8-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 8-K

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

                                 CURRENT REPORT

                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)   August 30, 1996

                           INNOVIR LABORATORIES, INC.
          ------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

       Delaware                             0-21972              13-3536290
       --------                             -------              ----------
(State or other jurisdiction             (Commission            (IRS Employer
     of incorporation)                   File Number)        Identification No.)

510 East 73rd Street, New York, NY                                   10021
- ----------------------------------                                   -----
(Address of principal executive offices)                           (Zip Code)

Registrant's telephone number, including area code:  (212) 249-4703

                                 Not Applicable
          -------------------------------------------------------------
          (Former name or former address, if changed since last report)





Item 5. Other Events.

     On August 30, 1996, the Company completed a private placement of its
securities in which The Aries Fund, A Cayman Island Trust, and The Aries
Domestic Fund, L.P. (collectively, the "Aries Funds"), two affiliated investment
funds which specialize in the biotechnology industry, invested a total of $2
million in the Company in exchange for 4 million shares of Common Stock, $.013
par value ("Common Stock"), of the Company and Class C Warrants, exercisable at
$.50 per share, to purchase an additional 4 million shares of Common Stock. In
addition, the Company issued to the Aries Funds an option to purchase an
additional 2 million shares of Common Stock and Class C Warrants, exercisable at
$.50 per share, to purchase 2 million shares of Common Stock, for a total option
purchase price of $1 million. In connection therewith, the Company agreed to
file a registration statement with respect to the shares of Common Stock and the
shares of Common Stock underlying the Class C Warrants.

     In connection with the investment by the Aries Funds, the Company has
elected two new directors to its Board, Joseph E. Edelman and Michael S. Weiss.
Mr. Edelman is Senior Healthcare Analyst with Aries Financial Services, and Mr.
Weiss is Senior Managing Director of Paramount Capital, Inc. and General Counsel
of Paramount Capital Investments, LLC. Mr. Edelman and Mr. Weiss have replaced
Michael S. Ostrach and Hugh D. Robertson, Ph.D. as Board members. Dr. Robertson,
a co-founder of the Company, will remain as Chairman of the Company's Science
Advisory Board.

     The Company and Yale University ("Yale") entered into an agreement on
August 30, 1996 to amend (the "Second Amendment") certain provisions of the
License Agreement between the Company and Yale dated September 7, 1990, as
amended October 21, 1994. The License Agreement grants the Company exclusive
worldwide rights to Yale's External Guide Sequence technology. The Second
Amendment reduces the earned royalty rate from 5% to 1% of all net sales, as
defined, and from 50% to 10% of all sublicense income, as defined. As
consideration for Yale modifying the royalty obligations pursuant to the Second
Amendment, the Company issued to Yale a warrant to purchase 500,000 shares of
Common Stock at an exercise price equal to $1.50 per share, with an exercise
date on or before August 31, 2006.

                                       -2-





Item 7.

     10.1   Common Stock and Warrant Purchase Agreement, dated as of August 30,
            1996, among the Company, The Aries Fund, A Cayman Island Trust, and
            The Aries Domestic Fund, L.P.

     10.2.  Second Amendment to License Agreement between the Company and Yale
            University dated August 30, 1996.

     20.1.  Press release, dated September 4, 1996.

     20.2.  Press release, dated September 16, 1996.

                All other Items of this report are inapplicable.

                                       -3-





                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                              INNOVIR LABORATORIES, INC.

Date: September 18, 1996                      By:  /s/ GARY POKRASSA
                                                   -------------------------
                                                       Gary Pokrassa
                                                       Vice President - Finance

                                       -4-

EX-10.1

                                                                   EXHIBIT 10.1

                                                               [EXECUTION COPY]

                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

          PURCHASE AGREEMENT (this "Agreement") dated as of August 30, 1996, by
     and among INNOVIR LABORATORIES, INC., a Delaware corporation (the
     "Company"), THE ARIES FUND, A CAYMAN ISLAND TRUST (the "Trust"), and THE
     ARIES DOMESTIC FUND, L.P., a Delaware limited partnership (the
     "Partnership", and collectively with the Trust, the "Purchasers").

     The Company desires to issue and sell to Purchasers, and Purchasers desire
to purchase from the Company, 4,000,000 shares (the "Shares") of the Common
Stock, par value $.013 per share, of the Company (the "Common Stock"), and
4,000,000 Class C Warrants of the Company (the "Warrants"), upon and subject to
the terms and conditions hereinafter set forth.

     Accordingly, in consideration of the premises and the mutual agreements
contained herein, Purchasers and the Company hereby agree as follows:

     1. Purchase of Company Securities.

     1.1. Purchase and Sale of the Shares and the Warrants. Subject to the terms
and conditions set forth herein, the Company hereby agrees to issue and sell to
Purchasers, and Purchasers hereby agree to purchase from the Company, the Shares
and the Warrants, at the Closing (as such term is defined in Section 2.1
hereof). The aggregate purchase price for the Shares and the Warrants sold
pursuant to this Agreement (including any additional shares of Common Stock
issuable pursuant to Section 8.6) shall be $ 2,000,000 (the "Purchase Price").

     1.2. Unit Purchase Option. In addition, subject to the terms and conditions
set forth herein, in consideration of the purchase by Purchasers of the Shares
and Warrants pursuant to Section 1.1, at the Closing, the Company will issue to
Purchasers and/or their designees, an option (the "Purchase Option") to purchase
up to 2,000,000 units for an aggregate purchase price of $1,000,000 consisting
of an aggregate of 2,000,000 shares (the "Purchase Option Shares") of Common
Stock at $.50 per share subject to adjustment, and 2,000,000 Class C Warrants of
the Company (the "Purchase Option Warrants"). The terms and conditions of the
Purchase Option shall be in the form attached as Exhibit A hereto.

     2. Closing.

     2.1. Closing. The closing of the purchase and sale of the Shares, the
Warrants and the Purchase Option will take place at the offices of Purchasers at
375 Park Avenue, Suite 1501, New York, New York. Such closing (the "Closing")
will take place at 10:00 A.M., local time, on August 30, 1996; provided that the
Closing may take





place at such other time, place or later date as may be mutually agreed upon by
the Company and Purchasers. The date of the Closing is referred to herein as the
"Closing Date." At the Closing, the Company will deliver to Purchasers
certificates for the Shares, the Warrants and the Purchase Option purchased as
set forth in Section 1 hereof, against payment of the Purchase Price by
Purchasers, by wire transfer or check payable to the Company. The Shares and the
Warrants (which shall be in the form attached as Exhibit B hereto) shall be
registered in Purchasers' name or the name of the nominee(s) of Purchasers in
such denominations as Purchasers shall request pursuant to instructions
delivered to the Company not less than two days prior to the Closing Date.

     3. Conditions to the Obligations of Purchasers at the Closing. The
obligation of Purchasers to purchase and pay for the Shares, the Warrants and
the Purchase Option to be purchased by Purchasers at the Closing is subject to
the satisfaction on or prior to the Closing Date of the following conditions,
which may only be waived by written consent of Purchasers:

     3.1. Opinion of Counsel to the Company. Purchasers shall have received from
Fulbright & Jaworski L.L.P., counsel for the Company, its opinion dated the
Closing Date substantially in the form of Exhibit C hereto.

     3.2. Representations and Warranties. All of the representations and
warranties of the Company contained in this Agreement shall be true and correct
at and as of the Closing Date, except to the extent of changes caused by the
transactions contemplated hereby.

     3.3. Performance of Covenants. All of the covenants and agreements of the
Company contained in this Agreement and required to be performed on or prior to
the Closing Date shall have been performed in a manner satisfactory in all
respects to Purchasers.

     3.4. Legal Action. No injunction, order, investigation, claim, action or
proceeding before any court or governmental body shall be pending or threatened
wherein an unfavorable judgment, decree or order would restrain, impair or
prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement or cause any such transaction to be rescinded.

     3.5. Consents. The Company shall have obtained in writing or made all
consents, waivers, approvals, orders, permits, licenses and authorizations of,
and registrations, declarations, notices to and filings and applications with,
any governmental authority or any other person or entity (including, without
limitation, securityholders and creditors of the Company) required to be
obtained or made in order to enable the Company to observe and comply with all
its obligations under this Agreement and to consummate the transactions
contemplated hereby.

                                       -2-





     3.6. Closing Documents. The Company shall have delivered to Purchasers the
following:

          (a) a certificate executed by the President or Chief Executive Officer
     of the Company dated the Closing Date stating that the conditions set forth
     in Sections 3.2 through 3.5 have been satisfied;

          (b) an incumbency certificate dated the Closing Date for the officers
     of the Company executing this Agreement, the Shares, the Warrants and the
     Purchase Option and any other documents or instruments delivered in
     connection with this Agreement at the Closing;

          (c) a certificate of the Secretary or Assistant Secretary of the
     Company, dated the Closing Date, as to the continued and valid existence of
     the Company, certifying the attached copy of the By-laws of the Company,
     the authorization of the execution, delivery and performance of this
     Agreement, and the resolutions adopted by the Board of Directors of the
     Company authorizing the actions to be taken by the Company under this
     Agreement;

          (d) a certificate of the Secretary of State of the State of Delaware,
     dated a recent date, to the effect that the Company is in good standing in
     the State of Delaware and that all annual reports, if any, have been filed
     as required and that all taxes and fees have been paid in connection
     therewith;

          (e) a certified copy of the Certificate of Incorporation of the
     Company as filed with the Secretary of State of the State of Delaware; and

          (f) such certificates, other documents and instruments as Purchasers
     and their counsel may reasonably request in connection with, and to effect,
     the transactions contemplated by this Agreement.

     3.7. Proceedings. All corporate and other proceedings taken or to be taken
in connection with the transactions contemplated hereby to be consummated at the
Closing and all documents incident thereto shall be satisfactory in form and
substance to Purchasers.

     3.8. Due Diligence. Prior to the Closing Date, Purchasers and their counsel
shall have completed their due diligence and business review of the Company, its
business, assets, liabilities, corporate and legal status and intellectual
property, including patents, licenses and technical processes, all of which
shall be satisfactory in form and substance satisfactory to Purchasers and their
counsel in their sole discretion.

