COLLATERAL THERAPEUTICS INC, S-1, 1998-04-24

COLLATERAL THERAPEUTICS INC
S-1, 1998-04-24

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998

REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

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

COLLATERAL THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
CALIFORNIA 8731 33-0661290
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>

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9360 TOWNE CENTRE DRIVE, SAN DIEGO, CALIFORNIA 92121 (619) 824-6500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------

JACK W. REICH, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHRISTOPHER J. REINHARD
CHIEF OPERATING AND FINANCIAL OFFICER
COLLATERAL THERAPEUTICS, INC.
9360 TOWNE CENTRE DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 824-6500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------

WITH COPIES TO:

<TABLE>
<S> <C>
Faye H. Russell, Esq. Jeffrey E. Cohen, Esq.
Maria P. Sendra, Esq. Carol B. Stubblefield, Esq.
BROBECK, PHLEGER & HARRISON LLP COUDERT BROTHERS
550 West "C" Street, Suite 1300 1114 Avenue of the Americas
San Diego, California 92101 New York, New York 10036
(619) 234-1966 (212) 626-4400
</TABLE>

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Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------

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

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

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

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.001............... 3,829,500 shares $13.00 $49,783,500 $15,086
</TABLE>

(1) Includes 499,500 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.

(2) Estimated solely for the purpose of computing the amount of the registration
fee.
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION ACTING PURSUANT
TO SAID SECTION 8(A) MAY DETERMINE.

- --------------------------------------------------------------------------------
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 24, 1998

PRELIMINARY PROSPECTUS

3,330,000 SHARES

[LOGO]

COMMON STOCK

All of the 3,330,000 shares of Common Stock offered hereby are being sold by
Collateral Therapeutics, Inc. ("Collateral" or the "Company"). Prior to this
offering (the "Offering"), there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $11.00 and $13.00 per share. See "Underwriting" for information
relating to determination of the initial public offering price. The Company has
applied for quotation on the Nasdaq National Market of its Common Stock under
the symbol "CLTX."
------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.

(2) Before deducting expenses of the Company estimated at $ .

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 499,500 additional shares of Common Stock, on the same terms and
conditions as set forth above, to cover over-allotments, if any. If all such
shares are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ and the total Proceeds to Company will be $ . See
"Underwriting."
------------------------

The shares of Common Stock are offered subject to prior sale, when, as and
if delivered and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
said offer and to reject orders in whole or in part. It is expected that
delivery of the Common Stock will be made on or about , 1998, at the
office of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167.

BEAR, STEARNS & CO. INC.

RAYMOND JAMES & ASSOCIATES, INC.

VECTOR SECURITIES INTERNATIONAL, INC.

The date of this Prospectus is , 1998
<PAGE>
[LOGO]

POTENTIAL ANGIOGENIC

HEALING PROCESS MODEL

(1) Blocked artery due to build-up of fatty and plaque deposits inside the
lining of arterial wall (2) Signal of ischemic injury (3) Clinical diagnosis of
myocardial ischemia due to coronary artery disease (4) Collateral Therapeutics'
non-surgical proprietary gene therapy approach (5) & (6) Intra-arterial
administration of gene therapy product through cardiac catheter by an
interventional cardiologist (7) Transfection of angiogenic growth factor genes
into heart cells (8) The growth of collateral circulation following angiogenic
gene therapy (9) Improved blood flow and heart function following angiogenic
gene therapy

[Diagram of human heart surrounded by nine pictures illustrating, in a
counterclockwise direction, the nine phases of the angiogenic healing
process model described in the text immediately above the diagram.]

The Company's proprietary gene therapy products and proprietary
methods have not been approved by the United States Food and Drug
Administration ("FDA") for sale in the United States. Approval by
the FDA could take several years, and there can be no assurance
that such approval will ever be obtained. In addition, the
Company's gene therapy products and proprietary methods have not
been approved by international regulatory agencies for sale in
international markets. See "Risk Factors--Extensive Government
Regulation; No Assurance of Regulatory Approval."

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENTS, STABILIZING BIDS AND SHORT COVERING TRANSACTIONS AND THE
IMPLEMENTATION OF PENALTY BIDS. SEE "UNDERWRITING."

Collateral Therapeutics, Generx, Genevx, Genvascor, Genecor, Corgenic,
Myocor and the Collateral logo are trademarks of the Company.

Except where otherwise noted, all statistics regarding cardiovascular
diseases come from the American Heart Association, Heart and Stroke Facts, 1996
Statistical Supplement, the most recent available edition of this Supplement.

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE,
INCLUDING THE INFORMATION UNDER "RISK FACTORS." EXCEPT AS OTHERWISE NOTED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES (I) SHAREHOLDER APPROVAL OF THE COMPANY'S
REINCORPORATION IN DELAWARE AND OF A 1.9-FOR-1 FORWARD SPLIT OF THE COMMON STOCK
OF THE COMPANY, PAR VALUE $0.001 PER SHARE (THE "COMMON STOCK"), WHICH APPROVAL
IS EXPECTED TO BE OBTAINED PRIOR TO CIRCULATION OF PRELIMINARY PROSPECTUSES,
(II) THE CONVERSION OF ALL OF THE COMPANY'S OUTSTANDING SHARES OF SERIES A,
SERIES B AND SERIES C PREFERRED STOCK, PAR VALUE $0.001 PER SHARE (COLLECTIVELY,
THE "PREFERRED STOCK"), INTO AN AGGREGATE OF 2,320,926 SHARES OF COMMON STOCK
UPON COMPLETION OF THIS OFFERING AND (III) NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. THIS PROSPECTUS MAY CONTAIN, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED UNDER
"RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. SEE
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."

THE COMPANY

Collateral is focused on the discovery, development and commercialization of
non-surgical gene therapy products for the treatment of cardiovascular diseases,
including coronary artery disease, peripheral vascular disease, congestive heart
failure and heart attack. The Company believes that its products under
development hold the potential to revolutionize the treatment of cardiovascular
diseases and become a new standard of care by offering patients simpler, more
cost-effective and lower-risk alternatives to currently available treatments,
such as coronary artery bypass surgery ("Coronary Bypass Surgery") and
angioplasty. The Company's initial gene therapy products are designed to promote
and enhance angiogenesis, a natural biological process which results in the
growth of additional blood vessels, to restore adequate levels of blood flow to
oxygen-deprived tissues. IN VIVO preclinical studies led by the Company's chief
scientist have demonstrated high-yield gene transfer to heart muscle cells and,
for the first time, angiogenesis sufficient to normalize cardiac flow and
function. In addition, these preclinical studies showed no significant side
effects such as inflammation or immune response. The Company's angiogenic
products are administered using proprietary methods of gene therapy based on
non-surgical adenoviral vector delivery of angiogenic genes to the heart. Such
products are intended to be non-surgically administered by an interventional
cardiologist by a one-time intra-coronary injection through a cardiac catheter,
and could be administered at the time of initial angiography, on an out-patient
basis. In addition to the Company's angiogenic products, the Company is also
actively researching gene therapy products designed to increase responsiveness
of the heart to adrenergic stimulation and to stimulate heart muscle
regeneration, and is seeking to broaden its proprietary methods of gene therapy
to include adeno-associated viral ("AAV") gene delivery vectors.

GENERX-TM-, the Company's initial angiogenic product for the treatment of
coronary artery disease, is designed to relieve stable exertional angina. The
Phase I/II clinical trial for GENERX (which uses the FGF-4 gene) is expected to
begin in May 1998 pursuant to a commercial Investigational New Drug application
("IND") filed with the U.S. Food and Drug Administration ("FDA") in December
1997 by the Company's strategic partner, Schering AG, Germany ("Schering AG").
Other non-surgical cardiovascular gene therapy products being developed by the
Company are: (i) GENEVX-TM- (which uses a VEGF gene), also an angiogenic
treatment for coronary artery disease designed to relieve stable exertional
angina; (ii) GENVASCOR-TM- (which uses the FGF-4 gene), an angiogenic treatment
for peripheral vascular disease; (iii) GENECOR-TM-, an angiogenic treatment for
congestive heart failure; (iv) CORGENIC-TM-, a treatment for congestive heart
failure to enhance responsiveness of the heart to adrenergic stimulation; and
(v) MYOCOR-TM-, a treatment for patients who have suffered a heart attack, which
is focused on heart muscle regeneration and improvement of cardiac function.

3
<PAGE>
The Company has assembled a broad portfolio of therapeutic genes which were
exclusively licensed or internally discovered and for which either patents have
been issued or patent applications have been filed for use in the development of
cardiovascular gene therapy products. The Company's portfolio includes 11
proprietary human genes in the Fibroblast Growth Factor ("FGF") and Vascular
Endothelial Growth Factor ("VEGF") gene families to be used in the Company's
angiogenic gene therapy products. In addition, the Company has filed patent
applications with the United States Patent and Trademark Office ("PTO") with
respect to other therapeutic genes for use with the Company's angiogenic gene
therapy technology. The Company has the exclusive use of, or public domain
access to, certain other therapeutic genes that will be required for its
myocardial adrenergic signaling and heart muscle regeneration products.

The Company intends to focus on research and development of products while
leveraging its technology through the establishment of product development,
manufacturing and marketing collaborations with select pharmaceutical and
biotechnology companies. The Company has a strategic collaboration with Schering
AG covering angiogenic gene therapy products. Under this collaboration, Schering
AG has made equity investments in the Company. In addition, the collaboration
provides for Schering AG, subject to certain conditions, to pay research support
through 2001, to make additional payments upon satisfying certain research,
development and commercialization milestones and to make royalty payments to the
Company based on worldwide net sales of angiogenic gene therapy products
developed under the collaboration. This collaboration was structured to provide
the Company with financial resources and product development support to enable
the Company to determine the safety and efficacy of at least three angiogenic
gene therapy products (GENERX, GENEVX and GENVASCOR). See
"Business--Collaborative and Licensing Arrangements." For other products, the
Company intends to select development and/or commercialization partners after
the Company has completed preclinical research with respect to each such
product. The Company expects that, upon successful commercialization of its
products, royalties on worldwide sales of such products would generate
significant revenues in the long-term.

Cardiovascular disease is the leading cause of death in the United States.
In 1996, the American Heart Association reported that an estimated 60 million
patients in the United States have cardiovascular disease. This patient group
included an estimated 13.5 million patients with coronary artery disease,
including approximately 6.8 million patients with angina. Each year, an
estimated 1.5 million patients have a new or recurrent heart attack and 500,000
of these die as a result. The American Heart Association estimates that the U.S.
healthcare system spends approximately $130 billion annually on the care and
treatment of patients with cardiovascular diseases.

The key elements of the Company's strategy are to: (i) develop a new
paradigm for the treatment of cardiovascular diseases; (ii) maintain
technological leadership by focusing resources exclusively on cardiovascular
gene therapy; (iii) continue to expand, enhance and protect its proprietary
technology, including methods of gene therapy and portfolio of therapeutic
genes; and (iv) leverage its technology through the establishment of strategic
collaborations.

The Company was incorporated in California in 1995 and, subject to
shareholder approval, intends to reincorporate in Delaware prior to distributing
preliminary prospectuses. The Company's executive offices are located at 9360
Towne Centre Drive, San Diego, California 92121, and its telephone number is
(619) 824-6500.

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered hereby..................... 3,330,000 shares (1)
Common Stock to be outstanding after the
Offering...................................... 11,622,573 shares (1)(2)
Use of proceeds................................. The Company intends to use the net
proceeds of this Offering as follows: (i)
approximately $4.0 million for capital
expenditures, including construction of
the Company's new preclinical laboratory
facility, and (ii) the remaining amount
for research and development, acquisition
of technology (including $2.1 million
payable under existing technology license
agreements during the next 24 months) and
working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol.......... CLTX
</TABLE>

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

(1) Excludes up to 499,500 shares of Common Stock that may be sold by the
Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."

(2) Based on the number of shares outstanding as of March 31, 1998. Includes
2,320,926 shares of Common Stock issuable upon the automatic conversion of
all outstanding shares of the Preferred Stock, upon completion of this
Offering. Excludes (i) 917,700 shares of Common Stock issuable upon exercise
of outstanding options with a weighted average exercise price of $1.38 per
share, including 209,000 options granted in April 1998 and 123,500 options
granted outside of the Company's 1998 Stock Incentive Plan (the "1998
Plan"), (ii) 1,502,635 shares of Common Stock reserved for issuance of
options which may be granted under the 1998 Plan and (iii) 50,000 shares of
Common Stock reserved for issuance under the Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan"). See Note 5 of Notes to Financial
Statements.

5
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SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The following summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Collateral's financial statements and related notes included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM YEAR ENDED
APRIL 3, 1995 DECEMBER 31, MARCH 31,
(INCEPTION) THROUGH -------------------- --------------------
DECEMBER 31, 1995 1996 1997 1997 1998
------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Collaborative revenues from related party............ $ -- $ 1,680 $ 5,647 $ 815 $ 989
Costs and expenses:
Research and development........................... 398 1,143 5,059 1,096 1,335
General and administrative......................... 271 951 1,732 355 711
----- --------- --------- --------- ---------
Total operating expenses............................. 669 2,094 6,791 1,451 2,046
----- --------- --------- --------- ---------
Loss from operations................................. (669) (414) (1,144) (636) (1,057)
Interest (expense) income, net....................... (10) 24 167 14 81
----- --------- --------- --------- ---------
Net loss............................................. $ (679) $ (390) $ (977) $ (622) $ (976)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Pro forma net loss per share (Basic and Diluted)
(1)................................................ $ (0.16) $ (0.13)
--------- ---------
--------- ---------
Weighted average shares used in computing pro forma
net loss per share (1)............................. 6,301,472 7,634,162
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED(2)
--------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 5,676 $ 42,039
Working capital......................................................................... 5,788 42,151
Total assets............................................................................ 7,358 43,721
Notes payable to related party.......................................................... 500 500
Accumulated deficit..................................................................... (3,023) (3,023)
Total shareholders' equity ............................................................. 5,921 42,284
</TABLE>

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(1) See Note 1 of Notes to Financial Statements for an explanation of weighted
average shares used in computing pro forma net loss per share.

(2) Adjusted to reflect the sale of 3,330,000 shares of Common Stock offered
hereby at an assumed public offering price of $12.00 per share (the
mid-point of the range set forth on the front cover of this Prospectus) and
the application of the estimated net proceeds therefrom after deducting
estimated underwriting discounts and commissions and other estimated
Offering expenses. See "Use of Proceeds."

6
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.

EARLY STAGE OF PRODUCT DEVELOPMENT AND OF GENE THERAPIES; RISK OF TECHNOLOGICAL
OBSOLESCENCE

The Company was founded in 1995 and, accordingly, has only a limited
operating history upon which an evaluation of the Company's business and
prospects can be based. In addition, the Company's potential products are all in
the early developmental stage and require significant time-consuming and costly
development, testing and regulatory approvals. In December 1997, the Company's
strategic partner, Schering AG, filed an IND with the FDA to begin the Phase
I/II clinical trial to determine the safety and efficacy of GENERX, the
Company's gene therapy for the treatment of coronary artery disease designed to
relieve stable exertional angina. None of the Company's other products or
therapies under development are in clinical trials. To achieve profitable
operations, the Company, alone or with others, must successfully develop,
clinically test, receive regulatory approvals for and market and sell its
products. Any products resulting from the Company's product development efforts
are not expected to be available for sale for a number of years, if at all.
Potential products that appear to be promising at early stages of development
may not reach the market for a number of reasons. There can be no assurance that
the Company independently or through its collaborations will successfully
develop, commercialize, manufacture or market any products. See "--Uncertainties
Related to Clinical Trials," "--Extensive Government Regulation; No Assurance of
Regulatory Approval," "--Uncertainty of Patent Protection; Dependence on
Proprietary Technology," and "--Uncertainty of Market Acceptance." Moreover,
gene therapy is a new and rapidly developing technology and is expected to
undergo significant change in the future. Rapid technological development could
result in the Company's current and future products or methods of gene therapy
becoming obsolete prior to successful commercialization of the Company's
products.

HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY

The Company has experienced operating losses since its inception in 1995. As
of March 31, 1998, the Company had an accumulated deficit of approximately $3.0
million. To date, substantially all of the Company's financial resources have
consisted of funds received from its collaborative arrangement with Schering AG
and through the sale of privately placed equity securities. There is no
assurance that the level of funding made available by Schering AG will not vary
from year to year or that Schering AG will not withdraw funding altogether from
one or more of the Company's products. See "--Reliance on Collaborative
Relationships" and "Business--Collaborative and Licensing Arrangements." The
Company expects to incur additional losses at least for a number of years and
expects losses to increase as the Company's research and development efforts and
clinical trials progress. To date, the Company has not generated any revenue
from the sales of products developed by the Company, nor does the Company expect
to generate any such revenue for a number of years, if at all. See "--Early
Stage of Product Development and of Gene Therapies; Risk of Technological
Obsolescence." There can be no assurance that the Company independently or
through its collaborations will successfully develop, commercialize, manufacture
or market any products or ever achieve or sustain revenues or profitability from
the commercialization of such products. Moreover, even if profitability is
achieved, the level of that profitability cannot be predicted. Furthermore, the
Company expects that operating results will fluctuate from quarter to quarter as
a result of differences in the timing of expenses incurred and the revenues
received from collaborative arrangements and other sources, and that some of
these fluctuations may be significant.

UNCERTAINTIES RELATED TO CLINICAL TRIALS

Before obtaining required regulatory approvals for the commercial sale of
each product under development, the Company and its collaborators must
demonstrate through preclinical studies and clinical

7
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trials that such product is safe and efficacious for use in at least one medical
indication. The results of preclinical studies do not necessarily predict safety
or efficacy in humans. Further, the results of preclinical and initial clinical
trials are not necessarily predictive of results that will be obtained from
large-scale Phase III clinical testing. There can be no assurance that clinical
trials of any product under development will demonstrate the safety and efficacy
of such product or will result in a marketable product. Possible side effects of
gene therapy technologies may be serious and life-threatening. For example,
possible serious side effects of viral vector-based gene transfer include viral
infections resulting from contamination with replication-competent viruses and
cardiac inflammation. In addition, the development of cancer in a patient is
theoretically a possible side effect of all methods of gene transfer.
Furthermore, as with most other biopharmaceutical products, there is also a
possibility of toxicity or decreased efficacy associated with an immune response
toward any viral vector used in the Company's treatments. The possibility of
such response may be increased if there is a need to deliver the viral vector
frequently. There can be no assurance that unacceptable side effects will not be
discovered during preclinical and clinical testing of the Company's potential
products or thereafter. A number of companies have suffered significant setbacks
in advanced clinical trials, despite promising results in earlier trials. The
failure to demonstrate adequately the safety and efficacy of a therapeutic drug
under development would delay or prevent regulatory approval of the product and
could have a material adverse effect on the Company. In addition, the FDA may
require additional clinical trials, which could result in increased costs and
significant development delays.

The rate of completion of clinical trials of the Company's products is
dependent upon, among other factors, obtaining adequate clinical supplies and
the rate of patient recruitment. Patient recruitment is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites and the eligibility criteria for the trial. Delays in planned
patient enrollment in clinical trials may result in increased costs, program
delays or both, which could have a material adverse effect on the Company. In
addition, Schering AG has certain rights to control the planning and
implementation of product development and clinical programs, and there can be no
assurance that Schering AG or any other collaborative partner's rights to
control aspects of such programs will not impede the Company's ability to
conduct such programs in accordance with the schedules and in the manner
currently contemplated by the Company for such programs. Further, there can be
no assurance that, if clinical trials are completed, the Company or any
collaborative partner will submit a new drug application ("NDA") or that any
such application will be reviewed and approved by the FDA in a timely manner, if
at all. In addition, with respect to foreign markets, the Company is subject to
foreign regulatory requirements governing clinical trials. See "--Extensive
Government Regulation; No Assurance of Regulatory Approval" and "Business--
Government Regulation."

EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL

The manufacturing and marketing of Collateral's products and its ongoing
research and development activities will be subject to regulation by numerous
governmental authorities in the United States and other countries. Prior to
marketing, any therapeutic product developed by the Company must undergo
rigorous preclinical and clinical testing and an extensive regulatory approval
process mandated by the FDA and equivalent foreign authorities. These processes
can take a number of years and require the expenditure of substantial resources.
The time required for completing such testing and obtaining such approvals is
uncertain, and approval itself may not be obtained. The Company may decide to
modify a product in testing, thus extending the test period. In addition, delays
or rejections may be encountered based upon changes in FDA policy during the
period of product development and FDA review of each submitted NDA, Product
License Application ("PLA") or Establishment License Application ("ELA").
Similar delays may also be encountered in other countries. There can be no
assurance that even after such time and expenditures, regulatory approval by the
FDA or any equivalent foreign authorities will be obtained for any products
developed by the Company. Moreover, prior to receiving FDA or equivalent foreign
authority approval to market its products, the Company or any collaborative
partner may be required to

8
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demonstrate that the Company's products represent improved forms of treatment
over existing therapies. Even if regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which the product
may be marketed. Further, even if such regulatory approval is obtained, a
marketed product, its manufacturer and its manufacturing facilities are subject
to continual review and periodic inspections, and subsequent discovery of
previously unknown problems with a product, manufacturer or facility may result
in restrictions on such product or manufacturer, including withdrawal of the
product from the market. Finally, because gene therapy is relatively new, and is
only beginning to be extensively tested in humans, the regulatory requirements
governing gene therapy may be modified, perhaps extensively, in the future.

In addition to laws and regulations enforced by the FDA, the Company is also
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local laws and regulations.

For marketing outside the United States, the Company is subject to foreign
regulatory requirements governing clinical trials and marketing approval for
drugs and devices. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursement vary greatly from country to
country. Failure to comply with such regulatory requirements or to obtain such
approvals could impair the Company's ability to develop these markets and have a
material adverse effect on the Company's business, results of operations,
financial condition or cash flow. See "Business--Government Regulation."

UNCERTAINTY OF PATENT PROTECTION; DEPENDENCE ON PROPRIETARY TECHNOLOGY

The Company's success will depend in part on the ability of the Company and
its licensors to obtain patent protection with respect to its methods of gene
therapy, therapeutic genes and gene-delivery vectors; defend patents once
obtained; maintain trade secrets and operate without infringing upon the patents
and proprietary rights of others; and if needed, obtain appropriate licenses to
patents or proprietary rights held by third parties with respect to its
technology, both in the United States and in foreign countries.

The Company intends to file applications as appropriate for patents covering
its methods of gene therapy, therapeutic genes and gene-delivery vectors. To
date, the Company is an exclusive licensee of rights covered by one issued
patent and has filed or participated as licensee in the filing of over 10
currently pending patent applications in the United States relating to the
Company's technology, as well as foreign counterparts of certain of these
applications in many countries. Since patent applications in the United States
are maintained in secrecy until patents issue and patent applications in certain
other countries generally are not published up to 18 months after they are first
filed, and since publication of discoveries in scientific or patent literature
often lags behind actual discoveries, the Company cannot be certain that it or
any licensor was the first creator of inventions covered by pending patent
applications or that it or such licensor was the first to file patent
applications for such inventions. There can be no assurance that patents will
issue from any of these applications or, with respect to any patents issued to
the Company or to licensors of the Company's technology, that such patents will
not be challenged, held unenforceable, invalidated or circumvented, or that the
rights granted thereunder will provide significant proprietary protection or
commercial advantage to Collateral. See "Business--Collaborative and Licensing
Arrangements" and "Business--Patents and Proprietary Rights."

A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's technologies or patent applications. Such conflict could limit the
scope of the patents, if any, that the Company may be able to obtain or result
in denial of the Company's or its licensor's patent applications. In addition,
if patents that cover the Company's activities are issued to other companies,
there can be no assurance that the Company would be able to develop or obtain
alternative technology.

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In addition, some of the Company's products rely on patented inventions
developed using U.S. government resources. The U.S. government would retain
certain rights, as defined by law, in such patents, and may choose to exercise
such rights.

The patent positions of pharmaceutical and biopharmaceutical firms,
including Collateral, are often uncertain and involve complex legal and
technical questions. Further, the coverage sought in a patent application can be
significantly reduced before or after a patent is issued. In addition, the
extent to which changes in law will affect the operations of Collateral cannot
be ascertained.

The commercial success of the Company will also depend in part on the
Company's not infringing patents issued to competitors and not breaching
technology licenses that cover technology used in the Company's products. As the
biotechnology industry expands and more patents are issued, the risk increases
that the Company's processes and potential products may give rise to claims that
they infringe on the patents of others. It is uncertain whether any third party
patents will require Collateral to develop alternative technologies or to alter
its products, technologies or processes, obtain licenses or cease certain
activities. If any such licenses are required, there can be no assurance that
the Company will be able to obtain such licenses on commercially favorable
terms, if at all. Certain license agreements require the Company to satisfy
various milestone and due diligence requirements and pay certain fees and
expenses in order to maintain such licenses. Costs associated with any licensing
arrangement may be substantial and could include ongoing royalties. There can be
no assurance that the Company will be able to satisfy such milestone and due
diligence requirements or to pay such fees and expenses. Failure by the Company
to obtain a license to any technology that it may require to commercialize its
products could have a material adverse effect on the Company. Litigation, which
could result in substantial cost to the Company, may also be necessary to
enforce any patents issued or licensed to the Company or to determine the scope
and validity of third-party proprietary rights. Such litigation could also
result in significant diversion of effort by the Company's technical management
personnel. An adverse outcome of any such litigation could have a material
adverse effect on the Company's financial condition and business. Should any of
its competitors have filed patent applications in the United States which claim
technology also invented by the Company, the Company may be required to
participate in interference proceedings declared by the PTO in order to
determine priority of invention and, thus, the right to a patent for the
technology, all of which could result in substantial cost to the Company to
determine its rights.

The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. It is the Company's policy to require its employees,
certain contractors, consultants, members of the Scientific Advisory Board and
parties to collaborative agreements to execute confidentiality agreements upon
the commencement of a business relationship with the Company. There can be no
assurance that these agreements will not be breached, that they will provide
meaningful protection of the Company's trade secrets or know-how or adequate
remedies in the event of unauthorized use or disclosure of such information or
that the Company's trade secrets or know-how will not otherwise become known or
be independently discovered by its competitors. See "Business--Patents and
Proprietary Rights."

UNCERTAINTY OF MARKET ACCEPTANCE

The Company's success is dependent on acceptance of those gene therapy
products that it successfully develops for the market. The Company believes that
recommendations by physicians and healthcare payors will be essential for market
acceptance of such gene therapy products. In the past, concerns have arisen
regarding the potential safety and efficacy of gene therapy products derived
from pathogenic viruses such as adenoviruses. Since the Company's proposed gene
therapy products utilize adenovirus vectors, there can be no assurance that
physicians and healthcare payors (who can indirectly affect the attractiveness
of the Company's proposed products by regulating the maximum amount of
reimbursement they will provide for such proposed products; see "--Dependence on
Third Party Reimbursement and Healthcare Reform") will conclude that the
technology is safe. Unanticipated side effects or unfavorable publicity

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concerning any of the Company's products generally or those of its competitors
could have an adverse effect on whether the Company's products achieve or
maintain acceptance by prescribing physicians, other healthcare providers or
patients. There can be no assurance that the Company's products will achieve or
maintain significant market acceptance among patients, physicians or third party
payors, even if necessary regulatory and reimbursement approvals are obtained.
Failure to achieve or maintain significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.

RELIANCE ON COLLABORATIVE RELATIONSHIPS

The Company's strategy for the development, clinical testing, manufacturing
and commercialization of certain of its potential products relies on the Company
entering into collaborations with corporate partners, licensors, licensees and
others. To date, the Company has entered into one such relationship, a research
and development collaboration with Schering AG in the field of angiogenic gene
therapy. The Company's collaborative agreement with Schering AG allows Schering
AG significant discretion in electing to pursue or not to pursue any development
programs and gives Schering AG the right to terminate the agreement at any time
upon a material breach by the Company or at any time on 60 days written notice.
There can be no assurance that the Schering AG collaboration will continue or
that the collaboration will be successful. In addition, if products are approved
for marketing under these programs, any revenues to the Company from these
products will be dependent on the marketing and sales efforts of its
collaborators, who may retain commercialization rights under such agreements.
There can be no assurance that the Company will be able to maintain or expand
its existing collaboration or establish additional collaborations or licensing
arrangements necessary to develop and commercialize non-surgical gene therapy
products based on the Company's technology, that any such collaborations or
licensing arrangements will be on terms favorable to the Company or that the
current or any future collaborations or licensing arrangements ultimately will
be successful. Under the Company's current strategy, and for the foreseeable
future, the Company does not expect to develop or market products on its own. As
a result, the Company will be dependent on collaborators for the funding of
certain preclinical studies and clinical development of products and for
regulatory approval, manufacturing and marketing of its products resulting from
the application of the Company's technology. In addition, the Company's
collaborative agreements may provide potential manufacturers with significant
discretion in electing whether or not to pursue development activities. The
Company cannot control the amount and timing of resources that collaborators
will devote to the Company's programs or potential products.

The Company intends to rely on its collaboration with Schering AG for
significant continued funding in support of its research efforts. If such
funding were reduced or terminated, the Company would be required to devote
additional internal resources, if and to the extent available, to product
development, scale back or terminate certain research development programs, seek
alternative collaborations or financing sources or sell or license rights to
some of its proprietary technology, including its genes.

In addition, there can be no assurance that Schering AG or any other
collaborator will not pursue alternative technologies, either on their own or in
collaboration with others, as a means for developing products that could compete
with the types of gene therapy products currently being developed in
collaboration with the Company, which may result in the withdrawal of support
for the Company's programs. If the Company's collaborative partners were to
breach or terminate their agreements with the

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Company or otherwise fail to conduct their collaborative activities
successfully, the development of the Company's products would be delayed or
terminated. The delay or termination of any of the collaborations could have a
material adverse effect on the Company.

There can be no assurance that disputes will not arise in the future with
respect to the ownership of rights to any technology developed with its
collaborators. These and other possible disagreements between collaborators and
the Company could lead to delays in the achievement of milestones or receipt of
payments therefor, adversely affect collaborative research, development and
commercialization of certain potential products or require or result in
litigation or arbitration, which could be time consuming and expensive and could
have a material adverse effect on the Company.

See "Business--Collaborative and Licensing Arrangements."

LACK OF MANUFACTURING CAPABILITY

The Company does not have internal manufacturing capabilities. The Company's
current strategy is to rely on collaborative partners to manufacture its
products. Currently, Schering AG is solely responsible for all activities
related to manufacturing of any gene therapy products developed under its
collaboration with the Company. See "Business--Collaborative and Licensing
Arrangements." In the alternative, the Company will seek to establish
relationships with third parties to manufacture the Company's products for
clinical trials and commercial sales. There can be no assurance that the Company
would be able to establish such relationships on commercially acceptable terms,
if at all. Further, there can be no assurance that the Company's collaborators
or any third party manufacturers will be able to manufacture products in
commercial quantities under good manufacturing practices mandated by the FDA or
under any such practices mandated by any foreign authority on a cost-effective
basis. Further, there can be no assurance that manufacturing or quality control
problems will not arise in connection with the manufacture of the Company's
products or that third party manufacturers will be able to maintain the
necessary governmental licenses and approvals to continue manufacturing the
Company's products. See "Business--Government Regulation." The Company's
dependence on its collaborators or any other third parties for the manufacture
of its products may adversely affect the Company's profit margins and its
ability to develop and commercialize products on a timely and competitive basis.
See "Business--Manufacturing."

LACK OF SALES AND MARKETING CAPABILITY

The Company does not have internal marketing and sales capabilities. The
Company's current strategy is for its collaborative partners to market and sell
any products which it successfully develops for the market. Currently, Schering
AG will be solely responsible for all activities related to marketing and sales
of any gene therapy products developed under its collaboration with the Company.
See "Business-- Collaborative and Licensing Arrangements." Should the Company
have to market and sell its products directly, the Company would need to develop
a marketing and sales force with technical expertise and distribution
capability. The creation of infrastructure to commercialize pharmaceutical
products is an expensive and time-consuming process. Alternatively, the Company
could contract with other pharmaceutical and/or healthcare companies with
distribution systems and direct sales forces. There can be no assurance that the
Company will be able to establish marketing and sales capabilities or be
successful in gaining market acceptance for its products. To the extent that the
Company enters into co-promotion or other licensing arrangements, any revenues
received by the Company will be dependent on the efforts of third parties, and
there can be no assurance that any such efforts will be successful. See
"Business--Sales and Marketing."

COMPETITION

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there are a number of medical device companies which are developing innovative
surgical procedures including (i) laser-based systems to perform transmyocardial
revascularization to stimulate coronary angiogenesis and (ii) surgical devices
and systems to perform minimally invasive cardiothoracic surgery to simplify
traditional mechanical revascularization techniques such as Coronary Bypass
Surgery and less invasive procedures such as catheter-based treatments,
including balloon angioplasty, atherectomy and coronary stenting. In addition,
the Company's potential products will be required to compete with existing
pharmaceutical products, or products developed in the future, that are based on
new or established technologies.

Many of the Company's competitors have substantially more financial and
other resources, larger research and development staffs and more experience and
capability in researching, developing and testing products in clinical trials,
in obtaining FDA and other regulatory approvals and in manufacturing, marketing
and distribution than the Company. In addition, the competitive positions of
other early-stage companies may be enhanced significantly through their
collaborative arrangements with large pharmaceutical companies, biotechnology
companies or academic institutions. The Company's competitors may succeed in
developing, obtaining patent protection for, receiving FDA and other regulatory
approvals for or commercializing products more rapidly than the Company. If the
Company is successful in commercializing its products, it may be required to
compete with respect to manufacturing efficiency and marketing capabilities,
areas in which it has no experience.

The Company also competes with others in acquiring products or technology
from research institutions or universities. The Company's competitors may
develop or acquire new technologies and products that are available for sale
prior to the Company's potential products or that are more effective than the
Company's potential products. In addition, competitive products may be
manufactured and marketed more successfully than the Company's potential
products. Such developments could render the Company's potential products less
competitive or obsolete, and could have a material adverse effect on the
Company. See "Business--Competition."

DEPENDENCE ON THIRD PARTY REIMBURSEMENT AND HEALTHCARE REFORM

Collateral's commercial success will be heavily dependent upon the
reimbursability of the use of any products developed by the Company. There can
be no assurance that Medicare and third-party payors will authorize or otherwise
budget reimbursement for the prescription of the Company's products by
physicians. Additionally, third-party payors, including Medicare, are
increasingly challenging the prices charged for medical products and services
and may require substantial cost-benefit analysis data from the Company in order
to demonstrate the cost-effectiveness of its products. There can be no assurance
that the Company will be able to provide such data in order to gain market
acceptance of its products with respect to pricing and reimbursement.

The future revenues and profitability of, and availability of capital for,
biotechnology companies may be materially and adversely affected by the
continuing efforts of governmental and third-party payors to contain or reduce
the costs of healthcare through various means. In certain foreign markets,
pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States, the Company expects that there will
continue to be a number of federal and state proposals to implement government
control of pricing and profitability of prescription pharmaceuticals. In
addition, increasing emphasis on managed healthcare may continue to put pressure
on such pricing. Cost control initiatives could decrease the price that the
Company or any of its collaborative partners or other licensees receives for any
products it may discover or develop in the future and, by preventing the
recovery of development costs, which could be substantial, and minimizing profit
margins, have a material adverse effect on the Company. Further, to the extent
that cost control initiatives have a material adverse effect on the Company's
collaborative partners, in light of the Company's strategy to rely on
collaboration for services, the Company's ability to commercialize its products
and to realize royalties may be adversely affected. Furthermore, federal and
state regulations govern or influence the reimbursement to healthcare providers
of fees and capital equipment costs in connection with medical treatment of
certain patients. There can be

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no assurance that action taken by federal and/or state governments, if any, with
regard to healthcare reform will not have a material adverse effect on the
Company. If any actions are taken by federal and/or state governments, such
actions could adversely affect the prospects for sales of the Company's
products. See "Business--Government Regulation."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

Based on the Company's business strategy, the development of products will
require the commitment of substantial additional resources by the Company to
conduct research, preclinical and clinical trials and to augment quality
control, regulatory and administrative capabilities. The future capital
requirements of the Company will depend on many factors, including the pace of
scientific progress in its research and development programs, the magnitude of
these programs, the scope and results of preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments, the ability to
establish additional collaborations, changes in existing collaborations, the
Company's dependence on third parties for activities related to the development
and commercialization of its potential products, the cost of third-party
manufacturing arrangements and the effectiveness of the Company's
commercialization activities. The Company believes that its available cash and
existing sources of funding, including Schering AG, together with the net
proceeds of this Offering, will be adequate to satisfy its anticipated capital
requirements at least through the next 24 months. The Company expects that it
will seek any additional capital needed to fund its operations through new
collaborations, the extension of existing collaborations or through public or
private equity or debt financings. There can be no assurance that additional
financing will be available on acceptable terms or at all. Any inability to
obtain additional financing could have a material adverse effect on the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

BROAD DISCRETION AS TO USE OF PROCEEDS

The Company intends to use the net proceeds of this Offering as follows: (i)
approximately $4.0 million for capital expenditures, including construction of
the Company's new preclinical laboratory facility, and (ii) the remaining amount
for research and development, acquisition of technology (including $2.1 million
payable under existing technology license agreements during the next 24 months)
and working capital and general corporate purposes. As of the date of this
Prospectus, the Company cannot specify with certainty the particular uses for
the net proceeds to be added to its working capital. Management will have broad
discretion to allocate the proceeds of the Offering, including the possible
acquisition of businesses complementary to the Company's business. There are,
however, no present arrangements or agreements for any such acquisitions. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

PRODUCT LIABILITY

The testing, manufacture and sale of human healthcare products entail the
inherent risk of liability claims or product recalls and associated adverse
publicity. The Company has arranged for clinical trial product liability
insurance for its Phase I/II human clinical trial for GENERX and intends to
obtain insurance for future clinical trials of other potential products under
development and for potential product liability associated with the manufacture
and commercial sale of the Company's potential products. Such insurance is
expensive, and there can be no assurance that it will continue to be available
in sufficient amounts and on acceptable terms, if at all. An inability to obtain
product liability insurance at acceptable costs or to otherwise protect against
product liability claims could prevent or inhibit the commercialization of
products developed by the Company. The Company's business could be materially
and adversely affected if it were required to pay material damages, or to incur
significant defense costs, in connection with a lawsuit or other action for
which it does not have adequate insurance coverage. In addition, a product
liability claim or recall could have a material adverse effect on the business
and financial condition

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of the Company. If the Company receives the required regulatory approvals for
any of its products under development, there can be no assurance that additional
liability insurance coverage for commercialized products will be available in
the future on acceptable terms, or at all.

DEPENDENCE ON KEY PERSONNEL AND ADVISORS

Collateral is highly dependent on the principal members of its scientific
and management staff, the loss of whose services might impede the achievement of
development objectives. The Company does not have employment agreements with any
member of its scientific or management staff, although certain key members of
the Company's scientific staff have entered into Scientific Advisory Consulting
Agreements with the Company. Such agreements, however, may be terminated at any
time by either party. See "Management--Director Compensation." Recruiting and
retaining additional qualified management, operations and scientific personnel
to perform research and development work in the future will also be critical to
Collateral's success. In order to pursue its research and development programs,
the Company will need to hire additional qualified scientific and management
persons in 1998 and 1999. Although the Company believes it will be successful in
attracting and retaining skilled and experienced management, operational and
scientific personnel, there can be no assurance that it will be able to attract
and retain such personnel on acceptable terms given the competition among
numerous pharmaceutical and biotechnology companies, universities and other
research institutions for such personnel. In addition, the Company relies on the
members of its Scientific Advisory Board to assist the Company in formulating
its research and development strategy. All of the scientific advisors are
employed by employers other than the Company and may have commitments to, or
consulting contracts with, other entities that may limit their availability to
the Company. Although generally each scientific advisor has agreed not to
perform services for another entity that would create a conflict of interest
with the scientific advisor's services for the Company, there can be no
assurance that such a conflict will not arise. See "Business--Human Resources"
and "Management."

HAZARDOUS MATERIALS

Collateral's research and development involves the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Although the Company believes that its current safety procedures for handling
and disposing of such materials comply with the standards prescribed by local,
state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of any
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. The Company may also
incur substantial costs to comply with current or future environmental
regulations.

CONCENTRATION OF STOCK OWNERSHIP; CONTROL BY MANAGEMENT AND EXISTING
STOCKHOLDERS

Upon completion of the Offering, the present directors, executive officers
and principal stockholders of the Company and their affiliates will beneficially
own approximately 67.9% of the outstanding Common Stock (approximately 65.2%, in
the aggregate, if the Underwriters' over-allotment option is exercised in full).
As a result, if all or certain of such stockholders were to act together, they
would be able to exercise significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. Such concentration of ownership may also
have the effect of delaying or preventing a change in control of the Company
that may be favored by other stockholders. See "Management" and "Principal
Stockholders."

NO PRIOR MARKET FOR COMMON STOCK

Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained after the Offering or that investors will be able to resell the Common
Stock at prices equal to or greater than the initial offering price, or at all.

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The initial public offering price was determined by negotiations between the
Company and the representatives of the Underwriters and may not be indicative of
the prices that may prevail in the public market following completion of the
Offering. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.

VOLATILITY OF STOCK PRICE

The market prices and trading volumes for securities of emerging companies,
like Collateral, have historically been highly volatile and have experienced
significant fluctuations unrelated to the operating performance of such
companies. Future announcements concerning the Company or its competitors may
have a significant impact on the market price of the Common Stock. Such
announcements might include the results of research, development testing,
technological innovations, new commercial products, government regulation,
developments concerning proprietary rights, litigation or public concern as to
the safety of the products.

ABSENCE OF DIVIDENDS

No cash dividends have been paid on the Common Stock to date, and Collateral
does not anticipate paying cash dividends in the foreseeable future. See
"Dividend Policy."

EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS

The Company is currently a California corporation. Subject to shareholder
approval, the Company intends to reincorporate in Delaware prior to circulation
of preliminary prospectuses. The following description applies to the
Certificate of Incorporation and Restated Bylaws to be in effect upon such
reincorporation.

Collateral's Second Restated Certificate of Incorporation (the "Certificate
of Incorporation") requires that any action required or permitted to be taken by
stockholders of the Company must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing. The
Restated Bylaws will not permit stockholders of the Company to call a special
meeting of stockholders. Under the Restated Bylaws, special meetings may only be
called by the Company's Chief Executive Officer, President, or Chairman of the
Board, and shall be called by the President or Secretary at the written request
of a majority of the Board. The Restated Bylaws will also require that
stockholders give advance notice to the Company's secretary of any nominations
for director or other business to be brought by stockholders at any
stockholders' meeting and will require a supermajority vote of members of the
Board and/or stockholders to amend certain Restated Bylaw provisions. These
provisions and other charter and bylaw provisions may have the effect of
discouraging, delaying or preventing certain types of transactions involving an
actual or potential change in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
the then current market prices, and may limit the ability of the stockholders to
consider transactions that they may deem to be in their best interests. Such
provisions may also have the effect of preventing changes in the management of
the Company. In addition, the Board of Directors has the authority to fix the
rights and preferences of and issue shares of preferred stock without action by
the stockholders, which, if issued, may have the effect of delaying or
preventing a change in control of the Company. See "Description of Capital
Stock--Preferred Stock" and "Description of Capital Stock--Antitakeover Effects
of Provisions of Second Restated Certificate of Incorporation, Restated Bylaws
and Delaware Law."

POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of the Common Stock in the public
market following the Offering could adversely affect the market price of the
Common Stock. Upon completion of the Offering, there will be approximately
11,622,573 million shares of Common Stock outstanding. Of those shares,
approximately 3,352,800 million, including the 3,330,000 million shares offered
hereby, but excluding shares subject to contractual restrictions discussed below
or held by affiliates of the Company, will be

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<PAGE>
immediately eligible for resale in the public market without restriction. In
addition, approximately 2,320,926 shares are subject to registration rights that
will be exercisable six months after the effective date of this Offering. The
holders of approximately 8,144,806 shares of Common Stock which will be
outstanding after the Offering (and holders of approximately 144,400 shares of
Common Stock issuable upon exercise of outstanding options), including shares
held by all executive officers and directors and certain other stockholders and
option holders of the Company, have agreed not to offer for sale, contract to
sell, sell, pledge, hypothecate, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock, without the prior written consent of
Bear, Stearns & Co. Inc., on behalf of the Underwriters (as hereinafter
defined), for a period of 180 days after the effective date of the registration
statement of which this Prospectus is a part. See "Underwriting."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of the Common Stock in the Offering will suffer immediate and
substantial dilution of $8.36 per share in the net tangible book value of the
Common Stock from the initial public offering price. To the extent that
outstanding options to purchase the Common Stock are exercised, there will be
further dilution. See "Dilution."

YEAR 2000 COMPLIANCE

The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 hardware and software issues. The Company
intends to confirm its compliance regarding Year 2000 issues for both internal
and external information systems by the end of 1998. This process will entail
communicating with significant suppliers, financial institutions, insurance
companies and other parties that provide significant services to the Company.
Expenditures required to make the Company Year 2000 compliant will be expensed
as incurred and are not expected to be material to the Company's consolidated
financial position or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Year 2000 Compliance."

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Collateral is a development stage company with products in the early stages
of development. As a result, a substantial number of statements contained in
this Prospectus, including without limitation, statements containing the words
"believes," "anticipates," "expects" and words of similar import, may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Collateral, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those discussed under the captions "Risk Factors," "Business,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Prospectus Summary," as well as elsewhere in this Prospectus.
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.

17
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,330,000 shares of
Common Stock offered hereby are estimated to be approximately $36.4 million
($41.9 million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $12.00 per share (the mid-point of
the range set forth on the front cover of this Prospectus) and after deducting
the estimated underwriting discounts and commissions and other estimated
Offering expenses.

The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the number and timing of additional
collaborative agreements, the progress of the Company's research and development
activities and continuing assessment of the commercial potential of the
Company's products and those of the Company's competitors. The Company believes
that its available cash and existing sources of funding, including Schering AG,
together with the net proceeds of this Offering, will be adequate to satisfy its
anticipated capital requirements at least through the next 24 months. Pending
application of the net proceeds as described above, the Company intends to
invest the net proceeds of this Offering in investment grade securities.

DIVIDEND POLICY

The Company has never declared or paid dividends on its capital stock. The
Company does not anticipate paying dividends in the foreseeable future. Payments
of future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, operating results, current and anticipated cash needs and
plans for expansion. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

18
<PAGE>
CAPITALIZATION

The following table sets forth as of March 31, 1998 (i) the actual
capitalization of the Company, after giving effect to the Company's
reincorporation in Delaware and the 1.9-for-1 split of the Common Stock, (ii)
the pro forma capitalization of the Company, after giving effect to the
conversion of all outstanding shares of Preferred Stock into Common Stock at the
closing of this Offering and (iii) such pro forma capitalization as adjusted to
give effect to the sale by the Company of the 3,330,000 shares of Common Stock
offered hereby, at an assumed public offering price of $12.00 per share (the
mid-point of the range set forth on the front cover of this Prospectus), less
estimated underwriting discounts and commissions and other estimated Offering
expenses. This table should be read in conjunction with the Company's financial
statements, including the notes thereto, included elsewhere herein.

<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
--------- ----------- ---------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Notes payable to related party................................................... $ 500 $ 500 $ 500
Shareholders' equity:
Preferred Stock, par value $.001; 5,000,000 shares authorized, no shares issued
and outstanding pro forma and as adjusted.................................... -- -- --
Series A Convertible Preferred Stock, par value $.001; 374,532 shares, issued
and outstanding actual; no shares authorized, issued and outstanding pro
forma and as adjusted........................................................ -- -- --
Series B Convertible Preferred Stock, par value $.001; 374,532 shares, issued
and outstanding actual; no shares authorized, issued and outstanding pro
forma and as adjusted........................................................ -- -- --
Series C Convertible Preferred Stock, par value $.001; 472,476 shares, issued
and outstanding actual; no shares authorized, issued and outstanding pro
forma and as adjusted........................................................ -- -- --
Common Stock, par value $.001; 19,000,000 shares authorized actual; 5,971,647
shares issued and outstanding actual; 40,000,000 shares authorized pro forma
and as adjusted; 8,292,573 and 11,622,573 shares issued and outstanding pro
forma and as adjusted, respectively(1)....................................... 6 8 12
Additional paid-in capital..................................................... 9,720 9,718 46,077
Deferred compensation.......................................................... (632) (632) (632)
Note receivable secured by common stock........................................ (150) (150) (150)
Accumulated deficit............................................................ (3,023) (3,023) (3,023)
--------- ----------- ---------
Total shareholders' equity................................................... 5,921 5,921 42,284
--------- ----------- ---------
Total capitalization..................................................... $ 6,421 $ 6,421 $ 42,784
--------- ----------- ---------
--------- ----------- ---------
</TABLE>

- ------------------------
(1) Excludes (i) 917,700 shares of Common Stock issuable upon exercise of
outstanding options with a weighted average exercise price of $1.38 per
share, including 209,000 options granted in April 1998 and 123,500 options
granted outside of the Company's 1998 Stock Incentive Plan (the "1998
Plan"), (ii) 1,502,635 shares of Common Stock reserved for issuance of
options which may be granted under the 1998 Plan and (iii) 50,000 shares of
Common Stock reserved for issuance under the Purchase Plan. See Note 5 of
Notes to Financial Statements.

19
<PAGE>
DILUTION

The net tangible book value of the Company at March 31, 1998 was $5,920,663
or $0.71 per share. Net tangible book value per share represents the amount of
total tangible assets of the Company less total liabilities divided by the
number of shares of Common Stock outstanding, after giving effect to the
conversion of the outstanding shares of Preferred Stock into 2,320,926 shares of
Common Stock upon the completion of this Offering. After giving effect to the
sale by the Company of the 3,330,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $12.00 per share (the mid-point of the
range set forth on the front cover of this Prospectus), less estimated
underwriting discounts and commissions and other expenses of this Offering, the
Company's pro forma net tangible book value as of March 31, 1998 would have been
approximately $42,283,000, or approximately $3.64 per share. This represents an
immediate increase in pro forma net tangible book value per share of $2.93 to
existing holders and immediate dilution in pro forma net tangible book value of
$8.36 per share to new investors purchasing Common Stock in the Offering. The
following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 12.00
Net tangible book value per share of Common Stock as of March 31, 1998..... $ 0.71
Increase per share attributable to new investors........................... 2.93
---------
Pro forma net tangible book value per share of Common Stock after this
Offering................................................................... 3.64
---------
Dilution per share to new investors(1)....................................... $ 8.36
---------
---------
</TABLE>

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

(1) If the Underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $8.05.

The following table summarizes, as of March 31, 1998, the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and by new investors
purchasing shares in this Offering (after giving effect to the conversion of the
outstanding shares of Preferred Stock into shares of Common Stock and before
deduction of underwriting discounts and commissions and estimated expenses of
the Offering):

<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 8,292,573 71.3% $ 8,827,112 18.1% $ 1.06
New investors...................................... 3,330,000 28.7% 39,960,000 81.9% $ 12.00
------------ --- ------------- ---
Total.............................................. 11,622,573 100% $ 48,787,112 100%
------------ --- ------------- ---
------------ --- ------------- ---
</TABLE>

Excludes as of March 31, 1998: (i) 917,700 shares of Common Stock issuable
upon exercise of outstanding options with a weighted average exercise price of
$1.38 per share, including 209,000 options granted in April 1998 and 123,500
options granted outside of the Company's 1998 Stock Incentive Plan (the "1998
Plan"), (ii) 1,502,635 shares of Common Stock reserved for issuance of options
which may be granted under the 1998 Plan, and (iii) 50,000 shares of Common
Stock available for issuance under the Purchase Plan. See "Management." To the
extent these options become vested and are exercised, there will be further
dilution to new investors.

20
<PAGE>
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected financial data set forth below with respect to the Company's
statement of operations data for the period April 3, 1995 (inception) through
December 31, 1995 and for the years ended December 31, 1996 and 1997, and with
respect to the balance sheet data at December 31, 1996 and 1997, are derived
from the audited financial statements that have been examined by Ernst & Young
LLP, independent auditors, which are included elsewhere in this Prospectus and
are qualified by reference to such financial statements. The unaudited statement
of operations data for the three months ended March 31, 1997 and 1998 and the
unaudited balance sheet data at March 31, 1998 have been derived from unaudited
financial statements also appearing herein which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the financial position and results of
operations for the unaudited interim periods. The operating results for the
three months ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the full fiscal year ending December 31, 1998 or for
any subsequent period. The balance sheet data at December 31, 1995 is derived
from financial statements of the Company that have been audited by Ernst & Young
LLP, which are not included in this Prospectus. The data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's financial statements and
related notes included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM YEAR ENDED DECEMBER
APRIL 3, 1995 31, MARCH 31,
(INCEPTION) THROUGH -------------------- --------------------
DECEMBER 31, 1995 1996 1997 1997 1998
------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Collaborative revenues from related party............... $ -- $ 1,680 $ 5,647 $ 815 $ 989
Costs and expenses:
Research and development.............................. 398 1,143 5,059 1,096 1,335
General and administrative............................ 271 951 1,732 355 711
------ --------- --------- --------- ---------
Total operating expenses............................ 669 2,094 6,791 1,451 2,046
------ --------- --------- --------- ---------
Loss from operations.................................... (669) (414) (1,144) (636) (1,057)
Interest (expense) income, net.......................... (10) 24 167 14 81
------ --------- --------- --------- ---------
Net loss................................................ $ (679) $ (390) $ (977) $ (622) $ (976)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Pro forma net loss per share (Basic and Diluted) (1).... $ (0.16) $ (0.13)
Weighted average shares used in computing pro forma net
loss per share (1).................................... 6,301,472 7,634,162
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1995 1996 1997 1998
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 107 $ 2,430 $ 5,605 $ 5,676
Working capital (deficit)................................................ (186) 1,867 6,938 5,788
Milestone receivable from related party.................................. -- -- 2,000 --
Total assets............................................................. 122 2,616 8,070 7,358
Notes payable to related party........................................... 500 500 500 500
Accumulated deficit...................................................... (679) (1,069) (2,047) (3,023)
Total shareholders' equity (deficit)..................................... (677) 1,459 6,732 5,921
</TABLE>

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

(1) See Note 1 of Notes to Financial Statements for an explanation of weighted
average shares used in computing pro forma net loss per share.

21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIS PROSPECTUS MAY CONTAIN CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS
AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH
STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS
FACTORS IDENTIFIED IN THIS PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER THE
CAPTION "RISK FACTORS," WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.

OVERVIEW

The Company has a strategic collaboration with Schering AG for angiogenic
gene therapy products. Under this collaboration, Schering AG has made equity
investments and provided loans to the Company. In addition, the collaboration
provides for Schering AG, subject to certain conditions, to pay research support
through April 2001, to make additional payments upon satisfying certain
research, development and commercialization milestones and, when and if
angiogenic gene therapy products developed under the collaboration are
commercialized, to make royalty payments to the Company based on worldwide net
sales of such products. This collaboration was structured to provide the Company
with financial resources and product development support to enable the Company
to determine the safety and efficacy of at least three angiogenic gene therapy
products (GENERX, GENEVX and GENVASCOR). However, the timing and amounts of such
payments cannot be predicted with certainty and may not occur if product
development events are not achieved. See "Business--Collaborative and Licensing
Arrangements."

The Company's revenue to date is primarily attributable to its collaboration
with Schering AG entered into in May 1996. Under this collaboration, the Company
has received aggregate research funding of $8.6 million through March 31, 1998,
including $2.0 million for the achievement of a milestone. From 1995 through
1997, collaboration revenue and related operating expenses have trended upward
due to accelerated research and development efforts. Since inception, the
Company has conducted research that is not funded by its collaboration with
Schering AG; accordingly, the Company's operating expenses have exceeded
revenues each year since inception. Losses have resulted principally from costs
incurred in research and development activities related to the Company's efforts
to develop its technologies and from administrative costs required to support
such efforts to the extent such costs were not covered by the Schering AG
collaboration. The Company's losses have been primarily funded by the Company
raising $9.3 million through private sales of equity securities and receipt of
loans, including $5.7 million in equity investments and $500,000 in loans from
Schering AG and $3.1 million in equity provided by other private investors. The
Company's ability to achieve profitability is dependent on its ability to
successfully develop its products and thereafter successfully market such
products through current or future collaborative partners. There can be no
assurance that the Company will be able to achieve profitability at all, or on a
sustained basis.

22
<PAGE>
RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1998 AND 1997

The Company's collaborative revenue was $989,000 and $815,000 for the three
months ended March 31, 1998 and 1997, respectively. Revenue for the three-month
periods in 1998 and 1997 was derived from the Company's research and development
agreement with Schering AG, and increased in the three months ended March 31,
1998 due to increased costs reimbursable to the Company under such agreement
associated with accelerated research and development activities. Research and
development expenses for the three months ended March 31, 1998 increased to $1.3
million compared to $1.1 million for the three months ended March 31, 1997; the
increase resulted from increased expenses associated with additional personnel
and increased use of outside research institutions and consultants, partially
offset by reduced license fees incurred by the Company. General and
administrative costs increased to $711,000 for the three months ended March 31,
1998 compared to $355,000 for the three months ended March 31, 1997; the
increase resulted from increased market research and educational materials, and
increased expenses for personnel to support expanded research efforts.

YEARS ENDED DECEMBER 31, 1997 AND 1996

The Company's collaborative revenue was $5.6 million for 1997 compared to
$1.7 million for 1996. Revenue in 1997 and 1996 was derived from the Company's
research and development agreement with Schering AG, which was entered into in
May 1996. Such revenue increased in 1997 compared to 1996 due to (i) $2.0
million earned by the Company upon the achievement of a milestone, (ii)
increased costs reimbursable to the Company resulting from substantially
accelerating research and development activities and (iii) the applicability of
the Schering AG agreement for a full 12 months. For 1997, research and
development expenses increased to $5.1 million from $1.1 million in 1996. The
increase was due to greater amounts due under license agreements, increased use
of outside research institutions and consultants, and additions of research and
development personnel. General and administrative expenses increased to $1.7
million in 1997 from $1.0 million in 1996. The increase was primarily
attributable to additions to personnel and related expenses to support expanded
research and development programs. Interest income increased to $167,000 in 1997
from $24,000 in 1996 due to higher average cash balances.

YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM APRIL 3, 1995 (INCEPTION) TO
DECEMBER 31, 1995

The Company's collaborative revenue was $1.7 million for 1996 compared to no
revenue for 1995. Revenue in 1996 was derived from the Company's research and
development agreement with Schering AG, which was entered into in May 1996.
Research and development expenses increased to $1.1 million in 1996 from
$398,000 for the period from April 3, 1995 to December 31, 1995. The increase
was primarily due to additions of research and development personnel, expansion
of the Company's research and development programs, and 1996 includes a full
year of operations compared to nine months in 1995. General and administrative
expenses increased to $1.0 million in 1996 from $271,000 in 1995. The increase
was primarily attributable to personnel additions and related expenses to
support expansion of the Company's research and development programs and 1996
included a full year of operations compared to nine months in 1995.

LIQUIDITY AND CAPITAL RESOURCES

To date, the Company has financed its operations primarily through private
offerings of its equity securities, from collaborative research revenues and
loans from Schering AG and from investment income. From inception through March
31, 1998, the Company raised an aggregate of $9.3 million through private sales
of equity securities and receipt of loans, including $5.7 million in equity and
$500,000 in loans provided by Schering AG and $3.1 million in equity provided by
other private investors. The $500,000 in loans from Schering AG consist of two
promissory notes issued in 1995 to fund operations. The notes bear

23
<PAGE>
interest at 1% below the prime rate; at March 31, 1998, the notes bore interest
at 7.5%. Such notes are secured by the assets of the Company. Principal and
interest on the notes are due and payable upon demand on or after June 30, 1999.
Such principal and interest will be offset against the next milestone payment
due to the Company under the Schering AG agreement, if and when such milestone
is met.

At March 31, 1998, cash and cash equivalents increased to $5.7 million from
$5.6 million at December 31, 1997, in large part as a result of the collection
from Schering AG of $2.0 million earned by the Company in 1997 upon the
achievement of a milestone, partially offset by the loss for the period, an
increase in restricted cash, and capital expenditures and deposits for capital
equipment. The restricted cash includes a $600,000 standby letter of credit to
ensure the completion of tenant improvements at the Company's new preclinical
research center. The landlord is the beneficiary of such standby letter of
credit but the Company does not foresee the standby letter of credit being drawn
upon. The Company generally invests its excess cash in high credit quality debt
instruments of corporations and financial institutions and in U.S. government
securities. Working capital decreased to $5.8 million as of March 31, 1998, from
$6.9 million at the end of 1997 primarily due to the loss for the period and
capital expenditures for the construction of the Company's new preclinical
laboratory facility.

The Company has entered into certain strategic license agreements in
addition to the agreement with Schering AG related to the Company's technology
portfolio. To retain certain rights under these agreements, the Company
anticipates that it will be required to make payments of approximately $2.1
million over the next two years.

Through March 31, 1998, the Company had acquired an aggregate of $752,000 in
laboratory and office equipment and tenant improvements, substantially all of
which has been purchased with cash. The Company will make substantial increases
in purchases of property and equipment in 1998 compared to 1997 and prior years.
In the second quarter of 1998, the Company intends to occupy a new preclinical
research center. In the fourth quarter of 1998, following completion of
construction and leasehold improvements, the Company intends to occupy a larger
administrative facility to support expanded research and development efforts. In
connection with these new facilities, the Company expects to incur property and
equipment costs of approximately $4.0 million through the first quarter of 1999,
of which up to $400,000 is expected to be financed through a bank or other
entity. Rent expense for the Company's research and administrative facilities is
expected to increase substantially compared to 1997 and prior years. The new
preclinical research center is leased for a five-year term with two five-year
renewal options. Rent expense over the initial term is expected to average
$275,000 per year. The new administrative facility is leased for a six-year term
with one five-year renewal option. Rent expense is expected to average
approximately $450,000 per year over the initial term.

To date, substantially all revenue received by the Company has been from its
collaboration with Schering AG, and the Company expects that substantially all
revenue for the next several years will continue to come from the Schering AG
and other future collaborations. There can be no assurance that the Company will
be able to establish additional collaborations on acceptable terms, if at all,
or that current or future collaborations will be successful and provide adequate
funding to meet the Company's needs. Schering AG currently reimburses the
Company for its research and development expenses in the angiogenic gene therapy
field and for certain related administrative expenses. The Company expects to
incur substantial increases in operating expenses over at least the next 24
months as it accelerates its research and development activities in the field of
cardiovascular gene therapy. Increases in operating expenses will include, but
are not limited to, increased personnel costs, rent, supplies and other costs
which will result from operating its new facilities.

Based on the Company's business strategy, the development of products will
require the continued commitment of substantial resources by the Company to
conduct research, preclinical and clinical trials, and to augment quality
control, regulatory and administrative capabilities. The future capital
requirements of the Company will depend on many factors, including the pace of
scientific progress in its research and

24
<PAGE>
development programs, the magnitude of these programs, the scope and results of
preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining and enforcing patent claims, competing technological
and market developments, the Company's dependence on third parties for
activities related to the development and commercialization of its potential
products (including the ability to establish additional collaborations and
changes in its existing collaboration with Schering AG), the cost of third-party
manufacturing arrangements and the effectiveness of the Company's
commercialization activities. The Company believes that its available cash and
existing sources of funding, including Schering AG, together with the net
proceeds of this Offering, will be adequate to satisfy its anticipated capital
requirements at least through the next 24 months. The Company expects that it
will seek any additional capital needed to fund its operations through new
collaborations, the extension of its existing collaboration or through public or
private equity or debt financings. There can be no assurance that additional
financing will be available on acceptable terms or at all. Any inability to
obtain additional financing could have a material adverse effect on the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") and will adopt
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" ("SFAS 130") and No. 131 "Segment Information" ("SFAS 131") in 1998.
SFAS 128 establishes and simplifies the standard for computing earnings per
share ("EPS") from previous EPS guidance. SFAS 130 requires that all components
of comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. The Company does not
believe that comprehensive income or loss will be materially different than net
income or loss. SFAS 131 amends the requirements for public enterprises to
report financial and descriptive information about its reportable operating
segments. Operating segments, as defined in SFAS 131, are components of an
enterprise for which separate financial information is available and is
evaluated regularly by the Company in deciding how to allocate resources and in
assessing performance. The financial information is required to be reported on
the basis that is used internally for evaluating the segment performance. The
Company believes it operates in one business and operating segment and does not
believe adoption of SFAS 131 will have a material impact on the Company's
financial statements.

YEAR 2000 COMPLIANCE

25
<PAGE>
BUSINESS

OVERVIEW

Collateral is focused on the discovery, development and commercialization of
non-surgical gene therapy products for the treatment of cardiovascular diseases,
including coronary artery disease, peripheral vascular disease, congestive heart
failure and heart attack. The Company believes that its products under
development hold the potential to revolutionize the treatment of cardiovascular
diseases and become a new standard of care by offering patients simpler, more
cost-effective and lower-risk alternatives to currently available treatments,
such as Coronary Bypass Surgery and angioplasty. The Company's initial gene
therapy products are designed to promote and enhance angiogenesis, a natural
biological process which results in the growth of additional blood vessels, to
restore adequate levels of blood flow to oxygen-deprived tissues. IN VIVO
preclinical studies led by the Company's chief scientist have demonstrated high-
yield gene transfer to heart muscle cells and, for the first time, angiogenesis
sufficient to normalize cardiac flow and function. In addition, these
preclinical studies showed no significant side effects such as inflammation or
immune response. The Company's angiogenic products are administered using
proprietary methods of gene therapy based on non-surgical adenoviral vector
delivery of angiogenic genes to the heart. Such products are intended to be
non-surgically administered by an interventional cardiologist by a one-time
intra-coronary injection through a cardiac catheter, and could be administered
at the time of initial angiography, on an out-patient basis. In addition to the
Company's angiogenic products, the Company is also actively researching gene
therapy products designed to stimulate heart muscle regeneration and to enhance
responsiveness to myocardial adrenergic signaling and is seeking to broaden its
proprietary methods of gene therapy to include AAV gene delivery vectors.

GENERX, the Company's initial angiogenic product for the treatment of
coronary artery disease, is designed to relieve stable exertional angina. Phase
I/II clinical trials for GENERX (which uses the FGF-4 gene) are expected to
begin in May 1998 pursuant to a commercial IND filed with the FDA in December
1997 by the Company's strategic partner, Schering AG. Among the other
non-surgical cardiovascular gene therapy products being developed by the Company
are: (i) GENEVX (which uses a VEGF gene), also an angiogenic treatment for
coronary artery disease designed to relieve stable exertional angina; (ii)
GENVASCOR (which uses the FGF-4 gene), an angiogenic treatment for peripheral
vascular disease; (iii) GENECOR, an angiogenic treatment for congestive heart
failure; (iv) CORGENIC, a treatment for congestive heart failure to enhance
responsiveness of the heart to adrenergic stimulation; and (v) MYOCOR, a
treatment for patients who have suffered a heart attack, which is focused on
heart muscle regeneration and improvement of cardiac function.

The Company has assembled a broad portfolio of therapeutic genes which were
internally discovered or exclusively licensed and for which either patents have
been issued or patent applications have been filed worldwide for use in the
development of cardiovascular gene therapy products. The Company's portfolio
includes 11 proprietary human genes in the FGF and VEGF gene families to be used
in the Company's angiogenic gene therapy products. In addition, the Company has
filed a patent application with the PTO with respect to other therapeutic genes
for use with the Company's angiogenic gene therapy technology. The Company has
the exclusive use of, or public domain access to, certain other therapeutic
genes that will be required for its myocardial adrenergic signaling and heart
muscle regeneration products.

CARDIOVASCULAR DISEASE AND CURRENT TREATMENTS

Cardiovascular disease is the leading cause of death in the United States.
In 1996, the American Heart Association reported that an estimated 60 million
patients in the United States have cardiovascular disease. The American Heart
Association estimates that the U.S. healthcare system spends approximately $130
billion annually on the care and treatment of patients with cardiovascular
diseases.

CORONARY ARTERY DISEASE. The coronary arteries supply blood to the heart
muscle. When insufficient oxygen reaches the heart muscle as a result of
restricted blood flow, an injury (myocardial ischemia) occurs

26
<PAGE>
that may result in a heart attack or death. Brief episodes of ischemia often
result in chest pain or angina. Nearly all ischemic heart disease is due to
atherosclerotic disease of the coronary arteries. Atherosclerosis is a general
term for the build-up of fatty and cholesterol plaque deposits on the inside
lining of arterial walls thereby restricting blood flow. Restoring blood flow is
the most effective method to relieve painful ischemic symptoms and to reduce the
long-term risk of a heart attack. When blood flow through coronary arteries is
insufficient, cardiac ischemia occurs and ischemic injury signals are generated.
In response to these signals, the body's natural healing process is initiated
and the heart may develop limited collateral circulation in an effort to restore
blood flow. Research has shown that the extent of natural collateral vessel
formation in the heart is often inadequate to provide full restoration of blood
flow. The American Heart Association reported in 1996 that an estimated 13.5
million patients in the United States had coronary artery disease, including
approximately 6.8 million patients with angina. Current treatments for coronary
artery disease include drug therapy, coronary bypass surgery and catheter-based
treatments, including angioplasty, atherectomy and coronary stenting.
Cardiovascular drug therapy represents the largest component of the worldwide
pharmaceutical market; however, this therapy, in many cases, only treats
symptoms, does not represent a cure for coronary artery disease, requires
long-term administration, has adverse side effects and involves significant
long-term costs. Coronary bypass surgery is highly invasive and traumatic to the
patient, but is often considered the most effective and long-lasting treatment
currently available for severe coronary artery disease. While current
catheter-based treatments such as coronary stents are less invasive, they are
limited by restenosis, a renarrowing of the treated coronary artery, which
generally requires reintervention. The American Heart Association has estimated
that the number of surgical procedures in the United States for the treatment of
coronary artery disease totaled 900,000, which included approximately 500,000
coronary bypass surgeries and approximately 400,000 angioplasty procedures.

PERIPHERAL VASCULAR DISEASE. Peripheral vascular disease results from
decreased blood flow in patients with atherosclerosis, usually in the lower
limb. Leg pain due to peripheral ischemia (claudication) brought on by exertion
is a condition analogous to angina due to myocardial ischemia. Based on an IMS
report prepared for the Company, there are currently an estimated 726,000
patients in the United States suffering from peripheral vascular disease, of
whom over 100,000 will be required to undergo a limb amputation. Current
treatments for patients with peripheral vascular disease include drug therapy in
the initial stages of the disease and surgery if the disease has progressed or
is incapacitating. If drug therapy is selected, agents designed to improve blood
flow by decreasing blood viscosity and low dose aspirin are therapies of choice.
When these agents are used in combination with a program of daily walking and
smoking cessation, improved function may be obtained and the need for invasive
surgical therapies may be postponed or eliminated. However, research indicates
that at the present time there is no efficacious drug therapy for advanced forms
of peripheral vascular disease. Surgical intervention includes arterial
grafting, surgical removal of the fatty plaque deposits and, increasingly,
endovascular surgical treatments such as angioplasty.

