EXHIBIT 10.5 COMBICHEM, INC. SERIES C PREFERRED STOCK PURCHASE AGREEMENT August 17, 1995 2

EXHIBIT 10.5

COMBICHEM, INC.

SERIES C PREFERRED

STOCK PURCHASE AGREEMENT

__________________________________

August 17, 1995
2

TABLE OF CONTENTS
-----------------

Page
----

1. Purchase and Sale of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Series C Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Organization; Good Standing; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Valid Issuance of Preferred and Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Capitalization and Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7 Contracts and Other Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.8 Related-Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.10 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.11 Compliance with Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.14 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Title to Property and Assets; Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.17 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.18 Patents and Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.19 Manufacturing and Marketing Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Employees; Employee Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.21 Proprietary Information and Inventions Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.22 Tax Returns, Payments and Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Environmental and Safety Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.25 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.26 Real Property Holding Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.27 Small Business Concern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.28 Qualified Small Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3. Representations and Warranties of the Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Reliance Upon Investors' Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Receipt of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Investment Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3.6 Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.8 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Public Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.10 Non-U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

4. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

5. Conditions of Investor's Obligations at Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.4 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6 Small Business Concern Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.9 Opinion of Company Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.10 Investors' Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.11 Co-Sale Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.12 No Change in Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.13 No Acceleration of Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.14 Filing of Restated Articles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

6. Conditions of the Company's Obligations at Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Co-Sale Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

7. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Survival of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.6 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.8 Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.10 Attorneys Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.11 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.13 Corporate Securities Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.14 Exculpation Among Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ii.

4
COMBICHEM, INC.
SERIES C PREFERRED
STOCK PURCHASE AGREEMENT

THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement") is made as of the 17th day of August, 1995, by and between
CombiChem, Inc., a California corporation (the "Company"), and each of the
persons listed on Schedule A hereto, each of which is herein referred to as an
"Investor."

THE PARTIES HEREBY AGREE AS FOLLOWS:

1. Purchase and Sale of Stock.

1.1 Sale and Issuance of Series C Preferred Stock.

1.1.1 The Company shall adopt and file with the Secretary
of State of California on or before the First Closing (as defined below) an
Amended and Restated Articles of Incorporation in the form attached hereto as
Exhibit A (the "Restated Articles").

1.1.2 Subject to the terms and conditions of this
Agreement, each Investor agrees, severally and not jointly, to purchase at each
Closing and the Company agrees to sell and issue to each Investor, severally
and not jointly, at each Closing that number of shares of the Company's Series
C Preferred Stock set forth opposite each Investor's name on Schedule A hereto
under the headings "First Closing" and "Second Closing," respectively, at a
price of $0.62 per share for an aggregate amount to be sold to all Investors at
the First Closing and Second Closing of at least 14,516,129 shares.

1.2 Closings.

1.2.1 The first tranche of the purchase and sale of
the Series C Preferred Stock will occur in a series of one or more closings,
the first of which shall take place at the offices of Xxxxxxx, Xxxxxxx &
Xxxxxxxx, 000 Xxxx X Xxxxxx, Xxxxx 0000, Xxx Xxxxx, Xxxxxxxxxx, at 10:00 a.m.
on August 17, 1995, or at such other time and place as the Company and
Investors acquiring in the aggregate more than half the shares of Series C
Preferred Stock sold pursuant hereto shall mutually agree in writing (the
"Initial Closing"). Additional closings within the first tranche may occur no
later than 45 days after August 17, 1995 at such additional times, dates and
places as the Company and Investors acquiring in the aggregate more than half
the shares of Series C Preferred Stock sold pursuant hereto shall mutually
agree in writing (which times, dates and places are designated collectively as
the "Follow-on Closing"; collectively, the Initial Closing and the Follow-on
Closing shall be known as the "First Closing").

1.2.2 The second tranche will occur in one closing
(the "Second Closing" and collectively with the First Closing, a "Closing")
which shall take place after the

5
First Closing on the earlier of: (a) on or before March 31, 1996 upon the
achievement of all of the following (collectively, the "Milestones"): (I)
completion of the following five combinatorial libraries: amidazole, integrin,
central nervous system, G Protein and dipeptide mimic; (II) completion of the
beta test model of CombiSyn SP 100; and (III) completion of a diversity measure
software program; or (b) on or before June 30, 1996 in the event that all of
the Milestones have not been achieved on or before March 31, 1996, and holders
of a majority of the shares of Series C Preferred Stock sold at the First
Closing determine to proceed with the Second Closing. The purchase and sale of
the Series C Preferred Stock at the Second Closing shall take place at the
offices of Xxxxxxx, Phleger & Xxxxxxxx, 000 Xxxx X Xxxxxx, Xxxxx 0000, Xxx
Xxxxx, Xxxxxxxxxx, at such time and place as the Company and Investors
acquiring in the aggregate more than half the shares of Series C Preferred
Stock sold pursuant to the Second Closing shall mutually agree in writing.

1.2.3 At each Closing, the Company shall deliver to
each Investor a certificate representing the shares of Series C Preferred Stock
that such Investor is purchasing against payment of the purchase price therefor
by check, wire transfer, cancellation of indebtedness or such other form of
payment as shall be mutually agreed upon by such Investor and the Company. In
the event that payment by an Investor is made, in whole or in part, by
cancellation of indebtedness, then such Investor shall surrender to the Company
for cancellation at such Closing any evidence of such indebtedness or shall
execute an instrument of cancellation in form and substance reasonably
acceptable to the Company.

2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that, except as set forth on a
Schedule of Exceptions furnished each Investor and special counsel for the
Investors, which exceptions shall be deemed to be representations and
warranties as if made hereunder:

2.1 Organization; Good Standing; Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted, to execute and
deliver this Agreement, the Investors' Rights Agreement, and any other
agreement to which the Company is a party and the execution and delivery of
which is contemplated hereby (the "Ancillary Agreements"), to issue and sell
the Series C Preferred Stock and the Common Stock issuable upon conversion
thereof, and to carry out the provisions of this Agreement, the Investors'
Rights Agreement, the Restated Articles and any Ancillary Agreement. The
Company is not qualified to do business as a foreign corporation in any
jurisdiction and such qualification is not now required.

2.2 Authorization. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement the Investors' Rights
Agreement and any Ancillary Agreement, the performance of all obligations of
the Company hereunder and thereunder at the Closing and the authorization,
issuance (or reservation for issuance), sale, and delivery of the Series C
Preferred Stock being

6
sold hereunder, the warrants issuable pursuant to certain convertible revolving
promissory notes, the principal and accrued interest on which are being
converted into Series C Preferred Stock at the Initial Closing (the "Series C
Warrants"), the Series C Preferred Stock issuable upon exercise of the Series C
Warrants, the Series C-1 Preferred Stock issuable upon conversion of the Series
C Preferred Stock and the Common Stock issuable upon conversion of the Series C
Preferred Stock or Series C-1 Preferred Stock has been taken or will be taken
prior to the Initial Closing, and this Agreement, the Investors' Rights
Agreement, and any Ancillary Agreement constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, except (i) as limited by applicable bankruptcy, insolvency, moratorium,
and other laws of general application affecting enforcement of creditors'
rights generally, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies, and (iii)
to the extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities law.

2.3 Valid Issuance of Preferred and Common Stock. The Series C
Preferred Stock that is being purchased by the Investors hereunder and the
Series C Warrants, when issued, sold and delivered in accordance with the terms
of this Agreement for the consideration expressed herein, will be duly and
validly issued, fully paid, and nonassessable, and will be free of restrictions
on transfer other than restrictions on transfer under this Agreement and the
Investors' Rights Agreement (and with respect to the Series C Warrants,
pursuant to the terms thereof) and under applicable state and federal
securities laws. The Series C-1 Preferred Stock issuable upon conversion of
the Series C Preferred Stock purchased under this Agreement and the Common
Stock issuable upon conversion of such Series C Preferred Stock and the Series
C-1 Preferred Stock have been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Articles, will be duly
and validly issued, fully paid, and nonassessable and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and the Investors' Rights Agreement and under applicable state and
federal securities laws. The Series C Preferred Stock that is being purchased
hereunder, the Series C Warrants, the Series C Preferred Stock issuable upon
exercise thereof, the Series C-1 Preferred Stock issuable upon conversion of
the Series C Preferred Stock and the Common Stock issuable upon conversion of
the Series C Preferred Stock or Series C-1 Preferred Stock are not subject to
any pre-emptive rights or rights of first refusal which have not been
previously waived.

2.4 Governmental Consents. No consent, approval, qualification,
order or authorization of, or filing with, any local, state or federal
governmental authority is required on the part of the Company in connection
with the Company's valid execution, delivery or performance of this Agreement,
the offer, sale or issuance of the Series C Preferred Stock by the Company, the
issuance of the Series C Warrants by the Company or the issuance of Series C
Preferred Stock upon exercise of the Series C Warrants, the issuance of Series
C-1 Preferred Stock upon conversion of the Series C Preferred Stock or the
issuance of Common Stock upon conversion of the Series C Preferred Stock or
Series C-1 Preferred Stock, except (i) the filing of the Restated Articles with
the Secretary of State of the State of California, and

7
(ii) such filings as have been made prior to Initial Closing, except that any
notices of sale required to be filed under applicable state securities laws,
which will be timely filed within the applicable periods therefor.

2.5 Capitalization and Voting Rights. The authorized capital of
the Company consists, or will consist prior to the Initial Closing, of:

2.5.1 Preferred Stock. 50,418,334 shares of Preferred
Stock, no par value (the "Preferred Stock"), of which 1,000,000 shares have
been designated Series A Preferred Stock, all of which are issued and
outstanding, 2,226,667 shares have been designated Series B Preferred Stock,
all of which are issued and outstanding, 1,500,000 shares have been designated
Series Z Preferred Stock, 200,000 of which are issued and outstanding, 465,000
shares have been designated Series J Preferred Stock, none of which are issued
and outstanding, 1,000,000 shares have been designated Series A-1 Preferred
Stock, none of which are issued and outstanding, 2,226,667 shares have been
designated Series B-1 Preferred Stock, none of which are issued and
outstanding, 21,000,000 shares have been designated Series C-1 Preferred Stock,
none of which are issued and outstanding, and 21,000,000 shares have been
designated Series C Preferred Stock, at least 14,516,129 of which will be sold
pursuant to this Agreement. The rights, privileges and preferences of the
Series A, Series B, Series C, Series J, Series Z, Series A-1, Series B-1 and
Series C-1 Preferred Stock will be as stated in the Restated Articles.

2.5.2 Common Stock. 60,000,000 shares of common stock
("Common Stock"), no par value, of which 2,917,500 shares are issued and
outstanding.

2.5.3 The outstanding shares of Preferred Stock and Common
Stock are owned by the shareholders and in the numbers specified in Exhibit C
hereto.

2.5.4 The outstanding shares of Preferred Stock and Common
Stock have been issued in accordance with the registration or qualification
provisions of the Securities Act of 1933, as amended (the "Securities Act") and
any relevant state securities laws or pursuant to valid exemptions therefrom.

2.5.5 Except for (A) the conversion privileges of the
Preferred Stock, (B) the rights provided in paragraph 2.3 of the Investors'
Rights Agreement (which rights replace similar rights of first refusal set
forth in certain stock purchase agreements pursuant to which certain holders of
the Company's Series A, Series B and Series Z Preferred Stock purchased their
shares), (C) currently outstanding options to purchase 50,000 shares of Common
Stock granted to employees or consultants pursuant to the Company's 1995 Stock
Option/Stock Issuance Plan (the "Plan"), (D) options to purchase 465,000 shares
of Series J Preferred Stock granted or to be granted to certain employees in
connection with their employment by the Company, (E) 120,968 shares of Series C
Preferred Stock issuable upon conversion of the Series C Warrants, (F) up to
83,655 shares of Series Z Preferred Stock issuable upon conversion of warrants
issued (or to be issued) in connection with the Company's equipment

8
lease line, (G) 35,000 shares of Common Stock issuable upon conversion of
warrants outstanding at the Initial Closing and (H) up to 325,807 shares of
Series Z Preferred Stock issuable in connection with that certain Agreement
dated August 4, 1995 among the Company, Molecular Simulations Inc. and Entropix
Corporation, there are not outstanding any options, warrants, rights (including
conversion or preemptive rights and rights of first refusal) or agreements for
the purchase or acquisition from the Company of any shares of its capital
stock. In addition to the aforementioned options, the Company has reserved an
additional 3,370,274 shares of its Common Stock for purchase or upon exercise
of options to be granted in the future under the Plan or other employee
arrangement approved by the Board of Directors of the Company. The Company is
not a party or subject to any agreement or understanding, and, to the best of
the Company's knowledge, there is no agreement or understanding between any
persons that affects or relates to the voting or giving of written consents
with respect to any security or the voting by a director of the Company.

2.6 Subsidiaries. The Company does not own or control, directly
or indirectly, any interest in any other corporation, association or other
business entity. The Company is not a participant in any joint venture,
partnership or similar arrangement.

2.7 Contracts and Other Commitments. The Schedule of Exceptions
contains a complete list of all of the following agreements to which the
Company is a party: (a) all contracts, agreements and instruments which involve
a commitment by, or payments to, the Company in excess of $50,000.00; (b) all
stock purchase agreements; (c) all loan or debt agreements; (d) all employment
agreements; (e) all licenses of any patent, trade secret or other proprietary
right to or from the Company; and (f) all indemnification agreements
(collectively, the "Material Agreements"). All the Material Agreements are
valid and binding obligations of the Company, in full force and effect in all
material respects. The Company is not aware of any material default, either
pending or threatened, with respect to the Material Agreements. The Company is
not a party to and is not bound by any contract, agreement or instrument, or
subject to any restriction under its charter documents or Bylaws, which
adversely affects its business as presently conducted or as currently proposed
to be conducted, its properties or its financial condition.

The Company has not (i) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or series of its
capital stock, (ii) incurred any indebtedness for money borrowed or incurred
any other liabilities individually in excess of $25,000 or in excess of $50,000
in the aggregate, (iii) made any loans or advances to any person, other than
ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory
in the ordinary course of business. The Company has not engaged in the past
three months in any discussion (i) with any representative of any corporation
or corporations regarding the consolidation or merger of the Company with or
into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets
of the Company or a transaction or series of related transactions in which more
than 50% of the voting power of

9
the Company is disposed of, or (iii) regarding any other form of acquisition,
liquidation, dissolution or winding up of the Company.

2.8 Related-Party Transactions. No employee, officer or director
of the Company or member of his or her immediate family thereof is indebted to
the Company, nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them. To the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation that competes with the
Company, except that employees, officers or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. To the best of the Company's knowledge, no
officer or director or any member of their immediate families is, directly or
indirectly, interested in any material contract with the Company.

2.9 Registration Rights. Except as provided in the Investors'
Rights Agreement, the Company is not obligated to register under the Securities
Act any of its presently outstanding securities or any of its securities that
may subsequently be issued.

2.10 Permits. The Company has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now
being conducted by it, the lack of which could materially and adversely affect
the business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.

2.11 Compliance with Other Instruments. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws or in any material respect of any provision of any mortgage,
indenture, agreement, instrument or contract to which it is a party or by which
it is bound or, to the best of its knowledge, of any federal or state judgment,
order, writ, decree, statute, rule or regulation applicable to the Company.
The execution, delivery and performance by the Company of this Agreement, the
Investors' Rights Agreement and any Ancillary Agreement, and the consummation
of the transactions contemplated hereby and thereby will not result in any such
violation or be in material conflict with or constitute, with or without the
passage of time or giving of notice, either a material default under any such
provision or an event that results in the creation of any material lien, charge
or encumbrance upon any assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or
operations, or any of its assets or properties.

2.12 Litigation. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company. The
foregoing includes, without limitation, any

10
action, suit, proceeding, or investigation pending or currently threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, their obligations under
any agreements with prior employers, or negotiations by the Company with
potential backers of, or investors in, the Company or its proposed business.
The Company is not a party to, or to the best of its knowledge, named in any
order, writ, injunction, judgment or decree of any court or government agency
or instrumentality. There is no action, suit or proceeding by the Company
currently pending or that the Company currently intends to initiate.

2.13 Disclosure. The Company has provided each Investor with all
the information reasonably available to it without undue expense that such
Investor has requested for deciding whether to purchase the Series C Preferred
Stock and all information which the Company believes is reasonably necessary to
enable such Investor to make such decision. Neither this Agreement nor any
other written statements or certificates made or delivered in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements herein or therein not
misleading.

2.14 Offering. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Series C Preferred Stock as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act, and neither
the Company nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.

2.15 Title to Property and Assets; Leases. Except (a) as reflected
in the Financial Statements (as defined below), (b) for liens for current taxes
not yet delinquent, (c) for liens imposed by law and incurred in the ordinary
course of business for obligations not past due to carriers, warehousemen,
laborers, materialmen and the like, (d) for liens in respect of pledges or
deposits under workers' compensation laws or similar legislation, or (e) for
minor defects in title, none of which, individually or in the aggregate
materially interferes with the use of such property, the Company owns its
property and assets free and clear of all mortgages, liens, claims and
encumbrances. With respect to the property and assets it leases, the Company
is in compliance with such leases and, to the best of its knowledge, holds a
valid leasehold interest free of any liens, claims or encumbrances, subject to
clauses (a)-(e) above.

2.16 Financial Statements. The Company has delivered to each
Investor its unaudited financial statements (balance sheet and profit and loss
statement, statement of stockholders' equity and statement of changes in
financial position including notes thereto) at December 31, 1994 and for the
fiscal year then ended and its unaudited financial statements (balance sheet
and profit and loss statement including notes thereto) as at and for the
six-month period ended June 30, 1995 (the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated and with each other, except that the Financial Statements may not
contain all footnotes required by generally accepted accounting principles.

11
The Financial Statements fairly present the financial condition and operating
results of the Company as of the dates, and for the periods, indicated therein,
subject to normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to June 30, 1995 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.
Except as disclosed in the Financial Statements, the Company is not a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.
The Company maintains and will continue to maintain a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.

2.17 Changes. To the best of the Company's knowledge, since June
30, 1995, there has not been any event or condition of any type that has
materially and adversely affected the business, properties, prospects or
financial condition of the Company.

2.18 Patents and Trademarks. To the best of its knowledge, the
Company owns or possesses sufficient legal rights to all patents, trademarks,
servicemarks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes necessary for its business as now conducted
and as proposed to be conducted without any conflict with or infringement of
the rights of others. The Schedule of Exceptions contains a complete list of
patents and pending patent applications of the Company. Except for agreements
with its own employees or consultants, substantially in the form referenced in
paragraph 2.21 below, there are no outstanding options, licenses or agreements
of any kind relating to the foregoing, nor is the Company bound by or a party
to any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights of any other person or entity. The Company is not
aware that any of it employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or
subject to any judgment, decree or order of any court or administrative agency,
that would interfere with the use of such employee's best efforts to promote
the interests of the Company or that would conflict with the Company's business
as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of
the Company, nor the conduct of the Company's business as proposed, will, to
the best of the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company.

