CLOSING DATE"), which shall be no later than the third business day after
satisfaction or waiver of the conditions set forth in Section 6 and Section 7
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions), at the
offices of Gray Cary Ware & Freidenrich LLP, 4365 Executive Drive, Suite 1600,
San Diego, CA 92121, or at such other time, date or place as agreed to in
writing by the parties hereto. Subject to the provisions of this Agreement,
simultaneously with or as soon as practicable following the Closing, a properly
executed certificate of merger satisfying the applicable requirements of the
DGCL and attached hereto as EXHIBIT E (the "CERTIFICATE OF MERGER") shall be
filed with the Secretary of State of the State of Delaware. The Merger shall
become effective upon the latest of: (a) the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware, or
(b) such later date and time as may be specified in the Certificate of Merger
with the consent of Parent and the Company (such latest date being referred to
as the "EFFECTIVE TIME").

         1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.

                  (a) The Certificate of Incorporation of the Surviving
         Corporation shall be amended and restated as of the Effective Time as
         part of the Merger to conform to EXHIBIT F;

                  (b) The Bylaws of the Surviving Corporation shall be amended
         and restated as of the Effective Time as part of the Merger to conform
         to EXHIBIT G; and

                  (c) Parent and Surviving Corporation agree to appoint, upon
         the effectiveness of the Merger, the individuals identified on EXHIBIT
         H as the directors and officers of the Surviving Corporation.


                                       2



         1.5 CONVERSION OF SHARES. The allocation of the Merger Consideration
(as defined in Section 1.5(b)(vii)) and the treatment of the Company Options and
Company Warrants set forth in this Agreement reflects a 1:55-for-1 reverse stock
split of the Company Common Stock previously effected by the Company, which
reverse stock split the Company Stockholders, by approving this Merger
Agreement, will be deemed to have approved, adopted and ratified.

                  (a) Subject to Sections 1.8(a) and 1.9, at the Effective Time,
         by virtue of the Merger and without any further action on the part of
         Parent, Merger Sub, the Company or any stockholder of the Company:

                           (i) except as provided in Section 1.5(a)(ii), each
                  share of the common stock, par value $.02 per share of the
                  Company (the "COMPANY COMMON STOCK"), including each share of
                  Company Common Stock issuable upon conversion of each share of
                  the Series A Convertible Preferred Stock, par value $.01 per
                  share of the Company (the "COMPANY PREFERRED STOCK") which has
                  automatically converted by its terms into Company Common Stock
                  immediately prior to consummation of the Merger, outstanding
                  immediately prior to the Effective Time shall be converted
                  into the right to receive,

                                    (A) that fraction of a share of the Series G
                           Preferred Stock, no par value per share of Parent
                           ("SERIES G STOCK") equal to the Exchange Ratio (as
                           defined in Section 1.5(b)(v));


                                    (B) that portion of the Cash Consideration
                           (as defined in Section 1.5(b)(i)) equal to the
                           quotient (rounded to the nearest ten thousandth)
                           obtained by dividing (1) the Cash Consideration, by
                           (2) the Fully Diluted Company Shares Amount (as
                           defined in Section 1.5(b)(vi))(the "CASH EXCHANGE
                           RATIO"); and

                                    (C) a right to that portion of the
                           Contingent Consideration, if any, equal to the
                           Contingent Exchange Ratio (as defined in Section
                           1.5(b)(iv)).

                           (ii) any shares of Company Common Stock then held by
                  Parent or any direct or indirect wholly-owned subsidiary of
                  Parent, or by the Company in the Company's treasury shall be
                  canceled and retired and shall cease to exist, and no
                  consideration shall be delivered in exchange therefor; and

                           (iii) each share of the common stock of Merger Sub
                  outstanding immediately prior to the Effective Time shall be
                  converted into one validly issued, fully paid and
                  non-assessable share of common stock of the Surviving
                  Corporation.

                  (b) For purposes of this Agreement:

                           (i) Subject to Sections 1.6 and 10.2, the "CASH
                  CONSIDERATION" due to the Company Equityholders as a result of
                  the Merger shall consist of an amount equal to $1,000,000 (as
                  adjusted pursuant to the terms of Sections 1.10 and 10.2 of
                  this Agreement).

                           (ii) The "COMPANY EQUITYHOLDERS" shall mean those
                  individuals and entities who (A) prior to the Merger hold (1)
                  Company Common Stock, (2) Company Preferred Stock, and/or (3)
                  warrants, options or other conversion rights which are
                  convertible into (y) Company Common Stock or (z) securities
                  convertible into Company Common Stock; and (B) as


                                       3



                  a result of the Merger, will hold Series G Stock and/or Series
                  G Warrants (as defined in Section 1.6 of this Agreement).

                           (iii) The "CONTINGENT CONSIDERATION" shall mean the
                  aggregate number of shares of Series G Stock or Parent Common
                  Stock (as defined below) released, if any, to the Company
                  Equityholders determined in accordance with this subsection
                  (b)(iii), together with any and all cash dividends or
                  dividends payable in securities or other distributions of any
                  kind made in respect of such shares. For purposes of the
                  calculation of the Contingent Consideration:

                                    (A) the "CONTINGENT SHARES" shall mean that
                           number of shares of Series G Stock equal to 400,000,
                           or the number of shares of Parent Common Stock
                           received upon the conversion of such shares of Series
                           G Stock into Parent Common Stock together with any
                           and all cash dividends or dividends payable in
                           securities or other distributions of any kind made in
                           respect of such shares (such dividends and
                           distributions being allocated pro-rata across the
                           Contingent Shares and treated in the same manner as
                           the Contingent Shares with which they are associated
                           for purposes of this Agreement), with each applicable
                           security as adjusted for any Recapitalization Event
                           (as defined below); and

                                    (B) the "SHARE PRICE" shall mean the average
                           closing per share sale price of the Common Stock, no
                           par value per share, of Parent ("PARENT COMMON
                           STOCK") for the sixty trading day period beginning
                           the trading day following the first day of public
                           trading in Parent Common Stock subsequent to Parent's
                           firmly underwritten initial public offering (the
                           "IPO"). The Share Price shall be subject to
                           adjustment in the event of a Recapitalization Event.

         The Contingent Shares attributable to the Company Stockholders will be
held by (and registered in the name of) the Escrow Agent (as such term is
defined in Section 9) in the Escrow Fund (as defined in Section 9) as nominee
for the Company Stockholders who have a right to such Contingent Shares. As
Series G Warrants are exercised the portion of the Contingent Shares
attributable to the holders of such exercised warrants (as set forth on SCHEDULE
1.5) will be issued in the name of the Escrow Agent to be held in the Escrow
Fund.

         In the event that the Share Price is less than $20 (as adjusted for any
Recapitalization Event), then within ten (10) business days of the end of such
sixty trading day period, all or a portion of the Contingent Shares as
calculated in accordance with the following formula shall be, subject to Section
1.6, released and distributed (or in the case of the portion attributable to
Series G Warrants, set aside for issuance upon exercise of such warrants) to the
Company Equityholders on a PRO RATA basis as set forth in SCHEDULE 1.5.


                                       4




Contingent            =   Contingent Shares   x         $20* - SHARE PRICE
Consideration                                           ------------------
                                                                10*
- -------------------
*(as adjusted for any Recapitalization Event)

In no event shall the aggregate number of shares which comprise the Contingent
Consideration so released or set aside exceed the total number of Contingent
Shares. Subject to Section 1.6, all of the Contingent Shares shall be released
to the Company Equityholders in the event that the Share Price is $10 (as
adjusted for any Recapitalization Event) or less. No Contingent Shares shall be
released to Company Equityholders if the Share Price is $20 (as adjusted for any
Recapitalization Event) or above. Such released Contingent Shares shall be
subject to the same transfer restrictions applicable to the Merger Shares. In
the event that Parent has not effected its IPO within fifteen (15) months
following Closing, then, subject to Section 1.6, 200,000 (as adjusted for any
Recapitalization Event) of the Contingent Shares shall be released and
distributed to the Company Equityholders on a PRO RATA basis in proportion to
their rights to Contingent Consideration as set forth on SCHEDULE 1.5 (or in the
case of the portion attributable to Series G Warrants, reserved for issuance
upon exercise of such warrants). Any Contingent Shares remaining following any
such partial release to the Company Equityholders, other than those shares
pending disposition under Section 1.6 of this Agreement, shall be released back
to Parent. Notwithstanding the foregoing, in the event of the release of
Contingent Shares allocable to the Company Stockholders prior to the Termination
Date (defined at Section 9.2(a)) ten percent (10%) of such Contingent Shares
that would otherwise be released to each Company Stockholder shall, on behalf of
each Company Stockholder, in proportion to each Company Stockholder's right to
the Contingent Consideration, remain in the Escrow Fund to serve as Indemnity
Shares (as defined at Section 9.1(b) hereof). In the event of the release of
Contingent Shares allocable to Series G Warrants, which occurs prior to the
Termination Date, ten percent (10%) of such Contingent Shares shall be reserved
for issuance into the Escrow Fund to serve as Indemnity Shares upon exercise of
such warrants prior to the Termination Date.

                           (iv) The "CONTINGENT EXCHANGE RATIO" shall be the
                  fraction (rounded to the nearest ten-thousandth) determined by
                  dividing (A) the Contingent Consideration, by (B) the Fully
                  Diluted Company Share Amount.

                           (v) The "EXCHANGE RATIO" shall be the fraction
                  (rounded to the nearest ten-thousandth) determined by dividing
                  (A) 1,800,000 (as adjusted for any Recapitalization Event), by
                  (B) the Fully Diluted Company Share Amount (as defined below).

                           (vi) The "FULLY DILUTED COMPANY SHARE AMOUNT" is
                  3,894,960 shares, which the Company represents is the sum of
                  (A) the aggregate number of shares of Company Common Stock
                  outstanding immediately prior to the Effective Time (including
                  any such shares that are subject to a repurchase option or
                  risk of forfeiture under any restricted stock purchase
                  agreement or other agreement), (B) the aggregate number of
                  shares of Company Common Stock issuable upon conversion of all
                  shares of Company Preferred Stock outstanding immediately
                  prior to the Effective Time in accordance with the Company's
                  certificate of incorporation as then


                                       5



                  in effect, (C) the aggregate number of shares of Company
                  Common Stock issuable pursuant to all options to purchase
                  shares of Company Common Stock outstanding immediately prior
                  to the Effective Time ("COMPANY OPTIONS"), (D) the aggregate
                  number of shares of Company Common Stock issuable pursuant to
                  all warrants to purchase shares of Company Common Stock
                  outstanding immediately prior to the Effective Time ("COMPANY
                  WARRANTS"), and (E) the aggregate number of shares of Company
                  Common Stock issuable pursuant to any other rights to acquire
                  shares of Company Common Stock outstanding immediately prior
                  to the Effective Time.

                           (vii) The "MERGER CONSIDERATION" receivable by a
                  holder of capital stock of the Company shall consist of (A)
                  that portion of the Merger Shares issuable to such holder in
                  accordance with Section 1.5(a)(i)(A) upon the surrender of the
                  certificate or certificates representing capital stock of the
                  Company held by such holder, (B) the right of such holder to
                  receive cash in lieu of fractional shares of Series G Stock in
                  accordance with Section 1.8(a), (C) the right of such holder
                  to receive the applicable portion of the Contingent
                  Consideration, if any, in accordance with Section 1.5(a)(i)(C)
                  and (D) the portion of the Cash Consideration payable to such
                  holder in accordance with Section 1.5(a)(i)(B). Each Company
                  Stockholder's PRO RATA portion of the Merger Consideration is
                  set forth on SCHEDULE 1.5 of this Agreement.

                           (viii) The "MERGER SHARES" shall mean the 1,800,000
                  shares of Series G Stock (as adjusted for any Recapitalization
                  Event) to be issued pursuant to Section 1.5(a)(i).

                           (ix) A "RECAPITALIZATION EVENT" shall mean any stock
                  split, reverse split, stock dividend, reorganization,
                  recapitalization or other like change with respect to the
                  applicable classes of Parent's capital stock occurring after
                  the date hereof.

         1.6 COMPANY OPTIONS AND WARRANTS. At the Effective Time, each then
outstanding Company Option and Company Warrant listed on SCHEDULE 1.6 of this
Agreement shall be terminated and converted into the right to receive a warrant
to purchase that number of shares of Series G Stock (with the associated rights
to a portion of the Cash Consideration and Contingent Consideration,
collectively referred to in the Series G Warrants as a Unit) specified on
SCHEDULES 1.5 AND 1.6. Each of the warrants to purchase shares of Series G Stock
(the "SERIES G WARRANTS") shall be fully vested and in the form attached to this
Agreement as EXHIBIT I. The number of shares of Series G Stock subject to each
Series G Warrant shall be equal to the number of shares of Company Common Stock
that were subject to each exchanged Company Option or Company Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Series G Stock. The per
share exercise price for the Series G Stock issuable upon exercise of each
Series G Warrant issued in exchange for such Company Option or Company Warrant
shall be determined by dividing the exercise price per share of Company Common
Stock subject to such Company Option or Company Warrant, as in effect
immediately prior to the Effective Time, by the Exchange Ratio, and rounding the
resulting exercise price to the nearest whole cent as is specified on SCHEDULE
1.6 hereto. Holders of the Series G Warrants shall be entitled to receive, upon
exercise: (a) shares of Series G Stock (or (i) Parent Common Stock if the Series
G Stock has converted into Parent Common Stock, or (ii) any property or
consideration issued in exchange for such shares of Series G Stock or Parent
Common Stock), (b) that portion of the Cash Consideration to which such holder
would have otherwise been entitled to had he exercised his Company Option or
Company Warrant immediately prior to Closing; and (c) that portion, or


                                       6



the right to receive such portion, of the Contingent Consideration, if any, to
which such holder would have otherwise been entitled had he exercised such
Company Option or Company Warrant immediately prior to Closing. Parent shall
hold the Cash Consideration allocated for each holder of Series G Warrants in
trust until such time as the holder actually exercises such Series G Warrant.
The portion of Contingent Consideration related to the Series G Warrants shall
remain authorized and reserved by Parent until the later of such time as the
holder actually exercises such Series G Warrant or at the time of expiration or
termination or such warrant. Any Cash Consideration or Contingent Consideration
so allocated to Series G Warrants which expire or are terminated shall revert
back to Parent at the time of such expiration or termination. Each Company
Option and Company Warrant holder's PRO RATA portion of the Cash Consideration
and Contingent Consideration, if any, is set forth on SCHEDULE 1.5.

         1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of capital stock of the Company that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company, except the right to receive the Merger
Consideration, and the stock transfer books of the Company shall be closed with
respect to all shares of such capital stock of the Company outstanding
immediately prior to the Effective Time. No further transfer of any such shares
of capital stock of the Company shall be made on such stock transfer books after
the Effective Time. If, after the Effective Time, a valid certificate previously
representing any shares of capital stock of the Company (a "COMPANY STOCK
CERTIFICATE") is presented to the Surviving Corporation or Parent, such Company
Stock Certificate shall be canceled and shall be exchanged as provided in
Section 1.8.

         1.8 EXCHANGE OF CERTIFICATES; LEGENDS; ESCROW.

                  (a) As soon as practicable after the Effective Time, Parent
         will send to each of the registered holders of Company Stock
         Certificates (i) a letter of transmittal in customary form and
         containing such provisions as Parent may reasonably specify, (ii) such
         other customary documents as may be required including, without
         limitation, a Form W-9, and (iii) instructions for use in effecting the
         surrender of Company Stock Certificates in exchange for the Merger
         Consideration. Upon surrender of a Company Stock Certificate(s) with
         the face value(s) specified on Part 2.3(a)(ii) of the Company
         Disclosure Schedule to Parent for exchange, together with a duly
         executed letter of transmittal and such other documents as are
         customarily required in this type of merger transaction, Parent shall
         deliver to the holder of such Company Stock Certificate(s) (i) a
         certificate representing the number of shares of Series G Stock that
         such holder has the right to receive pursuant to Section 1.5, less the
         number of shares of Series G Stock to be deposited into an escrow fund
         (the "ESCROW FUND") as Indemnity Shares pursuant to the requirements of
         Sections 1.8(f) and Section 9 (such amount being reflected on SCHEDULE
         1.5), and (ii) a check equal to the applicable portion of Cash
         Consideration to which such holder is entitled, provided that the
         certificates representing Series G Stock to be delivered to the holder
         of a Company Stock Certificate(s) represent only whole shares of Series
         G Stock and in lieu of any fractional share to which such holder would
         otherwise be entitled (including fractional shares resulting from the
         issuance of shares of Series G Stock from the Indemnity Portion of the
         Escrow Fund (as defined at Section 9.1 of this Agreement)), the holder
         of such Company Stock Certificate shall be paid in cash an amount equal
         to the sum of the dollar amount (rounded to the nearest whole cent)
         determined by multiplying $7.50 by the fraction of a share of Series G
         Stock


                                       7



         that would otherwise be deliverable to such holder. In addition to the
         payments set forth above, Parent shall also pay to holders of Company
         Stock Certificates at the time of the exchange contemplated by this
         Section 1.8(a), any fractional share amounts due such holders in
         connection with the conversion of the Company Preferred Stock into
         Company Common Stock. The Company shall prior to Closing have either
         (i) paid to the Company Stockholders any unpaid fractional share
         amounts due such holders in connection with prior stock splits effected
         by the Company, as such amounts are specified on SCHEDULE 2.3(A)(II);
         or (ii) allocated and set aside such funds required to pay such amounts
         with respect to those Company Stockholders who have not yet returned
         required stock certificates to be exchanged pursuant to such prior
         stock splits. In the event two or more Company Stock Certificates
         represent shares of Company Common Stock by any single holder, all
         calculations respecting the number of shares and amount of cash to be
         delivered to such holder shall be made based on the aggregate number of
         shares represented by such Company Stock Certificates. All Company
         Stock Certificates so surrendered shall be canceled. Until surrendered
         as contemplated by this Section 1.8, each Company Stock Certificate
         shall be deemed, from and after the Effective Time, to represent only
         the right to receive the Merger Consideration in accordance with this
         Agreement. If any Company Stock Certificate shall have been lost,
         stolen or destroyed, Parent may, in its reasonable discretion and as a
         condition precedent to the issuance of any certificate representing
         Series G Stock or the payment of cash, or cash in lieu of fractional
         shares, require the owner of such lost, stolen or destroyed Company
         Stock Certificate to provide an appropriate affidavit and release (in
         such form as Parent may reasonably request) as indemnity against any
         claim that may be made against Parent or the Surviving Corporation with
         respect to such Company Stock Certificate.

                  (b) No dividends or other distributions declared or made with
         respect to Series G Stock with a record date after the Effective Time
         shall be paid to the holder of any unsurrendered Company Stock
         Certificate with respect to the shares of Series G Stock represented
         thereby, and no cash payment in lieu of any fractional share shall be
         paid to any such holder, until such holder surrenders such Company
         Stock Certificate in accordance with this Section 1.8 (at which time
         such holder shall be entitled to receive all such dividends and
         distributions and such cash payments). In the interim, such dividends
         and distributions will be held by Parent in trust for such holders, and
         to the extent such dividends and distributions consist of cash, in an
         interest-bearing account.

                  (c) Parent and the Surviving Corporation shall be entitled to
         deduct and withhold from any consideration payable or otherwise
         deliverable to any holder or former holder of capital stock of the
         Company pursuant to this Agreement such amounts as Parent or the
         Surviving Corporation may be required to deduct or withhold therefrom
         under the Code or under any provision of state, local or foreign tax
         law. To the extent such amounts are so deducted or withheld, such
         amounts shall be treated for all purposes under this Agreement as
         having been paid to the Person to whom such amounts would otherwise
         have been paid.

                  (d) Neither Parent nor the Surviving Corporation shall be
         liable to any holder or former holder of capital stock of the Company
         for any shares of Series G Stock (or dividends or distributions with
         respect thereto), or for any cash amounts, delivered to any public
         official pursuant to any applicable abandoned property, escheat or
         similar law.



                                       8



                  (e) The shares of Series G Stock to be issued pursuant to this
         Section 1.8 shall not have been registered and shall be characterized
         as "restricted securities" under the federal securities laws, and under
         such laws such shares may be resold without registration under the
         Securities Act, only in certain limited circumstances. Each certificate
         evidencing shares of Series G Stock to be issued pursuant to this
         Section 1.8 shall bear the following legends:

                           (i) THE SECURITIES REPRESENTED BY THIS CERTIFICATE
                  HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
                  AMENDED (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED
                  IN RULE 144 PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT
                  BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT
                  (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT
                  FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE
                  144, OR (iii) PURSUANT TO AN OPINION OF COUNSEL, REASONABLY
                  SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION OR
                  COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
                  DISTRIBUTION.

                           (ii) Any other legends required by federal law or
                  other applicable state blue sky laws.

                  (f) As soon as practicable after the Effective Time, and
         subject to and in accordance with the provisions of Section 9 hereof,
         Parent shall cause to be deposited with the Escrow Agent (as defined in
         Section 9 hereof) a certificate or certificates totaling 151,766 shares
         of Series G Stock (as adjusted for any Recapitalization Event)
         representing the initial number of aggregate Indemnity Shares being
         allocated for each Company Stockholder at Closing as specified on
         SCHEDULE 1.5. The shares deposited into the Escrow Fund pursuant to
         this Section 1.8(f) shall be registered in the name of the Escrow Agent
         as nominee for the holders of Series G Stock that have been allocated
         such shares pursuant to this Section 1.8(f). Such shares shall be
         beneficially owned by such holders and such shares shall be held in
         escrow and shall be available to compensate Parent for certain damages
         as provided in Section 9. To the extent not used for such purposes,
         such shares shall be released, all as provided in Section 9 hereof.

         1.9 DISSENTING SHARES.

                  (a) Notwithstanding anything to the contrary contained in this
         Agreement, any shares of capital stock of the Company that, as of the
         Effective Time, are or may become shares seeking rights of appraisal
         pursuant to Section 262 of the DGCL shall not be converted into or
         represent the right to receive Series G Stock or a portion of the Cash
         Consideration or Contingent Consideration in accordance with Section
         1.5 (or cash in lieu of fractional shares in accordance with Section
         1.8(a)), and the holder or holders of such shares shall be entitled
         only to such rights as may be granted to such holder or holders in
         Section 262 of the DGCL; PROVIDED, HOWEVER, that if (i) the status of
         any such shares as "dissenting shares" shall not be perfected, (ii) the
         rights of appraisal relating to such shares shall not be perfected, or
         (iii) any such shares shall lose their status as "dissenting shares,"
         then, as of the later of the Effective Time or the time of the failure
         to perfect such status or the loss of such status, such shares shall
         automatically be converted into and shall represent only the right to
         receive (upon the surrender of the certificate or certificates


                                       9



         representing such shares) the Merger Consideration in accordance with
         the terms of this Agreement.

                  (b) The Company shall give Parent (i) prompt notice of any
         written demand received by the Company prior to the Effective Time to
         require the Company to purchase shares of capital stock of the Company
         pursuant to Section 262 of the DGCL and of any other demand, notice or
         instrument delivered to the Company prior to the Effective Time
         pursuant to the DGCL, and (ii) the opportunity to participate in all
         negotiations and proceedings with respect to any such demand, notice or
         instrument. The Company shall not make any payment or settlement offer
         prior to the Effective Time with respect to any such demand unless
         Parent shall have consented in writing to such payment or settlement
         offer which consent will not be unreasonably withheld.

         1.10 ADDITIONAL PARENT PAYMENTS AT THE CLOSING. In addition to the
other payments and actions specified in this Agreement, at the Closing Parent
shall pay the following amounts by delivery at Closing of checks to the
applicable parties:

                  (a) Parent shall pay Adams, Harkness and Hill, Inc. ("AH&H")
         the sum of $275,000, in satisfaction of certain obligations of the
         Company to AH&H.

                  (b) Parent shall pay Katherine Gordon the sum of $50,000, in
         satisfaction of certain obligations of the Company to Dr. Gordon.

                  (c) Parent shall pay Robert Leonard ("Leonard") the sum of
         $35,000, in satisfaction of certain obligations of the Company to
         Leonard, which such sum of $35,000 shall be reduced by the amount of
         principal and interest then outstanding under that certain promissory
         note made by Leonard in the favor of the Company in the original
         principal amount of $24,885.97 (the "LEONARD NOTE") in order to allow
         the payoff by Parent of such Leonard Note in full at the Closing.

         The amounts set forth in subsections (a), (b) and (c) of this Section
1.10 shall reduce the Cash Consideration set forth in Section 1.5(b)(i) of this
Agreement, resulting in a pro-rata reduction of the amount of such consideration
allocated to each of the Company Equityholders.

         1.11 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.

         1.12 ACCOUNTING TREATMENT. For accounting purposes, the Merger is
intended to be treated as a purchase.

         1.13 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation or Parent
with full right, title and possession of and to all rights and property of
Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.



                                       10



SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company represents and warrants to Parent and Merger Sub, as
follows subject to such exceptions as are disclosed in the Company Disclosure
Schedule:

         2.1 DUE ORGANIZATION; NO SUBSIDIARIES.

                  (a) The Company is a corporation duly incorporated, validly
         existing and in good standing under the laws of the State of Delaware
         and has all corporate power and authority required: (i) to conduct its
         business in the manner in which its business is currently being
         conducted; (ii) to own and use its assets in the manner in which its
         assets are currently owned and used; and (iii) to perform its
         obligations under all Company Contracts.

                  (b) Except as set forth in Part 2.1(b) of the Company
         Disclosure Schedule, the Company has not conducted any business under
         or otherwise used, for any purpose or in any jurisdiction, any
         fictitious name, assumed name, trade name or other name.

                  (c) The Company is not and has not been required to be
         qualified, authorized, registered or licensed to do business as a
         foreign corporation in any jurisdiction other than the jurisdictions
         identified in Part 2.1(c)(i) of the Company Disclosure Schedule, except
         where the failure to be so qualified, authorized, registered or
         licensed would not (individually or in the aggregate) have a Material
         Adverse Effect on the Company or on the consummation of the Merger and
         the other transactions contemplated herein. The Company is in good
         standing as a foreign corporation in each of the jurisdictions
         identified in Part 2.1(c)(ii) of the Company Disclosure Schedule.

                  (d) Part 2.1(d) of the Company Disclosure Schedule accurately
         sets forth (i) the names of the current members of the Company's board
         of directors, (ii) the names of the current members of each committee
         of the Company's board of directors, and (iii) the names and titles of
         the Company's current officers.

                  (e) The Company does not own any controlling interest in any
         Entity and, except for the equity interests identified in Part 2.1(e)
         of the Company Disclosure Schedule, the Company has never owned,
         beneficially or otherwise, any shares or other securities of, or any
         direct or indirect equity interest in, any Entity. The Company has not
         agreed and is not obligated to make any future investment in or capital
         contribution to any Entity. The Company has not guaranteed and is not
         responsible or liable for any obligation of any of the Entities in
         which it owns or has owned any equity interest.

         2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of: (1) the Company's
certificate of incorporation and bylaws, including all amendments thereto; (2)
the stock records of the Company; and (3) the minutes and other records of the
meetings and other proceedings (including any actions taken by written consent
or otherwise without a meeting) of the stockholders of the Company, the board of
directors of the Company and all committees of the board of directors of the
Company since the inception of the Company. There have been no formal meetings
or other proceedings of the stockholders of the Company, the board of directors



                                       11


of the Company or any committee of the board of directors of the Company that
are not fully reflected in such minutes or other records. There has not been any
violation of any of the provisions of the Company's certificate of incorporation
or bylaws, and the Company has not taken any action that is inconsistent in any
material respect with any resolution adopted by the Company's stockholders, the
Company's board of directors or any committee of the Company's board of
directors. The books of account, stock records, minute books and other records
of the Company are accurate, up-to-date and complete in all material respects.

         2.3 CAPITALIZATION.

                  (a) The authorized capital stock of the Company consists of:
         (i) 20,000,000 shares of Common Stock, par value $.02 per share, of
         which 2,962,058 shares have been issued and are outstanding as of the
         date of this Agreement; and (ii) 1,000,000 shares of Preferred Stock,
         par value $.01 per share, of which 100,000 shares are designated Series
         A Convertible Preferred Stock, 70,000 of which are issued and
         outstanding. As of the date hereof and as of the Effective Time, each
         outstanding share of Company Preferred Stock is and shall be
         convertible into 1.0282 shares of Company Common Stock. All of the
         outstanding shares of Company Common Stock and Company Preferred Stock
         have been duly authorized and validly issued, and are fully paid and
         nonassessable. All outstanding shares of Company Common Stock and
         Company Preferred Stock, and all outstanding Company Options and
         Company Warrants, have been issued and granted in compliance with (i)
         all applicable federal and state securities laws and the DGCL, and (ii)
         all requirements binding the Company set forth in applicable Contracts
         to which the Company is a party. Part 2.3(a)(i) of the Company
         Disclosure Schedule provides an accurate and complete description of
         the terms of each repurchase option, if any, which is held by the
         Company and to which any shares of capital stock of the Company is
         subject. Part 2.3(a)(ii) of the Company Disclosure Schedule provides an
         accurate and complete itemization of the share amounts represented on
         the Company's issued stock certificates representing the Company Common
         Stock and Company Preferred Stock, both as the share amounts are
         currently represented on the outstanding certificates and how the share
         amounts would otherwise be represented had the existing certificates
         been replaced with new certificates to reflect any and all stock
         splits, reverse stock splits, recapitalization, combinations,
         reorganizations and any like transactions effected by the Company.

                  (b) The Company has reserved 805,160 shares of Company Common
         Stock for issuance under the Company Stock Option Plans, of which
         options to purchase 479,157 shares are outstanding as of the date of
         this Agreement. Part 2.3(b) of the Company Disclosure Schedule
         accurately sets forth, with respect to each Company Option outstanding
         as of the date hereof (whether vested or unvested): (i) the name of the
         holder of such Company Option; (ii) the total number of shares of
         Company Common Stock that is subject to such Company Option and the
         number of shares of Company Common Stock with respect to which such
         Company Option is immediately exercisable; (iii) the date on which such
         Company Option was granted and the term of such Company Option; (iv)
         the vesting schedule for such Company Option (including any
         circumstances under which such vesting may be accelerated as a result
         of the Merger or otherwise); (v) the exercise price per share of
         Company Common Stock purchasable under such Company Option; and (vi)
         whether such Company Option has been designated an "incentive stock
         option" as defined in Section 422 of the Code. Except as set forth in
         Part 2.3(b) or Part 2.3(c) of the Company Disclosure Schedule, there is
         no: (i) outstanding subscription, option,


                                       12



         call, warrant or right (including any preemptive rights), whether or
         not currently exercisable, to acquire any shares of capital stock or
         other securities of the Company; (ii) outstanding security, instrument
         or obligation that is or may become convertible into or exchangeable
         for any shares of capital stock or other securities of the Company; or
         (iii) Contract obligating the Company to sell or otherwise issue any
         shares of its capital stock or any other securities of the Company.

                  (c) The Company has reserved 131,774 shares of Company Common
         Stock for issuance pursuant to the Company Warrants, all of which such
         Company Warrants are outstanding as of the date of this Agreement. Part
         2.3(c) of the Company Disclosure Schedule accurately sets forth, with
         respect to each Company Warrant outstanding as of the date hereof: (i)
         the name of the holder of such Company Warrant; (ii) the total number
         of shares of Company Common Stock that is subject to such Company
         Warrant; (iii) the date on which such Company Warrant was granted and
         the term of such Company Warrant; and (iv) the exercise price per share
         of Company Common Stock purchasable under such Company Warrant.

                  (d) Except as set forth in Part 2.3(d) of the Company
         Disclosure Schedule, the Company has never repurchased, redeemed or
         otherwise reacquired any shares of capital stock or other securities of
         the Company. All securities so reacquired by the Company were
         reacquired in compliance with (i) the applicable provisions of the DGCL
         and all other applicable Legal Requirements, and (ii) all requirements
         set forth in applicable restricted stock purchase agreements and other
         applicable Contracts.

                  (e) To the Knowledge of the Company, no more than 35
         stockholders of the Company do not qualify as an "accredited investor"
         (as such term is defined in Rule 501(a) of Regulation D promulgated
         under the Securities Act).

         2.4 FINANCIAL STATEMENTS.

                  (a) The Company has delivered to Parent the following
         financial statements and notes (collectively, the "COMPANY FINANCIAL
         STATEMENTS"):

                           (i) the audited balance sheet of the Company as of
                  December 31, 1996, December 31, 1997, December 31, 1998,
                  December 31, 1999 and December 31, 2000, and the related
                  audited statement of operations, statement of stockholders'
                  equity and statement of cash flows of the Company for the
                  years then ended, together with the notes thereto and the
                  unqualified report and opinion of BDO Seidman relating
                  thereto; and

                           (ii) the unaudited balance sheet of the Company as of
                  March 31, 2001 (the "UNAUDITED INTERIM BALANCE SHEET"), and
                  the related unaudited statement of operations of the Company
                  for the three-month period then ended.

                  (b) The Company Financial Statements are accurate and complete
         in all material respects and present fairly the financial position of
         the Company as of the respective dates thereof and the results of
         operations and in the case of the financial statements referred to in
         Section 2.4(a)(i), cash flows of the Company for the periods covered
         thereby. The Company Financial Statements have been prepared in
         accordance with GAAP applied on a consistent basis throughout the
         periods covered (except that the financial statements referred to in
         Section


                                       13



         2.4(a)(ii) do not contain footnotes and are subject to normal and
         recurring year-end audit adjustments, which will not, individually or
         in the aggregate, be material in magnitude).

         2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since December 31, 2000:

                  (a) there has not been any adverse change in the Company's
         business, condition, capitalization, assets, liabilities, operations,
         financial performance or prospects that have had, or could be
         reasonably expected to have, and, to the Knowledge of the Company, no
         event has occurred that has had, or could reasonably be expected to
         have (individually or in the aggregate), a Material Adverse Effect on
         the Company;

                  (b) there has not been any material loss, damage or
         destruction to, or any material interruption in the use of, any of the
         Company's assets (whether or not covered by insurance);

                  (c) the Company has not declared, accrued, set aside or paid
         any dividend or made any other distribution in respect of any shares of
         capital stock of the Company, and has not repurchased, redeemed or
         otherwise reacquired any shares of capital stock or other securities of
         the Company;

                  (d) the Company has not sold, issued or authorized the
         issuance of (i) any capital stock or other securities of the Company
         (except for Company Common Stock issued upon the (A) exercise of
         outstanding Company Options and Company Warrants or (B) exercise by
         Neuroscience Partners Limited ("NPLP") of its conversion right
         contained in that certain Royalty Purchase Agreement, dated December
         18, 1996 by and between NPLP and Apollo Genetics, Inc.), (ii) any
         option or right to acquire any capital stock or any other securities of
         the Company (except for Company Options and Company Warrants described
         in Part 2.3 of the Company Disclosure Schedule), or (iii) any
         instrument convertible into or exchangeable for any capital stock or
         other securities of the Company;

                  (e) the Company has not amended or waived any of its rights
         under, or changed or modified any provisions permitting the
         acceleration of vesting under, (i) any provision of any Company Stock
         Option Plan, (ii) any provision of any agreement evidencing any
         outstanding Company Option, or (iii) any restricted stock purchase
         agreement;

                  (f) there has been no amendment to the Company's certificate
         of incorporation or bylaws, and the Company has not effected or been a
         party to any Acquisition Transaction, recapitalization,
         reclassification of shares, stock split, reverse stock split or similar
         transaction;

                  (g) the Company has not made any capital expenditure which,
         when added to all other capital expenditures made on behalf of the
         Company since December 31, 2000, exceeds $100,000;

                  (h) the Company has not (i) entered into or permitted any of
         the assets owned or otherwise required to be used by it to accomplish
         its ordinary course of business to become bound by any Material
         Contract involving the Company (as defined in Section 2.10(a)), or (ii)


                                       14



         materially amended or prematurely terminated, or waived any material
         right or remedy under, any Material Contract to which the Company is a
         party;

                  (i) the Company has not, except for immaterial rights or other
         immaterial assets acquired, leased, licensed or disposed of in the
         ordinary course of business and consistent with the Company's past
         practices, (i) acquired, leased or licensed any right or other asset
         from any other Person, (ii) sold or otherwise disposed of, or leased or
         licensed, any right or other asset to any other Person, or (iii) waived
         or relinquished any right;

                  (j) the Company has not written off as uncollectible, or
         established any extraordinary reserve with respect to, any account
         receivable or other indebtedness;

                  (k) the Company has not made any pledge of any of its assets
         or otherwise permitted any of its assets to become subject to any
         Encumbrance, except for pledges of immaterial assets made in the
         ordinary course of business and consistent with the Company's past
         practices;

                  (l) the Company has not (i) lent money to any Person (other
         than pursuant to routine travel or similar advances made to employees
         in the ordinary course of business), or (ii) incurred or guaranteed any
         indebtedness for borrowed money;

                  (m) the Company has not (i) established or adopted any
         Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing
         or similar payment to, or increased the amount of the wages, salary,
         commissions, fringe benefits or other compensation or remuneration
         payable to, any of its directors, officers or employees, or (iii) hired
         any new employee;

                  (n) the Company has not changed any of its methods of
         accounting or accounting practices in any respect, except to the
         extent, if any, required by GAAP;

                  (o) the Company has not made any Tax election;

                  (p) the Company has not commenced or settled any Legal
         Proceeding;

                  (q) the Company has not entered into any material transaction
         or taken any other material action outside the ordinary course of
         business or inconsistent with its past practices; and

                  () the Company has not agreed or committed to take any of the
         actions referred to in clauses (c) through (q) above.

         2.6 OWNERSHIP OF/TITLE TO ASSETS.

                  (a) The Company owns, and has good and valid title to all
         assets purported to be owned by it, including: (i) all assets reflected
         on the Unaudited Interim Balance Sheet as owned by the Company or
         purchased by the Company after March 31, 2001, except for assets which
         have been disposed of in the ordinary course of business, and (ii) all
         assets referred to as owned by the Company in Part 2.8 of the Company
         Disclosure Schedule. Except as set forth in


                                       15



         Part 2.6(a) of the Company Disclosure Schedule, all of said assets are
         owned by the Company free and clear of any liens or other Encumbrances,
         except for (x) any lien for current taxes not yet due and payable, and
         (y) minor liens that have arisen in the ordinary course of business and
         that do not (individually or in the aggregate) have a Material Adverse
         Effect on the Company.

                  (b) Part 2.6(b) of the Company Disclosure Schedule identifies
         all assets that are material to the business of the Company and that
         are being leased or licensed to or by the Company. To the Knowledge of
         the Company all such leases and licenses are valid and enforceable
         against the parties thereto.

         2.7 BANK ACCOUNTS; RECEIVABLES.

                  (a) Part 2.7(a) of the Company Disclosure Schedule provides
         accurate information with respect to each account maintained by or for
         the benefit of the Company at any bank or other financial institution.
         Such information consists of the name of the bank or financial
         institution, the account number and the balance as of March 31, 2001.

                  (b) Part 2.7(b) of the Company Disclosure Schedule provides an
         accurate and complete breakdown and aging of all accounts receivable,
         notes receivable and other receivables of the Company as of March 31,
         2001. Except as set forth in Part 2.7(b) of the Company Disclosure
         Schedule, all existing accounts receivable of the Company (including
         those accounts receivable reflected on the Unaudited Interim Balance
         Sheet that have not yet been collected and those accounts receivable
         that have arisen since March 31, 2001 and have not yet been collected)
         (i) represent valid obligations of customers of the Company arising
         from bona fide transactions entered into in the ordinary course of
         business, and (ii) are current. The Company has no Knowledge that such
         accounts receivable would not be collected in full when due, without
         any counterclaim or set off (net of an allowance for doubtful accounts
         not to exceed $5,000 in the aggregate).

         2.8 EQUIPMENT; LEASEHOLD.

                  (a) All material items of equipment and other tangible assets
         owned by or leased to the Company are adequate for the uses to which
         they are being put, are in good condition and repair (ordinary wear and
         tear excepted) and are adequate for the conduct of the Company's
         business in the manner in which such business is currently being
         conducted.

                  (b) The Company does not own any real property or any interest
         in real property, except for the leasehold created under the real
         property lease identified and whose terms are summarized in Part 2.8(b)
         of the Company Disclosure Schedule.

         2.9 PROPRIETARY ASSETS.

                  (a) Part 2.9(a)(i) of the Company Disclosure Schedule sets
         forth, with respect to each Proprietary Asset owned by the Company and
         registered with any Governmental Body or for which an application has
         been filed and is currently active or pending with any Governmental
         Body, (i) a brief description of such Proprietary Asset, and (ii) the
         names of the jurisdictions covered by the applicable registration or
         application. Part 2.9(a)(ii) of the Company Disclosure Schedule
         identifies and provides a brief description of all other Proprietary
         Assets owned by the


                                       16



         Company that are material to the business of the Company. Part
         2.9(a)(iii) of the Company Disclosure Schedule identifies and provides
         a brief description of, and identifies any ongoing royalty or payment
         obligations in excess of $10,000 with respect to each Proprietary Asset
         that is licensed or otherwise made available to the Company by any
         Person and is material to the business of the Company and identifies
         the Contract, including all amendments thereto, under which such
         Proprietary Asset is being licensed or otherwise made available to the
         Company. The Company has good and valid title to all of the Company
         Proprietary Assets identified in Part 2.9(a)(i) and, to its Knowledge,
         to the Company Proprietary Assets identified in Part 2.9(a)(ii) of the
         Company Disclosure Schedule, free and clear of all Encumbrances, except
         for any lien for current taxes not yet due and payable. Each Contract
         identified in Parts 2.9(a)(ii) and 2.9(a)(iii) of the Company
         Disclosure Schedule is, to the Company's Knowledge, valid and in full
         force and effect and the Company has not materially violated or
         breached, or committed any default under, any such Contract. Subject to
         the terms of the applicable Contracts, the Company has a valid right to
         use and otherwise exploit, to the extent provided within the applicable
         Contract, all Proprietary Assets identified in Part 2.9(a)(iii) of the
         Company Disclosure Schedule. Except as set forth in Part 2.9(a)(iv) of
         the Company Disclosure Schedule, the Company has not developed jointly
         with any other Person any Company Proprietary Asset that is material to
         the business of the Company with respect to which such other Person has
         any rights. Except as set forth in Part 2.9(a)(v) of the Company
         Disclosure Schedule, there is no Company Contract pursuant to which any
         Person has any right (whether or not currently exercisable) to use,
         license or otherwise exploit any Company Proprietary Asset.

                  (b) The Company has taken reasonable measures and precautions
         to protect and maintain the confidentiality, secrecy and value of all
         material Company Proprietary Assets. Without limiting the generality of
         the foregoing, (i) all current and former employees of the Company who
         are or were involved in, or who have contributed to, the creation or
         development of any material Company Proprietary Asset have executed and
         delivered to the Company confidentiality agreements previously
         delivered by the Company to Parent, and (ii) all current and former
         consultants and independent contractors to the Company who are or were
         involved in, or who have contributed to, the creation or development of
         any material Company Proprietary Asset have each executed and delivered
         to the Company consultant agreements (containing no exceptions to or
         exclusions from the scope of its coverage) copies of which the Company
         has subsequently delivered to Parent. Except as set forth in Part
         2.9(b) of the Company Disclosure Schedule, no current or former
         employee, officer, director, stockholder, consultant or independent
         contractor of or to the Company has any right, claim or interest in or
         with respect to any Company Proprietary Asset.

                  (c) To the Knowledge of the Company: (i) there are no patents,
         trademarks, service marks and copyrights owned or in-licensed by the
         Company that are material to its business that are not valid or
         enforceable; (ii) none of the Company Proprietary Assets and no
         Proprietary Asset that is currently being developed by the Company
         (either by itself or with any other Person) infringes or
         misappropriates any Proprietary Asset owned or used by any other
         Person; (iii) none of the products that are or have been designed,
         created, developed, assembled, manufactured or sold by the Company is
         infringing, misappropriating or making any unlawful or unauthorized use
         of any Proprietary Asset owned or used by any other Person, and none of
         such products has at any time infringed, misappropriated or made any
         unlawful or unauthorized use of any Proprietary Asset owned or used by
         any other Person; and (iv) no other Person is infringing,


                                       17



         misappropriating or making any unlawful or unauthorized use of, and no
         Proprietary Asset owned or used by any other Person infringes or
         misappropriates any material Company Proprietary Asset.

                  (d) To the Company's Knowledge, the Company has not received
         any notice or other communication (in writing or otherwise) of any
         actual, alleged, possible or potential infringement, misappropriation
         or unlawful or unauthorized use of, any Proprietary Asset owned or used
         by any other Person.

                  (e) To the Company's Knowledge, the Company Proprietary Assets
         constitute all the Proprietary Assets necessary to enable the Company
         to conduct its business in the manner in which such business has been
         and is being conducted. Except as set forth in Part 2.9(e) of the
         Company Disclosure Schedule, the Company has not (i) licensed, granted
         rights in or hypothecated any of the material Company Proprietary
         Assets to any Person, or (ii) entered into any covenant not to compete,
         or Contract limiting its ability to exploit any Company Proprietary
         Assets or to transact business, in any market or geographical area or
         with any Person.

         2.10 CONTRACTS.

                  (a) Part 2.10(a) of the Company Disclosure Schedule
         identifies:

                           (i) each Company Contract relating to the employment
                  of, or the performance of services by, any current employee,
                  consultant or independent contractor;

                           (ii) each Company Contract relating to the
                  acquisition, transfer, use, development, sharing or license of
                  any technology or any Proprietary Asset;

                           (iii) each Company Contract imposing any restriction
                  on the Company's right or ability to (A) compete with any
                  other Person, (B) to acquire any product or other asset or any
                  services from any other Person, sell any product or other
                  asset to or perform any services for any other Person or
                  transact business or deal in any other manner with any other
                  Person, or (C) develop or distribute any technology;

                           (iv) each Company Contract creating or involving any
                  agency relationship or distribution arrangement;

                           (v) each Company Contract relating to the
                  acquisition, issuance or transfer of any securities;

                           (vi) each Company Contract relating to the creation
                  of any Encumbrance with respect to any material asset of the
                  Company;

                           (vii) each Company Contract involving or
                  incorporating any guaranty, any pledge, any performance or
                  completion bond, any indemnity or any surety arrangement;

                           (viii) each Company Contract creating any partnership
                  or joint venture or any sharing of revenues, profits, losses,
                  costs or liabilities;


                                       18



                           (ix) each Company Contract relating to the purchase
                  or sale of any product or other asset by or to, or the
                  performance of any services by or for, any Related Party (as
                  defined in Section 2.18);

                           (x) each Company Contract constituting or relating to
                  a Government Contract or Government Bid;

                           (xi) any other Company Contract that was entered into
                  outside the ordinary course of business or was inconsistent
                  with the Company's past practices;

                           (xii) any other Company Contract that has a term of
                  more than 60 days and that may not be terminated by the
                  Company (without penalty) within 60 days after the delivery of
                  a termination notice by the Company; and

                           (xiii) any other Company Contract that contemplates
                  or involves (A) the payment or delivery of cash or other
                  consideration by the Company in an amount or having a value in
                  excess of $10,000 in the aggregate, or (B) the performance of
                  services having a value in excess of $10,000 in the aggregate.

Company Contracts in the respective categories described in clauses (i) through
(xiii) above are referred to in this Agreement as "MATERIAL CONTRACTS."

                  (b) The Company has delivered to Parent accurate and complete
         copies of all written Material Contracts, including all amendments
         thereto. Part 2.10(b) of the Company Disclosure Schedule provides an
         accurate description of the terms of each Material Contract that is not
         in written form. Each Contract identified in Part 2.10(a) and Part
         2.10(b) of the Company Disclosure Schedule is, to the Knowledge of the
         Company, valid, in full force and effect, and is enforceable by the
         Company in accordance with its terms, subject to (i) laws of general
         application relating to bankruptcy, insolvency and the relief of
         debtors, and (ii) rules of law governing specific performance,
         injunctive relief and other equitable remedies.

                  (c) Except as set forth in Part 2.10(c) of the Company
         Disclosure Schedule:

                           (i) the Company has not violated or breached, or
                  committed any default under, any Material Contract, and, to
                  the Knowledge of the Company, no other Person has violated or
                  breached, or committed any default under, any Material
                  Contract;

                           (ii) to the Knowledge of the Company, no event has
                  occurred, and no circumstance or condition exists, that (with
                  or without notice or lapse of time) will, or could reasonably
                  be expected to, (A) result in a material violation or breach
                  of any of the provisions of any Material Contract, (B) give
                  any Person the right to declare a default or exercise any
                  remedy under any Material Contract, (C) give any Person the
                  right to accelerate the maturity or performance of any
                  Material Contract, or (D) give any Person the right to cancel,
                  terminate or materially modify any Material Contract;

                           (iii) since the Company's inception, the Company has
                  not received any notice or other communication regarding any
                  actual or possible violation or breach of, or default under,
                  any Material Contract; and


                                       19



                           (iv) the Company has not waived any of its material
                  rights under any Material Contract.

                  (d) No Person is renegotiating, or has a right pursuant to the
         terms of any Material Contract to renegotiate, any amount paid or
         payable to the Company under any Material Contract or any other
         material term or provision of any Material Contract.

                  (e) Except as set forth on Part 2.10(e) of the Company
         Disclosure Schedule, the Material Contracts collectively constitute all
         of the Contracts necessary to enable the Company to conduct its
         business in the manner in which its business is currently being
         conducted.

                  (f) Part 2.10(f) of the Company Disclosure Schedule identifies
         and provides a brief description of each proposed Contract as to which
         any written bid, offer, award, proposal, term sheet or similar document
         has been submitted or received by the Company since December 31, 2000
         and which, when duly executed and delivered, would constitute a
         Material Contract.

         2.11 LIABILITIES; FEES, COSTS AND EXPENSES. The Company has no accrued,
contingent or other liabilities of any nature, either matured or unmatured
(whether or not required to be reflected in financial statements in accordance
with GAAP, and whether due or to become due), except for: (i) liabilities
identified in the Unaudited Interim Balance Sheet; (ii) accounts payable or
accrued salaries and other expenses that have been incurred by the Company since
December 31, 2000 in the ordinary course of business and consistent with the
Company's past practices; (iii) liabilities under the Material Contracts,
arising or incurred in accordance with the express terms of such Material
Contracts; (iv) liabilities for expenses, including the fees and expenses of
counsel and accountants, incurred in connection with this Agreement and the
other transactions contemplated hereby; and (v) the liabilities identified in
Part 2.11 of the Company Disclosure Schedule.

         2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since its inception been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not (individually or in the aggregate) have a Material
Adverse Effect on the Company. Except as set forth in Part 2.12 of the Company
Disclosure Schedule, since December 31, 1997 the Company has not received any
notice or other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any material Legal
Requirement.

         2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Company Disclosure
Schedule identifies each material Governmental Authorization held by the
Company, and the Company has delivered to Parent accurate and complete copies of
all Governmental Authorizations identified in Part 2.13 of the Company
Disclosure Schedule. To the Company's Knowledge, the Governmental Authorizations
identified in Part 2.13 of the Company Disclosure Schedule are valid and in full
force and effect, and collectively constitute all material Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted. The Company is, and
at all times since its inception has been, in compliance with the terms and
requirements of the respective Governmental Authorizations identified in Part
2.13 of the Company Disclosure Schedule, except where such


                                       20



failure to be in such compliance would not (individually or in the aggregate)
have a Material Adverse Effect on the Company. Since December 31, 1997, the
Company has not received any notice or other communication from any Governmental
Body regarding (a) any actual or possible violation of or failure to comply with
any term or requirement of any Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization.

         2.14 TAX MATTERS.

                  (a) All Tax Returns required to be filed by or on behalf of
         the Company with any Governmental Body with respect to any taxable
         period ending on or before the Closing Date (the "COMPANY RETURNS") (i)
         have been or will be filed on or before the applicable due date
         (including any extensions of such due date), and (ii) have been, or
         will be when filed, accurately and completely prepared in all material
         respects in compliance with all applicable Legal Requirements. All
         amounts shown on the Company Returns to be due on or before the Closing
         Date have been or will be paid on or before the Closing Date. The
         Company has delivered to Parent accurate and complete copies of all
         Company Returns filed since the Company's inception which have been
         requested by Parent.

                  (b) The Company Financial Statements fully accrue all actual
         and contingent liabilities for Taxes with respect to all periods
         through the dates thereof in accordance with GAAP. The Company will
         establish, in the ordinary course of business and consistent with its
         past practices, reserves adequate for the payment of all Taxes for the
         period from the inception of the Company through the Closing Date in
         accordance with GAAP, and the Company will disclose the dollar amount
         of such reserves to Parent on or prior to the Closing Date.

                  (c) Except as set forth in Part 2.14(c) of the Company
         Disclosure Schedule, there have been no examinations or audits of any
         Company Return by any Governmental Body. The Company has delivered to
         Parent accurate and complete copies of all audit reports and similar
         documents (to which the Company has access) relating to the Company
         Returns. Except as set forth in Part 2.14(c) of the Company Disclosure
         Schedule, no extension or waiver of the limitation period applicable to
         any of the Company Returns has been granted (by the Company or any
         other Person), and no such extension or waiver has been requested from
         the Company.

                  (d) Except as set forth in Part 2.14(d) of the Company
         Disclosure Schedule, no claim or Legal Proceeding is pending or has
         been threatened against or with respect to the Company in respect of
         any Tax. There are no unsatisfied liabilities for Taxes (including
         liabilities for interest, additions to tax and penalties thereon and
         related expenses) with respect to any notice of deficiency or similar
         document received by the Company with respect to any Tax (other than
         liabilities for Taxes asserted under any such notice of deficiency or
         similar document which are being contested in good faith by the Company
         and with respect to which adequate reserves for payment have been
         established). There are no liens for Taxes upon any of the assets of
         the Company except liens for current Taxes not yet due and payable. The
         Company has not entered into or become bound by any agreement or
         consent pursuant to Section 341(f) of the Code. The Company has not
         been, and the Company will not be, required to include any adjustment
         in taxable income for any tax period (or portion thereof) pursuant to
         Section 481 or


                                       21



         263A of the Code or any comparable provision under state or foreign Tax
         laws as a result of transactions or events occurring, or accounting
         methods employed, prior to the Closing.

                  (e) Except as set forth in Part 2.14(e) of the Company
         Disclosure Schedule, there is no agreement, plan, arrangement or other
         Contract covering any employee or independent contractor or former
         employee or independent contractor of the Company that, considered
         individually or considered collectively with any other such Contracts,
         will, or could reasonably be expected to, give rise directly or
         indirectly to the payment of any amount that would not be deductible
         pursuant to Section(s) 280G, 162(m) or 404 of the Code. The Company has
         withheld and paid all Taxes required to have been withheld and paid in
         connection with amounts paid or owing to any employee, independent
         contractor, creditor, stockholder or other third party. The Company is
         not, and has never been, a member of an affiliated group of
         corporations filing a consolidated federal income tax return or a party
         to or bound by any tax sharing agreement, tax allocation agreement or
         similar Contract.

         2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.

                  (a) Part 2.15(a)(i) of the Company Disclosure Schedule
         identifies each salary, bonus, deferred compensation, incentive
         compensation, stock purchase, stock option, severance pay, termination
         pay, hospitalization, medical, life or other insurance, supplemental
         unemployment benefits, profit-sharing, pension or retirement plan,
         program or agreement (collectively, the "PLANS") sponsored, maintained,
         contributed to or required to be contributed to by the Company for the
         benefit of any employee of the Company ("EMPLOYEE"), except for Plans
         which would not require the Company to make payments or provide
         benefits having a value in excess of $25,000 in the aggregate per Plan
         per year. Part 2.15(a)(ii) of the Company Disclosure Schedule sets
         forth the citizenship status of every employee of the Company (whether
         such employee is a United States citizen or otherwise) and, with
         respect to non-United States citizens, identifies the visa or other
         similar permit under which such employee is working for the Company and
         the dates of issuance and expiration of such visa or other similar
         permit.

                  (b) Except as set forth in Part 2.15(b) of the Company
         Disclosure Schedule, the Company does not maintain, sponsor or
         contribute to, and, to the Knowledge of the Company, has not at any
         time in the past maintained, sponsored or contributed to, any employee
         pension benefit plan (as defined in Section 3(2) of the Employee
         Retirement Income Security Act of 1974, as amended ("ERISA"), whether
         or not excluded from coverage under specific Titles or Subtitles of
         ERISA) for the benefit of Employees or former Employees (a "PENSION
         PLAN").

                  (c) The Company maintains, sponsors or contributes only to
         those employee welfare benefit plans (as defined in Section 3(1) of
         ERISA, whether or not excluded from coverage under specific Titles or
         Subtitles of ERISA) for the benefit of Employees or former Employees
         which are described in Part 2.15(c) of the Company Disclosure Schedule
         (the "WELFARE PLANS"), none of which is a multiemployer plan (within
         the meaning of Section 3(37) of ERISA).


                                       22



                  (d) With respect to each Plan, the Company has delivered to
         Parent:

                           (i) an accurate and complete copy of such Plan
                  (including all amendments thereto);

                           (ii) an accurate and complete copy of the annual
                  report, if required under ERISA, with respect to such Plan for
                  the last two years;

                           (iii) an accurate and complete copy of the most
                  recent summary plan description, together with each Summary of
                  Material Modifications, if required under ERISA, with respect
                  to such Plan, and all material employee communications
                  relating to such Plan;

                           (iv) if such Plan is funded through a trust or any
                  third party funding vehicle, an accurate and complete copy of
                  the trust or other funding agreement (including all amendments
                  thereto) and accurate and complete copies of the most recent
                  financial statements thereof;

                           (v) accurate and complete copies of all Contracts
                  relating to such Plan, including service provider agreements,
                  insurance contracts, minimum premium contracts, stop-loss
                  agreements, investment management agreements, subscription and
                  participation agreements and recordkeeping agreements; and

                           (vi) an accurate and complete copy of the most recent
                  determination letter received from the Internal Revenue
                  Service with respect to such Plan (if such Plan is intended to
                  be qualified under Section 401(a) of the Code).

                  (e) The Company is not required to be, and, to the Knowledge
         of the Company, has never been required to be, treated as a single
         employer with any other Person under Section 4001(b)(1) of ERISA or
         Section 414(b), (c), (m) or (o) of the Code. The Company has never been
         a member of an "AFFILIATED SERVICE GROUP" within the meaning of Section
         414(m) of the Code. To the Knowledge of the Company, the Company has
         never made a complete or partial withdrawal from a multiemployer plan,
         as such term is defined in Section 3(37) of ERISA, resulting in
         "WITHDRAWAL LIABILITY," as such term is defined in Section 4201 of
         ERISA (without regard to subsequent reduction or waiver of such
         liability under either Section 4207 or 4208 of ERISA).

                  (f) The Company does not have any plan or commitment to create
         any additional Welfare Plan or any Pension Plan, or to modify or change
         any existing Welfare Plan or Pension Plan (other than to comply with
         applicable law) in a manner that would affect any Employee.

                  (g) Except as set forth in Part 2.15(g) of the Company
         Disclosure Schedule, no Welfare Plan provides death, medical or health
         benefits (whether or not insured) with respect to any current or former
         Employee after any such Employee's termination of service (other than
         (i) benefit coverage mandated by applicable law, including coverage
         provided pursuant to Section 4980B of the Code, (ii) deferred
         compensation benefits accrued as liabilities on the Unaudited Interim
         Balance Sheet, and (iii) benefits the full cost of which are borne by
         current or former Employees (or the Employees' beneficiaries)).


                                       23



                  (h) With respect to each of the Welfare Plans constituting a
         group health plan within the meaning of Section 4980B(g)(2) of the
         Code, the provisions of Section 4980B of the Code ("COBRA") have been
         complied with in all material respects.

                  (i) Each of the Plans has been operated and administered in
         all material respects in accordance with applicable Legal Requirements,
         including but not limited to ERISA and the Code.

                  (j) Each of the Plans intended to be qualified under Section
         401(a) of the Code has received a favorable determination from the
         Internal Revenue Service, and the Company is not aware of any reason
         why any such determination letter should be revoked.

                  (k) Except as set forth in Part 2.15(k) of the Company
         Disclosure Schedule, neither the execution, delivery or performance of
         this Agreement, nor the consummation of the Merger or any of the other
         transactions contemplated by this Agreement, will result in any payment
         (including any bonus, golden parachute or severance payment) to any
         current or former Employee or director of the Company (whether or not
         under any Plan), or materially increase the benefits payable under any
         Plan, or result in any acceleration of the time of payment or vesting
         of any such benefits.

                  (l) Part 2.15(l) of the Company Disclosure Schedule contains a
         list of all salaried employees of the Company as of the date of this
         Agreement, and correctly reflects, in all material respects, their
         salaries, any other compensation payable to them (including
         compensation payable pursuant to bonus, deferred compensation or
         commission arrangements), their dates of employment and their
         positions. The Company is not a party to any collective bargaining
         contract or other Contract with a labor union involving any of its
         Employees. All of the Company's employees are "at will" employees.

                  (m) Part 2.15(m) of the Company Disclosure Schedule identifies
         each Employee who is not fully available to perform work because of
         disability or other leave and sets forth the basis of such leave and
         the anticipated date of return to full service.

                  (n) The Company is in compliance in all material respects with
         all applicable Legal Requirements and Contracts relating to employment,
         employment practices, wages, bonuses and terms and conditions of
         employment, including employee compensation matters.

                  (o) Except as set forth in Part 2.15(o) of the Company
         Disclosure Schedule, the Company has good labor relations, and has no
         reason to believe that (i) the consummation of the Merger or any of the
         other transactions contemplated by this Agreement will have
         (individually or in the aggregate) a Material Adverse Effect on the
         Company's labor relations, or (ii) any of the Company's employees
         intends to terminate his or her employment with the Company.

         2.16 ENVIRONMENTAL MATTERS. Except for such failures to comply which do
not (individually or in the aggregate) have a Material Adverse Effect on the
Company. the Company is in compliance in all material respects with all
applicable Environmental Laws (as defined below), which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance


                                       24




with the terms and conditions thereof. The Company has not received any notice
or other communication (in writing or otherwise), whether from a Governmental
Body, citizens group, employee or otherwise, that alleges that the Company is
not in compliance with any Environmental Law, and, to the Knowledge of the
Company, there are no circumstances that may prevent or interfere with the
Company's compliance in all material respects with any applicable Environmental
Law in the future. To the Knowledge of the Company, no current or prior owner of
any property leased or controlled by the Company has received any notice or
other communication (in writing or otherwise), whether from a Government Body,
citizens group, employee or otherwise, that alleges that such current or prior
owner or the Company is not in compliance with any Environmental Law. All
Governmental Authorizations currently held by the Company pursuant to
Environmental Laws are identified in Part 2.16 of the Company Disclosure
Schedule. For purposes of this Agreement: (i) "ENVIRONMENTAL LAW" means any
federal, state, local or foreign Legal Requirement relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern; and (ii) "MATERIALS OF
ENVIRONMENTAL CONCERN" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.

         2.17 INSURANCE. Part 2.17 of the Company Disclosure Schedule identifies
all insurance policies maintained by, at the expense of or for the benefit of
the Company and identifies any material claims made thereunder, and, to the
extent requested by Parent, the Company has delivered to Parent accurate and
complete copies of the insurance policies identified on Part 2.17 of the Company
Disclosure Schedule. Each of the insurance policies identified in Part 2.17 of
the Company Disclosure Schedule is in full force and effect. Except as specified
in Part 2.17(ii) of the Company Disclosure Schedule, since December 31, 1997,
the Company has not received any notice or other communication regarding any
actual or possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any claim under any insurance policy, or
(c) material adjustment in the amount of the premiums payable with respect to
any insurance policy.

         2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of
the Company Disclosure Schedule: (a) no Related Party (as defined below) has,
and no Related Party has at any time since December 31, 1997 had, any direct or
indirect interest in any material asset used in or otherwise relating to the
business of the Company; (b) no Related Party is, or has at any time since
December 31, 1997 been, indebted to the Company; (c) since December 31, 1997, no
Related Party has entered into, or has had any direct or indirect financial
interest in, any material Contract, transaction or business dealing involving
the Company; (d) to the Company's Knowledge, no Related Party is competing, or
has at any time since December 31, 1997 competed, directly or indirectly, with
the Company; and (e) to the Company's Knowledge, no Related Party has any claim
or right against the Company (other than rights under Company Options and rights
to receive compensation for services performed as an employee of the Company).
For purposes of this Agreement each of the following shall be deemed to be a
"RELATED PARTY": (i) each individual who is, or who has at any time since
December 31, 1997


                                       25



been, an officer or director of the Company; and (ii) each member of the
immediate family of each of the individuals referred to in clause (i) above.

         2.19 LEGAL PROCEEDINGS; ORDERS.

                  (a) There is no pending Legal Proceeding to which the Company
         is a party, and to the Knowledge of the Company, no Person has
         threatened to make the Company party to any Legal Proceeding: (i) that
         involves the Company or any of the assets owned or used by the Company
         or any Person whose liability the Company has or may have retained or
         assumed, either contractually or by operation of law; (ii) that
         challenges, or that may have the effect of preventing, delaying, making
         illegal or otherwise interfering with, the Merger or any of the other
         transactions contemplated by this Agreement, or (iii) which would have
         (individually or in the aggregate) a Material Adverse Effect on the
         Company. To the Knowledge of the Company, no event has occurred, and no
         claim, dispute or other condition or circumstance exists, that will, or
         that could reasonably be expected to, give rise to or serve as a basis
         for the commencement of any such Legal Proceeding to which the Company
         is a party.

                  (b) Except as disclosed on Part 2.19(b) of the Company
         Disclosure Schedule, no Legal Proceeding has ever been commenced by or
         has ever been pending against the Company.

                  (c) There is no order, writ, injunction, judgment or decree to
         which the Company, or, to the Company's Knowledge, any of the assets
         owned or used by the Company, is subject. To the Knowledge of the
         Company, no officer or other employee of the Company is subject to any
         order, writ, injunction, judgment or decree that prohibits such officer
         or other employee from engaging in or continuing any conduct, activity
         or practice relating to the Company's business.

         2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the right,
power and authority to enter into and to perform its obligations under this
Agreement (subject to the approvals referred to in the immediately following
sentence); and the execution, delivery and performance by the Company of this
Agreement have been duly authorized by the Company's board of directors. The
affirmative vote of a majority of the shares of Company Common Stock and Company
Preferred Stock, voting together as a single class (on an as-converted-basis)
are the only votes of the stockholders of the Company needed to approve the
principal terms of this Agreement and approve the Merger and the transactions
contemplated hereby (the "REQUIRED COMPANY STOCKHOLDER VOTE"). The Voting
Signatories who have delivered a Voting Agreement in connection with the
execution of this Agreement hold a number of affirmative votes of Company Common
Stock and Company Preferred Stock (together on an as-converted to Company Common
Stock basis) equal to 1,586,421 which such number relates to 52.29% of the
aggregate number of outstanding shares of Company Common Stock and Company
Preferred Stock (on an as-converted to Company Common Stock basis). This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (a) the
Company's obtaining of the Required Company Stockholder Vote, (b) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (c) rules of law governing specific performance, injunctive relief
and other equitable remedies.


                                       26



         2.21 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.21 of
the Company Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):

                  (a) contravene, conflict with or result in a violation of (i)
         any of the provisions of the Company's certificate of incorporation or
         bylaws, or (ii) any resolution adopted by the Company's stockholders,
         the Company's board of directors or any committee of the Company's
         board of directors;

                  (b) to the Company's Knowledge, contravene, conflict with or
         result in a violation of, or give any Governmental Body or other Person
         the right to challenge any of the transactions contemplated by this
         Agreement or to exercise any remedy or obtain any relief under, any
         Legal Requirement or any order, writ, injunction, judgment or decree to
         which the Company, or any of the assets owned or otherwise required to
         be used by the Company to accomplish its ordinary course of business,
         is subject;

                  (c) except for such events as would not have (individually or
         in the aggregate) a Material Adverse Effect on the Company, contravene,
         conflict with or result in a violation of any of the terms or
         requirements of, or give any Governmental Body the right to revoke,
         withdraw, suspend, cancel, terminate or modify, any material
         Governmental Authorization that is held by the Company or that
         otherwise relates to the Company's business or to any of the assets
         owned or otherwise required to be used by the Company to accomplish its
         ordinary course of business;

                  (d) except for such events as would not have (individually or
         in the aggregate) a Material Adverse Effect on the Company, result in a
         violation or breach of, or result in a default under, any provision of
         any Material Contract, or give any Person the right to (i) declare a
         default or exercise any remedy under any such Material Contract, (ii)
         accelerate the maturity or performance of any such Material Contract,
         or (iii) cancel, terminate or modify any such Material Contract;

                  (e) result in the imposition or creation of any lien or other
         Encumbrance upon or with respect to any asset owned or otherwise
         required to be used by the Company to accomplish its ordinary course of
         business (except for minor liens that will not, in any case or in the
         aggregate, materially detract from the value of the assets subject
         thereto or materially impair the operations of the Company); or

                  (f) to the Company's Knowledge, result in the Company being
         solicited to pay additional consideration in order to secure any
         required consent or approval hereunder.

Except for the Required Company Stockholder Vote or as disclosed on the Company
Disclosure Schedule, the Company is not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person in
connection with (x) the execution, delivery or performance of this Agreement or
any of the other agreements referred to in this Agreement, or


                                       27



(y) the consummation of the Merger or any of the other transactions contemplated
by this Agreement.

         2.22 FINDER'S FEE. Except for the Acquisition Services Fee (as defined
in Section 10.2 of this Agreement), no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or any of the other transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.

         2.23 REGULATORY APPROVALS.

                  (a) The Company has granted Parent access to complete and
         correct copies of all regulatory applications filed by the Company with
         the Federal Food and Drug Administration or foreign equivalent (each a
         "REGULATORY APPLICATION").

                  (b) All data and information included in each Regulatory
         Application is true, complete and correct in all respects.

                  (c) Each Regulatory Application has been prepared and filed in
         accordance with all applicable laws and regulations, except for such
         failures to prepare and file which do not (individually or in the
         aggregate) have a Material Adverse Effect on the Company.

         2.24 FULL DISCLOSURE.

                  (a) This Agreement (including the Company Disclosure Schedule)
         does not, (i) contain any representation, warranty or information that
         is false or misleading with respect to any material fact, or (ii) omit
         to state any material fact necessary in order to make the
         representations, warranties and information contained and to be
         contained herein and therein (in the light of the circumstances under
         which such representations, warranties and information were or will be
         made or provided) not false or misleading.

                  (b) The information supplied by the Company in writing for
         inclusion in the Information Statement (as defined in Section 5.2), as
         amended by the Company from time to time, will not, as of the date of
         mailing and the date of the Required Company Stockholder Vote is
         obtained, (i) contain any statement that is inaccurate or misleading
         with respect to any material fact, or (ii) omit to state any material
         fact necessary in order to make such information (in the light of the
         circumstances under which it is provided) not false or misleading.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

         Parent and Merger Sub represent and warrant to the Company as follows
(subject to such exceptions as are disclosed in the Parent Disclosure Schedule):

         3.1 CORPORATE EXISTENCE AND POWER. Each of Parent and Merger Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California and Delaware, respectively, has all corporate
power and authority required to conduct its business in the manner in which its
business is currently being conducted, and is duly qualified to do business and
is in good standing in each jurisdiction in which the conduct of its


                                       28



business or the ownership or leasing of its properties requires such
qualification, except where the failure to be so qualified would not have
(individually or in the aggregate) a Material Adverse Effect on Parent or on the
consummation of the Merger and the other transactions contemplated herein.
Merger Sub has been formed for the purpose of consummating the Merger and has
had no significant operations.

         3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the right, power and authority to enter into and perform their obligations under
this Agreement (subject to the approvals referred to in the immediately
following sentence); and the execution, delivery and performance by Parent and
Merger Sub of this Agreement (including the contemplated issuance of (a) Series
G Stock and Series G Warrants in the Merger in accordance with this Agreement,
(b) the shares of Series G Stock (or other shares of capital stock) to be issued
in connection with the exercise of the Series G Warrants, and (c) the shares of
Parent Common Stock to be issued in connection with the conversion of such
shares of Series G Stock) have been duly authorized by all necessary action on
the part of Parent and Merger Sub and their respective boards of directors and
by Parent as the sole stockholder of Merger Sub (subject to the approvals
referred to in the immediately following sentence). The affirmative vote of (a)
a majority of the shares of Parent Common Stock, voting together as a single
class, (b) a majority of the Series F voting as a separate class, and (c)
sixty-six and two-thirds percent (662/3%) of the following three groups, each
voting together as a single class (on an as-converted-basis): (i) the Series
A-1, the Series B, the Series B-1, the Series B-2, the Series B-3 and the Series
B-4; (ii) the Series C; and (iii) the Series D, Series D-1, Series E and Series
F (each defined in Section 3.3), are the only votes of the stockholders of
Parent needed to approve the principal terms of this Agreement and approve the
Merger and the transactions contemplated hereby (the "REQUIRED PARENT
STOCKHOLDER VOTE"). This Agreement constitutes the legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them in accordance with
its terms, subject to (a) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (b) rules of law governing specific
performance, injunctive relief and other equitable remedies.

         3.3 CAPITALIZATION. The authorized capital stock of Parent consists of:
18,000,000 shares of Parent Common Stock, of which 201,991 shares are issued and
outstanding and 18,000,000 shares of Parent Preferred Stock issuable in series,
of which (i) 52,000 shares are designated Series A-1 Preferred Stock (the
"SERIES A-1"), 52,000 shares of which are issued and outstanding; (ii) 7,200
shares are designated Series B Preferred Stock (the "SERIES B"), 7,200 shares of
which are issued and outstanding; (iii) 90,000 shares are designated Series B-1
Preferred Stock (the "SERIES B-1"), 90,000 of which are issued and outstanding;
(iv) 30,000 shares are designated Series B-2 Preferred Stock (the "SERIES B-2"),
30,000 of which are issued and outstanding; (v) 30,000 shares are designated
Series B-3 Preferred Stock (the "SERIES B-3"), 30,000 of which are issued and
outstanding; (vi) 3,600 shares are designated Series B-4 Preferred Stock (the
"SERIES B-4"), 3,600 of which are issued and outstanding; (vii) 3,308,431 shares
are designated Series C Preferred Stock (the "SERIES C"), 3,292,431 of which are
issued and outstanding; (viii) 3,358,042 shares are designated Series D
Preferred Stock (the "SERIES D"), 3,351,042 of which are issued and outstanding;
(ix) 3,358,042 shares are designated Series D-1 Preferred Stock (the "SERIES
D-1"), none of which are issued and outstanding; (x) 853,167 shares are
designated Series E Preferred Stock (the "SERIES E"), 833,334 of which are
issued and outstanding; and (xi) 4,000,000 shares are designated Series F
Preferred Stock (the "SERIES F"), 2,511,681 of which are issued and outstanding.
All such issued and outstanding shares have


                                       29



been duly authorized and validly issued, are fully paid and nonassessable, and
were issued in compliance with all applicable state and federal laws concerning
the issuance of securities. Parent has reserved 113,043 shares of Parent Common
Stock for issuance upon the conversion of Series A-1, 574,285 shares of Parent
Common Stock for issuance upon the conversion of Series B, Series B-1, Series
B-2, Series B-3 and Series B-4, 3,308,431 shares of Parent Common Stock for
issuance upon the conversion of Series C, 3,358,042 shares of Parent Common
Stock for issuance upon the conversion of Series D, 3,358,042 shares of Parent
Common Stock for issuance upon the conversion of Series D-1, 853,167 shares of
Parent Common Stock for issuance upon the conversion of Series E, 2,511,681
shares of Parent Common Stock for issuance upon the conversion of Series F,
67,042 shares of Parent Common Stock for issuance pursuant to the exercise of
outstanding Parent Common Stock purchase warrants, 16,000 shares of Series C for
issuance pursuant to the exercise of Series C purchase warrants, 7,000 shares of
Series D for issuance pursuant to the exercise of Series D purchase warrants,
19,833 shares of Series E for issuance pursuant to the exercise of Series E
purchase warrants, 1,987,318 shares of Parent Common Stock for issuance to
employees, directors, and consultants pursuant to its Amended and Restated 1993
Stock Option Plan and 2,480 shares of Parent Common Stock for issuance upon
exercise of nonstatutory options granted by Parent in 1991 and 1992. Except as
set forth above, or on Part 3.3 of the Parent Disclosure Schedule there is no:
(i) outstanding subscription, option, call, warrant or right (including any
pre-emptive rights), whether or not currently exercisable, to acquire any shares
of the capital stock or other securities of Parent; (ii) outstanding security,
instrument or obligation that is or may become convertible into or exchangeable
for any shares of the capital stock or other securities of Parent; or (iii)
Contract obligating Parent to sell or otherwise issue any shares of capital
stock or any other securities of Parent. To Parent's Knowledge, except as
disclosed on Part 3.3 of the Parent Disclosure Schedule or as contemplated by
this Agreement or the exhibits or schedules hereto, there is no voting trust or
voting agreement governing the voting of Parent's capital stock. Except as set
forth on the Parent Disclosure Schedule or as contemplated by this Agreement or
the exhibits or schedules hereto, Parent is not a party to or bound by any
investor rights agreement, registration rights agreement or other agreement
providing rights to the holders of Parent's capital stock or other securities of
Parent. Prior to the Effective Time, Parent shall have duly reserved out of its
authorized and unissued capital stock that number of shares of (i) Series G
Stock sufficient to satisfy Parent's obligations to issue Series G Stock upon
the exercise of the Series G Warrants issued by Parent pursuant to Section 1.6;
and (ii) Parent Common Stock sufficient to satisfy Parent's obligations upon the
conversion of the Series G Stock. The authorized capital stock of Merger Sub
consists of 1000 shares of Common Stock, all of which is owned by Parent. All
outstanding shares of Parent and Merger Sub have been duly authorized, validly
issued, fully paid and are non assessable and free of any liens or encumbrances
other than liens or encumbrances created or imposed upon the holders thereof.

         3.4 PARENT FINANCIAL STATEMENTS.

                  (a) Parent has made available to the Company accurate and
         complete copies (including exhibits thereto) of its audited balance
         sheet as of December 31, 1999 and December 31, 2000, and the related
         audited statement of operations, statement of stockholders' equity and
         statement of cash flows of the Company for the years then ended,
         together with the notes thereto and the unaudited balance sheet as of
         March 31, 2001 and the related unaudited statement of operations of
         Parent for the three-month period then ended (the "PARENT FINANCIAL
         STATEMENTS").


                                       30



         The Parent Financial Statements are complete and correct in all
         material respects and have been prepared in accordance with GAAP
         applied on a consistent basis throughout the relevant periods. The
         Parent Financial Statements accurately set out and describe the
         financial condition and operating results of Parent as of the dates,
         and during the periods, indicated therein. Except as set forth in the
         Parent Financial Statements, as of the Closing Date Parent has no
         material liabilities of any nature (matured or unmatured, fixed or
         contingent). Parent maintains and will continue to maintain a standard
         system of accounting established and administered in accordance with
         generally accepted accounting principles.

         3.5 NO CONFLICT. Neither the execution, delivery or performance of this
Agreement or any of the other agreements contemplated by this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, will directly or indirectly, (with or without notice or lapse of
time, or both):

                  (a) contravene, conflict with or result in a violation of (i)
         any provisions of Parent's or Merger Sub's respective certificate of
         incorporation or bylaws, or (ii) any resolution adopted by Parent's or
         Merger Sub's stockholders or board of directors or any committee of
         Parent's or Merger Sub's respective boards of directors;

                  (b) contravene, conflict with or result in a violation of, or
         give any Governmental Body or other Person the right to challenge any
         of the transactions contemplated by this Agreement or to exercise any
         remedy or obtain any relief under, any Legal Requirement or any order,
         writ, injunction, judgment or decree to which Parent or Merger Sub, or
         any of the assets owned or used by Parent or Merger Sub, is subject; or

                  (c) except for such events as would not have (individually or
         in the aggregate) a Material Adverse Effect on Parent or Merger Sub,
         result in a violation or breach of, or result in a default under, any
         provision of any contract or agreement material to Parent's business,
         or give any Person the right to (i) declare a default or exercise any
         remedy under any such contract material to Parent's business, (ii)
         accelerate the maturity or performance of any such contract material to
         Parent's business, or (iii) cancel, terminate or modify any such
         contract material to Parent's business; or

                  (d) except for such events as would not have (individually or
         in the aggregate) a Material Adverse Effect on Parent or the Merger
         Sub, contravene, conflict with or result in a violation of any of the
         terms or requirements of, or give any Governmental Body the right to
         revoke, withdraw, suspend, cancel, terminate or modify, any material
         Governmental Authorization that is held by Parent or the Merger Sub or
         that otherwise relates to Parent's or Merger Sub's business or to any
         of the assets owned or otherwise required to be used by Parent or
         Merger Sub to accomplish its ordinary course of business;

                  (e) result in the imposition or creation of any lien or other
         Encumbrance upon or with respect to any asset owned or otherwise
         required to be used by Parent to accomplish its ordinary course of
         business (except for minor liens that will not, in any case or in the
         aggregate, materially detract from the value of the assets subject
         thereto or materially impair the operations of Parent).


                                       31



         3.6 VALID ISSUANCE. Subject to the Company's compliance with its
obligations under Section 5.2, the shares of Series G Stock to be issued
pursuant to Section 1.5(a)(i) and the Series G Warrants will, when issued in
accordance with the provisions of this Agreement, be duly authorized, validly
issued, fully paid, nonassessable and free of any liens or encumbrances other
than liens or encumbrances created or imposed by the holders thereof and will
not be subject to any statutory preemptive rights, or to Parent's Knowledge,
rights of first refusal. Upon their issuance in accordance with the terms of the
Series G Warrants, the shares of Series G Stock (or other shares of Parent
capital stock) issuable upon the exercise of such Series G Warrants, will be
duly authorized, validly issued, fully paid, nonassessable and free of any liens
or encumbrances other than liens or encumbrances created or imposed by the
holders thereof and will not be subject to any statutory preemptive rights, or
to Parent's Knowledge, rights of first refusal. Upon their issuance in
accordance with the terms of the Series G Stock, the shares of Parent Common
Stock issuable upon conversion of such Series G Stock, will be duly authorized,
validly issued, fully paid, nonassessable and free of any liens or encumbrances
other than liens or encumbrances created or imposed by the holders thereof and
will not be subject to any statutory preemptive rights, or to Parent's
Knowledge, rights of first refusal. Subject to the Company's compliance with its
obligations under Section 5.2, the shares of Series G Stock will, when issued in
accordance with the provisions of this Agreement, be issued in compliance with
Regulation D promulgated under the Securities Act.

         3.7 NO MATERIAL ADVERSE EFFECT. Between December 31, 2000 and the date
of this Agreement, there has been no change in the business, condition,
capitalization, assets, liabilities, operations or financial performance of
Parent that has had or would reasonably be expected to have a Material Adverse
Effect on Parent.

         3.8 LEGAL PROCEEDINGS. There is no pending Legal Proceeding to which
Parent is a party, and to the Knowledge of Parent, no Person has threatened to
commence any Legal Proceeding against Parent: (a) that challenges, or that may
have the effect of preventing, delaying, making illegal or otherwise interfering
with, the Merger or any of the other transactions contemplated by this
Agreement, or (b) which would have a Material Adverse Effect on Parent.

         3.9 COMPLIANCE WITH LEGAL REQUIREMENTS. Parent is, and has at all times
since December 31, 1997 been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a and that do not (individually or in the
aggregate) have a Material Adverse Effect on Parent. Except as set forth in Part
3.9 of the Parent Disclosure Schedule, since December 31, 1997 Parent has not
received any notice or other communication from any Governmental Body regarding
any actual or possible violation of, or failure to comply with, any material
Legal Requirement.

         3.10 GOVERNMENTAL AUTHORIZATIONS. To Parent's Knowledge, all material
Governmental Authorizations necessary to enable Parent to conduct its business
in the manner in which its business is currently being conducted are valid and
in full force and effect. Parent is, and at all times since December 31, 1997
has been, in compliance with the terms and requirements of the respective
Governmental Authorizations, except where such failure to be in such compliance
would not (individually or in the aggregate) have a Material Adverse Effect on
Parent. Since December 31, 1997, Parent has not received any notice or other
communication from any Governmental Body regarding (a) any actual or possible
violation of or failure to


                                       32



comply with any term or requirement of any Governmental Authorization, or (b)
any actual or possible revocation, withdrawal, suspension, cancellation,
termination or modification of any Governmental Authorization

         3.11 CONSENTS. Except for the Required Parent Vote or as disclosed on
the Parent Disclosure Schedule, Parent is not and will not be required to make
any filing with or give any notice to, or to obtain any Consent from, any Person
in connection with (x) the execution, delivery or performance of this Agreement
or any of the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement.

         3.12 FULL DISCLOSURE.

                  (a) This Agreement (including the Parent Disclosure Schedule)
         does not, (i) contain any representation, warranty or information that
         is false or misleading with respect to any material fact, or (ii) omit
         to state any material fact necessary in order to make the
         representations, warranties and information contained and to be
         contained herein and therein (in the light of the circumstances under
         which such representations, warranties and information were or will be
         made or provided) not false or misleading.

                  (b) The information supplied by Parent for inclusion in the
         Information Statement will not, as of the date of mailing and as of the
         date of the Required Company Stockholder Vote is obtained, (i) contain
         any statement that is inaccurate or misleading with respect to any
         material fact, or (ii) omit to state any material fact necessary in
         order to make such information (in the light of the circumstances under
         which it is provided) not false or misleading.

SECTION 4. CERTAIN COVENANTS

         4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "PRE-CLOSING PERIOD"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access upon reasonable notice and during normal
business hours to the Company's personnel and assets and to all existing
financial and accounting records, Contracts, Tax Returns and other documents and
information relating to the Company; and (b) provide Parent and Parent's
Representatives with copies of such existing financial and accounting records,
Contracts, Tax Returns and other records and documents relating to the Company,
and with such additional financial, operating and other data and information
regarding the Company, as Parent may reasonably request. Notwithstanding the
foregoing, in no event shall the Company's Representatives be required to
disclose any attorney work product or any other privileged materials related to
the Company.

         4.2 OPERATION OF THE COMPANY'S BUSINESS. During the Pre-Closing Period:

                  (a) the Company shall conduct its business and operations in
         the ordinary course and in substantially the same manner as such
         business and operations have been conducted prior to the date of this
         Agreement;

                  (b) the Company shall use its commercially reasonable efforts
         to preserve intact its current business organization, keep available
         the services of its current officers and


                                       33



         employees and maintain its relations and good will with all suppliers,
         customers, landlords, creditors, employees and other Persons having
         business relationships with the Company;

                  (c) the Company shall use its commercially reasonable efforts
         to keep in full force and effect all insurance policies identified in
         Part 2.17 of the Company Disclosure Schedule;

                  (d) the Company shall cause its officers to report regularly
         to Parent, upon the reasonable request of Parent, concerning the status
         of the Company's business;

                  (e) except as set forth in Part 4.2(e) of the Company
         Disclosure Schedule, the Company shall not declare, accrue, set aside
         or pay any dividend or make any other distribution in respect of any
         shares of capital stock of the Company, and shall not repurchase,
         redeem or otherwise reacquire any shares of capital stock or other
         securities of the Company (except that the Company may repurchase
         Company Common Stock from former employees pursuant to the terms of
         existing restricted stock purchase agreements);

                  (f) the Company shall not sell, issue or authorize the
         issuance of (i) any capital stock or other securities of the Company,
         (ii) any option, warrant or right to acquire any capital stock or other
         securities of the Company (except for the amendment to certain warrants
         to purchase Company Common Stock described at Part 2.3(c) of the
         Company Disclosure Schedule), or (iii) any instrument convertible into
         or exchangeable for any capital stock or other securities of the
         Company (except that the Company shall be permitted to issue shares of
         Company Common Stock (x) to employees and directors upon the exercise
         of Company Options outstanding as of the date of this Agreement, (y)
         upon the conversion of shares of Company Preferred Stock outstanding as
         of the date of this Agreement, and (z) the Company shall be allowed to
         issue 250,000 shares of Company Common Stock upon exercise of the
         conversion right referred to at Section 6.5(m);

                  (g) except as set forth in Part 4.2(g) of the Company
         Disclosure Schedule, the Company shall not amend or waive any of its
         rights under, or change or modify any provision permitting the
         acceleration of vesting under, (i) any provision of any Company Stock
         Option Plan, (ii) any provision of any agreement evidencing any
         outstanding Company Option, or (iii) any provision of any restricted
         stock purchase agreement (unless acceleration of vesting is required
         under any Company Stock Option Plan, Company Option or other agreement
         in effect or outstanding as of the date of this Agreement);

                  (h) except as expressly permitted by this Agreement, the
         Company shall not amend or permit the adoption of any amendment to the
         Company's certificate of incorporation or bylaws, or, except as is
         otherwise set forth in Section 4.5 of this Agreement, effect or permit
         the Company to become a party to any Acquisition Transaction,
         recapitalization, reclassification of shares, stock split, reverse
         stock split or similar transaction (except that the Company shall be
         permitted to issue shares of Company Common Stock (x) to employees and
         directors upon the exercise of Company Options outstanding as of the
         date of this Agreement, (y) upon the conversion of shares of Company
         Preferred Stock outstanding as of the date of this Agreement, and (z)
         the Company shall be allowed to issue 250,000 shares of Company Common
         Stock upon exercise of the conversion right referred to at Section
         6.5(m);


                                       34



                  (i) the Company shall not form any subsidiary or acquire any
         equity interest or other interest in any other Entity;

                  (j) the Company shall not make any capital expenditure, except
         for capital expenditures that, when added to all other capital
         expenditures made on behalf of the Company during the Pre-Closing
         Period, do not exceed $10,000 in the aggregate;

                  (k) the Company shall not (i) enter into, or permit any of the
         assets owned or used by it to become bound by, any Contract that is or
         would constitute a Material Contract, or (ii) except as set forth in
         Part 4.2(k) of the Company Disclosure Schedule, amend or prematurely
         terminate, or waive any material right or remedy under, any Material
         Contract;

                  (l) the Company shall not (i) except in the ordinary course of
         business, acquire, lease or license any right or other asset from any
         other Person, (ii) except in the ordinary course of business, sell or
         otherwise dispose of, or lease or license, any right or other asset to
         any other Person, or (iii) waive or relinquish any right, except for
         rights or assets acquired, leased, licensed, disposed of or
         relinquished by the Company pursuant to Contracts that are not Material
         Contracts;

                  (m) the Company shall not (i) lend money to any Person (except
         that the Company may make routine travel advances to employees in the
         ordinary course of business), or (ii) incur or guarantee any
         indebtedness for borrowed money;

                  (n) the Company shall not (i) establish, adopt or amend any
         Employee Benefit Plan, (ii) pay any bonus or make any profit-sharing
         payment, cash incentive payment or similar payment to, or increase the
         amount of the wages, salary, commissions, fringe benefits or other
         compensation or remuneration payable to, any of its directors, officers
         or employees except under pre-existing agreements, or (iii) hire any
         new employee;

                  (o) the Company shall not change any of its methods of
         accounting or accounting practices in any material respect;

                  (p) the Company shall not make any Tax election;

                  (q) the Company shall not commence or settle any material
         Legal Proceeding;

                  (r) the Company shall not agree or commit to take any of the
         actions described in clauses (e) through (q) above.

Notwithstanding the foregoing, the Company may take any action described in
clauses (a) through (r) above if Parent gives its prior written consent to the
taking of such action by the Company, which consent will not be unreasonably
withheld.


                                       35



         4.3 NOTIFICATION BY COMPANY.

                  (a) During the Pre-Closing Period, the Company shall promptly
         notify Parent in writing of:

                           (i) the discovery by the Company of any event,
                  condition, fact or circumstance that occurred or existed on or
                  prior to the date of this Agreement and that caused or
                  constitutes an inaccuracy in or breach of any representation
                  or warranty made by the Company in this Agreement;

                           (ii) any event, condition, fact or circumstance that
                  occurs, arises or exists after the date of this Agreement and
                  that would cause or constitute an inaccuracy in or breach of
                  any representation or warranty made by the Company in this
                  Agreement if (A) such representation or warranty had been made
                  as of the time of the occurrence, existence or discovery of
                  such event, condition, fact or circumstance, or (B) such
                  event, condition, fact or circumstance had occurred, arisen or
                  existed on or prior to the date of this Agreement;

                           (iii) any breach of any covenant or obligation of the
                  Company; and

                           (iv) any event, condition, fact or circumstance that
                  would make the timely satisfaction of any condition set forth
                  in Section 6 or Section 7 impossible or unlikely.

                  (b) The delivery of any notice pursuant to this Section 4.3
         shall not cure such breach or non-compliance or limit or otherwise
         affect the rights, obligations or remedies available hereunder to the
         party receiving such notice.

         4.4 NOTIFICATION BY PARENT.

                  (a) During the Pre-Closing Period, Parent shall promptly
         notify the Company in writing of:

                           (i) the discovery by Parent of any event, condition,
                  fact or circumstance that occurred or existed on or prior to
                  the date of this Agreement and that caused or constitutes an
                  inaccuracy in or breach of any representation or warranty made
                  by Parent in this Agreement;

                           (ii) any event, condition, fact or circumstance that
                  occurs, arises or exists after the date of this Agreement and
                  that would cause or constitute an inaccuracy in or breach of
                  any representation or warranty made by Parent in this
                  Agreement if (A) such representation or warranty had been made
                  as of the time of the occurrence, existence or discovery of
                  such event, condition, fact or circumstance, or (B) such
                  event, condition, fact or circumstance had occurred, arisen or
                  existed on or prior to the date of this Agreement;

                           (iii) any breach of any covenant or obligation of
                  Parent; and

                           (iv) any event, condition, fact or circumstance that
                  would make the timely satisfaction of any condition set forth
                  in Section 6 or Section 7 impossible or unlikely.


                                       36



                  (b) The delivery of any notice pursuant to this Section 4.4
         shall not cure such breach or non-compliance or limit or otherwise
         affect the rights, obligations or remedies available hereunder to the
         party receiving such notice.

         4.5 ACQUISITION PROPOSALS.

                  (a) During the Pre-Closing Period, the Company will not, nor
         will the Company authorize or permit any officer, director, employee,
         consultant or contractor of or any investment banker, attorney,
         accountant or other advisor or representative of, the Company to,
         directly or indirectly, (i) solicit, initiate or encourage the
         submission of any proposal for an Acquisition Transaction or (ii)
         participate in any discussions or negotiations regarding, or furnish to
         any person any information in respect of, or take any other action to
         facilitate, any Acquisition Transaction or any inquiries or the making
         of any proposal that constitutes, or may reasonably be expected to lead
         to, any Acquisition Transaction. Notwithstanding the foregoing, in the
         event that the Company receives an unsolicited proposal for an
         Acquisition Transaction, prior to the adoption and approval of this
         Agreement by the Required Company Stockholder Vote, this Section 4.5
         shall not prohibit the Company from furnishing information regarding
         the Company to, or entering into discussions with, any Person in
         response to a bona fide proposal for an Acquisition Transaction that
         could reasonably be expected to lead to a Superior Proposal that is
         submitted to the Company by such Person (and not withdrawn) if (A)
         neither the Company nor any representative of the Company shall have
         violated any of the restrictions set forth in this Section 4.5, in
         connection with such proposal, (B) the board of directors of the
         Company concludes in good faith, after having taken into account the
         advice of its outside legal counsel, that failure to take such action
         would be inconsistent with fiduciary duties of the board of directors
         of the Company to the Company Stockholders, (C) at least five business
         days prior to furnishing any such nonpublic information to, or entering
         into discussions with, such Person, the Company gives Parent written
         notice of the identity of such Person and of the Company's intention to
         furnish nonpublic information to, or enter into discussions with, such
         Person, and the Company receives from such Person an executed
         confidentiality agreement containing customary limitations on the use
         and disclosure of all nonpublic written and oral information furnished
         to such Person by or on behalf of the Company, and (D) at least five
         business days prior to furnishing any such nonpublic information to
         such Person, the Company furnishes such nonpublic information to Parent
         (to the extent such nonpublic information has not been previously
         furnished by the Company to Parent). Immediately after the execution
         and delivery of this Agreement, the Company will, and will use its
         commercially reasonable efforts to cause its affiliates, and its
         respective officers, directors, employees, consultants, contractors,
         investment bankers, attorneys, accountants and other agents and
         representatives to, cease and terminate any existing activities,
         discussions or negotiations with any parties conducted heretofore in
         respect of any possible Acquisition Transaction and shall immediately
         inform Parent of the receipt by the Company of any subsequent proposal
         for an Acquisition Transaction. The Company shall take all necessary
         steps to promptly inform the individuals or entities referred to in the
         first sentence of this Section 4.5 of the obligations undertaken in
         this Section 4.5. "SUPERIOR PROPOSAL" shall mean an unsolicited, bona
         fide written offer made by a third party to purchase all of the
         outstanding Company capital stock or all or substantially all of the
         Company's assets on terms that the board of directors of the Company
         determines, in its reasonable judgment, to be more favorable to the
         Company and its stockholders (taking into account, among other things,
         all legal, financial, regulatory and other aspects of the proposal and


                                       37



         identity of the offeror) as compared to the transactions contemplated
         hereby and which is reasonably capable of being consummated; PROVIDED,
         HOWEVER, that any such offer shall not be deemed to be a Superior
         Proposal if any financing required to consummate the transaction
         contemplated by such offer is not committed and is not reasonably
         capable of being obtained by such third party.

                  (b) The Company's board of directors will not withdraw or
         modify, or propose to withdraw or modify, in a manner adverse to
         Parent's intention to consummate the Merger, its approval or
         recommendation of this Agreement or the Merger to the Company
         Stockholders unless the Company's board of directors, after
         consultation with independent legal counsel, determines in good faith
         that such action is necessary to avoid a breach by the Company board of
         directors of its fiduciary duties to the Company Stockholders. Nothing
         contained in this Section 4.5 shall prohibit the Company from making
         any disclosure to the Company Stockholders which, in the good faith
         reasonable judgment of the Company's board of directors, after
         consultation with independent legal counsel, is required pursuant to
         any Legal Requirement; PROVIDED, that except as otherwise permitted in
         this Section 4.5, the Company may not withdraw or modify, or propose to
         withdraw or modify, its position with respect to the Merger or approve
         or recommend, or propose to approve or recommend, an alternate
         Acquisition Transaction. Nothing in this Section 4.5 shall (i) permit
         the Company to terminate this Agreement (other than in accordance with
         the terms of this Agreement) or (ii) affect any other obligations of
         the Company under this Agreement.

         4.6 FAIRNESS OPINION. The Company shall use reasonable commercial
efforts to cause to be delivered to the Company Stockholders with the
Information Statement (as defined in Section 5.2) to be delivered to the Company
Stockholders and the notice of the Company Stockholders' meeting called to
approve the Merger, a written opinion by Adams, Harkness & Hill, that in such
advisor's opinion, as of the date of such notice, the consideration to be
received by the Company Stockholders under the terms of the Merger is fair, from
a financial point of view, to such stockholders. It is expressly understood that
in attempting to obtain the opinion discussed above, the Company shall have no
obligation to pay any amount of consideration beyond the payments currently
called for by the Engagement Letter.

SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES

         5.1 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement shall use all
commercially reasonable efforts to (a) make all filings (if any) and give all
notices (if any) required to be made and given by such party in connection with
the Merger and the other transactions contemplated by this Agreement, and (b)
obtain all Consents (if any) required to be obtained (pursuant to any applicable
Legal Requirement or Contract, or otherwise) by such party in connection with
the Merger and the other transactions contemplated by this Agreement. The
Company shall (upon request) promptly deliver to Parent a copy of each such
filing made, each such notice given and each such Consent obtained by the
Company during the Pre-Closing Period. Parent shall (upon request) promptly
deliver to the Company a copy of each such filing made, each such notice given
and each such Consent obtained by Parent during the Pre-Closing Period.