CONGESTIVE HEART FAILURE. Congestive heart failure is caused when the heart
is unable to contract adequately to pump blood throughout the body. Myocardial
adrenergic signaling (the normal physiological stimulation of heart function) is
generated when chemical transmitters known as catecholamines bind with certain
receptors on the surfaces of heart cells, triggering a series of events which
results in increased heart rate and contraction of the heart. In congestive
heart failure, the heart is unable to respond adequately to catecholamines.
According to the American Heart Association, there are currently an estimated
4.7 million patients in the United States who have congestive heart failure.
Congestive heart failure is the single most frequent cause of hospitalization
for people 65 and older. According to the American Heart Association,
approximately 50% of patients with advanced congestive heart failure die within
two years of diagnosis. Current treatments for congestive heart failure are drug
therapy, heart transplants and the use of medical devices, including left
ventricular assist devices, as a transition for patients awaiting heart
transplants. According to the American Heart Association, only approximately
2,300 heart transplants occur in the

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United States each year. Currently available drug treatments only address
symptoms and in general have only a marginal impact on the rapid degenerative
progression of this condition.

HEART ATTACK. A heart attack occurs when a blockage in the coronary artery
severely restricts or completely occludes blood flow to the heart. When blood
supply is greatly reduced or occluded for more than a short time, heart muscle
cells die. Heart muscle cells do not have the biological capacity to multiply to
replace the dead cells. In the healing phase, after a heart attack, white blood
cells migrate into the area and remove the dead heart muscle cells, and
fibroblasts proliferate and form a collagen scar in the affected region of the
heart. Collagen is the fibrous, non-living material found in scar tissue.
Following a heart attack, the heart's ability to maintain normal function will
depend on the location of the damage and the amount of damaged tissue. The
American Heart Association estimates that each year approximately 1.5 million
patients will have a heart attack and an estimated 500,000 patients will die as
a direct result of a heart attack. Current therapeutic treatments for heart
attack focus on acute care upon the onset of a heart attack and on long term
care to limit the development of heart failure and recurrent heart attack. A
form of drug therapy may be used to dissolve a blood clot during the onset of a
heart attack. After a heart attack, patients generally are required to make
certain lifestyle changes, such as diet, cessation of smoking and exercise, and
to commence drug therapy to treat symptomatic conditions.

GENE THERAPY

Gene therapy is an approach to the treatment and prevention of genetic and
acquired diseases that involves the insertion of genetic information into target
cells (also called "transfection") to produce specific proteins needed to
correct or modulate disease conditions. Proteins are fundamental components of
all living cells and are essential for cellular structure, growth and function.
Proteins are produced by cells from a set of genetic instructions encoded in
DNA, which contains all the information necessary to control cellular biological
processes. DNA is organized into segments called genes, with each gene
containing the information required to express, or produce, a specific protein.
By directing the cells to produce proteins, gene therapy offers the opportunity
to correct defects or diseases at the molecular level.

A key factor in the progress of gene therapy is the development of safe and
efficient methods of transferring genes into cells. In one method for transfer
into cells, the gene is incorporated into a delivery system called a vector.
Vectors may be derived from either viral or non-viral systems. The most common
gene delivery approach to date relies on viral gene transfer, whereby modified
viruses are used to transfer the desired genetic material into host cells. The
process of gene transfer can be accomplished EX VIVO, in which cells are removed
from the patient, genetically modified and then reinfused into the patient, or
IN VIVO, in which vectors are introduced directly into the patient's body.

The use of viruses takes advantage of their natural ability to introduce
genes into host cells and use the host's metabolic machinery to produce proteins
essential for the survival and function of the virus. Viruses used as vectors
are genetically modified to remove the DNA necessary for the virus to reproduce
and to contain the desired genes. Successful application of viral gene transfer
to indications requiring long-term gene expression entails a number of essential
technical requirements, including the ability of the viral vector to carry
desired segments of genes, to transfer genes into a sufficient number of target
cells and to enable genes contained in the viral vector to persist in the host
cell. A number of different viral vectors, including adenovirus and retroviral
vectors, are being used for potential gene therapy applications.

COLLATERAL'S THERAPEUTIC APPROACH

Collateral's non-surgical cardiovascular gene therapy approach is primarily
focused on angiogenesis, myocardial adrenergic signaling and heart muscle
regeneration utilizing proprietary technology, which includes methods of gene
therapy, therapeutic genes and gene delivery vectors.

ANGIOGENESIS. The Company is developing non-surgical angiogenic gene
therapy treatments for coronary artery disease, peripheral vascular disease and
congestive heart failure. IN VIVO preclinical studies

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led by the Company's chief scientist demonstrated that gene therapy with human
angiogenic growth factor genes resulted in high-yield gene transfer limited to
the heart and, for the first time, fully restored regional blood flow and heart
function in an ischemic region of the heart in a preclinical model. The results
were achieved within 2 weeks of a one-time treatment and the effects persisted
over the study period of 12 weeks following the administration of gene therapy,
without any significant side effects such as inflammation or immune response.
The Company's proprietary methods of gene therapy utilize a catheter-based
intracoronary delivery of an angiogenic gene to effect the transfer of genetic
information into the heart cells to produce a specific protein to stimulate
site-specific angiogenesis. The Company's angiogenic products are administered
using proprietary methods of gene therapy based on non-surgical adenoviral
vector delivery of angiogenic genes to the heart. Such products are intended to
be non-surgically administered by an interventional cardiologist by a one-time
intra-coronary injection through a cardiac catheter and could be administered at
the time of initial angiography, on an out-patient basis. Gene transfer is
accomplished using, as a vector, a human adenovirus (common cold virus) which
has been rendered replication-incompetent.

MYOCARDIAL ADRENERGIC SIGNALING. The Company is also developing methods of
gene therapy to enhance myocardial adrenergic signaling in patients with
advanced congestive heart failure by increasing the heart's ability to contract
in response to catecholamine stimulation. In heart failure, the ability of the
heart to respond to catecholamine stimulation is markedly impaired. In the
Company's preclinical research, investigators demonstrated that gene therapy can
be used to produce the enzyme adenylylcyclase in heart muscle cells. Production
of this enzyme caused an increase in the response to catecholamine stimulation
which in turn enhanced the heart's ability to contract.

HEART MUSCLE REGENERATION. Collateral is also developing non-surgical gene
therapy products for the treatment of heart attack (myocardial infarction). The
Company's research on the treatment of heart attack is focused on the
regeneration of heart muscle to mitigate the effect of muscle necrosis and
possibly improve heart performance following a heart attack. Preclinical
research has shown that myofibroblasts, the type of fibroblast seen in a healing
heart attack, can be altered with gene therapy to convert into skeletal muscle
cells. However, skeletal muscle is not an adequate replacement for cardiac
muscle. The Company is now sponsoring preclinical research to identify certain
genes which may have the capacity to transform potential scar tissue cells into
functioning heart muscle cells. If these genes are confirmed to have the
capacity to transform myofibroblasts into heart muscle cells, the Company plans
to develop a non-surgical gene therapy product that could be delivered by
intracoronary administration sometime in the first few weeks following heart
attack.

BUSINESS STRATEGY

The Company's objective is to become the leader in the development and
commercialization of non-surgical cardiovascular gene therapy products for sale
to worldwide markets. The key elements of the Company's strategy are as follows:

DEVELOP A NEW PARADIGM FOR THE TREATMENT OF CARDIOVASCULAR DISEASES. The
American Heart Association estimates that the U.S. healthcare system spends
approximately $130 billion annually on the care and treatment of patients
with cardiovascular diseases. The Company believes that its products under
development hold the potential to revolutionize the treatment of
cardiovascular diseases and become a new standard of care, by offering
patients simpler, more cost-effective and lower-risk alternatives to
currently available treatments.

MAINTAIN LEADERSHIP IN CARDIOVASCULAR GENE THERAPY. The Company believes
that it has established a leadership position in the field of cardiovascular
gene therapy, based on: (i) the depth and breadth of its technology
portfolio; (ii) the first successful demonstration of angiogenic gene
therapy in controlled preclinical studies; and (iii) the filing of a
commercial IND and initiation of Phase I/II clinical trials with respect to
the Company's first angiogenic gene therapy product. In addition, the
Company

29
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has five other gene therapy products in various stages of development that
focus on other cardiovascular diseases. The Company intends to continue to
focus its resources exclusively on the field of cardiovascular gene therapy
in order to maintain its leadership position.

EXPAND, ENHANCE AND PROTECT PROPRIETARY POSITIONS. The Company has
developed proprietary non-surgical methods of gene therapy which enable
site-specific, high-yield delivery of genes to the heart. The Company has
assembled a broad portfolio of proprietary angiogenic genes consisting of
several FGF, VEGF and other human genes for use with its methods of
cardiovascular gene therapy. The Company and its scientific collaborators
have developed significant expertise with respect to design and delivery of
adenovirus vectors in gene therapy. The Company is seeking to refine and
enhance its proprietary methods of gene therapy to include AAV gene delivery
vectors, and to broaden the application of such methods to the treatment of
other cardiovascular diseases. The Company intends to continue to pursue a
strategy of internal development and in-licensing of technologies and genes
to broaden its product development programs and accelerate the biotechnology
product development cycle. The Company intends to vigorously protect its
intellectual property position.

ESTABLISH STRATEGIC COLLABORATIONS TO ENHANCE PRODUCT DEVELOPMENT AND
COMMERCIALIZATION. The Company intends to focus on research and development
of products while leveraging its technology through the establishment of
collaborations with select pharmaceutical and biotechnology companies
primarily in the areas of product development, manufacturing and marketing.
The Company has an exclusive arrangement with Schering AG covering
angiogenic gene therapy products. For other products, the Company intends to
select potential development and/or commercialization partners only after it
has completely evaluated preclinical research data. The Company believes
that this will allow it to: (i) assess the potential commercial value of its
products; (ii) select a collaborative partner on more favorable terms than
would otherwise be available at earlier stages; and (iii) minimize the
financial burden on the Company to fund development programs by securing
up-front and milestone payments, technology access fees and development
funding. The Company expects that, upon successful commercialization of its
products, royalties on worldwide sales of such products would generate
significant revenues in the long-term.

COLLATERAL'S CORE TECHNOLOGIES

The Company's core technologies are focused on the development of gene
therapies that promote angiogenesis, myocardial adrenergic signaling and heart
muscle regeneration. As an integral part of the Company's therapeutic approach
to cardiovascular diseases, the Company has developed proprietary methods of
gene therapy and has assembled a portfolio of therapeutic genes and gene
delivery vectors.

METHODS OF GENE THERAPY. Collateral's expertise lies in delivering
therapeutic genes to specific sites such as the heart without affecting other
organs. The therapeutic genes will be administered to a patient through the use
of non-surgical, intracoronary delivery into major arteries through a catheter
by an interventional cardiologist. This technology can be used to provide a
means to increase production of a specific protein in living cells and thereby
alter cell function as a therapy to treat a disease condition. The Company's
preclinical studies have demonstrated that its proprietary methods of gene
therapy allow the injection of therapeutic genes directly into the arteries of
the heart with 98.5% of the gene-carrying vector being taken up by the heart. No
detectable transfection (directing cells to produce proteins) was observed in
preclinical models in skeletal muscle, eye, liver or other organs. See, however,
"Risk Factors-- Uncertainties Related to Clinical Trials."

PORTFOLIO OF THERAPEUTIC GENES. Genes which regulate biological activity in
the cardiovascular system are key enabling components of the Company's core
technology. Collateral has developed a portfolio of 11 proprietary human genes
in the FGF and VEGF gene families to be used in the commercialization of
products centered around the Company's angiogenesis technology. The Company's
gene portfolio includes genes that have been exclusively licensed by the Company
for application in the field of cardiovascular

30
<PAGE>
gene therapy and genes that have been discovered by the Company for which patent
applications have been filed with the PTO. The Company's portfolio of genes
includes: FGF-4, FGF-4f, VEGF-B(112), VEGF-B(166), VEGF-B(167), VEGF-B(173),
VEGF-B(186), VEGF-145, VEGF-145-I, VEGF-145-II, VEGF-145-III, VEGF-138, and
others. In addition, pursuant to a pending patent application filed by the
Company with the PTO entitled "Truncated VEGF-Related Proteins," the Company
believes that it has a proprietary position with respect to other genes that
code for other angiogenic proteins. These genes include: (des 1-7) VEGF-B, (des
1-12) VEGF-B, (des 1-15) VEGF-B, (des 1-17) VEGF-B, (des 1-20) VEGF-B, (des
1-22) VEGF-B; (des 1-7) VRF-2, (des 1-12) VRF-2, (des 1-20) VRF-2, (des 22)
VRF-2; (des 1-7) VEGF-3, (des 1-12) VEGF-3, (des 1-17) VEGF-3, (des 22) VEGF-3;
(des 1-92) VEGF-C, (des 1-97) VEGF-C, (des 1-102) VEGF-C, (des 1-107) VEGF-C,
(des 1-17) pVORF1, (des 1-22) pVORF1, (des-1-27) pVORF1, (des 1-32) pVORF1; (des
1-27) pVORF2, (des 1-32) pVORF2, (des 1-37) pVORF2, (des 1-42) pVORF2 and
others. In addition, the Company has exclusive use of, or public domain access
to, certain other therapeutic genes that will be required for its myocardial
adrenergic signaling and heart muscle regeneration technologies.

GENE DELIVERY VECTORS. Collateral is using the human adenovirus gene
delivery vector, rendered replication-incompetent by deleting some of its DNA
and replacing it with a particular therapeutic gene. The Company believes that
certain features of adenovirus vectors make them particularly well suited for
the treatment of a number of human diseases: (i) naturally occurring
adenoviruses have no side effects other than mild self-limited viral illness;
(ii) adenoviruses can be rendered replication-incompetent; (iii) unlike some
other types of viral systems, adenovirus vectors can introduce genes into
non-dividing cells, such as heart muscle cells, or slowly dividing cells; (iv)
adenovirus vectors may persist in the host muscle cells for up to 6 months; and
(v) adenovirus vectors can be purified and concentrated, and thereby may allow
for more efficient manufacturing. The Company is attempting to build a
proprietary position in gene-delivery vectors through the development or
acquisition of exclusive rights to inventions that provide important
enhancements to adenovirus vectors and improved methods for large-scale
production of adenovirus vectors. The Company is seeking to refine and enhance
its proprietary methods of gene therapy to include, for example, AAV gene
delivery vectors, and to broaden the application of its methods of gene therapy.

31
<PAGE>
COLLATERAL'S PRODUCT DEVELOPMENT PROGRAMS

<TABLE>
<CAPTION>
PRODUCT TECHNOLOGY MEDICAL DEVELOPMENT DEVELOPMENT
CANDIDATE (DESIGNATED GENE) INDICATION STATUS(1) PARTNER
<S> <C> <C> <C> <C>
GENERX-TM- Angiogenesis Stable Exertional Phase I/II Schering AG
(FGF-4) Angina due to
Coronary Artery
Disease
GENEVX-TM- Angiogenesis Stable Exertional Preclinical Schering AG
(VEGF) Angina due to
Coronary Artery
Disease
GENVASCOR-TM- Angiogenesis Peripheral Preclinical Schering AG
(FGF-4) Vascular Disease
GENECOR-TM- Angiogenesis Congestive Heart Preclinical (2)
Failure
CORGENIC-TM- Myocardial Congestive Heart Research --
Adrenergic Failure
Signaling
MYOCOR-TM- Heart Muscle Heart Attack Research --
Regeneration
</TABLE>

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

(1) "Research" indicates studies conducted in animal models or biochemical or
cell culture systems in order to identify a product candidate. "Preclinical"
indicates potency, pharmacology and/or toxicology testing of a gene therapy
product candidate in animal models or biochemical or cell culture systems.
"Phase I/II" indicates that a gene therapy product candidate is being tested
at an early stage in humans for safety, pharmacologic profile and
preliminary indications of efficacy in a limited patient population. See
"Business--Government Regulation."

(2) Through May 2003, Schering AG has certain rights to enter into research and
development agreements with the Company for new product opportunities that
the Company may identify within the field of gene therapy to promote
angiogenesis. See "Business--Collaborative and Licensing Arrangements."

GENERX (which uses the FGF-4 gene in an adenovirus vector), the Company's
initial angiogenic product for the treatment of coronary artery disease, is
designed to relieve stable exertional angina. The Phase I/II clinical trial is
expected to begin in May 1998 pursuant to a commercial IND filed with the FDA in
December 1997 by the Company's strategic partner Schering AG. The Company
believes that this product has the potential to stimulate the growth of
collateral blood vessels which will increase blood flow and function in a
previously ischemic region of the heart. IN VIVO preclinical studies led by the
Company's chief scientist demonstrated that gene therapy with human angiogenic
growth factor genes resulted in high-yield gene transfer limited to the heart
and, for the first time, fully restored regional blood flow and heart function
in an ischemic region of the heart in a preclinical model. The results were
achieved within 2 weeks of a one-time treatment and the effects persisted over
the study period of 12 weeks following the administration of gene therapy,
without any significant side effects such as inflammation or immune response.

GENEVX (which uses a VEGF gene in an adenovirus vector), the Company's
second angiogenic product for the treatment of coronary artery disease, is also
designed to relieve stable exertional angina. The Company is currently
conducting preclinical studies in order to support an IND filing for this
product. The Company believes that this product, like GENERX, has the potential
to stimulate the growth of

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<PAGE>
collateral blood vessels which will increase blood flow and function in a
previously ischemic region of the heart.

GENVASCOR (which uses the FGF-4 gene in an adenovirus vector), the Company's
first angiogenic product for the treatment of peripheral vascular disease. The
Company is currently conducting preclinical studies in order to support an IND
filing for this product. The Company believes that this product has the
potential to stimulate the growth of collateral blood vessels which will
increase blood flow and function in a previously ischemic region of the lower
limbs.

The Company is developing two products for the treatment of congestive heart
failure. GENECOR is based on the Company's angiogenesis technology, and CORGENIC
is based on the Company's myocardial adrenergic signaling technology. The
Company is seeking to leverage its scientific knowledge and understanding by
developing therapeutic approaches to stimulate the growth of collateral blood
vessels to augment arterial blood flow for the treatment of certain types of
congestive heart failure. In addition, the Company is conducting discovery and
preclinical research to develop the first gene therapy product to enhance
myocardial adrenergic signaling.

MYOCOR, the Company's product in development for the treatment of heart
attack, is focused on the regeneration of muscle tissue to mitigate the effect
of muscle necrosis and improve cardiac function following a heart attack.

COLLABORATIVE AND LICENSING ARRANGEMENTS

The Company's business strategy includes the establishment of early-stage
research collaborations with major pharmaceutical and biotechnology companies to
support and supplement the Company's discovery, preclinical and Phase I/II
clinical research and development phases of the product commercialization cycle,
as well as the implementation of long-term strategic partnerships with major
pharmaceutical and biotechnology companies to support Phase II and Phase III
clinical trials and product commercialization activities, including product
manufacturing, marketing and distribution. To date, the Company has established
one such relationship with Schering AG. See "Risk Factors--Reliance on
Collaborative Relationships."

SCHERING AG COLLABORATION, LICENSE AND ROYALTY AGREEMENT

In May 1996, the Company entered into a collaboration, license and royalty
agreement (the "Schering Agreement") with Schering AG which established a
strategic alliance covering the development and commercialization of gene
therapy products to promote angiogenesis. Under the Schering Agreement, the
Company agreed to conduct research and development in the field of gene therapy
to promote angiogenesis solely with Schering AG during the term of the Schering
Agreement. The Company granted Schering AG an exclusive worldwide license to all
rights to Collateral's technology in the field of angiogenic gene therapy and to
certain other rights to technology developed by the Company with funding support
from Schering AG during the five-year research and development program under the
Schering Agreement. Schering AG has the right to sublicense to Schering AG
affiliates without the consent of the Company and to third parties who are not
affiliates of Schering AG with the consent of the Company, which shall not be
unreasonably withheld. In exchange for such rights, Schering AG agreed to: (i)
purchase up to $5.0 million of the Company's equity; (ii) provide research and
development funding and support totaling up to $5.0 million annually to support
the Company's research and development pursuant to the Schering Agreement; (iii)
pay the Company milestone payments totaling up to $20.5 million based on the
Company's achievement of milestones pertaining to certain regulatory filings and
the development and commercialization of products under the Schering Agreement
per medical indication for which an angiogenic gene therapy is successfully
developed; and (iv) pay the Company a royalty rate based on worldwide net sales
of each product and to pay an additional supplemental royalty based on worldwide
net sales of each product and the product's cost of goods, up to a maximum
specified royalty rate. Schering AG and the Company are performing research and
development, with Schering AG responsible for the preparation and filing of all
regulatory applications and approvals and all activities relating to the
manufacture, marketing and sale of products described in the research and
development plan under the Schering Agreement.

33
<PAGE>
In addition, under the Schering Agreement, through May 2003 Schering AG has
the right of first refusal to enter into exclusive research and development
agreements with the Company for new product opportunities that the Company may
identify within the field of gene therapy to promote angiogenesis. If Schering
AG and the Company are unable to reach agreement on terms and conditions
regarding such research and development agreements for new product
opportunities, then the Company may develop such products on its own or with
third parties, provided that the Company or its licensees pay Schering AG a
royalty on worldwide net sales of such new products, and subject to Schering
AG's right to enter into an agreement on the same terms as are offered to such
third party. If Schering AG and the Company are able to reach agreement on the
terms and conditions of such an agreement, Schering AG would have the same
exclusive worldwide rights under the Company's technology to the new product as
for the initial product. In addition, through May 2003 Schering AG has a right
of first negotiation to enter into an agreement to license on an exclusive basis
from the Company new products outside the field of gene therapy to promote
angiogenesis. From May 2003 through May 2006, Schering AG also has a right of
first offer to enter into a license agreement with the Company covering
potential new products in the field of gene therapy to promote angiogenesis,
products outside of the field of gene therapy to promote angiogenesis and
certain other technology and know-how.

Schering AG has the unilateral right to terminate the Schering Agreement on
60 days prior written notice to the Company. Upon such notice, Schering AG is
required to pay the Company a termination fee and would be required to provide
the Company with copies of and the right to reference all IND applications or
any other such submissions that had been filed by Schering AG with all
regulatory health authorities with respect to products covered under the
Schering Agreement. In the event that Schering AG exercises such unilateral
right to termination, Schering AG retains a paid-up, irrevocable, royalty-free,
nonexclusive, worldwide license, with the right to sublicense, to any new
inventions made during and pursuant to the Schering Agreement. In addition,
Schering AG may terminate the Schering Agreement upon 90 days written notice if
a third party which is a competitor of Schering AG or the Company acquires
substantially all the assets of the Company or 49% or more of the voting stock
of the Company. Upon such termination, Schering AG would retain any license
granted by the Company to Schering AG, while any licenses granted by Schering to
the Company would terminate.

In 1995, Schering AG provided $500,000 in loans to fund operations.
Principal and interest on the notes evidencing the loans are due and payable
upon demand after June 30, 1999. Such principal and interest will be offset
against the next milestone payment due to the Company under the Schering
Agreement, if and when such milestone is met. In May 1996, pursuant to the
Schering Agreement, an affiliate of Schering AG made an equity investment of
$2.5 million in the Company. Following the Company's securing certain rights to
develop a gene, in June 1997, the same affiliate of Schering AG made an
additional equity investment of $2.5 million in the Company. Finally, in June
1997, such affiliate of Schering AG made an additional equity investment of
$679,810 in the Company. As of March 31, 1998, said affiliate of Schering AG
owned 19.1% of all outstanding capital stock of the Company (without giving
effect to shares to be issued in the Offering). As of March 31, 1998, Schering
AG had paid the Company an aggregate of $8.6 million in research and development
support and milestone payments.

UNIVERSITY OF CALIFORNIA LICENSE AGREEMENTS

ANGIOGENESIS GENE THERAPY. In September 1995, the Company entered into an
agreement with the Regents of the University of California (the "Regents")
pursuant to which the Regents granted to the Company an exclusive license (with
the right to sublicense) in the U.S. and in foreign countries where the
respective patent rights exist to certain technology relating to angiogenic gene
therapy, based on scientific discovery research conducted at the laboratory of
Dr. H. Kirk Hammond, a co-founder and principal stockholder of the Company ("Dr.
Hammond").

GENE THERAPY FOR CONGESTIVE HEART FAILURE. In January 1997, the Company and
the Regents entered into an exclusive license agreement (with the right to
sublicense) in the U.S. and in foreign countries where

34
<PAGE>
the respective patent rights exist for certain technology relating to a gene
therapy approach for congestive heart failure based on myocardial adrenergic
responsiveness, based on scientific discovery research conducted at the
laboratory of Dr. Hammond.

ANGIOGENIC GENE THERAPY FOR CONGESTIVE HEART FAILURE. In June 1997, the
Company and the Regents entered into an exclusive license agreement (with the
right to sublicense) in the U.S. and in foreign countries where the respective
patent rights exist for certain technology relating to angiogenic gene therapy
for congestive heart failure, based on scientific discovery research conducted
at the laboratory of Dr. Hammond.

Each of these agreements provides the Company with exclusive rights (subject
to any license rights of the U.S. Government) to develop and commercialize
technology covered by patent applications that have been filed for in the United
States and in foreign countries. Pursuant to each agreement, the Company has
agreed to pay the Regents a license fee payable in installments, an annual
royalty fee based on net sales of products covered by the relevant patents and
certain minimum annual royalty fees. Under the terms of these agreements, the
Company is required to satisfy certain due diligence provisions with respect to
the timely development and commercialization of products covered by patents
thereunder. If the Company fails to meet the due diligence deadlines, the
Regents may terminate the agreement or reduce the exclusive licenses to
nonexclusive licenses. The Company is entitled to a one-time extension of the
due diligence deadlines upon payment of certain fees. The Regents may terminate
each of these agreements in the event of a material breach of such agreements by
the Company which remains uncured for 60 days.

UNIVERSITY OF CALIFORNIA RESEARCH AGREEMENT

In February 1998, the Company entered into an agreement with the Regents to
conduct research into the study of angiogenesis in the failing heart. The
Company agreed to support the research project with a grant. All rights to
inventions and discoveries arising from the research project conducted under
said agreement shall be owned by the Regents. The Company has a right of first
negotiation, within 60 days of disclosure by the Regents of any invention to the
Company, to enter into an agreement with the Regents to exclusively license any
patentable inventions that might arise from the research project. The term of
this agreement is through June 30, 1998. This agreement may be terminated by the
Company for any reason, or by the Regents for non-payment, upon 30 days prior
written notice to the other party.

NEW YORK UNIVERSITY RESEARCH AND LICENSE AGREEMENT

In March 1997, the Company entered into an agreement with New York
University ("NYU") pursuant to which NYU granted to the Company an exclusive
worldwide license (with the right to sublicense) to certain technology covering
development, manufacture, use and sale of gene therapy products based on FGF-4
for the treatment of coronary artery disease, peripheral vascular disease and
congestive heart failure. This agreement provides the Company with exclusive
rights in such fields to develop and commercialize technology covered by an
issued patent and patent applications that have been filed in the United States
and in foreign countries. Pursuant to such agreement, the Company has agreed to
pay NYU license fees, milestone payments for each licensed product and a minimum
annual royalty fee based on net sales of products covered by such patents. The
Company is also funding a three year Company-directed research program using the
patents and applications. Under the terms of this agreement, the Company is
required to satisfy certain due diligence provisions with respect to the timely
development and commercialization of products covered by patents thereunder.
Failure to meet any due diligence requirements could result in the termination
of the agreement unless the Company and NYU mutually agree otherwise or the
Company pays NYU an additional fee to extend the due diligence deadline. NYU may
terminate the agreement upon a failure to pay any amounts due thereunder which
remains uncured for 30 days or upon any other material breach of the agreement
by the Company which remains uncured for 60 days.

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<PAGE>
AMRAD DEVELOPMENT PTY LTD. AND LUDWIG INSTITUTE FOR CANCER RESEARCH LICENSE
AGREEMENT

In March 1997, the Company entered into an agreement with AMRAD Development
Pty Ltd. and Ludwig Institute for Cancer Research ("AMRAD/Ludwig") pursuant to
which AMRAD/Ludwig granted to the Company an exclusive worldwide license to
certain technology relating to the Company's use of certain VEGF gene for gene
therapy products developed and commercialized by the Company, or its licensees,
for the treatment of cardiovascular diseases, including coronary artery disease,
peripheral vascular disease and congestive heart failure. This agreement
provides the Company with exclusive rights to develop and commercialize
technology covered by patents that have been filed for by AMRAD/Ludwig in the
United States and in foreign countries. Pursuant to such agreement, the Company
has agreed to pay AMRAD/Ludwig license fees and milestone payments based on the
Company's successful achievement of certain product development benchmarks for
commercialized products using the licensed technology for an initial medical
indication, a milestone payment for commercialized products and a one-time
license fee for using the licensed technology for each additional medical
indication, an annual royalty fee based on net sales of products commercialized
by the Company using the licensed technology covered by the patents issued
thereunder and certain minimum annual royalty fees which may be offset against
annual royalty fees based on net sales of products. The Company has the right to
sublicense any of the rights granted under this agreement to Schering AG or its
affiliates and may sublicense rights to any other third party only with
AMRAD/Ludwig's prior written consent. Pursuant to the terms of this agreement,
the Company is required to satisfy certain due diligence provisions with respect
to the achievement of certain benchmarks. If the Company fails to achieve
certain of the benchmarks, the agreement may be deemed terminated. In respect to
some of the selected benchmarks the Company may pay additional fees to extend
the benchmark deadlines by two three-month extensions. AMRAD/Ludwig may
terminate the agreement in the event of a material breach of the agreement by
the Company which remains uncured for 30 days. At its option, the Company may
terminate the agreement upon 30 days notice.

DIMOTECH LTD. AND TECHNION RESEARCH & DEVELOPMENT FOUNDATION LICENSE
AGREEMENT

In October 1996, the Company entered into an agreement with Dimotech Ltd., a
wholly-owned subsidiary of Technion Research and Development Foundation, located
at the Gurtwith Science Based Industrial Center in Haifa, Israel and the
inventor of the licensed technology who is employed by Technion Research and
Development Foundation (collectively, "Technion") pursuant to which Technion
granted to the Company an exclusive worldwide license (with the right to
sublicense) to make, use and sell products for the treatment of cardiovascular
diseases, including coronary artery disease, peripheral vascular disease and
congestive heart failure which would otherwise infringe patents that claim
VEGF-145, a vector comprising VEGF-145 or the use of VEGF-145. This agreement
provides the Company with exclusive rights to develop and commercialize
technology covered by patents that have been filed for in the United States and
in foreign countries. Pursuant to such agreement, the Company has agreed to pay
Technion a one-time license fee, certain milestone payments based on the
Company's successful achievement of certain product development benchmarks and
an annual royalty fee based on net sales of products covered by patents which
would be offset against certain minimum annual royalty fees paid by the Company.
Under the terms of this agreement, the Company is required to satisfy certain
due diligence provisions with respect to the timely development and
commercialization of products covered by patents thereunder. If the due
diligence deadlines are not met, the Company may extend the due diligence
deadline for 12 months upon payment of an additional fee. Technion may terminate
the agreement in the event of a material breach of the agreement by the Company
which remains uncured for 60 days. At its option, the Company may terminate the
agreement upon 60 days written notice and payment of a termination fee.

VETERANS MEDICAL RESEARCH FOUNDATION RESEARCH AGREEMENTS

Since 1995, the Company has contracted with the Veterans Medical Research
Foundation (the "Medical Research Foundation") located in San Diego, California
and operating at the Veterans' Affairs

36
<PAGE>
Medical Center to conduct certain research activities. In March 1998 the Company
entered into another one year term agreement with the Medical Research
Foundation. Under the terms and conditions of this agreement, Dr. Hammond, who
serves as the investigator for such studies, and the Medical Research Foundation
agree to utilize their best efforts to conduct studies in the field of
cardiovascular disease. In consideration for such services, the Company has
agreed to pay the Medical Research Foundation monthly fees based on the overall
level of expenditures for research and development, plus certain administrative
overhead charges. Dr. Hammond and the Medical Research Foundation agree that all
ideas, developments and inventions, whether or not patentable, conceived or
reduced to practice by Dr. Hammond or the Medical Research Foundation as a
result of the studies conducted under this agreement shall be the property of
the Company. Dr. Hammond and the Medical Research Foundation agree to assign to
the Company the entire right, title and interest, both in the United States and
abroad, to such ideas, developments and inventions. All parties to said
agreement acknowledge that insofar as U.S. government resources are utilized in
connection with the work done therein, the U.S. government may have certain
rights as defined by U.S. law and may choose to exercise those rights.

In August 1997, the Company entered into an agreement with the Medical
Research Foundation relating to experiments to determine whether the adenovirus
vector can transfect brain cells. Under the terms and conditions of this
agreement, Dr. Patrick D. Lyden, who serves as the investigator for such
studies, and the Medical Research Foundation agree to utilize their best efforts
to conduct such experiments. The term of this agreement is through August 1998.
In consideration for such services, the Company has agreed to pay the Medical
Research Foundation certain fees based on the overall level of expenditures for
research and development, plus certain administrative overhead charges. Dr.
Lyden and the Medical Research Foundation agree that all ideas, developments and
inventions, whether or not patentable, conceived or reduced to practice by Dr.
Lyden or the Medical Research Foundation as a result of the studies conducted
under this agreement shall be the property of the Company. Dr. Lyden and the
Medical Research Foundation agree to assign to the Company the entire right,
title and interest, both in the United States and abroad, to such ideas,
developments and inventions. All parties to said agreement acknowledge that
insofar as U.S. government resources are utilized in connection with the work
done therein, the U.S. government may have certain rights as defined by U.S. law
and may choose to exercise those rights.

UNIVERSITY OF WASHINGTON RESEARCH AGREEMENT

In April 1997, the Company entered into an agreement with the University of
Washington, Seattle, School of Medicine, Department of Pathology ("University of
Washington") to conduct Company-directed discovery research into the study of
repair of damage resulting from a heart attack using therapeutic genes to
initiate and control regeneration of heart muscle tissue. Under this agreement,
the Company has a right of first negotiation to enter into an agreement with the
University of Washington to exclusively license all technology that may result
from such research. The term of this agreement is through April 30, 1998. Either
party may terminate this agreement at any time upon 30 days prior written
notice.

UNIVERSITY OF MISSOURI SPONSORED RESEARCH CONTRACT

In October 1997, the Company entered into an agreement with the Curators of
the University of Missouri--Columbia ("University of Missouri") pursuant to
which the University of Missouri would conduct Company-directed discovery
research into the study of collateral blood flow. Pursuant to the terms of this
agreement, the Company has agreed to provide the University of Missouri with
research funding for Company-directed research done in accordance with the
statement of work under the agreement. Under this agreement, the Company has a
six month option from the date of notice by University of Missouri to
exclusively license all technology that may result from such research. The term
of this agreement is through July 15, 1998. Either party may terminate this
agreement at any time upon 30 days prior written notice.

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<PAGE>
TARGETED GENETICS CORPORATION BIOLOGICAL MATERIALS AGREEMENT

In January 1998, the Company entered into a biological materials transfer
agreement with Targeted Genetics Corporation ("Targeted Genetics") for purposes
of evaluating Targeted Genetics' recombinant adeno-associated viral ("rAAV")
vector for application in the field of cardiovascular gene therapy. Under the
terms of said agreement, the Company and Targeted Genetics each have the option
to collaborate further to use Targeted Genetics' rAAV vector to treat congestive
heart failure, whereby Targeted Genetics would be responsible for constructing
and manufacturing the vector and the Company would be responsible for, among
other things, funding the costs of the future collaboration. Either party may
terminate said agreement at any time upon 30 days prior written notice.

PATENTS AND PROPRIETARY RIGHTS

Genes which regulate biological activity in the cardiovascular system are
key enabling components of the Company's core technology. Collateral has
developed a portfolio of 11 proprietary human genes in the FGF and VEGF gene
families to be used in the commercialization of products centered around the
Company's angiogenesis technology. The Company's gene portfolio includes genes
that have been exclusively licensed by the Company for application in the field
of cardiovascular gene therapy and genes that have been discovered by the
Company for which patent applications have been filed with the PTO. The
Company's portfolio of genes includes: FGF-4, FGF-4f, VEGF-B(112), VEGF-B(166),
VEGF-B(167), VEGF-B(173), VEGF-B(186), VEGF-145, VEGF-145-I, VEGF-145-II,
VEGF-145-III, VEGF-138, and others. In addition, pursuant to a pending patent
application filed by the Company with the PTO entitled "Truncated VEGF-Related
Proteins," the Company believes that it has a proprietary position with respect
to other genes that code for other angiogenic proteins. These genes include:
(des 1-7) VEGF-B, (des 1-12) VEGF-B, (des 1-15) VEGF-B, (des 1-17) VEGF-B, (des
1-20) VEGF-B, (des 1-22) VEGF-B; (des 1-7) VRF-2, (des 1-12) VRF-2, (des 1-20)
VRF-2, (des 22) VRF-2; (des 1-7) VEGF-3, (des 1-12) VEGF-3, (des 1-17) VEGF-3,
(des 22) VEGF-3; (des 1-92) VEGF-C, (des 1-97) VEGF-C, (des 1-102) VEGF-C, (des
1-107) VEGF-C, (des 1-17) pVORF1, (des 1-22) pVORF1, (des 1-27) pVORF1, (des
1-32) pVORF1; (des 1-27) pVORF2, (des 1-32) pVORF2, (des 1-37) pVORF2, (des
1-42) pVORF2 gene-delivery and others. In addition, the Company has exclusive
use of, or public domain access to, certain other therapeutic genes that will be
required for its myocardial adrenergic signaling and heart muscle regeneration
technologies.

Collateral is using the human adenovirus gene delivery vector, rendered
replication-incompetent by deleting some of its DNA and replacing it with a
particular therapeutic gene. The Company is attempting to build a proprietary
position in gene-delivery vectors through the development or acquisition of
exclusive rights to inventions that provide important enhancements to adenovirus
vectors and improved methods for large-scale production of adenovirus vectors.

The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent protection with respect to its
technology, to defend patents once obtained, to maintain trade secrets and
operate without infringing upon the patents and proprietary rights of others and
to obtain appropriate licenses to patents or proprietary rights held by third
parties with respect to its technology, both in the United States and in foreign
countries. As of March 1, 1998, the Company had licenses covering one issued
patent and the Company was in the process of filing, or securing licensing
rights, to technology covered by over 10 patent applications which are or will
be pending in the PTO, and corresponding foreign applications. The Company's
policy is to file patent applications to protect technology, inventions and
improvements to inventions that are considered important to the development of
its business. The Company also relies on trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position.

The patent positions of pharmaceutical and biotechnology firms, including
the Company, are often uncertain and involve complex legal and factual
questions. In addition, the coverage claimed in a patent application can be
significantly reduced before a patent is issued. Consequently, the Company does
not

38
<PAGE>
know whether any patent applications will result in the issuance of patents or,
if any patents are issued, whether the patents will be subjected to further
proceedings limiting their scope, whether they will provide significant
proprietary protection or will be held unenforceable, circumvented or
invalidated. Since patent applications in the United States are maintained in
secrecy until patents issue and patent applications in certain other countries
generally are not published until up to 18 months after they are first filed,
and since publication of discoveries in scientific or patent literature often
lags behind actual discoveries, the Company cannot be certain that it or any
licensor was the first creator of inventions covered by pending patent
applications or that it or such licensor was the first to file patent
applications for such inventions.

Furthermore, as the biotechnology industry expands and more patents are
issued, the risk increases that the Company's processes and potential products
may give rise to claims that they infringe on the patents of others. Such other
persons could bring legal actions against the Company claiming damages and
seeking to enjoin clinical testing, manufacturing and marketing of the affected
product or use of the affected process. Litigation may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company or to determine the enforceability, scope and validity of proprietary
rights of others. If the Company becomes involved in such litigation, it could
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. If there were an adverse
outcome of any such litigation, the Company's business could be materially
adversely affected. In addition to any potential liability for significant
damages, the Company could be required to obtain a license to continue to
manufacture or market the affected product or use the affected process. Costs
associated with any licensing arrangement may be substantial and could include
ongoing royalties. There can be no assurance that any license required under any
such patent would be made available to the Company on acceptable terms, if at
all.

In addition to patent protection, the Company also relies upon trade secret
protection for its confidential and proprietary information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets or disclose such technology. To protect its trade secrets, the
Company requires its employees, consultants, scientific advisors and parties to
collaborative agreements to execute confidentiality agreements upon the
commencement of employment, the consulting relationship or the collaboration
with the Company. In the case of employees, the agreements also provide that all
inventions resulting from work performed by them while in the employ of the
Company will be the exclusive property of the Company. There can be no
assurance, however, that these agreements will provide meaningful protection of
the Company's trade secrets or adequate remedies in the event of unauthorized
use or disclosure of such information.

See "Risk Factors--Uncertainty of Patent Protection; Dependence on
Proprietary Technology."

GOVERNMENT REGULATION

All of the Company's potential products will require regulatory approval by
U.S. and foreign governmental agencies prior to commercialization in such
countries. Human therapeutic products are subject to rigorous preclinical and
clinical testing and other premarket approval procedures administered by the FDA
and similar authorities in foreign countries. The FDA exercises regulatory
authority over the development, testing, formulation, manufacture, labeling,
storage, record keeping, reporting, quality

39
<PAGE>
control, advertising, promotion, export and sale of the Company's potential
products. Similar requirements are imposed by government agencies in foreign
countries. In some cases, local and state requirements also apply.

Gene therapy and cell therapy are relatively new technologies and have not
been extensively tested in humans. The regulatory requirements governing gene
and cell therapy products and related clinical procedures are uncertain and are
subject to change. Obtaining approval from the FDA and other regulatory
authorities for a new therapeutic product is likely to take several years, if it
is ever obtained, and is likely to involve substantial expenditures. Moreover,
ongoing compliance with applicable requirements can entail the continued
expenditure of substantial resources. Difficulties or unanticipated costs may be
encountered by the Company in its efforts to secure necessary governmental
approvals, which could delay or preclude the Company from marketing its
products.

The activities required before a new therapeutic agent may be marketed in
the United States begin with preclinical pharmacology and toxicology testing.
Preclinical testing includes laboratory evaluation and requires animal studies
to assess the product's potential safety and efficacy. Animal safety studies
must be conducted in accordance with the FDA's Good Laboratory Practice
regulations. The results of these studies must be submitted to the FDA as part
of an IND, which must be reviewed and cleared by the FDA before proposed
clinical testing can begin. Clinical trials must be conducted in accordance with
Good Clinical Practices under protocols that detail the objectives of the trial,
the parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each clinical protocol must be submitted to the FDA as part of the
IND. The FDA's review or approval of a study protocol does not necessarily mean
that, if the trial is successful, it will constitute proof of efficacy or
safety. Further, each clinical trial must be approved by and conducted under the
auspices of an independent Institutional Review Board ("IRB") at the institution
at which the trial will be conducted. The IRB will consider, among other things,
ethical factors, the safety of human subjects and the possible liability of the
institution. The IRB is also responsible for continuing oversight of the
approved protocols in active trials. An IRB may require changes in a protocol,
and there can be no assurance that an IRB will permit any given trial to be
initiated or completed.

Clinical trials are typically conducted in three sequential phases, although
the phases may overlap. In Phase I, gene therapy clinical trials generally are
conducted with a small number of patients, who may or may not be afflicted with
a specific disease, to determine the preliminary safety profile. In Phase II,
clinical trials are conducted with larger groups of patients afflicted with a
specific disease in order to determine preliminary efficacy and optimal dosages
and to obtain expanded evidence of safety. In Phase III, large-scale,
multicenter, comparative clinical trials are conducted with patients afflicted
with a target disease in order to provide enough data for the statistical proof
of efficacy and safety required by the FDA and others for market approval. The
FDA receives reports on the progress of each phase of clinical testing, and it
may require the modification, suspension or termination of clinical trials if an
unwarranted risk is presented to patients. Because gene therapy products are a
new category of therapeutics, there can be no assurance as to the length of the
clinical trial period or the number of patients the FDA will require to be
enrolled in the clinical trials in order to establish the safety and efficacy of
such products.

FDA marketing approval must be obtained after completion of clinical trials
of a new product. The Company expects that its products will be regulated as
biological products. According to the FDA's 1993 notice outlining its regulatory
approach to somatic and gene therapy products, these products are also subject
to the drug provisions of the Federal Food, Drug and Cosmetic Act. This notice
also stated, however, that the FDA's regulatory approach may evolve as
scientific knowledge increases in the area of somatic and gene therapy. Current
regulations relating to biologic drugs will require the Company to submit to the
FDA both a PLA and an ELA, which must be approved by the FDA before commercial
marketing is permitted. The PLA/ELA must include results of product development
activities, preclinical studies and clinical trials, in addition to detailed
manufacturing information. FDA approval of PLA/ELAs generally takes at least one
year. The process may take substantially longer if the FDA has questions or

40
<PAGE>
concerns about a product. The FDA may also request additional data relating to
safety and efficacy. Notwithstanding the submission of relevant data, the FDA
may ultimately decide that a PLA/ELA does not satisfy its regulatory criteria
for approval. The FDA may modify the scope of the desired claims or require the
addition of warnings or other safety-related information and require additional
clinical tests following approval based upon product safety data and,
accordingly, the product remains subject to continual review, and later
discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restrictions on marketing a
product or in withdrawal of the product from the market, as well as possible
civil or criminal sanctions.

The FDA recently amended its regulations to eliminate the ELA requirement
for therapeutic DNA plasmid products, therapeutic synthetic peptide products of
40 or fewer amino acids, monoclonal antibody products for IN VIVO use, and
therapeutic recombinant DNA-related products. Manufacturers of these products,
including the Company's collaborators and any third party manufacturers
contracted by the Company, will instead be required to submit a biologics
license application, which will include, among other information, nonclinical
and clinical data demonstrating that the manufactured product meets prescribed
standards for safety, purity and potency and information pertaining to
manufacturing methods. It is unclear whether any of the Company's products will
fall within the category of products for which the ELA requirement has been
eliminated, or what effect such elimination may have on product development for
FDA review.

The FDA requires that manufacturers of a product comply with current Good
Manufacturing Practices ("cGMP") regulations, both as a condition for performing
clinical studies and for product approval. In complying with cGMP requirements,
manufacturers must expend time, money and effort on a continuing basis in
production, record keeping and quality control. Manufacturing facilities are
subject to periodic inspections by the FDA to ensure compliance. Failure to pass
such inspections may subject the manufacturer to possible FDA action such as the
suspension of manufacturing, seizure of the product, withdrawal of approval or
other regulatory sanctions. The FDA may also require the manufacturer to recall
a product.

In addition to regulations enforced by the FDA, the Company is also subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other federal, state and local regulations. The Company's
research and development activities involve the controlled use of hazardous
materials, chemicals, biological materials and radioactive compounds. Although
the Company believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by local, state and federal
laws and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any resulting damages, and any such liability
could exceed the Company's resources.

See "Risk Factors--Extensive Government Regulation; No Assurance of
Regulatory Approval," "Risk Factors--Lack of Manufacturing Capability," "Risk
Factors--Hazardous Materials," and "--Manufacturing."

COMPETITION

The Company is aware of a number of companies and institutions that are
developing or considering the development of potential gene therapy, cell
therapy treatments and angiogenic protein infusion therapies, including
early-stage gene therapy companies, fully integrated pharmaceutical companies,
universities, research institutions, governmental agencies and other healthcare
providers. Additionally, there are a number of medical device companies which
are developing innovative surgical procedures including: (i) laser-based systems
to perform transmyocardial revascularization to stimulate coronary angiogenesis
and (ii) companies developing surgical devices and systems to perform minimally
invasive cardiothoracic surgery to replace traditional mechanical
revascularization techniques, such as coronary bypass surgery, and less invasive
procedures such as catheter-based treatments, including angioplasty,

41
<PAGE>
atherectomy and coronary stenting. In addition, the Company's potential products
will be required to compete with existing pharmaceutical products, or products
developed in the future, that are based on established technologies.

Many of the Company's competitors have substantially more financial and
other resources, larger research and development staffs and more experience and
capability in researching, developing and testing products in clinical trials,
in obtaining FDA and other regulatory approvals and in manufacturing, marketing
and distribution than the Company. In addition, the competitive positions of
other early-stage companies may be enhanced significantly through their
collaborative arrangements with large pharmaceutical companies or academic
institutions. The Company's competitors may succeed in developing, obtaining
patent protection for, receiving FDA and other regulatory approvals for, or
commercializing products more rapidly than the Company. If the Company is
successful in commercializing its products, it will be required to compete with
respect to manufacturing efficiency and marketing capabilities, areas in which
it has no experience.

The Company also competes with others in acquiring products or technology
from research institutions or universities. The Company's competitors may
develop new technologies and products that are available for sale prior to the
Company's potential products or that are more effective than the Company's
potential products. In addition, competitive products may be manufactured and
marketed more successfully than the Company's potential products. Such
developments could render the Company's potential products less competitive or
obsolete, and could have a material adverse effect on the Company's business,
financial condition and results of operations.

See "Risk Factors--Early Stage of Product Development and of Gene Therapies;
Risk of Technological Obsolescence," and "Risk Factors--Competition."

MANUFACTURING

The Company does not have manufacturing capacity and currently plans to seek
to establish relationships with third party manufacturers for the manufacture of
clinical trial material and the commercial production of any products it may
successfully develop. Schering AG is responsible for all activities relating to
the manufacture of products developed under the Schering Agreement. There can be
no assurance that the Company will be able to establish relationships with third
party manufacturers on commercially acceptable terms or that third party
manufacturers will be able to manufacture products in commercial quantities
under good manufacturing practices as mandated by the FDA on a cost-effective
basis. The Company's dependence on third parties for the manufacture of its
products may adversely affect the Company's profit margins and its ability to
develop and commercialize products on a timely and competitive basis. Further,
there can be no assurance that manufacturing or quality control problems will
not arise in connection with the manufacture of the Company's products or that
third party manufacturers will be able to maintain the necessary governmental
licenses and approvals to continue manufacturing the Company's products. Any
failure to establish relationships with third parties for its manufacturing
requirements on commercially acceptable terms would have a material adverse
effect on the Company. See "Risk Factors--Lack of Manufacturing Capability."

SALES AND MARKETING

The Company does not plan to develop its own sales and marketing capability
for products developed by the Company. The Company plans to rely solely upon its
strategic partners to market and sell such products. Schering AG is responsible
for all activities relating to the marketing and sale of products developed
under the Schering Agreement. See "Risk Factors--Reliance on Collaborative
Relationships"; "Risk Factors--Lack of Manufacturing Capability," and "Risk
Factors--Lack of Sales and Marketing Capability."

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HUMAN RESOURCES

As of March 31, 1998, the Company had 27 full-time employees, including 14
in research and development and 13 in finance and administration. Of these
employees, 12 hold advanced degrees, of which seven are M.D.s or Ph.D.s. The
Company's success will depend in large part on its ability to attract and retain
key employees and scientific advisors. Competition among biotechnology and
pharmaceutical companies for highly skilled scientific and management personnel
is intense. There can be no assurance that the Company will be successful in
retaining its existing personnel or advisors, or in attracting qualified
employees. See "Risk Factors--Dependence on Key Personnel and Advisors."

FACILITIES

Collateral currently occupies approximately 7,000 square feet of
administrative space in San Diego, California. The lease covering these
administrative offices will expire on December 31, 1998. The Company has entered
into a real estate lease for approximately 17,000 square feet of administrative
office space in San Diego, California and expects to occupy this space in
December 1998. This lease has a six-year term with one five-year renewal option.
In addition, the Company is completing construction of a new 11,000 square foot
preclinical research center in San Diego, California. The Company expects to
commence research activities in this new facility in the second quarter of 1998.
This lease has an initial five-year term and has two five-year renewal options.

LEGAL PROCEEDINGS

As of the date of this Prospectus, the Company is not a party to any legal
proceedings.

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<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES

The executive officers, directors and key employees of the Company as of
March 31, 1998 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>

Jack W. Reich, Ph.D. (1)............................. 49 Director, President and Chief Executive Officer and
Co-Founder

Christopher J. Reinhard (2).......................... 44 Director, Chief Operating and Chief Financial Officer
and Co-Founder

Craig S. Andrews (1)................................. 45 Director, Secretary and Co-Founder

George Chuppe, II.................................... 40 Controller

Robert L. Engler, M.D................................ 53 Director, Vice President, Medical Director and
Co-Founder

H. Kirk Hammond, M.D................................. 48 Director, Vice President, Research and Co-Founder

Kathleen E. Rooney................................... 49 Vice President, Administration

Ruth Wikberg-Leonardi................................ 57 Vice President, Regulatory Affairs and Quality
Assurance

David F. Hale (2).................................... 49 Director

David E. Robinson (1)................................ 49 Director

Elise G. Klein....................................... 43 Director
</TABLE>

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

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

JACK W. REICH, PH.D. is a co-founder of the Company and has served as a
director and as President and Chief Executive Officer of the Company since April
1995. In May 1995, Dr. Reich co-founded MyoTech, Inc., a newly established
venture based upon a novel clinical service model and drug therapy to treat
chronic muscle injury, which was sold in November 1996. From October 1994 to
January 1995, Dr. Reich was Senior Vice President of Enterprise Partners, a
Southern California-based venture capital firm that has played a key role in
developing biotechnology and medical technology companies. From September 1987
to October 1994, Dr. Reich was Vice President, Regulatory Affairs and Quality
Operations of Gensia, Inc. ("Gensia"), a biopharmaceutical company formed to
discover, develop, manufacture and market novel pharmaceutical products for the
diagnosis and treatment of human disease. Dr. Reich received a B.A. in Biology
from Washington and Jefferson College, a B.S. in Pharmacy from Creighton
University, an M.S. in Hospital Pharmacy Administration from Temple University
and a Ph.D. in Pharmaceuticals-International Pharmaceutical Administration from
Temple University.

CHRISTOPHER J. REINHARD is a co-founder of the Company and has served as a
director of the Company and as Chief Financial Officer since April 1995 and as
Chief Operating Officer since July 1997. From 1995 to 1997, Mr. Reinhard
co-founded and was Vice President of Advanced Access Inc., a national direct
marketing services and research company. From 1986 to 1990, Mr. Reinhard served
as Vice President and Managing Director of the Henley Group, a diversified
industrial and manufacturing group, and as Vice President of various public and
private companies created by the Henley Group, including Fisher Scientific
Group, a leading international distributor of laboratory equipment and test
apparatus for the scientific community, Instrumentations Laboratory, IMED
Corporation, a medical device company, Wheelabrator Technologies, an energy and
environmental services company, and Henley Properties Inc., a real estate

44
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company. From 1980 to 1985, prior to the formation of the Henley Group, Mr.
Reinhard was Assistant Treasurer of the Signal Companies Inc., which in 1986 was
merged with Allied Corporation to form Allied-Signal, a diversified
manufacturing company. Mr. Reinhard is a director of Water Management Services,
Inc., a private engineering services company which was formerly an operating
unit of American Standard. Mr. Reinhard received a B.S. in Finance and an M.B.A.
from Babson College.

CRAIG S. ANDREWS, J.D. is a co-founder of the Company and has served as a
director of the Company since April 1995 and Secretary since July 1997. Since
March 1987, Mr. Andrews has been a partner in the law firm of Brobeck, Phleger &
Harrison LLP and has specialized in representing emerging growth companies. Mr.
Andrews has broad experience in founding companies and in financing transactions
as well as general business and corporate law. Mr. Andrews has played an
important role in the formation and development of numerous start-up
biotechnology companies. Mr. Andrews is a director of Encad, Inc, a public
company that designs and manufactures wide-format color inkjet printers. Mr.
Andrews received a B.A. from the University of California at Los Angeles and a
J.D. from the University of Michigan.

GEORGE CHUPPE, II has served as controller of the Company since October
1997. Mr. Chuppe was Director of Finance at Alliance Pharmaceutical Corp. from
March 1994 to September 1997. From August 1989 to February 1994 Mr. Chuppe held
various positions at General Instrument Corporation, VideoCipher Division,
including Manager of Accounting. Mr. Chuppe was a Senior Auditor at Ernst &
Young from January 1987 to July 1989. Mr. Chuppe is a Certified Public
Accountant and received a B.A. in Business--Economics from the University of
California--Santa Barbara and an M.S. in Accounting from San Diego State
University.

ROBERT L. ENGLER, M.D. is a co-founder of the Company and has served as a
director of the Company and as Vice President, Medical Director since April
1995. Dr. Engler has been Professor of Medicine at UCSD since 1988, Associate
Chief of Staff for Research and Development at the Veterans' Affairs Medical
Center since 1989, and a faculty member of the Institute for Biomedical
Engineering, UCSD since 1991. Dr. Engler is a clinical cardiologist practicing
at the San Diego Veterans' Affairs Healthcare System. From its founding in 1987
to 1997, Dr. Engler was a Scientific Advisor to Gensia. Dr. Engler received a
B.A. in Physics from the University of North Carolina and an M.D. from
Georgetown University.

H. KIRK HAMMOND, M.D. is a co-founder of the Company and has served as a
director of the Company since April 1995 and as Vice President, Research since
April 1995. Since 1994, Dr. Hammond has been Associate Professor of Medicine at
UCSD. Since 1983, Dr. Hammond has been an active basic research scientist and
cardiologist at the San Diego Veterans' Affairs Healthcare System. Dr. Hammond's
laboratory at UCSD has recently focused on the development of gene therapy to
treat cardiovascular disease and Dr. Hammond was the primary co-inventor of the
technology that served as the basis for the formation of Collateral. Dr. Hammond
received an M.D. from Indiana University in 1980 and is board certified in
internal medicine (1983) and cardiovascular diseases (1987).

KATHLEEN E. ROONEY has served as Vice President, Administration since August
1996. From November 1995 to August 1996, Ms. Rooney was Director of Project
Planning at Sequana Therapeutics Inc., a genomics company focused on positional
cloning and functional assessment of human genes. From October 1987 to November
1995, Ms. Rooney was Director of Project Planning and Administration at Gensia
coordinating the discovery, development and manufacturing of several novel drug
candidates from preclinical research through to the submission of NDAs with the
FDA. From 1975 to 1987, Ms. Rooney held various positions at the Scripps Clinic
and Research Foundation including Chief Medical Technologist, Administrative
Director of Pathology Services and Ancillary Services Administrator. Ms. Rooney
received a B.S. in Medical Technology from the University of Wisconsin and an
M.B.A. from San Diego State University.

RUTH WIKBERG-LEONARDI has served as Vice President, Regulatory Affairs and
Quality Assurance since May 1996. From March 1991 to May 1995, Ms.
Wikberg-Leonardi was Director of Regulatory Affairs at Gensia. Ms.
Wikberg-Leonardi has 30 years of experience in the pharmaceutical industry,
including 15

45
<PAGE>
years at Kabi, a Swedish pharmaceutical company, with responsibilities in
pharmaceutical drug development and pilot plant production of tablets, small
volume parenterals and oral liquids. Ms. Wikberg-Leonardi's regulatory affairs
responsibilities in Sweden included work with conventional biologics and drugs
such as plasma products, growth factors and thrombolytics, subsequently working
with recombinant DNA products such as monoclonal antibodies and growth hormone.
In the United States, Ms. Wikberg-Leonardi has spent more than 10 years working
in the regulatory area with recombinant proteins and conventional drugs,
obtaining approvals for products both in Europe and the United States through
filing of Marketing Applications, PLAs and NDAs. Ms. Wikberg-Leonardi received a
B.S. in Pharmacy from Royal Pharmaceutical Institute, Stockholm.

DAVID F. HALE has served as a director of the Company since August 1995. Mr.
Hale is currently President and CEO of Women First HealthCare. Prior to that,
Mr. Hale served as President and CEO of Gensia Sicor, Inc. from June 1987 to
December 1997 and President of Hybritech Incorporated from 1982 to 1987. Mr.
Hale was Vice President and General Manager of BBL Microbiology Systems, a
division of Becton Dickinson & Company from 1980 to 1982 and held a number of
positions with Johnson & Johnson from 1971 to 1980. He serves as a Director of
Dura Pharmaceuticals, Inc., a respiratory pharmaceutical company, and Gensia
Sicor, Inc., the California HealthCare Institute, Biocom San Diego, the VESO
Foundation and several private healthcare companies.

DAVID E. ROBINSON has served as a Director of the Company since December
1995. Mr. Robinson has served as President and Chief Executive Officer of Ligand
Pharmaceuticals Inc. since 1991 and as Chairman of the Board since 1996. Mr.
Robinson is a Director of the Cancer Center Foundation of the University of
California at San Diego, the California Healthcare Institute, the Biotechnology
Industry Organization, Neurocrine Biosciences Inc., a public biotechnology
company, as well as several private healthcare companies. Mr. Robinson received
a B.A. in political science and history from MacQuaire University and an M.B.A.
from the University of South Wales, Australia.

ELISE G. KLEIN has served as a Director of the Company since November 1997.
Ms. Klein has served as Vice President of Sales and Corporate Development of
Berlex Laboratories Inc. since June 1997 and as Vice President and General
Manager, Diagnostic Imaging since July 1993. Ms. Klein has over 20 years of
experience in the pharmaceutical industry with Berlex Laboratories Inc., a
subsidiary of Schering AG of Berlin, Germany. Ms. Klein received a B.A. in
Sociology from Franklin and Marshall College and an M.S. in Zoology from Rutgers
University.

Members of the Board currently hold office and serve until the next annual
meeting of the stockholders of the Company or until their respective successors
have been elected and qualified. The Board is currently comprised of eight
directors. All executive officers are elected annually by and serve at the
discretion of the Board. All of the Company's executive officers are employed by
the Company at will.

Pursuant to the Company's 1998 Stock Incentive Plan, to be effective upon
the effectiveness of this Offering, directors who are not officers or employees
of the Company are eligible to receive periodic option grants under an Automatic
Option Grant Program. See "--Director Compensation" and "--Benefit Plans--1998
Stock Incentive Plan."

COMMITTEES OF THE BOARD OF DIRECTORS

On March 11, 1996, the Board established a Compensation Committee and, on
July 15, 1997, the Board established an Audit Committee. The Compensation
Committee, currently consisting of Messrs. Andrews and Robinson and Dr. Reich,
is responsible for recommending salaries and incentive compensation for
executive officers and key personnel, including stock options. Mr. Robinson is
Chairman of the Compensation Committee. The Audit Committee, currently
consisting of Messrs. Hale and Reinhard, is responsible for recommending the
Company's independent auditors and reviewing the results and scope of audit and
other services provided by such auditors. Prior to March 11, 1996, the functions
of the Compensation Committee were performed by the entire Board and, prior to
July 15, 1997, the functions of the Audit Committee were performed by the entire
Board. Dr. Reich, a director and the Company's

46
<PAGE>
President and Chief Executive Officer, and Mr. Reinhard, a director and the
Company's Chief Operating and Chief Financial Officer, both participated in the
deliberations of the Board regarding executive compensation since April 1995,
but neither participated in the deliberations regarding his own compensation.
Upon the effectiveness of this registration statement, Dr. Reich will no longer
be on the Compensation Committee.

SCIENTIFIC ADVISORY BOARD

The Company has retained a group of scientific advisors to serve on its
Scientific Advisory Board. The Scientific Advisory Board provides Collateral
with specific expertise in the areas of molecular biology, immunology, cell
biology and clinical medicine relevant to the product and technology development
efforts now underway at the Company. The Scientific Advisory Board meets
periodically with the Company's scientific personnel and management to discuss
the Company's present research and development activities and long-term
strategies. The following individuals are currently members of the Scientific
Advisory Board:

<TABLE>
<S> <C>
Andrew Baird, Ph.D. ....... Vice President, Research and Development, PRIZM
Pharmaceuticals, Inc.

Claudio Basilico, M.D. .... Professor and Chairman, New York University School of
Medicine

Peter Bohlen, Ph.D. ....... Vice President, Research, Imclone Systems, Inc.

Paul Insel, M.D. .......... Professor of Medicine and Pharmacology, UCSD

Eric Olson, Ph.D. ......... Professor and Chairman, University of Texas,
Southwestern Medical Center
</TABLE>

Each member of the Scientific Advisory Board has entered into a scientific
advisor consulting agreement, or similar consulting agreement, with the Company
in the fields of interest to the Company, whereby the member agrees to provide
advice and occasional scientific counsel to the Company. Each member receives
cash compensation for attending the Scientific Advisory Board meetings. In
addition, most of the Scientific Advisory Board members were granted options to
purchase shares of Common Stock at exercise prices between approximately $0.05
and $0.28 per share that in general are subject to four-year vesting schedules.
The scientific advisors are also employed by employers other than the Company
and may have commitments to, or consulting contracts with, other entities that
may limit their availability to the Company. Although generally each scientific
advisor has agreed not to perform services for another entity that would create
a conflict of interest with the scientific advisor's services for the Company,
there can be no assurance that such a conflict will not arise. Inventions or
processes discovered by a scientific advisor while serving in the capacity as a
member of the Scientific Advisory Board will become the property of the Company;
however, any inventions or processes discovered by a scientific advisor at any
other time will not become the property of the Company. The scientific advisor
and consulting agreements contain confidentiality and non-use provisions.

EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth information concerning the aggregate
compensation paid by the Company to the Company's Chief Executive Officer and
each of the other four most highly compensated executive officers whose salary
and bonus for 1997 exceeded $100,000 (the "Named Executive Officers") for
services rendered in all capacities to the Company for the fiscal year ended
December 31, 1997:

47
<PAGE>
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ----------------------------------
--------------------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($) COMPENSATION($)(3) AWARD(S)($) SARS(#)
- ---------------------------- --------- ----------- ----------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>

Jack W. Reich, Ph.D......... 1997 $ 298,712 $ 70,000 -- -- --
President, Chief Executive
Officer and Director

Christopher J. Reinhard..... 1997 $ 213,713 $ 70,000 -- -- --
Chief Operating Officer,
Chief Financial Officer
and Director

Robert L. Engler, M.D....... 1997 $ 100,000 $ 35,000 $ 140,000(4) -- --
Vice President, Medical
Director and Director

H. Kirk Hammond, M.D........ 1997 $ 145,936 $ 35,000 -- -- --
Vice President, Research
and Director

Ruth Wikberg-Leonardi....... 1997 $ 127,744 $ 25,000 -- -- --
Vice President, Regulatory
Affairs and Quality
Assurance

<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION($)
- ---------------------------- -----------------
<S> <C>
Jack W. Reich, Ph.D......... $ 6,532
President, Chief Executive
Officer and Director
Christopher J. Reinhard..... $ 4,003
Chief Operating Officer,
Chief Financial Officer
and Director
Robert L. Engler, M.D....... --
Vice President, Medical
Director and Director
H. Kirk Hammond, M.D........ --
Vice President, Research
and Director
Ruth Wikberg-Leonardi....... --
Vice President, Regulatory
Affairs and Quality
Assurance
</TABLE>

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

(1) Pursuant to Instruction to Item 402(b) of Regulation S-K promulgated by the
Securities and Exchange Commission (the "Commission"), information with
respect to fiscal years prior to 1997 have not been included as the Company
was not a reporting company pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
information has not been previously reported to the Commission in response
to a filing requirement.

(2) Includes amounts deferred pursuant to the Company's 401(k) Plan.

(3) The aggregate amount of perquisites and other personal benefits, if any, did
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for each Named Executive Officer and has therefore been omitted.

(4) Amount paid to Dr. Engler during 1997 as a special allowance in connection
with his full-time employment with the Company during his 18-month
sabbatical leave from the San Diego Veterans' Affairs Medical Center.

STOCK OPTIONS

The Company granted no stock options or stock appreciation rights ("SARs")
during the Company's prior fiscal year to the Named Executive Officers. On April
17, 1998, the Company granted incentive stock options to Ms. Wikberg-Leonardi, a
Named Executive Officer and the Company's Vice President, Regulatory Affairs and
Quality Assurance, to purchase 17,100 shares of the Common Stock. The exercise
price per share in effect under such options is $4.92, the fair value per share
of the Common Stock on the grant date. Such options are subject to vesting in
equal monthly installments over a 4 year period measured from the vesting
commencement date of April 17, 1998 and are exercisable for a 10-year term from
the date of grant.

OPTION EXERCISES AND HOLDINGS

There were no option exercises by the Named Executive Officers during the
1997 fiscal year. No SARs were exercised during the 1997 fiscal year or
outstanding as of March 31, 1998.

COMPENSATION COMMITTEE INTERLOCKS

During the year ended December 31, 1997, the Compensation Committee of the
Company's Board established the levels of compensation for the Company's
executive officers. The current members of the Company's Compensation Committee
are Messrs. Andrews and Robinson and Dr. Reich. Dr. Reich did

48
<PAGE>
not participate in deliberations regarding his own compensation. Upon the
effectiveness of this registration statement, Dr. Reich will no longer be on the
Compensation Committee.

EMPLOYMENT ARRANGEMENTS AND CHANGE OF CONTROL ARRANGEMENTS

The Company does not have employment agreements with any of its Named
Executive Officers although certain key members of the Company's scientific
staff, including Drs. Engler and Hammond, have entered into Scientific Advisory
Consulting Agreements with the Company. Such agreements may be terminated at any
time by either party, with or without cause. See "--Director Compensation."

DIRECTOR COMPENSATION

The Company reimburses its Directors for all reasonable and necessary travel
and other incidental expenses incurred in connection with their attendance at
meetings of the Board. Directors are not currently compensated for serving on
the Board. Pursuant to the Company's 1998 Stock Incentive Plan, to be effective
upon the effectiveness of this Offering, directors who are not officers or
employees of the Company will receive periodic option grants under the Automatic
Option Grant Program. The Automatic Option Grant Program will become effective
on the date that the Underwriting Agreement for the Offering is executed (the
"Underwriting Date"). Under the Automatic Option Grant Program, each individual
who first becomes a non-employee Board member at any time after the Underwriting
Date will automatically receive an option grant for 15,000 shares of Common
Stock on the date such individual joins the Board, provided such individual has
not been in the prior employ of the Company. In addition, on the date of each
Annual Stockholders Meeting held after the Underwriting Date, each non-employee
Board member who is to continue to serve as a non-employee Board member will
automatically be granted an option to purchase 5,000 shares of Common Stock,
provided such individual has served on the Board for at least six months.

Each automatic grant for the non-employee Board members will have a term of
10 years, subject to earlier termination following the optionee's cessation of
Board service. Each automatic option will be immediately exercisable for all of
the option shares; however, any unvested shares purchased under the option will
be subject to repurchase by the Company, at the exercise price paid per share,
should the optionee cease Board service prior to vesting in those shares. The
shares subject to each initial 15,000-share automatic option grant will vest in
successive equal annual installments upon the individual's completion of each
year of Board service over the three-year period measured from the option grant
date. Each 5,000-share automatic option grant will vest in equal monthly
installments over a one-year period measured from the option grant date.
However, the shares subject to each automatic grant will immediately vest in
full upon certain changes in control or ownership of the Company or upon the
optionee's death or disability while a Board member. See "--Benefit Plans--1998
Stock Incentive Plan."

In 1995, the Company sold (as adjusted for the 1.9-for-1 stock split)
942,020 shares of the Company's Common Stock at an aggregate purchase price of
$495.80 to Dr. Engler pursuant to a certain Restricted Stock Issuance Agreement
(the "Engler Restricted Stock Issuance Agreement"). The shares issued under the
Engler Restricted Stock Issuance Agreement are subject to a right of repurchase
which lapses in a series of installments upon completion of service by Dr.
Engler in accordance with the terms of a Scientific Advisor Consulting
Agreement. Such Scientific Advisor Consulting Agreement was entered into by the
Company with Dr. Engler, a Company Director, Vice President, and Medical
Director in October 1995. This Scientific Advisor Consulting Agreement may be
terminated by either party at any time, with or without cause.