12
2.19 Manufacturing and Marketing Rights. The Company has not
granted rights to manufacture, produce, assemble, license, market or sell its
products to any other person and is not bound by any agreement that affects the
Company's exclusive right to develop, manufacture, assemble, distribute, market
or sell its products.

2.20 Employees; Employee Compensation. To the best of the
knowledge of the Company, there is no strike or labor dispute or union
organization activities pending or threatened between it and its employees.
None of the Company's employees belongs to any union or collective bargaining
unit. To the best of its knowledge, the Company has complied in all material
respects with all applicable state and federal equal employment opportunity and
other laws related to employment. To the best of the Company's knowledge, no
employee of the Company is or will be in violation of any judgment, decree or
order, or any term of any employment contract, patent disclosure agreement or
other contract or agreement relating to the relationship of any such employee
with the Company or any other party because of the nature of the business
conducted or to be conducted by the Company or to the utilization by the
employee of his best efforts with respect to such business. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company, nor does the Company
have a present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Company is terminable at the
will of the Company.

2.21 Proprietary Information and Inventions Agreements. Each
employee and officer of the Company has executed a Proprietary Information and
Inventions Agreement substantially in the form or forms that have been
delivered to special counsel for the Investors.

2.22 Tax Returns, Payments and Elections. The Company has filed
all tax returns and reports as required by law. These returns and reports are
true and correct in all material respects. The Company has paid all taxes and
other assessments due, except those contested by it in good faith. The
provision for taxes of the Company as shown in the Financial Statements is
adequate for taxes due or accrued as of the date thereof. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to
be treated as an S corporation or a collapsible corporation pursuant to Section
341(f) of Section 1362(a) of the Code, nor has it made any other elections
pursuant to the Code (other than elections which relate solely to methods of
accounting, depreciation or amortization) which would have a material effect on
the business, properties, prospects or financial condition of the Company. The
Company has never had any tax deficiency proposed or assessed against it and
has not executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. None of the Company's federal
income tax returns and none of its state income or franchise tax or sales or
use tax returns has ever been audited by governmental authorities. Since the
date of the Financial Statements, the Company has made adequate provisions on
its books of account for all taxes, assessments and governmental charges with
respect to its business, properties and operations for such period. The
Company has withheld

13
or collected from each payment made to each of its employees, the amount of all
taxes (including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositaries.

2.23 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, in amounts customary for
companies similarly situated. The Company has in full force and effect term
life insurance, payable to the Company, on the life of Xxxxxx X. Xxxxxx in the
amount of $1,000,000.

2.24 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.

2.25 Minute Books. The copy of the minute books of the Company
provided to the Investor's special counsel contain minutes of all meetings of
directors and stockholders and all actions by written consent without a meeting
by the directors and stockholders since the time of incorporation and reflect
all actions by the directors (and any committee of directors) and stockholders
with respect to all transactions referred to in such minutes accurately in all
material respects.

2.26 Real Property Holding Corporation. The Company is not a real
property holding corporation within the meaning of the Internal Revenue Code
Section 897(c)(2) and any regulations promulgated thereunder.

2.27 Small Business Concern. The Company, together with its
"affiliates" (as that term is defined in Section 121.401 of Title 13 of the
Code of Federal Regulations), is a "small business concern" within the meaning
of the Small Business Investment Act of 1958, as amended, and the regulations
thereunder, including Section 121.802(a)(2) of Title 13 of the Code of Federal
Regulations. The information set forth in the documents provided to the
Investors pursuant to Section 4.6 below is accurate and complete.

2.28 Qualified Small Business. The Company represents and warrants
to the Investors that, to the best of its knowledge, the shares of Series C
Preferred Stock offered hereby should qualify as "Qualified Small Business
Stock" as defined in Section 1202(c) of the Internal Revenue Code of 1986, as
amended (the "Code") as of the date hereof. The Company will use reasonable
efforts to comply with the reporting and recordkeeping requirements of Section
1202 of the Code and any regulations promulgated thereunder, and agrees not to
repurchase any stock of the Company if such repurchase would cause such shares
not to so qualify as "Qualified Small Business Stock."

3. Representations and Warranties of the Investors. Each Investor hereby
represents and warrants that:

10.

14
3.1 Authorization. Each Investor represents that it has full
power and authority to enter into this Agreement and that this Agreement
constitutes a valid and legally binding obligation of such Investor.

3.2 Purchase Entirely for Own Account. This Agreement is made
with each Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series C Preferred Stock to be purchased by such
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, each Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.

3.3 Reliance Upon Investors' Representations. Each Investor
understands that the Series C Preferred Stock is not, and any Common Stock
acquired on conversion thereof at the time of issuance may not be, registered
under the Securities Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to section 4(2) thereof, and that the
Company's reliance on such exemption is predicated on the Investors'
representations set forth herein. Each Investor realizes that the basis for
the exemption may not be present if, notwithstanding such representations, the
Investor has in mind merely acquiring shares of the Stock for a fixed or
determinable period in the future, or for a market rise, or for sale if the
market does not rise. No Investor has any such intention.

3.4 Receipt of Information. Each Investor represents that it has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series C Preferred
Stock and the business, properties, prospects and financial condition of the
Company and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to it or
to which it had access. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.

3.5 Investment Experience. Each Investor represents that it is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Series C Preferred Stock. If other than an
individual, Investor also represents it has not been organized for the purpose
of acquiring the Series C Preferred Stock.

11.

15
3.6 Accredited Investor. Each Investor as to itself severally and
not jointly further represents to the Company that except as otherwise
disclosed to the Company, in writing, prior to its execution hereof:

3.6.1 such Investor is an "Accredited Investor" (as
defined in the rules and regulations promulgated under the Securities
Act); or

3.6.2 The capital contribution of the Investor does
not exceed 10% of the Investor's net worth or, in the case of an individual,
joint net worth with that person's spouse.

3.7 Restricted Securities. Each Investor understands that the
Securities may not be sold, transferred or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and that in
the absence of an effective registration statement covering the Securities or
an available exemption from registration under the Securities Act, the
Securities must be held indefinitely. In particular, each Investor is aware
that the Securities may not be sold pursuant to Rule 144 promulgated under the
Securities Act unless all of the conditions of that Rule are met. Among the
conditions for use of Rule 144 is the availability of current information to
the public about the Company. Such information is not now available and the
Company has no present plans to make such information available.

3.8 Legends. To the extent applicable, each certificate or other
document evidencing any of the Series C Preferred Stock or any Common Stock
issued upon conversion thereof shall be endorsed with the legends set forth
below, and each Investor covenants that, except to the extent such restrictions
are waived by the Company, such Investor shall not transfer the shares
represented by any such certificate without complying with the restrictions on
transfer described in the legends endorsed on such certificate:

3.8.1 The following legend under the Securities Act:

"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR
COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."

3.8.2 In the case of an Investor who is not a citizen or
resident of the United States or Canada, or any state, territory or possession
thereof, including but not limited to any

12.

16
estate of any such person, or any corporation, partnership, trust or other
entity created or existing under the laws thereof, or any entity controlled or
owned by any of the foregoing (a "U.S. Person") and is not an Accredited
Investor:

"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF PRIOR TO ONE YEAR FROM
THE DATE OF THE CLOSING AT WHICH SUCH SHARES WERE PURCHASED,
WITHIN THE UNITED STATES, CANADA, THEIR TERRITORIES AND
POSSESSIONS OR ANY AREA SUBJECT TO THEIR JURISDICTION OR TO
ANY CITIZEN OR RESIDENT OF THE UNITED STATES OR CANADA, OR ANY
STATE, TERRITORY OR POSSESSION THEREOF, INCLUDING ANY ESTATE
OF SUCH PERSON OR ANY CORPORATION, PARTNERSHIP, TRUST OR OTHER
ENTITY CREATED OR EXISTING UNDER THE LAWS THEREOF, AND
THEREAFTER MAY NOT BE SO TRANSFERRED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE
144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."

3.9 Public Sale. Each Investor agrees not to make, without the
prior written consent of the Company, any public offering or sale of the
Securities, although permitted to do so pursuant to Rule 144(k) promulgated
under the Securities Act, until the earlier of (i) the date on which the
Company effects its initial registered public offering pursuant to the
Securities Act or (ii) the date on which it becomes a registered company
pursuant to section 12(g) of the Securities Exchange Act of 1934 or (iii) five
years after the Closing of the sale of such Securities to Investor by the
Company.

3.10 Non-U.S. Person. If Investor is not a U.S. Person, such
Investor hereby represents that it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with any invitation to
subscribe for the shares of Series C Preferred Stock offered hereunder or any
use of this Agreement, including (i) the legal requirements within its
jurisdiction for the purchase of such shares, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents which may need to be obtained and (iv) the income tax and other tax
consequences, if any, which may be relevant to the purchase, holding,
redemption, sale or transfer of the Interest. Such Investor's subscription and
payment for, and its continued beneficial ownership of the shares of Series C
Preferred

13.

17
Stock offered hereunder will not violate any applicable securities or other
laws of its jurisdiction.

4. Covenants of the Company.

4.1 Covenants. Prior to the Initial Closing, the Company shall:

4.1.1 not effect any change in management (at the level of
vice president and above), except that the Company may add a Vice President of
Chemistry acceptable to holders of a majority of the Series C Preferred Stock
to be purchased hereunder; or

4.1.2 have confirmed that there is not in place any
acceleration of vesting of stock options or waiver by the Company of repurchase
rights with respect to stock beneficially held by an employee or consultant of
the Company, each of which would occur in the event of a sale of all or
substantially all of the assets of the Company, a merger of the Company with or
into another entity or a liquidation of the Company.

4.2 Continuing Covenants. So long as any shares of Preferred
Stock are outstanding, the Company shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of a
majority of the shares of Preferred Stock then outstanding:

4.2.1 change the authorized number of directors to be other
than between five (5) and nine (9); or

4.2.2 put into place or effect any acceleration of vesting
of stock options or waiver of repurchase rights with respect to stock
beneficially held by an employee or consultant of the Company, each in the
event of a sale of all or substantially all of the assets of the Company, a
merger of the Company with or into another entity or a liquidation of the
Company.

5. Conditions of Investor's Obligations at Closings. The obligations of
each Investor under Section 1.1(b) or Section 1.4 of this Agreement are subject
to the fulfillment on or before a Closing of each of the following conditions:

5.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.

5.2 Performance. The Company shall have performed and complied
with all agreements, obligations, covenants and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.

14.

18
5.3 Compliance Certificate. The President of the Company shall
deliver to each Investor at the Closing a certificate certifying that the
conditions specified in paragraphs 5.1, 5.2, 5.4, 5.6, 5.7, 5.8, 5.10, 5.11,
5.12, 5.13 and 5.14 have been fulfilled.

5.4 Qualifications. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Series C Preferred Stock pursuant to this Agreement shall be duly
obtained and effective as of the Closing.

5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.

5.6 Small Business Concern Documents. The Company shall have
executed and delivered to each Investor who requests them, a Size Status
Declaration on SBA Form 480 and an Assurance of Compliance on SBA Form 652, and
shall have provided to each Investor who so requests information necessary for
the preparation of a Portfolio Financing Report on SBA Form 1031.

5.7 Bylaws. Article III, Section 2 of the Bylaws of the Company
shall provide that the authorized number of directors of the Company shall be
between five (5) and nine (9), with the number currently set at six (6). The
range of directors shall not be changed without consent of holders of a
majority of the Preferred Stock.

5.8 Board of Directors. The directors of the Company shall be
Xx. Xxxxxx and Drs. Xxxx, Xxxxxxx, Xxxxxx, Xxxxx and Xxxxxxx.

5.9 Opinion of Company Counsel. Each Investor shall have received
from Xxxxxxx, Phleger & Xxxxxxxx, counsel for the Company, an opinion, dated
the date of the Closing, in form and substance satisfactory to special counsel
to the Investors.

5.10 Investors' Rights Agreement. The Company and each Investor
shall have entered into the Investors' Rights Agreement in the form attached as
Exhibit B.

5.11 Co-Sale Agreements. Xxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxx Xxxx,
Xxxxxx Xxxxxxx, Xxx Xxxxx, Chi-Xxxx Xxxx and Xxxx Xxxxx (collectively, the
"Founders") shall each have entered into a Co-Sale Agreement in the form
attached hereto as Exhibit D.

5.12 No Change in Management. The Company shall have confirmed
that there shall have been no change in management (at the level of vice
president and above) prior to the Initial Closing, except that the Company may
have added a Vice President of Chemistry acceptable to a majority in interest
of the Investors.

15.

19
5.13 No Acceleration of Vesting. The Company shall have confirmed
that there is not in place, as of the Closing, any acceleration of vesting of
stock options or waiver of repurchase rights with respect to stock beneficially
held by an employee or consultant of the Company, each in the event of a sale
of all or substantially all of the assets of the Company, a merger of the
Company with or into another entity or a liquidation of the Company.

5.14 Filing of Restated Articles. The Company shall adopt and file
with the Secretary of State of California the Restated Articles, and such
Restated Articles shall have been accepted for filing by the Secretary of State
of the California.

6. Conditions of the Company's Obligations at Closings. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by
that Investor:

6.1 Representations and Warranties. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.

6.2 Qualifications. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Series C Preferred Stock pursuant to this Agreement shall be duly
obtained and effective as of the Closing.

6.3 Co-Sale Agreements. The Founders shall each have entered
into a Co-Sale Agreement in the form attached hereto as Exhibit D.

7. Miscellaneous.

7.1 Entire Agreement. This Agreement and the documents referred
to herein constitute the entire agreement among the parties and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.

7.2 Survival of Warranties. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.

7.3 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
permitted transferees of any shares of Series C Preferred Stock sold hereunder
or any Common Stock issued upon conversion thereof). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies,

16.

20
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

7.4 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.

7.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

7.6 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

7.7 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified by hand or
professional courier service or five days after deposit with the United States
Post Office, by registered or certified mail, postage prepaid and addressed to
the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.

7.8 Finder's Fees. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction.

Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, partners,
employees, or representatives is responsible.

The Company agrees to indemnify and hold harmless each Investor from
any liability for any commission or compensation in the nature of a finders'
fee (and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.

7.9 Expenses. Irrespective of whether a Closing is effected, the
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Initial Closing is effected, the Company shall, at the Initial Closing,
reimburse the reasonable fees of special counsel for the Investors which are
anticipated to be approximately $20,000 and shall, upon receipt of a xxxx
therefor, reimburse the out-of-pocket expenses of such counsel incurred in
connection with the First Closing. If the Second Closing is effected, the
Company shall, at the Second Closing, reimburse the reasonable fees of special
counsel for the Investors which are anticipated to be approximately

17.

21
$3,500 and shall, upon receipt of a xxxx therefor, reimburse the reasonable
out-of-pocket expenses of such counsel incurred in connection with the Second
Closing.

7.10 Attorneys Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Investors'
Rights Agreement, or the Restated Articles, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.

7.11 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
more than 50% of the Common Stock (that has not been sold to the public) issued
or issuable upon conversion of the Series C Preferred Stock. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), each
future holder of all such securities and the Company.

7.12 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.

7.13 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS
EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.

7.14 Exculpation Among Investors. Each Investor acknowledges that
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Investor agrees that no Investor nor the respective
controlling persons, officers, directors, partners, agents or employees of any
Investor shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Series C Preferred
Stock (and Common Stock issued upon conversion thereof).

18.

22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By: /s/ Xxxxxx X. Xxxxxx
-----------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

SPROUT CAPITAL VII, L.P.
-------------------------------------
NAME OF INVESTOR

By: DLJ Capital Corporation
Managing General Partner

By: /s/ Xxxxxxxx Xxxxxxx
-----------------------------
Xxxxxxxx Xxxxxxx, M.D., Ph. D.
Attorney-In-Fact

Address:3000 Sand Hill Road, 4-270
-----------------------------
Xxxxx Xxxx, XX 00000
-----------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

23
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
----------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

DLJ CAPITAL CORPORATION
-------------------------------------
NAME OF INVESTOR

By: /s/ Xxxxxxxx Xxxxxxx, M.D., Ph. D
---------------------------------
Attorney-In-Fact

Address: 0000 Xxxx Xxxx Xxxx, 0-000
----------------------------
Xxxxx Xxxx, XX 00000
----------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
-------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

SOFINNOVA VENTURES III L.P.

By: /s/ Xxxx Xxxxxxx, M.D.
------------------------------------
Xxxx Xxxxxxx, M.D.
General Partner
Sofinnova Management L.P.

Address: One Market Plaze, Xxxxxxx Tower
-------------------------------
Suite 2630
-------------------------------
Xxx Xxxxxxxxx, XX 00000
-------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

25
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
-------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

SINGAPORE BIO-INNOVATIONS PTE LTD
----------------------------------------
NAME OF INVESTOR

By: /s/ Yong-Sea Teoh
------------------------------------

Title: Director & General Manager
---------------------------------

Address:250 North Bridge Road #24-00
--------------------------------
Raffles City Tower
--------------------------------
Singapore 0617
--------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
--------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

SEQUOIA CAPITAL VI
SEQUOIA TECHNOLOGY PARTNERS VI
SEQUOIA XXIV
-----------------------------------------
NAME OF INVESTOR

By: /S/ Xxxxx Xxxx
--------------------------------------

Title:
----------------------------------

Address:
---------------------------------

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

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

27
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
--------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

-----------------------------------------
NAME OF INVESTOR

By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------------

Title: Owner
----------------------------------

Address:
---------------------------------

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

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

28
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
--------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

XXXXXX X. XXXX
-----------------------------------------
NAME OF INVESTOR

By:/s/ Xxxxxx X. Xxxx
--------------------------------------

Title:
----------------------------------

Address: 00000 Xxxx Xxxx Xx.
--------------------------------
Xxxxx, XX 00000
--------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

29
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
---------------------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

First Interstate Bank of California Trustee for SK
International Securities Corporation 401(k) Profit
Sharing Plan em Xxxxxxx X. Xxxxxx TR#508263200
----------------------------------------------
NAME OF INVESTOR

By: /s/ Xxxx Xx Xxxx 8/16/95
--------------------------------------------------

Title: Assistant Vice President/Account Executive
-----------------------------------------------

Address: Attn Xxxx Xx Xxxx
--------------------------------------------
4365 Executive Drive, 17th Floor
--------------------------------------------
Xxx Xxxxx, Xx 00000
--------------------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

30
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
-----------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

Xxxxx X. Xxxxxxx
--------------------------------------
NAME OF INVESTOR

By: /s/ Xxxxx X. Xxxxxxx
----------------------------------

Title:
-------------------------------

Address: 000 X Xxxxxx, X.X.
-----------------------------
Xxxxxxxxxx, X.X. 00000
-----------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

31
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
--------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

DLJSC FBO Xxxxx X. Xxxxxxx
-----------------------------------------
NAME OF INVESTOR

By:/s/ Xxxxxxx Xxxxxxxx for DLJSC
--------------------------------------

Title: Custodian
----------------------------------

Address:One Pershing Plaza
---------------------------------
Xxxxxx Xxxx, XX 00000
---------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

32
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
-------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

X.X. Xxxxxxxx Revocable Trust
----------------------------------------
NAME OF INVESTOR

By: /s/ Xxxxxxx Xxxx
------------------------------------

Title: Trustee
---------------------------------

Address: Corporate Office
-------------------------------
0000 Xxxxxx Xxxxxx
-------------------------------
Xxxxxxxx, XX 00000
-------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

33
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
------------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

Xxxxxx Inc.
---------------------------------------------
NAME OF INVESTOR

By: /s/ Xxxx X. Xxxx
-----------------------------------------

Title: Vice President
--------------------------------------

Address: 000 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000
------------------------------------
Xxxxxxx, XX 00000
------------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

34
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
--------------------------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

Sorrento Ventures II, L.P.
-----------------------------------------------------------
NAME OF INVESTOR

By: /s/ Xxxxxx X. Xxxxx
-------------------------------------------------------

President, Sorrento Associates, Inc.
General Partner, Sorrento Equity Partners L.P.
Title: General Partner, Sorrento Ventures II L.P.
----------------------------------------------------

Address: 0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
--------------------------------------------------
Xxx Xxxxx, XX 00000
--------------------------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

35
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
--------------------------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

Sorrento Growth Partners I, L.P.
-----------------------------------------------------------
NAME OF INVESTOR

By: /s/ Xxxxxx X. Xxxxx
-------------------------------------------------------

President, Sorrento Growth, Inc.
General Partner, Sorrento Growth Partners, L.P.
Title: General Partner, Sorrento Growth Partners I, L.P.
----------------------------------------------------

Address: 0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
--------------------------------------------------
Xxx Xxxxx, XX 00000
--------------------------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

36
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
--------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

Comdisco, Inc.
-----------------------------------------
NAME OF INVESTOR

By: /s/ Xxxx X. Xxxxxx
-------------------------------------

Title: Assistant Vice President
----------------------------------

Address: 0000 X. Xxxxx Xx.
-------------------------------
Xxxxxxxx, XX 00000
-------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

37
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
---------------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

Xxxxxxx Venture Capital Fund III, L.P. by its
general partner Xxxxxxx Partners, Inc.
-----------------------------------------------
NAME OF INVESTOR

By: /s/ Xxxxx Xxxxx
-------------------------------------------

Title: Xxxxx Xxxxx, Partner
----------------------------------------

Address: Xxxxxxx Partners, Inc.
--------------------------------------
000 X. XxXxxxx Xxxxxx, Xxxxx 000
--------------------------------------
Xxxxxxx, XX 00000-0000
--------------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

38
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

COMBICHEM, INC.