                                       38



         5.2 INFORMATION STATEMENT.

                  (a) As promptly as practicable, but in any event within seven
         days, after the date of this Agreement, Parent shall prepare an
         information statement describing the Merger and the transactions
         contemplated thereby (the "INFORMATION STATEMENT") and deliver the same
         to the Company. The Company, in accordance with Section 5.2(c) hereof,
         shall mail or otherwise deliver to the Company Equityholders, among
         other things, the Information Statement along with, in the case of the
         Company Stockholders, a notice of meeting and proxy card requesting
         that the Company Stockholders adopt this Agreement and approve the
         Merger either (i) at such meeting or (ii) by such proxy card. Both
         Parent and the Company shall use commercially reasonable efforts to
         cause the Information Statement to comply with the information
         requirements of Rule 502 of Regulation D promulgated under the
         Securities Act ("RULE 502"). The Company shall use commercially
         reasonable efforts to promptly furnish Parent information concerning
         the Company that may be required to satisfy the information
         requirements of Rule 502 in connection with any action contemplated by
         this Section 5.2. If any event relating to the Company or Parent
         occurs, or if the Company or Parent becomes aware of any information,
         in either case that should be disclosed in an amendment or supplement
         to the Information Statement, then Parent shall promptly prepare such
         amendment or supplement, following prompt notice by the Company of such
         required disclosure if relating to the Company, and the Company shall
         promptly distribute the same to the stockholders of the Company. The
         Company shall use commercially reasonable efforts to assist Parent in
         obtaining such information as Parent reasonably requires to allow
         Parent to determine the number and nature of the Company Stockholders
         in their capacity as purchasers (as such term is used under Rule 506 of
         Regulation D promulgated under the Securities Act). In connection with
         the distribution of the Information Statement to the Company
         Equityholders, the Company shall include, and shall use its
         commercially reasonable efforts to cause each Company Equityholder to
         complete and return, an investor status questionnaire in substantially
         the form attached hereto as EXHIBIT L (the "STATUS LETTER"). To the
         extent that Parent reasonably determines that a Company Equityholder is
         not an "ACCREDITED INVESTOR" (as such term is defined in Rule 501(a) of
         Regulation D promulgated under the Securities Act), each of Parent and
         the Company agrees that it shall use its commercially reasonable
         efforts to cause all such Company Equityholders to use a "PURCHASER
         REPRESENTATIVE" (as defined in Rule 501(h)) to assist such Company
         Equityholders in evaluating the Information Statement and the
         investment decisions represented by this Agreement, the Merger and the
         transactions contemplated hereby.

                  (b) Prior to the Effective Time, Parent and the Company shall
         use commercially reasonable efforts to obtain all required regulatory
         approvals and other information (including obtaining properly completed
         Status Letters from each Company Stockholder) needed to ensure that the
         Series G Stock and Series G Warrants to be issued in the Merger will be
         registered or qualified under the securities law of every jurisdiction
         of the United States in which any registered holder of capital stock of
         the Company has an address of record on the record date for determining
         the stockholders entitled to notice of and to vote on the principal
         terms of this Agreement and the Merger; PROVIDED HOWEVER, that neither
         of Parent or the Company shall be required (i) to qualify to do
         business as a foreign corporation in any jurisdiction in which it is
         not now qualified, or (ii) to file a general consent to service of
         process in any jurisdiction.


                                       39



                  (c) Contingent upon Parent's compliance with the terms of this
         Agreement and the Company's approval of the Information Statement in
         accordance with the terms of this Agreement, the Company shall take all
         action reasonably necessary under the DGCL to solicit the approval of
         the stockholders of the Company entitled to vote upon the principal
         terms of this Agreement and the Merger and will, in any event within
         five (5) business days after the receipt of the Information Statement
         from Parent, either (i) provide Parent with written notice of, and
         specifying in reasonable detail, the Company's failure to approve the
         Information Statement (which approval shall not be unreasonably
         withheld); or (ii) mail, by overnight delivery, to each Company
         Equityholder a copy of the Information Statement, a Status Letter and
         in the case of Company Stockholders, a form of notice of meeting and
         proxy card, and such other documents as Parent deems are reasonably
         necessary to comply with applicable law or are otherwise reasonably
         appropriate, the form of which the Company approves (which approval
         shall not be unreasonably withheld). The Company shall use its
         commercially reasonable efforts to obtain the Required Company
         Stockholder Vote as promptly as practicable. The Company will use
         commercially reasonable efforts to hold a stockholders' meeting to
         approve the Merger and this Agreement within twenty days after the
         Information Statement is first sent to the Company Stockholders. The
         Company shall use its commercially reasonable efforts to ensure that
         the Required Company Stockholder Vote is obtained in compliance with
         the DGCL.

         5.3 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, neither Parent
nor the Company shall (nor shall either permit any of its Representatives to)
issue any press release or make any public statement regarding this Agreement or
the Merger, or regarding any of the other transactions contemplated by this
Agreement, without the other party's prior written consent, provided that
nothing herein shall be deemed to prohibit either party from making any public
disclosure such party deems necessary or appropriate under applicable Legal
Requirements including in connection with soliciting the Required Company
Stockholder Vote.

         5.4 COMMERCIALLY REASONABLE EFFORTS. During the Pre-Closing Period, (a)
the Company shall use its commercially reasonable efforts to cause the
conditions set forth in Section 6 to be satisfied on a timely basis, and (b)
Parent and Merger Sub shall use their commercially reasonable efforts to cause
the conditions set forth in Section 7 to be satisfied on a timely basis. In no
event shall the exercise of commercially reasonable effects require the payment
of additional consideration in order to secure a consent or approval.

         5.5 TAX MATTERS. Prior to the Closing, Parent and the Company shall
execute and deliver to Palmer & Dodge LLP and to Gray Cary Ware & Freidenrich
LLP tax representation letters in substantially the form of EXHIBIT J (which
will be used in connection with the legal opinions contemplated by Sections
6.5(e) and 7.3(b)). Neither Parent, Merger Sub, nor the Company will take any
action, or will fail to take any action, either before or after the Closing of
the Merger, which could reasonably be expected to cause the Merger to fail to
qualify as a reorganization under Section 368(a) of the Code.

         5.6 TERMINATION OF AGREEMENTS. Prior to the Closing, the Company shall
use its commercially reasonable efforts to enter into agreement(s), reasonably
satisfactory in form and content to Parent (and conditioned and effective upon
the Closing), terminating all existing agreements relating to Company
stockholders' rights (including but not limited to (i) the Amended and Restated
Registration Rights Agreement dated September 1, 1998, by and among


                                       40



the Company and certain of its Series A Preferred Stockholders; (ii) the
Registration Rights Agreement dated December 18, 1996, by and between the
Company and NeuroScience Partners Limited Partnership; (iii) that certain
Registration Rights Agreement, dated June 30, 1998, by and between the Company
and John Baillie; and (iv) that certain Registration Rights Agreement, dated
July 2, 1998, by and between the Company and Oscar Goldstein, unless otherwise
agreed to by Parent.

         5.7 TERMINATION OF EMPLOYEE PLANS. At the Closing, the Company shall
terminate the Company Stock Option Plans. Except as otherwise provided in this
Agreement, all the employee benefit plans disclosed at Part 2.15(a)(i) of the
Company Disclosure Schedule shall remain in place and be assumed by Parent. For
each such plan that is terminated, the Company shall take reasonable steps to
ensure that no employee or former employee of the Company has any rights under
any of such plans and that any liabilities of the Company under such plans
(including any such liabilities relating to services performed prior to the
Closing) are fully extinguished.

         5.8 TERMINATION OF SAR / SEP / IRA PARTICIPATION. The Company and its
ERISA Affiliates, as applicable, agrees to terminate its participation in the
SAR / SEP / IRA sponsored and maintained by the Company immediately prior to
Closing. Parent shall receive from Company evidence that (i) the Company's and
each ERISA Affiliate's (as applicable) participation in the SAR / SEP / IRA has
been terminated pursuant to resolutions of each such entity's Board of Directors
(the form and substance of which resolutions shall be subject to review and
approval of Parent, which approval will not be unreasonably withheld), effective
as of the day immediately preceding the Closing and (ii) the Company's and each
ERISA Affiliate's (as applicable) obligation to contribute (if any) to such SAR
/ SEP / IRA has been satisfied prior to the termination of the Company's and its
ERISA Affiliate's participation in such SAR / SEP / IRA.

         5.9 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as is attached hereto to as EXHIBIT K)
conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the United
States Treasury Regulations, and (b) the Company shall deliver to the Internal
Revenue Service the notification required under Section 1.897 - 2(h)(2) of the
United States Treasury Regulations.

SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB

         The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction or waiver, at or prior to the Closing, of each of the
following conditions:

         6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company in this Agreement (as modified by the Company
Disclosure Schedule as delivered to Parent as of the date of this Agreement) and
in each of the other agreements and instruments delivered by the Company to
Parent in connection with the transactions contemplated by this Agreement (a)
shall be true and correct in all respects in accordance with its terms (in the
case of any representation or warranty containing any "MATERIAL ADVERSE EFFECT"
qualification or other materiality qualification) or in all material respects
(in the case of any


                                       41



representation or warranty without any "Material Adverse Effect" qualification
or other materiality qualification) at and as of the date of this Agreement and
(b) shall be repeated and shall be true and correct in all respects in
accordance with its terms (in the case of any representations and warranties
containing any "Material Adverse Effect" qualification or other materiality
qualification) or in all material respects (in the case of any representation or
warranty without any "Material Adverse Effect" qualification or other
materiality qualification) on and as of the Closing Date with the same effect as
though made at and as of such time.

         6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects.

         6.3 STOCKHOLDER APPROVAL. This Agreement shall have been duly adopted
by the Required Company Stockholder Vote.

         6.4 CONSENTS. All Consents set forth on Part 2.21 of the Company
Disclosure Schedule shall have been obtained and shall be in full force and
effect.

         6.5 AGREEMENTS AND DOCUMENTS. Parent shall have received the following
agreements and documents, executed as appropriate, each of which shall be in
full force and effect:

                  (a) a properly completed and executed Status Letter from each
         of the Company Equityholders in substantially the form attached hereto
         as EXHIBIT L;

                  (b) a legal opinion of Palmer & Dodge LLP, dated as of the
         Closing Date, in substantially the form attached hereto as EXHIBIT M;

                  (c) Executive Employment Agreements in substantially the form
         attached hereto as EXHIBIT D, executed by each of Dr. Katherine Gordon
         and Robert Leonard;

                  (d) a legal opinion of Gray Cary Ware & Freidenrich LLP, dated
         as of the Closing Date, to the effect that the Merger will constitute a
         reorganization within the meaning of Section 368 of the Code (it being
         understood that, (i) in rendering such opinion, such counsel may rely
         upon the tax representation letters referred to in Section 5.5, and
         (ii) this condition shall nonetheless be deemed to be satisfied if
         Palmer & Dodge LLP renders such an opinion to Parent);

                  (e) written resignations of all directors of the Company (with
         the exception of Dr. Katherine Gordon), effective as of the Effective
         Time;

                  (f) a certificate signed on behalf of the Company by the Chief
         Executive Officer of the Company representing that the conditions set
         forth in Sections 6.1 and 6.2 have been duly satisfied (the "COMPANY
         COMPLIANCE CERTIFICATE");

                  (g) an amended and restated investors' rights agreement, in
         substantially the form attached hereto as EXHIBIT N (the "INVESTORS'
         RIGHTS AGREEMENT") by and among Parent, Parent's existing preferred
         stockholders and the Company Equityholders;


                                       42



                  (h) a list setting forth the name and address of each Company
         Stockholder entitled to receive the Merger Consideration pursuant to
         Section 1.5(a)(i);

                  (i) a list setting forth the name and address of each holder
         of Company Options and/or Company Warrants entitled to receive Series G
         Warrants pursuant to Section 1.6;

                  (j) all consents and waivers of notice from each holder of
         Company Options and/or Company Warrants entitled to receive Series G
         Warrants required in connection with the exchange of such Company
         Options and Company Warrants for the Series G Warrants;

                  (k) a properly completed and executed subscription form
         substantially in the form attached hereto as EXHIBIT P, representing
         the exercise by NeuroScience Partners Limited Partnership ("NPLP") of
         its conversion right contained in that certain Royalty Purchase
         Agreement, dated December 18, 1996 between NPLP and Apollo Genetics,
         Inc.;

                  (l) satisfactory documentation, in Parent's reasonable
         discretion, of the termination of (i) that certain Amended and Restated
         Registration Rights Agreement, dated September 1, 1998, by and among
         the Company and certain of its Series A stockholders, (ii) that certain
         Registration Rights Agreement, dated December 18, 1996, by and between
         the Company and NeuroScience Partners Limited Partnership; (iii) that
         certain Registration Rights Agreement, dated June 30, 1998, by and
         between the Company and John Baillie; and (iv) that certain
         Registration Rights Agreement, dated July 2, 1998, by and between the
         Company and Oscar Goldstein; and

                  (m) entry by the Company into that certain Research,
         Collaboration and License Agreement with the University of Texas at
         Fort Worth in substantially the form attached hereto as EXHIBIT O.

         6.6 CONVERSION OF PREFERRED STOCK. Each outstanding share of the
Company Preferred Stock shall have been converted to Company Common Stock prior
to or in connection with the Closing.

         6.7 NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall not have been any change in the business, condition, capitalization,
assets, liabilities, prospects, operations or financial performance of the
Company that has had or would reasonably be expected to have (individually or in
the aggregate) a Material Adverse Effect on the Company.

         6.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.

         6.9 NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Legal Proceeding in which a Governmental Body is or is threatened
to become a party, and neither Parent nor the Company shall have received any
communication from any Governmental Body, in which such Governmental Body
indicates the possibility of commencing any Legal Proceeding or taking any other
action: (a) challenging or seeking to restrain or prohibit the


                                       43




consummation of the Merger or any of the other transactions contemplated by this
Agreement; (b) relating to the Merger and seeking to obtain from Parent or any
of its Subsidiaries or the Company any damages or other relief that may be
material to Parent; (c) seeking to prohibit or limit in any material respect
Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Company; (d) which
would materially and adversely affect the right of Parent or the Company or any
of its Subsidiaries to own the assets or operate the business of the Company;
(e) which would materially limit Company Equityholders' ownership and enjoyment
of the Series G Stock and Series G Warrants, as applicable; or (f) challenging
or seeking to constrain or prohibit the use of any federal or state securities
law exemptions anticipated to be utilized in connection with the Merger.

         6.10 NO OTHER LITIGATION. There shall not be pending any Legal
Proceeding in which, in the reasonable judgment of Parent, there is a reasonable
probability of an outcome that could have a Material Adverse Effect on the
Company or any of its Subsidiaries or a Material Adverse Effect on Parent: (a)
challenging or seeking to restrain or prohibit the consummation of the Merger or
any of the other transactions contemplated by this Agreement; (b) relating to
the Merger and seeking to obtain from Parent or any of its Subsidiaries, or any
of the Company or any of its Subsidiaries, any damages or other relief that may
be material to Parent; (c) seeking to prohibit or limit in any material respect
Parent's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Company or any of its
Subsidiaries; or (d) which would affect adversely the right of Parent or the
Company or any of its Subsidiaries to own the assets or operate the business of
the Company or any of its Subsidiaries.

         6.11 TERMINATION OF EMPLOYEE PLANS. The Company shall have provided
Parent with evidence, reasonably satisfactory to Parent, as to the termination
of the benefit plans, if any, referred to in 5.7.

         6.12 FIRPTA COMPLIANCE. Parent shall have received the statement
referred to in Section 5.9(a) and the Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.9(b) prior to or in
connection with the Closing.

         6.13 DISSENTING SHARES. The holders of no more than 5% of the total
shares of Company Common Stock and Company Preferred Stock (considered together
on an as-converted to Company Common Stock basis) shall have perfected or be
entitled to rights of appraisal under Section 262 of the DGCL.

         6.14 PARENT STOCKHOLDER APPROVAL. The principal terms of this Agreement
and the Merger shall have been duly approved by the Required Parent Stockholder
Vote.

         6.15 CONSENTS AND ADDITIONAL COMPANY APPROVALS. The Company shall have
received all consents and approvals, both governmental and otherwise, required
in connection with the transactions contemplated hereby.

         6.16 CONSENTS AND ADDITIONAL PARENT AND MERGER SUB APPROVALS. Parent
and Merger Sub shall have received all consents and approvals, both governmental
and otherwise, required in connection with the transactions contemplated hereby.


                                       44



         6.17 COMPANY CLOSING BALANCE SHEET. The Company shall have delivered to
Parent an updated unaudited balance sheet of the Company dated as of a date
within three days of the Closing, in such form as the Company has previously
delivered the Unaudited Interim Balance Sheet, and prepared in accordance with
U.S. GAAP (the "Closing Balance Sheet").

SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY

         The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction or waiver, at or prior to the Closing, of the following conditions:

         7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement (as modified by the
Parent Disclosure Schedule as delivered to the Company as of the date of this
Agreement) and in each of the other agreements and instruments delivered to the
Company in connection with the transactions contemplated by this Agreement (a)
shall be true and correct in all respects in accordance with its terms (in the
case of any representation or warranty containing any "Material Adverse Effect"
qualification or other materiality qualification) or in all material respects
(in the case of any representation or warranty without any "Material Adverse
Effect" qualification or other materiality qualification) at and as of the date
of this Agreement and (b) shall be repeated and shall be true and correct in all
respects in accordance with its terms (in the case of any representations and
warranties containing any "Material Adverse Effect" qualification or other
materiality qualification) or in all material respects (in the case of any
representation or warranty without any "Material Adverse Effect" qualification
or other materiality qualification) on and as of the Closing Date with the same
effect as though made at and as of such time.

         7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.

         7.3 DOCUMENTS. The Company shall have received the following agreements
and documents, executed as appropriate, each of which shall be in full force and
effect:

                  (a) a legal opinion of Gray Cary Ware & Freidenrich LLP, dated
         as of the Closing Date, in substantially the form attached hereto as
         EXHIBIT Q;

                  (b) a legal opinion of Palmer & Dodge LLP dated as of the
         Closing Date, to the effect that the Merger will constitute a
         reorganization within the meaning of Section 368 of the Code (it being
         understood that, (i) in rendering such opinion, such counsel may rely
         upon the tax representation letters referred to in Section 5.5, and
         (ii) this condition shall nonetheless be deemed to be satisfied if Gray
         Cary Ware & Freidenrich LLP renders such an opinion to the Company);

                  (c) a certificate signed on behalf of Parent by the Chief
         Executive Officer and the Secretary of Parent representing and
         warranting that the conditions set forth in Sections 7.1 and 7.2 have
         been duly satisfied;


                                       45



                  (d) the Investors' Rights Agreement by and among Parent,
         Parent's existing preferred stockholders and the Company Equityholders;

                  (e) evidence of the successful filing with the Secretary of
         State of the State of California by Parent of those certain Amended and
         Restated Articles of Incorporation of Parent in the form attached
         hereto as EXHIBIT R.

         7.4 COMPANY STOCKHOLDER APPROVAL. The principal terms of this Agreement
and the Merger shall have been duly approved by the Required Company Stockholder
Vote.

         7.5 COMPANY OPTION AND WARRANT HOLDER APPROVAL. The Company shall have
received all consents from holders of Company Options, Company Warrants and any
other instruments convertible into equity of the Company required in connection
with the transactions contemplated hereby.

         7.6 CONSENTS AND ADDITIONAL COMPANY APPROVALS. The Company shall have
received all consents and approvals, both governmental and otherwise, required
in connection with the transactions contemplated hereby.

         7.7 PARENT APPROVALS. The principal terms of this Agreement and the
Merger shall have been duly approved by the Required Parent Stockholder Vote.

         7.8 CONSENTS AND ADDITIONAL PARENT AND MERGER SUB APPROVALS. Parent and
Merger Sub shall have received all consents and approvals, both governmental and
otherwise, required in connection with the transactions contemplated hereby.

         7.9 NO MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall not have been any change in the business, condition, capitalization,
assets, liabilities, operations or financial performance of Parent that has had
or would reasonably be expected to have (individually or in the aggregate) a
Material Adverse Effect on Parent.

         7.10 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.

         7.11 NO GOVERNMENTAL LITIGATION. There shall not be pending or
threatened any Legal Proceeding in which a Governmental Body is or is threatened
to become a party, and neither Parent nor the Company shall have received any
communication from any Governmental Body, in which such Governmental Body
indicates the possibility of commencing any Legal Proceeding or taking any other
action: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement; (b)
relating to the Merger and seeking to obtain from Parent or any of its
Subsidiaries or the Company any damages or other relief that may be material to
Parent; (c) seeking to prohibit or limit in any material respect Parent's
ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to the stock of the Company; (d) which would
materially and adversely affect the right of Parent or the Company or any of its
Subsidiaries


                                       46




to own the assets or operate the business of the Company; (e) which would
materially limit Company Equityholders' ownership and enjoyment of the Series G
Stock and Series G Warrants, as applicable; or (f) challenging or seeking to
constrain or prohibit the use of any federal or state securities law exemptions
anticipated to be utilized in connection with the Merger.

         7.12 NO OTHER LITIGATION. There shall not be pending any Legal
Proceeding in which, in the reasonable judgment of the Company, there is a
reasonable probability of an outcome that could have a Material Adverse Effect
on Parent or any of its Subsidiaries or a Material Adverse Effect on the
Company: (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement; (b)
relating to the Merger and seeking to obtain from Parent or any of its
Subsidiaries, or any of the Company or any of its Subsidiaries, any damages or
other relief that may be material to the Company; (c) seeking to prohibit or
limit in any material respect the Company's ability to vote, receive dividends
with respect to or otherwise exercise ownership rights with respect to the stock
of the Company or any of its Subsidiaries; (d) which would affect adversely the
right of Parent or the Company or any of its Subsidiaries to own the assets or
operate the business of the Company or any of its Subsidiaries; (e) which would
materially limit Company Equityholders' ownership and enjoyment of the Series G
Stock and Series G Warrants, as applicable; or (f) challenging or seeking to
constrain or prohibit the use of any federal or state securities law exemptions
anticipated to be utilized in connection with the Merger.

SECTION 8. TERMINATION

         8.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:

                  (a) by Parent if Parent reasonably determines that the timely
         satisfaction of any condition set forth in Section 6 has become
         impossible (other than as a result of any failure on the part of Parent
         or Merger Sub to comply with or perform any covenant or obligation of
         Parent or Merger Sub set forth in this Agreement);

                  (b) by the Company if the Company reasonably determines that
         the timely satisfaction of any condition set forth in Section 7 has
         become impossible (other than as a result of any failure on the part of
         the Company to comply with or perform any covenant or obligation set
         forth in this Agreement or in any other agreement or instrument
         delivered to Parent);

                  (c) by Parent if any of the Company's representations and
         warranties contained in this Agreement shall have been materially
         inaccurate as of the date of this Agreement or shall have become
         materially inaccurate as of any subsequent date (as if made on such
         subsequent date), or if any of the Company's covenants contained in
         this Agreement shall have been breached in any material respect;
         PROVIDED, HOWEVER, that Parent may not terminate this Agreement under
         this Section 8.1(c) on account of an inaccuracy in the Company's
         representations and warranties that is curable by the Company or on
         account of a breach of a covenant by the Company that is curable by the
         Company unless the Company fails to cure such inaccuracy or breach
         within 30 days after receiving written notice from Parent of such
         inaccuracy or breach;


                                       47



                  (d) by the Company if any of Parent's representations and
         warranties contained in this Agreement shall have been materially
         inaccurate as of the date of this Agreement or shall have become
         materially inaccurate as of any subsequent date (as if made on such
         subsequent date), or if any of Parent's covenants contained in this
         Agreement shall have been breached in any material respect; PROVIDED,
         HOWEVER, that the Company may not terminate this Agreement under this
         Section 8.1(d) on account of an inaccuracy in Parent's representations
         and warranties that is curable by Parent or on account of a breach of a
         covenant by Parent that is curable by Parent unless Parent fails to
         cure such inaccuracy or breach within 30 days after receiving written
         notice from the Company of such inaccuracy or breach;

                  (e) by Parent if the Closing has not taken place on or before
         July 13, 2001 (other than as a result of any failure on the part of
         Parent to comply with or perform any covenant or obligation of Parent
         set forth in this Agreement) unless such Closing has been extended by
         the mutual agreement of the Company and Parent;

                  (f) by the Company if the Closing has not taken place on or
         before July 13, 2001 (other than as a result of the failure on the part
         of the Company to comply with or perform any covenant or obligation of
         the Company set forth in this Agreement) unless such Closing has been
         extended by the mutual agreement of the Company and Parent; or

                  (g) by the mutual consent of Parent and the Company.

         8.2 TERMINATION PROCEDURES. If Parent wishes to terminate this
Agreement pursuant to Section 8.1(a), Section 8.1(c), Section 8.1(e) or Section
8.1(h), Parent shall deliver to the Company a written notice stating that Parent
is terminating this Agreement and setting forth a brief description of the basis
on which Parent is terminating this Agreement. If the Company wishes to
terminate this Agreement pursuant to Section 8.1(b), Section 8.1(d) or Section
8.1(f), the Company shall deliver to Parent a written notice stating that the
Company is terminating this Agreement and setting forth a brief description of
the basis on which the Company is terminating this Agreement.

         8.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; PROVIDED, HOWEVER, that: (a) such termination shall not relieve a
party of liability for a breach by such party of any of its representations,
warranties or covenants set forth in this Agreement, which breach results in
such termination, (b) such termination shall not preclude a party from seeking
and obtaining a court decree or order of specific performance or mandamus to
enforce the observance and performance of this Agreement; (c) the parties shall,
in all events, remain bound by and continue to be subject to the provisions set
forth in Section 10; and (d) the Company and Parent shall, in all events, remain
bound by and continue to be subject to Section 5.3. Notwithstanding the
foregoing, the failure of a party to achieve one or more condition precedents
pursuant to Sections 6 or 7 of this Agreement, shall not, in itself be
considered a violation of the terms of this Agreement.



                                       48



SECTION 9. ESCROW AND INDEMNIFICATION; LIMITATION OF LIABILITY.

         9.1 ESCROW FUND.

                  (a) The escrow fund (the "ESCROW FUND") referred to in this
         Agreement shall consist of two components. The first component of the
         Escrow Fund consists of the portion of the Contingent Shares referred
         to as being held in the Escrow Fund in Section 1.5 of this Agreement.
         The second component of the Escrow Fund consists of the Indemnity
         Shares referred to below (this portion being referred to as the
         "INDEMNITY PORTION OF THE ESCROW Fund"). Both components of the Escrow
         Fund will be held by the Escrow Agent (as defined below) in accordance
         with the terms of this Agreement.

                  (b) At the Closing, 151,766 shares of Series G Stock (the
         "INDEMNITY SHARES") shall be registered in the name of, and be
         deposited with, U.S. Bank Trust National Association (or other
         institution selected by Parent with the consent of the Company, which
         shall not be unreasonably withheld) as escrow agent (the "ESCROW
         AGENT"), such deposit to constitute the initial funding of the
         Indemnity Portion of the Escrow Fund and to be governed by the terms
         set forth herein and in the Escrow Agreement attached hereto as EXHIBIT
         S. Additional shares of Series G stock, if added to the Indemnity
         Portion of the Escrow Fund pursuant to Section 1.5(b)(iii)(B) of this
         Agreement or pursuant to the terms contained in the Series G Warrants,
         shall also be deemed to be Indemnity Shares. The Indemnity Shares
         contained in the Indemnity Portion of the Escrow Fund shall be
         available to compensate Parent pursuant to the indemnification
         obligations of the Company Equityholders. In the event Parent issues
         any Additional Indemnity Shares (as defined below), such shares will be
         issued in the name of the Escrow Agent and delivered to the Escrow
         Agent in the same manner as the Indemnity Shares delivered at the
         Closing.

                  (c) Except for dividends paid in stock, declared with respect
         to the Indemnity Shares, including any dividends issued upon such
         dividends ("ADDITIONAL INDEMNITY SHARES", which will be considered
         Indemnity Shares thereafter), which shall be treated as part of the
         Indemnity Portion of the Escrow Fund pursuant to Section 9.1(b) hereof,
         any cash dividends, dividends payable in securities or other
         distributions of any kind made in respect of the Indemnity Shares or
         the Additional Indemnity Shares will be delivered to the former Company
         Equityholder in accordance with the Equityholder's Proportionate
         Interest. Each former Company Equityholder will have voting rights with
         respect to the Indemnity Shares and Contingent Shares deposited in the
         Escrow Fund with respect to such former Company Equityholder so long as
         such Indemnity Shares and Contingent Shares are held in escrow, and
         Parent will take all reasonable steps necessary to allow the exercise
         of such rights. While the Contingent Shares and Indemnity Shares remain
         in the Escrow Agent's possession pursuant to this Agreement, the former
         stockholders of the Company for whom such shares are held will retain
         and will be able to exercise all other incidents of ownership of said
         Contingent Shares and Indemnity Shares which are not inconsistent with
         the terms and conditions of this Agreement.

                  (d) In the event the shares of Series G Stock held as
         Indemnity Shares or Additional Indemnity Shares should convert by their
         terms into Parent Common Stock (or any other class of Parent capital
         stock), then such shares of Parent Common Stock (or other class of
         stock) shall receive the same treatment as the shares of Series G Stock
         under this Section 9 in


                                       49



         accordance with the calculation of the Equityholder's Proportionate
         Interest existing immediately prior to the conversion.

                  (e) The right of each Company Equityholder to receive a
         portion of the Contingent Shares and Indemnity Shares, if applicable,
         is personal to each such Company Equityholder and shall remain with
         each such Company Equityholder in the event of any transfer of shares
         of Series G Stock (or other securities of Parent held by such Company
         Equityholder as a result of the Merger, except for the right to the
         portion of the Cash Consideration and the Contingent Shares represented
         by a Series G Warrant, which will remain and be transferred with such
         Series G Warrant), unless explicit provision to the contrary has been
         effected by such Company Equityholder.

         9.2 INDEMNIFICATION AND LIMITATION OF LIABILITY.

                  (a) SURVIVAL OF WARRANTIES. All representations and warranties
         made by the Company, Parent and Merger Sub herein, or in any
         certificate, schedule or exhibit delivered pursuant hereto, shall
         survive the Closing and continue in full force and effect until the
         first anniversary of the Closing Date (sometimes referred to herein as
         the "TERMINATION DATE").

                  (b) The right to indemnification, payment of Damages (as
         defined below) or other remedy based on such representations,
         warranties, covenants, and obligations will not be affected by any
         investigation conducted with respect to, or any Knowledge acquired (or
         capable of being acquired) at any time, whether before or after the
         execution and delivery of this Agreement or the Closing Date, with
         respect to the accuracy or inaccuracy of or compliance with, any such
         representation, warranty, covenant, or obligation. The waiver of any
         condition based on the accuracy of any representation or warranty, or
         on the performance of or compliance with any covenant or obligation,
         will not affect the right to indemnification, payment of Damages, or
         other remedy based on such representations, warranties, covenants, and
         obligations.

                  (c) Subject to the limitations set forth in this Section 9,
         the Company Equityholders will indemnify and hold harmless Parent and
         the Surviving Corporation and its respective officers, directors,
         agents, attorneys and employees, and each person, if any, who controls
         or may control Parent or the Surviving Corporation within the meaning
         of the Securities Act (hereinafter referred to individually as a
         "PARENT INDEMNIFIED PERSON" and collectively as "PARENT INDEMNIFIED
         PERSONS") from and against any and all losses, costs, damages,
         liabilities and expenses arising from claims, demands, actions, causes
         of action, including, without limitation, reasonable legal fees,
         (collectively, "DAMAGES") arising out of any misrepresentation or
         breach of or default in connection with any of the representations,
         warranties, covenants and agreements (but in the case of covenants and
         agreements, only to the extent such covenants and agreements were to be
         effected on or before Closing) given or made by the Company in this
         Agreement, the Company Disclosure Schedules or any exhibit or schedule
         to this Agreement. Parent Indemnified Parties shall act in good faith
         and in a commercially reasonable manner to mitigate any Damages they
         may suffer.

                  (d) The sole recourse and remedy of the Parent Indemnified
         Persons for any claims arising out of or relating to this Agreement or
         the transactions contemplated hereby, including, without limitation,
         for claims arising out of or relating to any breaches of the


                                       50



         Company's representations or warranties contained in this Agreement,
         shall be recovery against the Indemnity Shares contained in the
         Indemnity Portion of the Escrow Fund; and except as otherwise set forth
         in Section 9.2(f) below, the aggregate liability of the Company
         Equityholders for all such claims shall be the amount of the Indemnity
         Shares held in the Indemnity Portion of the Escrow Fund.

                  (e) Subject to the limitations set forth in this Section 9,
         Parent will indemnify and hold harmless the Company Stockholders and
         the holders of the Series G Warrants who subsequently exercise such
         warrants, and each of their respective officers, directors, agents,
         attorneys and employees (hereinafter referred to individually as a
         "COMPANY INDEMNIFIED PERSON" and collectively as "COMPANY INDEMNIFIED
         PERSONS") from and against any and all Damages arising out of any
         misrepresentation or breach of or default in connection with any of the
         representations, warranties, covenants and agreements given or made by
         Parent or Merger Sub in this Agreement, the Parent Disclosure Schedules
         or any exhibit or schedule to this Agreement. The Company Stockholders
         and the persons who hold the Series G Warrants, acting through the
         Stockholders' Agent (as defined at Section 9.8(a)), shall act in good
         faith and in a commercially reasonable manner to mitigate any Damages
         they may suffer.

                  (f) Nothing in this Agreement shall limit the liability in
         amount or otherwise (i) of any of the individual Company Equityholders
         in connection with any breach by such person of any representation or
         covenant in the Status Letter delivered by such Company Equityholder
         pursuant hereto or (ii) of the Company with respect to fraud, criminal
         activity or intentional breach of any covenant contained in this
         Agreement.

         9.3 ESCROW PERIOD; RELEASE FROM ESCROW.

                  (a) The Indemnity Portion of the Escrow Fund shall terminate
         upon the expiration of twelve months after the Effective Time;
         provided, however, that a portion of the Indemnity Portion of the
         Escrow Fund, which, in the reasonable judgment of Parent, subject to
         the objection of the Stockholders' Agent and the subsequent arbitration
         of the matter in the manner provided in Section 9.7 hereof, is
         necessary to satisfy any unsatisfied claims specified in any Officer's
         Certificate theretofore delivered to the Escrow Agent prior to the
         Release Date with respect to facts and circumstances existing prior to
         the Release Date, shall remain in the Indemnity Portion of the Escrow
         Fund until such claims have been resolved. The portion of the Escrow
         Fund containing the Contingent Shares shall terminate upon the release
         of all of such shares which by the terms of this Agreement may ever be
         released.

                  (b) Within three (3) business days after the Termination Date
         (the "RELEASE DATE"), the Escrow Agent shall release from the Indemnity
         Portion of the Escrow Fund to each Company Stockholder (and each holder
         of Series G Warrants who has exercised his warrants prior to the
         Release Date) such person's Equityholder's Proportionate Interest of
         the Indemnity Shares and Additional Indemnity Shares, less with respect
         to each such Equityholder the number of Indemnity Shares and Additional
         Indemnity Shares with a value (as determined pursuant to Section 9.5)
         equal to (A) such person's Equityholder's Proportionate Interest of any
         liability for which indemnity is claimed by Parent in accordance with
         Section 9.5 in satisfaction of indemnification claims by a Parent
         Indemnified Person and (B) such person's Equityholder's Proportionate
         Interest of any liability subject to claims by a Parent Indemnified
         Person in


                                       51



         accordance with Section 9.3(a) with respect to any pending but
         unresolved indemnification claims of a Parent Indemnified Person. Any
         Indemnity Shares and Additional Indemnity Shares held as a result of
         clause (B) shall be released to the stockholders, or former warrant
         holders, as appropriate, of the Company or released to Parent (as
         appropriate) promptly upon resolution of each specific indemnification
         claim involved. Indemnity Shares and Additional Indemnity Shares issued
         into the Indemnity Portion of the Escrow Fund on behalf of Company
         Equityholders shall be released to each respective Company
         Equityholder, in accordance with the applicable Equityholder's
         Proportionate Interest. Parent will take such action as may be
         necessary to cause such certificates to be issued in the names of the
         appropriate persons. Certificates representing Indemnity Shares and
         Additional Indemnity Shares so issued that are subject to resale
         restrictions under applicable securities laws will bear a legend to
         that effect. No fractional shares shall be released and delivered from
         the Escrow Fund to the Company Equityholders. In lieu of any fraction
         of a Contingent Share or Indemnity Share to which a Company
         Equityholder would otherwise be entitled, such holder will receive from
         Parent an amount of cash (rounded to the nearest whole cent) equal to
         the product of such fraction multiplied by $7.50 (as adjusted for any
         Recapitalization Event).

                  (c) No Indemnity Shares and Additional Indemnity Shares or any
         beneficial interest therein may be pledged, sold, assigned or
         transferred, including by operation of law, by any Company Equityholder
         or be taken or reached by any legal or equitable process in
         satisfaction of any debt or other liability of any such Company
         Equityholder, prior to the delivery to such Company Equityholder of his
         PRO RATA portion of such Indemnity Shares and Additional Indemnity
         Shares in the Escrow Fund by the Escrow Agent as provided herein.

                  (d) The Escrow Agent is hereby granted the power to effect any
         transfer of Indemnity Shares and Contingent Shares contemplated by this
         Agreement. Parent will cooperate with the Escrow Agent in promptly
         issuing stock certificates to effect such transfers.

         9.4 THIRD-PARTY CLAIMS. In the event a Parent Indemnified Person
becomes aware of a third-party claim which such party believes may result in a
demand against the Indemnity Portion of the Escrow Fund, Parent shall promptly
notify the Stockholders' Agent of such claim in writing (such notification
including a description of the nature and the basis of such claim), and the
Stockholders' Agent, on behalf of the Company Equityholders for whom shares of
Series G Stock (or other such shares of Parent capital stock or other property)
otherwise issuable to them are deposited in the Indemnity Portion of the Escrow
Fund, shall be entitled to assume the defense of such claim. Failure by the
Stockholders' Agent to notify Parent of its election to defend any such claim
within a reasonable time, but in no event more than ten days after notice
thereof shall have been given to the Stockholders' Agent, shall be deemed a
waiver by the Stockholders' Agent of its right to defend such claim. If
Stockholders' Agent elects to defend such claim, Parent may participate, at its
expense, in the defense of such claim provided that the Stockholders' Agent
shall direct and control the defense of such claim. The Stockholders' Agent
shall not, in the defense of such claim, consent to the entry of any judgment or
award, or enter into any settlement, except in either event with the prior
written consent of Parent (which consent will not be unreasonably withheld).
Reasonable attorneys fees and other reasonable expenses incurred by
Stockholder's Agent shall be recoverable against the Indemnity Portion of the
Escrow Fund prior to any distribution to the Company Equityholders. For any
claims against which the Stockholders' Agent has not assumed the defense, Parent
shall have the right, subject


                                       52



to consent by the Stockholders' Agent (which consent shall not be unreasonably
withheld), to settle any such claim. In the event that the Stockholders' Agent
has consented to any such settlement, the Stockholders' Agent shall have no
power or authority to object under Section 9.6 or any other provision of this
Section 9 to the amount of any claim by the Parent Indemnified Person against
the Escrow Fund for indemnity with respect to such settlement.

         9.5 CLAIMS UPON ESCROW FUND. Upon receipt by the Escrow Agent on or
before the Release Date of a certificate signed by any officer of Parent (an
"OFFICER'S CERTIFICATE") stating that with respect to the indemnification
obligations of the Company Equityholders of the Company set forth in Section
9.2(c), Damages exist and specifying in reasonable detail the individual items
of such Damages included in the amount so stated, the date each such item was
paid, or properly accrued or arose, and the nature of the misrepresentation,
breach of warranty or claim to which such item is related, the Escrow Agent
shall, subject to the provisions of this Section 9, deliver to Parent on behalf
of the Parent Indemnified Person out of the Indemnity Shares contained in the
Indemnity Portion of the Escrow Fund, as promptly as practicable, Series G Stock
or other assets held in the Indemnity Portion of the Escrow Fund having a value
equal to such Damages. For the purpose of compensating Parent Indemnified
Persons for their Damages pursuant to this Agreement, the Series G Stock (or
Parent Common Stock issued upon conversion thereof) in the Escrow Fund shall be
valued at $7.50 per share (as adjusted for any Recapitalization Event).

         9.6 OBJECTIONS TO CLAIMS. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agent (defined in Section 9.8 below) and
for a period of thirty (30) days after such delivery, the Escrow Agent shall
make no delivery of Series G Stock or other property pursuant to Section 9.5
hereof unless the Escrow Agent shall have received written authorization from
the Stockholders' Agent to make such delivery. After the expiration of such
thirty (30) day period, the Escrow Agent shall make delivery of the Series G
Stock or other property in the Indemnity Portion of the Escrow Fund in
accordance with Section 9.5 hereof, provided that no such payment or delivery
may be made if the Stockholders' Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Parent prior to the expiration of such
thirty (30) day period.

         9.7 RESOLUTION OF CONFLICTS AND ARBITRATION.

                  (a) In case the Stockholders' Agent shall so object in writing
         to any claim or claims by Parent made in any Officer's Certificate,
         Parent shall have thirty (30) days to respond in a written statement to
         the objection of the Stockholders' Agent. If after such thirty (30) day
         period there remains a dispute as to any claims, the Stockholders'
         Agent and Parent shall attempt in good faith for sixty (60) days to
         agree upon the rights of the respective parties with respect to each of
         such claims. If the Stockholders' Agent and Parent should so agree, a
         memorandum setting forth such agreement shall be prepared and signed by
         both parties and shall be furnished to the Escrow Agent. The Escrow
         Agent shall be entitled to rely on any such memorandum and shall
         distribute the Series G Stock or other property from the Escrow Fund in
         accordance with the terms thereof.


                                       53



                  (b) If no such agreement can be reached after good faith
         negotiation, either Parent or the Stockholders' Agent may, by written
         notice to the other, demand arbitration of the matter unless the amount
         of the damage or loss is at issue in pending litigation with a third
         party, in which event arbitration shall not be commenced until such
         amount is ascertained or both parties agree to arbitration; and in
         either such event the matter shall be settled by arbitration by a panel
         of three arbitrators with such arbitration to be held in San Diego,
         California, in accordance with the Commercial Arbitration Rules of the
         American Arbitration Association, and judgment upon the award rendered
         by the arbitrators may be entered in any court having jurisdiction
         thereof. All arbitrators must be knowledgeable in the subject matter at
         issue in the dispute. The arbitrators shall make their decision in
         accordance with the terms of this Agreement and applicable law. Each
         party shall initially bear its own costs and legal fees associated with
         such arbitration and the parties shall split the cost of the
         arbitrators. The prevailing party in any such arbitration shall be
         entitled to recover from the other party the reasonable attorneys'
         fees, costs and expenses incurred by such prevailing party in
         connection with such arbitration. The decision of the arbitrators shall
         be final and may be sued on or enforced by the party in whose favor it
         runs in any court of competent jurisdiction at the option of the
         successful party. The rights and obligations of the parties to
         arbitrate any dispute relating to the interpretation or performance of
         this Agreement or the grounds for the termination thereof, shall
         survive the expiration or termination of this Agreement for any reason.
         The arbitrators shall be empowered to award specific performance,
         injunctive relief and other equitable remedies as well as damages, but
         shall not be empowered to award punitive or exemplary damages or award
         any damages in excess of any limitations set forth in this Agreement.
         The decision of the arbitrators shall be written, shall be in
         accordance with applicable law and with this Agreement, and shall be
         supported by written findings of fact and conclusion of law which shall
         set forth the basis for the decision of the arbitrators with respect to
         the claim being made. The decision of the arbitrators as to the
         validity and amount of any such claim shall be binding and conclusive
         upon the parties to this Agreement. Notwithstanding anything in Section
         9.6 hereof, the Escrow Agent shall be entitled to act in accordance
         with such decision and make or withhold payments out of the Escrow Fund
         in accordance therewith.

                  (c) Judgment upon any award rendered by the arbitrators may be
         entered in any court having jurisdiction. Any such arbitration shall be
         held in San Diego County, California under the commercial rules then in
         effect of the American Arbitration Association. For purposes of this
         Section 9.7(c), in any arbitration hereunder in which any claim or the
         amount thereof stated in the Officer's Certificate is at issue, Parent
         shall be deemed to be the non-prevailing party unless the arbitrators
         award Parent one-half (1/2) or more of the amount in dispute, plus any
         amounts not in dispute; otherwise, the Company Stockholders (and the
         then former Series G Warrant holders, as the case may be) for whom the
         Indemnity Shares and Additional Indemnity Shares have been deposited in
         the Indemnity Portion of the Escrow Fund shall be deemed to be the
         non-prevailing party. The non-prevailing party to an arbitration shall
         pay its own expenses, the fees of the arbitrators, and the expenses,
         including attorneys' fees and costs, reasonably incurred by the other
         party to the arbitration. Notwithstanding the foregoing, the Company
         Equityholders shall have no liability to pay for such fees and costs in
         excess of the value represented by and contained in the Indemnity
         Shares, the Additional Indemnity Shares and any shares of capital stock
         issued as dividends upon or in conversion thereof, and any such fees
         will only come from those shares held in the Indemnity Portion of the
         Escrow Fund.


                                       54



         9.8 STOCKHOLDERS' AGENT.

                  (a) Dr. Katherine Gordon, or her designee, shall be, and
         through the Required Company Stockholder Vote is, constituted and
         appointed as agent ("STOCKHOLDERS' AGENT") for and on behalf of the
         Company Equityholders to give and receive notices and communications,
         to authorize delivery to Parent of the Series G Stock or other property
         from the Indemnity Portion of the Escrow Fund in satisfaction of claims
         by Parent Indemnified Persons, to object to such deliveries, to agree
         to, negotiate, enter into settlements and compromises of, and demand
         arbitration and comply with orders of courts and awards of arbitrators
         with respect to such claims, and to take all actions necessary or
         appropriate in the judgment of the Stockholders' Agent for the
         accomplishment of the foregoing. Such agency may be changed by the
         holders of a majority in interest of the Indemnity Portion of the
         Escrow Fund from time to time upon not less than 10 days' prior written
         notice to Parent. No bond shall be required of the Stockholders' Agent,
         and the Stockholders' Agent shall receive no compensation for her
         services. Notices or communications to or from the Stockholders' Agent
         shall constitute notice to or from each of the Company Equityholders.

                  (b) The Stockholders' Agent shall not be liable for any act
         done or omitted hereunder as Stockholder's Agent while acting in good
         faith and in the exercise of reasonable judgment and any act done or
         omitted pursuant to the advice of counsel shall be conclusive evidence
         of such good faith. The Company Stockholders shall severally indemnify
         the Stockholders' Agent and hold her harmless against any loss,
         liability or expense incurred without gross negligence or bad faith on
         the part of the Stockholders' Agent and arising out of or in connection
         with the acceptance or administration of her duties hereunder. The
         Stockholders' Agent shall be able to resign upon (i) designation of a
         substitute Stockholders' Agent; and (ii) upon giving a ten days prior
         written notice to Parent.

                  (c) The Stockholders' Agent shall have reasonable access to
         information about the Company and the reasonable assistance of the
         Company's officers and employees for purposes of performing her duties
         and exercising her rights hereunder, provided that the Stockholders'
         Agent shall treat confidentially and not disclose any nonpublic
         information from or about the Company to anyone (except on a need to
         know basis to individuals who agree to treat such information
         confidentially).

         9.9 ACTIONS OF THE STOCKHOLDERS' AGENT. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all the
Company Equityholders for whom shares of Series G Stock (or Parent Common Stock
issuable upon the conversion of such shares of Series G Stock or other shares of
capital stock issued as dividends upon or in conversion thereof) otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each such Company Equityholder, and the Escrow Agent and
Parent may rely upon any decision, act, consent or instruction of the
Stockholders' Agent as being the decision, act, consent or instruction of each
and every such Company Equityholder. The Escrow Agent and Parent are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agent.

         9.10 NOTICE AND DEFENSE OF CLAIMS MADE BY COMPANY INDEMNIFIED PERSON. A
Company Indemnified Person claiming indemnification under Section 9.2 must
promptly notify


                                       55



Parent in writing of the nature and basis of such claim for indemnification. If
such claim relates to a claim, litigation or other action by a third party
against the Company Indemnified Person, or any fixed or contingent liablity to a
third party (a "Third Party Claim"), Parent may elect to assume the defense of
the Third Party Claim at its own expense with counsel selected by Parent.
Failure by Parent to notify the Company Indemnified Person of its election to
defend any such claim within a reasonable time, but in no event more than ten
days after notice thereof shall have been given to Parent, shall be deemed a
waiver by Parent of its right to defend such claim. If Parent elects to defend
such claim, the Company Indemnified Person may participate, at its expense, in
the defense of such claim provided that Parent shall direct and control the
defense of such claim. Parent shall not, in the defense of such claim, consent
to the entry of any judgment or award, or enter into any settlement, except in
either event with the prior written consent of the Company Indemnified Person
(which consent will not be unreasonably withheld). For any claims against which
Parent has not assumed the defense, the Company Indemnified Person shall have
the right, subject to consent by Parent (which consent shall not be unreasonably
withheld), to settle any such claim. In the event that Parent has consented to
any such settlement, Parent shall have no power or authority to object under
Section 9.6 or any other provision of this Section 9 to the amount of any claim
by the Company Indemnified Person with respect to such settlement.

         Claims made by a Company Indemnified Person prior to the Termination
Date which the parties cannot resolve shall be treated in the manner detailed at
Section 9.7(b) and 9.7(c) hereof, excepting the final sentence of Section 9.7(b)
shall not apply and Section 9.7(c) shall be deemed reformed as appropriate.

SECTION 10. MISCELLANEOUS PROVISIONS

         10.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.

         10.2 FEES AND EXPENSES. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the Company
Disclosure Schedule) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by this Agreement, and (d) the consummation of the
Merger (collectively, the "THIRD PARTY EXPENSES"). Notwithstanding the
foregoing, (a) the acquisition services fee (the "ACQUISITION SERVICES FEE")
specified in Section 2 of that certain engagement letter, dated June 9, 1999, as
amended (the "ENGAGEMENT LETTER"), by and between the Company and Adams,
Harkness & Hill, Inc. ("AH&H") shall be dealt with in accordance with Section
1.10 of this



                                       56



Agreement, and (b) to the extent the Third Party Expenses (excluding the
payments specified in Section 1.10 hereof and any fees or expenses due to AH&H)
of the Company to be paid at Closing exceed $400,000, such excess, if any, shall
be borne by the Company Stockholders through a reduction in the Cash
Consideration which would otherwise be payable to the Company Stockholders,
thereby resulting in a pro-rata reduction of such consideration actually
received by each Company Stockholder. At the Closing, Parent shall pay to Palmer
& Dodge LLP, counsel to the Company, on behalf of the Company, all of the then
outstanding fees and expenses of Palmer & Dodge LLP, incurred by the Company in
connection with the negotiation, execution, delivery and performance of this
Agreement and the transactions contemplated hereby. The Company shall use its
best efforts to (i) keep such fees and expenses to be paid by Parent to Palmer &
Dodge LLP below $250,000, but in the event such target is exceeded, Parent will
nonetheless pay all of such outstanding fees and expenses at Closing; and (ii)
maintain at least $200,000 in cash as reflected on the Closing Balance Sheet,
net of (A) any of its then existing accounts payable, and (B) the Third Party
Expenses (excluding the payments specified in Section 1.10 hereof and any fees
or expenses due to AH&H).

         10.3 ATTORNEYS' FEES. Except as otherwise provided in this Agreement,
any action or proceeding relating to this Agreement or the enforcement of any
provision of this Agreement is brought against any party hereto, the prevailing
party shall be entitled to recover reasonable attorneys' fees, costs and
disbursements (in addition to any other relief to which the prevailing party may
be entitled).

         10.4 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier, overnight or express delivery service or by
facsimile) to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):

                  IF TO PARENT:

                  MitoKor
                  11494 Sorrento Valley Road
                  San Diego, CA 92121
                  Attn:  Walter H. Moos, Ph.D.
                  Fax:  (858) 759-2598


                                       57



                  WITH A COPY TO:

                  Gray Cary Ware & Freidenrich LLP
                  4365 Executive Drive, Suite 1600
                  San Diego, CA 92121-2189
                  Attn:  Paul E. Kreutz, Esq.
                  Fax:  (858) 677-1477


                  IF TO THE COMPANY:

                  Apollo BioPharmaceutics
                  One Broadway; #600
                  Cambridge, Massachusetts 02142
                  Attn:  Katherine Gordon, Ph.D.
                  Fax:  (617) 621-7156

                  WITH A COPY TO:

                  Palmer & Dodge LLP
                  One Beacon Street
                  Boston, MA 02108
                  Attn:  Andrew Anderson, Esq.
                  Fax:  (617) 227-4420

         10.5 TIME OF THE ESSENCE. Time is of the essence of this Agreement.

         10.6 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.

         10.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.

         10.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of California without respect to or
application of the laws related to choice or conflicts of law. Each of the
parties hereto irrevocably consents to the exclusive jurisdiction of any court
located within San Diego County, State of California, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
hereby and it agrees that process may be served upon it in any manner authorized
by the laws of the State of California for such persons and waives and covenants
not to assert or plead any objection which it might otherwise have to such
jurisdiction and such process.

         10.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns (if
any). Neither the Company nor Parent shall assign this Agreement or any rights
or obligations hereunder (by operation of law or otherwise) to any Person;
provided, however, that Parent may assign any or all of its rights under



                                       58




this Agreement, in whole or in part, to any wholly-owned subsidiary of Parent
without obtaining the consent or approval of any other party hereto or of any
other Person, but may not delegate any of its obligations including, without
limitation, to issue Series G Stock.

         10.10 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. Except as otherwise
provided in this Agreement, the rights and remedies of the parties hereto shall
be cumulative (and not alternative). The parties to this Agreement agree that,
in the event of any breach or threatened breach by any party to this Agreement
of any covenant, obligation or other provision set forth in this Agreement for
the benefit of any other party to this Agreement, such other party shall be
entitled (in addition to any other remedy that may be available to it) to (a) a
decree or order of specific performance or mandamus to enforce the observance
and performance of such covenant, obligation or other provision, and (b) an
injunction restraining such breach or threatened breach.

         10.11 WAIVER. Except as otherwise provided in this Agreement, no
failure on the part of any Person to exercise any power, right, privilege or
remedy under this Agreement, and no delay on the part of any Person in
exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy. Except as otherwise provided in this Agreement, no Person shall be
deemed to have waived any claim arising out of this Agreement, or any power,
right, privilege or remedy under this Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of such Person; and any such
waiver shall not be applicable or have any effect except in the specific
instance in which it is given.

         10.12 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.

         10.13 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.

         10.14 PARTIES IN INTEREST. Except for the provisions of Sections 1.5,
1.6, 1.8, Section 9, and Section 10.2 (which sections are to the benefit of the
persons stated therein or covered thereby as well as the parties to this
Agreement), none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).

         10.15 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein or contemplated hereby set forth the entire understanding of
the parties hereto relating to the subject matter hereof and thereof and
supersede all prior agreements and understandings among or between any of the
parties relating to the subject matter hereof and thereof; PROVIDED, HOWEVER,
that (a) the Confidentiality Disclosure Agreement, dated as of January 3, 2000
and


                                       59




amended as of April 19, 2000; and (b) the Non-Disclosure Agreement, dated as of
June 28, 2000, each executed by and between Parent and the Company shall not be
superseded by this Agreement and shall remain in effect in accordance with its
terms until the earlier of (a) the Effective Time, or (b) the date(s) on which
such agreements are terminated in accordance with their terms.

         10.16 RESERVED.

         10.17 CONSTRUCTION.

                  (a) For purposes of this Agreement, whenever the context
         requires: the singular number shall include the plural, and vice versa;
         the masculine gender shall include the feminine and neuter genders; the
         feminine gender shall include the masculine and neuter genders; and the
         neuter gender shall include the masculine and feminine genders.

                  (b) The parties hereto agree that, for any construction or
         interpretation purposes, this Agreement shall be considered to have
         been jointly drafted.

                  (c) As used in this Agreement, the words "include" and
         "including," and variations thereof, shall not be deemed to be terms of
         limitation, but rather shall be deemed to be followed by the words
         "without limitation."

                  (d) Except as otherwise indicated, all references in this
         Agreement to "Sections" and "Exhibits" are intended to refer to
         Sections of this Agreement and Exhibits to this Agreement.

         10.18 ARBITRATION. If a dispute arises between the parties relating to
the interpretation or performance of this Agreement, excluding the resolutions
of claims provided for in Section 9.6 (which shall be resolved in accordance
with such section) and with the exception of any claim for a temporary
restraining order or preliminary or permanent injunctive relief to enjoin any
breach or threatened breach hereof, such dispute shall be settled by a panel of
three arbitrators with such arbitration to be held in San Diego, California, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. All arbitrators must be
knowledgeable in the subject matter at issue in the dispute. The arbitrators
shall make their decision in accordance with the terms of this Agreement and
applicable law. Each party shall initially bear its own costs and legal fees
associated with such arbitration and the parties shall split the cost of the
arbitrators. The prevailing party in any such arbitration shall be entitled to
recover from the other party the reasonable attorneys' fees, costs and expenses
incurred by such prevailing party in connection with such arbitration. The
decision of the arbitrators shall be final and may be sued on or enforced by the
party in whose favor it runs in any court of competent jurisdiction at the
option of the successful party. The rights and obligations of the parties to
arbitrate any dispute relating to the interpretation or performance of this
Agreement or the grounds for the termination thereof, shall survive the
expiration or termination of this Agreement for any reason. The arbitrators
shall be empowered to award specific performance, injunctive relief and other
equitable remedies as well as damages, but shall


                                       60



not be empowered to award punitive or exemplary damages or award any damages in
excess of any limitations set forth in this Agreement.




                                       61



         The parties hereto have caused this Agreement to be executed and
delivered as of the date first set forth above.

                                       MITOKOR,
                                       a California corporation.


                                       By:  /s/ Walter H. Moos
                                            ------------------------------------

                                       Name:  Walter H. Moos, Ph.D.
                                              ----------------------------------

                                       Title:  Chairman & CEO
                                               ---------------------------------


                                       MITO ACQUISITION CORP.,
                                       a Delaware corporation.


                                       By:  /s/ Ronald Edward Deane
                                            -----------------------------------

                                       Name:  Ronald Edward Deane
                                              ---------------------------------

                                       Title:  President & CFO
                                               --------------------------------


                                       APOLLO BIOPHARMACEUTICS, INC.,
                                       a Delaware corporation.


                                       By:  /s/ Katherine Gordon
                                            -----------------------------------

                                       Name:  Katherine Gordon
                                              ---------------------------------

                                       Title:  President
                                               --------------------------------


                                       62



                                    EXHIBIT A

                               CERTAIN DEFINITIONS

         For purposes of the Agreement (including this Exhibit A):

         ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:

                  (i) any sale, license, lease, exchange, transfer, disposition
         or acquisition of any portion of the business or assets of the Company
         or any direct or indirect subsidiary or division of the Company, except
         for immaterial amounts of the business or assets in the ordinary course
         of business;

                  (ii) the issuance, grant, disposition or acquisition of (A)
         any capital stock or other equity security of the Company or any direct
         or indirect subsidiary of the Company (other than issuances of Company
         Common Stock (y) upon the conversion of the Company Preferred Stock or
         (z) pursuant to options, warrants or conversion rights outstanding as
         of the date hereof), (B) any option, call, warrant or right (whether or
         not immediately exercisable) to acquire any capital stock or other
         equity security of the Company or any direct or indirect subsidiary of
         the Company, or (C) any security, instrument or obligation that is or
         may become convertible into or exchangeable for any capital stock or
         other equity security of the Company or any direct or indirect
         subsidiary of the Company; or

                  (iii) any merger, consolidation, business combination, share
         exchange, reorganization or similar transaction or series of related
         transactions involving the Company or any direct or indirect subsidiary
         of the Company.

         AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Company
Disclosure Schedule), as it may be amended from time to time.

         COMMERCIALLY REASONABLE EFFORTS. "Commercially reasonable efforts", in
the context of obtaining any consent or accomplishing any action or objective,
shall not include the payment of amounts which are not explicitly set forth in
this Agreement.

         COMPANY CONTRACT. "Company Contract" shall mean any Contract which is
currently in effect: (a) to which the Company is a party; (b) by which the
Company or any of its assets is or will become bound or under which the Company
has, or will become subject to, any obligation; or (c) under which the Company
has or will acquire any right or interest.

         COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" shall mean
the schedule (dated as of the date of the Agreement) delivered to Parent on
behalf of the Company.


                                      A-1



         COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.

         COMPANY STOCK OPTION PLANS. "Company Stock Option Plans" shall mean the
Company's 1993 Incentive and Non-Qualified Stock Option Plan and the Amended and
Restated 1996 Director Stock Option Plan.

         COMPANY STOCKHOLDERS. "Company Stockholders" shall mean the holders of
shares of Company Common Stock and/or Company Preferred Stock.

         CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).

         CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.

         DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.

         DGCL.  "DGCL" shall mean the Delaware General Corporation Law.

         ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, option, right of first
refusal, preemptive right, community property interest or restriction of any
nature, in each case which is created by the Company (including any restriction
on the voting of any security, any restriction on the transfer of any security
or other asset, any restriction on the receipt of any income derived from any
asset, any restriction on the use of any asset and any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset).

         ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.

         EQUITYHOLDER'S PROPORTIONATE INTEREST. "Equityholder's Proportionate
Interest"" shall be equal to the percentage that the value of the Indemnity
Shares as held for the account of such Company Equityholder in the Indemnity
Portion of the Escrow Fund bears to the value of the Indemnity Shares held for
the account of all Company Equityholders in the Indemnity Portion of the Escrow
Fund as of such date.

         ERISA AFFILIATE. "ERISA Affiliate" shall mean the Company and any trade
or business (whether or not incorporated) which is treated as a single employer
with the Company within the meaning of Section 414(b), (c), (m) or (o) of the
Code.


                                      A-2



         EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.

         GAAP. "GAAP" shall mean generally accepted accounting principles,
applied on a consistent basis.

         GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.

         GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body or
any such prime contractor or subcontractor otherwise has or may acquire any
right or interest.

         GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.

         GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).

         HSR ACT. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.

         KNOWLEDGE. An individual shall be deemed to have "Knowledge" or be
aware of a particular fact or other matter if:

                  (a) such individual is actually aware of such fact or other
         matter; or

                  (b) a prudent individual would be expected to discover or
         otherwise become aware of such fact or other matter after such inquiry
         as a prudent person would consider appropriate in the diligent
         performance of such individual's job duties.

         The Company shall be deemed to have "Knowledge" of a particular fact or
other matter if any of the following officers, management employees or other
Representatives of the Company has Knowledge of such fact or other matter: Dr.
Katherine Gordon, Robert Leonard and John Curry.


                                      A-3



         LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.

         LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.

         MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement or
in the Company Compliance Certificate but for the presence of "Material Adverse
Effect" or other materiality qualifications, or any similar qualifications, in
such representations and warranties) has had or would reasonably be expected to
have a material adverse effect on the Company's business, condition, prospects,
assets, liabilities, operations or financial performance taken as a whole. A
violation or other matter will be deemed to have a "Material Adverse Effect" on
Parent if such violation or other matter (considered together with all other
matters that would constitute exceptions to the representations and warranties
set forth in the Agreement or in the Parent Compliance Certificate but for the
presence of "Material Adverse Effect" or other materiality qualifications, or
any similar qualifications, in such representations and warranties) has had or
would reasonably be expected to have a material adverse effect on Parent's
business, condition, assets, liabilities, operations or financial performance
taken as a whole. Notwithstanding the foregoing, matters generally affecting the
biotechnology industry and general economic conditions that do not
disproportionately affect Parent or Company shall not constitute a Material
Adverse Effect on Parent or Company.

         NASDAQ. "Nasdaq" shall mean the Nasdaq National Market.

         PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" shall mean the
schedule created as of the date of this Agreement delivered to the Company on
behalf of Parent.

         PERSON.  "Person" shall mean any individual, Entity or Governmental
Body.

         PROPRIETARY ASSET. "Proprietary Asset" shall mean any: patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, trade secret, know-how,
composition, cell line, sample of assay components, formulation, pre-clinical,
and the results of any clinical study, customer list, system, computer software
(excluding generally available software licensed to the Company as an end-user),
computer program (excluding generally available software licensed to the Company
as an end-user), invention, design, method,


                                      A-4




technique, blueprint, proprietary product, technology, proprietary right or
other intellectual property right or intangible asset.

         REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.

         SEC. "SEC" shall mean the United States Securities and Exchange
Commission.

         SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.

         SUBSIDIARY. Any Entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record,
(a) an amount of voting securities or other interests in such Entity that is
sufficient to enable such Person to elect at least a majority of the members of
such Entity's board of directors or other governing body, or (b) at least 50% of
the outstanding equity or financial interests of such Entity.

         TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.

         TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.




                                      A-5

EX-10.1

                                                                    EXHIBIT 10.1


                               INDEMNITY AGREEMENT



     This Indemnity Agreement, dated as of _______________, is made by and
between MitoKor, a California corporation (the "Company"), and
___________________________ (the "Indemnitee").


                                    RECITALS


     A.   The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.

     B.   The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.

     C.   Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.

     D.   The Company believes that it is unfair for its directors, officers and
agents and the directors, officers and agents of its subsidiaries to assume the
risk of large judgments and other expenses which may occur in cases in which the
director, officer or agent received no personal profit and in cases where the
director, officer or agent was not culpable.

     E.   The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.

                                       1


     F.   Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to encourage such individuals to take
the business risks necessary for the success of the Company and its
subsidiaries, it is necessary for the Company to contractually indemnify its
directors, officers and agents and the directors, officers and agents of its
subsidiaries, and to assume for itself maximum liability for expenses and
damages in connection with claims against such directors, officers and agents in
connection with their service to the Company and its subsidiaries, and has
further concluded that the failure to provide such contractual indemnification
could result in great harm to the Company and its subsidiaries and the Company's
stockholders.

     G.   The California Corporations Code, under which the Company is organized
(the "Code"), empowers the Company to indemnify its directors, officers,
employees and agents by agreement and to indemnify persons who serve, at the
request of the Company, as the directors, officers, employees or agents of other
corporations or enterprises, and expressly provides that the indemnification
provided by the Code is not exclusive.

     H.   The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.

     I.   Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.


                                    AGREEMENT


     NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:

     1.   DEFINITIONS.

          (a)  AGENT. For the purposes of this Agreement, "agent" of the Company
means any person who is or was a director, officer, employee or other agent of
the Company or a subsidiary of the Company; or is or was serving at the request
of, for the convenience of, or to represent the interests of the Company or a
subsidiary of the Company as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the

                                       2


Company, or was a director, officer, employee or agent of another enterprise at
the request of, for the convenience of, or to represent the interests of such
predecessor corporation.

          (b)  EXPENSES. For purposes of this Agreement, "expenses" include all
reasonable out-of-pocket costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements), actually
incurred by the Indemnitee in connection with either the investigation, defense
or appeal of a proceeding or establishing or enforcing a right to
indemnification under this Agreement or the Code or otherwise; provided,
however, that "expenses" shall not include any judgments, fines, ERISA excise
taxes or penalties, or amounts paid in settlement of a proceeding.

          (c)  PROCEEDING. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.

          (d)  SUBSIDIARY. For purposes of this Agreement, "subsidiary" means
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries, or by one or more other subsidiaries.

     2.   AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to
serve as agent of the Company, at its will (or under separate agreement, if such
agreement exists), in the capacity Indemnitee currently serves as an agent of
the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.

     3.   MANDATORY INDEMNIFICATION. Subject to Section 8 below, the Company
shall indemnify the Indemnitee as follows:

          (a)  SUCCESSFUL DEFENSE. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party related, directly or indirectly to his role as an agent
of the Company at any time, against all reasonable expenses of any type
whatsoever actually incurred by him in connection with the investigation,
defense or appeal of such proceeding.

          (b)  THIRD PARTY ACTIONS. If the Indemnitee is a person who was or is
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) related, directly or indirectly, to
his role as an agent of the Company, or by reason of anything done or not done
by him in any such capacity, the Company shall indemnify the Indemnitee against
any and all reasonable expenses and liabilities of any type whatsoever

                                       3


(including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) actually incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding, provided the Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Company
and its stockholders, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.

          (c)  DERIVATIVE ACTIONS. If the Indemnitee is a person who was or is a
party or is threatened to be made a party to any proceeding by or in the right
of the Company by reason of the fact that he is or was an agent of the Company,
or by reason of anything done or not done by him in any such capacity, the
Company shall indemnify the Indemnitee against all reasonable expenses actually
incurred by him in connection with the investigation, defense, settlement, or
appeal of such proceeding, provided the Indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company and its stockholders; except that no indemnification under this
subsection 3(c) shall be made in respect to any claim, issue or matter as to
which such person shall have been finally adjudged to be liable to the Company
by a court of competent jurisdiction unless and only to the extent that the
court in which such proceeding was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
amounts which the court shall deem proper.

          (d)  ACTIONS WHERE INDEMNITEE IS DECEASED. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all reasonable expenses and liabilities of
any type whatsoever (including, but not limited to, judgments, fines, ERISA
excise taxes and penalties, and amounts paid in settlement) actually incurred to
the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 3(a), 3(b), or 3(c) above were Indemnitee still alive.

          (e)  Notwithstanding the foregoing, the Company shall not be obligated
to indemnify the Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) for which payment is actually made to
or on behalf of Indemnitee under a valid and collectible insurance policy of D&O
Insurance, or under a valid and enforceable indemnity clause, by-law or
agreement.

     4.   PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for

                                       4


all of the total amount hereof, the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion hereof to which the
Indemnitee is not entitled.

     5.   MANDATORY ADVANCEMENT OF EXPENSES. Subject to Section 7(a) below, the
Company shall advance all reasonable expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an agent of the
Company. Indemnitee hereby undertakes to repay such amounts advanced only if,
and to the extent that, it shall be determined ultimately that the Indemnitee is
not entitled to be indemnified by the Company as authorized hereby. The advances
to be made hereunder shall be paid by the Company to the Indemnitee within
twenty (20) days following delivery of a written request therefor by the
Indemnitee to the Company.

     6.   NOTICE AND OTHER INDEMNIFICATION PROCEDURES.

          (a)  Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

          (b)  If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 6(a) hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.

          (c)  In the event the Company shall be obligated to pay the expenses
of any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense, or (C) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.

     7.   EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

                                       5


          (a)  CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
Code or (iv) the proceeding is brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as
required under the Code.

          (b)  LACK OF GOOD FAITH. To indemnify the Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or

          (c)  UNAUTHORIZED SETTLEMENTS. To indemnify the Indemnitee under this
Agreement for any amounts paid in settlement of a proceeding unless the
settlement includes an unconditional release of the Company and the Company
consents to such settlement, which consent shall not be unreasonably withheld.

     8.   NON-EXCLUSIVITY. The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation or Bylaws, the vote of the Company's stockholders
or disinterested directors, other agreements, or otherwise, both as to action in
his official capacity and to action in another capacity while occupying his
position as an agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an agent of the Company and
shall inure to the benefit of the heirs, executors and administrators of the
Indemnitee.

     9.   ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of
Indemnitee in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request
therefor. Indemnitee, in such enforcement action, if successful in whole or
in part, shall be entitled to be paid also the expense of prosecuting his
claim. It shall be a defense to any action for which a claim for
indemnification is made under this Agreement (other than an action brought to
enforce a claim for expenses pursuant to Section 5 hereof, provided that the
required undertaking has been tendered to the Company) that Indemnitee is not
entitled to indemnification because of the limitations set forth in Sections
3 and 7 hereof. Neither the failure of the Company (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Indemnitee is
proper in the circumstances, nor an actual determination by the Company
(including its Board of Directors or its stockholders)

                                       6


that such indemnification is improper, shall be a defense to the action or
create a presumption that Indemnitee is not entitled to indemnification under
this Agreement or otherwise.

     10.  SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.

     11.  SURVIVAL OF RIGHTS.

          (a)  All agreements and obligations of the Company contained herein
shall continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal, arbitrational, administrative or investigative, by reason of the fact
that Indemnitee was serving in the capacity referred to herein.

          (b)  The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place.

     12.  INTERPRETATION OF AGREEMENT. It is understood that the parties hereto
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.

     13.  SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 12 hereof.

     14.  MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.

                                       7


     15.  NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.

     16.  GOVERNING LAW. This Agreement shall be governed exclusively by and
construed according to the laws of the State of California as applied to
contracts between California residents entered into and to be performed entirely
within California.

     The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.



                                       THE COMPANY:


                                       MITOKOR


                                       By:
                                           ------------------------------------


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


                                       Title
                                               --------------------------------

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


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


                                   INDEMNITEE:


                                       By:
                                           ------------------------------------


                                       -----------------------------------------
                                       (Indemnitee's Printed Name)


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


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


                                       8

EX-10.6

                                                                    EXHIBIT 10.6






                                     MITOKOR

                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT


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


                                 August 24, 2000






                                TABLE OF CONTENTS





                                                                                                                PAGE
                                                                                                                ----
                                                                                                             
1.       Authorization and Sale of Preferred Shares...............................................................1
         1.1      Authorization; Amended and Restated Articles of Incorporation...................................1
         1.2      Sale and Issuance of the Preferred Shares.......................................................1

2.       Closing Date; Delivery...................................................................................1
         2.1      Closing Dates...................................................................................1
         2.2      Delivery........................................................................................2

3.       Representations and Warranties of the Company............................................................2
         3.1      Organization and Standing; Articles and By-Laws.................................................2
         3.2      Corporate Power.................................................................................2
         3.3      Subsidiaries....................................................................................2
         3.4      Capitalization..................................................................................2
         3.5      Authorization...................................................................................3
         3.6      Patents and Other Proprietary Rights............................................................4
         3.7      Compliance with Other Instruments, None Burdensome, etc.........................................5
         3.8      Proprietary Agreements; Employees...............................................................5
         3.9      Condition of Properties.........................................................................5
         3.10     Litigation, etc.................................................................................6
         3.11     Governmental Consent, etc.......................................................................6
         3.12     Offering........................................................................................6
         3.13     Taxes...........................................................................................6
         3.14     Title...........................................................................................7
         3.15     Material Contracts and Commitments..............................................................7
         3.16     Financial Statements............................................................................7
         3.17     Absence of Changes..............................................................................7
         3.18     Outstanding Indebtedness........................................................................8
         3.19     Registration Rights.............................................................................8
         3.20     Certain Transactions............................................................................8
         3.21     Corporate Documents; Minute Books...............................................................9
         3.22     Employee Benefit Plans..........................................................................9
         3.23     Labor Agreements................................................................................9
         3.24     Real Property Holding Corporation...............................................................9
         3.25     Disclosure......................................................................................9
         3.26     Insurance.......................................................................................9
         3.27     Shareholder Agreements..........................................................................9
         3.28     Environmental Matters..........................................................................10
         3.29     Manufacturing Rights...........................................................................10
         3.30     Assumptions, Guaranties, Etc. of Indebtedness of Other Persons.................................10
         3.31     Material Customers and Suppliers...............................................................11

4.       Representations and Warranties of Purchaser and Restrictions on Transfer Imposed by the
         Securities Act..........................................................................................11
         4.1      Representations and Warranties by the Purchaser................................................11
         4.2      Legends........................................................................................12

                                      -i-



                               TABLE OF CONTENTS
                                  (continued)


         4.3      Removal of Legend and Transfer Restrictions....................................................13
         4.4      Rule 144.......................................................................................13

5.       Conditions to Closing...................................................................................13
         5.1      Conditions to Purchasers' Obligations..........................................................13
         5.2      Conditions to Obligations of the Company.......................................................14

6.       Affirmative Covenants of the Company....................................................................14
         6.1      Financial Information..........................................................................14
         6.2      Conflicts of Interests.........................................................................15
         6.3      Key Man Insurance..............................................................................15
         6.4      Proprietary Agreements.........................................................................15
         6.5      Future Stock Issuances.........................................................................15
         6.6      Rule 144.......................................................................................16
         6.7      Transactions with Affiliates...................................................................16
         6.8      Inspection Rights..............................................................................16

7.       Miscellaneous...........................................................................................16
         7.1      Waivers and Amendments.........................................................................16
         7.2      Governing Law..................................................................................17
         7.3      Survival.......................................................................................17
         7.4      Successors and Assigns.........................................................................17
         7.5      Entire Agreement...............................................................................17
         7.6      Notices, etc...................................................................................17
         7.7      Severability...................................................................................17
         7.8      Titles and Subtitles...........................................................................17
         7.9      Counterparts...................................................................................17
         7.10     Delays or Omissions............................................................................18




                                      -ii-



                                LIST OF EXHIBITS



EXHIBIT A - Amended and Restated Articles of Incorporation

EXHIBIT B - Schedule of Exceptions

EXHIBIT C - Investors' Rights Agreement

EXHIBIT D - Shareholders of the Company

EXHIBIT E - Holders of Outstanding Options and Warrants of the Company

EXHIBIT F - Patents and Trademarks

EXHIBIT G - Material Contracts

EXHIBIT H - Financial Statements

EXHIBIT I - Opinion of Counsel for the Company








                                     MITOKOR

                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT


         THIS AGREEMENT is made as of August 24, 2000, by and among MITOKOR, a
California corporation (the "Company"), and the individuals and entities listed
on the Schedule of Purchasers attached hereto (the "Purchasers"). The parties
hereby agree as follows:

         1. AUTHORIZATION AND SALE OF PREFERRED SHARES.

                  1.1 AUTHORIZATION; AMENDED AND RESTATED ARTICLES OF
INCORPORATION. The Company has authorized the issuance and sale to the
Purchaser, pursuant to the terms and conditions hereof, of up to 4,000,000
shares of its Series F Preferred Stock (the "Preferred Shares") at a purchase
price of $7.50 per share. The Preferred Shares have the rights, preferences
and provisions as set forth in the Company's Amended and Restated Articles of
Incorporation (the "Articles") attached hereto as EXHIBIT A.

                  1.2 SALE AND ISSUANCE OF THE PREFERRED SHARES. Subject to
the terms and conditions hereof, the Company will issue and sell to Purchaser
and Purchaser will purchase the Preferred Shares at the purchase price per
Preferred Share as indicated in Section 1.1.

         2. CLOSING DATE; DELIVERY.

                  2.1 CLOSING DATES.

                           (a)      FIRST CLOSING.  The closing of the purchase
and sale of at least 1,600,000 of the Preferred Shares shall be held at the
offices of Gray Cary Ware & Freidenrich, 4365 Executive Drive, Suite 1600, San
Diego, California 92121-2189, at 10:00 a.m. on August 24, 2000, or at such other
time and place as the Company and the Purchaser may mutually agree upon orally
or in writing (which time and place are designated as the "First Closing").

                           (b)      SECOND CLOSING.  The closing of the purchase
and sale of up to the remaining Preferred Shares (the "Second Closing") shall
take place at the offices of Gray Cary Ware & Freidenrich within 120 days of the
First Closing and shall be subject to the terms and conditions of this Agreement
and Exhibits attached hereto.

                           (c)      DEFINITIONS.  The First Closing  and the
Second Closing are sometimes referred to hereinafter as the "Closings" or
individually as a "Closing". The date of the First Closing is hereinafter
referred to as the "First Closing Date" and the date of the Second Closing is
referred to hereinafter as the "Second Closing Date"; and the First Closing Date
and the Second Closing Date are hereinafter referred to collectively as the
"Closing Dates" or individually as a "Closing Date".


                                       1


                  2.2 DELIVERY. Subject to the terms of this Agreement, at the
Closings the Company will deliver to Purchaser a certificate representing the
Preferred Shares to be purchased by Purchaser from the Company, against payment
of the purchase price therefor by a check or wire transfer made payable to the
order of the Company.

         3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchaser that except as set forth on the
Schedule of Exceptions attached hereto as EXHIBIT B, which exceptions shall be
deemed to be representations and warranties as if made hereunder:

                  3.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California and has all requisite corporate power
and authority to carry on its businesses as now conducted and as proposed to be
conducted. The Company is qualified or licensed to do business as a foreign
corporation in all jurisdictions where such qualification or licensing is
required, except where the failure to so qualify would not have a material
adverse effect upon the Company. Copies of the Company's Articles of
Incorporation, Bylaws, minutes and consents of shareholders and of the Board of
Directors are available for inspection at the Company's offices or have been
previously provided to the Purchaser.

                  3.2 CORPORATE POWER. The Company has now, or will have at the
Closing Dates, all requisite corporate power to enter into this Agreement and
the Investors' Rights Agreement (the "Rights Agreement") in substantially the
form attached hereto as EXHIBIT C and to sell and issue the Preferred Shares and
to issue the Common Stock upon conversion of the Preferred Shares. This
Agreement and the Rights Agreement are valid and binding obligations of the
Company enforceable in accordance with their respective terms, except as the
same may be limited by bankruptcy, insolvency, moratorium, and other laws of
general application affecting the enforcement of creditors' rights.

                  3.3 SUBSIDIARIES.  The Company does not control, directly or
indirectly, any other corporation, association or business entity.

                  3.4 CAPITALIZATION. The authorized capital stock of the
Company is 18,000,000 shares of Common Stock, of which 190,442 shares are issued
and outstanding and 18,000,000 shares of Preferred Stock issuable in series, of
which (i) 52,000 shares are designated Series A-1 Preferred Stock, 52,000 shares
of which are issued and outstanding; (ii)7,200 shares are designated Series B
Preferred Stock, 7,200 shares of which are issued and outstanding; (iii) 90,000
shares are designated Series B-1 Preferred Stock, 90,000 of which are issued and
outstanding; (iv) 30,000 shares are designated Series B-2 Preferred Stock,
30,000 of which are issued and outstanding; (v) 30,000 shares are designated
Series B-3 Preferred Stock, 30,000 of which are issued and outstanding; (vi)
3,600 shares are designated Series B-4 Preferred Stock, 3,600 of which are
issued and outstanding; (vii) 3,308,431 shares are designated Series C Preferred
Stock, 3,292,431 of which are issued and outstanding; (viii) 3,358,042 shares
are designated Series D Preferred Stock, 3,351,042 of which are issued and
outstanding; (ix) 3,358,042 shares are designated Series D-1 Preferred Stock,
none of which are issued and outstanding; (x) 853,167 shares are designated
Series E Preferred Shares, 833,334 of which are issued and outstanding; and (xi)
4,000,000 shares are designated Series F Preferred Shares, none of which are
issued and outstanding. The holders of record of the presently issued and

                                       2


outstanding Common Stock and Preferred Stock immediately prior to the Closings
are as set forth on EXHIBIT D. All such issued and outstanding shares have been
duly authorized and validly issued, are fully paid and nonassessable, and were
issued in compliance with all applicable state and federal laws concerning the
issuance of securities. The Company has reserved 113,043 shares of Common Stock
for issuance upon the conversion of Series A-1 Preferred Stock, 574,285 shares
of Common Stock for issuance upon the conversion of Series B Preferred Stock,
Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred
Stock and Series B-4 Preferred Stock, 3,308,431 shares of Common Stock for
issuance upon the conversion of Series C Preferred Stock, 3,358,042 shares of
Common Stock for issuance upon the conversion of Series D Preferred Stock,
3,358,042 shares of Common Stock for issuance upon the conversion of Series D-1
Preferred Stock, 853,167 shares of Common Stock for issuance upon the conversion
of Series E Preferred Stock, 4,000,000 shares of Common Stock for issuance upon
the conversion of Series F Preferred Stock, 67,042 shares of Common Stock for
issuance pursuant to the exercise of outstanding Common Stock purchase warrants,
16,000 shares of Series C Preferred Stock for issuance pursuant to the exercise
of Series C Preferred Stock purchase warrants, 7,000 shares of Series D
Preferred Stock for issuance pursuant to the exercise of Series D Preferred
Stock purchase warrants, 19,833 shares of Series E Preferred Stock for issuance
pursuant to the exercise of Series E Preferred Stock purchase warrants,
1,987,318 shares of Common Stock for issuance to employees, directors, and
consultants pursuant to its Amended and Restated 1993 Stock Option Plan and
2,480 shares of Common Stock for issuance upon exercise of nonstatutory options
granted by the Company in 1991 and 1992. The holders of any and all rights,
warrants or conversion rights to purchase or acquire from the Company any of its
capital stock, along with the number of shares of capital stock issuable upon
exercise of such rights, are set forth on EXHIBIT E attached hereto. Except for
such rights, there are no outstanding rights, warrants, conversion rights or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. The rights, privileges and preferences of the Series E Preferred
Stock are as set forth in the Articles attached hereto as EXHIBIT A.

                  3.5  AUTHORIZATION.

                           (a)      CORPORATE ACTION.  All corporate action on
the part of the Company, its officers, directors and shareholders necessary for
the sale and issuance of the Preferred Shares and the issuance of the Common
Stock issuable upon conversion of the Preferred Shares and the performance of
the Company's obligations hereunder and under the Rights Agreement has been
taken or will be taken prior to the Closings. The Company has duly reserved an
aggregate of 4,000,000 shares of Common Stock for issuance upon conversion of
the Preferred Shares.

                           (b)      VALID ISSUANCE.  The Preferred Shares, when
issued in compliance with the provisions of this Agreement and the shares of
Common Stock issuable upon conversion of the Preferred Shares when issued in
accordance with the provisions of the Articles, will be duly authorized, validly
issued, fully paid and nonassessable and will be free of any liens or
encumbrances caused or created by the Company; provided, however, that all such
shares may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein, and as may be required by future changes in
such laws. The rights, preferences, privileges and restrictions of the Preferred
Shares are as set forth in the Articles.


                                       3


                           (c)      NO PREEMPTIVE RIGHTS.  Except as set forth
in the Rights Agreement, no person has any right of first refusal or any
preemptive rights in connection with the issuance of the Preferred Shares, the
issuance of the Common Stock upon conversion of the Preferred Shares or any
future issuances of securities by the Company.

                  3.6 PATENTS AND OTHER PROPRIETARY RIGHTS. EXHIBIT F attached
hereto contains a full and complete list of all patents and patent applications,
trademarks and trademark applications, trade names, service marks and service
mark applications and copyrights owned or used by the Company or in which it has
any rights or licenses. The Company has entered into agreements with each of its
officers, employees and consultants providing the Company, to the extent
permitted by law, with title and ownership to patents, patent applications,
trade secrets and inventions conceived, developed, reduced to practice by or at
the direction of such person, solely or jointly, during the period of employment
by the Company. Except as described in EXHIBIT F:

                           (a)      The Company owns or possesses adequate
licenses or other rights (or is able to obtain adequate licenses, rights or
purchase options on terms that will not materially and adversely affect its
business) to use all patents, patent applications, trademarks, trademark
applications, trade secrets, service marks, service mark applications, trade
names, copyrights, inventions, drawings, designs, customer lists, proprietary
know-how or information, or other rights with respect thereto (collectively
referred to as "MitoKor Proprietary Rights"), used in the business of the
Company, and the same are sufficient to conduct its business as it has been
conducted, is now being conducted and is currently proposed to be conducted. The
operations of the Company's business as now conducted and as currently proposed
to be conducted does not and will not conflict with or infringe, and no one has
asserted to the Company that such operation conflicts with or infringes, any
proprietary rights claimed, owned, possessed or used by any third party.

                           (b)      There are no claims, disputes, actions,
proceedings, suits or appeals pending against the Company with respect to any
MitoKor Proprietary Rights (other than those, if any, with respect to which
service of process or similar notice has not yet been made on the Company), and,
to the knowledge of the Company, none has been threatened against the Company.
To the knowledge of the Company, there are no facts or alleged facts which would
reasonably serve as a basis for any claim that the Company does not have the
unrestricted right to use, free of any rights or claims of others, all MitoKor
Proprietary Rights in the development, manufacture, use, sale or other
disposition of any or all products or services presently being used, furnished
or sold in the conduct of the business of the Company or currently contemplated
to be used, furnished or sold in the business of the Company.

                           (c)      To the knowledge of the Company, the MitoKor
Proprietary Rights have not been infringed by others.

                           (d)      There are no outstanding options, licenses
or agreements of any kind relating to the MitoKor Proprietary Rights, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity.


                                       4


                           (e)      Neither the execution nor delivery of this
Agreement, nor the carrying of the Company's business by the employees of the
Company, nor the conduct of the Company's business as currently proposed, will,
to the Company's knowledge, conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.

                  3.7 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC.
The Company is not in violation of any term of the Articles or Bylaws, nor is
the Company in violation of or in default in any material respect under the
terms of any mortgage, indenture, contract, agreement, instrument, judgment or
decree, the violation of which would have a material adverse effect on the
Company as a whole, and to the knowledge of the Company, is not in violation of
any order, statute, rule or regulation applicable to the Company, the violation
of which would have a material adverse effect on the Company. The execution,
delivery and performance of and compliance with this Agreement or the Rights
Agreement, and the issuance and sale of the Preferred Shares will not (a) result
in any such violation, or (b) be in conflict with or constitute a default under
any such term, or (c) result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. To the knowledge of the Company, there is no such
term which materially adversely affects, or, so far as the Company may now
foresee, in the future may materially adversely affect, the business, condition,
affairs or operations of the Company or any of its properties or assets.

                  3.8 PROPRIETARY AGREEMENTS; EMPLOYEES. All technical and
management personnel presently employed by the Company have executed an
agreement regarding confidentiality and proprietary information, the form of
which has been made available to the Purchaser. The Company is not aware that
any of its employees is in violation thereof and will use reasonable efforts to
prevent any such violation. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as conducted or as proposed to be conducted or that
would prevent any such employee from assigning inventions to the Company. The
Company does not believe that it is or will be necessary for the Company to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company.

                  3.9 CONDITION OF PROPERTIES. All buildings, facilities,
machinery, equipment, fixtures, vehicles and other properties owned, leased or
used by the Company (a) are in good operating condition and repair (reasonable
wear and tear excepted), (b) to the best of the Company's knowledge, are being
operated in conformity with all applicable building, safety, zoning,
environmental, waste and other applicable ordinances, laws and regulations, and
(c) are adequate and sufficient for the Company's business as presently
conducted.

                                       5


                  3.10 LITIGATION, ETC. There is no action, proceeding or
investigation pending against the Company or, to the Company's knowledge, its
officers, directors or shareholders, or to the Company's knowledge, against
employees or consultants of the Company (or, to the Company's knowledge, any
basis therefor or threat thereof): (1) which might result, either individually
or in the aggregate, in (a) any material adverse change in the business,
conditions, affairs or operations of the Company or in any of its properties or
assets, or (b) any material adverse impairment of the right or ability of the
Company to carry on its business as now conducted or as proposed to be
conducted, or (c) any material liability on the part of the Company; or (2)
which questions the validity of this Agreement, the Rights Agreement or any
action taken or to be taken in connection herewith or therewith, including in
each case, without limitation, actions pending or threatened involving the prior
employment of any of the Company's employees, the use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of its former employees, or their obligations under any agreements with prior
employers. The Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to initiate.

                  3.11 GOVERNMENTAL CONSENT, ETC. Based in part upon the
representations and warranties of the Purchaser in Section 4 hereof, no consent,
approval or authorization of or designation, declaration or filing with any
governmental authority on the part of the Company is required in connection
with: (a) the valid execution and delivery of this Agreement or the Rights
Agreement; or (b) the offer, sale or issuance of the Preferred Shares or the
issuance of the shares of Common Stock issuable upon conversion of the Preferred
Shares or (c) the obtaining of the consents, permits and waivers specified in
subsection 5.1(b) hereof, except the filing of the Articles and, if required,
filings or qualifications under applicable blue sky laws, which filings or
qualifications, if required, will have been timely filed or obtained after the
sale of the Preferred Shares.

                  3.12 OFFERING. In reliance on the representations and
warranties of the Purchaser in Section 4 hereof, the offer, sale and issuance of
the Preferred Shares in conformity with the terms of this Agreement will not
result in a violation of the requirements of Section 5 of the Securities Act of
1933, as amended (the "Securities Act") or the qualification or registration
requirements of the California Corporate Securities Law of 1968, as amended (the
"Law") or other applicable blue sky laws, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.

                  3.13 TAXES. The Company has filed all tax returns that are
required to have been filed with appropriate federal, state, county and local
governmental agencies or instrumentalities, except where the failure to do so
would not have a material adverse effect upon the Company, taken as a whole. The
Company has paid or established reserves for all material income, franchise and
other taxes, assessments, governmental charges, penalties, interest and fines
due and payable by them on or before the Closings. There is no pending dispute
with any taxing authority relating to any of such returns and the Company has no
knowledge of any proposed liability for any tax to be imposed upon the
properties or assets of the Company for which there is not an adequate reserve
reflected in the Financial Statements (as defined below) or, if adversely
determined against the Company, would have a material adverse effect. The
Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended (the



                                       6


"Code"), to be treated as a Subchapter S corporation nor has it
made any other elections pursuant to the Code (other than elections that relate
solely to methods of accounting, depreciation or amortization) that would have a
material effect on the Company, its financial condition, its business as
presently conducted or proposed to be conducted or any of its properties or
material assets.

                  3.14 TITLE. The Company owns its properties and assets,
including the properties and assets reflected in the Financial Statements (as
defined in Section 3.16), free and clear of all liens, mortgages, loans or
encumbrances except liens for current taxes, and such encumbrances and liens
which arise in the ordinary course of business and do not materially impair the
Company's ownership or use of such property or assets. With respect to the
property and assets leased by the Company, the Company is in compliance with
such leases and holds valid leasehold interests free and clear of any liens,
claims or encumbrances.

                  3.15 MATERIAL CONTRACTS AND COMMITMENTS. All of the contracts,
mortgages, indentures, agreements, instruments and transactions to which the
Company is a party or by which it is bound (including purchase orders to the
Company or placed by the Company) which involve obligations of, or payments to,
the Company in excess of One Hundred Thousand Dollars ($100,000) and all
agreements between the Company and its officers, directors, consultants and
employees are either (i) attached as exhibits to this Agreement, or (ii) set
forth on the list attached hereto as EXHIBIT G (the "Contracts"), copies of
which have been made available to the Purchaser. All of the Contracts are valid,
binding and in full force and effect in all material respects and enforceable by
the Company in accordance with their respective terms in all material respects,
subject to the effect of applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and rules or laws concerning equitable
remedies. The Company is not in material default under any of such Contracts. To
the Company's knowledge, no other party to any of the Contracts is in material
default thereunder.

                  3.16 FINANCIAL STATEMENTS. Attached hereto as EXHIBIT H are
audited financial statements for the fiscal year ended December 31, 1999 and
unaudited financial statements for the six (6) month period ended June 30, 2000
(the "Financial Statements"). The Financial Statements are complete and correct
in all material respects and have been prepared on a consistent basis throughout
the relevant periods. The Financial Statements accurately set out and describe
the financial condition and operating results of the Company as of the dates,
and during the periods, indicated therein. Except as set forth in the Financial
Statements, as of the Closing Dates the Company has no material liabilities of
any nature (matured or unmatured, fixed or contingent). The Company maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.

                  3.17 ABSENCE OF CHANGES. Except as contemplated by this
Agreement since June 30, 2000: (a) the Company has not entered into any
transaction which was not in the ordinary course of business, (b) there has been
no material adverse change in the condition (financial or otherwise) of the
business, property, assets or liabilities of the Company other than changes in
the ordinary course of business, none of which, individually or in the
aggregate, has been materially adverse, (c) there has been no damage to,
destruction of or loss of physical property (whether or not covered by
insurance) materially adversely affecting the assets,

                                       7


financial condition, operating results, business or operations of the Company,
(d) the Company has not declared or paid any dividend or made any distribution
on its stock, or redeemed, purchased or otherwise acquired any of its stock, (e)
the Company has not materially changed any compensation arrangement or agreement
with any of its key employees or executive officers, or materially changed the
rate of pay of its employees as a group, (f) the Company has not received notice
that there has been a cancellation of an order for the Company's products or a
loss of a customer of the Company, the cancellation or loss of which would
materially adversely affect the business of the Company, (g) the Company has not
changed or amended any material contract by which the Company or any of its
assets are bound or subject, (h) there has been no resignation or termination of
employment of any key officer or employee of the Company and the Company does
not know of any impending resignation or termination of employment of any such
key officer or employee, (i) there has been no labor dispute involving the
Company or its employees and none is pending or, to the best of the Company's
knowledge, threatened, (j) there has been no change, except in the ordinary
course of business, in the material contingent obligations of the Company (nor
in any contingent obligation of the Company regarding any director, shareholder
or key employee or officer of the Company) by way of guaranty, endorsement,
indemnity, warranty or otherwise, (k) there have been no loans made by the
Company to any of its employees, officers or directors other than travel
advances and other advances made in the ordinary course of business, (l) there
has been no waiver by the Company of a valuable right or of a material debt
owing to it, (m) there has not been any satisfaction or discharge of any lien,
claims or encumbrance or any payment of any obligation by the Company, except in
the ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of the Company,
and (n) to the best of the knowledge of the Company, there has been no other
event or condition of any character pertaining to and materially adversely
affecting the assets or business of the Company.

                  3.18 OUTSTANDING INDEBTEDNESS. Except as disclosed in the
Financial Statements, the Company has no indebtedness for borrowed money which
it has directly or indirectly created, incurred, assumed or guaranteed, or with
respect to which it has otherwise become liable, directly or indirectly. The
Company has no material liability or obligation in excess of $50,000, absolute
or contingent, which is not shown or provided for in the latest Financial
Statements, except obligations under purchase orders, sales contracts, real
property leases, equipment leases or similar obligations incurred in the
ordinary course of business.

                  3.19 REGISTRATION RIGHTS. The Company has not granted or
agreed to grant any rights to register as that term is defined in the Rights
Agreement, including piggyback registration rights, to any person or entity.

                  3.20 CERTAIN TRANSACTIONS. The Company is not indebted,
directly or indirectly, to any of its officers, directors or shareholders or to
their spouses or children, in any amount whatsoever; and none of said officers,
directors or, to the best of the Company's knowledge, shareholders, or any
member of their immediate families, are indebted to the Company or have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship
(except as a holder of securities of a corporation whose securities are publicly
traded and which is subject to the reporting requirements of the Securities
Exchange Act of 1934, to the extent of owning not more than two percent (2%) of
the issued and outstanding securities of such corporation). No such officer,
director or shareholder, or any member of their immediate families, is, directly
or indirectly,

                                       8


interested in any material contract with the Company. The Company is not
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.

                  3.21 CORPORATE DOCUMENTS; MINUTE BOOKS. Except for amendments
necessary to satisfy representations and warranties or conditions contained
herein (the form of which amendments has been approved by the Purchaser), the
Articles and Bylaws of the Company are in the form previously provided to the
Purchaser. The minute books of the Company have been made available to the
Purchaser and contain a complete summary of all meetings of directors and
shareholders since the time of incorporation of the Company.

                  3.22 EMPLOYEE BENEFIT PLANS. The Company does not have any
"employee benefit plan" as defined in the Employee Retirement Income Security
Act of 1974, as amended.

                  3.23 LABOR AGREEMENTS. The Company is not bound by or subject
to (and none of its assets or properties is bound by or subject to) any written
or oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the Company's knowledge, has
sought to represent any of the employees, representatives or agents of the
Company. There is no strike or other labor dispute involving the Company
pending, or to the Company's knowledge, threatened, that could have a material
adverse effect on the assets, properties, financial condition, operating
results, or business of the Company (as such business is presently conducted and
as it is proposed to be conducted), nor is the Company aware of any labor
organization activity involving its employees.

                  3.24 REAL PROPERTY HOLDING CORPORATION. The Company is not a
"real property holding corporation" within the meaning of Section 897(c)(2) of
the United States Internal Revenue Code of 1986, as amended.

                  3.25 DISCLOSURE. No representation or warranty by the Company
in this Agreement, or in any document or certificate furnished or to be
furnished to the Purchaser pursuant hereto or in connection with the
transactions contemplated hereby, when taken together, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements made herein and therein, in the
light of the circumstances under which they were made, not misleading.

                  3.26 INSURANCE. The Company maintains insurance covering
property damage and liability reasonably prudent under commercially reasonable
practices.

                  3.27 SHAREHOLDER AGREEMENTS. Except as otherwise contemplated
by this Agreement, (a) there are no agreements or arrangements between the
Company and any of the Company's shareholders or to the Company's knowledge,
between any of the Company's shareholders which materially and adversely affect
any shareholder's ability or right freely to alienate or vote such shares and
(b) to the Company's knowledge, none of the Company's shareholders is affiliated
with or has any agreements or arrangements with any customer of, or supplier to,
the Company.


                                       9


                  3.28 ENVIRONMENTAL MATTERS.

                           (a)      The Company has not caused or allowed, nor
has the Company contracted with any party for, the generation, use,
transportation, treatment, storage or disposal of any Hazardous Substances (as
defined below) in connection with the operations of its business or otherwise.