In 1995, the Company sold (as adjusted for the 1.9-for-1 stock split)
1,768,520 shares of the Company's Common Stock at an aggregate purchase price of
$930.80 to Dr. Hammond pursuant to a certain Restricted Stock Issuance Agreement
(the "Hammond Restricted Stock Issuance Agreement"). The shares issued under the
Hammond Restricted Stock Issuance Agreement are subject to a right of repurchase
which lapses in a series of installments upon completion of services by Dr.
Hammond in

49
<PAGE>
accordance with the terms of a Scientific Advisor Consulting Agreement. Such
Scientific Advisor Consulting Agreement was entered into by the Company with Dr.
Hammond, a Company Director and the Company's Vice President, Research in
October 1995. This Scientific Advisor Consulting Agreement may be terminated by
either party at any time, with or without cause.

In 1995, the Company sold 248,520, 247,760, 343,520, 190,000 and 1,322,020
shares of its Common Stock to Messrs. Andrews, Hale, Reinhard, Robinson and Dr.
Reich, respectively, at an aggregate purchase price of $130.80, $130.40,
$180.80, $100.00 and $695.80, respectively (together with the shares sold to
Drs. Engler and Hammond pursuant to the Engler Restricted Stock Issuance
Agreement and the Hammond Restricted Stock Issuance Agreement, the "Restricted
Shares") pursuant to certain Restricted Stock Issuance Agreements (along with
the Engler Restricted Stock Issuance Agreement and the Hammond Restricted Stock
Issuance Agreement, collectively, the "Founder Restricted Stock Issuance
Agreements").

The Founder Restricted Stock Issuance Agreements provide that one half of
the Restricted Shares sold pursuant to such agreements shall be immediately
vested and the Company shall have no repurchase right with respect to such
shares. The remaining one half of the Restricted Shares shall vest, and the
Company's repurchase right shall lapse, in a series of successive equal monthly
installments over the 36 month period following August 9, 1995. That portion of
the Restricted Shares subject to the Company's repurchase right are also subject
to certain restrictions which prohibit the transfer, assignment, encumbrance or
other disposition of such shares.

In March 1996, the Company sold 22,585, 20,685, 20,685, 22,587, 20,687,
20,687 and 20,687 shares of Common Stock to Messrs. Andrews, Hale, Robinson,
Reinhard and Drs. Reich, Hammond and Engler at an aggregate purchase price of
$118.87, $108.87, $108.87 $118.88, $108.88, $108.88 and $108.88, respectively
per share (collectively, the "Nonrestricted Shares") pursuant to certain Stock
Issuance Agreements (collectively, the "Director Stock Issuance Agreements").
The Nonrestricted Shares are fully vested.

On December 15, 1997, Ms. Klein, who has been a director of the Company
since November 1997, received options to purchase 19,000 shares of Common Stock
at an exercise price of $0.74 per share. Such options are subject to vesting in
equal monthly installments over a four year period, provided that no shares
shall vest until Ms. Klein completes one year of service to the Company, as
measured from her vesting commencement date of November 4, 1997.

On April 17, 1998, the Company granted stock options to certain directors
and executive officers of the Company. These include options granted to Mr.
Reinhard to purchase an aggregate of 82,650 shares of Common Stock. The latter
options include non qualified options to purchase 62,325 shares of Common Stock
and to the extent they qualify as such, incentive stock options to purchase
20,325 shares of Common Stock. All of the options granted to Mr. Reinhard have
an exercise price of $4.92, the fair value per share of the Common Stock on the
grant date, and are exercisable for a 10-year term following the grant date. In
addition, on such date the Company granted to each of Ms. Wikberg-Leonardi and
Ms. Rooney options to purchase 17,100 shares of Common Stock. These options are
intended as incentive stock options to the extent they qualify as such. The
exercise price per share in effect under each such option, is $4.92, the fair
value per share of the Common Stock on the grant date, and the respective
options are exercisable for a 10-year term following the date of grant. The
Company also granted to each of Drs. Reich, Hammond and Engler options to
purchase 2,850 shares of Common Stock. The options granted to Dr. Reich are
intended as incentive stock options to the extent they qualify as such. The
exercise price per share under each such option is $5.41, 110% of the fair value
per share of the Common Stock on the grant date and the respective options are
exercisable for a five year term following the date of grant. The options
granted to Drs. Hammond and Engler are non-qualified options. The exercise price
per share under such options is $4.92, the fair value per share of the Common
Stock on the grant date and the respective options are exercisable for a 10-year
term following the date of grant. All of the above options are subject to
vesting in equal monthly installments over a four year period measured from the
vesting commencement date of April 17, 1998.

50
<PAGE>
BENEFIT PLANS
1998 STOCK INCENTIVE PLAN

The Company's 1998 Stock Incentive Plan is intended to serve as the
successor equity incentive program to the Company's 1995 Stock Option Plan, as
amended (the "Predecessor Plan"). The 1998 Plan was adopted by the Board on
April 20, 1998 and is subject to shareholder approval, which approval is
expected to be obtained prior to circulation of preliminary prospectuses. The
Discretionary Option Grant and Stock Issuance Programs under the 1998 Plan
shall, subject to shareholder approval, be effective as of the Board's adoption
of the Plan (the "Plan Effective Date"). The Automatic Option Grant Program will
become effective on the Underwriting Date.

A total of 2,296,835 shares of Common Stock have been authorized for
issuance under the 1998 Plan. Such share reserve consists of (i) the number of
shares available for issuance under the Predecessor Plan on the Plan Effective
Date, including the shares subject to outstanding options, and (ii) an
additional increase of approximately 1,500,000 shares. To the extent any
unvested shares of Common Stock issued under the Predecessor Plan are
repurchased by the Company after the Underwriting Date, at the exercise price
paid per share, in connection with the holder's termination of service, those
repurchased shares will be added to the reserve of Common Stock available for
issuance under the 1998 Plan, but in no event will more than 437,100 shares be
added to the reserve from such repurchases. In no event, however, may any one
participant in the 1998 Plan receive option grants, separately exercisable stock
appreciation rights and direct stock issuances for more than 250,000 shares of
Common Stock in the aggregate per calendar year.

On the Underwriting Date, outstanding options and unvested shares issued
under the Predecessor Plan will be incorporated into the 1998 Plan, and no
further option grants will be made under the Predecessor Plan. The incorporated
options will continue to be governed by their existing terms, unless the Plan
Administrator elects to extend one or more features of the 1998 Plan to those
options. Except as otherwise noted below, the incorporated options have
substantially the same terms as will be in effect for grants made under the
Discretionary Option Grant Program of the 1998 Plan.

The 1998 Plan is divided into five separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board members and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
their fair market value on the grant date, (ii) the Stock Issuance Program under
which such individuals may, in the Plan Administrator's discretion, be issued
shares of Common Stock directly, through the purchase of such shares at a price
not less than their fair market value at the time of issuance or as a bonus tied
to the performance of services, (iii) the Salary Investment Option Grant Program
which may, in the Plan Administrator's sole discretion, be activated for one or
more calendar years and, if so activated, will allow executive officers and
other highly compensated employees the opportunity to apply a portion of their
base salary to the acquisition of special below-market stock option grants, (iv)
the Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible non-employee Board members to purchase
shares of Common Stock at an exercise price equal to their fair market value on
the grant date and (v) the Director Fee Option Grant Program which may, in the
Plan Administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow non-employee Board members the
opportunity to apply a portion of any annual retainer fee otherwise payable to
them in cash each year to the acquisition of special below-market option grants.

The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to be
made, the number of shares subject to each such grant or issuance, the status of
any granted option as either an incentive stock option or a non-statutory stock
option under the federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain

51
<PAGE>
outstanding. The Compensation Committee will also have the exclusive authority
to select the executive officers and other highly compensated employees who may
participate in the Salary Investment Option Grant Program in the event that
program is activated for one or more calendar years, but neither the
Compensation Committee nor the Board will exercise any administrative discretion
with respect to option grants made under the Salary Investment Option Grant
Program or under the Automatic Option Grant or Director Fee Option Grant Program
for the non-employee Board members. All grants under those three latter programs
will be made in strict compliance with the express provisions of each such
program.

The exercise price for the shares of Common Stock subject to option grants
made under the 1998 Plan may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. The option may also be exercised
through a same-day sale program without any cash outlay by the optionee. In
addition, the Plan Administrator may provide financial assistance to one or more
optionees in the exercise of their outstanding options or the purchase of their
unvested shares by allowing such individuals to deliver a full-recourse,
interest-bearing promissory note in payment of the exercise price and any
associated withholding taxes incurred in connection with such exercise or
purchase.

The Plan Administrator will have the authority to effect, with the consent
of the affected option holders, the cancellation of outstanding options under
the Discretionary Option Grant Program (including options incorporated from the
Predecessor Plan) in return for the grant of new options for the same or
different number of option shares with an exercise price per share based upon
the fair market value of the Common Stock on the new grant date.

Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from the
Company equal to the excess of (i) the fair market value of the vested shares of
Common Stock subject to the surrendered option over (ii) the aggregate exercise
price payable for such shares. Such appreciation distribution may be made in
cash or in shares of Common Stock. None of the incorporated options from the
Predecessor Plan contain any stock appreciation rights.

In the event that the Company is acquired by merger or sale of substantially
all of its assets or securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or otherwise continued in effect will
automatically accelerate in full, and all unvested shares under the
Discretionary Option Grant and Stock Issuance Programs will immediately vest,
except to the extent the Company's repurchase rights with respect to those
shares are assigned to the successor corporation or otherwise continued in
effect. The Plan Administrator will have complete discretion to grant one or
more options under the Discretionary Option Grant Program which will become
exercisable on an accelerated basis for all of the option shares upon (i) an
acquisition or other change in control of the Company, whether or not those
options are assumed or continued in effect, or (ii) the termination of the
optionee's service within a designated period following an acquisition or other
change in control in which those options are assumed or continued in effect. The
vesting of outstanding shares under the Stock Issuance Program may be
accelerated upon similar terms and conditions. The Plan Administrator is also
authorized under the Discretionary Option Grant and Stock Issuance Programs to
grant options and to structure repurchase rights so that the shares subject to
those options or repurchase rights will immediately vest in connection with a
change in the majority of the Board by reason of one or more contested elections
for Board membership, with such vesting to occur either at the time of such
change in control or upon the subsequent termination of the individual's service
within a designated period following such change in control. The options
incorporated from the Predecessor Plan will also vest on an accelerated basis
upon an acquisition of the Company by merger or asset sale, unless those options
are assumed by the successor entity. The Plan Administrator will have the
discretion to extend one or more of the other acceleration provisions of the
1998 Plan to those options.

In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer and
other highly compensated employee of the Company selected for participation may
elect, prior to the start of the calendar year, to reduce his or her

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<PAGE>
base salary for that calendar year by a specified dollar amount not less than
$10,000 nor more than $50,000. If such election is approved by the Plan
Administrator, the individual will automatically be granted, on the first
trading day in January of the calendar year for which that salary reduction is
to be in effect, a non-statutory option to purchase that number of shares of
Common Stock determined by dividing the salary reduction amount by two-thirds of
the fair market value per share of Common Stock on the grant date. The option
will be exercisable at a price per share equal to one-third of the fair market
value of the option shares on the grant date. As a result, the total spread on
the option shares at the time of grant (the fair market value of the option
shares on the grant date less the aggregate exercise price payable for those
shares) will be equal to the amount of salary invested in that option. The
option will become exercisable for the option shares in a series of twelve (12)
equal monthly installments over the calendar year for which the salary reduction
is to be in effect and will be subject to full and immediate vesting upon
certain changes in the ownership or control of the Company.

Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member at any time after the Underwriting Date will
automatically receive an option grant for 15,000 shares of Common Stock on the
date such individual joins the Board, provided such individual has not been in
the prior employ of the Company. In addition, on the date of each Annual
Stockholders Meeting held after the Underwriting Date, each non-employee Board
member who is to continue to serve as a non-employee Board member (including
individuals who joined the Board prior to the Underwriting Date, if any) will
automatically be granted an option to purchase 5,000 shares of Common Stock,
provided such individual has served on the Board for at least six months.

Should the Director Fee Option Grant Program be activated in the future,
each non-employee Board member will have the opportunity to apply all or a
portion of any annual retainer fee otherwise payable in cash to the acquisition
of a below-market option grant. The option grant will automatically be made on
the first trading day in January in the year for which the retainer fee would
otherwise be payable in cash. The option will have an exercise price per share
equal to one-third of the fair market value of the option shares on the grant
date, and the number of shares subject to the option will be determined by
dividing the amount of the retainer fee applied to the program by two-thirds of
the fair market value per share of Common Stock on the grant date. As a result,
the total spread on the option (the fair market value of the option shares on
the grant date less the aggregate exercise price payable for those shares) will
be equal to the portion of the retainer fee invested in that option. The option
will become exercisable for the option shares in a series of twelve (12) equal
monthly installments over the calendar year for which the election is to be in
effect. However, the option will become immediately exercisable for all the
option shares upon (i) certain changes in the ownership or control of the
Company or (ii) the death or disability of the optionee while serving as a Board
member.

The shares subject to each option under the Salary Investment Option Grant,
Automatic Option Grant and Director Fee Option Grant Programs will immediately
vest upon (i) an acquisition of the Company by merger or asset sale, (ii) the
successful completion of a tender offer for more than 50% of the Company's
outstanding voting stock or (iii) a change in the majority of the Board effected
through one or more contested elections for Board membership.

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<PAGE>
Limited stock appreciation rights will automatically be included as part of
each grant made under the Automatic Option Grant, Salary Investment Option Grant
and Director Fee Option Grant Programs and may be granted to one or more
officers of the Company as part of their option grants under the Discretionary
Option Grant Program. Options with such a limited stock appreciation right may
be surrendered to the Company upon the successful completion of a hostile tender
offer for more than 50% of the Company's outstanding voting stock. In return for
the surrendered option, the optionee will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the excess
of (i) the highest price per share of Common Stock paid in connection with the
tender offer over (ii) the exercise price payable for such share.

The Board may amend or modify the 1998 Plan at any time, subject to any
required stockholder approval. The 1998 Plan will terminate on the earliest of
(i) April 20, 2008, (ii) the date on which all shares available for issuance
under the 1998 Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.

1998 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1998 Employee Stock Purchase Plan was adopted by the Board on
April 20, 1998 and is subject to shareholder approval, which approval is
expected to be obtained prior to circulation of preliminary prospectuses. The
Purchase Plan will become effective immediately upon the execution of the
Underwriting Agreement for the Offering. The Purchase Plan is designed to allow
eligible employees of the Company and participating subsidiaries to purchase
shares of Common Stock, at semi-annual intervals, through their periodic payroll
deductions under the Purchase Plan, and a reserve of 50,000 shares of Common
Stock has been established for this purpose.

The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration for 24 months. However, the initial
offering period will begin on the execution date of the Underwriting Agreement
and will end on the last business day in July 2000. The next offering period
will commence on the first business day in August 2000, and subsequent offering
periods will commence as designated by the Plan Administrator.

Individuals who are eligible employees (scheduled to work more than 20 hours
per week for more than 5 calendar months per year) on the start date of any
offering period may enter the Purchase Plan on that start date or on any
subsequent semi-annual entry date (the first business day of February or August
each year). Individuals who become eligible employees after the start date of
the offering period may join the Purchase Plan on any subsequent semi-annual
entry date within that offering period.

Payroll deductions may not exceed 10% of base salary, and the accumulated
payroll deductions of each participant will be applied to the purchase of shares
on his or her behalf on each semi-annual purchase date (the last business day in
January and July each year) at a purchase price per share equal to 85% of the
lower of (i) the fair market value of the Common Stock on the participant's
entry date into the offering period or (ii) the fair market value on the
semi-annual purchase date. In no event, however, may any one participant
purchase more than 1,000 shares, nor may all participants in the aggregate
purchase more than 12,500 shares on any one semi-annual purchase date.

Should the fair market value per share of Common Stock on any purchase date
be less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day, with all
participants in the terminated offering to be automatically transferred to the
new offering period.

In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of such acquisition. The purchase price will be equal to 85%
of the lower of (i) the fair market value per share of Common Stock on the
participant's entry date into the offering period in which such acquisition
occurs or (ii) the fair market value per share of Common Stock immediately prior
to such acquisition.

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<PAGE>
The Purchase Plan will terminate on the earlier of (i) the last business day
of July 2008, (ii) the date on which all shares available for issuance under the
Purchase Plan shall have been sold pursuant to purchase rights exercised
thereunder or (iii) the date on which all purchase rights are exercised in
connection with an acquisition of the Company by merger or asset sale.

The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, certain amendments to the Purchase Plan may require stockholder
approval.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Company's Certificate of Incorporation eliminates, subject to certain
exceptions, directors' personal liability to the Company or its stockholders for
monetary damages for breaches of fiduciary duties. The Certificate of
Incorporation does not, however, eliminate or limit the personal liability of a
director for (i) any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (iv) for any transaction from
which the director derived an improper personal benefit.

The Company's Bylaws to be in effect upon the Company's reincorporation in
Delaware (the "Restated Bylaws") provide that the Company shall indemnify its
directors, officers, employees and agents to the fullest extent permitted under
the General Corporation Law of Delaware. In addition, the Company has entered or
will enter into indemnification agreements with its directors and officers that
provide for indemnification in addition to the indemnification provided in the
Company's Restated Bylaws. The indemnification agreements contain provisions
that may require the Company, among other things, to indemnify its directors and
executive officers against certain liabilities (other than liabilities arising
from intentional or knowing and culpable violations of law) that may arise by
reason of their status or service as directors or executive officers of the
Company or other entities to which they provide service at the request of the
Company and to advance expenses they may incur as a result of any proceeding
against them as to which they could be indemnified. The Company believes that
these provisions and agreements are necessary to attract and retain qualified
directors and officers. The Company has obtained an insurance policy covering
directors and officers for claims that such directors and officers may otherwise
be required to pay or for which the Company is required to indemnify them,
subject to certain exclusions.

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<PAGE>
CERTAIN TRANSACTIONS

Since its inception in April 1995, the Company has issued, in private
placement transactions, shares of its Preferred Stock as follows (not adjusted
for the 1.9-for-1 forward stock split): 374,532 shares of Series A Preferred
Stock at a price of $6.675 per share; 374,532 shares of Series B Preferred Stock
at a price of $6.675 per share; and 472,476 shares of Series C Preferred Stock
at a price of $8.00 per share. The purchasers of Preferred Stock include, among
others, the following executive officers, directors and holders of more than 5%
of the Company's outstanding stock and their respective affiliates (all shares
of Preferred Stock will be convertible into Common Stock on a one-for-one basis
at the time of the Offering):

<TABLE>
<CAPTION>
PREFERRED STOCK
------------------------------- TOTAL
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS SERIES A SERIES B SERIES C CONSIDERATION
- ------------------------------------------------------------------ --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Schering Berlin Venture Corp...................................... 374,532 374,532 84,976 $ 5,679,810
The Wellcome Trust................................................ -- -- 375,000 $ 3,000,000
</TABLE>

Holders of Preferred Stock are entitled to certain registration rights with
respect to the Common Stock issued or issuable upon conversion thereof. See
"Description of Capital Stock--Registration Rights."

The Company issued two Secured Promissory Notes dated August 12, 1995 and
October 12, 1995 (collectively, the "Notes") in the aggregate amount of $500,000
to Schering Berlin Venture Corp., a holder of more than 5% of the Company's
securities. Both the Notes were amended and restated on May 16, 1996
(collectively, the "Amended Notes"). The Amended Notes bear interest at 1% below
the prime rate; at March 31, 1998, the Amended Notes bore interest at 7.5%. Such
notes are secured by the assets of the Company. Principal and interest on the
notes are due and payable upon demand on or after June 30, 1999. Such principal
and interest will be offset against the next milestone payment due to the
Company under the Schering AG agreement, if and when such milestone is met. See
"Business--Collaborative and Licensing Arrangements."

Mr. Andrews, a Director, Secretary and Co-founder of the Company, is a
partner in the law firm of Brobeck, Phleger & Harrison LLP, which will provide
legal services to the Company in its current year and has provided legal
services in connection with corporate matters to the Company since the Company's
inception in April 1995.

There are no formal employment arrangements between the Company and any of
its officers, all of whom are employed by the Company at will. The Company has
entered into specific consulting agreements with Dr. Hammond and Dr. Engler, two
of the Company's Named Executive Officers. Such agreements may be terminated at
any time by either party. The Company has also entered or will enter into
indemnification agreements with each of its directors and officers. See
"Management--Employment Arrangements and Change of Control Provisions,"
"Management--Director Compensation," and "Management--Limitations on Liability
and Indemnification Matters."

In 1997, the Company paid Dr. Engler $140,000 as a special allowance in
connection with his full-time employment with the Company during his 18-month
sabbatical leave from the San Diego Veterans Affairs Medical Center. See
"Management--Executive Compensation."

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors and principal stockholders and their affiliates will be
approved in accordance with the Delaware General Corporation Law, assuming the
shareholders approve the reincorporation of the Company in Delaware, by a
majority of the Board, including a majority of the independent and disinterested
directors of the Board, and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.

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<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998, as adjusted to
reflect the sale of the shares of Common Stock offered in the Offering, by (i)
each person known to the Company to beneficially own more than 5% of the Common
Stock, (ii) each of the Company's directors, (iii) each of the Named Executive
Officers and (iv) all directors and executive officers of the Company as a
group:

<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED(2)
NUMBER OF ------------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER (1) OWNED SHARES (1) OFFERING OFFERING
- -------------------------------------------------------------------------- ---------------- ----------- -----------
<S> <C> <C> <C>
Schering Berlin Venture Corp.............................................. 1,584,676
110 East Hanover Avenue
Cedar Knolls, New Jersey 07929 19.1% 13.6%
The Wellcome Trust........................................................ 712,500
183 Euston Road
London, England NW1 2BE 8.6% 6.1%
Jack W. Reich(3).......................................................... 1,339,857 16.2% 11.5%
Christopher J. Reinhard(4)................................................ 602,657 7.2% 5.2%
Craig S. Andrews(5)....................................................... 238,045 2.9% 2.0%
Robert L. Engler(6)....................................................... 965,557 11.6% 8.3%
H. Kirk Hammond(7)........................................................ 1,792,057 21.6% 15.4%
Ruth Wikberg-Leonardi(8).................................................. 131,100 1.6% 1.1%
David F. Hale............................................................. 265,785 3.2% 2.3%
David E. Robinson......................................................... 210,685 2.5% 1.8%
Elise G. Klein(9)......................................................... 19,000 * *
All directors and executive officers as a group
(10 persons)(3)--(9).................................................... 5,695,845 67.5% 48.4%
</TABLE>

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

* Less than 1%

(1) Except as otherwise indicated, (i) the stockholders named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws,
where applicable and (ii) the address of all stockholders listed in the
table is 9360 Towne Center Drive, Suite 110, San Diego, California 92121.
Share ownership in each case includes shares issuable upon exercise of
certain outstanding options as described in the footnotes below.

(2) Percentage of ownership is based on 8,292,573 shares of Common Stock
outstanding on March 31, 1998, and is calculated pursuant to Rule
13d-3(d)(1) under the Exchange Act.

(3) Includes 76,000 shares beneficially owned by the Jordon A. Reich Trust dated
1/31/92, Mary P. Reich, Trustee and 76,000 shares beneficially owned by the
Jason D. Reich Trust dated 1/31/92, Mary P. Reich, Trustee. Dr. Reich
disclaims beneficial ownership of these shares. Also includes 2,850 shares
issuable upon exercise of options exercisable within 60 days of March 31,
1998.

(4) Includes 38,000 shares beneficially owned by Griffin J. Reinhard, a minor
son of Mr. Reinhard. Also includes 82,650 shares issuable upon exercise of
options exercisable within 60 days of March 31, 1998.

(5) Includes 28,500 shares and 28,500 shares of Common Stock beneficially owned
by two family trusts for the benefit of Lisa C. Andrews and Daniel C.
Andrews, respectively. Mr. Andrews exercises shared voting and investment
power with respect to all such shares. Mr. Andrews disclaims beneficial
ownership of these shares.

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<PAGE>
(6) Includes 867,707 shares beneficially owned by the Robert L. Engler Separate
Property Trust. Also includes 47,500 shares beneficially owned by Mathew
Lawrence Engler and 47,500 shares beneficially owned by Eric Hershel Engler.
Dr. Engler disclaims beneficial ownership of these shares. Also includes
2,850 shares issuable upon exercise of options exercisable within 60 days of
March 31, 1998.

(7) Includes 72,200 shares of Common Stock held in a family trust for the
benefit of Dr. Hammond's children, 142,500 shares of Common Stock held in a
trust for the benefit of Talisin T. Hammond and 142,500 shares of Common
Stock held in a trust for the benefit of Shura X. Hammond. Dr. Hammond
exercises shared voting and investment power with respect to all such
shares. Dr. Hammond disclaims beneficial ownership of these shares. Also
includes 2,850 shares issuable upon exercise of options exercisable within
60 days of March 31, 1998.

(8) Includes 17,100 shares issuable upon exercise of options exercisable within
60 days of March 31, 1998.

(9) Includes 19,000 shares issuable upon exercise of options exercisable within
60 days of March 31, 1998. Ms. Klein is Vice President of Sales and
Corporate Development of Berlex Laboratories Inc., a subsidiary of Schering
AG.

DESCRIPTION OF CAPITAL STOCK

The Company is currently a California Corporation. Subject to shareholder
approval, the Company intends to reincorporate in Delaware prior to circulation
of preliminary prospectuses. The following description applies to the capital
stock of the Company assuming reincorporation in Delaware. Following such
reincorporation and upon completion of the Offering, the Company will be
authorized to issue 40,000,000 shares of Common Stock, $0.001 par value per
share, and 5,000,000 shares of undesignated preferred stock, $0.001 par value
per share ("preferred stock").

COMMON STOCK

At March 31, 1998, after giving effect to a 1.9-for-1 forward stock split of
the Company's Common Stock and the conversion, upon the closing of the Offering,
of all shares of Preferred Stock into shares of Common Stock, there were
8,292,573 shares of Common Stock outstanding and held of record by approximately
36 stockholders. The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
Subject to preferences that may be applicable to any outstanding shares of
preferred stock issued following the Company's reincorporation in Delaware,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board out of funds legally available. See "Dividend Policy." All
outstanding shares of Common Stock are fully paid and nonassessable.

PREFERRED STOCK

After completion of the Offering, the Board will have the authority, without
further action by the stockholders, to issue up to 5,000,000 shares of preferred
stock in one or more series and to fix the rights, priorities, preferences,
qualifications, limitations and restrictions, including dividend rights,
conversion rights, voting rights, terms of redemption, terms of sinking funds,
liquidation preferences and the number of shares constituting any series or the
designation of such series, which could decrease the amount of earnings and
assets available for distribution to holders of Common Stock or adversely affect
the rights and powers, including voting rights, of the holders of the Common
Stock. The issuance of preferred stock could have the effect of delaying or
preventing a change in control of the Company or make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the Common Stock and may adversely affect the
voting and other rights of the holders of Common Stock. There are currently no
shares of preferred stock outstanding and the Company has no current plans to
issue any preferred stock.

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<PAGE>
REGISTRATION RIGHTS

The Company and the holders (the "Holders") of approximately 2.3 million
shares of Common Stock to be issued upon conversion of shares of Preferred Stock
(the "Registrable Securities") are parties to a certain Amended and Restated
Investors' Rights Agreement pursuant to which the Holders are entitled to
certain rights with respect to the registration of such shares of Common Stock
under the Securities Act of 1933, as amended (the "Securities Act"). If the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other stockholders exercising
registration rights, such Holders are entitled to notice of such registration
and are entitled to include shares of such Common Stock therein. A majority of
such Holders of the Registrable Securities are also entitled to certain demand
registration rights pursuant to which they may require the Company to file a
registration statement under the Securities Act at the Company's expense with
respect to their shares of Common Stock, and the Company is required to use its
best efforts to effect such registration. Further, the Holders of such
Registrable Securities may require the Company to file additional registration
statements on Form S-3 at the Company's expense. All of these registration
rights are subject to certain conditions and limitations, among them the right
of the underwriters of an offering to limit the number of shares of Registrable
Securities included in such registration and the right of the Company not to
effect a requested registration within 120 days following an offering of the
Company's securities, including the Offering. The Company is required to bear
all expenses, other than underwriting discounts and commissions, in connection
with any registration of the Registrable Securities. The Company is also
required to indemnify the Holders and the underwriters for the Holders, if any,
under certain circumstances.

All of the registration rights granted by the Company expire on the earlier
of (i) the fifth anniversary of the closing of the Offering or (ii) the date
after which all shares of Common Stock for which registration rights have been
granted may be immediately sold under Rule 144(k) during any 90-day period under
the Securities Act.

ANTITAKEOVER EFFECTS OF PROVISIONS OF SECOND RESTATED CERTIFICATE OF
INCORPORATION, RESTATED BYLAWS AND DELAWARE LAW

CERTIFICATE OF INCORPORATION AND RESTATED BYLAWS

Collateral's Certificate of Incorporation requires that any action required
or permitted to be taken by stockholders of the Company must be effected at a
duly called annual or special meeting of stockholders and may not be effected by
any consent in writing. The Restated Bylaws will not permit stockholders of the
Company to call a special meeting of stockholders. Under the Restated Bylaws,
special meetings may only be called by the Company's Chief Executive Officer,
President, or Chairman of the Board, and shall be called by the President or
Secretary at the written request of a majority of the Board. The Restated Bylaws
will also require that stockholders give advance notice to the Company's
secretary of any nominations for director or other business to be brought by
stockholders at any stockholders' meeting and will require a supermajority vote
of members of the Board and/or stockholders to amend certain Restated Bylaw
provisions. These provisions and other charter and bylaw provisions may have the
effect of discouraging, delaying or preventing certain types of transactions
involving an actual or potential change in control of the Company, including
transactions in which the stockholders might otherwise receive a premium for
their shares over the then current market prices, and may limit the ability of
the stockholders to consider transactions that they may deem to be in their best
interests. Such provisions may also have the effect of preventing changes in the
management of the Company. In addition, the Board of Directors has the authority
to fix the rights and preferences of and issue shares of preferred stock without
action by the

59
<PAGE>
stockholders, which, if issued, may have the effect of delaying or preventing a
change in control of the Company. See "Risk Factors--Effect of Certain
Anti-Takeover Provisions."

DELAWARE TAKEOVER STATUTE

The following description is applicable assuming the shareholders approve
the reincorporation of the Company in Delaware. The Company is subject to
Section 203 of the Delaware General Corporation Law ("Section 203") which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder (defined as any person
or entity that is the beneficial owner of at least 15% of a corporation's voting
stock) for a period of three years following the time that such stockholder
became an interested stockholder, unless: (i) prior to such time, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder's becoming an interested
stockholder; (ii) upon consummation of the transaction that resulted in the
stockholder's becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding, for purposes of determining the
number of shares outstanding, those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer; or
(iii) at or subsequent to such time, the business combination is approved by the
Board and authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, lease, exchange, mortgage, transfer, pledge or other disposition involving
the interested stockholder and 10% or more of the assets of the corporation;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder; (iv) any transaction involving the corporation that has
the effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Based upon the number of shares outstanding as of March 31, 1998 upon
completion of this Offering, there will be 11,622,573 shares of Common Stock of
the Company outstanding. There were also approximately 226,060 shares covered by
vested options outstanding, which are not considered to be outstanding shares.
Of the outstanding shares, approximately 3,352,800 shares, including the
3,330,000 shares of Common Stock sold in this Offering, will be immediately
eligible for resale in the public market without restriction under the
Securities Act, except that any shares purchased in this offering by affiliates
of the Company ("Affiliates"), as that term is defined in Rule 144 under the
Securities Act ("Rule 144"), may generally only be resold in compliance with
applicable provisions of Rule 144. In addition, approximately 2,320,926 shares
are subject to registration rights that will be exercisable six months after the
effective date of the Offering. Beginning approximately 90 days after the date
of this Prospectus, approximately 360,782 additional shares of Common Stock
(including approximately 292,762 shares covered by options exercisable within
the 90-day period following the date of this Prospectus) will become eligible
for immediate resale in the public market, subject to compliance as to certain
of such shares with applicable provisions of Rules 144 and 701.

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<PAGE>
The Company, the executive officers and directors of the Company and certain
security and option holders have agreed pursuant to lock-up agreements not to
offer for sale, contract to sell, pledge, hypothecate, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock, without the prior
written consent of Bear, Stearns & Co. Inc., on behalf of the Underwriters for a
period of 180 days after the effective date of the registration statement of
which this Prospectus is a part. At the end of such 180-day period,
approximately 8,525,443 shares of Common Stock (including approximately 312,617
shares issuable upon exercise of vested options) will be eligible for immediate
resale, subject to compliance with Rule 144 and Rule 701. The remainder of the
approximately 345,874 shares of Common Stock outstanding or issuable upon
exercise of options held by existing stockholders or option holders will become
eligible for sale at various times over a period of less than two years and
could be sold earlier if the holders exercise any available registration rights
or upon vesting pursuant to the Company's standard 4-year vesting schedule.

In general, under Rule 144 as recently amended, beginning approximately 90
days after the effective date of the Registration Statement of which this
Prospectus is a part, a stockholder, including an Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined in
Rule 144) for at least one year from the later of the date such securities were
acquired from the Company or (if applicable) the date they were acquired from an
Affiliate is entitled to sell, within any three-month period, a number of such
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock (approximately 116,226 shares immediately after the offering) or
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
if a period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company or (if applicable) the date
they were acquired from an Affiliate of the Company, a stockholder who is not an
Affiliate of the Company at the time of sale and has not been an Affiliate of
the Company for at least three months prior to the sale is entitled to sell the
shares immediately without compliance with the foregoing requirements under Rule
144.

Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted prior
to this offering) are also restricted securities and, beginning 90 days after
the date of this Prospectus, may be sold by stockholders other than an Affiliate
of the Company subject only to the manner of sale provisions of Rule 144 and by
an Affiliate under Rule 144 without compliance with its one-year holding period
requirement.

Prior to this offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. The Company is unable to estimate
the number of shares that may be sold in the public market pursuant to Rule 144,
since this will depend on the market price of the Common Stock, the personal
circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through an offering of its equity securities.

In addition, the Company intends to register on the effective date of this
offering 2,296,835 shares of Common Stock subject to outstanding options or
reserved for issuance under the Company's 1998 Stock Incentive Plan plus 50,000
shares of Common Stock reserved for issuance under its 1998 Employee Stock
Purchase Plan. Further, upon expiration of such lock-up agreements, holders of
approximately 2,320,926 shares of Common Stock will be entitled to certain
registration rights with respect to such shares. If such holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, such sales could have a material adverse effect on
the market price of the Common Stock.

61
<PAGE>
UNDERWRITING

The Underwriters named below, represented by Bear, Stearns & Co. Inc. (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement (the "Underwriting Agreement") by and
between the Company and the Underwriters, to purchase from the Company the
aggregate number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Bear, Stearns & Co. Inc................................................................................
Raymond James & Associates, Inc........................................................................
Vector Securities International, Inc...................................................................
-----------

Total..........................................................................................
-----------
-----------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to approval of
certain legal matters by counsel and to certain other conditions precedent. If
any of the shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares of Common Stock (other than shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.

The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share, and the Underwriters may allow,
and such dealers may reallow, a concession of not more than $ per share
to certain other dealers. After the initial public offering, the offering price
and other selling terms may be changed by the Representatives. The Common Stock
is offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 499,500 additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial 3,330,000 shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the initial public offering.

The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.

The Representatives have advised the Company that the Underwriters do not
expect to confirm sales to any accounts over which they exercise discretionary
authority.

The executive officers and directors of the Company and certain stockholders
have agreed not to offer for sale, contract to sell, sell, pledge, hypothecate,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for shares of Common Stock,
without the prior written consent of Bear, Stearns & Co. Inc., on behalf of the
Underwriters, for a period of 180 days from the effective date of the
registration statement of which this Prospectus is a part. After such 180-day
period, such persons will be entitled to sell, distribute or otherwise dispose
of the Common Stock that they hold subject to the provisions of applicable
securities laws.

62
<PAGE>
The Company has agreed that it will not offer for sale, contract to sell,
issue, sell, grant any option, warrant or other right to purchase or otherwise
sell or dispose of (or announce any offer of sale, contract of sale, sale, grant
of any option, warrant or other right to purchase or other sale or disposition
of) any shares of its Common Stock or securities convertible into or exercisable
or exchangeable for shares of its Common Stock for a period of 180 days from the
effective date of the registration statement of which this Prospectus is a part
without the prior written consent of Bear, Stearns & Co. Inc.

Prior to the initial public offering, there has been no public market for
the Common Stock of the Company. Consequently, the initial public offering price
for the Common Stock will be negotiated between the Company and the
Representatives. Among the factors to be considered in determining the initial
public offering price of the Common Stock will be prevailing market and economic
conditions, market valuations of other companies engaged in activities similar
to the Company, estimates of the business potential and prospects of the
Company, the present state of the Company's business operations, the Company's
management and other factors deemed relevant.

In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares of Common Stock in the open market or by exercising the
over-allotment option granted to the Underwriters. In addition, the Underwriters
may stabilize or maintain the price of the Common Stock by bidding for or
purchasing shares of Common Stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in the Offering are reclaimed if shares of Common
Stock previously distributed in the Offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the Common Stock to the extent that it discourages resales
thereof. No representation is made as to the magnitude or effect of any such
stabilization or other transactions. Such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, San Diego, California. Members of
such firm own a total of 238,045 shares of the Company's Common Stock. Certain
legal matters relating to the Offering will be passed upon for the Underwriters
by Coudert Brothers, New York, New York.

EXPERTS

The financial statements of the Company for the period from inception (April
3, 1995) to December 31, 1995 and for the years ended December 31, 1996 and
1997, included in this Prospectus and the Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and are included in reliance upon such report
given upon the authority of said firm as experts in accounting and auditing.

The statements in this Prospectus under the captions "Risk
Factors--Uncertainty of Patent Protection; Dependence on Proprietary
Technology," "Risk Factors--Reliance on Collaborative Relationships,"
"Business--Collaborative and Licensing Arrangements" and "Business--Patents and
Proprietary Rights" and other references herein to intellectual property of the
Company have been reviewed and approved by Lyon & Lyon LLP, patent counsel for
the Company, as experts on such matters, and are included herein in reliance
upon that review and approval. Mr. Bradford J. Duft, of counsel to Lyon & Lyon
LLP, owns 210,685 shares of the Company's Common Stock.

63
<PAGE>
ADDITIONAL INFORMATION

The Company has filed with the Commission the Registration Statement under
the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of all or any part thereof may be obtained
at prescribed rates from the Commission's Public Reference Section at such
addresses. Also, the Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. Upon approval of the Common Stock for quotation on the Nasdaq
National Market, such reports, proxy and information statements and other
information also can be inspected at the office of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.

64
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2
Balance Sheets at December 31, 1996 and 1997 and at March 31, 1998 (unaudited)............................. F-3
Statements of Operations for the period from April 3, 1995 (inception) through December 31, 1995, the years
ended December 31, 1996 and 1997, and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................................................. F-4
Statement of Shareholders' Equity for the period from April 3, 1995 (inception) through December 31, 1995,
the years ended December 31, 1996 and 1997, and the three months ended March 31, 1998 (unaudited)........ F-5
Statements of Cash Flows for the period from April 3, 1995 (inception) through December 31, 1995, the years
ended December 31, 1996 and 1997, and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................................................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
Collateral Therapeutics, Inc.

We have audited the accompanying balance sheets of Collateral Therapeutics, Inc.
as of December 31, 1996 and 1997 and the related statements of operations,
shareholders' equity, and cash flows for the period from April 3, 1995
(inception) through December 31, 1995 and the years ended December 31, 1996 and
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Collateral Therapeutics, Inc.
at December 31, 1996 and 1997 and the results of its operations and its cash
flows for the period from April 3, 1995 (inception) through December 31, 1995
and the years ended December 31, 1996 and 1997, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

San Diego, California
January 15, 1998
except for Note 9, as to which the date is
April 20, 1998

The foregoing report is in the form that will be signed upon completion of
certain events as described in Note 9 to the financial statements.

San Diego, California

April 24, 1998

/S/ ERNST & YOUNG LLP

F-2
<PAGE>
COLLATERAL THERAPEUTICS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, EQUITY AT
---------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (NOTE 9)
ASSETS
Current assets:
Cash and cash equivalents................................. $2,429,657 $5,605,361 $5,676,330
Restricted cash--current.................................. -- -- 600,000
Milestone receivable from a related party................. -- 2,000,000 --
Prepaid expenses and other current assets................. 94,573 170,951 449,089
---------- ---------- -----------
Total current assets........................................ 2,524,230 7,776,312 6,725,419
Restricted cash--noncurrent................................. -- -- 72,600
Property and equipment, net................................. 91,516 293,447 559,844
---------- ---------- -----------
$2,615,746 $8,069,759 $7,357,863
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 442,059 $ 683,012 $ 621,535
Deferred revenue.......................................... 214,732 155,043 315,665
---------- ---------- -----------
Total current liabilities................................... 656,791 838,055 937,200
Notes payable to a related party............................ 500,000 500,000 500,000
Commitments
Shareholders' equity:
Series A Convertible Preferred Stock, par value $.001;
374,532 shares authorized, issued and outstanding at
December 31, 1996 and 1997 and at March 31, 1998 (no
shares authorized, issued and outstanding pro forma),
liquidation preference of $2,625,000.................... 375 375 375 $ --
Series B Convertible Preferred Stock, par value $.001;
374,532 shares authorized, issued and outstanding at
December 31, 1997 and March 31, 1998 (no shares
authorized, issued and outstanding pro forma),
liquidation preference of $2,500,000.................... -- 375 375 --
Series C Convertible Preferred Stock, par value $.001;
472,476 shares authorized, issued and outstanding at
December 31, 1997 and March 31, 1998 (no shares
authorized, issued and outstanding pro forma),
liquidation preference of $3,779,808.................... -- 472 472 --
Common Stock, par value $.001; 19,000,000 shares
authorized; 5,889,050 shares issued and outstanding at
December 31, 1996 and 5,971,647 issued and outstanding
at December 31, 1997 and March 31, 1998, (40,000,000
shares authorized and 8,292,573 shares issued and
outstanding pro forma).................................. 5,889 5,972 5,972 8,293
Additional paid-in capital................................ 2,522,168 9,537,189 9,718,149 9,717,050
Deferred compensation..................................... -- (615,979) (631,820) (631,820)
Note receivable secured by common stock................... -- (150,000) (150,000) (150,000)
Accumulated deficit....................................... (1,069,477) (2,046,700) (3,022,860) (3,022,860)
---------- ---------- ----------- -------------
Total shareholders' equity.................................. 1,458,955 6,731,704 5,920,663 $ 5,920,663
---------- ---------- ----------- -------------
-------------
$2,615,746 $8,069,759 $7,357,863
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

See accompanying notes.

F-3
<PAGE>
COLLATERAL THERAPEUTICS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 3, 1995 YEAR ENDED THREE MONTHS
(INCEPTION) DECEMBER 31, ENDED MARCH 31,
THROUGH ------------------------ ------------------------
DECEMBER 31, 1995 1996 1997 1997 1998
----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues under collaborative research
and development agreement with a
related party........................ $ -- $ 1,679,462 $ 5,647,189 $ 814,732 $ 989,378

Expenses:
Research and development............. 398,481 1,142,669 5,058,952 1,095,478 1,335,455
General and administrative........... 270,852 951,239 1,732,289 355,063 711,207
----------------- ----------- ----------- ----------- -----------
Total operating expenses............... 669,333 2,093,908 6,791,241 1,450,541 2,046,662
----------------- ----------- ----------- ----------- -----------
Loss from operations................... (669,333) (414,446) (1,144,052) (635,809) (1,057,284)
Interest income (expense), net......... (10,136) 24,438 166,829 13,739 81,124
----------------- ----------- ----------- ----------- -----------
Net loss............................... $ (679,469) $ (390,008) $ (977,223) $ (622,070) $ (976,160)
----------------- ----------- ----------- ----------- -----------
----------------- ----------- ----------- ----------- -----------
Pro forma net loss per share (Basic and
Diluted)............................. $ (0.16) $ (0.13)
----------- -----------
----------- -----------
Weighted average shares used in
computing pro forma net loss per
share (Basic and Diluted)............ 6,301,472 7,634,162
----------- -----------
----------- -----------
</TABLE>

See accompanying notes.

F-4
<PAGE>
COLLATERAL THERAPEUTICS, INC.

STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
---------------------- ---------------------- PAID-IN DEFERRED SECURED BY ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION COMMON STOCK DEFICIT
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common
Stock at $.0005 per
share for cash....... -- $ -- 5,215,120 $ 5,215 $ (2,470) $ -- $ -- $ --
Net loss............... -- -- -- -- -- -- -- (679,469)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
Balance at December 31,
1995................... -- -- 5,215,120 5,215 (2,470) -- -- (679,469)
Issuance of Series A
Convertible Preferred
Stock at $6.675 per
share................ 374,532 375 -- -- 2,499,625 -- -- --
Issuance of Common
Stock at $.005 per
share for cash....... -- -- 206,530 207 880 -- -- --
Stock options exercised
for cash............. -- -- 467,400 467 24,133 -- -- --
Net loss............... -- -- -- -- -- -- -- (390,008)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
Balance at December 31,
1996................... 374,532 375 5,889,050 5,889 2,522,168 -- -- (1,069,477)
Issuance of Series B
Convertible Preferred
Stock at $6.675 per
share................ 374,532 375 -- -- 2,499,625 -- -- --
Issuance of Series C
Convertible Preferred
Stock at $8.00 per
share, net of
expenses of
$76,539.............. 472,476 472 -- -- 3,702,797 -- -- --
Stock options exercised
for cash............. -- -- 82,597 83 18,789 -- -- --
Deferred compensation
related to stock
options.............. -- -- -- -- 793,810 (793,810) -- --
Amortization of
deferred
compensation......... -- -- -- -- -- 177,831 -- --
Note receivable secured
by Common Stock...... -- -- -- -- -- -- (150,000) --
Net loss............... -- -- -- -- -- -- -- (977,223)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
Balance at December 31,
1997................... 1,221,540 1,222 5,971,647 5,972 9,537,189 (615,979) (150,000) (2,046,700)
Deferred compensation
related to stock
options
(unaudited).......... -- -- -- -- 180,960 (180,960) -- --
Amortization of
deferred compensation
(unaudited).......... -- -- -- -- -- 165,119 -- --
Net loss (unaudited)... -- -- -- -- -- -- -- (976,160)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
Balance at March 31, 1998
(unaudited)............ 1,221,540 $ 1,222 5,971,647 $ 5,972 $9,718,149 $(631,820) $ (150,000) $(3,022,860)
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------
--------- ----------- --------- ----------- ---------- ------------- -------------- ------------

<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Issuance of Common
Stock at $.0005 per
share for cash....... $ 2,745
Net loss............... (679,469)
-------------
Balance at December 31,
1995................... (676,724)
Issuance of Series A
Convertible Preferred
Stock at $6.675 per
share................ 2,500,000
Issuance of Common
Stock at $.005 per
share for cash....... 1,087
Stock options exercised
for cash............. 24,600
Net loss............... (390,008)
-------------
Balance at December 31,
1996................... 1,458,955
Issuance of Series B
Convertible Preferred
Stock at $6.675 per
share................ 2,500,000
Issuance of Series C
Convertible Preferred
Stock at $8.00 per
share, net of
expenses of
$76,539.............. 3,703,269
Stock options exercised
for cash............. 18,872
Deferred compensation
related to stock
options.............. --
Amortization of
deferred
compensation......... 177,831
Note receivable secured
by Common Stock...... (150,000)
Net loss............... (977,223)
-------------
Balance at December 31,
1997................... 6,731,704
Deferred compensation
related to stock
options
(unaudited).......... --
Amortization of
deferred compensation
(unaudited).......... 165,119
Net loss (unaudited)... (976,160)
-------------
Balance at March 31, 1998
(unaudited)............ $ 5,920,663
-------------
-------------
</TABLE>

See accompanying notes.

F-5
<PAGE>
COLLATERAL THERAPEUTICS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
APRIL 3, 1995
(INCEPTION) YEAR ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------- --------------------
1995 1996 1997 1997 1998
----------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net loss...................................... $(679,469) $(390,008) $ (977,223) $(622,070) $(976,160)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization............... 1,443 14,299 144,107 26,661 32,188
Amortization of deferred compensation....... -- -- 177,831 -- 165,119
Changes in operating assets and liabilities:
Milestone receivable from a related
party................................. -- -- (2,000,000) -- 2,000,000
Prepaid expenses and other current
assets................................ (5,661) (88,912) (76,378) 60,620 (278,138)
Accounts payable and accrued expenses... 298,805 143,254 240,953 10,944 (61,477)
Deferred revenue........................ -- 214,732 (59,689) 85,268 160,622
Restricted cash......................... -- -- -- -- (672,600)
----------------- --------- ---------- --------- ---------
Net cash provided by (used in) operating
activities.................................. (384,882) (106,635) (2,550,399) (438,577) 369,554

INVESTING ACTIVITIES
Purchases of property and equipment........... (10,754) (96,504) (346,038) (231,783) (298,585)
----------------- --------- ---------- --------- ---------
Net cash used in investing activities......... (10,754) (96,504) (346,038) (231,783) (298,585)

FINANCING ACTIVITIES
Issuance of Series A convertible preferred
stock....................................... -- 2,500,000 -- -- --
Issuance of Series B convertible preferred
stock....................................... -- -- 2,500,000 -- --
Issuance of Series C convertible preferred
stock....................................... -- -- 3,703,269 -- --
Issuance of common stock...................... 2,745 1,087 -- -- --
Proceeds from exercise of stock options....... -- 24,600 18,872 -- --
Issuance of note receivable secured by common
stock....................................... -- -- (150,000) -- --
Proceeds from notes payable to a related
party....................................... 500,000 -- -- -- --
----------------- --------- ---------- --------- ---------
Net cash provided by financing activities..... 502,745 2,525,687 6,072,141 -- --
----------------- --------- ---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 107,109 2,322,548 3,715,704 (670,360) 70,969
Cash and cash equivalents at beginning of the
period...................................... -- 107,109 2,429,657 2,429,657 5,605,361
----------------- --------- ---------- --------- ---------
Cash and cash equivalents at end of the
period...................................... $ 107,109 $2,429,657 $5,605,361 $1,759,297 $5,676,330
----------------- --------- ---------- --------- ---------
----------------- --------- ---------- --------- ---------
</TABLE>

See accompanying notes.

F-6
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS

Collateral Therapeutics, Inc. (the "Company") is focused on the discovery,
development and commercialization of non-surgical gene therapy products for the
treatment of cardiovascular diseases, including coronary artery disease,
peripheral vascular disease, congestive heart failure and heart attack. The
Company intends to focus on research and development of products while
leveraging its technology through the establishment of product development,
manufacturing and marketing collaborations with select pharmaceutical and
biotechnology companies. The Company was incorporated in California on April 3,
1995 and, subject to shareholder approval, intends to reincorporate in Delaware
prior to the offering contemplated by this prospectus.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less when
purchased. The carrying value of these instruments approximates fair value. The
Company generally invests its excess cash in high credit quality debt
instruments of corporations and financial institutions, and in U.S. government
securities. Such investments are made in accordance with the Company's
investment policy, which establishes guidelines relative to diversification and
maturities designed to maintain safety and liquidity. These guidelines are
periodically reviewed and modified to take advantage of trends in yields and
interest rates. The Company has not experienced any losses on its cash and cash
equivalents.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets, ranging from three years to five years, using the
straight-line method. Leasehold improvements are stated at cost and amortized
over the shorter of the estimated useful lives of the assets or the lease term.

IMPAIRMENT OF LONG-LIVED ASSETS

Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
("SFAS 121"), establishes the accounting for impairment of long-lived assets,
identifiable intangibles and goodwill related to those assets. To date the
Company has not identified any indicators of impairment nor recorded any
impairment losses.

INTERIM FINANCIAL INFORMATION

The accompanying financial statements for the three months ended March 31,
1997 and 1998 are unaudited but include all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
statement of the financial information set forth therein, in accordance with
generally accepted accounting principles.

F-7
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION

The Company currently generates substantially all of its revenue through a
collaborative research and development agreement with a related party (Note 3).
Amounts received in advance for funding of research and development are deferred
and recognized as the related reimbursable expenses are incurred. The Company is
also entitled to milestone and royalty payments upon attaining contract
specified conditions. These amounts are recognized upon satisfaction of the
specified conditions.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenditures are charged to expense as incurred.

STOCK OPTIONS

Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("SFAS 123"), establishes the use of the fair value
based method of accounting for stock-based compensation arrangements, under
which compensation cost is determined using the fair value of stock-based
compensation determined as of the grant date, and is recognized over the periods
in which the related services are rendered. SFAS 123 also permits companies to
elect to continue using the implicit value accounting method specified in
Accounting Principles Board Opinion No. 25 to account for stock-based
compensation related to option grants and stock awards to employees and
directors. The Company has elected to retain the implicit value based method for
such grants and awards, and has disclosed the pro forma effect of using the fair
value based method to account for its stock-based compensation (Note 5).

NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE

Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"). SFAS 128 requires
the presentation of basic earnings (loss) per share and diluted earnings (loss)
per share, if more dilutive, for all periods presented.

In accordance with SFAS 128, basic net loss per share has been computed
using the weighted-average number of shares of Common Stock outstanding during
the period, except that pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 98, common shares issued in each of the periods
presented for nominal consideration, if any, would be included in the
calculation as if they were outstanding for all periods presented. No such
shares have been issued. Diluted net loss per share, which would include
additional potential common shares related to outstanding options, if dilutive,
is unchanged due to the Company's net losses.

Pro forma net loss per share (Basic and Diluted) as presented in the
Statement of Operations has been computed as described above and also gives
effect to the conversion of the convertible Preferred Stock that will
automatically convert upon completion of the Company's initial public offering
(using the as-if converted method) from the original date of issuance.

F-8
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A reconciliation of shares used in the calculation of basic and pro forma
net loss per share follows:

Weighted average shares of common stock
outstanding and shares used in computing net
loss per share (Basic and Diluted).............. 1,798,878 3,599,371 4,651,094 4,212,026 5,313,236
------------ --------- --------- ----------- ---------
Net loss per share (Basic and Diluted)............ $ (0.38) $ (0.11) $ (0.21) $ (0.15) $ (0.18)
------------ --------- --------- ----------- ---------
------------ --------- --------- ----------- ---------
Adjustment to reflect the effect of the assumed
conversion of preferred stock................... 1,650,378 2,320,926
--------- ---------
Shares used in computing pro forma net loss per
share (Basic and Diluted)....................... 6,301,472 7,634,162
--------- ---------
--------- ---------
Pro forma net loss per share (Basic and
Diluted)........................................ $ (0.16) $ (0.13)
--------- ---------
--------- ---------
</TABLE>

USE OF ESTIMATES

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

NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS
130") and Statement of Financial Accounting Standards No. 131, SEGMENT
INFORMATION ("SFAS 131"). Both of these standards are effective for fiscal years
beginning after December 15, 1997. SFAS 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. The Company does not
believe that comprehensive income or loss will be materially different than net
income or loss. SFAS 131 amends the requirements for public enterprises to
report financial and descriptive information about its reportable operating
segments. Operating segments, as defined in SFAS 131, are components of an
enterprise for which separate financial information is available and is
evaluated regularly by the Company in deciding how to allocate resources and in
assessing performance. The financial information is

F-9
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
required to be reported on the basis that is used internally for evaluating the
segment performance. The Company believes it operates in one business and
operating segment and does not believe adoption of SFAS 131 will have a material
impact on the Company's financial statements.

RECLASSIFICATIONS

Certain amounts in prior year financial statements have been reclassified to
conform with the current year presentation.

YEAR 2000 COMPLIANCE

The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 hardware and software issues. The Company
intends to confirm its compliance regarding Year 2000 issues for both internal
and external information systems by the end of 1998. This process will entail
communications with significant suppliers, financial institutions, insurance
companies and other parties that provide significant services to the Company.
Expenditures required to make the Company Year 2000 compliant will be expensed
as incurred and are not expected to be material to the Company's financial
position or results of operations.

2. BALANCE SHEET INFORMATION

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Laboratory equipment.................................... $ 52,139 $ 110,908 $ 131,794
Computer equipment...................................... 39,799 111,881 123,801
Furniture and office equipment.......................... 10,371 178,067 202,708
Leasehold improvements.................................. 4,949 52,440 293,578
---------- ----------- -----------
107,258 453,296 751,881
Accumulated depreciation
and amortization...................................... (15,742) (159,849) (192,037)
---------- ----------- -----------
$ 91,516 $ 293,447 $ 559,844
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

3. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT WITH RELATED PARTY

In May 1996, the Company entered into a collaboration, license and royalty
agreement (the "Schering Agreement") with Schering AG, Germany ("Schering AG")
which established a strategic alliance covering the development and
commercialization of gene therapy products to promote angiogenesis. Under the
Schering Agreement, the Company agreed to conduct research and development in
the field of gene therapy to promote angiogenesis solely with Schering AG during
the term of the Schering Agreement. The Company granted Schering AG an exclusive
worldwide license to all rights to the Company's technology in

F-10
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

3. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT WITH RELATED PARTY
(CONTINUED)
the field of angiogenic gene therapy and to certain other rights to technology
developed by the Company with funding support from Schering AG during the
five-year research and development program under the Schering Agreement. In
exchange for such rights, Schering AG agreed to: (i) purchase up to $5.0 million
of the Company's preferred stock; (ii) provide research and development funding
and support totaling up to $5.0 million annually to support the Company's
research and development pursuant to the Schering Agreement; (iii) pay the
Company milestone payments totaling up to $20.5 million based on the Company's
achievement of milestones pertaining to certain regulatory filings and the
development and commercialization of products under the Schering Agreement per
medical indication for which an angiogenic gene therapy is successfully
developed; and (iv) pay the Company a royalty rate based on worldwide net sales
of each product and to pay an additional supplemental royalty based on worldwide
net sales of each product and the product's cost of goods, up to a maximum
specified royalty rate. To date, substantially all revenue received by the
Company has been from its collaboration with Schering AG. Schering AG may
terminate the collaborative agreement upon 60 days' written notice and payment
of a termination fee to the Company.

In 1996 and 1997, the Company received cash payments under the agreement
totaling $1,894,000 and $3,588,000, respectively, of which $1,679,000 and
$3,433,000, respectively, was earned and $215,000 and $155,000 of which was
recorded as deferred revenue at December 31, 1996 and 1997, respectively. At
December 31, 1997, Schering was also committed to pay an additional $2,000,000
for the Company's achievement of a program milestone in 1997. Such payment was
received in January 1998.

For the three month period ended March 31, 1998, the Company received cash
payments under the agreement totalling $1,150,000 (excluding the $2,000,000
milestone payment previously described) of which $834,000 was earned and
recorded as revenue and the remaining $316,000 was recorded as deferred revenue
at March 31, 1998.

In 1995, the Company entered into two promissory notes with Schering
totaling $500,000 to fund operations. Principal and interest on the notes is due
and payable upon demand after June 30, 1999. The notes bear interest at 1% below
the prime rate; at March 31, 1998, the notes bore interest at 7.5%. Such notes
are secured by the assets of the Company.

4. COMMITMENTS

LEASES

The Company leases office facilities under an operating lease agreement that
expires on December 31, 1998. In December 1997, the Company entered into a
multi-year operating lease for research facilities commencing April 15, 1998,
terms of which include renewal options, payment of executory costs such as a
real estate taxes, insurance, and common area maintenance, and escalation
clauses. In accordance with the terms of the lease agreement, in January 1998,
the Company became committed to spend at least $200,000 in 1998 on building
improvements at the research facility and is required to maintain restricted
cash balances totaling $600,000 on behalf of the landlord until such time as all
building improvements at the research facility are complete. Additionally, the
Company is required to maintain

F-11
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

4. COMMITMENTS (CONTINUED)
restricted cash balances totaling $72,600 on behalf of the landlord as rent
deposits through the end of the lease term (April 2003).

In April 1998, the Company entered into a multi-year operating lease for
administrative facilities with payments to commence on occupancy which is
expected in December 1998. Terms of the lease include renewal options, payment
of executory costs such as real estate taxes, insurance, and common area
maintenance, and escalation clauses. The Company is required to maintain
restricted cash balances totaling $693,000 on behalf of the landlord until such
time as the Company completes an initial public offering.

Annual future minimum lease obligations for operating leases as of December
31, 1997, including the leases entered into in December 1997 and April 1998, are
as follows:

<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31: LEASES
- ------------------------------------------------------------- ------------
<S> <C>
1998....................................................... $ 309,000
1999....................................................... 694,000
2000....................................................... 713,000
2001....................................................... 733,000
2002....................................................... 753,000
Thereafter................................................. 990,000
------------
Total.................................................. $ 4,192,000
------------
------------
</TABLE>

Rent expense was $91,000 and $106,000 for the years ended December 31, 1996
and 1997, respectively, $25,000 for the period from April 3, 1995 (inception)
through December 31, 1995, and $33,000 and $215,000 for the three month periods
ended March 31, 1997 and 1998, respectively.

LICENSE AND RESEARCH AGREEMENTS

In connection with certain license and research agreements, the Company paid
fees of $379,000 and $3,108,000 for the years ended December 31, 1996 and 1997,
respectively, and $707,000 and $564,000 for the three months ended March 31,
1997 and 1998, respectively. The fees were charged to research and development.
The Company has future commitments to pay fees totaling $476,635, as well as
royalties upon commercial sales, if any, on certain products.

5. SHAREHOLDERS' EQUITY

COMMON STOCK

As of March 31, 1998, the Company had issued 5,971,647 shares of common
stock at prices ranging from $.0005 to $.24 per share. In connection with
certain stock purchase agreements with employees and consultants, and options
exercised under the 1995 option plan, the Company has the option to repurchase,
at the original issue price, unvested shares in the event of termination of
employment or engagement. Shares issued under these agreements generally vest
over three or four years. At March 31, 1998, 410,767 shares were subject to
repurchase by the Company.

F-12
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

5. SHAREHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK

In May 1996, the Company issued 374,532 shares of Series A Preferred Stock
at $6.675 per share, for total proceeds of $2,500,000. In June 1997, the Company
issued 374,532 shares of Series B Preferred Stock at $6.675 per share, for total
proceeds of $2,500,000. Also in June 1997, the Company issued 472,476 shares of
Series C Preferred Stock at $8.00 per share, for net proceeds of $3,703,269.

The Preferred Stock is convertible, at the option of the holder, on a
one-for-one basis into the Company's common stock, subject to certain
antidilution adjustments. At December 31, 1997, the Company has reserved
2,320,926 shares of the Company's common stock for issuance upon conversion of
preferred stock. The Preferred Stock will convert automatically upon the closing
of an underwritten public offering of the Company's common stock with proceeds
to the Company of at least $10,000,000 and at a price not less than $5.26 per
share or upon the consent of a majority of the holders of the outstanding shares
of the Series A, B and C Preferred Stock. The holders of Preferred Stock, as a
group, are entitled to elect one director to the Board of Directors, and in all
other matters, the holder of each share of Preferred Stock is entitled to one
vote for each share of common stock into which it would convert.

Annual dividends of $.334 per share of Series A and Series B Preferred
Stock, and $.40 per share of Series C Preferred Stock, are payable whenever
funds are legally available when, as and if declared by the Board of Directors.
No dividends have been declared to date. In the event of a liquidation of the
Company, holders of preferred stock are entitled to a liquidation preference of
the original purchase price per share plus the sum of a 5% return, compounded
annually, on the original purchase price of the Preferred Stock and any declared
but unpaid dividends. If upon occurrence of such event, the amounts thus
distributed among the holders of the Preferred Stock are insufficient to permit
the payment to such holders of the full aforesaid preferential amounts, then,
the entire assets and funds of the corporation legally available for
distribution shall be distributed ratably among holders of the Preferred Stock
in proportion to the number of shares of such stock owned by each such holder.

STOCK OPTIONS

In November 1995, the Company adopted a stock option plan, under which
1,011,248 shares of common stock were reserved for issuance upon exercise of
options granted by the Company. In June 1997, the number of shares reserved for
issuance under this plan was increased to 1,346,832 shares. The stock option
plan provides for the grant of incentive and nonstatutory options. The exercise
price of incentive stock options must equal at least the fair value on the date
of grant, and the exercise price of nonstatutory stock options may be no less
than 85% of the fair value on the date of grant. The options are immediately
exercisable for a period up to ten years after the date of grant and vest over a
four year period from the date of grant. Unvested common shares obtained on
early exercise of options are subject to repurchase by the Company at the
original issue price.

F-13
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

5. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of option activity is as follows:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- -----------
<S> <C> <C>
Granted............................................................. 278,350 $ .03
Exercised........................................................... -- $ --
Cancelled........................................................... -- $ --
-----------
Balance at December 31, 1995.......................................... 278,350 $ .03

Granted............................................................. 604,200 $ .13
Exercised........................................................... (467,400) $ .05
Cancelled........................................................... -- $ --
-----------
Balance at December 31, 1996.......................................... 415,150 $ .14

Granted............................................................. 330,600 $ .47
Exercised........................................................... (82,597) $ .23
Cancelled........................................................... (3,853) $ .10
-----------
Balance at December 31, 1997.......................................... 659,300 $ .30

Granted............................................................. 49,400 $ .74
Exercised........................................................... -- $ --
Cancelled........................................................... -- $ --
-----------
Balance at March 31, 1998............................................. 708,700 $ .33
-----------
-----------
</TABLE>

A summary of options outstanding at March 31, 1998 is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED WEIGHTED EXERCISE
AVERAGE AVERAGE PRICE
RANGE OF EXERCISE OPTIONS REMAINING LIFE EXERCISE OPTIONS OF OPTIONS
PRICES OUTSTANDING IN YEARS PRICE EXERCISABLE EXERCISABLE
- ---------------------- ----------- ----------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$.0005................ 123,500 7.58 $ .0005 123,500 $ .0005
$.05.................. 60,800 7.69 $ .05 60,800 $ .05
$.23-.28.............. 330,600 9.0 $ .26 330,600 $ .26
$.74.................. 193,800 9.71 $ .74 193,800 $ .74
----------- -----------
708,700 9.13 $ .33 708,700 $ .33
----------- -----------
----------- -----------
</TABLE>

Included in the above tables are 123,500 shares that were granted outside
the 1995 plan.

Adjusted pro forma information regarding net loss and net loss per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options and stock purchase plan under the fair value
method of SFAS 123. The fair value for these options was estimated at the date
of grant using the "Minimum Value" method for options pricing with the following
assumptions for 1995,

F-14
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

5. SHAREHOLDERS' EQUITY (CONTINUED)
1996 and 1997: risk-free interest rates of 6.50%; dividend yield of 0%; and a
weighted-average expected life of the options of six years.

For purposes of adjusted pro forma disclosures, the estimated fair value of
the options are amortized to expense over the vesting period. The
weighted-averaged fair value of options granted during 1996 and 1997 was $.05
and $.16, respectively, and for the first three months of 1998 was $.24. The
Company's adjusted pro forma information is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------------------
1996 1997 1997 1998
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Adjusted pro forma net loss.......... $ (390,683) $ (983,882) $ (623,222) $ (980,867)
Adjusted pro forma net loss
per share (Basic and Diluted)...... $ (0.11) $ (0.16) $ (0.15) $ (0.13)
</TABLE>

The effect of applying SFAS 123 to adjusted pro forma net loss and adjusted
pro forma net loss per share (Basic and Diluted) for the period from April 3,
1995 (inception) through December 31, 1995 was not material. The pro forma
effect on net loss for the periods presented may not be representative of the
pro forma effect on net loss in future years because they reflect less than four
years of vesting.

DEFERRED COMPENSATION

Through March 31, 1998, the Company recorded deferred compensation for the
difference between the exercise price of stock options granted and the deemed
fair value for financial statement presentation purposes of the Company's common
stock at the date of issuance or grant. The deferred compensation will be
amortized over the vesting period of the related options, which is generally
four years. Gross deferred compensation recorded during the year ended December
31, 1997 and the three months ended March 31, 1998 totaled $793,810 and
$180,960, respectively, and related amortization expense totaled $177,831 and
$165,119 in 1997 and 1998, respectively.

6. RELATED PARTY TRANSACTIONS

A partner of the Company's general counsel firm is a member of the Board of
Directors and is a shareholder. The Company incurred expenses of $53,107,
$104,367 and $145,252 for the period from April 3, 1995 (inception) through
December 31, 1995 and the years ended December 31, 1996 and 1997, respectively,
and $10,772 and $51,563 for the three months ended March 31, 1997 and 1998,
respectively, with its general counsel. The Company had payables to the general
counsel of $53,000, $9,000 and $5,000 at December 31, 1995, 1996 and 1997,
respectively, and $9,000 and $49,000 at March 31, 1997 and 1998, respectively.

In December 1997, the Company loaned $150,000 to a shareholder who is also
of counsel with the Company's lead patent attorneys. This loan bears interest at
ten percent per annum, is due in one year, and is secured by the common stock of
the Company owned by such shareholder.

F-15
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

6. RELATED PARTY TRANSACTIONS (CONTINUED)
During 1997, a shareholder and member of the Company's Board of Directors
was an executive officer of the landlord for the Company's office facilities.
The Company has leased these facilities through December 31, 1998 (see Note 4).

7. INCOME TAXES

At December 31, 1997, the Company had federal and California income tax net
operating loss carryforwards of approximately $1,758,000 and $1,755,000,
respectively. The federal and California tax loss carryforwards will begin to
expire in 2010 and 2003, respectively, unless previously utilized. The Company
also has federal and California research tax credit carryforwards of
approximately $7,000 and $6,800, respectively, which will begin to expire in
2010, unless previously utilized.

Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of
the Company's net operating loss and credit carryforwards may be limited if
cumulative changes in ownership of more than 50% occur during any three year
period.

Significant components of the Company's deferred tax assets are shown below.
A valuation allowance has been recognized to offset the deferred tax assets as
of December 31, 1997 as realization of such assets is uncertain.

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1996 1997
----------- -----------
Deferred tax assets:
Net operating loss carryforwards.................................. $ 429,000 $ 720,000
Other............................................................. 19,000 47,000
----------- -----------
Total deferred tax assets........................................... 448,000 767,000
Valuation allowance for deferred tax assets......................... (448,000) (767,000)
----------- -----------
Net deferred tax assets............................................. $ -- $ --
----------- -----------
----------- -----------
</TABLE>

8. 401(K) PLAN

Effective October 1, 1996, the Company adopted a 401(k) defined contribution
plan that covers substantially all full time employees, as defined, who meet
certain length-of-service requirements. Employees may contribute up to a maximum
of 15% of their annual compensation (subject to a maximum limit imposed by
federal tax law).