By:
--------------------------------------------
Xxxxxx X. Xxxxxx, President

INVESTORS:

Xxxxxxx Trust Company as Trustee of the
Xxxxxxx MAP Venture Capital Fund III
-----------------------------------------------
NAME OF INVESTOR

By: /s/ Xxxxx Xxxxx
-------------------------------------------

Title: Xxxxx Xxxxx, Asst. Trust Officer
----------------------------------------

Address: c/x Xxxxxxx Partners, Inc.
--------------------------------------
000 X. XxXxxxx Xxxxxx, Xxxxx 000
--------------------------------------
Xxxxxxx, XX 00000-0000
--------------------------------------

[SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT]

SCHEDULE OF PURCHASERS

FIRST CLOSING SECOND CLOSING

SERIES C NUMBER CONVERSION NUMBER OF
INVESTOR WARRANTS OF SHARES OF NOTES CASH SHARES
-------- -------- --------- -------- ---- ------

Sprout Capital VII, L.P. -0- 3,126,821 -0- $1,938,629.02 1,340,066

DLJ Capital Corporation -0- 260,276 -0- $161,371.12 111,547

Sofinnova Ventures III, L.P. -0- 1,129,033 -0- $700,000.46 483,871

Singapore Bio-Innovations Ptd, Ltd -0- 564,517 -0- $350,000.54 241,936

Sequoia Capital VI 66,450 1,335,646 $381,675.83 $446,424.69 572,420

Sequoia Technology Partners VI 3,652 73,388 $20,971.20 $24,529.36 31,452

Sequoia XXIV 2,921 58,710 $16,776.96 $19,623.24 25,162

PaineWebber Incorporated as
Custodian of the Xxxxxxx Xxxxxxxx
Rollover XXX 3,312 37,218 $23,075.16 -0- -0-

Xxxxxx X. Xxxx 1,440 16,185 $10,034.70 -0- -0-

First Interstate Bank as Trustee
for SK International Securities
Corp. 401(k)PS em Xxxxxxx X. Xxxxxx 7,199 80,874 $50,141.88 -0- -0-

Xxxxx X. Xxxxxxx -0- 56,452 -0- $35,000.24 24,194

XXX FBO Xxxxx X. Xxxxxxx -0- 112,904 -0- $70,000.48 48,388

X.X. Xxxxxxxx Revocable Trust -0- 225,807 -0- $140,000.34 96,775

SCHEDULE OF PURCHASERS

INVESTOR CASH TOTAL INVESTMENT
-------- ---- ----------------

Sprout Capital VII, L.P. $830,840.92 $2,769,469.94

DLJ Capital Corporation $69,159.14 $230,530.26

Sofinnova Ventures III, L.P. $300,000.02 $1,000,000.48

Singapore Bio-Innovations Ptd, Ltd $150,000.32 $500,000.86

Sequoia Capital VI $354,900.40 $1,183,000.92

Sequoia Technology Partners VI $19,500.24 $65,000.80

Sequoia XXIV $15,600.44 $52,000.64

PaineWebber Incorporated as
Custodian of the Xxxxxxx Xxxxxxxx
Rollover XXX -0- $23,075.16

Xxxxxx X. Xxxx -0- $10,034.70

First Interstate Bank as Trustee
for SK International Securities
Corp. 401(k)PS em Xxxxxxx X. Xxxxxx -0- $50,141.88

Xxxxx X. Xxxxxxx $15,000.28 $50,000.52

XXX FBO Xxxxx X. Xxxxxxx $30,000.56 $100,001.04

X.X. Xxxxxxxx Revocable Trust $60,000.50 $200,000.84

SCHEDULE OF PURCHASERS

FIRST CLOSING SECOND CLOSING

SERIES C NUMBER CONVERSION NUMBER OF
INVESTOR WARRANTS OF SHARES OF NOTES CASH SHARES
-------- -------- --------- -------- ---- ------

Xxxxxx Inc. -0- 846,775 -0- $525,000.50 362,904

Sorrento Ventures II, L.P. -0- 564,517 -0- $350,000.54 241,936

Sorrento Growth Partners I, L.P. -0- 1,129,033 -0- $700,000.46 483,871

Comdisco, Inc. -0- 169,355 -0- $105,000.10 72,581

Xxxxxxx Venture Capital Fund III,
L.P. -0- 1,941,441 -0- $1,203,693.42 832,046

Xxxxxxx Trust Company as Trustee
of the Xxxxxxx MAP Venture
Capital Fund III -0- 316,624 -0- $196,306.88 135,696

TOTALS: 84,974 12,045,576 $502,675.73 $6,965,581.39 5,104,845

SCHEDULE OF PURCHASERS

INVESTOR CASH TOTAL INVESTMENT
-------- ---- ----------------

Xxxxxx Inc. $225,000.48 $750,000.98

Sorrento Ventures II, L.P. $150,000.32 $500,000.86

Sorrento Growth Partners I, L.P. $300,000.02 $1,000,000.48

Comdisco, Inc. $45,000.22 $150,000.32

Xxxxxxx Venture Capital Fund III, L.P. $515,868.52 $1,719,561.94

Xxxxxxx Trust Company as Trustee
of the Xxxxxxx MAP Venture
Capital Fund III $84,131.52 $280,438.40

TOTALS: $3,165,003.90 $10,633,261.02

41
EXHIBIT A

AMENDED AND RESTATED ARTICLES OF INCORPORATION

42
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF COMBICHEM, INC.,
a California Corporation

The undersigned Xxxxxx X. Xxxxxx and Xxxxx X. Xxxxxxx hereby
certify that:

ONE: They are the duly elected and acting President and
Secretary, respectively, of said corporation.

TWO: The Articles of Incorporation of said corporation
shall be amended and restated to read in full as follows:

ARTICLE I

The name of this corporation is CombiChem, Inc.

ARTICLE II

The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.

ARTICLE III

A. Classes of Stock. This corporation is authorized to
issue two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the corporation is
authorized to issue is One Hundred Ten Million Four Hundred Eighteen Thousand
Three Hundred Thirty-Four (110,418,334) shares. Sixty Million (60,000,000)
shares shall be Common Stock and Fifty Million Four Hundred Eighteen Thousand
Three Hundred Thirty-Four (50,418,334) shares shall be Preferred Stock. The
Preferred Stock authorized by these Restated Articles of Incorporation shall be
issued by series as set forth herein. The first series of Preferred Stock
shall be designated "Series A Preferred Stock" and shall consist of One Million
(1,000,000) shares. The second series of Preferred Stock shall be designated
"Series B Preferred Stock" and shall consist of Two Million Two Hundred
Twenty-Six Thousand Six Hundred Sixty-Seven (2,226,667) shares. The third
series of Preferred Stock shall be designated "Series C Preferred Stock" and
shall consist of Twenty-One Million (21,000,000) shares. The fourth series of
Preferred Stock shall be designated "Series J Preferred Stock" and shall
consist of Four Hundred Sixty-Five Thousand (465,000) shares. The fifth series
of Preferred Stock shall be designated "Series Z Preferred Stock" and shall
consist of One Million Five Hundred Thousand (1,500,000) shares. The sixth
series of Preferred Stock shall be designated "Series A-1 Preferred Stock" and
shall consist of One Million (1,000,000) shares. The seventh series of
Preferred Stock shall be designated "Series B-1 Preferred Stock" and shall
consist of Two Million Two Hundred Twenty-Six Thousand Six Hundred Sixty-Seven
(2,226,667) shares. The eighth series of

43
Preferred Stock shall be designated "Series C-1 Preferred Stock" and shall
consist of Twenty-One Million (21,000,000) shares.

B. Rights, Preferences and Restrictions of Preferred
Stock. The Preferred Stock authorized by these Restated Articles of
Incorporation may be issued from time to time in one or more series. The
rights, preferences, privileges and restrictions granted to and imposed on the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series J Preferred Stock, the Series Z Preferred Stock, the Series
A-1 Preferred Stock, the Series B-1 Preferred Stock and the Series C-1
Preferred Stock are as set forth below in this Article III(B). Subject to
compliance with applicable protective voting rights ("Protective Provisions")
which have been or may be granted to the Preferred Stock or any series thereof
in Certificates of Determination or the corporation's Articles of
Incorporation, as amended from time to time, the Board of Directors is also
authorized to increase or decrease the number of shares of any series (other
than the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series A-1 Preferred Stock, the Series B-1 Preferred Stock
and the Series C-1 Preferred Stock), prior or subsequent to the issue of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.

1. Dividend Provisions.

(a) The holders of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1
Preferred Stock shall be entitled to receive dividends in any fiscal year, out
of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Series J Preferred Stock or the Common Stock of this
corporation, at the rate of $0.04 per share of Series A Preferred Stock, $0.06
per share of Series B Preferred Stock, $0.0496 per share of Series C Preferred
Stock, $0.04 per share of Series Z Preferred Stock, $0.04 per share of Series
A-1 Preferred Stock, $0.06 per share of Series B-1 Preferred Stock and $0.0496
per share of Series C-1 Preferred Stock (each subject to appropriate
adjustments for stock splits, stock dividends, combinations or other
recapitalizations) per annum, payable quarterly when, as and if declared by the
Board of Directors. Such dividends shall not be cumulative. After full
dividends on the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series Z Preferred Stock, the Series A-1
Preferred Stock, the Series B-1 Preferred Stock and the Series C-1 Preferred
Stock for all past dividend periods and the then current dividend period have
been paid, the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock and
the holders of shares of Series J Preferred Stock and Common Stock shall
participate ratably in any dividends or other distributions (as distributions
are defined below).

44
(b) For purposes of this subsection 1, unless the
context other requires, "distribution(s)" shall mean the transfer of cash or
property without consideration, whether by way of dividend or otherwise, or the
purchase or redemption of shares of this corporation (other than repurchases of
common stock held by directors, employees or consultants of this corporation
upon termination of their employment or services pursuant to agreements
providing for such repurchase) for cash or property, including any such
transfer, purchase or redemption by a subsidiary of this corporation.

2. Liquidation Preference.

(a) In the event of any liquidation, dissolution
or winding up of this corporation, either voluntary or involuntary, subject to
the rights of series of Preferred Stock that may from time to time come into
existence, the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of
this corporation to the holders of Series J Preferred Stock or Common Stock by
reason of their ownership thereof, an amount per share equal to the sum of (i)
$0.50 for each outstanding share of Series A Preferred Stock (the "Original
Series A Issue Price"), (ii) $0.75 for each outstanding share of Series B
Preferred Stock (the "Original Series B Issue Price"), (iii) $0.62 for each
outstanding share of Series C Preferred Stock (the "Original Series C Issue
Price"), (iv) $0.50 for each outstanding share of Series Z Preferred Stock (the
"Original Series Z Issue Price"), (v) $0.50 for each outstanding share of
Series A-1 Preferred Stock (the "Original Series A-1 Issue Price"), (vi) $0.75
for each outstanding share of Series B-1 Preferred Stock (the "Original Series
B-1 Issue Price"), (vii) $0.62 for each outstanding share of Series C-1
Preferred Stock (the "Original Series C-1 Issue Price") and (viii) an amount
equal to declared but unpaid dividends on such share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1
Preferred Stock, respectively. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then, subject to the rights of series
of Preferred Stock that may from time to time come into existence, the entire
assets and funds of the corporation

45
legally available for distribution shall be distributed (x) first ratably among
the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock in proportion to the aggregate liquidation
preferences of each respective series, and ratably among the holders of that
series in proportion to the amount of such stock owned by each such holder, and
(y) second ratably among the holders of the Series Z Preferred Stock in
proportion to the amount of such stock owned by each such holder.

(b) Upon the completion of the distribution
required by subparagraph (a) of this Section 2 and any other distribution that
may be required with respect to series of Preferred Stock that may from time to
time come into existence, the remaining assets of the corporation available for
distribution to shareholders shall be distributed among the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock, Series C-1 Preferred Stock and Common Stock pro rata based
on the number of shares of Common Stock held by each (with each share of
Preferred Stock participating on an "as-converted-into-common-stock" basis).

(c) A consolidation or merger of this corporation
with or into any other corporation or corporations in which fifty percent (50%)
or more of the voting power of the corporation held by the shareholders of the
corporation immediately prior to the merger or consolidation is transferred
(excluding reincorporations of the corporation the sole purpose of which is to
change the state of incorporation), or a sale, conveyance or disposition of all
or substantially all of the assets of this corporation or the effectuation by
the corporation of a transaction or series of related transactions in which
more than fifty percent (50%) of the voting power of the corporation is
transferred, shall be deemed to be a liquidation, dissolution or winding up
within the meaning of this Section 2.

3. Redemption.

(a) At any time after December 31, 1998, but
within forty-five (45) days (the "Redemption Date") after the receipt by this
corporation of a written request from the holders of not less than seventy
percent (70%) of the then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock treated as a single
class, that all of such holders' shares be redeemed, and immediately prior to
the surrender by such holders of the certificates representing such shares,
this corporation shall, to the extent it may lawfully do so, redeem all of the
then outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock and Series C-1 Preferred Stock by paying in cash therefor a sum per share
equal to the Original Series A Issue Price (as adjusted for any stock
dividends, combinations or splits with respect to such share) plus an amount
equal to declared but unpaid dividends on such share for each share of Series A
Preferred Stock, the Original Series B Issue Price (as adjusted for any stock
dividends, combinations or splits with respect to such share) plus an amount
equal to declared but unpaid dividends on such share for each share of Series B
Preferred Stock, the Original Series C Issue Price (as adjusted for any stock
dividends, combinations or splits with

46
respect to such share) plus an amount equal to declared but unpaid dividends on
such share for each share of Series C Preferred Stock, the Original Series A-1
Issue Price (as adjusted for any stock dividends, combinations or splits with
respect to such share) plus an amount equal to declared but unpaid dividends on
such share for each share of Series A-1 Preferred Stock, the Original Series
B-1 Issue Price (as adjusted for any stock dividends, combinations or splits
with respect to such share) plus an amount equal to declared but unpaid
dividends on such share for each share of Series B-1 Preferred Stock and the
Original Series C-1 Issue Price (as adjusted for any stock dividends,
combinations or splits with respect to such share) plus an amount equal to
declared but unpaid dividends on such share for each share of Series C-1
Preferred Stock (such amounts are hereinafter referred to herein as the
"Redemption Prices").

(b) Not more than fifteen (15) days prior to the
Redemption Date, written notice shall be mailed, first class postage prepaid,
to each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock at the address last
shown on the records of this corporation for such holder, notifying such holder
of the redemption to be effected, specifying the number of shares to be
redeemed from such holder (which shall be all of the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock held
by such holder), the Redemption Date, the Redemption Prices of each of the
respective series to be redeemed from such holder, the place at which payment
may be obtained and calling upon such holder to surrender to this corporation,
in the manner and at the place designated, his, her or its certificate or
certificates representing all of the shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock held by such holder
(the "Redemption Notice"). Except as provided in subsection 3(c) of this
Division B of Article III, on or after the Redemption Date, each holder of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock shall surrender to this corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Prices of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled.

(c) From and after the Redemption Date, unless
there shall have been a default in payment of the Redemption Prices, all rights
of the holders of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock and Series C-1 Preferred Stock as holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock, respectively (except
the right to receive the respective Redemption Prices without interest upon
surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books
of this corporation or be deemed to be outstanding for any purpose whatsoever.
If the funds of the corporation legally available for redemption of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,

47
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock on the Redemption Date are insufficient to redeem the total number of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares
ratably among the holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock in proportion to the Redemption
Prices of the respective series, and ratably among the holders of each series
in proportion to the amount of such stock owned by each such holder.
Notwithstanding anything herein to the contrary, the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock not
redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of
the corporation are legally available for the redemption of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock,
such funds will immediately be used to redeem the balance of the shares which
the corporation has become obliged to redeem on the Redemption Date but which
it has not redeemed.

(d) The shares of Series J Preferred Stock and
Series Z Preferred Stock are not redeemable.