                           (b)      The Company, the operations of its business,
and any real property that the Company owns, leases, or otherwise occupies or
uses (the "Premises") are in compliance with all applicable Environmental Laws
(as defined below) and orders or directives of any governmental authorities
having jurisdiction under such Environmental Laws including, without limitation,
any Environmental Laws or orders or directives with respect to any cleanup or
remediation of any release or threat of release of Hazardous Substances.

                           (c)      The Company has not received any citation,
directive, letter or other communication, written or oral, or any notice of any
proceedings, claims or lawsuits, from any person, entity or governmental
authority arising out of the ownership or occupation of the Premises, or the
conduct of its operations, nor is it aware of any basis thereof.

                           (d)      The Company has obtained and is maintaining
in full force and effect all necessary permits, licenses and approvals required
by any Environmental Laws applicable to the Premises and the business operations
conducted thereon (including operations conducted by tenants on the Premises)
and is in compliance with all such permits, licenses and approvals.

                           (e)      The Company has not caused, or allowed a
release, or a threat of release, of any Hazardous Substance unto, nor to the
best of the Company's knowledge has the Premises or any property at or near the
Premises ever been subject to a release, or a threat of a release, of any
Hazardous Substance.

         The term, "Environmental Laws" shall mean any federal, state or local
law, ordinance or regulation pertaining to the protection of human health or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq.,
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901,
et seq.

         The term, "Hazardous Substance" includes oil and petroleum products,
asbestos, polychlorinated biphenyls and urea formaldehyde, and any other
materials classified as hazardous or toxic under any Environmental Laws.

                  3.29 MANUFACTURING RIGHTS. The Company has not granted rights
to manufacture, produce, license or sell its products to any other person and is
not bound by any agreement which affects the Company's exclusive right to
manufacture or sell its products.

                  3.30 ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS OF OTHER
PERSONS. The Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds



                                       10


to or otherwise invest in the debtor, or otherwise to assure the creditor
against loss), except for guaranties by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business.

                  3.31 MATERIAL CUSTOMERS AND SUPPLIERS. No material customer
of, or material supplier to, the Company has terminated, materially reduced or
threatened to terminate or materially reduce its purchases from or provision of
products or services to the Company, as the case may be.

         4. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND RESTRICTIONS ON
TRANSFER IMPOSED BY THE SECURITIES ACT.

                  4.1 REPRESENTATIONS AND WARRANTIES BY THE PURCHASER. The
Purchaser represents, warrants, acknowledges and covenants to the Company as of
the date hereof and as of the Closing Dates as follows:

                           (a)      INVESTMENT INTENT. This Agreement is made
with the Purchaser in reliance upon the Purchaser's representations to the
Company, evidenced by the Purchaser's execution of this Agreement, that the
Purchaser is acquiring the Preferred Shares and the Common Stock issuable upon
conversion of the Preferred Shares (collectively the "Securities") for
investment for the Purchaser's own account, not as nominee or agent, and not
with a view to, or for resale in connection with, any distribution or public
offering thereof within the meaning of the Securities Act and the Law. The
Purchaser has the full right, power and authority to enter into and perform this
Agreement and the Rights Agreement, and this Agreement and the Rights Agreement
constitute valid and binding obligations upon it.

                           (b)      PREFERRED SHARES NOT REGISTERED. The
Purchaser understands and acknowledges that the offering of the Preferred Shares
pursuant to this Agreement will not be registered under the Securities Act or
qualified under any blue sky laws on the grounds that the offering and sale of
securities contemplated by this Agreement are exempt from registration under the
Securities Act pursuant to Section 4(2) thereof and exempt from registration
pursuant to Section 25102(f) of the Law, and other applicable state securities
or blue sky laws, and that the Company's reliance upon such exemptions is
predicated upon the Purchaser's representations set forth in this Agreement. The
Purchaser acknowledges and understands that the Securities must be held
indefinitely unless the Securities are subsequently registered under the
Securities Act and qualified under applicable blue sky laws or an exemption from
such registration and such qualification is available.

                           (c)      NO TRANSFER. The Purchaser covenants that in
no event will it dispose of any of the Securities (other than in conjunction
with an effective registration statement for the Securities under the Securities
Act or in compliance with Rule 144 promulgated under the Securities Act) unless
and until (i) the Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, the Purchaser shall have furnished the Company with an
opinion of counsel satisfactory in form and substance to the Company to the
effect that (x) such disposition will not require registration under the
Securities Act and (y) appropriate action necessary for compliance



                                       11


with the Securities Act, the Law and any other applicable state, local or
foreign law has been taken.

                           (d)      KNOWLEDGE AND EXPERIENCE. The Purchaser is
an investor in securities of companies in the development stage and acknowledges
that it is able to fend for itself, can bear the economic risk of its investment
and has such knowledge and experience in financial or business matters that it
is capable of evaluating the merits and risks of the investment in the Preferred
Shares. The Purchaser has been furnished with and has had access to such
information as the Purchaser considered necessary to make a determination as to
the purchase of the securities.

                           (e)      NOT ORGANIZED TO PURCHASE. The Purchaser has
not been organized for the purpose of purchasing the Securities.

                           (f)      HOLDING REQUIREMENTS. The Purchaser
understands that if the Company does not (i) register its Common Stock with the
Securities and Exchange Commission ("SEC") pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (ii) become
subject to Section 15(d) of the Exchange Act, (iii) supply information pursuant
to Rule 15c2-11 thereunder, or (iv) have a registration statement covering the
Securities (or a filing pursuant to the exemption from registration under
Regulation A of the Securities Act covering the Securities) under the Securities
Act in effect when it desires to sell the Securities, such Purchaser may be
required to hold the Securities for an indeterminate period. Such Purchaser also
understands that any sale of the Securities that might be made by the Purchaser
in reliance upon Rule 144 under the Securities Act may be made only in limited
amounts in accordance with the terms and conditions of that rule.

                  4.2 LEGENDS. Each certificate representing the Securities
may be endorsed with the following legends:

                           (a)      FEDERAL LEGEND. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144, OR
(iii) PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION.

                           (b)      OTHER LEGENDS. Any other legends required by
the Law or other applicable state blue sky laws.

The Company need not register a transfer of legended Securities, and may also
instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in each of the foregoing legends are satisfied.


                                       12


                  4.3 REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. Any legend
endorsed on a certificate pursuant to subsection 4.2(a) and the stop transfer
instructions with respect to such legended Securities shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
Securities if such Securities are registered and sold under the Securities Act
and a prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, provides the Company with an opinion
of counsel for such holder of the Securities, reasonably satisfactory to the
Company, to the effect that (i) such holder, meets the requirements of Rule
144(k) or (ii) a public sale, transfer or assignment of such Securities may be
made without registration.

                  4.4 RULE 144. The Purchaser is aware of the adoption of Rule
144 by the SEC promulgated under the Securities Act, which permits limited
public resales of securities acquired in a nonpublic offering, subject to the
satisfaction of certain conditions. The Purchaser understands that under Rule
144, the conditions include, among other things: the availability of certain
current public information about the issuer and the resale occurring not less
than one year after the party has purchased and paid for the securities to be
sold.

         5. CONDITIONS TO CLOSING.

                  5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS. The obligations of
the Purchaser to purchase the Preferred Shares at the Closings are subject to
the fulfillment to its satisfaction, on or prior to the Closing Dates, of the
following conditions, any of which may be waived in accordance with the
provisions of subsection 7.1 hereof:

                           (a)      REPRESENTATIONS AND WARRANTIES CORRECT;
PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the
Company in Section 3 hereof shall be true and correct when made, and shall be
true and correct on the Closing Dates with the same force and effect as if they
had been made on and as of said date. The Company's business and assets shall
not have been adversely affected in any material way prior to the Closing Dates.
The Company shall have performed all obligations and conditions herein required
to be performed or observed by it on or prior to the Closing Dates.

                           (b)      CONSENTS AND WAIVERS. The Company shall have
obtained in a timely fashion any and all consents, permits and waivers necessary
or appropriate for consummation of the transactions contemplated by this
Agreement.

                           (c)      FILING OF THE ARTICLES. The Articles shall
have been filed with the Secretary of State of California.

                           (d)      RIGHTS AGREEMENT. The Company and the
Purchaser shall have executed and delivered the Rights Agreement in the form
attached as EXHIBIT C hereto.

                           (e)      COMPLIANCE CERTIFICATE.  The Company shall
have delivered a Certificate, executed by the President of the Company, dated
the Closing Dates, certifying to the fulfillment of the conditions specified in
subsections (a), (b), (c) and (e) of this section 5.1.



                                       13


                           (f)      STATE SECURITIES LAW.  The sale of the
Preferred Shares shall have been qualified with (a) the Commissioner of
Corporations of the State of California or an exemption from such qualification
shall have been obtained and (b) any other applicable state's securities law,
and evidence of all such qualifications shall have been furnished to the
Purchasers' special counsel.

                           (g)      OPINION OF COUNSEL.  The Purchaser shall
have received an opinion from the Company's counsel, in substantially the form
attached hereto as EXHIBIT I.

                           (h)      PROCEEDINGS AND DOCUMENTS.  All corporate
and other proceedings in connection with the transactions contemplated at the
Closings hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to the Purchaser and its
special counsel, and the Purchaser and its special counsel shall have received
all such counterpart originals or certified or other copies of such documents as
they may reasonably request.

                           (i)      RESERVATION OF COMMON STOCK.  The shares of
Common Stock issuable upon conversion of the Preferred Shares shall have been
duly authorized and reserved for issuance upon such conversion.

                  5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to sell and issue the Preferred Shares at the Closings is subject to
the condition that the representations and warranties made by the Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Dates with the same force and effect as if they had been
made on and as of said date.

         6. AFFIRMATIVE COVENANTS OF THE COMPANY.  The Company hereby
covenants and agrees as follows:

                  6.1 FINANCIAL INFORMATION. Until the first to occur of (a) the
date on which the Company is required to file a report with the SEC pursuant to
Section 13(a) of the Exchange Act, by reason of the Company having registered
any of its securities pursuant to Section 12(g) of the Exchange Act or (b)
quotations for the Common Stock of the Company are reported by the automated
quotations system operated by the National Association of Securities Dealers,
Inc. or by an equivalent quotations system or (c) shares of the Common Stock of
the Company are listed on a national securities exchange registered under
Section 6 of the Exchange Act, the Company will furnish to each Purchaser:

                           (i)      as soon as practicable after the end of each
fiscal year, and in any event within 120 days thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as at the end of such fiscal
year, and consolidated statements of operations and consolidated statements of
changes in financial position (or equivalent cash flow statements if required by
the Financial Accounting Standards Board) of the Company and its subsidiaries,
if any, for such year, prepared in accordance with generally accepted accounting
principles, all in reasonable detail and, certified by independent public
accountants of recognized national standing selected by the Company, and



                                       14


                           (ii)     so long as the Purchaser owns an aggregate
of at least thirty percent (30%) of the Preferred Shares acquired at the
Closings (including any Common Stock issued upon conversion of any Preferred
Shares) as soon as practicable after the end of each month and each quarter
(except the last month and last quarter of the fiscal year), and in any event
within 30 and 45 days, respectively, thereafter, consolidated balance sheets of
the Company and its subsidiaries, if any, as of the end of such month or
quarter; and consolidated statements of income (or equivalent cash flow
statements if required by the Financial Standards Board), for such month or
quarter and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (except for required footnotes), all in
reasonable detail and signed, subject to changes resulting from year-end audit
adjustments, by the principal financial officer or chief executive officer of
the Company, and

                           (iii)    so long as the Purchaser owns an aggregate
of at least thirty percent (30%) of the Preferred Shares acquired at the
Closings (including any Common Stock issued upon conversion of any Preferred
Shares) as soon as practicable after its adoption or approval by the Company's
Board of Directors, but not later than the commencement of such fiscal year, an
annual plan for each fiscal year which shall include monthly capital and
operating expense budgets, cash flow statements, projected balance sheets and
profit and loss projections for each such month and for the end of the year,
itemized in such detail as the Board of Directors may reasonably determine. In
addition, within 30 days after the end of each calendar year, the Company will
provide the Purchaser with a capitalization table showing (i) all stock of the
Company issued and outstanding for each class and series of stock and (ii) all
options and warrants outstanding.

                  6.2 CONFLICTS OF INTERESTS. The Company shall use its best
efforts to ensure that the Company's employees, during the term of their
employment with the Company, do not engage in activities which would result in a
conflict of interest with the Company. The Company's obligations hereunder
include, but are not limited to, requiring that the Company's employees devote
their primary productive time, ability and attention to the business of the
Company (provided, however, the Company's employees may engage in other business
activity if such activity does not materially interfere with their obligations
to the Company), requiring that the Company's employees enter into agreements
regarding proprietary information and confidentiality and preventing the
Company's employees from engaging or participating in any business that is in
competition with the business of the Company.

                  6.3 KEY MAN INSURANCE.  The Company shall use reasonable
efforts to maintain in force, until canceled or modified with the approval of
the Company's Board of Directors, insurance policies on the lives of Walter H.
Moos and Robert E. Davis naming the Company as holder and beneficiary.

                  6.4 PROPRIETARY AGREEMENTS.  The Company will use reasonable
efforts to prevent any employee from violating the confidentiality and
proprietary information agreement entered into between the Company and each of
its employees.

                  6.5 FUTURE STOCK ISSUANCES. The Company agrees that after the
Closings it will not issue any shares of Common Stock (or grant any options,
warrants or other rights to purchase the same) to any employee, officer, or
director except pursuant to written agreements



                                       15


which provide for vesting over a period of at least forty-eight (48) months
(with the initial vesting date to occur at least after twelve (12) months) and a
right of first refusal in favor of the Company in the event of any proposed
transfer unless such issuance or grant is approved by the Company's Board of
Directors and provided that no such agreement will require the Company to
repurchase or redeem any of such shares. This Section 6.5 will terminate upon
the termination of Section 6.1.

                  6.6 RULE 144. The Company covenants that (i) at all times
after the Company first becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Company will use its
best efforts to comply with the current public information requirements of Rule
144(c)(1) under the Securities Act; and (ii) at all such times as Rule 144 is
available for use by the Purchaser, the Company will furnish the Purchaser upon
request with all information within the possession of the Company required for
the preparation and filing of Form 144.

                  6.7 TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, the Company shall not enter into any transaction with any director,
officer, employee or holder of more than 5% of the outstanding capital stock of
any class or series of capital stock of the Company, member of the immediate
family (as defined in the instructions to Regulation S-K item 404(a) under the
Securities Act of 1933, as amended) of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
immediate family of any such person, is a director, officer, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof, except for
transactions on customary terms related to such person's employment.

                  6.8 INSPECTION RIGHTS. So long as the Purchaser owns an
aggregate of at least thirty percent (30%) of the Preferred Shares acquired by
the Purchaser at the Closings upon five (5) days' written notice provided to the
Company, the Purchaser shall have the right to visit and inspect any of the
properties of the Company, and to discuss its affairs, finances and accounts
with its officers, provided that the Company shall not be required at any time
to disclose any trade secrets or secret or other proprietary data, know-how or
other information, the disclosure of which the Company believes may adversely
affect its business, or any information or data that is classified by the United
States government or any agency or authority thereof. All inspection rights
granted by the Company to the Purchaser shall immediately terminate upon the
closing of the Company's initial registered underwritten public offering.

         7. MISCELLANEOUS.

                  7.1 WAIVERS AND AMENDMENTS. With the written consent of the
record holders of at least sixty-six and two-thirds percent (66 2/3%) of the
Preferred Shares, the obligations of the Company and the rights of the holders
of the Preferred Shares under this Agreement may be waived or amended (either
generally or in a particular instance); provided, however, that no such waiver
or amendment shall reduce the aforesaid proportion of Preferred Shares, the
holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the record holders of all of the Preferred
Shares. Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to the record holders of the
Preferred Shares who have not previously consented thereto in writing. Except to
the extent provided in this subsection 7.1, this Agreement or any provision
hereof may be amended,



                                       16


waived, discharged or terminated only by a statement in
writing signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought.

                  7.2 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.

                  7.3 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive the Closings of the transactions
contemplated hereby, notwithstanding any investigation made by the Purchaser.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder as of the date of such
certificate or instrument.

                  7.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.

                  7.5 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof and
they supersede, merge and render void every other prior written and/or oral
understanding or agreement among or between the parties hereto.

                  7.6 NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be delivered
personally, mailed by first class mail, postage prepaid, or delivered by courier
or overnight delivery, addressed (a) if to the Purchaser, at the Purchaser's
address set forth on the signature page hereto, or at such other address as the
Purchaser shall have furnished to the Company in writing or (b) if to the
Company, at its address set forth at the beginning of this Agreement, or at such
other address as the Company shall have furnished to the Purchaser in writing.
Notices that are mailed shall be deemed received five (5) days after deposit in
the United States mail. Notices sent by courier or overnight delivery shall be
deemed received two (days) after they have been so sent.

                  7.7 SEVERABILITY. In case any provision of this Agreement
shall be found by a court of law to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.

                  7.8 TITLES AND SUBTITLES.  The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.

                  7.9 COUNTERPARTS.  This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.

                  7.10 DELAYS OR OMISSIONS.  No delay or omission to exercise
any right, power or remedy accruing to the Company or to any holder of any
securities issued or to be issued


                                       17



hereunder shall impair any such right, power or remedy of the Company or such
holder, nor shall it be construed to be a waiver of any breach or default under
this Agreement, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any delay or omission to exercise any
right, power or remedy or any waiver of any single breach or default be deemed a
waiver of any other right, power or remedy or breach or default theretofore or
thereafter occurring. All remedies, either under this Agreement, or by law
otherwise afforded to the Company or any holder, shall be cumulative and not
alternative.

         IN WITNESS WHEREOF, the parties hereby have executed this Stock
Purchase Agreement on the date first above written.



"COMPANY"

MITOKOR


By:  /S/ Walter H. Moos
   --------------------------------------------------
     Walter H. Moos
- -----------------------------------------------------
(print name)

Title: Chairman & CEO
      -----------------------------------------------











                                       18


                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT


                                        EGM MEDICAL TECHNOLOGY FUND, L.P.

                                        By:  /s/ Marc Pentopoulos
                                              -------------------------------
                                              Marc Pentopoulos
                                              -------------------------------
                                              (print name)

                                        Title: Portfolio Manager
                                              -------------------------------



                                        EGM MEDICAL TECHNOLOGY OFFSHORE FUND

                                        By:   /s/ Marc Pentopoulos
                                              -------------------------------
                                              Marc Pentopoulos
                                              -------------------------------
                                              (print name)

                                        Title: Portfolio Manager
                                              -------------------------------



                                        ASGARD VENTURES

                                        By:   /s/ Marc Pentopoulos
                                              -------------------------------
                                              Marc Pentopoulos
                                              -------------------------------
                                              (print name)

                                        Title: Portfolio Manager
                                              -------------------------------



                                        MARC PENTOPOULOS
                                              /s/ Mark Pentopoulos
                                              -------------------------------



                                        KELLIE SERINGER
                                              /s/ Kellie Seringer
                                              -------------------------------





                                       19



                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT




                                       FIRST BIO VENTURE CAPITAL

                                        By:   /s/ Cheng Ming Lee
                                              -------------------------------
                                              Cheng Ming Lee
                                              -------------------------------
                                              (print name)

                                        Title: President
                                              -------------------------------














                                       20


                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT




                                       THE KAUFMANN FUND, INC.


                                       By:    /s/ Lawrence Auriana
                                              --------------------------
                                              Lawrence Auriana

                                       Title: Chairman of the Board





                                       21


                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT




                                       ORBITEX HEALTH & BIOTECHNOLOGY FUND, 2V1I

                                       By:   /s/ Tim Bepler
                                             -------------------------------
                                             Tim Bepler
                                             -------------------------------
                                             (print name)

                                       Title: Portfolio Manager
                                             -------------------------------



                                       ORBITEX HEALTH & BIOTECHNOLOGY FUND, T31B

                                        By:   /s/ Tim Bepler
                                              -------------------------------
                                              Tim Bepler
                                              -------------------------------
                                              (print name)

                                        Title: Portfolio Manager
                                              -------------------------------




                                       22



                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT



                                       ALTA CALIFORNIA PARTNERS, L.P.
                                       By:  Alta California Management Partners,
                                               LLC Its General Partner

                                       By:    /s/ Jean Deleage
                                              -------------------------------
                                              Member

                                              Jean Deleage
                                              -------------------------------
                                              (print name)

                                       Title:  Member
                                              -------------------------------



                                       ALTA EMBARCADERO PARTNERS, LLC


                                       By:    /s/ Elaine Walker
                                              -------------------------------
                                              Under Power of Attorney

                                              Elaine Walker
                                              -------------------------------
                                             (print name)

                                       Title: Under Power of Attorney
                                              -------------------------------





                                       23


                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT




                                       BIOTECHVEST, LLP

                                       By:   /s/ Steve D. Seder
                                             -------------------------------
                                             Steve D. Seder
                                             -------------------------------
                                             (print name)

                                       Title: VP of Biotechvest II, GP of
                                              Biotechvest LLP
                                             -------------------------------



                                       LIAM BIOTECHVEST, LLC

                                       By:   /s/ Martin Pajor
                                             -------------------------------
                                             Martin Pajor
                                             -------------------------------
                                             (print name)

                                       Title: Capital Member, Member of
                                              Administrative Committee
                                             -------------------------------



                                       BIOTECHVEST, INC.

                                       By:   /s/ William Farley
                                             -------------------------------
                                             William Farley
                                             -------------------------------
                                             (print name)

                                       Title: CEO
                                             -------------------------------





                                       24



                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT



                                      DOMAIN PARTNERS III, L.P.
                                      By: One Palmer Square Associates III, L.P.

                                      By:   /s/ Kathleen K. Schoemaker
                                            -------------------------------
                                            Kathleen K. Schoemaker
                                            -------------------------------
                                            (print name)

                                      Title: General Partner
                                            -------------------------------

                                      3i BIOSCIENCE INVESTMENT TRUST PLC
                                      By:      Hare & Co

                                      By:   /s/ Kathleen K. Schoemaker
                                            -------------------------------
                                            Kathleen K. Schoemaker
                                            -------------------------------
                                            (print name)

                                      Title: Attorney-in-Fact
                                            -------------------------------





                                       25



                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT



                                       FORWARD VENTURES IV, L.P.
                                       by: Forward IV Associates, its General
                                           Partner

                                       By:   /s/ Standish M. Fleming
                                             -------------------------------
                                             Standish M. Fleming
                                             -------------------------------
                                             (print name)

                                       Title: Managing Member
                                             -------------------------------



                                       FORWARD VENTURES IV B, L.P.
                                       by: Forward IV Associates, its General
                                           Partner

                                       By:   /s/ Standish M. Fleming
                                             -------------------------------
                                             Standish M. Fleming
                                             -------------------------------
                                             (print name)

                                       Title: Managing Member
                                             -------------------------------





                                       26


                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT


                                       NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP
                                       By its General Partner, MDS Associates -
                                       Neuroscience Inc.

                                       By:   /s/ M. Callaghan
                                             -------------------------------
                                             Michael Callaghan
                                             -------------------------------
                                             (print name)

                                       Title: Vice President
                                             -------------------------------

                                       By:   /s/ Keith Dorrington
                                             -------------------------------
                                             Keith Dorrington
                                             -------------------------------
                                             (print name)

                                       Title: Vice President
                                             -------------------------------





                                       27



                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT



                                       C.V. SOFINNOVA VENTURES PARTNERS III

                                       By:   /s/ Michael Powell
                                             -------------------------------
                                             Michael Powell
                                             -------------------------------
                                             (print name)

                                       Title: Managing Director
                                             -------------------------------





                                       28


                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT




                                       THORNER VENTURES

                                       By:   /s/ Tom Thorner
                                             -------------------------------
                                             Tom Thorner
                                             -------------------------------
                                             (print name)

                                       Title: Managing General Partner
                                             -------------------------------




                                       29




                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT



                                       CHINA DEVELOPMENT INDUSTRIAL BANK INC.


                                       By:    /s/ Benny T. Hu
                                              -------------------------------
                                              Benny T. Hu

                                       Title: President





                                       30



                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT




                                       SORRENTO GROWTH PARTNERS I, L.P.
                                       By: Sorrento Equity Growth Partners I,
                                       L.P., Its General Partner
                                       By: Sorrento Growth, Inc.
                                             Its General Partner

                                       By:   /s/ Robert M. Jaffe
                                             -------------------------------
                                             Robert M. Jaffe, President


                                       SORRENTO VENTURES III, L.P.
                                       By: Sorrento Equity Partners III, L.P.
                                            Its General Partner
                                       By: Sorrento Associates, Inc.
                                            Its General Partner

                                       By:   /s/ Robert M. Jaffe
                                             -------------------------------
                                             Robert M. Jaffe, President


                                       SORRENTO VENTURES CE, L.P.
                                       By: Sorrento Equity Partners III, L.P.
                                            Its General Partner
                                       By: Sorrento Associates, Inc.
                                            Its General Partner


                                       By:   /s/ Robert M. Jaffe
                                             -------------------------------
                                             Robert M. Jaffe, President





                                       31



                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT


                                       BIOINVEST INC.

                                       By:
                                             -------------------------------


                                             -------------------------------
                                             (print name)

                                       Title:
                                             -------------------------------





                                       32



                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT


                                       FREDERICK W. FIELD

                                       By:   /s/ Fredrick W. Field
                                             -------------------------------
                                             Frederick W. Field










                                       33



                          COUNTERPART SIGNATURE PAGE TO
                   SERIES F PREFERRED STOCK PURCHASE AGREEMENT


                                       SORRENTO MITOKOR, a General Partnership


                                       By:   /s/ Robert E. Petersen
                                             -------------------------------
                                             Robert E. Petersen
                                             -------------------------------
                                             (print name)

                                       Title: General Partner
                                             -------------------------------







                                       34

EX-10.7

                                                                   EXHIBIT 10.7











                                     MITOKOR


                              AMENDED AND RESTATED


                           INVESTORS' RIGHTS AGREEMENT


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


                                NOVEMBER 9, 2001



                               TABLE OF CONTENTS




                                                                            PAGE
                                                                         
    Registration Rights....................................................... 1
    1.1.  Definitions......................................................... 1
    1.2.  Demand Registration................................................. 2
    1.3.  Company Registration................................................ 4
    1.5.  Form S-3............................................................ 6
    1.5.  Expenses of Registration............................................ 7
    1.6.  Registration Procedures............................................. 7
    1.7.  Indemnification.................................................... 10
    1.8.  Information by Holder.............................................. 11
    1.9.  Rule 144 Reporting................................................. 12
    1.10. Transfer of Registration Rights.................................... 12
    1.11. "Market Stand-Off" Agreement....................................... 12
    1.12. Termination of Rights.............................................. 13
    1.13. Certain Limitation in Connection With
          Future Grants of Registration Rights............................... 13
    1.14. Allocation  of Registration Opportunities.......................... 13

2. Right of First Refusal to Purchase Equity Securities...................... 14
    2.1.  Purchase Right..................................................... 14
    2.2.  Notice of Intent to Sell and Issue................................. 14
    2.3.  Investor Failure to Purchase....................................... 14
    2.4.  Investor Purchase.................................................. 15
    2.5.  Excluded Securities................................................ 15
    2.6.  Termination........................................................ 15
    2.7.  Equity Securities.................................................. 15
    2.8.  Assignment of Purchase Right....................................... 15

3.  General.................................................................. 15
    3.1.  Waivers and Amendments............................................. 15
    3.2.  Governing Law...................................................... 16
    3.3.  Successors and Assigns............................................. 16
    3.4.  Entire Agreement................................................... 16
    3.5.  Notices, etc....................................................... 16
    3.6.  Severability....................................................... 16
    3.7.  Titles and Subtitles............................................... 17
    3.8.  Counterparts....................................................... 17
    3.9.  No Inconsistent Agreements......................................... 17
    3.10. Adjustments Affecting Registration Securities...................... 17



                                      i


                                     MITOKOR

                              AMENDED AND RESTATED

                           INVESTORS' RIGHTS AGREEMENT


     THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this "Agreement") is
entered into as of November 9, 2001, by and among MITOKOR, a California
corporation (the "Company"), and the entities and individuals listed on the
EXHIBIT A attached hereto (the "Investors"). After the date of this Agreement,
additional purchasers of Series F-1 Preferred Stock of the Company under the
Purchase Agreement (as defined below) who execute a counterpart signature page
to this Agreement shall become additional Investors hereunder effective as of
the date of their respective purchase of shares of Series F-1 Preferred Stock
from the Company without formally amending this Agreement, and upon each such
purchase, EXHIBIT A hereto shall be revised to reflect the addition of such
Investors as parties to this Agreement.


                                    RECITALS:


     A.   Concurrently herewith, the Company and certain of the Investors are
entering into a Series F-1 Preferred Stock Purchase Agreement pursuant to which
such Investors are purchasing from the Company and the Company is selling to the
Investors shares of the Company's Series F-1 Preferred Stock (the "Series F-1
Shares").

     B.   Certain of the Investors have previously acquired from the Company
shares, or the right to acquire shares, of the Company's (i) Series A-1
Preferred Stock (the "Series A-1 Shares"), (ii) Series B Preferred Stock, Series
B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock and
Series B-4 Preferred Stock (collectively, the "Series B Shares"), (iii) Series C
Preferred Stock (the "Series C Shares"), (iv) Series D Preferred Stock (the
"Series D Shares"), (v) Series E Preferred Stock (the "Series E Shares"), (vi)
Series F Preferred Stock (the "Series F Shares"), and (vii) Series G Preferred
Stock (the "Series G Shares"), and are parties to the Investors' Rights
Agreement dated June 22, 2001 (the "Prior Rights Agreement").

     C.   Pursuant to Section 3.1 of the Prior Agreement, holders of at least
66-2/3% of the Registrable Securities (as defined in the Prior Agreement) and
the Company now desire to amend and restate the Prior Agreement in order to set
forth certain registration and other rights of the parties as set forth below.


                                   AGREEMENT:


     NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:

     1.   REGISTRATION RIGHTS.


          1.1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:

                                      1


               (a)  The terms "register," "registered" and "registration" refer
to a registration effected by the preparation and filing of a registration
statement in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of the effectiveness of such
registration statement.

               (b)  The term "Registrable Securities" means (i) any and all
shares of Common Stock of the Company issued or issuable upon conversion of: the
Series A-1 Shares, Series B Shares, Series C Shares, the 16,000 shares of Series
C Preferred Stock issuable upon exercise of warrants dated March 20, 1997,
Series D Shares, Series D-1 Shares, the 7,000 shares of Series D Preferred Stock
issuable upon exercise of warrants dated March 23, 1998, the Series E Shares,
the 11,333 shares of Series E Preferred Stock issuable upon exercise of warrants
dated June 15, 1999, the 8,500 shares of Series E Preferred Stock issuable upon
exercise of warrants dated December 15, 1999, the Series F Shares, the 8,000
shares of Series F Preferred Stock issuable upon exercise of warrants dated June
21, 2001, the Series F-1 Shares, the Series G Shares (including all Series G
Shares related to the Contingent Consideration as such term is defined in that
certain Agreement and Plan of Merger and Reorganization, dated as of May 8,
2001, by and among the Company, Apollo BioPharmaceutics, Inc. and Mito
Acquisition Corp.) and up to 279,397 shares of Series G Preferred Stock issuable
upon exercise of the warrants to purchase Series G Shares (collectively
"Preferred Shares"), (ii) any and all shares of Common Stock of the Company
issued in lieu or in respect of stock referred to in clause (i) in any
reorganization, or (iii) stock issued in respect of the stock referred to in (i)
and (ii) as a result of a stock split, stock dividend, recapitalization or the
like; provided, however, that Registrable Securities shall not include shares of
Common Stock which have previously been registered or which have been sold to
the public either pursuant to a registration statement or Rule 144, or which
have been sold in a private transaction in which the transferor's rights under
this Agreement are not assigned. The terms "Holder" or "Holders" means any
person or persons to whom Registrable Securities were originally issued or
qualifying transferees under Section 1.10 hereof who hold Registrable
Securities.

               (c)  The term "Initiating Holders" means any Holder or Holders of
50% or greater of the aggregate of the Registrable Securities then outstanding.

               (d)  The term "SEC" means the Securities and Exchange Commission.

               (e)  The term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Sections 1.2, 1.3 and 1.4 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, reasonable fees and disbursements of one counsel for the Holders, blue
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company.)

          1.2. DEMAND REGISTRATION.

               (a)  REQUEST FOR REGISTRATION. In case the Company shall receive
from Initiating Holders a written request that the Company effect any
registration with respect to at least 25% of the aggregate number of Registrable
Securities then outstanding, the Company will:

                                      2


                    (i)  promptly give written notice of the proposed
registration to all other Holders; and

                    (ii) as soon as practicable, use its best efforts to effect
all such registrations (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualifications under
the applicable blue sky or other state securities laws and appropriate
compliance with exemptive regulations issued under the Securities Act and any
other governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion of
such Initiating Holder's or Initiating Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request given within twenty (20) days after receipt of such written
notice from the Company referred to in Section 1.2(a) of this Agreement;
provided that the Company shall not be obligated to take any action to effect
such registration pursuant to this Section 1.2:

                         (A)  at any time prior to the earlier of (i) six (6)
months following the effective date of the registration statement under the
Securities Act for the Company's initial registered underwritten public offering
resulting in gross proceeds to the Company of at least $10,000,000 (the "IPO")
of its securities to the general public (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction) or (ii) April 30, 2003;

                         (B)  in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as required by the
Securities Act;

                         (C)  after the Company has effected two (2) such
registrations pursuant to this Section 1.2(a) and such registrations have been
declared or ordered effective;

                         (D)  if the Company has effected one (1) registration
pursuant to this Section 1.2(a), and such registration statement has been
declared or ordered effective, within the twelve (12) month period prior to the
date of such request; or

                         (E)  unless the anticipated aggregate proceeds, net of
underwriting discounts and commissions, for such registration exceeds ten
million dollars ($10,000,000).

     Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practical, but in any event within one hundred twenty
(120) days, after receipt of the request or requests of the Initiating Holders;
provided, however, that if the Company shall furnish to such holders a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors it would be detrimental to the
Company and its shareholders for such registration statement to be filed at the
date such filing would be required and it is

                                       3


therefore essential to defer the filing of such registration statement, the
Company shall have an additional period of not more than one hundred twenty
(120) days after the expiration of the initial 120-day period within which to
file such registration statement; provided, however, that the Company may not
utilize this right more than once in any twelve month period.

               (b)  UNDERWRITING. If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as part of their request made pursuant to this
Section 1.2 and the Company shall include such information in the written notice
referred to in Section 1.2(a)(i). In such event, the underwriter shall be
selected by the Company and shall be reasonably acceptable to a majority in
interest of the Initiating Holders. The right of any Holder to registration
pursuant to this Section 1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters.
Notwithstanding any other provision of this Section 1.2, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, the Initiating Holders
shall so advise all Holders, and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all Holders thereof (including the Initiating Holders) in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by such Holders. If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company, the underwriter and the Initiating Holders. Any
Registrable Securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation or withdrawn from such underwriting shall be
withdrawn from such registration.


     If shares are so withdrawn from the registration or if the number of shares
of Registrable Securities to be included in such registration was previously
reduced as a result marketing factors, the Company shall then offer to all
persons who have retained the right to include securities in the registration
the right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among the persons requesting additional inclusion in accordance with
Section 1.14 hereof.

               (c)  COMPANY SHARES. If the managing underwriter has not limited
the number of Registrable Securities to be underwritten, the Company may include
securities for its own account or for the account of others in such registration
if the managing underwriter so agrees and if the number of Registrable
Securities which would otherwise have been included in such registration and
underwriting will not thereby be limited.

          1.3. COMPANY REGISTRATION.

               (a)  REGISTRATION. If at any time or from time to time, the
Company shall determine to register any of its securities, for its own account
or the account of any of its shareholders, other than a registration on Form S-1
or S-8 relating solely to employee stock option or purchase plans, or a
registration on Form S-4 relating solely to an SEC Rule 145

                                       4


transaction, or a registration on any other form (other than Form S-1, S-2, S-3,
SB-1 or SB-2, or their successor forms) or any successor to such forms, which
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, the Company will:

                    (i)  promptly give to each Holder written notice thereof and

                    (ii) except as set forth in Section 1.3(b) below, include in
such registration (and compliance), and in any underwriting involved therein,
all of the Registrable Securities requested to be registered by any Holder or
Holders who collectively hold at least 500,000 Registrable Securities in the
aggregate, provided that request(s) by such Holder(s) are delivered to the
Company by the Holder(s) within 20 days after receipt by the Holder(s) of the
written notice from the Company described in Section 1.2(a)(i) above.

               (b)  UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
1.3, if the underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, and (i) if such registration is the
first registered offering of the sale of the Company's securities to the general
public, the underwriter may limit the number of Registrable Securities to be
included in the registration and underwriting, or may exclude Registrable
Securities entirely from such registration and underwriting, or (ii) if such
registration is other than the first registered offering of the sale of the
Company's securities to the general public, the underwriter may limit the amount
of securities to be included in the registration and underwriting by the
Company's shareholders; provided however, the number of Registrable Securities
to be included in such registration and underwriting under this Section 1.3(b)
shall not be reduced to less than thirty percent (30%) of the aggregate
securities included in such registration without the prior consent of at least a
majority in interest of the Holders who have requested their shares to be
included in such registration and underwriting. The Company shall so advise all
Holders of Registrable Securities which would otherwise be registered and
underwritten pursuant hereto, and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among Holders requesting registration in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by each of such Holders
as of the date of the notice pursuant to Section 1.3(a)(i) above. If any Holder
disapproves of the terms of the any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the underwriter. Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.

     If shares are so withdrawn from the registration or if the number of shares
of Registrable Securities to be included in such registration was previously
reduced as a result marketing

                                       5


factors, the Company shall then offer to all persons who have retained the right
to include securities in the registration the right to include additional
securities in the registration in an aggregate amount equal to the number of
shares so withdrawn, with such shares to be allocated among the persons
requesting additional inclusion in accordance with Section 1.14 hereof.


     For any selling Holder which is a partnership or corporation, the partners,
retired partners and shareholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single selling Holder
such that any pro rata reduction with respect to such selling Holder shall be
based upon the aggregate amount of Registrable Securities owned by all entities
and individuals included in such selling Holder.

          1.4. FORM S-3. In addition to the rights and obligations set forth in
Section 1.2 above, if the Company shall receive from any Holder or Holders of
the Registrable Securities (the "S-3 Initiating Holder(s)") a written request
that the Company file a registration statement on Form S-3 (or any successor to
Form S-3) for a public offering of shares of Registrable Securities and any
related qualification or compliance, the reasonably anticipated aggregate price
to the public of which (net of underwriting discounts and commissions) would
exceed $1,000,000 and the Company is then a registrant entitled to use Form S-3
(or any successor form to Form S-3) to register the shares for such a re-sale
offering by the Holders, the Company will give prompt written notice of the
proposed registration, qualification and compliance to all other Holders and
shall use its best efforts to cause such shares to be registered for the
offering as may be requested as soon as practicable on Form S-3 (or any
successor form to Form S-3); provided, however the Company shall not be required
to effect a registration pursuant to this Section 1.4:

               (a)  in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;

               (b)  if the Company, within ten (10) days of the receipt of the
request of the S-3 Initiating Holder(s), gives notice of its bona fide intention
to effect the filing of a registration statement with the SEC within sixty (60)
days of receipt of such request (other than with respect to a registration
statement relating to a Rule 145 transaction, an offering solely to employees or
any other registration which is not appropriate for the registration of
Registrable Securities);

               (c)  during the period starting with the date of filing of, and
ending on a date one hundred eighty (180) days following the effective date of,
a registration statement described in (b) above or pursuant to Section 1.2 ,
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective and further
provided that no other person or entity could require the Company to file a
registration statement in such period;

               (d)  if the Company has effected two (2) registrations pursuant
to this Section 1.4 within the 12-month period prior to the date of such
request; or

                                       6


               (e)  if the Company shall furnish to such S-3 Initiating
Holder(s) a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
detrimental to the Company and its shareholders for such registration statement
to be filed on or before the date such filing would be required and it is
therefore essential to defer the filing of such registration statement, in which
case the Company shall have the right to defer such filing for a period of not
more than ninety (90) days after the furnishing of such a certificate of
deferral, provided that the Company may not defer such filing pursuant to this
Section 1.4 more than once in any 12-month period.


     In the event such S-3 Initiating Holder(s) propose to offer the shares of
Registrable Securities pursuant to this Section 1.4 by means of an underwriting,
the proposed underwriters shall be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. The
Company shall give written notice to all Holders of the receipt of a request for
registration pursuant to this Section 1.4 and shall provide a reasonable
opportunity for other Holders to participate in the registration, provided that
if the registration is for an underwritten offering, the terms of Section 1.2
(b) shall apply to all participants in such offering.

          1.5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 1 shall be borne by the Company except as follows:

               (a)  The Company shall not be required to pay for expenses of any
registration proceeding begun pursuant to Section 1.2 , the request for which
has been subsequently withdrawn by the Initiating Holders, in which case such
expenses shall be borne by the Holders requesting such withdrawal unless, at the
time of such withdrawal, the Holders have learned of a material adverse change
in the condition, business or prospects of the Company from that known to the
Initiating Holders at the time of their request.

               (b)  The Company shall not be required to pay fees or
disbursements of legal counsel of a Holder unless all the Holders specify one
special counsel.

               (c)  The Company shall not be required to pay underwriters' fees,
discounts or commissions relating to Registrable Securities.

          1.6. REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder participating therein advised in writing as to
the initiation of each registration, qualification and compliance and as to the
completion thereof. Except as otherwise provided in Section 1.5, at its expense
the Company will:

               (a)  Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective and keep such registration statement
effective for up to one hundred eighty (180) days or until the Holder or Holders
have completed the distribution described in the registration statement relating
thereto, whichever first occurs.

               (b)  Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration

                                       7


statement as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement; provided, however, that with respect to paragraphs (a)
and (b) that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish to the Holders of
the Registrable Securities requested to be included in such registration copies
of all such documents proposed to be filed, which documents will be subject to
the review and comment of counsel of the Holder's choosing.

               (c)  Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

               (d)  Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or, except as required under the
Securities Act, to file a general consent to service of process in any such
states or jurisdictions.

               (e)  Cause all such Registrable Securities registered hereunder
to be listed on each securities exchange or automated quotation system on which
similar securities issued by the Company are then listed, and if listed on the
NASD automated quotation system, use its best efforts to secure designation of
all such Registrable Securities covered by such registration statement as a
NASDAQ "national market system security" within the meaning of Rule 11Aa2-1 of
the SEC, or, failing that, to secure NASDAQ authorization for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register as such with respect to such Registrable
Securities with the NASD.

               (f)  Notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading.

               (g)  Provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement.

               (h)  Enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as any of the
Holders of the Registrable Securities to be included in such registration and
being sold, or the underwriter(s) or other Person(s) administering the offering,
if any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities.

                                       8



               (i)  Make available for inspection by any seller of Registrable
Securities, any underwriter or other Person participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement.

               (j)  Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration statement, which
earnings statement will satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.

               (k)  If any such registration or comparable statement refers to
any Holder by name or otherwise as the holder of any securities of the Company
and if in its sole and exclusive judgment, such Holder is or might be deemed to
be an underwriter or a controlling person of the Company, such Holder will have
the right to require (i) the insertion therein of language, in form and
substance satisfactory to such Holder and presented to the Company in writing,
to the effect that the holding by such Holder of such securities is not to be
construed as a recommendation by such Holder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
such holder will assist in meeting any future financial requirements of the
Company, or (ii) in the event that such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar Federal statute
then in force, the deletion of the reference to such Holder.

               (l)  In the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its best efforts promptly to obtain the
withdrawal of such order.

               (m)  Use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities;

               (n)  Provide a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters to the Holders of the Registrable
Securities requested to be included in such registration; and

               (o)  Provide opinions of counsel covering all such matters
customarily covered regarding the registration of the Company's securities to
the Holders of the Registrable Securities requested to be included in such
registration.

                                       9



          1.7. INDEMNIFICATION.

               (a)  The Company will indemnify and hold harmless each Holder of
Registrable Securities and each of its officers, directors and partners, legal
counsel, accountants, employees and each person controlling such Holder, with
respect to which such registration, qualification or compliance has been
effected pursuant to Agreement, and each underwriter, if any, and each person
who controls any underwriter of the Registrable Securities held by or issuable
to such Holder, against all claims, losses, expenses, damages and liabilities
(or actions in respect thereto) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation or alleged violation by
the Company of the Securities Act, the Securities Exchange Act of 1934 (the
"Exchange Act") and any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state securities
law and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
such Holder, each of its officers, directors and partners, legal counsel,
accountants, employees and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, within a
reasonable amount of time after incurred for any reasonable legal and other
expenses incurred by them in connection with investigating, defending or
settling any such claim, loss, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 1.7(a) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld); and provided further, that the Company will
not be liable in any such case to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder, controlling person or underwriter specifically for use therein.

               (b)  Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company within the meaning of the Securities Act, and
each other such Holder, each of its officers, directors and partners and each
person controlling such Holder, against all claims, losses, expenses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, partners, legal counsel, accountants, employees, each person
controlling such Holder or underwriters for any reasonable legal or other
expenses incurred in connection with investigating, defending or settling any
such claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration

                                       10


statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by the Holder in
an instrument duly executed by such Holder specifically for use therein;
provided, however, that the indemnity agreement contained in this Section 1.7(b)
shall not apply to amounts paid in settlement of any such claim, loss, damage,
liability or action if such settlement is effected without the consent of the
Holder (which consent shall not be unreasonably withheld); and provided further,
that the total amount for which any Holder shall be liable under this Section
1.7(b) shall not in any event exceed the aggregate proceeds received by such
Holder from the sale of Registrable Securities held by such Holder in such
registration. The obligation to indemnify will be individual, not joint and
several, for each Holder.

               (c)  Each party entitled to indemnification under this Section
1.7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the Indemnified Party may participate in such defense at such
party's expense; and provided further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; and provided further, that an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.

               (d)  The obligations of the Company and Holders under this
Section 1.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise and
will survive the transfer of the securities.

          1.8. INFORMATION BY HOLDER. Any Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may reasonably request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to herein.

          1.9. RULE 144 REPORTING. With a view to making available to Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times to:

                                       11


               (a)  make and keep public information available, as those terms
are understood and defined in SEC Rule 144, after ninety (90) days after the
effective date of the first registration filed by the Company for an offering of
its securities to the general public;

               (b)  take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;

               (c)  file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and

               (d)  so long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed by the Company as the Holder may reasonably request in complying with
any rule or regulation of the SEC allowing the Holder to sell any such
securities without registration.

          1.10. TRANSFER OF REGISTRATION RIGHTS. Holders' rights to cause the
Company to register their securities and keep information available, granted to
them by the Company under Sections 1.2, 1.3, 1.4 and 1.9, may be assigned to a
transferee or assignee of one hundred percent (100%) of a Holder's Registrable
Securities, provided that the Company is given written notice by such Holder at
the time of or within a reasonable time after said transfer, stating the name
and address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. The foregoing one
hundred percent (100%) limitation shall not apply, however, to (i) transfers by
a Holder which is a limited partnership to its partners or retired partners, an
affiliated limited partnership or other affiliate of such Holder provided,
however, that all such transferees or assignees agree in writing to appoint a
single representative as their attorney-in-fact for the purpose of receiving any
notices and exercising their rights under this Section 1, (ii) transfers to
another holder of Registrable Securities who already possesses registration
rights pursuant to the terms of this Investors' Rights Agreement, (iii)
transfers to a transferee or assignee acquiring more than ten percent (10%) of
the Company's outstanding capital stock, or (iv) transfers by a Holder to
Holder's ancestors, descendants or spouse of an individual holder or to trusts
for the benefit of such person or persons, provided, however, in any such
transfer, the transferee shall agree in writing to be bound by the terms of this
Agreement as if an original signatory thereto.. The Company may prohibit the
transfer of any Holders' rights under this Section 1.10 to any proposed
transferee or assignee who the Company reasonably believes is a competitor of
the Company.

          1.11. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that,
during the period of time (not to exceed 180 days) specified by the Company and
an underwriter of

                                       12


common stock or other securities of the Company following the effective date of
a registration statement of the Company filed under the Securities Act, it shall
not, to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase, pledge or otherwise transfer or
dispose of (other than to donees who agree to be similarly bound) any securities
of the Company held by it at any time during such period except common stock
included in such registration; provided, however, that such agreement shall not
be required unless all officers, directors and key employees of the Company and
all shareholders holding an equivalent or greater number of shares (on a common
stock equivalent basis) of Company capital stock (collectively the "Company
Signatories") also agree to be bound by such restrictions, and such agreements
shall be no more restrictive on the Holders than the restrictions applicable to
the Company Signatories.

     In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares of securities of every other person subject to the
foregoing restriction) until the end of such period.

          1.12. TERMINATION OF RIGHTS. The rights of (a) any particular Holder
to cause the Company to register securities under Sections 1.2, 1.3 and 1.4
shall terminate with respect to such Holder following a bona fide, firmly
underwritten public offering of shares of Common Stock registered under the
Securities Act at such time as such Holder is able to dispose of all of his or
its Registrable Securities in one three-month period pursuant to the provisions
of Rule 144, provided that such Holder holds Registrable Securities constituting
less than 1% of the outstanding voting stock of the Company, or is eligible to
sell such Registrable Securities pursuant to Rule 144(k) and (b) all Holders to
cause the Company to register securities under Sections 1.2, 1.3 and 1.4 shall
terminate as to all Holders upon the expiration of seven (7) years from the
closing of the IPO.

          1.13. CERTAIN LIMITATIONS IN CONNECTION WITH FUTURE GRANTS OF
REGISTRATION RIGHTS. From and after the date of this Agreement, the Company
shall not, without the prior written consent of the Holders of at least a
majority of the outstanding Registrable Securities, enter into any agreement
with any person or persons providing for the granting to such person of
registration rights superior to those granted to Holders pursuant to this
Section 1, or of registration rights which might cause a reduction in the number
of shares includable by the Holders in any offering pursuant to Section 1.2 or
any offering subject to Section 1.3.

          1.14. ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion of
shares of any currently unissued series of Preferred Stock of the Company) with
registration rights (the "Other Shares") requested to be included in a
registration on behalf of the Holders or other selling stockholders cannot be so
included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number of
shares of Registrable Securities and Other Shares that may be so included shall
be allocated among the Holders and other selling stockholders requesting
inclusion of shares pro rata on the basis of the number of shares of Registrable
Securities and Other Shares that would be held by such Holders and other selling
stockholders, assuming conversion; provided, however, that such allocation shall
not operate to

                                       13


reduce the aggregate number of Registrable Securities and Other Shares to be
included in such registration, if any Holder or other selling stockholder does
not request inclusion of the maximum number of shares of Registrable Securities
and Other Shares allocated to him pursuant to the above-described procedure, the
remaining portion of his allocation shall be reallocated among those requesting
Holders and other selling stockholders whose allocations did not satisfy their
requests pro rata on the basis of the number of shares of Registrable Securities
and Other Shares which would be held by such Holders and other selling
stockholders, assuming conversion, and this procedure shall be repeated until
all of the shares of Registrable Securities and Other Shares which may be
included in the registration on behalf of the Holders and other selling
stockholders have been so allocated.

     2.   RIGHT OF FIRST REFUSAL TO PURCHASE EQUITY SECURITIES.

          2.1. PURCHASE RIGHT. If at any time the Company should desire to issue
any Equity Securities (as hereinafter defined) in a transaction not registered
under the Securities Act in reliance upon a claimed exemption thereunder, it
shall give the Investors the first right to purchase the Investors' pro rata
share (or any part thereof) of all of such privately offered Equity Securities
on the same terms as the Company is willing to sell such Equity Securities to
any other person (a "Purchase Right"). The Investors' pro rata share of the
Equity Securities shall be equal to that percentage of the outstanding Common
Stock of the Company beneficially owned by the Investors on the date hereof, or,
in the case of the holders of Series G Warrants, on the date of exercise of such
Series G Warrants; provided, however, that no holder of a Series G Warrant shall
have a Purchase Right prior to the exercise of such warrant. For purposes of
this Section 2, the outstanding Common Stock of the Company shall include (i)
outstanding shares of Common Stock, and (ii) shares of Common Stock issued or
issuable upon conversion of any then outstanding Preferred Stock of the Company.

          2.2. NOTICE OF INTENT TO SELL AND ISSUE Prior to any sale or issuance
by the Company of any Equity Securities, the Company shall notify each Investor
in writing of its intention to sell and issue such securities, setting forth the
terms under which it proposes to make such sale. Within twenty (20) days after
receipt of such notice, each Investor shall notify the Company whether the
Investor desires to exercise the option to purchase the Investor's pro rata
share (or any part thereof) of the Equity Securities so offered. In no event
shall the Investor be obligated to purchase any Equity Securities pursuant to
this Section 2, nor does the Investor make any representation or warranty that
it plans to do so.

          2.3. INVESTOR FAILURE TO PURCHASE. After termination of the twenty
(20) day period specified in Section 2.2 above, the Company may, during a period
of sixty (60) days following the end of such twenty (20) day period, sell and
issue such Equity Securities as to which the Investors do not indicate a desire
to purchase to another person as well as those additional shares of Equity
Securities it originally intended to issue to other persons, upon terms and
conditions no less favorable to the Company than those set forth in the notice
to the Investors. In the event the Company has not sold the Equity Securities,
or has not entered into an agreement to sell the Equity Securities, within said
sixty (60) day period, the Company shall not thereafter issue or sell any Equity
Securities without first offering such securities to the Investors in the manner
provided above.

                                       14


          2.4. INVESTOR PURCHASE. If an Investor gives the Company notice that
the Investor desires to purchase any of the Equity Securities offered by the
Company, payment for the Equity Securities shall be by check or wire transfer
against delivery of the Equity Securities at the executive offices of the
Company within twenty (20) days after giving the Company such notice, or, if
later, the closing date for the sale of such Equity Securities. The Company
shall take all such action as may be required by any regulatory authority in
connection with the exercise by the Investor of the Purchase Right.

          2.5. EXCLUDED SECURITIES. The Purchase Right contained in this Section
2 shall not apply to the issuance by the Company of Equity Securities (i) to
employees, officers, directors or consultants of the Company when approved by
the Company's Board of Directors, (ii) as part of an acquisition by the Company
of all or substantially all of the assets or shares of another company or entity
whether through a merger, exchange, reorganization or the like, (iii) issued
upon conversion of the Preferred Shares, (iv) issued upon the exercise or
conversion of any of the warrants described in Section 1.1(b), (v) issued in
connection with any stock split, stock dividend, recapitalization or similar
event, (vi) issued in connection with any commercial debt or lease financing
transaction approved by the Company's Board of Directors, (vii) issued in
connection with research and development partnerships, licensing or
collaborative arrangements or other similar transactions approved by the
Company's Board of Directors or (viii) issued in connection with the IPO.

          2.6. TERMINATION. The Purchase Right shall terminate (a) as to any
Investor, when such Investor declines to exercise in full the purchase option
referenced in Section 2.2 above unless the Company requests in writing that such
Investor not exercise such purchase option in full, and (b) as to all Investors,
upon the closing of the IPO.

          2.7. EQUITY SECURITIES. The term "Equity Securities" shall mean (i)
Common Stock and rights, options or warrants to purchase Common Stock, (ii) any
security other than Common Stock having voting rights in the election of the
Board of Directors, not contingent upon a failure to pay dividends, (iii) any
security convertible into or exchangeable for any of the foregoing, and (iv) any
agreement or commitment to issue any of the foregoing.

          2.8. ASSIGNMENT OF PURCHASE RIGHT. A Holder shall have the right to
assign the Purchase Right to an affiliate of the Investor or to any transferee
of at least thirty percent (30%) of such Holder's Registrable Securities (as
adjusted for stock splits, stock dividends, recapitalizations and like events);
provided, however, that such Holder shall retain its Purchase Right with respect
to the portion of Registrable Securities retained by such Holder in the event of
transfers of less than one hundred percent (100%) of such Holder's Registrable
Securities. For the purposes of this Section 2, an "affiliate" shall mean any
partner or shareholder of the Investor or any person or entity that directly or
indirectly through one or more intermediaries controls or is controlled by or is
under common control with the Investor.

     3.   GENERAL.

          3.1. WAIVERS AND AMENDMENTS. With the written consent of the record or
beneficial holders of at least sixty-six and two-thirds (66 2/3 %) of the
Registrable Securities, the obligations of the Company and the rights of the
other parties under this agreement may be

                                       15


waived (either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely), and
with the same consent the Company, when authorized by resolution of its Board of
Directors, may enter into a supplementary agreement for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement; provided, however, that no such modification, amendment or
waiver shall reduce the aforesaid percentage of Registrable Securities without
the consent of all of the Holders of the Registrable Securities; provided
further that in the event that such modification, amendment or waiver shall
adversely affect the rights and/or obligations of one particular series of the
Preferred Stock of the Company in a different manner than the other series of
the Preferred Stock of the Company, then such modification, amendment or waiver
shall also require the written consent or approval of the majority of the
Registrable Securities comprising such adversely affected series. Upon the
effectuation of each such waiver, consent, agreement of amendment or
modification, the Company shall promptly give written notice thereof to the
record holders of the Registrable Securities who have not previously consented
thereto in writing. This Agreement or any provision hereof may be changed,
waived, discharged or terminated only by a statement in writing signed by the
party against which enforcement of the change, waiver, discharge or termination
is sought, except to the extent provided in this Section 3.1.

          3.2. GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.

          3.3. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.

          3.4. ENTIRE AGREEMENT. Except as set forth below, this Agreement and
the other documents delivered pursuant hereto and, with respect to the holders
of Series G Stock or Series G Warrants, the Merger Agreement and the documents
delivered pursuant thereto, constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and this Agreement shall supersede and cancel all prior agreements between the
parties hereto with regard to the subject matter hereof.

          3.5. NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered effective (i)
upon personal delivery, (ii) one business day after delivery to a reputable
overnight courier service, (iii) upon machine confirmed facsimile transmittal or
(iv) upon receipt if mailed by first class mail, postage prepaid, certified or
registered mail, return receipt requested (a) if to the Investors, at the
addresses as set forth in the Company's records, or at such other addresses as
any Investors shall have furnished to the Company in writing, or (b) if to the
Company, at 11494 Sorrento Valley Road, San Diego, CA 92121, Attn.: Chief
Executive Officer, or at such other address as the Company shall have furnished
to the Investors in writing.

          3.6. SEVERABILITY. If any provision of this Agreement, or the
application thereof, is for any reason and to any extent determined by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement and the application of such provision

                                       16


to other persons or circumstances will be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties agree to use their best
efforts to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision which will achieve, to the extent greatest
possible, the economic, business and other purposes of the void or unenforceable
provision.

          3.7. TITLES AND SUBTITLES. The titles of the sections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.

          3.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

          3.9. NO INCONSISTENT AGREEMENTS. The Company will not enter into any
agreement with respect to it securities, which is inconsistent with or violates
the rights granted to the Holders of Registrable Securities in this Agreement.

          3.10. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will
not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
Holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would materially and
adversely affect the marketability of such Registrable Securities in any such
registration.


            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]


                                       17





     IN WITNESS WHEREOF, the parties hereby have executed this Agreement on the
date first above written.


                                       "COMPANY"
                                       MITOKOR

                                       By:    /s/ Walter H. Moos
                                              ----------------------------------
                                              Walter H. Moos
                                              ----------------------------------
                                              (print name)

                                       Title: Chairman & CEO
                                              ----------------------------------



















                                       18



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       MITOKOR PREFERRED STOCKHOLDERS:

                                       3i BIOSCIENCE INVESTMENT TRUST PLC
                                       By:  Hare & Co

                                       By:    /s/ James C. Blair
                                              ----------------------------------
                                              James C. Blair
                                              ----------------------------------
                                              (print name)

                                       Title: Attorney-in-Fact
                                              ----------------------------------



                                       ALTA CALIFORNIA PARTNERS, L.P.
                                       By:   Alta California Management
                                             Partners, LLC
                                       Its:  General Partner

                                       By:    /s/ Jean Deleage
                                              ----------------------------------
                                              Jean Deleage
                                              ----------------------------------
                                              (print name)

                                       Title: General Partner
                                              ----------------------------------



                                       ALTA EMBARCADERO PARTNERS, LLC

                                       By:    /s/ Elanie Walker
                                              ----------------------------------
                                              Under Power of Attorney

                                              Elaine Walker
                                              ----------------------------------
                                              (print name)

                                       Title: Under Power of Attorney
                                              ----------------------------------


                                       19



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       ASGARD VENTURES

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       BIOINVEST INC.

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       BIOTECHNOLOGY INVESTMENTS LIMITED

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       BIOTECHVEST, INC.

                                       By:    /s/ Martin Pajor
                                              ----------------------------------
                                              Martin Pajor
                                              ----------------------------------
                                              (print name)

                                       Title: V.P.
                                              ----------------------------------


                                       20



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                        BIOTECHVEST, LLP

                        By:    /s/ Martin Pajor
                               ------------------------------------------------
                               Martin Pajor
                               ------------------------------------------------
                               (print name)

                        Title: V.P. of Biotechvest II, G.P. of Biotechvest L.P.
                               ------------------------------------------------



                        BIOTECHVEST, L.P.
                        By: Biotechvest II, Inc.

                        By:    /s/ Martin Pajor
                               ------------------------------------------------
                               Martin Pajor
                               ------------------------------------------------
                               (print name)

                        Title: V.P. of Biotechvest II, G.P. of Biotechvest L.P.
                               ------------------------------------------------



                        CHINA DEVELOPMENT INDUSTRIAL BANK, INC.

                        By:
                               ------------------------------------------------

                               Benny T. Hu
                               ------------------------------------------------
                               (print name)

                        Title: President
                               ------------------------------------------------



                        CHIRON CORPORATION

                        By:    /s/ James R. Sulat
                               ------------------------------------------------
                               James R. Sulat
                               ------------------------------------------------
                               (print name)

                        Title: Chief Financial Officer
                               ------------------------------------------------


                                       21



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       DEAN P. CUPLIN AND CAMILLA KOCHENDERFER

                                       By:
                                              ----------------------------------
                                              Dean P. Cuplin

                                       By:
                                              ----------------------------------
                                              Camilla Kochenderfer



                                       ----------------------------------
                                       Kimberly Cuplin

                                       ----------------------------------
                                       Jason Cuplin



                                       DENYER FAMILY TRUST

                                       By:
                                              ----------------------------------

                                              Paul Denyer
                                              ----------------------------------
                                              (print name)

                                       Title: Trustee
                                              ----------------------------------



                                       DOMAIN PARTNERS III, L.P.
                                       By:  One Palmer Square
                                            Associates III, L.P.

                                       By:    /s/ James C. Blair
                                              ----------------------------------
                                              James C. Blair
                                              ----------------------------------
                                              (print name)

                                       Title: General Partner
                                              ----------------------------------


                                       22




                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       DP III ASSOCIATES, L.P.
                                       By:  One Palmer Square
                                            Associates III, L.P.

                                       By:    /s/ James C. Blair
                                              ----------------------------------
                                              James C. Blair
                                              ----------------------------------
                                              (print name)

                                       Title: General Partner
                                              ----------------------------------



                                       DONOVAN INVESTMENT COMPANY

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       EGM MEDICAL TECHNOLOGY FUND, L.P.

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       EGM MEDICAL TECHNOLOGY OFFSHORE FUND

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------

                                       23



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       EL DORADO C&L FUND, L.P.
                                       By:  El Dorado Venture Partners III
                                       Its:  General Partner

                                       By:    /s/ Gary Kalbach
                                              ----------------------------------
                                              Gary Kalbach
                                              ----------------------------------
                                              (print name)

                                       Title: General Partner
                                              ----------------------------------



                                       EL DORADO VENTURES, III, L. P.
                                       By:  El Dorado Venture Partners III
                                       Its:  General Partner

                                       By:    /s/ Gary Kalbach
                                              ----------------------------------
                                              Gary Kalbach
                                              ----------------------------------
                                              (print name)

                                       Title: General Partner
                                              ----------------------------------



                                       FIRST BIO VENTURE CAPITAL

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       FORWARD VENTURES II, L.P.
                                       By:  Forward II Associates, L.P.

                                       By:    /s/ Standish M. Fleming
                                              ----------------------------------

                                              Standish M. Fleming
                                              ----------------------------------
                                              (print name)

                                       Title: General Partner
                                              ----------------------------------


                                       24



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       FORWARD VENTURES III, L.P.
                                       By:  Forward III Associates, L.L.C.

                                       By:    /s/ Standish Fleming
                                              ----------------------------------
                                              Standish Fleming
                                              ----------------------------------
                                              (print name)

                                       Title: Managing Member
                                              ----------------------------------



                                       FORWARD VENTURES III
                                       INSTITUTIONAL PARTNERS, L.P.
                                       By:  Forward III Associates, L.L.C.

                                       By:    /s/ Standish Fleming
                                              ----------------------------------
                                              Standish Fleming
                                              ----------------------------------
                                              (print name)

                                       Title: Managing Member
                                              ----------------------------------



                                       FORWARD VENTURES IV, L.P.

                                       By:    /s/ Standish Fleming
                                              ----------------------------------
                                              Standish Fleming
                                              ----------------------------------
                                              (print name)

                                       Title: Managing Member
                                              ----------------------------------



                                       FORWARD VENTURES IV B, L.P.

                                       By:    /s/ Standish Fleming
                                              ----------------------------------
                                              Standish Fleming
                                              ----------------------------------
                                              (print name)

                                       Title:  Managing Member
                                              ----------------------------------


                                       25



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       -----------------------------------------
                                       Fredrick W. Field



                                       FRUIT OF THE LOOM, INC. SENIOR
                                       EXECUTIVE OFFICER DEFERRED
                                       COMPENSATION TRUST

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       FEDERATED KAUFMANN FUND

                                       By:   Federated Investment Management
                                             Company
                                       Its:  Attorney in Fact

                                              By: /s/ J. Christopher Donahue
                                                  ------------------------------
                                                  J. Christopher Donahue
                                                  CEO, CIO/COO



                                       LIAM BIOTECHVEST, LLC

                                       By:    /s/ Walter J. Sluzas
                                              ----------------------------------
                                              Walter J. Sluzas
                                              ----------------------------------
                                              (print name)

                                       Title: Member of the Administrative
                                              Committee of the Retirement
                                              Program of Farley Inc. Capital
                                              Member of Liam Biotechvest, LLC
                                              ----------------------------------


                                       26


                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                              MDS HEALTH VENTURES (PC) INC.

                              By:    /s/ M. Calaghan   By: /s/ Graysanne Bedell
                                     ----------------      --------------------
                                     Michael Callaghan  /  Graysanne Bedell
                                     ------------------------------------------
                                     (print name)

                              Title: Vice-President    /   Assistant Secretary
                                     ------------------------------------------



                              MDS HEALTH VENTURES (TC) INC.

                              By:    /s/ Peter Winkley  By: /s/ Graysanne Bedell
                                     -----------------      --------------------
                                     Peter Winkley      /   Graysanne Bedell
                                     -------------------------------------------
                                     (print name)

                              Title: Vice-Pres & Contr. /   Assistant Secretary
                                     -------------------------------------------



                              NEUROSCIENCE PARTNERS LIMITED PARTNERSHIP
                              By:  MDS Associates - Neuroscience Inc.
                              Its:  General Partner

                              By:    /s/ M. Callaghan  / By: /s/ Graysanne Bedel
                                     ----------------        -------------------
                                     Michael Callaghan /     Graysanne Bedel
                                     -------------------------------------------
                                     (print name)

                              Title: Vice-President    /     Assistant Secretary
                                     -------------------------------------------



                              ORBITEX HEALTH & BIOTECHNOLOGY FUND, 2V1I

                              By:    /s/ Robert Youree
                                     ----------------------------------
                                     Robert Youree
                                     ----------------------------------
                                     (print name)

                              Title: Chief Operating Officer
                                     ----------------------------------


                                       27



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       POPOVER & CO.

                                       By:    /s/ Robert Youree
                                              ----------------------------------
                                              Robert Youree
                                              ----------------------------------
                                              (print name)

                                       Title: Chief Operating Officer
                                              ----------------------------------


                                       -----------------------------------------
                                       Mark Pentopoulos



                                       PFIZER, INC.

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------


                                       -----------------------------------------
                                       Peter Preuss


                                       -----------------------------------------
                                       Kellie Seringer


                                       28



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                  SENTRON MEDICAL, INC.

                                  By:
                                         ----------------------------------

                                         ----------------------------------
                                         (print name)

                                  Title:
                                         ----------------------------------



                                  C.V. SOFINNOVA VENTURES PARTNERS III

                                  By:
                                         ----------------------------------

                                         ----------------------------------
                                         (print name)

                                  Title:
                                         ----------------------------------


                                  SORRENTO GROWTH PARTNERS I, L.P.
                                  By:   Sorrento Equity Growth Partners I, L.P.,
                                  Its:  General Partner
                                  By:   Sorrento Growth, Inc.
                                  Its:  General Partner

                                  By:
                                         ----------------------------------

                                         Robert M. Jaffe
                                         ----------------------------------
                                         (print name)

                                  Title: President
                                         ----------------------------------



                                  SORRENTO MITOKOR, a General Partnership

                                  By:
                                         ----------------------------------

                                         ----------------------------------
                                         (print name)

                                  Title:
                                         ----------------------------------

                                       29



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       SORRENTO VENTURES III, L.P.
                                       By:   Sorrento Equity Partners III, L.P.
                                       Its:  General Partner
                                       By:   Sorrento Associates, Inc.
                                       Its:  General Partner

                                       By:
                                              ----------------------------------

                                              Robert M. Jaffe
                                              ----------------------------------
                                              (print name)

                                       Title: President
                                              ----------------------------------



                                       SORRENTO VENTURES CE, L.P.
                                       By:   Sorrento Equity Partners III, L.P.
                                       Its:  General Partner
                                       By:   Sorrento Associates, Inc.
                                       Its:  General Partner

                                       By:
                                              ----------------------------------

                                              Robert M. Jaffe
                                              ----------------------------------
                                              (print name)

                                       Title: President
                                              ----------------------------------



                                       S.R. ONE, LIMITED

                                       By:    /s/ R.J. Whitaker
                                              ----------------------------------
                                              R.J. Whitaker
                                              ----------------------------------
                                              (print name)

                                       Title: Vice President
                                              ----------------------------------

                                       30



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       THORNER VENTURES

                                       By:    /s/ Tom Thorner
                                              ----------------------------------
                                              Tom Thorner
                                              ----------------------------------
                                              (print name)

                                      Title:  Managing General Partner
                                              ----------------------------------



                                       MMC/GATX PARTNERSHIP NO. 1
                                       By: GATX CAPITAL CORP.
                                       Its:  General Partner

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       SILICON VALLEY BANC SHARES

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------


                                       31



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       THE ALDEN FOUNDATION

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       MARK BLACKMAN AND LINDA BLACKMAN

                                       By:
                                              ----------------------------------
                                              Mark Blackman, M.D.

                                       By:
                                              ----------------------------------
                                              Linda Blackman



                                       BLISS, GOUVERNEUR & ASSOCIATES, INC.

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       BOHEMOND CORPORATION

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------


                                       32



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       BRADLEY RESOURCES COMPANY

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       FANNY NIVES GRANTOR UNITRUST

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       FIRST TYME INVESTMENTS, INC.

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       WILLIAM K. FRASER & BONNIE JUNE
                                       GAUTREAU, JTWROS

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------

                                       33



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       ALAN GELBAND DEFINED TRUST

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       PAUL F. GLENN REVOCABLE TRUST

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       GUARANTEE & TRUST CO. TTEE
                                       F/B/O KENNETH LEVI

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       DELAWARE CHARTER GUARANTEE &
                                       TRUST COMPANY TTEE FBO:
                                       GEORGE A. ZAZANIS IRA ROLLOVER

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------


                                       34



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       JASON FAMILY TRUST DATED 12/22/82

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       JOSEPH BERLAND REVOCABLE LIVING TRUST

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       KAMCO SUPPLY CORP.

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       LAWRENCE KAPLAN AND HELAINE KAPLAN

                                       By:
                                              ----------------------------------
                                              Lawrence Kaplan

                                       By:
                                              ----------------------------------
                                              Helaine Kaplan


                                       35



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       JOHN D. LANE REVOCABLE LIVING
                                       TRUST DATED 9/14/89

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       MDS NEUROSCIENCE

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       MOONSHINE INVESTMENTS, INC.

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       PACIFIC HOLDINGS LTD.

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------

                                       36



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       RICHARD J. ROSENSTOCK REV. LIVING
                                       TRUST, R.J. ROSENSTOCK TRUSTEE,
                                       DTD 3/5/96

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       MICHAEL & LESLIE SILVERSTEIN, JTWROS

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       SECOND TYME INVESTMENTS, INC.

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------



                                       TRANSTIME, INC.

                                       By:
                                              ----------------------------------

                                              ----------------------------------
                                              (print name)

                                       Title:
                                              ----------------------------------

                                       37



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       -----------------------------------------
                                       Janet Tweed Arkush


                                       -----------------------------------------
                                       John H. Baillie


                                       -----------------------------------------
                                       Victoria Bellport


                                       -----------------------------------------
                                       Richard Berger


                                       -----------------------------------------
                                       Craig Bloom


                                       -----------------------------------------
                                       Robert B. Brand


                                       -----------------------------------------
                                       George Hugh Brandon


                                       -----------------------------------------
                                       Anthony P. Brenner


                                       -----------------------------------------
                                       James Cane


                                       -----------------------------------------
                                       Nick Cane


                                       -----------------------------------------
                                       David Clemmons, Ph.D.


                                       38



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       -----------------------------------------
                                       Bruce Cohen


                                       -----------------------------------------
                                       Donna B. Cohen


                                       -----------------------------------------
                                       Douglas Covey, Ph.D.


                                       -----------------------------------------
                                       Ron Crosthwaite


                                       -----------------------------------------
                                       John Curry


                                       -----------------------------------------
                                       Alfred E. D'Ancona


                                       -----------------------------------------
                                       Frank D. DeMasi


                                       -----------------------------------------
                                       Frank Dunlop


                                       -----------------------------------------
                                       Gary Frashier


                                       -----------------------------------------
                                       Jeff Freed, M.D.


                                       -----------------------------------------
                                       Alan Gaines


                                       39



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       -----------------------------------------
                                       Alan Gelband


                                       -----------------------------------------
                                       Lawrence Goldstein


                                       -----------------------------------------
                                       R. Oscar Goldstein


                                       -----------------------------------------
                                       Ann Gordon


                                       -----------------------------------------
                                       Katherine Gordon


                                       -----------------------------------------
                                       Theodore J. Gordon


                                       -----------------------------------------
                                       Theresa Greunberg


                                       -----------------------------------------
                                       Levy Guar


                                       -----------------------------------------
                                       Zazanis Guar


                                       -----------------------------------------
                                       Shlomo Hadari


                                       -----------------------------------------
                                       S. Mitchell Harman, M.D.


                                       40



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT



                                       -----------------------------------------
                                       F. Donald Hudson


                                       -----------------------------------------
                                       Patricia B. Jackson


                                       -----------------------------------------
                                       Mark Jason


                                       -----------------------------------------
                                       Muncy Jason


                                       -----------------------------------------
                                       Robert B. Jason


                                       -----------------------------------------
                                       Roselyn H. Jason


                                       -----------------------------------------
                                       Barry Klein


                                       -----------------------------------------
                                       Anne Klibanski, M.D.


                                       -----------------------------------------
                                       Bruce Kurchack


                                       -----------------------------------------
                                       Philip Landfield, Ph.D.


                                       -----------------------------------------
                                       Robert Leonard


                                       41



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       -----------------------------------------
                                       John Lutri


                                       -----------------------------------------
                                       Thomas Lutri


                                       -----------------------------------------
                                       George Masters


                                       -----------------------------------------
                                       John M. McMahon


                                       -----------------------------------------
                                       Pat Moran


                                       -----------------------------------------
                                       Carolyn Mugar


                                       -----------------------------------------
                                       Alecia Nelson


                                       -----------------------------------------
                                       James Nelson, Ph.D.


                                       -----------------------------------------
                                       Edmund O'Donnell


                                       -----------------------------------------
                                       Jeff Perkell


                                       -----------------------------------------
                                       Norman Perlmutter


                                       42



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       -----------------------------------------
                                       Anthony L. Poger


                                       -----------------------------------------
                                       Anne Rose, Ph.D.


                                       -----------------------------------------
                                       Martine Rothblatt


                                       -----------------------------------------
                                       Christopher Saldivar


                                       -----------------------------------------
                                       Judith M. Segall, Ph.D.


                                       -----------------------------------------
                                       Paul E. Segall, Ph.D.


                                       -----------------------------------------
                                       Jacqueline Shafiroff


                                       -----------------------------------------
                                       Patricia Silver


                                       -----------------------------------------
                                       James Simpkins, Ph.D.


                                       -----------------------------------------
                                       William Sonntag, Ph.D.


                                       -----------------------------------------
                                       Hal Sternberg, Ph.D.


                                       43



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       -----------------------------------------
                                       Chaim Topol


                                       -----------------------------------------
                                       Barry Unger


                                       -----------------------------------------
                                       Harold D. Waitz


                                       -----------------------------------------
                                       Donald Weise


                                       -----------------------------------------
                                       Phyllis Wise, Ph.D.


                                       44



                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       Sofinnova Ventures, Inc.
                                       -----------------------------------------
                                       (Name of Investor)

                                       /s/ Michael Powell
                                       -----------------------------------------
                                       (Signature)


                                       By: Michael Powell
                                           -----------------------------------
                                           (Printed Name of Signatory)

                                       Title: Managing Director
                                             -----------------------------------


                                       45


                           COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                   GCWF INVESTMENT PARTNERS II

                                   By:  GCWF INVESTMENTS LLC
                                   Its: Managing Partner





                                   /s/ Robert Ayling
                                   -----------------------------------------
                                   (Signature)


                                   By:    Robert Ayling
                                          ----------------------------------

                                   Title: Vice President
                                          ----------------------------------



                                       46





                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                       Palladian Opportunity Fund LLC
                                       -----------------------------------------
                                       (Name of Investor)

                                       /s/ Robert L. Chender
                                       -----------------------------------------
                                       (Signature)


                                       By: Robert L. Chender
                                           -----------------------------------
                                           (Printed Name of Signatory)

                                       Title: Managing Director
                                             -----------------------------------


                                       47




                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                  DRW Venture Partners LP
                                  ---------------------------------------------
                                  (Name of Investor)

                                  /s/ Mary Zimmer
                                  ---------------------------------------------
                                  (Signature)


                                  By: Mary Zimmer
                                      -----------------------------------------
                                      (Printed Name of Signatory)

                                  Title: Director of Finance and Administration,
                                         Dain Rauscher Wessels, a division of
                                         Dain Rauscher, Inc.
                                        ----------------------------------------


                                       48





                          COUNTERPART SIGNATURE PAGE TO
                           INVESTORS' RIGHTS AGREEMENT


                                  RBC Dain Rauscher, Inc.
                                  ---------------------------------------------
                                  (Name of Investor)

                                  /s/ Mary Zimmer
                                  ---------------------------------------------
                                  (Signature)


                                  By: Mary Zimmer
                                      -----------------------------------------
                                      (Printed Name of Signatory)

                                  Title: Director of Finance and Administration,
                                         RBC Capital Markets, a division of
                                         Royal Bank of Canada and an affiliate
                                         of RBC Dain Rauscher, Inc.
                                        ----------------------------------------


                                       49

EX-10.8

                                                                    Exhibit 10.8


THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) REGISTRATION UNDER THE ACT, (ii) AN OPINION OF COUNSEL OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITIES STATING THAT REGISTRATION IS NOT REQUIRED, OR (iv)
OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 8 OF THIS WARRANT.

                                     MITOKOR

                                WARRANT (WG- ___)

         THIS CERTIFIES THAT, in exchange for certain options to purchase shares
of common stock of Apollo BioPharmaceutics, Inc., a Delaware corporation
("Apollo"), and pursuant to Section 1.6 of that certain Agreement and Plan of
Merger and Reorganization (the "Merger Agreement") by and among MITOKOR, a
California corporation (the "Company"), Mito Acquisition Corp., a Delaware
corporation ("Merger Sub"), and Apollo Biopharmaceutics, Inc., a Delaware
corporation ("Apollo"), dated May 8, 2001 (the "Merger Agreement"),
________________ (the "Holder") is entitled to subscribe for and purchase up to
(i) ___________ (__________) shares of fully paid and nonassessable Series G
Preferred Stock, no par value (the "Series G Preferred Stock") (as adjusted
pursuant to Section 5 hereof, the "Warrant Shares") of the Company, together
with (ii) such portion of the Cash Consideration and Contingent Consideration
(as such terms are defined and provided for in the Merger Agreement) as are
associated with such Warrant Shares on Schedule 1.5 of the Merger Agreement (the
portion of the Cash Consideration and Contingent Consideration associated with
one Warrant Share together with one Warrant Share itself being referred to
hereinafter as a "Unit") at the price per Unit of $______ (such price and such
other price as shall result, from time to time, from the adjustments specified
in Section 5 hereof is herein referred to as the "Warrant Price"), subject to
the provisions and upon the terms and conditions hereinafter set forth. As used
herein, (a) the term "Series G Preferred" shall mean the Company's presently
authorized Series G Preferred Stock, and any stock into or for which such Series
G Preferred Stock may hereafter be converted or exchanged, and after the
automatic conversion of the Series G Preferred Stock to Common Stock shall mean
the Company's Common Stock, (b) the term "Date of Grant" shall mean ________
___, 2001, and (c) the term "Other Warrants" shall mean any other warrants
issued by the Company in connection with the merger with respect to which this
Warrant was issued, and any warrant issued upon transfer or partial exercise of
or in lieu of this Warrant. The term "Warrant" as used herein shall be deemed to
include Other Warrants unless the context clearly requires otherwise. Terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Merger Agreement.

         1.   TERM. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through that date which is ten (10) years after the Date of Grant.

         2.   TRANSFERABILITY. Except as otherwise provided in this Section 2,
this Warrant shall not be transferable, and no interest herein may be sold,
transferred, pledged, assigned, or




otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. All of the Holder's rights in this Warrant may be
exercised during the life of the Holder only by the Holder or the Holder's legal
representative. Notwithstanding the foregoing, this Warrant may be transferred
by the Holder to an immediate family member; provided, however, that any such
transfer is without payment of any consideration whatsoever. For this purpose,
"immediate family member" means an individual's parents, siblings, spouse and
issue, spouses of such issue, or any trust for the benefit of, or the legal
representative of, the Holder or any of the preceding persons or any combination
thereof, or any partnership substantially all of the partners of which are one
or more of such persons or the Holder.

         3.   METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part, at any time, and from time
to time, at the election of the holder hereof, by (a) the surrender of this
Warrant (with the notice of exercise substantially in the form attached hereto
as Exhibit A-l duly completed and executed) at the principal office of the
Company and by the payment to the Company, by certified or bank check, or by
wire transfer to an account designated by the Company (a "Wire Transfer") of an
amount equal to the then applicable Warrant Price multiplied by the number of
Units then being purchased; (b) if in connection with a registered public
offering of the Company's securities, the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A-2 duly completed and
executed) at the principal office of the Company together with notice of
arrangements reasonably satisfactory to the Company for payment to the Company
either by certified or bank check or by Wire Transfer from the proceeds of the
sale of shares to be sold by the holder in such public offering of an amount
equal to the then applicable Warrant Price per share multiplied by the number of
Units then being purchased; or (c) exercise of the "net issuance" right provided
for in Section 12.2 hereof. The person or persons in whose name(s) any
certificate(s) representing shares of Series G Preferred shall be issuable upon
exercise of this Warrant shall be deemed to have become the holder(s) of record
of, and shall be treated for all purposes as the record holder(s) of, the shares
represented thereby (and such shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised in accordance with this Section 2. In the event of any
exercise of the rights represented by this Warrant, certificates for the shares
of stock so purchased shall be delivered to the holder hereof as soon as
possible and in any event within ten (10) business days after such exercise and,
unless this Warrant has been fully exercised or expired, a new Warrant
representing the portion of the Units, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the holder
hereof as soon as possible and in any event within such ten (10) business day
period; provided, however, at such time as the Company is subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, if
requested by the holder of this Warrant, the Company shall cause its transfer
agent to deliver the certificate representing Warrant Shares and Contingent
Consideration, if any, issued upon exercise of this Warrant to a broker or other
person (as directed by the holder exercising this Warrant) within the time
period required to settle any trade made by the holder after exercise of this
Warrant.

         4.   STOCK FULLY PAID; RESERVATION OF SHARES. All Warrant Shares and
Contingent Shares, if any, that may be issued upon the exercise of the rights to
acquire Units represented by this Warrant (or in accordance with the terms of
the Merger Agreement in connection with the Contingent Shares associated with
such Units) will, upon issuance pursuant to the terms and


                                       2




conditions herein, be fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof. During the period within
which the rights represented by this Warrant may be exercised, the Company will
at all times have authorized, and reserved for the purpose of the issue upon
exercise of the purchase rights evidenced by this Warrant, a sufficient number
of shares of its Series G Preferred (or other class of capital stock for which
the Warrant is exercisable or convertible) to provide for the exercise of the
rights represented by this Warrant and a sufficient number of shares of its
Common Stock to provide for the conversion of the Series G Preferred into Common
Stock.

         5.   ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:

              (a) RECLASSIFICATION OR MERGER. In case of any reclassification or
change of securities of the class issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in case
of any merger or consolidation of the Company with or into another corporation
(other than a merger with another corporation in which the Company is the
acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall duly execute and deliver to the holder of this Warrant a new
Warrant (in form and substance satisfactory to the holder of this Warrant), or
the Company shall make appropriate provision without the issuance of a new
Warrant, so that the holder of this Warrant shall have the right to receive, at
a total purchase price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the shares of Series G
Preferred (or shares or Common Stock if the Series G Preferred has converted, or
other shares of capital stock issuable upon exercise or conversion of this
Warrant) theretofore issuable upon exercise of this Warrant, the kind and amount
of shares of stock, other securities, money and property receivable upon such
reclassification, change, merger or sale by a holder of the number of shares of
Series G Preferred (or shares or Common Stock if the Series G Preferred has
converted or other shares of capital stock issuable upon exercise or conversion
of this Warrant) then purchasable under this Warrant. Any new Warrant shall
provide for adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 5. The provisions of this
subparagraph (a) shall similarly apply to successive reclassifications, changes,
mergers, consolidations and transfers.

              (b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Series G Preferred (or shares of Common Stock
if the Series G Preferred has converted, or other shares of capital stock
issuable upon exercise or conversion of this Warrant), the Warrant Price shall
be proportionately decreased and the number of Warrant Shares issuable hereunder
shall be proportionately increased in the case of a subdivision and the Warrant
Price shall be proportionately increased and the number of Warrant Shares
issuable hereunder shall be proportionately decreased in the case of a
combination.


                                       3




              (c) STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. If the Company at any
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Series G Preferred payable in Series G Preferred, then the
Warrant Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (A) the numerator of which shall be the
total number of shares of Series G Preferred outstanding immediately prior to
such dividend or distribution, and (B) the denominator of which shall be the
total number of shares of Series G Preferred outstanding immediately after such
dividend or distribution; or (ii) make any other distribution with respect to
Series G Preferred (except any distribution specifically provided for in
Sections 5(a) and 5(b)), then, in each such case, provision shall be made by the
Company such that the holder of this Warrant shall receive upon exercise of this
Warrant a proportionate share of any such dividend or distribution as though it
were the holder of the Series G Preferred (or Common Stock issuable upon
conversion thereof) as of the record date fixed for the determination of the
shareholders of the Company entitled to receive such dividend or distribution.

              (d) CONVERSION OF SERIES G PREFERRED. In the event that the Series
G Preferred has converted into Common Stock prior to the exercise of this
Warrant, the number of shares of Common Stock issuable pursuant to this Warrant
shall be subject to adjustment pursuant to this Section 5 from time to time in
the same manner that the Series G Preferred had been pursuant to this Section 5
prior to its conversion.

              (e) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Warrant Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.

         6.   NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or the number of
Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 5
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Price and the number of Warrant Shares purchasable
hereunder after giving effect to such adjustment, and shall cause copies of such
certificate to be mailed (by first class mail, postage prepaid) to the holder of
this Warrant within 10 days of such adjustment. In addition, whenever the
conversion price or conversion ratio of the Series G Preferred (or any other
class of convertible capital stock issuable upon exercise or conversion of the
Warrant) shall be adjusted, the Company shall make a certificate signed by its
chief financial officer setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the conversion price or ratio of the Series G
Preferred after giving effect to such adjustment, and shall cause copies of such
certificate to be mailed (by first class mail, postage prepaid) within 10 days
of such adjustment to the holder of this Warrant.

         7.   FRACTIONAL SHARES. No fractional shares of Series G Preferred will
be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall


                                       4




make a cash payment therefor based on the fair market value of the Series G
Preferred on the date of exercise as reasonably determined in good faith by the
Company's Board of Directors.

         8.   COMPLIANCE WITH ACT; DISPOSITION OF SHARES.

              (a) COMPLIANCE WITH ACT. The holder of this Warrant, by acceptance
hereof, agrees that the shares of Series G Preferred (or any other class of
capital stock) to be issued upon exercise hereof and any Common Stock issued
upon conversion thereof are being acquired for investment and that such holder
will not offer, sell or otherwise dispose of any shares of Series G Preferred
(or other class of capital stock) to be issued upon exercise hereof or any
Common Stock issued upon conversion thereof except under circumstances which
will not result in a violation of the Securities Act of 1933, as amended (the
"Act") or any applicable state securities laws. Upon exercise of this Warrant,
unless the Warrant Shares being acquired are registered under the Act and any
applicable state securities laws or an exemption from such registration is
available, the holder hereof shall confirm in writing that the shares of Series
G Preferred so purchased (and any shares of Common Stock issued upon conversion
thereof) are being acquired for investment and not with a view toward
distribution or resale in violation of the Act and shall confirm such other
matters related thereto as may be reasonably requested by the Company. This
Warrant and all shares of Series G Preferred issued upon exercise of this
Warrant and all shares of Common Stock issued upon conversion thereof (unless
registered under the Act and any applicable state securities laws) shall be
stamped or imprinted with a legend in substantially the following form:

"THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) REGISTRATION UNDER THE ACT, (ii) AN OPINION OF COUNSEL OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITIES STATING THAT REGISTRATION IS NOT REQUIRED, OR (iv)
OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 8 OF THIS WARRANT."

         Said legend shall be removed by the Company, upon the request of a
holder, at such time as the restrictions on the transfer of the applicable
security shall have terminated. In addition, in connection with the issuance of
this Warrant, the initial Holder of this Warrant specifically represents to the
Company by acceptance of this Warrant as follows:

                  (1) The Holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
Holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for the resale in connection with, any
"distribution" thereof in violation of the Act.

                  (2) The Holder understands that this Warrant has not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the holder's
investment intent as expressed herein.


                                       5




                  (3) The Holder further understands that this Warrant must be
held indefinitely unless subsequently registered under the Act and qualified
under any applicable state securities laws, or unless exemptions from
registration and qualification are otherwise available. The Holder is aware of
the provisions of Rule 144, promulgated under the Act.

                  (4) The Holder is an "accredited investor" as such term is
defined in Rule 501 of Regulation D promulgated under the Act. If the Holder is
not an "accredited investor," such holder has utilized a "purchaser
representative" (as defined in Rule 501(h)) to assist such holder in evaluating
the investment decision represented by this Warrant and the transactions
contemplated thereby.

              (b) DISPOSITION OF WARRANT OR SHARES. With respect to any offer,
sale or other disposition of this Warrant or any shares of Series G Preferred
acquired pursuant to the exercise of this Warrant prior to registration of such
Warrant or shares, the holder hereof agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of such holder's counsel, or other evidence, reasonably
satisfactory to the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any applicable federal or state securities law then in
effect) of this Warrant or such shares of Series G Preferred or Common Stock (or
other class of capital stock) and indicating whether or not under the Act
certificates for this Warrant or such shares of Series G Preferred (or other
class of capital stock) to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
ensure compliance with such law. Upon receiving such written notice and
reasonably satisfactory opinion or other evidence, the Company, as promptly as
practicable but no later than ten (10) days after receipt of the written notice,
shall notify such holder that such holder may sell or otherwise dispose of this
Warrant or such shares of Series G Preferred or Common Stock (or other class of
capital stock), all in accordance with the terms of the notice delivered to the
Company. If a determination has been made pursuant to this Section 8(b) that the
opinion of counsel for the holder or other evidence is not reasonably
satisfactory to the Company, the Company shall so notify the holder promptly
with details thereof after such determination has been made. Notwithstanding the
foregoing, this Warrant or such shares of Series G Preferred or Common Stock (or
other class of capital stock) may, as to such federal laws, be offered, sold or
otherwise disposed of in accordance with Rule 144 or 144A under the Act,
provided that the Company shall have been furnished with such information as the
Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 or 144A have been satisfied. Each certificate
representing this Warrant or the shares of Series G Preferred thus transferred
(except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with
such laws, unless in the aforesaid opinion of counsel for the holder, such
legend is not required in order to ensure compliance with such laws. The Company
may issue stop transfer instructions to its transfer agent in connection with
such restrictions. To the extent that (i) registration rights are available
under that certain Investors' Rights Agreement described at Section 12.3 hereof,
and (ii) the holder hereof has complied with the transfer restrictions set forth
in this Warrant and such Investors' Rights Agreement, the transferee of this
Warrant (or the shares of Series G Preferred or Common Stock issued thereunder)
thus transferred shall also enjoy the benefit of such registration rights.


                                       6




              (c) APPLICABILITY OF RESTRICTIONS. Neither any restrictions of any
legend described in this Warrant nor the requirements of Section 8(b) or 2 above
shall apply to any transfer of, or grant of a security interest in the Series G
Preferred or Common Stock obtainable upon exercise of this Warrant or any part
thereof (i) to a partner of the holder if the holder is a partnership or to a
member of the holder if the holder is a limited liability company, (ii) to a
partnership of which the holder is a partner or to a limited liability company
of which the holder is a member, (iii) to any affiliate of the holder if the
holder is a corporation; or (iv) to the ancestors, children (including adopted
children) or other descendants or spouse of an individual holder or to trusts
for the benefit of such person or persons.

         9.   RIGHTS AS SHAREHOLDERS; INFORMATION. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Series G Preferred or any other securities of the Company which may at any time
be issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Warrant Shares and Contingent Consideration, if any, issuable upon the
exercise hereof shall have become deliverable, as provided herein.
Notwithstanding the foregoing, the Company will transmit to the holder of this
Warrant such information, documents and reports as are generally distributed to
the holders of any class or series of the securities of the Company concurrently
with the distribution thereof to the shareholders.

         10.  CASH CONSIDERATION AND CONTINGENT CONSIDERATION. Upon exercise of
this Warrant, in whole or in part from time to time, including a conversion of
this Warrant under Section 12.2 hereof, the holder of this Warrant shall be
entitled to receive, in addition to the applicable portion of the Warrant
Shares,

              (a) a portion, based on the portion of the Warrant which is
exercised or converted, of the Cash Consideration set forth on Schedule 1.5 of
the Merger Agreement as attributable to the portion of such Warrant that was
exercised;

              (b) to the extent that the applicable Contingent Consideration has
not been released in accordance with Section 1.5 of the Merger Agreement, a
right to the portion, based on the portion of the Warrant which is exercised or
converted, of the Contingent Consideration set forth on Schedule 1.5 of the
Merger Agreement as attributable to the Warrant (or such portion thereof) that
was exercised. As a Warrant is exercised or converted prior to release of
Contingent Shares in accordance with the terms of the Merger Agreement, the
portion of the Contingent Shares attributable to the holder of such exercised or
converted Warrant (or portion thereof) (as set forth on Schedule 1.5 to the
Merger Agreement) will be issued in the name of the Escrow Agent to be held in
the Escrow Fund in accordance with the terms of the Merger Agreement, that
certain Escrow Agreement by and among the Company, U.S. Bank Trust National
Association (the "Escrow Agent") and Katherine Gordon, Ph.D. (the "Stockholders'
Agent") (the "Escrow Agreement") and this Agreement. If and when such Contingent
Consideration is released it will be distributed in accordance with the Merger
Agreement and the Escrow Agreement to the person who exercised such Warrant (or
portion thereof); and


                                       7




              (c) to the extent that the applicable Contingent Consideration has
been released in accordance with Section 1.5 of the Merger Agreement prior to
such exercise or conversion, that portion of the Contingent Consideration
attributable to the portion of such Warrant that was exercised or converted.

         11.  INDEMNITY SHARES.

              (a) Pursuant to the Merger Agreement and the Escrow Agreement, an
escrow fund ("Escrow Fund") has been established to provide in part a fund
against which the Company may seek indemnification under the Merger Agreement
and in part a mechanism through which the Company can release and distribute
Contingent Consideration.

              (b) In the event that this Warrant is exercised prior to the
Release Date (as such term is defined in Section 9.3(b) of the Merger
Agreement), ten percent (10%) of the Series G shares otherwise deliverable
hereunder by such exercise (including shares of Contingent Consideration, if
any) shall be issued in the name of the Escrow Agent and deposited into the
Indemnity Portion of the Escrow Fund (as such term is defined in Section 9.1(a)
of the Merger Agreement) to be available to compensate the Company pursuant to
the indemnification obligations of Holder and shall be deemed to have become
Indemnity Shares (as such term is defined in Section 9.1(b) of the Merger
Agreement).

              (c) In the event that (i) this Warrant is exercised prior to the
Release Date, and (ii) a Conversion Right (as such term is defined at Section
12.2 hereof), is utilized to exercise all or a portion of the Warrant, that
number of Warrant Shares equal to ten percent (10%) of the Warrant Shares
underlying the Converted Units (as such term is defined at Section 12.2 hereof)
shall, in addition to ten percent (10%) of any Contingent Consideration
deliverable thereby, be deposited into the Indemnity Portion of the Escrow Fund
to compensate the Company pursuant to the indemnification obligations of Holder
and shall be deemed to have become Indemnity Shares.

         12.  ADDITIONAL RIGHTS.

              12.1 ACQUISITION TRANSACTIONS. The Company shall provide the
holder of this Warrant with at least ten (10) days' written notice prior to
closing thereof of the terms and conditions of any of the following transactions
(to the extent the Company has notice thereof): (i) the sale, lease, exchange,
conveyance or other disposition of all or substantially all of the Company's
property or business, (ii) the Company's merger into or consolidation with any
other corporation (other than a wholly-owned subsidiary of the Company), (iii)
any transaction (including a merger or other reorganization) or series of
related transactions, in which more than 50% of the voting power of the Company
is disposed of, (iv) the liquidation, dissolution or winding up of the Company,
(v) the issuance by the Company of dividends other than cash, (vi) the
redemption by the Company of over twenty percent (20%) of the Common Stock, or
(vii) the granting by the Company of rights to purchase its capital stock to all
holders of its then outstanding capital stock.


                                       8




              12.2 RIGHT TO CONVERT WARRANT INTO STOCK; NET ISSUANCE.

                   (a) RIGHT TO CONVERT. In addition to and without limiting the
rights of the holder under the other terms of this Warrant (including the rights
to Cash Consideration and Contingent Consideration in accordance with the terms
of Section 10 upon an exercise or conversion of the Warrant) , the holder shall
have the right, in lieu of payment of the applicable exercise price, to convert
this Warrant or any portion thereof (the "Conversion Right") into Warrant Shares
and the applicable portion of the remaining rights in the Converted Units
(including rights to Cash Consideration and Contingent Consideration related to
the Converted Units), as provided in this Section 12.2 at any time or from time
to time during the term of this Warrant. Upon exercise of the Conversion Right
with respect to a particular number of Warrant Shares subject to this Warrant
(the "Converted Units"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other consideration)
that number of Warrant Shares as is determined according to the following
formula (in addition to the holder's rights under Section 10):

                  X   =    B - A
                           -----
                             Y

                  Where: X  =  the number of Warrant Shares that shall be issued
                               to holder

                         Y  =  the fair market value of one Warrant Share

                         A  =  the aggregate Warrant Price of the specified
                               number of Warrant Shares in the Converted Units
                               immediately prior to the exercise of the
                               Conversion Right (I. E., the number of Converted
                               Units MULTIPLIED BY the Warrant Price)

                         B  =  the aggregate fair market value of the specified
                               number of Warrant Shares underlying the Converted
                               Units (I. E., the number of Converted Units
                               MULTIPLIED BY the fair market value of one
                               Warrant Share)

         No fractional Warrant Shares shall be issuable upon exercise of the
Conversion Right, and, if the number of shares to be issued determined in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date (as hereinafter defined). For
purposes of Section 12 of this Warrant, shares issued pursuant to the Conversion
Right shall be treated as if they were issued upon the exercise of this Warrant.