     3.9. Closing Financial Statements; Absence of Changes. (a) The Company
shall have provided to Purchasers (i) the unaudited balance sheet of the Company
as of June 30, 1996, and the related unaudited statement of operations for the
three-month (and nine-month) periods then ended, as well as the related
unaudited

                                       -3-





statements of stockholders' equity (deficit) and cash flows for the nine-month
period then ended, accompanied by the unqualified certification thereon of the
Chief Financial Officer or Vice President--Finance of the Company (together with
any notes thereto, the "June 30 Financial Statements") and (ii) a "bring-down"
certificate of the Chief Executive Officer of the Company and the Chief
Financial Officer or Vice President-Finance of the Company with respect to the
financial position of the Company as of the Closing Date and as to results for
the period from the date of the June 30 Financial Statements to the Closing
Date, in form and substance satisfactory to Purchaser and its counsel.

     (b) Except as set forth on the schedules hereto of the Company delivered to
Purchaser as of the date hereof, there shall have been no material adverse
change in the financial condition, operating results, employee or customer
relations or prospects of, or otherwise with respect to, the Company from the
date of the June 30 Financial Statements to the Closing Date.

     4. Conditions to the Obligations of the Company at the Closing. The
obligation of the Company to issue and sell the Shares, the Warrants and the
Purchase Option the Warrants to Purchasers at the Closing is subject to the
satisfaction on or prior to the Closing Date of the following conditions, any of
which may be waived by the Company:

     4.1. Representations and Warranties. The representations and warranties of
Purchasers contained in this Agreement shall be true and correct at and as of
the Closing Date.

     4.2. Legal Action. No injunction, order, investigation, claim, action or
proceeding before any court or governmental body shall be pending or threatened
wherein an unfavorable judgment, decree or order would restrain, impair or
prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, declare unlawful the transactions contemplated by this
Agreement or cause any such transaction to be rescinded.

     5. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchasers as follows:

     5.1. Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company has all requisite corporate power and authority, and holds all licenses,
permits and other required authorizations from governmental authorities,
necessary to conduct its business as it is now being conducted or proposed to be
conducted and to own or lease the properties and assets it now owns or holds
under lease (except that the Company may in the future be required to obtain
certain approvals of the U.S. Food and Drug Administration in connection with
its business as proposed to be conducted). The Company is duly qualified or
licensed and in good standing as a foreign corporation

                                       -4-





in each jurisdiction wherein the character of its properties or the nature of
the activities conducted by it makes such qualification or licensing necessary.

     5.2. Charter Documents. The Company has heretofore delivered to Purchasers
true, correct and complete copies of the Company's Certificate of Incorporation
and By-Laws as in full force and effect on the date hereof.

     5.3. Capitalization. As of the date hereof, the Company's authorized
capitalization consists of: 35,000,000 shares of Common Stock, of which
7,331,883 shares are presently issued and outstanding; 15,000,000 shares of
preferred stock, par value $.06 per share, of which 1,973,000 shares are
designated as Class B Convertible Preferred Stock (297,000 of which are issued
and outstanding), and 120,000 of which are designated as Class C Convertible
Preferred Stock (80,000 of which are issued and outstanding); and 9,333,708
shares of Common Stock are reserved for issuance upon the conversion or exercise
of presently outstanding convertible securities, options, warrants or other
rights to purchase Common Stock. All outstanding securities of the Company are
validly issued, fully paid and nonassessable. No stockholder of the Company is
entitled to any preemptive rights with respect to the purchase or sale of any
securities by the Company. Except as has been set forth in Schedule 5.3 hereto,
there are no outstanding options, warrants or other rights, commitments or
arrangements, written or oral, to purchase or otherwise acquire any authorized
but unissued shares of capital stock of the Company or any security directly or
indirectly convertible into or exchangeable for any capital stock of the Company
or under which any such option, warrant or convertible security may be issued in
the future, and there are no voting trusts or agreements, stockholders'
agreements, pledge agreements, buysell, rights of first offer, negotiation or
refusal or proxies or similar arrangements relating to any securities of the
Company to which the Company is a party, and to the best knowledge of the
Company after due investigation there are no such trusts, agreement, rights,
proxies or similar arrangements as to which the Company is not a party). Except
as set forth on Schedule 5.3 and as contemplated herein, none of the shares of
capital stock of the Company is reserved for any purpose, and the Company is
neither subject to any obligation (contingent or otherwise), nor has any option
to repurchase or otherwise acquire or retire any shares of its capital stock.
Schedule 5.3 sets forth (i) the number of shares of Common Stock authorized for
issuance under the Company's 1993 Stock Option Plan and the Company's
Non-Employee Director Stock Option Plan; (ii) the number of shares of Common
Stock as to which options under such plan have been (A) reserved for issuance
and (B) exercised; and (iii) the exercise prices for all outstanding options
under such plan.

     5.4. Due Authorization, Valid Issuance, Etc. The Shares and the Warrants
have been duly authorized and, when issued in accordance with this Agreement
upon the Closing Date, will be validly issued, fully paid, nonassessable shares
of Common Stock and Warrants of the Company, and will be free and clear of all
liens imposed by or through the Company. The Purchase Option has been duly
authorized and, when issued in accordance with this Agreement upon the Closing
Date, will be validly issued and free and clear of all liens imposed by or
through the

                                       -5-





Company. The Common Stock issuable upon the exercise of the Warrants and the
Purchase Option have been duly authorized and reserved, and upon the exercise of
the Warrants and the Purchase Option in accordance with the terms and conditions
thereof and this Agreement, will be validly issued, fully paid and nonassessable
shares of Common Stock and will be free and clear of all liens imposed by or
through the Company. The Purchase Option Warrants issuable upon exercise of the
Purchase Option have been duly authorized and reserved, and upon the exercise of
the Purchase Option in accordance with the terms and conditions thereof and this
Agreement, will be validly issued and free and clear of all claims imposed by or
through the Company. The issuance, sale and clear delivery of the Shares, the
Warrants and the Common Stock issuable upon the exercise of the Warrants, as
well as the Purchase Option Shares, the Purchase Option Warrants and the shares
of Common Stock issuable upon exercise of the Purchase Option Warrants, will not
be subject to any preemptive right of stockholders of the Company or to any
right of first refusal or other right in favor of any person.

     5.5. Subsidiaries. The Company has no wholly or partially owned
Subsidiaries (as defined in Section 9.10) and does not control, directly or
indirectly, any other corporation, business trust, firm, partnership,
association, joint venture, entity or organization. The Company does not own any
shares of stock, partnership interest, joint venture interest or any other
security, equity or interest in any other corporation or other organization or
entity.

     5.6. Authorization; No Breach. The Company has the full corporate power and
authority to enter into this Agreement and to perform its obligations hereunder,
and the execution, delivery and performance of this Agreement and all other
transactions contemplated hereby have been duly authorized by the Company, and
this Agreement constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except as the enforceability hereof
may be limited by (a) bankruptcy, insolvency, moratorium and similar laws
affecting creditors' rights generally and (b) the availability of remedies under
general equitable principles. Except as set forth on Schedule 5.6 hereto, the
execution and delivery by the Company of this Agreement, the offering, sale and
issuance of the Shares, the Warrants and the Purchase Option pursuant to this
Agreement, and the performance and fulfillment of the Company of its obligations
under this Agreement, the Warrants and the Purchase Option, do not and will not
(i) conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a default under, or event which, with notice or lapse of
time or both, would constitute a breach of or default under, (iii) result in the
creation of any lien, security interest, adverse claim, charge or encumbrance
upon the capital stock or assets of the Company pursuant to, (iv) give any third
party the right to accelerate any obligation under or terminate, (v) result in a
violation of, (vi) result in the loss of any license, certificate, legal
privilege or legal right enjoyed or possessed by the Company under, or (vii)
require any authorization, consent, approval, exemption or other action by or
notice to any court or administrative or governmental body pursuant to or
require the consent of any other person under, the Certificate of Incorporation
or By-Laws of the Company or any law, statute, rule or regulation to

                                       -6-





which the Company is subject or by which any of its properties are bound, or any
agreement, instrument, order, judgment or decree to which the Company is subject
or by which its properties are bound.

     5.7. Financial Statements and SEC Documents. (a) Attached hereto as
Schedule 5.7 are (i) the audited financial statements of the Company for the
fiscal year ended September 30, 1995, including the balance sheet as at the end
of such fiscal year and the related statements of operations, stockholders'
equity (deficit) and cash flows for such fiscal year, reported on by Coopers &
Lybrand L.L.P. and (ii) the June 30 Financial Statements (the financial
statements referred to in clauses (i) and (ii) are referred to herein
collectively as the "Financial Statements"). For purposes of this Agreement,
June 30, 1996, shall be hereinafter referred to as the "Balance Sheet Date." The
Financial Statements have been prepared in accordance with the books and records
of the Company and generally accepted accounting principles, applied
consistently with the past practices of the Company (except as otherwise noted
in such Financial Statements), reflect all liabilities and obligations of the
Company, as of their respective dates, and present fairly the financial position
of the Company and the results of its operations as of the time and for the
periods indicated therein.

     (b) The Company has made available to Purchasers a true and complete copy
of each report, schedule, registration statement and definitive proxy statement
filed by the Company with the Securities and Exchange Commission since January
1, 1993 (as such documents have since the time of their filing been amended, the
"SEC Documents") which are all the documents (other than preliminary material)
that the Company was required to file with the Securities and Exchange
Commission since such date. As of their respective dates, the SEC Documents
complied in all respects with the requirements of the Securities Act (as defined
in Section 9.7) and/or the Exchange Act (as defined in Section 9.8) as the case
may be, and the rules and regulations of the Securities and Exchange Commission
thereunder applicable to such SEC Documents and none of the SEC Documents
contained any untrue statement of a material fact or omitted to statement of
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Securities and
Exchange Commission with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q of the Securities
and Exchange Commission) and fairly present (subject, in the case of the
unaudited statements, to normal, recurring audit adjustments) the financial
position of the Company as at the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended.

     5.8. No Material Adverse Changes. Except as set forth on Schedule 5.8
hereto, since the Balance Sheet Date there has not at any time been (a) any
material adverse change in the financial condition, operating results, business
prospects,

                                       -7-





employee relations or customer relations of the Company, or (b) other adverse
changes, which in the aggregate have been materially adverse to the Company.