4. Conversion. The holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):

(a) Right to Convert. Each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share and, in the case of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock, on or prior to the fifth
day prior to the Redemption Date, if any, as may have been fixed in the
Redemption Notice, at the office of this corporation or any transfer agent for
such stock, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing (i) the Original Series A Issue Price for
each share of Series A Preferred Stock, (ii) the Original Series B Issue Price
for each share of Series B Preferred Stock, (iii) the Original Series C Issue
Price for each share of Series C Preferred Stock, (iv) the Original Series J
Issue Price for each share of Series J Preferred Stock, (v) the Original Series
Z Issue Price for each share of Series Z Preferred Stock, (vi) the Original
Series A-1 Issue Price for each share of Series A-1 Preferred Stock, (vii) the
Original Series B-1 Issue Price for each share of Series B-1 Preferred Stock
and (viii) the Original Series C-1 Issue Price for each share of Series C-1
Preferred Stock in each case by the Conversion Price at the time in effect for
such share. The initial Conversion Price per share for shares of Series A
Preferred Stock shall be the Original Series A Issue Price, for

48
shares of Series B Preferred Stock shall be the Original Series B Issue Price,
for shares of Series C Preferred Stock shall be the Original Series C Issue
Price, for shares of Series J Preferred Stock shall be the Original Series J
Issue Price, for shares of Series Z Preferred Stock shall be the Original
Series Z Issue Price, for shares of Series A-1 Preferred Stock shall be the
Original Series A-1 Issue Price, for shares of Series B-1 Preferred Stock shall
be the Original Series B-1 Issue Price and for shares of Series C-1 Preferred
Stock shall be the Original Series C-1 Issue Price; provided, however, that the
Conversion Price for the Series A Preferred Stock, the Series B Preferred
Stock, Series C Preferred Stock and the Series Z Preferred Stock shall each be
subject to adjustment as set forth in subsections 4(d) and 4(e) of this
Division B of Article III and the Conversion Price for the Series J Preferred
Stock, the Series A-1 Preferred Stock, the Series B-1 Preferred Stock and the
Series C-1 Preferred Stock shall be subject to adjustment as set forth in
subsection 4(e) of this Division B of Article III.

(b) Automatic Conversion. Each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such series immediately upon the earlier of (i) the corporation's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement on Form S-1 under the Securities Act of
1933, as amended, the public offering price of which (exclusive of underwriting
discounts, commissions and expenses) is not less than $4.00 per share (adjusted
to reflect subsequent stock dividends, stock splits or recapitalizations) and
$12,000,000 in the aggregate or (ii) the date specified by written consent or
agreement of the holders of at least seventy percent (70%) of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock voting together as a single class.

(c) Mechanics of Conversion. Before any holder
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock shall be
entitled to convert the same into shares of Common Stock, he, she or it shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of this corporation or of any transfer agent for such stock and shall
give written notice to this corporation at its principal corporate office of
the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. This corporation shall, as soon as practicable thereafter, issue and
deliver at such office to each such holder, or to the nominee or nominees of
each such holder, (i) a certificate or certificates for the number of shares of
Common Stock to which each such holder shall be entitled as aforesaid and (ii)
a cash payment of all accrued but unpaid dividends on the converted shares as
of the date of conversion. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock to be
converted, and the

49
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is
in connection with an underwritten offering of securities registered pursuant
to the Securities Act of 1933, as amended, the conversion may, at the option of
any holder tendering Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series
A-1 Preferred Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock
for conversion, be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and/or Series C-1 Preferred Stock shall not be deemed to have
converted such Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1
Preferred Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock until
immediately prior to the closing of such sale of securities.

(d) Conversion Price Adjustments of Series A,
Series B, Series C and Series Z Preferred Stock for Certain Dilutive Issuances.
The Conversion Price of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series Z Preferred Stock shall be subject to
adjustment from time to time as follows:

(i)(A) If the corporation shall issue,
after the date upon which any shares of Series C Preferred Stock were first
issued (the "Purchase Date"), any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for such series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for such series in effect immediately prior to each
such issuance shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price determined by multiplying such Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (including, without limitation,
the number of shares of Common Stock issuable upon the conversion of the
Preferred Stock) plus the number of shares of Common Stock that the aggregate
consideration received by the corporation for such issuance would purchase at
such Conversion Price, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance
(including, without limitation, the number of shares of Common Stock issuable
upon the conversion of the Preferred Stock) plus the number of shares of such
Additional Stock.

(B) No adjustment of the Conversion
Price for the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series Z Preferred Stock shall be made in an amount less
than one cent per share, provided that any adjustments which are not required
to be made by reason of this sentence shall be carried forward and shall be
either taken into account in any subsequent adjustment made prior to three (3)
years from the date of the event giving rise to the adjustment being carried
forward, or shall be made at the end of three (3) years from the date of the
event giving rise to the adjustment being carried forward. Except to the
limited extent provided for in subsections 4(d)(i)(E)(3)

50
and 4(d)(i)(E)(4) of this Division B of Article III, no adjustment of such
Conversion Price pursuant to this subsection 4(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.

(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by this corporation for any
underwriting or otherwise in connection with the issuance and sale thereof.

(D) In the case of the issuance of the
Common Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting treatment.

(E) In the case of the issuance (whether
before, on or after the applicable Purchase Date) of options or warrants to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options or warrants to
purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
subsection 4(d)(i) and subsection 4(d)(ii) of this Division B of Article III:

(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability, including
without limitation, the passage of time, but without taking
into account potential antidilution adjustments) of such
options or warrants to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time
such options, warrants or rights were issued and for a
consideration equal to the consideration (determined in the
manner provided in subsections 4(d)(i)(C) and (d)(i)(D) of
this Division B of Article III), if any, received by the
corporation upon the issuance of such options, warrants or
rights plus the minimum exercise price provided in such
options, warrants or rights (without taking into account
potential antidilution adjustments) for the Common Stock
covered thereby.

(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in
exchange (assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such
convertible or exchangeable securities or upon the exercise of
options or warrants to purchase or rights to subscribe for
such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such
options, warrants or rights were issued and for a
consideration equal to the consideration, if any, received by
the corporation for any such securities and related options,
warrants or rights

51
(excluding any cash received on account of accrued interest or
accrued dividends), plus the minimum additional consideration,
if any, to be received by the corporation (without taking into
account potential antidilution adjustments) upon the conversion
or exchange of such securities or the exercise of any related
options, warrants or rights (the consideration in each case to
be determined in the manner provided in subsections 4(d)(i)(C)
and (d)(i)(D) of this Division B of Article III).

(3) In the event of any change in
the number of shares of Common Stock deliverable or in the
consideration payable to this corporation upon exercise of
such options, warrants or rights or upon conversion of or in
exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price of the
Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series Z Preferred Stock, to the extent in
any way affected by or computed using such options, warrants,
rights or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration
upon the exercise of any such options, warrants or rights or
the conversion or exchange of such securities.

(4) Upon the expiration of any such
options, warrants or rights, the termination of any such
rights to convert or exchange or the expiration of any
options, warrants or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series Z Preferred Stock, to the extent in any way
affected by or computed using such options, warrants, rights
or securities or options, warrants or rights related to such
securities, shall be recomputed to reflect the issuance of
only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually
issued upon the exercise of such options, warrants or rights,
upon the conversion or exchange of such securities or upon the
exercise of the options, warrants or rights related to such
securities.

(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor
pursuant to subsections 4(d)(i)(E)(1) and (2) of this Division
B of Article III shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in
either subsection 4(d)(i)(E)(3) or (4) of this Division B of
Article III.

(ii) "Additional Stock" shall mean any
shares of Common Stock issued (or deemed to have been issued
pursuant to subsection 4(d)(i)(E) of this Division B of Article
III) by this corporation after the Purchase Date other than:

(A) shares of Common Stock issued upon
conversion of the Preferred Stock; or

10.

52
(B) up to 4,892,774 shares of Common
Stock issuable or issued to employees, consultants or
directors of this corporation pursuant to stock option plans
or arrangements approved by the Board of Directors of this
corporation (which, as of the Purchase Date, consisted of
1,472,500 shares of Common Stock issued and outstanding,
50,000 shares of Common Stock reserved for issuance upon
exercise of options outstanding and 3,370,274 shares of Common
Stock reserved for issuance upon exercise of options or grant
of shares to be issued after the Purchase Date); or

(D) shares of Common Stock or warrants
to purchase shares of Common Stock issued in connection with a
bona fide acquisition of another business, whether by merger,
consolidation or purchase of assets, or bona fide equipment
leasing transactions unanimously approved by the Board of
Directors of this corporation; or

(E) shares of Preferred Stock issued
upon exercise of any options or warrants to purchase the
corporation's Preferred Stock outstanding as of the Purchase
Date.

(e) Conversion Price Adjustments of Preferred
Stock for Certain Splits and Combinations. The Conversion Price of the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock shall be subject to
adjustment from time to time as follows:

(i) In the event the corporation should at
any time or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be increased in
proportion to such increase in the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents

11.

53
determined from time to time in the manner provided for deemed issuances in
subsection 4(d)(i)(E) of this Division B of Article III.

(ii) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Price for the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of each share of such series
shall be decreased in proportion to such decrease in outstanding shares.

(f) Other Distributions. In the event this
corporation shall declare a distribution payable in securities of other
persons, evidences of indebtedness issued by this corporation or other persons,
assets (excluding cash dividends) or options or rights not referred to in
subsection 4(e)(i) of this Division B of Article III, then, in each such case
for the purpose of this subsection 4(f), the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the corporation into which their shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock or Series C-1 Preferred Stock are convertible
as of the record date fixed for the determination of the holders of Common
Stock of the corporation entitled to receive such distribution.

(g) Recapitalizations. If at any time or from
time to time there shall be a recapitalization of the Common Stock (other than
a subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2 of this Division B of Article III)
provision shall be made so that the holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock and Series C-1 Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock, respectively, the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of
the provisions of this Section 4 with respect to the rights of the holders of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series J Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred
Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1

12.

54
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.

(h) No Impairment. Unless approved in accordance
with Sections 6 and 7 of this Division B of Article III, this corporation will
not, by amendment of its Articles of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by this corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 4
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock against impairment.

(i) No Fractional Shares and Certificate as to
Adjustments.

(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock or Series C-1 Preferred Stock and the number of shares of Common Stock to
be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock the holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.

(ii) Upon the occurrence of each adjustment
or readjustment of the Conversion Price of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series C-1 Preferred Stock pursuant to this Section 4, this corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series C-1 Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such series of Preferred Stock at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a share of
Series A Preferred

13.

55
Stock, Series B Preferred Stock, Series C Preferred Stock, Series J Preferred
Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock.

(j) Notices of Record Date. In the event of any
taking by this corporation of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
this corporation shall mail to each holder of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.

(k) Reservation of Stock Issuable Upon
Conversion. This corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock and Series C-1 Preferred Stock, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series J Preferred Stock, Series Z Preferred Stock,
Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred
Stock, in addition to such other remedies as shall be available to each holder
of any of such Preferred Stock, this corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, using its
best efforts to obtain the requisite shareholder approval of any necessary
amendment to these articles.

(l) Notices. Any notice required by the
provisions of this Section 4 to be given to the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock or Series C-1 Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of this corporation.

(m) Special Mandatory Conversion.

14.

56
(i) At any time following the Purchase
Date, if (a) the holders of shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock are entitled to exercise the right
of first refusal (the "Right of First Refusal") set forth in Section 2.3 of the
Investors' Rights Agreement dated on or about August 17, 1995, by and between
this corporation and certain investors, as amended from time to time (the
"Rights Agreement"), with respect to an equity financing of the corporation in
an aggregate amount of at least $500,000 (the "Equity Financing"), (b) this
corporation has complied with its notice obligations, or such obligations have
been waived, under the Right of First Refusal with respect to such Equity
Financing and this corporation thereafter proceeds to consummate the Equity
Financing and (c) such holder, including such holder's affiliates
(collectively, a "Non-Participating Holder") does not by exercise of such
holder's Right of First Refusal acquire his, her or its Pro Rata Share (as
defined in Section 2.3 of the Rights Agreement) offered in such Equity
Financing (a "Mandatory Offering"), then all of such Non-Participating Holder's
shares of Series A Preferred Stock, Series B Preferred Stock and/or Series C
Preferred Stock shall automatically and without further action on the part of
such holder be converted effective upon, subject to, and immediately prior to,
the consummation of the Mandatory Offering (the "Mandatory Offering Date") into
an equivalent number of shares of Series A-1 Preferred Stock, Series B-1
Preferred Stock and Series C-1 Preferred Stock, respectively ("Special
Mandatory Conversion"); provided, however, that no such conversion shall occur
in connection with a particular Equity Financing if, pursuant to the written
request of the Board of Directors and subject to the approval of the holders of
a majority of the outstanding Preferred Stock, such holder agrees in writing to
waive his, her or its Right of First Refusal with respect to such Equity
Financing. Upon conversion pursuant to this subsection 4(m)(i), the shares of
Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock so converted shall be cancelled and not subject to reissuance.

(ii) The holder of any shares of Series A
Preferred Stock, Series B Preferred Stock and/or Series C Preferred Stock
converted pursuant to this subsection 4(m) shall deliver to this corporation
during regular business hours at the office of any transfer agent of the
corporation for the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock or at such other place as may be designated by the
corporation, the certificate or certificates for the shares so converted, duly
endorsed or assigned in blank or to this corporation. As promptly as
practicable thereafter, this corporation shall issue and deliver to such
holder, at the place designated by such holder, a certificate or certificates
for the number of full shares of the Series A-1 Preferred Stock, Series B-1
Preferred Stock and/or Series C-1 Preferred Stock to be issued and such holder
shall be deemed to have become a shareholder of record of such Series A-1
Preferred Stock, Series B-1 Preferred Stock and/or Series C-1 Preferred Stock
on the Mandatory Offering Date unless the transfer books of this corporation
are closed on that date, in which event he, she or it shall be deemed to have
become a shareholder of record of such Series A-1 Preferred Stock, Series B-1
Preferred Stock and/or Series C-1 Preferred Stock on the next succeeding date
on which the transfer books are open.

(iii) In the event that any shares of
Series A-1 Preferred Stock, Series B-1 Preferred Stock and/or Series C-1
Preferred Stock are issued, concurrently with such issuance, this corporation
shall use its best efforts to take all such action as may be

15.

57
required, including amending its Articles of Incorporation, (a) to cancel all
authorized shares of Series A-1 Preferred Stock, Series B-1 Preferred Stock and
Series C-1 Preferred Stock that remain unissued after such issuance, (b) to
create and reserve for issuance upon Special Mandatory Conversion of any then
outstanding Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock a new series of Preferred Stock equal in number to the number
of shares of Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series
C-1 Preferred Stock so cancelled and designated Series A-2 Preferred Stock,
Series B-2 Preferred Stock and Series C-2 Preferred Stock, with the
designations, powers, preferences and rights and the qualifications,
limitations and restrictions identical to those then applicable to the Series
A-1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock,
respectively, except that the Conversion Price for such shares of Series A-2
Preferred Stock, Series B-2 Preferred Stock and Series C-2 Preferred Stock once
initially issued shall be the Series A Conversion Price, the Series B
Conversion Price and the Series C Conversion Price, respectively, in effect
immediately prior to such issuance and (c) to amend the provisions of this
subsection 4(m) to provide that any subsequent Special Mandatory Conversion
will be into shares of Series A-2 Preferred Stock, Series B-2 Preferred Stock
and Series C-2 Preferred Stock rather than Series A-1 Preferred Stock, Series
B-1 Preferred Stock or Series C-1 Preferred Stock, respectively. This
corporation shall take the same actions with respect to the Series A-2
Preferred Stock, Series B-2 Preferred Stock and Series C-2 Preferred Stock and
each subsequently authorized series of Preferred Stock upon initial issuance of
shares of the last such series to be authorized. The right to receive any
dividend declared but unpaid at the time of conversion on any shares of
Preferred Stock converted pursuant to the provisions of this subsection 4(m)
shall accrue to the benefit of the new shares of Preferred Stock issued upon
conversion thereof.

(iv) A copy of the Rights Agreement is on
file at the offices of this corporation and will be made available upon request
and without charge.

5. Voting Rights. The holder of each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock shall have the right to one
vote for each share of Common Stock into which such Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock,
Series Z Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred
Stock or Series C-1 Preferred Stock could then be converted, and with respect
to such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series J
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock and Series C-1 Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one- half being
rounded upward).

16.

58
6. Protective Provisions for Series A, Series B, Series
C, Series Z, Series A-1, Series B-1 and Series C-1 Preferred Stock. So long as
any shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock, Series
B-1 Preferred Stock or Series C-1 Preferred Stock are outstanding, this
corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least seventy percent (70%)
of the then outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred
Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock, voting
together as a single class:

(a) alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock or Series C-1 Preferred Stock so as to affect
materially or adversely the shares; or

(b) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series C-1 Preferred Stock; or

(c) reclassify any shares of Common Stock or
Preferred Stock to give those shares a preference over, or to make those shares
on a parity with, the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series Z Preferred Stock, Series A-1 Preferred Stock,
Series B-1 Preferred Stock or Series C-1 Preferred Stock with respect to
dividends, redemption or voting rights or upon liquidation; or

(d) redeem, purchase or otherwise acquire (or pay
into or set aside for a sinking fund for such purpose) any share or shares of
Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Company or any
subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares at cost or upon the occurrence of certain events, such
as the termination of employment.

7. Protective Provisions for Series C and Series C-1
Preferred Stock. So long as any shares of Series C Preferred Stock or Series
C-1 Preferred Stock are outstanding, this corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of a majority of the then outstanding shares of Series C Preferred
Stock and Series C-1 Preferred Stock, voting together as a single class:

(a) amend the corporation's Articles of
Incorporation to alter or change the rights, preferences or privileges of the
shares of Series C Preferred Stock or Series C-1 Preferred Stock so as to
affect materially or adversely the shares; or

17.

59
(b) increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Series C
Preferred Stock or Series C-1 Preferred Stock (other than pursuant to Article
III(B)(4)(m) hereof); or

(c) authorize or issue, or obligate itself to
issue, any other equity security, including any other security convertible into
or exercisable for any equity security, having a preference over, or being on a
parity with, the Series C Preferred Stock or Series C-1 Preferred Stock with
respect to dividends, redemption or voting rights or upon liquidation; or

(d) reclassify any shares of Common Stock to give
those shares a preference over, or to make those shares on a parity with, the
Series C Preferred Stock or Series C-1 Preferred Stock with respect to
dividends, redemption or voting rights or upon liquidation; or

(e) pay dividends upon or redeem, purchase or
otherwise acquire (or pay into or set aside for a sinking fund for such
purpose) any share or shares of Preferred Stock or Common Stock other than
shares of Series C Preferred Stock or Series C-1 Preferred Stock; provided,
however, that this restriction shall not apply to (i) the repurchase of shares
of Common Stock from employees, officers, directors, consultants or other
persons performing services for the Company or any subsidiary pursuant to
agreements under which the Company has the option to repurchase such shares at
cost or upon the occurrence of certain events, such as the termination of
employment, or (ii) the redemption of any share or shares of Preferred Stock in
accordance with the provisions of Section 3 of this Division B of Article III;
or

(f) sell, convey or otherwise dispose of or
encumber all or substantially all of its assets or business or merge into or
consolidate with any other entity (other than a wholly-owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the corporation is
disposed of; or

(g) increase the authorized number of directors
of the corporation to more than eight (8).