                   (b) METHOD OF EXERCISE. The Conversion Right may be exercised
by the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement (which may be in the form of Exhibit
A-l or Exhibit A-2 hereto) specifying that the holder thereby intends to
exercise the Conversion Right and indicating the number of Units (corresponding
to the number of Warrant Shares) subject to this Warrant which are being
surrendered (referred to in Section 12.2(a) hereof as the Converted Units) in
exercise of the Conversion Right. Such conversion shall be effective upon
receipt by the Company of this


                                       9




Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"), and, at the election of the holder
hereof, may be made contingent upon the closing of the sale of the Company's
Common Stock to the public in a public offering pursuant to a Registration
Statement under the Act (a "Public Offering"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the Units remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
twenty (20) days following the Conversion Date.

                   (c) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section 11.2, "fair market value" of a Warrant Share (i.e. a share of Series G
Preferred or share of Common Stock if the Series G Preferred has been
automatically converted into Common Stock) as of a particular date (the
"Determination Date") shall mean:

                       (i)   If the Conversion Right is exercised in connection
with and contingent upon a Public Offering, and if the Company's Registration
Statement relating to such Public Offering ("Registration Statement") has been
declared effective by the Securities and Exchange Commission, then the initial
"Price to Public" for a share of Common Stock specified in the final prospectus
with respect to such offering.

                       (ii)  If the Conversion Right is not exercised in
connection with and contingent upon a Public Offering, then as follows:

                             (A)  If traded on a securities exchange, the fair
market value of the Common Stock shall be deemed to be the average of the
closing prices of the Common Stock on such exchange over the 30-day period
ending five business days prior to the Determination Date, and the fair market
value of the Series G Preferred shall be deemed to be such fair market value of
the Common Stock multiplied by the number of shares of Common Stock into which
each share of Series G Preferred is then convertible;

                             (B)  If traded on the Nasdaq Stock Market or other
over-the-counter system, the fair market value of the Common Stock shall be
deemed to be the average of the closing bid prices of the Common Stock over the
30-day period ending five business days prior to the Determination Date, and the
fair market value of the Series G Preferred shall be deemed to be such fair
market value of the Common Stock multiplied by the number of shares of Common
Stock into which each share of Series G Preferred is then convertible; and

                             (C)  If there is no public market for the Common
Stock, then the fair market value shall be determined by mutual agreement of the
holder of this Warrant and the Company. Provided, that in the event that the
Company and Holder, in good faith, cannot agree on such value within a period of
twenty (20) days following such Holder's conversion (the "Appointment Period"),
such fair market value shall be determined by an independent investment banking
firm that has been selected by two other independent investment banking firms
each of which has been selected by the Holder and the Company. In the event that
both the Holder and the Company must appoint an independent investment banking
firm, such appointments shall be made with twenty (20) days following the
expiration of the Appointment Period and the two firms so selected will select
the third independent investment banking firm


                                       10




within ten (10) days of the appointment of the second of such firms. The fair
market value of the Series G Preferred shall be deemed to be such fair market
value of the Common Stock multiplied by the number of shares of Common Stock
into which each share of Series G Preferred is then convertible. If as a result
of such valuation, the fair market value determined by the independent
investment banking firm is greater than one hundred ten percent (110%) of the
value determined by the Company, then the Company shall reimburse Holder for
such reasonable fees and expenses related to the independent investment banking
firms. If as a result of such valuation, the fair market value determined by the
independent investment banking firm is equal to or less than one hundred ten
percent (110%) of the value determined by the Company, then the Holder shall
reimburse the Company for such reasonable fees and expenses related to the
independent investment banking firms.

              12.3 REGISTRATION RIGHTS. This Warrant is being issued in
connection with that certain investors' rights agreement, by and among the
Company and the individuals and entities listed on Exhibit A attached thereto,
dated as of the date hereof (the "Investors' Rights Agreement"), pursuant to
which certain registration rights have been granted in relation to the shares of
Series G Stock. and the shares of Common Stock issuable upon conversion thereof.

         13.  INCORPORATION OF MERGER AGREEMENT. The terms of the Merger
Agreement relating to the Series G Warrants and the Contingent Shares are
incorporated herein by reference as appropriate.

         14.  REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the holder of this Warrant as follows:

              (a) This Warrant has been duly authorized, executed and delivered
by the Company and is a valid and binding obligation of the Company enforceable
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;

              (b) The Warrant Shares and Contingent Consideration, if any, have
been duly authorized and reserved for issuance by the Company and, when issued
in accordance with the terms hereof will be validly issued, fully paid and
nonassessable;

              (c) The rights, preferences, privileges and restrictions granted
to or imposed upon the Series G Preferred and the holders thereof are as set
forth in the Company's Amended and Restated Articles of Incorporation (the
"Charter") and the Investors' Rights Agreement, and on the Date of Grant, each
share of the Series G Preferred represented by this Warrant is convertible into
one share of Common Stock;

              (d) The shares of Common Stock issuable upon conversion of the
Warrant Shares have been duly authorized and reserved for issuance by the
Company and, when issued in accordance with the terms of the Charter will be
validly issued, fully paid and nonassessable;

              (e) The execution and delivery of this Warrant do not, and the
issuance of the Units upon exercise of this Warrant in accordance with the terms
hereof will not conflict with the Charter or by-laws, do not and will not
contravene any law, governmental rule or regulation,


                                       11




judgment or order applicable to the Company, and do not and will not conflict
with or contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the giving
of notice to, the registration or filing with or the taking of any action in
respect of or by, any federal, state or local government authority or agency or
other person, except for the filing of notices pursuant to federal and state
securities laws, which filings will be effected by the time required thereby;
and

              (f) There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant.

         15.  MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

         16.  NOTICES. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered by hand, or shall be sent by certified, registered or
overnight mail, postage prepaid, to each such holder at its address as shown on
the books of the Company or to the Company at the address indicated therefor on
the signature page of this Warrant.

         17.  BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Series G Preferred issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof.

         18.  LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.

         19.  DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
warrant.

         20.  GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
internal laws of the State of California without regards to principles of choice
of law which would indicate otherwise.


                                       12




         21.  SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.

         22.  REMEDIES. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.

         23.  NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.

         24.  SEVERABILITY. The invalidity or unenforceability of any provision
of this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any other
provision of this Warrant, which shall remain in full force and effect.

         25.  RECOVERY OF LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Warrant, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.

         26.  ENTIRE AGREEMENT; MODIFICATION. This Warrant, together with the
Merger Agreement, the Escrow Agreement and that certain Investors' Rights
Agreement, by and among the Company and the individuals and entities listed on
Exhibit A attached thereto, dated as of the date hereof, constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.


                                       13





         The Company has caused this Warrant to be duly executed and delivered
as of the Date of Grant specified above.

                                       MITOKOR


                                       By:
                                              ----------------------------------

                                       Title:
                                              ----------------------------------

                                       Address:  11494 Sorrento Valley Road
                                                 San Diego, California 92121


                                       14




                                 EXHIBIT A-1

                               NOTICE OF EXERCISE

To: MITOKOR (the "Company")

         1.  The undersigned hereby:

             (TM)     elects to purchase _________ shares of [Series G
                      Preferred Stock][Common Stock] of the Company
                      pursuant to the terms of the attached Warrant, and
                      tenders herewith payment of the purchase price of
                      such shares in full, or

             (TM)     elects to exercise its net issuance rights pursuant
                      to Section 12.2 of the attached Warrant with respect
                      to _______ shares of [Series G Preferred Stock]
                      [Common Stock].

         2.  Please issue a certificate or certificates representing Warrant
Shares and Contingent Consideration, if any, in the name of the undersigned or
in such other name or names as are specified below:


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


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

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

         3.  Please deliver to the undersigned a check drawn on the account of
the Company in an amount equal to the sum of (a) such Cash Consideration to
which the undersigned is entitled by the exercise of the Warrant hereby and (b)
any Cash being issued in lieu of any fractional interests.

         4.  Please issue a new warrant agreement for the balance of any Units
for which the Warrant is not exercised hereby in the name of the undersigned
holder of the Warrant.

         5.  The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
all except as in compliance with applicable securities laws.


- -----------------------------
(Date)


                                       15




                                   EXHIBIT A-2

                               NOTICE OF EXERCISE


To: MITOKOR (the "Company")

         1.  Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S_, filed on , 20__, the undersigned hereby:

             (TM)   elects to purchase _________ shares of Common Stock
                    of the Company pursuant to the terms of the attached
                    Warrant, and tenders herewith payment of the purchase
                    price of such shares in full, or

             (TM)   elects to exercise its net issuance rights pursuant
                    to Section 12.2 of the attached Warrant with respect
                    to _______ shares of Common Stock.

         2.  Please deliver to the custodian for the selling shareholders a
stock certificate representing such Warrant Shares and Contingent Consideration,
if any.

         3.  Please deliver to the undersigned a check drawn on the account of
the Company in an amount equal to the sum of (a) such Cash Consideration to
which the undersigned is entitled by the exercise of the Warrant hereby and (b)
any Cash being issued in lieu of any fractional interests.

         4.  Please issue a new warrant agreement for the balance of any Units
for which the Warrant is not exercised hereby in the name of the undersigned
holder of the Warrant.

         5.  The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $ or, if less, the net proceeds due the
undersigned from the sale of shares in the aforesaid public offering. If such
net proceeds are less than the purchase price for such shares, the undersigned
agrees to deliver the difference to the Company prior to the Closing.



                                   ---------------------------------------------
                                   (Signature)



(Date)

EX-10.9

                                                                    Exhibit 10.9

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) REGISTRATION UNDER THE ACT, (ii) AN OPINION OF COUNSEL OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITIES STATING THAT REGISTRATION IS NOT REQUIRED, OR (iv)
OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 8 OF THIS WARRANT.

                                     MITOKOR

                                WARRANT (WGT-___)

         THIS CERTIFIES THAT, in exchange for certain warrants to purchase
shares of common stock of Apollo BioPharmaceutics, Inc., a Delaware corporation
("Apollo"), and pursuant to Section 1.6 of that certain Agreement and Plan of
Merger and Reorganization (the "Merger Agreement") by and among MITOKOR, a
California corporation (the "Company"), Mito Acquisition Corp., a Delaware
corporation ("Merger Sub"), and Apollo BioPharmaceutics, Inc., a Delaware
corporation ("Apollo"), dated May 8, 2001 (the "Merger Agreement"), ((name))
(the "Holder") and his, her or its assignees are entitled to subscribe for and
purchase up to (i) ((shares_word)) (((shares_number))) shares of fully paid and
nonassessable Series G Preferred Stock, no par value (the "Series G Preferred
Stock") (as adjusted pursuant to Section 5 hereof, the "Warrant Shares") of the
Company, together with (ii) such portion of the Cash Consideration and
Contingent Consideration (as such terms are defined and provided for in the
Merger Agreement) as are associated with such Warrant Shares on Schedule 1.5 of
the Merger Agreement (the portion of the Cash Consideration and Contingent
Consideration associated with one Warrant Share together with one Warrant Share
itself being referred to hereinafter as a "Unit") at the price per Unit of
$((price)) (such price and such other price as shall result, from time to time,
from the adjustments specified in Section 5 hereof is herein referred to as the
"Warrant Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth. As used herein, (a) the term "Series G Preferred" shall
mean the Company's presently authorized Series G Preferred Stock, and any stock
into or for which such Series G Preferred Stock may hereafter be converted or
exchanged, and after the automatic conversion of the Series G Preferred Stock to
Common Stock shall mean the Company's Common Stock, (b) the term "Date of Grant"
shall mean ((date)), 2001, and (c) the term "Other Warrants" shall mean any
other warrants issued by the Company in connection with the merger with respect
to which this Warrant was issued, and any warrant issued upon transfer or
partial exercise of or in lieu of this Warrant. The term "Warrant" as used
herein shall be deemed to include Other Warrants unless the context clearly
requires otherwise. Terms used herein and not otherwise defined shall have the
meanings ascribed to such terms in the Merger Agreement.

         1.   TERM. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through that date which is ten (10) years after the Date of Grant.

         2.   METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in


                                       1




whole or in part, at any time, and from time to time, at the election of the
holder hereof, by (a) the surrender of this Warrant (with the notice of exercise
substantially in the form attached hereto as Exhibit A-l duly completed and
executed) at the principal office of the Company and by the payment to the
Company, by certified or bank check, or by wire transfer to an account
designated by the Company (a "Wire Transfer") of an amount equal to the then
applicable Warrant Price multiplied by the number of Units then being purchased;
(b) if in connection with a registered public offering of the Company's
securities, the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit A-2 duly completed and executed) at the principal
office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by certified or
bank check or by Wire Transfer from the proceeds of the sale of shares to be
sold by the holder in such public offering of an amount equal to the then
applicable Warrant Price per share multiplied by the number of Units then being
purchased; or (c) exercise of the "net issuance" right provided for in Section
12.2 hereof. The person or persons in whose name(s) any certificate(s)
representing shares of Series G Preferred shall be issuable upon exercise of
this Warrant shall be deemed to have become the holder(s) of record of, and
shall be treated for all purposes as the record holder(s) of, the shares
represented thereby (and such shares shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised in accordance with this Section 2. In the event of any
exercise of the rights represented by this Warrant, certificates for the shares
of stock so purchased shall be delivered to the holder hereof as soon as
possible and in any event within ten (10) business days after such exercise and,
unless this Warrant has been fully exercised or expired, a new Warrant
representing the portion of the Units, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the holder
hereof as soon as possible and in any event within such ten (10) business day
period; provided, however, at such time as the Company is subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, if
requested by the holder of this Warrant, the Company shall cause its transfer
agent to deliver the certificate representing Warrant Shares and Contingent
Consideration, if any, issued upon exercise of this Warrant to a broker or other
person (as directed by the holder exercising this Warrant) within the time
period required to settle any trade made by the holder after exercise of this
Warrant.

         3.   STOCK FULLY PAID; RESERVATION OF SHARES. All Warrant Shares and
Contingent Shares, if any, that may be issued upon the exercise of the rights to
acquire Units represented by this Warrant (or in accordance with the terms of
the Merger Agreement in connection with the Contingent Shares associated with
such Units) will, upon issuance pursuant to the terms and conditions herein, be
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Series G Preferred (or other class of capital stock for which the Warrant is
exercisable or convertible) to provide for the exercise of the rights
represented by this Warrant and a sufficient number of shares of its Common
Stock to provide for the conversion of the Series G Preferred into Common Stock.

         4.   ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:


                                       2




              (a) RECLASSIFICATION OR MERGER. In case of any reclassification or
change of securities of the class issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in case
of any merger or consolidation of the Company with or into another corporation
(other than a merger with another corporation in which the Company is the
acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall duly execute and deliver to the holder of this Warrant a new
Warrant (in form and substance satisfactory to the holder of this Warrant), or
the Company shall make appropriate provision without the issuance of a new
Warrant, so that the holder of this Warrant shall have the right to receive, at
a total purchase price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, and in lieu of the shares of Series G
Preferred (or shares or Common Stock if the Series G Preferred has converted, or
other shares of capital stock issuable upon exercise or conversion of this
Warrant) theretofore issuable upon exercise of this Warrant, the kind and amount
of shares of stock, other securities, money and property receivable upon such
reclassification, change, merger or sale by a holder of the number of shares of
Series G Preferred (or shares or Common Stock if the Series G Preferred has
converted or other shares of capital stock issuable upon exercise or conversion
of this Warrant) then purchasable under this Warrant. Any new Warrant shall
provide for adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 5. The provisions of this
subparagraph (a) shall similarly apply to successive reclassifications, changes,
mergers, consolidations and transfers.

              (b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Series G Preferred (or shares of Common Stock
if the Series G Preferred has converted, or other shares of capital stock
issuable upon exercise or conversion of this Warrant), the Warrant Price shall
be proportionately decreased and the number of Warrant Shares issuable hereunder
shall be proportionately increased in the case of a subdivision and the Warrant
Price shall be proportionately increased and the number of Warrant Shares
issuable hereunder shall be proportionately decreased in the case of a
combination.

              (c) STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. If the Company at any
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Series G Preferred payable in Series G Preferred, then the
Warrant Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (A) the numerator of which shall be the
total number of shares of Series G Preferred outstanding immediately prior to
such dividend or distribution, and (B) the denominator of which shall be the
total number of shares of Series G Preferred outstanding immediately after such
dividend or distribution; or (ii) make any other distribution with respect to
Series G Preferred (except any distribution specifically provided for in
Sections 5(a) and 5(b)), then, in each such case, provision shall be made by the
Company such that the holder of this Warrant shall receive upon exercise of this
Warrant a proportionate share of any such dividend or distribution as though it
were the holder of the Series G Preferred (or Common Stock issuable


                                       3




upon conversion thereof) as of the record date fixed for the determination of
the shareholders of the Company entitled to receive such dividend or
distribution.

              (d) CONVERSION OF SERIES G PREFERRED. In the event that the Series
G Preferred has converted into Common Stock prior to the exercise of this
Warrant, the number of shares of Common Stock issuable pursuant to this Warrant
shall be subject to adjustment pursuant to this Section 5 from time to time in
the same manner that the Series G Preferred had been pursuant to this Section 5
prior to its conversion.

              (e) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Warrant Price, the number of Warrant Shares purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.

         5.   NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or the number of
Warrant Shares purchasable hereunder shall be adjusted pursuant to Section 5
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Price and the number of Warrant Shares purchasable
hereunder after giving effect to such adjustment, and shall cause copies of such
certificate to be mailed (by first class mail, postage prepaid) to the holder of
this Warrant within 10 days of such adjustment. In addition, whenever the
conversion price or conversion ratio of the Series G Preferred (or any other
class of convertible capital stock issuable upon exercise or conversion of the
Warrant) shall be adjusted, the Company shall make a certificate signed by its
chief financial officer setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the conversion price or ratio of the Series G
Preferred after giving effect to such adjustment, and shall cause copies of such
certificate to be mailed (by first class mail, postage prepaid) within 10 days
of such adjustment to the holder of this Warrant.

         6.   FRACTIONAL SHARES. No fractional shares of Series G Preferred will
be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Series G Preferred on the date of exercise as
reasonably determined in good faith by the Company's Board of Directors.

         7.   COMPLIANCE WITH ACT; DISPOSITION OF WARRANT OR SHARES.

              (a) COMPLIANCE WITH ACT. The holder of this Warrant, by acceptance
hereof, agrees that this Warrant, and the shares of Series G Preferred (or any
other class of capital stock) to be issued upon exercise hereof and any Common
Stock issued upon conversion thereof are being acquired for investment and that
such holder will not offer, sell or otherwise dispose of this Warrant, or any
shares of Series G Preferred (or other class of capital stock) to be issued upon
exercise hereof or any Common Stock issued upon conversion thereof except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Act") or any applicable state securities laws. Upon
exercise of this Warrant, unless the Warrant


                                       4




Shares being acquired are registered under the Act and any applicable state
securities laws or an exemption from such registration is available, the holder
hereof shall confirm in writing that the shares of Series G Preferred so
purchased (and any shares of Common Stock issued upon conversion thereof) are
being acquired for investment and not with a view toward distribution or resale
in violation of the Act and shall confirm such other matters related thereto as
may be reasonably requested by the Company. This Warrant and all shares of
Series G Preferred issued upon exercise of this Warrant and all shares of Common
Stock issued upon conversion thereof (unless registered under the Act and any
applicable state securities laws) shall be stamped or imprinted with a legend in
substantially the following form:

"THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) REGISTRATION UNDER THE ACT, (ii) AN OPINION OF COUNSEL OR
OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITIES STATING THAT REGISTRATION IS NOT REQUIRED, OR (iv)
OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 8 OF THIS WARRANT."

         Said legend shall be removed by the Company, upon the request of a
holder, at such time as the restrictions on the transfer of the applicable
security shall have terminated. In addition, in connection with the issuance of
this Warrant, the initial Holder of this Warrant specifically represents to the
Company by acceptance of this Warrant as follows:

                  (1) The Holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
Holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for the resale in connection with, any
"distribution" thereof in violation of the Act.

                  (2) The Holder understands that this Warrant has not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the holder's
investment intent as expressed herein.

                  (3) The Holder further understands that this Warrant must be
held indefinitely unless subsequently registered under the Act and qualified
under any applicable state securities laws, or unless exemptions from
registration and qualification are otherwise available. The Holder is aware of
the provisions of Rule 144, promulgated under the Act.

                  (4) The Holder is an "accredited investor" as such term is
defined in Rule 501 of Regulation D promulgated under the Act. If the Holder is
not an "accredited investor," such holder has utilized a "purchaser
representative" (as defined in Rule 501(h)) to assist such holder in evaluating
the investment decision represented by this Warrant and the transactions
contemplated thereby.

              (b) DISPOSITION OF WARRANT OR SHARES. With respect to any offer,
sale or other disposition of this Warrant or any shares of Series G Preferred
acquired pursuant to the exercise


                                       5




of this Warrant prior to registration of such Warrant or shares, the holder
hereof agrees to give written notice to the Company prior thereto, describing
briefly the manner thereof, together with a written opinion of such holder's
counsel, or other evidence, reasonably satisfactory to the Company, to the
effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any applicable
federal or state securities law then in effect) of this Warrant or such shares
of Series G Preferred or Common Stock (or other class of capital stock) and
indicating whether or not under the Act certificates for this Warrant or such
shares of Series G Preferred (or other class of capital stock) to be sold or
otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with such law.
Upon receiving such written notice and reasonably satisfactory opinion or other
evidence, the Company, as promptly as practicable but no later than ten (10)
days after receipt of the written notice, shall notify such holder that such
holder may sell or otherwise dispose of this Warrant or such shares of Series G
Preferred or Common Stock (or other class of capital stock), all in accordance
with the terms of the notice delivered to the Company. If a determination has
been made pursuant to this Section 8(b) that the opinion of counsel for the
holder or other evidence is not reasonably satisfactory to the Company, the
Company shall so notify the holder promptly with details thereof after such
determination has been made. Notwithstanding the foregoing, this Warrant or such
shares of Series G Preferred or Common Stock (or other class of capital stock)
may, as to such federal laws, be offered, sold or otherwise disposed of in
accordance with Rule 144 or 144A under the Act, provided that the Company shall
have been furnished with such information as the Company may reasonably request
to provide a reasonable assurance that the provisions of Rule 144 or 144A have
been satisfied. Each certificate representing this Warrant or the shares of
Series G Preferred thus transferred (except a transfer pursuant to Rule 144 or
144A) shall bear a legend as to the applicable restrictions on transferability
in order to ensure compliance with such laws, unless in the aforesaid opinion of
counsel for the holder, such legend is not required in order to ensure
compliance with such laws. The Company may issue stop transfer instructions to
its transfer agent in connection with such restrictions. To the extent that (i)
registration rights are available under that certain Investors' Rights Agreement
described at Section 12.3 hereof, and (ii) the holder hereof has complied with
the transfer restrictions set forth in this Warrant and such Investors' Rights
Agreement, the transferee of this Warrant (or the shares of Series G Preferred
or Common Stock issued thereunder) thus transferred shall also enjoy the benefit
of such registration rights.

              (c) APPLICABILITY OF RESTRICTIONS. Neither any restrictions of any
legend described in this Warrant nor the requirements of Section 8(b) shall
apply to any transfer of, or grant of a security interest in this Warrant (or
the Series G Preferred or Common Stock obtainable upon exercise of this Warrant)
or any part thereof (i) to a partner of the holder if the holder is a
partnership or to a member of the holder if the holder is a limited liability
company, (ii) to a partnership of which the holder is a partner or to a limited
liability company of which the holder is a member, (iii) to any affiliate of the
holder if the holder is a corporation; or (iv) to the ancestors, children
(including adopted children) or other descendants or spouse of an individual
holder or to trusts for the benefit of such person or persons.

         8.   RIGHTS AS SHAREHOLDERS; INFORMATION. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Series G Preferred or any other securities of the Company which may at any time
be issuable on the exercise hereof for any


                                       6




purpose, nor shall anything contained herein be construed to confer upon the
holder of this Warrant, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to shareholders at any meeting thereof, or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until this
Warrant shall have been exercised and the Warrant Shares and Contingent
Consideration, if any, issuable upon the exercise hereof shall have become
deliverable, as provided herein. Notwithstanding the foregoing, the Company will
transmit to the holder of this Warrant such information, documents and reports
as are generally distributed to the holders of any class or series of the
securities of the Company concurrently with the distribution thereof to the
shareholders.

         9.   CASH CONSIDERATION AND CONTINGENT CONSIDERATION. Upon exercise of
this Warrant, in whole or in part from time to time, including a conversion of
this Warrant under Section 12.2 hereof, the holder of this Warrant shall be
entitled to receive, in addition to the applicable portion of the Warrant
Shares,

              (a) a portion, based on the portion of the Warrant which is
exercised or converted, of the Cash Consideration set forth on Schedule 1.5 of
the Merger Agreement as attributable to the portion of such Warrant that was
exercised;

              (b) to the extent that the applicable Contingent Consideration has
not been released in accordance with Section 1.5 of the Merger Agreement, a
right to the portion, based on the portion of the Warrant which is exercised or
converted, of the Contingent Consideration set forth on Schedule 1.5 of the
Merger Agreement as attributable to the Warrant (or portion thereof) that was
exercised. As a Warrant is exercised or converted prior to release of Contingent
Shares in accordance with the terms of the Merger Agreement, the portion of the
Contingent Shares attributable to the holder of such exercised or converted
Warrant (or portion thereof) (as set forth on Schedule 1.5 to the Merger
Agreement) will be issued in the name of the Escrow Agent to be held in the
Escrow Fund in accordance with the terms of the Merger Agreement, that certain
Escrow Agreement by and among the Company, U.S. Bank Trust National Association
(the "Escrow Agent") and Katherine Gordon, Ph.D. (the "Stockholders' Agent")
(the "Escrow Agreement") and this Agreement. If and when such Contingent
Consideration is released it will be distributed in accordance with the Merger
Agreement and the Escrow Agreement to the person who exercised such Warrant (or
portion thereof); and

              (c) to the extent that the applicable Contingent Consideration has
been released in accordance with Section 1.5 of the Merger Agreement prior to
such exercise or conversion, that portion of the Contingent Consideration
attributable to the portion of such Warrant that was exercised or converted.

         10.  INDEMNITY SHARES.

              (a) Pursuant to the Merger Agreement and the Escrow Agreement, an
escrow fund ("Escrow Fund") has been established to provide in part a fund
against which the Company may seek indemnification under the Merger Agreement
and in part a mechanism through which the Company can release and distribute
Contingent Consideration.


                                       7




              (b) In the event that this Warrant is exercised prior to the
Release Date (as such term is defined in Section 9.3(b) of the Merger
Agreement), ten percent (10%) of the Series G shares otherwise deliverable
hereunder by such exercise (including shares of Contingent Consideration, if
any) shall be issued in the name of the Escrow Agent and deposited into the
Indemnity Portion of the Escrow Fund (as such term is defined in Section 9.1(a)
of the Merger Agreement) to be available to compensate the Company pursuant to
the indemnification obligations of Holder and shall be deemed to have become
Indemnity Shares (as such term is defined in Section 9.1(b) of the Merger
Agreement).

              (c) In the event that (i) this Warrant is exercised prior to the
Release Date, and (ii) a Conversion Right (as such term is defined at Section
12.2 hereof), is utilized to exercise all or a portion of the Warrant, that
number of Warrant Shares equal to ten percent (10%) of the Warrant Shares
underlying the Converted Units (as such term is defined at Section 12.2 hereof)
shall, in addition to (A) ten percent (10%) of any Contingent Consideration
deliverable thereby and (B) the shares identified in Section 11(b) hereof, be
deposited into the Indemnity Portion of the Escrow Fund to compensate the
Company pursuant to the indemnification obligations of Holder and shall be
deemed to have become Indemnity Shares.

         11.  ADDITIONAL RIGHTS.

              11.1 ACQUISITION TRANSACTIONS. The Company shall provide the
holder of this Warrant with at least ten (10) days' written notice prior to
closing thereof of the terms and conditions of any of the following transactions
(to the extent the Company has notice thereof): (i) the sale, lease, exchange,
conveyance or other disposition of all or substantially all of the Company's
property or business, (ii) the Company's merger into or consolidation with any
other corporation (other than a wholly-owned subsidiary of the Company), (iii)
any transaction (including a merger or other reorganization) or series of
related transactions, in which more than 50% of the voting power of the Company
is disposed of, (iv) the liquidation, dissolution or winding up of the Company,
(v) the issuance by the Company of dividends other than cash, (vi) the
redemption by the Company of over twenty percent (20%) of the Common Stock, or
(vii) the granting by the Company of rights to purchase its capital stock to all
holders of its then outstanding capital stock.

              11.2 RIGHT TO CONVERT WARRANT INTO STOCK; NET ISSUANCE.

                   (a) RIGHT TO CONVERT. In addition to and without limiting the
rights of the holder under the other terms of this Warrant (including the rights
to Cash Consideration and Contingent Consideration in accordance with the terms
of Section 10 upon an exercise or conversion of the Warrant) , the holder shall
have the right, in lieu of payment of the applicable exercise price, to convert
this Warrant or any portion thereof (the "Conversion Right") into Warrant Shares
and the applicable portion of the remaining rights in the Converted Units
(including rights to Cash Consideration and Contingent Consideration related to
the Converted Units), as provided in this Section 12.2 at any time or from time
to time during the term of this Warrant. Upon exercise of the Conversion Right
with respect to a particular number of Warrant Shares subject to this Warrant
(the "Converted Units"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other consideration)
that


                                       8




number of Warrant Shares as is determined according to the following formula (in
addition to the holder's rights under Section 10):

                  X   =    B - A
                           -----
                             Y

                  Where:  X  =  the number of Warrant Shares that shall be
                                issued to holder

                          Y  =  the fair market value of one Warrant Share

                          A  =  the aggregate Warrant Price of the specified
                                number of Warrant Shares in the Converted Units
                                immediately prior to the exercise of the
                                Conversion Right (I. E., the number of Converted
                                Units MULTIPLIED BY the Warrant Price)

                          B  =  the aggregate fair market value of the specified
                                number of Warrant Shares underlying the
                                Converted Units (I. E., the number of Converted
                                Units MULTIPLIED BY the fair market value of one
                                Warrant Share)

         No fractional Warrant Shares shall be issuable upon exercise of the
Conversion Right, and, if the number of shares to be issued determined in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date (as hereinafter defined). For
purposes of Section 12 of this Warrant, shares issued pursuant to the Conversion
Right shall be treated as if they were issued upon the exercise of this Warrant.

                   (b) METHOD OF EXERCISE. The Conversion Right may be exercised
by the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement (which may be in the form of Exhibit
A-l or Exhibit A-2 hereto) specifying that the holder thereby intends to
exercise the Conversion Right and indicating the number of Units (corresponding
to the number of Warrant Shares) subject to this Warrant which are being
surrendered (referred to in Section 12.2(a) hereof as the Converted Units) in
exercise of the Conversion Right. Such conversion shall be effective upon
receipt by the Company of this Warrant together with the aforesaid written
statement, or on such later date as is specified therein (the "Conversion
Date"), and, at the election of the holder hereof, may be made contingent upon
the closing of the sale of the Company's Common Stock to the public in a public
offering pursuant to a Registration Statement under the Act (a "Public
Offering"). Certificates for the shares issuable upon exercise of the Conversion
Right and, if applicable, a new warrant evidencing the balance of the Units
remaining subject to this Warrant, shall be issued as of the Conversion Date and
shall be delivered to the holder within twenty (20) days following the
Conversion Date.

                   (c) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section 11.2, "fair market value" of a Warrant Share (i.e. a share of Series G
Preferred or share of Common Stock if the Series G Preferred has been
automatically converted into Common Stock) as of a particular date (the
"Determination Date") shall mean:


                                       9




                       (i)   If the Conversion Right is exercised in connection
with and contingent upon a Public Offering, and if the Company's Registration
Statement relating to such Public Offering ("Registration Statement") has been
declared effective by the Securities and Exchange Commission, then the initial
"Price to Public" for a share of Common Stock specified in the final prospectus
with respect to such offering.

                       (ii)  If the Conversion Right is not exercised in
connection with and contingent upon a Public Offering, then as follows:

                             (A) If traded on a securities exchange, the fair
market value of the Common Stock shall be deemed to be the average of the
closing prices of the Common Stock on such exchange over the 30-day period
ending five business days prior to the Determination Date, and the fair market
value of the Series G Preferred shall be deemed to be such fair market value of
the Common Stock multiplied by the number of shares of Common Stock into which
each share of Series G Preferred is then convertible;

                             (B) If traded on the Nasdaq Stock Market or other
over-the-counter system, the fair market value of the Common Stock shall be
deemed to be the average of the closing bid prices of the Common Stock over the
30-day period ending five business days prior to the Determination Date, and the
fair market value of the Series G Preferred shall be deemed to be such fair
market value of the Common Stock multiplied by the number of shares of Common
Stock into which each share of Series G Preferred is then convertible; and

                             (C) If there is no public market for the Common
Stock, then the fair market value shall be determined by mutual agreement of the
holder of this Warrant and the Company. Provided, that in the event that the
Company and Holder, in good faith, cannot agree on such value within a period of
twenty (20) days following such Holder's conversion (the "Appointment Period"),
such fair market value shall be determined by an independent investment banking
firm that has been selected by two other independent investment banking firms
each of the Holder and the Company. In the event that both the Holder and the
Company must appoint an independent investment banking firm, such appointments
shall be made with twenty (20) days following the expiration of the Appointment
Period and the two firms so selected will select the third independent
investment banking firm within ten (10) days of the appointment of the second of
such firms. The fair market value of the Series G Preferred shall be deemed to
be such fair market value of the Common Stock multiplied by the number of shares
of Common Stock into which each share of Series G Preferred is then convertible.
If as a result of such valuation, the fair market value determined by the
independent investment banking firm is greater than one hundred ten percent
(110%) of the value determined by the Company, then the Company shall reimburse
Holder for such reasonable fees and expenses related to the independent
investment banking firms. If as a result of such valuation, the fair market
value determined by the independent investment banking firm is equal to or less
than one hundred ten percent (110%) of the value determined by the Company, then
the Holder shall reimburse the Company for such reasonable fees and expenses
related to the independent investment banking firms.


                                       10




              11.3 REGISTRATION RIGHTS. This Warrant is being issued in
connection with that certain investors' rights agreement, by and among the
Company and the individuals and entities listed on Exhibit A attached thereto,
dated as of the date hereof (the "Investors' Rights Agreement"), pursuant to
which certain registration rights have been granted in relation to the shares of
Series G Stock. and the shares of Common Stock issuable upon conversion thereof.

         12.  INCORPORATION OF MERGER AGREEMENT. The terms of the Merger
Agreement relating to the Series G Warrants and the Contingent Shares are
incorporated herein by reference as appropriate.

         13.  REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the holder of this Warrant as follows:

              (a) This Warrant has been duly authorized, executed and delivered
by the Company and is a valid and binding obligation of the Company enforceable
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;

              (b) The Warrant Shares and Contingent Consideration, if any, have
been duly authorized and reserved for issuance by the Company and, when issued
in accordance with the terms hereof will be validly issued, fully paid and
nonassessable;

              (c) The rights, preferences, privileges and restrictions granted
to or imposed upon the Series G Preferred and the holders thereof are as set
forth in the Company's Amended and Restated Articles of Incorporation (the
"Charter") and the Investors' Rights Agreement, and on the Date of Grant, each
share of the Series G Preferred represented by this Warrant is convertible into
one share of Common Stock;

              (d) The shares of Common Stock issuable upon conversion of the
Warrant Shares have been duly authorized and reserved for issuance by the
Company and, when issued in accordance with the terms of the Charter will be
validly issued, fully paid and nonassessable;

              (e) The execution and delivery of this Warrant do not, and the
issuance of the Units upon exercise of this Warrant in accordance with the terms
hereof will not conflict with the Charter or by-laws, do not and will not
contravene any law, governmental rule or regulation, judgment or order
applicable to the Company, and do not and will not conflict with or contravene
any provision of, or constitute a default under, any indenture, mortgage,
contract or other instrument of which the Company is a party or by which it is
bound or require the consent or approval of, the giving of notice to, the
registration or filing with or the taking of any action in respect of or by, any
federal, state or local government authority or agency or other person, except
for the filing of notices pursuant to federal and state securities laws, which
filings will be effected by the time required thereby; and

              (f) There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a


                                       11




material adverse effect on the ability of the Company to perform its obligations
under this Warrant.

         14.  MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

         15.  NOTICES. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered by hand, or shall be sent by certified, registered or
overnight mail, postage prepaid, to each such holder at its address as shown on
the books of the Company or to the Company at the address indicated therefor on
the signature page of this Warrant.

         16.  BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Series G Preferred issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof.

         17.  LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.

         18.  DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
warrant.

         19.  GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
internal laws of the State of California without regards to principles of choice
of law which would indicate otherwise.

         20.  SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.

         21.  REMEDIES. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the


                                       12




Company), or the Company (in the case of a breach by a holder), may proceed to
protect and enforce their or its rights either by suit in equity and/or by
action at law, including, but not limited to, an action for damages as a result
of any such breach and/or an action for specific performance of any such
covenant or agreement contained in this Warrant.

         22.  NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.

         23.  SEVERABILITY. The invalidity or unenforceability of any provision
of this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any other
provision of this Warrant, which shall remain in full force and effect.

         24.  RECOVERY OF LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Warrant, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.

         25.  ENTIRE AGREEMENT; MODIFICATION. This Warrant, together with the
Merger Agreement, the Escrow Agreement and that certain Investors' Rights
Agreement, by and among the Company and the individuals and entities listed on
Exhibit A attached thereto, dated as of the date hereof, constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.

         The Company has caused this Warrant to be duly executed and delivered
as of the Date of Grant specified above.

                                       MITOKOR


                                       By:
                                              ----------------------------------

                                       Title:
                                              ----------------------------------

                                       Address:  11494 Sorrento Valley Road
                                                 San Diego, California 92121


                                       13




                                   EXHIBIT A-1

                               NOTICE OF EXERCISE

To: MITOKOR (the "Company")

         1.  The undersigned hereby:

             (TM)   elects to purchase _________ shares of [Series G
                    Preferred Stock][Common Stock] of the Company
                    pursuant to the terms of the attached Warrant, and
                    tenders herewith payment of the purchase price of
                    such shares in full, or

             (TM)   elects to exercise its net issuance rights pursuant
                    to Section 12.2 of the attached Warrant with respect
                    to _______ shares of [Series G Preferred Stock]
                    [Common Stock].

         2.  Please issue a certificate or certificates representing Warrant
Shares and Contingent Consideration, if any, in the name of the undersigned or
in such other name or names as are specified below:


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


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

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

         3.  Please deliver to the undersigned a check drawn on the account of
the Company in an amount equal to the sum of (a) such Cash Consideration to
which the undersigned is entitled by the exercise of the Warrant hereby and (b)
any Cash being issued in lieu of any fractional interests.

         4.  Please issue a new warrant agreement for the balance of any Units
for which the Warrant is not exercised hereby in the name of the undersigned
holder of the Warrant.

         5.  The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
all except as in compliance with applicable securities laws.



- ------------------------------
(Date)


                                       14




                                   EXHIBIT A-2

                               NOTICE OF EXERCISE


To: MITOKOR (the "Company")

         1.  Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S_, filed on ________, 20__, the undersigned hereby:

             (TM)   elects to purchase _________ shares of Common Stock
                    of the Company pursuant to the terms of the attached
                    Warrant, and tenders herewith payment of the purchase
                    price of such shares in full, or

             (TM)   elects to exercise its net issuance rights pursuant
                    to Section 12.2 of the attached Warrant with respect
                    to _______ shares of Common Stock.

         2.  Please deliver to the custodian for the selling shareholders a
stock certificate representing such Warrant Shares and Contingent Consideration,
if any.

         3.  Please deliver to the undersigned a check drawn on the account of
the Company in an amount equal to the sum of (a) such Cash Consideration to
which the undersigned is entitled by the exercise of the Warrant hereby and (b)
any Cash being issued in lieu of any fractional interests.

         4.  Please issue a new warrant agreement for the balance of any Units
for which the Warrant is not exercised hereby in the name of the undersigned
holder of the Warrant.

         5.  The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior
to the Closing.



                                   ---------------------------------------------
                                   (Signature)



(Date)

EX-10.10

                                                                   Exhibit 10.10










                                     MITOKOR

                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT

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

                                November 9, 2001






                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

1.   Authorization and Sale of Preferred Shares................................1
     1.1   Authorization; Amended and Restated Articles of Incorporation.......1
     1.2   Sale and Issuance of the Preferred Shares...........................1

2.   Closing Date; Delivery....................................................1
     2.1   Closing Dates.......................................................1
     2.2   Delivery............................................................2

3.   Representations and Warranties of the Company.............................2
     3.1   Organization and Standing; Articles and By-Laws.....................2
     3.2   Corporate Power.....................................................2
     3.3   Subsidiaries........................................................2
     3.4   Capitalization......................................................2
     3.5   Authorization.......................................................3
     3.6   Patents and Other Proprietary Rights................................4
     3.7   Compliance with Other Instruments, None Burdensome, etc.............5
     3.8   Proprietary Agreements; Employees...................................5
     3.9   Condition of Properties.............................................6
     3.10  Litigation, etc.....................................................6
     3.11  Governmental Consent, etc...........................................6
     3.12  Offering............................................................6
     3.13  Taxes...............................................................7
     3.14  Title...............................................................7
     3.15  Material Contracts and Commitments..................................7
     3.16  Financial Statements................................................7
     3.17  Absence of Changes..................................................8
     3.18  Outstanding Indebtedness............................................8
     3.19  Registration Rights.................................................9
     3.20  Certain Transactions................................................9
     3.21  Corporate Documents; Minute Books...................................9
     3.22  Employee Benefit Plans..............................................9
     3.23  Labor Agreements....................................................9
     3.24  Real Property Holding Corporation...................................9
     3.25  Disclosure..........................................................9
     3.26  Insurance...........................................................9
     3.27  Shareholder Agreements.............................................10
     3.28  Environmental Matters..............................................10
     3.29  Manufacturing Rights...............................................11
     3.30  Assumptions, Guaranties, Etc. of Indebtedness of Other Persons.....11
     3.31  Material Customers and Suppliers...................................11

4.   Representations and Warranties of Purchaser and Restrictions on Transfer
     Imposed by the Securities Act............................................11
     4.1   Representations and Warranties by the Purchaser....................11

                                      -i-




                                TABLE OF CONTENTS
                                   (continued)
                                                                            PAGE
                                                                            ----

     4.2   Legends............................................................12
     4.3   Removal of Legend and Transfer Restrictions........................13
     4.4   Rule 144...........................................................13

5.   Conditions to Closing....................................................13
     5.1   Conditions to Purchasers' Obligations..............................13
     5.2   Conditions to Obligations of the Company...........................14

6.   Affirmative Covenants of the Company.....................................14
     6.1   Financial Information..............................................14
     6.2   Conflicts of Interests.............................................15
     6.3   Key Man Insurance..................................................15
     6.4   Proprietary Agreements.............................................16
     6.5   Future Stock Issuances.............................................16
     6.6   Rule 144...........................................................16
     6.7   Transactions with Affiliates.......................................16
     6.8   Inspection Rights..................................................16
     6.9   Additional Benefits to Subsequent Investors........................16

7.   Miscellaneous............................................................17
     7.1   Waivers and Amendments.............................................17
     7.2   Governing Law......................................................17
     7.3   Survival...........................................................17
     7.4   Successors and Assigns.............................................17
     7.5   Entire Agreement...................................................17
     7.6   Notices, etc.......................................................17
     7.7   Severability.......................................................18
     7.8   Titles and Subtitles...............................................18
     7.9   Counterparts.......................................................18
     7.10  Delays or Omissions................................................18


                                      -ii-




                                LIST OF EXHIBITS


EXHIBIT A - Amended and Restated Articles of Incorporation

EXHIBIT B - Schedule of Exceptions

EXHIBIT C - Investors' Rights Agreement

EXHIBIT D - Shareholders of the Company

EXHIBIT E - Holders of Outstanding Options and Warrants of the Company

EXHIBIT F - Patents and Trademarks

EXHIBIT G - Material Contracts

EXHIBIT H - Financial Statements

EXHIBIT I - Opinion of Counsel for the Company





                                     MITOKOR

                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT

         THIS AGREEMENT is made as of November 9, 2001, by and among MITOKOR, a
California corporation (the "Company"), and the individuals and entities that
are signatories to this Agreement (the "Purchasers" and each a "Purchaser").

                                    RECITALS

         WHEREAS, the Company desires to sell and the Purchasers desire to
purchase shares of Series F-1 Preferred Stock to the Purchasers.

         NOW, THEREFORE, the parties hereby agree as follows:

         1.   AUTHORIZATION AND SALE OF PREFERRED SHARES.

              1.1  AUTHORIZATION; AMENDED AND RESTATED ARTICLES OF
INCORPORATION. The Company has authorized the issuance and sale to the
Purchasers, pursuant to the terms and conditions hereof, of up to 4,000,000
shares of its Series F-1 Preferred Stock (the "Preferred Shares") at a purchase
price of $7.50 per share. The Preferred Shares have the rights, preferences and
provisions as set forth in the Company's Amended and Restated Articles of
Incorporation (the "Articles") attached hereto as EXHIBIT A.

              1.2  SALE AND ISSUANCE OF THE PREFERRED SHARES. Subject to the
terms and conditions hereof, the Company will issue and sell to the Purchasers
and Purchasers will purchase the Preferred Shares at the purchase price per
Preferred Share as indicated in Section 1.1.

         2.   CLOSING DATE; DELIVERY.

              2.1  CLOSING DATES.

                   (a)  CLOSING. The closing of the purchase and sale of the
Preferred Shares shall be held at the offices of Gray Cary Ware & Freidenrich,
4365 Executive Drive, Suite 1600, San Diego, California 92121-2189, at 10:00
a.m. on November 9, 2001, or at such other time and place as the Company and the
Purchasers may mutually agree upon orally or in writing.

                   (b)  SUBSEQUENT CLOSINGS. Additional closings of the purchase
and sale of up to all of the Preferred Shares remaining after the first Closing
(the "Subsequent Closings") may take place at the discretion of the Company at
the offices of Gray Cary Ware & Freidenrich within 120 days of the first Closing
and shall be subject to the terms and conditions of this Agreement and Exhibits
attached hereto.

                   (c)  DEFINITIONS. The closings are sometimes referred to
hereinafter as the "Closings" or individually as a "Closing." The dates of the
Closings are hereinafter referred to collectively as the "Closing Dates" or
individually as a "Closing Date."


                                      -1-




              2.2  DELIVERY. Subject to the terms of this Agreement, at the
Closings the Company will deliver to each Purchaser a certificate representing
the Preferred Shares to be purchased by such Purchaser from the Company, against
payment of the purchase price therefor by a check or wire transfer made payable
to the order of the Company.

         3.   REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchasers that except as set forth on the
Schedule of Exceptions attached hereto as EXHIBIT B, which exceptions shall be
deemed to be representations and warranties as if made hereunder:

              3.1  ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its businesses as now conducted and as proposed to be
conducted. The Company is qualified or licensed to do business as a foreign
corporation in all jurisdictions where such qualification or licensing is
required, except where the failure to so qualify would not have a material
adverse effect upon the Company. Copies of the Company's Articles of
Incorporation, Bylaws, minutes and consents of shareholders and of the Board of
Directors are available for inspection at the Company's offices or have been
previously provided to the Purchaser.

              3.2  CORPORATE POWER. The Company has now, or will have at the
Closing Dates, all requisite corporate power to enter into this Agreement and
the Investors' Rights Agreement (the "Rights Agreement") in substantially the
form attached hereto as EXHIBIT C and to sell and issue the Preferred Shares and
to issue the Common Stock upon conversion of the Preferred Shares. This
Agreement and the Rights Agreement are valid and binding obligations of the
Company enforceable in accordance with their respective terms, except as the
same may be limited by bankruptcy, insolvency, moratorium, and other laws of
general application affecting the enforcement of creditors' rights.

              3.3  SUBSIDIARIES. The Company does not control, directly or
indirectly, any other corporation, association or business entity.

              3.4  CAPITALIZATION. The authorized capital stock of the Company
is 25,000,000 shares of Common Stock, of which 255,071 shares are issued and
outstanding and 20,000,000 shares of Preferred Stock issuable in series, of
which (i) 52,000 shares are designated Series A-1 Preferred Stock, 52,000 shares
of which are issued and outstanding; (ii) 7,200 shares are designated Series B
Preferred Stock, 7,200 shares of which are issued and outstanding; (iii) 90,000
shares are designated Series B-1 Preferred Stock, 90,000 of which are issued and
outstanding; (iv) 30,000 shares are designated Series B-2 Preferred Stock,
30,000 of which are issued and outstanding; (v) 30,000 shares are designated
Series B-3 Preferred Stock, 30,000 of which are issued and outstanding; (vi)
3,600 shares are designated Series B-4 Preferred Stock, 3,600 of which are
issued and outstanding; (vii) 3,308,431 shares are designated Series C Preferred
Stock, 3,292,431 of which are issued and outstanding; (viii) 3,358,042 shares
are designated Series D Preferred Stock, 3,351,042 of which are issued and
outstanding; (ix) 3,358,042 shares are designated Series D-1 Preferred Stock,
none of which are issued and outstanding; (x) 853,167 shares are designated
Series E Preferred Stock, 833,334 of which are issued and outstanding; (xi)
2,519,681 shares are designated Series F Preferred Stock, 2,511,681


                                      -2-




of which are issued and outstanding; (xii) 4,000,000 shares are designated
Series F-1 Preferred Stock, none of which are issued and outstanding; and (xii)
2,200,000 shares are designated Series G Preferred Stock, 1,511,685 of which are
issued and outstanding. The holders of record of the presently issued and
outstanding Common Stock and Preferred Stock immediately prior to the Closings
are as set forth on EXHIBIT D. All such issued and outstanding shares have been
duly authorized and validly issued, are fully paid and nonassessable, and were
issued in compliance with all applicable state and federal laws concerning the
issuance of securities. The Company has reserved 113,043 shares of Common Stock
for issuance upon the conversion of Series A-1 Preferred Stock, 574,295 shares
of Common Stock for issuance upon the conversion of Series B Preferred Stock,
Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred
Stock and Series B-4 Preferred Stock, 3,308,431 shares of Common Stock for
issuance upon the conversion of Series C Preferred Stock, 3,358,042 shares of
Common Stock for issuance upon the conversion of Series D Preferred Stock,
3,358,042 shares of Common Stock for issuance upon the conversion of Series D-1
Preferred Stock, 853,167 shares of Common Stock for issuance upon the conversion
of Series E Preferred Stock, 2,519,681 shares of Common Stock for issuance upon
the conversion of Series F Preferred Stock, 4,000,000 shares of Common Stock for
issuance upon the conversion of Series F-1 Preferred Stock, 2,200,000 shares of
Common Stock for issuance upon the conversion of Series G Preferred Stock,
67,042 shares of Common Stock for issuance pursuant to the exercise of
outstanding Common Stock purchase warrants, 16,000 shares of Series C Preferred
Stock for issuance pursuant to the exercise of Series C Preferred Stock purchase
warrants, 7,000 shares of Series D Preferred Stock for issuance pursuant to the
exercise of Series D Preferred Stock purchase warrants, 19,833 shares of Series
E Preferred Stock for issuance pursuant to the exercise of Series E Preferred
Stock purchase warrants, 8,000 shares of Series F Preferred Stock for issuance
pursuant to the exercise of Series F Preferred Stock Purchase warrants, 279,397
shares of Series G Preferred Stock for issuance pursuant to the exercise of
Series G Preferred Stock Purchase warrants, 2,340,969 shares of Common Stock for
issuance to employees, directors, and consultants pursuant to its Amended and
Restated 1993 Stock Option Plan, 230,000 shares of Common Stock for issuance
pursuant to the exercise of options granted to nonemployee directors under its
2000 Outside Director Stock Option Plan and 1,720 shares of Common Stock for
issuance upon exercise of nonstatutory options granted by the Company in 1991
and 1992. The holders of any and all rights, warrants or conversion rights to
purchase or acquire from the Company any of its capital stock, along with the
number of shares of capital stock issuable upon exercise of such rights, are set
forth on EXHIBIT E attached hereto. Except for such rights, there are no
outstanding rights, warrants, conversion rights or agreements for the purchase
or acquisition from the Company of any shares of its capital stock. The rights,
privileges and preferences of the Series F-1 Preferred Stock are as set forth in
the Articles attached hereto as EXHIBIT A.

              3.5  AUTHORIZATION.

                   (a)  CORPORATE ACTION. All corporate action on the part of
the Company, its officers, directors and shareholders necessary for the sale and
issuance of the Preferred Shares and the issuance of the Common Stock issuable
upon conversion of the Preferred Shares and the performance of the Company's
obligations hereunder and under the Rights Agreement has been taken or will be
taken prior to the Closings.


                                      -3-




                   (b)  VALID ISSUANCE. The Preferred Shares, when issued in
compliance with the provisions of this Agreement and the shares of Common Stock
issuable upon conversion of the Preferred Shares when issued in accordance with
the provisions of the Articles, will be duly authorized, validly issued, fully
paid and nonassessable and will be free of any liens or encumbrances caused or
created by the Company; provided, however, that all such shares may be subject
to restrictions on transfer under state and/or federal securities laws as set
forth herein, and as may be required by future changes in such laws.

                   (c)  NO PREEMPTIVE RIGHTS. Except as set forth in the Rights
Agreement, no person has any right of first refusal or any preemptive rights in
connection with the issuance of the Preferred Shares, the issuance of the Common
Stock upon conversion of the Preferred Shares or any future issuances of
securities by the Company.

              3.6  PATENTS AND OTHER PROPRIETARY RIGHTS. EXHIBIT F attached
hereto contains a full and complete list, as of September 15, 2001, of all
patents and patent applications, trademarks and trademark applications, trade
names, service marks and service mark applications and copyrights owned or used
by the Company and its subsidiaries or in which the Company and its subsidiaries
have any rights or licenses. The Company and its subsidiaries have entered into
agreements with each of their respective officers, employees and consultants
providing the Company and its subsidiaries, to the extent permitted by law, with
title and ownership to patents, patent applications, trade secrets and
inventions conceived, developed, reduced to practice by or at the direction of
such person, solely or jointly, during the period of employment by the Company
or its subsidiaries. Except as described in EXHIBIT F:

                   (a)  The Company and its subsidiaries own or possess adequate
licenses or other rights (or are able to obtain adequate licenses, rights or
purchase options on terms that will not materially and adversely affect their
respective businesses) to use all patents, patent applications, trademarks,
trademark applications, trade secrets, service marks, service mark applications,
trade names, copyrights, inventions, drawings, designs, customer lists,
proprietary know-how or information, or other rights with respect thereto
(collectively referred to as "MitoKor Proprietary Rights"), used in the
businesses of the Company and its subsidiaries, and the same are sufficient to
conduct their respective businesses as they has been conducted, are now being
conducted and are currently proposed to be conducted. The operation of the
businesses of the Company and its subsidiaries as now conducted and as currently
proposed to be conducted does not and will not conflict with or infringe, and no
one has asserted to the Company or its subsidiaries that such operation
conflicts with or infringes, any proprietary rights claimed, owned, possessed or
used by any third party.

                   (b)  There are no claims, disputes, actions, proceedings,
suits or appeals pending against the Company or its subsidiaries with respect to
any MitoKor Proprietary Rights (other than those, if any, with respect to which
service of process or similar notice has not yet been made on the Company or its
subsidiaries), and, to the knowledge of the Company and its subsidiaries, none
has been threatened against the Company or its subsidiaries. To the knowledge of
the Company and its subsidiaries, there are no facts or alleged facts which
would reasonably serve as a basis for any claim that the Company or its
subsidiaries does not have the unrestricted right to use, free of any rights or
claims of others, all MitoKor Proprietary Rights in the development,
manufacture, use, sale or other disposition of any or all products or services


                                      -4-




presently being used, furnished or sold in the conduct of the businesses of the
Company and its subsidiaries or currently contemplated to be used, furnished or
sold in the businesses of the Company and its subsidiaries.

                   (c)  To the knowledge of the Company and its subsidiaries,
the MitoKor Proprietary Rights have not been infringed by others.

                   (d)  There are no outstanding options, licenses or agreements
of any kind relating to the MitoKor Proprietary Rights, nor is the Company or
its subsidiaries bound by or a party to any options, licenses or agreements of
any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity.

                   (e)  Neither the execution nor delivery of this Agreement,
nor the carrying out of the businesses of the Company and its subsidiaries by
the employees of the Company and its subsidiaries, nor the conduct of the
businesses of the Company and its subsidiaries as currently proposed, will, to
the knowledge of the Company or its subsidiaries, conflict with or result in a
breach of the terms, conditions, or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees is
now obligated.

              3.7  COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The
Company is not in violation of any term of the Articles or Bylaws, nor is the
Company in violation of or in default in any material respect under the terms of
any mortgage, indenture, contract, agreement, instrument, judgment or decree,
the violation of which would have a material adverse effect on the Company as a
whole, and to the knowledge of the Company, is not in violation of any order,
statute, rule or regulation applicable to the Company, the violation of which
would have a material adverse effect on the Company. The execution, delivery and
performance of and compliance with this Agreement or the Rights Agreement, and
the issuance and sale of the Preferred Shares will not (a) result in any such
violation, or (b) be in conflict with or constitute a default under any such
term, or (c) result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company pursuant to any
such term. To the knowledge of the Company, there is no such term which
materially adversely affects, or, so far as the Company may now foresee, in the
future may materially adversely affect, the business, condition, affairs or
operations of the Company or any of its properties or assets.

              3.8  PROPRIETARY AGREEMENTS; EMPLOYEES. All technical and
management personnel presently employed by the Company have executed an
agreement regarding confidentiality and proprietary information, the form of
which has been made available to the Purchaser. The Company is not aware that
any of its employees is in violation thereof and will use reasonable efforts to
prevent any such violation. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as conducted or as proposed to be conducted or that
would prevent any such employee from assigning inventions to


                                      -5-




the Company. The Company does not believe that it is or will be necessary for
the Company to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.

              3.9  CONDITION OF PROPERTIES. All buildings, facilities,
machinery, equipment, fixtures, vehicles and other properties owned, leased or
used by the Company (a) are in good operating condition and repair (reasonable
wear and tear excepted), (b) to the best of the Company's knowledge, are being
operated in conformity with all applicable building, safety, zoning,
environmental, waste and other applicable ordinances, laws and regulations, and
(c) are adequate and sufficient for the Company's business as presently
conducted.

              3.10 LITIGATION, ETC. There is no action, proceeding or
investigation pending against the Company or, to the Company's knowledge, its
officers, directors or shareholders, or to the Company's knowledge, against
employees or consultants of the Company (or, to the Company's knowledge, any
basis therefor or threat thereof): (1) which might result, either individually
or in the aggregate, in (a) any material adverse change in the business,
conditions, affairs or operations of the Company or in any of its properties or
assets, or (b) any material adverse impairment of the right or ability of the
Company to carry on its business as now conducted or as proposed to be
conducted, or (c) any material liability on the part of the Company; or (2)
which questions the validity of this Agreement, the Rights Agreement or any
action taken or to be taken in connection herewith or therewith, including in
each case, without limitation, actions pending or threatened involving the prior
employment of any of the Company's employees, the use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of its former employees, or their obligations under any agreements with prior
employers. The Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to initiate.

              3.11 GOVERNMENTAL CONSENT, ETC. Based in part upon the
representations and warranties of the Purchasers in Section 4 hereof, no
consent, approval or authorization of or designation, declaration or filing with
any governmental authority on the part of the Company is required in connection
with: (a) the valid execution and delivery of this Agreement or the Rights
Agreement; or (b) the offer, sale or issuance of the Preferred Shares or the
issuance of the shares of Common Stock issuable upon conversion of the Preferred
Shares or (c) the obtaining of the consents, permits and waivers specified in
subsection 5.1(b) hereof, except the filing of the Articles and, if required,
filings or qualifications under applicable blue sky laws, which filings or
qualifications, if required, will have been timely filed or obtained after the
sale of the Preferred Shares.

              3.12 OFFERING. In reliance on the representations and warranties
of the Purchasers in Section 4 hereof, the offer, sale and issuance of the
Preferred Shares in conformity with the terms of this Agreement will not result
in a violation of the requirements of Section 5 of the Securities Act of 1933,
as amended (the "Securities Act") or the qualification or registration
requirements of the California Corporate Securities Law of 1968, as amended (the
"Law") or other applicable blue sky laws, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.


                                      -6-




              3.13 TAXES. The Company has filed all tax returns that are
required to have been filed with appropriate federal, state, county and local
governmental agencies or instrumentalities, except where the failure to do so
would not have a material adverse effect upon the Company, taken as a whole. The
Company has paid or established reserves for all material income, franchise and
other taxes, assessments, governmental charges, penalties, interest and fines
due and payable by them on or before the Closings. There is no pending dispute
with any taxing authority relating to any of such returns and the Company has no
knowledge of any proposed liability for any tax to be imposed upon the
properties or assets of the Company for which there is not an adequate reserve
reflected in the Financial Statements (as defined below) or, if adversely
determined against the Company, would have a material adverse effect. The
Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended (the "Code"), to be treated as a Subchapter S corporation nor has it
made any other elections pursuant to the Code (other than elections that relate
solely to methods of accounting, depreciation or amortization) that would have a
material effect on the Company, its financial condition, its business as
presently conducted or proposed to be conducted or any of its properties or
material assets.

              3.14 TITLE. The Company owns its properties and assets, including
the properties and assets reflected in the Financial Statements (as defined in
Section 3.16), free and clear of all liens, mortgages, loans or encumbrances
except liens for current taxes, and such encumbrances and liens which arise in
the ordinary course of business and do not materially impair the Company's
ownership or use of such property or assets. With respect to the property and
assets leased by the Company, the Company is in compliance with such leases and
holds valid leasehold interests free and clear of any liens, claims or
encumbrances.

              3.15 MATERIAL CONTRACTS AND COMMITMENTS. All of the contracts,
mortgages, indentures, agreements, instruments and transactions to which the
Company is a party or by which it is bound (including purchase orders to the
Company or placed by the Company) which involve obligations of, or payments to,
the Company in excess of One Hundred Thousand Dollars ($100,000) and all
agreements between the Company and its officers, directors, consultants and
employees are either (i) attached as exhibits to this Agreement, or (ii) set
forth on the list attached hereto as EXHIBIT G (the "Contracts"), copies of
which have been made available to the Purchasers. All of the Contracts are
valid, binding and in full force and effect in all material respects and
enforceable by the Company in accordance with their respective terms in all
material respects, subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and rules or laws concerning
equitable remedies. The Company is not in material default under any of such
Contracts. To the Company's knowledge, no other party to any of the Contracts is
in material default thereunder.

              3.16 FINANCIAL STATEMENTS. Attached hereto as EXHIBIT H are
audited financial statements for the fiscal year ended December 31, 2000 and
unaudited financial statements for the nine (9) month period ended September 30,
2001 (the "Financial Statements"). The Financial Statements are complete and
correct in all material respects and have been prepared in accordance with
generally accepted accounting principles on a consistent basis throughout the
relevant periods. The Financial Statements accurately set out and describe the
financial condition and operating results of the Company as of the dates, and
during the periods, indicated


                                      -7-




therein. Except as set forth in the Financial Statements, as of the Closing
Dates the Company has no material liabilities of any nature (matured or
unmatured, fixed or contingent). The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.

              3.17 ABSENCE OF CHANGES. Except as contemplated by this Agreement
since September 30, 2001: (a) the Company has not entered into any transaction
which was not in the ordinary course of business, (b) there has been no material
adverse change in the condition (financial or otherwise) of the business,
property, assets or liabilities of the Company other than changes in the
ordinary course of business, none of which, individually or in the aggregate,
has been materially adverse, (c) there has been no damage to, destruction of or
loss of physical property (whether or not covered by insurance) materially
adversely affecting the assets, financial condition, operating results, business
or operations of the Company, (d) the Company has not declared or paid any
dividend or made any distribution on its stock, or redeemed, purchased or
otherwise acquired any of its stock, (e) the Company has not materially changed
any compensation arrangement or agreement with any of its key employees or
executive officers, or materially changed the rate of pay of its employees as a
group, (f) the Company has not received notice that there has been a
cancellation of an order for the Company's products or a loss of a customer of
the Company, the cancellation or loss of which would materially adversely affect
the business of the Company, (g) the Company has not changed or amended any
material contract by which the Company or any of its assets are bound or
subject, (h) there has been no resignation or termination of employment of any
key officer or employee of the Company and the Company does not know of any
impending resignation or termination of employment of any such key officer or
employee, (i) there has been no labor dispute involving the Company or its
employees and none is pending or, to the best of the Company's knowledge,
threatened, (j) there has been no change, except in the ordinary course of
business, in the material contingent obligations of the Company (nor in any
contingent obligation of the Company regarding any director, shareholder or key
employee or officer of the Company) by way of guaranty, endorsement, indemnity,
warranty or otherwise, (k) there have been no loans made by the Company to any
of its employees, officers or directors other than travel advances and other
advances made in the ordinary course of business, (l) there has been no waiver
by the Company of a valuable right or of a material debt owing to it, (m) there
has not been any satisfaction or discharge of any lien, claims or encumbrance or
any payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company, and (n) to the
Company's knowledge, there has been no other event or condition of any character
pertaining to and materially adversely affecting the assets or business of the
Company.

              3.18 OUTSTANDING INDEBTEDNESS. Except as disclosed in the
Financial Statements, the Company has no indebtedness for borrowed money which
it has directly or indirectly created, incurred, assumed or guaranteed, or with
respect to which it has otherwise become liable, directly or indirectly. The
Company has no material liability or obligation in excess of $50,000, absolute
or contingent, which is not shown or provided for in the latest Financial
Statements, except obligations under purchase orders, sales contracts, real
property leases, equipment leases or similar obligations incurred in the
ordinary course of business.


                                      -8-




              3.19 REGISTRATION RIGHTS. The Company has not granted or agreed to
grant any rights to register as that term is defined in the Rights Agreement,
including piggyback registration rights, to any person or entity.

              3.20 CERTAIN TRANSACTIONS. The Company is not indebted, directly
or indirectly, to any of its officers, directors or shareholders or to their
spouses or children, in any amount whatsoever; and none of said officers,
directors or, to the Company's knowledge, shareholders, or any member of their
immediate families, are indebted to the Company or have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship (except as a
holder of securities of a corporation whose securities are publicly traded and
which is subject to the reporting requirements of the Securities Exchange Act of
1934, to the extent of owning not more than two percent (2%) of the issued and
outstanding securities of such corporation). No such officer, director or
shareholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company. The Company is
not guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.

              3.21 CORPORATE DOCUMENTS; MINUTE BOOKS. The minute books of the
Company have been made available to the Purchasers and contain a complete
summary of all meetings of directors and shareholders since the time of
incorporation of the Company.

              3.22 EMPLOYEE BENEFIT PLANS. The Company does not have any
"employee benefit plan" as defined in the Employee Retirement Income Security
Act of 1974, as amended.

              3.23 LABOR AGREEMENTS. The Company is not bound by or subject to
(and none of its assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the Company's knowledge, has
sought to represent any of the employees, representatives or agents of the
Company. There is no strike or other labor dispute involving the Company
pending, or to the Company's knowledge, threatened, that could have a material
adverse effect on the assets, properties, financial condition, operating
results, or business of the Company (as such business is presently conducted and
as it is proposed to be conducted), nor is the Company aware of any labor
organization activity involving its employees.

              3.24 REAL PROPERTY HOLDING CORPORATION. The Company is not a "real
property holding corporation" within the meaning of Section 897(c)(2) of the
United States Internal Revenue Code of 1986, as amended.

              3.25 DISCLOSURE. No representation or warranty by the Company in
this Agreement, or in any document or certificate furnished or to be furnished
to the Purchaser pursuant hereto or in connection with the transactions
contemplated hereby, when taken together, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements made herein and therein, in the light of the
circumstances under which they were made, not misleading.

              3.26 INSURANCE. The Company maintains insurance covering property
damage and liability reasonably prudent under commercially reasonable practices.


                                      -9-




              3.27 SHAREHOLDER AGREEMENTS. Except as otherwise contemplated by
this Agreement, (a) there are no agreements or arrangements between the Company
and any of the Company's shareholders or to the Company's knowledge, between any
of the Company's shareholders which materially and adversely affect any
shareholder's ability or right freely to alienate or vote such shares and (b) to
the Company's knowledge, none of the Company's shareholders is affiliated with
or has any agreements or arrangements with any customer of, or supplier to, the
Company.

              3.28 ENVIRONMENTAL MATTERS.

                   (a)  The Company has not caused or allowed, nor has the
Company contracted with any party for, the generation, use, transportation,
treatment, storage or disposal of any Hazardous Substances (as defined below) in
connection with the operations of its business or otherwise.

                   (b)  The Company, the operations of its business, and any
real property that the Company owns, leases, or otherwise occupies or uses (the
"Premises") are in compliance with all applicable Environmental Laws (as defined
below) and orders or directives of any governmental authorities having
jurisdiction under such Environmental Laws including, without limitation, any
Environmental Laws or orders or directives with respect to any cleanup or
remediation of any release or threat of release of Hazardous Substances.

                   (c)  The Company has not received any citation, directive,
letter or other communication, written or oral, or any notice of any
proceedings, claims or lawsuits, from any person, entity or governmental
authority arising out of the ownership or occupation of the Premises, or the
conduct of its operations, nor is it aware of any basis thereof.

                   (d)  The Company has obtained and is maintaining in full
force and effect all necessary permits, licenses and approvals required by any
Environmental Laws applicable to the Premises and the business operations
conducted thereon (including operations conducted by tenants on the Premises)
and is in compliance with all such permits, licenses and approvals.

                   (e)  The Company has not caused, or allowed a release, or a
threat of release, of any Hazardous Substance unto, nor to the Company's
knowledge has the Premises or any property at or near the Premises ever been
subject to a release, or a threat of a release, of any Hazardous Substance.

The term, "Environmental Laws" shall mean any federal, state or local law,
ordinance or regulation pertaining to the protection of human health or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq.,
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901,
et seq.

The term, "Hazardous Substance" includes oil and petroleum products, asbestos,
polychlorinated biphenyls and urea formaldehyde, and any other materials
classified as hazardous or toxic under any Environmental Laws.


                                      -10-




              3.29 MANUFACTURING RIGHTS. The Company has not granted rights to
manufacture, produce, license or sell its products to any other person and is
not bound by any agreement which affects the Company's exclusive right to
manufacture or sell its products.

              3.30 ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS OF OTHER
PERSONS. The Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.

              3.31 MATERIAL CUSTOMERS AND SUPPLIERS. No material customer of, or
material supplier to, the Company has terminated, materially reduced or
threatened to terminate or materially reduce its purchases from or provision of
products or services to the Company, as the case may be.

         4.   REPRESENTATIONS AND WARRANTIES OF PURCHASER AND RESTRICTIONS ON
TRANSFER IMPOSED BY THE SECURITIES ACT.

              4.1  REPRESENTATIONS AND WARRANTIES BY THE PURCHASER. Each of the
Purchasers, severally and not jointly, represents, warrants, acknowledges and
covenants to the Company as of the date hereof and as of the Closing Dates as
follows:

                   (a)  INVESTMENT INTENT. This Agreement is made with the
Purchaser in reliance upon the Purchaser's representations to the Company,
evidenced by the Purchaser's execution of this Agreement, that the Purchaser is
acquiring the Preferred Shares and the Common Stock issuable upon conversion of
the Preferred Shares (collectively the "Securities") for investment for the
Purchaser's own account, not as nominee or agent, and not with a view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act and the Law. The Purchaser has the full right,
power and authority to enter into and perform this Agreement and the Rights
Agreement, and this Agreement and the Rights Agreement constitute valid and
binding obligations upon it.

                   (b)  PREFERRED SHARES NOT REGISTERED. The Purchaser
understands and acknowledges that the offering of the Preferred Shares pursuant
to this Agreement will not be registered under the Securities Act or qualified
under any blue sky laws on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration under the Securities
Act pursuant to Section 4(2) thereof and exempt from registration pursuant to
Section 25102(f) of the Law, and other applicable state securities or blue sky
laws, and that the Company's reliance upon such exemptions is predicated upon
the Purchaser's representations set forth in this Agreement. The Purchaser
acknowledges and understands that the Securities must be held indefinitely
unless the Securities are subsequently registered under the Securities Act and
qualified under applicable blue sky laws or an exemption from such registration
and such qualification is available.

                   (c) NO TRANSFER. The Purchaser covenants that in no event
will it dispose of any of the Securities (other than in conjunction with an
effective registration statement


                                      -11-




for the Securities under the Securities Act or in compliance with Rule 144
promulgated under the Securities Act) unless and until (i) the Purchaser shall
have notified the Company of the proposed disposition and shall have furnished
the Company with a statement of the circumstances surrounding the proposed
disposition, and (ii) if reasonably requested by the Company, the Purchaser
shall have furnished the Company with an opinion of counsel satisfactory in form
and substance to the Company to the effect that (x) such disposition will not
require registration under the Securities Act and (y) appropriate action
necessary for compliance with the Securities Act, the Law and any other
applicable state, local or foreign law has been taken.

                   (d)  KNOWLEDGE AND EXPERIENCE. The Purchaser is an investor
in securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Preferred
Shares. The Purchaser has been furnished with and has had access to such
information as the Purchaser considered necessary to make a determination as to
the purchase of the securities.

                   (e)  NOT ORGANIZED TO PURCHASE. The Purchaser has not been
organized for the purpose of purchasing the Securities.

                   (f)  HOLDING REQUIREMENTS. The Purchaser understands that if
the Company does not (i) register its Common Stock with the Securities and
Exchange Commission ("SEC") pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (ii) become subject to Section
15(d) of the Exchange Act, (iii) supply information pursuant to Rule 15c2-11
thereunder, or (iv) have a registration statement covering the Securities (or a
filing pursuant to the exemption from registration under Regulation A of the
Securities Act covering the Securities) under the Securities Act in effect when
it desires to sell the Securities, such Purchaser may be required to hold the
Securities for an indeterminate period. Such Purchaser also understands that any
sale of the Securities that might be made by the Purchaser in reliance upon Rule
144 under the Securities Act may be made only in limited amounts in accordance
with the terms and conditions of that rule.

              4.2  LEGENDS. Each certificate representing the Securities may be
endorsed with the following legends:

                   (a)  FEDERAL LEGEND. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144, OR
(iii) PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION.


                                      -12-




                   (b)  OTHER LEGENDS. Any other legends required by the Law or
other applicable state blue sky laws.

The Company need not register a transfer of legended Securities, and may also
instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in each of the foregoing legends are satisfied.

              4.3  REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. Any legend
endorsed on a certificate pursuant to subsection 4.2(a) and the stop transfer
instructions with respect to such legended Securities shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
Securities if such Securities are registered and sold under the Securities Act
and a prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, provides the Company with an opinion
of counsel for such holder of the Securities, reasonably satisfactory to the
Company, to the effect that (i) such holder, meets the requirements of Rule
144(k) or (ii) a public sale, transfer or assignment of such Securities may be
made without registration.

              4.4  RULE 144. The Purchaser is aware of the adoption of Rule 144
by the SEC promulgated under the Securities Act, which permits limited public
resales of securities acquired in a nonpublic offering, subject to the
satisfaction of certain conditions. The Purchaser understands that under Rule
144, the conditions include, among other things: the availability of certain
current public information about the issuer and the resale occurring not less
than one year after the party has purchased and paid for the securities to be
sold.

         5.   CONDITIONS TO CLOSING.

              5.1  CONDITIONS TO PURCHASERS' OBLIGATIONS. The obligations of the
Purchasers to purchase the Preferred Shares at the Closings are subject to the
fulfillment to its satisfaction, on or prior to the Closing Dates, of the
following conditions, any of which may be waived in accordance with the
provisions of subsection 7.1 hereof:

                   (a)  REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 3
hereof shall be true and correct when made, and shall be true and correct on the
Closing Dates with the same force and effect as if they had been made on and as
of said date. The Company's business and assets shall not have been adversely
affected in any material way prior to the Closing Dates. The Company shall have
performed all obligations and conditions herein required to be performed or
observed by it on or prior to the Closing Dates.

                   (b)  CONSENTS AND WAIVERS. The Company shall have obtained in
a timely fashion any and all consents, permits and waivers necessary or
appropriate for consummation of the transactions contemplated by this Agreement.

                   (c)  FILING OF THE ARTICLES. The Articles shall have been
filed with the Secretary of State of California.


                                      -13-




                   (d)  RIGHTS AGREEMENT. The Company and the Purchasers shall
have executed and delivered the Rights Agreement in the form attached as EXHIBIT
C hereto.

                   (e)  COMPLIANCE CERTIFICATE. The Company shall have delivered
a Certificate, executed by the President of the Company, dated the Closing
Dates, certifying to the fulfillment of the conditions specified in subsections
(a), (b), (c) and (e) of this section 5.1.

                   (f)  STATE SECURITIES LAW. The sale of the Preferred Shares
shall have been qualified with (a) the Commissioner of Corporations of the State
of California or an exemption from such qualification shall have been obtained
and (b) any other applicable state's securities law.

                   (g)  OPINION OF COUNSEL. The Purchasers shall have received
an opinion from the Company's counsel, in substantially the form attached hereto
as EXHIBIT I.

                   (h)  PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closings
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers, and the
Purchasers shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.

                   (i)  RESERVATION OF COMMON STOCK. The shares of Common Stock
issuable upon conversion of the Preferred Shares shall have been duly authorized
and reserved for issuance upon such conversion.

              5.2  CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to sell and issue the Preferred Shares at the Closings is subject to
the condition that the representations and warranties made by the Purchasers in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Dates with the same force and effect as if they had been
made on and as of said date.

         6.   AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby covenants
and agrees as follows:

              6.1  FINANCIAL INFORMATION. Until the first to occur of (a) the
date on which the Company is required to file a report with the SEC pursuant to
Section 13(a) of the Exchange Act, by reason of the Company having registered
any of its securities pursuant to Section 12(g) of the Exchange Act or (b)
quotations for the Common Stock of the Company are reported by the automated
quotations system operated by the National Association of Securities Dealers,
Inc. or by an equivalent quotations system or (c) shares of the Common Stock of
the Company are listed on a national securities exchange registered under
Section 6 of the Exchange Act, the Company will furnish to each Purchaser:

                        (i)    as soon as practicable after the end of each
fiscal year, and in any event within 120 days thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such fiscal
year, and consolidated statements of operations and consolidated statements of
changes in financial position (or equivalent cash flow statements if required by
the Financial Accounting Standards Board) of the Company and its subsidiaries,
if


                                      -14-




any, for such year, prepared in accordance with generally accepted accounting
principles, all in reasonable detail and, certified by independent public
accountants of recognized national standing selected by the Company, and

                        (ii)   so long as the Purchasers own an aggregate of at
least thirty percent (30%) of the Preferred Shares acquired at the Closings
(including any Common Stock issued upon conversion of any Preferred Shares) as
soon as practicable after the end of each month and each quarter (except the
last month and last quarter of the fiscal year), and in any event within 30 and
45 days, respectively, thereafter, consolidated balance sheets of the Company
and its subsidiaries, if any, as of the end of such month or quarter; and
consolidated statements of operations and consolidated statements of changes in
financial position (or equivalent cash flow statements if required by the
Financial Accounting Standards Board), of the Company and its subsidiaries, if
any, for such month or quarter and for the current fiscal year to date, prepared
in accordance with generally accepted accounting principles (except for required
footnotes), all in reasonable detail and signed, subject to changes resulting
from year-end audit adjustments, by the principal financial officer or chief
executive officer of the Company, and

                        (iii)  so long as the Purchasers own an aggregate of at
least thirty percent (30%) of the Preferred Shares acquired at the Closings
(including any Common Stock issued upon conversion of any Preferred Shares) as
soon as practicable after its adoption or approval by the Company's Board of
Directors, but not later than the commencement of such fiscal year, an annual
plan for each fiscal year which shall include monthly capital and operating
expense budgets, cash flow statements, projected balance sheets and profit and
loss projections for each such month and for the end of the year, itemized in
such detail as the Board of Directors may reasonably determine. In addition,
within 30 days after the end of each calendar year, the Company will provide the
Purchasers with a capitalization table showing (i) all stock of the Company
issued and outstanding for each class and series of stock and (ii) all options
and warrants outstanding.

              6.2  CONFLICTS OF INTERESTS. The Company shall use its best
efforts to ensure that the Company's employees, during the term of their
employment with the Company, do not engage in activities which would result in a
conflict of interest with the Company. The Company's obligations hereunder
include, but are not limited to, requiring that the Company's employees devote
their primary productive time, ability and attention to the business of the
Company (provided, however, the Company's employees may engage in other business
activity if such activity does not materially interfere with their obligations
to the Company), requiring that the Company's employees enter into agreements
regarding proprietary information and confidentiality and preventing the
Company's employees from engaging or participating in any business that is in
competition with the business of the Company.

              6.3  KEY MAN INSURANCE. The Company shall use reasonable efforts
to maintain in force, until canceled or modified with the approval of the
Company's Board of Directors, an insurance policy on the life of Walter H. Moos
naming the Company as holder and beneficiary.


                                      -15-




              6.4  PROPRIETARY AGREEMENTS. The Company will use reasonable
efforts to prevent any employee from violating the confidentiality and
proprietary information agreement entered into between the Company and each of
its employees.


              6.5  FUTURE STOCK ISSUANCES. The Company agrees that after the
Closings it will not issue any shares of Common Stock (or grant any options,
warrants or other rights to purchase the same) to any employee, officer, or
director except pursuant to written agreements which provide for vesting over a
period of at least forty-eight (48) months (with the initial vesting date to
occur at least after twelve (12) months) and a right of first refusal in favor
of the Company in the event of any proposed transfer unless such issuance or
grant is approved by the Company's Board of Directors and provided that no such
agreement will require the Company to repurchase or redeem any of such shares.
This Section 6.5 will terminate upon the termination of Section 6.1.

              6.6  RULE 144. The Company covenants that (i) at all times after
the Company first becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the Company will use its best
efforts to comply with the current public information requirements of Rule
144(c)(1) under the Securities Act; and (ii) at all such times as Rule 144 is
available for use by the Purchasers, the Company will furnish the Purchasers
upon request with all information within the possession of the Company required
for the preparation and filing of Form 144.

              6.7  TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, the Company shall not enter into any transaction with any director,
officer, employee or holder of more than 5% of the outstanding capital stock of
any class or series of capital stock of the Company, member of the immediate
family (as defined in the instructions to Regulation S-K item 404(a) under the
Securities Act of 1933, as amended) of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
immediate family of any such person, is a director, officer, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof, except for
transactions on customary terms related to such person's employment.

              6.8  INSPECTION RIGHTS. So long as the Purchasers own an aggregate
of at least thirty percent (30%) of the Preferred Shares acquired by the
Purchasers at the Closings upon five (5) days' written notice provided to the
Company, any Purchaser shall have the right to visit and inspect any of the
properties of the Company, and to discuss its affairs, finances and accounts
with its officers, provided that the Company shall not be required at any time
to disclose any trade secrets or secret or other proprietary data, know-how or
other information, the disclosure of which the Company believes may adversely
affect its business, or any information or data that is classified by the United
States government or any agency or authority thereof. All inspection rights
granted by the Company to the Purchasers shall immediately terminate upon the
closing of the Company's initial registered underwritten public offering.

              6.9  ADDITIONAL BENEFITS TO SUBSEQUENT INVESTORS. If Purchasers
participating in Subsequent Closings receive additional benefits or incentives
in consideration of their purchase


                                      -16-




of Preferred Shares which have not been made available to Purchasers in any
prior Closing, then all Purchasers shall be entitled to such benefits or
incentives on the same terms.

         7.   MISCELLANEOUS.

              7.1  WAIVERS AND AMENDMENTS. With the written consent of the
record holders of at least sixty-six and two-thirds percent (66 2/3%) of the
Preferred Shares, the obligations of the Company and the rights of the holders
of the Preferred Shares under this Agreement may be waived or amended (either
generally or in a particular instance); provided, however, that no such waiver
or amendment shall reduce the aforesaid proportion of Preferred Shares, the
holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the record holders of all of the Preferred
Shares. Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to the record holders of the
Preferred Shares who have not previously consented thereto in writing. Except to
the extent provided in this subsection 7.1, this Agreement or any provision
hereof may be amended, waived, discharged or terminated only by a statement in
writing signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought.

              7.2  GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.

              7.3  SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive the Closings of the transactions
contemplated hereby, notwithstanding any investigation made by the Purchaser.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder as of the date of such
certificate or instrument.

              7.4  SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.

              7.5  ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof and
they supersede, merge and render void every other prior written and/or oral
understanding or agreement among or between the parties hereto.

              7.6  NOTICES, ETC. All notices and other communications required
or permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) if to the Purchaser, at the Purchaser's
address set forth on the signature page hereto, or at such other address as the
Purchaser shall have furnished to the Company in writing or (b) if to the
Company, at its address set forth at the beginning of this Agreement, or at such
other address as the Company shall have furnished to the Purchaser in writing.
Notices that are mailed shall be deemed received five (5) days after deposit in
the United States mail. Notices sent by courier or overnight delivery shall be
deemed received two (days) after they have been so sent.


                                      -17-




              7.7  SEVERABILITY. In case any provision of this Agreement shall
be found by a court of law to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.

              7.8  TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.

              7.9  COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

              7.10 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to the Company or to any holder of any
securities issued or to be issued hereunder shall impair any such right, power
or remedy of the Company or such holder, nor shall it be construed to be a
waiver of any breach or default under this Agreement, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any delay or omission to exercise any right, power or remedy or any waiver
of any single breach or default be deemed a waiver of any other right, power or
remedy or breach or default theretofore or thereafter occurring. All remedies,
either under this Agreement, or by law otherwise afforded to the Company or any
holder, shall be cumulative and not alternative.





                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



                                      -18-




         IN WITNESS WHEREOF, the parties hereby have executed this Stock
Purchase Agreement on the date first above written.



"COMPANY"

MITOKOR


By: /s/ Walter H. Moos
   ---------------------------------

Walter H. Moos
- ------------------------------------
(print name)

Title: Chairman & CEO
      ------------------------------



                                      -19-




                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                 Alta California Partners, L.P.
                                 By: Alta California Management Partners, L.P.

                                 By: /s/ Jean Deleage
                                    -----------------------------------
                                         Jean Deleage
                                         General Partner


                                 Address: One Embarcadero Center, Suite 4050
                                          San Francisco, CA 94111




                                      -20-




                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                 Alta Embarcadero Partners, LLC


                                 By: /s/ Elaine Walker
                                    -----------------------------------
                                      Under Power of Attorney
                                           Elaine Walker


                                 Address: One Embarcadero Center, Suite 4050
                                          San Francisco, CA 94111




                                      -21-




                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                             S.R. One, Limited
                                 -----------------------------------------
                                            (Name of Purchaser)

                                             /s/ R.J. Whitaker
                                 -----------------------------------------
                                                (Signature)

                                 By:    R.J. Whitaker
                                    --------------------------------------
                                         (Printed Name of Signatory)

                                 Title: Vice President
                                        ----------------------------------

                                 Address: Four Tower Bridge
                                        ----------------------------------
                                          200 Barr Harbor Drive, Suite 250
                                        ----------------------------------
                                          W. Conshohocken, PA 19428-2977




                                      -22-




                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                         DOMAIN PARTNERS III, LP.
                                          By: One Plamer Square
                                           Associates III, LP.
                                 -----------------------------------------
                                            (Name of Purchaser)

                                            /s/ James C. Blair
                                 -----------------------------------------
                                                (Signature)

                                 By:    James C. Blair
                                    --------------------------------------
                                         (Printed Name of Signatory)

                                 Title:  General Partner
                                        ----------------------------------

                                 Address: One Palmer Square Suite 515
                                        ----------------------------------
                                          Princeton, NJ 08542
                                        ----------------------------------





                                      -23-



                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                       MDS HEALTH VENTURES (TC) INC.
                                 ------------------------------------------
                                            (Name of Purchaser)

                             By: /s/ Peter Winkley By: /s/ Graysanne Bedell
                                 ------------------------------------------
                                                (Signature)

                                 By:  Peter Winkley / Graysanne Bedell
                                    ---------------------------------------
                                         (Printed Name of Signatory)

                                 Title:
                                        -----------------------------------

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

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





                                      -24-


                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                         MDS HEALTH VENTURES (PC) INC.
                                 ----------------------------------------------
                                              (Name of Purchaser)

                             By: /s/ Michael Callaghan By: /s/ Graysanne Bedell
                                 ----------------------------------------------
                                                  (Signature)

                                 By: Michael Callaghan / Graysanne Bedell
                                    -------------------------------------------
                                          (Printed Name of Signatory)

                                 Title:  Vice-President / Assistant Secretary
                                        ---------------------------------------

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

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





                                      -25-


                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                       Palladian Opportunity Fund LLC
                                 --------------------------------------------
                                             (Name of Purchaser)

                                            /s/ Robert L. Chender
                                 --------------------------------------------
                                                  (Signature)

                                 By:   Robert L. Chender
                                    -----------------------------------------
                                          (Printed Name of Signatory)

                                 Title:  Managing Director
                                        -------------------------------------

                                 Address: 195 Maplewood Ave
                                        -------------------------------------
                                          Maplewood, NJ 07040
                                        -------------------------------------





                                      -26-


                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                 --------------------------------------------
                                        FEDERATED INVESTMENT COMPANY,
                                           AS ATTORNEY-IN-FACT FOR:

                                           FEDERATED KAUFMANN FUND

                                 --------------------------------------------
                                                  (Signature)

                                 By:   /s/ J. Christopher Donahue
                                    -----------------------------------------
                                           J. Christopher Donahue

                                 Title:  President, CEO/COO

                                 Address: Federated Investors, Inc.
                                          1000 Liberty Avenue
                                          Pittsburgh, PA 15222-3779





                                      -27-

                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                                 Michael Powell
                                               Managing Director
                                            Sofinnova Ventures, Inc.
                                              Phone (415) 228-3387
                                               Fax (415) 228-3390
                                              powell@sofinnova.com
                                 --------------------------------------------
                                              (Name of Purchaser)

                                              /s/ Michael Powell
                                 --------------------------------------------
                                                  (Signature)

                                 By:
                                    -----------------------------------------
                                          (Printed Name of Signatory)

                                 Title:
                                        -------------------------------------

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

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





                                      -28-



                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                               THORNER VENTURES
                                 --------------------------------------------
                                              (Name of Purchaser)

                                               /s/ TOM THORNER
                                 --------------------------------------------
                                                  (Signature)
                                 By:  TOM THORNER
                                    -----------------------------------------
                                          (Printed Name of Signatory)

                                 Title:  Managing General Partner
                                        -------------------------------------

                                 Address: 21 Acorn Way, Kantfield, CA 94909
                                        -------------------------------------

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





                                      -29-


                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                          RBC Dain Rausher, Inc.
                               --------------------------------------------
                                            (Name of Purchaser)

                                             /s/ Mary Zimmer
                               --------------------------------------------
                                                (Signature)
                               By:  Mary Zimmer
                                  -----------------------------------------
                                        (Printed Name of Signatory)

                               Title:  Director of Finance and Administration,
                                       --------------------------------------
                               RBC Capital Markets,
                               --------------------
                               A division of Royal Bank of Canada and an
                               -----------------------------------------
                               affiliate of RBC Dain Rauscher, Inc.
                               ------------------------------------

                               Address: 60 South 6th Street, Minneapolis,
                                      -----------------------------------
                                        MN 55402; 17th Floor
                                      -----------------------



                                      -30-


                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT



                                          DRW Venture Partners LP
                               --------------------------------------------
                                            (Name of Purchaser)

                                             /s/ Mary Zimmer
                               --------------------------------------------
                                                (Signature)
                               By:  Mary Zimmer
                                  -----------------------------------------
                                        (Printed Name of Signatory)

                               Title:  Director of Finance and Administration,
                                       --------------------------------------
                               Dain Rauscher Wessels, a division of Dain
                               -----------------------------------------
                               Rauscher, Inc.
                               --------------

                               Address: 60 South 6th Street, Minneapolis,
                                      -----------------------------------
                                        MN 55402; 17th Floor
                                      -----------------------



                                      -31-

                          COUNTERPART SIGNATURE PAGE TO
                  SERIES F-1 PREFERRED STOCK PURCHASE AGREEMENT




                                 GCWF INVESTMENT PARTNERS II
                                 By:  GCWF Investments LLC
                                 Its: Managing Partner


                                 By:  /s/ Robert Ayling
                                    -----------------------------------------
                                      Robert Ayling, Vice President

                                 Address:  401 B Street, Suite 2000
                                           San Diego, CA 92101-4240






                                       -32-

EX-10.11

[MITOKOR LETTERHEAD]
                                                                   EXHIBIT 10.11

                                                               December 11, 1996


Walter H. Moos, Ph.D.
724 Grizzly Terrace Drive
Oakland, CA 94611

Dear Walter:

We are pleased to be authorized by the Board of Directors to offer you
employment as MitoKor's Chief Executive Officer and Chairman of the MitoKor
Board of Directors. We are enthusiastic about your leading MitoKor to fulfill
its significant potential as a pharmaceutical company. You will not be
expected to relocate, but you will plan to divide your time between San Diego
and the San Francisco Bay Area, unless you are otherwise engaged in company
business at other locations. We are supportive of the concept of adding a
complementary MitoKor site in the San Francisco Bay Area, as appropriate, in
the future. The offer and terms are summarized as follows:

SALARY:     $20,850 a month, $250,000 annually

BONUS:      MitoKor will provide a signing bonus of $50,000, 50% to be paid
            to you within seven (7) days of employment with the company and 50%
            to paid to you within 90 days of employment with the company. Also,
            an incentive bonus plan will be established by you and the Board of
            Directors within a reasonable time after joining the Company.

EQUITY:     Upon joining the company, you will have the right to purchase
            outright 400,000 common shares of MitoKor stock at a price not to
            exceed $0.01 per share. In addition, you will be granted an option
            to purchase 6,090,000 shares of common stock at $0.01 per share
            representing 5% of the presently outstanding equity. This option
            will vest over 5 years. Twenty percent (20%) will vest following
            the first year of employment and the balance will vest quarterly
            (5% each quarter) over the next 4 years.



Dr. Walter H. Moos
December 11, 1996
Page Two


RELOCATION:
       A)     If you relocate to San Diego or other permanent site of
              business, MitoKor will reimburse you for (i) any brokerage fees
              incurred in selling your Oakland home (up to 6%), (ii) reimburse
              up to two points paid to secure a home mortgage for your new
              residence, and (iii) reasonable expenses incurred in the movement
              of your household items.

       B)     Use of a Company residence and Company vehicle will be provided
              during your time in San Diego at the Company's expense.

       C)     Travel between San Diego and Oakland will be reimbursed by the
              Company.

       D)     Expense reimbursement paid to you will be grossed-up when
              appropriate, to ensure that such payments are "tax neutral" to
              you.


BENEFITS:

       A competitive benefits plan (health, life, vision, dental, insurance,
       401(k) plan, paid time off, etc.) will be established and maintained for
       you, equivalent to what other companies provide for individuals in
       similar positions at similar stage companies.

       You will be entitled to 20 days paid time off each year. Paid time off
       accrues at a rate of 13.34 hours per month and can be carried over year
       to year to a maximum of 40 days. It is understood that you may pre-spend
       paid time off in the first year in advance of the full 20 days' accrual.

SEVERANCE:

       In the event that you are terminated without cause or suffer a
       constructive reduction in your responsibilities without cause, you may
       at your discretion elect to receive a lump sum payment, equivalent to
       your annual base salary and any earned bonuses less applicable
       withholdings and your vesting under your stock options will accelerate
       by twelve (12) months. All stock options must be exercised within 12
       months of termination. Cause shall specifically exclude failure to
       relocate to San Diego.

PARTICIPATION AS AN OUTSIDE DIRECTOR:

       Upon the approval of the MitoKor Board of Directors you will be
       allowed to participate as an outside Director of non-competing companies,
       such approval will not be unreasonably withheld.






Dr. Walter H. Moos
December 11, 1996
Page Three



Walter, we trust that you will find the terms outlined above to be a full and
fair offer that is commensurate with this fine opportunity and its
significant challenge. We look forward to your acceptance and working with
you to enhance the enormous potential of MitoKor. Please indicate your
acceptance by signing a copy of this letter and returning it to one of us.


Sincerely,

/s/ Robert E. Davis                            /s/ Standish Fleming
- ---------------------                          ------------------------
Robert E. Davis, Ph.D.                          Standish Fleming
President and CEO                               Managing Partner
                                                Forward Ventures


Accepted and Agreed this

11th day of December 1996     /s/ Walter Moos
                             --------------------
                             Walter Moos, Ph.D.

EX-10.12

[MITOKOR LETTERHEAD]                                               Exhibit 10.12


March 15, 2001


Mr. Ron Deane
5205 Fiore Terrace #B-214
San Diego, CA 92122


Dear Ron,

I am very pleased that you have accepted our offer to join MitoKor on a
regular, full time basis in the position of Chief Business Officer reporting
directly to me. Your contributions as an advisor to MitoKor over the past
several months have been very beneficial and I look forward to working with
you in this new capacity.

This letter will outline your employment arrangement with MitoKor for the
next nine to twelve months. At the end of that period, we will mutually
determine whether an extension of your time with MitoKor is appropriate. Your
hire date will be March 1, 2001. Further details of this offer are as follows:

Base Salary:          You will be paid an annualized rate of $175,000 USD, in
                      accordance with MitoKor's standard payroll cycle, which is
                      currently semi-monthly.

Performance Bonus:    In addition to your base salary, you will be eligible to
                      participate in the discretionary MitoKor Executive Bonus
                      Plan. Under this plan you will be eligible for a cash
                      bonus of up to 30% of your base salary, based upon the
                      achievement of corporate and individual milestones. This
                      bonus is typically calculated and paid after the end of
                      each calendar year and is subject to the approval of
                      MitoKor's Board of Directors.

Stock Options:        You have recently been granted an additional 20,000
                      MitoKor stock options in anticipation of your acceptance
                      of this offer of employment. This new grant gives you a
                      total of 40,000 stock options. These stock option grants
                      have been approved by the MitoKor Board of Directors and
                      are subject to the vesting schedule and terms and
                      conditions outlined in the MitoKor Employee Stock Option
                      Plan ("the Plan"). You will be asked to sign a formal
                      grant letter, which will be issued to you shortly.




Mr. Ron Deane
March 15, 2001
Page 2


Benefits:             As an employee of MitoKor you will be eligible for
                      comprehensive health insurance benefits for yourself and
                      your eligible dependents, effective on April 1, 2001. In
                      addition, you will be eligible for other basic group
                      benefits effective on your hire date. These basic benefits
                      include dental insurance and vision care insurance. You
                      will also be eligible for term life insurance and
                      long-term and short-term disability insurance, effective
                      on your hire date.

                      You will not be charged for your insurance coverage,
                      however, if you choose to cover your dependents, you will
                      be asked to contribute a portion of the cost of their
                      coverage. The cost of dependent coverage will vary based
                      upon the number of dependents covered and plan selection.
                      Any premiums you pay, however, will be paid pre-tax. Full
                      details of group benefits will be provided once you are on
                      board.

                      Additional benefits for which you will be eligible
                      include: accrued Paid Time Off equal to twenty days per
                      year; ten paid holidays per calendar year; and
                      participation in the MitoKor Flexible Spending Plan which
                      allows you to defer some of your earnings pre-tax, into a
                      spending account to be used for payment of non-reimbursed
                      medical and/or child care expenses.