9. RECENT EVENTS

In March 1998, the Board of Directors authorized management of the Company
to file a registration statement with the SEC permitting the Company to sell
shares of its common stock to the public. If the initial public offering is
closed under the terms presently anticipated, all of the preferred stock
outstanding at March 31, 1998 will automatically convert into 2,320,926 shares
of common stock. Such conversion is

F-16
<PAGE>
COLLATERAL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1997

(INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 AND PERTAINING TO MARCH 31, 1998
AND THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)

9. RECENT EVENTS (CONTINUED)
reflected as "Unaudited Pro Forma Shareholders' Equity" at March 31, 1998 in the
accompanying balance sheet.

Subject to Board of Directors and shareholder approval, the Company shall
effect the reincorporation of the Company in Delaware which will be accomplished
through a merger of the existing California corporation into a new Delaware
corporation. The ratio of exchange will be one share of the California
corporation to one share of the Delaware corporation. Additionally, subject to
Board of Directors and shareholder approval and subsequent to the
reincorporation, the Company shall effect a 1.9 for 1 stock split of the
Company's Common Stock. The number of authorized shares of the new Delaware
corporation will be 40,000,000 shares of Common Stock ($0.001 par value) and
5,000,000 shares of Preferred Stock ($0.001 par value). All share and per share
amounts and stock option data have been restated in these financial statements
to retroactively give effect to the reincorporation, the stock split and the
related change in shares outstanding.

In April 1998, the Company granted 209,000 stock options at an exercise
price of $4.92 per share and recorded an additional $581,000 of deferred
compensation.

On April 20, 1998, the Company, subject to shareholder approval, adopted the
1998 Stock Incentive Plan (the "1998 Plan") that is intended to serve as the
successor equity incentive program to the Company's 1995 Stock Option Plan, as
amended (the "Predecessor Plan"). A total of 2,296,835 shares of Common Stock
have been authorized for issuance under the 1998 Plan which will become
effective on completion of the initial public offering contemplated by this
prospectus. Outstanding options and unvested shares issued under the Predecessor
Plan will be incorporated into the 1998 Plan, and no further option grants will
be made under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, unless the Plan Administrator elects to extend
one or more features of the 1998 Plan to those options. After giving effect to
the 585,200 options outstanding under the Predecessor Plan and the 209,000
option grants described in the preceding paragraph, there remain 1,502,635
options which may be granted under the 1998 Plan.

F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary..............................
Risk Factors....................................
Special Note Regarding Forward-Looking
Statements....................................
Use of Proceeds.................................
Dividend Policy.................................
Capitalization..................................
Dilution........................................
Selected Financial Data.........................
Management's Discussion and Analysis of
Financial Condition and Results of Operations...
Business........................................
Management......................................
Certain Transactions............................
Principal Stockholders..........................
Description of Capital Stock....................
Shares Eligible for Future Sale.................
Underwriting....................................
Legal Matters...................................
Experts.........................................
Additional Information..........................
Index to Financial Statements................... F-
</TABLE>

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

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

3,330,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS

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

BEAR, STEARNS & CO. INC.
RAYMOND JAMES & ASSOCIATES, INC.
VECTOR SECURITIES INTERNATIONAL, INC.

, 1998

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

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

<TABLE>
<S> <C>
Registration fee.................................................. 15,086
Nasdaq National Market fee........................................ 17,500
NASD fee.......................................................... 5,479
Blue Sky fees and expenses........................................ 15,000
Printing and engraving expenses................................... 150,000
Legal fees and expenses........................................... 350,000
Accounting fees and expenses...................................... 190,000
Transfer Agent and Registrar fees................................. 10,000
Miscellaneous expenses............................................ 53,414
---------
TOTAL........................................................... $ 800,000
---------
---------
</TABLE>

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

The following is applicable assuming the shareholders approve the
reincorporation of the Company in Delaware.

Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of the Company under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation Law.

Article VII, Section 1 of the Restated Bylaws of the Company provides that
the Company shall indemnify its directors, officers, employees and agents to the
fullest extent not prohibited by the Delaware General Corporation Law. The
rights to indemnity thereunder continue as to a person who has ceased to be a
director, officer, employee or agent and inure to the benefit of the heirs,
executors and administrators of the person. In addition, expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of the Company (or was serving at the Company's
request as a director or officer of another corporation) shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Company as authorized by the relevant section
of the Delaware General Corporation Law.

As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article V, Section (A) of the Company's Certificate of Incorporation provides
that a director of the Company shall not be personally liable for monetary
damages or breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derived any improper personal benefit.

The Company has entered into indemnification agreements with certain of its
directors. Generally, the indemnification agreements attempt to provide the
maximum protection permitted by California law as

II-1
<PAGE>
such law may be amended from time to time. In addition, the indemnification
agreements provide for additional indemnification for certain amounts not
otherwise covered by directors and officers liability insurance. Under such
additional indemnification provisions, such directors shall not be indemnified
for judgments, settlements or expenses if such director is found liable to the
Company (except to the extent the court determines that such director is fairly
and reasonably entitled to indemnity for expenses), for settlements and expenses
if the settlement is not approved by the court, for settlements not approved by
the Company or in certain other situations. The indemnification agreements
provide for the Company to advance to the individual any and all reasonable
expenses (including legal fees and expenses) incurred in investigating or
defending any such action, suit or proceeding. The director must repay such
advances upon a final judicial decision that such director is not entitled to
indemnification.

The Company has directors and officers liability insurance now in effect
which insures directors and officers of the Company.

The Company intends to enter into indemnification agreements under Delaware
law with each of its directors and executive officers. Generally, the
indemnification agreements attempt to provide the maximum protection permitted
by Delaware law as it may be amended from time to time. Moreover, the
indemnification agreements provide for additional indemnification for certain
amounts not otherwise covered by directors and officers liability insurance.
Under such additional indemnification provisions, however, such director or
executive officer will not be indemnified for settlements not approved by the
Company. The indemnification agreements provide for the Company to advance to
the individual any and all reasonable expenses (including legal fees and
expenses) incurred in investigating or defending any such action, suit or
proceeding. Also, the individual must repay such advances upon a final judicial
decision that he or she is not entitled to indemnification. The obligations of
the Company under these indemnification agreements shall continue during the
period that such director or officer is serving the Company as such and shall
continue for so long thereafter as such director or officer shall be subject to
any possible claim, action, suit or proceeding. For six years after the
effective time of the acquisition of the Company by another entity or the sale
of all or substantially all of the assets of the Company, the Company shall
cause the acquiring or surviving corporation to indemnify such director or
officer in accordance with the terms of this indemnification agreement and use
such acquiring or surviving corporation's best efforts to provide director's and
officer's liability insurance on terms substantially similar to those of the
Company's.

The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by which
the Underwriters have agreed to indemnify the Company, each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act,
each director of the Company, and each officer of the Company who signs this
Registration Statement, with respect to information furnished in writing by or
on behalf of the Underwriters specifically for use in the Registration
Statement.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since April 1995, the Company has sold and issued the following unregistered
securities:

(1) From April 1995 to March 31, 1998, the Company granted an aggregate of
1,262,550 options to purchase Common Stock with exercise prices ranging from
$.0005 to $.74 per share under the Predecessor Plan and an aggregate of
549,997 shares of Common Stock were issued through the exercise of options
granted under the Predecessor Plan for aggregate proceeds of $43,472. For
additional information concerning these transactions, reference is made to
the information contained under the caption "Management--Benefit Plans" in
the Prospectus included herein.

(2) On April 5, 1995, the Company issued an aggregate of 1,159,000 shares of
Common Stock to executive officers of the Company for an aggregate
consideration of $610.00

(3) On August 9, 1995, the Company issued 3,789,740 shares of Common Stock to
executive officers and consultants of the Company for an aggregate
consideration of $1,995.00.

II-2
<PAGE>
(4) On November 20, 1995, the Company issued 190,000 shares of Common Stock to a
director of the Company for an aggregate consideration of $100.00.

(5) In March 1996, the Company issued 206,530 shares of Common Stock to
executive officers, directors and consultants of the Company for an
aggregate consideration of $1,087.00.

(6) On May 7, 1996, the Company issued 347,532 shares of Series A Preferred
Stock to Schering Berlin Venture Corp. for an aggregate consideration of
$2,500,000.00.

(7) On June 11, 1997, the Company issued 347,532 shares of Series B Preferred
Stock to Schering Berlin Venture Corp. for an aggregate consideration of
$2,500,000.00.

(9) On June 30, 1997, the Company issued an aggregate of 375,000 shares of
Series C Preferred Stock to The Wellcome Trust, Schering Berlin Venture
Corp. and Jerry C. Benjamin, respectively, for an aggregate consideration of
$3,779,808.00.

The sales and issuances of securities in the above transactions were deemed
to be exempt under the Securities Act by virtue of Section 4(2) thereof and/or
Regulation D and Rule 701 promulgated thereunder as transactions not involving
any public offering. The purchasers in each case represented their intention to
acquire the securities for investment only and not with a view to the
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. Similar representations of investment intent were
obtained and similar legends imposed in connection with any subsequent transfers
of any such securities. The Company believes that all recipients had adequate
access, through employment or other relationships, to information about the
Company to make an informed investment decision.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS.

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.8 Amended and Restated Promissory Note between the Company and Schering AG, dated August 16, 1995, as
amended May 16, 1996.
10.9 Amended and Restated Promissory Note between the Company and Schering AG, dated October 12, 1995, as
amended May 16, 1996.
10.10 Side Letter between the Company and Schering Berlin Venture Group, dated May 6, 1996.
10.11*+ Exclusive License Agreement between The Regents of the University of California and the Company for
Angiogenesis Gene Therapy, dated September 27, 1995, as amended.
10.12*+ Collaboration, License and Royalty Agreement between Schering AG and the Company, dated May 6, 1996.
10.13*+ License Agreement by and among Dimotech Ltd., Gera Neufeld and the Company, dated October 17, 1996.
10.14*+ Exclusive License Agreement between The Regents of the University of California and the Company for
Gene Therapy for Congestive Heart Failure, dated January 22, 1997.
10.15*+ Agreement between New York University and the Company, dated March 24, 1997.
10.16*+ License Agreement by and among AMRAD Developments Pty. Ltd., Ludwig Institute for Cancer Research and
the Company, dated March 25, 1997.
10.17*+ Research Agreement between the University of Washington and the Company, dated April 21, 1997.
10.18*+ Exclusive License Agreement between The Regents of the University of California and the Company for
Angiogenic Gene Therapy for Congestive Heart Failure, dated June 18, 1997.
10.19*+ Letter Agreement between the Company and Veterans Medical Research Foundation, dated August 13, 1997.
10.20*+ Sponsored Research Contract between the Curators of The University of Missouri and the Company, dated
October 22, 1997.
10.21*+ Biological Materials Agreement between Targeted Genetics Corporation and the Company, dated January 26,
1998.
10.22*+ Research Agreement between The Regents of the University of California and the Company, dated February
23, 1998.
10.23*+ Letter Agreement between the Company and Veterans Medical Research Foundation, dated March 20, 1998.
10.24 Sublease Agreement between the Company and Gensia, Inc., dated June 15, 1995, as amended.
10.25 Standard Industrial/Commercial Multi-Tenant Lease-Modified Net between the Company and ARE 11025
Roselle Street, LLC, dated November 24, 1997, as amended.
10.26 Torrey Reserve Office Lease between Pacific Torrey Reserve Holding, L.P. and the Company, dated April
7, 1998.
10.27 Form of Scientific Advisor Consulting Agreement between the Company and certain individuals listed on
the attached schedule.
10.28 Form of Scientific Advisory Board Agreement between the Company and certain individuals listed on the
attached schedule.
10.29 Form of Consulting Agreement between the Company and certain individuals listed on the attached
schedule.
10.30 1995 Stock Option/Stock Issuance Plan.
10.31 1995 Stock Option/Stock Issuance Plan Form of Notice of Grant.
10.32 1995 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.33 1995 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.34+ 1995 Stock Option/Stock Issuance Plan Form of Restricted Stock Issuance Agreement.
10.35+ 1998 Stock Incentive Plan.
10.36+ 1998 Stock Incentive Plan Form of Notice of Grant.
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.37+ 1998 Stock Incentive Plan Form of Stock Option Agreement.
10.38+ 1998 Stock Incentive Plan Form of Stock Purchase Agreement.
10.39+ 1998 Stock Incentive Plan Form of Stock Issuance Agreement.
10.40+ 1998 Employee Stock Purchase Plan.
10.41+ Form of Indemnification Agreement between the Company and each of its directors.
10.42+ Form of Indemnification Agreement between the Company and each of its officers.
23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3+ Consent of Lyon & Lyon LLP.
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>

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

+ To be filed by amendment.

* Certain confidential portions of this Exhibit were omitted by means of
redacting a portion of the text (the "Mark"). This Exhibit has been filed
separately with the Secretary of the Commission without the Mark pursuant to
the Company's Application Requesting Confidential Treatment under Rule 406
under the Securities Act.

(B) FINANCIAL STATEMENT SCHEDULES INCLUDED SEPARATELY IN THE REGISTRATION
STATEMENT.

None

All schedules are omitted because they are not required, are not applicable
or the information is included in the Financial Statements or notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described in Item 14, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

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

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

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on the 24th day of
April, 1998.

COLLATERAL THERAPEUTICS, INC.

BY: /S/ JACK W. REICH
-----------------------------------------
Jack W. Reich
PRESIDENT AND CHIEF EXECUTIVE OFFICER

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jack W. Reich and Christopher J. Reinhard, or
either of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any registration
statement related to this Registration Statement and filed pursuant to Rule 462
under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Director, President And
/s/ JACK W. REICH Chief Executive Officer
- ------------------------------ (Principal Executive April 24, 1998
(Jack W. Reich) Officer)

Director, Chief Operating
/s/ CHRISTOPHER J. REINHARD And Chief Financial
- ------------------------------ Officer (Principal April 24, 1998
(Christopher J. Reinhard) Financial and Accounting
Officer)

/s/ CRAIG S. ANDREWS Director And Secretary
- ------------------------------ April 24, 1998
(Craig S. Andrews)

/s/ ROBERT L. ENGLER Director, Vice President,
- ------------------------------ Medical Director April 24, 1998
(Robert L. Engler)

/s/ H. KIRK HAMMOND Director, Vice President,
- ------------------------------ Research April 24, 1998
(H. Kirk Hammond)

/s/ ELISE G. KLEIN Director
- ------------------------------ April 24, 1998
(Elise G. Klein)

II-6
<PAGE>

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------

/s/ DAVID F. HALE Director
- ------------------------------ April 24, 1998
(David F. Hale)

/s/ DAVID E. ROBINSON Director
- ------------------------------ April 24, 1998
(David E. Robinson)

II-7
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1+ Underwriting Agreement.
3.1+ Certificate of Incorporation of the Company, as amended.
3.2+ Form of Second Restated Certificate of Incorporation of the Company to become effective immediately
prior to the Offering.
3.3+ Bylaws of the Company.
3.4+ Form of Restated Bylaws of the Company to be effective upon completion of the Offering.
4.1+ Form of the Certificate for Common Stock.
5.1 Opinion of Brobeck, Phleger & Harrison LLP with respect to the Common Stock being registered.
10.1 Form of Restricted Stock Issuance Agreement between the Company and certain individuals listed on the
attached schedule.
10.2 Form of Stock Issuance Agreement between the Company and certain individuals listed on the attached
schedule.
10.3*+ Preferred Stock Purchase Agreement between the Company and Schering Berlin Venture Corp., dated May 7,
1996.
10.4*+ Series C Preferred Stock Purchase Agreement by and among the Company and the investors listed on
Schedule A thereto, dated June 30, 1997.
10.5 Amended and Restated Investors' Rights Agreement by and among the Company and the investors listed on
Schedule A thereto, dated June 30, 1997.
10.6 Amended and Restated Co-Sale Agreement by and among the Company and the individuals listed on Schedule
A thereto, dated June 30, 1997.
10.7 Security Agreement between the Company and Schering Berlin Venture Corp., dated August 16, 1995.
10.8 Amended and Restated Promissory Note between the Company and Schering AG, dated August 16, 1995, as
amended May 16, 1996.
10.9 Amended and Restated Promissory Note between the Company and Schering AG, dated October 12, 1995, as
amended May 16, 1996.
10.10 Side Letter between the Company and Schering Berlin Venture Group, dated May 6, 1996.
10.11*+ Exclusive License Agreement between The Regents of the University of California and the Company for
Angiogenesis Gene Therapy, dated September 27, 1995, as amended.
10.12*+ Collaboration, License and Royalty Agreement between Schering AG and the Company, dated May 6, 1996.
10.13*+ License Agreement by and among Dimotech Ltd., Gera Neufeld and the Company, dated October 17, 1996.
10.14*+ Exclusive License Agreement between The Regents of the University of California and the Company for
Gene Therapy for Congestive Heart Failure, dated January 22, 1997.
10.15*+ Agreement between New York University and the Company, dated March 24, 1997.
10.16*+ License Agreement by and among AMRAD Developments Pty. Ltd., Ludwig Institute for Cancer Research and
the Company, dated March 25, 1997.
10.17*+ Research Agreement between the University of Washington and the Company, dated April 21, 1997.
10.18*+ Exclusive License Agreement between The Regents of the University of California and the Company for
Angiogenic Gene Therapy for Congestive Heart Failure, dated June 18, 1997.
10.19*+ Letter Agreement between the Company and Veterans Medical Research Foundation, dated August 13, 1997.
10.20*+ Sponsored Research Contract between the Curators of The University of Missouri and the Company, dated
October 22, 1997.
10.21*+ Biological Materials Agreement between Targeted Genetics Corporation and the Company, dated January 26,
1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.22*+ Research Agreement between The Regents of the University of California and the Company, dated February
23, 1998.
10.23*+ Letter Agreement between the Company and Veterans Medical Research Foundation, dated March 20, 1998.
10.24 Sublease Agreement between the Company and Gensia, Inc., dated June 15, 1995, as amended.
10.25 Standard Industrial/Commercial Multi-Tenant Lease-Modified Net between the Company and ARE 11025
Roselle Street, LLC, dated November 24, 1997, as amended.
10.26 Torrey Reserve Office Lease between Pacific Torrey Reserve Holding, L.P. and the Company, dated April
7, 1998.
10.27 Form of Scientific Advisor Consulting Agreement between the Company and certain individuals listed on
the attached schedule.
10.28 Form of Scientific Advisory Board Agreement between the Company and certain individuals listed on the
attached schedule.
10.29 Form of Consulting Agreement between the Company and certain individuals listed on the attached
schedule.
10.30 1995 Stock Option/Stock Issuance Plan.
10.31 1995 Stock Option/Stock Issuance Plan Form of Notice of Grant.
10.32 1995 Stock Option/Stock Issuance Plan Form of Stock Option Agreement.
10.33 1995 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement.
10.34+ 1995 Stock Option/Stock Issuance Plan Form of Restricted Stock Issuance Agreement.
10.35+ 1998 Stock Incentive Plan.
10.36+ 1998 Stock Incentive Plan Form of Notice of Grant.
10.37+ 1998 Stock Incentive Plan Form of Stock Option Agreement.
10.38+ 1998 Stock Incentive Plan Form of Stock Purchase Agreement.
10.39+ 1998 Stock Incentive Plan Form of Stock Issuance Agreement.
10.40+ 1998 Employee Stock Purchase Plan.
10.41+ Form of Indemnification Agreement between the Company and each of its directors.
10.42+ Form of Indemnification Agreement between the Company and each of its officers.
23.1 Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
23.3+ Consent of Lyon & Lyon LLP.
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>

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

+ To be filed by amendment.

<PAGE>
EXHIBIT 5.1

April 24, 1998

Collateral Therapeutics, Inc.
9360 Towne Centre Drive
San Diego, CA 92121

Re: Collateral Therapeutics, Inc. Registration Statement
on Form S-1 for 3,829,500 Shares of Common Stock
-----------------------------------------------------

Ladies and Gentlemen:

We have acted as counsel to Collateral Therapeutics, Inc., a
California corporation (the "Company"), in connection with the proposed issuance
and sale by the Company of up to 3,829,500 shares of the Company's Common Stock
(the "Shares"), including 499,500 Shares which the Underwriters have the option
to purchase to cover over-allotments, if any, pursuant to the Company's
Registration Statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"). Capitalized terms not otherwise defined herein shall have the
meanings given to them in the Registration Statement.

This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.

We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be validly issued, fully paid and nonassessable.

We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.

<PAGE>
Collateral Therapeutics, Inc. April 24, 1998
Page 2

This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.

Very truly yours,

/s/ Brobeck, Phleger & Harrison LLP

BROBECK, PHLEGER & HARRISON LLP

<PAGE>
EXHIBIT 10.1

COLLATERAL THERAPEUTICS, INC.

FORM OF RESTRICTED STOCK ISSUANCE AGREEMENT
-------------------------------------------

AGREEMENT made as of this ___ day of __________, 19__, by and between
COLLATERAL THERAPEUTICS, INC., a California corporation (the "Corporation"), and
_______________, an individual resident in the State of __________________
("Purchaser") and ________________, the Purchaser's spouse.

I. PURCHASE OF SHARES

1.1 PURCHASE. The Purchaser hereby purchases, and the Corporation
hereby sells to Purchaser, __________ shares (the "Shares") of the Corporation's
common stock ("Common Stock") at a purchase price of $_______ per share (the
"Purchase Price") __________________ of which shall have a vesting start date of
_________________(the "Vesting Start Date").

1.2 PAYMENT. Concurrently with the execution of this Agreement, the
Purchaser shall deliver to the Corporate Secretary of the Corporation (i) the
aggregate Purchase Price payable for the _____________ Shares in cash or cash
equivalents and (ii) a duly-executed blank Assignment Separate from Certificate
(in the form attached hereto as EXHIBIT A).

1.3 DELIVERY OF CERTIFICATES. The certificates representing Unvested
Shares hereunder shall be held in escrow by the Secretary of the Corporation as
provided in Article VII hereof.

1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation actually
exercises its repurchase right or rights of first refusal under this Agreement,
Purchaser (or any successor in interest) shall have all the rights of a
shareholder (including voting and dividend rights) with respect to the Shares,
including the Shares held in escrow under Article VII, subject, however, to the
transfer restrictions of Article IV.

II. SECURITIES LAW COMPLIANCE

2.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Purchaser in reliance upon Purchaser's representation to the Company, which by
Purchaser's execution of this Agreement Purchaser hereby confirms, that the
Shares are being acquired for investment for Purchaser'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 Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this

<PAGE>

Agreement, Purchaser further represents that Purchaser 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 Shares. Purchaser represents that he has full power and
authority to enter into this Agreement.

2.2 DISCLOSURE OF INFORMATION. Purchaser believes he/she has
received all the information he/she considers necessary or appropriate for
deciding whether to purchase the Shares. Purchaser acknowledges that the
Company has not prepared any financial statements. Purchaser further represents
that he/she has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Shares.

2.3 INVESTMENT EXPERIENCE. Purchaser is an investor in securities of
companies in the early development stage and acknowledges that he is able to
fend for himself/herself, can bear the economic risk of his/her investment and
has such knowledge and experience in financial or business matters that he/she
is capable of evaluating the merits and risks of the investment in the Shares.

2.4 PERSONAL KNOWLEDGE. As of Purchaser's execution of this
Agreement, Purchaser (i) has a preexisting personal and business relationship
with the Company (ii) is thoroughly familiar with the Company's operations and
its financial condition and (iii) has such knowledge and experience in financial
and business matters (including experience with investments of a similar
nature), that Purchaser is capable of evaluating the merits and risks of an
investment in the Shares. PURCHASER RECOGNIZES THAT THE PURCHASE OF THE SHARES
IS A SPECULATIVE INVESTMENT THAT INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE
ONLY FOR PERSONS WITH THE FINANCIAL CAPABILITY OF MAKING AND HOLDING LONG-TERM
INVESTMENTS NOT READILY REDUCIBLE TO CASH.

2.5 EXEMPTION FROM REGISTRATION. The Shares have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), and are
accordingly being issued to Purchaser in reliance upon the exemption from such
registration provided by Rule 701 of the Securities and Exchange Commission for
stock issuances under compensatory agreements.

2.6 RESTRICTED SECURITIES.

(a) Purchaser hereby confirms that Purchaser has been informed
that the Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless the Shares are first registered under the Federal
securities laws or unless an exemption from such registration is available.
Accordingly, Purchaser hereby acknowledges that Purchaser is prepared to hold
the Shares for an indefinite period and that Purchaser is aware that Rule 144 of
the Securities and Exchange Commission issued under the 1933 Act is not

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<PAGE>

presently available to exempt the sale of the Shares from the registration
requirements of the 1933 Act.

(b) Upon the expiration of the ninety (90)-day period
immediately following the date on which the Corporation first becomes subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Shares, to the extent vested under Article V, may be
sold (without registration) pursuant to the applicable requirements of Rule 144.
If Purchaser is at the time of such sale an affiliate of the Corporation for
purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the two-year holding period requirement of
the Rule will not be applicable. If Purchaser is not at the time of the sale an
affiliate of the Corporation nor was such an affiliate during the preceding
three (3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Shares held for less than three (3)
years following payment in cash of the Purchase Price therefor) will be
applicable to the sale.

(c) Should the Corporation not become subject to the reporting
requirements of the Exchange Act, then Purchaser may, provided he/she is not at
the time an affiliate of the Corporation (nor was such an affiliate during the
preceding three (3) months), sell the Shares (without registration) pursuant to
paragraph (k) of Rule 144 after the Shares have been held for a period of three
(3) years following the payment in cash of the Purchase Price for such shares.

2.7 DISPOSITION OF SHARES. Purchaser hereby agrees that Purchaser
shall make no disposition of the Shares (other than a permitted transfer under
paragraph 4.1) unless and until there is compliance with all of the following
requirements:

(a) Purchaser shall have notified the Corporation of the
proposed disposition and provided a written summary of the terms and
conditions of the proposed disposition.

(b) Purchaser shall have complied with all requirements of
this Agreement applicable to the disposition of the Shares.

(c) Purchaser shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (i) the proposed disposition does not require
registration of the Shares under the 1933 Act or (ii) all appropriate
action necessary for compliance with the registration requirements of
the 1933 Act or of any exemption from registration available under the
1933 Act (including Rule 144) has been taken.

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<PAGE>

The Corporation shall NOT be required (i) to transfer on its books any
Shares which have been sold or transferred in violation of the provisions of
this Article II NOR (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of this Agreement.

2.8 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Shares, the stock certificates for the Shares will be
endorsed with restrictive legends, including one or more of the following
legends:

(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933. The shares may not
be sold or offered for sale in the absence of (a) an effective
registration statement for the shares under such Act, (b) a 'no
action' letter of the Securities and Exchange Commission with respect
to such sale or offer, or (c) satisfactory assurances to the
Corporation that registration under such Act is not required with
respect to such sale or offer."

(ii) "The shares represented by this certificate may be
unvested and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated _______________________, between
the Corporation and the registered holder of the shares (or the
predecessor in interest to the shares). Such agreement grants certain
repurchase rights and rights of first refusal to the Corporation (or
its assignees) upon the sale, assignment, transfer, encumbrance or
other disposition of the Corporation's shares or upon termination of
service with the Corporation. The Corporation will upon written
request furnish a copy of such agreement to the holder hereof without
charge."

III. SPECIAL TAX PROVISIONS

3.1 SECTION 83(B) ELECTION. The Purchaser understands that under
Section 83 of the Code, the excess of the fair market value of the Shares on the
date any forfeiture restrictions applicable to such shares lapse over the
Purchase Price for such Shares will be reportable as ordinary income on such
lapse date. For this purpose, the term "forfeiture restrictions" includes the
right of the Corporation to repurchase the Shares pursuant to the Repurchase
Right provided under Article V of this Agreement. Purchaser understands that
he/she may elect under Section 83(b) of the Internal Revenue Code of 1986, as
amended (the "Code") to be taxed at the time the Shares are acquired hereunder,
rather than when and as such Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of this Agreement. Even if the fair
market value of the Shares on the date of this Agreement equals the Purchase
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as EXHIBIT B hereto.

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<PAGE>

Purchaser understands that failure to make this filing within the thirty
(30)-day period will result in the recognition of ordinary income by the
Purchaser as the forfeiture restrictions lapse.

3.2 PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE
RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER
SECTION 83(b), EVEN IF PURCHASER REQUESTS THE CORPORATION OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON HIS/HER BEHALF. This filing should be made by registered
or certified mail, return receipt requested, and Purchaser must retain two (2)
copies of the completed form for filing with his/her State and Federal tax
returns for the current tax year and an additional copy for his/her personal
records.

IV. TRANSFER RESTRICTIONS

4.1 RESTRICTION ON TRANSFER. Purchaser shall not transfer, assign,
encumber or otherwise dispose of any of the Shares which are subject to the
Corporation's Repurchase Right under Article V. In addition, Shares which are
released from the Repurchase Right shall not be transferred, assigned,
encumbered or otherwise made the subject of disposition in contravention of the
Corporation's First Refusal Right under Article VI. Such restrictions on
transfer, however, shall NOT be applicable to (i) a gratuitous transfer of the
Shares made to the Purchaser's spouse or issue, including adopted children, or
to a trust for the exclusive benefit of the Purchaser or the Purchaser's spouse
or issue, PROVIDED AND ONLY IF the Purchaser obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Shares
effected pursuant to the Purchaser's will or the laws of intestate succession,
or (iii) a transfer by a Purchaser who is a partner in a partnership to such
partnership or a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will or intestate succession
of any partner to his spouse or to the siblings, lineal descendants or ancestors
of such partner or his spouse.

4.2 TRANSFEREE OBLIGATIONS. Each person (other than the Corporation)
to whom the Shares are transferred by means of one of the permitted transfers
specified in paragraph 4.1 must, as a condition precedent to the validity of
such transfer, acknowledge in writing to the Corporation that such person is
bound by the provisions of this Agreement and that the transferred shares are
subject to (i) both the Corporation's Repurchase Right and the Corporation's
First Refusal Right granted hereunder and (ii) the market stand-off provisions
of paragraph 4.4, to the same extent such Shares would be so subject if retained
by the Purchaser.

4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI and VII
of this Agreement, the term "Owner" shall include the Purchaser and all
subsequent holders of

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<PAGE>

the Shares who derive their chain of ownership through a permitted transfer from
the Purchaser in accordance with paragraph 4.1.

4.4 MARKET STAND-OFF PROVISIONS.

(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Shares without the prior written consent of the Corporation or
its underwriters. Such limitations shall be in effect for such period of time
from and after the effective date of such registration statement as may be
requested by the Corporation or such underwriters; PROVIDED, however, that in no
event shall such period exceed one hundred-eighty (180) days in connection with
Corporation's initial public offering or ninety (90) days in connection with any
subsequent public offering.

(b) Owner shall be subject to the market stand-off provisions of
this paragraph 4.4 PROVIDED AND ONLY IF the then-current officers and directors
of the Corporation are also subject to similar arrangements.

(c) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Corporation's outstanding Common
Stock effected without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Shares shall be
immediately subject to the provisions of this paragraph 4.4, to the same extent
the Shares are at such time covered by such provisions.

(d) In order to enforce the limitations of this paragraph 4.4,
the Corporation may impose stop-transfer instructions with respect to the Shares
until the end of the applicable stand-off period.

(e) This market stand-off terminates three (3) years after the
effective date of the Corporation's initial public offering.

V. REPURCHASE RIGHT

5.1 GRANT.

(a) The Corporation is hereby granted the right (the "Repurchase
Right"), exercisable at any time during the sixty (60)-day period following the
date the Purchaser ceases for any reason to remain in Service or (if later)
during the sixty (60)-day period following the execution date of this Agreement,
to repurchase at the Purchase Price all or (at the discretion of the Corporation
and with the consent of the Purchaser) any portion of

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<PAGE>

the Shares in which the Purchaser has not acquired a vested interest in
accordance with the vesting provisions of paragraph 5.3 below (such shares to be
called the "Unvested Shares"). For purposes of this Agreement, the Purchaser
shall be deemed to remain in Service for so long as the Purchaser continues to
be employed by, or acts as an advisor or consultant to, the Corporation or any
parent or subsidiary corporation.

5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one
or more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with paragraph 7.3 or from Owner as herein
provided), pay to Owner in cash or cash equivalents an amount equal to the
original Purchase Price paid by Owner hereunder for the Unvested Shares which
are to be repurchased.

5.3 TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under paragraph 5.2. In addition, the Repurchase Right shall
terminate, and cease to be exercisable, with respect to any and all Shares in
which the Purchaser vests in accordance with the schedule below. Accordingly,
as the Purchaser continues to provide services to the Corporation, the Owner
shall acquire a vested interest in, and the Repurchase Right shall lapse with
respect to, the Shares in installments in accordance with the following
provisions:

(i) The Purchaser shall acquire a vested interest in, and no
Repurchase Right shall apply to, Shares upon the effective date
of this Agreement.

(ii) The Purchaser shall acquire a vested interest in, and
the Repurchase Right shall lapse with respect to, the
Shares in a series of successive equal monthly installments over each
of the next thirty-six (36) months of Service completed by the
Purchaser after the Vesting Start Date;

(iii) If the Purchaser ceases to provide services to the
Corporation as a result of a voluntary resignation or a termination for
"Cause," vesting ceases and the Purchaser may not acquire any further
vested interests in the Unvested Shares. For the purposes of this
Agreement, the Corporation shall have "Cause" to terminate Purchaser's
providing services to the Corporation if Purchaser has committed any act

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<PAGE>

which directly and adversely affects the Corporation and, which in the
reasonable judgment of the Board of Directors, constitutes dishonesty,
larceny, fraud, deceit, gross negligence, the conviction of a crime
involving moral turpitude, or willful misrepresentation to shareholders,
directors or officers.

(iv) If Purchaser ceases to provide services to the
Corporation as a result of his death, disability or for any reason other
than for "Cause" (as defined above), vesting fully accelerates, and all
Unvested Shares shall immediately become fully-vested and the Repurchase
Right shall lapse in its entirety.

All Shares as to which the Repurchase Right lapses shall, however, continue
to be subject to (i) the First Refusal Right under Article VI and (ii) the
market stand-off and other transfer restrictions of Article IV.

5.4 FRACTIONAL SHARES. No fractional shares shall be repurchased by
the Corporation. Accordingly should the Repurchase Right extend to a fractional
share (in accordance with the vesting computation provisions of paragraph 5.3)
at the time the Purchaser ceases Service, then such fractional share shall be
added to any fractional share in which the Purchaser is at such time vested in
order to make one whole vested share no longer subject to the Repurchase Right.

5.5 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Shares shall
be immediately subject to the Repurchase Right, but only to the extent the
Shares are at the time covered by such right. Appropriate adjustments to
reflect the distribution of such securities or property shall be made to the
number of Shares at the time subject to the Repurchase Right hereunder and to
the price per share to be paid upon the exercise of the Repurchase Right in
order to reflect the effect of any such transaction upon the Corporation's
capital structure; PROVIDED, however, that the aggregate Purchase Price shall
remain the same.

5.6 CORPORATE TRANSACTION. The Repurchase Right granted under this
Article V shall automatically lapse in its entirety immediately prior to the
consummation of any of the following shareholder-approved transactions (a
"Corporate Transaction"):

(i) a merger or consolidation in which more than fifty
percent (50%) of the Corporation's outstanding voting stock is
transferred to a person or persons different from those who held the
stock immediately prior to such transaction,

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<PAGE>

(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or

(iii) a merger or consolidation in which the Corporation
is not the surviving entity (other than a transaction effected
primarily to change the state in which the Corporation is
incorporated, or to create a holding company structure).

VI. RIGHT OF FIRST REFUSAL

6.1 GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Shares in which the Purchaser has vested. For purposes of this
Article VI, the term "transfer" shall include any sale, assignment, pledge,
encumbrance or other disposition for value of the Shares intended to be made by
the Owner, but shall not include any of the permitted transfers under paragraph
4.1.

6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires
to accept a bona fide third-party offer for any or all of the Shares (the shares
subject to such offer to be hereinafter called the "Target Shares"), Owner shall
promptly (i) deliver to the Corporate Secretary of the Corporation written
notice (the "Disposition Notice") of the terms and conditions of the offer,
including the purchase price and the identity of the third-party offeror and
(ii) provide satisfactory proof that the disposition of the Target Shares to
such third-party offeror would not be in contravention of the provisions set
forth in Articles II and IV of this Agreement.

6.3 EXERCISE OF RIGHT. The Corporation (or its assignees) shall, for
a period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares specified in the
Disposition Notice upon substantially the same terms and conditions specified
therein or upon terms and conditions which do not materially vary from those
specified therein. Such right shall be exercisable by delivery of written
notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect
to all the Target Shares specified in the Disposition Notice, then the
Corporation (or its assignees) shall effect the repurchase of the Target Shares,
including payment of the purchase price, not more than five (5) business days
after delivery of the Exercise Notice; and at such time Owner shall deliver to
the Corporation the certificates representing the Target Shares to be
repurchased, each certificate to be properly endorsed for transfer. To the
extent any of the Target Shares are at the time held in escrow under Article
VII, the certificates for such shares shall automatically be released from
escrow and delivered to the Corporation for purchase.

6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to Owner within twenty-five (25) days following the date of the
Corporation's receipt of the

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<PAGE>

Disposition Notice, Owner shall have a period of thirty (30) days thereafter in
which to sell or otherwise dispose of the Target Shares to the third-party
offeror identified in the Disposition Notice upon terms and conditions
(including the purchase price) no more favorable to such third-party offeror
than those specified in the Disposition Notice; PROVIDED, however, that any such
sale or disposition must not be effected in contravention of the provisions of
Article II of this Agreement. To the extent any of the Target Shares are at the
time held in escrow under Article VII, the certificates for such shares shall
automatically be released from escrow and surrendered to the Owner. The
third-party offeror shall acquire the Target Shares free and clear of the
Corporation's Repurchase Right and First Refusal Right hereunder, but the
acquired shares shall remain subject to (i) the securities law restrictions of
paragraph 2.6 and (ii) the market stand-off provisions of paragraph 4.4. In the
event Owner does not effect such sale or disposition of the Target Shares within
the specified thirty (30) day period, the Corporation's First Refusal Right
shall continue to be applicable to any subsequent disposition of the Target
Shares by Owner until such right lapses in accordance with paragraph 6.7.

6.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation (or its
assignees) makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within thirty (30) days after the date of the Disposition Notice, to
effect the sale of the Target Shares pursuant to one of the following
alternatives:

(i) sale or other disposition of all the Target Shares
to the third-party offeror identified in the Disposition Notice, but
in full compliance with the requirements of paragraph 6.4, as if the
Corporation did not exercise the First Refusal Right hereunder; or

(ii) sale to the Corporation (or its assignees) of the
portion of the Target Shares which the Corporation (or its assignees)
has elected to purchase, such sale to be effected in substantial
conformity with the provisions of paragraph 6.3.

Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (i) above.

6.6 RECAPITALIZATION/MERGER.

(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Purchased Shares shall be
immediately subject to the Corporation's First Refusal Right hereunder, but only
to the extent the Purchased Shares are at the time covered by such right.

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<PAGE>

(b) The Corporation's First Refusal Right shall terminate in
the event of any of the following transactions:

(i) a merger or consolidation in which more than
fifty percent (50%) of the Corporation's outstanding voting stock is
transferred to a person or persons different from those who held the
stock immediately prior to such transaction,

(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets, or

(iii) a merger or consolidation in which the
Corporation is not the surviving entity (other than a transaction
effected primarily to change the state in which the Corporation is
incorporated, or to create a holding company structure).

6.7 LAPSE. The First Refusal Right under this Article VI shall lapse
and cease to have effect upon the EARLIEST to occur of (i) the first date on
which shares of the Corporation's Common Stock are held of record by more than
five hundred (500) persons, (ii) a determination is made by the Corporation's
Board of Directors that a public market exists for the outstanding shares of the
Corporation's Common Stock, or (iii) a firm commitment underwritten public
offering pursuant to an effective registration statement under the 1933 Act,
covering the offer and sale of the Corporation's Common Stock in the aggregate
amount of at least $10,000,000. However, the market stand-off provisions of
paragraph 4.4 shall continue to remain in full force and effect following the
lapse of the First Refusal Right hereunder.

VII. ESCROW

7.1 DEPOSIT. Upon issuance, the certificates for any Unvested Shares
purchased hereunder shall be deposited in escrow with the Corporation to be held
in accordance with the provisions of this Article VII. Each deposited
certificate shall be accompanied by a duly executed Assignment Separate from
Certificate in the form of EXHIBIT A. The deposited certificates, together with
any other assets or securities from time to time deposited with the Corporation
pursuant to the requirements of this Agreement, shall remain in escrow until
such time or times as the certificates (or other assets and securities) are to
be released or otherwise surrendered for cancellation in accordance with
paragraph 7.3. Upon delivery of the certificates (or other assets and
securities) to the Corporation, the Owner shall be issued an instrument of
deposit acknowledging the number of Unvested Shares (or other assets and
securities) delivered in escrow to the Corporation.

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<PAGE>

7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Unvested Shares shall be immediately
delivered to the Corporation to be held in escrow under this Article VII, but
only to the extent the Unvested Shares are at the time subject to the escrow
requirements of paragraph 7.1.

7.3 RELEASE/SURRENDER. The Unvested Shares, together with any other
assets or securities held in escrow hereunder, shall be subject to the following
terms and conditions relating to their release from escrow or their surrender to
the Corporation for repurchase and cancellation:

(i) Should the Corporation (or its assignees) elect to
exercise the Repurchase Right under Article V with respect to any
Unvested Shares, then the escrowed certificates for such Unvested
Shares (together with any other assets or securities issued with
respect thereto) shall be delivered to the Corporation, concurrently
with the payment to the Owner, in cash or cash equivalent (including
the cancellation of any purchase-money indebtedness), of an amount
equal to the aggregate Purchase Price for such Unvested Shares, and
the Owner shall cease to have any further rights or claims with
respect to such Unvested Shares (or other assets or securities
attributable to such Unvested Shares).

(ii) Should the Corporation (or its assignees) elect to
exercise its First Refusal Right under Article VI with respect to any
vested Target Shares held at the time in escrow hereunder, then the
escrowed certificates for such Target Shares (together with any other
assets or securities attributable thereto) shall, concurrently with
the payment of the paragraph 6.3 purchase price for such Target Shares
to the Owner, be surrendered to the Corporation, and the Owner shall
cease to have any further rights or claims with respect to such Target
Shares (or other assets or securities).

(iii) Should the Corporation (or its assignees) elect NOT
to exercise its First Refusal Right under Article VI with respect to
any Target Shares held at the time in escrow hereunder, then the
escrowed certificates for such Target Shares (together with any other
assets or securities attributable thereto) shall be surrendered to the
Owner for disposition in accordance with the provisions of paragraph
6.4.

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<PAGE>

(iv) As the interest of the Purchaser in the Unvested
Shares (or any other assets or securities attributable thereto) vests
in accordance with the provisions of Article V, the certificates for
such vested shares (as well as all other vested assets and securities)
shall be released from escrow and delivered to the Owner in accordance
with the following schedule:

A. The initial release of vested shares (or other
vested assets and securities) from escrow shall be effected at
semi-annual intervals, with the first such semi-annual release to
occur six (6) months after the initial paragraph 5.3 vesting date.

B. Upon the Purchaser's cessation of Service, any
escrowed Shares (or other assets or securities) in which the Purchaser
is at the time vested shall be promptly released from escrow.

C. Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article V, the Shares (or other assets or securities) at the time held
in escrow hereunder shall promptly be released to the Owner as
fully-vested shares or other property.

(v) All Shares (or other assets or securities) released
from escrow in accordance with the provisions of subparagraph (iv)
shall nevertheless remain subject to (I) the Corporation's First
Refusal Right under Article VI until such right lapses pursuant to
paragraph 6.7, and (II) the restrictions on transfer, including the
market stand-off provision, of Article IV, until such provisions
terminate in accordance with their terms.

VIII. GENERAL PROVISIONS

8.1 ASSIGNMENT. The Corporation may assign its Repurchase Right
under Article V and its First Refusal Right under Article VI to any person or
entity selected by the Corporation's Board of Directors, including (without
limitation) one or more shareholders of the Corporation.

8.2 DEFINITIONS. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:

(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered to be a PARENT corporation of the Corporation, provided
each such corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total

13-
<PAGE>

combined voting power of all classes of stock in one of the other
corporations in such chain.

(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a SUBSIDIARY of the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

8.3 NOTICES. Any notice required in connection with the Repurchase
Right, the First Refusal Right or the disposition of any Shares covered thereby
shall be given in writing and shall be deemed effective upon personal delivery
or upon deposit in the United States mail, registered or certified, postage
prepaid and addressed to the party entitled to such notice at the address
indicated below such party's signature line on this Agreement or at such other
address as such party may designate by ten (10) days advance written notice
under this paragraph 8.3 to all other parties to this Agreement.

8.4 NO WAIVER. The failure of the Corporation (or its assignees) in
any instance to exercise the Repurchase Right granted under Article V, or the
failure of the Corporation (or its assignees) in any instance to exercise the
First Refusal Right granted under Article VI, shall not constitute a waiver of
any other repurchase rights and/or rights of first refusal that may subsequently
arise under the provisions of this Agreement or any other agreement between the
Corporation and the Purchaser or the Purchaser's spouse. No waiver of any
breach or condition of this Agreement shall be deemed to be a waiver of any
other or subsequent breach or condition, whether of like or different nature.

8.5 CANCELLATION OF SHARES. If the Corporation (or its assignees)
shall make available, at the time and place and in the amount and form provided
in this Agreement, the consideration for the Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement), and such shares shall be
deemed purchased in accordance with the applicable provisions hereof and the
Corporation (or its assignees) shall be deemed the owner and holder of such
shares, whether or not the certificates therefor have been delivered as required
by this Agreement.

IX. MISCELLANEOUS PROVISIONS

9.1 PURCHASER UNDERTAKING. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the

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<PAGE>

obligations or restrictions imposed on either the Purchaser or the Shares
pursuant to the express provisions of this Agreement.

9.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof.

9.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict-of-laws rules.

9.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

9.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Purchaser and the Purchaser's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.

9.6 COMPANY COUNSEL. PURCHASER EXPRESSLY ACKNOWLEDGES AND AGREES
THAT THIS AGREEMENT HAS BEEN PREPARED BY THE CORPORATION'S COUNSEL, WHICH
COUNSEL HAS REPRESENTED THE INTERESTS OF THE CORPORATION AND NOT THOSE OF
PURCHASER WITH RESPECT TO THIS AGREEMENT, THAT PURCHASER IS NOT RELYING ON ANY
REPRESENTATION OR ADVICE FROM THE CORPORATION OR ITS COUNSEL OR FROM ANY OTHER
INVESTOR IN THE CORPORATION ABOUT THIS AGREEMENT, ITS CONTENT OR EFFECT AND THAT
PURCHASER HAS BEEN ENCOURAGED TO SEEK INDEPENDENT COUNSEL TO REVIEW THIS
AGREEMENT ON BEHALF OF PURCHASER. PURCHASER REPRESENTS THAT HE HAS REVIEWED
THIS AGREEMENT, AND SPECIFICALLY ACKNOWLEDGES THAT THE VESTING OF THE SHARES
UNDER THIS AGREEMENT IS EARNED ONLY BY CONTINUING EMPLOYMENT OR SERVICE TO THE
CORPORATION AT THE WILL OF THE CORPORATION.

9.7 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement
shall confer upon the Purchaser any right to continue in the Service of the
Corporation (or any parent or subsidiary corporation employing or retaining
Purchaser) for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any parent or subsidiary
corporation employing or retaining Purchaser) or the Purchaser, which rights are
hereby expressly reserved by each, to terminate the Purchaser's Service at any
time for any reason whatsoever, with or without cause.

-15-
<PAGE>

9.8 POWER OF ATTORNEY. Purchaser's spouse hereby appoints Purchaser
his or her true and lawful attorney in fact, for him or her and in his or her
name, place and stead, and for his or her use and benefit, to agree to any
amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Purchaser's spouse further gives and
grants unto Purchaser as his or her attorney in fact full power and authority to
do and perform every act necessary and proper to be done in the exercise of any
of the foregoing powers as fully as he or she might or could do if personally
present, with full power of substitution and revocation, hereby ratifying and
confirming all that Purchaser shall lawfully do and cause to be done by virtue
of this power of attorney.

9.9 ADDITIONAL RIGHTS OF FIRST PARTICIPATION. The Corporation hereby
agrees that it will take all necessary action to allow Purchaser the right to
maintain his or her pro rata percentage interest of the Corporation. The
percentage ownership applicable to Purchaser shall be the number of shares
divided by the sum of (i) 3,000,000 outstanding or reserved shares plus (ii) any
shares issued to any institutional investor after the date of this Agreement
having similar rights of maintaining its percentage ownership in the
Corporation. Purchaser's right shall terminate on the earlier of (A) the date
on which Purchaser ceases vesting under the terms of this Agreement or (B) the
date on which the similar rights of all institutional investors having such
rights terminate or lapse by their terms.

[Remainder of This Page Intentionally Left Blank]

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<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.

COLLATERAL THERAPEUTICS, INC.,
a California corporation

By:
---------------------------------------
Jack Reich, President

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

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

PURCHASER

---------------------------------------
[Purchaser]

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

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

The undersigned spouse of Purchaser has read and hereby approves the
foregoing Agreement. In consideration of the Corporation's entering into this
Agreement with Purchaser, the undersigned hereby agrees to be irrevocably bound
by all the terms and provisions of such Agreement, including (specifically) the
right of the Corporation (or its assignees) to purchase any and all interest or
right the undersigned may otherwise have in such shares pursuant to community
property laws or other marital property rights.

---------------------------------------
[Purchaser's Spouse]

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

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

[SIGNATURE PAGE TO RESTRICTED STOCK ISSUANCE AGREEMENT]

-17-
<PAGE>

EXHIBIT A

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto COLLATERAL THERAPEUTICS, INC. (the "Corporation")
( ) shares of the Common Stock of the
Corporation standing in his name on the books of the Corporation represented by
Certificate No. and does hereby irrevocably constitute and appoint
as Attorney to transfer the said stock on the books of the
Corporation with full power of substitution in the premises.

Dated:
--------------------

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

INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Corporation to exercise the
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Purchaser.

A-1
<PAGE>

SECTION 83(B) TAX ELECTION
--------------------------

This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.

(1) The taxpayer who performed the services is:

Name:
-------------------------------
Address:
----------------------------
Taxpayer Ident. No.:
----------------

(2) The property with respect to which the election is being made is _______
shares of the common stock of COLLATERAL THERAPEUTICS, INC.

(3) The property was issued on __________________.

(4) The taxable year in which the election is being made is the calendar year
_____.

(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of monthly installments over a
three (3) year period ending on ____________________.

(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $__________ per share.

(7) The amount paid for such property is $_________ per share.

(8) A copy of this statement was furnished to COLLATERAL THERAPEUTICS, INC. for
whom taxpayer rendered the service underlying the transfer of property.

(9) This statement is executed as of: ______________.

- -------------------------------- ------------------------------
[Spouse] Taxpayer

<PAGE>

SCHEDULE OF RESTRICTED STOCK ISSUANCE AGREEMENTS

Dr. Jack Reich, dated April 5, 1995
Dr. Robert Engler, dated April 5, 1995
Dr. Kirt Hammond, dated April 5, 1995
Christopher Reinhard, dated April 5, 1995
Craig Andrews, dated April 5, 1995
Dr. Jack Reich, dated August 9, 1995
Dr. Robert Engler, dated August 9, 1995
Dr. Kirt Hammond, dated August 9, 1995
Christopher Reinhard, dated August 9, 1995
Craig Andrews, dated August 9, 1995
David Hale, dated August 9, 1995
Brad Duft, dated August 9, 1995
Brad Duft, dated August 9, 1995
David Robinson, dated November 20, 1995

<PAGE>
EXHIBIT 10.2

COLLATERAL THERAPEUTICS, INC.

FORM OF STOCK ISSUANCE AGREEMENT
--------------------------------

AGREEMENT made as of this____ day of ____________, 19__, by and
between COLLATERAL THERAPEUTICS, INC., a California corporation (the
"Corporation"), and _________________, an individual resident in the State of
California ("Purchaser") and _____________________, the Purchaser's spouse.

I. PURCHASE OF SHARES

1.1 PURCHASE. The Purchaser hereby purchases, and the Corporation
hereby sells to Purchaser, ___________ shares (the "Shares") of the
Corporation's common stock ("Common Stock") at a purchase price of $ _____ per
share (the "Purchase Price").

1.2 PAYMENT. Concurrently with the execution of this Agreement, the
Purchaser shall deliver to the Corporate Secretary of the Corporation the
aggregate Purchase Price payable for the Shares in cash or cash equivalents.

1.3 DELIVERY OF CERTIFICATES. A certificate representing the Shares
purchased hereunder shall be delivered to the Purchaser by the Company upon
payment by the Purchaser of the Purchase Price.

1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation actually
exercises its rights of first refusal under this Agreement, Purchaser (or any
successor in interest) shall have all the rights of a shareholder (including
voting and dividend rights) with respect to the Shares, subject, however, to the
transfer restrictions of Article III.

II. SECURITIES LAW COMPLIANCE

2.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Purchaser in reliance upon Purchaser's representation to the Corporation, which
by Purchaser's execution of this Agreement Purchaser hereby confirms, that the
Shares are being acquired for investment for Purchaser'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 Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Purchaser further represents that Purchaser 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 Shares. Purchaser represents that he has full power and
authority to enter into this Agreement.

<PAGE>

2.2 DISCLOSURE OF INFORMATION. Purchaser believes he/she has
received all the information he/she considers necessary or appropriate for
deciding whether to purchase the Shares. Purchaser acknowledges that the
Corporation has not prepared any financial statements. Purchaser further
represents that he/she has had an opportunity to ask questions and receive
answers from the Corporation regarding the terms and conditions of the offering
of the Shares.

2.4 PERSONAL KNOWLEDGE. As of Purchaser's execution of this
Agreement, Purchaser (i) has a preexisting personal and business relationship
with the Corporation (ii) is thoroughly familiar with the Corporation's
operations and its financial condition and (iii) has such knowledge and
experience in financial and business matters (including experience with
investments of a similar nature), that Purchaser is capable of evaluating the
merits and risks of an investment in the Shares. PURCHASER RECOGNIZES THAT THE
PURCHASE OF THE SHARES IS A SPECULATIVE INVESTMENT THAT INVOLVES A HIGH DEGREE
OF RISK AND IS SUITABLE ONLY FOR PERSONS WITH THE FINANCIAL CAPABILITY OF MAKING
AND HOLDING LONG-TERM INVESTMENTS NOT READILY REDUCIBLE TO CASH.

2.5 EXEMPTION FROM REGISTRATION. The Shares have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), and are
accordingly being issued to Purchaser in reliance upon the exemption from such
registration provided by the 1933 Act or the rules and regulations promulgated
by the Securities and Exchange Commission under the 1933 Act.

2.6 RESTRICTED SECURITIES. Purchaser hereby confirms that Purchaser
has been informed that the Shares are restricted securities under the 1933 Act
and may not be resold or transferred unless the Shares are first registered
under the Federal securities laws or unless an exemption from such registration
is available. Accordingly, Purchaser hereby acknowledges that Purchaser is
prepared to hold the Shares for an indefinite period and that Purchaser is aware
that Rule 144 of the Securities and Exchange Commission issued under the 1933
Act is not presently available to exempt the sale of the Shares from the
registration requirements of the 1933 Act.

2.7 DISPOSITION OF SHARES. Purchaser hereby agrees that Purchaser
shall make no disposition of the Shares (other than a permitted transfer under
paragraph 3.1) unless and until there is compliance with all of the following
requirements:

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<PAGE>

(a) Purchaser shall have notified the Corporation of the
proposed disposition and provided a written summary of the terms and
conditions of the proposed disposition.

(b) Purchaser shall have complied with all requirements of
this Agreement applicable to the disposition of the Shares.

(i) "The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended. The
shares may not be sold or offered for sale in the absence of (a) an
effective registration statement for the shares under such Act, (b) a
'no action' letter of the Securities and Exchange Commission with
respect to such sale or offer, or (c) satisfactory assurances to the
Corporation that registration under such Act is not required with
respect to such sale or offer."

(ii) "The shares represented by this certificate may not
be sold, assigned, transferred, encumbered, or in any manner disposed
of except in conformity with the terms of a written agreement dated
_____________, 19__, between the Corporation and the registered holder
of the shares (or the predecessor in interest to the shares). Such
agreement grants certain repurchase rights and rights of first refusal
to the Corporation (or its assignees) upon the sale, assignment,
transfer, encumbrance or other disposition of the Corporation's shares
or upon termination of service with the Corporation. The Corporation
will upon written request furnish a copy of such agreement to the
holder hereof without charge."

-3-
<PAGE>

III. TRANSFER RESTRICTIONS

3.1 RESTRICTION ON TRANSFER. The Shares shall not be transferred,
assigned, encumbered or otherwise made the subject of disposition in
contravention of the Corporation's First Refusal Right under Article IV. Such
restrictions on transfer, however, shall NOT be applicable to (i) a gratuitous
transfer of the Shares made to the Purchaser's spouse or issue, including
adopted children, or to a trust for the exclusive benefit of the Purchaser or
the Purchaser's spouse or issue, PROVIDED AND ONLY IF the Purchaser obtains the
Corporation's prior written consent to such transfer, (ii) a transfer of title
to the Shares effected pursuant to the Purchaser's will or the laws of intestate
succession, or (iii) a transfer by a Purchaser who is a partner in a partnership
to such partnership or a partner of such partnership or a retired partner of
such partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will or intestate succession
of any partner to his spouse or to the siblings, lineal descendants or ancestors
of such partner or his spouse.

3.2 TRANSFEREE OBLIGATIONS. Each person (other than the Corporation)
to whom the Shares are transferred by means of one of the permitted transfers
specified in paragraph 3.1 must, as a condition precedent to the validity of
such transfer, acknowledge in writing to the Corporation that such person is
bound by the provisions of this Agreement and that the transferred shares are
subject to (i) the Corporation's First Refusal Right granted hereunder and (ii)
the market stand-off provisions of paragraph 3.4, to the same extent such Shares
would be so subject if retained by the Purchaser.

3.3 DEFINITION OF OWNER. For purposes of Article III of this
Agreement, the term "Owner" shall include the Purchaser and all subsequent
holders of the Shares who derive their chain of ownership through a permitted
transfer from the Purchaser in accordance with paragraph 3.1.

3.4 MARKET STAND-OFF PROVISIONS.

(a) In connection with any underwritten public offering by
the Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Shares without the prior written consent of the Corporation or
its underwriters. Such limitations shall be in effect for such period of time
from and after the effective date of such registration statement as may be
requested by the Corporation or such underwriters; PROVIDED, however, that in no
event shall such period exceed one hundred-eighty (180) days in connection with
Corporation's initial public offering or ninety (90) days in connection with any
subsequent public offering.

-4-
<PAGE>

(b) Owner shall be subject to the market stand-off provisions
of this paragraph 3.4 PROVIDED AND ONLY IF the then-current officers and
directors of the Corporation are also subject to similar arrangements.

(c) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Corporation's outstanding Common
Stock effected without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Shares shall be
immediately subject to the provisions of this paragraph 3.4, to the same extent
the Shares are at such time covered by such provisions.

(d) In order to enforce the limitations of this paragraph
3.4, the Corporation may impose stop-transfer instructions with respect to the
Shares until the end of the applicable stand-off period.

(e) This market stand-off terminates three (3) years after
the effective date of the Corporation's initial public offering.

IV. RIGHT OF FIRST REFUSAL

4.1 GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Shares. For purposes of this Article IV, the term "transfer"
shall include any sale, assignment, pledge, encumbrance or other disposition for
value of the Shares intended to be made by the Owner, but shall not include any
of the permitted transfers under paragraph 3.1.

4.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires
to accept a bona fide third-party offer for any or all of the Shares (the shares
subject to such offer to be hereinafter called the "Target Shares"), Owner shall
promptly (i) deliver to the Corporate Secretary of the Corporation written
notice (the "Disposition Notice") of the terms and conditions of the offer,
including the purchase price and the identity of the third-party offeror and
(ii) provide satisfactory proof that the disposition of the Target Shares to
such third-party offeror would not be in contravention of the provisions set
forth in Articles II and III of this Agreement.

4.3 EXERCISE OF RIGHT. The Corporation (or its assignees) shall, for
a period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares specified in the
Disposition Notice upon substantially the same terms and conditions specified
therein or upon terms and conditions which do not materially vary from those
specified therein. Such right shall be exercisable by delivery of written
notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect
to all the Target Shares specified in the Disposition Notice, then the
Corporation (or its assignees) shall effect the repurchase of the Target Shares,
including payment of the purchase price, not more than

-5-
<PAGE>

five (5) business days after delivery of the Exercise Notice; and at such time
Owner shall deliver to the Corporation the certificates representing the Target
Shares to be repurchased, each certificate to be properly endorsed for transfer.

4.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to Owner within twenty-five (25) days following the date of the
Corporation's receipt of the Disposition Notice, Owner shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; PROVIDED,
however, that any such sale or disposition must not be effected in contravention
of the provisions of Article II of this Agreement. The third-party offeror
shall acquire the Target Shares free and clear of the Corporation's First
Refusal Right hereunder, but the acquired shares shall remain subject to (i) the
securities law restrictions of paragraph 2.6 and (ii) the market stand-off
provisions of paragraph 3.4. In the event Owner does not effect such sale or
disposition of the Target Shares within the specified thirty (30) day period,
the Corporation's First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses in
accordance with paragraph 4.7.

4.5 PARTIAL EXERCISE OF RIGHT. In the event the Corporation (or its
assignees) makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within thirty (30) days after the date of the Disposition Notice, to
effect the sale of the Target Shares pursuant to one of the following
alternatives:

(i) sale or other disposition of all the Target Shares
to the third-party offeror identified in the Disposition Notice, but
in full compliance with the requirements of paragraph 4.4, as if the
Corporation did not exercise the First Refusal Right hereunder; or

Failure of Owner to deliver timely notification to the Corporation
under this paragraph 4.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (i) above.

-6-
<PAGE>

4.6 RECAPITALIZATION/MERGER.

(b) The Corporation's First Refusal Right shall terminate in
the event of any of the following transactions:

(i) a merger or consolidation in which more than
fifty percent (50%) of the Corporation's outstanding voting stock is
transferred to a person or persons different from those who held the
stock immediately prior to such transaction,

(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets, or

(iii) a merger or consolidation in which the
Corporation is not the surviving entity (other than a transaction
effected primarily to change the state in which the Corporation is
incorporated, or to create a holding Corporation structure).

4.7 LAPSE. The First Refusal Right under this Article VI shall lapse
and cease to have effect upon the EARLIEST to occur of (i) the first date on
which shares of the Corporation's Common Stock are held of record by more than
five hundred (500) persons, (ii) a determination is made by the Corporation's
Board of Directors that a public market exists for the outstanding shares of the
Corporation's Common Stock, or (iii) a firm commitment underwritten public
offering pursuant to an effective registration statement under the 1933 Act,
covering the offer and sale of the Corporation's Common Stock in the aggregate
amount of at least $10,000,000. However, the market stand-off provisions of
paragraph 4.4 shall continue to remain in full force and effect following the
lapse of the First Refusal Right hereunder.

V. GENERAL PROVISIONS

5.1 DEFINITIONS. For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and subsidiary
corporations of the Corporation:

(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered

-7-
<PAGE>

to be a PARENT corporation of the Corporation, provided each such
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

5.2 NOTICES. Any notice required in connection with the First
Refusal Right or the disposition of any Shares covered thereby shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit in
the United States mail, registered or certified, postage prepaid and addressed
to the party entitled to such notice at the address indicated below such party's
signature line on this Agreement or at such other address as such party may
designate by ten (10) days advance written notice under this paragraph 5.3 to
all other parties to this Agreement.

5.3 NO WAIVER. The failure of the Corporation (or its assignees) in
any instance to exercise its First Refusal Right, shall not constitute a waiver
of any other rights of first refusal that may subsequently arise under the
provisions of this Agreement or any other agreement between the Corporation and
the Purchaser or the Purchaser's spouse. No waiver of any breach or condition
of this Agreement shall be deemed to be a waiver of any other or subsequent
breach or condition, whether of like or different nature.

VI. MISCELLANEOUS PROVISIONS

6.1 PURCHASER UNDERTAKING. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Purchaser or
the Shares pursuant to the express provisions of this Agreement.

6.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof.

6.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict-of-laws rules.

-8-
<PAGE>

6.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

6.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Purchaser and the Purchaser's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.

6.6 CORPORATION COUNSEL. PURCHASER EXPRESSLY ACKNOWLEDGES AND AGREES
THAT THIS AGREEMENT HAS BEEN PREPARED BY THE CORPORATION'S COUNSEL, WHICH
COUNSEL HAS REPRESENTED THE INTERESTS OF THE CORPORATION AND NOT THOSE OF
PURCHASER WITH RESPECT TO THIS AGREEMENT, THAT PURCHASER IS NOT RELYING ON ANY
REPRESENTATION OR ADVICE FROM THE CORPORATION OR ITS COUNSEL OR FROM ANY OTHER
INVESTOR IN THE CORPORATION ABOUT THIS AGREEMENT, ITS CONTENT OR EFFECT AND THAT
PURCHASER HAS BEEN ENCOURAGED TO SEEK INDEPENDENT COUNSEL TO REVIEW THIS
AGREEMENT ON BEHALF OF PURCHASER.

6.7 POWER OF ATTORNEY. Purchaser's spouse hereby appoints Purchaser
his or her true and lawful attorney in fact, for him or her and in his or her
name, place and stead, and for his or her use and benefit, to agree to any
amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Purchaser's spouse further gives and
grants unto Purchaser as his or her attorney in fact full power and authority to
do and perform every act necessary and proper to be done in the exercise of any
of the foregoing powers as fully as he or she might or could do if personally
present, with full power of substitution and revocation, hereby ratifying and
confirming all that Purchaser shall lawfully do and cause to be done by virtue
of this power of attorney.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

-9-
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.

COLLATERAL THERAPEUTICS, INC.,
a California corporation

By:
-------------------------------------
Jack Reich, President

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

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PURCHASER

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

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

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

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Purchaser's Spouse

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

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[SIGNATURE PAGE TO STOCK ISSUANCE AGREEMENT]

-10-
<PAGE>

SCHEDULE OF STOCK ISSUANCE AGREEMENTS

Jack Reich, dated March 20, 1996
Christopher Reinhard, dated March 20, 1996
Craig Andrwews, dated March 20, 1996
David Robinson, dated March 23, 1996
Robert L. Engler Separate Property Trust, dated March 25, 1996
Dr. Kirt Hammond, dated March 26, 1996
David Hale, dated March 26, 1996
Brad Duft, dated March 29, 1996

<PAGE>

EXHIBIT 10.5

COLLATERAL THERAPEUTICS, INC.

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

AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT

June 30, 1997

<PAGE>

TABLE OF CONTENTS
Page

SECTION 1

RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; REGISTRATION RIGHTS . . . . . . . . . 1
1.1 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Requested Registration . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Company Registration . . . . . . . . . . . . . . . . . . . . . . . 5
1.4 Expenses of Registration . . . . . . . . . . . . . . . . . . . . . 6
1.5 Registration on Form S-3 . . . . . . . . . . . . . . . . . . . . . 7
1.6 Registration Procedures. . . . . . . . . . . . . . . . . . . . . . 7
1.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.8 Information by Holder. . . . . . . . . . . . . . . . . . . . . . . 11
1.9 Limitations on Registration of Issues of Securities. . . . . . . . 11
1.10 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . . . . . 11
1.11 Transfer or Assignment of Registration Rights. . . . . . . . . . . 12
1.12 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . 12
1.13 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . . . . . 13
1.14 Allocation of Registration Opportunities . . . . . . . . . . . . . 14
1.15 Delay of Registration. . . . . . . . . . . . . . . . . . . . . . . 15
1.16 Termination of Registration Rights . . . . . . . . . . . . . . . . 15
1.17 Limitations on Subsequent Registration Rights. . . . . . . . . . . 15

SECTION 2

COVENANTS OF THE COMPANY. . . . . . . . . . . 15
2.1 Basic Financial Information. . . . . . . . . . . . . . . . . . . . 15
2.2 Additional Information and Rights. . . . . . . . . . . . . . . . . 16
2.3 Right of First Offer . . . . . . . . . . . . . . . . . . . . . . . 17
2.4 Grant of Rights to Third Parties . . . . . . . . . . . . . . . . . 19
2.5 Termination of Covenants . . . . . . . . . . . . . . . . . . . . . 19

SECTION 3

COVENANTS OF THE INVESTORS . . . . . . . . . . 19
3.1 Increase in Size of Option Pool. . . . . . . . . . . . . . . . . . 19
3.2 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . 19
3.3 Grant of Rights to New Investors . . . . . . . . . . . . . . . . . 21

SECTION 4

MISCELLANEOUS. . . . . . . . . . . . . . 22
4.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 22
4.3 Entire Agreement; Amendment; Waiver. . . . . . . . . . . . . . . . 22
4.4 Notices, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

(i)
<PAGE>

4.5 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . 22
4.6 Rights; Separability . . . . . . . . . . . . . . . . . . . . . . . 23
4.7 Information Confidential . . . . . . . . . . . . . . . . . . . . . 23
4.8 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . 23
4.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.10 Restatement of Prior Agreement.. . . . . . . . . . . . . . . . . . 23
4.11 Observer Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 23

EXHIBIT A - Schedule of Investors
Attachment A

(ii)
<PAGE>

AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
------------------------------------------------

This Amended and Restated Investors' Rights Agreement (this "Agreement") is
made and entered into as of the 30th day of June, 1997 by and among COLLATERAL
THERAPEUTICS, INC., a California corporation (the "Company") and each of the
entities and individuals identified on EXHIBIT A attached hereto (the
"Investors").

RECITALS

WHEREAS, the Company and Schering Berlin Venture Corp. ("Schering") are
parties to a certain Investor Rights Agreement dated as of May 7, 1996, as
amended through the date hereof (the "Prior Agreement"), pursuant to which
Schering possesses registration rights, information rights, rights of first
refusal and other rights, and the Company is obligated thereunder;

WHEREAS, the Company and certain of the Investors are parties to the
Series C Preferred Stock Purchase Agreement dated the date hereof (the "Series C
Agreement"); and

WHEREAS, in order to induce the Company to enter into the Series C
Agreement and to induce such Investors to purchase shares of the Company's
Series C Preferred Stock (the "Series C Preferred") pursuant to the Series C
Agreement, the Investors and the Company hereby agree that this Agreement shall
amend and restate the Prior Agreement so that this Agreement shall govern the
obligations of the Company to register the resale of shares of Common Stock
issuable to the Investors upon conversion of their shares of the Company's
Series A Preferred Stock (the "Series A Preferred"), Series B Preferred Stock
(the "Series B Preferred") and/or Series C Preferred, and certain other matters
as set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, 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) "COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.

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<PAGE>

(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 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, 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 and fees and disbursements
of counsel for the Holders other than the one counsel referred to above (but
excluding the compensation of regular employees of the Company, which shall be
paid in any event by the Company).

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<PAGE>

(j) "RULE 144" shall mean Rule 144 as promulgated by the Commission
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 Commission.

(k) "RULE 145" shall mean Rule 145 as promulgated by the Commission
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 Commission.

(l) "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.

(m) "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 counsel included in Registration Expenses).

(n) "SHARES" shall mean the Company's Series A Preferred, Series B
Preferred Stock and Series C Preferred Stock.