8. Status of Redeemed or Converted Stock. In the event
(a) any shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series C-1 Preferred Stock shall be redeemed pursuant to Section 3 of this
Division B of Article III or (b) any shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series J Preferred Stock, Series Z
Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock or
Series C-1 Preferred Stock shall be converted pursuant to Section 4 of this
Division B of Article III, the shares so redeemed or converted shall be
cancelled, together with a like number of shares of Common Stock, and such
shares and shall not be issuable by the corporation. The Articles of
Incorporation of this corporation shall be appropriately amended to effect the
corresponding reduction in the corporation's authorized capital stock.

18.

60
9. Repurchase of Shares. Each holder of an outstanding
share of Preferred Stock shall be deemed to have consented, for purposes of
Sections 502, 503 and 506 of the California Corporations Code, to distributions
made by the corporation in connection with the repurchase of shares of Common
Stock issued to or held by employees, officers, directors, consultants or other
persons performing services for the Company or any subsidiary pursuant to
agreements under which the Company has the option to repurchase such shares at
cost or upon the occurrence of certain events, such as the termination of
employment.

C. Common Stock.

1. Dividend Rights. Subject to the prior rights of
holders of all classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Common Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of any assets of the
corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors.

2. Liquidation Rights. Upon the liquidation,
dissolution or winding up of the corporation, the assets of the corporation
shall be distributed as provided in Article III(B)(2).

3. Redemption. The Common Stock is not redeemable.

4. Voting Rights. The holder of each share of Common
Stock shall have the right to one vote, and shall be entitled to notice of any
shareholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.

ARTICLE IV

A. Elimination of Liability. The liability of the
directors of this corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.

B. Indemnification. This corporation is authorized to
provide indemnification of agents (as defined in Section 317 of the California
Corporations Code) through bylaw provisions, agreements with the agents, vote
of shareholders or disinterested directors, or otherwise in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to applicable limits set forth in Section 204
of the California Corporations Code with respect to actions for breach of duty
to the corporation and its shareholders.

C. Repeal or Modification. Any repeal or modification
of the foregoing provisions of this Article IV by the shareholders of the
corporation shall not adversely affect any right or protection of an officer or
director of the corporation pursuant to this Article IV existing at the time of
such repeal or modification.

19.

61
* * *

THREE: The foregoing amendment has been approved by the
Board of Directors of said corporation.

FOUR: The foregoing amendment and restatement was approved
by the holders of the requisite number of shares of said corporation in
accordance with Sections 902 and 903 of the California Corporations Code; the
total number of outstanding shares of each class entitled to vote with respect
to the foregoing amendment was 2,917,500 shares of Common Stock, 1,000,000
shares of Series A Preferred Stock, 2,226,667 shares of Series B Preferred
Stock and 200,000 shares of Series Z Preferred Stock. The number of shares
voting in favor of the foregoing amendment equaled or exceeded the vote
required, such required vote being (1) a majority of the outstanding shares of
Common Stock voting separately, (2) a majority of the outstanding shares of
each of Series A, Series B and Series Z Preferred Stock, each voting
separately, (3) a majority of the outstanding shares of Preferred Stock, voting
together as a single class, (4) seventy percent (70%) of the outstanding shares
of Series A Preferred Stock, Series B Preferred Stock and Series Z Preferred
Stock, voting together as a single class, and (5) a majority of the outstanding
shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock and
Series Z Preferred Stock, voting together as a single class.

20.

62
IN WITNESS WHEREOF, the undersigned have executed this certificate on
August ___, 1995.

-----------------------------------------
Xxxxxx X. Xxxxxx, President

-----------------------------------------
Xxxxx X. Xxxxxxx, Secretary

The undersigned certify under penalty of perjury that they
have read the foregoing Amended and Restated Articles of Incorporation and know
the contents thereof, and that the statements therein are true.

Executed at San Diego, California, on August ___, 1995.

-----------------------------------------
Xxxxxx X. Xxxxxx

-----------------------------------------
Xxxxx X. Xxxxxxx

63
EXHIBIT B

INVESTORS' RIGHTS AGREEMENT

COMBICHEM, INC.

____________________

INVESTORS' RIGHTS AGREEMENT

August 17, 1995
65

TABLE OF CONTENTS

Page
----

SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . 2
1.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Requested Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.3 Company Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 Expenses of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.5 Registration on Form S-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.6 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.8 Information by Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.9 Limitations on Registration of Issues of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.10 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.11 Transfer or Assignment of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.12 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.13 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.14 Allocation of Registration Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.15 Delay of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.16 Termination of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

SECTION 2 COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1 Basic Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 Additional Information and Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4 Key Person Life Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.5 Representation on Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.6 Termination of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

SECTION 3 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3 Entire Agreement; Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.4 Notices, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.5 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.6 Rights; Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.7 Information Confidential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.8 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

66
INVESTORS' RIGHTS AGREEMENT

This Investors' Rights Agreement (this "Agreement") is made
and entered into as of the 17th day of August, 1995 by and among CombiChem,
Inc., a California corporation (the "Company"), and the persons identified on
Exhibit A attached hereto (the "Investors").

RECITALS

WHEREAS, certain of the Investors possess registration rights
pursuant to that certain Amended and Restated Stock Registration Rights
Agreement dated November 1, 1994, as amended through the date hereof between
the Company and such Investors (the "Rights Agreement"); and

WHEREAS, the Company has entered into a Series Z Stock
Registration Rights Agreement (the "Series Z Rights Agreement") with Dr. Xxxxxx
Xxxxxxx ("Xxxxxxx") pursuant to which Xxxxxxx has certain registration with
respect to shares of Series Z Preferred Stock; and

WHEREAS, certain of the Investors possess information rights,
rights of first refusal and other rights, and the Company is obligated
thereunder, pursuant to (a) Sections 5, 6 and 7 of (i) that certain Preferred
Stock Purchase Agreement between the Company and Forward Ventures II, L.P.
dated August 26, 1994 and (ii) that certain Stock Purchase Agreement Preferred
and Common among the Company, Sequoia Capital VI, Sequoia Technology Partners
VI and Sequoia XXIV dated November 1, 1994 (the "Series A Provisions") and/or
(b) Sections 5, 6 and 7 of that certain Stock Purchase Agreement Series B
Preferred among the Company and certain of the Investors dated November 29,
1994 (the "Series B Provisions") and/or (c) Sections 6 and 7 of that certain
Preferred Stock Purchase Agreement dated October 12, 1994 between the Company
and Xxxxxxx (the "Series Z Provisions") (collectively, the Rights Agreement,
the Series Z Rights Agreement, the Series A Provisions, the Series B Provisions
and the Series Z Provisions shall be known as the "Prior Agreements"); and

WHEREAS, the Rights Agreement and the Series Z Rights
Agreement may each be modified or amended with the written consent of the
Company and the holders of a majority of the Registrable Securities (as defined
in the Rights Agreement or the Series Z Rights Agreement, respectively) then
outstanding; the Series A Provisions may be modified or amended with the
written consent of the parties thereto; the Series B Provisions may be modified
or amended with the written consent of the parties thereto; the Series Z
Provisions may be modified or amended with the written consent of the parties
thereto; and

WHEREAS, the Investors which are parties thereto desire to
terminate the Prior Agreements and to accept the rights created pursuant hereto
in lieu of the rights granted to them under the Prior Agreements; and

67
WHEREAS, certain Investors are parties to the Series C
Preferred Stock Purchase Agreement dated as of the date hereof among the
Company and such Investors (the "Series C Agreement"), certain of the
Investors' obligations under which are conditioned upon the execution and
delivery by such Investors and the Company of this Agreement.

NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the Investors who are parties to the Prior
Agreements agree that the Prior Agreements shall be superseded and replaced in
their entirety by this Agreement, and all parties hereto further agree as
follows:

SECTION 1

RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; REGISTRATION RIGHTS

1.1 Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:

(a) "Closing" shall mean the date of the initial
sale of shares of the Company's Series C Preferred Stock.

(b) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, or any similar successor federal statute and
the rules and regulations thereunder, all as the same shall be in effect from
time to time.

(c) "Holder" shall mean any Investor who holds
Registrable Securities and any holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in
compliance with Section 1.11 hereof.

(d) "Initial Offering" shall mean the Company's
first firm commitment underwritten public offering of its Common Stock
registered under the Securities Act.

(e) "Initiating Holders" shall mean any Holder or
Holders who in the aggregate hold not less than fifty percent (50%) of the
outstanding Registrable Securities. For purposes of such calculation, Holders
of Shares shall be considered to hold the shares of Common Stock then issuable
upon conversion of such Shares.

(f) "Other Shareholders" shall mean persons other
than Holders who, by virtue of agreements with the Company, are entitled to
include their securities in certain registrations.

(g) "Registrable Securities" shall mean (i)
shares of Common Stock issued or issuable pursuant to the conversion of the
Shares and (ii) any Common Stock issued

-2-

68
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to
or in exchange for or in replacement of the shares referenced in (i) above;
provided, however, that Registrable Securities shall not include any such
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the
transferor's rights under this Section 1 are not assigned.

(h) The terms "register," "registered" and
"registration" shall refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act and applicable
rules and regulations thereunder, and the declaration or ordering of the
effectiveness of such registration statement.

(i) "Registration Expenses" shall mean all
expenses incurred in effecting any registration pursuant to this Agreement,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, fees and disbursements of one counsel for the Holders (solely with
respect to registrations pursuant to Sections 1.2 and 1.3 hereof), blue sky
fees and expenses, expenses of any regular or special audits incident to or
required by any such registration, but shall not include Selling Expenses (but
excluding the compensation of regular employees of the Company, which shall be
paid in any event by the Company).

(j) "Rule 144" shall mean Rule 144 as promulgated
by the SEC under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the SEC.

(k) "Rule 145" shall mean Rule 145 as promulgated
by the SEC under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the SEC.

(l) "SEC" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.

(m) "Securities Act" shall mean the Securities
Act of 1933, as amended, or any similar successor federal statute and the rules
and regulations thereunder, all as the same shall be in effect from time to
time, corresponding to such act.

(n) "Selling Expenses" shall mean all
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities and all fees and disbursements of counsel for any Holder
(other than the fees and disbursements of the one counsel included in
Registration Expenses).

(o) "Shares" shall mean shares of the Company's
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series Z Preferred Stock, Series A-

-3-

69
1 Preferred Stock, Series B-1 Preferred Stock and Series C-1 Preferred Stock
held by the Investors.

1.2 Requested Registration.

(a) Request for Registration. If the Company
shall receive from Initiating Holders at any time or times not earlier than the
earlier of (i) January 1, 1998 or (ii) six (6) months after the effective date
of the first registration statement filed by the Company covering an
underwritten offering of any of its securities to the general public, a written
request specifying that it is made pursuant to this Section 1.2 that the
Company effect a registration with respect to all or a part of the Registrable
Securities having a reasonably anticipated aggregate offering price, net of
underwriting discounts and commissions, that exceeds $12,000,000, the Company
will:

(i) promptly give written notice of the
proposed registration to all other Holders; and

(ii) as soon as practicable, use its
diligent best efforts to effect such registration (including, without
limitation, filing post-effective amendments, appropriate qualifications under
applicable blue sky or other state securities laws and appropriate compliance
with the Securities Act) as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within twenty (20) days after such
written notice from the Company is effective.

The Company shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this Section 1.2:

(A) In any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance, unless
the Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act; or

(B) After the Company has effected
two such registrations pursuant to this Section 1.2(a) and such registrations
have been declared or ordered effective; or

(C) During the period starting with
the date of filing of and ending on a date one hundred eighty (180) days after
the effective date of a registration pursuant to Section 1.3 hereof; provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or

-4-

70
(D) If the Initiating Holders
propose to dispose of shares of Registrable Securities that may be immediately
registered on Form S-3 pursuant to a request made under Section 1.5 hereof.

(b) Subject to the foregoing Section 1.2(a)(ii)
(A) through (D), the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Initiating Holders; provided,
however, that if (i) in the good faith judgment of the Board of Directors of
the Company, such registration would be seriously detrimental to the Company
and the Board of Directors of the Company concludes, as a result, that it is
essential to defer the filing of such registration statement at such time, and
(ii) the Company shall furnish to such Holders a certificate signed by the
president of the Company stating that in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to the Company
for such registration statement to be filed in the near future and that it is,
therefore, essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for the period during
which such disclosure would be seriously detrimental, provided, that the
Company may not defer the filing for a period of more than ninety (90) days
after receipt of the request of the Initiating Holders, and, provided further,
that (except as provided in Section 1.2(a)(ii)(C) above) the Company shall not
defer its obligation in this manner more than once in any twelve-month period.

The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 1.2(b) and
1.14 hereof, include other securities of the Company and may include securities
of the Company being sold for the account of the Company.

(c) Underwriting. If the Initiating Holders
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to Section 1.2 and the Company shall include such
information in the written notice referred to in Section 1.2(a)(i) above. The
right of any Holder to registration pursuant to Section 1.2 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder with respect to such participation and inclusion) to the extent
provided herein. A Holder may elect to include in such underwriting all or a
part of the Registrable Securities he holds.

(d) Procedures. If the Company shall request
inclusion in any registration pursuant to Section 1.2 of securities being sold
for its own account, or if other persons shall request inclusion in any
registration pursuant to Section 1.2, the Initiating Holders shall, on behalf
of all Holders, offer to include such securities in the underwriting and may
condition such offer on their acceptance of the further applicable provisions
of this Section 1 (including Section 1.13). The Company shall (together with
all Holders, and other persons proposing to distribute their securities through
such underwriting) enter into an

-5-

71
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriter(s) are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.2, if the representative of the underwriters advises the Initiating Holders
in writing that marketing factors require a limitation on the number of shares
to be underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 1.14 hereof. If the
person who has requested inclusion in such registration as provided above does
not agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating
Holders. The securities so excluded shall also be withdrawn from registration.
Any Registrable Securities or other securities excluded shall also be withdrawn
from such registration. If shares are so withdrawn from the registration and
if the number of shares to be included in such registration was previously
reduced as a result of marketing factors pursuant to this Section 1.2(d), then
the Company shall offer to all holders who have retained rights to include
securities in the registration the right to include additional securities in
the registration in an aggregate amount equal to the number of shares
withdrawn, with such shares to be allocated among such Holders requesting
additional inclusion in accordance with Section 1.14.

1.3 Company Registration.

(a) Company Registration. If the Company shall
determine to register any of its securities either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights (other than pursuant to Section 1.2 hereof), other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, or the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public, the Company will:

(i) promptly give to each Holder written
notice thereof; and

(ii) use its best efforts to include in
such registration (and any related qualification under blue sky laws or other
compliance), except as set forth in Section 1.3(b) below, and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder within twenty (20) days after
the written notice from the Company described in Section 1.3(a)(i) above is
effective. Such written request may specify all or a part of a Holder's
Registrable Securities for inclusion.

(b) Underwriting. If the registration of which
the Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 1.3(a)(i). In such event the right of any
Holder to registration pursuant to Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders

-6-

72
proposing to distribute their securities through such underwriting shall
(together with the Company and the holders of other securities of the Company
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.

Notwithstanding any other provision of this Section 1.3, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and underwriting.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated first to the Company for
securities being sold for its own account and thereafter as set forth in
Section 1.13. If any person does not agree to the terms of any such
underwriting, he shall be excluded therefrom by written notice from the Company
or the underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.

If shares are so withdrawn from the registration or if the
number of shares of Registrable Securities to be included in such registration
was previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such
shares to be allocated among the persons requesting additional inclusion in
accordance with Section 1.14 hereof.

1.4 Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to Sections 1.3 and 1.5 hereof, and the first two registrations
pursuant to Section 1.2 hereof shall be borne by the Company; provided,
however, that if the Holders bear the Registration Expenses for any
registration proceeding begun pursuant to Section 1.2 and subsequently
withdrawn by the Holders registering shares therein, such registration
proceeding shall not be counted as a requested registration pursuant to Section
1.2 hereof, except in the event that such withdrawal is based upon material
adverse information relating to the Company that is different from the
information known or available (upon request from the Company or otherwise) to
the Holders requesting registration at the time of their request for
registration under Section 1.2, in which event such registration shall not be
treated as a counted registration for purposes of Section 1.2 hereof even
though the Holders do not bear the Registration Expenses for such registration.
All Selling Expenses relating to securities so registered shall be borne by the
holders of such securities pro rata on the basis of the number of shares of
securities so registered on their behalf.

1.5 Registration on Form S-3.

-7-

73
(a) After the Initial Offering, the Company shall
use its best efforts to qualify for registration on Form S-3 or any comparable
or successor form or forms. After the Company has qualified for the use of
Form S-3, in addition to the rights contained in the foregoing provisions of
this Section 1, the Holders of Registrable Securities shall have the right to
request registrations on Form S-3 (such requests shall be in writing and shall
state the number of shares of Registrable Securities to be disposed of and the
intended methods of disposition of such shares by such Holder or Holders),
provided, however, that the Company shall not be obligated to effect any such
registration if (i) the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) on Form S-3
at an aggregate price to the public of less than $500,000, or (ii) in the event
that the Company shall furnish the certification described in paragraph
1.2(a)(ii) (but subject to the limitations set forth therein) or (iii) in a
given twelve-month period, after the Company has effected one (1) such
registration in any such period.

(b) If a request complying with the requirements
of Section 1.5(a) hereof is delivered to the Company, the provisions of
Sections 1.2(a)(i) and (ii) and Section 1.2(b) hereof shall apply to such
registration. If the registration is for an underwritten offering, the
provisions of Sections 1.2(c) and 1.2(d) hereof shall apply to such
registration.

1.6 Registration Procedures. In the case of each
registration effected by the Company pursuant to Section 1, the Company will
keep each Holder advised in writing as to the initiation of each registration
and as to the completion thereof. At its expense, the Company will use its
best efforts to:

(a) Keep such registration effective for a period
of one hundred twenty (120) days or until the Holder or Holders have completed
the distribution described in the registration statement relating thereto,
whichever first occurs; provided, however, that (i) such 120-day period shall
be extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Securities
Act governing the obligation to file a post-effective amendment permit, in lieu
of filing a post-effective amendment which (I) includes any prospectus required
by Section 10(a)(3) of the Securities Act or (II) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of information
required to be included in (I) and (II) above to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the
registration statement;

-8-

74
(b) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;

(c) Furnish such number of prospectuses and other
documents incident thereto, including any preliminary prospectus or amendment
of or supplement to the prospectus, as a Holder from time to time may
reasonably request;

(d) Notify each seller of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act on the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing;

(e) Use all reasonable efforts to register and
qualify the securities covered by the registration statement under such other
securities or Blue Sky laws of such jurisdiction as shall be reasonably
requested by the Holders; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such state
or jurisdiction;

(f) Cause all such Registrable Securities
registered pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed;

(g) Provide a transfer agent and registrar for
all Registrable Securities registered pursuant hereunder and a CUSIP number for
all such Registrable Securities, in each case not later than the effective date
of such registration;

(h) Otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months, but not more than eighteen
(18) months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions
of Section II(a) of the Securities Act;

-9-

75
(i) In connection with any underwritten offering
pursuant to a registration statement filed pursuant to Section 1.2 hereof, the
Company will enter into an underwriting agreement reasonably necessary to
effect the offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions and provided further that if the
underwriter so requests the underwriting agreement will contain customary
contribution provisions; and

(j) Furnish, at the request of a majority of the
Holders participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that such registration statement with respect
to such securities becomes effective, (A) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (B) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.