Travel to Australia:  I anticipate that you will occasionally travel to
                      Australia on MitoKor or Mimotopes business. As always,
                      the Company will pay your business travel expenses. I
                      also anticipate that Marcia will travel to Australia on
                      occasion. If this is the case, MitoKor will provide Marcia
                      with one coach class, round trip ticket per quarter. At
                      the end of your assignment with MitoKor, both you and
                      Marcia will be provided airline tickets for your return
                      trip to Australia. Reservations for all travel should be
                      made as far in advance as possible in order to obtain the
                      best airfare.

Housing and
Relocation:           MitoKor will continue to pay the rent on your current
                      apartment until April 30, 2001. In order to avoid the
                      disruption caused by moving to another location, you will
                      remain in the same apartment, however, as of May 1, 2001
                      you will be responsible for payment of rent in the amount
                      of $2,250.00 per month. This payment will be made directly
                      to MitoKor on the first day of each month and will
                      continue through the earlier of your return to Australia
                      or February 28, 2002. In addition although your apartment
                      is fully furnished, there may be some personal items that
                      you would like to have moved from Australia. MitoKor will
                      cover the expenses incurred in





Mr. Ron Deane
March 15, 2001
Page 3


                      such a move both to the United States, and back to
                      Australia at the end of your assignment. In order to
                      assist you in this transition to the San Diego area,
                      MitoKor will provide assistance through a company called
                      Relocation Coordinates.

                      Through Relocation Coordinates, your assigned relocation
                      counselor will provide you and Marcia with an orientation
                      to the San Diego area, assistance in searching for an
                      apartment, and assistance in obtaining a social security
                      card and driver's license. They will also coordinate the
                      move of your personal items from Australia to San Diego.

Automobile:           MitoKor will continue to make lease payments on the
                      automobile you are currently driving through April 30,
                      2001. As of May 1, 2001, you will be responsible for
                      payment of all automobile expenses.


MitoKor is an at-will employer and as such your employment must be entered
into voluntarily and for no specified period. As a result, you are free to
resign or the company may terminate your employment at any time, for any
reason, with or without cause. No one other than the CEO has the authority to
alter this employment relationship, either verbally or in writing and the CEO
can only alter this relationship in writing, signed by you and the CEO.

As an employee of MitoKor, you will be required to sign MitoKor's Employee
Agreement Regarding Confidentiality and Inventions ("Agreement"). If you
accept this offer, the terms described in this letter and in the
aforementioned Agreement shall be the terms of your employment, provided,
however, that your duties are performed in accordance with all standards and
policies adopted by the company. Your duties may change from time to time
upon reasonable notice, depending upon the needs of the company and your
skills. This letter supersedes any prior agreements, representations or
promises of any kind, express or implied, concerning your employment and it
constitutes the full and complete agreement between you and the Company.

Ron, we are very pleased to have you on the MitoKor team. We are confident
that you have much to contribute to the success of MitoKor. The strength of
our technology, the quality and experience of our personnel and your presence
will facilitate this success.





Mr. Ron Deane
March 15, 2001
Page 4



If the terms described herein are acceptable to you, please acknowledge your
acceptance by signing below on both copies and return one original to me.
Please keep one copy for your records.


Sincerely,

/s/ Walter H. Moos

Walter H. Moos, Ph.D.
Chairman and CEO



Accepted:

/s/ Ron Deane                                  03/15/01
- ------------------------              ------------------------------
Ron Deane                             Date

EX-10.13

                                                                   Exhibit 10.13

                        STANDARD INDUSTRIAL NET LEASE

This STANDARD INDUSTRIAL NET LEASE ("Lease"), dated for reference purposes
only February 28, 2001, is entered into by Collins Development Company, a
California Corporation ("Landlord"), and MitoKor, a California Corporation
("Tenant").

1.   BASIC LEASE TERMS.

     The basic terms of the Lease set forth in this Article 1 shall be read
in conjunction with the other Articles of this Lease, which define and explain
the basic terms.

     1.1  ADDRESS FOR NOTICE (see Section 24.19):

            Landlord:  11750 Sorrento Valley Road, Suite 209
                       San Diego, California 92121
                       Attention: [Center Name] Property Management

            Tenant:    AT THE PREMISES, or
                       Address for Tenant other than at the Premises (required):

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

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

     1.2  DESCRIPTION OF PREMISES:

            Center Name:  Sorrento Centre

            Address:      11494 Sorrento Valley Road
                          San Diego, CA 92121

            Suite/Unit:   See Addendum

            Approximate Rentable Square Footage (see Exhibit "A"): 22,650
                          initially; 30,850 on 9/1/2002 and thereafter

     1.3  COMMENCEMENT DATE:  April 1, 2001.

     1.4  LEASE TERM (see Article 3): Approximately six (6) years and 3
          months, beginning on the Commencement Date and ending on the last
          day of the calendar month of June 30, 2007 (the "Expiration Date").

     1.5  MINIMUM MONTHLY RENT: $ See Addendum.

     1.6  SECURITY DEPOSIT: $11,580* (see Article 5). *Already on deposit
                             with Landlord pursuant to the Prior Lease (as
                             defined in the Addendum).

     1.7  TENANT'S PRO RATA SHARE OF OPERATING COSTS (see Article 6): See
                             Addendum

     1.8  PERMITTED USE (see Article 11): legal uses associated with a
                                          biotechnology company, and for no
                                          other use.

     1.9  TENANT'S GUARANTOR (if none, so state): none

     1.10 TENANT'S PARKING SPACES (UNASSIGNED) (see Section 11.6): 68
                             initially; 91 on 9/1/2002 and thereafter.

     1.11 LANDLORD'S BROKER (if none, so state): Asset Management Group
          TENANT'S BROKER (if none, so state): none

     1.12 ADDITIONAL PROVISIONS: The following additional provisions are
          attached to and made a part of this Lease (if none, so state):
          Addendum to Standard Industrial Net Lease.

     1.13 EXHIBITS: The following Exhibits are attached to and made a part of
          this Lease:

               Exhibit "A" - Description of Premises
               Exhibit "B" - Rules and Regulations
               Exhibit "C" - Sign Criteria



2.    LEASE OF PREMISES.

      Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
the premises (the "Premises") described in Section 1.2, which are indicated on
the site/floor plan attached as Exhibit "A". The Premises are part of the
office or industrial center identified in Section 1.2 (the "Center"). The
approximate Rentable Square Footage identified in Section 1.2 is a measurement
of the net leasable floor area of the Premises, as determined by Landlord and
applied on a consistent basis throughout the Center.

3.    LEASE TERM.

      3.1  COMMENCEMENT. The term of this Lease (the "Lease Term") shall
commence on the Commencement Date stated in Section 1.3 and shall continue for
the period stated in Section 1.4, unless sooner terminated pursuant to any
provision of this Lease.

      3.2  DELAY IN COMMENCEMENT. If Landlord cannot deliver possession of the
Premises to Tenant on the Commencement Date specified in Section 1.3 for any
reason, Landlord shall not be subject to any liability therefor. Such
non-delivery shall not affect the validity of this Lease nor the obligations of
Tenant hereunder. However: (a) Tenant shall not be obligated to pay rent until
possession of the Premises is delivered to Tenant, (b) if possession of the
Premises is not delivered to Tenant within thirty (30) days of the Commencement
Date, the last day of the Lease Term shall be extended by the total number of
days that possession is so delayed, plus the minimum number of additional days
necessary to make the Expiration Date the last day of a calendar month, and (c)
if Landlord has not delivered possession of the Premises within ninety (90)
days after the Commencement Date, Tenant may elect to terminate this Lease by
delivering written notice to Landlord within ten (10) days thereafter, in which
event the parties shall be discharged from all further obligations hereunder.

      3.3  EARLY OCCUPANCY. If Tenant occupies the Premises prior to the
Commencement Date, such occupancy shall be subject to all provisions of this
Lease. Such occupancy shall not advance the Expiration Date. Tenant shall pay
Minimum Monthly Rent at the rate in effect for the first Lease Year. Additional
Rent and all other charges required hereunder for such early occupancy period.

4.    RENT.

      4.1  MINIMUM MONTHLY RENT. Tenant shall pay minimum monthly rent
("Minimum Monthly Rent") in the initial amount stated in Section 1.5. The
Minimum Monthly Rent shall be increased as set forth in Section 1.5 and/or
elsewhere in this Lease. Tenant shall pay the Minimum Monthly Rent on or before
the first day of each calendar month, in advance, at the office of Landlord or
at such other place designated by Landlord, without deduction, offset or prior
demand. If the Commencement Date is not the first day of a calendar month, the
rent for the partial month at the beginning of the Lease Term shall be
prorated on a per diem basis and shall be due on the first day of such partial
month. Upon execution of this Lease, Tenant shall pay the first month's Minimum
Monthly Rent to Landlord.

      4.2  LEASE YEAR. As used in this Lease, the term "Lease Year" means (i)
the first period of twelve (12) full calendar months following the Commencement
Date (including, if the Commencement Date is not the first day of a calendar
month, the period between the Commencement Date and the next first day of the
month), (ii) each period of twelve (12) full calendar months thereafter, and
(iii) any remaining period at the end of the Lease Term of less than twelve
(12) full calendar months.

      4.3  ADDITIONAL RENT. All charges payable by Tenant in addition to
Minimum Monthly Rent shall constitute Additional Rent to Landlord. All remedies
available to Landlord for nonpayment of rent shall be available for nonpayment
of any such Additional Rent. Unless this Lease provides otherwise, all
Additional Rent shall be paid by Tenant, without limitation or offset, within
fifteen (15) days after the Tenant's receipt of a statement from Landlord.
Additional Rent includes, without limitation, Operating Costs (see Article 6),
Maintenance and Repairs (see Article 7), Real Property Taxes (see Article 8),
insurance costs (see Article 9), Utilities (see Article 10), and attorneys'
fees and costs (see Section 24.3). If any Minimum Monthly Rent is abated or
waived pursuant to another specific term of this Lease or in any separate
agreement, it is understood that such abatement or waiver shall apply only to
the Minimum Monthly Rent, and Tenant shall be obligated to pay all components
of Additional Rent (including the applicable impounds thereof) during the
periods of abatement or waiver of Minimum Monthly Rent and throughout the Lease
Term. Minimum Monthly Rent, Additional Rent, and all other charges and monetary
amounts due Landlord from Tenant hereunder shall constitute "rent."

      4.4  IMPOUNDS. Landlord shall have the right, but not the obligation,
to collect and impound, in advance, any or all components of Operating Costs,
Real Property Taxes and Insurance costs based upon Landlord's reasonable
estimate of Tenant's future liability for such amounts under this Lease.
Landlord shall initially establish the monthly amount of such impound
("Monthly Impound Payments"), based upon its estimate of one-twelfth of
Tenant's annual liability therefor. Landlord shall have the right, at any
time during the Lease Term, to adjust the amount of the Monthly Impound
Payment upon notice to Tenant. The Monthly Impound Payment shall be due and
payable on the first day of each month throughout the Lease Term. Any failure
to pay the Monthly Impound Payment when due shall be an Event of Default
under this Lease and shall entitle Landlord to exercise any of all of its
remedies available in the same manner as for the failure to pay rent,
including the imposition of late charges and interest, and the right of
Landlord to require that future payment of the Monthly Impound Payments be
made by cashier's check. Upon the occurrence of any Event of Default by
Tenant hereunder, Landlord shall have the right to apply all unapplied
amounts of Monthly Impound Payments to Tenant's default. Within ninety (90)
days after the end of each calendar year, Landlord shall deliver to Tenant an
accounting of Tenant's actual Pro Rata Share of Operating Costs and the
estimated amounts paid by Tenant. Any overpayment by Tenant shall be credited
against next Monthly Impound Payments due hereunder, or, at Landlord's
option, shall be remitted to Tenant within thirty (30) days of delivery of
such accounting. Tenant shall pay the amount of any underpayment within
thirty (30) days after receipt of the accounting. Tenant acknowledges that
the Monthly Impound Payments are estimates only and not a representation of
the amount of Tenant's ultimate liability or Operating Costs, Real Property
Taxes and insurance costs.

5.    SECURITY DEPOSIT.

      Upon execution of this Lease, Tenant shall deposit with Landlord the
amount specified in Section 1.6 (the "Security Deposit"), to be held by
Landlord, without liability for Interest, as security for Tenant's performance
of its obligations under this Lease. Landlord shall not be required to keep the
Security Deposit separate from its other accounts. Landlord may apply all or a
part of the Security Deposit to any unpaid rent (including unpaid Additional
Rent or Monthly Impound Payments) or other monetary payments due from Tenant or
to cure any other default of Tenant hereunder and to compensate Landlord for
all damage and expense sustained as a result of such default. If all or any
portion of the Security Deposit is so applied, Tenant shall deposit cash
sufficient to restore the Security Deposit to its original amount within
fifteen (15) days after receipt of Landlord's written demand. If Tenant fully
and faithfully performs each of its obligations under this Lease, the Security
Deposit or any balance thereof shall be returned to Tenant within thirty (30)
days of the later of the expiration or earlier termination of this Lease or the
vacation of the Premises by Tenant. At Landlord's request, Tenant shall
accompany Landlord or Landlord's representative on a "walk through" of the
Premises prior to Landlord's return of the Security Deposit.

6.    OPERATING COSTS.

      6.1  PAYMENT OF OPERATING COSTS BY TENANT. Tenant shall pay its pro
rata share of Operating Costs for the Center, as defined herein. Tenant's pro
rata share shall be computed by Landlord on a monthly or other periodic basis
selected by Landlord. Tenant shall pay the amount of such pro rata share to
Landlord, to the extent such obligation exceeds any amount thereof impounded
under Section 4.4, within fifteen (15) days after receipt of a statement from
Landlord.

      6.2  PRO RATA SHARE OF OPERATING COSTS. Tenant's pro rata share of
Operating Costs is stated in Section 1.7 and represents the ratio of the
Rentable Square Footage of the Premises (identified in Section 1.2) to the
total Rentable Square Footage of the Center, as determined by Landlord from
time to time. Changes in Rentable Square Footage shall be effective on the
first day of the first calendar month following the change. Landlord shall
provide an explanation of such charge concurrent with its notice. Tenant's
share of Real Property Taxes, insurance costs and other components of
Additional Rent shall be computed on the same basis as Tenant's Pro Rata
Share of Operating Costs, unless Landlord determines that some other basis
would be equitable.

      6.3  OPERATING COSTS. "Operating Costs" includes all costs of operating,
managing, repairing and maintaining the Common Facilities, including without
limitation: gardening and landscaping; the cost of public liability and
property damage insurance; Real Property Taxes, as defined in Section 8.2 but
applicable to the Common Facilities; utilities; line painting and parking lot
repairs; roof repairs; lighting; trash and refuse removal; supplies; equipment;
exterior painting; capital improvements (including without limitation the costs
of roof, parking lot and underground utilities replacements); reasonable
reserves for repairs and replacements; the costs of altering, improving,
renovating, upgrading or retrofitting any portion of the Common Facilities to
comply with all laws, regulations and governmental requirements applicable to
the Center (including without limitation those related to disabled persons,
hazardous materials, lighting upgrades, sprinkler and energy-saving retrofits);
security service; property management costs and administrative fees;
bookkeeping services; labor; and the cost of personnel to implement such
services and to direct parking. In lieu of including the entire amount of any
such expense in Operating Costs in any one period, Landlord, at its election,
may spread the inclusion of, or may amortize, any such expenses, or a
reasonable reserve for anticipated expenses, in Operating Costs over such
multiple periods as Landlord shall determine.




     6.4  COMMON FACILITIES. "Common Facilities" means all areas, facilities,
utilities, equipment and services provided by Landlord for the common use or
benefit of the occupants of the Center and their employees, agents, customers
and other invitees, including without limitation: building lobbies, common
corridors and hallways, restrooms, pedestrian walkways, driveways and access
roads, access facilities for disabled persons (including elevators), brick
serviceways, loading docks, garages, driveways, parking lots, landscaped
areas, stairways, elevators, retaining walls, all areas required to be
maintained under the conditions of governmental approvals for the Center, and
other generally understood public or common areas. Landlord reserves the
right to relocate, alter, improve, or adjust the size and location of any
Common Facilities from time to time without liability to Tenant.

7.  MAINTENANCE AND REPAIRS.

     7.1  TENANT'S OBLIGATIONS.  Except as provided in Section 7.2, Tenant
shall keep the Premises in good order, condition and repair during the Lease
Term, including without limitation: all nonstructural, interior, exterior,
and landscaped areas; all heating, ventilation and air conditioning systems
and equipment; all glass, glazing, windows, window moldings, partitions,
doors and door hardware; all interior painting; all fixtures and appurtenances
in the Premises or exclusively serving the Premises including electrical,
lighting and plumbing fixtures; and all other portions of the Premises seen or
unseen. Tenant shall promptly replace all its sole cost and expense any of
the systems, equipment and other portions of the Premises for which it is
responsible hereunder during the Lease Term if and when necessary, regardless
of whether the benefit of such replacement extends beyond the Lease Term. It
is the intention of Landlord and Tenant that Tenant shall maintain the
Premises, at all times during the Lease Term, in an attractive, first-class
and fully operative condition, at Tenant's expense. If any heating and air
conditioning system or equipment exclusively serves the Premises, Tenant
shall additionally obtain and keep in force a preventive maintenance
contract providing for the regular (at least quarterly) inspection and
maintenance of the heating and air conditioning system (including leaks
around ducts, pipes, vents, and other parts of the air conditioning) by a
reputable licensed heating and air conditioning contractor acceptable to
Landlord. Prior to April 1 each calendar year, Tenant shall deliver Landlord
written confirmation from such contractor verifying that such a contract has
been entered into and that the required service will be provided.
Notwithstanding the foregoing. Landlord shall have the right, upon written
notice to Tenant, to undertake the responsibility for preventive maintenance
and repair of the heating and air conditioning system, at Tenant's sole cost
and expense.

     7.2  LANDLORD'S OBLIGATIONS.  Landlord shall repair and maintain the
Common Facilities, subject to Tenant's obligation to pay its Pro Rata Share
of Operating Costs, as provided in Article 6. Landlord shall maintain the
roof, the foundations and structural portions of the Premises and any
building of which the Premises are a part, but Tenant shall pay (a) the full
costs of such maintenance, or an equitable share determined by Landlord if
the Premises are part of a multi-tenant building, (b) the full amount of any
maintenance and repairs necessitated by any act, omission, conduct or
activity of, or breach of this lease by, Tenant or any of Tenant's officers,
agents, customers or invitees (plus fifteen percent (15%) of the cost thereof
for Landlord's overhead); and (c) any maintenance and repairs necessitated by
breaking and entering of the Premises. Tenant shall pay the share of such
maintenance and repair costs incurred by Landlord, to the extent such
obligation exceeds any amount thereof impounded under Section 4.4, within
fifteen (15) days after receipt of a statement from Landlord. There shall be
no abatement of rent, and no liability of Landlord, by reason of any injury
to or interference with Tenant's business arising from the making of any
repairs, alterations, or improvements to any portion of the Premises or the
Center. Except as provided in Article 10 (Damage and Destruction) and Article
17 (Condemnation), Landlord shall have absolutely no other responsibility to
repair, maintain or replace any portion of the Premises at any time. Tenant
waives the right to make repairs at Landlord's expense under California Civil
Code Section 1942, or under any other law, statute or ordinance now or
hereafter in effect. Tenant shall not be responsible for any roof replacement
during the Lease Term.

     7.3  PERFORMANCE BY LANDLORD.  If Tenant refuses or neglects to perform
its maintenance obligations hereunder to the reasonable satisfaction of
Landlord, Landlord shall have the right (but not the obligation), upon three
(3) days' prior notice to Tenant, to enter the Premises and perform such
repairs and maintenance on behalf of Tenant. Landlord shall also have the
right (but not the obligation), without prior notice to Tenant, to correct or
remove any dangerous or hazardous condition, to repair the heating,
ventilation, air conditioning or plumbing systems, to correct, repair or
bring into legal compliance any fire or other life safety systems of the
Premises, and to repair or replace any broken glass or glazing, if Tenant
fails to correct or repair the same within twenty-four (24) hours after
receipt of Landlord's notice (excepting emergencies). Landlord shall not be
liable to Tenant for any loss or damage to Tenant's merchandise, fixtures, or
other property or to Tenant's business in connection with Landlord's
performance hereunder, and Tenant shall pay Landlord's costs plus eight
percent (8%) of such amount for overhead, upon presentation of a statement
therefor, as Additional Rent. Tenant shall also pay interest at the rate
provided in Section 22.4 from the date of completion of repairs by Landlord
to the date paid by Tenant.

8.  REAL PROPERTY TAXES.

     8.1  PAYMENT OF REAL PROPERTY TAXES BY TENANT.  Tenant shall pay all
Real Property Taxes applicable to the Premises during the Lease Term. If the
Premises are not separately assessed, a share of the tax bill that includes
the Premises shall be allocated to the Premises. Such share shall be
equitably determined by Landlord based upon the Rentable Square Footage of
the Premises compared to the total Rentable Square Footage covered by the tax
bill, the respective valuations assigned in the assessor's worksheet, or
other reasonably available information. Tenant shall pay its share of Real
Property Taxes to Landlord, to the extent such obligation exceeds any amount
thereof impounded under Section 4.4, within fifteen (15) days after receipt of
a statement from Landlord.

     8.2  REAL PROPERTY TAXES DEFINED.  "Real Property Taxes" means all
taxes, assessments, levies, fees and other governmental charges levied on or
attributable to the Premises or any part thereof, including without
limitation: (a) real property taxes and assessments levied with respect to
all or a portion of the Premises, (b) assessments, charges and fees charged
by governmental agencies or districts for services or facilities provided to
the Premises, (c) transfer, transaction, rental, gross receipts, license or
similar taxes or charges measured by rent received by Landlord, excluding any
federal or state income, franchise, estate or inheritance taxes of Landlord,
(d) taxes based upon a reassessment of the Premises due to a transfer or
change of ownership, and (e) any assessment, charge or fee that is a
substitute in whole or in part for any tax at the Commencement Date included
within the definition of Real Property Taxes. If Landlord elects to contest
an assessment of any Real Property Taxes, Landlord shall have the right to
recover its actual costs of such contest (including attorneys' fees and costs)
as part of Real Property Taxes, but only to the extent such contest has
resulted in a reduction of Real Property Taxes. Tenant shall not be entitled
to the benefit of any reduction, refund, rebate or credit accruing or payable
to Landlord prior to the commencement of or after the expiration or other
termination of the Lease Term.

     8.3  PERSONAL PROPERTY TAXES.  Tenant shall pay prior to delinquency all
taxes charged against trade fixtures, furnishings, equipment or any other
personal property belonging to Tenant. Tenant shall attempt to have such
personal property taxed separately from the Premises. If any such taxes on
Tenant's personal property are levied against Landlord or the Premises, or if
the assessed value of the Premises is increased by inclusion of a value
placed upon such personal property of Tenant, then: (a) Landlord, after
written notice to Tenant, shall have the right to pay the taxes levied
against Landlord, or the taxes based upon such increased valuation, but under
protest if so requested by Tenant in writing, and (b) Tenant shall pay to
Landlord the taxes levied against Landlord, or the taxes resulting from such
increased valuation, within thirty (30) days after Tenant's receipt of a
written statement from Landlord.

9.  INSURANCE.

     9.1  ALL RISK COVERAGE.  During the Lease Term, Landlord shall maintain,
at Tenant's expense, insurance covering loss or damage to the Premises
(excluding Tenant's Alterations, fixtures, equipment and personal property),
insuring against any or all risk of physical loss (and including, at
Landlord's option, flood and earthquake coverage), with the scope and amounts
of such coverage as determined by Landlord. Said insurance shall provide for
payment of loss thereunder to Landlord or to the holder of a first mortgage
or deed of trust on the Premises. Landlord may also maintain during the Lease
Term, at Tenant's expense, a policy of rental income insurance covering a
period of one (1) year, with loss payable to Landlord.

     9.2  TENANT'S PERSONAL PROPERTY AND FIXTURES.  Tenant shall at all
times, at Tenant's sole cost and expense, maintain insurance against any or
all risks of physical loss in an amount adequate to cover the cost of
replacement of all of Tenant's Alterations, trade fixtures, equipment and
personal property. Such policy shall be issued by an insurance company
approved by Landlord, shall name Landlord and Landlord's lender as additional
insureds, and shall provide that no cancellation or reduction in coverage
shall be effective until thirty (30) days after written notice to Landlord
and Landlord's lender. Tenant shall deliver a certificate evidencing such
insurance to Landlord and a renewal or binder at least twenty (20) days prior
to expiration. Tenant acknowledges that Landlord's insurance is not intended
to cover Tenant's Alterations, trade fixtures, equipment, and personal
property. Provided, however, that at Landlord's sole election, Landlord may
obtain at Tenant's expense any or all of the insurance described in this
Section.



     9.3  TENANT'S LIABILITY INSURANCE. Tenant shall, at Tenant's sole cost
and expense, provide comprehensive general liability insurance, fully
covering and indemnifying Landlord and Landlord's officers, directors,
shareholders, partners, principals, employees, agents, representatives, and
other related entities and individuals (together with, at Landlord's
election, Landlord's lender), as additional insureds, against any and all
claims arising from personal injury, death, and/or property damage occurring
in or about the Premises or the Center during the period of Tenant's
possession (actual and/or constructive) at the Premises. The initial limits
of such insurance shall be at least $2,000,000 combined single liability
limit if the Rentable Square Footage of the Premises (as indicated in Section
1.2) exceeds 3,000 square feet, or $1,000,000 combined single liability
limit if such Rentable Square Footage is 3,000 square feet or less. Such
liability insurance limits shall be subject to periodic increase, at
Landlord's election, based upon inflation, increased liability awards, lender
requirements, the recommendations of Landlord's professional insurance
advisors, and other relevant factors. Tenant shall also, at it's sole cost
and expense, obtain workers' compensation insurance for the protection of its
employees such as will relieve Landlord of all liability to such employees
for any and all accidents that may arise on or about the Premises or the
Center. All insurance required to be carried by Tenant shall be primary and
noncontributory to any insurance carried by Landlord, regardless of the
absence of negligence or other fault of Tenant for alleged injury, death
and/or property damage. Each policy of insurance required to be carried by
Tenant hereunder shall: (a) contain cross-liability and contractual liability
endorsements, (b) provide that no cancellation or reduction in coverage shall
be effective until thirty (30) days after written notice to Landlord and
Landlord's lender, (c) be issued by an insurer licensed in California and
reasonably approved by Landlord, and (d) shall issue Tenant's performance of
the indemnity provisions of Article 13, but the amount of such insurance
shall not limit Tenant's liability nor relieve Tenant of any obligation
hereunder. Prior to the Commencement Date, Tenant shall deliver a certificate
evidencing all such insurance to Landlord. Tenant shall deliver a renewal or
binder of such policy at least thirty (30) days prior to expiration thereof.
Tenant shall, at Tenant's expense, maintain such other liability insurance as
Tenant deems necessary to protect Tenant. Tenant shall be in material breach
of this Lease if Tenant fails to obtain the insurance required under this
Section, or if Tenant obtains insurance with terms, conditions and/or
exclusions that are inconsistent with the requirements and terms of this
Lease.

     9.4  PAYMENT OF INSURANCE COSTS. Tenant shall pay directly all premiums
for its liability insurance required under Section 9.3, for its personal
property insurance to be carried by Tenant as required under this Article,
and for all other Insurance Tenant elects to carry. Tenant shall pay the
insurance premiums, or, where applicable, its share thereof as equitably
determined by Landlord, for the insurance policies carried or obtained by
Landlord as described in this Article. If the Lease Term expires before the
expiration of any such insurance policy, Tenant's liability for premiums
shall be prorated on an annual basis. Tenant shall pay such insurance costs
to Landlord to the extent such obligation exceeds any amount thereof
impounded under Section 4.4, within fifteen (15) days after receipt of a
statement from Landlord. If any insurance policy maintained by Landlord
covers improvements or real property other than the Premises, Landlord shall
reasonably determine the portion of the premiums applicable to the Premises,
and Tenant shall pay its share thereof as so determined. In addition, Tenant
shall pay the full amount of any deductible amount under Landlord's insurance
policies, or where applicable its share thereof as equitably determined by
Landlord, and reasonably approved by Tenant, within fifteen (15) days after
receipt of a statement from Landlord.

     9.5  WAIVER OF SUBROGATION. Each party waives all rights of recovery
against the other party and its officers, employees, agents and
representatives for any claims for loss or damage to person or property
caused by or resulting from fire or any other risks Insured against under any
insurance policy in force at the time of such loss or damage. Each party
shall cause each insurance policy obtained by it to provide that the insurer
waives all rights of recovery by way of subrogation against the other party
in connection with any damage covered by such policy.

     9.6  TENANT'S USE NOT TO INCREASE PREMIUM. Tenant shall not keep, use,
manufacture, assemble, sell or offer for sale in or upon the Premises any
article that may be prohibited by, or that might invalidate, in whole or in
part, the coverage afforded by, a standard form of fire or all risk insurance
policy. Tenant shall pay the entire amount of any increase in premiums that
may be charged during the Lease Term for the insurance that may be maintained
by Landlord on the Premises or the Center resulting from the type of
materials or products stored, manufactured, assembled or sold by Tenant in
the Premises, whether or not Landlord has consented to the same. In
determining whether increased premiums are the result of Tenants use of the
Premises, a schedule issued by the entity making the insurance rate on the
Premises showing the various components of such rate shall be conclusive
evidence of the items and charges that make up the fire insurance rate on the
Premises.

10. UTILITIES.

     Tenant shall pay the cost of all water, gas, heat, light, power, sewer,
telephone, refuse disposal, and all other utilities and services supplied to
the Premises. Tenant shall make payments for all separately metered
utilities, when due, directly to the appropriate supplier. Landlord shall
have the right to require Tenant to install, at Tenant's sole expense,
separate meters (or other submeter, device or monitor for the measurement of
utility usage) for any utility for which a separate meter is not installed as
of the Commencement Date. If any utilities or services are not separately
metered or monitored with respect to the Premises, Landlord shall determine
Tenant's equitable share thereof, based on rentable square footage, intensity
of use of any Utility, hours of operation, and such other factors as Landlord
deems relevant. Tenant shall pay its equitable share of such utilities to
Landlord, to the extent such obligation exceeds any amount thereof impounded
under Section 4.5, within fifteen (15) days after receipt of a statement from
Landlord. If at any time during the Lease Term, electrical power or any other
utility is available to the Premises from multiple sources, Landlord shall
have the right at any time and from time to time to contract for service from
any company or companies providing electrical, telecommunication, or other
utility service to the Building. Tenant shall cooperate with Landlord and all
providers of electrical, telecommunication, or other utility service and, as
reasonably necessary, allow Landlord and such providers reasonable access to
the Premises and to the electric lines, feeders, risers, wiring and any other
machinery or equipment within the Premises. Landlord shall in no way be
liable or responsible for any loss, damage or expense that Tenant may sustain
or incur by reason of any change, failure, interruption, interference or
defect in the supply or character of the electricity or other utilities
supplied to the Premises. Landlord makes no representation or warranty as the
suitability of the utility service for Tenant's requirements, and no such
change, failure, defect, unavailability or unsuitability shall constitute any
actual or constructive eviction, in whole or in part, or entitle Tenant to
any abatement or elimination of rent, or relieve Tenant of any of its
obligations under the Lease. Landlord shall not be liable in damages or
otherwise for any failure or interruption of any utility service, and no such
failure or interruption shall entitle Tenant to terminate this Lease or abate
the rent due hereunder.

11. USE.

     11.1  PERMITTED USE. The Premises shall be used and occupied only for
the permitted uses specified in Section 1.8. The Premises shall not be used
or occupied for any other purposes without the prior written consent of
Landlord. Tenant shall provide such information about such proposed use as
may be reasonably requested by Landlord. Landlord shall not unreasonably
withhold its consent to any requested change in use, and shall have the right
to impose reasonable restrictions on such other use. Factors that Landlord
may take into account in granting or withholding its consent shall include,
without limitation: (a) whether the proposed use is compatible with the
character and tenant mix of the Center, (b) whether the proposed use poses
any increased risk to Landlord or any other occupant of the Center, (c)
whether any proposed Alterations to accommodate such proposed use might
decrease the rental or sale value of the Premises or the Center, and (d)
whether Tenant has the requisite expertise and financial ability to
successfully operate in the Premises with the proposed use.

     11.2  COMPLIANCE WITH LAW AND OTHER REQUIREMENTS. Tenant shall not do or
permit anything to be done in or about the Premises in conflict with all
laws, ordinances, rules, regulations, orders, requirements, and recorded
covenants and restrictions applicable to the Premises, whether now in force
or hereafter in effect, including any requirement to make alterations or to
install additional facilities required by Tenant's occupancy or the conduct
of Tenant's business, and Tenant shall promptly comply with the same at its
sole expense.

     11.3  WASTE, QUIET CONDUCT. Tenant shall not use or permit the use of
the Premises in any manner that creates waste or a nuisance, that causes
objectionable noise or odors, or that disturbs the quiet enjoyment of any
other tenant in the Center.

     11.4  RULES AND REGULATIONS. Tenant shall comply with the Rules and
Regulations for the Center attached as Exhibit "B", as the same may be
amended by Landlord from time to time, upon notice to Tenant.

     11.5  SIGNS. Tenant agrees at Tenant's sole cost, to install a sign in
strict conformance with Landlord's sign criteria, attached hereto as Exhibit
"C", within fifteen (15) days after first occupying the Premises. Tenant
shall maintain all approved signs and other items described herein in good
condition and repair at all times. All signs must be fabricated by a
contractor selected by Landlord. Prior to construction of any such sign, a
detailed drawing of the proposed sign shall be prepared by the Landlord's
contractor, at the sole expense of Tenant, and submitted to Landlord and
Tenant for written approval. No sign, placard, pennant, flag, awning, canopy,
or advertising matter of any kind shall be placed or maintained on any
exterior door, wall or window of the Premises or in any area outside the
Premises, and no decoration, lettering or



advertising matter shall be placed or maintained on the glass of any window
or door, or that can be seen through the glass, of the Premises without first
obtaining Landlord's written approval. All signs and sign cases shall be
considered fixtures and improvements and shall become the property of
Landlord upon expiration or termination of the Lease. If Tenant fails to
comply with this Section and Landlord serves upon Tenant a Notice to Perform
Covenant or Quit (or similar notice), any breach of the covenants of this
Section occurring thereafter shall be deemed to be noncurable. Landlord shall
have the right from time to time to reasonably revise the sign criteria, and
within sixty (60) days after Tenant's receipt of written notice of any new
sign criteria, Tenant shall, at Tenant's expense, remove all existing
exterior signs and replace the same with new signs conforming to the new sign
criteria.

     11.6  PARKING.  Tenant shall have the nonexclusive right, in common with
others, to use the parking areas of the Center; provided, however, that
Tenant shall not use more than the number of parking spaces designated in
Section 1.10, or if no number of such spaces is so indicated, Tenant shall
not use more than its reasonable share of parking spaces, as Landlord shall
determine. Landlord reserves the right, without liability to Tenant, to
modify the parking areas, to designate the specific location of the parking
for Tenant and Tenant's customers and employees, and to adopt reasonable rules
and regulations for use of the parking areas.

     11.7  ENTRY BY LANDLORD.  Tenant shall permit Landlord and Landlord's
agents to enter the Premises at all reasonable times for any of the following
purposes: (a) to inspect the Premises, (b) to supply any services or to
perform any maintenance obligations of Landlord, including the erection and
maintenance of such scaffolding, canopies, fences, and props as may be
required, (c) to make such improvements, replacements or additions to the
Premises or the Center as Landlord deems necessary or desirable, (d) to post
notices of nonresponsibility, (e) to place any usual or ordinary "for sale"
signs, or (f) within six (6) months prior to the expiration of this Lease, to
place any usual or ordinary "for lease" signs. No such entry shall result in
any rebate of rent or any liability to Tenant for any loss of occupation or
quiet enjoyment of the Premises. Landlord shall give reasonable notice to
Tenant prior to any entry except in an emergency or unless Tenant consents at
the time of entry. If Tenant is not personally present to open and permit an
entry into the Premises, at any time when for any reason an entry therein
shall be necessary or permissible, Landlord or Landlord's agents may enter
the same by a master key, or may forcibly enter the same without rendering
Landlord or such agents liable therefor, and without in any manner affecting
the obligations and covenants of this Lease provided that Landlord shall give
Tenant notice of and the reasons for such entry within forty-eight (48) hours
thereof. Nothing herein contained, however, shall be deemed or construed to
impose upon Landlord any obligation, responsibility or liability whatsoever
for the care, maintenance or repair of the Premises or any part thereof,
except as otherwise specifically provided herein.

12.  ACCEPTANCE OF PREMISES; NONLIABILITY OF LANDLORD; DISCLAIMER.

     12.1  ACCEPTANCE OF PREMISES.  By taking possession hereunder, Tenant
acknowledges that it has examined the Premises and accepts the condition
thereof. Tenant acknowledges and agrees that Landlord has no obligation to
improve the Premises other than as set forth specifically in this Lease, if
at all. In particular, Tenant acknowledges that any additional improvements
or Alterations needed to accommodate Tenant's intended use shall be made
solely at Tenant's sole cost and expense, and strictly in accordance with the
requirements of this Lease (including the requirement to obtain Landlord's
consent thereto), unless such improvements and alterations are specifically
required of Landlord. Landlord shall have no responsibility to do any work
required under any building codes or other governmental requirements not in
effect or applicable at the time the Premises were constructed, including
without limitation any requirements related to sprinkler retrofitting,
seismic structural requirements, accommodation of disabled persons, or
hazardous materials. Landlord shall be under no obligation to provide
utility, telephone or other service or access beyond that which exists at the
Premises as of the date of this Lease, unless Landlord specifically agrees in
writing to provide the same. It is anticipated that Tenant will be doing any
Alterations or installations prior to taking occupancy, any delays
encountered by Tenant and not caused by Landlord or Landlord's agent or
representative in accomplishing such work or obtaining any required permits
therefor shall not delay the Commencement Date or the date that Tenant
becomes liable to pay rent, or the date that Landlord may effectively deliver
possession of the Premises to Tenant. By taking possession hereunder, Tenant
acknowledges that it accepts the square footage of the Premises as delivered
and as stated in this Lease. No discovery or alleged discovery after such
acceptance of any variance in such square footage as set forth in this Lease
(or in any proposal, advertisement or other description thereof) shall be
grounds for any adjustment in any element of the rent payable hereunder,
unless such adjustment is initiated by and implemented by Landlord in writing.

     12.2  LANDLORD'S EXEMPTION FROM LIABILITY.  Landlord shall not be liable
for injury to Tenant's business or loss of income therefrom, or for personal
injury or property damage that may be sustained by Tenant or any subtenant of
Tenant, or their respective employees, invitees, customers, agents or
contractors or any other person in or about the Premises, caused by or
resulting from fire, flood, earthquake or other natural disaster, or from
steam, electricity, gas, water or rain, that may leak or flow from or into
any part of the Premises, or from the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air-conditioning,
lighting fixtures or computer equipment or software, whether such damage or
injury results from conditions arising upon the Premises or upon other
portions of the building of which the Premises are a part, or from other
sources, and regardless of whether the cause of such damage or injury or the
means of repairing the same is inaccessible to Tenant. Landlord shall not be
liable for any damages to property or for personal injury or loss of life
arising from any use, act or failure to act of any third parties (including
other occupants of the Center) occurring in, or about the Premises or in or
about the Center (including without limitation the criminal acts of any third
parties). Landlord shall not be liable for any latent defect in the Premises
or in the building of which the Premises are a part. All property of Tenant
kept or stored on the Premises shall be so kept or stored at the risk of
Tenant only, and Tenant shall indemnify, defend and hold Landlord and
Landlord's officers, directors, shareholders, partners, principals, employees
and agents, and their respective successors and assigns, harmless from and
against any claims arising out of damage to the same, including subrogation
claims by Tenant's insurance carriers. Provided, however, that the
indemnifications and waivers of Tenant set forth in this Section shall not
apply to damage and liability caused (i) by the gross negligence or willful
misconduct of Landlord, and (ii) through no fault of Tenant, its assignees or
subtenants, or their respective agents, contractors, employees, customers,
invitees or licensees.

     12.3  NO WARRANTIES OR REPRESENTATIONS.

          (a)  Neither Landlord nor Landlord's agents make any warranty or
representation with respect to the suitability or fitness of the space for
the conduct of Tenant's business, or for any other purpose.

          (b)  Neither Landlord nor Landlord's agents make any warranty or
representation with respect to any other tenants or users that may or may not
construct improvements, occupy space or conduct business within the Center,
and Tenant hereby acknowledges and agrees that it is not relying on any
warranty or representation relating thereto in entering into this Lease.

          (c)  Landlord specifically disavows any oral representations made
by or on behalf of its employees, agents and independent contractors, and
Tenant hereby acknowledges and agrees that it is not relying and has not
relied on any oral representations in entering into this Lease.

          (d)  Landlord has not made any promises or representations,
expressed or implied, that it will renew, extend or modify this Lease in
favor of Tenant or any permitted transferee of Tenant, except as may be
specifically set forth herein or in a written instrument signed by both
parties amending this Lease in the future.

          (e)  Notwithstanding that the rent payable to Landlord hereunder
may at times include the cost of guard service or other security measures, it
is specifically understood that Landlord does not represent, guarantee or
assume responsibility that Tenant will be secure from any damage, injury or
loss of life because of such guard service. Landlord shall have no obligation
to hire, maintain or provide such services, which may be withdrawn or changed
at any time with or without notice to Tenant or any other person and without
liability to Landlord. To induce Landlord to provide such service if Landlord
elects in its sole discretion to do so, Tenant agrees that (i) Landlord shall
not be liable for any damage, injury or loss of life related to the provision
or nonprovision of such service, and (ii) Landlord shall have no
responsibility to protect Tenant, or its employees or agents, from the acts
of any third parties (including other occupants of the Center) occurring in
or about the Premises or in or about the Center (including without limitation
the criminal acts of any third parties), whether or not the same could have
been prevented by any such guard service or other security measures.

     12.4  KEYS. Tenant shall re-key the Premises at its sole cost upon
taking possession thereof. Tenant hereby acknowledges that various persons
have had access to the keys to the Premises as keyed prior to Tenant's
possession, and that Landlord disclaims all liability and responsibility for
any unauthorized distribution or possession of such prior keys.

13.  INDEMNIFICATION.

     Tenant shall indemnify, defend and hold Landlord and Landlord's
officers, directors, shareholders, partners, principals, employees, agents,
representatives, and other related entities and individuals (collectively,
"Landlord's Related Entities"), harmless from and against any and all claims,
actions, damages, liability, costs, and expenses, including attorneys' fees
and costs, arising from personal injury, death, and/or property damage and
arising from: (a) Tenant's use or occupation of the Premises or any work or
activity done or permitted by Tenant in or about the Premises (including
without limitation any storage or display of materials or merchandise, or
other activity by Tenant in the Common Facilities), (b) any activity,
condition or occurrence in the Premises or other area under the control of
Tenant, (c) any breach or failure to perform any



obligation imposed on Tenant under this Lease, or (d) any other act or
omission of Tenant or its assignees or subtenants or their respective agents,
contractors, employees, customers, invitees or licensees. Tenant's obligation
to defend and indemnify shall include, but not be limited to, claims based on
duties, obligations, or liabilities imposed on Landlord or Landlord's Related
Entities by statute, ordinance, regulation, or other law, such as claims
based on theories of peculiar risk and nondelegable duty, and to any and
all other claims based on the negligent act or omission of Landlord or
Landlord's Related Entities. The parties intend that this provision be
interpreted as the broadest Type 1 indemnity provision as defined in MCDONALD
& KRUSE, INC. V. SAN JOSE STEEL CO., 29 Cal. App. 3rd 413 (1972), and as
allowed by law between a landlord and a tenant. Upon notice from Landlord,
Tenant shall, at Tenant's sole expense and by counsel satisfactory to
Landlord, defend any action or proceeding brought against Landlord or
Landlord's Related Entities by reason of any such claim. If Landlord or any
of Landlord's Related Entities is made a party to any litigation commenced by
or against Tenant, then Tenant shall indemnify, defend and hold Landlord and
Landlord's Related Entities harmless from, and shall pay all costs, expenses
and attorneys' fees and costs incurred or paid in connection with such
litigation. Tenant, as a material part of the consideration to Landlord
hereunder, assumes all risk of, and waives all claims against Landlord for,
personal injury or property damage in, upon or about the Premises, from any
cause whatsoever. Provided, however, that the indemnifications and waivers of
Tenant set forth in this Section shall not apply to damage and liability
caused (i) by the gross negligence or willful misconduct of Landlord, and
(ii) through no fault of Tenant, its assignees or subtenants, or their
respective agents, contractors, employees, customers, invitees or licensees.

14. HAZARDOUS MATERIALS

     14.1      DEFINITIONS. "Hazardous Materials Laws" means any and all
federal, state or local laws, ordinances, rules, decrees, orders, regulations
or court decisions relating to hazardous substances, hazardous materials,
hazardous waste, toxic substances, environmental conditions on, under or
about the Premises, or soil and ground water conditions, including, but not
limited to, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, ET SEQ., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, ET SEQ., the
Hazardous Materials Transportation Act, 49 U.S.C., Section 1801, ET SEQ, the
California Hazardous Waste Control Act, Cal. Health and Safety Code Section
25100, ET SEQ., the Carpenter-Presley-Tanner Hazardous Substances Account
Act, Cal. Health and Safety Code Section 25300, ET SEQ., the Safe Drinking
Water and Toxic Enforcement Act, Cal. Health and Safety Code Section 25249.5,
ET SEQ., the Porter-Cologne Water Quality Control Act, Cal. Water Code
Section 13000, ET SEQ., any amendments to the foregoing, and any similar
federal, state or local laws, ordinances, rules, decrees, orders or
regulations. "Hazardous Materials" means any chemical, compound, material,
substance or other matter that: (a) is defined as a hazardous substance,
hazardous material, hazardous waste or toxic substance under any Hazardous
Materials Law, (b) is controlled or governed by any Hazardous Materials Law
or gives rise to any reporting, notice or publication requirements hereunder,
or gives rise to any liability, responsibility or duty on the part of Tenant
or Landlord with respect to any third person hereunder; or (c) is flammable
or explosive material, oil, asbestos, urea formaldehyde, radioactive
material, nuclear medicine material, drug, vaccine, bacteria, virus,
hazardous waste, toxic substance, or related injurious or potentially
injurious material (by itself or in combination with other materials).

     14.2      USE OF HAZARDOUS MATERIALS. Tenant shall not allow any
Hazardous Material to be used, generated, manufactured, released, stored or
disposed of on, under or about, or transported from, the Premises, unless:
(a) such use is specifically disclosed to and approved by Landlord in writing
prior to such use, and (b) such use is conducted in compliance with the
provisions of this Article. Landlord's consent may be withheld in Landlord's
sole discretion and, if granted, may be revoked at any time. Landlord may
approve such use subject to reasonable conditions to protect the Premises and
Landlord's interests. Landlord may withhold approval if Landlord determines
that such proposed use involves a material risk of a release or discharge of
Hazardous Materials or a violation of any Hazardous Materials Laws or that
Tenant has not provided reasonably sufficient assurances of its ability to
remedy such a violation and fulfill its obligations under this Article.
Notwithstanding the foregoing, Landlord hereby consents to Tenant's use,
storage or disposal of products containing small quantities of Hazardous
Materials that are of a type customarily found in offices and households
(such as aerosol cans containing insecticides, toner for copies, paints,
paint remover and the like) provided that Tenant shall handle, use, store and
dispose of such Hazardous Materials in a safe and lawful manner and shall not
allow such Hazardous Materials to contaminate the Premises.

     14.3      COMPLIANCE WITH LAWS; HANDLING HAZARDOUS MATERIALS. Tenant
shall strictly comply with, and shall maintain the Premises in compliance
with, all Hazardous Materials Laws. Tenant shall obtain, maintain in effect
and comply with the conditions of all permits, licenses and other
governmental approvals required for Tenant's operations on the Premises under
any Hazardous Materials Laws, including, but not limited to, the discharge of
appropriately treated Hazardous Materials into or through any sanitary sewer
serving the Premises. At Landlord's request, Tenant shall deliver copies of,
or allow Landlord to inspect, all such permits, licenses and approvals. All
Hazardous Materials removed from the Premises shall be removed and
transported by duly licensed haulers to duly licensed disposal facilities, in
compliance with all Hazardous Materials Laws. Tenant shall perform any
monitoring, testing, investigation, clean-up, removal, detoxification,
preparation of closure or other required plans and any other remedial work
required by any governmental agency or lender, or recommended by Landlord's
environmental consultants, as a result of any release or discharge or
potential release or discharge of Hazardous Materials affecting the Premises
or the  Center or any violation or potential violation of Hazardous Materials
Laws by Tenant or any assignee or subtenant of Tenant or their respective
agents, contractors, employees, licensees or invitees (collectively,
"Remedial Work"). Landlord shall have the right to intervene in any
governmental action or proceeding involving any Remedial Work, and to approve
performance of the work, in order to protect Landlord's interests. Tenant
shall not enter into any settlement agreement, consent decree or other
compromise with respect to any claims relating to Hazardous Materials without
notifying Landlord and providing ample opportunity for Landlord to intervene.
Tenant shall additionally comply with the recommendations of Landlord's and
Tenant's Insurers based upon National Fire Protection Association standards
or other applicable guidelines regarding the management and handling of
Hazardous Materials. If any present or future law imposes any requirement of
reporting, survey, investigation or other compliance upon Landlord, Tenant,
or the Premises, and if such requirement is precipitated by a transaction
involving the Lease (other than the natural expiration thereof at the end of
the lease period), including without limitation the assignment or sublease,
in whole or in part of Tenant's interest in the Lease, or the change in the
ownership of Tenant, then Tenant shall fully comply with and pay all costs of
compliance with such requirement, including Landlord's attorneys' fees and
costs.

     14.4      NOTICE; REPORTING. Tenant shall notify Landlord, in writing,
within three (3) days after any of the following: (a) Tenant has knowledge,
or has reasonable cause to believe, that any Hazardous Material has been
released, discharged or is located on, under or about the Premises, whether
or not the release or discharge is in quantities that would otherwise be
reportable to a public agency, (b) Tenant receives any order of a
governmental agency requiring any Remedial Work pursuant to any Hazardous
Materials Laws, (c) Tenant receives any warning, notice of inspection, notice
of violation or alleged violation or Tenant receives notice or knowledge of
any proceeding, investigation or enforcement action, pursuant to any
Hazardous Materials Laws; or (d) Tenant receives notice or knowledge of any
claims made or threatened by any third party against Tenant or the Premises
relating to any loss or injury resulting from Hazardous Materials. If the
potential risk of any of the foregoing events is material, Tenant shall
deliver immediate verbal notice to Landlord, in addition to written notice as
set forth above. Tenant shall deliver to Landlord copies of all test results,
reports and business or management plans required to be filed with any
governmental agency pursuant to any Hazardous Materials Laws.

     14.5      INDEMNITY. Tenant shall indemnify, declare and hold Landlord
(and its partners and their respective officers, directors, employees and
agents) harmless from and against any and all liabilities, claims, suits,
judgments, actions, investigations, proceedings, costs and expenses
(including attorneys' fees and costs) arising out of or in connection with
any breach of any provisions of this Article or directly or indirectly
arising out of the use, generation, storage, release, disposal or transportation
of Hazardous Materials by Tenant, or any assignee or subtenant of Tenant, or
their respective agents, contractors, employees, licensees, or invitees, on,
under or about the Premises during the Lease Term or any other period of
Tenant's actual or constructive occupancy of the Premises, including, but not
limited to, all foreseeable and unforeseeable consequential damages and the
cost of any Remedial Work. Any defense of Tenant pursuant to this Section
shall be by counsel acceptable to Landlord. Neither the consent by Landlord
to the use, generation, storage, release, disposal or transportation of
Hazardous Materials nor the strict compliance with all Hazardous Materials
Laws shall excuse Tenant from Tenant's indemnification obligations pursuant
to this Article. The foregoing indemnity shall be in addition to and not a
limitation of the indemnification provisions of Article 13 of this Lease.
Tenant's obligations pursuant to this Article shall survive the termination or
expiration of this Lease.

     14.6      ENTRY AND INSPECTION; CURE. Landlord and its agents, employees
and contractors, shall have the right (but not the obligation) to enter the
Premises at all reasonable times to inspect the Premises and Tenant's
compliance with the terms and conditions of this Article, or to conduct
investigations and tests. No prior notice to Tenant shall be required in the
event of an emergency, or if Landlord has reasonable cause to believe that
violations of this Article have occurred, or if Tenant consents at the time
of entry. In all other cases, Landlord shall give at least twenty-four (24)
hours' prior notice to Tenant. Landlord shall have the right (but not the
obligation) to remedy any violation by Tenant of the provisions of this
Article pursuant to Section 22.3 of this Lease or to perform any Remedial
Work. Tenant shall pay, upon demand, all



costs incurred by Landlord in investigating any such violations or potential
violations or performing Remedial Work, plus interest thereon at the rate
specified in this Lease from the date of demand until the date paid by Tenant.

     14.7 TERMINATION/EXPIRATION. Upon termination or expiration of this
Lease, Tenant shall at Tenant's cost, remove any equipment, improvements or
storage facilities utilized in connection with any Hazardous Materials and
shall clean up, detoxify, repair and otherwise restore the Premises to a
condition free of Hazardous Materials, to the extent such condition is caused
by Tenant or any assignee or subtenant of Tenant or their respective agents,
contractors, employees, licensees or invitees.

     14.8 EXIT ASSESSMENT. No later than ten (10) days after the expiration or
earlier termination of this Lease, Tenant shall cause to be performed, at its
sole expense, an environmental assessment (the "Exit Assessment") of the
Premises. Landlord agrees to allow Tenant access to the Premises for such
purpose. The Exit Assessment must be performed by a qualified environmental
consultant acceptable to Landlord, and shall include without limitation the
following, as applicable to the Premises and Tenant's activities: (a)
inspection of all floors, walls, ceiling tiles, benches, cabinet interiors,
sinks, the roof and other surfaces for signs of contamination and/or
deterioration related to Hazardous Materials, (b) inspection of any and all
ducts, hoods and exhaust systems for signs of contamination, deterioration
and/or leakage related or potentially related to Hazardous Materials, (c)
inspection of all readily accessible drain lines and other discharge piping
for signs of deterioration, loss of integrity and leakage, (d) Tenant
interviews and review of appropriate Tenant records to determine the uses to
which Tenant has put the Premises that involve or may have involved Hazardous
Materials, and to determine if any known discharges to the Premises or ground
or soils from Tenant's activities have occurred, (e) documentation in detail
of all observations, including dated photographs, (f) if applicable a
certification that all areas inspected are clean and free of any Hazardous
Materials and that the investigation conducted by the consultant does
indicate that any release of any Hazardous Materials has occurred in the
Premises or the Center as a result of Tenant's activities, (g) if applicable,
a detailed description of Hazardous Materials remaining in the Premises and
of any contamination, deterioration and/or leakage observed, together with
detailed recommendations for the removal, repair or abatement of the same,
and (h) if applicable, a detailed description of evidence or possible or past
releases of Hazardous Materials, together with detailed recommendations for
the prevention of the same in the future. Landlord shall have the right to
require additional evaluations or work in connection with the Exit Assessment
based upon Tenant's use of the Premises, any actual or suspected Hazardous
Materials issues, or other reasonable factors. The original of the Exit
Assessment shall be addressed to Landlord and shall be provided to the
Landlord within twenty (20) days of the expiration or earlier termination of
the Lease. In addition to Tenant's obligations under Section 14.7, Tenant
agrees to fully implement and address all recommended actions contained in
the Exit Assessment, at its sole cost, within thirty (30) days of the date
thereof.

     14.9 EVENT OF DEFAULT. The release or discharge of any Hazardous
Material or the violation of any Hazardous Materials Law by Tenant or any
assignee or subtenant of Tenant shall be a material Event of Default by
Tenant under this Lease. In addition to or in lieu of the remedies available
under this Lease as a result of such Event of Default, Landlord shall have
the right, without terminating this Lease, to require Tenant to suspend its
operations and activities on the Premises until Landlord is satisfied that
appropriate Remedial Work has been or is being adequately performed;
Landlord's election of this remedy shall not constitute a waiver of
Landlord's right thereafter to declare an Event of Default and pursue any
other available remedy.

15. ALTERATIONS; LIENS.

     15.1 ALTERATIONS BY TENANT. Tenant shall not make any alterations,
additions or improvements ("Alterations") to the Premises without Landlord's
prior written consent, except for nonstructural Alterations that cost $5,000
or less and are not visible from the exterior of the Premises. All
Alterations installed by Tenant shall be new or completely reconditioned.
Landlord shall have the right to approve the contractor, the method of
payment of the contractor, and the plans and specifications for all proposed
Alterations. Tenant shall obtain Landlord's consent to all proposed
Alterations requiring Landlord's consent prior to the commencement of any
such Alterations. Tenant's request for consent shall be accompanied by
information identifying the contractor and method of payment and two (2)
copies of the proposed plans and specifications. All Alterations of whatever
kind and nature shall become at once a part of the realty and shall be
surrendered with the Premises upon expiration or earlier termination of the
Lease Term, unless Landlord requires Tenant to remove the same as provided in
Article 20. If Tenant demolishes or removes any then-existing tenant
improvements or other portions of the Premises or the Building (including
without limitation any previously-installed Alterations), Tenant shall
promptly commence and diligently pursue to completion the Alterations then
underway or shall otherwise restore the Premises and the Building to its
condition and state of improvement prior to such demolition or removal.
During the Lease Term, Tenant agrees to provide, at Tenant's expense, a
policy of insurance covering loss or damage to Alterations made by Tenant, in
an amount adequate to repair or replace the same, naming Landlord as an
additional insured, Provided, however, Tenant may install movable furniture,
trade fixtures, machinery or equipment to conformance with applicable
governmental rules or ordinances and remove the same upon expiration or
earlier termination of this Lease as Provided in Article 20.

     15.2 PERMITS AND GOVERNMENTAL REQUIREMENTS. Tenant shall obtain, at
Tenant's sole cost and expense, all building permits and other permits of
every kind and nature required by any governmental agency having jurisdiction
in connection with the Alterations. Tenant shall indemnify, defend and hold
Landlord and Landlord's officers, directors, shareholders, partners,
principals, employees and agents, and their respective successors and
assigns, harmless from and against any and all claims, actions, damages,
liability, costs, and expenses, including attorneys' fees and costs, arising
out of any failure by Tenant or Tenant's contractor or agents to obtain all
required permits, regardless of when such failure is discovered. Tenant shall
do any and all additional construction, alterations, improvements and
retrofittings required to be made to the Premises and/or the Center by any
governmental or quasi-governmental entity, or any other property of Landlord
as a result of, or as may be triggered by, Tenant's Alterations. Landlord
shall have the right to do such construction itself; but in all instances
Tenant shall pay all costs directly or indirectly related to such work and
shall indemnify, defend and hold Landlord and Landlord's officers, directors,
shareholders, partners, principals, employees and agents, and their
respective successors and assigns, harmless from and against any and all
claims, actions, damages, liability, costs, and expenses, including
attorneys' fees and costs, arising out of any such additionally required
work. All payment and indemnification obligations under this Section shall
service the expiration or earlier termination of the Lease Term.

     15.3 LIENS. Tenant shall pay when due all claims for any work performed,
materials furnished or obligations incurred by or for Tenant, and Tenant
shall keep the Premises free from any liens arising with respect thereto. If
Tenant fails to cause any such lien to be released within fifteen (15) days
after receiving notice thereof, by payment or posting of a proper bond,
Landlord shall have the right (but not the obligation) to cause such release
by such means as Landlord deems proper. Tenant shall pay Landlord upon
demand for all costs incurred by Landlord in connection therewith (including
attorney's fees and costs), with interest at the rate specified in Section
22.4 from the date of payment by Landlord to the date of payment by Tenant.
Tenant will notify Landlord in writing thirty (30) days prior to commencing
any alterations, additions, improvements or repairs in order to allow
Landlord time to file a notice of nonresponsibility.

16. DAMAGE AND DESTRUCTION.

     16.1 PARTIAL INSURED DAMAGE. If the Premises or any building in which
the Premises are located are partially damaged or destroyed during the Lease
Term, Landlord shall make the necessary repairs, provided such repairs can
reasonably be completed within (60) days after the date of the damage or
destruction in accordance with applicable laws and regulations and provided
that Landlord receives sufficient insurance proceeds to pay the cost of such
repairs. In such event, this Lease shall continue in full force and effect.
If such repairs cannot reasonably be completed within sixty (60) days after
the date of the damage or destruction or if Landlord does not receive
sufficient insurance proceeds, then Landlord may, at its option, elect within
forty-five (45) days of the date of the damage or destruction to proceed with
the necessary repairs, in which event this Lease shall continue in full force
and effect and Landlord shall complete the same within a reasonable time. If
Landlord does not so elect to make such repairs or if such repairs cannot be
made under applicable laws and regulations, this Lease may be terminated at
the option of either party within ninety (90) days of the occurrence of such
damage or destruction.

     16.2 INSURANCE DEDUCTIBLE. If Landlord elects to repair any damage
caused by an insured casualty as provided in Section 16.1, Tenant shall,
within fifteen (15) days after receipt of written notice from Landlord, pay
the amount of any deductible (or its share thereof) under any insurance
policy covering such damage or destruction, in accordance with Section 9.4
above.

     16.3 UNINSURED DAMAGE. In the event of any damage or destruction of the
Premises or any building in which the Premises are located by an uninsured
casualty, Landlord shall have the right to elect either to repair such damage
or to terminate this Lease. Such election shall be exercised by written
notice to Tenant within forty-five (45) days of such damage or destruction.

     16.4 TOTAL DESTRUCTION. A total destruction (including any destruction
required by any authorized public authority) of either the Premises or any
building in which the Premises are located shall terminate this Lease.

     16.5 PARTIAL DESTRUCTION OF CENTER. If fifty percent (50%) or more of
the rentable area of the Center is damaged or destroyed by fire or other
cause, notwithstanding that the Premises may be unaffected, Landlord shall
have the right, to be exercised by notice in writing delivered to Tenant
within ninety (90) days after said occurrence, to elect to terminate this
Lease.


     16.6   TENANT'S OBLIGATIONS. Landlord shall not be required to repair
any injury or damage by fire or other cause, or to make any restoration or
replacement of any Alterations, trade fixtures, equipment or personal
property placed or installed in the Premises by or on behalf of Tenant.
Unless this Lease is terminated pursuant to this Article. Tenant shall
promptly repair, restore, or replace the same in the event of damage. Nothing
contained in this Article shall be construed as a limitation on Tenant's
liability for any damage or destruction if such liability otherwise exists.

     16.7   RENT ABATEMENT. If Landlord repairs the Premises or the building
after damage or destruction as described in this Article 16, Minimum Monthly
Rent payable by Tenant hereunder from the date of damage until the repairs
are completed shall be equitably reduced, based upon the extent to which such
repairs interfere with the business carried on by Tenant in the Premises, but
only to the extent Landlord receives proceeds from rental income insurance
paid for by Tenant. Landlord agrees to take reasonable steps to make a claim
for and collect any rental income insurance proceeds that might be available.

     16.8   WAIVER OF INCONSISTENT STATUTES. The parties' rights and
obligations in the event of damage or destruction shall be governed by the
provisions of this Lease; accordingly, Tenant waives the provisions of
California Civil Code Sections 1932(2) and 1933(4) and any other statute,
code or judicial decisions that grants a tenant a right to terminate a lease
in the event of damage or destruction of a leased premises.

17.  CONDEMNATION.

     17.1   CONDEMNATION OF PREMISES. If any portion of the Premises is taken
or condemned for a public or quasi-public use ("Condemnation"), and a portion
remains that is susceptible of occupation, then this Lease shall terminate as
to the portion so taken as of the date title vests in the condemnor, but
shall remain in full force and effect as to the remaining Premises. Landlord
shall, within a reasonable period of time, restore the remaining Premises as
nearly as practicable to the condition existing prior to the condemnation;
provided, however, that if Landlord receives insufficient funds from the
condemnor for such purpose. Landlord may elect to terminate this Lease. If
this Lease continues in effect, the Minimum Monthly Rent shall be equitably
adjusted, based upon the value of the Premises remaining after the
Condemnation compared to the value of the Premises prior to Condemnation.
Provided, however, in the event of any such partial condemnation, Landlord
shall have the option to terminate this Lease entirely as of the date title
vests in the condemnor. If all the Premises are condemned, or such portion so
that there does not remain a portion that is susceptible of occupation, or if
such a substantial portion of the Center is condemned that it is no longer
economically appropriate to lease the Premises on the terms and conditions of
this Lease, as reasonably determined by Landlord, then at the election of
Landlord this Lease shall terminate as of the date title vests in the
condemnor.

     17.2   CONDEMNATION OF PARKING AREA. If all or any portion of the
parking area in the Center is condemned such that the ratio of the total
square footage of parking and other Common Facilities compared to the total
rentable building square footage of the Center is reduced to a ratio below
two to one, then at the election of Landlord this Lease shall terminate as of
the date title vests in the condemnor.

     17.3   CONDEMNATION AWARD. All compensation awarded upon any such
partial or total Condemnation shall be paid to Landlord and Tenant shall have
no claim thereto, and Tenant hereby irrevocably assigns and transfers to
Landlord any right to compensation or damages by reason of any such
Condemnation. Provided, however, that Tenant shall have the right to claim
and recover from the condemning authority, but not from Landlord, such
compensation as may be separately awarded or recoverable by Tenant in
Tenant's own right on account of any damage to Tenant's business by reason of
the Condemnation and on account of any cost that Tenant may incur in removing
Tenant's merchandise, furniture, fixtures, leasehold improvements and
equipment. If this Lease is terminated, in whole or in part, in accordance
with this Article as a result of a Condemnation, Tenant shall have no claim
for the value of any unexpired term of this Lease.

18.  ASSIGNMENT AND SUBLETTING.

     18.1   LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or
involuntarily assign, sublease, mortgage, encumber, or otherwise transfer all
or any portion of the Premises or its interest in this Lease (collectively,
"Transfer") without Landlord's prior written consent, which consent Landlord
shall not unreasonably withhold. Landlord may withhold its consent until
Tenant has complied with the provisions of Sections 18.2 and 18.3. Any
attempted Transfer without Landlord's written consent shall be void and shall
constitute a noncurable Event of Default under this Lease. If Tenant is a
corporation, any cumulative Transfer of more than fifty percent (50%) of the
voting stock of such corporation shall constitute a Transfer requiring
Landlord's consent hereunder; provided, however, that this sentence shall not
apply to any corporation whose stock is publicly traded. If Tenant is a
partnership, limited liability company, trust or other entity, any cumulative
Transfer of more than fifty percent (50%) of the partnership, membership,
beneficial or other ownership interests therein shall constitute a Transfer
requiring Landlord's consent hereunder. Tenant shall not have the right to
consummate a Transfer or to request Landlord's consent to any Transfer if any
Event of Default has occurred and is continuing or if Tenant or any affiliate
of Tenant is in default under any lease of any other real property owned or
managed (in whole or in part) by Landlord or any affiliate of Landlord.

     18.2   LANDLORD'S ELECTION. Tenant's request for consent to any Transfer
shall be accompanied by a written statement setting forth the details of the
proposed Transfer, including the name, business and financial condition of
the prospective Transferee, financial details of the proposed Transfer (e.g.,
the term and the rent and security deposit payable), and any other related
information that Landlord may reasonably require. Landlord shall have the
right: (a) to withhold consent to the Transfer, if reasonable, (b) to grant
consent, or (d) to consent on the condition that Landlord be paid, as
Additional Rent hereunder, fifty percent (50%) of all subrent or other
consideration to be paid to Tenant under the terms of the Transfer in excess
of the total rent due hereunder (including, if such Transfer is an assignment
or if such Transfer is to occur directly or indirectly in connection with the
sale of any assets of Tenant, fifty percent (50%) of the amount of the
consideration attributable to the transfer of the Lease, as reasonably
determined by Landlord). The grounds on which Landlord may reasonably
withhold its consent to any requested Transfer include, without limitation,
that: (i) the proposed transferee's contemplated use of the Premises
following the proposed Transfer is not reasonably similar to the use of the
Premises permitted hereunder, (ii) in Landlord's reasonable business
judgment, the proposed Transferee lacks sufficient business reputation or
experience to operate a successful business of the type and quality permitted
under this Lease, (iii) in Landlord's reasonable business judgment, the
proposed Transferee lacks sufficient net worth, working capital, anticipated
cash flow and other indications of financial strength to meet all of its
obligations under this Lease, (iv) the proposed Transfer would breach any
covenant of Landlord respecting a radius restriction, location, use or
exclusivity in any other lease, financing agreement, or other agreement
relating to the Center, and (v) in Landlord's reasonable business judgment,
the possibility of a release of Hazardous Materials is materially increased
as a result of the Transfer or if Landlord does not receive sufficient
assurances that the proposed Transferee has the experience and financial
ability to remedy a violation of Hazardous Materials and to fulfill its
obligations under Articles 13 and 14. In connection with any such Transfer,
Landlord shall have the right to require Tenant, at Tenant's sole cost, to
cause environmental testing meeting the requirements of an Exit Assessment
described in Section 14.8 to be performed. Landlord need only respond to any
request by Tenant hereunder within a reasonable time of not less than ten
(10) business days after receipt of all information and other submission
required in connection with such request.

     18.3   COSTS; TRANSFER FEE. Tenant shall pay all costs and expenses in
connection with any permitted Transfer, including any real estate brokerage
commissions due with respect to the Transfer. Tenant shall pay all reasonable
attorneys' fees and costs incurred by Landlord (which, in case of a simple
assignment, shall not exceed $750) and a fee of $500 to reimburse Landlord
for costs and expenses incurred in connection with any request by Tenant for
Landlord's consent to a Transfer. Such fee shall be delivered to Landlord
concurrently with Tenant's request for consent.

     18.4   ASSUMPTION; NO RELEASE OF TENANT. Any permitted transferee shall
assume in writing all obligations of Tenant under this Lease, utilizing a
form of assumption agreement provided or approved by Landlord, and an
executed copy of such assumption agreement shall be delivered to Landlord
within fifteen (15) days after the effective date of the Transfer. The taking
of possession of all or any part of the Premises by any such permitted
assignee or subtenant shall constitute an agreement by such person or entity
to assume without limitation or qualification all of the obligations of
Tenant under this Lease, notwithstanding any failure by such person to
execute the assumption agreement required in the immediately preceding
sentence. No permitted Transfer shall release or change Tenant's primary
liability to pay the rent and to perform all other obligations of Tenant
under this Lease. Landlord's acceptance of rent from any other person is not
a waiver of any provision of this Article or a consent to Transfer. Consent
to one Transfer shall not constitute a consent to any subsequent Transfer. If
any transferee defaults under this Lease, Landlord may proceed directly
against Tenant without pursuing remedies against the transferee. Landlord may
consent to subsequent Transfers or modifications of this Lease by Tenant's
transferee, without notifying Tenant or obtaining its consent, and such
action shall not relieve Tenant of its liability under this Lease.

     18.5   NO MERGER. No merger shall result from any Transfer pursuant to
this Article, any surrender by Tenant of its interest under this Lease, or
any termination hereof in any other manner. In any such event, Landlord may
either terminate any or all subleases or succeed to the interest of Tenant
hereunder.



     18.6  REASONABLE RESTRICTION. Tenant acknowledges that the restrictions
on Transfer contained herein are reasonable restrictions for purposes of
Section 22.2 of this Lease and California Civil Code Section 1951.4.

19. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATE.

     19.1  SUBORDINATION. This Lease is junior and subordinate to all ground
leases, mortgages, deeds of trust, and other security instruments now or
hereafter affecting the real property of which the Premises are a part, and
to all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. If any
mortgagee, beneficiary under deed of trust or ground lessor shall elect to
have this Lease prior to the lien of its mortgage, deed of trust or ground
lease, and gives written notice thereof to Tenant, this Lease shall be deemed
prior thereto. Tenant agrees to execute any documents required to effectuate
such subordination or to make this Lease prior to the lien of any such
mortgage, deed of trust or ground lease, as the case may be, and if Tenant
fails to do so within fifteen (15) days after written demand, Tenant does
hereby make, constitute and irrevocably appoint Landlord as Tenant's
attorney-in-fact and in Tenant's name, place and stead, to do so.

     19.2  ATTORNMENT. If Landlord sells, transfers, or conveys its interest
in the Premises or this Lease, or if the same is foreclosed judicially or
nonjudicially, or is otherwise acquired, by a mortgagee, beneficiary under
deed of trust or ground lessor, upon the request and at the sole election of
Landlord's lawful successor, Tenant shall attorn to said successor, provided
said successor accepts the Premises subject to this Lease. Tenant shall, upon
request of Landlord or any such mortgagee, beneficiary under deed of trust or
ground lessor, execute an attornment agreement confirming the same, in form
and substance acceptable to Landlord. Such agreement shall provide, among
other things,that said successor shall not be bound by (a) any prepayment of
more than one (1) month's rent (except any Security Deposit) or (b) any
material amendment of this Lease made after the later of the initial
effective date of this Lease, or the date that such successor's lien or
interest first arose, unless said successor shall have consented to such
amendment.

     19.3  ESTOPPEL CERTIFICATES. Within fifteen (15) days after written
request from Landlord, Tenant at Tenant's sole cost shall execute,
acknowledge and deliver to Landlord a written statement certifying: (a) that
this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modifications and certifying that this Lease is in
full force and effect as so modified), (b) the amount of any rent paid in
advance, and (c) that, to Tenant's knowledge, there are no uncured defaults
on the part of Landlord, or specifying the nature of such defaults if any are
claimed. Any such statement may be conclusively relied upon by any
prospective purchaser of or lender on the Premises. If Tenant fails to
deliver such statement within said 15 day period, Tenant shall be liable for
the immediate payment of all foreseeable or unforeseeable damages, penalties
and attorneys' fees and costs incurred by Landlord as a result of such
failure. Tenant's failure to deliver such statement within said 15-day period
shall constitute a conclusive acknowledgment by Tenant: (i) that this Lease
is in full force and effect without modification except as may be represented
by Landlord, (ii) that not more than one (1) month's rent has been paid in
advance, and (iii) that there are no uncured defaults in Landlord's
performance.

20. SURRENDER OF PREMISES.

     20.1  CONDITION OF PREMISES. Upon the expiration or earlier termination
of this Lease, Tenant shall surrender the Premises to Landlord, broom clean
and in the same condition and state of repair as of the commencement of the
Lease Term, except for ordinary wear and tear that Tenant is not otherwise
obligated to remedy under the provisions of this Lease. Tenant shall deliver
all keys to the Premises and the building of which the Premises are a part to
Landlord. Upon Tenant's vacation of the Premises, Tenant shall remove all
portable furniture, trade fixtures, machinery, equipment, signs and other
items of personal property (unless prohibited from doing the same under
Section 20.2), and shall remove any Alterations (whether or not made with
Landlord's consent) that Landlord may require Tenant to remove. Tenant shall
repair all damage to the Premises caused by such removal and shall restore
the Premises to its prior condition, all at Tenant's expense. Such repairs
shall be performed in a manner satisfactory to Landlord and shall include,
but are not limited to, the following: capping all plumbing, capping all
electrical wiring, repairing all holes in walls, restoring damaged floor
and/or ceiling tiles, and thorough cleaning of the Premises. If Tenant fails
to remove any items that Tenant has an obligation to remove under this
Section when required by Landlord within ten (10) business days of Tenant's
receipt of Landlord's request to dispose of said property, such items shall,
at Landlord's option, become the property of Landlord and Landlord shall have
the right to remove and retain or dispose of the same in any manner, without
any obligation to account to Tenant for the proceeds thereof. Tenant waives
all claims against Landlord for any damages to Tenant resulting from
Landlord's retention or disposition of such Alterations or personal property.
Tenant shall be liable to Landlord for Landlord's costs of removing, storing
and disposing of such items.

     20.2  REMOVAL OF CERTAIN ALTERATIONS, FIXTURES AND EQUIPMENT PROHIBITED.
All Alterations, fixtures (whether or not trade fixtures), machinery,
equipment, signs and other items of personal property that Landlord has not
required Tenant to remove under Section 20.1 shall become Landlord's property
and shall be surrendered to Landlord with the Premises, regardless of who
paid for the same. In particular and without limiting the foregoing, Tenant
shall not remove any of the following materials or equipment without
Landlord's prior written consent, regardless of who paid for the same and
regardless of whether the same are permanently attached to the Premises:
power wiring and power panels; piping for industrial gasses or liquids;
laboratory benches, sinks, cabinets and casework; fume hoods or specialized
air-handling and evacuation systems; drains or other equipment for the
handling of waste water or hazardous materials; computer, telephone and
telecommunications wiring, panels and equipment; lighting and lighting
fixtures; wall coverings; drapes, blinds and other window coverings; carpets
and other floor coverings; heaters, air conditioners and other heating or
air conditioning equipment; fencing; security gates and systems; and other
building operating equipment and decorations.

     20.3  HOLDING OVER.  Tenant shall vacate the Premises upon the
expiration or earlier termination of this Lease, and Tenant shall indemnify
Landlord against all liabilities, damages and expenses incurred by Landlord
as a result of any delay by Tenant in vacating the Premises. If Tenant
remains in possession of the Premises or any part thereof after the
expiration of the Lease Term with Landlord's written permission, Tenant's
occupancy shall be a tenancy from month-to-month only, and not a renewal or
extension hereof. All provisions of this Lease (other than those relating to
the term) shall apply to such month-to-month tenancy, except that the Minimum
Monthly Rent shall be increased to 200% of the Minimum Monthly Rent in effect
during the last month of the Lease Term. No acceptance of rent, negotiation
of rent checks or other act or omission of Landlord or its agents shall
extend the Expiration Date of this Lease other than a writing executed by
Landlord giving Tenant permission to remain in occupancy beyond the
Expiration Date under the Terms of the immediately preceding sentence.

21. DEFAULT BY TENANT.

     The occurence of any of the following shall constitute an "Event of
Default" under this Lease by Tenant:

          (a) Failure to pay when the rent or any other monetary sums
required hereunder.

          (b) Failure to perform any other agreement or obligation of Tenant
hereunder, if such failure continues for thirty (30) days after written
notice by Landlord to Tenant, except as to those Events of Default that are
noncurable in which case no such grace period shall apply; provided, however,
that if the failure is such that it cannot be reasonably cured within said
thirty (30) day period, Tenant shall not be in default if Tenant commences to
cure within said said thirty (30) day periods and diligently pursues such
cure to completion, and in fact cures the default within one hundred twenty
(120) days of Landlord's notice. Landlord's notice described herein is
indended to satisfy, and is not in addition to, any and all legal notices
required prior to commencement of an unlawful detainer action, including
without limitation the notice requirements of California Code of Civil
Procedure Sections 1161 ET SEQ.

          (c) Abandonment or vacation of the Premises by Tenant, or failure
to occupy the Premises for a period of sixty (60) consecutive days.

          (d) If any of the following occur: (i) a petition is filed for an
order of relief under the federal Bankruptcy Code or for an order or decree
of insolvency or reorganization or rearrangement under any state or federal
law, and such petition is not dismissed within thirty (30) days after the
filing thereof; (ii) Tenant makes a general assignment for the benefit or
creditors; (iii) a receiver or trustee is appointed to take possession of any
substantial part of Tenant's assets, unless such appointment is vacated
within sixty (60) days after the date thereof; (iv) Tenant consents to or
suffers an attachment, execution or other judicial seizure of any substantial
part of its assets or its interest under this Lease, unless such process is
released or satisfied within sixty (60) days after the occurrence thereof; or
(v) Tenant's net worth, determined in accordance with generally accepted
accounting principles consistently applied, decreases, at any time during the
Lease Term, below Tenant's net worth as the date of execution of this Lease.
If a count of competent jurisdiction determines that any of the foregoing
events is not a default under this Lease, and a trustee is appointed to take
possession (or if Tenant remains a debtor in possession), and such trustee or
Tenant transfers Tenant's interest hereunder, then Landlord shall receive, as
Additional Rent, the difference between the Rent (or other consideration)
paid in connection with such transfer and the rent payable by Tenant
hereunder. Any assignee pursuant to the provisions of any bankruptcy law
shall be deemed without further act to have assumed all of the obligations of
the Tenant hereunder arising on or after the date of such assignment. Any
such assignee shall, upon demand, execute and deliver to Landlord an
instrument confirming such assumption.

          (e) the occurrence of any other event that is deemed to be an Event
of Default under any other provision of this Lease.



22.  REMEDIES.

     Upon the occurrence of any Event of Default by Tenant, Landlord shall
have the following remedies, each of which shall be cumulative and in
addition to any other remedies now or hereafter available at law or in equity:

     22.1  TERMINATION OF LEASE.  Landlord can terminate this Lease and
Tenant's right to possession of the Premises by giving written notice of
termination, and then re-enter the Premises and take possession thereof. No
act by Landlord other than giving written notice to Tenant of such
termination shall terminate this Lease. Upon termination, Landlord has the
right to recover all damages incurred by Landlord as a result of Tenant's
default, including:

           (a)  The worth at the time of award of any unpaid rent that had
been earned at the time of such termination; plus

           (b)  The worth at the time of award of the amount by which the
unpaid rent that would have been earned after the date of termination until
the time of award exceeds the amount of the loss of rent that Tenant proves
could have been reasonably avoided; plus

           (c)  The worth at the time of award of the amount by which the
unpaid rent for the balance of the Lease Term after the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided; plus

           (d)  Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's default, including, but not limited
to (i) expenses for cleaning, repairing or restoring the Premises, (ii)
expenses for altering, remodeling or otherwise improving the Premises for the
purpose of reletting, (iii) brokers' fees and commissions, advertising costs
and other expenses of reletting the Premises, (iv) costs of carrying the
Premises, such as taxes, insurance premiums, utilities and security
precautions, (v) expenses in retaking possession of the Premises, (vi)
attorneys' fees and costs, (vii) any unearned brokerage commissions paid in
connection with this Lease, and (viii) payment of any previously waived or
abated Minimum Monthly Rent and/or Additional Rent; plus

          (e)  At Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time under
applicable law. As used in paragraphs (a) and (b) above, the "worth at the
time of award" shall be computed by allowing interest at the maximum
permissible legal rate.  As used in paragraph (c) above, the "worth at the
time of award" shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus
one percent (1%).

     22.2  CONTINUATION OF LEASE.  Landlord has the remedy described in
California Civil Code Section 1951.4 (Landlord may continue the Lease in
effect after Tenant's breach and abandonment and recover rent as it becomes
due, if Tenant has the right to sublet or assign, subject only to reasonable
limitations), as follows:

          (a)  Landlord can continue this Lease in full force and effect
without terminating Tenant's right of possession, and Landlord shall have the
right to collect rent and other monetary charges when due and to enforce all
other obligations of Tenant hereunder.  Landlord shall have the right to
enter the Premises to do acts of maintenance and preservation of the
Premises, to  make alterations and repairs in order to relet the Premises,
and/or to undertake other efforts to relet the Premises. Landlord may also
remove personal property from the Premises and store the same in a public
warehouse at Tenant's expense and risk. No act by Landlord permitted under
this paragraph shall terminate this Lease unless a written notice of
termination is given by Landlord to Tenant or unless the termination is
decreed by a court of competent jurisdiction.

          (b)  In furtherance of the remedy set forth in this Section,
Landlord may relet the Premises or any part thereof for Tenant's account,
for such term (which may extend beyond the Lease Term), at such rent, and on
such other terms and conditions as Landlord may deem advisable in its sole
discretion. Tenant shall be liable immediately to Landlord for all costs
Landlord incurs in reletting the Premises. Any rents received by Landlord
from such reletting shall be applied to the payment of: (i) any indebtedness
other than rent due hereunder from Tenant to Landlord, (ii) the costs of such
reletting, including brokerage and attorneys' fees and costs, and the cost of
any alterations and repairs to the Premises, and (iii) the payment of rent
due and unpaid hereunder, including any previously waived or abated rent. Any
remainder shall be held by Landlord and applied in payment of future amounts
as the same become due and payable hereunder. In no event shall Tenant be
entitled to any excess rent received by Landlord after an Event of Default by
Tenant and the exercise of Landlord's remedies hereunder. If the rent from
such reletting during any month is less than the rent payable hereunder,
Tenant shall pay such deficiency to Landlord upon demand.

          (c)  Landlord shall not, by any re-entry or other act, be deemed to
have accepted any surrender by Tenant of the Premises or Tenant's interest
therein, or be deemed to have terminated this Lease or Tenant's right to
possession of the Premises or the liability of Tenant to pay rent accruing
thereafter or Tenant's liability for damages under any of the provisions
hereof, unless Landlord shall have given Tenant notice in writing that it has
so elected to terminate this Lease.

          (d)  Tenant acknowledges and agrees that the restrictions on the
Transfer of the Lease set forth in Article 18 of this Lease constitute
reasonable restrictions on such transfer for purposes of this Section and
California Civil Code Section 1951.4.

     22.3  PERFORMANCE BY LANDLORD. If Tenant fails to pay any sum of money
or perform any other act to be performed by Tenant hereunder, and such
failure continues for fifteen (15) days after notice by Landlord, Landlord
shall have the right (but not the obligation) to make such payment or perform
such other act without waiving or releasing Tenant from its obligations. All
sums so paid by Landlord and all necessary incidental costs, together with
interest thereon at the rate specified in Section 22.4, shall be payable to
Landlord on demand. Landlord shall have the same rights and remedies in the
event of nonpayment by Tenant as in the case of default by Tenant in the
payment of the rent.

     22.4  LATE CHARGE; INTEREST ON OVERDUE PAYMENTS. The parties acknowledge
that late payment by Tenant of Minimum Monthly Rent or any Additional Rent
will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult and impractical to determine,
including, but not limited to, processing and accounting charges,
administrative expenses, and additional interest expenses or late charges that
Landlord may be required to pay as a result of late payment on Landlord's
obligations. Therefore, if any installment of Minimum Monthly Rent or
Additional Rent is not received by Landlord on the due date, and without
regard to whether Landlord gives Tenant notice of such failure or exercises
any of its remedies upon an Event of Default, Tenant shall pay a late charge
equal to the greater of ten percent (10%) of the overdue amount or One
Hundred Dollars ($100), as Additional Rent hereunder. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
damages Landlord will incur by reason of late payment by Tenant. In addition,
any amount due from Tenant that is not paid when due shall bear interest at a
rate equal to two percent (2%) over the then current Bank of America prime or
reference rate or ten percent (10%) per annum, whichever is greater, but not
in excess of the maximum permissible legal rate, from the date such payment
is due until the date paid by Tenant. Landlord's acceptance of any interest
or late charge shall not constitute a waiver of Tenant's default or prevent
Landlord from exercising any other rights or remedies available to Landlord.

     22.5  LANDLORD'S RIGHT TO REQUIRE ADVANCE PAYMENT OF RENT; CASHIER'S
CHECKS. If Tenant is late in paying any component of rent more than three (3)
times during the Lease Term, Landlord shall have the right, upon notice to
Tenant, to require that all rent be paid three (3) months in advance.
Additionally, if any of Tenant's checks are returned for nonsufficient funds,
or if Landlord at any time serves upon Tenant a Three Day Notice to Pay Rent
or Quit (pursuant to California Civil Code Sections 1161 ET SEQ. or any
successor or similar unlawful detainer statutes), Landlord may, at its
option, require that all future rent (including any sums demanded in any
subsequent three (3) day notice) be paid exclusively by money order or
cashier's check.

23.  DEFAULT BY LANDLORD.

     23.1  NOTICE TO LANDLORD. Landlord shall not be in default under this
Lease unless Landlord fails to perform an obligation required of Landlord
within a reasonable time, but in no event later than thirty (30) days after
written notice by Tenant to Landlord and to each Mortgagee as provided in
Section 23.2, specifying the nature of the alleged default; provided,
however, that if the nature of the obligation is such that more than thirty
(30) business days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such 30-day period and
thereafter diligently prosecutes the same to completion.

     23.2  NOTICE TO MORTGAGEES. Tenant agrees to give each mortgagee or
trust deed holder on the Premises or the Center ("Mortgagee"), by registered
mail, a copy of any notice of default served upon Landlord, provided that
Tenant has been previously notified in writing of the address of such
Mortgagee. Tenant further agrees that if Landlord fails to cure such default
within the time provided for in this Lease, then the Mortgagees shall have
an additional thirty (30) days within which to cure such default, or if such
default cannot reasonably be cured within that time, then such additional
time as may be necessary if, within said 30-day period, any Mortgagee has
commenced and is diligently pursuing the remedies necessary to cure the
default (including but not limited to commencement of foreclosure proceedings
if necessary to affect such cure), in which event this Lease shall not be
terminated while such remedies are being so diligently pursued.

     23.3  LIMITATIONS ON REMEDIES AGAINST LANDLORD. In the event Tenant has
any claim or cause of action against Landlord: (a) Tenant's sole and
exclusive remedy shall be against Landlord's interest in the building of
which the Premises are a part, and neither Landlord nor any partner of
Landlord nor any other property of Landlord shall be liable for any
deficiency, (b) no partner of Landlord shall be sued or named as a party in
any suit or action (except as may be necessary to secure jurisdiction over
Landlord), (c) no service of process shall be made against


any partner of Landlord (except as may be necessary to secure jurisdiction
over the partnership), and no such partner shall be required to answer or
otherwise plead to any service of process, (d) no judgment shall be taken
against any partner of Landlord and any judgment taken against any partner of
Landlord may be vacated and set aside at any time, and (e) no writ of
execution will ever be levied against the assets of any partner of Landlord.
The covenants and agreements set forth in this Section shall be enforceable
by Landlord and/or by any partner of Landlord. If Landlord fails to give any
consent that a court later holds Landlord was required to give under the
terms of this Lease, Tenant shall be entitled solely to specific performance
and such other remedies as may be specifically reserved to Tenant under this
Lease, but in no event shall Landlord be responsible for monetary damages
(including incidental and consequential damages) for such failure to give
consent.

24.   GENERAL PROVISIONS.

      24.1     ACTION OR DEFENSE BY TENANT. Any claim, demand, right or
defense of any kind by Tenant that is based upon or arises in any connection
with the Lease or negotiations prior to its execution shall be barred unless
Tenant commences an action thereon or initiates a legal proceeding or defense
by reason thereof within six (6) months after the date of the occurrence of
the event, act or omission to which the claim, demand, right or defense
relates. Tenant acknowledges and understands that, after having had an
opportunity to consult with legal counsel, the purpose of this paragraph is
to shorten the time period within which Tenant would otherwise have to raise
such claims, demands or rights of defense.

      24.2     ARBITRATION AND MEDIATION; WAIVER OF JURY TRIAL. Except as
provided in this Section, if any dispute ensues between Landlord and Tenant
arising out of or concerning this Lease, and if said dispute cannot be
settled through direct discussions between the parties, the parties shall
first to attempt to settle the dispute through mediation before a mutually
acceptable mediator. The cost of mediation shall be divided equally between
the parties. Thereafter, any remaining, unresolved disputes or claims shall
be resolved by binding arbitration in accordance with the rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The
prevailing party in any such arbitration shall be entitled to recover
reasonable costs and attorneys' fees and costs as determined by the
arbitrator; provided, however, that the foregoing provisions regarding
mediation and arbitration shall not apply to (a) any issue or claim that
might properly be adjudicated in an unlawful detainer proceeding, or (b) to
any issue or claim that Landlord elects not to have resolved through
arbitration and with respect to which Landlord commences an action in law or
equity to determine the same. Without limiting the foregoing, Landlord and
Tenant hereby waive trial by jury in any action, proceeding or counterclaim
(including any claim of injury or damage and any emergency and other
statutory remedy in respect thereof) brought by either against the other on
any matter arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, or Tenant's use or occupancy of the
Premises.

     24.3     ATTORNEYS' FEES. If either party brings any legal action or
proceeding, declaratory or otherwise, arising out of this Lease, including
any suit by Landlord to recover rent or possession of the Premises or to
otherwise enforce this Lease, the losing party shall pay the prevailing
party's costs and attorneys' fees and costs incurred in such proceeding. If
Landlord issues notice(s) to pay rent, notice(s) to perform covenant,
notice(s) of abandonment, or comparable documents as a result of Tenant's
default under this Lease, and if Tenant cures such default, Tenant shall pay
to Landlord the reasonable costs incurred by Landlord, including Landlord's
attorneys' fees and costs, of preparation and delivery of same.

     24.4     AUTHORITY OF TENANT. Tenant represents and warrants that it has
full power and authority to execute and fully perform its obligations under
this Lease pursuant to its governing instruments, without the need for any
further action, and that the person(s) executing this Agreement on behalf of
Tenant are the duly designated agents of Tenant and are authorized to do so.
Prior to execution of this Lease, Tenant shall supply Landlord with such
evidence as Landlord may request regarding the authority of Tenant to enter
into this Lease. Any actual or constructive taking of possession of the
Premises by Tenant shall constitute a ratification of this Lease by Tenant.

     24.5     BINDING EFFECT. Subject to the provisions of Article 18
restricting transfers by Tenant and subject to Section 24.27 regarding
transfer of Landlord's interest, all of the provisions of this Lease shall
bind and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns.

     24.6     BROKERS. Tenant warrants that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this
transaction other than the broker(s) described in the Basic Lease Provisions
(if any), and it knows of no other real estate broker or agent who are
entitled to a commission in connection with this transaction. Tenant agrees
to indemnify, defend and hold Landlord harmless from and against any
obligation or liability to pay any commission or compensation to any other
party arising from the act or agreement of Tenant.

     24.7     CONSTRUCTION. The headings and captions used in this Lease are
for convenience only and are not a part of the terms and provisions of this
Lease. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant, its subtenants and assigns and their
respective agents, employees, contractors, and invitees, and any others using
the Premises with Tenant's express or implied permission. Any use in this
Lease, or in any addendum, amendment or other document related hereto, of the
terms "lessor" or "lessee" to refer to a party to this Lease shall be deemed
to be references to Landlord and Tenant, respectively.

     24.8     COUNTERPARTS. This Lease may be executed in multiple copies,
each of which shall be deemed an original, but all of which shall constitute
one Lease binding on all parties after all parties have signed such a
counterpart.

     24.9     COVENANTS AND CONDITIONS. Each provision to be performed by
Tenant shall be deemed to be both a covenant and a condition.

     24.10    ENTIRE AGREEMENT. This Lease, together with all exhibits and
addenda, if any, attached hereto, constitutes the entire agreement between
the parties with respect to the subject matter hereof. There are no oral or
written agreements or representations between the parties hereto affecting
this Lease, and this Lease supersedes, cancels, and merges any and all
previous verbal or written negotiations, arrangements, representations,
brochures, displays, models, photographs, renderings, floor plans,
elevations, projections, estimates, agreements and understandings if any,
made by or between Landlord and Tenant and their agents, with respect to the
subject matter, and none thereof shall be used to interpret, construe,
supplement or contradict this Lease. This Lease, and all amendments thereto,
is and shall be considered to be the only agreement between the parties
hereto and their representatives and agents. There are no other
representations or warranties between the parties, and all reliance with
respect to representations is solely based upon the representations and
agreements contained in this Lease.

     24.11     EXHIBITS. All exhibits, addenda and riders attached or
referred to herein are hereby incorporated herein by reference.

     24.12     FINANCIAL STATEMENTS. Within ten (10) days after written
request from Landlord, Tenant shall deliver to Landlord such financial
statements as are reasonably requested by Landlord to verify the net worth of
Tenant, or any assignee, subtenant, or guarantor of Tenant. In addition,
Tenant shall deliver to any proposed or actual lender or purchaser of the
Premises designated by Landlord any financial statements required by such
party to facilitate the sale, financing or refinancing of the Premises,
including the past three (3) years' financial statements. Tenant represents
and warrants to Landlord that: (a) each such financial statement is a true
and accurate statement as of the date of such statement; and (b) at all times
during the Lease Term or any extension thereof, Tenant's net worth shall not
be reduced below Tenant's net worth as of the date of execution of this
Lease. Landlord shall take reasonable precautions to protect the
confidentiality of such financial statements. Tenant hereby irrevocably
authorizes Landlord to conduct credit checks and other investigations into
Tenant's financial affairs.

     24.13     FORCE MAJEURE. If Landlord or Tenant is delayed in performing
any of its obligations hereunder due to strikes; labor problems; inability to
procure utilities; materials; equipment or transportation; governmental
regulations; weather conditions; riots, insurrection, or war; or other events
beyond Landlord's or Tenant's control; then the time for performance of such
obligation shall be extended to the extent reasonably necessary as a result
of such event.

     24.14     GOVERNING LAW. This Lease shall be governed, construed and
enforced in accordance with the laws of the State of California.

     24.15     JOINT AND SEVERAL LIABILITY. If more than one person or entity
executes this Lease as Tenant, each of them is jointly and severally liable
for all of the obligations of Tenant hereunder.

     24.16     MODIFICATION. The provisions of this Lease may not be modified
or amended, except by a written instrument signed by all parties.

     24.17     MODIFICATION FOR LENDER. If, in connection with obtaining
financing or refinancing for the Premises or the Center, Landlord's lender
requests reasonable modifications to this Lease, Tenant will not unreasonably
withhold or delay its consent thereto, provided that such modifications do
not increase the obligations of Tenant hereunder or materially and adversely
affect Tenant's rights hereunder.

     24.18     NONDISCRIMINATION. Tenant for itself and its officers,
directors, shareholders, partners, principals, employees, agents,
representatives, and other related entities and individuals, agrees to comply
fully with any and all laws and other requirements prohibiting discrimination
against any person or group of persons on account of race, color, religion,
creed, sex, marital status, sexual orientation, national origin, ancestry,
age, physical handicap or medical condition, in the use occupancy or patronage
of the Premises and/or of Tenant's business. Tenant shall indemnify, defend
and hold Landlord and Landlord's officers, directors, shareholders, partners,
principals, employees and agents, and their respective successors and
assigns, harmless from and against all damage and liability incurred by
Landlord in the event of any



violation of the foregoing covenant or because of any event of or practice
of discrimination against any such persons or group of persons by Tenant or
its officers, directors, shareholders, partners, principals, employees,
agents, representatives, and other related entities and individuals in
accordance with the indemnification provisions of Article 13.

     24.19  NOTICE.  Any and all notices to either party shall be personally
delivered or sent by regular mail, postage prepaid, addressed to the party to
be notified at the address specified in Section 1.1, or at such other address
as such party may from time to time designate in writing. Notice shall be
deemed delivered on the date of personal delivery or three (3) business days
after deposit in the U.S. Mail, certified, return receipt requested.

     24.20  PARTIAL INVALIDITY.  If any provision of this Lease is determined
by a court of competent jurisdiction to be invalid or unenforceable, the
remainder of this Lease shall not be affected thereby. Each provision shall
be valid and enforceable to the fullest extent permitted by law.

     24.21  QUIET ENJOYMENT.  Landlord agrees that Tenant, upon paying the
rent and performing the terms, covenants and conditions of this Lease, may
quietly have, hold and enjoy the Premises from and after Landlord's delivery
of the Premises to Tenant and until the end of the Lease Term; subject,
however, to the lien and provisions of any mortgage or deed of trust to which
this Lease is or becomes subordinate.

     24.22  RECORDING.  Tenant shall not record this Lease or any memorandum
hereof without Landlord's prior written consent.

     24.23  RELATIONSHIP OF THE PARTIES.  Nothing contained in this Lease
shall be deemed or construed as creating a partnership, joint venture,
principal-agent, or employer-employee relationship between Landlord and any
other person or entity (including, without limitation, Tenant) or as causing
Landlord to be responsible in any way for the debts or obligations of such
other person or entity.

     24.24  RELOCATION OF TENANT.  In the event Landlord requires the
Premises for use in conjunction with other premises or for other reasons
related to the planning program for the Center, Landlord, upon delivering
written notice to Tenant (the "Relocation Notice"), shall have the right to
relocate Tenant to other space in the Center, at Landlord's sole cost and
expense (except that Tenant shall bear the cost of moving and installing
private telephone systems), and the terms and conditions of the original
Lease shall remain in full force and effect, except that the Premises will be
in a new location. However, if the new space does not meet with Tenant's
reasonable approval, Tenant shall have the right to terminate this Lease upon
delivering notice to Landlord within fifteen (15) days after Tenant's receipt
of the Relocation Notice. If Tenant elects to terminate the Lease pursuant to
this Section, the termination shall be effective on the effective date of the
proposed relocation of Tenant as indicated in the Relocation Notice.