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) five
(5) years after the date of this Agreement or (ii) six (6) months after the
effective date of the registration statement filed by the Company covering its
Initial Offering, 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 of at least $10,000,000, 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:

3
<PAGE>

(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 one (1) such
registration pursuant to this Section 1.2(a) and such registration has been
declared or ordered effective; or

(C) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred twenty (120) 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

(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 one hundred twenty (120) 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

4
<PAGE>

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 it 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 Shareholders 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 underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for such underwriting
by the Company, which underwriter(s) are reasonably acceptable to a majority in
interest of the Initiating Holders. 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, a registration relating solely to a Commission Rule
145 transaction, 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 its Initial Offering, the Company will:

5
<PAGE>

(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 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 1.14. If any person does not
agree to the terms of any such underwriting, he or she 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
Section 1.3 hereof and the first registrations pursuant to Sections 1.2 and 1.5
hereof shall be borne by the Company;

6
<PAGE>

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.

(a) FORM S-3. 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 $1,000,000, or (ii) in the event that the Company
shall furnish the certification described in Section 1.2(b) (but subject to the
limitations set forth therein), or (iii) in a given twelve (12)-month period,
after the Company has effected one (1) such registration in any such period, or
(iv) the registration is in any jurisdiction in which the Company would be
required to qualify to do business or execute a general consent to service of
process to effect such registration.

(b) APPLICABILITY OF OTHER SECTIONS. 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:

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<PAGE>

(a) REGISTRATION EFFECTIVE. 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;

(b) FILE AMENDMENTS. Prepare and file with the Commission 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 DOCUMENTS. 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 SELLERS. 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 of 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) LISTING. 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;

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<PAGE>

(f) TRANSFER AGENT. 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;

(g) EARNINGS STATEMENTS. Otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission, 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; and

(h) UNDERWRITING AGREEMENT. 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.

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 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

9
<PAGE>

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); and, PROVIDED, FURTHER, that in no event
shall any Holder be liable pursuant to this Section 1.7(b) for an amount greater
than the lesser of (i) such Holder's pro rata portion of any amounts to be paid
pursuant to this Section 1.7(b) and (ii) an amount equal to the proceeds
actually received by such Holder pursuant to such registration.

(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,
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

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<PAGE>

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 Commission which may permit the sale of the
Registrable Securities to the public without registration, the Company agrees to
use its best efforts to:

(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

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<PAGE>

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 Commission 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 Commission 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 ten percent (10%) of the Registrable
Securities then held by the Holder (provided such securities have a fair market
value of not less than $250,000), 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
Section 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, such Holder shall have furnished the Company with an
opinion of counsel, reasonably

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<PAGE>

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 it 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. Each Holder hereby agrees that, during
the period of duration specified by the Company and an underwriter of common
stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Securities Act, it shall
not, to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any securities of the
Company held by it at any time during such period except common stock included
in such registration; PROVIDED, HOWEVER, that:

(a) such agreement shall not exceed 180 days for the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;

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<PAGE>

(b) such agreement shall not exceed 90 days for any subsequent
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and

In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period. Notwithstanding the
foregoing, the obligations described in this Section 1.13 shall not apply to a
registration relating solely to employee benefit plans on 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 or similar forms which may be promulgated
in the future.

1.14 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion of
shares of any currently unissued series of Preferred Stock of the Company) with
registration rights (the "Other Shares") requested to be included in a
registration on behalf of the Holders or other selling 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; PROVIDED, FURTHER, that the
number of Registrable Securities to be included in a registration pursuant to
Section 1.2 hereof shall not be limited pursuant to this Section 1.14. 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 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.

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<PAGE>

1.15 DELAY OF REGISTRATION. No Holder shall have any right to take any
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.

1.16 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to
request registration or inclusion in any registration pursuant to this Sections
1.2, 1.3 or 1.5 shall terminate on the earlier of (i) the fifth anniversary of
the closing of the Initial Offering or (ii) such date after the closing of the
Initial Offering 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.

1.17 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company may, without the consent of any Holder,
enter into an agreement with any holder or prospective holder of any securities
of the Company which would allow such holder to have registration rights with
respect to securities of the Company so long as such registration rights are not
superior during the period ending on the fifth anniversary of the closing of the
Initial Offering to those granted hereunder. The (a) grant of piggyback
registration rights, (b) the grant of rights to request registration on Form S-3
or (c) the grant of any registration rights covering Registrable Securities
issued for Warrants or other convertible securities exercised after the fifth
anniversary of the closing of the Initial Offering, shall be deemed to not be
superior to those rights granted hereunder. The prior written consent of the
Holders of a majority of the outstanding Registrable Securities shall be
required only for the grant of registration rights from and after the date of
this Agreement if such registration rights are superior to those granted
hereunder.

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 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):

(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

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<PAGE>

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, 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.

(a) The Company will permit any 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) 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.

(c) 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.

(d) 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.

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<PAGE>

2.3 RIGHT OF FIRST OFFER. The Company hereby grants to Schering,
Wellcome, Jerry C. Benjamin, and any permitted transferee or assignee of
Schering or Wellcome to whom the rights conferred by this Agreement have been
transferred or assigned (collectively, the "Schering/Wellcome Holders"), if such
Schering/Wellcome Holder owns any Shares or any shares of Common Stock issued
upon conversion of the Shares, the right of first offer 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 Schering/Wellcome Holder's Pro Rata Share, for purposes of this right
of first offer, is the ratio of the number of shares of Common Stock owned by
such Schering/Wellcome 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 Schering/Wellcome Holder shall have a right of over-allotment such that if
any Schering/Wellcome Holder fails to exercise its right hereunder to purchase
its Pro Rata Share of New Securities, the other Schering/Wellcome Holders may
purchase the non-purchasing Schering/Wellcome Holder's portion on a pro rata
basis within ten (10) days from the date such non-purchasing Schering/Wellcome
Holder fails to exercise its right hereunder to purchase its Pro Rata Share of
New Securities. This right of first offer 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) the securities purchased under that
certain Preferred Stock Purchase Agreement between the Company and Schering
dated May 7, 1996 (iii) securities issued upon conversion of the Shares; (iv)
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; (v) 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; (vi) 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; (vii) 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; (viii)
securities issued in connection with obtaining lease financing, whether issued
to a lessor, guarantor or other person; (ix) 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
$7,500,000; (x) securities issued in

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<PAGE>

connection with any stock split, stock dividend or recapitalization of the
Company; and (xi) 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 (x) above.

(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Schering/Wellcome 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
Schering/Wellcome Holder shall have twenty (20) days after any such notice is
effective to agree to purchase such Schering/Wellcome 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 Schering/Wellcome Holders fail to exercise fully
the right of first offer 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 Schering/Wellcome Holders' right of first offer 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
Schering/Wellcome 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 Schering/Wellcome Holders in the manner
provided in Section 2.3(b) above.

(d) The right of first offer granted under this Agreement shall
expire upon, and shall not be applicable to, the earlier to occur of (i) first
sale of Common Stock of the Company to the public effected pursuant to a
registration statement filed with, and declared effective by, the Commission
under the Securities Act, with aggregate net proceeds of more than $10,000,000
or (ii) with respect to such Investor, such Investor's failure to purchase its
Pro Rata Share in an offering of New Securities which closes at least one (1)
year following the effective date of this Agreement.

(e) The right of first offer set forth in this Section 2.3 may not be
assigned or transferred, except that (i) such right is assignable by each
Schering/Wellcome 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
Schering/Wellcome Holder.

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2.4 GRANT OF RIGHTS TO THIRD PARTIES. The Company hereby agrees that in
the event that it grants any contractual rights to any third party which rights
are solely associated with stock ownership, Schering and Wellcome shall have the
option, in their sole discretion, to obtain identical rights conditioned upon
the agreement by Schering to be similarly bound by any additional restrictions
or obligations accepted by the third party in connection with such contractual
rights.

2.5 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, unless earlier terminated by the
terms hereof.

SECTION 3

COVENANTS OF THE INVESTORS

3.1 INCREASE IN SIZE OF OPTION POOL. The Investors shall not unreasonably
withhold their consent to a request to amend the Company's Amended and Restated
Articles of Incorporation (the "Restated Articles") to increase the number of
shares issuable under a stock option agreement or plan or restricted stock
agreement or plan approved by the Board of Directors, as set forth in Article
III(B)3(d)(F)(2) of the Restated Articles (or any successor section), so long as
such increase does not increase the number of shares so issuable to greater than
twenty-five (25%) percent of the Company's total capitalization on a
fully-diluted basis.

3.2 RIGHT OF FIRST REFUSAL. Each Investor hereby grants to the Company
rights of first refusal (the "First Refusal Right"), exercisable in connection
with any proposed transfer of the Shares. For purposes of this Section 3.2, the
term "transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Shares intended to be made by an Investor.

(a) NOTICE OF INTENDED DISPOSITION. In the event any Investor (the
"Selling Investor") desires to accept a bona fide third-party offer for the
transfer of any or all of the Shares (the shares subject to such offer to be
hereinafter called the "Target Shares"), such Selling Investor shall promptly
(i) deliver to the Corporate Secretary of the Company written notice (the
"Disposition Notice") of the terms and conditions of the offer, including the
purchase price and the identity of the third-party offeror, and (ii) provide
satisfactory proof that the disposition of the Target Shares to such third-party
offeror would not be in contravention of the provisions set forth in Section
1.12 of this Agreement.

(b) EXERCISE OF RIGHT. The Company (or its assignees) shall, for a
period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares specified in the
Disposition Notice upon the same terms and conditions specified therein or upon
terms and conditions which do not materially vary from

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<PAGE>

those specified therein. Such right shall be exercisable by delivery of written
notice (the "Exercise Notice") to the Selling Investor prior to the expiration
of the twenty-five (25)-day exercise period. If such right is exercised with
respect to all the Target Shares specified in the Disposition Notice, then the
Company (or its assignees) shall effect the repurchase of the Target Shares,
including payment of the purchase price, not more than five (5) business days
after delivery of the Exercise Notice; and at such time the Selling Investor
shall deliver to the Company the certificates representing the Target Shares to
be repurchased, each certificate to be properly endorsed for transfer.

(c) NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to the Selling Investor within twenty-five (25) days following the date of
the Company's receipt of the Disposition Notice, the Selling Investor shall have
a period of thirty (30) days thereafter in which to sell or otherwise dispose of
the Target Shares to the third-party offeror identified in the Disposition
Notice upon terms and conditions (including the purchase price) no more
favorable to such third-party offeror than those specified in the Disposition
Notice; PROVIDED, however, that any such sale or disposition must not be
effected in contravention of the provisions of this Agreement. The acquired
shares shall remain subject to (i) the securities law restrictions of Section
1.12 and (ii) the market stand-off provisions of Section 1.13. In the event the
Selling Investor does not effect such sale or disposition of the Target Shares
within the specified thirty (30)-day period, the Company's First Refusal Right
shall continue to be applicable to any subsequent disposition of the Target
Shares by such Selling Investor until such right lapses in accordance with
Section 3.2(f).

(d) PARTIAL EXERCISE OF RIGHT. In the event the Company (or its
assignees) makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
the Selling Investor shall have the option, exercisable by written notice to the
Company delivered within thirty (30) days after the date of the Disposition
Notice, to effect the sale of the Target Shares pursuant to one of the following
alternatives:

(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full compliance
with the requirements of Section 3.2(c), as if the Company did not exercise the
First Refusal Right hereunder; or

(ii) sale to the Company (or its assignees) of the portion of the
Target Shares which the Company (or its assignees) has elected to purchase, such
sale to be effected in substantial conformity with the provisions of Section
3.2(b).

Failure of the Selling Investor to deliver timely notification to the
Company under this Section 3.2(d) shall be deemed to be an election by the
Selling Investor to sell the Target Shares pursuant to alternative (i) above.

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(e) RECAPITALIZATION/MERGER.

(i) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Company's outstanding Common
Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Shares shall be immediately
subject to the Company's First Refusal Right hereunder, but only to the extent
the Purchased Shares are at the time covered by such right.

(ii) The Company's First Refusal Right shall remain in full force
and effect and shall apply to the new capital stock or other property received
in exchange for the Shares in consummation of the transaction but only to the
extent the Shares are at the time covered by such right in the event of any of
the following transactions: (A) a merger or consolidation in which the Company
is not the surviving entity, (B) a sale, transfer or other disposition of all or
substantially all of the Company's assets, (C) reverse merger in which the
Company is the surviving entity but in which the Company's outstanding voting
securities are transferred in whole or in part to person or persons other than
those who held such securities immediately prior to the merger, or
(D) any transaction effected primarily to change the State in which the Company
is incorporated, or to create a holding company structure.

(f) LAPSE. The First Refusal Right under this Section 3.2 shall
lapse and cease to have effect upon the EARLIEST to occur of (i) the first date
on which shares of the Company's Common Stock are held of record by more than
five hundred (500) persons, (ii) a determination is made by the Company's Board
of Directors that a public market exists for the outstanding shares of the
Company's Common Stock, or (iii) a firm commitment underwritten public offering
pursuant to an effective registration statement under the 1933 Act, covering the
offer and sale of the Company's Common Stock in the aggregate amount of at least
$10,000,000. However, the market stand-off provisions of Section 1.13 shall
continue to remain in full force and effect following the lapse of the First
Refusal Right hereunder.

3.3 GRANT OF RIGHTS TO NEW INVESTORS. The Investors hereby agree that the
Company shall have the right to offer to future investors in the Company the
benefits of the right of first offer pursuant to Section 2.3 of this Agreement
and the co-sale rights pursuant to that certain Amended and Restated Co-Sale
Agreement of even date on a pro rata basis.

21
<PAGE>

SECTION 4

MISCELLANEOUS

4.1 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.

4.2 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.

4.3 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. The terms
of Sections 2.1, 2.2, 2.3 (but only insofar as the rights of Wellcome would be
disproportionately and adversely affected or removed), and 4.3 of this Agreement
may be amended, waived, discharged or terminated only by a written instrument
signed by the Company and the holders of at least seventy percent (70%) of the
Registrable Securities while the remainder of the terms of this Agreement may be
amended, waived, discharged or terminated only by a written instrument signed by
the Company and the holders of at least fifty percent (50%) of the Registrable
Securities 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.

4.4 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 9360 Towne Center Drive, San Diego, California 92121, 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.

4.5 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 Holder of any provisions or conditions of this
Agreement must be made in writing and shall

22
<PAGE>

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.

4.6 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.

4.7 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.

4.8 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.

4.9 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.

4.10 RESTATEMENT OF PRIOR AGREEMENT. This Agreement constitutes a
restatement in its entirety of the Prior Agreement. Upon the effectiveness of
this Agreement, the Prior Agreement shall be terminated and of no further force
or effect, and neither the Company nor any other party to such Prior Agreement
shall have any further rights or obligations under such Prior Agreement.

4.11 OBSERVER RIGHTS. At such times as the holders of the Series C
Preferred, voting as separate class, do not have the right to elect a member of
the Company's Board of Directors, the Company shall (i) provide to each holder
of Series C Preferred copies of all notices, minutes, consents and other
material that it provides to the members of its Board of Directors, and (ii)
allow a designee of the holders of the Series C Preferred to attend each meeting
of the Company's Board of Directors and each committee thereof.

[Remainder of This Page Intentionally Left Blank]

23
<PAGE>

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

COLLATERAL THERAPEUTICS, INC.

By: /s/ Jack W. Reich, Ph.D.
----------------------------------
Title: President & C.E.O.
------------------------------

INVESTORS:

SCHERING BERLIN VENTURE CORP.

By: /s/ Illegible
----------------------------------
Title: Treasurer
-------------------------------

Subject to ATTACHMENT A hereto, THE WELLCOME TRUST
LIMITED, AS TRUSTEE OF THE WELLCOME TRUST

By: /s/ Roger Gibbs
----------------------------------
Sir Roger Gibbs, Chairman

Address: 183 Euston Road, London NW1 2BE
---------------------------------

/s/ Jerry C. Benjamin
--------------------------------
Jerry C. Benjamin

[SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT]

24
<PAGE>

EXHIBIT A

SCHEDULE OF INVESTORS

Schering Berlin Venture Corp.
The Wellcome Trust Limited
Jerry C. Benjamin

<PAGE>

The Wellcome Trust Limited
as trustee of
the Wellcome Trust

ATTACHMENT A
TO

COLLATERAL THERAPEUTICS, INC.

AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT

With respect to its signatory capacity and liability, as trustee of the Trust,
the Trustee enters into and delivers this Amended and Restated Investors' Rights
Agreement (the "Agreement") in its capacity as the trustee for the time being of
The Wellcome Trust but not otherwise and it is hereby agreed and declared that
notwithstanding anything to the contrary contained or implied in this Agreement
or any related agreement:

(a) the obligations incurred by the Trustee under or in consequence of this
Agreement or any related agreement shall be enforceable against it or the
other trustees of The Wellcome Trust from time to time; and

(b) the liabilities of the Trustee (or such other trustees as are referred to
in paragraph (a) above) in respect of such obligations shall be limited to
such liabilities as can, and may lawfully and properly, be met out of the
assets of The Wellcome Trust for the time being in the hands or under the
control of the Trustee or such other trustees.

Attachment A

<PAGE>
EXHIBIT 10.6

COLLATERAL THERAPEUTICS INC.
AMENDED AND RESTATED CO-SALE AGREEMENT
--------------------------------------

This Amended and Restated Co-Sale Agreement (this "Agreement") is made
as of the 30th day of June, 1997 by and among the individuals listed on SCHEDULE
A hereto (collectively, the "Founders"), Jerry C. Benjamin, an individual
("Benjamin"), Collateral Therapeutics, Inc., a California corporation (the
"Company"), Schering Berlin Venture Corp., a Delaware corporation ("SBVC"), and
the Wellcome Trust, a charitable trust organized under the laws of England
("Wellcome").

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

1. DEFINITIONS.

(a) "Stock" shall mean: (i) with respect to a Founder, shares of the
Company's Common Stock now owned or subsequently acquired by such Founder; or
(ii) with respect to SBVC, Wellcome or Benjamin, shares of the Company's
Preferred Stock (including Common Stock) now owned or subsequently acquired by
SBVC, Wellcome or Benjamin, respectively.

(b) "Preferred Stock" shall mean the Company's 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 Preferred
Stock.

(d) "Party" shall mean each Founder, SBVC, Wellcome and Benjamin.

(e) "Selling Party(ies)" shall mean: (i) SBVC, if SBVC attempts to
transfer Preferred Stock (including Common Stock acquired upon conversion of
Preferred Stock) for value; (ii) Wellcome, if Wellcome attempts to transfer
Preferred Stock (including Common Stock acquired upon conversion of Preferred
Stock) for value; (iii) Benjamin, if Benjamin attempts to transfer Preferred
Stock (including Common Stock acquired upon conversion of Preferred Stock) for
value; or (iv) any Founder, if any Founder attempts to transfer Common Stock for
value.

(f) "Co-Selling Party(ies)" shall mean: (i) each of SBVC, Wellcome
and Benjamin, if any Founder attempts to transfer Common Stock for value; or
(ii) each Founder, if SBVC, Wellcome or Benjamin attempts to transfer Preferred
Stock (including Common Stock acquired upon conversion of Preferred Stock) for
value.

2. SALES BY A PARTY.

(a) If a Selling Party proposes to sell or transfer any shares of
Stock in one or more related transactions which will result in (i) the transfer
during the term of this Agreement

1
<PAGE>

of an aggregate of 25,000 or more shares of Stock by such Selling Party or (ii)
the transferee of such shares holding more than fifty percent (50%) of the
Common Stock, then such Selling Party shall promptly give written notice (the
"Notice") to the Company and the Co-Selling Parties 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 Section 3(a) or 3(b) hereof, the Notice
shall state under which subsection the sale or transfer is being made.

(b) Each Co-Selling Party shall have the right, exercisable upon
written notice to such Selling Party within fifteen (15) days after receipt of
the Notice, to participate in such sale of Stock on the same terms and
conditions. To the extent that any Co-Selling Party exercises such right of
participation in accordance with the terms and conditions set forth below (the
"Electing Co-Selling Party"), the number of shares of Stock that the Selling
Party may sell in the transaction shall be correspondingly reduced.

(c) Each Electing Co-Selling Party may sell all or any part of that
number of shares of Stock (on an as-converted basis) equal to the product
obtained by multiplying (i) the aggregate number of shares of Stock (on an
as-converted basis) covered by the Notice by (ii) a fraction the numerator of
which is the number of shares of Stock (on an as-converted basis) owned by such
Electing Co-Selling Party at the time of the sale or transfer and the
denominator of which is the total number of shares of Stock (on an as-converted
basis) owned by all Parties at the time of the sale or transfer.

(d) If any Electing Co-Selling Party fails to elect to fully
participate in such sale by the Selling Party pursuant to this Section 2, the
Selling Party shall give notice of such failure to each other Electing
Co-Selling Party 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 paragraph, a
Participant's pro rata share shall be the ratio of (i) the number of shares of
Stock (on an as-converted basis) held by such Participant to (ii) the total
number of shares of Stock (on an as-converted basis) held by the Participants
and the Selling Party.

(e) Each Electing Co-Selling Party shall effect its participation in
the sale by promptly delivering to the Selling Party for transfer to the
prospective purchaser one or more certificates, properly endorsed for transfer,
which represent the type and number of shares of Stock which such Electing
Co-Selling Party elects to sell (with the number of shares of Preferred Stock
determined on an as-converted basis).

(f) (i) If the prospective purchaser had bargained for the delivery
of Common Stock and objects to the delivery of Preferred Stock in lieu of Common
Stock, an Electing Co-Selling Party who desired to deliver Preferred Stock shall
convert such Preferred

2
<PAGE>

Stock into Common Stock and deliver Common Stock as provided in Section 2(e).
The Company agrees to make any such conversion concurrent with the actual
transfer of such shares to the purchaser.

(ii) If the prospective purchaser had bargained for the delivery
of Preferred Stock and objects to the delivery of Common Stock in lieu of
Preferred Stock, the Selling Party shall cause the prospective purchaser to
accept delivery of Common Stock.

(g) The stock certificate or certificates that the Electing
Co-Selling Party delivers to the Selling Party pursuant to this Section 2 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
Selling Party shall concurrently therewith remit to each Electing Co-Selling
Party that portion of the sale proceeds to which each Electing Co-Selling Party
is entitled by reason of its participation in such sale. To the extent that any
prospective purchaser or purchasers refuses to purchase shares or other
securities from an Electing Co-Selling Party exercising its rights of co-sale
hereunder, the Selling Party shall not sell to such prospective purchaser or
purchasers any Stock unless and until, simultaneously with such sale, the
Selling Party shall purchase such shares or other securities from each Electing
Co-Selling Party.

(h) The exercise or non-exercise of the rights of any Party to
participate in one or more sales of Stock made by another Party shall not
adversely affect their rights to participate in subsequent sales of Stock
subject to restrictions on participation set forth in Section 2(a).

3. EXEMPT TRANSFERS.

(a) Notwithstanding the foregoing, the co-sale rights of the Parties
shall not apply to: (i) any pledge of Stock made pursuant to a bona fide loan
transaction that creates a mere security interest; (ii) any transfer to the
ancestors, descendants or spouse or to trusts for the benefit of such persons or
a Party; (iii) any transfer by a Founder to a partnership or its partners; or
(iv) any transfer by a Founder to a partnership or its partners; or (iv) any
bona fide gift; PROVIDED that (A) the transferring Party shall inform the other
Parties of such pledge, transfer or gift prior to effecting it and (B) the
pledgee, transferee or donee shall furnish the other Parties with a written
agreement to be bound by and comply with all provisions of Section 2 hereunder.
Such transferred Stock shall remain "Stock" hereunder, and such pledgee,
transferee or donee shall be treated as a "Party" 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"); (ii) to the Company; or (iii) if prior to such sale, the
Selling Party held less than 1% of the Company's outstanding shares or the
Founders collectively held less than 15% of the Company's outstanding shares.

3
<PAGE>

4. PROHIBITED TRANSFERS.

(a) In the event a Selling Party should sell any Stock in
contravention of the co-sale rights of any Co-Selling Party under this Agreement
(a "Prohibited Transfer"), the Co-Selling Party, 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 Selling Party shall be bound by the applicable
provisions of such option.

(b) In the event of a Prohibited Transfer, a Co-Selling Party shall
have the right to sell to the Selling Party the type and number of shares of
Stock equal to the number of shares such Co-Selling Party would have been
entitled to transfer to the purchaser pursuant to Section 2(c) had the
Prohibited Transfer been effected pursuant to and in compliance with the terms
hereof. 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 Selling Party shall be equal to the price per share paid by the purchaser
to the Selling Party in the Prohibited Transfer. The Selling Party shall also
reimburse the Co-Selling Party for any and all fees and expense, including legal
fees and expense, incurred pursuant to the exercise or the attempted exercise of
the Co-Selling Party's rights under Section 2.

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

(iii) The Selling Party shall, upon receipt of the
certificate or certificates for the shares to be sold by the Co-Selling Party,
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 reasonably acceptable to the Co-Selling Party.

(iv) Notwithstanding the foregoing, any attempt by a Party
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 each
other Party.

5. LEGEND.

(a) Each certificate representing shares of Stock now or hereafter
owned by the Parties 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

4
<PAGE>

TERMS AND CONDITIONS OF A CERTAIN CO-SALE AGREEMENT BY AND AMONG GERALD
BENJAMIN, SCHERING BERLIN VENTURE CORP., THE WELLCOME TRUST, 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 Party 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.

(a) This Agreement shall be governed by and construed under the laws
of the State of California.

(b) 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 SBVC, Wellcome or Benjamin, by SBVC, Wellcome or
Benjamin, respectively, and their respective assignees, and (iii) as to each
Founder, such Founder, provided that any Party may waive any of its rights
hereunder without obtaining the consent of any other Party. Any amendment or
waiver effected in accordance with clauses (i), (ii) and (iii) of this Section
shall be binding upon SBVC, Wellcome, Benjamin, and their respective successors
and assigns, the Company and the Founder in question.

(c) 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 Parties
hereunder are only assignable (i) by each of such Parties to any other Party or
(ii) to an assignee or transferee who acquires at least 100,000 shares of Stock
purchased by a Party.

(d) This Agreement shall terminate upon the earlier of (i) the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act covering the offer and
sale of the Company's Common Stock at an aggregate offering price of not less
than $10,000,000, 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.

(e) Each Party represents and warrants that he, she or it is the sole
legal and beneficial owner of the shares of Stock subject to this Agreement and
that no other person or entity has any interest (other than a community property
interest) in such shares.

5
<PAGE>

(f) 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.

(g) In the event one or more of the provisions of this 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 Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein.

(h) In the event that any dispute among the parties to this 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
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.

(i) 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.

(j) This Agreement constitutes a restatement in its entirety of the
Co-Sale Agreement dated May 7, 1996, between and among the Company, the Founders
and SBVC. Upon the effectiveness of this Agreement, the May 7, 1996 Co-Sale
Agreement shall be terminated and of no further force or effect, and neither the
Company nor any other party to such agreement shall have any further rights or
obligations under such agreement.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

6
<PAGE>

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

"COMPANY"

COLLATERAL THERAPEUTICS, INC.

By: /s/ Jack W. Reich, Ph.D.
--------------------------------------
Its: President and C.E.O.

Address: 9360 Towne Centre Drive
Suite 110
San Diego, CA 92121

"SBVC"

SCHERING BERLIN VENTURE CORP.

By: /s/ Illegible
--------------------------------------
Its: Treasurer

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

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

"WELLCOME"

Subject to ATTACHMENT A hereto, THE WELLCOME TRUST
LIMITED, AS TRUSTEE OF THE WELLCOME TRUST

By: /s/ Roger Gibbs
--------------------------------------
Sir Roger Gibbs, Chairman

Address: 183 Euston Road
---------------------------------
London NW12BE
---------------------------------

-----------------------------------------
Jerry C. Benjamin

/s/ Jerry Benjamin
-----------------------------------------
(Signature)

Address: 2 Walnut Drive
---------------------------------
Kingswood, Surrey KTLO 6QX
---------------------------------

[SIGNATURE PAGE TO CO-SALE AGREEMENT]
<PAGE>

FOUNDERS:

-----------------------------------------
Craig Andrews

/s/ Craig Andrews
-----------------------------------------
(Signature)

Address: 3543 Garrison St.
---------------------------------
San Diego, CA 92106
---------------------------------

/s/ Brad Duft
-----------------------------------------
Brad Duft

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

Address: 9373 Towne Centre Drive
---------------------------------
San Diego, CA 92121
---------------------------------

-----------------------------------------
Dr. Robert Engler

/s/ Robert Engler
-----------------------------------------
(Signature)

Address: 14801 Vista Del Oceano
---------------------------------
Del Mar, CA 92014
---------------------------------

[SIGNATURE PAGE TO CO-SALE AGREEMENT]

<PAGE>

/s/ David F. Hale
-----------------------------------------
David F. Hale

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

Address: 9360 Towne Centre Drive
San Diego, CA 92121-3030

/s/ H. Kirk Hammond
-----------------------------------------
H. Kirk Hammond

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

Address: VAMC-San Diego
3350 La Jolla Village Drive
San Diego, CA 92161

-----------------------------------------
Jack Reich

/s/ Jack W. Reich, Ph.D.
-----------------------------------------
(Signature)

Address: Collateral Therapeutics
9360 Towne Centre Drive, Suite 110
San Diego, CA 92121

[SIGNATURE PAGE TO CO-SALE AGREEMENT]
<PAGE>

-----------------------------------------
Christopher Reinhard

/s/ Christopher Reinhard
-----------------------------------------
(Signature)

Address: Collateral Therapeutics, Inc.
9360 Towne Centre Drive, Suite 110
San Diego, CA 92121

-----------------------------------------
David E. Robinson

/s/ David E. Robinson
-----------------------------------------
(Signature)

Address: Ligand Pharmaceuticals
9393 Towne Centre Drive, Suite 100
San Diego, CA 92121

[SIGNATURE PAGE TO CO-SALE AGREEMENT]
<PAGE>

SCHEDULE A

FOUNDERS

NAME
- ----

Craig Andrews
Brad Duft
Robert Engler (and the Robert L. Engler Separate Property Trust)
David Hale
H. Kirk Hammond
Jack Reich
Christopher Reinhard
David Robinson

Schedule A-1
<PAGE>

The Wellcome Trust Limited
as trustee of
the Wellcome Trust

ATTACHMENT A
TO

COLLATERAL THERAPEUTICS, INC.

AMENDED AND RESTATED CO-SALE AGREEMENT

With respect to its signatory capacity and liability, as trustee of the Trust,
the Trustee enters into and delivers this Amended and Restated Co-Sale Agreement
(the "Agreement") in its capacity as the trustee for the time being of The
Wellcome Trust but not otherwise and it is hereby agreed and declared that
notwithstanding anything to the contrary contained or implied in this Agreement
or any related agreement:

Attachment A
<PAGE>

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 other Parties 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 the operation of, or violate, the Agreement.

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

<PAGE>

EXHIBIT 10.7

SECURITY AGREEMENT
------------------

THIS SECURITY AGREEMENT (the "AGREEMENT") is made as of the 16th day of
August, 1995, between COLLATERAL THERAPEUTICS, INC., a California corporation
(the "COMPANY"), and Schering Berlin Venture Corp., a Delaware corporation (the
"SECURED PARTY").

RECITALS

A. Secured Party has agreed to lend the Company $250,000 pursuant to a
Secured Promissory Note dated the same date as this Agreement (the "NOTE") and
the Company and Secured Party have set forth the terms pursuant to which Secured
Party may advance an additional amount of $250,000 to the Company under an
additional promissory note as the Company and Secured Party mutually agree; and

B. In connection with the Note, the Company has agreed to grant to
Secured Party a security interest in all of the personal property assets of the
Company as security for the prompt payment by the Company of its obligations
contained in the Note.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:

1. SECURITY INTEREST. Pursuant to the provisions of the California
Uniform Commercial Code (the "CODE"), the Company hereby grants to Secured Party
a security interest in all of the Company's right, title and interest in and to
all of its personal property, including without limitation the following
personal property of the Company (collectively, the "COLLATERAL"):

1.1 ACCOUNTS. All presently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to the Company arising
out of the sale or lease of goods or the rendition of services by the Company,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by the Company.

1.2 BOOKS. All of the Company's books and records relating to the
Collateral, including: ledgers; records indicating, summarizing, or evidencing
the Company's assets or liabilities, or the Collateral; all information relating
to the Company's business operations or financial condition; and all computer
programs, disc or tape files, printouts, runs, or other computer prepared
information, and the equipment containing such information.

1.3 EQUIPMENT. All of the Company's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
motor vehicles, tools, parts, dies, jigs, goods (other than consumer goods or
farm products), and any interest in

<PAGE>

any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing, wherever located.

1.4 GENERAL INTANGIBLES. All of the Company's present and future
general intangibles and other personal property (including any choses or things
in action, goodwill, patents, trade names, trademarks, servicemarks, blueprints,
drawings, purchase orders, customer lists, monies due or recoverable from
pension funds, route lists, infringement claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, deposit accounts, tax
refunds, and tax refund claims) other than goods and Accounts.

1.5 INTELLECTUAL PROPERTY COLLATERAL. The following properties and
assets owned or held by the Company or in which the Company otherwise has any
interest, now existing or hereafter acquired or arising (collectively, the
"Intellectual Property Rights"):

(a) all patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties with
respect to any licenses, all rights to sue for past, present or future
infringement thereof, all rights arising therefrom and pertaining thereto and
all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof;

(b) all copyrights and applications for copyright, domestic or
foreign, together with the underlying works of authorship (including titles),
whether or not the underlying works of authorship have been published and
whether said copyrights are statutory or arise under the common law, and all
other rights and works of authorship, all rights, claims and demands in any way
relating to any such copyrights or works, including royalties and rights to sue
for past, present or future infringement, and all rights of renewal and
extension of copyright;

(c) all state (including common law), federal and foreign trademarks,
service marks and trade names, and applications for registration of such
trademarks, service marks and trade names, all licenses relating to any of the
foregoing and all income and royalties with respect to any licenses, whether
registered or unregistered and wherever registered, all rights to sue for past,
present or future infringement or unconsented use thereof, all rights arising
therefrom and pertaining thereto and all reissues, extensions and renewals
thereof;

(d) all trade secrets, confidential information, customer lists,
license rights, advertising materials, operating manuals, methods, processes,
know-how, sales literature, drawings, specifications, blue prints, descriptions,
inventions, name plates and catalogs; and

(e) the entire goodwill of or associated with the businesses now or
hereafter conducted by the Company connected with and symbolized by any of the
aforementioned properties and assets.

1.6 INVENTORY. All present and future inventory in which the Company
has any interest, including goods held for sale or lease or to be furnished
under a contract of service and all of the Company's present and future raw
materials, work in process, finished goods, and packing and shipping materials,
wherever located, and any documents of title representing any of the above.

-2-
<PAGE>

1.7 NEGOTIABLE COLLATERAL. All of the Company's present and future
letters of credit, notes, drafts, instruments, documents, leases and chattel
paper.

1.8 OTHER COLLATERAL. Any money, deposit accounts, notes, drafts,
instruments, chattel paper, or other assets of the Company which hereafter come
into the possession, custody, or control of Secured Party.

1.9 PROCEEDS. Any and all proceeds whether receivable or received
from or upon the sale, lease, license, collection, use, exchange or other
disposition, whether voluntary or involuntary, of any Collateral including
"proceeds" as defined in Section 9306 of the Code, any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to or for the account of the
Company from time to time with respect to any of the Collateral, any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral, and all proceeds of such proceeds. Proceeds pursuant to this
Agreement include (i) whatever is now or subsequently received by the Company
upon the sale, exchange, collection or other disposition of any item of
Collateral, whether such proceeds constitute inventory, accounts, accounts
receivable, general intangibles, instruments, securities, credits, documents,
letters of credit, chattel paper, documents of title, warehouse receipts,
leases, deposit accounts, money, contract rights, goods or equipment, and (ii)
any such items which are now or subsequently acquired by the Company with any
proceeds of Collateral.

2. PERFORMANCE SECURED. The security interest granted hereby secures the
prompt payment of the amounts due under the Note and any other note issued by
the Company after the date of this Agreement which specifically recites that it
is secured by this Security Agreement (an "ADDITIONAL NOTE").

3. COVENANTS OF THE COMPANY. The Company covenants and agrees, unless
compliance is waived in writing by Secured Party, that:

3.1 MAINTENANCE OF COLLATERAL. The Company will properly maintain
and care for the Collateral, including the payment of all filing and other fees
necessary to maintain the Intellectual Property Rights; PROVIDED, HOWEVER, the
Company shall not be required to pay any such fees in connection with or take
any other act to maintain any Intellectual Property Rights that the Company in
the exercise of its reasonable business judgment determines are not useful in
the operation of the Company's business.

3.2 SALE OF COLLATERAL. The Company will not sell, transfer, trade
or otherwise dispose of all or substantially all of the Collateral, except in
the ordinary course of business conducted by the Company, in connection with a
reorganization, recapitalization, liquidation or business combination involving
the Company or its subsidiaries or in a transaction pursuant to which the
outstanding amounts owed under the Note and any Additional Note will be repaid
in full; PROVIDED, HOWEVER, the Company reserves the right to license,
sublicense or otherwise grant rights in any of the Intellectual Property Rights,
which the Secured Party hereby agrees shall not be prohibited by any term or
provision of this Agreement, so long as such license, sublicense or other grant
of rights is made (a) subject to the security interest of the Secured Party in
the

-3-
<PAGE>

Intellectual Property Rights and (b) in connection with a collaboration or
partnership with some other entity or in the ordinary course of the Company's
business.

3.3 CHANGE IN COMPANY. The Company will notify Secured Party in
writing of any proposed or actual change of the Company's name, identity or
corporate structure.

3.4 PAYMENT OF TAXES. The Company will pay prior to delinquency all
taxes, liens and assessments which are levied or assessed against the
Collateral.

3.5 PERFECTION FILING. The Company will file the Form UCC-1
Financing Statement (the "UCC-1") in the form mutually agreed upon with the
Office of the California Secretary of State within five (5) business days after
the date of this Agreement.

4. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default under this Agreement:

4.1 PAYMENT OF NOTES. The Company fails to make any payment of
principal or interest when required under the Note or any Additional Note.

4.2 BANKRUPTCY, INSOLVENCY, ETC. COMMENCED BY THE COMPANY. If the
Company:

(a) shall commence any proceeding or any other action relating to it
in bankruptcy or seek reorganization, arrangement, readjustment of its
debts, dissolution, liquidation, winding-up, composition or any other
relief under the United States Bankruptcy Act, as amended, or under any
other insolvency, reorganization, liquidation, dissolution, arrangement,
composition, readjustment of debt or any other similar act or law, of any
jurisdiction, domestic or foreign, now or hereafter existing;

(b) shall admit its inability to pay its debts as they mature in any
petition or pleading in connection with any such proceeding;

(c) shall apply for, or consent to or acquiesce in, an appointment of
a receiver, conservator, trustee or similar officer for it or for all or
substantially all of its assets and properties; or

(d) shall make a general assignment for the benefit of creditors.

4.3 BANKRUPTCY, INSOLVENCY, ETC. COMMENCED AGAINST THE COMPANY. If
any proceedings are commenced or any other action is taken against the Company
in bankruptcy or seeking reorganization, arrangement, readjustment of its debts,
dissolution, liquidation, winding-up, composition or any other relief under the
United States Bankruptcy Act, as amended, or under any other insolvency,
reorganization, liquidation, dissolution, arrangement, composition, readjustment
of debt or any other similar act or law, of any jurisdiction, domestic or
foreign, now or hereafter existing; or a receiver, conservator, trustee or
similar officer for the Company or for

-4-
<PAGE>

all or substantially all of its assets and properties is appointed; and in each
such case, such event continues for ninety (90) days undismissed, unbonded and
undischarged.

5. SECURED PARTY'S REMEDIES AFTER DEFAULT. Upon the occurrence of an
Event of Default, Secured Party may, after delivering written notice of such
Event of Default to the Company, do any one or more of the following:

5.1 ACCELERATE NOTES. Declare the outstanding principal balance
under the Note and any Additional Note, together with the accrued but unpaid
interest thereon, immediately due and payable.

5.2 ACTIONS AGAINST THE COMPANY. Proceed against the Company with or
without proceeding against the Collateral secured hereby.

5.3 ACTIONS AGAINST THE COLLATERAL. Exercise all of the rights and
remedies provided to Secured Party by this Agreement, by the Code as then in
effect, or any other applicable law.

6. COVENANT OF SECURED PARTY. Secured Party agrees that neither it nor
any of its employees, representatives or agents shall inform any third party
with whom the Company is negotiating or otherwise pursuing the possible license
or other acquisition of Intellectual Property Rights of the security interest
granted pursuant to this Agreement or the funds advanced to the Company pursuant
to the Note or any Additional Note without first obtaining the prior written
consent of the Company.

7. GENERAL PROVISIONS.

7.1 CONSTRUCTION. This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of California. All
terms not defined herein are used as set forth in the Code.

7.2 ENTIRE AGREEMENT. This Agreement, together with the agreements
and documents referred to herein, constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and supersede all prior
and contemporaneous negotiations, agreements and understandings.

7.3 NOTICES. All payments, notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given at the earlier of (i) the time of actual delivery or (ii) on the
third business day following the date deposited with the United States Postal
Service, postage prepaid, certified with return receipt requested, to the
parties at the following addresses or at such other address as shall be given in
writing by any party to each of the other parties:

Secured Party: Schering Berlin Venture Corp.

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

-5-
<PAGE>

Fax No.:
---------------------------

The Company: Collateral Therapeutics, Inc.
9360 Towne Centre Drive
San Diego, CA 92121
Fax No.:
---------------------------

7.4 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of, and shall be binding upon, the parties and their respective
successors and assigns.

7.5 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.

7.6 FURTHER ASSURANCES. Each party hereto will execute, acknowledge,
and deliver any further assurances, documents and instruments reasonably
requested by any other party hereto for the purpose of creating and perfecting
Secured Party's security interest in the Collateral hereunder (other than the
security interest in any foreign Intellectual Property Rights, which shall not
be perfected), including (without limitation) any financing statement, amended
financing statement, continuation statement, patent filing, or other instrument
permitted or required by the Code or other applicable law.

7.7 COOPERATION. The Company and Secured Party each agree from time
to time execute and deliver, or cause to be executed and delivered, such further
instruments and do and cause to be done such further acts as may be necessary or
proper to carry out more effectively the provisions of this Agreement.

7.8 AMENDMENTS AND WAIVER. The rights of Secured Party hereunder and
under any financing statement, amended financing statement, continuation
statement, patent filing, or other document or instrument creating or perfecting
the Secured Party's security interest in the Collateral may be amended or waived
at any time by the written consent of the Secured Party and the Company.

7.9 TERMINATION. Upon payment in full of the Note and any Additional
Note, the security interest provided under this Agreement shall automatically
terminate and shall be deemed null and void. Secured Party agrees to execute
all appropriate instruments or other documentation (including releases of any
patent filings and one or more Form UCC-2 Statements of Termination) to evidence
the termination of such security interest.

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

-6-
<PAGE>

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

THE COMPANY: COLLATERAL THERAPEUTICS, INC.

By: /s Jack W. Reich, Ph.D.
-------------------------------
Its: President and C.E.O.
------------------------------

SECURED PARTY: SCHERING BERLIN VENTURE CORP.

By: /s/ Illegible
-------------------------------

Its: President
------------------------------

-7-

<PAGE>
EXHIBIT 10.8

SECURED PROMISSORY NOTE

AMENDED AND RESTATED MAY 16, 1996

$250,000.00 August 16, 1995
San Diego, California

Collateral Therapeutics, Inc., a California corporation ("Obligor"),
for value received, hereby promises to pay to Schering Berlin Venture Corp.
("Payee"), in lawful money of the United States at the address of Payee set
forth below, the principal sum of TWO HUNDRED FIFTY THOUSAND U.S. DOLLARS
(U.S. $250,000.00), together with simple interest on the unpaid principal at the
rate per annum (computed on the basis of a 365 day year, actual days elapsed)
one percent below the "Prime Rate" of the Bank of America (the "Bank") which is
the base rate that such bank from time to time establishes and which serves as
the basis upon which effective rates of interest are calculated for those loans
making reference thereto. Each change in the rate of interest hereunder shall
become effective on the date each Prime Rate change is announced by the Bank.
Unpaid principal together with all accrued interest shall be due and payable on
demand by Payee at any time on or after January 1, 1998, unless there has been
an Acceptance of a Qualified Gene as defined in a certain Collaboration
Agreement dated May 6, 1996 between Schering AG and the Obligor (the
"Collaboration Agreement") prior to October 1, 1997. Any demand may be in whole
or in part.

This Note is secured by a security interest on the assets of Obligor in
favor of Payee pursuant to a Security Agreement dated August 16, 1995. If there
has been no demand by Payee pursuant to the third sentence of the first
paragraph above, all principal and interest of Note will be due and payable on
Payee's demand on or after June 30, 1999, unless forgiven earlier by Payee
pursuant to Section 6.3.2 of the Collaboration Agreement.

Anything herein to the contrary notwithstanding, if during any period for
which interest is computed hereunder, the amount of interest computed on the
basis provided for in this Note, together with all other matters which are
treated as interest under applicable law, would exceed the amount of such
interest computed on the basis of the maximum non-usurious rate of interest
applicable to this Note, Obligor shall not be obligated to pay in excess of such
maximum non-usurious rate during any such period.

This Note may be prepaid, in whole or in part, at any time without premium
or penalty. Any prepayment will be credited first against accrued interest,
then against principal.

<PAGE>

may be assigned or transferred in any way without the prior written consent of
Obligor; provided, that Payee may direct Obligor to make payment under this Note
to any entity controlling, controlled by or under common control with Payee.
Any attempted transfer without consent of Obligor shall be void.

If any payment of principal or interest on this Note shall become due
on a Saturday, Sunday, or a public holiday under the laws of the State of
California, such payment shall be made on the next succeeding business day and
such extension of time shall be included in computing interest in connection
with such payment.

Upon payment in full of all principal and interest payable hereunder,
this Note shall be surrendered to Obligor for cancellation.

Obligor waives presentment, demand for performance, notice of
nonperformance, protest, notice of protest, and notice of dishonor. No delay on
the part of Payee in exercising any right hereunder shall operate as a waiver of
such right under this Note. This Note is being delivered in and shall be
construed in accordance with the laws of the State of California.

In the event that Payee makes a demand for partial payment which is
permitted by the terms of the Note and Obligor fails to make such payment on the
date specified by Payee, Obligor shall be deemed to be in default hereunder. In
the event of such default, Payee may, at Payee's option and in Payee's sole
discretion, after giving notice of default to Obligor, accelerate the maturity
of all amounts due under this Note.

If the indebtedness represented by this Note or any part thereof is
collected at law or in equity or in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for collection
after default, Obligor agrees to pay, in addition to the principal and interest
payable hereon, reasonable attorneys' fees and costs incurred by Payee.

Any notice or other communication (except payment) required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or delivered by facsimile transmission or
one day after deposit if deposited in the United States mail for mailing by
certified mail, postage prepaid, and addressed as follows:

-2-
<PAGE>

If to Payee: Schering Berlin Venture Corp.
110 East Hanover Avenue
Cedare Knolls, NJ 07927

If to Obligor: Collateral Therapeutics, Inc.
9360 Towne Center Drive
San Diego, CA 92121
Fax No. 530-2225

Any payment shall be deemed made upon receipt by Payee. Payee or
Obligor may change their addresses for purposes of this Note by giving to the
other notice in conformance with the requirements of this Note. This Note may
be modified only in writing executed by the party against whom enforcement of
such modification is sought.

COLLATERAL THERAPEUTICS, INC.,
a California corporation

By: /s/ Jack E. Reich, Ph.D.
-------------------------------

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

ACCEPTED AND AGREED:

SCHERING BERLIN VENTURE CORP.

By
-----------------------------

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

-3-

<PAGE>
EXHIBIT 10.9

SECURED PROMISSORY NOTE

AMENDED AND RESTATED MAY 16, 1996

$250,000.00 October 12, 1995
San Diego, California

Collateral Therapeutics, Inc., a California corporation ("Obligor"), for
value received, hereby promises to pay to Schering Berlin Venture Corp.
("Payee"), in lawful money of the United States at the address of Payee set
forth below, the principal sum of TWO HUNDRED FIFTY THOUSAND U.S. DOLLARS
(U.S. $250,000.00), together with simple interest on the unpaid principal at the
rate per annum (computed on the basis of a 365 day year, actual days elapsed)
one percent below the "Prime Rate" of the Bank of America (the "Bank") which is
the base rate that such bank from time to time establishes and which serves as
the basis upon which effective rates of interest are calculated for those loans
making reference thereto. Each change in the rate of interest hereunder shall
become effective on the date each Prime Rate change is announced by the Bank.
Unpaid principal together with all accrued interest shall be due and payable on
demand by Payee at any time on or after January 1, 1998, unless there has been
an Acceptance of a Qualified Gene as defined in a certain Collaboration
Agreement dated May 6, 1996 between Schering AG and the Obligor (the
"Collaboration Agreement") prior to October 1, 1997. Any demand may be in whole
or in part.

This Note may be prepaid, in whole or in part, at any time without premium
or penalty. Any prepayment will be credited first against accrued interest,
then against principal.

<PAGE>

By acceptance of this Note, Payee represents to Obligor that by reason of
its business and financial experience it has the capacity to protect its own
interests in this transaction and is accepting this Note for its own account and
not with a view to resale or distribution. Neither this Note nor any interest
herein may be assigned or transferred in any way without the prior written
consent of Obligor; provided, that Payee may direct Obligor to make payment
under this Note to any entity controlling, controlled by or under common control
with Payee. Any attempted transfer without consent of Obligor shall be void.

If any payment of principal or interest on this Note shall become due on a
Saturday, Sunday, or a public holiday under the laws of the State of California,
such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in connection with
such payment.

Upon payment in full of all principal and interest payable hereunder, this
Note shall be surrendered to Obligor for cancellation.

Any notice or other communication (except payment) required or permitted
hereunder shall be in writing and shall be deemed to have been given upon
delivery if personally delivered or delivered by facsimile transmission or one
day after deposit if deposited in the United States mail for mailing by
certified mail, postage prepaid, and addressed as follows:

-2-
<PAGE>

If to Payee: Schering Berlin Venture Corp.
110 East Hanover Avenue
Cedar Knolls, NJ 07927

If to Obligor: Collateral Therapeutics, Inc.
9360 Towne Center Drive
San Diego, CA 92121
Fax No. (619) 587-3518

Any payment shall be deemed made upon receipt by Payee. Payee or Obligor
may change their addresses for purposes of this Note by giving to the other
notice in conformance with the requirements of this Note. This Note may be
modified only in writing executed by the party against whom enforcement of such
modification is sought.

COLLATERAL THERAPEUTICS, INC.,
a California corporation

By: /s/ Jack W. Reich, Ph.D.
--------------------------------
Title: President & CEO
-----------------------------

ACCEPTED AND AGREED:

SCHERING BERLIN VENTURE CORP.

By
---------------------------

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

-3-

<PAGE>
EXHIBIT 10.10

Collateral Therapeutics, Inc.
9360 Towne Centre Drive
San Diego, California 92121

Hand Delivered
--------------

May 6, 1996

Schering Berlin Venture Group
c/o Berlex Biosciences
15049 San Pablo Avenue
Richmond, CA 94804-0099

Gentlemen:

This letter is delivered in connection with and in reliance upon the
execution of a Collaboration, License and Royalty Agreement (the "Collaboration
Agreement") dated this date between Collateral Therapeutics, Inc., a California
corporation, (the "Company") and Schering A. G., the parent company of Schering
Berlin Venture Group ("Schering"). This letter will confirm our mutual
agreement to amend and restate the Secured Promissory Notes dated August 15,
1995 and October 12, 1995, (collectively the "Notes"), unexecuted copies of
which are attached to this letter, as follows:

1. The third sentence of Paragraph 1 of each Note will provide as
follows:

"Unpaid principal together with all accrued interest shall be due and
payable on demand by Payee at any time on or after January 1, 1998, unless there
has been an Acceptance of a Quaified Gene as defined in the Collaboration
Agreement prior to October 1, 1997."

2. The second paragraph of each Note shall provide as follows:

"This Note is secured by a security interest on the assets of Obligor
in favor of Payee pursuant to a Security Agreement dated August 16, 1995. All
principal and interest of the Notes will be due and payable on Payee's demand on
or after June 30, 1999, unless forgiven earlier by Payee pursuant to Section
6.3.2 of the Collaboration Agreement."

3. Within ten business days from the date of this letter, Schering agrees
to surrender to the Company the original executed Notes against simultaneous
delivery by the Company to Schering of substituted Notes, restated and amended
as provided herein.

<PAGE>

If this correctly sets forth our agreement, please indicate by signing
below.

Very truly yours,

COLLATERAL THERAPEUTICS, INC.

By: /s/ Jack Reich, Ph.D.
---------------------------------
Dr. Jack Reich, President

AGREED:

Schering Berlin Venture Group

By: /s/ illegible
-----------------------------

Title: Treasurer
--------------------------

<PAGE>
Exhibit 10.24

SUBLEASE AGREEMENT
------------------

This SUBLEASE AGREEMENT ("Sublease") is made and entered into as of the
15th day of June, 1995 by and between GENSIA, INC., a Delaware corporation
("Sublandlord") and COLLATERAL THERAPEUTICS, INC., a California corporation
("Subtenant").

WHEREAS, GENA PROPERTY COMPANY, a California general partnership, as
landlord ("Landlord"), and Sublandlord, as tenant, are parties to a certain
Lease Agreement dated as of December 21, 1993 ("Master Lease") whereby
Landlord leased to Tenant the building (the "Building") located at 9360 Towne
Centre Drive, San Diego, CA 92121 ("Master Premises"), as more particularly
described in the Master Lease, upon the terms and conditions contained
therein. All capitalized terms used herein shall have the same meaning
ascribed to them in the Master Lease unless otherwise defined herein. A copy
of those portions of the Master Lease which are applicable to this Sublease
is attached hereto as Exhibit "A" and made a part hereof. Hereinafter, the
term 'Master Lease" shall refer to only those portions of the Master Lease
which are intended to be applicable to this Sublease, as attached hereto as
Exhibit "A".

WHEREAS, Sublandlord and Subtenant are desirous of entering into a
sublease of that portion of the Master Premises which is cross-hatched in
black on the demising plan annexed hereto as Exhibit "B" and made a part
hereof ("Sublease Premises") on the terms and conditions hereafter set forth.

NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto mutually
covenant and agree as follows:

1. DEMISE. Sublandlord hereby subleases and demises to Subtenant and
Subtenant hereby hires and subleases from Sublandlord the Sublease Premises
(which the parties stipulate contain an aggregate of 4,431 rentable square
feet of office space located on the first floor of the Building), upon and
subject to the terms, covenants and conditions hereinafter set forth. The
Sublease Premises consist of two (2) separate areas, one comprised of 1,550
rentable square feet ("Area 1"), and the other comprised of 2,881 rentable
square feet ("Area 2"). The locations of Area 1 and Area 2 are depicted on
the attached Exhibit "B."

2. LEASE TERM. The term of this Sublease ("Term") shall commence on
the earlier of (i) June 15, 1995, or (ii) the

-1-
<PAGE>

date upon which Subtenant, or any person occupying any of the Sublease
Premises with Subtenant's permission, commences business operations from the
Sublease Premises ("Sublease Commencement Date") and end, unless sooner
terminated or extended as provided herein, on December 31, 1996 ("Sublease
Expiration Date"). The Term shall commence as to Area 1 on the Sublease
Commencement Date, and as to Area 2 on January 1, 1996 (the "Area 2 Sublease
Commencement Date"). The term "Sublease Premises," as used in this Sublease,
shall refer to Area 1 until the Area 2 Sublease Commencement Date and,
thereafter, shall refer to both Area 1 and Area 2.

3. USE. The Sublease Premises shall be used and occupied by Subtenant
solely for office use in compliance with the Master Lease and for no other
purpose.

4. SUBRENTAL.

(a) BASE RENTAL. Beginning with the Sublease Commencement Date and
thereafter during the Term of this Sublease and ending on the Sublease
Expiration Date, Subtenant shall pay to Sublandlord monthly installments of
base rent ("Base Rental") as follows:

(i) From and after the Sublease Commencement Date with
respect to Area 1, monthly installments in the amount of $2,294 each; and

(ii) From and after the Area 2 Sublease Commencement Date,
monthly installments in the amount of $6,557.88 each as to the entire
Sublease Premises.

The first monthly installment of Base Rental shall be paid by Subtenant
upon the execution of this Sublease. Base Rental and additional rent shall
hereinafter be collectively referred to as "Rent."

(b) PRORATIONS. If the Sublease Commencement Date is not the first
(1st) day of a month, or if the Sublease Expiration Date is not the last day
of a month, a prorated installment of monthly Base Rental based on a thirty
(30) day month shall be paid for the fractional month during which the Term
commenced or terminated.

(i) NORMAL OPERATING EXPENSES. Beginning with the Sublease
Commencement Date and continuing to the Sublease Expiration Date, Subtenant
shall pay to Sublandlord as additional rent for this subletting the cost of
all additional expenses, costs and charges payable to Landlord or to third
party providers by Sublandlord resulting from Subtenant's use

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<PAGE>

of the Sublease Premises, which are not Normal Operating Expenses (as defined
below) for the Building and the Sublease Premises. The term "Normal Operating
Expenses" shall mean the full cost of all operating expenses (including
Building maintenance, common area expenses, insurance premiums for casualty
insurance maintained by Sublandlord with respect to the Building, but
excluding any insurance coverages for Subtenant's personal property),
security and janitorial services provided by Sublandlord and real estate
taxes, applicable to the Sublease Premises which are allocable to Subtenant's
normal and customary use of the Sublease Premises in accordance with this
Sublease. Normal Operating Expenses shall include Subtenant's utility charges
for electricity usage to the extent not separately metered to Subtenant and
shall exclude other excess or non-standard costs, expenses or charges
incurred with respect to Subtenant's use or occupancy of the Sublease
Premises which are incurred or requested by Subtenant. Subtenant shall not be
responsible for payment of any Impositions (as defined in Paragraph 9(a) of
the Master Lease) which are part of the Normal Operating Expenses or which
are not otherwise made the responsibility of Subtenant pursuant to this
Sublease.

(ii) TELEPHONE SYSTEM USAGE. Subtenant may elect to establish
telephonic (voice only) service to the Sublease Premises during the Term of
this Sublease by connection to Sublandlord's telephone system for the
Building. Subtenant shall provide a written request for such service to
Sublandlord specifying the number of telephone extensions requested by
Subtenant for the Sublease Premises together with payment in advance of the
sum of $600 for each telephonic extension Subtenant requests to service the
Sublease Premises as payment for Sublandlord's provision and installation of
necessary components, including telephones and the required circuitry, to
establish the connection of such extensions to Sublandlord's system. In
addition, Subtenant shall pay the amount of $100 monthly in advance to
Sublandlord for each telephone extension established to service the Sublease
Premises as reimbursement for maintenance and security services furnished by
Sublandlord with respect to each such extension. Telephones and other
equipment provided by Sublandlord for the Sublease Premises shall be of a
standard type used by Sublandlord in the Building. Telephones provided by
Sublandlord shall become the property of Subtenant upon payment of amounts
required hereunder to Sublandlord. All other components shall remain the
property of Sublandlord and shall be surrendered by Subtenant upon the
expiration or earlier termination of this Sublease. Subtenant shall have no
right to replace or upgrade such equipment except to the extent Sublandlord
agrees to any such replacement or upgrade on such terms and conditions as are
acceptable to Sublandlord and Subtenant pays all costs of Sublandlord
incurred in connection

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<PAGE>

with any such replacement or upgrade. Upon sixty (60) days prior notice to
Subtenant, Sublandlord may elect to discontinue all or any portion of the
telephone services provided hereunder. Subtenant shall be responsible for
paying to the carrier supplying same, all fees, charges and costs incurred by
Subtenant for transmissions made to or from the Sublease Premises. All
amounts to be paid by Subtenant to Sublandlord under this Section 4(c)(ii)
shall constitute additional rent under this Sublease. Subtenant shall make
its own arrangements in accordance with this Sublease, at its sole cost and
expense, for any telecopier or data transmission service it requires with
respect to the Sublease Premises. Subtenant shall at all times comply with
Sublandlord's security and other requirements and procedures applicable to
Subtenant's use of Sublandlord's telephone system.

(d) PAYMENT OF RENT. Except as otherwise specifically provided in
this Sublease, Rent shall be payable in lawful money without demand, and
without offset, counterclaim, or setoff in monthly installments, in advance,
on the first day of each and every month during the Term of this Sublease.
All of said Rent is to be paid to Sublandlord at its office at the address
set forth in Section 13 herein, or at such other place or to such agent and
at such place as Sublandlord may designate by notice to Subtenant. Any
additional rent payable on account of items which are not payable monthly by
Sublandlord to Landlord under the Master Lease is to be paid to Sublandlord
as and when such items are payable by Sublandlord to third parties or to
Landlord under the Master Lease unless a different time for payment is
elsewhere stated herein. Upon written request therefor, Sublandlord agrees to
provide Subtenant with copies of any statements or invoices received by
Sublandlord from Landlord pursuant to the terms of the Master Lease.

(e) LATE CHARGE. Subtenant shall pay to Sublandlord an
administrative charge at an annual interest rate equal to the Prime Rate plus
three percent (3%) ("Interest Rate") on all amounts of Rent payable hereunder
which are not paid within three (3) business days of the date on which such
payment is due, such charge to accrue from the date upon which such amount
was due until paid.

5. SECURITY DEPOSIT. Concurrently with the execution of this
Sublease, Subtenant shall deposit with Sublandlord the sum of Two Thousand
Two Hundred Ninety-Four Dollars ($2,294) ("Deposit"), which shall be held by
Sublandlord as security for the full and faithful performance by Subtenant of
its covenants and obligations under this Sublease. Effective on the Area 2
Sublease Commencement Date, Subtenant shall deposit with Sublandlord an
amount sufficient to increase the Deposit to the sum of Six Thousand Five

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<PAGE>

Hundred Fifty-Seven and Eighty-Eight One Hundredths Dollars ($6,557.88). The
Deposit is not an advance Rent deposit, an advance payment of any other kind,
or a measure of Sublandlord's damage in case of Subtenant's default. If
Subtenant defaults in the full and timely performance of any or all of
Subtenant's covenants and obligations set forth in this Sublease, then
Sublandlord may, from time to time, without waiving any other remedy
available to Sublandlord, use the Deposit, or any portion of it, to the
extent necessary to cure or remedy the default or to compensate Sublandlord
for all or a part of the damages sustained by Sublandlord resulting from
Subtenant's default. Subtenant shall immediately pay to Sublandlord within
five (5) days following demand, the amount so applied in order to restore the
Deposit to its original amount, and Subtenant's failure to immediately do so
shall constitute a default under this Sublease. If Subtenant is not in
default with respect to the covenants and obligations set forth in this
Sublease at the expiration or earlier termination of the Sublease,
Sublandlord shall return the Deposit to Subtenant after the expiration or
earlier termination of this Sublease. Sublandlord's obligations with respect
to the Deposit are those of a debtor and not a trustee. Sublandlord shall not
be required to maintain the Deposit separate and apart from Sublandlord's
general or other funds and Sublandlord may commingle the Deposit with any of
Sublandlord's general or other funds. Subtenant shall not at any time be
entitled to interest on the Deposit.

6. SIGNAGE. Subtenant shall have no right to maintain Subtenant
identification signs in any location in, on, or about the Premises other than
a listing in the lobby directory for the Building and an identification sign
located at the entry to the Sublease Premises, the size, appearance and
location of such signs to be subject to Sublandlord's prior approval. The
cost of such signs, including the installation, maintenance and removal
thereof, shall be at Subtenant's sole cost and expense. If Subtenant fails to
maintain its Sublease Premises sign, or if Subtenant fails to remove same
upon the expiration or earlier termination of this Sublease and repair any
damage caused by such removal, Sublandlord may do so at Subtenant's expense
and Subtenant shall reimburse Sublandlord for all actual costs incurred by
Sublandlord to effect such removal.

7. PARKING. At no additional rent or charge, Subtenant shall have the
right, during the Term of this Sublease, to use on a non-reserved basis up to
four (4) parking spaces in the parking facilities of the Building from and
after the Sublease Commencement Date. Said number of parking spaces shall
increase to seventeen (17) parking spaces from and after the Area 2 Sublease
Commencement Date. All such parking

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<PAGE>

privileges shall be subject to the terms and conditions set forth in the Master
Lease.

8. INCORPORATION OF TERMS OF MASTER LEASE.

(a) This Sublease is subject and subordinate to the Master Lease.
Subject to the modifications set forth in this Sublease, the terms of the
Master Lease are incorporated herein by reference, and shall, as between
Sublandlord and Subtenant (as if they were "Landlord" and "Tenant,"
respectively, under the Master Lease) constitute the terms of this Sublease
except to the extent that they are inapplicable to, inconsistent with, or
modified by, the terms of this Sublease. Notwithstanding the foregoing, to
the extent provisions of the Master Lease are unique and personal to
Sublandlord's interest in the Building pursuant to the Master Lease or are
indicated on the attached Exhibit "A" as intentionally omitted from the
Master Lease, Subtenant shall not be required to comply with such provisions.
Provisions which are personal and unique to Sublandlord under the Master
Lease include, but are not limited to, Paragraphs 17, 18 and 19 of the Master
Lease. In the event of any inconsistencies between the terms and provisions
of the Master Lease and the terms and provisions of this Sublease, the terms
and provisions of this Sublease shall govern. Subtenant acknowledges that it
has reviewed the Master Lease and is familiar with the terms and conditions
thereof.

(b) For the purposes of incorporation herein, the terms of the Master
Lease are subject to the following additional modifications:

(i) In all provisions of the Master Lease (under the terms
thereof and without regard to modifications thereof for purposes of
incorporation into this Sublease) requiring the approval or consent of
Landlord, Subtenant shall be required to obtain the approval or consent of
both Sublandlord and Landlord.

(ii) In all provisions of the Master Lease requiring Tenant to
submit, exhibit to, supply or provide Landlord with evidence, certificates,
or any other matter or thing, including, without limitation, the provisions
of Sections 10(c) and 10(f) thereof, Subtenant shall be required to submit,
exhibit to, supply or provide, as the case may be, the same to both Landlord
and Sublandlord. In any such instance, Sublandlord shall determine if such
evidence, certificate or other matter or thing shall be satisfactory.

(iii) In the event of any taking by eminent domain or
casualty to the Sublease Premises such that

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<PAGE>

Subtenant is deprived of the use and occupancy of greater than fifty percent
(50%) of the Sublease Premises for a period in excess of ninety (90) days,
Subtenant and Sublandlord shall each have the right to terminate this
Sublease upon not less than thirty (30) days written notice to the other. In
the event of any such taking by eminent domain or casualty such that
Subtenant is deprived of fifty percent (50%) or less of the use and occupancy
of the Sublease Premises, or in the event Subtenant elects to continue
occupancy of the remaining portion of the Sublease Premises after the
occurrence of a taking or casualty giving Subtenant a right to terminate this
Sublease, the Rent shall be proportionally reduced for the portion of the
Term during which Subtenant is prevented from using and occupying the damaged
or taken portion of the Sublease Premises. Sublandlord shall have no
obligation to restore or rebuild any portion of the Sublease Premises after
any destruction or taking by eminent domain, and Subtenant shall have no
rights to any portion of the award in any eminent domain proceeding affecting
the Sublease Premises.

(c) During the Term, Subtenant shall not be required to maintain
casualty insurance policies and coverages with respect to the Sublease
Premises and Subtenant shall be named as an additional insured under such
policies maintained by Sublandlord (to the extent of Subtenant's interest in
the Sublease Premises), evidence of such coverage to be in the form of a
certificate of insurance provided by Sublandlord to Subtenant; PROVIDED,
HOWEVER, such policies and coverages maintained by Sublandlord with respect
to the Building and the Sublease Premises shall not include coverage for
Subtenant's personal property and Subtenant, at its sole cost and expense,
shall maintain such policies and coverages with respect to its personal
property as it may elect. During the Term, Subtenant shall maintain a policy
of comprehensive general liability insurance with respect to its occupancy
of, and activities on, the Sublease Premises and related common areas, which
coverage shall be subject to any required waivers of subrogation as are
described under Paragraph 16 of the Master Lease and shall have a minimum
policy limit of $4,000,000 and shall otherwise meet the requirements of the
Master Lease for such insurance coverage. All such policies shall name
Sublandlord, Landlord and any other party required to be so named under the
Master Lease as additional insureds thereunder and shall be with carriers
reasonably acceptable to Sublandlord and, in all events, in accordance with
the requirements of the Master Lease except as otherwise provided
hereinabove. In the event Subtenant elects to carry its own policies of
casualty insurance with respect to the Sublease Premises, all such policies
shall name Sublandlord as an additional insured thereunder.

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<PAGE>

9. SUBTENANT'S OBLIGATIONS. Subtenant covenants and agrees that all
obligations of Sublandlord under the Master Lease shall be done or performed
by Subtenant with respect to the Sublease Premises, except as otherwise
provided by this Sublease, and Subtenant's obligations shall run to
Sublandlord and Landlord as Sublandlord may determine to be appropriate or be
required by the respective interests of Sublandlord and Landlord. Subtenant
agrees to indemnify Sublandlord, and hold it harmless, from and against any
and all claims, damages, losses, expenses and liabilities (including
reasonable attorneys' fees) incurred as a result of the non-performance,
non-observance or non-payment of any of Sublandlord's obligations under the
Master Lease which, as a result of this Sublease, became an obligation of
Subtenant. If Subtenant makes any payment to Sublandlord pursuant to this
indemnity, Subtenant shall be subrogated to the rights of Sublandlord
concerning said payment. Subtenant shall not do, nor permit to be done, any
act or thing which is, or with notice or the passage of time would be, a
default under this Sublease or the Master Lease.

10. SUBLANDLORD'S OBLIGATIONS. Sublandlord covenants and agrees that
all obligations of Sublandlord under the Master Lease, other than those which
are to be done or performed by Subtenant, with respect to the Sublease
Premises shall be done or performed by Sublandlord. Sublandlord agrees that
Subtenant shall be entitled to receive all services and repairs to be
provided by Landlord to Sublandlord under the Master Lease. Subtenant shall
look solely to Landlord for all such services and shall not, under any
circumstances, seek nor require Sublandlord to perform any of such services,
nor shall Subtenant make any claim upon Sublandlord for any damages which may
arise by reason of Landlord's default under the Master Lease. Any condition
resulting from a default by Landlord shall not constitute as between
Sublandlord and Subtenant an eviction, actual or constructive, of Subtenant
and no such default shall excuse Subtenant from the performance or observance
of any of its obligations to be performed or observed under this Sublease, or
entitle Subtenant to receive any reduction in or abatement of the Rent
provided for in this Sublease unless, and to the extent, Sublandlord is
excused from performance, or entitled to a reduction or abatement of its
rental obligations to Landlord under the Master Lease also. In furtherance of
the foregoing, Subtenant does hereby waive any cause of action and any right
to bring any action against Sublandlord by reason of any act or omission of
Landlord under the Master Lease. Sublandlord covenants and agrees with
Subtenant that Sublandlord will pay all fixed rent and additional rent
payable by Sublandlord pursuant to the Master Lease to the extent that
failure to perform the same would adversely affect Subtenant's use or
occupancy of the Sublease Premises.