1.7 Indemnification.

(a) The Company will indemnify each Holder, each
of its officers, directors and partners, legal counsel and accountants and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Section 1 and each underwriter, if any, and
each person who controls within the meaning of Section 15 of the Securities Act
any underwriter, against all expenses, claims, losses, damages and liabilities
(or actions, proceedings or settlements in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
the Company of the Securities Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each such Holder, each of its officers, directors, partners,
legal counsel and accountants and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability
or action, provided that the Company will not be liable in any such

-10-

76
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by such Holder or underwriter and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section 1.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent has
not been unreasonably withheld).

(b) Each Holder will, if Registrable Securities
held by him are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, legal counsel and accountants and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, each other such Holder and Other
Shareholder and each of their officers, directors and partners, and each person
controlling such Holder or Other Shareholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and such Holders, Other
Shareholders, directors, officers, partners, legal counsel and accountants,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder;
provided, however, that the obligations of such Holder hereunder shall not
apply to amounts paid in settlement of any such claims, losses, damages or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld).

(c) Each party entitled to indemnification under
this Section 1.7 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
1, to the extent such failure is not prejudicial. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party,

-11-

77
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.

(d) If the indemnification provided for in this
Section 1.7 is held by a court of competent jurisdiction to be unavailable to
an Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the statements or omissions which
resulted in such loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relative fault of the Indemnifying
Party and of the Indemnified Party 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
Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

(e) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.

1.8 Information by Holder. Each Holder of Registrable
Securities shall furnish to the Company such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably
request in writing and as shall be reasonably required in connection with any
registration, qualification or compliance referred to in this Section 1.

1.9 Limitations on Registration of Issues of Securities.
From and after the date of this Agreement, the Company shall not, without the
prior written consent of a majority in interest of the Holders, enter into any
agreement with any holder or prospective holder of any securities of the
Company giving such holder or prospective holder any registration rights the
terms of which are more favorable than the registration rights granted to the
Holders hereunder.

1.10 Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:

-12-

78
(a) Make and keep public information available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after ninety (90) days following the effective date of the
first registration under the Securities Act filed by the Company for an
offering of its securities to the general public;

(b) File with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act at any time after it has become subject to such reporting
requirements;

(c) So long as a Holder owns any Registrable
Securities, furnish to the Holder forthwith upon written request a written
statement by the Company as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as a Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Holder to sell any such securities without registration.

1.11 Transfer or Assignment of Registration Rights. The
rights to cause the Company to register securities granted to a Holder by the
Company under Sections 1.2, 1.3 and 1.5 may be transferred or assigned by a
Holder only to a transferee or assignee of not less than 25,000 shares of
Registrable Securities (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits and the
like), and only provided that the Company is given written notice at the time
of or within a reasonable time after said transfer or assignment, stating the
name and address of said transferee or assignee and identifying the securities
with respect to which such registration rights are being transferred or
assigned, and provided further that the transferee or assignee of such rights
assumes the obligations of such Holder under this Article 1.

1.12 Restrictions on Transfer.

(a) Each Holder agrees not to transfer or dispose
of all or any portion of the Registrable Securities unless and until the
proposed transferee has agreed in writing for the benefit of the Company to be
bound by this Section 1.12, provided and to the extent this Section 1.12 is
then applicable and:

(i) There is then in effect a
registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such registration
statement; or

(ii) (A) Such Holder shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances surrounding the proposed
disposition, and (B) if requested by the Company,

-13-

79
such Holder shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, to the effect that such disposition
will not require registration of such shares under the Securities Act.

Notwithstanding the provisions of subsections (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
(A) by a Holder which is a partnership to its partners or retired partners in
accordance with partnership interests, (B) to a Holder's family member or trust
for the benefit of an individual Holder, provided that the transferee will be
subject to the terms of this Section 1.12 to the same extent as if he were an
original Holer hereunder, or (C) pursuant to Rule 144(k); provided, however,
that the Company must be satisfied in its reasonable discretion that the
proposed sale of securities fully qualifies with all Rule 144 requirements.

(b) Each certificate representing Registrable
Securities shall (unless otherwise permitted by the provisions of this
Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws):

"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."

1.13 "Market Stand-Off" Agreement. If requested by the
Company and an underwriter of Common Stock (or other securities) of the
Company, an Investor shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Investor (other
than those included in the registration) during the one hundred eighty (180)
day period following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all Holders and officers
and directors of the Company enter into similar agreements.

The obligations described in this Section 1.13 shall not apply
to a registration relating solely to employee benefit plans on Form S-1 or Form
S-8 or similar forms which may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4, Form S-14 or Form S-15
or similar forms which may be promulgated in the future. The Company may
impose stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said one hundred eighty
(180) day period.

1.14 Allocation of Registration Opportunities. In any
circumstance in which all of the Registrable Securities and other shares of
Common Stock of the Company

-14-

80
(including shares of Common Stock issued or issuable upon conversion of shares
of any currently unissued series of Preferred Stock of the Company) with
registration rights (the "Other Shares") requested to be included in a
registration on behalf of the Holders or other selling shareholders cannot be
so included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares which may be so included, the number of
shares of Registrable Securities and Other Shares which may be so included
shall be allocated among the Holders and other selling shareholders requesting
inclusion of shares pro rata on the basis of the number of shares of
Registrable Securities and Other Shares that would be held by such Holders and
other selling shareholders, assuming conversion; provided, however, that, so
that such allocation shall not operate to reduce the aggregate number of
Registrable Securities and Other Shares to be included in such registration, if
any Holder or other selling shareholder does not request inclusion of the
maximum number of shares of Registrable Securities and Other Shares allocated
to him pursuant to the above-described procedure, the remaining portion of his
allocation shall be reallocated among those requesting Holders and other
selling shareholders whose allocations did not satisfy their requests pro rata
on the basis of the number of shares of Registrable Securities and Other Shares
that would be held by such Holders and other selling shareholders, assuming
conversion, and this procedure shall be repeated until all of the shares of
Registrable Securities and Other Shares that may be included in the
registration on behalf of the Holders and other selling shareholders have been
so allocated. The Company shall not limit the number of Registrable Securities
to be included in a registration pursuant to this Agreement in order to include
shares held by shareholders with no registration rights or to include Founder's
Stock or any other shares of stock issued to employees, officers, directors or
consultants pursuant to the Company's stock option plan, or with respect to
registrations under Sections 1.2 or 1.5 hereof, in order to include in such
registration securities registered for the Company's own account or included at
the request of the Company pursuant to Section 1.3 hereof without the prior
written consent of seventy percent (70%) of the Holders; provided, further,
that in no event will the amount of securities of the selling Holders included
in a registration pursuant to Section 1.3 hereof be reduced below twenty
percent (20%) of the total amount of securities included in such offering,
unless such offering is the Initial Offering of the Company's securities in
which case the selling shareholders may be excluded entirely if the
underwriters make the determination described above and no other shareholder's
securities are included. For purposes of determining allocation hereunder, for
any selling shareholder which is a Holder of Registrable Securities and which
is a partnership or corporation, the partners, retired partners and
shareholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons will be deemed to be a single "selling shareholder," and any
pro-rata reduction with respect to such "selling shareholder" will be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder."

1.15 Delay of Registration. No Holder shall have any
right to take and, action to restrain, enjoin, or otherwise delay any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.

-15-

81
1.16 Termination of Registration Rights. The right of any
Holder to request registration or inclusion in any registration pursuant to
Sections 1.2, 1.3 or 1.5 shall terminate on the closing of the first
Company-initiated registered public offering of Common Stock of the Company,
provided that all shares of Registrable Securities held or entitled to be held
upon conversion by such Holder may immediately be sold under Rule 144 during
any 90-day period, or on such date after the closing of the first
Company-initiated registered public offering of Common Stock of the Company as
all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold under Rule 144 during any
90-day period.

SECTION 2

COVENANTS OF THE COMPANY

The Company hereby covenants and agrees, so long as any Holder
owns any Registrable Shares as follows:

2.1 Basic Financial Information. The Company will
furnish the following reports to each Holder:

(a) As soon as practicable after the end of each
fiscal year of the Company, and in any event within ninety (90) days
thereafter, a consolidated balance sheet of the Company and its subsidiaries,
if any, as at the end of such fiscal year, and consolidated statements of
income and sources and applications of funds of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail and certified by independent public accountants of recognized
national standing selected by the Company.

(b) As soon as practicable after the end of the
first, second and third quarterly accounting periods in each fiscal year of the
Company, and in any event within forty-five (45) days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any, as of
the end of each such quarterly period, and consolidated statements of income
and sources and applications of funds of the Company and its subsidiaries for
such period and for the current fiscal year to date, prepared in accordance
with generally accepted accounting principles consistently applied and setting
forth in comparative form the figures for the corresponding periods of the
previous fiscal year and to the Company's operating plan then in effect and
approved by its Board of Directors, subject to changes resulting from normal
year-end audit adjustments, all in reasonable detail and certified by the
principal financial or accounting officer of the Company, except that such
balance sheet need not contain the notes required by generally accepted
accounting principles.

2.2 Additional Information and Rights.

-16-

82
(a) The Company will permit any Investor, so long
as such Investor (or its representative) owns at least 200,000 Shares, or such
number of shares of Common Stock issued upon conversion of 200,000 or more
Shares, or any combination thereof (as presently constituted and subject to
subsequent adjustment for stock splits, stock dividends, reverse stock splits,
recapitalizations and the like) (a "Significant Holder") (or a representative
of any Significant Holder) to visit and inspect any of the properties of the
Company, including its books of account and other records (and make copies
thereof and take extracts therefrom), and to discuss its affairs, finances and
accounts with the Company's officers and its independent public accountants,
all at such reasonable times and as often as any such person may reasonably
request.

(b) Until the earlier to occur of (i) the date on
which the Company is subject to the reporting requirements of Sections 13(a) or
15(d) of the Exchange Act, or (ii) the date on which quotations for the Common
Stock of the Company are reported by the automated quotations systems operated
by the National Association of Securities Dealers, Inc., or by an equivalent
quotations system, the Company will deliver the reports described below in this
Section 2.2 to each Significant Holder:

(i) As soon as practical after the end
of each month and in any event within thirty (30) days thereafter a
consolidated balance sheet of the Company and its subsidiaries, if any, as at
the end of such month and consolidated statements of income and of sources and
applications of funds of the Company and its subsidiaries, for each month and
for the current fiscal year of the Company to date, all subject to normal
year-end audit adjustments, prepared in accordance with generally accepted
accounting principles consistently applied and certified by the principal
financial or accounting officer of the Company, together with a comparison of
such statements to the corresponding periods of the prior fiscal year and to
the Company's operating plan then in effect and approved by its Board of
Directors.

(c) The provisions of Section 2.1 and this
Section 2.2 shall not be in limitation of any rights which any Holder or
Significant Holder may have with respect to the books and records of the
Company and its subsidiaries, or to inspect their properties or discuss their
affairs, finances and accounts, under the laws of the jurisdictions in which
they are incorporated.

(d) Anything in Section 2 to the contrary
notwithstanding, no Holder or Significant Holder by reason of this Agreement
shall have access to any trade secrets or classified information of the
Company. Each Significant Holder hereby agrees to hold in confidence and trust
and not to misuse or disclose any confidential information provided pursuant to
this Section 2.2.

(e) Each Holder who represents to the Company
that it is a "venture capital operating company" for purposes of Department of
Labor Regulation Section 2510.3-101 shall in addition have the right to consult
with and advise the officers of the Company as to the management of the
Company.

-17-

83
2.3 Right of First Refusal. The Company hereby grants to
each Holder who owns any shares of Series A, Series B, Series C, Series A-1,
Series B-1 or Series C-1 Preferred Stock (the "Cash Preferred") or any shares
of Common Stock issued upon conversion of the Cash Preferred (the "Rights
Holder") the right of first refusal to purchase a Pro Rata Share (as defined in
this Section 2.3) of New Securities (as defined in this Section 2.3) which the
Company may, from time to time, propose to sell and issue. A Rights Holder's
Pro Rata Share, for purposes of this right of first refusal, is the ratio of
the number of shares of Common Stock owned by such Rights Holder immediately
prior to the issuance of New Securities, assuming full conversion of the
Shares, to the total number of shares of Common Stock outstanding immediately
prior to the issuance of New Securities, assuming full conversion of the Shares
and exercise of all outstanding rights, options and warrants to acquire Common
Stock of the Company. Each Rights Holder shall have a right of over-allotment
such that if any Rights Holder fails to exercise its right hereunder to
purchase its Pro Rata Share of New Securities, the other Rights Holders may
purchase the non-purchasing Rights Holder's portion on a pro rata basis within
ten (10) days from the date such non-purchasing Rights Holder fails to exercise
its right hereunder to purchase its pro rata share of New Securities. This
right of first refusal shall be subject to the following provisions:

(a) "New Securities" shall mean any capital stock
(including Common Stock and/or Preferred Stock) of the Company whether now
authorized or not, and rights, options or warrants to purchase such capital
stock, and securities of any type whatsoever that are, or may become,
convertible into capital stock; provided that the term "New Securities" does
not include (i) securities purchased under the Series C Agreement; (ii)
securities issued upon conversion of the Shares; (iii) securities issued
pursuant to the acquisition of another business entity or business segment of
any such entity by the Company by merger, purchase of substantially all the
assets or other reorganization whereby the Company will own not less than
fifty-one percent (51%) of the voting power of such business entity or business
segment of any such entity; (iv) any borrowings, direct or indirect, from
financial institutions or other persons by the Company, whether or not
presently authorized, including any type of loan or payment evidenced by any
type of debt instrument, provided such borrowings do not have any equity
features including warrants, options or other rights to purchase capital stock
and are not convertible into capital stock of the Company; (v) securities
issued to employees, consultants, officers or directors of the Company pursuant
to any stock option, stock purchase or stock bonus plan, agreement or
arrangement approved by the Board of Directors; (vi) securities issued to
vendors or customers or to other persons in similar commercial situations with
the Company if such issuance is approved by the Board of Directors; (vii)
securities issued in connection with obtaining lease financing, whether issued
to a lessor, guarantor or other person; (viii) securities issued in a firm
commitment underwritten public offering pursuant to a registration under the
Securities Act with an aggregate offering price to the public in excess of $5.0
million; (ix) securities issued in connection with any stock split, stock
dividend or recapitalization of the Company; and (x) any right, option or
warrant to acquire any security convertible into the securities excluded from
the definition of New Securities pursuant to subsections (i) through (ix)
above.

-18-

84
(b) In the event the Company proposes to
undertake an issuance of New Securities, it shall give each Rights Holder
written notice of its intention, describing the type of New Securities, and
their price and the general terms upon which the Company proposes to issue the
same. Each Rights Holder shall have twenty (20) days after any such notice is
effective to agree to purchase such Rights Holder's Pro Rata Share of such New
Securities for the price and upon the terms specified in the notice by giving
written notice to the Company and stating therein the quantity of New
Securities to be purchased.

(c) In the event the Rights Holders fail to
exercise fully the right of first refusal within said twenty (20)-day period
and after the expiration of the ten (10)-day period for the exercise of the
over-allotment provisions of this Section 2.3, the Company shall have one
hundred twenty (120) days thereafter to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be closed,
if at all, within one hundred twenty (120) days from the date of said
agreement) to sell the New Securities respecting which the Rights Holders'
right of first refusal option set forth in this Section 2.3 was not exercised,
at a price and upon terms no more favorable to the purchasers thereof than
specified in the Company's notice to Rights Holders pursuant to Section 2.3(b).
In the event the Company has not sold within said one hundred twenty (120)-day
period or entered into an agreement to sell the New Securities within said one
hundred twenty (120)-day period (or sold and issued New Securities in
accordance with the foregoing within one hundred twenty (120) days from the
date of said agreement), the Company shall not thereafter issue or sell any New
Securities, without first again offering such securities to the Rights Holders
in the manner provided in Section 2.3(b) above.

(d) At any time following the date of this
Agreement, if the Company has complied with its notice obligations pursuant to
this Section 2.3, or such obligations have been waived, and the Company
thereafter proceeds to issue or sell New Securities and a Rights Holder does
not acquire his, her or its Pro Rata Share (a "Non-Participating Rights
Holder"), then all of such Non-Participating Rights Holder's Cash Preferred
shall automatically and without further action on the part of such holder be
converted, pursuant to Article III(B)(4)(m) of the Company's Amended and
Restated Articles of Incorporation, effective upon, subject to, and
concurrently with, the consummation of the issuance and sale of the New
Securities into an equivalent number of shares of Series A-1 Preferred Stock,
Series B-1 Preferred Stock and Series C-1 Preferred Stock, respectively;
provided, however, that no such conversion shall occur in connection with a
particular issuance of sale of New Securities if, pursuant to the written
request of this corporation, such holder agrees in writing to waive his, her or
its right of first refusal hereunder with respect to such issuance or sale.

(e) The right of first refusal granted under this
Agreement shall expire upon, and shall not be applicable to, the first sale of
Common Stock of the Company to the public effected pursuant to a registration
statement filed with, and declared effective by, the SEC under the Securities
Act, with proceeds of more than $5,000,000.

-19-

85
(f) The right of first refusal set forth in this
Section 2.3 may not be assigned or transferred, except that (i) such right is
assignable by each Rights Holder to any wholly owned subsidiary or parent of,
or to any corporation or entity that is, within the meaning of the Securities
Act, controlling, controlled by or under common control with, any such Rights
Holder, and (ii) such right is assignable between and among any of the Rights
Holders.

2.4 Key Person Life Insurance. The Company has as of the
date hereof obtained from financially sound and reputable insurers term life
insurance on the life of Xxxxx Xxxx in the amount of $2,000,000 (the "Xxxx
Insurance"), and shall maintain with financially sound and reputable insurers
the Xxxx Insurance and term life insurance on the life of Xxxxxx Xxxxxx in the
amount of $1,000,000, except as otherwise decided in accordance with policies
adopted by the Company's Board of Directors. Such policies shall name the
Company as loss payee and shall not be cancelable by the Company without prior
approval of the Board of Directors.