     5.9. Absence of Certain Developments. Except as contemplated by this
Agreement, and except as set forth in Schedule 5.9 hereto, since the Balance
Sheet Date, the Company has not, nor will have prior to the Closing: (a) issued
any securities; (b) borrowed any amount or incurred or became subject to any
liabilities (absolute or contingent), other than liabilities incurred in the
ordinary course of business and liabilities under contracts entered into in the
ordinary course of business, none of which are or shall be material and which
are less than $10,000; (c) discharged or satisfied any lien, adverse claim or
encumbrance or paid any obligation or liability (absolute or contingent), other
than current liabilities paid in the ordinary course of business; (d) declared
or made any payment or distribution of cash or other property to the
stockholders of the Company with respect to the Common Stock or purchased or
redeemed any shares of Common Stock; (e) mortgaged, pledged or subjected to any
lien, adverse claim, charge or any other encumbrance, any of its properties or
assets, except for liens for taxes not yet due and payable; (f) sold, assigned
or transferred any of its assets, tangible or intangible, except in the ordinary
course of business and in an amount less than $10,000, or disclosed any
proprietary confidential information to any person, firm or entity; (g) suffered
any extraordinary losses or waived any rights of material value; (h) made any
capital expenditures or commitments therefor; (i) entered into any other
transaction other than in the ordinary course of business in an amount less than
$10,000 or entered into any material transaction, whether or not in the ordinary
course of business; (j) made any charitable contributions or pledges; (k)
suffered damages, destruction or casualty loss, whether or not covered by
insurance, affecting any of the properties or assets of the Company or any other
properties or assets of the Company which could have a material adverse effect
on the business or operations of the Company; (l) made any change in the nature
or operations of the business of the Company; or (m) resolved or entered into
any agreement or understanding with respect to any of the foregoing.

     5.10. Properties. The Company has good and marketable title to all of the
real property and good title to all of the personal property and assets it
purports to own, including those reflected as owned on the Company Balance Sheet
or acquired thereafter, and a good and valid leasehold interest in all property
indicated as leased on the Company Balance Sheet, whether such property is real
or personal, free and clear of all liens, adverse claims, charges, encumbrances
or restrictions of any nature whatsoever, except (a) such as are reflected on
the Company Balance Sheet or described in Schedule 5.10 hereto and (b) for
receivables and charges collected in the ordinary course of business. Except as
disclosed in Schedule 5.10 hereto, the Company owns or leases all such
properties as are necessary to its operations as now conducted and as presently
proposed to be conducted and all such properties are, in all material respects,
in good operating condition and repair.

     5.11. Taxes. Except as referred to in Schedule 5.11 hereto, the Company has
timely filed all federal, state, local and foreign tax returns and reports

                                       -8-





required to be filed, and all taxes, fees, assessments and governmental charges
of any nature shown by such returns and reports to be due and payable have been
timely paid except for those amounts being contested in good faith and for which
appropriate amounts have been reserved in accordance with generally accepted
accounting principles and are reflected on the Company Balance Sheet. There is
no tax deficiency which has been, or, to the knowledge of the Company might be,
asserted against the Company which would adversely affect the business or
operations, or proposed business or operations, of the Company. All such tax
returns and reports were prepared in accordance with the relevant rules and
regulations of each taxing authority having jurisdiction over the Company and
are true and correct. The Company has neither given nor been requested to give
any waiver of any statute of limitations relating to the payment of federal,
state, local or foreign taxes. The Company has not been, nor is it now being,
audited by any federal, state, local or foreign tax authorities. The Company has
made all required deposits for taxes applicable to the current tax year. The
Company is not, and has never been, a member of any "affiliated group" within
the meaning of Section 1504 of the Internal Revenue Code, as in effect from time
to time.

     5.12. Litigation. Except as set forth on Schedule 5.12 hereto, there are no
actions, suits, proceedings, orders, investigations or claims pending or
threatened against or affecting the Company, at law or in equity or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality; there are no arbitration proceedings
pending under collective bargaining agreements or otherwise; and, to the
knowledge of the Company, there is no basis for any of the foregoing.

     5.13. Compliance with Law. The Company has complied in all respects with
all applicable statutes and regulations of the United States and of all states,
municipalities and applicable agencies and foreign jurisdictions or bodies in
respect of the conduct of its business and operations, and the failure, if any,
by the Company to have fully complied with any such statute or regulation does
not and will not materially adversely affect the business or operations of the
Company. The Company shall do all things necessary to preserve, renew and keep
in full force and effect and in good standing its corporate existence and
authority necessary to continue its business.

     5.14. Trademarks and Patents. Schedule 5.14 annexed hereto contains a true,
complete and correct list of all trademarks, trade names, patents and copyrights
(and applications therefor) if any, heretofore or presently owned or licensed or
used or required to be used by the Company in connection with its business; and,
except as set forth on Schedule 5.14, each such trademark, trade name, patent
and copyright (and application therefor) listed in Schedule 5.14 as being owned
by the Company is not subject to any license, royalty arrangement, option or
dispute and is free and clear of all liens. To the best knowledge of the
Company, none of the trademarks, trade names, patents or copyrights used by the
Company in connection with its business infringe any trademark, trade name,
patent or copyright of others in the United States or in any other country, in
any way which adversely affects or which in the future may adversely affect the
business or operations of the Company. Except as set forth in Schedule 5.14,

                                       -9-





no stockholder, officer or director of the Company or any other person owns or
has any interest in any trademark, trade name, service mark, patent, copyright
or application therefor, or trade secret, licenses, invention, information or
proprietary right or process, if any, used by the Company in connection with its
business. The Company has no notice or knowledge of any objection or claim being
asserted by any person with respect to the ownership, validity enforceability or
use of any such trademarks, trade names, patents and copyrights (and
applications therefor) listed on Schedule 5.14 or challenging or questioning the
validity or effectiveness of any license relating thereto. There are no
unresolved conflicts with, or pending claims of, any other person, whether in
litigation or otherwise, involving the trademarks, trade names, patents and
copyrights (and applications therefor), and there are no liens, encumbrances,
adverse claims, or rights of any other person which would prevent the Company
form fulfilling its obligations under this Agreement. To the best knowledge of
the Company, the business of the Company, as presently conducted and as proposed
to be conducted under the Business Plan, does not and will not cause the Company
to violate any trademark, trade name, patent, copyright, trade secret, license
or proprietary interest of any other person or entity, in any way which
adversely affects or which in the future may adversely affect the business or
operations of the Company. Except as disclosed in Schedule 5.14 hereto, the
Company possesses all proprietary technology necessary for the conduct of
business by the Company, both as presently conducted and as presently proposed
to be conducted.

     5.15. Insurance. Schedule 5.15 annexed hereto contains a brief description
of each insurance policy maintained by the Company with respect to its
properties, assets and business; each such policy is in full force and effect;
and the Company is not in default with respect to its obligations under any of
such insurance policies. The insurance coverage of the Company is in amounts not
less than is customarily maintained by corporations engaged in the same or
similar business and similarly situated, including, without limitation,
insurance against loss, damage, fire, theft, public liability and other risks.
The activities and operations of the Company have been conducted in a manner so
as to conform to all applicable provisions of these insurance policies and the
Company has not taken or failed to take any action which would cause any such
insurance policy to lapse.

     5.16. Agreements. Except as set forth in Schedule 5.16 hereto, the Company
is neither a party to nor bound by any agreement or commitment, written or oral,
which obligates the Company to make payments to any person, or which obligates
any person to make payments to the Company, in the case of each such agreement
in an amount exceeding $5,000, or in the aggregate in an amount exceeding
$10,000, or which is otherwise material to the conduct and operation of the
Company's business or proposed business or any of its properties or assets,
including, without limitation, all shareholder, employment, non-competition and
consulting agreements and employee benefit plans and arrangements and collective
bargaining agreements to which the Company is a party or by which it is bound.
All such agreements are legal, valid and binding obligations of the Company, in
full force and effect, and enforceable in accordance with their respective
terms, except as the enforceability thereof may be

                                      -10-





limited by (a) bankruptcy, insolvency, moratorium, and similar laws affecting
creditors' rights generally and (b) the availability of remedies under general
equitable principles. The Company has performed all obligations required to be
performed by it, and is not in default, or in receipt of any claim, under any
such agreement or commitment, and the Company has no present expectation or
intention of not fully performing all of such obligations, nor does the Company
have any knowledge of any breach or anticipated breach by the other parties to
any such agreement or commitment. The Company is not a party to any contract,
agreement, instrument or understanding which materially adversely affects the
business, properties, operations, assets or condition (financial or otherwise)
of the Company. Purchasers has been furnished with a true and correct copy of
each written agreement referred to in Schedule 5.16, together with all
amendments, waivers or other changes thereto.

     5.17. Undisclosed Liabilities. Except as set forth on Schedule 5.17 hereto,
the Company has no obligation or liability (whether accrued, absolute,
contingent, unliquidated, or otherwise, whether or not known to the Company,
whether due or to become due) arising out of transactions entered into at or
prior to the Closing of this Agreement, or any action or inaction at or prior to
the Closing of this Agreement, or any state of facts existing at or prior to the
Closing of this Agreement, except (a) liabilities reflected on the Company
Balance Sheet; (b) liabilities in an amount less than $10,000 incurred in the
ordinary course of business since the Balance Sheet Date (none of which is a
liability for breach of contract, breach of warranty, torts, infringements,
claims or lawsuits); and (c) liabilities or obligations disclosed in the
schedules hereto.

     5.18. Employees; Conflicting Agreements. (a) The Company shall cause all
members of management and all professional employees of and consultants and
advisors to the Company, including all employees and consultants and advisors
involved in its research and development, to be subject to agreements with
respect to (i) nondisclosure of confidential information, (ii) assignment of
patents, trademarks, copyrights and proprietary rights to the Company and (iii)
disclosure to the Company of inventions.

     (b) Except as set forth on Schedule 5.18, no stockholder, director, officer
or key employee of the Company is a party to or bound by any agreement, contract
or commitment, or subject to any restrictions in connection with any previous or
current employment of any such person, which adversely affects, or which in the
future may adversely affect, the business or the proposed business of the
Company or the rights of Purchasers under this Agreement and in respect of its
rights as a holder of the Shares, the Warrants and the Purchase Option.

     5.19. Disclosure. Neither this Agreement nor any of the schedules,
exhibits, written statements, documents or certificates prepared or supplied by
the Company with respect to the transactions contemplated hereby contain any
untrue statement of a material fact or omit a material fact necessary to make
the statements contained herein or therein not misleading. Except as disclosed
in Schedule 5.19

                                      -11-





hereto, there exists no fact or circumstance which, to the knowledge of the
Company, materially adversely affects, or which could reasonably be anticipated
to have a material adverse effect on, the existing or expected financial
condition, operating results, assets, customer relations, employee relations or
business prospects of the Company.