     24.25  RIGHTS OF REDEMPTION WAIVED.  Tenant hereby expressly waives any
and all rights of redemption under any present or future laws in the event
Tenant is evicted or dispossessed for any cause, or in the event Landlord
obtains possession of the Premises by reason of Tenant's violation of any of
the covenants and conditions of this Lease or otherwise.

     24.26  TIME OF ESSENCE.  Time is of the essence of each and every
provision of this Lease.

     24.27  TRANSFER OF LANDLORD'S INTEREST.  In the event of a sale,
assignment, exchange or other disposition of Landlord's interest in the
Premises, other than a transfer for security purposes only, Landlord shall be
relieved of all obligations and liabilities accruing hereunder after the
effective date of said sale, assignment, exchange or other disposition,
provided that any Security Deposit or other funds then held by Landlord in
which Tenant has an interest are delivered to Landlord's successor. The
obligations to be performed by Landlord hereunder shall be binding on
Landlord's successors and assigns only during their respective periods of
ownership.

      24.28  WAIVER. No provision of this Lease or the breach thereof shall
be deemed waived, except by written consent of the party against whom the
waiver is claimed. A waiver of any such breach shall not be deemed a waiver
of any preceding or succeeding breach of the same or any other provision. No
delay or omission by Landlord in exercising any of its remedies shall impair
or be construed as a waiver thereof, unless such waiver is expressly set
forth in a written statement signed by Landlord. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent.

          THE SUBMISSION OF THIS LEASE FOR EXAMINATION AND/OR SIGNATURE BY
          TENANT IS NOT A COMMITMENT BY LANDLORD OR ITS AGENTS TO RESERVE THE
          PREMISES OR TO LEASE THE PREMISES TO TENANT. THIS LEASE SHALL
          BECOME EFFECTIVE AND LEGALLY BINDING ONLY UPON FULL EXECUTION AND
          DELIVERY BY BOTH LANDLORD AND TENANT. UNTIL LANDLORD DELIVERS A
          FULLY EXECUTED COUNTERPART HEREOF TO TENANT, LANDLORD HAS THE RIGHT
          TO OFFER AND TO LEASE THE PREMISES TO ANY OTHER PERSON TO THE
          EXCLUSION OF TENANT.

EXECUTED, by Landlord and Tenant as of the date first written above.

  TENANT:                                        LANDLORD:

  MITOKOR, a California corporation              COLLINS DEVELOPMENT COMPANY,
                                                 a California corporation

  By: /s/ Craig Johnson                          By: /s/ Robert Peter
      ----------------------------                   ------------------------
  Print Name: Craig Johnson                      Print Name:
              --------------------                          -----------------
  Title: CFO                                     Title:
        --------------------------                     ----------------------

  By:                                            By: /s/
     -----------------------------                  -------------------------
  Print Name:                                    Print Name:
             ---------------------                          -----------------
  Title:                                         Title:
        --------------------------                     ----------------------



                                        12



                   ADDENDUM TO STANDARD INDUSTRIAL NET LEASE
                          (Mitokor - Sorrento Centre)

     This ADDENDUM TO STANDARD INDUSTRIAL NET LEASE ("Addendum") is attached
to and made a part of that certain Standard Industrial Net Lease by and
between COLLINS DEVELOPMENT COMPANY, a California corporation ("Landlord"),
and MITOKOR, a California corporation ("Tenant"), dated February 28, 2001
(the "Lease"), for premises located at 11494 Sorrento Valley Road, San Diego,
California 92121 (the "Premises"). Landlord and Tenant hereby agree that
notwithstanding anything contained in the Lease to the contrary, the
provisions set forth below shall be deemed to be a part of the Lease and
shall supersede, to the extent appropriate, any contrary provision of the
Lease. All references to the Lease in this Addendum shall be construed to
mean the Lease and exhibits thereto, as amended and supplemented by this
Addendum. All defined terms used in this Addendum, unless specifically
defined in this Addendum, shall have the same meaning as such terms have in
the Lease.

     25.  PRIOR LEASE. Prior to the Commencement Date under this Lease,
Tenant was the occupant of Suites A, B, C, D, E, and R of the building of
which the Premises are a part (the "Building") pursuant to that certain
Standard Industrial Net Lease dated November 22, 1994 by and between Collins
Development Company and Applied Genetics, as amended by the First Amendment
to Standard Industrial Net Lease dated February 9, 1995, by the Second
Amendment to Standard Industrial Net Lease dated October 28, 1994, by the
Third Amendment to Standard Industrial Net Lease dated September 22, 1997, by
the Fourth Amendment to Standard Industrial Net Lease dated February 17,
1998, by the Fifth Amendment to Standard Industrial Net Lease dated April 8,
1998 and by the Sixth Amendment to Standard Industrial Net Lease dated
September 13, 2000 (collectively, the "Prior Lease"). As of the Commencement
Date, the term of the Prior Lease shall have ended, and the entire leasing
relationship between Landlord and Tenant with respect to the Premises on or
after the Commencement Date shall be governed in its entirety by this Lease.

     26.  PREMISES DEFINITION; EXPANSION. The Premises shall initially
consist of Suites A, B, C, D, E, R, and [Alpha space], consisting of
approximately 22,650 square feet. On September 1, 2002, the Premises shall be
expanded to include the remainder of the Building, for a total Premises area
of approximately 30,850 square feet.

     27.  MINIMUM MONTHLY RENT. The Minimum Monthly Rent (Section 1.5) and
Tenant's Pro Rata Share of Operating Costs (Section 1.7) shall be the
following amounts during the following periods:



                                              Minimum             Pro Rata Share
Period                                        Monthly Rent        of Operating Costs
- ------                                        ------------        ------------------
                                                            
April 1, 2001 through June 30, 2001           $ 34,623.00              74.42%
July 1, 2001 through September 30, 2001       $ 35,861.00              74.42%
October 1, 2001 through June 30, 2002         $ 39,198.00              74.42%
July 1, 2002 through August 31, 2002          $ 41,228.00              74.42%
September 1, 2002 through June 30, 2003       $ 72,850.00             100.00%
July 1, 2003 through June 30, 2004            $ 75,764.00             100.00%
July 1, 2004 through June 30, 2005            $ 78,794.00             100.00%
July 1, 2005 through June 30, 2006            $ 81,946.00             100.00%
July 1, 2006 through June 30, 2007            $ 85,224.00             100.00%



     28.  DELIVERY OF POSSESSION; ACCEPTANCE.

          (a)  The delivery of possession of Suite [Alpha space] on the
Commencement Date and the remainder of the Building on September 1, 2002, and
Tenant's acceptance thereof, shall be governed by Sections 3.2 and 12.1 of
the Lease, as applicable to each such space at the time each such space is to
be delivered.

          (b)  Because Tenant was the occupant of Suites A, B, C, D, E, and R
under the Prior Lease, Tenant shall accept such portion of the Premises in
its as-is condition as of the Commencement Date under this Lease.


                                       i



     29.  OPERATING COSTS. Notwithstanding anything set forth in Section 6.3
to the contrary, Operating Costs shall not include:

          (a)  Costs, including marketing costs, legal fees, space planners'
fees, and brokerage fees incurred in connection with the original
construction or development of the Center or the original or future leasing
of the Center, and costs, including permit, license and inspection costs and
allowances and other concessions, incurred with respect to the installation
of tenant improvements made for new tenants in the Center or incurred in
renovating or otherwise improving, decorating, painting or redecorating
vacant leasable space for tenants or other occupants (or prospective tenants
or occupants) of the Center;

          (b)  Depreciation, interest and principal payments on mortgages and
other debt costs, if any, penalties and interest, costs of capital
improvements and equipment designed to increase the leasable area of the
Center;

          (c)  Costs for which Landlord is reimbursed by any tenant or
occupant of the Center or by insurance by its carrier or any tenant's carrier
(or if Landlord fails to carry the insurance required to be carried by
Landlord pursuant to this Lease, costs which would have been covered by
insurance had Landlord obtained the coverage required to be carried under
this Lease) or by anyone else, and electric power costs for which any tenant
directly contracts with the local public service company;

          (d)  Any bad debt loss, rent loss, or reserves for bad debts or
rent loss;

          (e)  Any amount paid as ground rental for the Center by Landlord;

          (f)  All items and services for which Tenant or any other tenant in
the Center reimburses Landlord or which Landlord provides selectively to one
or more tenants (other than Tenant) without reimbursement;

          (g)  Costs, other than those incurred in ordinary maintenance and
repair, for sculpture, paintings, fountains or other objects of art;

          (h)  Any costs expressly excluded from Operating Costs elsewhere in
this Lease;

          (i)  Costs arising from Landlord's charitable or political
contributions;

          (j)  Expenses directly resulting from the gross negligence or
wilful misconduct of Landlord, its agents, servants or employees;

          (k)  Rental for any space in the Center set aside for conference
facilities, storage facilities or exercise facilities;

          (l)  The amounts of any payments by Landlord or to its affiliates
for goods or services in the Center in excess of a competitive rate;

          (m)  Costs incurred in connection with the sale, financing or
refinancing of the Center, including brokerage commissions, consultants',
attorneys' and accountants' fees, closing costs, title insurance premiums,
transfer taxes and interest charges; and

          (n)  Costs incurred to comply with laws relating to the removal or
abatement of Hazardous Materials in or about the Premises to the extent the
existence of such Hazardous Materials is not the result of Tenant's occupancy
or use of the Premises.


                                       ii



     30.  REVIEW OF LANDLORD'S BOOKS REGARDING CAM: The following provisions
are hereby added as new Section 4.5 of the Lease:

          4.5  TENANT'S RIGHT TO REVIEW LANDLORD'S BOOKS REGARDING
     ELEMENTS OF ADDITIONAL RENT. Tenant at its cost shall have
     the right to review Landlord's books and records related to
     the calculation of Operating Costs, Real Property Taxes and
     insurance costs for a period of two (2) years after the close
     of the period for which Tenant may request any such review.
     Such review shall be at Tenant's sole cost and shall be
     conducted at Landlord's offices or such other convenient
     location as Landlord shall select. Tenant shall give Landlord
     at lease ten (10) business days advance notice of its desire to
     conduct such review. All information developed by Tenant in the
     course of such review shall be kept strictly confidential by
     Tenant, and shall be shared with Landlord. If such review
     reveals an overpayment by Tenant, Landlord shall credit such
     overpayment against Tenant's next occurring rent obligations
     or shall repay such amount if the review is completed after
     expiration of this Lease. If such review reveals an underpayment,
     Tenant shall pay such deficiency to Landlord within thirty (30)
     days of the determination thereof. Notwithstanding the foregoing,
     Landlord shall not be required to honor the results of any review
     performed by any person or firm whose fees are based in whole or
     in part upon a percentage of recovery, or any contingency fee
     calculation.

     31.  LANDLORD'S WORK. In making any repairs or doing any work under
Section 7.2 of the Lease, Landlord shall ensure that all such repairs,
alterations and improvements are performed in a good and workmanlike manner
by licensed contractors, and Landlord shall use commercially reasonable
efforts not to unreasonably interfere with Tenant's business operations in
the course of making or causing to be made any such repairs, alterations or
improvements.

     32.  UTILITY INTERRUPTIONS. Notwithstanding the provisions of Section 10,
Landlord agrees to use commercially reasonable efforts to cause the
correction of any interruptions in utility service, including without
limitation facilitating Tenant's communications with any utility provider.

     33.  EMPLOYEE PARKING. With respect to any exercise of Landlord's rights
under Section 11.6 (Parking), Landlord agrees that (a) any designated parking
for Tenant shall be reasonably proximate to the Premises, and (b) any
modifications, designations or rules and regulations adopted by Landlord
shall not adversely affect Tenant's parking rights hereunder, including
without limitation materially decreasing the number of parking spaces to
which Tenant is entitled or the number of parking spaces that are available
for use by occupants and guests of the Center.

     34.  HAZARDOUS MATERIALS INDEMNITY. The following sentence is hereby
added to and made a part of Section 14.5: "Provided, however, that the
indemnifications and waivers of Tenant set forth in this Section 14.5 shall
not apply to damage and liability caused (i) by the gross negligence or
wilful misconduct of Landlord, and (ii) through no fault of Tenant's, its
assignees or subtenants, or their respective agents, contractors, employees,
customers, invitees or licensees."

     35.  LANDLORD'S APPROVALS IN CONNECTION WITH ALTERATIONS. In connection
with Landlord's rights of approval under Section 15.1 Landlord agrees as
follows:

          (a)  Landlord shall approve of the contractor, method of payment of
the contractor, and any plans and specifications submitted by Tenant within
seven (7) business days after receipt thereof. If Landlord disapproves of any
such item, it shall provide a written explanation of its disapproval to
Tenant. Tenant may resubmit any disapproved item to Landlord, who shall
approve or disapprove of such item within seven (7) business days after
receipt of such resubmittal.

          (b)  Landlord shall not unreasonably withhold or delay its consent
to Tenant's request for consent to perform Alterations, provided that, in
Landlord's judgment, the value of the Premises for financing, sale or future
releasing will not be impaired.


                                       iii



     36.  ALTERATIONS REQUIRED BY AMERICANS WITH DISABILITIES ACT AND OTHER
FUTURE LAWS. Landlord shall be responsible for complying with the orders,
rules or regulations of any governmental entity requiring any renovations or
alterations to the building of which the Premises are a part that are
required of building owners generally and not arising out of, resulting from,
or as may be may be triggered by, Tenant's activities or business, any
Alterations undertaken by Tenant (including the initial tenant improvement),
or Tenant's use or occupancy of the Premises. The costs of such renovations
or alterations shall be borne by Landlord and shall not be a part of
Operating Costs under Section 6.2. Any other work or costs related to
assuring compliance of the Premises with the orders, rules or regulations of
any governmental entity (including without limitation the Americans with
Disabilities Act) otherwise not the responsibility of Landlord under the
first sentence of this Section shall be born by Tenant either directly or as
a part of Operating Costs under Section 6.2. In addition, Tenant shall do
and/or bear the costs of, any and all construction, alterations, improvements
and retrofittings required to be made to the Premises and/or the building or
the Center, arising out of, resulting from, or as may be may be triggered by,
Tenant's activities or business, any Alterations undertaken by Tenant
(including the initial tenant improvements), or Tenant's use or occupancy of
the Premises.

     37.  CROSS DEFAULT WITH OTHER LEASE. Tenant is also the tenant of
certain space located in the building at 11404 Sorrento Valley Road, San
Diego California (which building is owned by an affiliate of Landlord)
pursuant to a Standard Industrial Net Lease (the "Other Lease") of even date
herewith between Tenant and such other owner. Tenant agrees that, at the
election of Landlord, any Event of Default under the Other Lease shall also
constitute an Event of Default under this Lease.

     38.  NO OTHER CHANGE. Except as specifically set forth in this
Addendum, all of the terms and conditions of the Lease shall remain unchanged
and in full force and effect.

                                       COLLINS DEVELOPMENT COMPANY,
                                       a California corporation

                                       By: /s/ Robert Peter
                                           -----------------------------------
                                       Print Name:
                                                   ---------------------------
                                       Title:
                                              --------------------------------


                                       By: /s/
                                           -----------------------------------
                                       Print Name:
                                                   ---------------------------
                                       Title:
                                              --------------------------------


                                       MITOKOR, a California corporation

                                       By: /s/ Craig Johnson
                                           -----------------------------------
                                       Print Name: Craig Johnson
                                                   ---------------------------
                                       Title:      CFO
                                              --------------------------------


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


                                       iv

EX-10.14

                                                                  Exhibit 10.14

                        STANDARD INDUSTRIAL NET LEASE

This STANDARD INDUSTRIAL NET LEASE ("Lease"), dated for reference purposes
only February 28, 2001, is entered into by Sorrento Plaza, a Limited
Partnership ("Landlord"), and MitoKor, a California Corporation ("Tenant").

1.   BASIC LEASE TERMS.

     The basic terms of the Lease set forth in this Article 1 shall be read
in conjunction with the other Articles of this Lease, which define and
explain the basic terms.

     1.1  ADDRESS FOR NOTICE (see Section 24.19):

            Landlord:  11750 Sorrento Valley Road, Suite 209
                       San Diego, California 92121
                       Attention: [Center Name] Property Management

            Tenant:    At the Premises, or
                       Address for Tenant other than at the Premises (required):
                       11494 Sorrento Valley Road, Suite A
                       San Diego, CA 92121

     1.2  DESCRIPTION OF PREMISES:

            Center Name:  Sorrento Plaza

            Address:      11404 Sorrento Valley Road
                          San Diego, CA 92121

            Suite/Unit:   106, 107, 108, 109, 122, 123, 124 & 125

            Approximate Rentable Square Footage (See Exhibit "A"): 6,995

     1.3  COMMENCEMENT DATE:  July 1, 2001

     1.4  LEASE TERM (see Article 3): Approximately six (6) years and -0-
          months, beginning on the Commencement Date and ending on the last
          day of the calendar month of June 2007 (the "Expiration Date").

     1.5  MINIMUM MONTHLY RENT: $10,493.00 per month for the first Lease
          Year, as provided in Article 4. The Minimum Monthly Rent shall be
          increased on the first day of the second (2nd) Lease Year and each
          first day of each succeeding Lease Year as follows:

               7/1/2002 - 6/30/2003 - $10,913 per mo.;
               7/1/2003 - 6/30/2004 - $11,350 per mo.;
               7/1/2004 - 6/30/2005 - $11,804 per mo.;
               7/1/2005 - 6/30/2006 - $12,276 per mo.;
               7/1/2006 - 6/30/2007 - $12,767 per month

     1.6  SECURITY DEPOSIT: $10,000.00 (See Article 5).

     1.7  TENANT'S PRO RATA SHARE OF OPERATING COSTS (See Article 6): 4.45%

     1.8  PERMITTED USE (see Article 11): legal uses associated with a
          biotechnology company, and for no other use.

     1.9  TENANT'S GUARANTOR (If none, so state): none

     1.10 TENANT'S PARKING SPACES (Unassigned) (see Section 11.6): 15

     1.11 LANDLORD'S BROKER (If none, so state): Asset Management Group
          TENANT'S BROKER (If none, so state): none

     1.12 ADDITIONAL PROVISIONS: The following additional provisions are
          attached to and made a part of this Lease (If none, so state):
          Addendum to Standard Industrial Net Lease.

     1.13 EXHIBITS: The following Exhibits are attached to and made a part of
          this Lease:

               Exhibit "A" - Description of Premises
               Exhibit "B" - Rules and Regulations
               Exhibit "C" - Sign Criteria



2.   LEASE OF PREMISES.

     Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the premises (the "Premises") described in Section 1.2, which are
indicated on the site/floor plan attached as Exhibit "A". The Premises are
part of the office or industrial center identified in Section 1.2 (the
"Center"). The approximate Rentable Square Footage identified in Section 1.2
is a measurement of the net leasable floor area of the Premises, as
determined by Landlord and applied on a consistent basis throughout the
Center.

3.   LEASE TERM.

     3.1  COMMENCEMENT.  The term of this Lease (the "Lease Term") shall
commence on the Commencement Date stated in Section 1.3 and shall continue
for the period stated in Section 1.4, unless sooner terminated pursuant to
any provision of this Lease.

     3.2  DELAY IN COMMENCEMENT.  If Landlord cannot deliver possession of
the Premises to Tenant on the Commencement Date specified in Section 1.3 for
any reason, Landlord shall not be subject to any liability therefor. Such
non-delivery shall not affect the validity of this Lease nor the obligations of
Tenant hereunder. However: (a) Tenant shall not be obligated to pay rent
until possession of the Premises is delivered to Tenant, (b) if possession of
the Premises is not delivered to Tenant within thirty (30) days of the
Commencement Date, the last day of the Lease Term shall be extended by the
total number of days that possession is so delayed, plus the minimum number
of additional days necessary to make the Expiration Date the last day of a
calendar month, and (c) if Landlord has not delivered possession of the
Premises within ninety (90) days after the Commencement Date, Tenant may
elect to terminate this Lease by delivering written notice to Landlord within
ten (10) days thereafter, in which event the parties shall be discharged from
all further obligations hereunder.

     3.3.  EARLY OCCUPANCY.  If Tenant occupies the Premises prior to the
Commencement Date, such occupancy shall be subject to all provisions of this
Lease. Such occupancy shall not advance the Expiration Date. Tenant shall pay
Minimum Monthly Rent at the rate in effect for the first Lease Year,
Additional Rent and all other charges required hereunder for such early
occupancy period.

4.   RENT.

     4.1  MINIMUM MONTHLY RENT.  Tenant shall pay minimum monthly rent
("Minimum Monthly Rent") in the initial amount stated in Section 1.5. The
Minimum Monthly Rent shall be increased as set forth in Section 1.5 and/or
elsewhere in this Lease. Tenant shall pay the Minimum Monthly Rent on or
before the first day of each calendar month, in advance, at the office of
Landlord or at such other place designated by Landlord, without deduction,
offset or prior demand. If the Commencement Date is not the first day of a
calendar month, the rent for the partial month at the beginning of the Lease
Term shall be prorated on a per diem basis and shall be due on the first day
of such partial month. Upon execution of the Lease, Tenant shall pay the
first month's Minimum Monthly Rent to Landlord.

     4.2  LEASE YEAR.  As used in this Lease, the term "Lease Year" means (i)
the first period of twelve (12) full calendar months following the
Commencement Date (including, if the Commencement Date is not the first day
of the calendar month, the period between the Commencement Date and the next
first day of the month), (ii) each period of twelve (12) full calendar months
thereafter, and (iii) any remaining period at the end of the Lease Term or
less than twelve (12) full calendar months.

     4.3  ADDITIONAL RENT.  All charges payable by Tenant in addition to
Minimum Monthly Rent shall constitute Additional Rent to Landlord. All
remedies available to Landlord for nonpayment of rent shall be available for
nonpayment of any such Additional Rent. Unless this Lease provides otherwise,
all Additional Rent shall be paid by Tenant, without limitation or offset,
within fifteen (15) days after Tenant's receipt of a statement from Landlord.
Additional Rent includes, without limitation, Operating Costs (see Article
6), Maintenance and Repairs (see Article 7), Real Property Taxes (see Article
8), insurance costs (see Article 9), Utilities (see Article 10), and
attorneys' fees and costs (see Section 24.3). If any Minimum Monthly Rent is
abated or waived pursuant to another specific term of this Lease or in any
separate agreement, it is understood that such abatement or waiver shall
apply only to the Minimum Monthly Rent, and Tenant shall be obligated to pay
all components of Additional Rent (including the applicable impounds thereof)
during the periods of abatement or waiver of Minimum Monthly Rent and
throughout the Lease Term. Minimum Monthly Rent, Additional Rent, and all
other charges and monetary amounts due Landlord from Tenant hereunder shall
constitute "rent".

4.4  IMPOUNDS.  Landlord shall have the right, but not the obligation, to
collect and impound, in advance, any or all components of Operating Costs,
Real Property Taxes and insurance costs based upon Landlord's reasonable
estimate of Tenant's future liability for such amounts under this Lease.
Landlord shall initially establish the monthly amount of such impound
("Monthly Impound Payments"), based upon its estimate of one-twelfth of
Tenant's annual liability therefor. Landlord shall have the right, at any
time during the Lease Term, to adjust the amount of the Monthly Impound
Payment upon notice to Tenant. The Monthly Impound Payment shall be due and
payable on the first day of each month throughout the Lease Term. Any failure to
pay the Monthly Impound Payment when due shall be an Event of Default under
this Lease and shall entitle Landlord to exercise any or all of its remedies
available in the same manner as for the failure to pay rent, including the
imposition of late charges and interest, and the right of Landlord to require
that future payment of the Monthly Impound Payments be made by cashier's
check. Upon the occurrence of any Event of Default by Tenant hereunder,
Landlord shall have the right to apply all unapplied amounts of Monthly
Impound Payments to Tenant's default. Within ninety (90) days after the end
of each calendar year, Landlord shall deliver to Tenant an accounting of
Tenant's actual Pro Rata Share of Operating Costs and the estimated amounts
paid by Tenant. Any overpayment by Tenant shall be credited against next
Monthly Impound Payments due hereunder, or, at Landlord's option, shall be
remitted to Tenant within thirty (30) days of delivery of such accounting.
Tenant shall pay the amount of any underpayment within thirty (30) days after
receipt of the accounting. Tenant acknowledges that the Monthly Impound
Payments are estimates only and not a representation of the amount of
Tenant's ultimate liability for Operating Costs, Real Property Taxes and
insurance costs.

5.   SECURITY DEPOSIT.

     Upon execution of this Lease, Tenant shall deposit with Landlord the
amount specified in Section 1.6 (the "Security Deposit"), to be held by
Landlord, without liability for interest, as security for Tenant's
performance of its obligations under this Lease. Landlord shall not be
required to keep the Security Deposit separate from its other accounts.
Landlord may apply all or a part of the Security Deposit to any unpaid rent
(including unpaid Additional Rent or Monthly Impound Payments) or other
monetary payments due from Tenant or to cure any other default of Tenant
hereunder and to compensate Landlord for all damage and expense sustained as
a result of such default. If all or any portion of the Security Deposit is so
applied, Tenant shall deposit cash sufficient to restore the Security Deposit
to its original amount within fifteen (15) days after receipt of Landlord's
written demand. If Tenant fully and faithfully performs each of its
obligations under this Lease, the Security Deposit or any balance thereof
shall be returned to Tenant within thirty (30) days of the later of the
expiration or earlier termination of this Lease or the vacation of the
Premises by Tenant. At Landlord's request, Tenant shall accompany Landlord
or Landlord's representative on a "walk-through" of the Premises prior to
Landlord's return of the Security Deposit.

6.   OPERATING COSTS.

     6.1  PAYMENT OF OPERATING COSTS BY TENANT.  Tenant shall pay its pro
rata share of Operating Costs for the Center, as defined herein. Tenant's pro
rata share shall be computed by Landlord on a monthly or other periodic basis
selected by Landlord. Tenant shall pay the amount of such pro rata share to
Landlord, to the extent such obligation exceeds any amount thereof impounded
under Section 4.4, within fifteen (15) days after receipt of a statement from
Landlord.

     6.2  PRO RATA SHARE OF OPERATING COSTS.  Tenant's pro rata share of
Operating Costs is stated in Section 1.7 and represents the ratio of the
Rentable Square Footage of the Premises (identified in Section 1.2) to the
total Rentable Square Footage of the Center, as determined by Landlord from
time to time. Changes in Rentable Square Footage shall be effective on the
first day of the first calendar month following the change. Landlord shall
provide an explanation of such charge concurrent with its notice. Tenant's
share of Real Property Taxes, insurance costs and other components of
Additional Rent shall be computed on the same basis as Tenant's Pro Rata
Share of Operating Costs, unless Landlord determines that some other basis
would be equitable.

     6.3  OPERATING COSTS.  "Operating Costs" includes all costs of
operating, managing, repairing and maintaining the Common Facilities,
including without limitation: gardening and landscaping; the cost of public
liability and property damage insurance; Real Property Taxes, as defined in
Section 8.2 but applicable to the Common Facilities; utilities; line
painting and parking lot repairs; roof repairs; lighting; trash and refuse
removal; supplies; equipment; exterior painting; capital improvements
(including without limitation the costs of roof, parking lot and underground
utilities replacements); reasonable reserves for repairs and replacements;
the costs of altering, improving, renovating, upgrading or retrofitting any
portion of the Common Facilities to comply with all laws, regulations and
governmental requirements applicable to the Center (including without
limitation those related to disabled persons, hazardous materials, lighting
upgrades, sprinkler and energy-saving retrofits); security service; property
management costs and administrative fees; bookkeeping services; labor; and
the cost of personnel to implement such services and to direct parking. In
lieu of including the entire amount of any such expense in Operating Costs in
any one period, Landlord, at its election, may spread the inclusion of, or
may amortize, any such expenses, or a reasonable reserve for anticipated
expenses, in Operating Costs over such multiple periods as Landlord shall
determine.



     6.4  COMMON FACILITIES. "Common Facilities" means all areas, facilities,
utilities, equipment and services provided by Landlord for the common use or
benefit of the occupants of the Center and their employees, agents, customers
and other invitees, including without limitation: building lobbies, common
corridors and hallways, restrooms, pedestrian walkways, driveways and access
roads, access facilities for disabled persons (including elevators), truck
serviceways, loading docks, garages, driveways, parking lots, landscaped
areas, stairways, elevators, retaining walls, all areas required to be
maintained under the conditions of governmental approvals for the Center, and
other generally understood public or common areas. Landlord reserves the
right to relocate, alter, improve, or adjust the size and location of any
Common Facilities from time to time without liability to Tenant.

7.   MAINTENANCE AND REPAIRS.

     7.1  TENANT'S OBLIGATIONS. Except as provided in Section 7.2, Tenant
shall keep the Premises in good order, condition and repair during the Lease
Term, including without limitation: all nonstructural, interior, exterior,
and landscaped areas; all heating, ventilation and air conditioning systems
and equipment; all glass, glazing, windows, window moldings, partitions,
doors and door hardware; all interior painting; all fixtures and appurtenances
in the Premises or exclusively serving the Premises including electrical,
lighting and plumbing fixtures; and all other portions of the Premises seen
or unseen. Tenant shall promptly replace at its sole cost and expense any of
the systems, equipment and other portions of the Premises for which it is
responsible hereunder during the Lease Term if and when necessary, regardless
of whether the benefit of such replacement extends beyond the Lease Term. It
is the intention of Landlord and Tenant that Tenant shall maintain the
Premises, at all times during the Lease Term, in an attractive, first-class
and fully operative condition, at Tenant's expense. If any heating and air
conditioning system or equipment exclusively serves the Premises, Tenant shall
additionally obtain and keep in force a preventive maintenance contract
providing for the regular (at least quarterly) inspection and maintenance of
the heating and air conditioning system (including leaks around ducts, pipes,
vents, and other parts of the air conditioning) by a reputable licensed
heating and air conditioning contractor acceptable to Landlord. Prior to
April 1 of each calendar year, Tenant shall deliver Landlord written
confirmation from such contractor verifying that such a contract has been
entered into and that the required service will be provided. Notwithstanding
the foregoing, Landlord shall have the right, upon written notice to Tenant,
to undertake the responsibility for preventive maintenance and repair of the
heating and air conditioning system, at Tenant's sole cost and expense.

     7.2  LANDLORD'S OBLIGATIONS. Landlord shall repair and maintain the
Common Facilities, subject to Tenant's obligation to pay its Pro Rata Share
of Operating Costs, as provided in Article 6. Landlord shall maintain the
roof, the foundations and structural portions of the Premises and any
building of which the Premises are a part, but Tenant shall pay (a) the full
costs of such maintenance, or an equitable share determined by Landlord if
the Premises are part of a multi-tenant building, (b) the full amount of any
maintenance and repairs necessitated by any act, omission, conduct or
activity of, or breach of this lease by, Tenant or any of Tenant's officers,
agents, customers or invitees (plus fifteen percent (15%) of the cost thereof
for Landlord's overhead); and (c) any maintenance and repairs necessitated by
breaking and entering of the Premises. Tenant shall pay its share of such
maintenance and repair costs incurred by Landlord, to the extent such
obligation exceeds any amount thereof impounded under Section 4.4, within
fifteen (15) days after receipt of a statement from Landlord. There shall be
no abatement of rent, and no liability of Landlord, by reason of any injury to
or interference with Tenant's business arising from the making of any repairs,
alterations, or improvements to any portion of the Premises or the Center.
Except as provided in Article 16 (Damage and Destruction) and Article 17
(Condemnation), Landlord shall have absolutely no other responsibility to
repair, maintain or replace any portion of the Premises at any time. Tenant
waives the right to make repairs at Landlord's expense under California Civil
Code Section 1942, or under any other law, statute or ordinance now or
hereafter in effect. Tenant shall not be responsible for any roof replacement
during the Lease Term.

     7.3 PERFORMANCE BY LANDLORD. If Tenant refuses or neglects to perform
its maintenance obligations hereunder to the reasonable satisfaction of
Landlord, Landlord shall have the right (but not the obligation), upon three
(3) days' prior notice to Tenant, to enter the Premises and perform such
repairs and maintenance on behalf of Tenant. Landlord shall also have the
right (but not the obligation), without prior notice to Tenant, to correct or
remove any dangerous or hazardous condition, to repair the heating,
ventilation, air conditioning or plumbing systems, to correct, repair or
bring into legal compliance any fire or other life safety systems of the
Premises, and to repair or replace any broken glass or glazing, if Tenant
fails to correct or repair the same within twenty-four (24) hours after
receipt of Landlord's notice (excepting emergencies). Landlord shall not be
liable to Tenant for any loss or damage to Tenant's merchandise, fixtures, or
other property or to Tenant's business in connection with Landlord's
performance hereunder, and Tenant shall pay Landlord's costs plus eight
percent (8%) of such amount for overhead, upon presentation of a statement
therefor, as Additional Rent. Tenant shall also pay interest at the rate
provided in Section 22.4 from the date of completion of repairs by Landlord
to the date paid by Tenant.

8.   REAL PROPERTY TAXES.

     8.1  PAYMENT OF REAL PROPERTY TAXES BY TENANT. Tenant shall pay all Real
Property Taxes applicable to the Premises during the Lease Term. If the
Premises are not separately assessed, a share of the tax bill that includes
the Premises shall be allocated to the Premises. Such share shall be
equitably determined by Landlord based upon the Rentable Square Footage of
the Premises compared to the total Rentable Square Footage covered by the tax
bill, the respective valuations assigned in the assessor's worksheet, or
other reasonably available information. Tenant shall pay its share of Real
Property Taxes to Landlord, to the extent such obligation exceeds any amount
thereof impounded under Section 4.4, within fifteen (15) days after receipt
of a statement from Landlord.

     8.2  REAL PROPERTY TAXES DEFINED. "Real Property Taxes" means all taxes,
assessments, levies, fees and other governmental charges levied on or
attributable to the Premises or any part thereof, including without
limitation: (a) real property taxes and assessments levied with respect to
all or a portion of the Premises, (b) assessments, charges and fees charged
by governmental agencies or districts for services or facilities provided to
the Premises, (c) transfer, transaction, rental, gross receipts, license or
similar taxes or charges measured by rent received by Landlord, excluding any
federal or state income, franchise, estate or inheritance taxes of Landlord,
(d) taxes based upon a reassessment of the Premises due to a transfer or
change of ownership, and (e) any assessment, charge or fee that is a
substitute in whole or in part for any tax at the Commencement Date included
within the definition of Real Property Taxes. If Landlord elects to contest
an assessment of any Real Property Taxes, Landlord shall have the right to
recover its actual costs of such contest (including attorneys' fees and
costs) as part of Real Property Taxes, but only to the extent such contest
has resulted in a reduction of Real Property Taxes. Tenant shall not be
entitled to the benefit of any reduction, refund, rebate or credit accruing
or payable to Landlord prior to the commencement of or after the expiration
or other termination of the Lease Term.

     8.3  PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes charged against trade fixtures, furnishings, equipment or any other
personal property belonging to Tenant. Tenant shall attempt to have such
personal property taxed separately from the Premises. If any such taxes on
Tenant's personal property are levied against Landlord or the Premises, or if
the assessed value of the Premises is increased by inclusion of a value placed
upon such personal property of Tenant, then: (a) Landlord, after written
notice to Tenant, shall have the right to pay the taxes levied against
Landlord, or the taxes based upon such increased valuation, but under protest
if so requested by Tenant in writing, and (b) Tenant shall pay to Landlord
the taxes levied against Landlord, or the taxes resulting from such increased
valuation, within thirty (30) days after Tenant's receipt of a written
statement from Landlord.

9.   INSURANCE.

     9.1  ALL RISK COVERAGE. During the Lease Term, Landlord shall maintain,
at Tenant's expense, insurance covering loss or damage to the Premises
(excluding Tenant's Alterations, fixtures, equipment and personal property),
insuring against any or all risks of physical loss (and including, at
Landlord's option, flood and earthquake coverage), with the scope and amounts
of such coverage as determined by Landlord. Said insurance shall provide for
payment of loss thereunder to Landlord or to the holder of a first mortgage
or deed of trust on the Premises. Landlord may also maintain during the Lease
Term, at Tenant's expense, a policy of rental income insurance covering a
period of one (1) year, with loss payable to Landlord.

     9.2  TENANT'S PERSONAL PROPERTY AND FIXTURES. Tenant shall at all times,
at Tenant's sole cost and expense, maintain insurance against any or all
risks of physical loss in an amount adequate to cover the cost of replacement
of all of Tenant's Alterations, trade fixtures, equipment and personal
property. Such policy shall be issued by an insurance company approved by
Landlord, shall name Landlord and Landlord's lender as additional insureds,
and shall provide that no cancellation or reduction in coverage shall be
effective until thirty (30) days after written notice to Landlord and
Landlord's lender. Tenant shall deliver a certificate evidencing such
insurance to Landlord and a renewal or binder at least twenty (20) days prior
to expiration. Tenant acknowledges that Landlord's insurance is not intended
to cover Tenant's Alterations, trade fixtures, equipment, and personal
property. Provided, however, that at Landlord's sole election, Landlord may
obtain at Tenant's expense any or all of the insurance described in this
Section.



     9.3  TENANT'S LIABILITY INSURANCE. Tenant shall, at Tenant's sole cost
and expense, provide comprehensive general liability insurance, fully
covering and indemnifying Landlord and Landlord's officers, directors,
shareholders, partners, principals, employees, agents, representatives, and
other related entities and individuals (together with, at Landlord's
election, Landlord's lender), as additional insureds, against any and all
claims arising from personal injury, death, and/or property damage occurring
in or about the Premises or the Center during the period of Tenant's
possession (actual and/or constructive) at the Premises. The initial limits
of such insurance shall be at least $2,000,000 combined single liability
limit if the Rentable Square Footage of the Premises (as indicated in
Section 1.2) exceeds 3,000 square feet, or $1,000,000 combined single
liability limit if such Rentable Square Footage is 3,000 square feet or less.
Such liability insurance limits shall be subject to periodic increase, at
Landlord's election, based upon inflation, increased liability awards, lender
requirements, the recommendations of Landlord's professional insurance
advisors, and other relevant factors. Tenant shall also, at is sole cost and
expense, obtain workers' compensation insurance for the protection of its
employees such as will relieve Landlord of all liability to such employees
for any and all accidents that may arise on or about the Premises or the
Center. All insurance required to be carried by Tenant shall be primary and
noncontributory to any insurance carried by Landlord, regardless of the
absence of negligence or other fault of Tenant for alleged injury, death
and/or property damage. Each policy of insurance required to be carried by
Tenant hereunder shall: (a) contain cross-liability and contractual liability
endorsements, (b) provide that no cancellation or reduction in coverage shall
be effective until thirty (30) days after written notice to Landlord and
Landlord's lender, (c) be issued by an insurer licensed in California and
reasonably approved by Landlord, and (d) shall insure Tenant's performance of
the indemnity provisions of Article 13, but the amount of such insurance
shall not limit Tenant's liability nor relieve Tenant of any obligation
hereunder. Prior to the Commencement Date, Tenant shall deliver a certificate
evidencing all such insurance to Landlord. Tenant shall deliver a renewal or
binder of such policy at least thirty (30) days prior to expiration thereof.
Tenant shall, at Tenant's expense, maintain such other liability insurance as
Tenant deems necessary to protect Tenant. Tenant shall be in material breach
of this Lease if Tenant fails to obtain the insurance required under this
Section, or if Tenant obtains insurance with terms, conditions and/or
exclusions that are inconsistent with the requirements and terms of this
Lease.

     9.4  PAYMENT OF INSURANCE COSTS. Tenant shall pay directly all premiums
for its liability insurance required under Section 9.3, for its personal
property insurance to be carried by Tenant as required under this Article,
and for all other insurance Tenant elects to carry. Tenant shall pay the
insurance premiums, or, where applicable, its share thereof as equitably
determined by Landlord, for the insurance policies carried or obtained by
Landlord as described in this Article. If the Lease Term expires before the
expiration of any such insurance policy, Tenant's liability for premiums
shall be prorated on an annual basis. Tenant shall pay such insurance costs
to Landlord to the extent such obligation exceeds any amount thereof
impounded under Section 4.4, within fifteen (15) days after receipt of a
statement from Landlord. If any insurance policy maintained by Landlord
covers improvements or real property other than the Premises, Landlord shall
reasonably determine the portion of the premiums applicable to the Premises,
and Tenant shall pay its share thereof as so determined. In addition, Tenant
shall pay the full amount of any deductible amount under Landlord's insurance
policies, or where applicable its share thereof as equitably determined by
Landlord, and reasonably approved by Tenant, within fifteen (15) days after
receipt of a statement from Landlord.

     9.5  WAIVER OF SUBROGATION. Each party waives all rights of recovery
against the other party and its officers, employees, agents and
representatives for any claims for loss or damage to person or property
caused by or resulting from fire or any other risks insured against under any
insurance policy in force at the time of such loss or damage. Each party
shall cause each insurance policy obtained by it to provide that the insuror
waives all rights of recovery by way of subrogation against the other party
in connection with any damage covered by such policy.

     9.6  TENANT'S USE NOT TO INCREASE PREMIUM. Tenant shall not keep, use,
manufacture, assemble, sell or offer for sale in or upon the Premises any
article that may be prohibited by, or that might invalidate, in whole or in
part, the coverage afforded by, a standard form of fire or all risk insurance
policy. Tenant shall pay the entire amount of any increase in premiums that
may be charged during the Lease Term for the insurance that may be maintained
by Landlord on the Premises or the Center resulting from the type of
materials or products stored, manufactured, assembled or sold by Tenant in
the Premises, whether or not Landlord has consented to the same. In
determining whether increased premiums are the result of Tenant's use of the
Premises, a schedule issued by the entity making the insurance rate on the
Premises showing the various components of such rate shall be conclusive
evidence of the items and charges that make up the fire insurance ratio on
the Premises.

10. UTILITIES.

     Tenant shall pay the cost of all water, gas, heat, light, power, sewer,
telephone, refuse disposal, and all other utilities and services supplied to
the Premises. Tenant shall make payments for all separately metered
utilities, when due, directly to the appropriate supplier. Landlord shall
have the right to require Tenant to install, at Tenant's sole expense,
separate meters (or other submeter, device or monitor for the measurement of
utility usage) for any utility for which a separate meter is not installed as
of the Commencement Date. If any utilities or services are not separately
metered or monitored with respect to the Premises, Landlord shall determine
Tenant's equitable share thereof, based on rentable square footage, intensity
of use of any Utility, hours of operation, and such other factors as Landlord
deems relevant. Tenant shall pay its equitable share of such utilities to
Landlord, to the extent such obligation exceeds any amount thereof impounded
under Section 4.5, within fifteen (15) days after receipt of a statement from
Landlord. If at any time during the Lease Term, electrical power or any other
utility is available to the Premises from multiple sources, Landlord shall
have the right at any time and from time to time to contract for service
from any company or companies providing electrical, telecommunication, or
other utility service to the Building. Tenant shall cooperate with Landlord
and all providers of electrical, telecommunications, or other utility service
and, as reasonably necessary, allow Landlord and such providers reasonable
access to the Premises, and to the electric lines, feeders, risers, wiring and
any other machinery or equipment within the Premises. Landlord shall in no
way be liable or responsible for any loss, damage or expense that Tenant may
sustain or incur by reason of any change, failure, interruption, interference
or defect in the supply or character of the electricity or other utilities
supplied to the Premises. Landlord makes no representation or warranty as the
suitability of the utility service for Tenant's requirements, and no such
change, failure, defect, unavailability or unsuitability shall constitute any
actual or constructive eviction, in whole or in part, or entitle Tenant to
any abatement or diminution of rent, or relieve Tenant of any of its
obligations under the Lease. Landlord shall not be liable in damages or
otherwise for any failure or interruption of any utility service, and no such
failure or interruption shall entitle Tenant to terminate this Lease or abate
the rent due hereunder.

11. USE.

     11.1  PERMITTED USE. The Premises shall be used and occupied only for
the permitted uses specified in Section 1.8. The Premises shall not be used
or occupied for any other purposes without the prior written consent of
Landlord. Tenant shall provide such information about such proposed use as
may be reasonably requested by Landlord. Landlord shall not unreasonably
withhold its consent to any requested change in use, and shall have the right
to impose reasonable restrictions on such other use. Factors that Landlord
may take into account in granting or withholding its consent shall include,
without limitation: (a) whether the proposed use is compatible with the
character and tenant mix of the Center, (b) whether the proposed use poses
any increased risk to Landlord or any other occupant of the Center,
(c) whether any proposed Alterations to accommodate such proposed use might
decrease the rental or sale value of the Premises or the Center, and
(d) whether Tenant has the requisite expertise and financial ability to
successfully operate in the Premises with the proposed use.

     11.2  COMPLIANCE WITH LAW AND OTHER REQUIREMENTS. Tenant shall not do or
permit anything to be done in or about the Premises in conflict with all
laws, ordinances, rules, regulations, orders, requirements, and recorded
covenants and restrictions applicable to the Premises, whether now in force
or hereafter in effect, including any requirement to make alterations or to
install additional facilities required by Tenant's occupancy or the conduct
of Tenant's business, and Tenant shall promptly comply with the same at its
sole expense.

     11.3  WASTE, QUIET CONDUCT. Tenant shall not use or permit the use of
the Premises in any manner that creates waste or a nuisance, that causes
objectionable noise or odors, or that disturbs the quiet enjoyment of any
other tenant in the Center.

     11.4  RULES AND REGULATIONS. Tenant shall comply with the Rules and
Regulations for the Center attached as Exhibit "B", as the same may be
amended by Landlord from time to time, upon notice to Tenant.

     11.5  SIGNS. Tenant agrees, at Tenant's sole cost, to install a sign in
strict conformance with Landlord's sign criteria, attached hereto as Exhibit
"C", within fifteen (15) days after first occupying the Premises. Tenant
shall maintain all approved signs and other items described herein in good
condition and repair at all times. All signs must be fabricated by a
contractor selected by Landlord. Prior to construction of any such sign, a
detailed drawing of the proposed sign shall be prepared by the Landlord's
contractor, at the sole expense of Tenant, and submitted to Landlord and
Tenant for written approval. No sign, placard, pennant, flag, awning, canopy,
or advertising matter of any kind shall be placed or maintained on any
exterior door, wall or window of the Premises or in any area outside the
Premises, and no decoration, lettering or



advertising matter shall be placed or maintained on the glass of any window
or door, or that can be seen through the glass, of the Premises without first
obtaining Landlord's written approval. All signs and sign cases shall be
considered fixtures and improvements and shall become the property of
Landlord upon expiration or termination of the Lease. If Tenant fails to
comply with this Section and Landlord serves upon Tenant a Notice to Perform
Covenant or Quit (or similar notice), any breach of the covenants of this
Section occurring thereafter shall be deemed to be noncurable. Landlord shall
have the right from time to time to reasonably revise the sign criteria, and
within sixty (60) days after Tenant's receipt of written notice of any new sign
criteria, Tenant shall, at Tenant's expense, remove all existing exterior signs
and replace the same with new signs conforming to the new sign criteria.
Landlord shall not relocate Tenant's sign or affect said signage without
Tenant's prior written consent.

     11.6  PARKING.  Tenant shall have the nonexclusive right, in common with
others, to use the parking areas of the Center; provided, however, that
Tenant shall not use more than the number of parking spaces designated in
Section 1.10, or if no number of such spaces is so indicated, Tenant shall
not use more than its reasonable share of parking spaces, as Landlord shall
determine. Landlord reserves the right, without liability to Tenant, to modify
the parking areas, to designate the specific location of the parking for
Tenant and Tenant's customers and employees, and to adopt reasonable rules
and regulations for use of the parking areas.

     11.7  ENTRY BY LANDLORD.  Tenant shall permit Landlord and Landlord's
agents to enter the Premises at all reasonable times for any of the following
purposes: (a) to inspect the Premises, (b) to supply any services or to
perform any maintenance obligations of Landlord, including the erection and
maintenance of such scaffolding, canopies, fences, and props as may be
required, (c) to make such improvements, replacements or additions to the
Premises or the Center as Landlord deems necessary or desirable, (d) to post
notices of nonresponsibility, (e) to place any usual or ordinary "for sale"
signs, or (f) within six (6) months prior to the expiration of this Lease, to
place any usual or ordinary "for lease" signs. No such entry shall result in
any rebate of rent or any liability to Tenant for any loss of occupation or
quiet enjoyment of the Premises. Landlord shall give reasonable notice to
Tenant prior to any entry except in an emergency or unless Tenant consents at
the time of entry. If Tenant is not personally present to open and permit an
entry into the Premises, at any time when for any reason an entry therein shall
be necessary or permissible, Landlord or Landlord's agents may enter the same
by a master key, or may forcibly enter the same without rendering Landlord or
such agents liable therefor, and without in any manner affecting the obligations
and covenants of this Lease provided that Landlord shall give Tenant notice of
and the reasons for such entry within forty-eight (48) hours thereof. Nothing
herein contained, however, shall be deemed or construed to impose upon Landlord
any obligation, responsibility or liability whatsoever for the care, maintenance
or repair of the Premises or any part thereof, except as otherwise specifically
provided herein.

12. ACCEPTANCE OF PREMISES; NONLIABILITY OF LANDLORD; DISCLAIMER.

     12.1  ACCEPTANCE OF PREMISES.  By taking possession hereunder, Tenant
acknowledges that it has examined the Premises and accepts the condition
thereof. Tenant acknowledges and agrees that Landlord has no obligation to
improve the Premises other than as set forth specifically in this Lease, if
at all. In particular, Tenant acknowledges that any additional improvements
or Alterations needed to accommodate Tenant's intended use shall be made
solely at Tenant's sole cost and expense, and strictly in accordance with the
requirements of this Lease (including the requirement to obtain Landlord's
consent thereto), unless such improvements and alterations are specifically
required of Landlord. Landlord shall have no responsibility to do any work
required under any building codes or other governmental requirements not in
effect or applicable at the time the Premises were constructed, including
without limitation any requirements related to sprinkler retrofitting, seismic
structural requirements, accommodation of disabled persons, or hazardous
materials. Landlord shall be under no obligation to provide utility,
telephone or other service or access beyond that which exists at the Premises
as of the date of this Lease, unless Landlord specifically agrees in writing
to provide the same. If it is anticipated that Tenant will be doing any
Alterations or installations prior to taking occupancy, any delays
encountered by Tenant and not caused by Landlord or Landlord's agent or
representative in accomplishing such work or obtaining any required permits
therefor shall not delay the Commencement Date or the date that Tenant
becomes liable to pay rent, or the date that Landlord may effectively deliver
possession of the Premises to Tenant. By taking possession hereunder, Tenant
acknowledges that it accepts the square footage of the Premises as delivered
and as stated in this Lease. No discovery or alleged discovery after such
acceptance of any variance in such square footage as set forth in this Lease
(or in any proposal, advertisement or other description thereof) shall be
grounds for any adjustment in any element of the rent payable hereunder, unless
such adjustment is initiated by and implemented by Landlord in writing.

     12.2  LANDLORD'S EXEMPTION FROM LIABILITY.  Landlord shall not be liable
for injury to Tenant's business or loss of income therefrom, or for personal
injury or property damage that may be sustained by Tenant or any subtenant of
Tenant, or their respective employees, invitees, customers, agents or
contractors or any other person in or about the Premises, caused by or
resulting from fire, flood, earthquake or other natural disaster, or from
steam, electricity, gas, water or rain, that may leak or flow from or into
any part of the Premises, or from the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air-conditioning,
lighting fixtures or computer equipment or software, whether such damage or
injury results from conditions arising upon the Premises or upon other
portions of the building of which the Premises are a part, or from other
sources, and regardless of whether the cause of such damage or injury or the
means of repairing the same is inaccessible to Tenant. Landlord shall not be
liable for any damages to property or for personal injury or loss of life
arising from any use, act or failure to act of any third parties (including
other occupants of the Center) occurring in, or about the Premises or in or
about the Center (including without limitation the criminal acts of any third
parties). Landlord shall not be liable for any latent defect in the Premises
or in the building of which the Premises are a part. All property of Tenant
kept or stored on the Premises shall be so kept or stored at the risk of
Tenant only, and Tenant shall indemnify, defend and hold Landlord and
Landlord's officers, directors, shareholders, partners, principals,
employees and agents, and their respective successors and assigns, harmless
from and against any claims arising out of damage to the same, including
subrogation claims by Tenant's insurance carriers. Provided, however, that
the indemnifications and waivers of Tenant set forth in this Section shall
not apply to damage and liability caused (i) by the gross negligence or
willful misconduct of Landlord, and (ii) through no fault of Tenant, its
assignees or subtenants, or their respective agents, contractors, employees,
customers, invitees or licensees.

     12.3  NO WARRANTIES OR REPRESENTATIONS.

           (a)  Neither Landlord nor Landlord's agents make any warranty or
representation with respect to the suitability or fitness of the space for
the conduct of Tenant's business, or for any other purpose.

           (b)  Neither Landlord nor Landlord's agents make any warranty or
representation with respect to any other tenants or users that may or may not
construct improvements, occupy space or conduct business within the Center,
and Tenant hereby acknowledges and agrees that it is not relying on any
warranty or representation relating thereto in entering into this Lease.

           (c)  Landlord specifically disavows any oral representations made
by or on behalf of its employees, agents and independent contractors, and
Tenant hereby acknowledges and agrees that it is not relying and has not
relied on any oral representations in entering into this Lease.

           (d)  Landlord has not made any promises or representations,
expressed or implied, that it will renew, extend or modify this Lease in favor
of Tenant or any permitted transferee of Tenant, except as may be
specifically set forth herein or in a written instrument signed by both
parties amending this Lease in the future.

           (e)  Notwithstanding that the rent payable to Landlord hereunder
may at times include the cost of guard service or other security measures, it
is specifically understood that Landlord does not represent, guarantee or
assume responsibility that Tenant will be secure from any damage, injury or
loss of life because of such guard service. Landlord shall have no obligation
to hire, maintain or provide such services, which may be withdrawn or changed
at any time with or without notice to Tenant or any other person and without
liability to Landlord. To induce Landlord to provide such service if Landlord
elects in its sole discretion to do so, Tenant agrees that (i) Landlord shall
not be liable for any damage, injury or loss of life related to the provision
or nonprovision of such service, and (ii) Landlord shall have no
responsibility to protect Tenant, or its employees or agents, from the acts
of any third parties (including other occupants of the Center) occurring in
or about the Premises or in or about the Center (including without limitation
the criminal acts of any third parties), whether or not the same could have
been prevented by any such guard service or other security measures.

     12.4  KEYS.  Tenant shall re-key the Premises at its sole cost upon
taking possession thereof. Tenant hereby acknowledges that various persons have
had access to the keys to the Premises as keyed prior to Tenant's possession,
and that Landlord disclaims all liability and responsibility for any
unauthorized distribution or possession of such prior keys.

13.  INDEMNIFICATION.

     Tenant shall indemnify, defend and hold Landlord and Landlord's
officers, directors, shareholders, partners, principals, employees, agents,
representatives, and other related entities and individuals (collectively,
"Landlord's Related Entities"), harmless from and against any and all claims,
actions, damages, liability, costs, and expenses, including attorneys' fees
and costs, arising from personal injury, death, and/or property damage and
arising from: (a) Tenant's use or occupation of the Premises or any work or
activity done or permitted by Tenant in or about the Premises (including
without limitation any storage or display of materials or merchandise, or
other activity by Tenant in the Common Facilities), (b) any activity,
condition or occurrence in the Premises or other area under the control of
Tenant, (c) any breach or failure to perform any



obligation imposed on Tenant under this Lease, or (d) any other act or
omission of Tenant or its assignees or subtenants or their respective
agents, contractors, employees, customers, invitees or licensees. Tenant's
obligation to defend and indemnify shall include, but not be limited to,
claims based on duties, obligations, or liabilities imposed on Landlord or
Landlord's Related Entities by statute, ordinance, regulation, or other law,
such as claims based on theories of peculiar risk and nondelegable duty, and
to any and all other claims based on the negligent act or omission of
Landlord or Landlord's Related Entities. The parties intend that this
provision be interpreted as the broadest Type I indemnity provision as defined
in MCDONALD & KRUSE, INC. V. SAN JOSE STEEL CO., 29 Cal. App. 3rd 413 (1972),
and as allowed by law between a landlord and a tenant. Upon notice from
Landlord, Tenant shall, at Tenant's sole expense and by counsel satisfactory
to Landlord, defend any action or proceeding brought against Landlord or
Landlord's Related Entities by reason of any such claim. If Landlord or any
of Landlord's Related Entities is made a party to any litigation commenced by
or against Tenant, then Tenant shall indemnify, defend and hold Landlord and
Landlord's Related Entities harmless from, and shall pay all costs, expenses
and attorneys' fees and costs incurred or paid in connection with, such
litigation. Tenant, as a material part of the consideration to Landlord
hereunder, assumes all risk of, and waives all claims against Landlord for,
personal injury or property damage in, upon or about the Premises, from any
cause whatsoever. Provided, however, that the indemnifications and waivers of
Tenant set forth in this Section shall not apply to the damage and liability
caused (i) by the gross negligence or willful misconduct of Landlord, and
(ii) through no fault of Tenant, its assignees or subtenants, or their
respective agents, contractors, employees, customers, invitees or licensees.

14.  HAZARDOUS MATERIALS.

     14.1  DEFINITIONS.  "Hazardous Materials Laws" means any and all
federal, state or local laws, ordinances, rules, decrees, orders,
regulations or court decisions relating to hazardous substances, hazardous
materials, hazardous waste, toxic substances, environmental conditions on,
under or about the Premises, or soil and ground water conditions, including,
but not limited to, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, ET SEQ., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, ET SEQ., the
Hazardous Materials Transportation Act, 49 U.S.C.  Section 1801, ET SEQ., the
California Hazardous Waste Control Act, Cal. Health and Safety Code Section
25100, ET SEQ., the Carpenter-Presley-Tanner Hazardous Substances Account
Act, Cal. Health and Safety Code Section 25300, ET SEQ., the Safe Drinking
Water and Toxic Enforcement Act, Cal. Health and Safety Code Section 25249.5,
ET SEQ., the Porter-Cologne Water Quality Control Act, Cal. Water Code
Section 13000, ET SEQ., any amendments to the foregoing, and any similar
federal, state or local laws, ordinances, rules, decrees, orders or
regulations. "Hazardous Materials" means any chemical, compound, material,
substance or other matter that: (a) is defined as a hazardous substance,
hazardous material, hazardous waste or toxic substance under any Hazardous
Materials Law, (b) is controlled or governed by any Hazardous Materials Law
or gives rise to any reporting, notice or publication requirements hereunder,
or gives rise to any liability, responsibility or duty on the part of Tenant
or Landlord with respect to any third person hereunder; or (c) is flammable or
explosive material, oil, asbestos, urea formaldehyde, radioactive material,
nuclear medicine material, drug, vaccine, bacteria, virus, hazardous waste,
toxic substance, or related injurious or potentially injurious material (by
itself or in combination with other materials).

     14.2  USE OF HAZARDOUS MATERIALS. Tenant shall not allow any Hazardous
Material to be used, generated, manufactured, released, stored or disposed of
on, under or about, or transported from, the Premises, unless: (a) such use is
specifically disclosed to and approved by Landlord in writing prior to such
use, and (b) such use is conducted in compliance with the provisions of this
Article. Landlord's consent may be withheld in Landlord's sole discretion and,
if granted, may be revoked at any time. Landlord may approve such use subject
to reasonable conditions to protect the Premises and Landlord's interests.
Landlord may withhold approval if Landlord determines that such proposed use
involves a material risk of a release or discharge of Hazardous Materials or
a violation of any Hazardous Materials Laws or that Tenant has not provided
reasonably sufficient assurances of its ability to remedy such a violation
and fulfill its obligations under this Article. Notwithstanding the
foregoing, Landlord hereby consents to Tenant's use, storage or disposal of
products containing small quantities of Hazardous Materials that are of a
type customarily found in offices and households (such as aerosol cans
containing insecticides, toner for copies, paints, paint remover and the
like) provided that Tenant shall handle, use, store and dispose of such
Hazardous Materials in a safe and lawful manner and shall not allow such
Hazardous Materials to contaminate the Premises.

      14.3  COMPLIANCE WITH LAWS; HANDLING HAZARDOUS MATERIALS. Tenant shall
strictly comply with, and shall maintain the Premises in compliance with, all
Hazardous Materials Laws. Tenant shall obtain, maintain in effect and comply
with the conditions of all permits, licenses and other governmental approvals
required for Tenant's operations on the Premises under any Hazardous
Materials Laws, including, but not limited to, the discharge of appropriately
treated Hazardous Materials into or through any sanitary sewer serving the
Premises. At Landlord's request, Tenant shall deliver copies of, or allow
Landlord to inspect, all such permits, licenses and approvals. All Hazardous
Materials removed from the Premises shall be removed and transported by duly
licensed haulers to duly licensed disposal facilities, in compliance with all
Hazardous Materials Laws. Tenant shall perform any monitoring, testing,
investigation, clean-up, removal, detoxification, preparation of closure or
other required plans and any other remedial work required by any governmental
agency or lender, or recommended by Landlord's environmental consultants, as
a result of any release or discharge or potential release or discharge of
Hazardous Materials affecting the Premises or the Center or any violation or
potential violation of Hazardous Materials Laws by Tenant or any assignee or
subtenant of Tenant or their respective agents, contractors, employees,
licensees or invitees (collectively, "Remedial Work"). Landlord shall have
the right to intervene in any governmental action or proceeding involving any
Remedial Work, and to approve performance of the work, in order to protect
Landlord's interests. Tenant shall not enter into any settlement agreement,
consent decree or other compromise with respect to any claims relating to
Hazardous Materials without notifying Landlord and providing ample
opportunity for Landlord to intervene. Tenant shall additionally comply with
the recommendations of Landlord's and Tenant's insurers based upon National
Fire Protection Association standards or other applicable guidelines
regarding the management and handling of Hazardous Materials. If any present
or future law imposes any requirement of reporting, survey, investigation or
other compliance upon Landlord, Tenant, or the Premises, and if such
requirement is precipitated by a transaction involving the Lease (other than
the natural expiration thereof at the end of the lease term), including
without limitation the assignment or sublease, in whole or in part of
Tenant's interest in the Lease, or the change in the ownership of Tenant,
then Tenant shall fully comply with and pay all costs of compliance with such
requirement, including Landlord's attorneys' fees and costs.

     14.4  NOTICE; REPORTING. Tenant shall notify Landlord, in writing,
within three (3) days after any of the following: (a) Tenant has knowledge,
or has reasonable cause to believe, that any Hazardous Material has been
released, discharged or is located on, under or about the Premises, whether
or not the release or discharge is in quantities that would otherwise be
reportable to a public agency, (b) Tenant receives any order of a
governmental agency requiring any Remedial Work pursuant to any Hazardous
Materials Laws, (c) Tenant receives any warning, notice of inspection, notice
of violation or alleged violation or Tenant receives notice or knowledge of
any proceeding, investigation or enforcement action, pursuant to any
Hazardous Materials Laws; or (d) Tenant receives notice or knowledge of any
claims made or threatened by any third party against Tenant or the Premises
relating to any loss or injury resulting from Hazardous Materials. If the
potential risk of any of the foregoing events is material, Tenant shall
deliver immediate verbal notice to Landlord, in addition to written notice as
set forth above. Tenant shall deliver to Landlord copies of all test results,
reports and business or management plans required to be filed with any
governmental agency pursuant to any Hazardous Materials Laws.

     14.5  INDEMNITY. Tenant shall indemnify, defend and hold Landlord (and
its partners and their respective officers, directors, employees and agents)
harmless from and against any and all liabilities, claims, suits, judgments,
actions, investigations, proceedings, costs and expenses (including
attorneys' fees and costs) arising out of or in connection with any breach of
any provisions of this Article or directly or indirectly arising out of the
use, generation, storage, release, disposal or transportation of Hazardous
Materials by Tenant, or any assignee or subtenant of Tenant, or their
respective agents, contractors, employees, licensees, or invitees, on, under
or about the Premises during the Lease Term or any other period of Tenant's
actual or constructive occupancy of the Premises, including, but not limited
to, all foreseeable and unforeseeable consequential damages and the cost of
any Remedial Work. Any defense of Tenant pursuant to this Section shall be by
counsel acceptable to Landlord. Neither the consent by Landlord to the use,
generation, storage, release, disposal or transportation of Hazardous
Materials nor the strict compliance with all Hazardous Materials Laws shall
excuse Tenant from Tenant's indemnification obligations pursuant to this
Article. The foregoing indemnity shall be in addition to and not a limitation
of the indemnification provisions of Article 13 of this Lease. Tenant's
obligations pursuant to this Article shall survive the termination or
expiration of this Lease.

     14.6  ENTRY AND INSPECTION; CURE. Landlord and its agents, employees and
contractors, shall have the right (but not the obligation) to enter the
Premises at all reasonable times to inspect the Premises and Tenant's
compliance with the terms and conditions of this Article, or to conduct
investigations and tests. No prior notice to Tenant shall be required in the
event of an emergency, or if Landlord has reasonable cause to believe that
violations of this Article have occurred, or if Tenant consents at the time of
entry. In all other cases, Landlord shall give at least twenty-four (24)
hours, prior notice to Tenant. Landlord shall have the right (but not the
obligation) to remedy any violation by Tenant of the provisions of this
Article pursuant to Section 22.3 of this Lease to perform any Remedial Work.
Tenant shall pay, upon demand, all



costs incurred by Landlord in investigating any such violations or potential
violations or performing Remedial Work, plus interest thereon at the rate
specified in this Lease from the date of demand until the date paid by Tenant.

     14.7  TERMINATION/EXPIRATION.  Upon termination or expiration of this
Lease, Tenant shall, at Tenant's cost, remove any equipment, improvements or
storage facilities utilized in connection with any Hazardous Materials and
shall clean up, detoxify, repair and otherwise restore the Premises to a
condition free of Hazardous Materials, to the extent such condition is caused
by Tenant or any assignee or subtenant of Tenant or their respective agents,
contractors, employees, licensees or invitees.

     14.8  EXIT ASSESSMENT.  No later than ten (10) days after the expiration
or earlier termination of this Lease, Tenant shall cause to be performed, at
its sole expense, an environmental assessment (the "Exit Assessment") of the
Premises. Landlord agrees to allow Tenant access to the Premises for such
purpose. The Exit Assessment must be performed by a qualified environmental
consultant acceptable to Landlord, and shall include without limitation the
following, as applicable to the Premises and Tenant's activities: (a)
inspection of all floors, walls, ceiling tiles, benches, cabinet interiors,
sinks, the roof and other surfaces for signs of contamination and/or
deterioration related to Hazardous Materials, (b) inspection of any and all
ducts, hoods and exhaust systems for signs of contamination, deterioration
and/or leakage related or potentially related to Hazardous Materials, (c)
inspection of all readily accessible drain lines and other discharge piping
for signs of deterioration, loss of integrity and leakage, (d) Tenant
interviews and review of appropriate Tenant records to determine the uses to
which Tenant has put the Premises that involve or may have involved Hazardous
Materials, and to determine if any known discharges to the Premises or ground
or soils from Tenant's activities have occurred, (e) documentation in detail
of all observations, including dated photographs, (f) if applicable a
certification that all areas inspected are clean and free of any Hazardous
Materials and that the investigation conducted by the consultant does
indicate that any release of any Hazardous Materials has occurred in the
Premises or the Center as a result of Tenant's activities, (g) if applicable,
a detailed description of Hazardous Materials remaining in the Premises and
of any contamination, deterioration and/or leakage observed, together with
detailed recommendations for the removal, repair or abatement of the same,
and (h) if applicable, a detailed description of evidence of possible or past
releases of Hazardous Materials, together with detailed recommendations for
the prevention of the same in the future. Landlord shall have the right to
require additional evaluations or work in connection with the Exit Assessment
based upon Tenant's use of the Premises, any actual or suspected Hazardous
Materials issues, or other reasonable factors. The original of the Exit
Assessment shall be addressed to Landlord and shall be provided to the
Landlord within twenty (20) days of the expiration or earlier termination of
the Lease. In addition to Tenant's obligations under Section 14.7, Tenant
agrees to fully implement and address all recommended actions contained in
the Exit Assessment, at its sole cost, within thirty (30) days of the date
thereof.

     14.9  EVENT OF DEFAULT.  The release or discharge of any Hazardous
Material or the violation of any Hazardous Materials Law by Tenant or any
assignee or subtenant of Tenant shall be a material Event of Default by
Tenant under this Lease. In addition to or in lieu of the remedies available
under this Lease as a result of such Event of Default, Landlord shall have
the right, without terminating this Lease, to require Tenant to suspend its
operations and activities on the Premises until Landlord is satisfied that
appropriate Remedial Work has been or is being adequately performed;
Landlord's election of this remedy shall not constitute a waiver of
Landlord's right thereafter to declare an Event of Default and pursue any
other available remedy.

15.  ALTERATIONS; LIENS.

     15.1  ALTERATIONS BY TENANT.  Tenant shall not make any alterations,
additions or improvements ("Alterations") to the Premises without Landlord's
prior written consent, except for nonstructural Alterations that cost $5,000
or less and are not visible from the exterior of the Premises. All
Alterations installed by Tenant shall be new or completely reconditioned.
Landlord shall have the right to approve the contractor, the method of
payment of the contractor, and the plans and specifications for all proposed
Alterations. Tenant shall obtain Landlord's consent to all proposed
Alterations requiring Landlord's consent prior to the commencement of any
such Alterations. Tenant's request for consent shall be accompanied by
information identifying the contractor and method of payment and two (2)
copies of the proposed plans and specifications. All Alterations of whatever
kind and nature shall become at once a part of the realty and shall be
surrendered with the Premises upon expiration or earlier termination of the
Lease Term, unless Landlord requires Tenant to remove the same as provided in
Article 20. If Tenant demolishes or removes any then-existing tenant
improvements or other portions of the Premises or the Building (including
without limitation any previously-installed Alterations), Tenant shall
promptly commence and diligently pursue to completion the Alterations then
underway or shall otherwise restore the Premises and the Building to its
condition and state of improvement prior to such demolition or removal.
During the Lease Term, Tenant agrees to provide, at Tenant's expense, a
policy of insurance covering loss or damage to Alterations made by Tenant, in
an amount adequate to repair or replace the same, naming Landlord as an
additional insured. Provided, however, Tenant may install movable furniture,
trade fixtures, machinery or equipment in conformance with applicable
governmental rules or ordinances and remove the same upon expiration or
earlier termination of this Lease as provided in Article 20.

     15.2  PERMITS AND GOVERNMENTAL REQUIREMENTS.  Tenant shall obtain, at
Tenant's sole cost and expense, all building permits and other permits of
every kind and nature required by any governmental agency having jurisdiction
in connection with the Alterations. Tenant shall indemnify, defend and hold
Landlord and Landlord's officers, directors, shareholders, partners,
principals, employees and agents, and their respective successors and
assigns, harmless from and against any and all claims, actions, damages,
liability, costs, and expenses, including attorneys' fees and costs, arising
out of any failure by Tenant or Tenant's contractor or agents to obtain all
required permits, regardless of when such failure is discovered. Tenant shall
do any and all additional construction, alterations, improvements and
retrofittings required to be made to the Premises and/or the Center by any
governmental or quasi-governmental entity, or any other property of Landlord
as a result of, or as may be triggered by, Tenant's Alterations. Landlord
shall have the right to do such construction itself; but in all instances
Tenant shall pay all costs directly or indirectly related to such work and
shall indemnify, defend and hold Landlord and Landlord's officers, directors,
shareholders, partners, principals, employees and agents, and their
respective successors and assigns, harmless from and against any and all
claims, actions, damages, liability, costs, and expenses, including
attorneys' fees and costs, arising out of any such additionally required
work. All payment and indemnification obligations under this Section shall
survive the expiration or earlier termination of the Lease Term.

     15.3  LIENS.  Tenant shall pay when due all claims for any work
performed, materials furnished or obligations incurred by or for Tenant, and
Tenant shall keep the Premises free from any liens arising with respect
thereto. If Tenant fails to cause any such lien to be released within fifteen
(15) days after receiving notice thereof, by payment or posting of a proper
bond, Landlord shall have the right (but not the obligation) to cause such
release by such means as Landlord deems proper. Tenant shall pay Landlord
upon demand for all costs incurred by Landlord in connection therewith
(including attorneys' fees and costs), with interest at the rate specified in
Section 22.4 from the date of payment by Landlord to the date of payment by
Tenant. Tenant will notify Landlord in writing thirty (30) days prior to
commencing any alterations, additions, improvements or repairs in order to
allow Landlord time to file a notice of nonresponsibility.

16.  DAMAGE AND DESTRUCTION.

     16.1  PARTIAL INSURED DAMAGE.  If the Premises or any building in which
the Premises are located are partially damaged or destroyed during the Lease
Term, Landlord shall make the necessary repairs, provided such repairs can
reasonably be completed within sixty (60) days after the date of the damage
or destruction in accordance with applicable laws and regulations and
provided that Landlord receives sufficient insurance proceeds to pay the
cost of such repairs. In such event, this Lease shall continue in full force
and effect. If such repairs cannot reasonably be completed within sixty (60)
days after the date of the damage or destruction or if Landlord does not
receive sufficient insurance proceeds, then Landlord may, at its option,
elect within forty-five (45) days of the date of the damage or destruction to
proceed with the necessary repairs, in which event this Lease shall continue
in full force and effect and Landlord shall complete the same within a
reasonable time. If Landlord does not so elect to make such repairs or if
such repairs cannot be made under applicable laws and regulations, this Lease
may be terminated at the option of either party within ninety (90) days of
the occurrence of such damage or destruction.

     16.2  INSURANCE DEDUCTIBLE.  If Landlord elects to repair any damage
caused by an insured casualty as provided in Section 16.1, Tenant shall,
within fifteen (15) days after receipt of written notice from Landlord, pay
the amount of any deductible (or its share thereof) under any insurance
policy covering such damage or destruction, in accordance with Section 9.4
above.

     16.3  UNINSURED DAMAGE.  In the event of any damage or destruction of
the Premises or any building in which the Premises are located by an
uninsured casualty, Landlord shall have the right to elect either to repair
such damage or to terminate this Lease. Such election shall be exercised by
written notice to Tenant within forty-five (45) days of such damage or
destruction.

     16.4  TOTAL DESTRUCTION.  A total destruction (including any destruction
required by any authorized public authority) of either the Premises or any
building in which the Premises are located shall terminate this Lease.

     16.5  PARTIAL DESTRUCTION OF CENTER.  If fifty percent (50%) or more of
the rentable area of the Center is damaged or destroyed by fire or other
cause, notwithstanding that the Premises may be unaffected, Landlord shall
have the right, to be exercised by notice in writing delivered to Tenant
within ninety (90) days after said occurrence, to elect to terminate this
Lease.


     16.6      TENANT'S OBLIGATIONS. Landlord shall not be required to repair
any injury or damage by fire or other cause, or to make any restoration or
replacement of any Alterations, trade fixtures, equipment or personal
property placed or installed in the Premises by or on behalf of Tenant.
Unless this Lease is terminated pursuant to this Article, Tenant shall
promptly repair, restore or replace the same in the event of damage. Nothing
contained in this Article shall be construed as a limitation on Tenant's
liability for any damage or destruction if such liability otherwise exists.

     16.7      RENT ABATEMENT. If Landlord repairs the Premises or the
building after damage or destruction as described in this Article 16, Minimum
Monthly Rent payable by Tenant hereunder from the date of damage until the
repairs are completed shall be equitably reduced, based upon the extent to
which such repairs interfere with the business carried on by Tenant in the
Premises, but only to the extent Landlord receives proceeds from rental
income insurance paid for by Tenant. Landlord agrees to take reasonable steps
to make a claim for and collect any rental income insurance proceeds that
might be available.

     16.8      WAIVER OF INCONSISTENT STATUTES. The parties' rights and
obligations in the event of damage or destruction shall be governed by the
provisions of this Lease; accordingly, Tenant waives the provisions of
California Civil Code Sections 1932(2) and 1933(4), and any other statute,
code or judicial decisions that grants a Tenant a right to terminate a lease
in the event of damage or destruction of a leased premises.

17.  CONDEMNATION.

     17.1      CONDEMNATION OF PREMISES. If any portion of the Premises is
taken or condemned for a public or quasi-public use ("Condemnation"), and a
portion remains that is susceptible of occupation, then this Lease shall
terminate as to the portion so taken as of the date title vests in the
condemnor, but shall remain in full force and effect as to the remaining
Premises. Landlord shall, within a reasonable period of time, restore the
remaining Premises as nearly as practicable to the condition existing prior
to the condemnation; provided, however, that if Landlord receives insufficient
funds from the condemnor for such purpose, Landlord may elect to terminate
this Lease. If this Lease continues in effect, the Minimum Monthly Rent shall
be equitably adjusted, based upon the value of the Premises remaining after
the Condemnation compared to the value of the Premises prior to Condemnation.
Provided, however, in the event of any such partial condemnation, Landlord
shall have the option to terminate this Lease entirely as of the date title
vests in the condemnor. If all the Premises are condemned, or such portion so
that there does not remain a portion that is susceptible of occupation, or if
such a substantial portion of the Center is condemned that it is no longer
economically appropriate to lease the Premises on the terms and conditions of
this Lease, as reasonably determined by Landlord, then at the election of
Landlord this Lease shall terminate as of the date title vests in the
condemnor.

     17.2      CONDEMNATION OF PARKING AREA. If all or any portion of the
parking area in the Center is condemned such that the ratio of the total
square footage of parking and other Common Facilities compared to the total
rentable building square footage of the Center is reduced to a ratio below
two to one, then at the election of Landlord this Lease shall terminate as of
the date title vests in the condemnor.

     17.3      CONDEMNATION AWARD. All compensation awarded upon any such
partial or total Condemnation shall be paid to Landlord and Tenant shall have
no claim thereto, and Tenant hereby irrevocably assigns and transfers to
Landlord any right to compensation or damages by reason of any such
Condemnation. Provided, however, that Tenant shall have the right to claim
and recover from the condemning authority, but not from Landlord, such
compensation as may be separately awarded or recoverable by Tenant in
Tenant's own right on account of any damage to Tenant's business by reason of
the Condemnation and on account of any cost that Tenant may incur in removing
Tenant's merchandise, furniture, fixtures, leasehold improvements and
equipment. If this Lease is terminated, in whole or in part, in accordance
with this Article as a result of a Condemnation, Tenant shall have no claim
for the value of any unexpired term of this Lease.

18.  ASSIGNMENT AND SUBLETTING.

     18.1      LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or
involuntarily assign, sublease, mortgage, encumber, or otherwise transfer all
or any portion of the Premises or its interest in this Lease (collectively,
"Transfer") without Landlord's prior written consent, which consent Landlord
shall not unreasonably withhold. Landlord may withhold its consent until
Tenant has complied with the provisions of Sections 18.2 and 18.3. Any
attempted Transfer without Landlord's written consent shall be void and shall
constitute a noncurable Event of Default under this Lease. If Tenant is a
corporation, any cumulative Transfer of more than fifty percent (50%) of the
voting stock of such corporation shall constitute a Transfer requiring
Landlord's consent hereunder; provided, however, that this sentence shall not
apply to any corporation whose stock is publicly traded. If Tenant is a
partnership, limited liability company, trust or other entity, any cumulative
Transfer of more than fifty percent (50%) of the partnership, membership,
beneficial or other ownership interests therein shall constitute a transfer
requiring Landlord's consent hereunder. Tenant shall not have the right to
consummate a Transfer or to request Landlord's consent to any Transfer if any
Event of Default has occurred and is continuing or if Tenant or any affiliate
of Tenant is in default under any lease of any other rent property owned or
managed (in whole or in part) by Landlord or any affiliate of Landlord.

     18.2      LANDLORD'S ELECTION. Tenant's request for consent to any
Transfer shall be accompanied by a written statement setting forth the
details of the proposed Transfer, including the name, business and financial
condition of the prospective Transferee, financial details of the proposed
Transfer (e.g., the term and the rent and security deposit payable), and any
other related information that Landlord may reasonably require. Landlord
shall have the right: (a) to withhold consent to the Transfer, if reasonable,
(b) to grant consent, or (d) to consent on the condition that Landlord be
paid, as Additional Rent hereunder, fifty percent (50%) of all subrent or
other consideration to be paid to Tenant under the terms of the Transfer in
excess of the total rent due hereunder (including, if such Transfer is an
assignment or if such Transfer is to occur directly or indirectly in
connection with the sale of any assets of Tenant, fifty percent (50%) of the
amount of the consideration attributable to the Transfer of the Lease, as
reasonably determined by Landlord). The grounds on which Landlord may
reasonably withhold its consent to any requested Transfer include, without
limitation, that: (i) the proposed Transferee's contemplated use of the
Premises following the proposed Transfer is not reasonably similar to the use
of the Premises permitted hereunder, (ii) in Landlord's reasonable business
judgment, the proposed Transferee lacks sufficient business reputation or
experience to operate a successful business of the type and quality permitted
under this Lease, (iii) in Landlord's reasonable business judgment, the
proposed Transferee lacks sufficient net worth, working capital, anticipated
cash flow and other indications of financial strength to meet all of its
obligations under this Lease, (iv) the proposed Transfer would breach any
covenant of Landlord respecting a radius restriction, location, use or
exclusivity in any other lease, financing agreement, or other agreement
relating to the Center, and (v) in Landlord's reasonable business judgment,
the possibility of a release of Hazardous Materials is materially increased
as a result of the Transfer or if Landlord does not receive sufficient
assurances that the proposed Transferee has the experience and financial
ability to remedy a violation of Hazardous Materials and to fulfill its
obligations under Articles 13 and 14. In connection with any such Transfer,
Landlord shall have the right to require Tenant, at Tenant's sole cost, to
cause environmental testing meeting the requirements of an Exit Assessment
described in Section 14.8 to be performed. Landlord need only respond to any
request by Tenant hereunder within a reasonable time of not less than ten
(10) business days after receipt of all information and other submission
required in connection with such request.

     18.3      COSTS; TRANSFER FEE. Tenant shall pay all costs and expenses
in connection with any permitted Transfer, including any real estate
brokerage commissions due with respect to the Transfer. Tenant shall pay
reasonable attorneys' fees and costs incurred by Landlord (which in case of a
simple assignment, shall not exceed $750) and a fee of $500 to reimburse
Landlord for costs and expenses incurred in connection with any request by
Tenant for Landlord's consent to a Transfer. Such fee shall be delivered to
Landlord concurrently with Tenant's request for consent.

     18.4      ASSUMPTION; NO RELEASE OF TENANT. Any permitted transferee
shall assume in writing all obligations of Tenant under this Lease, utilizing
a form of assumption agreement provided or approved by Landlord, and an
executed copy of such assumption agreement shall be delivered to Landlord
within fifteen (15) days after the effective date of the Transfer. The
taking of possession of all or any part of the Premises by any such
permitted assignee or subtenant shall constitute an agreement by such person
or entity to assume without limitation or qualification all of the
obligations of Tenant under this Lease, notwithstanding any failure by such
person to execute the assumption agreement required in the immediately
preceding sentence. No permitted Transfer shall release or change Tenant's
primary liability to pay the rent and to perform all other obligations of
Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article or a consent to Transfer.
Consent to one Transfer shall not constitute a consent to any subsequent
Transfer. If any transferee defaults under this Lease, Landlord may proceed
directly against Tenant without pursuing remedies against the transferee.
Landlord may consent to subsequent Transfers or modifications of this Lease
by Tenant's transferee, without notifying Tenant or obtaining its consent,
and such action shall not relieve Tenant of its liability under this Lease.

     18.5      NO MERGER. No merger shall result from any Transfer pursuant
to this Article, any surrender by Tenant of its interest under this Lease, or
any termination hereof in any other manner. In any such event, Landlord may
either terminate any or all subleases or succeed to the interest of Tenant
thereunder.



    18.6 REASONABLE RESTRICTION. Tenant acknowledges that the restrictions on
Transfer contained herein are reasonable restrictions for purposes of
Section 22.2 of this Lease and California Civil Code Section 1951.4.

19. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATE.

    19.1 SUBORDINATION. This Lease is junior and subordinate to all ground
leases, mortgages, deeds of trust, and other security instruments now or
hereafter affecting the real property of which the Premises are a part, and
to all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. If any
mortgagee, beneficiary under deed of trust or ground lessor shall elect to
have this Lease prior to the lien of its mortgage, deed of trust or ground
lease, and gives written notice thereof to Tenant, this Lease shall be deemed
prior thereto. Tenant agrees to execute any documents required to effectuate
such subordination or to make this Lease prior to the lien of any such
mortgage, deed of trust or ground lease, as the case may be, and if Tenant
fails to do so within fifteen (15) days after written demand, Tenant does
hereby make, constitute and irrevocably appoint Landlord as Tenant's
attorney-in-fact and in Tenant's name, place and stead, to do so.

    19.2 ATTORNMENT. If Landlord sells, transfers, or conveys its interest in
the Premises or this Lease, or if the same is foreclosed judicially or
nonjudicially, or is otherwise acquired, by a mortgagee, beneficiary under
deed of trust or ground lessor, upon the request and at the sole election of
Landlord's lawful successor, Tenant shall attorn to said successor, provided
said successor accepts the Premises subject to this Lease. Tenant shall, upon
request of Landlord or any such mortgagee, beneficiary under deed of trust
or ground lessor, execute an attornment agreement confirming the same, in
form and substance acceptable to Landlord. Such agreement shall provide,
among other things, that said successor shall not be bound by (a) any
prepayment of more than (1) month's rent (except any Security Deposit) or (b)
any material amendment of this Lease made after the later of the initial
effective date of this Lease, or the date that such successor's lien or
interest first arose, unless said successor shall have consented to such
amendment.

    19.3 ESTOPPEL CERTIFICATES. Within fifteen (15) days after written
request from Landlord, Tenant at Tenant's sole cost shall execute,
acknowledge and deliver to Landlord a written statement certifying: (a) that
this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modifications and certifying that this Lease is in
full force and effect as so modified), (b) the amount of any rent paid in
advance, and (c) that, to Tenant's knowledge, there are no uncured defaults
on the part of Landlord, or specifying the nature of such defaults if any are
claimed. Any such statement may be conclusively relied upon by any
prospective purchaser of or lender on the Premises. If Tenant fails to
deliver such statement within said 15-day period, Tenant shall be liable for
the immediate payment of all foreseeable and unforeseeable damages, penalties
and attorneys' fees and costs incurred by Landlord as a result of such
failure. Tenant's failure to deliver such statement within said 15-day period
shall constitute acknowledgement by Tenant: (i) that this Lease is in full
force and effect without modification except as may be represented by
Landlord, (ii) that not more than one (1) month's rent has been paid in
advance, and (iii) that there are no uncured defaults in Landlord's
performance.

20. SURRENDER OF PREMISES.

    20.1 CONDITION OF PREMISES. Upon the expiration or earlier termination of
this Lease, Tenant shall surrender the Premises to Landlord, broom clean and
in the same condition and state of repair as at the commencement of the Lease
Term, except for ordinary wear and tear that Tenant is not otherwise
obligated to remedy under the provisions of this Lease. Tenant shall deliver
all keys to the Premises and the building of which the Premises are a part to
Landlord. Upon Tenant's vacation of the Premises, Tenant shall remove
all portable furniture, trade fixtures, machinery, equipment, signs and
other items of personal property (unless prohibited from doing the same under
Section 20.2), and shall remove any Alterations (whether or not made with
Landlord's consent) that Landlord may require Tenant to remove. Tenant shall
repair all damage to the Premises caused by such removal and shall restore
the Premises to its prior condition, all at Tenant's expense. Such repairs
shall be performed in a manner satisfactory to Landlord and shall include,
but are not limited to, the following: capping all plumbing, capping all
electrical wiring, repairing all holes in walls, restoring damaged floor
and/or ceiling tiles, and thorough cleaning of the Premises. If Tenant fails
to remove any items that Tenant has an obligation to remove under this
Section when required by Landlord within ten (10) business days of Tenant's
receipt of Landlord's request to dispose of said property, such items shall,
at Landlord's option, become the property of Landlord and Landlord shall have
the right to remove and retain or dispose of the same in any manner, without
any obligation to account to Tenant for the proceeds thereof. Tenant waives
all claims against Landlord for any damages to Tenant resulting from Landlord's
retention or disposition of such Alterations of personal property. Tenant
shall be liable to Landlord for Landlord's costs of removing, storing and
disposing of such items.

    20.2 REMOVAL OF CERTAIN ALTERATIONS, FIXTURES AND EQUIPMENT PROHIBITED.
All Alterations, fixtures (whether or not trade fixtures), machinery,
equipment, signs and other items of personal property that Landlord has not
required Tenant to remove under Section 20.1 shall become Landlord's property
and shall be surrendered to Landlord with the Premises, regardless of who
paid for the same. In particular and without limiting the foregoing, Tenant
shall not remove any of the following materials or equipment without
Landlord's prior written consent, regardless of who paid for the same and
regardless of whether the same are permanently attached to the Premises:
power wiring and power panels; piping for industrial gasses or liquids;
laboratory benches, sinks, cabinets and casework; fume hoods or specialized
air-handling and evacuation systems; drains or other equipment for the
handling of waste water or hazardous materials; computer, telephone and
telecommunications wiring, panels and equipment; lighting and lighting
fixtures; wall coverings; drapes, blinds and other window coverings; carpets
and other floor coverings; heaters, air conditioners and other heating or
air conditioning equipment; fencing; security gates and systems; and other
building operating equipment and decorations.

    20.3 HOLDING OVER. Tenant shall vacate the Premises upon the expiration
or earlier termination of this Lease, and Tenant shall indemnify Landlord
against all liabilities, damages and expenses incurred by Landlord as a
result of any delay by Tenant in vacating the Premises. If Tenant remains in
possession of the Premises or any part thereof after the expiration of the
Lease Term with Landlord's written permission, Tenant's occupancy shall be a
tenancy from month-to-month only, and not a renewal or extension hereof. All
provisions of this Lease (other than those relating to the term) shall apply
to such month-to-month tenancy, except that the Minimum Monthly Rent shall be
increased to 200% of the Minimum Monthly Rent in effect during the last month
of the Lease Term. No acceptance of rent, negotiation of rent checks or other
act or omission of Landlord or its agents shall extend the Expiration Date of
this Lease other than a writing executed by Landlord giving Tenant permission
to remain in occupancy beyond the Expiration Date under the terms of the
immediately preceding sentence.

21. DEFAULT BY TENANT.

    The occurrence of any of the following shall constitute an "Event of
Default" under this Lease by Tenant:

         (a) Failure to pay when due the rent or any other monetary sums
required hereunder.

         (b) Failure to perform any other agreement or obligation of Tenant
hereunder, if such failure continues for thirty (30) days after written
notice by Landlord to Tenant, except as to those Events of Default that are
noncurable, in which case no such grace period shall apply; provided,
however, that if the failure is such that it cannot be reasonably cured
within said thirty (30) day period, Tenant shall not be in default if Tenant
commences to cure within said said thirty (30) day periods and diligently
pursues such cure to completion, and in fact cures the default within one
hundred twenty (120) days of Landlord's notice. Landlord's notice described
herein is intended to satisfy, and is not in addition to, any and all legal
notices required prior to commencement of an unlawful detainer action,
including without limitation the notice requirements of California Code of
Civil Procedure Sections 1161 ET SEQ.

         (c) Abandonment or vacation of the Premises by Tenant, or failure to
occupy the Premises for a period of thirty (30) consecutive days.

         (d) If any of the following occurs: (i) a petition is filed for an
order of relief under the federal Bankruptcy Code or for an order or decree
of insolvency or reorganization or rearrangement under any state or federal
law, and such petition is not dismissed within thirty (30) days after the
filing thereof; (ii) Tenant makes a general assignment for the benefit of
creditors; (iii) a receiver or trustee is appointed to take possession of any
substantial part of Tenant's assets, unless such appointment is vacated
within sixty (60) days after the date thereof; (iv) Tenant consents to or
suffers an attachment, execution or other judicial seizure of any substantial
part of its assets or its interest under this Lease, unless such process is
released or satisfied within sixty (60) days after the occurrence thereof; or
(v) Tenant's net worth, determined in accordance with generally accepted
accounting principles consistently applied, decreases, at any time during the
Lease Term, below Tenant's net worth as of the date of execution of this
Lease. If a court of competent jurisdiction determines that any of the
foregoing events is not a default under this Lease, and a trustee is
appointed to take possession (or if Tenant remains a debtor in possession),
and such trustee or Tenant transfers Tenant's interest hereunder, then
Landlord shall receive, as Additional Rent, the difference between the rent
(or other consideration) paid in connection with such transfer and the rent
payable by Tenant hereunder. Any assignee pursuant to the provisions of any
bankruptcy law shall be deemed without further act to have assumed all of the
obligations of the Tenant hereunder arising on or after the date of such
assignment. Any such assignee shall, upon demand, execute and deliver to
Landlord an instrument confirming such assumption.

         (e) The occurrence of any other event that is deemed to be an Event
of Default under any other provision of this Lease.



22.  REMEDIES.

     Upon the occurrence of any Event of Default by Tenant, Landlord shall
have the following remedies, each of which shall be cumulative and in
addition to any other remedies now or hereafter available at law or in equity:

     22.1      TERMINATION OF LEASE. Landlord can terminate this Lease and
Tenant's right to possession of the Premises by giving written notice of
termination, and then re-enter the Premises and take possession thereof. No
act by Landlord other than giving written notice to Tenant of such
termination shall terminate this Lease. Upon termination, Landlord has the
right to recover all damages incurred by Landlord as a result of Tenant's
default, including:

               (a)  The worth at the time of award of any unpaid rent that
had been earned at the time of such termination; plus

               (b)  The worth at the time of award of the amount by which the
unpaid rent that would have been earned after the date of termination until
the time of award exceeds the amount of the loss of rent that Tenant proves
could have been reasonably avoided; plus

               (c)  The worth at the time of award of the amount by which the
unpaid rent for the balance of the Lease Term after the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided; plus

               (d)  Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's default, including, but not
limited to (i) expenses for cleaning, repairing or restoring the Premises,
(ii) expenses for altering, remodeling or otherwise improving the Premises
for the purpose of reletting, (iii) brokers' fees and commissions,
advertising costs and other expenses of reletting the Premises, (iv) costs of
carrying the Premises, such as taxes, insurance premiums, utilities and
security precautions, (v) expenses in retaking possession of the Premises,
(vi) attorneys' fees and costs, (vii) any unearned brokerage commissions paid
in connection with this Lease, and (viii) payment of any previously waived or
abated Minimum Monthly Rent and/or Additional Rent; plus

               (e)  At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time under
applicable law. As used in paragraphs (a) and (b) above, the "worth at the
time of award" shall be computed by allowing interest at the maximum
permissible legal rate. As used in paragraph (c) above, the "worth at the
time of award" shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus
one percent (1%).

     22.2      CONTINUATION OF LEASE. Landlord has the remedy described in
California Civil Code Section 1951.4 (Landlord may continue the Lease in
effect after Tenant's breach and abandonment and recover rent as it becomes
due, if Tenant has the right to sublet or assign, subject only to reasonable
limitations), as follows:

               (a)  Landlord can continue this Lease in full force and effect
without terminating Tenant's right of possession, and Landlord shall have the
right to collect rent and other monetary charges when due and to enforce all
other obligations of Tenant hereunder. Landlord shall have the right to enter
the Premises to do acts of maintenance and preservation of the Premises, to
make alterations and repairs in order to relet the Premises, and/or to
undertake other efforts to relet the Premises. Landlord may also remove
personal property from the Premises and store the same in a public warehouse
at Tenant's expense and risk. No act by Landlord permitted under this
paragraph shall terminate this Lease unless a written notice of termination
is given by Landlord to Tenant or unless the termination is decreed by a
court of competent jurisdiction.

               (b)  In furtherance of the remedy set forth in this Section,
Landlord may relet the Premises or any part thereof for Tenant's account, for
such term (which may extend beyond the Lease Term), at such rent, and on such
other terms and conditions as Landlord may deem advisable in its sole
discretion. Tenant shall be liable immediately to Landlord for all costs
Landlord incurs in reletting the Premises. Any rents received by Landlord
from such reletting shall be applied to the payment of: (i) any indebtedness
other than rent due hereunder from Tenant to Landlord, (ii) the costs of such
reletting, including brokerage and attorneys' fees and costs, and the cost of
any alterations and repairs to the Premises, and (iii) the payment of rent
due and unpaid hereunder, including any previously waived or abated rent. Any
remainder shall be held by Landlord and applied in payment of future amounts
as the same become due and payable hereunder. In no event shall Tenant be
entitled to any excess rent received by Landlord after an Event of Default by
Tenant and the exercise of Landlord's remedies hereunder. If the rent from
such reletting during any month is less than the rent payable hereunder,
Tenant shall pay such deficiency to Landlord upon demand.

               (c)  Landlord shall not, by any re-entry or other act, be
deemed to have accepted any surrender by Tenant of the Premises or Tenant's
interest therein, or be deemed to have terminated this Lease or Tenant's
right to possession of the Premises or the liability of Tenant to pay rent
accruing thereafter or Tenant's liability for damages under any of the
provisions hereof, unless Landlord shall have given Tenant notice in writing
that it has so elected to terminate this Lease.

               (d)  Tenant acknowledges and agrees that the restrictions on
the Transfer of the Lease set forth in Article 18 of this Lease constitute
reasonable restrictions on such transfer for purposes of this Section and
California Civil Code Section 1951.4.

     22.3      PERFORMANCE BY LANDLORD. If Tenant fails to pay any sum of
money or perform any other act to be performed by Tenant hereunder, and such
failure continues for fifteen (15) days after notice by Landlord, Landlord
shall have the right (but not the obligation) to make such payment or perform
such other act without waiving or releasing Tenant from its obligations. All
sums so paid by Landlord and all necessary incidental costs, together with
interest thereon at the rate specified in Section 22.4, shall be payable to
Landlord on demand. Landlord shall have the same rights and remedies in the
event of nonpayment by Tenant as in the case of default by Tenant in the
payment of the rent.

     22.4      LATE CHARGE; INTEREST ON OVERDUE PAYMENTS. The parties
acknowledge that late payment by Tenant of Minimum Monthly Rent or any
Additional Rent will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult and impractical
to determine, including, but not limited to, processing and accounting
charges, administrative expenses, and additional interest expenses or late
charges that Landlord may be required to pay as a result of late payment on
Landlord's obligations. Therefore, if any installment of Minimum Monthly Rent
or Additional Rent is not received by Landlord on the due date, and without
regard to whether Landlord gives Tenant notice of such failure or exercises
any of its remedies upon an Event of Default, Tenant shall pay a late charge
equal to the greater of ten percent (10%) of the overdue amount or One
Hundred Dollars ($100), as Additional Rent hereunder. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
damages Landlord will incur by reason of late payment by Tenant. In addition,
any amount due from Tenant that is not paid when due shall bear interest at a
rate equal to two percent (2%) over the then current Bank of America prime
or reference rate or ten percent (10%) per annum, whichever is greater, but
not in excess of the maximum permissible legal rate, from the date such
payment is due until the date paid by Tenant. Landlord's acceptance of any
interest or late charge shall not constitute a waiver of Tenant's default or
prevent Landlord from exercising any other rights or remedies available to
Landlord.

     22.5      LANDLORD'S RIGHT TO REQUIRE ADVANCE PAYMENT OF RENT; CASHIER'S
CHECKS. If Tenant is late in paying any component of rent more than three (3)
times during the Lease Term, Landlord shall have the right, upon notice to
Tenant, to require that all rent be paid three (3) months in advance.
Additionally, if any of Tenant's checks are returned for nonsufficient funds,
or if Landlord at any time serves upon Tenant a Three Day Notice to Pay Rent
or Quit (pursuant to California Civil Code Sections 1161 ET SEQ. or any
successor or similar unlawful detainer statutes), Landlord may, at its
option, require that all future rent (including any sums demanded in any
subsequent three (3) day notice) be paid exclusively by money order or
cashier's check.