2.5 Representation on Board of Directors. So long as any
Shares remain outstanding, the Company will use its best efforts to cause and
maintain the election to the Board of Directors of (a) two people designated by
the holders of a majority of the Series C Preferred Stock outstanding,
including Common Stock issued upon conversion of such Series C Preferred Stock
(each a "Series C Director"), and (b) two people designated by the holders of a
majority of the Series A and Series B Preferred Stock outstanding, including
Common Stock issued upon conversion of such Series A and B Preferred Stock.
One Series C Director shall be designated by The Sprout Group and the other
Series C Director shall be designated, subject to the consent of The Sprout
Group, by a holder of at least 2,419,355 shares of Series C Preferred Stock in
the aggregate. In the event that two or more holders of Series C Preferred
Stock, other than The Sprout Group, each hold in excess of 2,419,355 shares of
Series C Preferred Stock, then that holder holding the greatest number of
shares of Series C Preferred Stock shall have the right to designate the
remaining Series C Director. In the event that two or more such holders hold
an equal number of Series C Preferred Stock, then The Sprout Group shall
determine which of them shall designate the remaining Series C Director. The
Company further agrees that it will take all actions reasonably necessary,
including increasing the current number of directors in accordance with the
provisions of the Company's Bylaws, to permit all such designations of
directors to occur on or immediately prior to the regular meeting of the Board
of Directors to be scheduled in September 1995, but in no event later than
September 30, 1995.

For purposes of the designation of the Series C Director, a holder
shall include an Investor who has purchased or agreed to purchase at least
2,419,355 shares of Series C Preferred Stock pursuant to the Series C Preferred
Stock Purchase Agreement of even date herewith. For the purposes of this
paragraph, a "holder" shall include the affiliates of any holder.

-20-

86
2.6 Termination of Covenants. The covenants set forth in
this Section 2 shall terminate and be of no further force and effect after the
time of effectiveness of the Company's first firm commitment underwritten
public offering registered under the Securities Act.

SECTION 3

MISCELLANEOUS

3.1 Governing Law. This Agreement shall be governed in
all respects by the laws of the State of California, as if entered into by and
between California residents exclusively for performance entirely within
California.

3.2 Successors and Assigns. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.

3.3 Entire Agreement; Amendment; Waiver. This Agreement
(including the Exhibits hereto) constitutes the full and entire understanding
and agreement between the parties with regard to the subjects hereof and
thereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated, except by a written instrument signed by the Company
and the holders of at least fifty percent (50%) of the Registrable Shares and
any such amendment, waiver, discharge or termination shall be binding on all
the Holders, but in no event shall the obligation of any Holder hereunder be
materially increased, except upon the written consent of such Holder.

3.4 Notices, etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
United States first-class mail, postage prepaid, or delivered personally
addressed by hand or special courier (a) if to a Holder, as indicated on the
list of Holders attached hereto as Exhibit A, or at such other address as such
Investor or permitted assignee shall have furnished to the Company in writing,
or (b) if to the Company, at 00000 X. Xxxxxx Xxxxx Xxxx, Xxxxx 000, Xx Xxxxx,
Xxxxxxxxxx 00000, or at such other address as the Company shall have furnished
to each holder in writing. All such notices and other written communications
shall be effective (i) if mailed, five (5) days after mailing and (ii) if
delivered, upon delivery.

3.5 Delays or Omissions. No delay or omission to
exercise any right, power or remedy accruing to any Holder, upon any breach or
default of the Company under this Agreement shall impair any such right, power
or remedy of such Holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any Holder of any breach or default under this
Agreement or any waiver on the part of any

-21-

87
Holder of any provisions or conditions of this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement or by law or otherwise
afforded to any Holder, shall be cumulative and not alternative.

3.6 Rights; Separability. Unless otherwise expressly
provided herein, a Holder's rights hereunder are several rights, not rights
jointly held with any of the other Holders. In case any provision of the
Agreement shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

3.7 Information Confidential. Each Holder acknowledges
that the information received by them pursuant hereto may be confidential and
for its use only, and it will not use such confidential information in
violation of the Exchange Act or reproduce, disclose or disseminate such
information to any other person (other than its employees or agents having a
need to know the contents of such information, and its attorneys), except in
connection with the exercise of rights under this Agreement, unless the Company
has made such information available to the public generally or such Holder is
required to disclose such information by a governmental body.

3.8 Titles and Subtitles. The titles of the paragraphs
and subparagraphs of this Agreement are for convenience of reference only and
are not to be considered in construing this Agreement.

3.9 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.

[Remainder of Page Intentionally Left Blank]

-22-

88
IN WITNESS WHEREOF, the parties hereto have executed this
Investors Rights Agreement effective as of the day and year first above
written.

COMBICHEM, INC.

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

HOLDER:

-------------------------------------------
[Name of Holder]

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

[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]

89
EXHIBIT A

INVESTORS

Forward Ventures II, L.P.
Sequoia Capital VI
Sequoia Technology Partners VI
Sequoia XXIV
Xxxx X. Xxxxxxxx
Xxxxxx Xxxxxxx
Sprout Capital VII, L.P.
DLJ Capital Corporation
Sofinnova Ventures III, L.P.
Singapore Bio-Innovations Pte, Ltd
PaineWebber Incorporated as Custodian of the Xxxxxxx Xxxxxxxx Rollover XXX
Xxxxxx X. Xxxx
First Interstate Bank as Trustee for SK International Securities Corp.
401(k)PS em Xxxxxxx X. Xxxxxx
Xxxxx X. Xxxxxxx
XXX FBO Xxxxx X. Xxxxxxx
X.X. Xxxxxxxx Revocable Trust
Xxxxxx Inc.
Ambex Technologies
Sorrento Ventures II, L.P.
Sorrento Growth Partners I, L.P.
Comdisco, Inc.
Xxxxxxx Venture Capital Fund III, X.X.
Xxxxxxx Trust Company as Trustee of the Xxxxxxx MAP Venture Capital Fund III

90
EXHIBIT C

SHAREHOLDER LIST

CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------------------------------------- ----------

Common Xxx X. Xxxxx 175,000
Common Chi-Xxxx Xxxx 150,000

Common Xxxx X. Xxxxx 150,000

Common Xxxx Xxx 10,000
Common Xxxxxxxx Xxxxxxx 37,500

Common Trustees of Royston Family Trust UTA 2/12/82 37,500
Common Xxxxxx Xxxxxxx 150,000

Common Forward Ventures II, L.P. 225,000

Common Xxxxxxx Xxxxxxxxx 10,000
Common Xxxxxx X. Xxxxxx 500,000

Common Xxxx Xxxxx 2,500
Common Sequoia Capital VI 91,000

Common Sequoia Technology Partners VI 5,000

Common Sequoia XXIV 4,000
Common Xxxx X. Xxxxxxxx 175,000

Common Xxxxxx X. Xxxxxx 10,000
Common Xxxx Xxx 5,000

Common Xxxxxx Castillino, Ph.D. 20,000

Common Xxxxx X. Xxxx 20,000
Common Xxxx Xxxxx 20,000

Common Xxxxxx X. X. Sun 10,000
Common Xxxx Xxxxx 40,000

Common Xxxxxxxxx X. Xxxxx 14,000

CLASS/SERIES SHAREHOLDER NO. SHARES
------------ ----------------------------------------- ----------

Common Xxxxx X. Xxxxxxxxx, Ph.D. 11,764
Common Xxxxxxx X. Xxxxxx, M.D. 83,000

Common The Scripps Research Institute 305,236

Common Xxxxx Xxxxx 350,000
Common Xxxxxxxx Xxxxxx 100,000

Common Xxxxxx Xxxx 200,000
Common Xxx Xxxxxxxxxx 6,000

TOTAL COMMON: 2,917,500
Series A Forward Ventures II, L.P. 600,000

Series A Sequoia Capital VI 364,000
Series A Sequoia Technology Partners VI 20,000

Series A Sequoia XXIV 16,000

TOTAL SERIES A: 1,000,000

Series B Sequoia Capital VI 1,213,334
Series B Sequoia Technology VI 66,667

Series B Sequoia Capital VI 53,333

Series B Forward Ventures II, L.P. 866,666
Series B Xxxx X. Xxxxxxxx 26,667

TOTAL SERIES B: 2,226,667

Series Z Xxxxxx Xxxxxxx 200,000

TOTAL SERIES Z: 200,000

92
EXHIBIT D

CO-SALE AGREEMENT

93
COMBICHEM, INC.
CO-SALE AGREEMENT

This Co-Sale Agreement is made as of the _____ day of August,
1995, by and among Xxxxxx X. Xxxxxx, Xxxxx Xxxxx, Xxxxxx Xxxx, Xxxxxx Xxxxxxx,
Xxx Xxxxx, Chi-Xxxx Xxxx and Xxxx Xxxxx (individually, a "Founder" and,
collectively, the "Founders"), CombiChem, Inc., a California corporation (the
"Company"), and the undersigned holders of Series A, B or C Preferred Stock of
the Company (the "Shareholders").

In consideration of the mutual covenants set forth herein, the
parties agree as follows:

1. Definitions.

(a) "Stock" shall mean shares of the Company's
Common Stock or Preferred Stock or Series Z Preferred Stock now owned or
subsequently acquired by the Founders.

(b) "Preferred Stock" shall mean the Company's
outstanding Series A, Series B, Series C, Series J, Series Z, Series A-1,
Series B-1 and Series C-1 Preferred Stock.

(c) "Common Stock" shall mean the Company's
Common Stock and shares of Common Stock issued or issuable upon conversion of
the Company's outstanding Preferred Stock.

2. Sales by Founder.

(a) If a Founder proposes to sell or transfer any
shares of Stock in one or more related transactions which will result in (i)
the transfer of 1,000 or more shares of Stock by such Founder or (ii) the
transferee of such shares holding more than 50% of the Common Stock, then such
Founder shall promptly give written notice (the "Notice") to the Company and
the Shareholders at least twenty (20) days prior to the closing of such sale or
transfer. The Notice shall describe in reasonable detail the proposed sale or
transfer including, without limitation, the number of shares of Stock to be
sold or transferred, the nature of such sale or transfer, the consideration to
be paid and the name and address of each prospective purchaser or transferee.
In the event that the sale or transfer is being made pursuant to the provisions
of Sections 3(a) or 3(b) hereof, the Notice shall state under which paragraph
the sale or transfer is being made.

(b) Each Shareholder shall have the right,
exercisable upon written notice to such Founder within 15 days after receipt of
the Notice, to participate in such sale of Stock on the same terms and
conditions. To the extent one or more of the Shareholders exercise such right
of participation in accordance with the terms and conditions set forth below,
the number of shares of Stock that the Founder may sell in the transaction
shall be correspondingly reduced.

-1-

94
(c) Each Shareholder may sell all or any part of
that number of shares of Stock equal to the product obtained by multiplying (i)
the aggregate number of shares of Stock covered by the Notice by (ii) a
fraction the numerator of which is the number of shares of Common Stock owned
by the Shareholders at the time of the sale or transfer and the denominator of
which is the total number of shares of Common Stock owned by the Founder and
the Shareholders at the time of the sale or transfer.

(d) If any Shareholder fails to elect to fully
participate in such Founder's sale pursuant to this Section 2, the Founder
shall give notice of such failure to the Shareholders who did so elect (the
"Participants"). Such notice may be made by telephone if confirmed in writing
within two (2) days. The Participants shall have five (5) days from the date
such notice was given to agree to sell their pro rata share of the unsold
portion. For purposes of this Section 2(d), a Participant's pro rata share
shall be the ratio of (x) the number of shares of Common Stock held by such
Participant to (y) the total number of shares of Common Stock held by the
Participants and the Founder.

(e) Each Participant shall effect its
participation in the sale by promptly delivering to the Founder for transfer to
the prospective purchaser one or more certificates, properly endorsed for
transfer, which represent:

(i) the type and number of shares of
Common Stock which such Participant elects to sell; or

(ii) that number of shares of Series A,
Series B or Series C Preferred Stock which is at such time convertible into the
number of shares of Common Stock which such Participant elects to sell;
provided, however, that if the prospective purchaser objects to the delivery of
Series A, Series B or Series C Preferred Stock in lieu of Common Stock, such
Participant shall convert such Preferred Stock into Common Stock and deliver
Common Stock as provided in Section 2(e)(i) above. The Company agrees to make
any such conversion concurrent with the actual transfer of such shares to the
purchaser.

(f) The stock certificate or certificates that
the Participant delivers to the Founder pursuant to Section 2(e) shall be
transferred to the prospective purchaser in consummation of the sale of the
Stock pursuant to the terms and conditions specified in the Notice, and the
Founder shall concurrently therewith remit to such Participant that portion of
the sale proceeds to which such Participant is entitled by reason of its
participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares or
other securities from a Participant exercising its rights of co-sale hereunder,
the Founder shall not sell to such prospective purchaser or purchasers any
Stock unless and until, simultaneously with such sale, the Founder shall
purchase such shares or other securities from such Participant.

(g) The exercise or non-exercise of the rights of
the Participants hereunder to participate in one or more sales of Stock made by
the Founder shall not adversely affect their rights to participate in
subsequent sales of Stock subject to Section 2(a).

3. Exempt Transfers.

-2-

95
(a) Notwithstanding the foregoing, the co-sale
rights of the Shareholders shall not apply to (i) any pledge of Stock made
pursuant to a bona fide loan transaction that creates a mere security interest
or (ii) any transfer to the ancestors, descendants or spouse or to trusts for
the benefit of such persons or a Founder; provided that (A) the transferring
Founder shall inform the Shareholders of such pledge or transfer prior to
effecting it and (B) the pledgee or transferee shall furnish the Shareholders
with a written agreement to be bound by and comply with all provisions of
Section 2. Such transferred Stock shall remain "Stock" hereunder, and such
pledgee or transferee shall be treated as a "Founder" for purposes of this
Agreement.

(b) Notwithstanding the foregoing, the provisions
of Section 2 shall not apply to the sale of any Stock (i) to the public
pursuant to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act") or (ii) to the Company.

4. Prohibited Transfers.

(a) In the event a Founder should sell any Stock
in contravention of the co-sale rights of the Shareholders under this agreement
(a "Prohibited Transfer"), the Shareholders, in addition to such other remedies
as may be available at law, in equity or hereunder, shall have the put option
provided below, and the Founder shall be bound by the applicable provisions of
such option.

(b) In the event of a Prohibited Transfer, each
Shareholder shall have the right to sell to the Founder the type and number of
shares of Stock equal to the number of shares each Shareholder would have been
entitled to transfer to the purchaser had the Prohibited Transfer under Section
2(c) hereof been effected pursuant to and in compliance with the terms thereof.
Such sale shall be made on the following terms and conditions:

(i) The price per share at which the
shares are to be sold to the Founder shall be equal to the price per share paid
by the purchaser to the Founder in the Prohibited Transfer. The Founder shall
also reimburse each Shareholder for any and all reasonable fees and expense,
including reasonable legal fees and expense, incurred pursuant to the exercise
or the attempted exercise of the Shareholder's rights under Section 2.

(ii) Within ninety (90) days after the
later of the dates on which the Shareholder (A) received notice of the
Prohibited Transfer or (B) otherwise become aware of the Prohibited Transfer,
each Shareholder shall, if exercising the option created hereby, deliver to the
Founder the certificate or certificates representing shares to be sold, each
certificate to be properly endorsed for transfer.

(iii) The Founder shall, upon receipt of
the certificate or certificates for the shares to be sold by a Shareholder,
pursuant to this Section 4(b), pay the aggregate purchase price therefor and
the amount of reimbursable fees and expense, as specified in Section 4(b)(i),
in cash or by other means acceptable to the Shareholder.

-3-

96
(iv) Notwithstanding the foregoing, any
attempt by a Founder to transfer Stock in violation of Section 2 hereof shall
be void and the Company agrees it will not effect such a transfer nor will it
treat any alleged transferee as the holder of such shares without the written
consent of a majority in interest of the Shareholders.

5. Legend.

(a) Each certificate representing shares of Stock
now or hereafter owned by the Founders or issued to any person in connection
with a transfer pursuant to Section 3(a) hereof shall be endorsed with the
following legend:

"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE
SHAREHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF STOCK OF
THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."

(b) Each Founder agrees that the Company may
instruct its transfer agent to impose transfer restrictions on the shares
represented by certificates bearing the legend referred to in Section 5(a)
above to enforce the provisions of this Agreement and the Company agrees to
promptly do so. The legend shall be removed upon termination of this
Agreement.

6. Miscellaneous.

6.1 Governing Law. This Agreement shall be
governed by and construed under the laws of the State of Delaware.

6.2 Amendment. Any provision may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only by the written
consent of (i) as to the Company, only by the Company, (ii) as to the
Shareholders, by persons holding more than fifty percent (50%) in interest of
the Common Stock and Common Stock equivalents then held by the Shareholders and
their assignees, pursuant to Section 6.3 hereof, and (iii) as to each Founder,
such Founder, provided that any Shareholder may individually waive any of his
rights hereunder without obtaining the consent of any other Shareholder. Any
amendment or waiver effected in accordance with clauses (i), (ii) and (iii) of
this paragraph shall be binding upon each Shareholder, its successors and
assigns, the Company and the Founder in question.

6.3 Assignment of Rights. This Agreement and the
rights and obligations of the parties hereunder shall inure to benefit of, and
be binding upon, their respective successors, assigns and legal
representatives. The rights of the Shareholders hereunder are only assignable
(i) by each of such Shareholders to any other Shareholder or

-4-

97
(ii) to an assignee or transferee who acquires all of the Common Stock
purchased by a Shareholder or at least 25,000 shares of Common Stock.

6.4 Term. This Co-Sale Agreement shall terminate
upon the earlier of (i) the closing of a firm commitment underwritten public
offering pursuant to a registration statement on Form S-1 under the Securities
Act of 1933, as amended, the public offering price of which (exclusive of
underwriting discounts, commissions and expenses) is not less than $4.00 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and $12,000,000 in the aggregate, and (ii) the closing of
the Company's sale of all or substantially all of its assets or the acquisition
of the Company by another entity by means of merger or consolidation resulting
in the exchange of the outstanding shares of the Company's capital stock for
securities or consideration issued, or caused to be issued, by the acquiring
entity or its subsidiary.

6.5 Ownership. Each Founder represents and
warrants that he is the sole legal and beneficial owner of the shares of stock
subject to this Co-Sale Agreement and that no other person has any interest
(other than a community property interest) in such shares.

6.6 Notices. All notices required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or five days after deposit in the
United States mail, by registered or certified mail, postage prepaid and
properly addressed to the party to be notified as set forth on the signature
page hereof or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties hereto. Notwithstanding the
foregoing, the telephone notice permitted by Section 2(d) shall be effective at
the time it is given.

6.7 Severability. In the event one or more of
the provisions of this Co-Sale Agreement should, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Co-Sale
Agreement, and this Co-Sale Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.

6.8 Attorney Fees. In the event that any dispute
among the parties to this Co-Sale Agreement should result in litigation, the
prevailing party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Co-Sale Agreement, including without
limitation, such reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and expenses of
appeals.

6.9 Counterparts. This Co-Sale Agreement may be
executed in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.

-5-

98
The foregoing agreement is hereby executed as of the date
first above written.

COMBICHEM, INC.