     5.20. Compliance with the Securities Laws. Except as set forth on Schedule
5.20 hereto, neither the Company nor anyone acting on its behalf has directly or
indirectly offered the Shares, the Warrants or the Purchase Option or any part
thereof or any similar security of the Company (or any other securities
convertible or exchangeable for the Shares, the Warrants or the Purchase Option
or any similar security), for sale to, or solicited any offer to buy the same
from, anyone other than Purchasers. All securities of the Company heretofore
sold and issued by it were sold and issued, and the Shares, the Warrants and the
Purchase Option were offered and will be sold and issued, in compliance with all
applicable federal and state securities laws.

     5.21. Brokers. No finder, broker, agent, financial person or other
intermediary has acted on behalf of the Company, except as set forth on Item 1
of Schedule 5.17, in connection with the offering of the Shares, the Warrants
and the Purchase Option or the consummation of this Agreement or any of the
transactions contemplated hereby.

     5.22. Transactions with Affiliates. Except as set forth in Schedule 5.22,
no director, officer, employee, consultant or agent of the Company, or member of
the family of any such person or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of any such person,
has a substantial interest in or is an officer, director, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof, is a party to
any transaction with the Company, including any contract, agreement or other
arrangement providing for the employment of, furnishing of services by or
requiring payments to any such person or firm.

     6. Representations and Warranties of Purchasers. Purchasers hereby
severally represent and warrant to the Company as follows:

     6.1. Investment Intent. Each of the Purchasers are "accredited investors"
within the meaning of Regulation D under the Securities Act. Each of the
Purchasers has experience in making investments in development stage
biotechnology companies and is acquiring the Shares, the Warrants and the
Purchase Option for its own account and not with a present view to, or for sale
in connection with, any distribution thereof in violation of the registration
requirements of the Securities Act. Purchasers consent to the placing of a
legend on the certificates representing the Shares, the Warrants and the
Purchase Option to the effect that the shares of Common Stock constituting the
Shares or issuable upon exercise of the Warrants, and the Purchase Option have
not been registered under the Securities Act and may not be

                                      -12-





transferred except in accordance with applicable securities laws or an exception
therefrom.

     6.2. Authorization. Each of Purchasers has the power and authority to
execute and deliver this Agreement and to perform its obligations hereunder,
having obtained all required consents, if any.

     6.3. Brokers. No finder, broker, agent, financial person or other
intermediary has acted on behalf of Purchasers in connection with the offering
of the Shares, the Warrants and the Purchase Option or the consummation of this
Agreement or any of the transactions contemplated hereby.

     7. Covenants of the Company. Unless the provisions hereof expressly require
otherwise, until such time as Purchasers and their affiliates beneficially own
less than one percent (1%) of the Common Stock after giving effect to the
conversion or exercise of all securities of the Company beneficially owned by
Purchasers and their affiliates, the Company covenants and agrees with
Purchasers as follows:

     7.1. Books and Accounts. The Company will: (a) make and keep books, records
and accounts, which, in reasonable detail, accurately and fairly reflect its
transactions, including without limitation, dispositions of its assets; and (b)
devise and maintain a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and in accordance with
the Company's past practices or any other criteria applicable to such
statements, and to maintain accountability for assets, (iii) access to assets is
permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

     7.2. Periodic Reports. (a) The Company will furnish to Purchasers as soon
as practicable, and in any event within 90 days after the end of each fiscal
year of the Company (commencing with the fiscal year ended September 30, 1996),
an annual report of the Company, including a balance sheet as at the end of such
fiscal year and statement of operations, stockholders' equity (deficit) and cash
flows for such fiscal year, together with the related notes thereto, setting
forth in each case in comparative form corresponding figures for the preceding
fiscal year, all of which will be correct and complete and will present fairly
the financial position of the Company and the results of its operations and
changes in its financial position as of the time and for the period then ended.
Such financial statements shall be accompanied by an unqualified report (other
than qualifications contingent upon the Company's ability to obtain additional
financing), in form and substance reasonably satisfactory to Purchasers, of
independent public accountants reasonably satisfactory to Purchasers

                                      -13-





to the effect that such financial statements have been prepared in accordance
with the books and records of the Company and generally accepted accounting
principles applied on a basis consistent with prior years (except as otherwise
specified in such report), and present fairly the financial position of the
Company and the results of its operations and changes in their financial
position as of the time and for the period then ended. The Company will use its
best efforts to conduct its business so that such report of the independent
public accountants will not contain any qualifications as to the scope of the
audit, the continuance of the Company, or with respect to the Company's
compliance with generally accepted accounting principles consistently applied,
except for changes in methods of accounting in which such accountants concur.

     (b) The Company will furnish to Purchasers, as soon as practicable and in
any event within 45 days after the end of each of the first three fiscal
quarters of the Company during each fiscal year, a quarterly report of the
Company consisting of an unaudited balance sheet as at the end of such quarter
and an unaudited statement of operations, stockholders' equity (deficit) and
cash flows for such quarter and the portion of the fiscal year then ended,
setting forth in each case in comparative form corresponding figures for the
preceding fiscal year. All such reports shall be certified by the Chief
Financial Officer or Vice President--Finance of the Company to be correct and
complete, to present fairly the financial position of the Company and the
consolidated results of its operations and changes in its financial position as
of the time and for the period then ended and to have been prepared in
accordance with generally accepted accounting principles.

     (c) The Company shall furnish to Purchasers, within 30 days after the end
of each calendar month, an unaudited balance sheet of the Company as of the end
of such month and the related unaudited statement of operations, stockholders'
equity (deficit) and cash flows for such month and for the fiscal year to date,
setting forth in each case comparative form the corresponding figures for the
budget for the current fiscal year, or such other financial information as
otherwise agreed to by the parties hereto. All such statements shall be
certified by the Chief Financial Officer or Vice President--Finance of the
Company to the effect that such statements fairly present the financial
condition of the Company as of the dates shown and the results of its operations
for the periods then ended and that such statements have been prepared in
conformity with generally accepted accounting principles consistently applied
except for normal, recurring, year-end audit adjustments and the absence of
footnotes.

     (d) Commencing with the Company's fiscal year commencing October 1, 1996
the Company shall furnish to Purchasers, as soon as practicable and in any event
not less than 60 days prior to the end of each fiscal year of the Company
(except that with respect to the fiscal year commencing October 1, 1996, such
delivery must be made by the Closing Date), (i) an annual operating budget for
the Company, for the succeeding fiscal year, containing projections of profit
and loss, cash flow and ending balance sheets for each month of such fiscal year
and (ii) a business plan for the Company as specified in Section 7.19. The
Company shall furnish to Purchasers within five days after the date the Board of
Directors has approved the annual operating

                                      -14-





budget and business plan referred to above, which shall be no later than 60 days
after the beginning of each fiscal year, such operating budget and business plan
as approved by the Board of Directors. Promptly upon preparation thereof, the
Company shall furnish to Purchasers any other operating budgets or business
plans that the Company may prepare and any revisions or modifications of such
previously furnished budgets or business plans.

     (e) The annual statements and quarterly statements furnished pursuant to
Sections 7.02(a) and (b) shall include a narrative discussion prepared by the
Company describing the business operations of the Company during the period
covered by such statements. The monthly statements furnished pursuant to Section
7.02(c) shall be accompanied by a statement describing any material events,
transactions or deviations from the Company's Business Plan (as defined below)
contemplated by Section 7.19 and containing an explanation of the causes and
circumstances thereof.

     7.3. Certificates of Compliance. The Company covenants that promptly after
the occurrence of any default hereunder or any default under or breach of any
material agreement, or any other material adverse event or circumstance
affecting the Company, it will deliver to Purchasers an Officers' Certificate
specifying in reasonable detail the nature and period of existence thereof, and
what actions the Company has taken and proposes to take with respect thereto.

     7.4. Other Reports and Inspection. (a) The Company will furnish to
Purchasers (a) as soon as practicable after issuance, copies of any financial
statements or reports prepared by the Company for, or otherwise furnished to,
its stockholders or the Securities and Exchange Commission and (b) promptly,
such other documents, reports and financial data as Purchasers may reasonably
request. In addition the Company will, upon reasonable prior notice, make
available to Purchasers or its representatives or designees (a) all assets,
properties and business records of the Company for inspection and/or copying and
(b) the directors, officers and employees of the Company for interviews
concerning the business, affairs and finances of the Company.

     7.5. [Intentionally Omitted.]

     7.6. Insurance. The Company will at all times maintain valid policies of
worker's compensation and such other insurance with respect to its properties
and business of the kinds and in amounts not less than is customarily maintained
by corporations engaged in the same or similar business and similarly situated,
including, without limitation, insurance against fire, loss, damage, theft,
public liability and other risks. The activities and operations of the Company
shall be conducted in a manner to as to conform in all material respects to all
applicable provisions of such policies.

     7.7. Use of Proceeds. After the Closing Date, the Company will use the
proceeds from the sale of the Shares, the Warrants and the Purchase Option for
the purposes set forth on Schedule 7.7.

                                      -15-





     7.8. Material Changes. The Company will promptly notify Purchasers of any
material adverse change in the business, properties, assets or condition,
financial or otherwise, of the Company, or any other material adverse event or
circumstance affecting the Company, and of any litigation or governmental
proceeding pending or, to the knowledge of the Company, threatened against the
Company or against any director or officer of the Company.

     7.9. Transactions with Affiliates. Except for the transactions contemplated
by this Agreement, the Company shall not (a) engage in any transaction with, (b)
make any loans to, nor (c) enter into any contract, agreement or other
arrangement (i) providing for (x) the employment of, (y) the furnishing of
services by, or (z) the rental of real or personal property from, or (ii)
otherwise requiring payments to, any officer, director or key employee of the
Company or any relative of such persons or any other "affiliate" or "associate"
of such persons (as such terms are defined in the rules and regulations
promulgated under the Securities Act), without the prior written approval of
Purchasers.

     7.10. Corporate Existence, Licenses and Permits; Maintenance of Properties;
New Businesses. The Company will at all times conduct its business in the
ordinary course and cause to be done all things necessary to maintain, preserve
and renew its existence and will preserve and keep in force and effect, all
licenses, permits and authorizations necessary to the conduct of its and their
respective businesses. The Company will also maintain and keep its properties in
good repair, working order and condition, and from time to time, to make all
needful and proper repairs, renewals and replacements, so that the business
carried on in connection therewith may be properly conducted at all times.