23.  DEFAULT BY LANDLORD.

     23.1      NOTICE TO LANDLORD. Landlord shall not be in default under
this Lease unless Landlord fails to perform an obligation required of
Landlord within a reasonable time, but in no event later than thirty (30)
days after written notice by Tenant to Landlord and to each Mortgagee as
provided in Section 23.2, specifying the nature of the alleged default;
provided, however, that if the nature of the obligation is such that more
than thirty (30) business days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such 30-day
period and thereafter diligently prosecutes the same to completion.

     23.2      NOTICE TO MORTGAGEES. Tenant agrees to give each mortgagee or
trust deed holder on the Premises or the Center ("Mortgagee"), by registered
mail, a copy of any notice of default served upon Landlord, provided that
Tenant has been previously notified in writing of the address of such
Mortgagee. Tenant further agrees that if Landlord fails to cure such default
within the time provided for in this Lease, then the Mortgagees shall have an
additional thirty (30) days within which to cure such default, or if such
default cannot reasonably be cured within that time, then such additional time
as may be necessary if, within said 30-day period, any Mortgagee has commenced
and is diligently pursuing the remedies necessary to cure the default (including
but not limited to commencement of foreclosure proceedings if necessary to
affect such cure), in which event this Lease shall not be terminated while such
remedies are being so diligently pursued.

     23.3      LIMITATIONS ON REMEDIES AGAINST LANDLORD. In the event Tenant
has any claim or cause of action against Landlord: (a) Tenant's sole and
exclusive remedy shall be against Landlord's interest in the building of
which the Premises are a part, and neither Landlord nor any partner of
Landlord nor any other property of Landlord shall be liable for any
deficiency, (b) no partner of Landlord shall be sued or named as a party in
any suit or action (except as may be necessary to secure jurisdiction over
Landlord), (c) no service of process shall be made against



any partner of Landlord (except as may be necessary to secure jurisdiction
over the partnership), and no such partner shall be required to answer or
otherwise plead to any service of process, (d) no judgment shall be taken
against any partner of Landlord and any judgment taken against any partner of
Landlord may be vacated and set aside at any time, and (e) no writ of
execution will ever be levied against the assets of any partner of Landlord.
The covenants and agreements set forth in this Section shall be enforceable
by Landlord and/or by any partner of Landlord. If Landlord fails to give any
consent that a court later holds Landlord was required to give under the
terms of this Lease, Tenant shall be entitled solely to specific perforamnce
and such other remedies as may be specifically reserved to Tenant under this
Lease, but in no event shall Landlord be responsible for monetary damages
(including incidental and consequential damages) for such failure to give
consent.

24.   GENERAL PROVISIONS.

      24.1   ACTION OR DEFENSE BY TENANT. Any claim, demand, right or defense
of any kind by Tenant that is based upon or arises in any connection with the
Lease or negotiations prior to its execution shall be barred unless Tenant
commences an action thereon or initiates a legal proceeding or defense by
reason thereof within six (6) months after the date of the occurrence of the
event, act or omission to which the claim, demand, right or defense relates.
Tenant acknowledges and understands that, after having had an opportunity to
consult with legal counsel, the purpose of this paragraph is to shorten the
time period within which Tenant would otherwise have to raise such claims,
demands or rights of defense.

      24.2   ARBITRATION AND MEDIATION; WAIVER OF JURY TRIAL. Except as
provided in this Section, if any dispute ensues between Landlord and Tenant
arising out of or concerning this Lease, and if said dispute cannot be
settled through direct discussions between the parties, the parties shall
first to attempt to settle the dispute through mediation before a mutually
acceptable mediator. The cost of mediation shall be divided equally between
the parties. Thereafter, any remaining, unresolved disputes or claims shall
be resolved by binding arbitration in accordance with the rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The
prevailing party in any such arbitration shall be entitled to recover
reasonable costs and attorneys' fees and costs as determined by the
arbitrator, provided, however, that the foregoing provisions regarding
mediation and arbitration shall not apply to (a) any issue or claim that
might properly be adjudicated in an unlawful detainer proceeding, or (b) to
any issue or claim that Landlord elects not to have resolved through
arbitration and with respect to which Landlord commences an action in law or
equity to determine the same. Without limiting the foregoing, Landlord and
Tenant hereby waive trial by jury in any action, proceeding or counterclaim
(including any claim of injury or damage and any emergency and other
statutory remedy in respect thereof) brought by either against the other on
any matter arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, or Tenant's use or occupancy of the
Premises.

      24.3   ATTORNEYS' FEES. If either party brings any legal action or
proceeding, declaratory or otherwise, arising out of this Lease, including
any suit by Landlord to recover rent or possession of the Premises or to
otherwise enforce this Lease, the losing party shall pay the prevailing
party's costs and attorneys' fees and costs incurred in such proceeding. If
Landlord issues notice(s) to pay rent, notice(s) to perform covenant,
notice(s) of abandonment, or comparable documents as a result of Tenant's
default under this Lease, and if Tenant cures such default, Tenant shall pay
to Landlord the reasonable costs incurred by Landlord, including Landlord's
attorneys' fees and costs, of preparation and delivery of same.

      24.4   AUTHORITY OF TENANT. Tenant represents and warrants that it has
full power and authority to execute and fully perform its obligations under
this Lease pursuant to its governing instruments, without the need for any
further action, and that the person(s) executing this Agreement on behalf of
Tenant are the duly designated agents of Tenant and are authorized to do so.
Prior to execution of this Lease, Tenant shall supply Landlord with such
evidence as Landlord may request regarding the authority of Tenant to enter
into this Lease. Any actual or constructive taking of possession of the
Premises by Tenant shall constitute a ratification of this Lease by Tenant.

      24.5   BINDING EFFECT. Subject to the provisions of Article 18
restricting transfers by Tenant and subject to Section 24.27 regarding
transfer of Landlord's interest, all of the provisions of this Lease shall
bind and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors and assigns.

      24.6   BROKERS. Tenant warrants that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this
transaction other than the broker(s) described in the Basic Lease Provisions
(if any), and it knows of no other real estate broker or agent who are
entitled to a commission in connection with this transaction. Tenant agrees
to indemnify, defend and hold Landlord harmless from and against any
obligation or liability to pay any commission or compensation to any other
party arising from the act or agreement of Tenant.

      24.7   CONSTRUCTION. The headings and captions used in this Lease are
for convenience only and are not a part of the terms and provisions of this
Lease. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include  Tenant, its subtenants and assigns and their
respective agents, employees, contractors, and invitees, and any others using
the Premises with Tenant's express or implied permission. Any use in this
Lease, or in any addendum, amendment or other document related hereto, of the
terms "lessor" or "lessee" to refer to a party to this Lease shall be deemed
to be references to Landlord and Tenant, respectively.

      24.8   COUNTERPARTS. This Lease may be executed in multiple copies,
each of which shall be deemed an original, but all of which shall constitute
one Lease binding on all parties after all parties have signed such a
counterpart.

      24.9   COVENANTS AND CONDITIONS. Each provision to be performed by
Tenant shall be deemed to be both a covenant and a condition.

      24.10  ENTIRE AGREEMENT. This Lease, together with all exhibits and
addenda, if any, attached hereto, constitutes the entire agreement between
parties with respect to the subject matter hereof. There are no oral or
written agreements or representations between the parties hereto affecting
this Lease, and this Lease supersedes, cancels, and merges any and all
previous verbal or written negotiations, arrangements, representations,
brochures, displays, models, photographs, renderings, floor plans,
elevations, projections, estimates, agreements and understandings if any,
made by or between Landlord and Tenant and their agents, with respect to the
subject matter, and none thereof shall be used to interpret, construe,
supplement or contradict this Lease. This Lease, and all amendments thereto,
is and shall be considered to be the only agreement between the parties
hereto and their representatives and agents. There are no other
representations or warranties between the parties, and all reliance with
respect to representations is solely based upon the representations and
agreements contained in this Lease.

      24.11  EXHIBITS. All exhibits, addenda and riders attached or referred
to herein are hereby incorporated herein by reference.

      24.12  FINANCIAL STATEMENTS. Within ten (10) days after written request
from Landlord, Tenant shall deliver to Landlord such financial statements as
are reasonably requested by Landlord to verify the net worth of Tenant, or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any proposed or actual lender or purchaser of the Premises
designated by Landlord any financial statements required by such party to
facilitate the sale, financing or refinancing of the Premises, including the
past three (3) years' financial statements. Tenant represents and warrants to
Landlord that: (a) each such financial statement is a true and accurate
statement as of the date of such statement; and (b) at all times during the
Lease Term or any extension thereof, Tenant's net worth shall not be reduced
below Tenant's net worth as of the date of execution of this Lease. Landlord
shall take reasonable precautions to protect the confidentiality of such
financial statements. Tenant hereby irrevocably authorizes Landlord to
conduct credit checks and other investigations into Tenant's financial
affairs.

      24.13  FORCE MAJEURE. If Landlord or Tenant is delayed in performing
any of its obligations hereunder due to strikes; labor problems; inability to
procure utilities; materials; equipment or transportation; governmental
regulations; weather conditions; riots, insurrection, or war; or other events
beyond Landlord's or Tenant's control; then the time for performance of such
obligation shall be extended to the extent reasonably necessary as a result
of such event.

      24.14  GOVERNING LAW. This Lease shall be governed, construed and
enforced in accordance with the laws of the State of California.

      24.15  JOINT AND SEVERAL LIABILITY. If more than one person or entity
executes this Lease as Tenant, each of them is jointly and severally liable
for all of the obligations of Tenant hereunder.

      24.16  MODIFICATION. The provisions of this Lease may not be modified
or amended, except by a written instrument signed by all parties.

      24.17  MODIFICATION FOR LENDER. If, in connection with obtaining
financing or refinancing for the Premises or the Center, Landlord's lender
requests reasonable modifications to this Lease, Tenant will not unreasonably
withhold or delay its consent thereto, provided that such modifications do
not increase the obligations of Tenant hereunder or materially and adversely
affect Tenant's rights hereunder.

      24.18  NONDISCRIMINATION. Tenant for itself and its officers,
directors, shareholders, partners, principals, employees, agents,
representatives, and other related entities and individuals, agrees to comply
fully with any and all laws and other requirements prohibiting discrimination
against any person or group of persons on account of race, color, religion,
creed, sex, marital status, sexual orientation, national origin, ancestry,
age, physical handicap or medical condition. In the use occupancy or
patronage of the Premises and/or of Tenant's business, Tenant shall indemnify,
defend and hold Landlord and Landlord's officers, directors, shareholders,
partners, principals, employees and agents, and their respective successors
and assigns, harmless from and against all damage and liability incurred by
Landlord in the event of any




violation of the foregoing covenant or because of any event of or practice of
discrimination against any such persons or group of persons by Tenant or its
officers, directors, shareholders, partners, principals, employees, agents,
representatives, and other related entities and individuals in accordance
with the indemnification provisions of Article 13.

     24.19  NOTICE.  Any and all notices to either party shall be personally
delivered or sent by regular mail, postage prepaid, addressed to the party to
be notified at the address specified in Section 1.1, or at such other address
as such party may from time to time designate in writing. Notice shall be
deemed delivered on the date of personal delivery or three (3) business days
after deposit in the U.S. Mail, certified, return receipt requested.

     24.20  PARTIAL INVALIDITY.  If any provision of this Lease is determined
by a court of competent jurisdiction to be invalid or unenforceable, the
remainder of this Lease shall not be affected thereby. Each provision shall
be valid and enforceable to the fullest extent permitted by law.

     24.21  QUIET ENJOYMENT.  Landlord agrees that Tenant, upon paying the
rent and performing the terms, covenants and conditions of this Lease, may
quietly have, hold and enjoy the Premises from and after Landlord's delivery
of the Premises to Tenant and until the end of the Lease Term; subject,
however, to the lien and provisions of any mortgage or deed of trust in which
this Lease is or becomes subordinate.

     24.22  RECORDING.  Tenant shall not record this Lease or any memorandum
hereof without Landlord's prior written consent.

     24.23  RELATIONSHIP TO THE PARTIES.  Nothing contained in this Lease
shall be deemed or construed as creating a partnership, joint venture,
principal-agent, or employer-employee relationship between Landlord and any
other person or entity (including, without limitation, Tenant) or as causing
Landlord to be responsible in any way for the debts or obligations of such
other person or entity.

     24.24  RELOCATION OF TENANT.  In the event Landlord requires the
Premises for use in conjunction with other premises or for other reasons
related to the planning program for the Center, Landlord, upon delivering
written notice to Tenant (the "Relocation Notice"), shall have the right to
relocate Tenant to other space in the Center, at Landlord's sole cost and
expense (except that Tenant shall bear the cost of moving and installing
private telephone systems), and the terms and conditions of the original
Lease shall remain in full force and effect, except that the Premises will be
in a new location. However, if the new space does not meet with Tenant's
reasonable approval, Tenant shall have the right to terminate this Lease upon
delivering notice to Landlord within fifteen (15) days after Tenant's receipt
of the Relocation Notice. If Tenant elects to terminate the Lease pursuant to
this Section, the termination shall be effective on the effective date of the
proposed relocation of Tenant as indicated in the Relocation Notice.

     24.25  RIGHTS OF REDEMPTION WAIVED.  Tenant hereby expressly waives any
and all rights of redemption under any present or future laws in the event
Tenant is evicted or dispossessed for any cause, or in the event Landlord
obtains possession of the Premises by reason of Tenant's violation of any of
the covenants and conditions of this Lease or otherwise.

     24.26  TIME OF ESSENCE.  Time is of the essence of each and every
provision of this Lease.

     24.27  TRANSFER OF LANDLORD'S INTEREST.  In the event of a sale,
assignment, exchange or other disposition of Landlord's interest in the
Premises, other than a transfer for security purposes only, Landlord shall be
relieved of all obligations and liabilities accruing hereunder after the
effective date of said sale, assignment, exchange or other disposition,
provided that any Security Deposit or other funds then held by Landlord in
which Tenant has an interest are delivered to Landlord's successor. The
obligations to be performed by Landlord hereunder shall be binding on
Landlord's successors and assigns only during their respective periods of
ownership.

     24.28  WAIVER.  No provision of this Lease or the breach thereof shall
be deemed waived, except by written consent of the party against whom the
waiver is claimed. A waiver of any such breach shall not be deemed a waiver
of any preceding or succeeding breach of the same or any other provision. No
delay or omission by Landlord in exercising any of its remedies shall impair
or be construed as a waiver thereof, unless such waiver is expressly set
forth in a written instrument signed by Landlord. The subsequent acceptance
of rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such rent.

          THE SUBMISSION OF THIS LEASE FOR EXAMINATION AND/OR
          SIGNATURE BY TENANT IS NOT A COMMITMENT BY LANDLORD OR ITS
          AGENTS TO RESERVE THE PREMISES OR TO LEASE THE PREMISES TO
          TENANT. THIS LEASE SHALL BECOME EFFECTIVE AND LEGALLY BINDING
          ONLY UPON FULL EXECUTION AND DELIVERY BY BOTH LANDLORD AND
          TENANT. UNTIL LANDLORD DELIVERS A FULLY EXECUTED COUNTERPART
          HEREOF TO TENANT, LANDLORD HAS THE RIGHT TO OFFER AND TO LEASE
          THE PREMISES TO ANY OTHER PERSON TO THE EXCLUSION OF TENANT.

EXECUTED, by Landlord and Tenant as of the date first written above.

 TENANT:                           LANDLORD:

 MITOKOR, a California             SORRENTO PLAZA, a California
 corporation                       limited partnership

 By: /s/ Craig Johnson             By: COLLINS DEVELOPMENT COMPANY,
    --------------------------         a California corporation, General Partner
 Print Name: Craig Johnson
             -----------------         By: /s/ Robert Peter
 Title:      CFO                          ---------------------------
        ----------------------         Print Name:
                                                  -------------------
 By:                                   Title:
    --------------------------               ------------------------
 Print Name:
            ------------------
 Title:
       -----------------------         By: /s/
                                          ---------------------------
                                       Print Name:
                                                  -------------------
                                       Title:
                                             ------------------------
                                        12


                   ADDENDUM TO STANDARD INDUSTRIAL NET LEASE
                          (Mitokor - Sorrento Plaza)

     This ADDENDUM TO STANDARD INDUSTRIAL NET LEASE ("Addendum") is attached
to and made a part of that certain Standard Industrial Net Lease by and
between SORRENTO PLAZA, a California limited partnership ("Landlord"),
and MITOKOR, a California corporation ("Tenant"), dated February 28, 2001
(the "Lease"), for premises located at 11404 Sorrento Valley Road, San Diego,
California 92121 (the "Premises"). Landlord and Tenant hereby agree that
notwithstanding anything contained in the Lease to the contrary, the
provisions set forth below shall be deemed to be a part of the Lease and
shall supersede, to the extent appropriate, any contrary provision of the
Lease. All references to the Lease in this Addendum shall be construed to
mean the Lease and exhibits thereto, as amended and supplemented by this
Addendum. All defined terms used in this Addendum, unless specifically
defined in this Addendum, shall have the same meaning as such terms have in
the Lease.

     25.  RIGHT OF FIRST OFFER ON ADJACENT SPACE. Provided that, at the time
Tenant is entitled to any benefit under this Section, there exists no Event
of Default on the part of Tenant under this Lease nor any condition that with
the giving of notice or the passage of time or both would constitute an Event
of Default on the part of Tenant under this Lease, Landlord agrees that it
will offer to lease any unleased space in the building of which the Premises
are a part that is adjacent to the Premises (the "Additional Space") to
Tenant prior to offering the Additional Space to any other person. Tenant
shall have ten (10) days after receipt of such offer to accept or reject the
same. Tenant's failure to accept the same in writing unconditionally and
without change within such 10-day period shall constitute a rejection of such
offer. The rental rate and term of occupancy applicable to the Additional
Space shall be as determined by Landlord in its sole discretion. If
Landlord's offer is rejected or deemed rejected, then Landlord shall be free
to let the Additional Space to any person, on terms and conditions determined
by Landlord (which may be more or less advantageous than those offered to
Tenant). No brokerage commissions or fees shall be payable by Landlord in
connection with any such expansion. This Section shall not apply (i) to any
use or leasing of the Additional Space by Landlord or any affiliate of
Landlord, (ii) to the renewal or modification of the lease of any existing
tenant, or (iii) the exercise of any option to extend the term of any lease
or the exercise of or any other right by any existing tenant.

     26.  [Intentionally Omitted]

     27.  [Intentionally Omitted]

     28.  [Intentionally Omitted]

     29.  OPERATING COSTS. Notwithstanding anything set forth in Section 6.3
to the contrary, Operating Costs shall not include:

          (a)  Costs, including marketing costs, legal fees, space planners'
fees, and brokerage fees incurred in connection with the original
construction or development of the Center or the original or future leasing
of the Center, and costs, including permit, license and inspection costs and
allowances and other concessions, incurred with respect to the installation
of tenant improvements made for new tenants in the Center or incurred in
renovating or otherwise improving, decorating, painting or redecorating
vacant leasable space for tenants or other occupants (or prospective tenants
or occupants) of the Center;

          (b)  Depreciation, interest and principal payments on mortgages and
other debt costs, if any, penalties and interest, costs of capital
improvements and equipment designed to increase the leasable area of the
Center;

          (c)  Costs for which Landlord is reimbursed by any tenant or
occupant of the Center or by insurance by its carrier or any tenant's carrier
(or if Landlord fails to carry the insurance required to be carried by
Landlord pursuant to this Lease, costs which would have been covered by
insurance had Landlord obtained the coverage required to be carried under
this Lease)


                                       i



or by anyone else, and electric power costs for which any tenant directly
contracts with the local public service company;

          (d)  Any bad debt loss, rent loss, or reserves for bad debts or
rent loss;

          (e)  Any amount paid as ground rental for the Center by Landlord;

          (f)  All items and services for which Tenant or any other tenant in
the Center reimburses Landlord or which Landlord provides selectively to one
or more tenants (other than Tenant) without reimbursement;

          (g)  Costs, other than those incurred in ordinary maintenance and
repair, for sculpture, paintings, fountains or other objects of art;

          (h)  Any costs expressly excluded from Operating Costs elsewhere in
this Lease;

          (i)  Costs arising from Landlord's charitable or political
contributions;

          (j)  Expenses directly resulting from the gross negligence or
wilful misconduct of Landlord, its agents, servants or employees;

          (k)  Rental for any space in the Center set aside for conference
facilities, storage facilities or exercise facilities;

          (l)  The amounts of any payments by Landlord or to its affiliates
for goods or services in the Center in excess of a competitive rate; and

          (m)  Costs incurred in connection with the sale, financing or
refinancing of the Center, including brokerage commissions, consultants',
attorneys' and accountants' fees, closing costs, title insurance premiums,
transfer taxes and interest charges; and

          (n)  Costs incurred to comply with laws relating to the removal or
abatement of Hazardous Materials in or about the Premises to the extent the
existence of such Hazardous Materials is not the result of Tenant's occupancy
or use of the Premises.

     30.  REVIEW OF LANDLORD'S BOOKS REGARDING CAM: The following provisions
are hereby added as new Section 4.5 of the Lease:

          4.5  TENANT'S RIGHT TO REVIEW LANDLORD'S BOOKS REGARDING
     ELEMENTS OF ADDITIONAL RENT. Tenant at its cost shall have
     the right to review Landlord's books and records related to
     the calculation of Operating Costs, Real Property Taxes and
     insurance costs for a period of two (2) years after the close
     of the period for which Tenant may request any such review.
     Such review shall be at Tenant's sole cost and shall be
     conducted at Landlord's offices or such other convenient
     location as Landlord shall select. Tenant shall give Landlord
     at lease ten (10) business days advance notice of its desire to
     conduct such review. All information developed by Tenant in the
     course of such review shall be kept strictly confidential by
     Tenant, and shall be shared with Landlord. If such review
     reveals an overpayment by Tenant, Landlord shall credit such
     overpayment against Tenant's next occurring rent obligations
     or shall repay such amount if the review is completed after
     expiration of this Lease. If such review reveals an underpayment,
     Tenant shall pay such deficiency to Landlord within thirty (30)
     days of the determination thereof. Notwithstanding the foregoing,
     Landlord shall not be required to honor the results of any review
     performed by any person or firm whose fees are based in whole or
     in part upon a percentage of recovery, or any contingency fee
     calculation.

     31.  LANDLORD'S WORK. In making any repairs or doing any work under
Section 7.2 of the Lease, Landlord shall ensure that all such repairs,
alterations and improvements are


                                       ii



performed in a good and workmanlike manner by licensed contractors, and
Landlord shall use commercially reasonable efforts not to unreasonably
interfere with Tenant's business operations in the course of making or
causing to be made any such repairs, alterations or improvements.

     32.  UTILITY INTERRUPTIONS. Notwithstanding the provisions of Section 10,
Landlord agrees to use commercially reasonable efforts to cause the
correction of any interruptions in utility service, including without
limitation facilitating Tenant's communications with any utility provider.

     33.  EMPLOYEE PARKING. With respect to any exercise of Landlord's rights
under Section 11.6 (Parking), Landlord agrees that (a) any designated parking
for Tenant shall be reasonably proximate to the Premises, and (b) any
modifications, designations or rules and regulations adopted by Landlord
shall not adversely affect Tenant's parking rights hereunder, including
without limitation materially decreasing the number of parking spaces to
which Tenant is entitled or the number of parking spaces that are available
for use by occupants and guests of the Center.

     34.  HAZARDOUS MATERIALS INDEMNITY. The following sentence is hereby
added to and made a part of Section 14.5: "Provided, however, that the
indemnifications and waivers of Tenant set forth in this Section 14.5 shall
not apply to damage and liability caused (i) by the gross negligence or
wilful misconduct of Landlord, and (ii) through no fault of Tenant's, its
assignees or subtenants, or their respective agents, contractors, employees,
customers, invitees or licensees."

     35.  LANDLORD'S APPROVALS IN CONNECTION WITH ALTERATIONS. In connection
with Landlord's rights of approval under Section 15.1, Landlord agrees as
follows:

          (a)  Landlord shall approve of the contractor, method of payment of
the contractor, and any plans and specifications submitted by Tenant within
seven (7) business days after receipt thereof. If Landlord disapproves of any
such item, it shall provide a written explanation of its disapproval to
Tenant. Tenant may resubmit any disapproved item to Landlord, who shall
approve or disapprove of such item within seven (7) business days after
receipt of such resubmittal.

          (b)  Landlord shall not unreasonably withhold or delay its consent
to Tenant's request for consent to perform Alterations, provided that, in
Landlord's judgment, the value of the Premises for financing, sale or future
releasing will not be impaired.

     36.  ALTERATIONS REQUIRED BY AMERICANS WITH DISABILITIES ACT AND OTHER
FUTURE LAWS. Landlord shall be responsible for complying with the orders,
rules or regulations of any governmental entity requiring any renovations or
alterations to the building of which the Premises are a part that are
required of building owners generally and not arising out of, resulting from,
or as may be may be triggered by, Tenant's activities or business, any
Alterations undertaken by Tenant (including the initial tenant improvement),
or Tenant's use or occupancy of the Premises. The costs of such renovations
or alterations shall be borne by Landlord and shall not be a part of
Operating Costs under Section 6.2. Any other work or costs related to
assuring compliance of the Premises with the orders, rules or regulations of
any governmental entity (including without limitation the Americans with
Disabilities Act) otherwise not the responsibility of Landlord under the
first sentence of this Section shall be born by Tenant either directly or as
a part of Operating Costs under Section 6.2. In addition, Tenant shall do
and/or bear the costs of, any and all construction, alterations, improvements
and retrofittings required to be made to the Premises and/or the building or
the Center, arising out of, resulting from, or as may be may be triggered by,
Tenant's activities or business, any Alterations undertaken by Tenant
(including the initial tenant improvements), or Tenant's use or occupancy of
the Premises.

     37.  CROSS DEFAULT WITH OTHER LEASE. Tenant is also the tenant of
certain space located in the building at 11494 Sorrento Valley Road, San
Diego California (which building is owned by an affiliate of Landlord)
pursuant to a Standard Industrial Net Lease (the "Other Lease") of even date
herewith between Tenant and such other owner. Tenant agrees that, at the
election of Landlord, any Event of Default under the Other Lease shall also
constitute an Event of Default under this Lease.


                                       iii



     38.  NO OTHER CHANGE. Except as specifically set forth in this
Addendum, all of the terms and conditions of the Lease shall remain unchanged
and in full force and effect.

                            SORRENTO PLAZA, a California limited partnership

                            By: COLLINS DEVELOPMENT COMPANY,
                                a California corporation, General Partner

                                By: /s/ Robert Peter
                                    -------------------------------------
                                Print Name:
                                            -----------------------------
                                Title:
                                       ----------------------------------


                                By: /s/
                                    -------------------------------------
                                Print Name:
                                            -----------------------------
                                Title:
                                       ----------------------------------


                                MITOKOR, a California corporation

                                By: /s/ Craig Johnson
                                    -------------------------------------
                                Print Name: Craig Johnson
                                            -----------------------------
                                Title:      CFO
                                       ----------------------------------


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


                                       iv

EX-10.15

                                                                  EXHIBIT 10.15

                              MONASH UNIVERSITY
                        of Wellington Road, Clayton
                                                                      Landlord


                        CHIRON TECHNOLOGIES PTY. LTD.
                              (IN LIQUIDATION)
                               ACN 006996792
                       of 11 Duerdin Street, Clayton
                                                                    Old Tenant


                            MIMOTOPES PTY. LTD.
                              ACN 090 841 286
                       of 11 Duerdin Street, Clayton
                                                                    New Tenant


                           -----------------------
                              TRANSFER OF LEASE
                           -----------------------


                              PATRICK SMITH
                              Barrister & Solicitor
                              Suite 13, Caulfield Plaza
                              860-876 Dandenong Road
                              Caulfield East 3145
                              Telephone: 9571  9322 9571 9422
                              Facsimile: 9571 9813
                              PES: 2780




                                                                 PATRICK SMITH
                                                                     SOLICITOR

                              TRANSFER OF LEASE

LEASE:     Date:      13 April 1999
           Premises:  Cnr Martin & Duerdin Streets, Clayton
           Period:    4 years 2 months commencing on 1 July 1998
           Options:   4 further period(s) of 7 years (each)

LANDLORD:                                   MONASH UNIVERSITY of Wellington
                                            Road, Clayton

OLD TENANT:                                 CHIRON TECHNOLOGIES PTY. LTD. (In
                                            Liquidation) ACN 006 996 792 of 11
                                            Duerdin Street, Clayton

NEW TENANT:                                 MIMOTOPES PTY. LTD. ACN 090 841 286
                                            of 11 Duerdin Street, Clayton

TRANSFER DATE:

OLD TENANT'S GUARANTOR:                     Not applicable

NEW TENANT'S GUARANTOR:                     Not applicable


Each of the descriptions on this page has the same meaning in the following
pages.



                                                                             1




1.     TRANSFER

       1.1     The old tenant transfers the lease to the new tenant with all
               options. The new tenant will hold the lease from the transfer
               date.

       1.2     If the old tenant is not the tenant named in the lease, the
               old tenant promises that it has become the tenant by previous
               valid transfers of the lease.

2.     VALIDITY OF LEASE

       The old tenant promises that on the transfer date the lease and the
       options are valid and no changes have been made to them.

3.     NEW TENANT ACCEPTS OBLIGATIONS

       The new tenant must pay the rent and do everything else required by
       the lease for the remainder of the lease and during any period it
       stays in possession after it ends.

4.     INDEMNITY BY NEW TENANT

       The new tenant indemnifies the old tenant so that the old tenant will
       not be responsible for breaches of the lease by the new tenant.

5.     OLD TENANT STILL LIABLE

       This transfer does not end the obligations of the old tenant under
       the lease. Unless the lease provides otherwise, those obligations
       continue until the end of the lease, but do not continue into any
       period of overholding after this lease ends, nor into any renewed term.

6.     OLD TENANT'S GUARANTOR STILL LIABLE

       This transfer does not end the obligations of the old tenant's
       guarantor under any guarantee or indemnity. Unless the guarantee or
       indemnity provides otherwise, those obligations continue until the end
       of the lease, bud do not continue into any period of overholding after
       the lease ends, nor unto any renewed term.

7.     LANDLORD'S PROMISES

       The landlord-

       7.1     Promises that if it is not the landlord named in the lease, it
               is now the person entitled to take possession of the premises
               if the lease ends.

       7.2     Promises that the lease and options are valid and that no
               changes have been made to them.

       7.3     Consents to this transfer, and

       7.4     Agrees not to take any action against the old tenant before
               the transfer date which would harm the new tenant's rights.

8.     GUARANTEE AND INDEMNITY

       The new tenant's guarantor-

       8.1     Guarantees to the landlord and to the old tenant that the new
               tenant will pay the rent promptly and will do everything the
               lease requires.

       8.2     Agrees that this guarantee is a continuing guarantee which will
               not be affected by-
               -  part payment,
               -  part performance,
               -  extension of time given by the landlord, or
               -  non-registration of the lease.

       8.3     Must indemnify the landlord and the old tenant so that they
               suffer no harm from breaches of the lease by the new tenant
               including losses resulting from the insolvency or winding-up
               of the new tenant.



9.     ACKNOWLEDGEMENT BY OLD TENANT'S GUARANTOR

       The old tenant's guarantor by signing this transfer acknowledges that
       its obligations to guarantee the old tenant continue.

10.    STAMP DUTY

       The new tenant must pay the stamp duty on this transfer (if any) and
       must provide one signed copy for each person named on page one.

11.    GST

       11.1    In this clause:

               "GST" means GST within the meaning of the GST Act.

               "GST Act" means the A New Tax System (Goods and Services Tax)
               Act 1999 (as amended).

       11.2    Except where this document states otherwise an amount payable
               by a party for a taxable supply made by the other party under
               this document is expressed as a GST exclusive amount.

       11.3    If this document requires a party to pay an amount in respect
               of an expense or liability ("reimbursable expense") incurred
               by the other party ("payee") to a third party, the
               reimbursable expense must be net of any input tax credit to
               which the payee is entitled in respect of the reimbursable
               expense.

       11.4    If a party makes a taxable supply under this document, then the
               party liable to pay for the taxable supply must also pay to
               the supplier the GST payable in respect of the taxable supply
               at the time payment for the taxable supply is due.

       11.5    A party is not obliged under clause 11.4 to pay the GST on a
               taxable supply to it, until given a valid tax invoice for the
               supply.

12.    CONSENTS

       The old tenant must obtain the necessary consents to the transfer,
       and must get the landlord to sign it. It must do so at its own expense.

13.    VARIATIONS

       13.1    The parties hereto agree that the Clause 14.1 of the Lease be
               amended by the deletion of the figures "$23,635.00" and the
               figures "$100,000.00" be inserted.

       13.2    In all other respects the Lease is hereby confirmed.

14.    INTERPRETATION

       This transfer is binding on-

       12.1    Individuals' executors and administrators

       12.2    Corporations' liquidators and administrators

       12.3    Anyone to whom the persons affected by this transfer of lease
               transfer their rights under it.

       And in interpreting this transfer-

       12.4    Singular words include the plural and vice versa, and

       12.5    Words expressed in one gender include all genders.



15.    OBLIGATIONS JOINT AND INDIVIDUAL

       If any person named on page one is made up of more than one
       individual or corporation, they must all perform their obligations
       under this transfer jointly and each individual must also perform them.

Executed as a deed on:

Execution & Attestation:

THE COMMON SEAL of MONASH
UNIVERSITY was hereto affixed on the
14th day of September 2001
by Direction of the Vice-Chancellor and
President in the presence of:


  /s/
- ---------------------------------------        Vice-Chancellor and President

  /s/ Patrick Smith
- ---------------------------------------        Deputy Vice-Chancellor

CHIRON TECHNOLOGIES PTY. LTD (In Liquidation)
executed on the           day of          2001

  /s/
- ---------------------------------------        Liquidator

The COMMON SEAL of MIMOTOPES PTY. LTD
was hereto affixed on the       day of     2001

  /s/ Andrew Milner
- ---------------------------------------       Director
                                                              [MIMOTOPES PTY.
  /s/ Ian Ray                                                  LTD. A.C.N.
- ---------------------------------------       Secretary        090 841 286
                                                               COMMON SEAL]



DATED                                                                     199
- -----------------------------------------------------------------------------



                               MONASH UNIVERSITY
                                                                       "Lessor"


                                     -and-

                         CHIRON TECHNOLOGIES PTY. LTD.
                                 ACN 006 996 792
                                                                       "Lessee"

                                     LEASE



                              PATRICK SMITH
                              Barrister & Solicitor
                              Suite 13, Caulfield Plaza
                              860-876 Dandenong Road
                              Caulfield East 3145
                              Telephone: 9571  9322 9571 9422
                              Facsimile: 9571 9813
                              PES:2780



THIS GROUND LEASE made the 18th day of APRIL 1999 BETWEEN the Lessor as set
out in Item 1 of the First Schedule ("the Lessor") of the one part and the
Lessee as set out in Item 2 of the First Schedule ("the Lessee") of the other
part

WITNESSES that the Lessor hereby leases to the Lessee all that piece of land
("the Land") described in Item 3 of the First Schedule as tenant for the term
specified in Item 4 of the First Schedule commencing on the date specified in
Item 5 of the First Schedule ("the Term") and at the rental and otherwise
subject to the following covenants, conditions and restriction that is to
say:-

PART 1 - INTERPRETATION

1.1     In this Ground Lease unless the contrary intention appears:-

        "ADJOINING LAND" means the adjoining land described in Item 10 of the
        First Schedule.

        "BUILDING" means the improvements now or hereafter erected on the
        Land.

        "GROUND LEASE" means this Ground Lease including all Schedules and
        annexures and as amended, varied or supplemented from time to time.

        "LESSEE" means and includes the Lessee and the executors,
        administrators, successors and permitted assigns of the Lessee and
        where not repugnant to the context the employees and agents of the
        Lessee.

        "LESSOR" means and includes the Lessor and the executors,
        administrators, successors and permitted assigns of the Lessor and
        where not repugnant to the context the employees and agents of the
        Lessor.

        "PLAN OF SURVEY" means the plan of survey annexed hereto and marked
        "A".

        "PROPERTY" means the Land and the Building.

        "RENT" means all moneys described in the Second Schedule hereof as
        rent and payable as rent by the Lessee to the Lessor under this ground
        Lease.

        "TERM" means the term specified in Item 4 of the First Schedule
        commencing on the date specified in Item 5 of the First Schedule.

        "THE Land" means the land described in Item 3 of the First Schedule.

1.2     NUMBER AND GENDER

        Except to the extent that such interpretation shall be excluded by or
        be repugnant to the context, reference to any party shall include its
        successors and permitted assigns; the word "person" shall include a
        "body corporate" and vice versa; words importing the singular number
        or plural number shall include the plural number and singular number
        respectively; and reference to any gender includes all genders.


                                                     Original Lease
                                                     Stamped with: $2,436.60
                                                     Pen/Int; $256.89
                                                     Trn: 564507 24-AUG-1999
                                                     Stamp Duty Victoria: AXK2




1.3    JOINT AND SEVERAL

       Any covenant or agreement on the part or for the benefit of two or
       more persons shall respectively bind them and be for the benefit of
       them jointly and each of them severally.

1.4    HEADINGS

       Headings of clauses and marginal notes have been inserted for guidance
       only and shall not be deemed to form any part of the context.

1.5    STATUTES

       Reference to a statute or ordinance includes all regulations under and
       amendments to that-statute or ordinance whether by subsequent statutes
       or ordinances or otherwise and any statute or ordinance passed in
       substitution for the statute or ordinance referred to or
       incorporating any of its provisions.

1.6    EXCLUSION OF IMPLIED S AND POWERS

       The covenants and powers implied in every lease by virtue of the
       Transfer of Land Act 1958 shall not apply to or be implied in this
       Ground Lease except insofar as the same or some part thereof is
       included in the covenants hereinafter contained.

1.7    CONTRA PROFERENDUM

       In the Interpretation of this Ground Lease, no rules of construction
       shall apply to the disadvantage of one party on the basis that it put
       forward the Ground Lease or any part thereof.

1.8    PROVISIONS TO BE CONSTRUED AS S

       Such of the provisions and conditions herein contained as require or
       prescribe anything to be done or not to be done by the Lessee shall in
       addition to being read and construed as conditions of the Ground Lease
       hereby granted be also read and construed as covenants and agreements
       whereby the Lessee for itself and its assigns covenants and agrees
       with the Lessor to observe and perform such provisions and conditions.

1.9    SEVERABILITY OF PROVISIONS

       Any provision of this Ground Lease which is prohibited or
       unenforceable in any jurisdiction shall, as to such jurisdiction, be
       ineffective to the extent of such prohibition or unenforceability
       without invalidating the remaining provisions of this Ground Lease or
       affecting the validity or enforceability of such provision in any other
       jurisdiction.

PART 2 - RENT AND OUTGOINGS

2.1    RENT

       The Lessee will during the Term pay the Rent to the Lessor or
       otherwise as the Lessor shall notify the Lessee in writing free of
       exchange and all deduction in the manner provided for in the Second
       Schedule.






2.2      RATES AND TAXES, ETC.

         (a)      Subject to Clause 2.2(b) and (c) the Lessee will as and when
                  the same become due for payment pay all (or in the first and
                  last year of the Term the appropriate proportionate part of
                  all) rates, taxes (including Land Tax assessed as if the Land
                  was the only land owned by the Lessor), assessments, duties
                  and fees whether municipal, local, government or otherwise
                  which are at any time during the Term charged upon or imposed
                  or levied in respect of the Land or the Buildings or both on
                  the Lessor or the Lessee on account thereof (collectively and
                  individually referred to as "charges") and will if required by
                  the Lessor produce to the Lessor the receipts for such
                  payments within 14 days after the respective due dates for
                  payment.

         (b)      If the charges are in respect of land only, including the
                  Land, the Lessee will pay that proportion of the charges which
                  the area of the Land bears to the total area of that land.

         (c)      If the charges are in respect of -

                  (i)      improvements only, including the Building, or

                  (ii)     land and improvements, including the Land and the
                           Building,

                           the Lessee will pay that proportion of the charges
                           which the amount that the relevant authority
                           attributes to the Building (in the case of (c)(i)) or
                           the Land and the Building (in the case of (c)(ii)),
                           for the purposes of determining such charges ("the
                           Ground Lease Amount") respectively bears to the total
                           amount that the relevant authority attributes to all
                           those improvements or the whole of the relevant land
                           and improvements thereon, as the case may be, for
                           such purposes; provided that if the relevant
                           authority fails or refuses to stipulate the Ground
                           Lease Amount then that amount shall be agreed upon by
                           the parties and failing agreement within 21 days of
                           either party requesting the other in writing to agree
                           upon a specified amount as being the Ground Lease
                           Amount, shall be such reasonable amount as may be
                           determined by an expert appointed by the parties and
                           failing agreement by the President or other principal
                           officer for the time being of the Australian
                           Institute of Valuers (and should such Institute have
                           ceased to exist by such body or association as then
                           serves substantially the same objects as such
                           Institute) and such expert shall act as an expert and
                           not an arbitrator and his decision shall be final and
                           binding on the parties and his costs will be borne in
                           such proportion as the expert shall determine.

         (d)      The Lessor may in its discretion elect by notice in writing
                  to the Lessee to pay any of the charges in which event the
                  Lessee shall on demand reimburse the Lessor to the extent of
                  its liability therefore.

2.3      STATUTORY FEES; AND CHARGES

         The Lessee will pay or cause to be paid all other fees charges and
         impositions (excluding income, capital gains or other like taxes or
         impositions) which are at any time during the Term payable by the
         Lessor in respect of the Property or on account of the use and
         occupation of the Property.

2.4      ELECTRICITY, GAS, WATER CHARGES, ETC.

         The Lessee will as and when the same become due for payment in addition
         to the Rent pay or cause to be paid all proper charges for gas,
         electricity, water and other services supplied to or consumed in or on
         the Property as registered and recorded on the meters installed therein
         for



         that purpose and will also pay or cause to be paid all charges in
         respect of any telephone services connected to the Property.

PART 3 - USE OF THE PROPERTY

3.1      PURPOSES

         The Lessee shall use the Property for the purpose specified in Item 6
         of the First Schedule subject to the consent of all necessary
         authorities having been obtained and will not use or permit to be used
         the Property for any other purpose or purposes whatsoever unless the
         Lessee first obtains the written consent of the Lessor which consent
         may be given or withheld at the Lessor's discretion.

3.2      NO NOXIOUS USE

         The Lessee will not permit any noxious, immoral, noisome, offensive or
         illegal act, trade, business, occupation or calling at any time during
         the Term to be exercised, carried on, permitted or suffered in or upon
         the Property and will not permit any act, matter or thing whatsoever at
         any time during the Term to be done in or upon the Property which shall
         or may cause annoyance, nuisance, grievance, damage or disturbance to
         the Lessor or to the occupiers or owners of adjoining or neighbouring
         lands or buildings nor will the Lessee permit any auction sale to be
         held on the Property.

3.3      ALTERATIONS AND ADDITIONS

         The Lessee will not nor will it permit any person to make any
         alteration or addition to the structure or exterior of the Building or
         conduct any other building or development work on the Land without the
         prior written consent of the Lessor which consent shall not be
         unreasonably withheld and shall in the course of such alterations or
         additions or other building or development work made with the consent
         of the Lessor observe and comply with all reasonable requirements of
         the Lessor and requirements of public authorities. The provisions of
         Clause 8.1 will apply to any such alterations, additions, building or
         development work. Without prejudice to the foregoing provisions of this
         Clause, the Lessee will when applying for the Lessor's approval to any
         alterations or additions to the Building or other building or
         development work submit with the application drawings and
         specifications in respect thereof prepared by a qualified consultant
         approved by the Lessor which approval shall not be unreasonably
         withheld. Work in respect of alterations or additions to the Building
         or other building or development work approved by the Lessor (such
         approval not to be unreasonably withheld) shall only be carried out by
         contractors or qualified tradesmen approved by the Lessor which
         approval shall not be unreasonably withheld and if required by the
         Lessor the Lessee shall on completion of such work hand to the Lessor a
         certificate by a consultant approved by the Lessor which approval shall
         not be unreasonably withheld to the effect that such work has been
         carried out in accordance with the drawings and specifications relating
         thereto and in accordance with the requirements of all relevant public
         authorities.

3.4      LESSEE TO COMPLY WITH STATUTORY REQUIREMENTS

         The Lessee will, to the extent that it is legally able to do so, from
         time to time and in all respects observe and comply with the
         requirements of all relevant statutory provisions and all ordinances
         proclamations regulations and by-laws thereunder and all notices orders
         and directions which may be given under the same present or future
         affecting or relating to the Property or to any business or operations
         conducted thereon or to the conduct of any person using or upon the
         Property or the use thereof and with all requirements which may be made
         or notices or orders which may be given by any governmental
         semi-governmental city municipal health licensing or any other
         authority having jurisdiction or authority in respect of the Property
         or the use thereof of whatsoever nature.



3.5      SUB-LETTING

         The Lessee will not during the continuance of this Ground Lease without
         the prior consent in writing of the Lessor assign transfer mortgage
         charge or otherwise deal with the Lessee's interest in the Property or
         demise sub-let or part with the possession of or grant any license
         affecting the Property or by any act or deed procure any of the
         foregoing. The Lessor will not unreasonably withhold its consent to any
         sub-letting if prior thereto the Lessee either has not committed any
         default under this Ground Lease or has committed a default under this
         Ground Lease which has been waived or excused and if prior thereto:-

         (a)      the Lessee has proved to the satisfaction of the Lessor that
                  the proposed sub-lessee ("Ingoing Tenant") is a respectable
                  responsible and solvent person;

         (b)      the Ingoing Tenant has entered into a deed of sub-lease (to
                  which the Lessor shall be a party) in the form and containing
                  such covenants as the Lessor may require including a covenant
                  that the Ingoing Tenant will duly perform and observe the
                  covenants and agreements on the Lessee's part herein
                  contained;

         (c)      the Ingoing Tenant has furnished the Lessor with such
                  guarantee or guarantees of the performance of his obligations
                  under this Ground Lease as the Lessor shall require;

         (d)      the Lessee has entered into a deed in the form required by the
                  Lessor under which the Lessee releases the Lessor from all
                  claims against the Lessor in respect of, or in any way arising
                  from, this Ground Lease; and

         (e)      the Lessee has established to the satisfaction of the Lessor
                  that the Ingoing Tenant is obliged to pay a rental which will
                  not be less than the Rent and all other amounts payable by the
                  Lessee pursuant to this Ground Lease.

         The provisions of Section 144 of the Property Law Act 1958 as amended
         shall not apply to this Ground Lease and are hereby expressly excluded.

3.6      SIGNS AND ADVERTISING

         The Lessee will not without the prior approval in writing of the Lessor
         (which approval shall not be unreasonably withheld) erect display affix
         or exhibit on or to the Property or any part thereof any signs, lights,
         embellishments, advertisements, names or notices (other than notices
         required by law).

PART 4 - MAINTENANCE, REPAIRS, ETC.

4.1      REPAIR AND MAINTENANCE

         Without prejudice to the specific obligations contained in this Part 4
         the Lessee will at all times during the Term maintain, repair, amend,
         replace, paint, renew, cleanse, uphold and keep the whole and each an
         every part of the Building in good and substantial repair, order and
         condition.

4.2      CLEANING OF THE PROPERTY

         The Lessee will to the reasonable satisfaction of the Lessor cause the
         Property during the whole of the Term to be kept clean and free from
         dirt and rubbish and inflammable or dangerous materials and from time
         to time will remove and take away or cause to be removed or taken away
         from the Property all refuse in accordance with the requirements of the
         local authority and of the Lessor.



4.3     GROUNDS

        The Lessee shall keep all trees shrubs plants and lawns in the
        Property adequately watered and cultivated and replace any which may
        perish with suitable substitutes and shall keep all lawns and hedges
        regularly mowed and clipped and all gardens roadways and pathways
        free from weeds.

4.4     PEST CONTROL

        The Lessee will take all reasonable precautions to keep the Property
        free of rodents vermin insects pests birds and animals and in the
        event of failing so to do will if so required by the Lessor but at
        the cost of the Lessee employ from time to time or periodically pest
        exterminators approved by the Lessor.

4.5     INFECTIOUS ILLNESS

        The Lessee will in the event of any infectious illness occurring on
        the Property forthwith give notice thereof to the Lessor and to the
        proper public authorities and at the expense of the Lessee will
        thoroughly fumigate and disinfect the Property to the satisfaction of
        the Lessor and such public authorities and otherwise comply with
        their reasonable and lawful requirements in regard to the same.

PART 5 - INSURANCES

5.1     INSURANCES

        The Lessee will effect or cause to be effected and maintained the
        following insurances in the joint names of the Lessor and the Lessee
        for their respective rights and interests

        (A)   CONTRACTOR'S ALL RISKS INSURANCE

              If the Lessee wishes to erect or cause to be erected any
              improvements upon the Land, prior to the commencement of the
              works whereby the improvements are to be erected, a
              contractor's all risks policy relating to the works and the
              Property until the works have been completed to a stage where
              they are suitable for beneficial occupation and use.

        (B)   GENERAL INSURANCE

              If the Lessee erects or causes to be erected any improvements
              upon the Land, as from and including the date on which the
              improvements have been completed to a stage where they are
              suitable for beneficial occupation and use:

                (I)   INSURANCE OF THE PROPERTY

                      Insurance of the Property (including all plant
                      equipment fixtures and fittings therein) against loss
                      injury damage or destruction from any insurable risk
                      relating but not limited to loss injury damage or
                      destruction to the Property by fire, water, earthquake,
                      theft, explosion, riot, strikes, civil commotion,
                      malicious damage, lightning storm, tempest, impact by
                      vehicle or aircraft or articles dropped from any
                      aircraft or any other insurable risk reasonably
                      required by the Lessor for the reinstatement cost of the
                      Property




               (II)   INSURANCE OF ALL PLATE GLASS, ETC.

                      Insurance of all plate glass, fixed glass, and windows
                      in the Property for the reinstatement cost thereof from
                      loss, damage, or injury caused by explosion,
                      earthquake, aircraft, riot, civil commotion, fire,
                      lightning, storm, tempest, Act of God and war damage.

              (III)   WORKER'S COMPENSATION INSURANCE

                      Insurance against any liability which may arise at
                      common law or by virtue of any relevant workers'
                      compensation legislation in connection with the
                      Property.

               (IV)   SPECIAL INSURANCES

                      Such special insurances as may be required by the
                      Lessor from time to time being insurances which in the
                      reasonable opinion of the Lessor are commonly effected
                      by owners or Lessees having regard to the nature of the
                      Property.

        (C)   PUBLIC RISK INSURANCE

              Adequate public risk insurance reasonable acceptable to the
              Lessor for at least $5 million (or such other amount as may be
              notified by the Lessor to the Lessee at any time and from time
              to time) in respect of the Property and covering the
              indemnities referred to in Part 6 of this Lease.

5.2     NON-AVOIDANCE OF INSURANCE

        The Lessee will not at any time during the Term do permit or omit or
        suffer to be done permitted or omitted any act, matter or thing upon
        the Property or the bringing or keeping of anything therein whereby
        any insurance relating to the Property may be rendered void or
        voidable.

PART 6 - INDEMNITIES AND RELEASE

6.1     RELEASE BY LESSEE

        The Lessee agrees to occupy use and keep the Property and to use
        Martin Street at the risk of the Lessee and hereby releases to the
        full extent permitted by law the Lessor and its agents, servants,
        contractors and employees from all claims and demands of every kind
        resulting from or connected (whether directly or indirectly) with any
        death, accident, loss, injury, damage or destruction occurring
        therein and the Lessee expressly agrees that the Lessor shall have no
        responsibility or liability for any loss or destruction of or injury
        or damage to fixtures or personal property of the Lessee or any other
        person.

6.2     RESPONSIBILITY OF THE LESSEE

        The Lessee shall, to the extent that it is legally able to do so,
        take and be subject to the same responsibilities in regard to persons
        and property and otherwise to which the Lessee would be subject if
        the Term the Lessee were the owner of the freehold of the Property.

6.3     GENERAL INDEMNITIES

        Without prejudice to the generality of the foregoing provisions, the
        Lessee agrees to indemnify and to keep indemnified the Lessor from
        and against all actions, claims, demands, notices,




        losses, injuries, damages, destruction, costs, outgoings and expenses
        to which the Lessor shall or may become liable in respect of or
        arising from all or any of the following:

         (i)  any loss damage or destruction to property or death or injury
              of whatsoever nature or kind and howsoever or wherever
              sustained, caused or contributed to by the use occupation or
              condition (including latent or other defects) of the Property
              or of anything in on or upon the Property not caused by the
              willful act and default of the Lessor;

        (ii)  any act, neglect, default or omission by the Lessee hereunder
              and whether the same arises through any act, neglect, default
              or omission of the Lessee or any of its agents, contractors,
              servants, licensees, sublessees, invitees or any trespassers;

       (iii)  any notice claim or demand to pay do or perform any act matter
              or thing to be paid done or performed by the Lessee under this
              Ground Lease.

6.4     SPECIFIC INDEMNITIES

        Without limiting the generality of Clauses 6.1, 6.2 and 6.3 the
        Lessee agrees to indemnify and to keep indemnified the Lessor from
        and against all actions, claims, demands, losses, injuries, damages,
        destruction, costs, outgoings and expenses for which the Lessor shall
        or may be or become liable in respect of or arising from all or any
        of the following:-

         (i)  overflow or leakage of water (including rain water) and other
              fluids in, into or from the Property; and

        (ii)  any loss, damage to property or death or injury to persons
              which may be suffered or sustained by the Lessee or any of its
              agents, contractors, servants, licensees, sublessees, invitees
              or any trespasser in on or upon any portion of the Property or
              Martin Street whether in occupation or control of the Lessor or
              of the Lessee or of any other person.

6.5     CONTINUATION OF RELEASE ETC.

        The releases, responsibilities and indemnities contained in Clauses
        6.1, 6.2, 6.3 and 6.4 shall continue in full force and effect after
        the expiration or other determination of the Ground Lease but only in
        respect of any act, event, deed, matter or thing occurring before
        such expiration or determination.

6.6     NEGLIGENCE OF THE LESSOR

        Notwithstanding the provisions of any other clause in this Part 6,
        the releases, responsibilities and indemnities contained in this Part
        6 shall not apply with respect to any act matter thing or consequence
        caused by the negligence or default of the Lessor.

PART 7 - QUIET ENJOYMENT, ETC.

7.1     QUIET ENJOYMENT

        The Lessee, paying the Rent hereby reserved and duly and punctually
        observing and performing the convenants, obligations and provisions
        in this Ground Lease and on the part of the Lessee to be observed and
        performed shall and may peaceably possess and enjoy the Land for the
        Term without any interruption or disturbance from the Lessor or any
        other person or persons lawfully claiming by from or under the Lessor.




7.2     EASEMENTS ETC.
        The Lessor shall be entitled for the purpose of:

     (a)     the provision of public or private access to and egress from the
             Land; or

     (b)     supporting structures hereafter to be erected on or from adjoining
             lands; or

     (c)     the provision of services including water drainage, gas and
             electricity supply, and telephone and electronic communication
             services to grant easements or rights of support or enter into
             any arrangement or agreement with any of the owners lessees
             tenants or occupiers or others interested in any land adjacent
             or near to the the Land or with any public authority as the Lessor
             thinks fit and it may likewise for such aforesaid purposes
             dedicate, transfer, grant or create any land easement or
             privilege in favour of such parties or in favour of any such
             adjoining or neighbouring (and or any public authority over or
             affecting the Property or the Land or any improvements for the
             time being erected thereon and this Ground Lease shall be deemed
             to be subject to any such agreement, arrangement, right,
             easement or privilege provided that the Lessor does not
             materially deprive the Lessee of quiet enjoyment of the Land.

PART 8 - REMOVAL OF IMPROVEMENTS AND FIXTURES, HOLDING OVER

8.1     IMPROVEMENTS

        Notwithstanding any rule of law or equity to the contrary including,
        without limiting the generality of the foregoing, any improvements
        erected upon the Land or any part thereof in the Building, as the
        case may be, upon affixation to the Land (notwithstanding that the
        Lessee may have expended moneys in or towards their construction and
        installation) shall be and shall be deemed to have always been the
        property of the Lessor and (subject as herein provided) shall not be
        removed by the Lessee. The Lessee shall not be entitled to receive
        from the Lessor any compensation in respect of any improvements so
        constructed on or within the Land or any part thereof provided that
        the Lessor does not materially deprive the Lessee of quiet enjoyment
        of the Land.

8.2     REMOVAL OF IMPROVEMENTS AND FIXTURES

        The Lessee within one month after the expiration or sooner
        determination of the Term shall, if required by the Lessor, demolish,
        pull down and take, remove and carry away or cause to be taken,
        removed and carried away from the Land all improvements erected by
        the Lessee thereon and all property of the Lessee brought upon the
        Property by the Lessee and the Lessee shall be responsible for any
        damage to the Land caused in the course of such removal and shall be
        required to make good any damage thereto and shall in all respects at
        its costs reinstate the Land as nearly as possible to the condition
        it was in prior to the erection by the Lessee of any improvements on
        the Land.

8.3     HOLDING OVER

        In the event of the Lessee holding over after the expiration or
        sooner determination of the Term with the consent of the Lessor the
        Lessee shall become a monthly tenant only of the Lessor at a monthly
        rental equivalent to one twelfth of the Rent payable at the
        expiration or sooner determination of the Term and otherwise on the
        same terms and conditions as those herein contained, so far as
        applicable. Either the Lessor or the Lessee shall be entitled to
        terminate any such monthly tenancy at any time upon giving 30 days'
        notice in writing to the other.



PART 9 - DEFAULT, TERMINATION, ETC.

9.1     EVENTS OF DEFAULT

        if:

        (a)     the Rent hereby reserved or any part thereof shall be unpaid
                for a period of 10 days after the day on which the same ought
                to have been paid in accordance with the covenant for payment
                of Rent herein contained (although no formal or legal demand
                shall have been made therefor); or

        (b)     the Lessee being a corporation, an order is made or a
                resolution is effectively passed for the winding up of the
                Lessee other than for the purposes of amalgamation or
                reconstruction; or

        (c)     the Lessee fails duly and punctually to perform or observe
                any one or more of the covenants, conditions, agreements or
                provisions on the part of the Lessee expressed or implied in
                this Ground Lease (unless the non-performance or
                non-observance has been waived or excused by the Lessor in
                writing); or

        (d)     any event occurs entitling the holder or proprietor of any
                charge over the whole or any part of the assets and
                undertaking of the Lessee to require immediate repayment of
                moneys thereby secured; or

        (e)     the Lessee being a corporation, if any person or persons who
                between then beneficially hold or control at the date of this
                Ground Lease more than fifty per centum (50%) of the voting,
                income or capital participation rights therein subsequently
                ceases to hold or control more than fifty per centum (50%)
                of such rights without the prior written consent of the Lessor.

        THEN it shall be lawful for the Lessor or any person on its behalf at
        any time thereafter to re-enter upon the Property or any part thereof
        in the name of the whole and thereby determine this Ground Lease but
        without relieving the Lessee from liability for any breach or
        non-observance of any such covenant or provision and without limiting
        the foregoing to exercise at any time as aforesaid all and every
        power of re-entry conferred by statute without prejudice to any right
        of action or remedy of the Lessor in respect of any antecedent breach
        of any of the covenants by the Lessee hereinbefore contained in
        addition to any right or power or proviso for re-entry by the Lessor
        implied in this Ground Lease and any such implied right power or
        proviso shall not derogate from the foregoing power or proviso and
        this provision shall operate and be deemed to apply under or subject
        to the provisions of any statute from time to time in force PROVIDED
        THAT such right of re-entry for the breach of any covenant or
        condition herein contained either to pay money payable hereunder
        other than rent or to which section 146 of the Property Law Act 1958
        extends shall not be exercised unless and until the expiration of 14
        days after the Lessor has served on the Lessee a notice required to
        be served on the Lessee by Sub-section (1) of said section 146
        specifying the particular breach, requiring the Lessee to remedy the
        breach and where the Lessor has suffered loss, requiring the Lessee
        to make compensation in money for the breach.

9.2     LESSOR MAY REMEDY LESSEE'S DEFAULTS

        If the Lessee omits or neglects to pay any money or to do or effect
        anything which the Lessee has herein covenanted to pay do or effect
        then on each and every such occasion it shall be lawful for but not
        obligatory upon the Lessor and without prejudice to any rights or
        powers arising from such default to pay such money or to do or effect
        such thing by itself as if it were the Lessee and for that purpose
        the Lessor may enter upon the Property and there remain for the
        purpose of doing or effecting such thing and without prejudice to the
        rights powers and remedies of the Lessor otherwise under this Ground
        Lease the Lessee will pay to the Lessor



        interest at the rate being 2% above the rate from time to time
        charged by the Lessor's bank on overdrafts exceeding $100,000 on any
        moneys due by the Lessee to the Lessor on any account whatsoever
        pursuant to this Ground Lease but unpaid for 14 days such interest to
        be computed from the due date in respect of which the for the payment
        of the moneys in interest chargeable until payment of such moneys in
        full and is to be recoverable in like manner as rent in arrears.

9.3     ESSENTIAL TERMS

        (a)     The covenants by the Lessee specified in Clauses 2.1, 2.2,
                2.3, 2.4, 3.2, 3.3, 3.4, 3.5, 4.1, 5.1, 8.2, 10.5 and 10.8
                are essential terms of this Ground Lease. The Lessee
                covenants to compensate the Lessor in respect of any breach
                of those covenants and the Lessor, in addition to any other
                rights to which the Lessor is entitled, including the right
                to terminate this Ground Lease, shall be entitled to recover
                damages from the Lessee for the loss or damage suffered by or
                resulting to the Lessor in respect of such breaches by the
                Lessee.

        (b)     If the Lessee's conduct constitutes a repudiation of this
                Ground Lease or constitutes a breach of any covenants by the
                Lessee hereunder the Lessee covenants to compensate the
                Lessor for the loss or damage suffered by or resulting to the
                Lessor by reason of the repudiation or breach.

        (c)     The Lessor shall, without prejudice to any obligation it may
                have in law to mitigate its damages, be entitled to recover
                damages against the Lessee in respect of repudiation or
                breach of covenant for the loss or damage suffered by or
                resulting to the Lessor during the entire term of this Ground
                Lease and the Lessor's entitlement shall not be affected or
                limited by any actions of the Lessor or Lessee which result
                in the vacating of the Property or the termination or
                surrender of this Ground Lease.

9.4     YIELDING UP

        The Lessee will at the expiration or sooner determination of this
        Ground Lease peaceably surrender and yield up unto the Lessor the
        Property clean and free from rubbish and in a state of repair order
        and condition in all respects consistent with full compliance with
        the obligations relating to repair order and condition set out in
        Part 4 hereof and the requirements of Clauses 8.2 and 8.3.

PART 10 - GENERAL

10.1    NO WAIVER

        No waiver by the Lessor of any breach of any covenant obligation or
        provision in this ground Lease express or implied shall operate as a
        waiver of another breach of the same or of any other covenant
        obligation or provision in the Ground Lease express or implied.

10.2    EXCLUSION OF WARRANTIES

        The Lessee acknowledges and declares that no promise representation
        warranty or undertaking has been given by or on behalf of the Lessor
        in respect of the suitability of the Land or the Property for any use
        or purpose to be carried out thereon.

10.3    WHOLE AGREEMENT

        The covenants and provisions contained in the ground Lease expressly
        or by statutory implication cover and comprise the whole of the
        agreement between the parties hereto and it is expressly agreed and
        declared that no further or other covenants or provisions whether in





       respect of the Property or otherwise shall be deemed to be implied
       herein or to arise between the parties hereto by way of collateral
       or other agreement by reason of any promise representation warranty
       or undertaking given or made by any party hereto to another or prior
       to the execution hereof and the existence of any such implication or
       collateral or other agreement is hereby negatived.

10.4   CONSENTS

       In any case where pursuant to this Ground Lease the doing or execution
       of any act matter or thing by the Lessee is dependent upon the consent
       or approval of the Lessor such consent or approval may be given
       conditionally or unconditionally or withheld by the Lessor in its
       absolute uncontrolled discretion unless otherwise herein provided.

10.5   REIMBURSEMENT OF LESSOR'S EXPENSES

       To the extent permissible at law the Lessee will forthwith upon
       demand pay to the Lessor by way of additional rent an amount
       equivalent to any moneys paid by the Lessor in respect of any
       liability imposed on the Lessee under or by virtue of this Ground
       Lease not withstanding that any statute, ordinance, proclamation,
       order, regulation or moratorium present or future directly or
       indirectly imposes such liability upon the Lessor.


10.6   COSTS

       Each party will pay its own costs in relation to the negotiation
       preparation and execution of this Ground Lease. The Lessee shall on
       demand by the Lessor pay:

       (a)  all stamp duty in respect of this Ground Lease;

       (b)  All duties, reasonable fees, charges, assessments and expenses of
            or incidental to any application for the consent of the lessor
            and of or incidental to any and every breach or default by the
            Lessee hereunder and of or incidental to the exercise or attempted
            exercise of any right, power, privilege, authority or remedy of
            the Lessor under or by virtue of this Ground Lease and the fees
            of all professional consultants incurred by the Lessor in
            consequence of or in connection with breach or default by the
            Lessee hereunder; and

       (c)  all expenses incurred by the Lessor in any entry inspection
            examination consultation or the like which discloses a breach by
            the Lessee of any covenant of this Ground Lease.

10.7   SERVICE OF NOTICES

       All approvals and all consents elections or other notices required
       or necessary to be made or given hereunder shall be in writing and
       may be given to or served upon the party being served by being left
       at the address of the party mentioned herein or such other place of
       business as may be notified in writing to the other parties from
       time to time or by telex to the telex number and any such consent
       election or other notice may be signed by the party concerned under
       its common seal or on its behalf by a secretary or other duly
       authorised officer in that behalf for the time being of such party.
       In the case of a telex it shall be deemed to be duly serviced if
       the person sending the telex shall receive the answer-back of the
       party to whom the telex is sent upon completion of transmission of
       the telex.


10.8   NO MERGER

       No act matter or thing done under or by virtue of or in connection
       with this Ground Lease or any other agreement between the parties
       hereto shall operate as a merger of any of the rights




       and remedies of the parties in or under this Ground Lease or in or
       under any such other agreement all of which shall continue in full
       force and effect.

10.9   LESSEE TO PAY FOR WORK

       Whenever the Lessee is obliged or required hereunder to do or effect
       any act, matter or thing then the doing of such act matter or thing
       shall, unless this Ground Lease otherwise provides be at the sole risk
       and expense of the Lessee.

10.10  NO MORATORIUM

       Unless application is mandatory by law no statute ordinance proclamation
       order regulation or moratorium present or future shall apply to this
       Ground Lease so as to abrogate, extinguish, impair, diminish, fetter,
       delay or otherwise prejudicially affect any rights powers remedies or
       discretions given or accruing to the Lessor.

                         PART 11 - OPTION OF RENEWAL

       If the Lessee shall desire to take a renewed lease of the Property for
       a further term set out in Item 8 of the First Schedule from the date
       of expiration of this Ground Lease and shall give to the Lessor not
       more than 9 months' nor less than 3 months' previous notice in writing
       of such desire and provided the Lessee is not then in default under
       the provisions of this Ground Lease whether expressed or implied the
       Lessor at the cost of the Lessee will grant to the Lessee a renewal of
       this Ground Lease for such further term subject to the same terms and
       conditions contained in this Ground Lease except that the number of
       option terms in Item 8 of the First Schedule will be reduced by one
       and except for this Clause in respect of the Ground Lease for the last
       of the terms of renewal PROVIDED THAT the Rent shall be determined in
       the manner provided in the Second Schedule.

                   PART 12 - RIGHT TO LEASE ADJOINING LAND

12.1   The Lessor will not be entitled to lease the Adjoining Land to any
       person other than the Lessee without first having offered ("the
       Offer") to lease it to the Lessee. The Offer will be in writing and
       will contain all of the covenants, terms and conditions of the
       proposed lease. The Offer will remain open for acceptance by the Lessee
       in writing for a period of one month commencing on the date of the
       Offer. Failing acceptance of the Offer by the Lessee within that
       period, the Lessor will at any time thereafter be entitled to lease
       the Adjoining Land to any other person subject to covenants, terms and
       conditions no more favourable to such other person than those
       contained in the Offer.

               PART 13 - RIGHT OF FIRST REFUSAL AS TO PURCHASE

13.1   If at any time during the Term the Lessor shall be desirous of selling
       the Property the Lessee (if the Lessee is not then in default under
       the provisions of this Ground Lease whether express or implied) shall
       have the right to purchase the Property upon the following conditions:

       (a)  The Lessor shall deliver to the Lessee the form of contract for
            sale of the Property duly signed by the Lessor containing the
            terms and conditions upon which the Property is offered to the
            Lessee for sale ("the Offer").

       (b)  The Lessee, if it desires to accept the Offer, shall within seven
            (7) days after the receipt of the Offer cause to be delivered to
            the Lessor the said form of contract duly executed by the Lessee
            together with the deposit or any other moneys required by the
            terms thereof to be paid upon the execution thereof and thereupon
            such contract shall be deemed to have been entered into by the
            parties.



       (d)  If the Lessee shall not within the said period of seven (7) days
            accept the Offer (as to which time shall be of the essence) or if
            the Lessee shall at any time within the said period of seven (7)
            days signify its irrevocable intention not to accept the Offer
            then the Lessor shall be at liberty to sell the Property to any
            other person upon terms and conditions not more favourable to the
            proposed purchaser than those contained in the Offer.

                         PART 14 - SECURITY DEPOSIT

14.1   The Lessee must pay a security deposit to the Lessor of the amount of
       $23635.00 and must maintain the deposit at that amount.

14.2   The Lessor may use the deposit to make good the cost of remedying
       breaches of the Lessee's obligations under this Lease.

14.3   After this Lease has ended and the Lessee has vacated the premises,
       the Lessor must refund the unused part of the deposit within 14 days.



                             THE FIRST SCHEDULE

1.  LESSOR              MONASH UNIVERSITY

2.  LESSEE              CHIRON TECHNOLOGIES PTY LTD
                        (ACN 006 996 792) of 11 Duerdin Street, Clayton

3.  LAND                That part of the land described in Certificate of
                        Title Volume 9974 Folio 753 outlined in red on the
                        Plan of Survey and situated on the corner of Martin
                        and Duerdin Streets

4.  TERM                Four (4) years and Two (2) months

5.  COMMENCEMENT DATE   1 July 1998

6.  USE                 Activities comprising the development of electronic
                        technology, biotechnology, or other scientific
                        disciplines for application to commerce, industry,
                        government or rural pursuits and may include office
                        promotion, display, laboratory, manufacturing areas,
                        administration, conference, assembly or required for
                        such activities

7.  REVIEW PERIOD       Three (3) Months

8.  OPTION TERMS        Four (4) successive terms of Seven (7) years each

9.  RENT                $94,540.00 per annum

10. ADJOINING LAND      That part of the land contained in Certificate of
                        Title Volume 9974 Folio 753 outlined blue on the Plan
                        of Survey



                             THE SECOND SCHEDULE

                                     RENT

    The rent payable by the Lessee to the Lessor pursuant to this Ground
    Lease shall be calculated and paid in the manner following:-

1.  INITIAL RENT

    The Lessee will with effect from 15th February, 1989 and during the
    remainder of the Term pay to the Lessor without demand from the Lessor
    and without any deduction whatsoever a rent (hereinafter call "Rent") of
    the amount specified in Item 10 of the First Schedule, such rent to be
    paid in advance by regular and consecutive monthly payments on or before
    the first day of each month in each year during the Term (except the
    first and last payments which if necessary will be proportionate),
    commencing with effect from 15th February, 1989 and subject to review as
    hereinafter provided.

2.  TIME FOR RENT REVIEW

    During the Term the Rent shall be reviewed on the basis that the Lessor
    shall be entitled by serving upon the Lessee notice in writing to that
    effect during a Review Period specified in Item 7 of the First Schedule
    to require the Rent payable hereunder to be reviewed and, subject to
    paragraph 5 of this Schedule, as and from the end of that Review Period
    the reviewed rent, calculated and determined in accordance with the
    provisions of paragraph 3 of this Schedule, shall be the Rent hereby
    reserved. "Review Period" means each period as specified in Item 7 of the
    First Schedule immediately preceding the expiration of each period of
    three (3) years commencing on the date of commencement of the Term or
    where this Ground Lease has been granted pursuant to an option contained
    in a previous lease, commencing the day immediately following the
    expiration of the last Review Period under such previous lease.

3.  DETERMINATION OF REVIEWED RENT

    The reviewed rent shall be such amount as may be agreed upon between the
    parties, or, failing agreement within two (2) months of the date of
    service of such notice aforesaid, shall be the greater of:-

    (a)  The Rent payable for the 12 months immediately prior to the expiry
         of the relevant Review Period; and

    (b)  an amount equal to the current market value of the Land multiplied
         by the current market capitalisation rate (expressed as a percentage
         per annum) having regard to the best use to which the Land could be
         put.

4.  VALUATION

    The question of the market value of the Land and the Market
    capitalisation rate referred to in paragraph 3 of this Schedule shall be
    referred for the decision of a qualified valuer to be agreed upon by the
    Lessor and the Lessee or (in the event of failure so to agree) of a
    qualified valuer selected by the Lessee from a panel nominated by the
    Lessor of 3 qualified valuers carrying on practice in Victoria or if no
    valuer is selected by the Lessee within 14 days after the panel has been
    nominated by the Lessor or if no such valuer can be obtained who is
    willing to carry out the said valuation a qualified valuer nominated by
    the President or other principal officer for the time being of the
    Australian Institute of Valuers (or should such Institute then have
    ceased to exist of such body or association as then serves substantially
    the same objects as such institute), provided that the Lessor and the
    Lessee may each refuse one such



    nomination by notifying the other of them in writing within 3 days of
    being advised of the nomination and in that event the parties will
    procure a further nomination, and the qualified valuer shall act as an
    expert and not as an arbitrator and the decision of such qualified valuer
    shall accordingly be final and binding on the parties to this Ground
    Lease. The Lessor and the Lessee will share equally the costs of
    obtaining the valuations pursuant to this Clause. Any valuer nominated
    pursuant hereto must be a qualified valuer carrying on practice in
    Victoria having not less then 5 years experience. In assessing the
    current market value of the Land the valuer shall disregard the Building
    and any other improvements on the Land to the extend that the Lessee has
    borne the cost thereof.

5.  PROVISION FOR ADJUSTMENT

    Should the amount of the reviewed rent as aforesaid not be ascertained
    before the end of the relevant Review Period the Lessee shall pending
    ascertainment thereof pay Rent at the rate payable immediately prior to
    the end of the relevant Review Period together with 80% of the increase
    sought by the Lessor pursuant to the provisions of paragraph 2 of this
    Schedule and upon the reviewed rent being ascertained any necessary
    adjustment of rent calculated from the expiration of the relevant Review
    Period shall be paid forthwith by the Lessee to the Lessor.

6.  DEFERMENT OF REVIEW

    If the Lessor shall fail to exercise its right to require the Rent
    payable hereunder to be reviewed within a Review Period then such right
    may be exercised at any time prior to the next Review Period and in
    every such case the provisions of this sub-clause shall be interpreted in
    all respects as if the end of the relevant Review Period had fallen on
    the date of the notice from the Lessor to the Lessee under paragraph 2
    hereof (as modified by this paragraph 6). No succeeding Review Period
    shall be postponed by reason of the operation of this sub-clause in
    relation to any preceding Review Period.



IN WITNESS whereof the parties have executed this Ground Lease on the date
first appearing


THE COMMON SEAL of MONASH                   )
UNIVERSITY was hereunto affixed on the 13   )
day of April 1999 by the direction          )
of the Vice Chancellor in the presence of:  )




/S/                           Vice Chancellor
- -----------------------------




/S/                           General Manager
- -----------------------------



THE COMMON SEAL of CHIRON                   )  [CHIRON TECHNOLOGIES PTY. LTD.
TECHNOLOGIES PTY LTD (ACN 006 996 792       )        A.C.N. 006 996 792
was hereunto affixed in accordance with its )           COMMON SEAL]
Articles of Association in the presence of: )




/S/ Ian Ray
- -----------------------------
Ian Ray





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

EX-10.16

                                                                   Exhibit 10.16

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

                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
                                     MITOKOR

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







                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

1    ACCOUNTING AND OTHER TERMS................................................4

2    LOAN AND TERMS OF PAYMENT.................................................4
     2.1   Promise to Pay......................................................4
     2.2   Termination of Commitment to Lend...................................5
     2.3   Interest Rate, Payments.............................................5
     2.4   Fees................................................................6
     2.5   Additional Costs....................................................6

3    CONDITIONS OF LOANS.......................................................6
     3.1   Conditions Precedent to Initial Credit Extension....................6
     3.2   Conditions Precedent to all Credit Extensions.......................6

4    CREATION OF SECURITY INTEREST.............................................6
     4.1   Grant of Security Interest..........................................6
     4.2   Certificate of Deposit Collateral...................................6
     4.3   Concerning Revised Article 9 of the Uniform Commercial Code.........6

5    REPRESENTATIONS AND WARRANTIES............................................7
     5.1   Due Organization and Authorization..................................7
     5.2   Collateral..........................................................7
     5.3   Litigation..........................................................7
     5.4   No Material Adverse Change in Financial Statements..................7
     5.5   Solvency............................................................7
     5.6   Regulatory Compliance...............................................7
     5.7   Subsidiaries........................................................8
     5.8   Full Disclosure.....................................................8

6    AFFIRMATIVE COVENANTS.....................................................8
     6.1   Government Compliance...............................................8
     6.2   Financial Statements, Reports, Certificates.........................8
     6.3   Inventory; Returns..................................................9
     6.4   Taxes...............................................................9
     6.5   Insurance...........................................................9
     6.6   Primary Accounts and Balances.......................................9
     6.7   Financial Covenants.................................................9
     6.8   Further Assurances..................................................9
     6.9   Right To Invest....................................................10

7    NEGATIVE COVENANTS.......................................................10
     7.1   Dispositions.......................................................10
     7.2   Changes in Business, Ownership, Management or Business Locations...10
     7.3   Mergers or Acquisitions............................................10
     7.4   Indebtedness.......................................................10
     7.5   Encumbrance........................................................10
     7.6   Distributions; Investments.........................................11
     7.7   Transactions with Affiliates.......................................11
     7.8   Subordinated Debt..................................................11
     7.9   Compliance.........................................................11

8    EVENTS OF DEFAULT........................................................11


                                       2




     8.1   Payment Default....................................................11
     8.2   Covenant Default...................................................11
     8.3   Material Adverse Change............................................11
     8.4   Attachment.........................................................12
     8.5   Insolvency.........................................................12
     8.6   Other Agreements...................................................12
     8.7   Judgments..........................................................12
     8.8   Misrepresentations.................................................12

9    BANK'S RIGHTS AND REMEDIES...............................................12
     9.1   Rights and Remedies................................................12
     9.2   Power of Attorney..................................................13
     9.3   Bank Expenses......................................................13
     9.4   Bank's Liability for Collateral....................................13
     9.5   Remedies Cumulative................................................13
     9.6   Demand Waiver......................................................13

10   NOTICES..................................................................13

11   CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER...............................14

12   GENERAL PROVISIONS.......................................................14
     12.1  Successors and Assigns.............................................14
     12.2  Indemnification....................................................14
     12.3  Time of Essence....................................................14
     12.4  Severability of Provision..........................................14
     12.5  Amendments in Writing, Integration.................................14
     12.6  Counterparts.......................................................15
     12.7  Survival...........................................................15
     12.8  Confidentiality....................................................15
     12.9  Effect of Amendment and Restatement................................15
     12.10 Attorneys' Fees, Costs and Expenses................................15

13   DEFINITIONS..............................................................15
     13.1  Definitions........................................................15


                                       3




         THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated June 21,
2001, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 with a loan production office located at 9645
Scranton Road, Suite 110, San Diego, California 92121 and MITOKOR ("Borrower"),
whose address is 11494 Sorrento Valley Road, San Diego, California 92121.

                                    RECITALS

         A.  Bank and Borrower are parties to that certain Loan and Security
Agreement dated March 23, 1998, as amended (collectively, the "Original
Agreement").

         B.  Borrower and Bank desire in this Agreement to set forth their
agreement with respect to a equipment line and term loan and to amend and
restate in its entirety without novation the Original Agreement in accordance
with the provisions herein.

                                    AGREEMENT

         The parties agree as follows:

1        ACCOUNTING AND OTHER TERMS

         Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document.


2        LOAN AND TERMS OF PAYMENT

2.1      PROMISE TO PAY.

         Borrower promises to pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.


2.1.1    EQUIPMENT ADVANCES.

         (a) Through December 31, 2001 (the "Equipment Availability End Date"),
Bank will make advances ("Equipment Advance" and, collectively, "Equipment
Advances") not exceeding the Committed Equipment Line. The Equipment Advances
may only be used to finance or refinance Equipment purchased on or after 90 days
before the date of each Equipment Advance (except for the initial Equipment
Advance which shall allow for Eligible Equipment purchased on or after 120 days
and can be financed at cost) and may not exceed 100% of the equipment invoice
excluding taxes, shipping, warranty charges, freight discounts and installation
expense. Software licenses, leasehold improvements, and other soft costs may
constitute up to $500,000, furniture up to $200,000, of the aggregate Equipment
Advances. Each Equipment Advance must be for a minimum of $50,000. The number of
Equipment Advances is limited to once per month.

         (b) Interest accrues from the date of each Equipment Advance at the
rate in Section 2.3(a) and is payable monthly until the Equipment Availability
End Date occurs. Equipment Advances outstanding on the Equipment Availability
End Date are payable in 36 equal monthly installments of principal, plus accrued
interest, beginning on the last day of each month following the Equipment
Availability End Date and ending on December 31, 2004 (the "Equipment Maturity
Date"). Equipment Advances when repaid may not be reborrowed.

         (c) To obtain an Equipment Advance, Borrower must notify Bank (the
notice is irrevocable) by facsimile no later than 12:00 p.m. Pacific time 1
Business Day before the day on which the Equipment


                                       4




Advance is to be made. The notice in the form of Exhibit B (Payment/Advance
Form) must be signed by a Responsible Officer or designee and include a copy of
the invoice for the Equipment being financed.

2.2      TERMINATION OF COMMITMENT TO LEND.

         Bank's obligation to lend the undisbursed portion of the Obligations
will terminate if, in Bank's sole discretion, there has been a material adverse
change in the general affairs, management, results of operation, condition
(financial or otherwise) or the prospect of repayment of the Obligations, or
there has been any material adverse deviation by Borrower from the most recent
business plan of Borrower presented to and accepted by Bank prior to the
execution of this Agreement.

2.2.1    TERM LOAN 1.

         (a) Borrower will continue to pay the outstanding amount under the Term
Loan 1 as follows:

         (b) Borrower will continue to pay 11 equal installments of principal of
$27,777.78 plus interest (the "Term Loan 1 Payment"). Each Term Loan 1 Payment
is payable on the last day of each month during the term of the loan. Borrower's
final Term Loan 1 Payment, due on April 30, 2002, includes all outstanding Term
Loan 1 principal and accrued interest.

2.2.2    TERM LOAN 2.

         (a) Borrower will continue to pay the outstanding amount under the Term
Loan 2 as follows:

         (b) Borrower will continue to pay 25 equal installments of principal of
$55,555.55 plus Interest (the "Term Loan 2 Payment"). Each Term Loan 2 Payment
is payable on the last day of each month during the term of the loan. Borrower's
final Term Loan 2 Payment, due on June 15, 2003, includes all outstanding Term
Loan 2 principal and accrued interest.

2.3      INTEREST RATE, PAYMENTS.

         (a) Interest Rate. (i) Prior to the Equipment Availability End Date
Equipment Advances accrue interest on the outstanding principal balance at a per
annum rate of 1 percentage point above the Prime Rate. Beginning on the
Equipment Availability End Date and thereafter, Borrower may elect either the
variable interest rate as provided above, provided, such rate shall not be less
than 8%, or a fixed rate, equal to the Treasury Yield Percentage plus 375 basis
points, provided such rate shall not be less than 7.75%. Any prepayment of the
Committed Equipment Line must include a pre payment fee equal to the Make Whole
Premium; (ii) the outstanding balance of the Term Loan 2 accrues interest at a
fixed per annum rate of 9.47 percent. Any prepayment of the Term Loan 2 must
include a Prepayment Fee; and (iii) the outstanding balance of the Term Loan 1
accrues interest at a per annum rate equal to the Prime Rate. After the
occurrence and during the continuance of an Event of Default, Obligations accrue
interest at 5 percent above the rate effective immediately before the Event of
Default. The interest rate increases or decreases when the Prime Rate changes.
Interest is computed on a 360 day year for the actual number of days elapsed.

         (b) Payments. Interest due on the Equipment Advances is payable on the
last day of each month. Bank may debit any of Borrower's deposit accounts
including Account Number 3300047794 for principal and interest payments owing or
any amounts Borrower owes Bank. Bank will promptly notify Borrower when it
debits Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.


                                       5




2.4      FEES.

         Bank Expenses. Borrower will pay all Bank Expenses (including
reasonable attorneys' fees and reasonable expenses not to exceed $2,500 for
documentation and negotiation of this Agreement) incurred through and after the
date of this Agreement, and such expenses are payable when due.

2.5      ADDITIONAL COSTS.

         If any law or regulation increases Bank's costs or reduces its income
for any loan, Borrower will pay the increase in cost or reduction in income or
additional expense.

3        CONDITIONS OF LOANS

3.1      CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.

         Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires.

3.2      CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.

         Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:

         (a) timely receipt of any Payment/Advance Form; and

         (b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
of Section 5 remain true.

4        CREATION OF SECURITY INTEREST

4.1      GRANT OF SECURITY INTEREST.

         Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.

4.2      CERTIFICATE OF DEPOSIT COLLATERAL.

         At such times as the Liquidity coverage covenant, as described in
Section 6.7 is not maintained by Borrower, Borrower grants Bank, as additional
security, a first priority security interest in a Certificate of Deposit, held
with Bank, in an amount not less than 100% of the outstanding Obligations.

4.3      CONCERNING REVISED ARTICLE 9 OF THE UNIFORM COMMERCIAL CODE.

         In anticipation of the possible application of the Revised Article 9 of
the Uniform Commercial Code in the form or substantially in the form approved by
the American Law Institute and National Conference Commissioners on Uniform
State Law and contained in the 1999 Official Text of the Uniform Commercial Code
("Revised Article 9"), it is agreed that applying the law of any jurisdiction in
which Revised Article 9 is in effect, the Collateral is all assets of the
Borrower whether or not within the scope of Revised Article 9. The Collateral
shall include, without limitation, the following categories of assets as


                                       6




defined in the Code: goods (including inventory, equipment and any accessions
thereto), instruments (including promissory notes), documents, accounts
(including health-care-insurance receivables, and license fees), chattel paper
(whether tangible or electronic), deposit accounts, letter-of-credit rights
(whether or not the letter of credit is evidenced by a writing), commercial tort
claims, securities and all other investment property, general intangibles
(including payment intangibles and software) [BUT EXCLUDING INTELLECTUAL
PROPERTY], supporting obligations and any and all proceeds of any thereof,
wherever located, whether now owned or hereafter acquired.

5        REPRESENTATIONS AND WARRANTIES

         Borrower represents and warrants as follows:

5.1      DUE ORGANIZATION AND AUTHORIZATION.

         Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified, except where the failure to do so could
not reasonably be expected to cause a Material Adverse Change.

         The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could reasonably be expected to cause a Material
Adverse Change.

5.2      COLLATERAL.

         Borrower has good title to the Collateral, free of Liens except
Permitted Liens. All Inventory is in all material respects of good and
marketable quality, free from material defects.

5.3      LITIGATION.

         Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge of Borrower's Responsible Officers, threatened by
or against Borrower or any Subsidiary in which a likely adverse decision could
reasonably be expected to cause a Material Adverse Change.

5.4      NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.

         All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

5.5      SOLVENCY.

         The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.

5.6      REGULATORY COMPLIANCE.

         Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous


                                       7




Persons, in disposing, producing, storing, treating, or transporting any
hazardous substance other than legally. Borrower and each Subsidiary has timely
filed all required tax returns and paid, or made adequate provision to pay, all
material taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change.

5.7      SUBSIDIARIES.

         Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.

5.8      FULL DISCLOSURE.

         No written representation, warranty or other statement of Borrower in
any certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank) contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading. It
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected and forecasted results.

6        AFFIRMATIVE COVENANTS

         Borrower will do all of the following for so long as Bank has an
obligations to lend, or there are outstanding Obligations:

6.1      GOVERNMENT COMPLIANCE.

         Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify would reasonably be
expected to cause a material adverse effect on Borrower's business or
operations. Borrower will comply, and have each Subsidiary comply, with all
laws, ordinances and regulations to which it is subject, noncompliance with
which could have a material adverse effect on Borrower's business or operations
or would reasonably be expected to cause a Material Adverse Change.

6.2      FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

         (a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, except December, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during the period certified by a Responsible Officer and
in a form acceptable to Bank; (ii) as soon as available, but no later than 120
days after the last day of Borrower's fiscal year, audited consolidated
financial statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm reasonably acceptable to Bank; (iii) a prompt report of
any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of $100,000 or
more; and (iv) budgets, sales projections, operating plans or other financial
information Bank reasonably requests.

         (b) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit C.

         (c) Allow Bank to audit Borrower's Collateral at Borrower's reasonable
expense. Such audits will be conducted only at such times as an Event of Default
has occurred and is continuing.


                                       8




6.3      INVENTORY; RETURNS.

         Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.

6.4      TAXES.

         Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.

6.5      INSURANCE.

         Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank may reasonably request. Insurance policies will be in a
form, with companies, and in amounts that are satisfactory to Bank in Bank's
reasonable discretion. All property policies will have a lender's loss payable
endorsement showing Bank as an additional loss payee and all liability policies
will show the Bank as an additional insured and provide that the insurer must
give Bank at least 20 days notice before canceling its policy. At Bank's
request, Borrower will deliver certified copies of policies and evidence of all
premium payments. Proceeds payable under any policy will, at Bank's option, be
payable to Bank on account of the Obligations.

6.6      PRIMARY ACCOUNTS AND BALANCES.

         a. Borrower will maintain its primary depository and operating accounts
with Bank.

         b. Money Market Account. Borrower shall maintain with Bank, a money
market account with an amount not less than $2,000,000.00. In the event Borrower
completes an equity financing, Bank agrees that it will examine the Money Market
Account requirement to determine if a change is possible or appropriate, with
the explicit understanding by Borrower that such examination is not a commitment
or proposal to amend the requirement.

         c. In addition, Borrower shall maintain an average minimum monthly
balance of $1,000,000.00 in Bank's money market account or demand deposit
account or investment account.


6.7      FINANCIAL COVENANTS.

         (i) LIQUIDITY COVERAGE. . Borrower will maintain, as of the last day of
each month, a Liquidity coverage of the greater of (a) unrestricted cash and
cash equivalents (including short term marketable securities) equal to 1.5 times
the outstanding Obligations or (b) at least 6 (six) months Cash Burn. "Cash
Burn" is unrestricted cash (prior period) minus unrestricted cash (current
period) plus increases in short and long term borrowings or in equity (or
Subordinated Debt) and minus any increase in short and long term borrowings or
in equity (or Subordinated Debt). In the event Borrower fails to comply with the
foregoing Liquidity coverage it shall not be deemed an Event of Default;
provided that Borrower pledges to Bank cash collateral in the form of a
certificate of deposit held with Bank as described in Section 4.2. Once Borrower
returns to compliance with the Liquidity coverage, such cash collateral shall be
released.

6.8      FURTHER ASSURANCES.

         Borrower will execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank's security interest in
the Collateral or to effect the purposes of this Agreement.


                                       9




6.9      RIGHT TO INVEST.

         Borrower grants Bank or its affiliates a right (but not an obligation)
to invest up to $250,000.00 in each of Borrower's subsequent rounds of equity
financing (the "Subsequent Financing") on the same terms, conditions and pricing
offered to its investors. Borrower must give Bank with at least 30 days prior
written notice of each Subsequent Financing containing the terms, conditions and
pricing of the Subsequent Financing delivered to: General Counsel, 3003 Tasman
Drive, HG 180, Santa Clara, CA 95054.

7        NEGATIVE COVENANTS

         Borrower will not do any of the following without Bank's prior written
consent, which will not be unreasonably withheld, for so long as Bank has an
obligation to lend and there are any outstanding Obligations:

7.1      DISPOSITIONS.

         Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, EXCEPT FOR Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.

7.2      CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.

         Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or reasonably related
thereto or have a material change in its ownership or management of greater than
25% (other than by the sale of Borrower's equity securities in a public offering
or to venture capital investors so long as Borrower identifies the venture
capital investors prior to the closing of the investment). Borrower will not,
without at least 30 days prior written notice, relocate its chief executive
office or add any new offices or business locations in which Borrower maintains
or stores over $5,000 in Borrower's assets or property.

7.3      MERGERS OR ACQUISITIONS.

         Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and (ii) such transaction would not result in a decrease of more than
25% of Tangible Net Worth. A Subsidiary may merge or consolidate into another
Subsidiary or into Borrower.

7.4      INDEBTEDNESS.

         Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.

7.5      ENCUMBRANCE.

         Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, or permit any of its Subsidiaries to do so,
except for Permitted Liens, or permit any Collateral not to be subject to the
first priority security interest granted here, subject to Permitted Liens.


                                       10




7.6      DISTRIBUTIONS; INVESTMENTS.

         Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.

7.7      TRANSACTIONS WITH AFFILIATES.

         Directly or indirectly enter into or permit to exist any material
transaction with any Affiliate of Borrower except for transactions that are in
the ordinary course of Borrower's business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a nonaffiliated Person.

7.8      SUBORDINATED DEBT.

         Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.

7.9      COMPLIANCE.

         Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.

8        EVENTS OF DEFAULT

         Any one of the following is an Event of Default:

8.1      PAYMENT DEFAULT.

         If Borrower fails to pay any of the Obligations within 3 days after
their due date. During the additional period the failure to cure the default is
not an Event of Default (but no Credit Extension will be made during the cure
period);

8.2      COVENANT DEFAULT.

         If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);

8.3      MATERIAL ADVERSE CHANGE.

         If there (i) occurs a material adverse change in the business,
operations, or condition (financial or otherwise) of the Borrower, or (ii) is a
material impairment of the prospect of repayment of any portion of the
Obligations; or (iii) is a material impairment of the value or priority of
Bank's security interests in the Collateral.


                                       11




8.4      ATTACHMENT.

         If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);

8.5      INSOLVENCY.

         If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);

8.6      OTHER AGREEMENTS.

         If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;

8.7      JUDGMENTS.

         If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or

8.8      MISREPRESENTATIONS.

         If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.

9        BANK'S RIGHTS AND REMEDIES

9.1      RIGHTS AND REMEDIES.

         When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:

         (a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);

         (b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;

         (c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;

         (d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower


                                       12




grants Bank a license to enter and occupy any of its premises, without charge,
to exercise any of Bank's rights or remedies;

         (e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;

         (f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and

         (g) Dispose of the Collateral according to the Code.

9.2      POWER OF ATTORNEY.

         Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; and (iv) transfer the Collateral into the name of Bank or a third
party as the Code permits. Bank may exercise the power of attorney to sign
Borrower's name on any documents necessary to perfect or continue the perfection
of any security interest regardless of whether an Event of Default has occurred.
Bank's appointment as Borrower's attorney in fact, and all of Bank's rights and
powers, coupled with an interest, are irrevocable until all Obligations have
been fully repaid and performed and Bank's obligation to provide Credit
Extensions terminates.

9.3      BANK EXPENSES.

         If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.

9.4      BANK'S LIABILITY FOR COLLATERAL.

         If Bank complies with reasonable banking practices and Section 9-207 of
the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other person. Borrower bears all risk of loss, damage or destruction of the
Collateral.

9.5      REMEDIES CUMULATIVE.

         Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.

9.6      DEMAND WAIVER.

         Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

10       NOTICES


                                       13




         All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other party
written notice.

11       CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

         California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in San Diego County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12       GENERAL PROVISIONS

12.1     SUCCESSORS AND ASSIGNS.

         This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.

12.2     INDEMNIFICATION.

         Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

12.3     TIME OF ESSENCE.

         Time is of the essence for the performance of all obligations in this
Agreement.

12.4     SEVERABILITY OF PROVISION.

         Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.

12.5     AMENDMENTS IN WRITING, INTEGRATION.

         All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents.


                                       14




12.6     COUNTERPARTS.

         This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.

12.7     SURVIVAL.

         All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.

12.8     CONFIDENTIALITY.

         In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans (provided, however, Bank shall use
commercially reasonable efforts in obtaining such prospective transferee or
purchasers agreement of the terms of this provision), (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.

12.9     EFFECT OF AMENDMENT AND RESTATEMENT.

         This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and shall continue to be
outstanding under this Agreement. All security interests granted under the
Original Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Agreement.

12.10    ATTORNEYS' FEES, COSTS AND EXPENSES.

         In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other reasonable costs and expenses incurred, in
addition to any other relief to which it may be entitled.

13       DEFINITIONS

13.1     DEFINITIONS.

         In this Agreement:

         "AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.

         "BANK EXPENSES" are all audit fees and expenses and reasonable costs
and expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).


                                       15




         "BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.

         "BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.

         "CASH BURN" is defined in Section 6.7.

         "CLOSING DATE" is the date of this Agreement.

         "CODE" is the Uniform Commercial Code, as applicable.

         "COLLATERAL" is the property described on EXHIBIT A.

         "COMMITTED EQUIPMENT LINE" is a Credit Extension of up to $2,000,000.

         "CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.

         "CREDIT EXTENSION" is each Equipment Advance, Term Loan 1, Term Loan 2
or any other extension of credit by Bank for Borrower's benefit.

         "EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

         "EQUIPMENT ADVANCE" is defined in Section 2.1.1.

         "EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.1.

         "EQUIPMENT MATURITY DATE" is defined in Section 2.1.1.

         "ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.

         "GAAP" is generally accepted accounting principles.

         "INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.

         "INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

         "INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished


                                       16




products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or later owned by or in the custody
or possession, actual or constructive, of Borrower, including inventory
temporarily out of its custody or possession or in transit and including returns
on any accounts or other proceeds (including insurance proceeds) from the sale
or disposition of any of the foregoing and any documents of title.

         "INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.

         "LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

         "LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.

         "MAKE-WHOLE PREMIUM" is an amount equal to 3% of the outstanding
Equipment Advances if the prepayment is made on or before the first anniversary
of the date hereof; 2% of the outstanding Equipment Advances if the prepayment
is made on or after the first anniversary hereof but before the second
anniversary hereof; and 1% of outstanding Equipment Advances if the prepayment
is made on or after the second anniversary hereof but before the third
anniversary hereof but before the Equipment Maturity Date.

         "MATERIAL ADVERSE CHANGE" is defined in Section 8.3.

         "OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.

         "ORIGINAL AGREEMENT" has the meaning set forth in recital paragraph A.

         "PERMITTED INDEBTEDNESS" is:

         (a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;

         (b) Indebtedness existing on the Closing Date and shown on the
Schedule;

         (c) Subordinated Debt;

         (d) Indebtedness to trade creditors incurred in the ordinary course of
business; and

         (e) Indebtedness secured by Permitted Liens.

         "PERMITTED INVESTMENTS" are:

         (a) Investments existing on the Closing Date and those consistent with
Borrower's Investment Policy, dated June 14, 1996; and

         (b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc. or consistent with Borrower's
Investment Policy, and (iii) Bank's certificates of deposit issued maturing no
more than 1 year after issue.


                                       17




         "PERMITTED LIENS" are:

         (a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;

         (b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority over
any of Bank's security interests;

         (c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, IF the Lien is confined to the
property and improvements and the proceeds of the equipment;

         (d) Licenses or sublicenses granted in the ordinary course of
Borrower's business and any interest or title of a licensor or under any license
or sublicense, IF the licenses and sublicenses permit granting Bank a security
interest;

         (e) Leases or subleases granted in the ordinary course of Borrower's
business, including in connection with Borrower's leased premises or leased
property;

         (f) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.

         "PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.