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<PAGE>

11. DEFAULT BY SUBTENANT. In the event Subtenant shall be in default
of any covenant of, or shall fail to honor any obligation under, this
Sublease, Sublandlord shall have available to it against Subtenant all of the
remedies available (a) to Landlord under the Master Lease in the event of a
similar default on the part of Sublandlord thereunder or (b) at law.

12. QUIET ENJOYMENT. So long as Subtenant pays all of the Rent due
hereunder and performs all of Subtenant's other obligations hereunder,
Sublandlord shall do nothing to affect Subtenant's right to peaceably and
quietly have, hold and enjoy the Sublease Premises.

13. NOTICES. Anything contained in any provision of this Sublease to
the contrary notwithstanding, Subtenant agrees, with respect to the Sublease
Premises, to comply with and remedy any default in this Sublease or the
Master Lease which is Subtenant's obligation to cure, within the period
allowed to Sublandlord under the Master Lease, even if such time period is
shorter than the period otherwise allowed therein due to the fact that notice
of default from Sublandlord to Subtenant is given after the corresponding
notice of default from Landlord to Sublandlord. Sublandlord agrees to forward
to Subtenant, promptly upon receipt thereof by Sublandlord, a copy of each
notice of default received by Sublandlord in its capacity as Tenant under the
Master Lease. Subtenant agrees to forward to Sublandlord, promptly upon
receipt thereof, copies of any notices received by Subtenant from Landlord or
from any governmental authorities. All notices, demands and requests shall be
in writing and shall be sent either by hand delivery or by a nationally
recognized overnight courier service (e.g., Federal Express), in either case
return receipt requested, to the address of the appropriate party. Notices,
demands and requests so sent shall be deemed given when the same are
received. Notices to Sublandlord shall be sent to the attention of:

Gensia, Inc.
9360 Towne Centre Drive
San Diego, CA 92121
Attn: Mr. Fred Carmody

with a copy to:
Pillsbury Madison & Sutro
101 W. Broadway, Suite 1800
San Diego, California 92101
Attn: Eric A. Kremer, Esq.

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<PAGE>

Notices to subtenant shall be sent to the attention of:

Collateral Therapeutics, Inc.
9360 Towne Centre Drive, Suite 130B
San Diego, CA 92121
Attn: Christopher J. Reinhard

14. BROKER. Sublandlord and Subtenant represent and warrant to each
other that no brokers were involved in connection with the negotiation or
consummation of this Sublease. Each party agrees to indemnify the other, and
hold it harmless, from and against any and all claims, damages, losses,
expenses and liabilities (including reasonable attorneys' fees) incurred by
said party as a result of a breach of this representation and warranty by the
other party.

15. CONDITION OF PREMISES. Subtenant acknowledges that it is
subleasing the Sublease Premises "as-is" in an unfurnished condition and that
Sublandlord is not making any representation or warranty concerning the
condition of the Sublease Premises and that Sublandlord is not obligated to
perform any work to prepare the Sublease Premises for Subtenant's occupancy.
Subtenant acknowledges that it is not authorized to make or do any
alterations or improvements in or to the Sublease Premises without
Sublandlord's prior written consent, which consent may impose additional
requirements applicable to the construction and completion of such
alterations or improvements in addition to requiring Subtenant's compliance
with requirements of the Master Lease. Subtenant further acknowledges that it
must deliver the Sublease Premises to Sublandlord on the Sublease Expiration
Date in the condition substantially the same as that on the Sublease
Commencement Date.

16. CONSENT OF LANDLORD. Section 21(b) of the Master Lease requires
Sublandlord to provide thirty (30) days' written notice of this Sublease to
Landlord. Although Sublandlord does not believe that this Sublease requires
the consent of Landlord pursuant to applicable provisions of the Master
Lease, in the event Landlord determines that such consent is required,
Sublandlord shall solicit Landlord's consent to this Sublease promptly
following the execution and delivery of this Sublease by Sublandlord and
Subtenant.

17. TERMINATION OF THE LEASE. If for any reason the term of the Master
Lease shall terminate prior to the Sublease Expiration Date, this Sublease
shall automatically be terminated and Sublandlord shall not be liable to
Subtenant by reason thereof unless said termination shall have been caused by
the default of Sublandlord under the Master Lease, and said

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<PAGE>

Sublandlord default was not as a result of a Subtenant default hereunder.

18. ASSIGNMENT AND SUBLETTING.

(a) Independent of and in addition to any provisions of the Master
Lease, including without limitation the obligation to obtain Landlord's
consent to any assignment, it is understood and agreed that Subtenant shall
have no right to sublet the Sublease Premises or any portion thereof or any
right or privilege appurtenant thereto; PROVIDED, HOWEVER, that Subtenant
shall have the right to assign this Sublease or any interest therein, and to
suffer or permit any other person (other than agents, servants or associates
of the Subtenant) to occupy or use the Sublease Premises, only upon the prior
written consent of Sublandlord and Landlord, which consent shall not be
unreasonably withheld. Any assignment by Subtenant without Sublandlord's
prior written consent shall be void and shall, at the option of Sublandlord,
terminate this Sublease.

(b) Subtenant shall advise Sublandlord by notice of (i)
Subtenant's intent to assign this Sublease, (ii) the name of the proposed
assignee and evidence reasonably satisfactory to Sublandlord that such
proposed assignee is comparable in reputation, stature and financial
condition to tenants then leasing comparable space in comparable buildings,
and (iii) the terms of the proposed assignment. Sublandlord shall, within
thirty (30) days of receipt of such notice, and any additional information
requested by Landlord concerning the proposed assignee's financial
responsibility, elect one of the following:

(i) Consent to such proposed assignment;

(ii) Refuse such consent, which refusal shall be on reasonable
grounds; or

(iii) Elect to terminate the Sublease.

(c) In the event that Sublandlord shall consent to an assignment
under the provisions of this Section 18, Subtenant shall pay Sublandlord's
reasonable processing costs and reasonable attorneys' fees incurred in giving
such consent. Notwithstanding any permitted assignment, Subtenant shall at
all times remain directly, primarily and fully responsible and liable for all
payments owed by Subtenant under the Sublease and for compliance with all
obligations under the terms, provisions and covenants of the Sublease. If for
any proposed assignment, Subtenant receives Rent or other consideration,
either initially or over the term of the assignment, in excess of the Rent
required by this Sublease, after a deduction for

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<PAGE>

the following: (a) any brokerage commission paid by Subtenant in connection
therewith and (b) any reasonable attorneys fees in connection with preparing
and negotiating an assignment document ("Profit"), Subtenant shall pay to
Sublandlord as additional Rent, fifty percent (50%) of such Profit or other
consideration received by Subtenant within five (5) days of its receipt by
Subtenant or, in the event the assignee makes payment directly to
Sublandlord, Sublandlord shall refund fifty percent (50%) of the Profit to
Subtenant after deducting (a) and (b) above.

(d) Occupancy of all or part of the Sublease Premises by parent,
subsidiary, or affiliated companies or a joint venture partnership of
Subtenant shall not be deemed an assignment or subletting provided that such
parent, subsidiary or affiliated companies or a joint venture partnership
were not formed as a subterfuge to avoid the obligation of this Section 18.
If Subtenant is a corporation, unincorporated association, trust or general
or limited partnership, then the sale, assignment, transfer or hypothecation
of any shares, partnership interest, or other ownership interest of such
entity or the dissolution, merger, consolidation, or other reorganization of
such entity, or the sale, assignment, transfer or hypothecation of the assets
of such entity, shall not be deemed an assignment or sublease subject to the
provisions of this Section 18.

19. LIMITATION OF ESTATE. Subtenant's estate shall in all respects be
limited to, and be construed in a fashion consistent with, the estate granted
to Sublandlord by Landlord. Subtenant shall stand in the place of Sublandlord
and shall defend, indemnify and hold Sublandlord harmless with respect to all
covenants, warranties, obligations, and payments made by Sublandlord under or
required of Sublandlord by the Master Lease with respect to the Subleased
Premises. In the event Sublandlord is prevented from performing any of its
obligations under this Sublease by a breach by Landlord of a term of the
Master Lease, then Sublandlord's sole obligation in regard to its obligation
under this Sublease shall be to use reasonable efforts in diligently pursuing
the correction or cure by Landlord of Landlord's breach.

20. ENTIRE AGREEMENT. It is understood and acknowledged that there are
no oral agreements between the parties hereto affecting this Sublease and
this Sublease supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between the
parties hereto or displayed by Sublandlord to Subtenant with respect to the
subject matter thereof, and none thereof shall be used to interpret or
construe this Sublease. This Sublease, and the exhibits and schedules
attached hereto, contain all of the terms, covenants, conditions, warranties
and

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<PAGE>

agreements of the panties relating in any manner to the rental, use and
occupancy of the Sublease Premises and shall be considered to be the only
agreements between the parties hereto and their representatives and agents.
None of the terms, covenants, conditions or provisions of this Sublease can
be modified, deleted or added to except in writing signed by the parties
hereto. All negotiations and oral agreements acceptable to both parties have
been merged into and are included herein. There are no other representations
or warranties between the parties, and all reliance with respect to
representations is based totally upon the representations and agreements
contained in this Sublease.

IN WITNESS WHEREOF, the parties have entered into this Sublease as of
the date first written above.

SUBLANDLORD:

GENSIA, INC.,
a Delaware corporation

By: /s/ Illegible
----------------------------------
Its: VP Finance
---------------------------------

SUBTENANT:

COLLATERAL THERAPEUTICS, INC.,
a California corporation

By: /s/ Christopher Reinhard
----------------------------------
Its: Vice President CFO
---------------------------------

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<PAGE>

EXHIBIT "A"

COPY OF MASTER LEASE

Attached

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<PAGE>

LEASE AGREEMENT
by and between

GENA PROPERTY COMPANY,
a California partnership

as LANDLORD

and

GENSIA, INC.,
a Delaware corporation,

as TENANT

Premises: San Diego, California

Dated as of: December 21, 1993

<PAGE>

LEASE AGREEMENT, made as of this 21st day of December, 1993, between GENA
PROPERTY COMPANY, a California partnership, ("LANDLORD") the partners of which
are GENA (CA) QRS 11-25, INC., a California corporation ("GENA:11") and GENA
(CA) QRS 12-1, INC., a California corporation ("GENA:12") with an address c/o W.
P. Carey & Co., Inc., 620 Fifth Avenue, New York, New York 10020, and GENSIA,
INC. ("TENANT"), a Delaware corporation with an address at 9360 Towne Centre
Drive, San Diego, California 92121.

In consideration of the rents and provisions herein stipulated to be paid
and performed, Landlord and Tenant hereby covenant and agree as follows:

1. DEMISE OF PREMISES. Landlord hereby demises and lets to Tenant, and
Tenant hereby takes and leases from Landlord, for the term and upon the
provisions hereinafter specified, the following described property
(collectively, the "LEASED PREMISES"): (a) the real property described in
EXHIBIT "A-1" hereto, together with the Appurtenances (collectively, the
"LAND"); (b) the buildings, structures, driveways, walkways and other
improvements now or hereafter constructed on the Land (collectively, the
"STRUCTURES"); and (c) the Building Systems Equipment (as defined in Paragraph
2).

2. CERTAIN DEFINITIONS.

"Additional Rent" shall mean Additional Rent as defined in Paragraph
7.

"Adjoining Property" shall mean all appurtenant sidewalks, driveways,
curbs, gores and vault spaces which are located on land adjoining the Land and
which Tenant is entitled to use and responsible to repair.

"Affiliate" with respect to Tenant shall mean any other Person
controlling, controlled by or under common control with Tenant and "control"
shall mean the power to direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.

"Alterations" shall mean all changes, additions, improvements or
repairs to, all alterations, reconstructions, renewals, replacements or removals
of and all substitutions or replacements for any of the Improvements, both
interior and exterior, structural and non-structural, and ordinary and
extraordinary.

"Appurtenances" shall mean all tenements, hereditaments, easements,
rights-of-way, rights, privileges in and to the Land, including (a) easements
over other lands granted by any Easement Agreement and (b) rights to use any
streets, ways, alleys, vaults, gores or strips of land adjoining the Land.

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<PAGE>

"Contractors" shall mean those contractors who are parties to the
Construction Contracts.

"Costs" of a Person or associated with a specified transaction shall
mean all reasonable costs and expenses incurred by such Person or associated
with such transaction, including without limitation, attorneys' fees and
expenses, court costs, brokerage fees, escrow fees, title insurance premiums,
mortgage commitment fees, mortgage points, recording fees and transfer taxes, as
the circumstances require.

"Covenant Breach" shell mean Covenant Breach as defined in Paragraph
29(e).

"Covenant Event of Default" shall mean a Covenant Breach for which a
Letter of Credit is not issued in accordance with the provisions of Paragraph
29(e).

"CPI" shall mean the CPI as defined in EXHIBIT "D".

"Debt Rent" shall mean Debt Rent as defined in Paragraph 37(a)(ii).

"Default Rate" shall mean the Default Rate as defined in Paragraph
7(a)(iv).

"Direct Costs" shall mean Direct Costs as defined in Section 1.01 of
the Construction Management Agreement.

"Early Termination Amount" shall mean [INTENTIONALLY OMITTED].

"Early Termination Date" shall mean Early Termination Date as defined
in Paragraph 18.

"Early Termination Event" shall mean an Early Termination Event as
defined in Paragraph 18.

"Early Termination Notice" shall mean Early Termination Notice as
defined In Paragraph 18.

"Easement Agreements" shall mean any recorded conditions, covenants,
restrictions, easements, declarations, licenses and other agreements affecting
the Leased Premises. The initial Easement Agreements are listed on the Schedule
of Permitted Encumbrances attached hereto as EXHIBIT "C". Tenant shall not
negotiate or execute any Easement Agreement without Landlord's prior written
consent, which shall not be unreasonably withheld or delayed. If Tenant or
Landlord subsequently negotiates and the other party approves Easement
Agreements in addition to those listed on EXHIBIT "C", such additional Easement
Agreements shall be deemed to be Included as

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<PAGE>

Landlord, Tenant or Lender, any Federal, state or local government or any other
Person for the costs of any removal or remedial action or natural resources
damage or for bodily injury or property damage, (b) any deposit, storage,
dumping, placement or use of any Hazardous Substance at, upon, under or within
the Leased Premises or which extends to any Adjoining Property in violation of
any Environmental Law or in excess of any reportable quantity established under
any Environmental Law or which could result in any liability to any Federal,
state or local government or to any other Person for the costs of any removal or
remedial action or natural resources damage or for bodily injury or property
damage, (c) the abandonment or discarding of any barrels, containers or other
receptacles containing any Hazardous Substances in violation of any
Environmental Laws, (d) any activity, occurrence or condition which could result
in any liability, cost or expense to Landlord or Lender or any other owner or
occupier of the Leased Premises, or which could result in a creation of a lien
on the Leased Premises, under any Environmental Law, or (e) any violation of or
noncompliance with any Environmental Law.

"Equipment" shall mean Building Systems Equipment and Tenant's
Equipment.

"Equity Rent" shall mean Equity Rent as defined in Paragraph 37(b).

"Event of Default" shall mean an Event of Default as defined in
Paragraph 22(a).

"Existing Leases" is defined in Paragraph 21.

"Fair Market Rent" shall mean Fair Market Rent as determined in
accordance with Section 3 of EXHIBIT "D".

"Federal Funds" shall mean federal or other immediately available
funds which at the time of payment are legal tender for the payment of public
and private debts in the United States of America.

"Final Release Conditions" shall mean Final Release Conditions as
defined in Paragraph 29.

"Financial Covenants" shall mean the financial covenants of Tenant
described on EXHIBIT "E".

"Funded Indebtedness" shall mean Funded Indebtedness as defined in
EXHIBIT "E".

"Funding Deadline" shall mean [INTENTIONALLY OMITTED].

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<PAGE>

"Indirect Costs" shall mean Indirect Costs as defined in Section 1.01
of the Construction Management Agreement.

"Initial Lender" shall mean The Northwestern Mutual Life Insurance
Company and its successors and assigns with respect to the Initial Loan.

"Initial Loan" shall mean the [INTENTIONALLY OMITTED]loan from Initial
Lender to Landlord.

"Initial Term" shall mean the Initial Term as defined in Paragraph 5.

"Initial Term Commencement Date" shall mean Initial Term Commencement
Date as defines in Paragraph 5(a).

"Initial Term Expiration Date" shall mean Initial Term Commencement
Date as defined in Paragraph 5(a).

"Insurance Requirements" shall mean the requirements of all insurance
policies required to be maintained in accordance with this Lease.

"Land" shall mean the Land as defined in Paragraph 1 and described in
EXHIBIT "A-1".

"Landlord's Cash Contribution" shall mean [INTENTIONALLY OMITTED].

"Landlord's Maximum Contribution" shall mean [INTENTIONALLY OMITTED].

"Landlord's Share of Project Costs" shall mean [INTENTIONALLY
OMITTED].

"Law" shall mean any constitution, statute, rule of law, code,
ordinance, order, judgment, decree, injunction, rule, regulation, policy,
requirement or administrative or judicial determination, even if unforeseen or
extraordinary, of every duly constituted governmental authority, court or
agency, now or hereafter enacted or in effect.

"Lease" shall mean this Lease Agreement.

"Leased Premises" shall mean the Leased Premises as defined in
Paragraph 1.

"Legal Requirements" shall mean all present and future Laws (including
but not limited to Environmental Laws and Laws relating to accessibility to,
usability by, and discrimination against, disabled individuals) and all
covenants, restrictions and conditions now or hereafter of record which may be
applicable to Tenant or to any of the Leased Premises, or to

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<PAGE>

"Note" shall mean any promissory note evidencing Landlord's obligation
to repay a Loan, as the same may be amended, supplemented or modified.

"Notice Receipt Date" shall mean Notice Receipt Date as defined in
Paragraph 18(b).

"Occupancy Date" shall mean the date on which each of the following
events has occurred: (i) the Tenant Improvements have been completed
substantially in accordance with the Plans, as certified to Landlord by the
Architect (as defined in the Construction Management Agreement), and (ii) all
permanent permits and licenses required for the occupancy of the Leased Premises
have been obtained.

"Partial Casualty" shall mean any Casualty which does not constitute
an Early Termination Event.

"Partial Condemnation" shall mean any Condemnation which does not
constitute an Early Termination Event.

"Partial Release Conditions" shall mean Partial Release Conditions as
defines in Paragraph 29(b).

"Permitted Encroachments" shall mean the encroachments listed on that
certain ALTA/ACSM Land Title Survey of the Land dated December 2, 1992 and
revised November 21, 1993 which was prepared by Bock & Clark's National
Surveyors Network.

"Permitted Encumbrances" shall mean the existing state of title to the
Leased Premises including those covenants, restrictions, reservations, liens,
conditions and easements and other encumbrances, other than any Mortgage or
Assignment by Landlord, listed on EXHIBIT "C" hereto. It is agreed that such
listing shall not be deemed to revive any such encumbrances that have expired or
terminated or are otherwise invalid or unenforceable.

"Person" shall mean an individual, partnership, association,
corporation or other entity.

"Plans" shall mean the plane and specifications prepared and to be
prepared by McGraw Baldwin Architects or another architect selected by Tenant
for the installation and construction of the Tenant Improvements. A list of the
existing Plans is attached to the Construction Management Agreement. Any
amendments, modifications or additions to the Plans shall be approved as
provided in the Construction Management Agreement.

"Prepayment Premium" shall mean any payment (other than a payment of
principal and/or interest which Landlord is required to make under a Note or a
Mortgage) by reason of any prepayment by Landlord of any principal due under

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<PAGE>

"Rent Determination Date" shall mean the date when the Fair Market
Rent is determined in accordance with Section 3 of EXHIBIT "D".

"Requisition" shall mean any temporary requisition or confiscation of
the use or occupancy of any of the Leased Premises by any governmental
authority, civil or military, whether pursuant to an agreement with such
governmental authority in settlement of or under threat of any such requisition
or confiscation, or otherwise.

"Retention Date" Shall mean the later of the date on which the amount
of the Remaining Sum is finally determined or the date on which Landlord's right
to the Remaining Sum is finally determined.

"Site Assessment" shall mean a Site Assessment as defined in Paragraph
10(c).

"State" shall mean the State of California.

"Structures" shall mean the Structures as defined in Paragraph 1.

"Surviving Obligations" shall mean any obligations of Tenant under
this Lease, actual or contingent, which arise on or prior to the expiration or
prior termination of this Lease or which survive such expiration or termination
by their own terms.

"Taking" shall mean (a) any taking or damaging of all or a portion of
any of the Leased Premises (i) in or by condemnation or other eminent domain
proceedings pursuant to any Law, general or special, or (ii) by reason of any
agreement with any condemner in settlement of or under threat of any such
condemnation or other eminent domain proceeding, or (b) any inverse or other de
facto condemnation. The Taking shall be considered to have taken place as of the
later of the date actual physical possession is taken by the condemner, or the
date on which the right to compensation and damages accrues under the Law
applicable to the Leased premises.

"Tenant Improvements" shall mean all interior improvements and
equipment to be purchased, paid for, constructed and/or installed in the
Structures, all in accordance with the Plans and the terms of the Construction
Management Agreement. The Tenant Improvements, including the Building Systems
Equipment, shall not include Tenant's Equipment.

"Tenant's Equipment" shall mean all furniture, fixtures and equipment
which are owned and paid for by Tenant at any time before or during the Term and
transferred to and installed in the Structures and any replacements thereof,
except

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<PAGE>

COMPLETE EXCLUSION AND NEGATION OF ANY WARRANTIES BY LANDLORD, EXPRESS OR
IMPLIED, WITH RESPECT TO ANY OF THE LEASED PREMISES, ARISING PURSUANT TO THE
UNIFORM COMMERCIAL CODE OR ANY OTHER LAW NOW OR HEREAFTER IN EFFECT OR ARISING
OTHERWISE.

(c) Tenant represents to Landlord that Tenant has examined the title
to the Leased Premises prior to the execution and delivery of this Lease and has
found the same to be satisfactory for the purposes contemplated hereby. Tenant
acknowledges that (i) fee simple title (both legal and equitable) is in Landlord
and that Tenant has only the leasehold right of possession and use of the Leased
Premises as provided herein, (ii) the Structures conform to all material Legal
Requirements and all Insurance Requirements, (iii) all easements necessary or
appropriate for the use or operation of the Leased Premises have been obtained,
(iv) except as shown on the schedule of even date delivered to Landlord, all
contractors and subcontractors who have performed work on or supplied materials
to the Leased Premises have been fully paid, and all materials and supplies have
been fully paid for, (v) the Structures (except for the Tenant Improvements)
have been fully completed in all material respects in a workmanlike manner of
first class quality, (vi) all Equipment (except for the Tenant Improvements)
necessary or appropriate for the use or operation of the Leased Premises has
been installed and is presently fully operative In all material respects, and
(vii) upon completion of the Tenant Improvements the Tenant Improvements will be
fully completed, installed and operative in all respects and of a first class
quality.

(d) Landlord hereby assigns to Tenant, without recourse or warranty
whatsoever, all warranties, guaranties, indemnities and similar rights which
Landlord may have against any manufacturer, seller, engineer, contractor or
builder in respect of any of the Leased Premises. Such assignment shall remain
in effect until an Event of Default occurs or until the expiration or earlier
termination of this Lease, whereupon such assignment shall cease and all of said
warranties, guaranties, indemnities and other rights shall automatically revert
to Landlord.

(e) Pursuant to the Construction Management Agreement, Tenant will
cause the Tenant Improvements to be constructed and installed with funds more
particularly described in the Construction Management Agreement. The Tenant
Improvements will be owned by Landlord and are included within the Leased
Premises. Tenant acknowledges that the Tenant Improvements have not yet been
completed and that, pursuant to the Construction Management Agreement, Tenant
has the responsibility for causing the Tenant Improvements to be completed in
accordance with the terms of the Construction Management Agreement. Landlord
will not make any representations or warranties with respect to the Tenant
Improvements. Tenant further acknowledges that, upon occurrence

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<PAGE>

minimize disclosure by Tenant of confidential or proprietary products being
developed or manufactured by Tenant.

5. TERM.

(a) Subject to all of the provisions of this Lease, Tenant shall have
and hold the Leased Premises for a primary term ("PRIMARY TERM") commencing on
the date hereof and ending on the last day of the calendar month in which the
Funding Deadline occurs (the "PRIMARY TERM EXPIRATION DATE") and for an initial
term (the "INITIAL TERM") commencing on the first day of the first month
following the Primary Term Expiration Date (the "INITIAL TERM COMMENCEMENT
DATE") and ending on the last day (the "INITIAL TERM EXPIRATION DATE") of the
one hundred eightieth (180th) calendar month next following the date on which
the Initial Term commences. If all Rent and all other sums due hereunder shall
not have been fully paid by the end of the Term, Landlord may, at its option,
extend the Term on a month-to-month basis until all said sums have been fully
paid.

(b) Provided that if, on or prior to the Initial Term Expiration Date
or any other Renewal Date (as hereinafter defined) this Lease shall not have
been terminated pursuant to any provision hereof, then on the Initial Term
Expiration Date and on the tenth (10th), twentieth (20th) and thirtieth (30th)
anniversaries of the Initial Term Expiration Date (the Initial Term Expiration
Date and each such anniversary being a "RENEWAL DATE"), the Term shall be deemed
to have been automatically extended for an additional period of ten (10) years
(each such ten (10) year period, a "RENEWAL TERM"), unless Tenant shall notify
Landlord in writing at least one (1) year prior to the next Renewal Date that
Tenant is terminating this Lease as of the next Renewal Date. If Tenant so
notifies Landlord of Tenant's election to terminate this Lease, Tenant shall
deliver to Landlord such additional documents in recordable form as are
necessary to delete from the public records any reference to the leasehold
estate and other rights of Tenant hereunder. Any such extension of the Term
shall be subject to all of the provisions of this Lease, as the same may be
amended, supplemented or modified.

(c) If Tenant exercises its option not to extend or further extend
the Term, or if an Event of Default occurs, then Landlord shall have the right
during the remainder of the Term then in effect and, in any event, Landlord
shall have the right during the last year of the Term, to (i) advertise the
availability of the Leased Premises for sale or reletting and to erect upon the
Leased Premises signs indicating such availability and (ii) show the Leased
Premises to prospective purchasers or tenants or their agents at such reasonable
times as Landlord may select. Tenant may reasonably limit the extent of any such
inspection so as to minimize disclosure by Tenant of

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<PAGE>

following sums until paid in full: (1) all overdue installments of Basic Rent
from the respective due dates thereof, provided that the Default Rate shall not
be due on any installment not paid as a result of Initial Lender's failure to
draw on the Letter of Credit pursuant to Paragraph 37(b) hereof, (2) all overdue
amounts of Additional Rent relating to obligations which Landlord or Lender
shall have paid on behalf of Tenant, beginning five (5) Business Days after
notice of payment thereof by Landlord or Lender, and (3) all other overdue
amounts of Additional Rent, from the date when any such amount becomes overdue.

(b) Subject to any specific provisions of this Lease to the contrary,
Tenant shall pay and discharge (i) any Additional Rent referred to in Paragraph
7(a)(i) when the same shall become due, provided that amounts which are billed
to Landlord, Lender or any third party, but not to Tenant, shall be paid within
ten (10) days after Landlord's or Lender's written demand for payment thereof,
and (ii) any other Additional Rent, within fifteen (15) days following Landlords
demand for payment thereof. At the time Landlord makes demand for payment,
Landlord shall furnish to Tenant reasonably detailed invoices or statements for
all items of Additional Rent paid by Landlord or Lender.

(c) Notwithstanding anything in this Paragraph 7 to the contrary,
Tenant shall not be responsible for paying any costs of Landlord and/or any
Lender incurred with respect to any sale, transfer, or financing of the Leased
Premises by Landlord unless Tenant purchases the Leased Premises from Landlord
pursuant to any provision of this Lease which requires Tenant to pay such costs.

8. NET LEASE; NON-TERMINABILITY.

(a) This is a net lease and all Monetary Obligations shall be paid
without notice or demand and without set-off, counterclaim, recoupment,
abatement, suspension, deferment, diminution, deduction, reduction or defense
(collectively, a "SET-OFF").

(b) Except as otherwise expressly provided herein, this Lease and the
rights of Landlord and the obligations of Tenant hereunder shall not be affected
by any event or for any reason, including the followings (i) any damage to or
theft, loss or destruction of any of the Leased Premises, (ii) any Condemnation,
(iii) the prohibition, limitation or restriction of Tenant's use of any of the
Leased Premises, (iv) any eviction by paramount title or otherwise, (v) Tenant's
acquisition of ownership of any of the Leased Premises other than pursuant to an
express provision of this Lease, (vi) any default on the part of Landlord
hereunder or under any Note, Mortgage, Assignment by Landlord or any other
agreement, (vii) any latent or other defect in any of the Leased Premises,
(viii) the breach of any

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pay (collectively, the "IMPOSITIONS"); provided, however, that nothing herein
shall obligate Tenant to pay (A) income, excess profits or other taxes of
Landlord (or Lender) which are determined on the basis of Landlord's (or
Lender's) net income or net worth (unless and only to the extent that such taxes
are in lieu of or a substitute for any other tax, assessment or other charge
upon or with respect to the Leased Premises which, if it were in effect, would
be payable by Tenant under the provisions hereof or by the terms of such tax,
assessment or other charge), (B) any estate, inheritance, succession, gift or
similar tax imposed on Landlord, (C) any capital gains tax imposed on Landlord
in connection with the sale of the Leased Premises to any Person, (D)
installments of principal and/or interest payable by Landlord on any Loan, (E)
property management fees payable by Landlord or (F) increases in real estate
taxes which result from a transfer of the Leased Premises during the first three
(3) years of the Initial Term or from a transfer of the Leased Premises at any
time to any affiliate of Landlord or of Corporate Property AssociateS 11
Incorporated or Corporate Property Associates 12 Incorporated. If any Imposition
may be paid in installments without interest or penalty, Tenant shall have the
option to pay such Imposition in installments; in such event, Tenant shall be
liable only for those installments which accrue or become due and payable during
the Term. Tenant shall prepare and file all tax reports required by governmental
authorities which relate to the Impositions. Tenant shall deliver to Landlord
(1) copies of all settlements and notices pertaining to the Impositions which
may be issued by any governmental authority within ten (10) days after Tenant's
receipt thereof, (2) receipts for payment of all taxes required to be paid by
Tenant hereunder within thirty (30) days after the due date thereof and (3)
receipts for payment of all other Impositions within ten (10) days after
Landlord's request therefor.

(b) At any time following the occurrence of a Monetary Event of
Default or at any time following a draw on the Letter of Credit, Landlord shall
have the right to require Tenant to pay to Landlord an additional monthly sum
(each an "ESCROW PAYMENT") sufficient to pay the Escrow Charges (as hereinafter
defined) as they become due on an annual basis and in the amounts actually
payable. As used herein, "ESCROW CHARGES" shall mean real estate taxes on the
Leased Premises or payments in lieu thereof and premiums on any property and
general liability insurance required by this Lease. Landlord shall determine the
amount of the Escrow Charges and of each Escrow Payment. If the Escrow Payments
are held by Lender, the Escrow Payments may be commingled with other funds of
Lender. If the Escrow Payments are held by Landlord, the Escrow Payments shall
not be commingled with other funds of Landlord, shall be invested and interest
thereon shall accrue to the benefit of Tenant. Landlord shall apply the Escrow
Payments to the payment of the Escrow Charges in such order or priority as
Landlord shall determine or as required by law. If at any time the

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Violation exists in violation of Law or if Landlord is required to conduct a
Site Assessment by any governmental agency or in order to monitor an existing
Environmental Violation. Provided that no Monetary Event of Default shall have
occurred and be continuing, Tenant shall have the right to consent to the
selection of the Site Reviewers, which consent shall not be unreasonably
withheld or delayed. If a Monetary Event of Default exists, Tenant shall not
have any right to consent to the selection of the site Reviewers so long as the
Site Reviewers shall be a nationally recognized firm of licensed engineers with
an office in San Diego County, experienced in handling environmental matters in
such county and who specialize in (i) conducting environmental site assessments
to determine whether specific properties are in compliance with Environmental
Laws and (ii) formulating, implementing and managing the remediation of the
discharge or release of Hazardous Substances.

(d) If an Environmental Violation occurs or is found to exist and, in
Landlords reasonable judgment, the cost of remediation of the same is likely to
exceed $500,000, Tenant shall provide to Landlord, within ten (10) days after
Landlord's request therefor, reasonable financial assurances that Tenant will
effect such remediation in accordance with applicable Environmental Laws. Such
financial assurances shall not exceed the financial assurances that would be
required by an applicable governmental agency.

(e) Notwithstanding any other provision of this Lease, if an
Environmental Violation occurs or is found to exist and the Term would otherwise
terminate or expire, then, at the option of Landlord, the Term shall be
automatically extended beyond the date of termination or expiration and this
Lease shall remain in full force and effect beyond such date until the earlier
to occur of (i) the completion of all remedial action in accordance with
applicable Environmental Laws or (ii) the date specified in a written notice
from Landlord to Tenant terminating this Lease.

(f) Tenant shall notify Landlord immediately after becoming aware of
any Environmental Violation (or receipt of formal notice of any alleged
Environmental Violation) or noncompliance with any of the covenants contained in
this Paragraph 10 and shall forward to Landlord immediately upon receipt thereof
copies of all orders, reports, notices, permits, applications or other
communications relating to any such violation or noncompliance.

(g) All future leases, subleases or concession agreements relating to
the Leased Premises entered into by Tenant shall require the other Person
thereto to comply with all Environmental Laws with respect to its use and
occupancy of the Leased Premises.

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<PAGE>

preservation and safety of the Leased Premises. Tenant shall promptly make all
Alterations of every kind and nature, whether foreseen or unforeseen, which may
be required to comply with the foregoing requirements of this Paragraph 12(a).
Landlord shall not be required to make any Alteration, whether foreseen or
unforeseen, or to maintain any of the Leased Premises or Adjoining Property in
any way, and Tenant hereby expressly waives any right which may be provided for
in any Law now or hereafter in effect to make Alterations at the expense of
Landlord or to require Landlord to make Alterations. Any Alteration made by
Tenant pursuant to this Paragraph 12 shall be made in conformity with the
provisions of Paragraph 13.

(b) Except for Permitted Encroachments, if any Improvement, now or
hereafter constructed, shall (i) encroach upon any setback or any property,
street or right-of-way adjoining the Leased Premises, (ii) violate the
provisions of any restrictive covenant affecting the Leased Premises, (iii)
hinder or obstruct any easement or right-of-way to which any of the Leased
Premises is subject or (iv) impair the rights of others in, to or under any of
the foregoing, Tenant shall, promptly after receiving notice or otherwise
acquiring knowledge thereof, either (A) obtain from all necessary parties
waivers or settlements of all claims, liabilities and damages resulting from
each such encroachment, violation, hindrance, obstruction or impairment, whether
the same shall affect Landlord, Tenant or both, or (B) take such action as shall
be necessary to remove all such encroachments, hindrances or obstructions and to
end all such violations or impairments, including, if necessary, making
Alterations.

13. ALTERATIONS AND IMPROVEMENTS.

(a) In addition to Alterations required by Paragraphs 12 and 17
Tenant shall have the right, without having to obtain the prior written consent
of Landlord and Lender, to (i) make any Alterations to the Structures for a cost
of not more than [INTENTIONALLY OMITTED] in any one instance, or (ii) install
Building Systems Equipment in the Structures or accessions to the Building
Systems Equipment the cost of which as to such Building Systems Equipment or
series of related Building Systems Equipment, does not exceed [INTENTIONALLY
OMITTED]. The consent of Landlord and Lender shall be required (A) if a Monetary
Event of Default exists, or (B) if the Alterations (or a series of related
Alterations) exceeds [INTENTIONALLY OMITTED], or (C) if Tenant desires to remove
and not upgrade or replace during the Term any Tenant Improvements which had an
initial cost in the aggregate in excess of [INTENTIONALLY OMITTED], or (D) if
Tenant desires to construct upon the Land any additional Improvements, provided
that, with respect to (C) and (D) above, such consent shall not be unreasonably
withheld or delayed. In any event, the consent of Landlord and Lender will not
be withheld on the basis of the type of Alterations (I.E., laboratory or office
space) to be constructed.

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<PAGE>

14. PERMITTED CONTESTS.

(a) Notwithstanding any other provision of this Lease, Tenant shall
not be required to (a) pay any Imposition, (b) comply with any Legal
Requirement, (c) discharge or remove any lien referred to any Paragraph of this
Lease except Paragraph 21 or (d) take any action with respect to any
encroachment, violation, hindrance, obstruction or impairment referred to in
Paragraph 12(b) (such non-compliance with the terms hereof being hereinafter
referred to collectively as "PERMITTED VIOLATIONS"), so long as at the time of
such contest no Monetary Event of Default or Covenant Event of Default exists
and so long an Tenant shall contest, in good faith, the existence, amount or
validity thereof, the amount of the damages caused thereby, or the extent of its
or Landlord's liability therefor by appropriate proceedings which shall operate
during the pendency thereof to prevent or stay (i) the collection of, or other
realization upon, the Permitted Violation so contested, (ii) the sale,
forfeiture or loss of any of the Leased Premixes or any Rent to satisfy or to
pay any damages caused by any Permitted Violation, (iii) any interference with
the use or occupancy of any of the Leased Premises, (iv) any interference with
the payment of any Rent, (v) the cancellation or increase in the rate of any
insurance policy or a statement by the carrier that coverage will be denied or
(vi) the enforcement or execution of any injunction, order or Legal Requirement
with respect to the Permitted Violation.

(b) Tenant shall provide Landlord security which is satisfactory, in
Landlord's reasonable judgment, to assure that such Permitted Violation is
corrected, including all Costs, interest and penalties that may be incurred or
become due in connection therewith. If such security it in the form of a cash
deposit, interest thereon shall accrue for the benefit of Tenant, and Landlord
shall not commingle any such cash security provided by Tenant with other funds
of Landlord. While any proceedings which comply with the requirements of this
Paragraph 14 are pending and the required security is held by Landlord, Landlord
shall not have the right to correct any Permitted Violation thereby being
contested unless Landlord is required by law to correct such Permitted Violation
and Tenants contest does not prevent or stay such requirement as to Landlord.
Each such contest shall be promptly and diligently prosecuted by Tenant to a
final conclusion, except that Tenant, so long as the conditions of this
Paragraph 14 are at all times complied with, shall have the right to attempt to
settle or compromise such contest through negotiations. Tenant shall pay any and
all losses, judgments, decrees and Costs in connection with any such contest and
shall, promptly after the final determination of such contest, fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed or be
determined to be payable therein or in connection therewith, together with all
penalties, fines, interest and Costs thereof or in connection

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<PAGE>

prompt notice of any such claim and Tenant is prejudiced as a result of
Indemnitee's delay, Tenant shall not be obligated to indemnify Indemnitee to the
extent Tenant is thereby prejudiced. Upon receipt of notice from any Indemnitee,
Tenant shall, subject to the preceding sentence, resist or defend such action or
proceeding by retaining counsel reasonably satisfactory to such Indemnitee, and
such Indemnitee will cooperate and assist in the defense of such action or
proceeding it reasonably requested so to do by Tenant. Any Indemnitee may
retain separate counsel to represent Indemnitee, but only at such Indemnitee's
sole cost and expense.

16. INSURANCE.

(a) Tenant shall maintain the following insurance on or in connection
with the Leased Premises:

(i) Insurance against physical loss or damage to the
Improvements as provided under a standard "All Risk" property policy including
but not limited to flood (if the Leased Premises are in a flood zone) and
earthquake coverage. The amount of coverage shall not be less than the actual
replacement cost of the Improvements, except for the Flood and Earthquake
insurance which shall be provided with limits of $5,000,000 and $10,000,000
respectively. Such policies shall contain deductibles of not more than $100,000,
except for Flood and Earthquake Insurance which shall have the customary
deductibles reasonably available for such properties.

(ii) Commercial General Liability Insurance against claims for
personal and bodily injury, death or property damage occurring on, in or as A
result of the use of the Leased Premises, in an amount not less than $10,000,000
per occurrence/annual aggregate, including but not limited to Garagekeepers
Liability, Host Liquor Liability, and all other coverage extensions that are
usual and customary for properties of this size and type.

(iii) Worker's Compensation Insurance covering all of the Tenants
employees for claims for death, disease or bodily injury that may be asserted
against Tenant. In lieu of such Worker's Compensation Insurance, a program of
self-insurance complying with the rules, regulations and requirements of the
appropriate agency of the State.

(iv) Comprehensive Boiler and Machinery Insurance including but
not limited to Service Interruption, Expediting Expenses, Ammonia Contamination
in an amount not less than $5,000,000 for damage to property resulting from such
covered perils as found in a standard Comprehensive Boiler and Machinery

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<PAGE>

proceeds are received by Landlord and Debt Rent received by Lender on behalf of
Landlord. Each insurance policy referred to in clauses (i), (iv), (v) and (vi)
of Paragraph 16(a) shall contain standard non-contributory mortgagee clauses in
favor of and acceptable to Lender. Each policy required by any provision of
Paragraph 16(a), except clause (iii) thereof, shall provide that it may not be
canceled except after thirty (30) days' prior notice to Landlord and Lender.
Each such policy shall also provide that any loss otherwise payable thereunder
shall be payable notwithstanding (i) any act or omission of the Landlord or
Tenant which might, absent such provision, result in a forfeiture of all or a
part of such insurance payment, (ii) the occupation or use of any of the Leased
Premises for purposes more hazardous than those permitted by the provisions of
such policy, (iii) any foreclosure or other action or proceeding taken by Lender
pursuant to any provision of the Mortgage, Note, Assignment by Landlord or other
document evidencing or securing the Loan upon the happening of an event of
default therein or (iv) any change in title to or ownership of any of the Leased
Premises.

(d) Tenant shall pay as they become due all premiums for the
insurance required by Paragraph 16(a), shall renew or replace each policy and
deliver to Landlord and Lender evidence of the payment of the full premium
therefor or installment then due at least thirty (30) days prior to the
expiration date of such policy, and Tenant shall deliver evidence of insurance
acceptable to Landlord and Lender or, if requested by Landlord or Lender,
certified copies of all policies required within thirty (30) days prior to the
expiration date of such policy.

(e) Anything in this Paragraph 16 to the contrary notwithstanding,
any insurance which Tenant is required to obtain pursuant to Paragraph 16(a) may
be carried under a "blanket" or umbrella policy or policies covering other
properties or liabilities of Tenant. The amount of the total insurance
allocated to the Leased Premises, which amount shall be not less than the
amounts required pursuant to this Paragraph 16, shall be specified either (i) in
each such "blanket" or umbrella policy or (ii) in a written statement, which
Tenant shall deliver to Landlord, from the insurer thereunder.

(f) Tenant shall promptly comply with and conform to (i) all
provisions of each insurance policy required by this Paragraph 16 and (ii) all
requirements of the insurers thereunder applicable to any of the Leased Premises
or to the use, manner of use, occupancy, possession, operation, maintenance,
alteration or repair of any of the Leased Premises, even if such compliance
necessitates Alterations or results in interference with the use or enjoyment of
any of the Leased Premises.

(g) Tenant shall not carry separate insurance concurrent in form or
contributing in the event of a Casualty

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<PAGE>

all such claims equal to or in excess of Fifty Thousand Dollars ($50,000), and
Landlord and Lender shall have the right to join with Tenant therein. Any
adjustment, settlement or compromise of any such claim equal to or in excess of
Fifty Thousand Dollars ($50,000) shall be subject to the prior written approval
of Landlord and Lender, and Landlord and Lender shall have the right to
prosecute or contest, or to require Tenant to prosecute or contest, any such
claim, adjustment, settlement or compromise. Each insurer is hereby authorized
and directed to make payment under said policies in excess of Fifty Thousand
Dollars ($50,000), directly to Landlord or, If required by the Mortgage, to
Lender Instead of to Landlord and Tenant jointly. Tenant hereby appoints each of
Landlord and Lender as Tenant's attorneys-in-fact to endorse any draft for
payments to be made to Landlord and/or Lender. Any payment of a Net Award of
Fifty Thousand Dollars ($50,000) or less shall be paid directly to Tenant by the
insurance company.

(c) Tenant, immediately upon receiving a Condemnation Notice, shall
notify Landlord and Lender thereof. If Landlord receives a Condemnation Notice,
Landlord shall give Tenant and Lender prompt notice thereof. Except as
specifically provided in the following sentence, Landlord and Lender are
authorized to collect, settle and compromise, in their discretion (and, if no
Monetary Event of Default exists, upon notice to Tenant), the amount of any Net
Award. Provided that no Monetary Event of Default has occurred and is
continuing, Tenant shall be entitled to participate with Landlord and Lender in
any Condemnation proceeding or negotiations under threat thereof and to contest
the Condemnation or the amount of the Net Award therefor. No agreement with any
condemner in settlement or under threat of any Condemnation shall be made by
Tenant without the written consent of Landlord and Lender. Subject to the
provisions of this Paragraph 17(c), Tenant hereby irrevocably assigns to
Landlord any award or payment to which Tenant is or may be entitled by reason of
any Condemnation, whether the same shall be paid or payable for Tenant's
leasehold interest hereunder or otherwise. Nothing in this Lease shall, however,
impair Tenant's right to any award or payment on account of Tenant's Equipment,
moving expenses or loss of business, if available, to the extent that and so
long as (i) Tenant shall have the right to make, and does make, a separate claim
therefor against the condemner and (ii) such claim does not in any way reduce
either the amount of the award otherwise payable to Landlord for the
Condemnation of Landlord's fee interest in the Leased Premises or the amount of
the award (if any) otherwise payable for the Condemnation of Tenant's leasehold
interest hereunder.

(d) If any Partial Casualty (whether or not insured against) or
Partial Condemnation shall occur, this Lease shall continue, notwithstanding
such event, and there shall be no abatement or reduction of any Monetary
Obligations, except as provided in Paragraph 17(e) and 19(c). Promptly after
such Partial Casualty or Partial Condemnation, Tenant, as required in

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<PAGE>

(b) An Early Termination Notice shall contain (i) notice of Tenant's
intention to terminate this Lease on the first Basic Rent Payment Date (the
"EARLY TERMINATION DATE") which occurs at least sixty (60) days after the date
of receipt ("NOTICE RECEIPT DATE") by Landlord of the Early Termination Notice,
(ii) a binding and irrevocable offer of Tenant to pay the Early Termination
Amount and (iii) if the Early Termination Event is an event described in
Paragraph 18(a)(ii), the certification and covenants described in the foregoing
Paragraph 18(a) and a certified resolution of the Board of Directors of Tenant
authorizing the same (unless Tenant elects to pay an Early Termination Amount
equal to [INTENTIONALLY OMITTED].

(c) If Landlord shall reject such offer to terminate this Lease by
written notice to Tenant (a "REJECTION"), which Rejection shall contain the
written consent of Lender, not later than forty-five (45) days following the
Notice Receipt Date, then this Lease shall terminate as of the Early Termination
Date; provided, however, that, if Tenant has not satisfied all Monetary
Obligations and all other obligations and liabilities under this Lease which
have arisen on or prior to the Early Termination Date (collectively, "REMAINING
OBLIGATIONS") on the Early Termination Date, then Landlord may, at its option,
extend the date on which this Lease may terminate to a date which is no later
than the first Basic Rent Payment Date after the Early Termination Date on which
Tenant has satisfied all Remaining Obligations. Upon such termination (i) all
obligations of Tenant hereunder shall terminate except for any Surviving
Obligations, (ii) Tenant shall immediately vacate and shall have no further
right, title or interest in or to any of the Leased Premises and (iii) the Net
Award shall be retained by Landlord. Notwithstanding anything to the contrary
hereinabove contained, if Tenant shall have received a Rejection and, on the
date when this Lease would otherwise terminate as provided above, Landlord shall
not have received the full amount of the Net Award payable by reason of the
applicable Early Termination Event due to any action by Tenant, then the date on
which this Lease is to terminate automatically shall be extended to the first
Basic Rent Payment Date after the receipt by Landlord of the full amount of the
Net Award; provided, however, that, if Tenant has not satisfied all Remaining
Obligations on such date, then Landlord may, at its option, extend the date on
which this Lease may terminate to a date which is no later than the first Basic
Rent Payment Date after such date on which Tenant has satisfied all such
Remaining Obligations.

(d) Unless Tenant shall have received a Rejection not later than the
forty-fifth (45th) day following the Notice Receipt Date, Landlord shall be
conclusively presumed to have accepted such offer. If such offer is accepted by
Landlord then, on the Early Termination Date, Tenant shall pay to Landlord the
Early Termination Amount and all Remaining Obligations and, if requested by
Tenant, Landlord and Lender shall (i) convey to Tenant the Leased Premises or
the remaining

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<PAGE>

(v) the Restoration Fund shall be held in separate account and
invested in any of the following investments and for such maturities as Landlord
and Tenant shall agree: obligations of the United States, its agencies, or
United States Government sponsored enterprises or obligations, the principal of
and interest on which are guaranteed by the United States or its agencies or
obligations of a state, a territory, or a possession of the United States, or
any political subdivision of any of the foregoing or of the District of
Columbia, which investment shall be graded in the highest three (3) mayor grades
as determined by at least one (1) national rating service, or banker's
acceptances, commercial accounts, certificates of deposit, or depository
receipts issued by a bank, trust company, savings and loan association, savings
bank, credit union or other financial institution whose deposits are, as
appropriate, insured be the Federal Deposit Insurance Corporation or the
National Credit Union Administration or any successor entity, which investment
shall be rated at the time of purchase within the two (2) highest
classifications established by at least one (1) national rating service, and
which matures within one hundred eighty (180) days; and

(vi) such other reasonable conditions as Landlord or Lender may
impose.

(b) Prior to commencement of restoration and at any time during
restoration, if the estimated cost of completing the restoration work free and
clear of all liens, as determined by Landlord, exceeds the amount of the Net
Award available for such restoration, the Tenant shall provide to Landlord and
Lender assurances reasonably satisfactory to Landlord and Lender of the
availability of funds necessary to complete such restoration work. Any sums
deposited by Tenant in the Restoration Fund which remain in the Restoration Fund
upon completion of restoration shall be refunded to Tenant. For purposes of
determining the source of funds with respect to the disposition of funds
remaining after the completion of restoration, the Net Award shall be deemed to
be disbursed prior to any amount added by Tenant.

(c) If any sum remains in the Restoration Fund after completion of
the restoration and any refund to Tenant pursuant to Paragraph 19(b), such sum
(the "REMAINING SUM") shall be retained by Landlord or, if required by a Note or
Mortgage, paid by Landlord to a Lender. If the Remaining Sum is (i) retained by
Landlord, that portion of each installment of Basic Rent payable on or after the
Retention Date shall be reduced by the amount, if any, of the Remaining Sum not
required to be paid to Lender, or (ii) paid to Lender, then each installment of
Basic Rent thereafter payable shall be reduced in the same amount as payments
are reduced under any Note if the Loan corresponding to such Note is reamortized
to reflect such payment, in each case until such Remaining Sum has been applied
in full or until the Term has expired, whichever occurs first. Upon the
expiration

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<PAGE>

(A) its credit history;

(B) its capital structure, net worth and unsecured senior debt
rating;

(D) its operating history;

(E) its intended use of the Leased Premises; and

(F) other factors associated with the proposed assignee's
business as it relates to the use of the Leased Premises, including potential
environmental concerns and liabilities.

(ii) In exercising its right of approval under this Paragraph
21(c) with respect to a sublease which is not a Preapproved Sublet, Landlord
shall limit its consideration to whether or not the proposed sublessee, by
virtue of its business, is significantly more likely to expose the Leased
Premises to a higher risk of Environmental Violation than Tenant in Tenant's use
of the Leased Premises prior to the date of such subletting.

(d) Any Preapproved Assignee or other assignee under any assignment
to which Landlord has consented shall expressly assume all the obligations of
Tenant hereunder pursuant to a written instrument delivered to Tenant at the
time of such assignment. In addition, within ten (10) days after execution of
any assignment, Tenant shall deliver to Landlord and Lender a conformed copy
thereof.

(e) No sublease or assignment entered into in accordance with the
provisions of this Paragraph 21 shall or reduce any obligations of Tenant or
rights of Landlord hereunder, and all obligations of Tenant hereunder shall
continue in full effect as the obligations of a principal and not a guarantor or
surety, as though no subletting or assignment had been made.

(f) With respect to any Preapproved Assignment or Preapproved Sublet,
Tenant shall provide to Landlord information reasonably required by Landlord to
establish that any proposed Preapproved Assignment or Preapproved Sublet
satisfies the criteria set forth above, it being agreed that Tenant shall not be
obligated to disclose to Landlord any confidential or proprietary information.

(g) As of the date hereof, portions of the Structures are subject to
certain leases ("EXISTING LEASES") described in EXHIBIT "F". Tenant covenants
and agrees that it has provided

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<PAGE>

writing the obligations of Landlord hereunder and Third Party Purchaser and
Landlord notify Tenant in writing of such transfers. At the request of
Landlord, Tenant will execute such documents confirming the agreement referred
to above and such other agreements as Landlord may reasonably request, provided
that such agreements do not increase the liabilities and obligations of Tenant
hereunder.

22. EVENTS OF DEFAULT.

(a) The occurrence of any one or more of the following (after expiration
of any applicable cure period as provided in Paragraph 22(c)) shall, at the sole
option of Landlord, constitute an "EVENT OF DEFAULT" under this Lease:

(i) Subject to the provisions of Paragraph 29(a), a failure by Tenant
to make any payment of any Monetary Obligation, regardless of the reason for
such failure;

(ii) Subject to the provisions of Paragraph 14, a failure by Tenant
duly to perform and observe, or a violation or breach of, any other provision
hereof in any material respect not otherwise specifically mentioned in this
Paragraph 22(a); provided, however, that any failure to provide the insurance
required by Paragraph 16 (except earthquake and flood insurance if such
coverages are not available in the Southern California area) or any uncured
Environmental Violation with respect to the Leased Premises shall be deemed to
be material;

(iii) any representation or warranty made by Tenant herein or in any
certificate, demand or request made pursuant hereto proves to be incorrect, now
or hereafter, in any material respect;

(iv) a default beyond any applicable cure period by Tenant in any
payment of principal or interest on any obligations for borrowed money having an
original principal balance of $10,000,000 or more in the aggregate, or in the
performance of any other provision contained in any instrument under which any
such obligation is created or secured (including the breach of any covenant
thereunder), if an effect of such default is to cause, or permit any Person to
cause, such obligation to become due prior to its stated maturity;

(v) a default by Tenant beyond any applicable cure period in the
payment of rent or any other monetary obligation under any other leases in the
United States with rental obligations over the terms thereof of $5,000,000 or
more in the aggregate;

(vi) a final, non-appealable judgment or judgments for the payment of
money in excess of $15,000,000 in the aggregate shall be rendered against Tenant
and the same

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<PAGE>

(xv) an Event of Default (as defined in the Construction Management
Agreement) shall exist under the Construction Management Agreement beyond any
applicable cure period;

(xvi) Tenant shall fail to restore any amounts drawn under the Letter
of Credit within one hundred twenty (120) days following the date of such draw
or shall fail to deliver to Landlord any Letter of Credit required under
Paragraph 29 within the applicable time period specified therein; or

(xvii) The Initial Lender shall draw all of the Letter of Credit
following the occurrence of any of the events set forth in Paragraph 37(a)(i),
(ii), (iii), (iv) or (v).

(b) No notice or cure period shall be required in any one or more of
the following events:

(A) the occurrence of an Event of Default under clause (i)
(except as otherwise set forth below), (iii), (iv), (v), (vi), (vii), (viii),
(ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi) or (xvii) of Paragraph 22(a);
or

(B) the default consists of a failure to provide any insurance
required by Paragraph 16 except for the failure to provide earthquake or flood
insurance if the same is not available or an assignment or sublease entered into
in violation of Paragraph 21; or

(C) the default is such that any delay in the exercise of a
remedy by Landlord would reasonably be expected to cause irreparable harm to
Landlord.

(c) If the default consists of the failure to pay any Monetary
Obligation under clause (i) of Paragraph 22(a), the applicable cure period shall
be five (5) Business Days from the date on which notice is given, but Landlord
shall not be obligated to give notice of, or allow any cure period for, any such
default more than twice during the Term. Subject to the limitation set forth in
the following sentence, if the default consists of a default under clause (ii)
of Paragraph 22 (a), other than the events specified in clauses (B) and (C) of
Paragraph 22(b), the applicable cure period shall be thirty (30) days from the
date on which notice is given or, if the default cannot be cured within such
thirty (30) day period and delay in the exercise of a remedy would not (in
Landlord's reasonable judgment) cause any material adverse harm to Landlord or
any of the Leased Premises, the cure period shall be extended for the period
required to cure the default (but such cure period, including any extension,
shall not in the aggregate exceed sixty (60) days, provided that Tenant shall
commence to cure the default within the said thirty-day period and shall
actively, diligently and in good faith proceed with and continue the curing of
such default. Notwithstanding anything in this

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<PAGE>

rent as it becomes due under this Lease. Acts of maintenance or preservation or
efforts to relet the Leased Premises or the appointment of a receiver upon
initiative of Landlord to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession.

(d) If Landlord elects, pursuant to Paragraph 23(b), to terminate
this Lease upon a default by Tenant, Landlord may collect from Tenant damages
computed in accordance with the following provisions in addition to Landlord's
other remedies under this Lease:

(i) the worth at the time of award of any unpaid Rent which has
been earned at the time of such termination; plus

(ii) the worth at the time of award of the amount by which any
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus

(iii) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the Term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided, plus

(iv) any other Cost necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom including, without limitation, brokerage commissions, the cost
of repairing and reletting the Leased Premises and reasonable attorneys' fees;
plus

(v) at Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by applicable
state law. Damages shall be due and payable from the date of termination.

For the purposes of clauses (i) and (ii) of this paragraph, the "worth
at the time of awards shall be computed by adding interest at the Default Rate
(as specified in Paragraph 7(a)(iv)) to the past due Rent, For the purposes of
clause (iii) of this Paragraph 23(d), the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award, plus one percent (1%).

(e) If, in the Event of a Default by Tenant, Landlord elects to keep
the Lease in effect, Landlord may, to the extent permitted by applicable Law,
declare by notice to Tenant the entire Basic Rent (in the amount of Basic Rent
then in effect) for the remainder of the then current Term to be immediately due
and payable. Tenant shall immediately pay to Landlord all such

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(i) Landlord shall not be required mitigate any of its damages
hereunder unless required to by applicable Law. If any Law shall validly limit
the amount of any damages provided for herein to an amount which is less than
the amount agreed to herein, Landlord shall be entitled to the maximum amount
available under such Law.

(j) No termination of this Lease, repossession or reletting of the
Leased Premises, exercise of any remedy or collection of any damages pursuant to
this Paragraph 23 shall relieve Tenant of any Surviving Obligations.

(k) WITH RESPECT TO ANY REMEDY OR PROCEEDING OF LANDLORD HEREUNDER,
TENANT WAIVES ANY RIGHT TO A TRIAL BY JURY.

(l) Upon the occurrence of any Event of Default, Landlord shall have
the right (but no obligation) to perform any act required of Tenant hereunder
and, if performance of such act requires that Landlord enter the Leased
Premises, Landlord may enter the Leased Premises for such purpose.

(m) No failure of Landlord (i) to insist at any time upon the strict
performance of any provision of this Lease or (ii) to exercise any option,
right, power or remedy contained in this Lease shall be construed as a waiver,
modification or relinquishment thereof. A receipt by Landlord of any sum in
satisfaction of any Monetary Obligation with knowledge of the breach of any
provision hereof shall not be deemed waiver of such breach, and no waiver by
Landlord of any provision hereof shall be deemed to have been made unless
expressed in a writing signed by Landlord.

(n) Tenant hereby waives and surrenders, for itself and all those
claiming under it, including creditors of all kinds, (i) any right and privilege
which it or any of them may have under any present or future Law to redeem any
of the Leased Premises or to have a continuance of this Lease after termination
of this Lease or of Tenant's right of occupancy or possession pursuant to any
court order or any provision hereof, and (ii) the benefits of any present or
future Law which exempts property from liability for debt or for distress for
rent.

(o) Except as otherwise provided herein, all remedies are cumulative
and concurrent and no remedy is exclusive of any other remedy. Each remedy may
be exercised at any time an Event of Default has occurred and is continuing and
may be exercised from time to time. No remedy shall be exhausted by any exercise
thereof.

24. NOTICES. All notices, demands, requests, consents, approvals, offers,
statements and other instruments or communications required or permitted to be
given pursuant to the provisions of this Lease shall be in writing and shall be
deemed to have been given for all purposes when delivered in person or

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<PAGE>

any damage caused by such removal. Property of Tenant or such third party not so
removed shall become the property of Landlord, and Landlord may thereafter cause
such property to be removed from the Leased Premises, The cost of removing and
disposing of such property and repairing any damage to any of the Leased
Premises caused by such removal shall be paid by Tenant to Landlord upon demand.
Landlord shall not in any manner or to any extent be obligated to reimburse
Tenant for any such property which becomes the property of Landlord pursuant to
this Paragraph 26.

27. NO MERGER OF TITLE. There shall be no merger of the leasehold estate
created by this Lease with the fee estate in any of the Leased Premises by
reason of the fact that the same Person may acquire or hold or own, directly or
indirectly, (a) the leasehold estate created hereby or any part thereof or
interest therein and (b) the fee estate in any of the Leased Premises or any
part thereof or interest therein, unless and until all Persons having any
interest in the interests described in clauses (a) and (b) above which are
sought to be merged shall join in a written instrument effecting such merger and
shall duly record the same.

26. BOOKS AND RECORDS. Tenant shall furnish Landlord with the following:

(i) An soon as available and in any event within sixty (60) days after
the end of each quarterly accounting period in each fiscal year of Tenant (with
the exception of the last quarter), Tenant shall furnish copies of a
consolidated balance sheet of Tenant and its consolidated affiliates as of the
last day of such quarterly accounting period, and copies of the related
consolidated statements of income and of changes in shareholders' equity and in
financial position of Tenant and its consolidated affiliates for such quarterly
accounting period and for the elapsed portion of the current fiscal year ended
with the last day of such quarterly accounting period. All such statements shall
be prepared in accordance with GAAP (except that interim quarterly financials
are not required to include notes) and, if Tenant ceases to be a publicly traded
company, certified as complete and correct in all material respects by the chief
financial officer of Tenant (subject to year-end audit adjustments).

(ii) As soon as available and in any event within one hundred twenty
(120) days after the end of each fiscal year of Tenant, Tenant shall furnish
copies of a consolidated balance sheet of Tenant and its consolidated Affiliates
as of the end of such fiscal year, and copies of the related consolidated
statements of income and of changes in shareholders' equity and in financial
position of Tenant and its consolidated affiliates for such fiscal year. All
such statements shall be in reasonable detail and with appropriate notes, if
any, and be prepared in accordance with GAAP and state in comparative form

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<PAGE>

payment by Tenant of the Rent and all other charges or payments to be paid
hereunder and the performance of the covenants and obligations contained herein,
and the Letter of Credit shall be renewed at least thirty (30) days prior to any
expiration thereof. In addition to its other rights and remedies under the
Letter of Credit, Landlord shall have the right to draw on the Letter of Credit
to pay any installment of Basic Rent not paid within three (3) Business Days
after the due date thereof, and, with respect to the first three (3) (but in no
event more than three (3)) such draws so long as the Letter of Credit remains in
effect and Tenant replenishes any amount drawn under the Letter of Credit within
one hundred twenty (120) days (but in any event at least thirty (30) days prior
to the expiration thereof) after such draw no Event of Default shall exist by
reason of any such draw.

[THE REMAINDER OF THIS PARAGRAPH INTENTIONALLY OMITTED]. 30. NON-RECOURSE AS TO
LANDLORD.

(a) Anything contained herein to the contrary notwithstanding, any
claim based on or in respect of any liability of Landlord under this Lease shall
be enforced only against the Leased Premises and not against any other assets,
properties or funds of (a) Landlord or any party thereof, (b) any director,
officer, general partner, shareholder, limited partner, employee or agent of
Landlord or any general partner of Landlord, GENA:11 or GENA:12 or any of its
general partners (or any legal representative, heir, estate, successor or assign
of any thereof), (c) any predecessor or successor partnership or corporation (or
other entity) of Landlord or any of its general partners, shareholders,
officers, directors, employees or agents, either directly or through Landlord or
its general partners, shareholders, officers, directors, employees or agents or
any predecessor or successor partnership or corporation (or other entity), or
(d) any other Person (including Carey Property Advisors, Carey Fiduciary
Advisors, Inc., W. P. Carey & Co. Inc., and any Person affiliated with any of
the foregoing, or any director, officer, employee or agent of any thereof);
provided, however, that Landlord shall at all times maintain an "EQUITY
INTEREST" (as defined below) in the Leased Premises of at least the lesser of
(1) twenty percent (20%) of the Fair Market Value of the Leased Premises or (2)
Landlord's Cash Contribution ("LANDLORD'S MINIMUM EQUITY"). If Landlord fails to
maintain Landlord's Minimum Equity, the provisions of this Paragraph 30 limiting
Tenant's right to recover damages from the Leased Premises as provided above
shall cease to be of any force or effect and Tenant shall have the right to
recover damages from any and all assets of Landlord. The term "EQUITY INTERESTS"
shall mean the difference between the Fair Market Value of the Leased Premises
and the then outstanding principal amount of all Mortgages placed on the Leased
Premises by Landlord. For purposes of this definition of Equity Interest, during
the first five (5) years of the Term the Fair Market Value of the Leased
Premises shall be equal to the Project Cost. In the event that

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32. SUBORDINATION. Subject to the provisions of Paragraph 31(a), this
Lease and Tenant's interest hereunder shall be subordinate to any Mortgage or
other security instrument hereafter placed upon the Leased Premises by Landlord,
and to any and all advances made or to be made thereunder, to the interest
thereon, and all renewals, replacements and extensions thereof, provided that
the holder of any such Mortgage or other security instrument enters into a
subordination, non-disturbance and attornment agreement with and reasonably
satisfactory to Tenant which recognizes this Lease and all Tenant's rights
hereunder unless and until (i) an Event of Default exists or (ii) Landlord shall
have the right to terminate this Lease pursuant to any applicable provision
hereof.

33. FINANCIAL COVENANTS. [INTENTIONALLY OMITTED].

34. TAX TREATMENT REPORTING. Landlord and Tenant each acknowledge
that each shall treat this transaction as true lease for state law purposes and
shall report this transaction as a true lease for Federal income tax purposes.
For Federal income tax purposes each shall report this Lease with Landlord as
the owner of the Leased Premises, including the Building Systems Equipment, and
Tenant as the lessee of the Leased Premises and Building Systems Equipment,
including: (1) treating Landlord as the owner of the property eligible to claim
depreciation deductions under Section 167 or 168 of the Internal Revenue Code of
1986 (the "CODE") with respect to the Leased Premises and the Building Systems
Equipment, (2) Tenant reporting its Rent payments as rent expense under Section
162 of the Code, and (3) Landlord reporting the Rent payments as rental income.

35. RIGHT OF FIRST REFUSAL. [INTENTIONALLY OMITTED].

36. FINANCING MAJOR ALTERATIONS. [INTENTIONALLY OMITTED].

37. INITIAL LENDER RIGHTS RE: LETTER OF CREDIT. [INTENTIONALLY
OMITTED].

38. MISCELLANEOUS.

(a) The paragraph headings in this Lease are used only for
convenience of reference and are not part of this Lease or to be used in
determining the intent of the parties or otherwise interpreting this Lease.

(b) As used in this Lease, the singular shall include the plural and
any gender shall include all genders as the context requires and the following
words and phrases shall have the following meanings: (i) "including" shall mean
"including without limitation"; (ii) "provisions" shall mean "provisions, terms,
agreements, covenants and/or conditions"; (iii) "lien"

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<PAGE>

successors and assigns. If there is more than one Tenant, the obligations of
each shall be joint and several.

(h) If any one or more of the provisions contained in this Lease
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Lease, but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.

(i) This Lease shall be governed by and construed and enforced in
accordance with the Laws of the State.

IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
duly executed under seal as of the day and year first above written.

LANDLORD:

GENA PROPERTY COMPANY, a
California partnership

ATTEST: By: GENA (CA) QRS 11-25, INC.,
a general partner

By: By:
---------------------------- -------------------------------
Title: Assistant Secretary Title: Executive Vice President

[Corporate Seal]

ATTEST: By: GENA (CA) QRS 12-1, INC.,
a general partner

By: By:
---------------------------- -------------------------------
Title: Assistant Secretary Title: Executive Vice President

[Corporate Seal]

TENANT:

ATTEST: GENSIA, INC.,
a Delaware corporation

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

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<PAGE>

EXHIBIT A

LEGAL DESCRIPTION OF LAND

The Land is located In the City of Son Diego, County of San Diego, State of
California and is more particularly described as follows:

PARCEL A:

LOTS 1 AND 3 OF NEXUS TECHNOLOGY CENTRE UNIT NO. 1, IN THE CITY OF SAN DIEGO,
COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 11876,
FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, AUGUST 7, 1987.

PARCEL B:

NON-EXCLUSIVE EASEMENTS FOR VEHICULAR AND PEDESTRIAN INGRESS AND EGRESS ON AND
OVER DESIGNATED PEDESTRIAN AND VEHICULAR TRAFFIC CIRCULATION PATTERNS NOW
EXISTING OR CREATED, INCLUDING WITHOUT LIMITATIONS, ALL DRIVEWAYS, ROAD,
STREETS, WALKWAYS, SIDEWALKS AND SURFACE PARTING AREAS; FOR PARKING ON AND
ACROSS ALL SURFACE PARKING AREAS DESIGNATED FOR PARKING BY STRIPPING OR OTHER
MEANS; FOR PRIVATE AND COMMON UTILITIES AND INCIDENTAL THERETO; AND TEMPORARY
EASEMENTS FOR CONSTRUCTION PURPOSES, AS SET FORTH, DESCRIBED, CREATED AND
CONVEYED IN THAT CERTAIN DOCUMENT ENTITLED "RECIPROCAL EASEMENT AGREEMENT" BY
AND BETWEEN GENSIA, INC., A DELAWARE CORPORATION AND GENA PROPERTY COMPANY, A
CALIFORNIA GENERAL PARTNERSHIP, RECORDED ON DECEMBER __, 1993 AS INSTRUMENT NO.
___________________, IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY,
CALIFORNIA.

A-1
<PAGE>

EXHIBIT C

SCHEDULE OF PERMITTED ENCUMBRANCE

C-1
<PAGE>

EXHIBIT E

TENANT'S FINANCIAL COVENANTS

[INTENTION OMITTED]

E-1
<PAGE>

EXHIBIT G

[Form of Letter of Credit]

[INTENTIONALLY OMITTED]

G-1
<PAGE>

Rent under the Lease has been paid for more than thirty (30) days in advance of
its due date.

10. To the best of the knowledge of the undersigned, based on reasonable
injury, Tenant has no defense as to its obligations under the Lease and claims
no set-off or counterclaim against Landlord.