     7.11. Other Material Obligations. The Company will comply with, (a) all
material obligations which it is subject to, or become subject to, pursuant to
any contract or agreement, whether oral or written, as such obligations are
required to be observed or performed, unless and to the extent that the same are
being contested in good faith and by appropriate proceedings and the Company has
set aside on their books adequate reserves with respect thereto, and (b) all
applicable laws, rules, and regulations of all governmental authorities, the
violation of which could have a material adverse effect upon the business of the
Company.

     7.12. Amendment to the Certificate of Incorporation and the By-Laws. The
Company will perform and be in compliance with and observe all of the provisions
set forth in its Certificate of Incorporation and By-Laws to the extent that the
performance of such obligations is legally permissible; provided that the fact
that performance is not legally permissible will not prevent such nonperformance
from constituting an event of default under this Agreement. The Company will not
amend its Certificate of Incorporation or By-Laws so as to adversely affect the
rights of Purchasers under this Agreement, the Certificate of Incorporation, the
By-Laws, the Warrants, the Purchase Option Warrants or the Purchase Option.

                                      -16-





     7.13. Merger; Sale of Assets. The Company will not become a party to any
merger, consolidation or reorganization, or sell, lease, license, sublicense or
otherwise dispose of any of its assets, other than sales and leases of assets in
the ordinary course of business, without the prior approval of Purchasers.

     7.14. Acquisition. The Company will not acquire any interest in any
business from any person, firm or entity (whether by a purchase of assets,
purchase of stock, merger or otherwise) without the prior approval of
Purchasers, except the acquisition of 1% or less of any class of outstanding
securities of a company whose securities are listed on a national securities
exchange or which has not fewer than 1,000 stockholders and except as otherwise
specifically permitted pursuant to the provisions of this Agreement.

     7.15. Dividends; Distributions; Repurchases of Common Stock; Treasury
Stock. The Company shall not declare or pay any dividends on, or make any other
distribution with respect to, its capital stock, whether now or hereafter
outstanding, other than dividends payable in shares of such stock, or purchase,
acquire, redeem or retire any shares of its capital stock, without the consent
of Purchasers, provided, however, the foregoing shall not prohibit the Company
from repurchasing any shares of its Common Stock from any present or former
officer, Director or employee of the Company.

     7.16. Consents and Waivers. (a) Except as set forth on Schedule 7.16, the
Company has obtained all consents and waivers needed to enable it to perform all
of its obligations under this Agreement and the transactions contemplated
hereby.

     (b) Except as set forth on Schedule 7.16, the Company has obtained from all
holders of options, warrants and other securities of the Company having any
right of first refusal, offer, sale, negotiation or similar rights or
antidilution or other rights to have the terms (including, without limitation,
conversion or exercise prices or rates) of such instruments adjusted by virtue
of the purchase and sale of the Shares, the Warrants and the Purchase Option or
the other transactions contemplated by this Agreement, the Warrants, or the
Purchase Option a written waiver in form and substance satisfactory to
Purchasers and their counsel, provided that no such consent shall be required
solely with respect to the reverse-stock split contemplated by Section 7.26.

     7.17. Taxes and Liens. The Company will duly pay and discharge when
payable, all taxes, assessments and governmental charges imposed upon or against
the Company or its properties, or any part thereof or upon the income or profits
therefrom, in each case before the same become delinquent and before penalties
accrue thereon, as well as all claims for labor, materials or supplies which if
unpaid might by law become a lien upon any of its property, unless and to the
extent that the same are being contested in good faith and by appropriate
proceedings and the Company have set aside on their books adequate reserves with
respect thereto.

                                      -17-





     7.18. Restrictive Agreement. The Company covenants and agrees that
subsequent to the Closing, it will not be a party to any agreement or instrument
which by its terms would restrict the Company's performance of its obligations
pursuant to this Agreement, the Certificate of Incorporation, By-laws, the
Warrants, the Purchase Option Warrants and the Purchase Option.

     7.19. Business Plan. Commencing with the Company's fiscal year commencing
October 1, 1996, the Company's Chief Financial Officer or Vice President-Finance
shall prepare or have prepared and submit to the Board of Directors not less
than 60 days prior to the beginning of each fiscal year of the Company (except
that in respect of the fiscal year commencing October 1, 1996, such date shall
be the Closing Date), an updated business plan (the "Business Plan") for such
year which shall set forth the Company's product development, marketing and
servicing plans, capital expenditures and expense budgets and shall encompass a
statement of long range strategy over a five-year period and short-range tactics
over a two-year period. The Business Plan shall specify quantitative and
qualitative goals for the Company and relate the attainment of those goals to
the Company's strategic objectives.

     7.20. Director and Observer. (a) For a period of five years after the
Closing Date, Purchasers shall be entitled to propose up to two persons for
nomination as voting Directors of the Company. If necessary, the Directors of
the Company will elect each such person to the Board of Directors of the Company
by creating a new position on the Board of Directors promptly following such
person's nomination by Purchasers and shall nominate such person for election in
connection with any stockholder vote for Directors, and the Company will use its
best efforts to ensure that the stockholders of the Company agree to vote all
their securities in favor of such person's election. The Company agrees to vote
all voting securities for which the Company holds proxies, granting it voting
discretion, or is otherwise entitled to vote, in favor of, and to use its best
efforts in all respect to cause, the election of each such individual proposed
by Purchasers. In the event that a vacancy is created on the Board of Directors
at any time by the death, disability, resignation or removal (with or without
cause) of any such individual proposed and nominated by Purchasers, pursuant to
this Agreement, the Company will, and will use its best efforts to ensure that
the stockholders of the Company, vote all its voting securities to elect each
individual proposed by Purchasers and approved by the Company and nominated for
election by Purchasers to fill such vacancy and serve as a voting Director.

     (b) In addition to the rights set forth in Section 7.20(a), from and after
the Closing Date, until such time as Purchasers or their affiliates shall not
beneficially own any securities of the Company, Purchasers shall be entitled to
designate a nonvoting observer who shall be entitled to attend all meetings of
the Board of Directors and any of its committees and who shall be provided (i)
reasonable prior notice of all meetings of the Board of Directors and any of its
committees, (ii) reasonable prior notice of any action that the Board of
Directors or any of its committees may take by written consent, (iii) promptly
delivered copies of all minutes and other records of action by, and all written
information furnished to, the Board of

                                      -18-





Directors or any of its committees and (iv) any other information requested by
such observer which a member of the Board of Directors would be entitled to
request to discharge his or her duties. Such Purchaser observer shall be
entitled to the same rights to reimbursement for the expense of attendance at
meeting as any outside Director.

     (c) If Purchasers give notice to the Company that Purchaser desires to
remove a Director proposed by Purchaser pursuant to this Agreement, the Company
shall, and shall use its best effort to ensure that the stockholders of the
Company shall, vote all its voting securities in favor of removing such Director
if a vote of holders of such securities shall be required to remove the
Director, and the Company agrees to take any action necessary to facilitate such
removal.

     (d) Each Director nominated by Purchasers shall be entitled to the same
type and an amount of compensation at least equal to the highest amount payable
to any other Director for serving in such capacity.

     (e) Not later than three business days after the Closing Date, the Company
shall have (i) caused the appointment of the initial Directors nominated by
Purchasers, to its Board of Directors in accordance with the provisions of this
Section 7.20, which individuals shall be identified in writing to the Company by
such time, and (ii) taken such action as shall be necessary to cause the Board
of Directors to be composed of, and limited to, five members, only one of whom
shall be an executive officer, employee, consultant, scientific advisor or
otherwise an "insider" of the Company. The Company will use its best efforts to
ensure continuing compliance with the terms of Section 7.20(e)(ii).

     7.21. Board of Directors. (a) The Company shall promptly reimburse each
director or observer of the Company designated by Purchasers who is not an
employee of the Company for all of his reasonable expenses incurred in attending
each meeting of the Board of Directors of the Company or any committee thereof.

     (b) The Company shall at all times maintain provisions in its By-laws
and/or Certificate of Incorporation indemnifying all directors against liability
and absolving all directors from liability to the Company and its stockholders
to the maximum extent permitted under the laws of the State of Delaware.

     (c) The By-laws of the Company shall always contain provisions consistent
with the provisions of this Section 7.21 except to the extent this Section 7.21
deals with the possible observer.

     7.22. No Subsidiaries. The Company will not create or acquire any entity
that would be a Subsidiary (as defined in Section 9.10) without Purchasers'
consent.

                                      -19-





     7.23. Publicity. (a) The Company shall not issue any press release or make
any other public announcement with respect to this Agreement or the transactions
contemplated hereby or utilizing the names of Purchasers or their officers,
directors, employees, agents or affiliates without obtaining the prior approval
of Purchasers (which approval will not be unreasonably withheld or delayed),
except as may be required by law or the regulations of any securities exchange
or the Nasdaq SmallCap(TM) Market.

     (b) Unless otherwise required by law, the Company shall not disclose the
names, identity, addresses or any other information regarding each of Purchasers
and its nominees and/or designees; provided, however, each of the names of
Purchasers (but not its addresses) may be disclosed in the Shelf Registration
Statement.

     (c) After the Closing Date, upon request of Purchasers, the Company shall
cause, at its sole expense, the immediate publication of a "tombstone"
advertisement in the Wall Street Journal (National Edition) announcing the
consummation of this Agreement and the transactions contemplated herein, the
exact form and substance of which shall be mutually agreed upon by the Company
and Purchasers.

     7.24. Restriction on Securities. (a) Prior to the first anniversary of the
Closing Date, the Company shall not without prior written consent of Purchasers,
issue, offer or sell any of its equity or debt securities (including, without
limitation, any securities convertible into or exercisable for such securities);
provided that the Company may issue shares of Common Stock pursuant to exercise
of options under the Company's 1993 Stock Option Plan in accordance with the
terms of such plan (it being agreed that the issuance of any additional options
under such plan may be effected only with the prior written consent of
Purchasers, which consent will not be withheld unreasonably; provided, further,
that the Company without the consent of the Purchasers may issue options under
the Company's Non-Employee Director Stock Option Plan in accordance with the
terms of such plan which will not be amended without the consent of the
Purchasers). During the 18-months following the Closing Date, the Company shall
not, without the prior written consent of Purchasers, offer or sell any of its
debt or equity securities in reliance on Regulation S of the Securities Act.
Except as set forth on Schedule 7.24, during the 18-month period following the
Closing Date, the Company will not extend the expiration date or lower the
exercise price of any options (other than stock options issued pursuant to the
Company's stock option plans) or warrants ,or take any similar action with
respect to any convertible securities of the Company, without the prior written
consent of Purchasers.