By:
-----------------------------------------
Title:
--------------------------------------
Address
-------------------------------------

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

SHAREHOLDERS:

---------------------------------------------
(Print Name of Investor)

---------------------------------------------
(Signature)

---------------------------------------------
(Title, if applicable)

Address
---------------------------------------------

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

[SIGNATURE PAGE TO CO-SALE AGREEMENT]

FOUNDERS:

------------------------------------------
(Print Name of Founder)

------------------------------------------
(Signature)

Address
------------------------------------------

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

[SIGNATURE PAGE TO CO-SALE AGREEMENT]

100
CONSENT OF SPOUSE

I acknowledge that I have read the foregoing Agreement and
that I know its contents. I am aware that by its provisions if I and/or my
spouse agree to sell all or part of the shares of the Company held of record by
either or both of us, including my community interest in such shares, if any,
co-sale rights (as described in the Agreement) must be granted to the
Shareholders by the seller. I hereby agree that those shares and my interest
in them, if any, are subject to the provisions of the Agreement and that I will
take no action at any time to hinder operation of, or violate, the Agreement.

------------------------------------------
(Signature)

101
SCHEDULE OF EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES

This Schedule of Exceptions is made and given pursuant to Article II
of the Series C Preferred Stock Purchase Agreement (the "Agreement"). The
section numbers in this Schedule of Exceptions correspond to the section
numbers in the Agreement; however, any information disclosed herein under any
section number shall be deemed to be disclosed and incorporated into any other
section number under the Agreement where such disclosure would otherwise be
appropriate. Any terms defined in the Agreement shall have the same meaning
when used in this Schedule of Exceptions as when used in the Agreement unless
the context otherwise requires.

Nothing herein constitutes an admission of any liability or obligation
on the part of CombiChem nor an admission against CombiChem's interest. The
inclusion of any schedule herein or any exhibit hereto should not be
interpreted as indicating that CombiChem has determined that such an agreement
or other matter is necessarily material to CombiChem. The Investors
acknowledge that certain information contained in these schedules may
constitute material confidential information relating to CombiChem which may
not be used for any purpose other than that contemplated in the Agreement.

102
SCHEDULE 2.5
CAPITALIZATION AND VOTING RIGHTS

Certain investors of the Company are parties to assignment agreements
pursuant to which they have assigned the right to receive warrants issuable in
connection with the Series C Preferred Stock financing to other investors.

Schedule 2.5

103
SCHEDULE 2.7
CONTRACTS AND OTHER COMMITMENTS

The Company is a party to the following agreements:

(a) (i) Xxxxxx Xxxxx Science Park Industrial Real Estate
Modified Gross Lease for 00000 X. Xxxxxx Xxxxx Xxxx,
Xx Xxxxx, XX 00000 dated November 1, 1991.

(ii) Sublease for 00000 Xxxxx Xxxxxx Xxxxx Xxxx, Xx Xxxxx,
XX 00000 dated August 24, 1994 and September 1, 1994.

(iii) Sublease for 00000 X. Xxxxxx Xxxxx Xxxx, Xx Xxxxx, XX
00000.

(iv) Industrial Lease for 0000 Xxxxxxxxx Xxxxx, Xxxxxxxxx,
XX dated December 7, 1992.

(v) Second Sublease for 0000 Xxxxxxxxx Xxxxx, Xxxxxxxxx,
XX and draft of Addendum No. 1.

(vi) 00000 X. Xxxxxx Xxxxx Xxxx, Xxxxx 000, Xx Xxxxx,
Xxxxxxxxxx Lease dated March 15, 1995 between Health
Science Properties, Inc. and the Company.

(vii) See (e)(iv) and (v) below.

(viii) Pursuant to that certain Agreement dated August 4,
1995 among the Company, Molecular Simulations
Inc.("MSI") and Entropix Corporation, the Company is
obligated to make the following cash payments on or
before December 31, 1995: (A) $100,000 and (B) at the
sole discretion of MSI, either (i) a cash payment in
an amount equal to $140,000 or (ii) 225,807 shares of
Series Z Preferred Stock. In addition, the Company
issued a promissory note to MSI for $300,000 payable
June 15, 1996 in cash, or at the Company's option, by
issuing 100,000 shares of Series Z Preferred Stock.

(ix) In connection with the execution of the Agreement
with MSI described in (viii) above and pursuant to a
License Agreement dated August 4, 1995 between the
Company and MSI ("MSI License Agreement"), the
Company agreed to pay to MSI royalties equal to: (A)
in connection with the sale of a single product, the
lesser of 5% of net sales of such product or $25,000;
(B) in connection with the sale of more than one
product in a single transaction, the sum of (I) with
respect to the first product included in such
transaction, the lesser of 5% of net sales of such
product or $25,000 and (II) with respect to the
additional products, a flat royalty of $5,000 per
additional product; or (C) in connection with a
collaboration or contract research project, the
lesser of 2% of net sales for such collaboration or
contract research project or $100,000. The maximum
aggregate royalties payable under the agreement is
$5.0 million.

(x) Certain employees have arrangements with the Company
pursuant to which severance payments would be made
following their termination of employment in certain
circumstances. No such payments are currently being
made.

(xi) Pursuant to the Sublicense Agreement dated July 20,
1995 between the Company and Xxxxxxx & Xxxxxxx (the
"J&J Sublicense"), the Company is required to make
(A) aggregate payments of $100,000 (subject to
certain

Schedule 2.7

104
time and performance milestones), (B) an additional
royalty of 1% of monetary compensation received in
connection with a further sublicense of rights under
the Agreement and (C) earned royalties 10% of net
sales value of products sold under the agreement by
the Company or affiliates or 10% of the royalty or
other income received by the Company from sublicensee
or third parties in consideration of granting of
further sublicenses.

(xii) See (c)(iii) below.

(b) (i) Preferred Stock Purchase Agreement (600,000 Shares of
Series A Preferred Stock) dated August 26, 1994
between the Company and Forward Ventures II, L.P.

(ii) Common Stock Purchase Agreement (225,000 Shares of
Common Stock) dated September 28, 1994 between the
Company and Forward Ventures II, L.P.

(iii) Preferred Stock Purchase Agreement (200,000 Shares of
Series Z Preferred Stock) dated October 12, 1994
between the Company and Dr. Xxxxxx Xxxxxxx.

(iv) Stock Purchase Agreement Preferred and Common
(400,000 Shares of Series A Preferred Stock and
100,000 Shares of Common Stock) dated November 1,
1994 among the Company, Sequoia Capital VI, Sequoia
Technology Partners VI and Sequoia XXIV.

(v) Stock Purchase Agreement Series B Preferred dated
November 29, 1994 among the Company, Sequoia Capital
VI, Sequoia Technology Partners VI, Sequoia XXIV and
Forward Ventures II, L.P.

(vi) Stock Purchase Agreement (Series B Preferred) dated
January 15, 1995 between the Company and Xxxx X.
Xxxxxxxx, Ph.D.

(vii) Common Stock Purchase Agreement dated March 20, 1995
between the Company and The Scripps Research
Institute, as amended through the date hereof.

(viii) The Company is party to the following Common Stock
Purchase Agreements:

AMOUNT OF
NAME DATE SHARES

Xxx X. Xxxxx 09/28/94 175,000

Chi-Xxxx Xxxx 09/28/94 150,000

Xxxx X. Xxxxx 09/28/94 150,000

Xxxx Xxx 09/28/94 10,000

Xxxxxxxx Xxxxxxx 09/28/94 37,500

Trustee of Royston Family Trust UTA 09/28/94 37,500
2/12/82

Schedule 2.7

105

AMOUNT OF
NAME DATE SHARES

Xxxxxx Xxxxxxx 09/28/94 150,000

Xxxxxxx Xxxxxxxxx 09/28/94 10,000

Xxxxxx X. Xxxxxx 10/18/94 500,000

Xxxx Xxxxx 10/18/94 2,500

Xxxx X. Xxxxxxxx 11/08/94 175,000

Xxxxxx X. Xxxxxx 11/18/94 10,000

Xxxx X. Xxx 01/01/95 5,000

Xxxxxx X. Xxxxxxxxxx 01/19/95 20,000

Xxxxx X. Xxxx 01/23/95 20,000

Xxxx Xxxxx 01/23/95 20,000

Xxxxxx X.X. Sun 01/30/95 10,000

Xxxx Xxxxx 02/06/95 40,000

Xxxxxxxxx X. Xxxxx 04/24/95 14,000

Xxxxx Xxxxx 3/1/95 350,000

Xxxxx Xxxx 6/2/95 200,000

Xxxxxxxx Xxxxxx 6/3/95 100,000

(ix) See (a) (viii) above.

(x) The Company intends to enter into Series J Option
Agreements with each of Xxxxxx Xxxx, Xxxxxxxx Xxxxxx
and Xxxxxx Xxxxxxx, pursuant to which an aggregate of
465,000 shares of Series J Preferred Stock may be
issued.

(xi) The Company had previously entered into (A) that
certain Amended and Restated Stock Registration
Rights Agreement dated November 1, 1994, as amended
on November 29, 1994, January 15, 1995 and March 20,
1995 and (B) that certain Stock Registration Rights
Agreement dated October 12, 1994 which granted to
certain investors registration rights. These
agreements are being terminated pursuant to
Investors' Rights Agreement.

(xii) Warrant Agreement with Comdisco, Inc., dated December
20, 1994

(xiii) Pursuant to a consulting agreement with Xxx
Xxxxxxxxxx pursuant to which Xx. Xxxxxxxxxx receives
1,000 shares of the Company's common stock for each
month in which he performs consulting services.

(xiv) The Company has granted an aggregate of 50,000
options to certain employees and consultants pursuant
to which up to an aggregate of 50,000 shares of
common stock may be issued.

Schedule 2.7

106
(c) (i) Convertible Revolving Promissory Notes dated June 15,
1995 in favor of Sequoia Capital VI, Sequoia
Technology Partners, Sequoia XXIV, Forward Ventures
in the aggregate amount of $500,000.

(ii) Convertible Revolving Promissory Notes dated July 20,
1995 in favor of Sequoia Capital VI, Sequoia
Technology Partners, Sequoia XXIV, First Interstate
Bank as Trustee for SK International Securities
Corporation 401(k) Profit Sharing Plan EM Xxxxxxx X.
Xxxxxx TR#508263200, Dr. Xxxxxxx Xxxxxxxx, Rollover
XXX and Xxxxxx Xxxx in the aggregate amount of
$250,000 as of Closing (with an additional $250,000
available).

(iii) Master Lease Agreement with Comdisco, Inc.
("Comdisco") dated November 16, 1994

(iv) See (a)(viii) above.

(d) (i) The Company is party to employment agreements with
the following individuals: Xxxx Xxx; Xxxxxx X.
Xxxxxx; Xxxx X. Xxxxxxxx; Xxxxx Xxxxx; Xxxxxxxx
Xxxxxx; Xxxxxx Xxxx; and Xxxxxx Xxxxxxx. In
addition, the Company is a party to offer letters
and/or memoranda with the following employees in
which certain terms and conditions of the employee's
employment are set forth: Xxxxxxx X. Xxxxxxxxx;
Xxxxxx Xxxxxx; Xxxxxx X. X. Sun; Xxxxxx X.
Xxxxxxxxxx; Xxxx Xxxxx; Xxxx Xxxxx; Xxxxxxxxx Xxxxx;
Xxxxxx Xxxxxx; Xxxxx Xxxxxxx; and Xxxx Xxxxxxxx.

(ii) The Company is a party to the following consulting
agreements: Xxxx X. Xxxxx (dated 05/01/94); Xxxx Xxx
(dated 07/01/94); Xxx X. Xxxxx (dated 08/09/94);
Xxxxxx Xxxxxxx (dated 08/10/94); Chi-Xxxx Xxxx (dated
08/11/94); Xxx Xxx Xxxxxxxxx (dated 12/23/94); and
Xxx Xxxxxxxxxx (dated 2/4/95). The Company is
negotiating a consulting agreement with Xxxx Xxxxxxx.
The Company entered into a letter agreement dated
July 25, 1995 with Transpect Incorporated
("Transpect") pursuant to which Transpect is retained
as an advisor and consultant with respect to the
establishment of a relationship with Daiichi
Pharmaceutical Co., Ltd (or any company mutually
agreed to).

(e) (i) Agreement for Purchase and Sale of Assets dated
September 28, 1994 among the Company, Combichem,
Inc., a Delaware corporation, KPCB VI and KPCB IV-FF.

(ii) License Agreement with The Scripps Research Institute
("Scripps License")

(iii) Assignments of Dr. Xxxxxx Xxxxxxx

(iv) Letter of Intent - R&D Collaboration and
Manufacturing and Supply Agreement with LJL
Biosystems, Inc. dated March 15, 1995 as amended June
1, 1995

(v) Letter to LJL Biosystems, Inc. detailing revised
payment schedule for COMBISYN 100 program dated July
21, 1995

(vi) See (a)(ix) above.

(vii) Sublicense Agreement dated July 20, 1995 between the
Company and Xxxxxxx & Xxxxxxx.

(viii) Option Agreement with The Scripps Research Institute
("Scripps Option").

Schedule 2.7

107
(f) The Company intends to enter into indemnification agreements
with each of the directors of the Company following the
Closing. In addition, other agreements listed in this
Schedule of Exceptions or to be entered into in connection
with the Closing may contain indemnification provisions.

(i) None

(ii) See (a) above.

(iii) The Company currently has a commitment to make relocation
loans to the following employees in the following principal
amounts: Xxxxxx X. Xxxxxx ($150,000) and Xxxxx Xxxxx
($150,000). None of such loans is outstanding.

(iv) See (a)(viii) and (a)(ix) above.

In connection with the MSI transaction discussed above and in addition
to the agreements noted above, the Company also entered into a separate License
Agreement (pursuant to which it obtained a license to certain MSI products), an
Acknowledgement and General Release (pursuant to which the operation of certain
sections of Xx. Xxxx'x prior contracts with MSI were waived and the Company and
Xx. Xxxx were released from claims arising out of such released sections of the
contracts).

The sale of shares of Series C Preferred Stock in the proposed
financing will result in a change of ownership of greater than 50% of the
voting power of the Company prior to the Closing.

The Company has performed all obligations and conditions required to
be performed or met by it through the date hereof under each of the Scripps
License and Scripps Option. The Scripps License is in full force and effect as
of the date hereof. The Scripps Option has not been exercised, as of the date
of the Closing. The Company will use its best efforts not to waive any rights
of the Company under the Scripps License or Scripps Option, without the consent
of a majority of the outstanding shares of Series C Preferred Stock (and shares
of the Company's capital stock issuable upon exchange or conversion of the
Series C Preferred Stock).

Schedule 2.7

108
SCHEDULE 2.8
RELATED-PARTY TRANSACTIONS

The Company is indebted to certain venture capital funds affiliated
with directors pursuant to the Convertible Revolving Promissory Notes dated
June 15, 1995 and the Convertible Revolving Promissory Notes dated July 20,
1995 (collectively, the "Notes"). All accrued interest and outstanding
principal due under the Notes will be converted into shares of Series C
Preferred Stock in connection with the Closing, except interest and principal
owing to Forward Ventures II, L.P. which will be paid in full from the proceeds
of the offering.

Venture capital funds affiliated with directors participated in the
Company's prior rounds of financing and will participate in the Series C
Preferred Stock financing. Such directors may engage in the development and
financing of other companies and/or research projects which may be developing,
or may in the future develop, products which may compete directly, or
indirectly, with the products intended to be developed by the Company.

The Company currently has a commitment to make relocation loans to the
following employees in the following principal amounts: Xxxxxx X. Xxxxxx
($150,000) and Xxxxx Xxxxx ($150,000). None of such loans is outstanding.

Schedule 2.8

109
SCHEDULE 2.9
REGISTRATION RIGHTS

The registration rights in place prior to the closing with respect to
shares of Common Stock issuable upon exercise of Series A Preferred Stock,
Series B Preferred Stock and Xx. Xxxxxxx'x shares of Series Z Preferred Stock
will be replace with the registration rights set forth in the Investors' Rights
Agreement.

The Company is obligated to register shares of Common Stock issuable
upon conversion of Series Z Preferred Stock issuable upon exercise of warrants
issued (or to be issued) in connection with the Company's equipment lease line.

Schedule 2.9

110
SCHEDULE 2.10
PERMITS

The Company has completed its initial inspection by the Fire Xxxxxxxx.
Another inspection is scheduled to occur in the next month, following which a
permit will be issued assuming compliance with all applicable rules and
regulations.

Schedule 2.10

111
SCHEDULE 2.15
TITLE TO PROPERTY AND ASSETS; LEASES

Under the terms of the Company's agreement with Comdisco, Comdisco
retains all rights to the equipment purchased under such lease, with the
Company having an option to purchase at the completion of the term of the
agreement.

Schedule 2.15

112
SCHEDULE 2.16
FINANCIAL STATEMENTS

The Company has entered into the agreements with MSI and Xxxxxxx &
Xxxxxxx since June 30, 1995. In addition, the Company has incurred
substantially all of the aggregate indebtedness under the Convertible Revolving
Promissory Notes since June 30, 1995.

The employee relocation loan commitments are not reflected on the June
30, 1995 financial statements. In addition, the contingent severance payments
due under certain employment arrangements with the Company's employees are not
reflected on the June 30, 1995 financial statements.

Schedule 2.16

113
SCHEDULE 2.18
PATENTS AND TRADEMARKS

A list of pending patent applications is attached hereto as Exhibit A
to Schedule 2.18.

The Company filed an intent to use application with the United States
Patent and Trademark Office ("PTO") to register the xxxx COMBICHEM on February
26, 1993 in Class 42 for the services of combinatorial chemistry and molecular
biology research and analysis. The application was inadvertently abandoned and
a petition to revive the application, filed on June 14, 1995 with the PTO is
now pending. The Company filed a duplicate application on June 5, 1995 in the
event that the petition to revive is denied. This application is now pending.

The Company filed an intent to use application to register the xxxx
COMBICHEM on November 15, 1994 in Class 5 for pharmaceuticals and chemical
compounds. An Office Action has been issued by the PTO citing two prior
applications that may be confusingly similar to COMBICHEM if either of these
applications matures into a registration. A response to the Office Action is
due on October 27, 1995.

An intent to use application for the xxxx COMBISYN was filed by the
Company on February 13, 1995 and is now pending. The application was filed in
Class 9 for scientific apparatus for use in synthesizing by combinatorial
chemistry small molecules for use in scientific research.

In connection with the MSI License Agreement, the Company received
certain licenses to use MSI proprietary technology and granted to MSI an
exclusive option to negotiate a distribution agreement with respect to a
stand-alone chemical diversity measure software program.

The J&J Sublicense contains a grant-back of a non-exclusive
irrevocable royalty-free license (with the right to sublicense affiliates)
under all patent improvements for the term of the agreement.

Schedule 2.18

114
SCHEDULE 2.19
MANUFACTURING AND MARKETING RIGHTS

Pursuant to the MSI License Agreement, the Company has granted to MSI
an exclusive option to negotiate a distribution agreement with respect to a
stand-alone chemical diversity measure software program.

LJL Biosystems, Inc. is preparing test models of certain of the
Company's products.

Schedule 2.19

Document Metadata

Table of Contents

EXHIBIT 10.5 COMBICHEM, INC. SERIES C PREFERRED STOCK PURCHASE AGREEMENT August 17, 1995 2

Document Metadata