11. To the best knowledge of the undersigned, there are no defaults on the
part of Landlord or Tenant under the Lease, and there are no events currently
existing (or with the passage of time, giving of notice or both, which would
exist) which give Tenant the right to cancel or terminate the Lease.

12. Tenant has no right to any concession (rental or otherwise) or similar
compensation in connection with renting the space it occupies, except as
provided in the Lease.

13. There are no actions, whether voluntary or otherwise, pending against
the undersigned or any guarantor of the undersigned's obligations under the
Lease pursuant to the bankruptcy or insolvency laws of the United States or any
state thereof.

14. It is Tenant's understanding that the present Landlord of the Premises
is __________________________________________
____________________________.

15. Tenant Is address for notices under the terms of the
Lease is: _________________________________________________
________________________________________________________.

16. Tenant hereby acknowledges that Lender intends to make a loan to
Landlord for _______________________________________, that Landlord intends to
assign the Lease to Lender in connection with such financing, and that Lender is
relying upon the representations herein made in funding such loan. Upon such
assignment and upon written request from Lender, Tenant agrees to send all
rents, payments and other amounts due under the Lease and assigned to Lender
pursuant to said financing to such address as may be indicated in writing by
Lender to Tenant. Tenant agrees that no modification, adjustment, revision,
cancellation or renewal of the Lease or amendments thereto shall be effective
unless the written consent of Lender is obtained. Tenant has not received any
notice of any other sale, pledge, transfer or assignment of the Lease or of the
rentals thereunder by Landlord.

17. Tenant shall deliver to Lender a copy of all notices of default or
termination served on or received from Landlord.

18. Lender is hereby given the right to cure Landlord's defaults under the
Lease within thirty (30) days, after receipt of written notice by the
undersigned of Landlords failure so to

H-1
<PAGE>

EXHIBIT "B"

DEMISING PLAN

[To Be Attached]

[DIAGRAM]

<PAGE>

AMENDMENT NO. 1 TO SUBLEASE AGREEMENT
AND FURNITURE RENTAL AGREEMENT

This AMENDMENT NO. 1 TO SUBLEASE AGREEMENT AND FURNITURE RENTAL AGREEMENT
(this "Amendment") is made as of October 31, 1996 by and between GENSIA, INC., a
Delaware corporation ("Sublandlord"), and COLLATERAL THERAPEUTICS, INC., a
California corporation ("Subtenant").

RECITALS

A. Sublandlord and Subtenant are currently parties to that certain
Sublease Agreement dated as of June 15, 1995 (the "Sublease") and that certain
Furniture Rental Agreement of even date therewith (the "Furniture Rental
Agreement"), covering certain premises (the "Sublease Premises") located at 9360
Towne Centre Drive, Suite 230, San Diego, California 92122, as more particularly
described in the Sublease and the Furniture Rental Agreement, as applicable. All
defined terms used in this Amendment, unless otherwise indicated herein, shall
have the meanings ascribed to them in the Sublease and the Furniture Rental
Agreement, as applicable.

B. Sublandlord and Subtenant wish to hereby modify certain terms and
provisions under the Sublease and the Furniture Rental Agreement, as applicable,
and are executing this Amendment to effectuate said modifications.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
covenants hereafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1. AMENDMENTS TO SUBLEASE. The Sublease is hereby amended as follows:

a. TERM. The Sublease Expiration Date shall be December 31, 1997.
Provided Subtenant is not in default under the Sublease at the time of the
exercise thereof, Subtenant shall have one (1) option to extend the Sublease
("Option to Extend"). The Option to Extend shall be for an additional one (1)
year period (the "Extension Period"). The Option to Extend shall be exercisable
by Subtenant upon delivery of prior written notice (the "Exercise Notice")
thereof to Sublandlord. The Exercise Notice shall be given not later than ninety
(90) days prior to the expiration of the Term. In the event Subtenant shall
exercise the Option to Extend pursuant to the provisions set forth herein, the
Term of the Sublease shall be extended by the Extension Period and

<PAGE>

the Sublease Expiration Date shall be deemed to be the expiration date of such
extended Term of the Sublease. Such extended Term shall be on all the terms and
conditions of the Sublease, as applicable.

b. TELEPHONE SYSTEM. Notwithstanding the provisions of
Section 4(c)(ii) of the Sublease, Subtenant's use of Sublandlord's
telephone/voice/data system in connection with Subtenant's sublease of the
Sublease Premises shall automatically terminate effective January 1, 1997 and
Subtenant shall have no right to any further use of such system from and after
said date. Any replacement system which Subtenant desires to effect or install
in the Sublease Premises shall be subject to Sublandlord's prior consent and
shall comply with all requirements of the Sublease with respect to Subtenant's
use and occupancy of the Sublease Premises.

c. SIGNAGE. Notwithstanding the provisions of Section 6 of the
Sublease, Subtenant may install one identification sign on the existing
secondary monument sign (identified as approximately 28 inches x 70 inches in
dimension) located on the exterior grounds of the Master Premises approximately
100 feet west of the main monument sign located at the corner of Executive Drive
and Towne Centre Drive. The size, location and appearance of such sign. shall
be subject to the prior approval of Sublandlord in its sole discretion.
Subtenant shall be responsible for all costs and necessary government approvals
with respect to such sign. The provisions of Section 6 of the Sublease shall
govern Subtenant's obligations to maintain and remove the sign and Subtenant
shall have no right to modify said sign as approved by Sublandlord without the
further consent of Sublandlord thereto.

d. PARKING. Notwithstanding the provisions of Section 7 of the
Sublease, Subtenant shall be entitled to the use of twenty (20) parking spaces,
on a non-reserved basis, with respect to its use and occupancy of this Sublease
Premises. Subtenant's use of such spaces shall be subject to all other
provisions of Section 7 of the Sublease.

2. AMENDMENTS TO FURNITURE RENTAL AGREEMENT. The Furniture Rental
Agreement is hereby amended to provide that an additional eight (8) cubicles
shall be included within the terms of the Furniture Rental Agreement as
Furniture. The Rental Fee shall be increased to the aggregate amount of $990.18
per month. Such cubicles shall be of a size, nature and condition as those that
are currently subject to the Furniture Rental Agreement and located in the
Sublease Premises. Subtenant as "Lessee" under the Furniture Rental Agreement,
hereby reaffirms and reacknowledges each and every representation, warranty,
waiver and indemnity obligation set forth in the Furniture Rental Agreement.

3. EFFECT OF AMENDMENT. Except as expressly amended under this
Amendment, all provisions of the Sublease and the Furniture

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<PAGE>

Rental Agreement, as applicable, shall remain in full force and effect. In the
event of any conflict between this Amendment and the Sublease and the Furniture
Rental Agreement, as applicable, this Amendment shall control to the extent of
such conflict.

4. ENTIRE AGREEMENT. This Amendment constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and the
final, complete and exclusive expression of the terms and conditions thereof.
All prior agreements, representations, negotiations and understandings of the
parties hereto, oral or written, express or implied, are hereby superseded and
merged herein. This Amendment may be executed in one or more counterparts, each
of which shall be deemed an original, and all of which shall constitute one and
the same binding agreement.

IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 to
Sublease Agreement and Furniture Rental Agreement as of the date first written
above.

SUBLANDLORD:

GENSIA, INC., a Delaware corporation

By: /s/ illegible
---------------------------------
Its: VP Finance
--------------------------------

SUBTENANT:

COLLATERAL THERAPEUTICS, INC.,
a California corporation

By: /s/ Christopher Reinhard
-------------------------------------
Its: Chief Operating & Financial Officer
------------------------------------

-3-
<PAGE>

AMENDMENT NO. 2 TO SUBLEASE AGREEMENT
AND FURNITURE RENTAL AGREEMENT

This AMENDMENT NO. 2 TO SUBLEASE AGREEMENT AND FURNITURE RENTAL AGREEMENT
(this "Amendment") is made as of November _, 1996 by and between GENSIA, INC., a
Delaware corporation ("Sublandlord") and COLLATERAL THERAPEUTICS, INC., a
California corporation ("Subtenant").

RECITALS

A. Sublandlord and Subtenant are currently parties to that certain
Sublease Agreement dated as of June 15, 1995 (the "Sublease") and that certain
Furniture Rental Agreement of even date therewith (the "Furniture Rental
Agreements"), each as amended pursuant to a certain Amendment No. 1 to Sublease
Agreement and Furniture Rental Agreement dated as of October 31, 1996, covering
certain premises (the "Sublease Premises") located at 9360 Towne Centre Drive,
Suite 230, San Diego, California 92122, as more particularly described in the
Sublease and the Furniture Rental Agreement, as applicable. All defined terms
used in this Amendment, unless otherwise indicated herein, shall have the
meanings ascribed to them in the Sublease and the Furniture Rental Agreement, as
applicable.

AGREEMENT

1. AMENDMENTS TO SUBLEASE. The Sublease is hereby amended as follows:

a. INSURANCE. Subtenant shall be required to maintain comprehensive
liability insurance in the minimum policy amount of $1,000,000 under
Section 8(c) of the Sublease. All other insurance requirements of Subtenant
under the Sublease shall remain in full force and effect.

2. EFFECT OF AMENDMENT. Except as expressly amended under this
Amendment, all provisions of the Sublease and the Furniture Rental Agreement, as
applicable, shall remain in full force and effect. In the event of any conflict
between this Amendment and

-1-
<PAGE>

the Sublease and the Furniture Rental Agreement, as applicable, this Amendment
shall control to the extent of such conflict.

3. ENTIRE AGREEMENT. This Amendment constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and the
final, complete and exclusive expression of the terms and conditions thereof.
All prior agreements, representations, negotiations and understandings of the
parties hereto, oral or written, express or implied, are hereby superseded and
merged herein. This Amendment may be executed in one or more counterparts, each
of which shall be deemed an original, and all of which shall constitute one and
the same binding agreement.

IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2 to
Sublease Agreement and Furniture Rental Agreement as of the date first written
above.

SUBLANDLORD:

GENSIA, INC., a Delaware corporation

By: /s/ illegible
---------------------------------
Its: VP Finance
--------------------------------

SUBTENANT:

COLLATERAL THERAPEUTICS, INC.,
a California corporation

By: /s/ Kathy Rooney
---------------------------------
Its: VP Administration
--------------------------------

-2-

<PAGE>

EXHIBIT 10.25

STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

[LOGO]

1. Basic Provisions ("Basic Provisions").

1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
November 24, 1997, is made by and between ARE-11025 Roselle Street, LLC, a
Delaware limited liability company ("Lessor") and Collateral Therapeutics, Inc.,
a California corporation ("Lessee"), (collectively the "Parties," or
individually a "Party").

1.2 (a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 11025 Roselle Street, located in the
City of San Diego, County of San Diego, State of California, with zip code
92121, as outlined on Exhibit A attached hereto ("Premises"). The "Building" is
that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): Single story building containing
approximately 18,532 square feet. In addition to Lessee's rights to use and
occupy the Premises as hereinafter specified, Lessee shall have non-exclusive
rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter
specified, but shall not have any rights to the roof, exterior walls or utility
raceways of the Building or to any other buildings in the Industrial Center. The
Premises, the Building, the Common Areas, the land upon which they are located,
along with all other buildings and improvements thereon, are herein collectively
referred to as the "Industrial Center." (Also see Paragraph 2.)

1.2 (b) Parking: See Addendum unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and See Addendum reserved vehicle parking spaces ("Reserved
Parking Spaces"). (Also see Paragraph 2.8.)

1.3 Term: Five years and Zero months ("Original Term") commencing See
Addendum ("Commencement Date") and ending See Addendum ("Expiration Date").
(Also see Paragraph 3.)

1.4 Early Possession: See Addendum ("Early Possession Date"). (Also see
Paragraphs 3.2 and 3.3.)

1.5 Base Rent: $1.65 per rsf per month ("Base Rent"), payable on the first
day of each month commencing on the Commencement Date (Also see Paragraph 4.)

[X] If this box is checked, this Lease provides for the Base Rent to be adjusted
per Addendum to Lease attached hereto.

1.6 (a) Base Rent Paid Upon Execution: $18,150 as Base Rent for the period
first month.

1.6 (b) Lessee's Share of Common Area Operating Expenses: 59.36 percent
(59.36%) ("Lessee's Share") as determined by [ ] pro rata square footage of the
Premises as compared to the total square footage of the Building or [ ] other
criteria as described in Addendum ____.

1.7 Security Deposit: $See Addendum ("Security Deposit"). (Also see
Paragraph 5.)

1.8 Permitted Use: General office use and research and development subject
to zoning ordinances, Applicable Laws and existing covenants, conditions &
restrictions ("Permitted Use") (Also see Paragraph 6.)

1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph 8.)

1.10 (a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):

[X] IPC Commercial Real Estate represents Lessor exclusively
("Lessor's Broker");

[X] IPC Commercial Real Estate represents Lessee exclusively
("Lessee's Broker"); or

[ ] __________________ represents both Lessor and Lessee ("Dual Agency").
(Also see Paragraph 15.)

(b) [DELETED]

1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by None ("Guarantor"). (Also see Paragraph 37.) ----

1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs ____ through ____, and Exhibits ____ through ____, all
of which constitute a part of this Lease.

2. Premises, Parking and Common Areas.

2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.

2.2 [DELETED]

2.3 [DELETED]

2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been
advised by the Broker(s) to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.

2.5 [DELETED]

2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor.
(Also see Paragraph 2.9.)

(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.

(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.

2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.

Initials: /s/ illegible
--------------
<PAGE>

2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.

2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable Rules and Regulations with respect thereto in accordance
with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and
Regulations, and to cause its employees, suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.

2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:

(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas, walkways and utility raceways;

(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;

(d) To add additional buildings and improvements to the Common Areas;

(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and

(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.

3. Term.

3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.

3.2 Early Possession. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.

3.3 Delay in Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.

4. Rent.

4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.

4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:

(a) "Common Area Operating Expenses" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Industrial Center, including, but not limited to, the following:

(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:

(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.

(bb) Exterior signs and any tenant directories.

(cc) Fire detection and sprinkler systems.

(ii) The cost of water, gas, electricity and telephone to service
the Common Areas.

(iii) Trash disposal, property management and security services and
the costs of any environmental inspections.

(iv) Reserves set aside for maintenance and repair of Common Areas.

(v) Real Property Taxes (as defined in Paragraph 10.2) to be paid by
Lessor for the Building and the Common Areas under Paragraph 10 hereof.

(vi) The cost of the premiums for the insurance policies maintained
by Lessor under Paragraph 8 hereof.

(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.

(viii) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.

(b) Any Common Area Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.

(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose any obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.

(d) Lessee's Share of Common Area Operating Expenses shall be payable
by Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such
over-payment against

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Lessee's Share of Common Area Operating Expenses next becoming due. If Lessee's
payments under this Paragraph 4.2(d) during said preceding year were less than
Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the
amount of the deficiency within ten (10) days after delivery by Lessor to Lessee
of said statement.

5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.

6. Use.

6.1 Permitted Use.

(a) Lessee shall use and occupy the Premises only for the Permitted Use
set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.

(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.

6.2 DELETED

6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.

6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.

7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.

7.1 Lessee's Obligations.

(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations, 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.

(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises.
[Remainder of paragraph deleted.]

(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.

7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Building, Industrial Center or
Common Areas in good order, condition and repair.

7.3 Utility Installations, Trade Fixtures, Alterations.

(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than

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Utility Installations or Trade Fixtures. "Lessee-Owned Alterations and/or
Utility Installations" are defined as Alterations and/or Utility Installations
made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
Lessee shall not make nor cause to be made any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof) without Lessor's consent but upon
notice to Lessor, so long as they are not visible from the outside of the
Premises, do not involve puncturing, relocating or removing the roof or any
existing walls, or changing or interfering with the fire sprinkler or fire
detection systems and the cumulative cost thereof during the term of this Lease
as extended does not exceed $2,500.00.

(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.

(c) Lien Protection. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non- responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.

7.4 Ownership, Removal, Surrender, and Restoration.

(a) Ownership. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned and Utility Installations shall, at
the expiration or earlier termination of this Lease, become the property of
Lessor and remain upon the Premises and be surrendered with the Premises by
Lessee.

(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.

(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.

8. Insurance; Indemnity.

8.1 Payment of Premiums. The cost of the premiums for the insurance policies
maintained by Lessor under this Paragraph 8 shall be a Common Area Operating
Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods commencing
prior to, or extending beyond, the term of this Lease shall be prorated to
coincide with the corresponding Commencement Date or Expiration Date.

8.2 Liability Insurance.

(a) Carried by Lessee. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "Insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.

(b) Carried by Lessor. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.

8.3 Property Insurance-Building, Improvements and Rental Value.

(a) Building and Improvements. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof of if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utilities Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.

(b) Rental Value. Lessor shall also obtain and keep in force during the
term of this Lease a policy or policies in the name of Lessor, with loss payable
to Lessor and any Lender(s), insuring the loss of the full rental and other
charges payable by all lessees of the Building to Lessor for one year (including
all Real Property Taxes, Insurance Costs, all Common Area Operating Expenses and
any scheduled rental increases). Said insurance may provide that in the event
the Lease is terminated by reason of an insured loss, the period of indemnity
for such coverage shall be extended beyond the date of the completion of repairs
or replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income, Real
Property Taxes, insurance premium costs and other expenses, if any, otherwise
payable, for the next 12-month period. Common Area Operating Expenses shall
include any deductible amount in the event of such loss.

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(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.

(d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.

8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.

8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancellable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.

8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor to Lessee, as the case may be, so long as the
insurance is not invalidated thereby.

8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.

8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results form fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.

9. Damage or Destruction.

9.1 Definitions.

(a) "Premises Partial Damage" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee- Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.

(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) or
more of the then Replacement Cost of the Premises (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures) immediately prior to
such damage or destruction. In addition, damage or destruction to the Building,
other than Lessee- Owned Alterations and Utility Installations and Trade
Fixtures of any lessees of the Building, the cost of which damage or destruction
is fifty percent (50%) or more of the then Replacement Cost (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building) of the Building shall, at the option of Lessor, be
deemed to be Premises Total Destruction.

(c) "Insured Less" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.

(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.

(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of,or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.

9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.

9.3 Partial Damage - Uninsured Loss. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense

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and without reimbursement from Lessor, Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following such commitment from Lessee. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as soon
as reasonably possible after the required funds are available. If Lessee does
not give such notice and provide the funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in Lessor's
notice of termination.

9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.

9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.

9.6 Abatement of Rent; Lessee's Remedies.

(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.

(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee give such notice to Lessor and such Lenders and
such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.

9.7 [Deleted]

9.8 Termination - Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.

9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises and the
Building with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent it is inconsistent
herewith.

10. Real Property Taxes.

10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise
provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.

10.2 Real Property Tax Definition. As used herein, the term "Real Property
Taxes" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Industrial Center by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Industrial Center or any portion thereof, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Industrial
Center or in the Improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.

10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.

10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.

10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.

11. Utilities. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph 4.2(d).

12. Assignment and Subletting.

12.1 Lessor's Consent Required.

(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.

(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.

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(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.

(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("Lessor's Notice"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.

(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.

12.2 Terms and Conditions Applicable to Assignment and Subletting.

(a) Regardless of Lessor's consent, any assignment or subletting shall
not (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.

(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.

(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.

(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone
else responsible for the performance of the Lessee's obligations under this
Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.

(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.

(g) [DELETED]

(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.

12.3 Additional Terms and Conditions Applicable to Subletting. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, not by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.

(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.

(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.

(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.

(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.

13. Default; Breach; Remedies.

13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the

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occurrence of any one or more of the following Defaults, and, where a grace
period for cure after notice is specified herein, the failure by Lessee to cure
such Default prior to the expiration of the applicable grace period, and shall
entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:

(a) The vacating of the Premises without the intention to reoccupy the
same, or the abandonment of the Premises.

(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent, Lessee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by Lessee
hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.

(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonably written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30; (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.

(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.

(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a
trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provisions of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.

(f) The discovery by Lessor that any financial statement of Lessee or
of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.

(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or government licenses, permits or approvals. The costs and
expenses of any such performance by Lessor shall be due and payable by Lessee to
Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not
be honored by the bank upon which it is drawn, Lessor, at its own option, may
require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee (as
defined in Paragraph 13.1), with or without further notice of demand, and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such Breach, Lessor may:

(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.

(b) Continue the Lease and Lessee's right to possession in effect (in
California Civil Code Section 1951.4) after Lessee's Breach and recover the rent
as it becomes due, provided Lessee has the right to sublet or assign, subject
only to reasonable limitations. Lessor and Lessee agree that the limitations on
assignment and subletting in this Lease are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under this Lease, shall not constitute a
termination of the Lessee's right to possession.

(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.

(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring during the term
hereof or by reason of Lessee's occupancy of the Premises.

13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions: shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.

13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree

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that such late charge represents a fair and reasonable estimate of the costs
Lessor will incur by reason of late payment by Lessee. Acceptance of such late
charge by Lessor shall in no event constitute a waiver of Lessee's Default or
Breach with respect to such overdue amount, nor prevent Lessor from exercising
any of the rights and remedies granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.

13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.

14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.

15. Brokers' Fees.

15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.

15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option,or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedules of said Broker(s) in
effect at the time of the execution of this Lease.

15.3 Assumption of Obligations. Any buyer or transferee of Lessor's interest
in this Lease, whether such transfer is by agreement or by operation of law,
shall be deemed to have assumed Lessor's obligation under this Paragraph 15.
Each Broker shall be an intended third party beneficiary of the provisions of
Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.

15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker, or other person, firm or entity other
than said named Broker(s) is entitled to any commission of finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify,protect, defend and hold the other harmless from and against liability
for compensation or charges which may be claimed by any such unnamed broker,
finder or other similar party by reason of any dealings or actions of the
indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.

16. Tenancy and Financial Statements.

16.1 Tenancy Statement. Each Party (as "Responding Party") shall within ten
(10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.

16.2 Financial Statement. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.

17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.

18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.

19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.

20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.

21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.

22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.

23. Notices.

23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice

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purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate by
written notice to Lessee.

23.2 Date of Notice. Any notice sent by registered or certified mail, return
receipt requested, shall be deemed given on the date of delivery shown on the
receipt card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail, the notice shall be deemed given forty-eight (48) hours after the
same is addressed as required herein and mailed with postage prepaid. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery of
the same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be deemed
served or delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail. If
notice is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.

24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.

25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.

26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration of earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination.
Nothing contained herein shall be construed as a consent by Lessor to any
holding over by Lessee.

27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.

28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.

29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.

30. Subordination; Attornment; Non-Disturbance.

30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of the Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.

30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.

30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.

30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.

31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee awarded shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach.
Broker(s) shall be intended third party beneficiaries of this Paragraph 31.

32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.

33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.

34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent, ___
(but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
[....DELETED BALANCE OF PARAGRAPH]

35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.

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36. Consents.

(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgement that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.

(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.

37. Guarantor.

37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, including but not limited to the obligation to provide
the Tenancy Statement and Information required in Paragraph 16.

37.2 Additional Obligations of Guarantor. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.

38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.

39. Options

39.1 Definition. As used in this Lease, the word "Option" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.

39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.

39.3 Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.

39.4 [Deleted]

(a) [Deleted]

(b) [Deleted]

40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.

41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.

42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.

43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suite for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.

44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.

45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.

46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.

47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.

48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.

Initials:/s/ illegible
MULTI-TENANT--MODIFIED NET -------------

(C)American Industrial Real Estate Association 1993 /s/ illegible
-------------
11

<PAGE>

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.

IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.

The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.

Executed at: San Diego, CA Executed at: /s/ illegible
--------------------- ---------------------------
on: Dec 4, 1997 on: illegible
----------------------------- ------------------------------------

By LESSOR: By LESSEE

ARE-11025 Roselle Street, LLC, a Collateral Therapeutics, a California
- ---------------------------------- ----------------------------------------

Delaware limited liability company corporation
- ---------------------------------- ----------------------------------------

By: ARE-QRS Corp. a MD Corp, By: /s/ Christopher J. Reinhard
- ---------------------------------- ----------------------------------------

Name Printed: Managing Member Name Printed: Christopher J. Reinhard
- ---------------------------------- ----------------------------------------

Title: Title: COO & CFO
- ---------------------------------- ----------------------------------------

By: /s/ Alan Gold By:
- ---------------------------------- ----------------------------------------

Name Printed: Alan Gold Name Printed:
- ---------------------------------- ----------------------------------------

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

Address:11440 W. Bernardo Ct #170 Address:
- ---------------------------------- ----------------------------------------

S.D. CA 92127
-------------------------------- ----------------------------------------

Telephone:(619) 592-6801 Telephone:______________________________
--------
Facsimile:(619) 592-6814 Facsimile:______________________________
--------

BROKER: BROKER:

Executed at:______________________ Executed at:____________________________

on:_______________________________ on:_____________________________________

By:_______________________________ By:_____________________________________

Name Printed:_____________________ Name Printed:___________________________

Title:____________________________ Title:__________________________________

Address:__________________________ Address:________________________________

__________________________________ ________________________________________

Telephone: ( )________________ Telephone: ( )______________________

Facsimile: ( )________________ Facsimile: ( )______________________

NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
a most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So.
Figueroa St., M-1, Los Angeles, CA 90071, (213) 687-8777.

Initials:/s/ illegible
MULTI-TENANT--MODIFIED NET -------------

(C)American Industrial Real Estate Association 1993 /s/ illegible
-------------

<PAGE>

ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL
MULTI-TENANT LEASE-MODIFIED NET

This ADDENDUM ("Addendum") forms a part of the Standard
Industrial/Commercial Multi-Tenant Lease-Modified Net between Collateral
Therapeutics, Inc., a California corporation ("Lessee"), and ARE-11025 Roselle
Street, LLC, a Delaware limited liability company ("Lessor"), with respect to
the Premises within the Building located at 11025 Roselle Street in San Diego,
California. In the event of any inconsistency between this Addendum and the
Lease, the terms and conditions of this Addendum shall govern and control.

1. Acquisition of Title. Lessee acknowledges and agrees that Lessor does not
currently own the Building. Lessor is negotiating or has entered into a contract
to purchase the Building from the existing owner. If, for any reason, Lessor
does not acquire title to the Building within sixty (60) days after the date
hereof, Lessor and Lessee shall each have the right to terminate this Lease, in
which event the parties shall be released of all of their respective obligations
under this Lease, and Lessee shall have no claim for damages or otherwise
against Lessor, except that Lessor shall return all prepaid rent and the
Security Deposit received by Lessor to Lessee within ten (10) days after such
termination of this Lease.

2. Base Rent. Base Rent shall be increased annually on each anniversary of
the Commencement Date as follows:

Months Base Rent Per Month Per Rentable Square Foot
------ --------------------------------------------
<S> <C>
13-24 $ 1.716
25-36 1.785
37-48 1.856
49-60 1.930
</TABLE>

3. Premises. The Premises contains approximately 11,000 rentable square
feet. The Premises are shown on Exhibit "A" attached to the Lease and by this
reference incorporated herein. Within ten (10) business days after the date
hereof, the parties shall have a space measurement consultant acceptable to
Lessor and Lessee measure the Premises in accordance with BOMA standards
(ANSIZ65.1-1980) and shall have executed an amendment to the Lease setting forth
any adjustments to the Premises area, Base Rent and Lessee's Share.

4. Term. Lessee's Early Possession period shall begin upon Lessor's
acquisition of fee title to the Building as described above. During such Early
Possession, Lessee shall have the right to construct Lessee's improvements as
provided in Section 6 below. The Commencement Date shall occur upon the earlier
of (a) ninety (90) days after the beginning of Lessee's Early Possession, (b)
Substantial Completion (as defined below) of Lessee's improvements or (c) the
date Lessee begins to occupy the Premises for any purpose other than
construction of Lessee's improvements.

<PAGE>

5. Common Area Operating Expenses. Common Area Operating Expenses shall
include a management fee not to exceed three percent (3%) of the then current
annual Base Rent.

Common Area Operating Expenses shall exclude the following:

(1) Repairs or other work occasioned by fire, windstorm or
other casualty or by the exercise of the right of eminent domain to the extent
Lessor receives insurance and/or condemnation proceeds on account thereof;

(2) Leasing commissions, accountants' or attorneys' fees,
costs and disbursement and other expenses incurred in connection with proposals,
negotiations, or disputes with tenants or other occupants or prospective tenants
or other occupants, or associated with the enforcement of any leases;

(3) Costs (including permit, license and inspection fees)
incurred in constructing tenant improvements or decorating, painting or
redecorating space for other tenants or other occupants or vacant rentable
space;

(4) Any depreciation of the Building;

(5) Interest on debt or amortization payments on any mortgages
or deeds of trust or any other borrowings;

(6) Advertising and promotional expenditures;

(7) Damage and repairs (i) necessitated by the gross
negligence or willful misconduct of Lessor or Lessor's employees, contractors or
agents or (ii) to the extent another tenant is obligated under their lease to
reimburse Lessor for the cost thereof;

(8) Executive salaries or salaries of service personnel to the
extent that such service personnel perform services other than in connection
with the management, operation, repair or maintenance of the Premises, the
Building or the Common Areas;

(9) Costs, penalties or fines arising from Lessor's or another
tenant's violation of any governmental rule or authority;

(10) Costs arising from Lessor's charitable or political
contributions

(11) Costs incurred due to Lessor's violation of any terms or
conditions of this Lease or any other lease relating to the Building;

<PAGE>

(12) All rental and other amounts payable under any ground or
underlying lease, unless directly attributable to the activities of Lessee or
its agents, contractors or employees in the Building, or as a result of Lessee's
breach or default under this Lease; and

(13) The cost of repairs and/or replacements of the foundation
and structural supports of the Premises.

Lessee shall have the right to audit Lessor's books and records
relating to Common Area Operating Expenses, provided that any audit of Common
Area Operating Expenses for any calendar year must be commenced within one (1)
year after the end of such calendar year and that Lessee may not audit the books
and records relating to any calendar year more than once. Lessee shall be solely
responsible for all costs and expenses of any audit unless the audit shows that
Lessee was overcharged for Common Area Operating Expenses by more than five
percent (5%), in which event Lessor shall pay Lessee's reasonable out of pocket
costs and expenses of the audit. If the results of such audit show an
underpayment of Common Area Operating Expenses by Lessee, Lessee shall
immediately pay the amount of such underpayment to Lessor. If the results of
such audit show an overpayment of Common Area Operating Expenses by Lessee,
Lessee shall be entitled to a credit against the next payment or payments of
Common Area Operating Expenses due under the Lease in the amount of such
overpayment; provided, however, that Lessor shall have the right to contest the
results of the audit in good faith.

Lessor shall give prior notice to Lessee prior to incurring capital
repair/renovation costs (i.e., re-roofing, parking lot resurfacing, painting) in
excess of $100,000 per repair/renovation which would be reimbursable by Lessee
according to the provisions of the Lease, except that no notice shall be
required in an emergency. The cost of any capital replacements and repairs
reimbursed as Common Area Operating Expenses pursuant to the Lease shall be
amortized on a straight-line basis over a period equal to the useful life of the
item (as determined by reference to the vendor's or manufacturer's suggested
useful life for such capital improvements or, where such reference does not
exist, by reference to generally accepted accounting principals, consistently
applied, but in no event less than five (5) years or, in the case of replacement
of the roof of the Building, fifteen (15) years).

6. Lessee Improvement Allowance. Lessor shall contribute up to $225,000
("Tenant Improvement Allowance") towards the actual, out of pocket cost of
Lessee's required improvements, which improvements shall be fixtures permanently
attached to the Premises. All tenant improvements paid for with the Tenant
Improvement Allowance shall be the sole property of Lessor. Lessee acknowledges
and agrees that a material consideration to Lessor to enter into this Lease is
Lessee's agreement to spend at least $200,000 on improvements to the Premises
that will constitute fixtures permanently attached to the Premises and which
shall be and remain the sole property of Lessor ("Lessee's Contribution"). Any
improvements costing in excess of the amount of the aggregate of the Tenant
Improvement Allowance and the Lessee's Contribution shall be Lessor's sole
property unless the same constitute Trade Fixtures which Lessor and Lessee agree
to include on the Equipment List (as defined below) during the process of
approving the plans and specifications for

<PAGE>

Lessee's work. Lessee agrees to accept the Premises "As-Is, Where-Is" and that
all improvement costs in excess of the $225,000.00 shall be the responsibility
of Lessee. Lessee acknowledges that the parties expect that the cost of Lessee's
improvements will exceed the Tenant Improvement Allowance by at least the amount
of Lessee's Contribution. Lessee's improvements will include architectural fees,
planning fees, permits, all construction work and any work necessary to bring
the Building into compliance with any Applicable Laws, including the Americans
With Disabilities Act and Title 24 Regulations. Lessee shall be responsible for
the proper design and construction of all improvements, including obtaining all
necessary permits. Lessee shall submit all preliminary and construction drawings
to Lessor for Lessor's review and approval, which approval shall not be
unreasonably withheld or delayed. Lessor shall have the right to approve
Lessee's contractor for construction of the improvements, which approval shall
not be unreasonably withheld or delayed. Lessee shall obtain, or cause its
contractor to obtain, payment and performance bonds reasonably acceptable to
Lessor. Lessee shall be required to comply with all Applicable Laws and shall be
subject to and required to comply with the provisions to the Lease, including
Section 7.3, in connection with the construction of the improvements. During the
period of Early Possession, Lessee may proceed with construction of the
improvements subject to the provisions of this Lease. Lessee agrees to
diligently proceed with and complete such improvements as soon as practicable
and in a good and workmanlike manner. Lessee's improvements shall be deemed to
be "Substantially Complete" when the Premises are sufficiently complete to
obtain a temporary certificate of occupancy (or its functional equivalent) from
the City of San Diego. Lessee shall submit to Lessor promptly after Substantial
Completion of Lessee's improvements invoices and other reasonable evidence of
such costs. Lessor shall reimburse Lessee for such costs, up to $225,000, within
thirty (30) days after delivery of such invoices and other evidence.

7. Condition. Paragraphs 2.2 and 2.3 of the Lease are hereby deleted in
their entirety. Lessor shall deliver the Premises to Lessee clean and free of
debris and all Hazardous Materials (as defined below), other than Hazardous
Materials present on the Premises in compliance with Applicable Laws, on the
Commencement Date and warrants to Lessee that the existing heating, ventilation
and air conditioning systems, other than those constructed by Lessee, shall be
in good working order on the Commencement Date and for a period of sixty (60)
days after the Commencement Date. If a non-compliance with said warranty exists
as of the Commencement Date or during such sixty (60) day period, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within sixty (60)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense. From and after the date
that is sixty (60) days after the Commencement Date, Lessee shall be solely
responsible for maintenance of the heating, ventilation and air conditioning
system and shall keep in effect a maintenance contract with a contractor
reasonably acceptable to Lessor.

8. As Is. Notwithstanding anything to the contrary contained herein,
Lessee shall accept the Premises in its "as-is, where-is" condition, and Lessor
shall have no obligation to remedy any

<PAGE>

matters affecting the Premises, including any latent or patent defects except as
specifically provided in Section 6 above or in Section 7.2 of the Lease. In
addition, Lessor shall have no obligation to comply with any present or future
Applicable Laws affecting the Premises. The parties intend that Lessee shall be
fully responsible for all costs to comply with any existing and future
Applicable Laws affecting the Premises, including the cost of any repairs and
alterations to the Premises necessary to comply with such Applicable Laws. The
parties have expressly negotiated this provision and have agreed to allocate the
cost to comply with Applicable Laws as provided herein based on the rental rates
and other consideration given to Lessee under the terms of this Lease. Lessee
acknowledges that Lessor would have demanded a higher rental rate absent
Lessee's agreement to assume these obligations. Lessor and Lessee agree that
Lessee's obligation to make such repair and alterations shall apply regardless
of whether the repairs or alterations to the Premises are structural or
non-structural in nature. Lessee acknowledges that efforts to comply with
Applicable Laws may interfere with its quiet enjoyment of the Premises.
Nevertheless, Lessee agrees to accept any such interference and that such
interference shall not excuse its obligations to comply with Applicable Laws
hereunder. The parties intend that Lessee shall be responsible for all future
Applicable Laws, whether or not presently foreseeable. Without in any way
limiting Lessee's obligations, the parties intend that Lessee shall be
responsible for all costs to comply with Applicable Laws relating to the
Americans With Disabilities Act, Hazardous Materials (except as expressly
provided in Section 6.2(o) of the Lease as amended by this Addendum), earthquake
retrofitting, fire safety and similar requirements.

9. Default; Remedies. Paragraph 13.1(b) is modified to change the
notice period therein from "three (3) days" to "three (3) business days." The
worth at the time of the award of the amounts referred to in Paragraphs
13.2(a)(i) and (ii) of the Lease shall be computed by allowing interest thereon
at the rate of 14% per annum. Lessor has the remedy described in California
Civil Code Section 1951.4 (Lessor may continue the Lease in effect after
Lessee's breach and abandonment and recover rent as it becomes due, if Lessee
has the right to sublet or assign, subject only to reasonable limitations).

10. Parking. The Building shall have a minimum of three (3) parking
spaces per 1,000 square feet of rentable area within the Building. Lessee and
its employees and invitees shall have the right to use thirty-three (33) parking
spaces on an unreserved basis in common with other occupants of the Building and
their employees and invitees, subject to reasonable parking rules and
regulations that may be adopted by Lessor from time to time. Notwithstanding
Section 2.6(b) of the Lease, Lessor shall only have the right to remove or tow
away vehicles if Lessor gives Lessee reasonable prior written notice, except
that no notice shall be required in the event of an emergency or the second or
any subsequent violation by the same vehicle if such written notice of a prior
violation by such vehicle was given.

11. Options to Extend. Subject to the terms and conditions set forth
herein, Lessor hereby grants to Lessee two (2) options ("Options") to extend the
Original Term of the Lease for a period of five (5) years each (the
"Extensions"). Lessee may exercise an Option by delivering written notice of
exercise to Lessor at least six (6) months prior to the expiration of the
Original Term or the

<PAGE>

prior Extension, if applicable. If Lessee exercises an Option in accordance with
this provision, the terms and conditions applicable to such Extension shall be
the same as those applicable during the Original Term, except that Lessee shall
not be entitled to a tenant improvement allowance and the Base Rent shall be
increased to an amount equal to the then prevailing market rental rate for
comparable space within comparable buildings located in the vicinity of the
Building.

11.1 Market Rate. The term "prevailing market rate" shall mean the
prevailing market rate on the commencement date of the applicable Extension (i)
for leases for a comparable term to the Extension of comparable space within the
Building or (ii) if no such comparable leases have been entered into during the
prior twelve (12) months, for leases for a term equal to the term of the
Extension of comparable space within similar buildings within the City of San
Diego Scientific Research Zoning Ordinance, entered into during the preceding
twelve (12) months, in either case giving appropriate consideration to rental
rates per rentable square foot, rental escalations, rental abatements, tenant
improvement allowances and other terms that would directly affect the economic
terms of a lease. Lessor and Lessee shall commence negotiation of the prevailing
market rate within ten (10) days after Lessee delivers a written notice to
Lessor of its exercise of an Option. If Lessor and Lessee do not agree, after
good faith negotiations, within thirty (30) days, then each party shall submit
to the other a proposal containing the prevailing market rate the submitting
party believes to be correct ("Extension Proposal"). If either party fails to
timely submit an Extension Proposal, the other party's submitted proposal shall
determine the Base Rent for the Extension.

11.2 Arbitration. If both parties submit Extension Proposals, then
Lessor and Lessee shall meet within seven (7) days after delivery of the last
Extension Proposal and make a good faith attempt to mutually appoint a certified
MAI real estate appraiser who shall have been active full-time over the previous
ten (10) years in the appraisal of comparable properties located in the San
Diego area. If Lessor and Lessee are unable to agree upon a single appraiser,
then each shall, within ten (10) days after the meeting, select an appraiser
that meets the foregoing qualifications. The two (2) appraisers so appointed
shall, within five (5) days after their appointment, appoint a third appraiser
meeting the foregoing qualifications. The determination of the appraiser(s)
shall be limited solely to the issue of whether Lessor's or Lessee's Extension
Proposal most closely approximates the prevailing market rate. The decision of
the single appraiser or of the appraiser(s) shall be made within thirty (30)
days after the appointment of a single appraiser or the third appraiser, as
applicable. The appraiser(s) shall have no authority to create an independent
structure of prevailing market rate or prescribe or change any or several of the
components or the structure of the prevailing market rate; the sole decision to
be made shall be which of the parties' Extension Proposals shall determine the
prevailing market rate for the Extension. The decision of the single appraiser
or majority of the three (3) appraisers shall be final and binding upon the
parties. If either party fails to appoint an appraiser within the time period
specified above, the appraiser appointed by one of them shall reach a decision
which shall be binding upon Lessor and Lessee. The cost of the appraisals shall
be paid equally by Lessor and Lessee. If the prevailing market rate is not
determined by the first day of the Extension, then Lessee shall pay Lessor Base
Rent in an amount equal to the Base Rent in effect immediately prior to the
Extension until such determination is made.

<PAGE>

After the determination of the prevailing market rate, the parties shall make
any necessary adjustments to such payments made by Lessee.

11.3 Exercise. If Lessee does not exercise an Option in accordance with
the terms hereof, such Option and any succeeding Option shall lapse, and Lessee
shall have no further right to extend the term of this Lease. At the election of
Lessor, any exercise of an Option by Lessee shall be void if Lessee is in
default of any of the terms and conditions of this Lease beyond any applicable
notice and cure period at the time of exercise or at any time prior to
commencement of the applicable Extension.

12. Monument Sign. Lessee shall have a non-exclusive right to erect a
monument sign for Lessee's exclusive use in connection with Lessee's business in
the Building, at Lessee's sole cost and expense. The size and type of monument
sign shall be subject to Lessor's reasonable approval, and such sign shall
comply with all applicable laws, codes, rules and regulations and any existing
covenants, conditions and restrictions affecting the Building.

13. Security Deposit. In addition to payment of the Base Rent for the
first month upon execution of the Lease, Lessee shall deliver to Lessor an
irrevocable standby letter of credit (the "Letter of Credit") which shall (i) be
issued by a federal or state chartered bank or other financial institution (the
"Issuer") acceptable to Lessor; (ii) be subject to draws payable at an office of
Issuer located in San Diego, California; (iii) assure payment in the "Stated
Amount" equal to the monthly Base Rent multiplied by four (4) months; (iv) name
Lessor as beneficiary; (v) have a term ending at least one (l) year after its
date of issuance; (vi) be payable in sight drafts accompanied only by Lessor's
statement that it is entitled to the amount drawn in accordance with this
agreement (without any reference to the requirement of prior notice to or the
consent of Lessee); (vii) allow partial drawings; and (viii) be subject to the
Uniform Customs and Practice for Documentary Credits (1993 Revision,
International Chamber of Commerce Publication No. 500). Provided that Lessee has
timely paid all Base Rent and additional rent and has performed all of its
obligations in accordance with the Lease, the Stated Amount of the Letter of
Credit shall be reduced to (a) an amount equal to the monthly Base Rent
multiplied by three (3) months as of the first day of the fourth year of the
term of this Lease and (b) to an amount equal to the monthly Base Rent
multiplied by two (2) months as of the first day of the fifth year of the term
of the Lease. The Letter of Credit shall be renewed annually, at least thirty
(30) days prior to its expiration, for successive one year terms, until thirty
(30) days after expiration of the Lease Term. Lessor, or any person designated
by Lessor, may draw upon the Letter of Credit if Lessee has not paid any
installment of rent due hereunder or fails to perform any other obligation of
Lessee under this Lease. If Lessee does not deliver to Lessor a renewal or
satisfactory replacement of the Letter of Credit within thirty (30) days prior
to its expiration date, Lessee shall be in default under this Lease and Lessor
shall have the right to draw upon the full amount of the Letter of Credit.

<PAGE>

14. Permitted Use. 6.1(a) of the Lease is hereby modified to add the
following provision at the end thereof:

". . .; provided, however, that none of the foregoing
restrictions shall prevent Lessee from maintaining a vivarium
in the Premises in accordance with standard practices for such
uses and Applicable Requirements (as hereinafter defined)."

15. Hazardous Substances. Paragraph 6.2 of the Lease is hereby deleted
in its entirety and replaced with the follow:

6.2 Hazardous Materials.

a. Hazardous Materials. The term "Hazardous Material(s)" shall
mean any toxic or hazardous substance, material or waste or any pollutant or
contaminant or infectious or radioactive material, including but not limited to
those substances, materials or wastes regulated now or in the future under any
Hazardous Materials Laws and any and all of those substances included within the
definitions of "hazardous substances," "hazardous materials," "hazardous waste,"
"hazardous chemical substance or mixture," "imminently hazardous chemical
substance or mixture," "toxic substances," "hazardous air pollutant," "toxic
pollutant," or "solid waste" in the Hazardous Materials Laws. Hazardous
Materials shall also mean any and all other similar terms defined in other
federal, state and local laws, statutes, regulations, orders or rules, and
materials and wastes which are, or in the future become, regulated under
applicable local, state or federal law for the protection of health or the
environment, or which are classified as hazardous or toxic substances, materials
or wastes, pollutants or contaminants, as defined, listed or regulated by any
federal, state or local law, regulation or order or by common law decision,
including, without limitation, (i) trichloroethylene, tetrachloroethylene,
perchloroethylene and other chlorinated solvents, (ii) oil or any petroleum
products or fractions thereof, (iii) asbestos, (iv) polychlorinated biphenyls,
(v) flammable explosives, (vi) urea formaldehyde and (vii) radioactive materials
and waste, and (viii) infectious waste.

b. Hazardous Materials Laws. The term "Hazardous Materials
Law(s)" shall mean any federal, state or local laws, ordinances, codes,
statutes, regulations, administrative rules, policies and orders, and other
authority, existing now or in the future, which classify, regulate, list or
define hazardous substances, materials, wastes contaminants, pollutants and/or
the Hazardous Materials, including without limitation the following statutes and
regulations, and any other legal authority, regulations, or policies relating to
or implementing such statutes and regulations:

i. Federal. Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA" or "Superfund"), as amended by
the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), 42 U.S.C. ss.
9601 et seq.; Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C.
ss. 6901 et seq.; Clean Water Act ("CWA"), 33 U.S.C. ss. 1251 et seq.; Clean Air
Act ("CAA"), 42 U.S.C. ss. 78401 et seq.; Toxic Substances Control Act ("TSCA"),
15 U.S.C. ss. 2601 et seq.; The Refuse Act of 1899, 33 U.S.C. ss. 407;
Occupational Safety

<PAGE>

and Health Act ("OSHA"), 29 U.S.C. ss. 651 et seq.; Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq.; United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) and the
Environmental Protection Agency Table (40 CFR Part 302 and amendments thereto);

ii. California. Carpenter-Presley-Tanner Hazardous Substance
Account Act ("California Superfund"), Cal. Health & Safety Code ss. 25300 et
seq.; California Hazardous Waste Control Act, Cal. Health & Safety Code Sections
25100 et seq.; Porter-Cologne Water Quality Control Act ("Porter-Cologne Act"),
Cal. Water Code ss. 13000 et seq.; Hazardous Waste Disposal Land Use Law, Cal.
Health & Safety Code ss. 25220 et seq.; Safe Drinking Water and Toxic
Enforcement Act of 1986 ("Proposition 65"), Cal. Health & Safety Code ss.
25249.5 et seq.; Hazardous Substances Underground Storage Tank Law, Cal. Health
& Safety Code ss. 25280 et seq.; California Hazardous Substance Act, Cal. Health
& Safety Code ss. 28740 et seq.; Air Resources Law, Cal. Health & Safety Code
ss. 39000 et seq.; Hazardous Materials Release Response Plans and Inventory,
Cal. Health & Safety Code ss.ss. 25500-25541; Toxic Pits Cleanup Act of 1984
("TCPA"), Cal. Health & Safety Code ss.ss. 25208-25208.17;

iii. Other Laws and Regulations. All other regulations
promulgated pursuant to said foregoing laws or any amendments or replacement
thereof, provided such amendments or replacements shall in no way limit the
original scope and/or definition of Hazardous Materials defined herein as of the
execution date of this Lease.

c. Compliance with Hazardous Materials Laws. Lessee covenants
not to cause or permit any Hazardous Materials to be brought upon, kept, stored
or used in or about the Premises or the Building without the prior written
consent of Lessor, which consent shall not be unreasonably withheld or delayed,
except that Lessee, in connection with its Permitted Use of the Premises, may
keep, store and use materials that constitute Hazardous Materials which are
customary for such Permitted Use, provided such Hazardous Materials are kept,
stored and used in quantities which are customary for such Permitted Use and are
kept, stored and used in full compliance with all requirements of this Paragraph
6.2. Lessee shall not cause or permit any Hazardous Materials to be brought
upon, kept, generated, disposed or used in connection with the Premises or by
Lessee, its agents, employees, contractors or invitees in a manner or for a
purpose prohibited by or which could result in liability under any applicable
law, regulation, rule or ordinance, including, without limitation, the Hazardous
Materials Laws. Lessee shall, at its own expense, at all times and in all
respects comply with all Hazardous Materials Laws relating to the industrial
hygiene, environmental protection or the use, analysis, generation, manufacture,
storage, presence, disposal or transportation of any Hazardous Materials caused
or permitted by Lessee or its agents, employees, contractors or invitees to be
brought upon, kept, stored, released, or used on, under or about the Premises.
Lessee shall, at its own expense, procure, maintain in effect and comply with
all conditions of any and all permits, licenses and other governmental and
regulatory approvals relating to the presence of Hazardous Materials caused or
permitted by Lessee or its agents, employees, contractors or invitees to be
brought upon, kept, stored, released, or used on, under or about the Premises
within, on, under or about the Premises or required for Lessee's use of the
Premises, Lessee shall cause any and all

<PAGE>

Hazardous Materials caused or permitted by Lessee or its agents, employees
contractors or invitees to be brought upon, kept, stored, released, or used on,
under or about the Premises to be removed from the Premises and transported in
accordance with and in compliance with all Hazardous Materials Laws. Lessee
shall in all respects, handle, treat, deal with and manage any and all Hazardous
Materials in, on, under or about the Premises in complete conformity with all
applicable Hazardous Materials Laws and prudent industry practices of the
biotechnology industry regarding the management of such Hazardous Materials.
Upon expiration or earlier termination of this Lease, Lessee shall at its own
expense, cause all Hazardous Materials (to the extent such Hazardous Materials
are generated, stored, released or disposed of during the Term of this Lease by
Lessee, to be removed from the Premises and transported for use, storage or
disposal in accordance and in compliance with all applicable Hazardous Materials
Laws. Lessee shall not take any remedial action in response to the presence of
any Hazardous Materials in, on, about or under the Premises or the Building, nor
enter into any settlement agreement, consent, decree or other compromise in
respect to any claims relating to any way connected with the Premises or the
Building without first notifying Lessor of Lessee's intention to do so and
affording Lessor ample opportunity to appear, intervene or otherwise
appropriately assert and protect Lessor's interest with respect thereto. Lessee
agrees that it shall not (A) operate on or about the Premises any facility
required to be permitted or licensed as a hazardous waste facility or for which
interim status as such is required, nor (B) conduct any other activities on or
about the Premises that could result in the Property being deemed to be a
"hazardous waste facility" (including, but not limited to, any storage or
treatment of Hazardous Materials wastes which could have such a result).

d. Notice of Actions. Lessee shall immediately notify Lessor
in writing of (a) any enforcement, clean-up, removal or other governmental or
regulatory action instituted, completed or threatened pursuant to any Hazardous
Materials Laws; (b) any claim made or threatened by any person against Lessor,
or the Premises, relating to damage, contribution, cost recovery, compensation,
loss or injury resulting from or claimed to result from any Hazardous Materials;
and (c) any reports made to any environmental agency arising out of or in
connection with any Hazardous Materials in, on or about the Premises or with
respect to any Hazardous Materials removed from the Premises, including, any
complaints, notices, warnings, reports or asserted violations in connection
therewith. Lessee shall also provide to Lessor, as promptly as possible, and in
any event within five (5) business days after Lessee first receives or sends the
same, with copies of all claims, reports, complaints, notices, warnings or
asserted violations relating in any way to the Premises or Lessee's use thereof.
Lessor shall give notice to Lessee of any matters described above in this
Subparagraph (d) which may affect the Premises or Lessee. All manifests for the
transportation and/or disposal of Hazardous Materials shall list the Lessee or
its agent as a responsible party and in no way shall attribute responsibility
for any such Hazardous Materials to Lessor.

e. Disclosure and Warning Obligations. Lessee shall also
comply with all laws, ordinances and regulations regarding the disclosure of the
presence or danger of Hazardous Materials. Lessee acknowledges and agrees that
all reporting and warning obligations required under the Hazardous Materials
Laws are the sole responsibility of Lessee, whether or not such Hazardous

<PAGE>

Materials Laws permit or require Lessor to provide such reporting or warnings,
and Lessee shall be solely responsible for complying with Hazardous Materials
Laws regarding the disclosure of, the presence or danger of Hazardous Materials,
including, without limitation, all notices or other requirements under
California Health and Safety Code Section 25915 et seq., and 25249.5 et seq. and
California Code of Regulations Section 12000 et seq.

f. Indemnification. Lessee shall indemnify, defend (with
counsel reasonably acceptable to Lessor), protect and hold Lessor and each of
Lessor's officers, directors, partners, employees, agents, attorneys, successors
and assigns (collectively "Indemnitees") free and harmless from and against any
and all claims, liabilities, damages, costs, penalties, forfeitures, losses
(including diminution in value of the Building and lost rents) or expenses
(including attorneys' fees) for death or injury to any person or damage to any
property whatsoever (including water tables and atmosphere) ("Claims") arising
or resulting in whole or in part, directly or indirectly, from (i) Lessee's
violation of any of the provisions of this Paragraph 6.2 or (ii) the presence,
use, generation, release or discharge of Hazardous Materials, in, on, under,
upon or from the Premises or the Building or from the transportation or disposal
of Hazardous Materials to or from the Premises by or on behalf of Lessee,
whether discovered prior to or after the expiration or earlier termination of
this Lease. Lessee's obligations hereunder shall include, without limitation,
and whether foreseeable or unforeseeable, all costs of any required or necessary
repairs, clean-up or detoxification or decontamination of the Premises or the
Building, and the presence and implementation of any closure, remedial action or
other required plans in connection therewith, and shall survive the expiration
of or early termination of the term of this Lease, and any costs and fees
incurred in the enforcement of the indemnity action.

g. Environmental Audits. Upon request by Lessor during the
term of this Lease, prior to the exercise of any renewal term and/or prior to
vacating any portion of the Premises, Lessee shall undertake and submit to
Lessor an environmental audit from an environmental company reasonably
acceptable to Lessor which audit shall evidence Lessee's compliance with this
Paragraph 6.2. If the audit confirms the presence of Hazardous Materials in the
soil or surface or the groundwater, or likelihood thereof, Lessor shall have the
right to require Lessee to immediately commence all necessary remediation,
abatement, removal and cleanup actions to return the Premises and any other
property of whatever nature to their condition existing prior to the appearance
of Hazardous Materials. Any plan of remediation, abatement, removal and cleanup
shall be subject to the prior approval of Lessor, in its sole discretion. Lessee
shall not disclose to any third parties any information regarding any Hazardous
Materials surveys, studies, reports or inspections, relating to the Premises
without obtaining Lessor's advance written consent, and shall promptly provide
to Lessor copies of all such surveys, studies, reports or inspections.

h. Delivery of Documents. If applicable, Lessee shall provide
Lessor in writing the following information and/or documentation at the
commencement of this Lease and within sixty (60) days of any change in or
addition to the required information and/or documentation, (provided, however,
that in the case of the materials described in subparagraphs (a), (b), (c) and
(e) below, Lessee shall not be required to deliver copies of such materials to
Lessor but shall maintain copies

<PAGE>

of such materials to such extent and for such periods as may be required by
applicable law and shall permit Lessor or its representatives to inspect such
materials during normal business hours at any time and from time to time upon
reasonable notice to Lessee):

(a) A list of all Hazardous Materials that Lessee receives,
uses, handles, generates, transports, stores, treats or disposes of from time to
time in connection with its operations in the Premises.

(b) All Material Safety Data Sheets ("MSDS's"), if any,
required to be completed with respect to operations of Lessee at the Premises
from time to time in accordance with Title 26, California Code of Regulations
ss. 8-5194 or 42 U.S.C. ss. 11021, or any amendments thereto, and any Hazardous
Materials Inventory Sheets that detail the MSDS's.

(c) All hazardous waste manifests (as defined in Title 26,
California Code of Regulations ss. 22-66481), if any, that Lessee is required to
complete from time to time in connection with its operations at the Premises.

(d) A copy of any Hazardous Materials Management Plan
required from time to time with respect to Lessee's operations at the Premises.
pursuant to California Health & Safety Code ss.ss. 25500 et seq., and any
regulations promulgated thereunder, as amended.

(e) Copies of any Contingency Plans and Emergency Procedures
required of Lessee from time to time due to its operations in accordance with
Title 26, California Code of Regulations ss.ss. 22-67140 et seq., and any
amendments thereto, and copies of any Training Programs and Records required
under Title 26, California Code of Regulations, ss. 22-67105, and any amendments
thereto.

(f) Copies of any biennial reports required to be furnished
to the California Department of Health Services from time to time relating to
Hazardous Materials, pursuant to Title 26, California Code of Regulations, ss.
22-66493, and any amendments thereto.

(g) Copies of all industrial wastewater discharge permits
issued to or held by Lessee from time to time in connection with its operations
on the Premises.

(h) Copies of any other lists or inventories of Hazardous
Materials on or about the Premises that Lessee is otherwise required to prepare
and file from time to time with any governmental or regulatory authority.

i. Radioactive Materials. Lessee shall secure Lessor's prior
written approval for any proposed receipt, storage, possession, use, transfer or
disposal of "radioactive materials" or radiation," as such materials are defined
in Title 26, California Code of Regulations ss. 17-0100, and/or any other
materials possessing the characteristics of the materials so defined, which
approval Lessor may withhold in its sole and absolute discretion; provided, that
such approval shall not be

<PAGE>

required for any radioactive materials for which Lessee has secured prior
written approval of the Nuclear Regulatory Commission and delivered to Lessor a
copy of such approval. Lessee, in connection with any such authorized receipt,
storage, possession, use, transfer or disposal of radioactive materials or
radiation, shall:

(a) Comply with all federal, state and local laws, rules,
regulations, orders, licenses and permits;

(b) Maintain, to such extent and for such periods as may be
required by applicable law, and permit Lessor or its representatives to inspect
during normal business hours at any time and from time to time upon reasonable
notice to Lessee, a list of all radioactive materials or radiation received,
stored, possessed, used, transferred or disposed of from time to time, to the
extent not already disclosed through delivery of a copy of a Nuclear Regulatory
Commission approval with respect thereto as contemplated above; and

(c) Maintain, to such extent and for such periods as may be
required by applicable law, and permit Lessor or its representatives to inspect
during normal business hours at any time and from time to time upon reasonable
notice to Lessee, all licenses, registration materials, inspection reports,
governmental orders and permits in connection with the receipt, storage,
possession, use, transfer or disposal of radioactive materials or radiation from
time to time.

j. No Duty. Notwithstanding Lessor's rights of inspection and
review under this Paragraph (6.2), Lessor shall have no obligation or duty to so
inspect or review, and no third party shall be entitled to rely on Lessor to
conduct any sort of inspection or review by reason of the provisions of this
Paragraph (6.2).

k. End of Term. Lessee shall surrender possession of the
Property in the good condition, including, without limitation, receiving any
clearances and/or certifications verifying compliance with all federal, state
and local laws, rules, regulations and orders regarding environmental condition
and cleanup. In the event Lessee does not comply with the provisions of this
Paragraph 6.2(k) on the expiration or earlier termination of this Lease, Lessee
shall be held to the terms of this Lease and required to pay Rent. If Lessee
shall vacate the Property after termination of this Lease without having
effected such clean up and obtained such clearances and certifications, then
Lessor may obtain same at Lessee's cost. Lessor's action in such regard shall
not eliminate Lessee's liability to pay for same or to pay Rent as a holdover
hereunder.

l. Records. Lessee shall maintain at the Premises throughout
the term of this Lease and, after termination for expiration of the Lease, at
its main office, for such period as may be required by law, but in any event at
least seven (7) years beyond the expiration or earlier termination of the Lease,
records of all Hazardous Materials used in Lessee's business at the Premises or
otherwise brought onto the Premises by Lessee, and all records of employee
exposure to laboratory chemicals (and related medical records) to the extent
maintained by Lessee or as may

<PAGE>

be required by applicable OSHA regulations or other Applicable Laws. Lessee
or its representatives may from time to time inspect and copy such records.

m. Lab Animals. Lessee may keep laboratory animals and
plants in areas of the Premises approved by Lessor, provided that Lessee
maintains all animal and plant areas in a safe and sanitary condition at all
time and shall not permit any waste or unreasonable level of odors outside
the animal and plant areas. In addition, Lessee shall fully comply with, and
shall not permit any violation of, any Applicable Laws with regard to the
keeping of laboratory animals and plants and to animal experiments and
biohazardous waste. Lessee shall further comply with any reasonable rules and
regulations promulgated from time to time by Lessor regarding the use of such
animals and/or plants. Lessee shall ensure that the use of Hazardous
Materials, animals and/or plants with respect to the Premises does not cause
any nuisance or otherwise interfere with the use and enjoyment of remaining
portions of the Building by Lessor, other occupants and their employees and
invitees.

n. Safety. Lessee shall keep the Premises equipped with all
safety equipment and appliances, and shall have in effect at the Premises all
emergency personnel, procedures, training programs and accident or incident
reporting systems as may be required under any Applicable Laws or that are
considered good business practices for similar operations. Lessee agrees that
it will not interfere with the ability of any other tenant or occupant of the
Building to comply with the good manufacturing practices ("GMP") regulations
promulgated by the United States Food and Drug Administration ("FDA") which
may regulate the operation of such tenants or occupants. Without limiting the
foregoing, Lessee shall be obligated to construct additional barriers
acceptable to the FDA between the Premises and the premises of any other
tenants, at Lessee's sole cost, to eliminate any such adverse effect on the
ability to comply with such GMP regulations. Lessee shall prevent any animal
infestation of other portions of the Building outside of the Premises, all in
accordance with any applicable FDA regulations that may apply to other
tenants or occupants.

o. Lessor Indemnity. Lessor represents that, to Lessor's
actual knowledge, without duty of inquiry or investigation, except as set
forth in the Phase I environmental assessment of the Premises dated January
6, 1997, prepared by Property Solutions, Inc. and previously provided to
Lessee (the "Phase I"), as of the Commencement Date it is unaware of any
Hazardous Materials present in, on, or under the Building in violation of
Hazardous Materials Laws except as disclosed by the Phase I. Lessor agrees to
indemnify, defend and hold Lessee harmless from and against any and all
claims, damages, fines, judgments, penalties, costs, liabilities or losses
and expenses (including reasonable attorneys' fees and consultant and expert
fees) arising from or relating to Hazardous Materials present within, on or
under the Premises in violation of applicable laws prior to the Commencement
Date, excluding, however, any Hazardous Materials brought onto the Premises
by Lessee or any of its agents, employees, invitees or contractors. Paragraph
9.7 of the Lease is hereby deleted. Except as provided in this Subparagraph
o, Lessor shall have no obligations with respect to any Hazardous Materials
which may at any time be present on, under, in or adjacent to the Premises or
the Building.

<PAGE>

16. Maintenance Obligations. The last sentence of Paragraph 7.1(b)
is hereby deleted. If Lessor fails to perform Lessor's obligations under
Section 7.2 of the Lease and Lessor does not commence such performance within
ten (10) business days after Lessee provides Lessor with written notice of
such failure, and if such failure materially interferes with Lessee's use of
the Premises, Lessee may perform such obligations on Lessor's behalf, and if
Lessee so elects, Lessor shall reimburse Lessee, within twenty (20) days
after demand, for the reasonable costs thereof (and any reasonable costs and
fees associated with Lessee's collection of such costs).

17. Utility Installations, Trade Fixtures, Alterations. Lessor's
consent to any Alterations or Utility Installations pursuant to Section
7.3(a) of the Lease shall not be unreasonably withheld. The last sentence of
Section 7.3(a) of the Lease is modified to change the amount of $2,500 to
$10,000. Similarly, the dollar amount stated in the last sentence of Section
7.3(b) of the Lease is hereby changed from $2,500 to $10,000.

The last sentence of Section 7.3(c) is modified such that Lessee
shall only be required to pay Lessor's reasonable attorneys' fees and costs.
The term Utility Installations shall not include any laboratory equipment,
otherwise included in "Trade Fixtures," notwithstanding the description
contained in Section 7.3(a). For example, fume hoods shall be considered to
be Trade Fixtures and are not "ventilating equipment."

The term "Trade Fixtures" shall also mean (i) Lessee's lab benches,
safety lockers, signs, and laboratory animal enclosures, and (ii) anything
else affixed to the Premises by Lessee at its expense for purposes of trade,
manufacture, ornament or domestic use (except replacement of similar work or
material originally installed by Lessor) which can be removed without
material injury to the Premises unless such thing has, by the manner in which
it is affixed, become an integral part of the Premises. Any Trade Fixtures
purchased by Lessee and installed in the Premises, which Lessee intends to
remove from the Premises upon the expiration or earlier termination of this
Lease, shall be separately identified on a list ("Equipment List") to be
agreed upon as part of Lessor's approval of Lessee's plans and
specifications. The Trade Fixtures on the Equipment List shall be and remain
the sole property of Lessee and Lessor hereby waives any rights which Lessor
may claim to have in and to Lessee's personal property and the Trade Fixtures
on the Equipment List, no matter how arising, including all rights of levy or
distraint for rent. Notwithstanding anything to the contrary set forth above,
Trade Fixtures shall not include any improvements or other items paid for
with the Tenant Improvement Allowance or Lessee's Contribution, as all such
improvements shall be and remain the sole property of Lessor.

Notwithstanding anything to the contrary contained in Section 7.4 of
the Lease, Lessee shall not be obligated to remove any Alterations or Utility
Installations from the Premises, and such Alterations and Utility
Installations shall remain in the Premises and become the property of Lessor
upon expiration or earlier termination of the Lease, unless Lessor notifies
Lessee in writing at the time Lessor consents to such Alteration or Utility
Installation (if Lessee obtains such consent) that Lessee will be required to
remove such Alteration or Utility Installation upon expiration or earlier
termination of the Lease.

<PAGE>

18. Insurance. Lessee's deductible under Paragraph 8.4 of the Lease
may be up to $10,000 per occurrence. If Lessor elects to obtain earthquake
insurance with respect to the Building, such insurance shall be written with
such commercially reasonable premiums as are maintained by or available to
prudent owners of similar projects in the San Diego metropolitan area. The
insurance maintained by Lessor on the Building shall include reasonable
deductibles as are maintained by prudent owners of similar projects in the
San Diego metropolitan area; provided, however, that Lessee's liability for
any deductible in connection with any insured casualty shall not exceed an
amount equal to Lessee's Share of the deductible; provided, however, that if
the damage or destruction is the result of the negligence or willful
misconduct of Lessee or its agents, employees, contractors or invitees,
Lessee shall be liable for the entire amount of the deductible.

19. Indemnity and Exemption of Lessor from Liability. Section 8.7 of
the Lease is amended to delete the words "except for Lessor's negligence
and/or breach of express warranties," with the following: "Except for
Lessor's gross negligence or willful misconduct and/or breach of its express
obligations under this Lease,...." The following language is hereby added to
the beginning of Section 8.8 of the Lease: "Except for Lessor's gross
negligence, willful misconduct and/or breach of its express obligations under
this Lease,...."

20. Damage or Destruction. Lessor shall use commercial reasonable
efforts to provide Lessee with a written statement containing Lessor's
estimate of the repair period as soon as practical, but no later than sixty
(60) days after the date of the damage or destruction. Paragraph 9.5 of the
Lease is modified to provide that either Lessor or Lessee may terminate the
Lease under the circumstances described therein. Paragraph 9.6(a) is modified
to add at the end thereof the following: "except to the extent caused by
Lessor's gross negligence, willful misconduct and/or breach of its express
obligations under this Lease." If Lessor reasonably determines that repairs
pursuant to Section 9 of the Lease will require more than one hundred eighty
(180) days to complete, or if repairs are not substantially completed within
one hundred eighty (180) days following the commencement thereof, Lessee may,
at its option, terminate this Lease by delivering prior written notice to
Lessor no later than ten (10) days after Lessor notifies Lessee that such
repairs will require more than one hundred eighty (180) days to complete or
ten (10) days after such one hundred eighty (180) day period has elapsed
without the repairs being completed. This Lease shall terminate thirty (30)
days after timely delivery of such notice by Lessee provided that if Lessor
completes the repairs within such thirty (30) day period, the Lease shall
remain in full force and effect.

21. Real Property Taxes. Notwithstanding Section 10 of the Lease,
Real Property Taxes shall not include: (a) any item to the extent otherwise
included in Operating Expenses; (b) any environmental assessments, charges or
liens arising in connection with the remediation of Hazardous Materials
present within the Building on the Commencement Date and pursuant to
Hazardous Materials Laws in effect on or before the Commencement Date of this
Lease; (c) costs or fees other than reassessments (which shall be included in
Real Property Taxes) payable to public authorities in connection with any
future construction, renovation and/or improvements to the Building,
including fees for transit, housing, schools, open space, child care, arts
programs, traffic mitigation measures, environmental impact reports, traffic
studies, and transportation system management plans

<PAGE>

required solely as a result of such future construction, renovation or
improvements and that would not otherwise be applicable to the Building, (d)
reserves for future Real Property (e) any personal property taxes
attributable to sculptures, paintings or other objects of art, (f)
inheritance, estate or franchise taxes imposed upon or assessed against
Lessor, or (g) taxes on the net income of the Lessor. If a reduction in Real
Property Taxes is obtained for any year of the Term which Lessee paid
Lessee's Share of Real Property Taxes, then Common Area Operating Expenses
for such year shall be retroactively adjusted and Lessor shall provide Lessee
with a credit against Lessee's next due obligations for Lessee's Share of
Common Area Operating Expenses or, if none, refund such amount to Lessee
within thirty (30) days based on such adjustment.

22. Lessor's Liability. Notwithstanding Section 17 of the Lease, a
Lessor whose interest in this Lease or the Premises is foreclosed by a
foreclosure of a deed of trust shall not be relieved of liability unless the
holder of the deed of trust has provided a non-disturbance agreement in favor
of Lessee pursuant to Section 30 of the Lease or the party who acquires the
Lessor's interest otherwise agrees to recognize Lessee's right to possession
under the Lease and not to disturb Lessee's possession hereunder so long as
Lessee is not in default hereunder.