     (b) Prior to the Closing Date, the Company shall obtain the written
agreement of all executive officers and directors of the Company, to "lock-up"
all of the shares of Common Stock owned by each of them at any time until 13
months following the Closing Date (except that with respect to one director who
has been identified by the Company to Purchasers, such "lock-up" shall only be
in effect for six months following the Closing Date), and to agree not to
directly or indirectly, issue, agree or offer to sell, grant an option for the
purchase or sale, assign, sell, contract to sell, sell

                                      -20-





"short" or "short against the box" (as those terms are generally understood),
pledge, hypothecate, distribute or otherwise encumber or dispose of, any such
shares (including options, rights, warrants or other securities convertible
into, exchangeable, exercisable for or evidencing any right to purchase or
subscribe for shares of capital stock of the Company (whether or not
beneficially owned by the undersigned) or any beneficial interest therein of any
shares of the Common Stock, all in form and substance satisfactory to Purchasers
and their counsel.

     7.25. [Intentionally Omitted.]

     7.26. Reverse Stock Split. Upon five days prior written notice from
Purchasers, the Company shall use its best efforts to effect promptly a
two-to-one reverse stock split of its outstanding Common Stock, in form and
substance satisfactory to Purchasers and their counsel.

     8. Registration of Common Stock.

     8.1. Registration. Immediately following the Closing Date, and in any event
not later than 30 days after the Closing Date, the Company will file a shelf
registration statement (the "Shelf Registration Statement") with respect to the
resale of the Registrable Securities with the Securities and Exchange
Commission. The Company will use its best efforts to effect the registrations,
qualifications or compliances (including, without limitation, the execution of
any required undertaking to file post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws and
appropriate compliance with applicable securities laws, requirements or
regulations) as may be reasonably requested and as would permit or facilitate
that sale and distribution of all Registrable Securities until the distribution
thereof is complete.

     8.2. Registration Procedures. In connection with the registration of any
Registrable Securities under the Securities Act as provided in this Section 8,
the Company will use its best efforts, as expeditiously as possible:

     (a) Prepare and file with the Securities and Exchange Commission the Shelf
Registration Statement with respect to such Registrable Securities and use its
best efforts to cause such Shelf Registration Statement to become effective;

     (b) Prepare and file with the Securities and Exchange Commission such
amendments and supplements to such Shelf Registration Statement and the
prospectus used in connection therewith as may be necessary to keep such Shelf
Registration Statement effective until the disposition of all securities in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such Shelf Registration Statement shall be completed, and
to comply with the provisions of the Securities Act (to the extent applicable to
the Company) with respect to such dispositions;

                                      -21-





     (c) Furnish to each seller of such Registrable Securities such number of
copies of such Shelf Registration Statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such Shelf Registration Statement (including each
preliminary prospectus), in conformity with the requirements of the Securities
Act, and such other documents, as such seller may reasonably request, in order
to facilitate the disposition of the Registrable Securities owned by such
seller;

     (d) Use its best efforts to register or qualify such Registrable Securities
covered by such Shelf Registration Statement under such other securities or blue
sky laws of such jurisdictions as any seller reasonably requests, and do any and
all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller, except that the Company will not
for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not, but for the
requirements of this Section 8.2(d) be obligated to be qualified, to subject
itself to taxation in any such jurisdiction, or to consent to general service of
process in any such jurisdiction;

     (e) Provide a transfer agent and registrar for all such Registrable
Securities covered by such Shelf Registration Statement not later than the
effective date of such Shelf Registration Statement;

     (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 Shelf 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) Cause all such Registrable Securities to be listed on each securities
exchange or automated over-the-counter trading system on which similar
securities issued by the Company are then listed;

     (h) Enter into such customary agreements and take all such other actions as
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities; and

     (i) Make available for inspection by any seller of Registrable Securities,
all financial and other records, pertinent corporation documents and properties
of the Company, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such seller in connection
with the Shelf Registration Statement pursuant to Section 8.1.

                                      -22-





     8.3. Registration and Selling Expenses. (a) All expenses incurred by the
Company in connection with the Company's performance of or compliance with this
Section 8, including, without limitation (i) all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), (ii) blue sky fees and expenses, (iii) all necessary
printing and duplicating expenses and (iv) all fees and disbursements of counsel
and accountants for the Company (including the expenses of any audit of
financial statements), retained by the Company (all such expenses being herein
called "Registration Expenses"), will be paid by the Company except as otherwise
expressly provided in this Section 8.3.

     (b) The Company will, in any event, in connection with any registration
statement, pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal, accounting
or other duties in connection therewith and expenses of audits of year-end
financial statements), the expense of liability insurance and the expenses and
fees for listing the securities to be registered on one or more securities
exchanges or automated over-the-counter trading systems on which similar
securities issued by the Company are then listed.

     (c) Nothing herein shall be construed to prevent any holder or holders of
Registrable Securities from retaining such counsel as they shall choose, the
expenses of which shall be borne by the Company.

     8.4. Other Public Sales and Registrations. The Company agrees that it will
not, on its own behalf, file or cause to become effective any other registration
of any of its securities under the Securities Act or otherwise effect a public
sale or distribution of its securities (except pursuant to registration on Form
S-8 or any successor form relating to a special offering to the employees or
security holders of the Company) until at least 180 days have elapsed after the
effective date of the Shelf Registration Statement. In addition, the Company
agrees that it will use its best efforts to obtain prior to the filing of the
Shelf Registration Statement an agreement in form and substance satisfactory to
Purchasers and their counsel in their sole and absolute discretion from each
person that has the right to have the Company file or cause to become effective
any other registration of any of its securities under the Securities Act or
otherwise effect a public sale or distribution of its securities (except
pursuant to registration on Form S-8 or any successor form relating to a special
offering to the employees or security holders of the Company), pursuant to which
each such person will agree for the benefit of the Company and Purchasers to
waive any and all such rights until at least 180 days have elapsed after the
effective date of the Shelf Registration Statement.

     8.5. Indemnification. (a) The Company hereby agrees to indemnify, to the
extent permitted by law, each holder of Registrable Securities, its officers and
directors, if any, and each person, if any, who controls such holder within the
meaning of the Securities Act, against all losses, claims, damages, liabilities
and expenses (under the Securities Act or common law or otherwise) caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or

                                      -23-





prospectus (and as amended or supplemented if the Company has furnished any
amendments or supplements thereto) or any preliminary prospectus, which
registration statement, prospectus or preliminary prospectus shall be prepared
in connection with the registration contemplated by this Section 8, or caused by
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,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by any untrue statement or alleged untrue statement contained in or by
any omission or alleged omission from information furnished to the Company by
such holder in connection with the registration contemplated by this Section 8,
provided the Company will not be liable pursuant to this Section 8.5 if such
losses, claims, damages, liabilities or expenses have been caused by any selling
security holder's failure to deliver a copy of the registration statement or
prospectus, or any amendments or supplements thereto, after the Company has
furnished such holder with the number of copies required by Section 8.2(c).

     (b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information as is reasonably requested by the Company
for use in any such registration statement or prospectus and shall severally
indemnify, to the extent permitted by law, the Company, its directors and
officers and each person, if any, who controls the Company within the meaning of
the Securities Act, against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact required to
be stated in the registration statement or prospectus or any amendment thereof
or supplement thereto or necessary to make the statements therein not
misleading, but only to the extent such losses, claims, damages, liabilities or
expenses are caused by an untrue statement or alleged untrue statement contained
in or by an omission or alleged omission from information so furnished by such
holder in connection with the registration contemplated by this Section 8. If
the offering pursuant to any such registration is made through underwriters,
each such holder agrees to enter into an underwriting agreement in customary
form with such underwriters and to indemnify such underwriters, their officers
and directors, if any, and each person who controls such underwriters within the
meaning of the Securities Act to the same extent as hereinabove provided with
respect to indemnification by such holder of the Company. Notwithstanding the
foregoing or any other provision of this Agreement, in no event shall a holder
of Registrable Securities be liable for any such losses, claims, damages,
liabilities or expenses in excess of the lesser of (a) the net proceeds received
by such holder in the offering or (b) $2,000,000.

     (c) Promptly after receipt by an indemnified party under Section 8.5 (a) or
(b) of notice of the commencement of any action or proceeding, such indemnified
party will, if a claim in respect thereof is made against the indemnifying party
under such Section, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under such Section. In case any such action or proceeding is brought against any
indemnified party, and it notifies

                                      -24-





the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein, and, to the extent that it wishes, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel approved by such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under such Section for any legal or any other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof (other than reasonable costs of investigation) unless incurred at the
written request of the indemnifying party. Notwithstanding the above, the
indemnified party will have the right to employ counsel of its own choice in any
such action or proceeding if the indemnified party has reasonably concluded that
there may be defenses available to it which are different from or additional to
those of the indemnifying party, or counsel to the indemnified party is of the
opinion that it would not be desirable for the same counsel to represent both
the indemnifying party and the indemnified party because such representation
might result in a conflict of interest (in either of which cases the
indemnifying party will not have the right to assume the defense of any such
action or proceeding on behalf of the indemnified party or parties and such
legal and other expenses will be borne by the indemnifying party). An
indemnifying party will not be liable to any indemnified party for any
settlement of any such action or proceeding effected without the consent of such
indemnifying party.

     (d) If the indemnification provided for in Section 8.5(a) or (b) is
unavailable under applicable law to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and of
the holders of Registrable Securities on the other in connection with the
statements or omissions which resulted in such losses, claims, damages, or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the holders of Registrable
Securities on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the Company
or by the holders of Registrable Securities and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed to
include, subject to the limitations set forth in Section 8.5(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.

                                      -25-





     (e) Promptly after receipt by the Company or any holder of Securities of
notice of the commencement of any action or proceeding, such party will, if a
claim for contribution in respect thereof is to be made against another party
(the "contributing party"), notify the contributing party of the commencement
thereof; but the omission so to notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution hereunder. In case any such action, suit, or proceeding is brought
against any party, and such party notifies a contributing party of the
commencement thereof, the contributing party will be entitled to participate
therein with the notifying party and any other contributing party similarly
notified.