         "PREPAYMENT FEE" is a fee on any portion of the Term Loan 1 with a
fixed interest rate (the "Fixed Obligation") paid before the payment due date.
"Base Interest Rate" means Bank's initial cost of funding the Fixed Obligations.
The Prepayment Fee is calculated as follows: First, Bank determines a "Current
Market Rate" based on what the Bank would receive if it loaned the remaining
amount on the prepayment date in a wholesale funding market matching maturity,
remaining principal and interest amounts and principal and interest payment
dates (the aggregate payments received are the "Current Market Rate Amount").
Bank may select any wholesale funding market rate as the Current Market Rate.
Second, Bank will take the prepayment amount and calculate the present value of
each remaining principal and interest payment which, without prepayment, the
Bank would have received during the term of the Fixed Obligations using the Base
Interest Rate. The sum of the present value calculations is the "Mark to Market
Amount." Third, the Bank will subtract the Current Market Rate Amount from the
Mark to Market Amount. Any amount greater than zero is the Prepayment Fee.

         "PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.

         "REMAINING MONTHS LIQUIDITY" is defined in Section 6.7.

         "RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer, the Director of Finance and the
Controller of Borrower.

         "SCHEDULE" is any attached schedule of exceptions.

         "SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.


                                       18




         "SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.

         "TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries MINUS, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, AND (ii) Total Liabilities.

         "TERM LOAN 1" is a loan of $305,555.50.

         "TERM LOAN 2" is a loan of $1,388,888.95.

         "TERM LOAN 1 MATURITY DATE" is April 30, 2002.

         "TERM LOAN 2 MATURITY DATE" is June 15, 2003.

         "TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.

         "TREASURY YIELD PERCENTAGE" is defined as the most recent weekly
average yield on actively traded U.S. Treasury obligations having a final
maturity approximate to the then remaining average life of the principal amount
to be repaid as determined by reference to the week ending figures published in
the most recent Federal Reserve Statistical Release which shall become available
at least two business days prior to the date as of which such yield is to be
determined, or if a Statistical Release is not then published, the arithmetic
average (rounded to the nearest .01%) of the per annum yields to maturity for
each business day during the week ending at least two business days prior to the
date such determination is made, of all issues of actively traded marketable
United States Treasury fixed interest rate securities with a constant maturity
equal to, or not more than 30 days longer or 30 days shorter than the average
life of the payments of principal and interest that are avoided by any
prepayment (excluding all such securities which can be surrendered at the option
of the holder at the face value of payment of any Federal estate tax, or which
provide for tax benefits to the holder).


BORROWER:

MITOKOR


By: /s/ Walter H. Moos
   ---------------------------------

Title: CEO, Chairman of the Board
      ------------------------------


BANK:

SILICON VALLEY BANK


By: /s/ Linda S. LeBeau
   ---------------------------------

Title:  SVP
      ------------------------------


                                       19

EX-10.17

                                                                   Exhibit 10.17


THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES LAW,
AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 AND AN EXEMPTION
UNDER APPLICABLE STATE LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.


                            WARRANT TO PURCHASE STOCK

Corporation:  MITOKOR , a CALIFORNIA corporation
Number of Shares:  8,000
Class of Stock:  Series F Preferred
Initial Exercise Price:  $7.50 per share
Issue Date:  JUNE 21, 2001
Expiration Date:  JUNE 21, 2006


         THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.

ARTICLE 1. EXERCISE.

                  1.1      METHOD OF EXERCISE. Holder may exercise this Warrant
by delivering a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.

                  1.2      CONVERSION RIGHT. In lieu of exercising this Warrant
as specified in Section 1.1, Holder may from time to time convert this Warrant,
in whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.3.

                  1.3      FAIR MARKET VALUE. If the Shares are traded in a
public market, the fair market value of the Shares shall be the closing price of
the Shares (or the closing price of the Company's stock into which the Shares
are convertible) reported for the business day immediately before Holder
delivers its Notice of Exercise to the Company. If the Shares are not traded in
a public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment.

                  1.4      DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly
after Holder exercises or converts this Warrant, the Company shall deliver to
Holder certificates for the Shares acquired and, if this Warrant has not been
fully exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.

                  1.5      REPLACEMENT OF WARRANTS. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor.

                  1.6      ASSUMPTION ON SALE, MERGER, OR CONSOLIDATION OF THE
                           COMPANY.





                           1.6.1    "ACQUISITION". For the purpose of this
Warrant, "Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.

                           1.6.2    ASSUMPTION OF WARRANT. Upon the closing of
any Acquisition, the successor entity shall assume the obligations of this
Warrant, and this Warrant shall be exercisable for the same securities, cash,
and property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Initial Exercise
Price and/or number of Shares shall be adjusted accordingly.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.

                  2.1      STOCK DIVIDENDS, SPLITS, ETC. If the Company declares
or pays a dividend on its common stock (or the Shares if the Shares are
securities other than common stock) payable in common stock, or other
securities, subdivides the outstanding common stock into a greater amount of
common stock, or, if the Shares are securities other than common stock,
subdivides the Shares in a transaction that increases the amount of common stock
into which the Shares are convertible, then upon exercise of this Warrant, for
each Share acquired, Holder shall receive, without cost to Holder, the total
number and kind of securities to which Holder would have been entitled had
Holder owned the Shares of record as of the date the dividend or subdivision
occurred. If the outstanding shares are combined or consolidated, by
reclassification or otherwise, into a lesser number of shares, the Initial
Exercise Price shall be proportionately increased.

                  2.2      RECLASSIFICATION, EXCHANGE, COMBINATIONS OR
SUBSTITUTION. Upon any reclassification, exchange, substitution, or other event
that results in a change of the number and/or class of the securities issuable
upon exercise or conversion of this Warrant, Holder shall be entitled to
receive, upon exercise or conversion of this Warrant, the number and kind of
securities and property that Holder would have received for the Shares if this
Warrant had been exercised immediately before such reclassification, exchange,
substitution, or other event. Such an event shall include any automatic
conversion of the outstanding or issuable securities of the Company of the same
class or series as the Shares to common stock pursuant to the terms of the
Company's Articles of Incorporation upon the closing of a registered public
offering of the Company's common stock. The Company or its successor shall
promptly issue to Holder a new Warrant for such new securities or other
property. The new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
2 including, without limitation, adjustments to the Initial Exercise Price and
to the number of securities or property issuable upon exercise of the new
Warrant. The provisions of this Section 2.2 shall similarly apply to successive
reclassifications, exchanges, substitutions, or other events.

                  2.3      ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price
and the number of Shares issuable upon exercise of this Warrant or, if the
Shares are Preferred Stock, the number of shares of common stock issuable upon
conversion of the Shares, shall be subject to adjustment, from time to time in
the manner set forth in the Company's Articles (Certificate) of Incorporation.
The provisions set forth for the Shares in the Company's Articles (Certificate)
of Incorporation relating to the above in effect as of the Issue Date may not be
amended, modified or waived, without the prior written consent of Holder unless
such amendment, modification or waiver affects Holder in the same manner as they
affect all other shareholders of the same series of shares granted to the
Holder.

                  2.4      NO IMPAIRMENT. The Company shall not, by amendment of
its Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in


                                       2



good faith assist in carrying out of all the provisions of this Article 2 and in
taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment.

                  2.5      FRACTIONAL SHARES. No fractional Shares shall be
issuable upon exercise or conversion of the Warrant and the number of Shares to
be issued shall be rounded down to the nearest whole Share. If a fractional
share interest arises upon any exercise or conversion of the Warrant, the
Company shall eliminate such fractional share interest by paying Holder the
amount computed by multiplying the fractional interest by the fair market value
of a full Share.

                  2.6      CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment
of the Warrant Price, the Company shall promptly notify Holder in writing, and,
at the Company's expense, promptly compute such adjustment, and furnish Holder
with a certificate of its Chief Financial Officer setting forth such adjustment
and the facts upon which such adjustment is based. The Company shall, upon
written request, furnish Holder a certificate setting forth the Warrant Price in
effect upon the date thereof and the series of adjustments leading to such
Warrant Price.

ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

                  3.1      REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to the Holder as follows:

                           (a)      The initial Warrant Price referenced on the
first page of this Warrant is not greater than (i) the price per share at which
the Shares were last issued in an arms-length transaction in which at least
$500,000 of the Shares were sold and (ii) the fair market value of the Shares as
of the date of this Warrant.

                           (b)      All Shares which may be issued upon the
exercise of the purchase right represented by this Warrant, and all securities,
if any, issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.

                           (c)      The Capitalization Table attached hereto is
true and complete as of the Issue Date.

                  3.2      NOTICE OF CERTAIN EVENTS. If the Company proposes at
any time (a) to declare any dividend or distribution upon its common stock,
whether in cash, property, stock, or other securities and whether or not a
regular cash dividend; (b) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights; (c) to effect any reclassification or recapitalization
of common stock; (d) to merge or consolidate with or into any other corporation,
or sell, lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 10 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 10 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.

                  3.3      REGISTRATION UNDER SECURITIES ACT OF 1933, AS
AMENDED. The Company agrees that the Shares or, if the Shares are convertible
into common stock of the Company, such common stock, shall be subject to the
registration rights set forth in the Company's Investor Rights Agreement or
similar agreement. The provisions set forth in the Company's Investors' Right
Agreement or similar agreement relating to the above in effect as of the Issue
Date may not be amended, modified or waived without the


                                       3



prior written consent of Holder unless such amendment, modification or waiver
affects Holder in the same manner as they affect all other shareholders of the
same series of shares granted to the Holder .

ARTICLE 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER. The Holder represents and
warrants to the Company as follows:

                  4.1      PURCHASE FOR OWN ACCOUNT. Except for transfers to
Holder's affiliates, this Warrant and the securities to be acquired upon
exercise of this Warrant by the Holder will be acquired for investment for the
Holder's account, not as a nominee or agent, and not with a view to the public
resale or distribution within the meaning of the 1933 Act, and the Holder has no
present intention of selling, granting any participation in, or otherwise
distributing the same. If not an individual, the Holder also represents that the
Holder has not been formed for the specific purpose of acquiring this Warrant or
the Shares.

                  4.2      DISCLOSURE OF INFORMATION. The Holder has received or
has had full access to all the information it considers necessary or appropriate
to make an informed investment decision with respect to the acquisition of this
Warrant and its underlying securities. The Holder further has had an opportunity
to ask questions and receive answers from the Company regarding the terms and
conditions of the offering of this Warrant and its underlying securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Holder or to which the
Holder has access.

                  4.3      INVESTMENT EXPERIENCE. The Holder understands that
the purchase of this Warrant and its underlying securities involves substantial
risk. The Holder: (i) has experience as an investor in securities of companies
in the development stage and acknowledges that the Holder is able to fend for
itself, can bear the economic risk of such Holder's investment in this Warrant
and its underlying securities and has such knowledge and experience in financial
or business matters that the Holder is capable of evaluating the merits and
risks of its investment in this Warrant and its underlying securities and/or
(ii) has a preexisting personal or business relationship with the Company and
certain of its officers, directors or controlling persons of a nature and
duration that enables the Holder to be aware of the character, business acumen
and financial circumstances of such persons.

                  4.4      ACCREDITED INVESTOR STATUS. The Holder is an
"accredited investor" within the meaning of Regulation D promulgated under the
1933 Act.

ARTICLE 5. MISCELLANEOUS.

                  5.1      TERM: This Warrant is exercisable in whole or in part
at any time and from time to time on or before the Expiration Date.

                  5.2      LEGENDS. This Warrant and the Shares (and the
securities issuable, directly or indirectly, upon conversion of the Shares, if
any) shall be imprinted with a legend in substantially the following form:

                  THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933, AS AMENDED OR UNDER ANY APPLICABLE STATE LAWS, AND
                  MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
                  EFFECTIVE REGISTRATION THERE OF UNDER SUCH ACT AND AN
                  EXEMPTION UNDER APPLICABLE STATE LAW OR PURSUANT TO RULE 144
                  OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
                  CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
                  REQUIRED.

                  5.3      COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This
Warrant and the Shares issuable upon exercise of this Warrant (and the
securities issuable, directly or indirectly, upon conversion of the Shares, if
any) may not be transferred or assigned in whole or in part without compliance
with applicable federal and state securities laws by the transferor and the
transferee (including, without


                                       4



limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, as reasonably requested by the Company).
The Company shall not require Holder to provide an opinion of counsel if the
transfer is to an affiliate of Holder or if there is no material question as to
the availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holder's notice of proposed sale.

                  5.4      TRANSFER PROCEDURE. Subject to the provisions of
Section 5.3, Holder may transfer all or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) to Silicon Valley Bancshares,
or The Silicon Valley Bank Foundation, or to any affiliate of Holder at any time
without prior notice to Company; PROVIDED, HOWEVER, if Holder transfers this
warrant to any other transferee, Holder will give the Company notice of the
portion of the Warrant being transferred with the name, address and taxpayer
identification number of the transferee and surrendering this Warrant to the
Company for reissuance to the transferee(s) (and Holder if applicable). The
Company may refuse to transfer this Warrant to any person who directly competes
with the Company unless the Company's stock is publicly traded.

                  5.5      NOTICES. All notices and other communications from
the Company to the Holder, or vice versa, shall be deemed delivered and
effective when given personally or mailed by first-class registered or certified
mail, postage prepaid, at such address as may have been furnished to the Company
or the Holder, as the case may be, in writing by the Company or such holder from
time to time. All notices to the Holder shall be addressed as follows:

                           Silicon Valley Bank
                           Attn:  Treasury Department
                           3003 Tasman Drive, HG 110
                           Santa Clara, CA 95054

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

                  5.7      ATTORNEY'S FEES. In the event of any dispute between
the parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable attorney's fees.

                  5.8      AUTOMATIC CONVERSION UPON EXPIRATION. In the event
that, upon the Expiration Date, the fair market value of one Share (or other
security issuable upon the exercise hereof) as determined in accordance with
Section 1.3 above is greater than the Exercise Price in effect on such date,
then this Warrant shall automatically be deemed on and as of such date to be
converted pursuant to Section 1.2 above as to all Shares (or such other
securities) for which it shall not previously have been exercised or converted,
and the Company shall promptly deliver a certificate representing the Shares (or
such other securities) issued upon such conversion to the Holder.

                  5.9      GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to its principles regarding conflicts of law.


                                       5



                                "COMPANY"
                                MITOKOR

                                By: /s/ Walter H. Moos
                                   ---------------------------------------------
                                Name:   Walter H. Moos
                                      ------------------------------------------
                                                       (Print)

                                Title:  Chairman of the Board

                                By:  /s/ Craig Johnson
                                   ---------------------------------------------
                                Name:    Craig Johnson
                                      ------------------------------------------
                                                       (Print)

                                Title:   Chief Financial Officer

                                "HOLDER"
                                Silicon Valley Bank

                                By:   /s/ Linda LeBeau
                                    --------------------------------------------
                                Name:     Linda LeBeau
                                      ------------------------------------------
                                Title:    SVP
                                       -----------------------------------------


                                       6

EX-10.18

                                                                  Exhibit 10.18


                      EQUIPMENT LOAN AND SECURITY AGREEMENT


                          Dated as of December 15, 1999

                                     between

                           MMC/GATX PARTNERSHIP NO. I

                                    as Lender

                                       and

                                     MITOKOR
                            a California corporation
                           11494 Sorrento Valley Road
                           San Diego, California 92121

                                   as Borrower

                            CREDIT AMOUNT: $1,000,000

                                       Repayment Period:   36   months
                                                         ------

Final Payment Percentage:     10%      Treasury Note Maturity:   36   months
                            -------                            ------

Minimum Funding Amount:  $  100,000    Loan Margin:   300   basis points
                         ----------                 -------

                       Maximum Number of Fundings: monthly
                                                   -------

                  Commitment Termination Date: August 31, 2000


Eligible Equipment: Computers, computer equipment, laboratory test and
measurement equipment, office equipment and furnishings

         The defined terms and information set forth on this cover page are a
part of this EQUIPMENT LOAN AND SECURITY AGREEMENT, dated as of the date first
written above (this "Agreement"), entered into by and between MMC/GATX
PARTNERSHIP NO. I ("Lender") and the borrower ("Borrower") set forth above. The
terms and conditions of this Agreement agreed to between Lender and Borrower are
as follows:





         1.01.  CERTAIN DEFINITIONS . Unless otherwise indicated in this
Agreement or any other Operative Document, the following terms, when used in
this Agreement or any other Operative Document, shall have the following
respective meanings:

         "BORROWER'S HOME STATE" shall mean California, the state in which
Borrower's principal place of business is located.

         "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or
public holiday under the laws of California or Borrower's Home State or other
day on which banking institutions are authorized or obligated to close in
California or Borrower's Home State.

         "CLAIM" has the meaning given to that term in SECTION 10.03.

         "COLLATERAL" has the meaning given to that term in SECTION 5.01(a).

         "COMMITMENT FEE" shall mean the $10,000 fee previously paid by Borrower
to Lender upon the execution and delivery by Lender and Borrower of the "term
sheet" dated August 27, 1999 setting out certain principal terms and conditions
of the transaction contemplated by this Agreement.

         "COMMITMENT TERMINATION DATE" shall mean the date specified on the
cover page of this Agreement.

         "CREDIT AMOUNT" shall mean the maximum amount that Lender is committed
to lend (if the conditions specified in Schedule 3 are satisfied), which amount
is set forth following such term on the cover page of this Agreement.

         "DEFAULT" shall mean any event which with the passing of time or the
giving of notice or both would become an Event of Default hereunder.

         "DEFAULT RATE" shall mean the per annum rate of interest equal to the
higher of (i) 18% or (ii) the Prime Rate plus 6%, but such rate shall in no
event be more than the highest rate permitted by applicable law.

         "ELIGIBLE EQUIPMENT" shall mean, to the extent acceptable to Lender,
Equipment of the types listed following such term on the cover page of this
Agreement; provided that Eligible Equipment shall not include Equipment placed
in service more than 90 days prior to the date of any Schedule; provided
further, in the case of the first Loan only, Eligible Equipment shall also
include Equipment placed in service more than 90 days but not more than 120 days
prior to the date of any Schedule.

         "ENVIRONMENTAL LAW" shall mean the Resource Conservation and Recovery
Act of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, and any other federal, state or local statute, law, ordinance,
code, rule, regulation, order or decree (in each case having the force of law)
regulating or imposing liability or standards of conduct concerning any
Hazardous Material, as now or at any time hereafter in effect.

                                       1




         "EQUIPMENT" has the meaning given to that term in SECTION 5.01(a).

         "EQUITY SECURITIES" shall mean (a) all common stock, preferred stock,
participations, shares, partnership interests or other equity interest in and of
Borrower (regardless of how designated and whether or not voting or non-voting)
and (b) all warrants, options and other rights to acquire any of the foregoing.

         "EVENT OF DEFAULT" has the meaning given to that term in SECTION 9.01.

         "EVENT OF LOSS" has the meaning given to that term in SECTION 6.01(e).

         "FAIR MARKET VALUE," with respect to an item of Equipment, shall mean a
price determined on the basis of and equal in amount to the value which would
obtain in an arm's-length transaction between an informed and willing buyer-user
(other than a used equipment dealer) and an informed and willing seller under no
compulsion to sell, on the assumptions that: such item of Equipment (i) is being
sold "in place and use," at the premises of Borrower; (ii) is free and clear of
all liens and encumbrances; and (iii) is in condition required by SECTION
6.01(i) of this Agreement. In such determination, cost of removal from the
location of current use shall not be a deduction from such value. If Lender and
Borrower are unable to agree on the Fair Market Value of such item of Equipment
within 90 days prior to the Maturity Date of the applicable Loan, such value
shall be determined in accordance with the foregoing definition by a qualified
independent appraiser mutually agreeable to Lender and Borrower or, failing such
agreement, by three appraisers, one selected by Borrower, one selected by Lender
and one selected by the appraisers selected by Lender and Borrower. Such
appraiser(s) shall be furnished with a copy of this Agreement and the relevant
Loan Terms Schedule(s) and such other information as any appraiser deems
relevant to such appraiser's determination of such value. Each appraiser shall
be instructed to deliver such appraiser's determination in writing to Lender and
Borrower within 20 days after being appointed under this Agreement, but in no
event later than 30 days prior to such Maturity Date. The determination by the
appraiser or appraisers shall be made on the request of Lender in accordance
with the Uniform Standards of Professional Appraisal Practice (or successor
rules) in the United States in effect at the date of such determination. Each of
Lender and Borrower shall pay one half of the single appraiser's fees and all
other appraisal fees and expenses, or if there are three appraisers, the fees
and expenses of the appraiser selected by it and one-half of the fees and
expenses of the third appraiser and all other appraisal fees and expenses.

         "FINAL PAYMENT" shall mean, with respect to each Loan, a payment (in
addition to the regular monthly payment of principal and accrued interest on the
Loan) due on the Maturity Date for such Loan equal to the Loan Amount for such
Loan at such time multiplied by the Final Payment Percentage.

         "FINAL PAYMENT PERCENTAGE" means the percentage set forth following
such term on the cover page of this Agreement.

         "FUNDING DATE" shall mean any date on which a Loan is made to or on
account of Borrower under this Agreement.


                                       2




         "HAZARDOUS MATERIAL" means any hazardous, dangerous or toxic
constituent material, pollutant, waste or other substance, whether solid, liquid
or gaseous, which is regulated by any federal, state or local governmental
authority.

         "INDEBTEDNESS" shall mean, with respect to Borrower or any Subsidiary,
the aggregate amount of, without duplication, (a) all obligations of such Person
for borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (c) all obligations of such
Person to pay the deferred purchase price of property or services (excluding
trade payables aged less than 180 days), (d) all capital lease obligations of
such Person, (e) all obligations or liabilities of others secured by a lien on
any asset of such Person, whether or not such obligation or liability is
assumed, (f) all obligations or liabilities of others guaranteed by such Person;
and (g) any other obligations or liabilities which are required by GAAP to be
shown as debt on the balance sheet of such Person. Unless otherwise indicated,
the term "INDEBTEDNESS" shall include all Indebtedness of Borrower and the
Subsidiaries.

         "INTERIM PAYMENT" shall mean, which respect to each Loan, an amount
equal to the initial Loan Amount multiplied by the percentage equal to the
product of (i) the quotient derived from dividing the Loan Factor with respect
to such Loan by 30, and (ii) the number of days from (and including) the Funding
Date of such Loan to (but not including) the first Payment Date with respect to
such Loan.

         "LANDLORD CONSENT" shall mean a consent in the form of EXHIBIT B or
such other form as Lender may agree to accept.

         "LIEN" shall mean any pledge, bailment, lease, mortgage, hypothecation,
conditional sales and title retention agreements, charge, claim, encumbrance or
other lien in favor of any Person.

         "LOAN" shall mean each advance by Lender to Borrower under this
Agreement.

         "LOAN AMOUNT" shall mean, as of any date, with respect to each Loan,
the original principal amount of such Loan less the aggregate of all Stated
Costs of Equipment with respect to which prepayments of such Loan have been
made.

         "LOAN FACTOR" shall mean, with respect to each Loan, the amount set
forth as a percentage with respect to such Loan in the applicable Loan Terms
Schedule, calculated using the Loan Rate applicable to such Loan.

         "LOAN MARGIN" shall mean the number of basis points set forth following
such term on the cover page of this Agreement.

         "LOAN RATE" shall mean, with respect to each Loan, the per annum rate
of interest (based on a year of twelve 30-day months) equal to the sum of (a)
the U.S. Treasury note rate of a term equal to the Treasury Note Maturity as
quoted in the Wall Street Journal on the date the Loan Terms Schedule for such
Loan is prepared, plus (b) the applicable Loan Margin.

         "LOAN TERMS SCHEDULE" shall mean, with respect to each Loan, a schedule
in the form of


                                       3




SCHEDULE 1 hereto, duly completed to set forth the terms applicable to such
Loan.

         "LOAN VALUE" shall mean, with respect to each Loan, the percentage set
forth in the Loan Terms Schedule applicable to such Loan, determined as of the
Payment Date on which payment of an amount is to be made, or if such date is not
a Payment Date, as of the next Payment Date following such date.

         "MATURITY DATE" shall mean, with respect to each Loan, the earlier of:
(a) the last Business Day of the Repayment Period applicable to such Loan, (b)
if there is a Redemption Event, then with respect to each and all Loans, five
(5) Business Days prior to the Redemption Event, or (c) the date of acceleration
of such Loan by Lender following an Event of Default.

         "MAXIMUM NUMBER OF FUNDINGS" shall mean the maximum number of fundings
under this Agreement specified on the cover page of this Agreement.

         "MINIMUM FUNDING AMOUNT" shall mean the dollar amount specified on the
cover page of this Agreement.

         "NEW EQUIPMENT" shall mean Eligible Equipment placed in service not
more than ninety (90) days prior to the date of a Schedule.

         "OBLIGATIONS" has the meaning given to that term in SECTION 5.01.

         "OPERATIVE DOCUMENTS" shall mean this Agreement, the Warrant, the
Landlord Waiver and Consent(s) and all other documents, instruments and
agreements (including Loan Terms Schedules) executed and delivered in connection
herewith or therewith or in respect of the closing of the transactions
contemplated hereby or thereby.

         "PAYMENT DATE" has the meaning given to that term in SECTION 2.04(a).

         "PERMITTED LIENS" shall mean (a) the Lien created by this Agreement,
(b) Liens for fees, taxes, levies, imposts, duties or other governmental charges
of any kind which are not yet delinquent or which are being contested in good
faith by appropriate proceedings which suspend the collection thereof (PROVIDED,
HOWEVER, that such proceedings do not involve any substantial danger of the
sale, forfeiture or loss of any item of Equipment and that Borrower has
adequately bonded such Lien or reserves sufficient to discharge such Lien have
been provided on the books of Borrower), (c) Liens identified on SCHEDULE 2, (d)
Liens to secure payment of worker's compensation, employment insurance, old age
pensions or other social security obligations of Borrower in the ordinary course
of business of Borrower, (e) minor easements, licenses, reservations, covenants,
conditions, waivers, on real property, restrictions on the use of real property,
or minor irregularities of title to real property, which, in each case, do not
in the aggregate materially impair the use thereof in the operation of the
business of Borrower, (f) purchase money Liens on equipment not financed or
secured hereunder acquired or held by Borrower or its Subsidiaries incurred for
financing the acquisition of such equipment; (g) Liens of equipment not financed
or secured hereunder leased by Borrower or any Subsidiary pursuant to an
operating lease in the ordinary course of Borrower's business (including
proceeds thereof and accessions thereto) incurred solely for the purposes of
financing the lease of


                                       4




such equipment, (h) Liens on Borrower's property not financed or secured
hereunder consisting of rights of set-off of a customary nature or bankers'
liens on amounts on deposit, whether arising by contract or operation of law,
incurred in the ordinary course of business, and (i) Liens on Borrower's
property not financed or secured hereunder incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Permitted Liens
of the type described above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and not on
property financed or secured hereunder and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase.

         "PERSON" shall mean and include an individual, a partnership, a
corporation, a business trust, a joint stock company, a limited liability
company, an unincorporated association or other entity and any domestic or
foreign national, state or local government, any political subdivision thereof,
and any department, agency, authority or bureau of any of the foregoing.

         "PRIME RATE" shall mean the interest rate per annum publicly announced
from time to time by Bank of America NT & SA (or its successor) as its reference
rate, but such rate shall in no event be more than the highest interest rate
permitted by applicable law.

         "REDEMPTION EVENT" shall mean the date Borrower is required to redeem,
or any redemption or cash payment is scheduled to occur to the holders of, or on
account of , any of Borrower's Equity Securities, whether mandatory or
otherwise, pursuant to the Borrower's Articles of Incorporation, as amended or
modified, in an aggregate amount not to exceed one hundred thousand dollars
($100,000).

         "REPAYMENT PERIOD" shall mean the period beginning on the first Payment
Date and continuing for the number of calendar months or quarters set forth
following such term on the cover page of this Agreement.

         "RESPONSIBLE PERSON" means each of the President, the Chief Executive
Officer or the Director of Finance and Administration of Borrower.

         "SCHEDULED PAYMENTS" has the meaning given to that term in SECTION
2.04(a).

         "STATED COST" shall mean, with respect to each item of Equipment (i)
one hundred percent (100%) of the purchase price (net of taxes, freight and
other similar costs) of New Equipment, and (ii) Lender's appraised value as set
forth in Annex A to the applicable Loan Terms Schedule with respect to Used
Equipment.

         "STIPULATED LOSS VALUE" shall mean, with respect to each item of
Equipment, the Loan Value multiplied by the Stated Cost financed under this
Agreement.

         "SUBSIDIARY" shall mean any corporation of which a majority of the
outstanding capital stock entitled to vote for the election of directors
(otherwise than as the result of a default) is owned by Borrower directly or
indirectly through Subsidiaries.

         "TERM" shall mean the period from and after the date hereof until the
payment or satisfaction


                                       5




in full of all Obligations under this Agreement and the other Operative
Documents.

         "TREASURY NOTE MATURITY" shall mean the period of months set forth
following such term on the cover page of this Agreement.

         "USED EQUIPMENT" shall mean all Eligible Equipment which is not New
Equipment.

         "WARRANT" shall mean a warrant to purchase securities of Borrower
substantially in the form of EXHIBIT C.

         1.02.  HEADINGS . Headings in this Agreement and each of the other
Operative Documents are for convenience of reference only and are not part of
the substance hereof or thereof.

         1.03.  PLURAL TERMS . All terms defined in this Agreement or any other
Operative Document in the singular form shall have comparable meanings when used
in the plural form and VICE VERSA.

         1.04.  CONSTRUCTION . This Agreement is the result of negotiations
among, and has been reviewed by, Borrower and Lender and their respective
counsel. Accordingly, this Agreement shall be deemed to be the product of all
parties hereto, and no ambiguity shall be construed in favor of or against
Borrower or Lender.

         1.05.  ENTIRE AGREEMENT . This Agreement, together with the terms set
forth in each Loan Terms Schedule and each of the other Operative Documents,
taken together, constitute and, contain the entire agreement of Borrower and
Lender and, with regard to their respective subject matters, supersede any and
all prior agreements, term sheets, negotiations, correspondence, understandings
and communications among the parties, whether written or oral, with respect to
their respective subject matters. Borrower acknowledges that it is not relying
on any representation or agreement made by Lender or any employee, agent or
attorney of Lender, other than the specific agreements set forth in this
Agreement and the Operative documents.

         1.06.  OTHER INTERPRETIVE PROVISIONS . References in this Agreement to
"Articles," "Sections," "Exhibits," "Schedules" and "Annexes" are to articles,
sections, exhibits, schedules and annexes herein and hereto unless otherwise
indicated. References in this Agreement and each of the other Operative
Documents to any document, instrument or agreement shall include (a) all
exhibits, schedules, annexes and other attachments thereto, (b) all documents,
instruments or agreements issued or executed in replacement thereof, and (c)
such document, instrument or agreement, or replacement or predecessor thereto,
as amended, modified and supplemented from time to time and in effect at any
given time. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement or any other Operative Document shall refer
to this Agreement or such other Operative Document, as the case may be, as a
whole and not to any particular provision of this Agreement or such other
Operative Document, as the case may be. The words "include" and "including" and
words of similar import when used in this Agreement or any other Operative
Document shall not be construed to be limiting or exclusive. Unless otherwise
indicated in this Agreement or any other Operative Document, all accounting
terms used in this Agreement or any other Operative Document shall be construed,
and all accounting and financial computations hereunder or thereunder shall be
computed, in accordance with generally accepted accounting


                                       6




principles as in effect in the United States of America from time to time.

         2.01  CREDIT FACILITY . On the terms and subject to the conditions
hereof and relying upon the representations and warranties herein set forth as
and when made or deemed to be made, Lender agrees to lend to Borrower, from time
to time (but not to exceed more than once per calendar month) prior to the
Commitment Termination Date, the Loans; PROVIDED, HOWEVER, that the aggregate
original principal amount of the Loans shall not exceed the Credit Amount at any
time; PROVIDED, FURTHER, that the aggregate original principal amount of any
Loan relating to the financing of Eligible Equipment shall not exceed the
aggregate original Fair Market Value of the items of Eligible Equipment being
financed with such Loan; PROVIDED, FURTHER, that the aggregate original
principal amount of all Loans relating to the financing of tenant improvements,
computer software packages and Equipment specially designed or manufactured for
Borrower, as well as other financing of intangible items (collectively, "Soft
Costs"), shall not exceed thirty percent (30%) of the aggregate original
principal amount of all Loans. If repaid or prepaid, the principal of the Loans
may not be re-borrowed.

         2.02.  USE OF PROCEEDS; THE LOANS AND THE LOAN TERMS SCHEDULE.

                (a) USE OF PROCEEDS. The proceeds of the Loans shall be used
solely for the purchase of, or reimbursement to Borrower of the Stated Cost of
Eligible Equipment and Soft Costs as set forth in SECTION 2.01.

                (b) THE LOANS AND THE LOAN TERMS SCHEDULE. The obligation of
Borrower to repay the aggregate unpaid principal amount of and interest on and
to make the Final Payments on the Loans, or to pay the Stipulated Loss Value
applicable to each Loan, shall be evidenced by the Loan Terms Schedule.

         2.03.  PROCEDURE FOR MAKING LOANS .

                (a) LOAN TERMS SCHEDULE. Whenever Borrower desires that Lender
make a Loan, Borrower shall deliver to Lender a list of the Equipment and soft
costs proposed to be financed by such Loan and request that Lender prepare a
Loan Terms Schedule for such Loan. Lender's obligation to make the initial Loan
shall be subject to the satisfaction of the conditions set forth in SECTIONS
8.01 AND 8.02. Lender's obligation to make each subsequent Loan shall be subject
to the satisfaction of the conditions set forth in SECTION 8.02. The terms and
conditions set forth in each Loan Terms Schedule are incorporated herein by this
reference.

                (b) LOAN RATE. Each Loan Terms Schedule shall establish the Loan
Rate applicable to that Loan. The Loan Rate shall not be subject to change in
the absence of manifest error or upon the written agreement of Borrower and
Lender. All computations of interest on Loans shall be based on a year of twelve
30-day months. If Borrower pays interest on any Loan which is determined to be
in excess of the then legal maximum rate, then that portion of each interest
payment representing an amount in excess of the then legal maximum rate shall be
deemed a payment of principal and applied against the principal of the
applicable Loan.

                (c) LOAN FACTOR AND LOAN VALUE CALCULATION. Each Loan Terms
Schedule shall establish the


                                       7




Loan Factor and Loan Values with respect to such Loan. The Loan Factor shall be
calculated in a manner to fully amortize the Loan over the Repayment Period
applicable to such Loan in equal periodic installments. The Loan Factor and Loan
Values applicable to each Loan shall be conclusive in the absence of manifest
error.

                (d) DISBURSEMENT. Subject to the receipt by Lender of a Loan
Terms Schedule duly executed by Borrower and the satisfaction of the conditions
set forth in SECTIONS 8.01 AND 8.02 with respect to the initial Loan and the
satisfaction of the conditions set forth in SECTION 8.02 with respect to each
subsequent Loan, Lender shall disburse such Loan by wire transfer to Borrower
unless otherwise directed in writing by Borrower.

                (e) TERMINATION OF COMMITMENT TO LEND. Notwithstanding anything
to the contrary in the Operative Documents, Lender's obligation to lend the
undisbursed portion of the Credit Amount to Borrower hereunder shall terminate
on the earlier of (i) the occurrence of any Event of Default hereunder, (ii) the
occurrence of a Redemption Event, and (iii) the Commitment Termination Date.

         2.04.  OTHER PAYMENT TERMS .

                (a) PRINCIPAL AND INTEREST PAYMENTS ON PAYMENT DATES. Borrower
shall make payments of principal and accrued interest for each Loan
(collectively, "SCHEDULED PAYMENTS"), commencing on the date set forth on the
Loan Terms Schedule applicable to such Loan and continuing thereafter during the
Repayment Period on the first day of each calendar month (each a "PAYMENT
DATE"), in an amount equal to the Loan Factor multiplied by the Loan Amount for
such Loan as of such Payment Date. The Loans may not be prepaid except: (i) in
the circumstances set forth in Section 6.01(e) in which case such Loan shall be
prepaid to the extent and in the manner provided in such section, or (ii) if the
Loans are accelerated following the occurrence of an Event of Default or
otherwise (other than following an Event of Loss), or (iii) if there is a
Redemption Event, in which case all Loans shall immediately become due and
payable without notice on the Maturity Date; in the case of (ii) or (iii),
Borrower shall immediately pay to Lender the amounts specified in Section 9.02.

                (b) INTERIM PAYMENT. Unless the Funding Date for a Loan is a
Payment Date, Borrower shall pay to Lender the Interim Payment payable with
respect to such Loan on the date specified in the Loan Terms Schedule applicable
to such Loan.

                (c) FINAL PAYMENT. Unless a Loan is prepaid in full, on the
Maturity Date with respect to such Loan, Borrower shall pay, in addition to any
remaining unpaid principal and accrued interest and all other amounts previously
due with respect to such Loan, an amount equal to the Final Payment with respect
to such Loan.

                (d) COMMITMENT FEE. The Commitment Fee shall be applied first to
Lender's expenses (not to exceed $2,000) in connection with due diligence and
the preparation, negotiation, and documentation of the Agreement and the other
Operative Documents and funding of Loans hereunder and thereunder. The balance
of the Commitment Fee shall be applied to the Final Payment due under each Loan
on a pro rata basis. If Borrower shall not have borrowed under this Agreement,
on or prior to the Commitment Termination Date or the earlier termination of
this Agreement, Loans aggregating in an original principal amount equal to the
Credit Amount, then the


                                       8




remaining balance of the Commitment Fee shall be retained by Lender.

                (e) PLACE AND MANNER. Borrower shall make all payments due to
Lender in lawful money of the United States at the address for payments and in
the manner specified in SECTION 10.05(a).

                (f) DATE. Whenever any payment due hereunder shall fall due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
interest or fees, as the case may be.

                (g) DEFAULT RATE. If either (i) any amounts required to be paid
by Borrower under this Agreement or the other Operative Documents (including
principal or interest payable on any Loan, any fees or other amounts) remain
unpaid after such amounts are due, or (ii) an Event of Default has occurred and
is continuing, Borrower shall pay interest on the aggregate, outstanding
principal balance hereunder from the date due or from the date of the Event of
Default, as applicable, until such past due amounts are paid in full or until
all Events of Defaults are cured, as applicable, at a per annum rate equal to
the Default Rate, such rate to change from time to time as the Prime Rate shall
change. All computations of such interest shall be based on a year of twelve
30-day months.

         3.01.  REPRESENTATIONS AND WARRANTIES . Except as set forth on Annex C
to Schedule No. 1 hereto, Borrower makes the following representations and
warranties to Lender as of the date hereof and again on each Funding Date:

                (a) ORGANIZATION AND QUALIFICATION. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation and is duly qualified to do business in the state(s) in
which the Equipment will be located.

                (b) AUTHORITY. Borrower has all necessary corporate power,
authority and legal right and has obtained all approvals and consents and has
given all notices necessary to execute and deliver this Agreement and the other
Operative Documents and to perform the terms hereof and thereof. Borrower has
all requisite corporate power and authority to own and operate its properties
and to carry on its businesses as now conducted.

                (c) CONFLICT WITH OTHER INSTRUMENTS, ETC. Neither the execution
and delivery of any Operative Document to which Borrower is a party nor the
consummation of the transactions therein contemplated nor compliance with the
terms, conditions and provisions thereof will conflict with or result in a
breach of any of the terms, conditions or provisions of the charter or the
bylaws of Borrower or, to its knowledge, any law or any regulation, order, writ,
injunction or decree of any court or governmental instrumentality or any
material agreement or instrument to which Borrower is a party or by which it or
any of its properties is bound or to which it or any of its properties is
subject, or constitute a default thereunder or result in the creation or
imposition of any Lien, other than Permitted Liens.

                (d) TITLE TO PROPERTIES. Borrower has good and marketable title
to all Equipment which constitutes or will constitute Collateral, free and clear
of all Liens, other than Permitted Liens.

                (e) AUTHORIZATION, GOVERNMENTAL APPROVALS, ETC. The execution
and delivery by Borrower


                                       9




of each Operative Document, the granting of the security interest in the
Collateral, the issuance of the Warrant, the issuance of the securities into
which the Warrant is exercisable, the issuance of any securities into which the
securities issuable upon exercise of the Warrant are convertible, and the
performance of the obligations herein and therein contemplated have each been
duly authorized by all necessary action on the part of Borrower. No
authorization, consent, approval, license or exemption of, and no registration,
qualification, designation, declaration or filing with, or notice to, any Person
is, was or will be necessary to (i) the valid execution and delivery of any
Operative Document to which Borrower is a party, (ii) the performance of
Borrower's obligations under any Operative Document, or (iii) the granting of
the security interest in the Collateral. The Operative Documents have been or
will be duly executed and delivered and constitute or will constitute legal,
valid and binding obligations of Borrower, enforceable in accordance with their
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws of general application relating to
or affecting the enforcement of creditors' rights or by general principles of
equity.

                (f) LITIGATION. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of Borrower, threatened against or
affecting Borrower, or the business or any property or asset owned by it, before
any court or governmental department, agency or instrumentality which if
adversely determined might have a material adverse effect on the financial
condition, business or operations of Borrower.

                (g) DISCLOSURE. Neither any Operative Document nor any other
agreement, document or certificate furnished by Borrower to Lender, including,
without limitation, historical financial statements, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading. As of
the date hereof, there is no fact known to Borrower which materially adversely
affects, or which could in the future materially adversely affect, its ability
to perform its obligations under the Operative Documents to which it is a party.

                (h) SECURITY INTEREST. Assuming the proper filing of one or more
financing statement(s) identifying the Collateral with the proper state and/or
local authorities, the security interests in the Collateral granted to Lender
pursuant to this Agreement (i) constitute and will continue to constitute first
priority security interests (except to the extent any other Permitted Lien
(other than Permitted Liens identified in CLAUSE (e) of the definition thereof)
existing on the date of this Agreement may create any priority to Lender's Lien
under this Agreement) and (ii) are and will continue to be superior and prior to
the rights of all other creditors of Borrower (except to the extent of such
Permitted Liens).

                (i) EXECUTIVE OFFICES. The principal place of business and chief
executive office of Borrower, and the office where Borrower will keep the
Collateral and all records and files regarding the Collateral, is set forth on
the cover page of this Agreement.

         4.01.  FURNISHING REPORTS. Borrower shall furnish to Lender:

                (a) NOTICE OF EVENT OF LOSS. As soon as possible, and in any
event within ten (10) days thereafter, notice in writing in reasonable detail of
any Event of Loss.


                                       10




                (b) NOTICE OF DEFAULTS. As soon as possible, and in any event
within five (5) days after the discovery of a Default or Event of Default
provide Lender with an officer's certificate of Borrower setting forth the facts
relating to or giving rise to such Default or Event of Default and the action
which Borrower proposes to take with respect thereto.

                (c) MISCELLANEOUS. Such other information as Lender may
reasonably request from time to time in connection with a Funding Date or
otherwise.

         5.01.  GRANT OF SECURITY INTEREST.

                (a) GRANT. Borrower, in order to secure the payment of the
principal, interest and Final Payment due with respect to the Loans made
pursuant to this Agreement, all other sums due under and in respect hereof and
of the other Operative Documents, including fees, charges, expenses and
attorneys' fees and costs and the performance and observance by Borrower of all
other terms, conditions, covenants and agreements herein and in the other
Operative Documents (all such amounts and obligations being herein sometimes
called the "OBLIGATIONS"), does hereby grant to Lender and its successors and
assigns, a security interest in and to the following property (collectively, the
"COLLATERAL"):

                All right, title, interest, claims and demands of Borrower in
         and to each and every item of equipment, fixtures or personal property
         which is financed with or is designated as collateral for a Loan on and
         after the date of this Agreement by designating such equipment,
         fixtures and personal property on ANNEX A to each Loan Terms Schedule,
         whether now owned or hereafter acquired, together with all
         substitutions, renewals or replacements of and additions, improvements,
         accessions, replacement parts and accumulations to any and all of such
         equipment, fixtures or personal property (collectively, the
         "EQUIPMENT"), together with all proceeds thereof, including, without
         limitation, insurance, condemnation, requisition or similar payments,
         and all proceeds from sales, renewals, releases or other dispositions
         thereof.

The security interest herein granted shall constitute a first priority security
interest upon the proper filing of one or more financing statements identifying
the Collateral with the proper state and/or local authorities.

                (b) AFTER-ACQUIRED PROPERTY. All Equipment which is financed
through Loans shall IPSO FACTO, and without any further conveyance, assignment
or act on the part of Borrower or Lender, become and be subject to the security
interest herein granted as fully and completely as though specifically described
herein. The definition of the term "Equipment" shall be deemed amended on each
Funding Date to incorporate all property financed with, or which will constitute
Collateral for, the Loan advanced on such Funding Date. Any failure to formally
amend such definition shall not affect the grant by Borrower to Lender of the
security interest in such Collateral pursuant to this SECTION 5.01. This
Agreement and the other documents in connection herewith may be supplemented and
amended from time to time, as required by Lender, to reflect the additional
Collateral subject to the security interest granted pursuant to this SECTION
5.01.

         5.02.  DURATION OF SECURITY INTEREST. Lender's security interest in the
Collateral shall


                                       11




continue until the payment in full and the satisfaction of all Obligations,
whereupon such security interest shall terminate; PROVIDED, HOWEVER, that if any
item of Collateral is subject to an Event of Loss, then following the prepayment
of the Loan with respect to such item pursuant to SECTION 6.01(e), Lender shall
release its security interest in such item of Collateral. Lender shall execute
such further documents and take such further actions as may be necessary to
effect the release and/or termination contemplated by this SECTION 5.02,
including duly executing and delivering termination statements for filing in all
relevant jurisdictions.

         5.03.  POSSESSION OF COLLATERAL . So long as no Event of Default has
occurred and is continuing, Borrower shall remain in full possession, enjoyment
and control of the Collateral (except only as may be otherwise required by
Lender for perfection of its security interest therein) and to manage, operate
and use the same and each part thereof with the rights and franchises
appertaining thereto; PROVIDED, HOWEVER, that the possession, enjoyment, control
and use of the Collateral shall at all times be subject to the observance and
performance of the terms of this Agreement.

         5.04.  MARKINGS ON THE COLLATERAL . If requested at any time by Lender,
Borrower shall place in a conspicuous location on each item of Collateral a
notice (to be supplied by Lender) which reads as follows:

                           "MMC/GATX Partnership No. I
                                  Lienholder".

Such notice shall not be removed (or if removed or damaged such notice shall be
replaced) until the security interest in favor of Lender in such item of
Collateral is terminated pursuant to this Agreement.

         6.01   AFFIRMATIVE COVENANTS.

                (a) GOOD STANDING. Borrower shall maintain its corporate
existence and its good standing in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could have a material adverse effect on the financial condition, operations or
business of Borrower. Borrower shall maintain in force all licenses, approvals
and agreements, the loss of which could have a material adverse effect on its
financial condition, operations or business.

                (b) GOVERNMENT COMPLIANCE. Borrower shall comply with all
statutes, laws, ordinances and government rules and regulations to which it is
subject, noncompliance with which could materially adversely affect the
financial condition, operations or business of Borrower.

                (c) FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall
deliver to Lender (i) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared balance sheet, income
statement and cash flow statement covering Borrower's operations during such
period, certified by a Responsible Officer; (ii) as soon as available, but in
any event within one hundred twenty (120) days after the end of Borrower's
fiscal year, audited financial statements of Borrower prepared in accordance
with generally accepted accounting principles, consistently applied, together
with an unqualified opinion on such financial statements of a nationally
recognized or other independent public accounting firm reasonably acceptable to
Lenders;


                                       12




(iii) promptly upon becoming available, copies of all statements, reports and
notices sent or made available generally by Borrower to its security holders;
(iv) immediately upon receipt of notice thereof, a report of any material legal
actions pending or threatened against Borrower; and (v) such other financial
information as Lenders may reasonably request from time to time.

                (d) INSURANCE. Unless such provisions are amended pursuant to
the terms of any Loan Terms Schedule:

                    (i)    Borrower shall, obtain and maintain for the Term, at
its own expense, (x) "all risk" insurance against loss or damage to the
Collateral, (y) commercial general liability insurance (including contractual
liability, products liability and completed operations coverages) reasonably
satisfactory to Lender, and (z) such other insurance against such other risks of
loss and with such terms, as shall in each case be reasonably satisfactory to or
reasonably required by Lender (as to carriers, amounts and otherwise). The
amount of the "all risk" insurance shall be the greater of (x) the replacement
value of the Collateral (as new) or (y) the Loan Value of the Loan Amount
applicable to each Loan. Such amounts shall be determined to Lender's reasonable
satisfaction as of each anniversary date of this Agreement and the appropriate
amount of coverage shall be put in effect on the next succeeding renewal or
inception date of such insurance.

                    (ii)   The deductible with respect to "all-risk" insurance
required by clause (x) above and product liability insurance required by clause
(y) above shall not exceed $25,000; otherwise there shall be no deductible with
respect to any insurance required to be maintained hereunder. The amount of
commercial general liability insurance (other than products liability coverage
and completed operations insurance) required by clause (y) above shall be at
least $2,000,000 per occurrence. The amount of the products liability and
completed operations insurance required by clause (y) above shall be at least
$2,000,000 per occurrence. Each "all risk" policy shall: (x) name Lender as sole
loss payee with respect to the Equipment, (y) provide for each insurer's waiver
of its right of subrogation against Lender, and (z) provide that such insurance
(A) shall not be invalidated by any action of, or breach of warranty by,
Borrower of a provision of any of its insurance policies, and (B) shall waive
set-off, counterclaim or offset against Lender. Each liability policy shall (w)
name Lender as an additional insured and (x) provide that such insurance shall
have cross-liability and severability of interest endorsements (which shall not
increase the aggregate policy limits of Borrower's insurance). All insurance
policies shall (y) provide that Borrower's insurance shall be primary without a
right of contribution of Lender's insurance, if any, or any obligation on the
part of Lender to pay premiums of Borrower, and (z) shall contain a clause
requiring the insurer to give Lender at least 30 days' prior written notice of
its cancellation (other than cancellation for non-payment for which 10 days'
notice shall be sufficient. Borrower shall on or prior to the first Funding Date
and prior to each policy renewal, furnish to Lender certificates of insurance or
other evidence satisfactory to Lender that such insurance coverage is in effect.

                (e) LOSS; DAMAGE; DESTRUCTION AND SEIZURE. (i) Borrower shall
bear the risk of the Collateral being lost, stolen, destroyed, damaged or seized
by a governmental authority for any reason whatsoever at any time until the
expiration or termination of the Term. (ii) Except as set forth in SECTION
6.01(e)(iii), if during the Term any item of Equipment is lost, stolen,
destroyed, damaged or seized by a governmental authority for a period equal to
at least the remainder of the Term (an "EVENT OF LOSS"), then Lender shall
receive from the proceeds of insurance maintained


                                       13




pursuant to SECTION 6.01(d), from any award paid by the seizing governmental
authority or, to the extent not received from the proceeds of insurance or award
or both, from Borrower, on or before the Payment Date next succeeding such Event
of Loss, an amount equal to the sum of: (x) all accrued and unpaid Scheduled
Payments with respect to such Loan due prior to the next such Payment Date, (y)
a prepayment in an amount equal to the Stipulated Loss Value of each affected
item of Collateral and (z) all other sums, if any, that shall have become due
and payable hereunder with respect to such Loan, including interest at the
Default Rate with respect to any past due amounts. On the date of receipt by
Lender of the amount specified above with respect to each such item of
Collateral subject to an Event of Loss, the provisions of this Agreement shall
terminate as to such Collateral. Any proceeds of insurance maintained by
Borrower pursuant to SECTION 6.01(d) and received by Borrower shall be paid to
Lender promptly upon their receipt by Borrower. If any proceeds of insurance or
awards received from governmental authorities are in excess of the amount owed
under this SECTION 6.01(e), Lender shall promptly remit to Borrower the amount
in excess of the amount owed to Lender. (iii) So long as no Event of Default has
occurred and is continuing, any proceeds of insurance maintained pursuant to
SECTION 6.01(d) received by Lender or Borrower with respect to an item of
Collateral the repair of which is practicable shall, at the election of
Borrower, be applied either to the repair or replacement of such Collateral or,
upon Lender's receipt of evidence of the repair or replacement of the Collateral
reasonably satisfactory to Lender, to the reimbursement of Borrower for the cost
of such repair or replacement. All replacement parts and equipment acquired by
Borrower in replacement of Collateral pursuant to this SECTION 6.01(e)(iii)
shall immediately become part of the Collateral upon acquisition by Borrower.
Borrower shall take such actions and provide such documentation as may be
reasonably requested by Lender to protect and preserve Lender's first priority
security interest and otherwise to avoid any impairment of Lender's rights under
the Operative Documents, in connection with such repair or replacement.

                (f) CERTIFICATES OF COMPLIANCE. Each time financial statements
are furnished pursuant to Section 6.01(c) above, there shall be delivered to
Lender, a certificate signed by a Responsible Officer (each, an "Officer's
Certificate") with respect to such financial reports to the effect that: (i) no
Event of Default or Default has occurred and is continuing hereunder since the
date of this Agreement or, if later, since the date of the prior Officer's
Certificate or, if such an event or condition has occurred and is continuing,
the nature and extent thereof and the action Borrower proposes to take with
respect thereto, and (ii) Borrower is in compliance with the provisions of
Sections 6 and 7.

                (g) PAYMENT OF TAXES, ETC. Borrower shall pay and discharge all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien upon any of its properties; PROVIDED that there shall be no
requirement to pay any such tax, assessment, charge, levy or claim (i) which is
being contested in good faith and by appropriate proceedings or which presents
no risk of seizure, forfeiture, levy or other event which could jeopardize any
Collateral and (ii) for which payment in full is bonded or reserved in
Borrower's financial statements.

                (h) INSPECTION RIGHTS. Borrower shall, at any reasonable time
and from time to time, permit Lender or any of its agents or representatives to
inspect the Equipment, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, Borrower and


                                       14




to discuss the affairs, finances and accounts of Borrower with any of its
officers or directors relating in each case to Lender's capacity as lender and
secured party hereunder and with respect to the Collateral.

                (i) USE; MAINTENANCE. (i) Borrower shall, at its expense, make
all necessary site preparations and cause the Collateral to be operated in
accordance with any applicable manufacturer's manuals or instructions. So long
as no Default or Event of Default has occurred and is continuing, Borrower shall
have the right to quietly possess and use the Collateral as provided herein
without interference by Lender. (ii) Borrower shall, at its expense, maintain
the Collateral in good condition, reasonable wear and tear excepted, and comply
in all material respects with all laws, rules and regulations to which the use
and operation of the Collateral may be or become subject. Such obligation shall
extend to repair and replacement of any partial loss or damage to the
Collateral, regardless of the cause. If maintenance is mandated by manufacturer,
Borrower shall obtain and keep in effect, at all times during the Term
maintenance service contracts with suppliers approved by Lender, which approval
shall not be unreasonably withheld. All parts furnished in connection with such
maintenance or repair shall immediately become part of the Collateral. All such
maintenance, repair and replacement services shall be immediately paid for and
discharged by Borrower with the result that no Lien will attach to the
Collateral. All parts or accessories attached to or made part of the Collateral
shall be new, fabricated or rebuilt and in any case shall be consistent with the
applicable specifications, if any, prescribed by the manufacturer of the
affected Collateral.

         7.01.  NEGATIVE COVENANTS . So long as the Loans or other amounts
hereunder remain outstanding, Borrower shall not:

                (a) COLLATERAL CONTROL. Subject to its rights under SECTION 5,
(i) terminate, waive or release any material right with respect to any
Collateral or remove any item of Collateral from Borrower's facility located at
the address set forth on the cover page of this Agreement, or (ii) affix or
attach or permit to be affixed or attached to any item of Collateral any other
item of property owned by Borrower or any other lender, lessor or financing
party which is not readily identifiable or separable without any damage to such
item of Collateral, without Lender's prior written consent.

                (b) LIENS. Create, incur, assume or suffer to exist any Lien of
any kind upon any property of Borrower, whether now owned or hereafter acquired,
except Permitted Liens.

                (c) OTHER DISPOSITIONS OF COLLATERAL. Convey, sell, lease or
otherwise dispose of all or any part of the Collateral to any Person, except for
Equipment in which Lender shall have released its security interest pursuant to
SECTION 5.02.

                (d) EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter
into any transaction not in the ordinary and usual course of Borrower's
business, including the sale, lease, license or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of Borrower's assets,
other than (i) sales of inventory in the ordinary and usual course of Borrower's
business as presently conducted and (ii) sales or other dispositions in the
ordinary course of business of assets, other than Collateral, that have become
worn out or obsolete or that are promptly being replaced.

                (e) RESTRUCTURE. Change Borrower's name; make any material
change in Borrower's


                                       15




financial structure or business operations; cause, permit, or suffer any
material change in Borrower's ownership; or suspend operation of Borrower's
business.

         8.01.  CLOSING. At the time of execution and delivery of this
Agreement, Borrower shall have duly executed and/or delivered to Lender the
items set forth in PART I OF SCHEDULE 3.

         8.02.  OTHER CONDITIONS. The obligation of Lender to make each Loan
shall be subject to the execution and/or delivery to Lender of each of the items
set forth in PART I OF SCHEDULE 3 and the satisfaction of by Borrower of each
condition set forth in PART II OF SCHEDULE 3.

         8.03.  COVENANT TO DELIVER. Borrower agrees (not as a condition but as
a covenant) to deliver to Lender each item required to be delivered to Lender as
a condition to each Loan, if such Loan is advanced. Borrower expressly agrees
that the extension of such Loan prior to the receipt by Lender of any such item
shall not constitute a waiver by Lender of Borrower's obligation to deliver such
item.

         9.01   EVENTS OF DEFAULT. An "Event of Default" shall mean the
occurrence of one or more of the following described events:

                (a) Borrower shall (i) default in the payment of principal of,
or interest on, or fail to make the Final Payment on any Loan when the same is
due, or (ii) default in the payment of any expense or other amount payable
hereunder or thereunder for five (5) days after receipt of written notice from
Lender that the same is due; or

                (b) any representation or warranty made herein or on a Funding
Date by Borrower in any Operative Document, or any certificate or financial
statement furnished pursuant to the provisions of any Operative Document, shall
prove to have been false or misleading in any material respect as of the time
made or furnished; or

                (c) Borrower shall default in the performance of any covenant,
agreement or obligation (other than a covenant, agreement or obligation referred
to in SECTION 9.01(a) or SECTION 9.01(e)) contained in any Operative Document
(other than the Warrant), or in any other present or future agreement between
Borrower and Lender and as to any default under such covenant, agreement or
obligation that can be cured, has failed to cure such default within fifteen
(15) days after the occurrence of such default; provided, however, that if the
default cannot by its nature be cured within the fifteen (15) day period or
cannot by diligent attempts by Borrower be cured within such fifteen (15) day
period, then Borrower shall have an additional period of thirty (30) days to
attempt to cure such default.

                (d) Borrower shall have breached the terms of the Warrant; or

                (e) Borrower fails to maintain the insurance coverage required
under SECTION 6.01(d) or breaches any provision of SECTION 7.01; or

                (f) any Operative Document shall in any material respect ceases
to be, or Borrower shall assert that any Operative Document is not, a legal,
valid and binding obligation of Borrower enforceable in accordance with its
terms; or

                (g) defaults exist under any agreements of Borrower which
consist of the failure to pay any Indebtedness in an aggregate amount
exceeding $100,000 at


                                       16




maturity or which result in a right by such third party or parties, whether or
not exercised, to accelerate the maturity of the Indebtedness of Borrower or a
default shall exist under any financing agreement with Lender or any of Lender's
affiliates; or

                (h) a material adverse change occurs in Borrower's business or a
material impairment of the prospect of repayment of any portion of the
Obligations owing to Lender or a material impairment of the value or priority of
Lender's security interests in the Collateral; or

                (i) any material portion of Borrower's assets is attached,
seized, subjected to writ or distress warrant, or is levied upon, or comes into
possession of any trustee, receiver or Person acting in a similar capacity and
such attachment, seizure, writ or distress warrant or levy has not been removed,
discharged or rescinded within ten (10) days, or if Borrower is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs, or if a judgment or other
claim becomes a lien or encumbrance upon any material part of its business
affairs, or if a notice of lien, levy, or assessment is filed of record with
respect to any of Borrower's assets by the United States Government, or any
department, agency or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contesting by Borrower; or

                (j) a Redemption Event occurs; or

                (k) a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days; or

                (l) a proceeding shall have been instituted in a court of
competent jurisdiction seeking a decree or order for relief in respect of
Borrower in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or for the appointment of a
receiver, liquidator, assignee, custodian, trustee (or similar official) of
Borrower or for any substantial part of its property, or for the winding-up or
liquidation of its affairs, and such proceeding shall remain undismissed or
unstayed and in effect for a period of sixty (60) consecutive days or such court
shall enter a decree or order granting the relief sought in such proceeding; or

                (m) Borrower shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, shall consent to the entry of an order for relief in an involuntary case
under any such law, or shall consent to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian (or other similar
official) of Borrower or for any substantial part of its property, or shall make
a general assignment for the benefit of creditors, or shall fail generally to
pay its debts as they become due, or shall take any corporate action in
furtherance of any of the foregoing.

         9.02.  CONSEQUENCES OF EVENT OF DEFAULT. (a) If an Event of Default
specified under CLAUSES (a) THROUGH (k) of SECTION 9.01 shall occur and be
continuing, Lender may (i) declare the Loan Value of the Loan Amount of each
Loan and all other liabilities of Borrower hereunder and under the other
Operative Documents to be immediately due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived, and (ii) terminate its commitment to make Loans hereunder and terminate
any commitment to advance money or extend credit to or for the benefit of
Borrower pursuant to any other agreement or commitment extended by


                                       17




Lender to Borrower. (b) If an Event of Default specified under CLAUSE (l) OR (m)
OF SECTION 9.01 shall occur, then immediately and without notice (i) the Loan
Value of the Loan Amount of each Loan and all other liabilities of Borrower
hereunder and under the other Operative Documents shall automatically become due
and payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, and (ii) Lender's commitment hereunder to
make the Loans and any other commitment of Lender to Borrower to advance money
or extend credit pursuant to any other agreement or commitment shall be
terminated.

         9.03.  RIGHTS REGARDING COLLATERAL. Borrower agrees that when any
Event of Default has occurred and is continuing, Lender shall have the rights,
options, duties and remedies of a secured party as permitted by law and, in
addition to and without limiting the foregoing, Lender may exercise any one or
more or all, and in any order, of the remedies herein set forth, including the
following: (a) Lender, personally or by agents or attorneys, shall have the
right (subject to compliance with any applicable mandatory legal requirements)
to require Borrower to assemble the Collateral and make it available to Lender
at a place designated by Lender or to take immediate possession of the
Collateral, or any portion thereof, and for that purpose may pursue the same
wherever it may be found, and may enter any of premises of Borrower, with or
without notice, demand, process of law or legal procedure, to the extent
permitted by applicable law, and search for, take possession of, remove, keep
and store the same, or use and operate or lease the same until sold; (b) Lender
may, if at the time such action may be lawful and always subject to compliance
with any mandatory legal requirements, either with or without taking possession
and either before or after taking possession, without instituting any legal
proceedings whatsoever, having first given notice of such sale by registered or
certified mail to Borrower once at least ten (10) days prior to the date of such
sale, and having first given any other notice which may be required by law, sell
and dispose of the Collateral, or any part thereof, at a private sale or at
public auction, to the highest bidder, in one lot as an entirety or in separate
lots, and either for cash or on credit and on such terms as Lender may
determine, and at any place (whether or not it be the location of the Collateral
or any part thereof) designated in the notice referred to above. To the extent
permitted by applicable law, any such sale or sales may be adjourned from time
to time by announcement at the time and place appointed for such sale or sales,
or for any such adjourned sale or sales, without further published notice, and
Borrower, Lender or its successors or assigns as to the Loans, or of any
interest therein, may bid and become the purchaser at any such sale; and (c)
Lender may proceed to protect and enforce this Agreement and the other Operative
Documents by suit or suits or proceedings in equity, at law or in bankruptcy,
and whether for the specific performance of any covenant or agreement herein
contained or in execution or aid of any power herein granted; or for foreclosure
hereunder, or for the appointment of a receiver or receivers for any real
property security or any part thereof, or for the recovery of judgment for the
Obligations or for the enforcement of any other proper, legal or equitable
remedy available under applicable law.

         9.04.  WAIVER BY BORROWER. Upon the occurrence of an Event of Default,
to the extent permitted by law, Borrower covenants that it will not at any time
insist upon or plead, or in any manner whatsoever claim or take any benefit or
advantage of, any stay or extension law now or at any time hereafter in force,
nor claim, take nor insist upon any benefit or advantage of or from any law now
or hereafter in force providing for the valuation or appraisement of the
Collateral or any part thereof prior to any sale or sales thereof to be made
pursuant to any provision herein contained, or to the decree, judgment or order
of any court of competent jurisdiction; nor, after such sale or


                                       18




sales, claim or exercise any right under any statute now or hereafter made or
enacted by any state or otherwise to redeem the property so sold or any part
thereof, and, to the full extent legally permitted, except as to rights
expressly provided herein, hereby expressly waives for itself and on behalf of
each and every Person, except decree or judgment creditors of Borrower,
acquiring any interest in or title to the Collateral or any part thereof
subsequent to the date of this Agreement, all benefit and advantage of any such
law or laws, and covenants that it will not invoke or utilize any such law or
laws or otherwise hinder, delay or impede the execution of any power herein
granted and delegated to Lender, but will suffer and permit the execution of
every such power as though no such power, law or laws had been made or enacted.

         9.05.  EFFECT OF SALE. Any sale, whether under any power of sale
available to Lender or by virtue of judicial proceedings, shall operate to
divest all right, title, interest, claim and demand whatsoever, either at law or
in equity, of Borrower in and to the property sold, and shall be a perpetual
bar, both at law and in equity, against Borrower, its successors and assigns,
and against any and all persons claiming the property sold or any part thereof
under, by or through Borrower, its successors or assigns.

         9.06.  APPLICATION OF COLLATERAL PROCEEDS. The proceeds and/or avails
of the Collateral, or any part thereof, and the proceeds and the avails of any
remedy hereunder (as well as any other amounts of any kind held by Lender at the
time of, or received by Lender after, the occurrence of an Event of Default
hereunder) shall be paid to and applied as follows: (a) FIRST, to the payment of
reasonable costs and expenses, including all amounts expended to preserve the
value of the Collateral, of foreclosure or suit, if any, and of such sale and
the exercise of any other rights or remedies, and of all proper fees, expenses,
liability and advances, including reasonable legal expenses and attorneys' fees,
incurred or made hereunder by Lender; (b) SECOND, to the payment to Lender of
the amount then owing or unpaid on the Loan for Scheduled Payments and the Loan
Value of the Loan Amount with respect to each Loan, and in case such proceeds
shall be insufficient to pay in full the whole amount so due, owing or unpaid
upon the Loans, then FIRST, to the unpaid interest thereon, SECOND, to unpaid
principal thereof and THIRD to the remaining balance of the Loan Value of the
Loan Amount with respect to each Loan; (c) THIRD, to the payment of other
amounts then payable to Lender under any of the Operative Documents; and (d)
FOURTH, to the payment of the surplus, if any, to Borrower, its successors and
assigns, or to whomsoever may be lawfully entitled to receive the same.

         9.07.  REINSTATEMENT OF RIGHTS. If Lender shall have proceeded to
enforce any right under this Agreement or any other Operative Document by
foreclosure, sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely, then and in every such case (unless otherwise ordered by a court of
competent jurisdiction), Lender shall be restored to its former position and
rights hereunder with respect to the property subject to the security interest
created under this Agreement.

         10.01. MODIFICATIONS, AMENDMENTS OR WAIVERS. The provisions of any
Operative Document may be modified, amended or waived only by a written
instrument signed by the parties thereto.

         10.02. NO IMPLIED WAIVERS; CUMULATIVE REMEDIES; WRITING REQUIRED. No
delay or failure of Lender in exercising any right, power or remedy hereunder
shall affect or operate as a waiver


                                       19




thereof; nor shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power or remedy preclude any
further exercise thereof or of any other right, power or remedy. The rights and
remedies hereunder of Lender are cumulative and not exclusive of any rights or
remedies which it would otherwise have. Any waiver, permit, consent or approval
of any kind or character on the part of Lender of any breach or default under
this Agreement or any such waiver of any provision or condition of this
Agreement must be in writing and shall be effective only in the specified
instance and to the extent specifically set forth in such writing.

         10.03. EXPENSES; INDEMNIFICATION. Borrower agrees upon demand to pay
or reimburse Lender for all liabilities, obligations and out-of-pocket expenses,
including reasonable fees and expenses of counsel for Lender, from time to time
arising in connection with the enforcement or collection of sums due under the
Operative Documents. Borrower shall indemnify, reimburse and hold Lender, each
of Lender's partners, and each of their respective successors, assigns, agents,
officers, directors, shareholders, servants, agents and employees harmless from
and against all liabilities, losses, damages, actions, suits, demands, claims of
any kind and nature (including claims relating to environmental discharge,
cleanup or compliance), all costs and expenses whatsoever to the extent they may
be incurred or suffered by such indemnified party in connection therewith
(including reasonable attorneys' fees and expenses), fines, penalties (and other
charges of applicable governmental authorities), licensing fees relating to any
item of Collateral, damage to or loss of use of property (including
consequential or special damages to third parties or damages to Borrower's
property), or bodily injury to or death of any person (including any agent or
employee of Borrower) (each, a "CLAIM"), directly or indirectly relating to or
arising out of the use of the proceeds of the Loans, including acquisition, use,
ownership, operation, possession, control, storage, return or condition of any
item of Equipment financed by a Loan or constituting Collateral (regardless of
whether such item of Equipment is at the time in the possession of Borrower),
the falsity of any representation or warranty of Borrower or Borrower's failure
to comply with the terms of this Agreement or any other Operative Document
during the Term. The foregoing indemnity shall cover, without limitation, (i)
any Claim in connection with a design or other defect (latent or patent) in any
item of Equipment financed by a Loan or constituting Collateral, (ii) any Claim
for infringement of any patent, copyright, trademark or other intellectual
property right, (iii) any Claim resulting from the presence on or under or the
escape, seepage, leakage, spillage, discharge, emission or release of any
Hazardous Materials from any item of Equipment financed by a Loan or
constituting Collateral, including any Claims asserted or arising under any
Environmental Law, or (iv) any Claim for negligence or strict or absolute
liability in tort; PROVIDED, HOWEVER, that Borrower shall not indemnify Lender
for any liability incurred by Lender as a direct and sole result of Lender's
gross negligence or willful misconduct. Such indemnities shall continue in full
force and effect, notwithstanding the expiration or termination of this
Agreement. Upon Lender's written demand, Borrower shall assume and diligently
conduct, at its sole cost and expense, the entire defense of Lender, each of its
partners, and each of their respective, agents, employees, directors, officers,
shareholders, successors and assigns against any indemnified Claim described in
this SECTION 10.03. Borrower shall not settle or compromise any Claim against or
involving Lender without first obtaining Lender's written consent thereto, which
consent shall not be unreasonably withheld.

         10.04. WAIVERS. (a) Borrower shall give Lender written notice within
one hundred eighty (180) days of obtaining knowledge of the occurrence of any
claim or cause of action it believes it


                                       20




has, or may seek to assert to allege against Lender whether such claim is based
in law or equity, arising under or related to this Agreement or any of the other
Operative Documents or to the transactions contemplated hereby or thereby, or
any act or omission to act by Lender with respect hereto or thereto, and that if
it shall fail to give such notice to Lender with regard to any such claim or
cause of action, Borrower shall be deemed to have waived, and shall be forever
barred from bringing or asserting such claim or cause of action in any suit,
action or proceeding in any court or before any governmental agency or authority
or any arbitrator. (b) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN
THIS AGREEMENT OR ANYWHERE ELSE, BORROWER AGREES THAT IT MAY SEEK AND RECOVER
FROM LENDER ACTUAL DAMAGES, BUT THAT IT SHALL NOT SEEK FROM LENDER UNDER ANY
THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES.

         10.05. NOTICES; PAYMENTS. (a) All notices and other communications
given to or made upon any party hereto in connection with this Agreement shall
be in writing (including telexed, telecopied or telegraphic communication) and
mailed (by certified or registered mail), telexed, telegraphed, telecopied or
delivered to the respective parties, as follows:

               Borrower:   At the address set forth on the signature page of the
                           applicable Loan Terms Schedule.

               Lender:     MMC/GATX PARTNERSHIP NO. I
                           C/o MEIER MITCHELL & COMPANY
                           4 Orinda Way, Suite 200B
                           Orinda, California  94563
                           Fax: (925) 254-9528

or in accordance with any subsequent written direction from either party to the
other. All such notices and other communications shall, except as otherwise
expressly herein provided, be effective when received; or in the case of
delivery by messenger or overnight delivery service, when left at the
appropriate address.

         (b)  Unless Lender specifies otherwise in writing, all payments shall
              be made to:

                  GATX Capital Corporation, as Agent
                  C/o Bank of America
                  P.O. Box 198592
                  Atlanta, Georgia 30384-8592

         10.06. TERMINATION. This Agreement shall terminate on the latest
Maturity Date; PROVIDED, HOWEVER, that the termination of this Agreement shall
not affect any of the rights and remedies of Lender hereunder (including,
without limitation, the security interests granted to Lender), it being
understood and agreed that all such rights and remedies shall continue in full
force and effect until payment of all amounts owed to Lender under or in
connection with the Operative Documents, whether on account of principal,
interest, fees or otherwise.


                                       21




         10.07. SEVERABILITY. If any provision of any Operative Document is
held invalid or unenforceable to any extent or in any application, the remainder
of such Operative Document and all other Operative Documents, or the application
of such provision to different Persons or circumstances or in different
jurisdictions, shall not be affected thereby.

         10.08. SURVIVAL. All representations, warranties and covenants of
Borrower made in this Agreement shall continue in full force and effect so long
as any Obligations remain outstanding. The obligations of Borrower to indemnify
Lender with respect to the expenses, damages, losses, costs and liabilities
described in Section 10.03 shall survive until all applicable statute of
limitations periods with respect to actions that may be brought against Lender
have run.

            10.09. GOVERNING LAW. This Agreement, the other Operative Documents
and the rights and obligations of the parties hereto and thereto shall be
governed by and construed and enforced in accordance with the laws of the State
of California. Any action to enforce this Agreement against Borrower may be
brought in California or, with regard to Collateral, may also be brought
wherever such Collateral is located.

            10.10. RELATIONSHIP OF PARTIES. Borrower and Lender acknowledge,
understand and agree that the relationship between the Borrower and Lender is,
and at all time shall remain solely that of a borrower and lender. Lender shall
not under any circumstances be construed to be a partner or joint venturer of
Borrower or any of its Affiliates; nor shall Lender under any circumstances be
deemed to be in a relationship of confidence or trust or a fiduciary
relationship with Borrower or any of its Affiliates, or to owe any fiduciary
duty to Borrower or any of its Affiliates. Lender does not undertake or assume
any responsibility or duty to Borrower or any of its Affiliates to select,
review, inspect, supervise, pass judgment upon or otherwise inform the Borrower
or any of its Affiliates of any matter in connection with its or their Property,
any Collateral held by any Lender or the operations of Borrower or any of its
Affiliates. Borrower and each of its Affiliates shall rely entirely on their own
judgment with respect to such matters, and any review, inspection, supervision,
exercise of judgment or supply of information undertaken or assumed by Lender in
connection with such matters is solely for the protection of Lender and neither
Borrower nor any Affiliate is entitled to rely thereon.

           10.11. SUCCESSORS AND ASSIGNS. This Agreement and the other
Operative Documents shall be binding upon and inure to the benefit of Lender,
Borrower and their respective successors and permitted assigns, except that
Borrower may not assign or transfer its rights hereunder or any interest herein
without the prior written consent of Lender. Lender may sell to any other
financial entity (a "PARTICIPANT") participation interests in Lender's rights
under this Agreement and the other Operative Documents. Lender may disclose the
Operative Documents and any other financial or other information relating to
Borrower or any Subsidiary to any potential Participant, provided that such
Participant agrees to protect the confidentiality of such documents and
information using the same measures that it uses to protect its own confidential
information.

           10.12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.

           10.13. FURTHER ASSURANCES; POWER OF ATTORNEY. Borrower will, at its
own expense, from time to time do, execute, acknowledge and deliver all and
every further acts, deeds, conveyances, transfers and assurances, and all
financing and continuation statements and similar notices, reasonably necessary
or proper for the perfection of the security interest being herein provided for
in the Collateral, whether now owned or hereafter acquired. Borrower does hereby
irrevocably appoint Lender, the true and lawful attorney-in-fact of Borrower
with full power of substitution, for


                                       22




it and in its name to execute any UCC financing statements or UCC financing
statement amendments as to Collateral in any applicable jurisdiction, and
generally to use its name in the exercise of all powers hereby conferred on
Lender with full power of substitution. The power and authority hereby given and
granted to Lender shall be deemed coupled with an interest and not revocable by
any party.

           10.14. POWER OF ATTORNEY UPON DEFAULT. Borrower does hereby
irrevocably appoint Lender (which appointment is coupled with an interest), the
true and lawful attorney-in-fact of Borrower with full power of substitution,
for it and in its name (a) to perform (but Lender shall not be obligated to and
shall incur no liability to Borrower or any third party for failure to perform)
any act which Borrower is obligated by this Agreement to perform, (b) to ask,
demand, collect, receive, receipt for, sue for, compound and give acquittance
for any and all rents, issues, profits, avails, distributions, income, payment
draws and other sums in which a security interest is granted under SECTION 5.01
with full power to settle, adjust or compromise any claim thereunder as fully as
if Lender were Borrower itself, (c) to receive payment of and to endorse the
name of Borrower to any items of Collateral (including checks, drafts and other
orders for the payment of money) that come into Lender's possession or under
Lender's control, (d) to make all demands, consents and waivers, or take any
other action with respect to, the Collateral, (e) in Lender's discretion, to
file any claim or take any other action or institute proceedings, either in its
own name or in the name of Borrower or otherwise, which Lender may reasonably
deem necessary or appropriate to protect and preserve the right, title and
interest of Lender in and to the Collateral, and (f) to otherwise act with
respect thereto as though Lender were the outright owner of the Collateral;
PROVIDED, HOWEVER, that the power of attorney herein granted shall be
exercisable only upon the occurrence and during the continuation of an Event of
Default unless in Lender's reasonable opinion immediate action is necessary to
preserve or protect the Collateral. Borrower agrees to reimburse Lender upon
demand for all reasonable costs and expenses, including attorneys' fees and
expenses, which Lender may incur while acting as Borrower's attorney in fact
hereunder, all of which costs and expenses are included within the Obligations.


         10.15. CONFIDENTIALITY. All information (other than periodic reports
filed by Borrower with the Securities and Exchange Commission) disclosed by
Borrower to Lender in writing or through inspection pursuant to this Agreement
shall be considered confidential. Lender agrees to use the same degree of care
to safeguard and prevent disclosure of such confidential information as Lender
uses with its own confidential information, but in any event no less than a
reasonable degree of care. Lender shall not disclose such information to any
third party (other than Lender's or Lender's partner's attorneys and auditors
subject to the same confidentiality obligation set forth herein) and shall use
such information only for purposes of evaluation of its investment in Borrower
and the exercise of Lender's rights and the enforcement of their remedies under
this Agreement and the other Operative Agreements. The obligations of
confidentiality shall not apply to any information that (a) was known to the
public prior to disclosure by Borrower under this Agreement, (b) becomes known
to the public through no fault of Lender, (c) is disclosed to Lender by a third
party having a legal right to make such disclosure, or (d) is independently
developed by Lender.

         10.16  RECOVERY OF LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Warrant, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.

               IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed this Agreement as of the day and year
first above written.


                                       23




                                       MITOKOR


                                       By:    /s/ Walter H. Moos
                                              ---------------------------
                                       Name:  Walter H. Moos
                                              ---------------------------
                                       Title: Chairman & CEO
                                              ---------------------------


                                     MMC/GATX PARTNERSHIP NO. I

                                     By: GATX Capital Corporation,
                                         as General Partner


                                       By:    /s/ Patricia W. Leicher
                                              ---------------------------
                                       Name:  Patricia W. Leicher
                                              ---------------------------
                                       Title: V.P.
                                              ---------------------------


                                       24




SCHEDULES

    1     Loan Terms Schedule
    2     Existing Liens
    3     Conditions Precedent

EXHIBITS

    A     Intentionally omitted
    B     Landlord Consent
    C     Warrant


                                       25

EX-10.19

                                                                 Exhibit 10.19


THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION
OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THIS WARRANT.

                                     MITOKOR

                            WARRANT TO PURCHASE SHARES
                           OF SERIES E PREFERRED STOCK

         THIS CERTIFIES THAT, for value received, MEIER MITCHELL & COMPANY and
its assignees are entitled to subscribe for and purchase that number of the
fully paid and nonassessable shares of Series E Preferred Stock (as adjusted
pursuant to Section 4 hereof, the "Shares") of MITOKOR, a California corporation
(the "Company"), as is determined pursuant to the next paragraph hereof at the
price per share as is determined pursuant to the next paragraph hereof (such
price and such other price as shall result, from time to time, from the
adjustments specified in Section 4 hereof is herein referred to as the "Warrant
Price"), subject to the provisions and upon the terms and conditions hereinafter
set forth. As used herein, (a) the term "Series Preferred" shall mean the
Company's presently authorized Series E Preferred Stock, and any stock into or
for which such Series E Preferred Stock may hereafter be converted or exchanged,
and after the automatic conversion of the Series E Preferred Stock to Common
Stock shall mean the Company's Common Stock, (b) the term "Date of Grant" shall
mean December 15, 1999, and (c) the term "Other Warrants" shall mean any other
warrants issued by the Company in connection with the transaction with respect
to which this Warrant was issued, and any warrant issued upon transfer or
partial exercise of or in lieu of this Warrant. The term "Warrant" as used
herein shall be deemed to include Other Warrants unless the context clearly
requires otherwise.

         The Warrant Price shall be the lower of (i) $6.00 and (ii) the price
per share of preferred stock in the next venture round which occurs before the
earlier of (a) August 31, 2000, and (b) the entire "Credit Amount" being
borrowed by the Company under the "Facility;" provided, however, the Warrant
Price shall not be lower than $4.80. The "Facility" shall mean the Equipment
Loan and Security Agreement dated as of December 15, 1999 (the "Loan
Agreement"). The "Credit Amount" shall have the meaning given such term in the
Loan Agreement. The number of shares for which this Warrant is exercisable shall
be the nearest whole number determined by dividing $51,000 by the Warrant Price
determined pursuant to this paragraph.

         1.  TERM. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through the later of (i) ten (10) years after the Date of Grant or
(ii) five (5) years after the closing of the Company's initial public offering




of its Common Stock ("IPO") effected pursuant to a Registration Statement on
Form S-1 (or its successor) filed under the Securities Act of 1933, as amended
(the "Act").

         2.  METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, at
the election of the holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as Exhibit A-1
duly completed and executed) at the principal office of the Company and by the
payment to the Company, by certified or bank check, or by wire transfer to an
account designated by the Company (a "Wire Transfer") of an amount equal to the
then applicable Warrant Price multiplied by the number of Shares then being
purchased; (b) if in connection with a registered public offering of the
Company's securities, the surrender of this Warrant (with the notice of exercise
form attached hereto as Exhibit A-2 duly completed and executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by certified or
bank check or by Wire Transfer from the proceeds of the sale of shares to be
sold by the holder in such public offering of an amount equal to the then
applicable Warrant Price per share multiplied by the number of Shares then being
purchased; or (c) exercise of the "net issuance" right provided for in Section
10.2 hereof. The person or persons in whose name(s) any certificate(s)
representing shares of Series Preferred shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the shares represented
thereby (and such shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
exercised. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of stock so purchased shall be delivered to
the holder hereof as soon as possible and in any event within thirty (30) days
after such exercise and, unless this Warrant has been fully exercised or
expired, a new Warrant representing the portion of the Shares, if any, with
respect to which this Warrant shall not then have been exercised shall also be
issued to the holder hereof as soon as possible and in any event within such
thirty-day period; provided, however, at such time as the Company is subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended,
if requested by the holder of this Warrant, the Company shall cause its transfer
agent to deliver the certificate representing Shares issued upon exercise of
this Warrant to a broker or other person (as directed by the holder exercising
this Warrant) within the time period required to settle any trade made by the
holder after exercise of this Warrant.

         3.  STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Series Preferred
to provide for the exercise of the rights represented by this Warrant and a
sufficient number of shares of its Common Stock to provide for the conversion of
the Series Preferred into Common Stock.


                                      -2-




         4.  ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:

             (a) RECLASSIFICATION OR MERGER. In case of any reclassification or
change of securities of the class issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in case
of any merger of the Company with or into another corporation (other than a
merger with another corporation in which the Company is the acquiring and the
surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to the holder of this Warrant a new Warrant (in form
and substance satisfactory to the holder of this Warrant), or the Company shall
make appropriate provision without the issuance of a new Warrant, so that the
holder of this Warrant shall have the right to receive, at a total purchase
price not to exceed that payable upon the exercise of the unexercised portion of
this Warrant, and in lieu of the shares of Series Preferred theretofore issuable
upon exercise of this Warrant, (i) the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
merger or sale by a holder of the number of shares of Series Preferred then
purchasable under this Warrant. Any new Warrant shall provide for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 4. The provisions of this subparagraph (a) shall
similarly apply to successive reclassifications, changes, mergers and transfers.

             (b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Series Preferred, the Warrant Price shall be
proportionately decreased and the number of Shares issuable hereunder shall be
proportionately increased in the case of a subdivision and the Warrant Price
shall be proportionately increased and the number of Shares issuable hereunder
shall be proportionately decreased in the case of a combination.

             (c) STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. If the Company at any
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Series Preferred payable in Series Preferred, then the Warrant
Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (A) the numerator of which shall be the
total number of shares of Series Preferred outstanding immediately prior to such
dividend or distribution, and (B) the denominator of which shall be the total
number of shares of Series Preferred outstanding immediately after such dividend
or distribution; or (ii) make any other distribution with respect to Series
Preferred (except any distribution specifically provided for in Sections 4(a)
and 4(b)), then, in each such case, provision shall be made by the Company such
that the holder of this Warrant shall receive upon exercise of this Warrant a
proportionate share of any such dividend or distribution as though it were the
holder of the Series Preferred (or Common Stock issuable upon conversion
thereof) as of the


                                      -3-




record date fixed for the determination of the shareholders of the Company
entitled to receive such dividend or distribution.

             (d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Warrant Price, the number of Shares of Series Preferred purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.

             (e) ANTIDILUTION RIGHTS. The other antidilution rights applicable
to the Shares of Series Preferred purchasable hereunder are set forth in the
Company's Articles of Incorporation, as amended through the Date of Grant, a
true and complete copy of which is attached hereto as Exhibit B (the "Charter").
Such antidilution rights shall not be restated, amended, modified or waived in
any manner that is adverse to the holder hereof without such holder's prior
written consent. The Company shall promptly provide the holder hereof with any
restatement, amendment, modification or waiver of the Charter promptly after the
same has been made.


         5.  NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or the number of
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall make a certificate signed by its chief financial officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Shares purchasable hereunder after giving effect
to such adjustment, and shall cause copies of such certificate to be mailed
(without regard to Section 13 hereof, by first class mail, postage prepaid) to
the holder of this Warrant. In addition, whenever the conversion price or
conversion ratio of the Series Preferred shall be adjusted, the Company shall
make a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
conversion price or ratio of the Series Preferred after giving effect to such
adjustment, and shall cause copies of such certificate to be mailed (without
regard to Section 13 hereof, by first class mail, postage prepaid) to the holder
of this Warrant.

         6.  FRACTIONAL SHARES. No fractional shares of Series Preferred will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the fair market
value of the Series Preferred on the date of exercise as reasonably determined
in good faith by the Company's Board of Directors.

         7.  COMPLIANCE WITH ACT; DISPOSITION OF WARRANT OR SHARES OF SERIES
PREFERRED.

             (a) COMPLIANCE WITH ACT. The holder of this Warrant, by acceptance
hereof, agrees that this Warrant, and the shares of Series Preferred to be
issued upon exercise hereof and any Common Stock issued upon conversion thereof
are being acquired for investment and that such holder will not offer, sell or
otherwise dispose of this Warrant, or any shares of Series Preferred to be
issued upon exercise hereof or any Common Stock issued upon conversion thereof
except under circumstances which will not result in a violation of the Act or
any applicable state securities laws.


                                      -4-




Upon exercise of this Warrant, unless the Shares being acquired are registered
under the Act and any applicable state securities laws or an exemption from such
registration is available, the holder hereof shall confirm in writing that the
shares of Series Preferred so purchased (and any shares of Common Stock issued
upon conversion thereof) are being acquired for investment and not with a view
toward distribution or resale in violation of the Act and shall confirm such
other matters related thereto as may be reasonably requested by the Company.
This Warrant and all shares of Series Preferred issued upon exercise of this
Warrant and all shares of Common Stock issued upon conversion thereof (unless
registered under the Act and any applicable state securities laws) shall be
stamped or imprinted with a legend in substantially the following form:

"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO,
(ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION
LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE
SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."

         Said legend shall be removed by the Company, upon the request of a
holder, at such time as the restrictions on the transfer of the applicable
security shall have terminated. In addition, in connection with the issuance of
this Warrant, the holder specifically represents to the Company by acceptance of
this Warrant as follows:

                 (1) The holder is aware of the Company's business affairs
and financial condition, and has acquired information about the Company
sufficient to reach an informed and knowledgeable decision to acquire this
Warrant. The holder is acquiring this Warrant for its own account for
investment purposes only and not with a view to, or for the resale in
connection with, any "distribution" thereof in violation of the Act.

                 (2) The holder understands that this Warrant has not been
registered under the Act in reliance upon a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of the
holder's investment intent as expressed herein.

                 (3) The holder further understands that this Warrant must be
held indefinitely unless subsequently registered under the Act and qualified
under any applicable state securities laws, or unless exemptions from
registration and qualification are otherwise available. The holder is aware
of the provisions of Rule 144, promulgated under the Act.

                 (4) The holder is an "accredited investor" as such term is
defined in Rule 501 of Regulation D promulgated under the Act.

             (b) DISPOSITION OF WARRANT OR SHARES. With respect to any offer,
sale or other disposition of this Warrant or any shares of Series Preferred
acquired pursuant to the exercise of this


                                      -5-




Warrant prior to registration of such Warrant or shares, the holder hereof
agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with a written opinion of such holder's counsel, or
other evidence, if reasonably satisfactory to the Company, to the effect that
such offer, sale or other disposition may be effected without registration or
qualification (under the Act as then in effect or any federal or state
securities law then in effect) of this Warrant or such shares of Series
Preferred or Common Stock and indicating whether or not under the Act
certificates for this Warrant or such shares of Series Preferred to be sold or
otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with such law.
Upon receiving such written notice and reasonably satisfactory opinion or other
evidence, the Company, as promptly as practicable but no later than fifteen (15)
days after receipt of the written notice, shall notify such holder that such
holder may sell or otherwise dispose of this Warrant or such shares of Series
Preferred or Common Stock, all in accordance with the terms of the notice
delivered to the Company. If a determination has been made pursuant to this
Section 7(b) that the opinion of counsel for the holder or other evidence is not
reasonably satisfactory to the Company, the Company shall so notify the holder
promptly with details thereof after such determination has been made.
Notwithstanding the foregoing, this Warrant or such shares of Series Preferred
or Common Stock may, as to such federal laws, be offered, sold or otherwise
disposed of in accordance with Rule 144 or 144A under the Act, provided that the
Company shall have been furnished with such information as the Company may
reasonably request to provide a reasonable assurance that the provisions of Rule
144 or 144A have been satisfied. Each certificate representing this Warrant or
the shares of Series Preferred thus transferred (except a transfer pursuant to
Rule 144 or 144A) shall bear a legend as to the applicable restrictions on
transferability in order to ensure compliance with such laws, unless in the
aforesaid opinion of counsel for the holder, such legend is not required in
order to ensure compliance with such laws. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.

             (c) APPLICABILITY OF RESTRICTIONS. Neither any restrictions of any
legend described in this Warrant nor the requirements of Section 7(b) above
shall apply to any transfer of, or grant of a security interest in, this Warrant
(or the Series Preferred or Common Stock obtainable upon exercise thereof) or
any part hereof (i) to a partner of the holder if the holder is a partnership or
to a member of the holder if the holder is a limited liability company, (ii) to
a partnership of which the holder is a partner or to a limited liability company
of which the holder is a member, or (iii) to any affiliate of the holder if the
holder is a corporation; PROVIDED, HOWEVER, in any such transfer, if applicable,
the transferee shall on the Company's request agree in writing to be bound by
the terms of this Warrant as if an original holder hereof.


         8.  RIGHTS AS SHAREHOLDERS; INFORMATION. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder of
Series Preferred or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. Notwithstanding the foregoing, the Company will
transmit to the holder of this


                                      -6-




Warrant such information, documents and reports as are generally distributed to
the holders of any class or series of the securities of the Company concurrently
with the distribution thereof to the shareholders.

         9.  [RESERVED]


         10. ADDITIONAL RIGHTS.

             10.1 ACQUISITION TRANSACTIONS. The Company shall provide the holder
of this Warrant with at least twenty (20) days' written notice prior to closing
thereof of the terms and conditions of any of the following transactions (to the
extent the Company has notice thereof): (i) the sale, lease, exchange,
conveyance or other disposition of all or substantially all of the Company's
property or business, or (ii) its merger into or consolidation with any other
corporation (other than a wholly-owned subsidiary of the Company), or any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of.

             10.2 RIGHT TO CONVERT WARRANT INTO STOCK: NET ISSUANCE.


                  (a) RIGHT TO CONVERT. In addition to and without limiting the
rights of the holder under the terms of this Warrant, the holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into shares of Series Preferred (or Common Stock if the Series Preferred has
been automatically converted into Common Stock) as provided in this Section 10.2
at any time or from time to time during the term of this Warrant. Upon exercise
of the Conversion Right with respect to a particular number of shares subject to
this Warrant (the "Converted Warrant Shares"), the Company shall deliver to the
holder (without payment by the holder of any exercise price or any cash or other
consideration) that number of shares of fully paid and nonassessable Series
Preferred (or Common Stock if the Series Preferred has been automatically
converted into Common Stock) as is determined according to the following
formula:

         X =   B - A
             ---------
                 Y

         Where: X  =  the number of shares of Series Preferred (or Common Stock
                      if the Series Preferred has been automatically converted
                      to Common Stock) that shall  be issued to holder

                Y  =  the fair market value of one share of Series Preferred
                      (or Common Stock if the Series Preferred has been
                      automatically converted to Common Stock)

                A  =  the aggregate Warrant Price of the specified number of
                      Converted Warrant Shares immediately prior to the exercise
                      of the Conversion Right (I.E., the number of Converted
                      Warrant Shares MULTIPLIED BY the Warrant Price)


                                      -7-




                B  =  the aggregate fair market value of the specified number of
                      Converted Warrant Shares (I.E., the number of Converted
                      Warrant Shares MULTIPLIED BY the fair market value of one
                      Converted Warrant Share)

         No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9 of this Warrant, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.


                  (b) METHOD OF EXERCISE. The Conversion Right may be exercised
by the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement (which may be in the form of Exhibit
A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to
exercise the Conversion Right and indicating the number of shares subject to
this Warrant which are being surrendered (referred to in Section 10.2(a) hereof
as the Converted Warrant Shares) in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"), and, at the election of the holder
hereof, may be made contingent upon the closing of the sale of the Company's
Common Stock to the public in a public offering pursuant to a Registration
Statement under the Act (a "Public Offering"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall be
issued as of the Conversion Date and shall be delivered to the holder within
thirty (30) days following the Conversion Date.


                  (c) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section 10.2, "fair market value" of a share of Series Preferred (or Common
Stock if the Series Preferred has been automatically converted into Common
Stock) as of a particular date (the "Determination Date") shall mean:

                      (i)    If the Conversion Right is exercised in connection
with and contingent upon a Public Offering, and if the Company's Registration
Statement relating to such Public Offering ("Registration Statement") has been
declared effective by the Securities and Exchange Commission, then the initial
"Price to Public" specified in the final prospectus with respect to such
offering.

                      (ii)   If the Conversion Right is not exercised in
connection with and contingent upon a Public Offering, then as follows:

                  (A) If traded on a securities exchange, the fair market value
of the Common Stock shall be deemed to be the average of the closing prices of
the Common Stock on such exchange over the 30-day period ending five business
days prior to the Determination Date, and the fair market value of the Series
Preferred shall be deemed to be such fair market value of the Common Stock
multiplied by the number of shares of Common Stock into which each share of
Series Preferred is then convertible;


                                      -8-




                  (B) If traded on the Nasdaq Stock Market or other
over-the-counter system, the fair market value of the Common Stock shall be
deemed to be the average of the closing bid prices of the Common Stock over the
30-day period ending five business days prior to the Determination Date, and the
fair market value of the Series Preferred shall be deemed to be such fair market
value of the Common Stock multiplied by the number of shares of Common Stock
into which each share of Series Preferred is then convertible; and

                  (C) If there is no public market for the Common Stock, then
fair market value shall be determined by mutual agreement of the holder of this
Warrant and the Company.


         11. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to the holder of this Warrant as follows:

             (a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;

             (b) The Shares have been duly authorized and reserved for issuance
by the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable;

             (c) The rights, preferences, privileges and restrictions granted to
or imposed upon the Series Preferred and the holders thereof are as set forth in
the Charter, and on the Date of Grant, each share of the Series Preferred
represented by this Warrant is convertible into one share of Common Stock;

             (d) The shares of Common Stock issuable upon conversion of the
Shares have been duly authorized and reserved for issuance by the Company and,
when issued in accordance with the terms of the Charter will be validly issued,
fully paid and nonassessable;


             (e) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Charter or by-laws, do
not and will not contravene any law, governmental rule or regulation, judgment
or order applicable to the Company, and do not and will not conflict with or
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument of which the Company is a party or by
which it is bound or require the consent or approval of, the giving of notice
to, the registration or filing with or the taking of any action in respect of or
by, any Federal, state or local government authority or agency or other person,
except for the filing of notices pursuant to federal and state securities laws,
which filings will be effected by the time required thereby; and

             (f) There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any


                                      -9-




governmental commission, board or authority which, if adversely determined, will
have a material adverse effect on the ability of the Company to perform its
obligations under this Warrant.


             (g) The number of shares of Common Stock of the Company outstanding
on the date hereof, on a fully diluted basis (assuming the conversion of all
outstanding convertible securities and the exercise of all outstanding options
and warrants), does not exceed 9,400,000 shares.



         12. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

         13. NOTICES. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of the
Company or to the Company at the address indicated therefor on the signature
page of this Warrant.

         14. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Series Preferred issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof.

         15. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.

         16. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.

         17. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.

         18. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.


                                      -10-




         19. REMEDIES. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.

         20. NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.

         21. SEVERABILITY. The invalidity or unenforceability of any provision
of this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any other
provision of this Warrant, which shall remain in full force and effect.

         22. RECOVERY OF LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Warrant, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.

         23. ENTIRE AGREEMENT; MODIFICATION. This Warrant constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.


                                      -11-




         The Company has caused this Warrant to be duly executed and delivered
as of the Date of Grant specified above.

                                       MITOKOR


                                       By   /s/ Walter H. Moos (W.H. Moos)
                                         ---------------------------------------

                                       Title  Chairman & CEO
                                            ------------------------------------

                                       Address:  11494 Sorrento Valley Road,
                                                 Suite 21
                                                 San Diego, CA  92121


                                      -12-

EX-21.1

                                                                    Exhibit 21.1


                                  MitoKor, Inc.

                              List of Subsidiaries


               Name of Entity                     Jurisdiction
               --------------                     ------------
               Mimotopes Pty. Ltd.                  Australia
               Apollo BioPharmaceutics, Inc.        Delaware

EX-23.1

                                                                    Exhibit 23.1

We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 7, 2002 relating to the financial statements of
MitoKor, Inc., which appears in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected
Consolidated Financial Data" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

San Diego, California
March 7, 2002

EX-23.3

                                                                    Exhibit 23.3


MitoKor, Inc.
11494 Sorrento Valley Road
San Diego, CA 92121

We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 16, 2001 relating to the
financial statements of Apollo BioPharmaceutics, Inc., which is contained in
that Prospectus.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

BDO Seidman, LLP


Boston, Massachusetts
March 8, 2002