     8.6. Additional Common Stock Issuable Upon Delay of Registration. (a)
Except to the extent any delay is due to the failure of a holder to reasonably
cooperate in providing to the Company such information as shall be reasonably
requested by the Company in writing for use in the Shelf Registration Statement,
if the Shelf Registration Statement is not filed with the Securities and
Exchange Commission within 30 days following the Closing Date (the "Outside
Target Date"), the Company shall declare and pay for no additional consideration
to Purchasers 20,000 shares of Common Stock for each day the Shelf Registration
Statement is not filed with the Securities and Exchange Commission following the
occurrence of the Outside Target Date.

     (b) If the Shelf Registration Statement is not declared effective by the
Securities and Exchange Commission within 60 days following the date of its
filing (the "Shelf Filing Date"), the Company shall declare and pay for no
additional consideration to Purchasers 20,000 shares of Common Stock for each
day the Shelf Registration Statement is not declared effective by the Securities
and Exchange Commission following the occurrence of the Shelf Filing Date.

     (c) All shares of Common Stock issuable pursuant to Section 8.6(a) and (b)
shall be duly authorized, fully paid and nonassessable shares of Common Stock
and shall be included in the Shelf Registration Statement contemplated by
Section 8.1. Such shares shall be registered in Purchasers' names or the name of
the nominee(s) of Purchasers in such denominations as Purchasers shall request
pursuant to instructions delivered to the Company.

     9. Certain Definitions. For the purposes of this Agreement the following
terms have the respective meanings set forth below:

     9.1. "Affiliate" means any person, corporation, firm or entity which
directly or indirectly controls, is controlled by, or is under common control
with the indicated person, corporation, firm or entity.

     9.2. "Common Stock" means the Company's Common Stock.

                                      -26-





     9.3. "Generally Accepted Accounting Principles" means generally accepted
accounting principles consistently applied.

     9.4. "Officers' Certificate" means a certificate executed on behalf of the
Company by its President, Chairman of the Board, Chief Executive Officer, Chief
Financial Officer, Vice President--Finance, Secretary and/or one of its other
Vice-Presidents.

     9.5. "Registrable Securities" means (i) the Common Stock purchased pursuant
to Section 1.1, (ii) the Common Stock issuable upon exercise of the Warrants
purchased pursuant to Section 1.1, (iii) the Common Stock issuable upon exercise
of the Purchase Option, (iv) the Common Stock issuable upon exercise of the
Warrants issuable upon exercise of the Purchase Option or (v) any other shares
of Common Stock now owned or hereafter acquired by Purchasers. For purposes of
this Agreement, any shares of Common Stock issued pursuant to Section 8.6 shall
be deemed to be Registrable Securities and shall be included in the Shelf
Registration Statement contemplated by Section 8.1.

     9.6. "Securities" means the Shares, the Warrants, the Option Shares and the
Option Warrants whether issued at the Closing or thereafter.

     9.7. "Securities Act" means, as of any given time, the Securities Act of
1933, as amended, or any similar federal law then in force.

     9.8. "Securities Exchange Act" means, as of any given time, the Securities
Exchange Act of 1934, as amended, or any similar federal law then in force.

     9.9. "Securities and Exchange Commission" includes any governmental body or
agency succeeding to the functions thereof.

     9.10. "Subsidiary" means any person, corporation, firm or entity at least
the majority of the equity securities (or equivalent interest) of which are, at
the time as of which any determination is being made, owned of record or
beneficially by the Company, directly or indirectly, through any Subsidiary or
otherwise.

     10.1. Company Indemnities. (a) The Company agrees to indemnify, defend and
hold Purchasers and its officers, directors, partners, employees, consultants
and agents (the "Purchasers' Indemnitees") harmless from and against any
liability, obligation, claim, cost, loss, judgment, damage or expense (including
reasonable legal fees and expenses) (collectively, "Liabilities") incurred or
suffered by any of Purchasers' Indemnitees as a result of or arising out of or
in connection with the Company's breach of any representation, warranty,
covenant or agreement of the Company contained herein.

                                      -27-





     11. Miscellaneous.

     11.1. Survival of Representations, Warranties and Covenants. Except as
otherwise provided for in this Agreement all representations, warranties,
covenants and agreements contained in this Agreement, or in any document,
exhibit, schedule or certificate by any party delivered in connection herewith
shall survive the execution and delivery of this Agreement and the Closing Date
and the consummation of the transactions contemplated hereby, regardless of any
investigation made by Purchasers or on their behalf; provided, however, that
Sections 5.7-5.10, 5.12-5.21 shall terminate five years after the Closing Date;
provided further, however that Section 5.11 shall terminate when all pertinent
tax authorities may no longer assert a claim due to the expiration of the
applicable statute of limitations therefor.

     11.2. Expenses. The Company shall pay all its own expenses in connection
with this Agreement and the transactions contemplated herein. The Company agrees
to pay promptly and save Purchasers harmless against liability for the payment
all expenses incurred by the Company and Purchasers in connection with the
preparation and consummation of the Agreement and the transactions contemplated
herein, including but not limited to: all costs and expenses under Section 8,
including without limitation, the costs of preparing, printing and filing with
the Securities and Exchange Commission the Shelf Registration Statement and
amendments, post-effective amendments, and supplements thereto; preparing,
printing and delivering exhibits thereto and copies of the preliminary, final
and supplemental prospectuses; preparing, printing and delivering all selling
documents, including but not limited to the subscription agreement, the warrant
agreement and stock and warrant certificates; legal fees and disbursements of
Purchasers' counsel (which shall be paid within 15 days of submission of any
statements therefor) in connection with the preparation and consummation of this
Agreement and the transactions contemplated herein, including the legal fees and
costs of negotiating and drafting any transaction documents, due diligence and
any necessary regulatory filings (including, without limitation, the Shelf
Registration Statement, Forms 3, 4 and 5 and Schedule 13-D filings); the cost of
a total of two sets of bound closing volumes for Purchasers and their counsel;
and the cost of the tombstone advertisement in the Wall Street Journal (National
Edition) pursuant to Section 7.23(c). The provisions of this Section shall
survive any termination of this Agreement in all instances, including without
limitation, (i) if the transactions contemplated by this Agreement have not been
consummated or (ii) if the transactions have been terminated by Purchasers for
any reason, as provided in Section 2.2.

     11.3. Amendments and Waivers. This Agreement and all exhibits and schedules
hereto set forth the entire agreement and understanding among the parties as to
the subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them. This Agreement
may be amended only by mutual written agreement of all the parties hereto, and
the Company may take any action herein prohibited or omit to take any action
herein required to be performed by it, and any breach of any covenant,
agreement, warranty or representation may be waived, only if the Company has
obtained the written consent

                                      -28-





or waiver of Purchasers. No course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify, amend
or discharge any part of this Agreement or any rights or obligations of any
person under or by reason of this Agreement.

     11.4. Successors and Assigns. This Agreement may not be assigned by the
Company except with the prior written consent of Purchasers. This Agreement
shall be binding upon and inure to the benefit of the Company and its permitted
successors and assigns and Purchasers and their successors and assigns. The
provisions hereof which are for Purchasers' benefit as purchasers or holders of
the Shares, the Warrants, the Purchase Option Shares, the Purchase Option
Warrants and the Purchase Option are also for the benefit of, and enforceable
by, any subsequent holder of such Shares, Warrants, the Purchase Option Shares,
Purchase Option Warrants or the Purchase Option.

     11.5. Notices. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given personally or when mailed by
certified or registered mail, return receipt requested and postage prepaid, and
addressed to the addresses of the respective parties set forth below or to such
changed addresses as such parties may have fixed by notice; provided, however,
that any notice of change of address shall be effective only upon receipt:

                  If to the Company:
                  Innovir Laboratories, Inc.
                  510 E. 73rd Street, Second Floor
                  New York, New York 10021
                  Attention:  Dr. Allan R. Goldberg

                  With a Copy to:
                  Fulbright & Jaworski L.L.P.
                  666 Fifth Avenue
                  New York, New York 10103-3198
                  Attention: Merrill M. Kraines, Esq.

                  If to Purchasers:
                  Aries Financial Services, Inc.
                  375 Park Avenue, Suite 1501
                  New York, New York 10152
                  Attention: President

                  With a Copy to:
                  Roberts, Sheridan & Kotel,
                  A Professional Corporation
                  640 Fifth Avenue, 15th Floor

                                      -29-





                  New York, New York 10019
                  Attention: Ira L. Kotel, Esq.

     11.6. Governing Law. The validity, performance, construction and effect of
this Agreement shall be governed by the internal laws of the State of New York
without giving effect to such State's principles of conflict of laws.

     11.7. Counterparts. This Agreement may be executed in any number of
counterparts and, notwithstanding that any of the parties did not execute the
same counterpart, each of such counterparts shall, for all purposes, be deemed
an original, and all such counterparts shall constitute one and the same
instrument binding on all of the parties thereto.

     11.8. Headings. The headings of the Sections hereof are inserted as a
matter of convenience and for reference only and in no way define, limit or
describe the scope of this Agreement or the meaning of any provision hereof.

     11.9. Severability. In the event that any provision of this Agreement or
the application of any provision hereof is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Agreement shall not be affected except to the extent necessary to delete
such illegal, invalid or unenforceable provision unless the provision held
invalid shall substantially impair the benefit of the remaining portion of this
Agreement.

     11.10. Freedom of Action. (a) The Purchasers and their affiliates shall not
have any obligation to the Company not to (i) engage in the same or similar
activities or lines of business as the Company or develop or market any
products, services or technologies that does or may in the future compete,
directly or indirectly, with those of the Company, (ii) invest or own any
interest publicly or privately in, or develop a business relationship with, any
corporation, partnership or other person or entity engaged in the same or
similar activities or lines or business as, or otherwise in competition with,
the Company or (iii) do business with any client, collaborator, licensor,
consultant, vendor or customer of the Company; provided, however, that should
the Purchasers engage in (i), and such engagement will in the Purchaser's sole
determination materially affect the Company's business, the Purchaser shall give
notice to the Company of the same within a reasonable time after engaging in
said action; provided, further, that the Company shall not have to provide
notice if it engages in (ii) or (iii). Each Purchaser and its officers,
directors, employees or former employees and affiliates shall not have any
obligation, or be liable, to the Company solely on account of the conduct
described in the preceding sentence. In the event that either of the Purchasers
and any officer, director, employee or former employee or affiliate thereof
acquires knowledge of a potential transaction, agreement, arrangement or other
matter which may be a corporate opportunity for both the Purchaser(s) and the
Company, neither of the Purchasers nor their officers, directors, employees or
former employees or affiliates shall have any duty to communicate or offer such
corporate opportunity to the Company and neither of the Purchasers nor their
officers, directors, employees or

                                      -30-





former employees or affiliates shall be liable to the Company for breach of any
fiduciary duty, as a stockholder or otherwise, solely by reason of the fact that
Purchasers or any of their officers, directors, employees or former employees or
affiliates pursue or acquire such corporate opportunity for either of the
Purchasers, direct such corporate opportunity to another person or entity or
communicate or fail to communicate such corporate opportunity or entity to the
Company. As used in this Section, Purchaser and the Purchasers shall mean either
and both of the Purchasers and their affiliates (excluding the Company as an
affiliate of the Purchasers).

     (b) The provisions of this Section 11.10 shall be enforceable to the
fullest extent permitted by law.

                                      -31-





     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

                                     INNOVIR LABORATORIES, INC.

                                     By:  /s/ DR. ALLAN GOLDBERG
                                        --------------------------------------
                                         Name:  Dr. Allan Goldberg
                                         Title:  Chairman

                                     THE ARIES FUND, A CAYMAN ISLAND TRUST

                                     By:  its Investment Manager, ARIES
                                             FINANCIAL SERVICES, INC.

                                     By:  /s/ LINDSAY A. ROSENWALD, M.D.
                                        --------------------------------------
                                         Name:  Lindsay A. Rosenwald, M.D.
                                         Title:  President

                                     THE ARIES DOMESTIC FUND, L.P.

                                     By:  its General Partner, ARIES
                                             FINANCIAL SERVICES, INC.

                                     By:  /s/ LINDSAY A. ROSENWALD, M.D.
                                        --------------------------------------
                                         Name:  Lindsay A. Rosenwald, M.D.
                                         Title:  President

                                      -32-

EX-10.2

                                                                   EXHIBIT 10.2

                      SECOND AMENDMENT TO LICENSE AGREEMENT

     This Second Amendment to the License Agreement ("Amendment") is entered
into as of the 29th day of August, 1996, to be effective as of the effective
date of the Agreement (as defined below), by and between YALE UNIVERSITY
("YALE"), a corporation organized and existing under and by virtue of a charter
granted by the General Assembly of the Colony and State of Connecticut and
located in New Haven, Connecticut, and INNOVIR LABORATORIES, INC. ("LICENSEE"),
a corporation organized and existing under the laws of the State of Delaware
with its principal office located in New York City, New York.

                              W I T N E S S E T H:

     WHEREAS, YALE and LICENSEE entered into that certain License Agreement
signed by LICENSEE on August 22, 1990 and YALE on September 7, 1990, as amended
as of October 21, 1994 (the "Agreement"), pertaining to an invention entitled,
"External Guide Sequences for an RNA Enzyme" and

     WHEREAS, the parties desire to amend certain provisions of the Agreement as
provided herein.

     NOW, THEREFORE, in consideration of the mutual provisions and covenants
contained herein, the parties hereby agree as follows:

     1. The terms as defined in the Agreement shall have the same meanings in
this Amendment.

     2. Modify Section 2.2 to read:





          2.2 LICENSEE shall have the right to sublicense the rights granted
     hereunder, provided that any such sublicense shall provide for payment of
     SUBLICENSE INCOME by SUBLICENSEE based on sales by SUBLICENSEE. All
     sublicenses hereunder granted by LICENSEE shall be coterminable with this
     Agreement to the extent Yale's rights in the LICENSED PATENTS are involved.

     3. Modify Section 4.2 to read:

          4.2 In addition, LICENSEE shall pay to YALE EARNED ROYALTIES of one
     percent (1%) of all NET SALES and ten percent (10%) of all SUBLICENSE
     INCOME.

     4. Modify Section 4.4 to read:

          4.4 In the event that LICENSEE is required to license patent
     technology in order to make, use or sell the LICENSED PRODUCTS, LICENSEE
     can decrease the EARNED ROYALTIES of one percent (1.0%) of NET SALES and
     ten percent (10.0%) of all SUBLICENSE INCOME by a percentage equal to
     one-half of the percentage of NET SALES and of SUBLICENSE INCOME payable
     for the additional license required to make, use or sell the LICENSED
     PRODUCTS; provided, however, that, in no event, shall the EARNED ROYALTIES
     on NET SALES be reduced below seven tenths of a percent (0.7%) and that, in
     no event, shall the EARNED ROYALTIES on SUBLICENSE INCOME be reduced below
     seven percent (7.0%).

     5. Add new Section 4.6 to the Agreement:

          4.6 Stock.

          As consideration for YALE modifying the royalty obligations under the
     Agreement and for entering this Amendment, on or before September 30, 1996,
     LICENSEE will issue a warrant (the "Warrant") to YALE to purchase 500,000
     shares of its common stock (the "Shares") at an exercise price equal to
     $1.50 per share, with an exercise date on or before August 31, 2006, and in
     accordance with such other terms as contained in the draft of the Warrant
     faxed by LICENSEE to YALE on August 28, 1996 or as are satisfactory to
     LICENSEE and YALE.

     6. Except as amended hereby, the Agreement shall be and remain in full
force and effect. This Amendment shall be effective as of the effective date of
the Agreement.

                                       -2-





     IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date below their signature.

YALE UNIVERSITY                                 INNOVIR LABORATORIES, INC.

By /s/ GREGORY E. GARDINER                      By /s/ ALLAN R. GOLDBERG
       -------------------------------             ---------------------------
                                                       Allan R. Goldberg, Ph.D
Its Director, Office of Coop. Research                 Chief Executive Officer

Date 8/30/96                                    Date Aug. 29, 1996

                                       -3-

EX-20.1

                                                                   EXHIBIT 20.1
                                  NEWS RELEASE

                      INNOVIR LABORATORIES, INC. COMPLETES
                      PRIVATE PLACEMENT TO THE ARIES FUNDS

New York, NY -- September 4, 1996--Innovir Laboratories, Inc. (NASDAQ:INVR)
announced today that The Aries Fund, A Cayman Island Trust and The Aries
Domestic Fund, L.P. ("The Aries Funds"), two affiliated investment funds which
specialize in the biotechnology industry, have invested a total of $2 million in
exchange for 4 million shares of newly issued Common Stock of Innovir
Laboratories, Inc. and 4 million Class C Warrants exercisable at $.50 per share.
In addition, the Company has issued to The Aries Funds an option to purchase 2
million shares of Common Stock and 2 million Class C Warrants exercisable at
$.50 per share, for a total option purchase price of $1 million.

Terms of the investment agreement call for Innovir to file a shelf registration
statement immediately following completion of the private placement. The Aries
Funds will be entitled to appoint up to two Directors to Innovir's Board.

"We are very pleased that The Aries Funds have invested in Innovir," said Allan
R. Goldberg, Ph.D., Chairman and Chief Executive Officer of Innovir. "Management
views this investment by The Aries Funds to be an attestation as to the value of
Innovir's science and technology." He went on to say, "Management further
believes that The Aries Funds will bring a great deal of expertise to the
Company, thus increasing shareholder value."

Innovir Laboratories, Inc. is a biotechnology company developing External Guide
Sequences (EGSs), which the Company believes will be a broad enabling technology
based upon Nobel Prize-winning research by Sidney Altman, Ph.D., Sterling
Professor of Biology at Yale University. EGSs are small oligonucleotides that
can be designed to bind to disease-causing RNA, resulting in its inactivation
through the cutting activity of RNase P, an enzyme present in all cells. The
Company has an exclusive worldwide license to develop this patented technology
for new therapeutics.

                                       ###

Contacts:  Allan R. Goldberg, Ph.D.            Fran Daniels
           Innovir Laboratories, Inc.          Financial Sciences of America
           (212) 249-4703                      (310) 278-4413

EX-20.2

                                                                   EXHIBIT 20.2

                                  NEWS RELEASE

                      INNOVIR LABORATORIES, INC. ANNOUNCES
                                  BOARD CHANGES

                      ARIES FUNDS' REPRESENTATIVES REPLACE
                                 TWO BOARD SEATS

New York, NY--September 16, 1996--Innovir Laboratories, Inc. (NASDAQ:INVR)
announced today the appointment to its Board of two new directors, who represent
The Aries Funds, which recently invested in a private placement in Innovir.
Joseph E. Edelman, Senior Healthcare Analyst with Aries Financial Services, and
Michael S. Weiss, Senior Managing Director of Paramount Capital, Inc. and
General Counsel of Paramount Capital Investments, LLC, have been named to the
Innovir Board and are replacing Michael Ostrach and Hugh D. Robertson, Ph.D. Dr.
Robertson, a co-founder of the Company, will remain as Chairman of Innovir's
Science Advisory Board.

Mr. Edelman has served as Analyst for Aries Financial Services since 1994. In
addition to advising Paramount Capital Investments, LLC, a related merchant
banking firm, he has analyzed a wide array of biotechnology and other healthcare
stocks. From 1990 to 1994, Mr. Edelman was Senior Biotechnology Analyst for
Prudential Securities.

Mr. Weiss is currently a Director of Xytronyx, Inc. and Palatin Technologies,
Inc., and is the Secretary of Atlantic Pharmaceuticals, Inc., each of which is a
publicly traded biotechnology company. In addition, Mr. Weiss is a member of the
Board of Directors of several privately held biopharmaceutical companies,
including AVAX Technologies, Inc., Cardio Technologies, Inc., Channel
Therapeutics, Inc. and Optex Opthalmologics, Inc. Prior to joining Paramount
Capital, Mr. Weiss was an attorney with Cravath, Swaine & Moore.

Allan R. Goldberg, Ph.D., Chairman and Chief Executive Officer of Innovir, said,
"We are fortunate to have Mr. Edelman and Mr. Weiss on our Board, and we believe
that their experience and expertise in healthcare and biotechnology will serve
Innovir and its shareholders well."

Innovir Laboratories, Inc. is a biotechnology company developing External Guide
Sequences (EGSs), which the Company believes will be a broad enabling technology
based upon the Nobel Prize-winning research by Sidney Altman, Ph.D., Sterling
Professor of Biology at Yale University. The Company has an exclusive license to
develop this patented technology for new therapeutic applications.

                                       ###

Contacts:  Allan R. Goldberg, Ph.D.            Fran Daniels
           Innovir Laboratories, Inc.          Financial Sciences of America
           (212) 249-1100                      (310) 278-4413