23. Transfer to Affiliate Permitted. Any provision in the Lease to
the contrary notwithstanding, Lessor's consent shall not be required for an
assignment or subletting to: (a) any entity who controls, is controlled by or
is under common control with Lessee; (b) any successor corporation resulting
from merger, consolidation, or non-bankruptcy reorganization (provided that
Lessee's net worth and ability to perform its obligations under the Lease are
not reduced, and the occupancy density of the Premises is not materially
increased, as a result of such merger, consolidation or reorganization); or
(c) to any person or legal entity having a consolidated tangible net worth of
at least $15,000,000 (provided that Lessee's net worth and ability to perform
its obligations under the Lease are not reduced, and the occupancy density of
the Premises is not materially increased, as a result of such acquisition),
which acquires all the assets of Lessee as a going concern of the business
being conducted on the Premises (each of the foregoing is hereinafter
referred to as a "Lessee Affiliate"); provided that before such assignment
shall be effective, (a) said Lessee Affiliate shall assume, in full, the
obligations of Lessee under this Lease pursuant to an assignment and
assumption agreement in favor of, and reasonably satisfactory to, Lessor, (b)
Lessor shall be given written notice of such assignment and assumption and
(c) the use of the Premises by the Lessee Affiliate shall be for the
Permitted Uses only. For purposes of this paragraph, the term "control" means
ownership, directly or indirectly, of more than 50% of the voting ownership
interests in Lessee. For purposes of this Lease, the sale or transfer of less
than 50% (on a cumulative basis throughout the Lease term) of Lessee's
capital stock and any sale of capital stock through a public stock exchange,
shall not be deemed an assignment, subletting or other transfer or
encumbrance of the Lease of the Premises. In the event of any assignment or
sublease by Lessee, Lessee shall pay Lessor upon receipt, as additional rent,
fifty percent (50%) of the amount received by Lessee under such assignment or
sublease in excess of the rent payable hereunder plus Lessee's reasonable
costs of assignment or subletting, provided that the foregoing shall not
apply to an assignment or sublease by Lessee to a Lessee Affiliate. Lessee's
fee under Section 12.1(e) of the Lease shall not exceed $1,000 per request.
Sections 12.2(g) and (h) of the Lease are hereby deleted.

<PAGE>

24. Availability Utilities. Except for Lessor's gross negligence or
willful misconduct in performing its obligations with respect to the Building
structure or the Common Areas of the Project, Lessor shall not be liable in
damages or otherwise for any failure or interruption of any utility service
being furnished to the Premises. If any such failure is caused by Lessor's
gross negligence or willful misconduct and prevents Lessee from operating its
business within the Premises for more than five (5) consecutive business
days, Rent after such five (5) business day period shall equitably abate
until utilities are restored to the Premises. A failure or interruption not
caused by the gross negligence or willful misconduct of Lessor or its
employees, agents or contractors that results in material interference with
Lessee's use or occupancy of the Premises shall not result in any abatement
of Rent except to the extent of Lessee's Share of any proceeds of any rental
abatement insurance maintained by Lessor.

25. Subordination. Section 30.1 of the Lease is modified to provide
that, as a condition to any subordination to a Security Device, the holder of
such Security Device will provide to Lessee a non-disturbance agreement
described in Section 30.3 of the Lease. The form of any nondisturbance
agreement to be provided to Lessee pursuant to Section 30.3 of the Lease
shall be reasonably acceptable to Lessee.

26. Lessor's Access. Section 32 of the Lease is modified to provide
that, except in cases of emergency, Lessor shall give Lessee twenty-four (24)
hours advance notice of any entry upon the Premises and that Lessor may enter
the Premises for the purpose of showing the same to prospective lessees only
during the last twelve (12) months of the Term of the Lease.

27. Signs. The last sentence of Section 34 of the Lease is hereby
deleted in its entirety.

28. Options. Section 39.2 of the Lease is modified to provide that
the Options to renew the Term of the Lease may be assigned to and exercised
by any assignee of Lessee's rights hereunder who is a Lessee Affiliate.
Section 39.4 of the Lease is deleted in its entirety.

LESSOR: LESSEE:

ARE-11025 ROSELLE STREET, LLC, a COLLATERAL THERAPEUTICS, Inc.,
Delaware limited liability company a California corporation

By: /s/ illegible By: /s/ Christopher J. Reinhard
-------------------------------- ----------------------------------
Its: Its: Chief Operating Officer
--------------------------- ------------------------------

<PAGE>

ALEXANDRIA

[Logo]
ALEXANDRIA REAL ESTATE
EQUITIES, INC.
11440 W. BERNARDO COURT
SUITE 170 - SAN DIEGO, CA 92127
TEL: 619-592-6801
FAX: 619-592-6814

November 25, 1997
Via Facsimile
Christopher J. Reinhard
Chief Operating Officer and Financial Officer
Collateral Therapeutics
9360 Towne Center Drive
San Diego, CA 92121

RE: Standard Industrial/Commercial Multi-Tenant Lease-Modified Net, dated
November 24, 1997 ("Lease") by and between Collateral Therapeutics, as
lessee ("Lessee") and ARE-11025 Roselle Street, LLC, as lessor
("Lessor") for premises located 11025 Roselle Street, San Diego,
California 92121.

Dear Mr. Reinhard:

This letter shall confirm the agreement of Lessor and Lessee that
notwithstanding the provisions of paragraph 4 of the Addendum to the above
referenced Lease, Lessee's Early Possession period shall not commence until
two (2) business days after Lessor has delivered written notice to Lessee
that the Premises have been vacated and surrendered by Tiernan
Communications, Inc. in the physical condition required by the Lease. The
parties hereby acknowledge that the Early Possession period is expected to
commence on or about January 15, 1998. Lessor hereby covenants to use
commercially reasonable efforts to cause Tiernan Communications, Inc. to
vacate the Premises as close as possible to said date, following expiration
of its lease under applicable law.

Except as otherwise agreed to by the parties in two (2) written agreements
dated concurrently herewith, the Lease shall remain unmodified and in full
force and effect, and all of the terms and provisions of the Lease as herein
modified, are hereby ratified and reaffirmed by both the Lessor and Lessee.
This letter may be executed in as many counterparts as may be deemed
necessary and convenient, and by the different parties on separate
counterparts, each of which, when so

<PAGE>

Christopher J. Reinhard
November 25, 1997
Page Two

executed, shall be deemed an original, but all such counterparts shall
constitute one and the same instrument. Any capitalized terms contained in
this letter shall have the meaning ascribed to them in the Lease.

Sincerely, ACCEPTED AND AGREED TO AS
OF THE DATE FIRST WRITTEN
ARE-11025 Roselle Street, LLC ABOVE:
a Delaware limited liability company
By: ARE-QRS Corp, a Maryland corporation, COLLATERAL THERAPEUTICS, INC.
Managing Member a California corporation

By: /s/ Gary A. Kreitzer
------------------------------------
Gary A. Kreitzer By: /s/ Christopher J. Reinhard
Its: Senior Vice President ----------------------------
Name: Christopher J. Reinhard
--------------------------
Its: COO & CFO
---------------------------

cc: Joel Marcus GAK:hfg
Alan Gold

<PAGE>

[LOGO] COLLATERAL
THERAPEUTICS

9360 Towne Center Drive
San Diego, CA 92121
Tel: 619.824.6500
Fax: 619.587.3518

Mr. Alan Gold
Alexandria Real Estate Equities, Inc., a Maryland corporation
11440 West Bernardo Court, suite 170
San Diego, California 92127 November 25, 1997

RE: Lease ARE-11025 Roselle Street, LLC, a Delaware limited liability
company ("Lessor") and Collateral Therapeutics, Inc., a California
corporation ("Lessee") for Premises Located at 11025 Roselle Street,
San Diego, CA 92121 ("Lease"); Removal of Trade Fixtures Upon Lease
Termination or Expiration

Dear Alan:

This letter is provided to the Lessor of the above-referenced Lease, which
has been negotiated by Lessor and Lessee, and constitutes an additional
agreement of the parties with respect to Lessee's rights thereunder. The
agreement contained herein is a condition precedent to the effectiveness of
the Lease. In the event of any inconsistency between this agreement and the
Lease, the terms and conditions of this agreement shall govern and control.

Lessor and Lessee hereby agree that, notwithstanding any provision to the
contrary in the Lease or otherwise pursuant to Applicable Laws, the items
listed below shall constitute "Trade Fixtures" pursuant to Section 7.3 of the
Lease, and in accordance with Paragraph 16 of the Addendum to the Lease,
constitute the Trade Fixtures which Lessee may remove from the Premises upon
the expiration or earlier termination of the Lease:

1. Glass washer
2. Glass dryer
3. AutoClaves
4. Vivarium cages and tables
5. Deionized water skid
6. Premises telephone systems
7. Premises alarm systems
9. Biological safety cabinets

<PAGE>

[LOGO]

10. All of the Lessee's laboratory equipment located in the
Premises, including, but not limited to, refrigerators,
freezers and incubators.

Please indicate your acknowledgement of an agreement to the Lessee's removal
of the foregoing Trade Fixtures upon the expiration or earlier termination of
the Lease, subject only to the Lessee's compliance with its obligations set
forth in Section 7.3 of the Lease regarding the repair of any damages to the
Premises caused by the removal thereof.

Very truly yours,

/s/ Christopher J. Reinhard

Christopher J. Reinhard
Chief Operating Officer and
Financial Officer

ACKNOWLEDGED AND AGREED:

ARE-11025 Roselle Street, LLC, a Delaware limited liability company BY ARE-QRS
CORP, A MD CORP, MANAGING MEMBER

By: /s/ Alan D. Gold
------------------------
Name: Alan D. Gold
----------------------
Title: President
---------------------

<PAGE>

[LOGO] COLLATERAL
THERAPEUTICS

9360 Towne Center Drive
San Diego, CA 92121
Tel: 619.824.6500
Fax: 619.587.3518

Mr. Alan Gold
Alexandria Real Estate Equities, Inc.
11440 West Bernardo Court, Suite 170
San Diego, California 92127 November 25, 1997

ARE-11025 Roselle Street, LLC, a Delaware limited liability company

RE: Standard Industrial/Commercial Multi-Tenant Lease-Modified Net Between
Collateral Therapeutics, Inc., a California Corporation ("Lessee"), and
ARE-11025 Roselle Street, LLC, a Delaware limited liability company
("Lessor") with respect to the Premises within the Building located at
11025 Roselle Street in San Diego, California (the "Lease")

Dear Alan:

Enclosed please find two (2) originals of the above referenced Lease signed
by the Lessee. The effectiveness of the attached Lease signed by Lessee is
conditioned upon Lessor satisfying the following conditions precedent, and
the Lease shall be void if any of the conditions are not met by December 2,
1997:

1. Lessor must sign and date the Letter Agreement attached hereto
regarding the list of equipment and trade fixtures which may be
removed by Lessee upon termination or expiration of the Lease
("Letter Agreement"); and

2. Lessor must return the fully-executed Lease, Letter Agreement and a
signed counterpart of this letter (also executed by Alexandria Real
Estate Equities, Inc.
("ARE")) by December 2, 1997.

Lessee is also entering into this Lease with the understanding that the
proposed Lessor is an affiliate of ARE and that ARE will provide or cause to
be provided to ARE-11025 the amount of the Tenant Improvement Allowance
described in Section 6 of the Addendum to the Lease.

By signing below, ARE commits to providing or causing to be provided to
ARE-11025 the full amount of the Tenant Improvement Allowance to be used in
accordance with the Lease, and both ARE and ARE-11025 acknowledge and agree
that Collateral Therapeutics, Inc. would not enter into the Lease without
such commitment from ARE.

[SIGNATURES CONTINUED ON NEXT PAGE]

<PAGE>

[LOGO]

Collateral Therapeutics, Inc., a California corporation

/s/ Christopher J. Reinhard Date: 11-25-97
- ---------------------------------- ----------------------
Signature

By: Christopher J. Reinhard
Its: Chief Operating Officer and
Financial Officer

ACKNOWLEDGED AND AGREED:

Alexandria Real Estate Equities, Inc., a Maryland corporation

/s/ Alan D. Gold Date: Dec 4, 1997
- ---------------------------------- ---------------------
Signature

By: Alan D. Gold
-------------------------------
Its: President
------------------------------

ARE-11025 Roselle Street, LLC, a Delaware limited liability company BY ARE-QRS
CORP, A MD CORP, MANAGING MEMBER

/s/ Alan D. Gold Date: Dec 4, 1997
- ---------------------------------- ---------------------
Signature

By: Alan D. Gold
-------------------------------
Its: President
------------------------------

<PAGE>

[LOGO] COLLATERAL
THERAPEUTICS

9360 Towne Center Drive
San Diego, CA 92121
Tel: 619.824.6500
Fax: 619.587.3518

Mr. Bob Emri
J.T. Williams, Inc., dba Professors Capital
990 Highland Drive, Suite 320
Solana Beach, California 92075 December 3, 1997

RE: Standard Industrial/Commercial Multi-Tenant Lease-Modified Net Between
Collateral Therapeutics, Inc. a California corporation ("Lessee"), and
ARE-11025 Roselle Street, LLC, a Delaware limited liability company
("Lessor") with respect to the Premises within the Building located at
11025 Roselle Street in San Diego, California (the "Lease")

Dear Bob:

The above-referenced Lease in effective only on the condition that ARE-11025
Roselle Street, LLC ("ARE-11025") or J.T. Williams, Inc., dba Professors Capital
("Professors Capital") sign it by December 8, 1997.

By signing below, Professors Capital represents and warrants that if ARE-11025
Roselle Street, LLC ("ARE-11025") fails to sign the above-referenced Lease and
if Alexandria Real Estate Equities, Inc. and ARE fail to satisfy the obligations
set forth in the letter attached hereto regarding effectiveness of the Lease by
December 8, 1997, Professors Capital will enter into a new lease and the Letter
Agreement regarding trade fixtures and equipment which may be removed by Lessee
upon termination or expiration of the Lease.

Collateral Therapeutics, Inc., a California corporation

/s/ Christopher J. Reinhard Date:
- -------------------------------------- -----------
Signature

By: Christopher J. Reinhard
Its: Chief Operating Officer and
Financial Officer

J.T. Williams, Inc., dba Professors Capital

/s/ Robert Emri Date: 12/4/97
- ------------------------------------- ----------------
Signature

By: Robert Emri
----------------------------------
Its: Principal
---------------------------------

<PAGE>

[LOGO] COLLATERAL
THERAPEUTICS

9360 Towne Center Drive
San Diego, CA 92121
Tel: 619.824.6500
Fax: 619.587.3518

Mr. Alan Gold
Alexandria Real Estate Equities, Inc., a Maryland corporation
11440 West Bernardo Court, suite 170
San Diego, California 92127 December 4, 1997

RE: Lease between ARE-11025 Roselle Street, LLC ("ARE-11025"), a Delaware
limited liability company ("Lessor") and Collateral Therapeutics, Inc., a
California corporation ("Lessee") for Premises Located at 11025 Roselle
Street, San Diego, CA 92121 ("Lease"); Extension of period to sign the
Lease, letter agreement regarding Removal of Trade Fixtures Upon Lease
Termination or Expiration, and letter agreement regarding conditions
precedent.

Dear Alan:

We hereby extend the period by which the Lease and letter agreements described
above must be signed to December 8, 1997

Very truly yours,

/s/ Christopher J. Reinhard

Christopher J. Reinhard
Chief Operating Officer and
Financial Officer

<PAGE>
EXHIBIT 10.26

TORREY RESERVE

OFFICE LEASE

BETWEEN

PACIFIC TORREY RESERVE HOLDINGS, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP

(LANDLORD)

AND

COLLATERAL THERAPEUTICS, INC.,
A CALIFORNIA CORPORATION

(TENANT)

DATE: APRIL 7, 1998

<PAGE>

TABLE OF CONTENTS

SUBJECT MATTER PAGE

Article 1 PROJECT, BUILDING AND PREMISES . . . . . . . . . . . . . .1
Article 2 LEASE TERM . . . . . . . . . . . . . . . . . . . . . . . .1
Article 3 BASE RENT. . . . . . . . . . . . . . . . . . . . . . . . .3
Article 4 ADDITIONAL RENT. . . . . . . . . . . . . . . . . . . . . .3
Article 5 SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . .7
Article 6 USE. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Article 7 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . .7
Article 8 HAZARDOUS MATERIAL . . . . . . . . . . . . . . . . . . . .8
Article 9 UTILITIES AND SERVICES . . . . . . . . . . . . . . . . . .9
Article 10 REPAIRS AND MAINTENANCE. . . . . . . . . . . . . . . . . 10
Article 11 ALTERATIONS AND ADDITIONS. . . . . . . . . . . . . . . . 10
Article 12 COVENANT AGAINST LIENS . . . . . . . . . . . . . . . . . 11
Article 13 EXCULPATION, INDEMNIFICATION, AND
INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . 12
Article 14 DAMAGE AND DESTRUCTION . . . . . . . . . . . . . . . . . 14
Article 15 CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . 15
Article 16 ASSIGNMENT AND SUBLEASING. . . . . . . . . . . . . . . . 16
Article 17 SURRENDER OF PREMISES. . . . . . . . . . . . . . . . . . 18
Article 18 HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . 19
Article 19 ESTOPPEL CERTIFICATES. . . . . . . . . . . . . . . . . . 19
Article 20 SUBORDINATION, NONDISTURBANCE, AND
ATTORNMENT . . . . . . . . . . . . . . . . . . . . . . . 19
Article 21 DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . . . 20
Article 22 LATE PAYMENTS. . . . . . . . . . . . . . . . . . . . . . 21
Article 23 NON-WAIVER . . . . . . . . . . . . . . . . . . . . . . . 21
Article 24 WAIVER OF RIGHT TO JURY TRIAL. . . . . . . . . . . . . . 22
Article 25 ATTORNEY FEES AND COSTS. . . . . . . . . . . . . . . . . 22
Article 26 LANDLORD'S ACCESS TO PREMISES. . . . . . . . . . . . . . 22
Article 27 SIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Article 28 TENANT PARKING . . . . . . . . . . . . . . . . . . . . . 23
Article 29 SECURITY . . . . . . . . . . . . . . . . . . . . . . . . 23
Article 30 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . 24

EXHIBIT A SITE PLAN OF PROJECT
EXHIBIT B DIAGRAM OF PREMISES
EXHIBIT C TENANT IMPROVEMENT AGREEMENT
EXHIBIT D NOTICE OF BASIC LEASE INFORMATION
EXHIBIT E RULES AND REGULATIONS
EXHIBIT F ESTOPPEL CERTIFICATE
EXHIBIT G LETTER OF CREDIT

i
<PAGE>

Part I

SUMMARY OF BASIC LEASE INFORMATION

The basic terms of this Lease are as follows. All terms in quotations are
defined terms used elsewhere in this Lease:

1. Date of Lease: 4/9/98
-------------------------------------------------------------

2. "Landlord": Pacific Torrey Reserve Holdings, L.P., a California limited
partnership
------------------------------------------------------------

3. "Tenant": Collateral Therapeutics Inc., a California Corporation
------------------------------------------------------------------

4. Description of Involved Property:

(a) "Project": That certain mixed-use project commonly referred to as
Torrey Reserve Unit No. 2, as more particularly described on attached
EXHIBIT A.

(b) "Building": Building Two - North Court, 11622 El Camino Real
-----------------------------------------------------------

(d) "Premises": That certain office space consisting of approximately
17,444 Rentable Square Feet of space and 15,512 Usable Square Feet of
space constituting the third floor of the Building, as more
particularly described on Exhibit B, known as Suite TBD.

5. "Lease Term":

(a) Duration: 6 years and 0 months subject to extension in accordance
with Section 2.5;

(b) "Lease Commencement Date": The earlier of (1) the date on which Tenant
occupies for the purpose of operating Tenant's business in all or part
of the Premises, or (2) the date on which the Tenant Improvements are
Substantially Complete (as defined below), subject to acceleration
due to Tenant Delays (as defined in EXHIBIT C);

The anticipated Lease Commencement Date is December 1, 1998.
----------------------

(c) "Lease Expiration Date": The last day of the Lease Term which, subject
to extension or earlier termination upon Tenant's default, will be the
last day of the month in which the SIXTH (6TH) anniversary of the
Lease Commencement Date occurs;

6. "Base Rent":

Lease Year Monthly Base Rent
- ---------- -----------------

1 $35,760.20 ($2.05 per Rentable Square Foot)
2 $36,632.40 ($2.10 per Rentable Square Foot)
3 $37,504.60 ($2.15 per Rentable Square Foot)
4 $38,376.80 ($2.20 per Rentable Square Foot)
5 $39,249.00 ($2.25 per Rentable Square Foot)
6 $40,121.20 ($2.30 per Rentable Square Foot)

7. Additional Expenses:

(a) "Base Year": The calendar year of 1999
-------------------------------------

(b) Tenant's Share of Direct Expenses: Approximately 31.54%
---------------------

8. Security Deposit: $35,760.20
----------------------------------------------------------

9. "Permitted Use": TENANT SHALL USE THE PREMISES ONLY FOR GENERAL OFFICE AND
ADMINISTRATIVE PURPOSES, AND RELATED USES IN COMPLIANCE WITH APPLICABLE
GOVERNMENTAL REGULATIONS AND PRIVATE RESTRICTIONS OF RECORD.

10. Parking: Tenant shall be entitled to the use, at no additional charge, of
62 parking spaces, of which 19 shall be under building reserved parking
spaces in the Building's subterranean parking structure and 43 shall be
unreserved parking spaces, subject to Tenant's pro rata share of Project
handicapped and visitor parking spaces.

<PAGE>

11. Addresses for notices:

(a) Landlord's address: c/o American Assets, Inc.
11455 El Camino Real, Suite 200
San Diego, CA 92130-2045
Attn.: Property Manager
(b) Tenant's address:

(1) Before Lease Commencement Date: Collateral Therapeutics, Inc.
9360 Towne Centre Drive
San Diego, CA 92121
Attn: Mr. George Chuppe II

(2) After Lease Commencement Date: At the Premises

12. Brokers: CB Commercial (Dick Balestri) representing Landlord and
Brown/Colarusso & Associates (Casey Brown) representing Tenant.

13. Letter of Credit: Tenant shall cause Imperial Bank (or another federally
insured financial institution reasonably acceptable to Landlord) to issue an
unconditional irrevocable standby letter of credit ("Letter of Credit") on or
before the Lease Commencement Date in the form of attached EXHIBIT G, and in the
face amount of the sum of $693,018.76 plus the amount of the Additional Tenant
Improvement Allowance (as defined in EXHIBIT "C"), if any, used by Tenant
pursuant to the provisions of attached EXHIBIT "C" (subject to reduction as
provided below). The Letter of Credit must be issued for a term of twelve (12)
months and must be renewed annually by Tenant (in form and content identical to
attached EXHIBIT G, except as otherwise provided below) through to fifth year of
the Lease Term, no later than thirty (30) days prior to the date of the Letter
of Credit's annual expiration; provided, however, (i) the face amount of the
Letter of Credit will decrease by twenty percent (20%) of the original amount of
the Letter of Credit per year, and (ii) in the event the Tenant Improvement
Allowance (as defined in EXHIBIT "C") is less than $461,188.00, then Tenant may
decrease the face amount of the Letter of Credit by the difference between
$461,188.00 and the amount of the actual Tenant Improvement Allowance.
Notwithstanding the provisions of clause (i) of the preceding sentence, the face
amount of the Letter of Credit shall not be decreased upon a renewal if Tenant
is in default under any provision of this Lease at the time of the renewal;
provided, however, that if, at the time of renewal, Tenant is in default, but
the applicable cure period for such default has not expired, then upon timely
cure of such default the Letter of Credit may be decreased by Tenant in
accordance with this paragraph. Concurrent with each renewal, Tenant shall
provide Landlord with the renewal Letter of Credit or other evidence
satisfactory to Landlord that the Letter of Credit has been renewed. The Letter
of Credit will be canceled if Tenant raises at least $20,000,000.00 through an
initial public offering and Tenant is not then in default under any provision of
this Lease.

Each reference in this Lease to any provision in this Summary shall he construed
to incorporate all the terms provided under that provision of the Summary. In
the event of any conflict between a provision in this Summary and a provision in
the balance of the Lease, the latter shall control.

2
<PAGE>

PART II

LEASE PROVISIONS

Article 1
PROJECT, BUILDING AND PREMISES

1.1. LEASE OF PREMISES. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the Premises. Tenant acknowledges that Landlord has made
no representation or warranty regarding the condition of the Premises, the
Building, and/or the Project except as specifically stated in this Lease.
Landlord does warrant that all structural components of the Building will be in
good working condition throughout the Lease Term and that the Building and
Premises will be in compliance with all current, applicable building codes and
other governmental regulations as well as the Americans With Disabilities Act
and any applicable Title 24 requirements as of the Lease Commencement Date.

1.2. APPURTENANT RIGHTS. Tenant is granted the right at all times during
the Lease Term (as defined below) to the nonexclusive use, in common with
others, of the main lobby, common corridors and hallways, stairwells, elevators,
restrooms, driveways, underground, unreserved parking areas, and other common
areas located within and below the Building. Landlord, however, has the right
in its sole, reasonable discretion to determine the manner in which all such
common areas are maintained and operated as a first-class office building, and
the use of those common areas shall be subject to the Rules and Regulations (as
defined below), and Landlord reserves the right to change all elements of the
Project, provided that such changes do not materially and adversely affect
Tenant's rights under this Lease.

1.3. PREPARATION OF PREMISES; ACCEPTANCE. The rights and obligations of
the parties regarding the construction of the Premises before the commencement
of the Lease Term are stated in the Tenant Improvement Agreement attached to
this Lease as Exhibit C. If this Lease conflicts with the Tenant Improvement
Agreement, the Tenant Improvement Agreement shall prevail.

1.4. RENTABLE AREA AND USABLE AREA.

1.4.1. STANDARD OF CALCULATION. For purposes of this Lease,
"Rentable Area", "Rentable Square Feet", "Rentable Square Footage", "Usable
Area", "Usable Square Feet", and "Usable Square Footage" will be calculated
under the American National Standard Method for Measuring Floor Area in Office
Buildings, ANSI Z65.1C1996 (revised and adopted June 7, 1996) or successor
standard(s), adopted by the Building Owners and Managers Association
International (BOMA).

1.4.2. VERIFICATION OF RENTABLE AREA OF PREMISES AND BUILDING. The
Rentable Area of the Premises and the Building shall be measured by Landlord's
space planner or architect and approved by Tenant's space planner, prior to the
Lease Commencement Date. That verification shall be made in accordance with the
above Section. If Landlord's space planner or architect certifies in writing
and Tenant's space planner approves in writing that the Rentable Area of the
Premises or the Building is different from that stated in this Lease, all Rent
that is based on that incorrect amount shall be modified in accordance with that
certification. If that certification is made, a copy of such certification
shall be delivered by Landlord to Tenant.

Article 2
LEASE TERM

2.1. LEASE TERM. The provisions of this Lease shall be effective as of the
date of this Lease. The Lease Term shall commence on the Lease Commencement
Date and shall expire on the Lease Expiration Date, unless this Lease is sooner
terminated as provided in this Lease.

2.2. EARLY POSSESSION. Subject to Landlord's determination of the
availability of the Premises, Tenant shall be permitted to move its furniture,
trade fixtures, equipment, machinery, goods and supplies into the Premises prior
to the Lease Commencement Date so long as such access does not, in Landlord's
reasonable judgment, interfere with the conduct of Landlord's contractor or
materially interfere with Landlord's ability to bring the Premises to
Substantial Completion (as defined in Exhibit C) in a timely manner. Landlord
shall use reasonable efforts to make the Premises available to Tenant for the
purposes set forth in the foregoing sentence at least thirty (30) days prior to
the Lease Commencement Date. Such entry upon the Premises shall be subject to
all the provisions of this Lease, except that Tenant shall not be required to
pay Base Rent or Additional Rent as long as Tenant is not operating its business
On the Premises during such early possession period; provided, however, that
Tenant shall have previously provided Landlord with proof of Tenant's insurance
as set forth in Section 13.5 of this Lease. All materials, work, installation,
equipment and decorations of any nature brought upon or installed by Tenant in
the Premises prior to the Lease Commencement Date shall be at Tenant's sole
risk.

2.3. CONFIRMATION OF LEASE INFORMATION. Within thirty (30) days following
the Lease Commencement Date and at any time during the Lease Term, Landlord may
deliver to Tenant a notice in the form set forth in Exhibit D, attached to this
Lease, which Tenant shall execute and return to Landlord within ten (10)
business days after receipt.

1
<PAGE>

2.4. LEASE YEAR. The term "Lease Year" shall mean (i) as to the first
Lease Year, that twelve (12) month period commencing on the Commencement Date
(provided, however, if the Commencement Date falls on a day other than the first
day of a calendar month, then the first Lease Year will be extended through the
final day of the calendar month in which the first anniversary of the
Commencement Date occurs), (ii) as to every subsequent Lease Year other than the
final Lease Year of the Term, the twelve (12) month period following the prior
Lease Year, and (iii) as to the final Lease Year of the Term, the period
commencing on that day immediately following the final day of the penultimate
Lease Year of the Term and ending on the Expiration Date or earlier date of
termination. (As an example of the foregoing, a Commencement Date of April 20,
1951 would yield a first Lease Year of April 20, 1951 through April 30, 1952.
The following Lease Year would be May 1, 1952 through April 30, 1953. A "three
(3) year" Term would end on April 30, 1954.)

2.5. DELAY IN DELIVERY OF PREMISES. If Landlord is unable to deliver
possession of the Premises to Tenant on or before the Lease Commencement Date,
Landlord shall not be subject to any liability for its failure to do so. This
failure shall not affect the validity of this Lease or the obligations of Tenant
under it, but the Lease Term shall commence on the date on which Landlord
delivers possession of the Premises to Tenant; provided, however, if the
Premises are not delivered to Tenant within ninety (90) days of the scheduled
Lease Commencement Date, then Tenant shall have the right to terminate this
Lease at any time prior to delivery of the Premises with no liability to Tenant
or Landlord except for Landlord's obligation to refund to Tenant any security
deposit, Tenant Extra Cost (as defined in EXHIBIT C, and prepaid rents
previously received by Landlord. Landlord has no obligation, but shall make
reasonable efforts, to provide Tenant with thirty (30) days' notice of the
expected Commencement Date.

2.6. OPTION TO EXTEND. Tenant shall have the option to extend the Lease
Term (the "Option to Extend") for one additional term of five (5) years (the
"Extension Term"), provided Tenant is in occupancy of at least seventy-five
(75%) of the Premises at the time of exercise of the Option to Extend, and
Tenant gives Landlord written notice of its election to exercise the Option to
Extend no less than nine (9) months prior to the expiration of the Lease Term.
Time is of the essence of Tenant's notice obligation hereunder.

2.6.1. RESTRICTIONS IN TRANSFERABILITY OF OPTION. The Option to
Extend is personal to the Tenant originally named in this Lease and any of its
Affiliates (as defined in Section 16.6.3) and may not be exercised by any other
Transferee (as defined below).

2.6.2. CONDITIONS TERMINATING TENANT'S RIGHTS TO EXERCISE OPTION.
Tenant shall not have the right to exercise the Option to Extend,
notwithstanding anything set forth above to the contrary: (a) during any period
of time commencing from the date Landlord gives to Tenant a written notice that
Tenant is in default under any provision of this Lease, and continuing until the
default alleged in said notice is cured; (b) during the period of time
commencing on the day after a monetary obligation to Landlord is due from Tenant
and unpaid (without any necessity for notice thereof to Tenant other than as
provided in Section 21.1 below) and continuing until the obligation is paid;
(c) at any time after the occurrence of any default described in this Lease
other than those described in the preceding clauses provided that Tenant shall
have received notice thereof; or (d) in the event that Landlord has given to
Tenant two or more notices of default or a late charge has become payable under
this Lease during the twelve-month period prior to the time that Tenant intends
to exercise the Option. The period of time within which the Option to Extend
may be exercised shall not be extended or enlarged by reason of Tenant's
inability to exercise the Option to Extend because of the foregoing provisions
of this paragraph, even if the effect thereof is to eliminate Tenant's right to
exercise the Option to Extend.

2.6.3. CONDITIONS TERMINATING TENANT'S OPTION RIGHTS. All rights
with respect to the Option to Extend shill terminate and be of no further force
or effect even after Tenant's due and timely exercise of the Option to Extend,
if, after such exercise, but prior to the commencement of the Extension Term,
(a) Tenant fails to pay to Landlord a monetary obligation of Tenant for a period
of ten (10) days after such obligation become due (without any necessity of
Landlord to give notice thereof to Tenant); (b) Tenant fails to cure a
non-monetary default within thirty (30) days after the date the Landlord gives
notice to Tenant of such default; or (c) Landlord gives to Tenant two or more
notices of default or a late charge becomes payable for any such default,
whether or not such defaults are cured.

2.6.4. TERMS AND CONDITIONS OF EXTENSION TERM. If Tenant exercises
the Option for the Extension Term, then the terms and conditions of the renewal
shall be those of this Lease, and the Base Rent shall be the fair rental value
(as defined below in Section 2.4.5(c) of the Premises as determined under
Section 2.6.5 below. With respect to the Extension Term, Tenant shall not be
entitled to any tenant improvement allowance. Tenant's exercise of the Option
shall become irrevocable upon Tenant's provision of written notice to Landlord
of Tenant's election to exercise the Option.

2.6.5. DETERMINATION OF FAIR RENTAL VALUE.

(a) Not later than one hundred eighty (180) days prior to the
last day of the month in which the sixth (6th) anniversary of the Lease
Commencement Date occurs ("Valuation Date"), Landlord and Tenant shall meet in
an effort to negotiate, in good faith, the fair rental value of the Premises as
of the Valuation Date. If Landlord and Tenant have not agreed upon the fair
rental value of the Premises at least one hundred fifty (150) days prior to the
Valuation Date, the fair rental value shall be determined by appraisal as
described below.

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(b) If Landlord and Tenant are not able to agree upon the fair
rental value of the Premises within the time period prescribed in Paragraph
2.4.4(a), then Landlord and Tenant shall attempt to agree in good faith upon a
single broker not later than one hundred thirty-five (135) days prior to the
Valuation Date. If Landlord and Tenant are unable to agree upon a single broker
within such time period, then Landlord and Tenant shall each appoint a broker
not later than one hundred twenty-five (125) days prior to the Valuation Date.
Within five (5) days thereafter, the two appointed brokers shall appoint a third
broker. If Landlord and Tenant agree upon a single broker, or if either
Landlord or Tenant fails to appoint its broker within the prescribed time
period, the single broker appointed shall determine the fair rental value of the
Premises. If both parties fail to appoint brokers within the prescribed time
periods, then the first broker thereafter selected by a party shall determine
the fair rental value of the Premises. Each party shall bear the cost of its
own broker and the parties shall share equally the cost of the single or third
broker if applicable. Each such broker must have at least five years experience
in commercial real property in the area in which the Project is located, shall
be licensed as brokers in the State of California and shall not have represented
Landlord or Tenant at any time during the two (2) years immediately prior to the
Valuation Date.

(c) The term "fair rental value" shall mean the then prevailing
rental rate and terms and conditions for comparable office space in the Project
at the time of Commencement of the Extension Term. If a single broker is
chosen, then such broker shall determine the fair rental value of the Premises.
Otherwise, the fair rental value of the Premises shall be the arithmetic average
of the two of the three determinations of value which are closest in amount, and
the third determination of value shall be disregarded. In no event, however,
shall the Base Rent for the Extension Term be less than that of the initial
Lease Term. If the fair rental value is determined to be less than the Base
Rent for the initial Lease Term, Tenant shall have the right to cancel its
election to exercise the Option by providing written notice of such cancellation
to Landlord within ten (10) days after the date of determination of the fair
rental value and in such event the Lease will terminate on the Lease Expiration
Date.

Landlord and Tenant shall instruct the broker(s) to complete their determination
of the fair rental value no later shall 30 days prior to the Valuation Date.
If, notwithstanding such instruction, the fair rental value is not determined
before the first day of the Extension Term, then Tenant shall continue to pay to
Landlord the Base Rental applicable to the Premises immediately prior to such
Extension Term, until the fair rental value of the Premises is determined. When
the fair rental value of the Premises is determined, Landlord shall deliver
notice thereof to Tenant, and Tenant shall pay to Landlord, within ten days
after receipt of such notice, the difference between the Base Rent actually paid
by Tenant to Landlord and the new Base Rent determined hereunder.

Article 3
BASE RENT

3.1. DEFINITION OF "BASE RENT"; NO SET OFF. Tenant shall pay the Base Rent
to Landlord in equal monthly installments as set forth in the Summary of Basic
Lease Information, in advance on or before the first day of every calendar month
during the Lease Term, without any notice, demand, set-off, or deduction.
Payment must be in United States dollars and shall he made at the management
office of the Building or at any other place that Landlord may from time to time
designate in writing.

3.2. INITIAL PAYMENT; PRORATION. The Base Rent for the first full calendar
month of the Lease Term shall be paid when Tenant executes this Lease. If any
payment date (including the Lease Commencement Date) falls on a day other than
the first day of that calendar month, or if any Base Rent payment is for a
period shorter than one calendar month, the Base Rent for that fractional
calendar month shall accrue on a daily basis for each day of that fractional
month at a daily rate equal to 1/365 of the total annual Base Rent. All other
payments or adjustments that are required to be made under the terms of this
Lease shall be prorated on the same basis.

3.3. APPLICATION OF PAYMENTS. All payments received by Landlord from
Tenant shall be applied first to obligations other than Base Rent, and then to
Base Rent (and within any category of obligations, in the order incurred). No
designation by Tenant, either in a separate writing or on a check or money
order, shall modify this clause or have any force or effect.

3.4. CERTIFIED FUNDS. If any two non-cash payments made by Tenant are not
paid by the bank or other institution on which they are drawn because of
Tenant's failure to maintain sufficient funds, Landlord shall have the right,
exercisable by notice to Tenant, to require that Tenant make all future payments
by certified funds or cashier's check.

Article 4
ADDITIONAL RENT

4.1. ADDITIONAL RENT; RENT. In addition to paying the Base Rent specified
in Article 3, Tenant shall pay as additional rent Tenant's Share of the annual
Direct Expenses (as defined below) that are in excess of the amount of Direct
Expenses applicable to the Base Year (as defined below). That additional rent,
together with other amounts of any kind (other than Base Rent) payable by Tenant
to Landlord under the terms of this Lease, shall be collectively referred to in
this Lease as "Additional Rent." Base Rent and Additional Rent are collectively
referred to in this Lease as "Rent". All amounts due under this Article as
Additional Rent are payable for the same periods and in the same manner, time,
and place as the Base Rent. Without limitation on other obligations

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of Tenant that survive the expiration of the Lease Term, Tenant's obligations to
pay the Additional Rent provided for in this Article will survive the expiration
of the Lease Term.

4.2. DEFINITIONS. The following definitions apply in this Article (and
elsewhere in this Lease):

4.2.1. BASE YEAR. "Base Year" means the period defined as such in
the Summary of Basic Lease Information.

4.2.2. BUILDING'S OPERATING COSTS. "Building's Operating Costs"
means all expenses, costs, and amounts of every kind or nature that Landlord
reasonably pays or incurs because of or in connection with the operation,
management, maintenance, or repair of the Building. Building Operating Costs
include, without limitation, the following amounts paid or incurred
(collectively, "Operating Costs") relative to the Building (a) the cost of
supplying any utilities to the common areas, (b) janitorial costs and the cost
of operating, managing, maintaining, and repairing the common areas and the
following building systems: utility, mechanical, sanitary, storm drainage, and
elevator, (c) the cost of supplies and tools and of equipment, maintenance, and
service contracts in connection with those systems, (d) the cost of licenses,
certificates, permits, and inspections, (e) the cost of contesting the validity
or applicability of any government enactments that may affect the Operating
Expenses (as defined below), (f) costs incurred in connection with the
implementation and operation of a parking or transportation management program
or similar program, (g) the cost of insurance carried by Landlord pursuant to
this Lease to the extent such insurance is carried in the Base Year, in amounts
reasonably detained by Landlord and any deductibles or coinsurance amounts,
(h) fees, charges, and other costs including management fees (or amounts in lieu
of such fees), consulting fees, legal fees, and accounting fees of all persons
engaged by Landlord or otherwise reasonably incurred by Landlord in connection
with the operation, management, maintenance, and repair of the Building and the
Project, provided that with regard to management fees only, such fees shall not
exceed the rate charged in the Base Year, (i) the cost of parking area
maintenance, repair, and restoration, including resurfacing, repainting,
restriping, and cleaning, (j) wages, salaries, and other reasonable compensation
and benefits of all persons engaged in the operation, maintenance or security of
the Building and the Project plus employer's Social Security taxes, unemployment
taxes, insurance, and any other taxes imposed on Landlord that may be levied on
those wages, salaries, and other reasonable compensation and benefits. If any
of Landlord's employees provide services for more than one project of Landlord,
only the prorated portion of those employees' wages, salaries, other reasonable
compensation and benefits, and taxes reflecting the percentage of their working
time devoted to the Project shall be included in Building Operating Costs,
(k) payments under any easement, license, operating agreement, declaration,
restrictive covenant, or instrument relating to the sharing of costs, (1)
amortization (including interest on the unamortized cost at a rate equal to the
floating commercial loan rate announced from time to time by Bank of America as
its reference rate plus two (2) percentage points per annum) of the cost of
acquiring or renting personal property used in the maintenance, repair, and
operation of the Building and/or the Project, (m) the cost of capital
improvements or other costs incurred that (1) are intended as a labor saving
device or to effect other economies in the maintenance or operation of all or
part of the Building and/or the Project, or (2) are required under any
government law or regulation but that were not required when permits for
construction were obtained. Landlord estimates that its management fees for the
Base year will consist of five percent (5%) of the total gross revenues of the
Building, and shall hold the percentage of the total gross revenues of the
Building charged as management fees constant over the Lease Term. All permitted
capital expenditures shall be amortized (including interest on the unamortized
cost at the rate stated in subparagraph (1)) over their useful life, as
reasonably determined by Landlord in accordance with generally accepted
accounting practices; but Building Operating Costs will exclude the following
("Excluded Costs ): (a) depreciation, interest, and amortization on mortgages or
ground lease payments, except as otherwise provided herein, (b) legal fees
incurred in negotiating and enforcing tenant leases, (c) real estate brokers'
leasing commissions, (d) initial improvements or alterations to tenant spaces,
(e) the cost of providing any service directly to and paid directly by any
tenant, (f) any costs expressly excluded from Operating Expenses elsewhere in
this Lease, (g) costs of any items for which Landlord receives reimbursement (or
could receive without filing a legal action) from insurance proceeds or a third
party (insurance proceeds shall be excluded from Operating Expenses in the year
in which they are received), but any deductible amount under any insurance
policy shall be included within Operating Expenses, (h) costs of capital
improvements, except as specifically provided above, (i) costs incurred for the
benefit of a single tenant (for example, tenant improvement costs to build-out a
particular suite) or the cost of damages caused by another tenant, (j) costs
incurred due to Landlord's breach of a lease, law, or ordinance, (k) repairs
necessitated by the gross negligence or willful misconduct of Landlord, and
(1) Landlord's general corporate overhead and administrative expenses not
incurred in the operation and maintenance of the Building. In the event that
any policy of insurance carried by Landlord pursuant to Section 13.9 is not
included in the Operating Expenses for the Base Year, and Landlord elects to
procure such insurance after the Base Year, the Base Year Operating Expenses
shall be adjusted to reflect the Operating Expenses Landlord would have paid had
Landlord carried such insurance in the Base Year. Additionally, in the event
that any maintenance, repair or replacement responsibilities of Landlord are
scheduled, pursuant to the manufacturer's specifications or any existing service
agreement, for performance in the Base Year and are deferred until after the
expiration of the Base Year, the Base Year Expenses shall be adjusted to reflect
the Operating Expenses associated with such deferred maintenance, repair or
replacement that Landlord would have paid had Landlord performed such
responsibility during the Base Year. Notwithstanding the specific itemization
elsewhere in this Lease as to certain components of Operating Expenses, Landlord
shall not be entitled to recover more than one hundred percent (100%) of the
Operating Expenses.

4.2.3. BUILDING'S PRO RATA SHARE. "Building's Pro Rata Share"
means a fraction, the numerator
of which is the total aggregate Rentable Square Feet in the Building, and the
denominator of which is the total aggregate Rentable Square Feet in all of the
buildings in the Project for which certificates of occupancy have been

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issued. The Building's Pro Rata Share will be calculated as of January 1 of
each calendar year; which calculation will remain in effect (regardless of
changes to the Project) until the following January 1.

4.2.4. DIRECT EXPENSES. "Direct Expenses" means the sum of
Operating Expenses plus Tax Expenses (as such terms are defined below).

4.2.5. EXPENSE YEAR. "Expense Year" means each calendar year in
which any portion of the Lease Term falls, through and including the calendar
year in which the Lease Term expires

4.2.6. OPERATING EXPENSES. "Operating Expenses" means the sum of
(i) all Building Operating Costs, (ii) the Building's Pro Rate Share of the
Project Operating Costs, and (iii) any costs or expenses payable pursuant to the
provisions of any reciprocal easement and maintenance agreement (or similar
agreement) recorded against the Project either now or in the future including
any owner's association or similar fees, assessments or dues presently or
hereafter established for the Project.

4.2.7. PROJECT OPERATING COSTS. "Project Operating Costs" means
(i) all expenses, costs, and amounts of every kind or nature which are incurred
because of or in connection with the operation, management, maintenance, or
repair of the common areas of the Project, and (ii) all Taxes relating to or
assessed against the common areas of the Project. Project Operating Costs
including all Operating Costs paid or incurred in connection with the common
areas of the Project but excluding any Building Operating Costs and Excluded
Costs (relative to the Project).

4.2.8. TENANT'S SHARE. "Tenant's Share" means a percentage which
is calculated by multiplying the number of Rentable Square Feet of the Premises
by 100 and dividing the product by the total Rentable Square Feet in the
Building. If either the Premises or the Building are expanded or reduced
pursuant to Section 1.4.2, Tenant's Share shall be appropriately adjusted.
Tenant's Share for the Expense Year in which that change occurs shall be
determined on the basis of the number of days during the Expense Year in which
each such Tenant's Share was in effect.

4.3. ADJUSTMENT OF OPERATING EXPENSES. Operating Expenses shall be
adjusted as follows:

4.3.1. GROSS UP ADJUSTMENT WHEN BUILDING IS LESS THAN FULLY
OCCUPIED. If the occupancy of the Building during any part of any Expense Year
(including the Base Year) is less than 95%, Landlord shall make an appropriate
adjustment of the variable components of Operating Expenses for that Expense
Year, as reasonably determined by Landlord using sound accounting and management
principles, to determine the amount of Operating Expenses that would have been
incurred had the Building been 95% occupied. This amount shall be considered to
have been the amount of Operating Expenses for that Expense Year. For purposes
of this paragraph, "variable components" include only those component expenses
that are affected by variations in occupancy levels.

4.3.2. ADJUSTMENT WHEN LANDLORD DOES NOT FURNISH A SERVICE TO ALL
TENANTS. If, during any part of any Expense Year (including the Base Year),
Landlord is not furnishing a particular service or work (the cost of which, if
furnished by Landlord, would be included in Operating Expenses) to a tenant
(other than Tenant) that has undertaken to perform such service or work in lieu
of receiving it from Landlord, Operating Expenses for that Expense Year shall be
considered to be increased by an amount equal to the additional Operating
Expenses that Landlord would reasonably have incurred during such period if
Landlord had furnished such service or work to that tenant; provided that such
increase is applicable to both the Base Year and the subsequent Expense Year in
which such additional cost is attributable.

4.4. TAX EXPENSES.

4.4.1. DEFINITION OF TAX EXPENSES. "Tax Expenses" means the sum of
all federal, state, county, or local government or municipal taxes, fees,
charges, or other impositions of every kind or nature, whether general, special,
ordinary, or extraordinary ("Taxes") that are paid or incurred by Landlord
because of or in connection with the ownership, leasing, and operating of the
Building. Taxes include taxes, fees, and charges such as real property taxes,
general and special assessments, transit taxes, leasehold taxes, and taxes based
on the receipt of rent (including gross receipts or sales taxes applicable to
the receipt of rent, unless required to be paid by Tenant); personal property
taxes imposed on the fixtures, machinery, equipment, apparatus, systems, and
equipment; appurtenances; furniture; and other personal property used in
connection with the Building and the common areas of the Project.
Notwithstanding the foregoing, the following shall be excluded from Taxes: (a)
all excess profits taxes, franchise taxes, gift taxes, capital stock taxes,
inheritance and succession taxes, estate taxes, federal, state, and local income
taxes, and other taxes applied or measured by Landlord's general or net income
(as opposed to rents, receipts, or income attributable to operations at the
Building), (b) any items included as Operating Expenses, (c) personal property
taxes attributable to property owned or installed by or for other tenants of the
Building, (d) costs or fees payable to public authorities in connection with any
future construction, renovation and/or improvements to the Project, including
fees for transit, housing, schools, open space, child care, arts programs,
traffic mitigation measures, environmental impact reports, traffic studies, and
transportation system management plans, except to the extent arising from
Tenant's Alterations, (e) reserves for future taxes, or (f) any documentary
transfer taxes arising out of a voluntary transfer or sale by Landlord of all or
a portion of the Project. If a reduction in Tax Expenses is obtained for any
Expense Year during which Tenant paid Tenant's Share of such Tax Expenses, then
Tax Expenses for such year shall be retroactively adjusted and

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Landlord shall provide Tenant with a credit against Tenant's next due
obligations for Additional Rent or, if none, refund such amount to Tenant within
thirty (30) days based on such adjustment.

4.4.2. ADJUSTMENT OF TAXES. For purposes of this Lease, Tax
Expenses (and Taxes included in the definition of Project Operating Costs, shall
be calculated as if the tenant improvements in the Building were fully
constructed and the Project, the Building, and all tenant improvements in the
Building were fully assessed for real estate tax purposes. Landlord
specifically agrees that the gross receipts component of Tax Expenses for the
Base Year and each subsequent year shall be calculated as if the Building were
one hundred percent (100%) occupied with rent paying tenants. Accordingly,
during the portion of any Expense Year occurring after the Base Year, Tax
Expenses shall be considered to be increased appropriately and shall not be
subject to gross up adjustment.

4.5. CALCULATION AND PAYMENT OF ADDITIONAL RENT. Tenant's Share of any
Direct Expenses for any Expense Year shall be calculated and paid as follows:

4.5.1. CALCULATION OF EXCESS. If Tenant's Share of Direct Expenses
for any Expense Year ending or beginning with the Lease Term exceeds Tenant's
Share of the amount of Direct Expenses applicable to the Base Year, Tenant shall
pay as Additional Rent to Landlord an amount equal to that excess (the
"Excess"), in the manner stated below.

4.5.2. STATEMENT/PAYMENT OF DIRECT EXPENSES. Tenant shall pay to
Landlord, on the first day of each calendar month during the Lease Term,
commencing with January 1, 2000, as Additional Rent, an amount ("Tenant's
Monthly Payment") equal to one-twelfth of Tenant's Share of the amount by which
the Direct Expenses for such calendar year exceed the Base Year Direct Expenses
("Increased Direct Expenses"), as estimated by Landlord in the most recently
delivered Estimated Statement (as defined below). Landlord intends to deliver
to Tenant, prior to the commencement of each calendar year during the Lease
Term, a written statement ("Estimated Statement") setting forth Landlord's
estimate of the Direct Expenses and Increased Direct Expenses allocable to the
ensuing calendar year, and Tenant's Share of such Increased Direct Expenses.
Landlord may, at its option, during any calendar year, deliver to Tenant a
revised Estimated Statement, revising Landlord's estimate of the Direct Expenses
and Increased Direct Expenses, in accordance with Landlord's most current
estimate. Within approximately ninety (90)-days after the end of each calendar
year during the Lease Term, Landlord shall deliver to Tenant a written statement
("Actual Statement") setting forth the actual Direct Expenses allocable to the
preceding calendar year or, in the case of the calendar year in which the
Commencement Date occurs, such Actual Statement will set forth the Base Year
Direct Expenses. Tenant's failure to object to Landlord regarding the contents
of an Actual Statement, in writing, within 90-days after delivery to Tenant of
such Actual Statement, shall constitute Tenant's absolute and final acceptance
and approval of the Actual Statement. If the sum of Tenant's Monthly Payments
actually paid by Tenant during any calendar year exceeds Tenant's Share of the
actual Increased Direct Expenses allocable to such calendar year, then such
excess will be credited against future Tenant's Monthly Payments, unless such
calendar year was the calendar year during which the Lease Expiration Date
occurs (the "Last Calendar Year"), in which event either (i)-such excess shall
be credited against any monetary default of Tenant under this Lease, or (ii)-if
Tenant is not in default under this Lease, then Landlord shall pay to Tenant
such excess within thirty (30) days following the Lease Expiration Date. If the
sum of Tenant's Monthly Payments actually paid by Tenant during any calendar
year is less than Tenant's Share of the actual Increased Direct Expenses
allocable to such calendar year, then Tenant shall, within thirty (30) days of
delivery of the Actual Statement, pay to Landlord the amount of such deficiency.
Landlord's delay in delivering any Estimated Statement or Actual Statement will
not release Tenant of its obligation to pay any Tenant's Monthly Payment or any
such excess upon receipt of the Estimated Statement or the Actual Statement, as
the case may be. The references in this paragraph to the actual Increased
Direct Expenses allocable to a calendar year, shall include, if such calendar
year is the last calendar year of the Lease Term, the actual Increased Direct
Expenses allocable to the portion of such year prior to the Lease Expiration
Date.

4.6. LANDLORD'S BOOKS AND RECORDS. If Tenant disputes the amount of
Additional Rent stated in an Actual Statement, Tenant may designate, within
ninety (90) days after receipt of that Actual Statement, an independent
certified public accountant to inspect Landlord's records which inspection shall
be at Tenant's sole cost and expense unless such inspection correctly discloses
a discrepancy (in Tenant's favor) of greater than three (3) percent of the total
Direct Expenses, in which case Landlord shall pay the reasonable costs of such
inspection. Tenant is not entitled to request the inspection, however, if
Tenant is then in default under this Lease. The accountant must be a member of
a nationally or locally recognized accounting firm and must not charge a fee
based on the amount of Additional Rent that the accountant is able to save
Tenant by the inspection. Tenant must give reasonable notice to Landlord of the
request for inspection, and the inspection must be conducted in Landlord's
offices at a reasonable time or times. If, after that inspection, Tenant still
disputes the Additional Rent, such dispute will be resolved by arbitration in
accordance with the commercial rules and regulations of the American Arbitration
Association; however, Tenant shall pay such disputed amount (under protest)
until such arbitration is completed. Any failure by Tenant to dispute the
information set forth on any Actual Statement from Landlord within ninety (90)
days of the date such Actual Statement is delivered to Tenant will constitute
Tenant's conclusive acceptance of such Statement. If Landlord learns from the
result of another tenant's audit of Direct Expenses that Tenant has overpaid or
underpaid Direct Expenses, Tenant shall receive a credit or reimbursement for
its overpayment or shall pay Landlord upon demand the amount of any
underpayment, as the case may be, in accordance with Section 4.5.2.

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Article 5
LETTER OF CREDIT AND SECURITY DEPOSIT

5.1. SECURITY DEPOSIT. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord a cash sum in the amount of the Security
Deposit stated in the Summary of Basic Lease Information. Landlord shall hold
the Security Deposit as security for the performance of Tenant's obligations
under this Lease. If Tenant defaults on any provision of this Lease, Landlord
may, without prejudice to any other remedy it has, apply all or part of the
Security Deposit to: (a) any Rent or other sum in default; (b) any amount that
Landlord may spend or become obligated to spend in exercising Landlord's rights
following a default by Tenant (as provided below); or (c) any expense, loss, or
damage that Landlord may suffer because of Tenant's default. Tenant waives the
provisions of California Civil Code Section 1950.7, and all other provisions of
law now in force or that become in force after the date of execution of this
Lease, that provide that Landlord may claim from a security deposit only those
sums reasonably necessary to remedy defaults in the payment of Rent, to repair
damage caused by Tenant, or to clean the Premises. Landlord and Tenant agree
that Landlord may, in addition, claim those sums reasonably necessary to
compensate Landlord for any other foreseeable or unforeseeable loss or damage
caused by the act or omission of Tenant or Tenant's officers, agents, employees,
independent contractors, or invitees. If Landlord disposes of its interest in
the Premises, Landlord shall deliver or credit the Security Deposit to
Landlord's successor in interest in the Premises and thereupon be relieved of
further responsibility with respect to the Security Deposit. If Landlord
applies any portion of the Security Deposit, Tenant shall, within thirty (30)
days after demand by Landlord, deposit with Landlord an amount sufficient to
restore the Security Deposit to its original amount. Tenant is not entitled to
any interest on the Security Deposit and may commingle the Security Deposit with
other funds of Landlord. The unused portion of the Security Deposit, if any,
shall be returned to the last known address of Tenant or the last assignee of
Tenant's interest under this Lease, within thirty (30) days following the
expiration or termination of the Lease Term.

5.2. LETTER OF CREDIT. On or before the Lease Commencement Date, Tenant
shall cause to be issued to Landlord as beneficiary, a Letter of Credit in the
amount stated in Paragraph 13 of the Summary of Basic Lease Information. This
Letter of Credit, together with the Security Deposit, shall serve as security
for the performance of Tenant's obligations under this Lease. If Tenant
defaults on any provision of this Lease, Landlord may, at its election, without
prejudice to any other remedy it has, either apply all or part of the Security
Deposit in accordance with Section 5.1 above, or draw on the Letter of Credit in
accordance with this Section. If Tenant defaults on any provision of this
Lease, Landlord may, following the expiration of any applicable cure period,
draw down the entire amount of the Letter of Credit. All funds resulting from
the drawdown on the Letter of Credit will constitute an addition to the Security
Deposit and may be applied in accordance with Section 5.1 above. Tenant's
failure to timely reissue the Letter of Credit as provided for in Paragraph 13
of the Summary of Basic Lease Information will constitute Tenant's default under
this Lease and Landlord shall then have the right to draw down the entire amount
of the Letter of Credit as provided in this Section 5.2.

Article 6
USE

6.1. PERMITTED USE. Tenant shall use the Premises solely for the Permitted
Use. Tenant shall not use or permit the Premises to be used for any other
purpose without Landlord's prior written consent, which consent will not
unreasonably be withheld. Tenant shall comply with the rules attached to this
Lease as Exhibit E and any reasonable, non-discriminatory amendments or
additions promulgated by Landlord from time to time for the safety, care, and
cleanliness of the Premises, the Building, and the Project or for the
preservation of good order (the "Rules and Regulations"). Landlord shall not be
responsible to Tenant for the failure of any other tenants or occupants of the
Building to comply with the Rules and Regulations provided, however, that
Landlord agrees to act reasonably to enforce such Rules and Regulations. In
addition to complying with other provisions of this Lease concerning the use of
the Premises: (a) Tenant shall not use or allow any person to use the Premises
for any purpose that is contrary to the Rules and Regulations, that violates any
Laws and Orders (as defined below), that constitutes waste or nuisance, or that
would unreasonably annoy other occupants of the Building or the owners or
occupants of other buildings; and (b) Tenant shall comply with all recorded
covenants, conditions, and restrictions, easement agreements, and like recorded
instruments that now or later affect the Project.

Article 7
COMPLIANCE WITH LAWS

7.1. DEFINITION OF "LAWS AND ORDERS". For purposes of this Lease, the term
"Laws and Orders" includes all laws, statutes, ordinances, standards, rules,
requirements, or orders now in force or hereafter enacted, promulgated, or
issued by any federal, state, county, city, or governmental agency. Such term
also includes government measures regulating or enforcing public access,
occupational, health, or safety standards for employers, employees, landlords,
or tenants.

7.2. REPAIRS, REPLACEMENTS, ALTERATIONS, AND IMPROVEMENTS. Landlord shall
(as part of the Building's Operating Costs) promptly make all repairs,
replacements, alterations, or improvements, needed to comply with all Laws and
Orders (including, without limitation, the provisions of the Americans With
Disabilities Act). Notwithstanding the foregoing, to the extent such repairs,
replacements, alterations, or improvements relate to or are triggered by (a)
Tenant's particular use of the Premises, or (b) any Alterations, Tenant shall
bear all

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expenses of such work. After receipt of an invoice from Landlord, Tenant shall
pay Landlord Landlord's actual costs reasonably incurred in connection with such
repairs, replacements, alterations, or improvements triggered by Tenant's
particular use of the Premises or any Alterations, plus a reasonable percentage
of such costs, to be uniformly established for the Building, sufficient to
reimburse Landlord for all overhead, general conditions, fees, and other costs
and expenses arising from Landlord's involvement with such repairs,
replacements, alterations, or improvements.

Article 8
HAZARDOUS MATERIAL

8.1. USE OF HAZARDOUS MATERIALS. Tenant shall not cause or permit any
Hazardous Material (as defined below) to be generated, brought onto, used,
stored, or disposed of in or about the Premises, the Building, or the Project by
Tenant or its agents, employees, contractors, subtenants, or invitees, except
for limited quantities of standard office and janitorial supplies. Tenant shall
(a) use, store, and dispose of all such permitted Hazardous Material in strict
compliance with all applicable statues, ordinances, and regulations in effect
during the Lease Term that govern and/or relate to Hazardous Material, public
health and safety and protection of the environment ("Environmental Laws"), and
(b) comply at all times during the Lease Term with all Environmental Laws.
Notwithstanding the foregoing, Tenant shall have the right to use and dispose of
DE MINIMIS amounts of cleaning materials, toner fluids and other office and
janitorial supplies, provided that the same are used in the normal course of
Tenant's business in the Premises and are used and disposed of at all times in
accordance with applicable Laws and Orders.

8.2. NOTICE OF RELEASE OR INVESTIGATION. If, during the Lease Term, Tenant
becomes aware of (a) any actual or threatened release of any Hazardous Material
on, under, or about the Premises, the Building, or the Project, or (b) any
inquiry, investigation, proceeding, or claim by any governmental agency or other
person regarding the presence of Hazardous Material on, under, or about the
Premises, the Building, or the Project, Tenant shall give Landlord written
notice of the release or investigation within five (5) days after learning of it
and shall simultaneously furnish to Landlord copies of any claims, notices of
violation, reports, or other writings received by Tenant that concern the
release or investigation.

8.3. INDEMNIFICATION BY TENANT. Tenant shall, at Tenant's sole expense,
and with counsel reasonably acceptable to Landlord, indemnify, defend, and hold
harmless Landlord and Landlord's shareholders, directors, officers, employees,
partners, affiliates, and agents with respect to all losses, of every kind and
nature, to the extent arising out of or resulting from, directly or indirectly,
the release of any Hazardous Material in or about the Premises, the Building, or
the Project, or the violation of any Environmental Law, by Tenant or Tenant's
agents, employees, contractors, or invitees. This indemnification shall survive
the expiration or termination of this Lease.

8.4. INDEMNIFICATION BY LANDLORD. Landlord shall, at Landlord's sole
expense and with counsel reasonably acceptable to Tenant, indemnify, defend, and
hold harmless Tenant and Tenant's shareholders, directors, officers, employees,
partners, affiliates, and agents with respect to all losses arising out of or
resulting from the release of any Hazardous Material in or about the Building or
the Project, or the violation of any Environmental Law by Landlord or Landlord's
agents, employees, contractors, or invitees (but excluding any other tenant of
the Project or their agents, contractors, or invitees). This indemnification
shall survive the expiration or termination of this Lease.

8.5. REMEDIATION OBLIGATIONS. If the presence of any Hazardous Material
brought onto the Premises, the Building, or the Project by Tenant or Tenant's
agents, employees, contractors, or invitees results in contamination of the
Building or the Project, Tenant shall promptly take all necessary actions, at
Tenant's sole expense, to return the Premises, the Building, and/or the Project
to the condition that existed before the introduction of such Hazardous
Material. Tenant shall first obtain Landlord's approval of the proposed
remedial action. This provision does not limit the indemnification obligation
set forth in the preceding paragraph.

8.6. DEFINITION OF "HAZARDOUS MATERIAL". As used in this Lease, the term
"Hazardous Material" shall mean any hazardous or toxic substance, material, or
waste that is or becomes regulated by the United States, the State of
California, or any local government authority having jurisdiction over the
Building. Hazardous Material includes, without limitation: (a) any "hazardous
substance", as that term is defined in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA) (42 United States Code Sections
9601-9675); (b) "Hazardous waste", as that term is defined in the Resource
Conservation and Recovery Act of 1976 (RCRA) (42 United States Code Sections
6901-6992k); (c) any pollutant, contaminant, or hazardous, dangerous, or toxic
chemical, material, or substance, within the meaning of any other applicable
federal, state or local law, regulation, ordinance, or requirement (including
consent decrees and administrative orders imposing liability or standards of
conduct concerning any hazardous, dangerous, or toxic waste, substance, or
material, now or hereafter in effect); (d) petroleum products; (e) radioactive
material, including any source, special nuclear, or byproduct material as
defined in 42 United States Code Sections 2011-2297gB4; (f) Asbestos in any form
or condition; and (g) polychlorinated biphenyls (PCBs) and substances or
compounds containing PCBs.

8.7. EXISTENCE OF HAZARDOUS MATERIALS. To the best of Landlord's actual
knowledge, no Hazardous Materials exist in, on, or about the Premises, the
Building, or the Project except in legally permissible amounts; provided,
however, Landlord knows or has reason to believe that tenants in the Building
(and elsewhere in the Project) utilize standard office and janitorial supplies
constituting Hazardous Materials in connection with their tenancy at the
Project.

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Article 9
UTILITIES AND SERVICES

9.1. STANDARD TENANT UTILITIES AND SERVICES. Subject to applicable
government rules, regulations, and guidelines and the rules or actions of the
public utility furnishing the service, Landlord shall provide (as a Direct
Expense) the following utilities and services:

9.1.1. HEATING AND AIR CONDITIONING. Landlord shall provide
heating and air conditioning when necessary for normal comfort for normal office
use in the Premises, as reasonably determined by Landlord, on Mondays through
Fridays from 7 a.m. through 7 p.m. and on Saturdays from 9 a.m. through 1 p.m.
except for the dates of observation of New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and other locally
or nationally recognized holidays ("Normal Business Hours").

9.1.2. ELECTRICITY. Landlord shall provide wiring, outlets, and
systems sufficient to provide electrical current to the Premises for ordinary
and customary office uses. In addition to the foregoing, Landlord shall replace
lamps, starters, and ballasts for Building-standard lighting fixtures within the
Premises upon Tenant's request and at Landlord's expense. Tenant shall replace
lamps, starters, and ballasts for non-Building-standard lighting fixtures within
the Premises at Tenant's sole expense. All electricity used by Tenant in the
Premises (including the portion of the electricity utilized in connection with
the HVAC system exclusively serving the Premises) shall be separately metered
and shall be paid by Tenant directly to the utility provider.

9.1.3. WATER. Landlord shall provide city water from the regular
Building outlets for ordinary and customary drinking, lavatory, and toilet
purposes.

9.1.4. JANITORIAL SERVICES. Landlord shall provide five (5) day
per week ordinary and customary, basic janitorial services in and about the
Premises consistent with other first class office buildings in the vicinity of
the Building. Landlord shall not be required to provide janitorial services to
above-standard improvements installed in the Premises including but not limited
to metallic trim, wood floor covering, glass panels, interior windows, kitchens,
executive washrooms, or shower facilities. Any janitorial services required by
Tenant and provided by Landlord in excess of such ordinary and customary, basic
janitorial services shall be separately paid for by Tenant.

9.1.5. TELEPHONE ROOM. Upon request by Tenant to Landlord, Tenant
shall have access to the telephone room of the Building when required for Tenant
to install or maintain its telecommunications equipment.

9.2. OVER-STANDARD TENANT USE. Tenant shall not over-tax the Building
electrical and other utility systems. In the event of any damage to any
Building systems caused by Tenant's use thereof in excess of ordinary and
customary usage for an office, Tenant shall be responsible for all costs and
expenses incurred by Landlord as a result of such over-use. In addition, if
Tenant requires any utilities or services described in this Article in excess of
the standard levels being provided by Landlord, or during hours other than
Normal Business Hours, Landlord shall have the right to impose reasonable
restrictions on such usage and/or commercially reasonable charges therefor. The
per hour charge for use of the Building's HVAC system during hours other than
Normal Business Hours is estimated to be $25.00 per hour (or portion thereof).
Such rate shall be subject to increase during the Lease Term, based upon the
then prevailing market rate for after hours heating and air conditioning for
buildings similar to the Project in the San Diego north county coastal area.

9.3. INTERRUPTION OF UTILITIES. Tenant agrees that Landlord shall not be
liable for damages, by abatement of Rent or otherwise, for failure to furnish or
delay in furnishing any service (including telephone and telecommunications
services) or for diminution in the quality or quantity of any service when the
failure, delay, or diminution is entirely or partially caused by: (a) breakage,
repairs, replacements, or improvements which is corrected within two (2)
business days; (b) strike, lockout, or other labor trouble; (c) inability to
secure electricity, gas, water, or other fuel at the Building despite reasonable
efforts to do so; (d) accident or casualty; (e) act or default of Tenant or
other parties other than Landlord, or (f) any other cause beyond Landlord's
reasonable control. Such failure, delay, or diminution shall not be considered
to constitute an eviction or a disturbance of Tenant's use and possession of the
Premises or relieve Tenant from paying Rent or performing any of its obligations
under this Lease, except that Tenant shall be entitled to an equitable abatement
of Rent for the period of such failure, delay, or diminution to the extent such
failure, delay, or diminution is directly attributable to Landlord's negligence
or intentional misconduct and continues for more than two (2) business days.
Landlord shall not be liable under any circumstances for a loss of or injury to
property or for injury to or interference with Tenant's business, including loss
of profits through, in connection with, or incidental to a failure to furnish
any of the utilities or services under this Article. Notwithstanding the
foregoing, Landlord agrees to use reasonable efforts to promptly correct any
such interruption of utilities or services. Landlord may also comply with
mandatory or voluntary controls or guidelines promulgated by any government
entity relating to the use or conservation of energy, water, gas, light, or
electricity or the reduction of automobile or other emissions without creating
any liability of Landlord to Tenant under this Lease as long as compliance with
voluntary controls or guidelines does not materially and unreasonably interfere
with Tenant's use of the Premises.

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Article 10
REPAIRS AND MAINTENANCE

10.1. TENANT'S REPAIR AND MAINTENANCE OBLIGATIONS. Tenant shall not
take any action (or neglect to take any action within the Premises) which will
cause any damage to any portion of the Premises or the Base Building Systems (as
defined below) or otherwise increase Landlord's obligations or expenses under
Paragraph 10.2, below beyond normal wear and tear. In addition, Tenant shall
maintain all of Tenant's furniture, trade fixtures, and equipment within the
Premises, as well as all Alterations, in good condition and repair and in a
manner which will not damage or overburden the Building or the Base Building
Systems. Further, Tenant shall promptly notify Landlord of any damage to (or
need for repair in connection with) any portion of the Building located within
the interior of the Premises including, without limitation, any damaged or
broken Base Building Systems, fixtures, and/or appurtenances.

10.2. LANDLORD'S REPAIR AND MAINTENANCE OBLIGATIONS. Subject to
Articles 15 and 16 (regarding damage, destruction and condemnation), Landlord
shall, as part of the Building Operating Costs (but subject to all exclusions
set forth in Article 4), repair and maintain in good order and condition
(reasonable wear and tear excepted), consistent with first class office
buildings in the vicinity of the Building: (a) the structural portions,
fixtures, and appurtenances of the Premises, and all Tenant Improvements
constructed by Landlord; (b) the structural portions and common area of the
Building; (c) the Base Building Systems, including those located within the
Premises; (d) the exterior portions of the Building and Project; and (e) all
other common areas located in the Building, or in or on the Project, including
the parking facilities serving the Building. Repairs shall be made promptly
when appropriate to keep the applicable portion of the Building, the Project,
and other items in the condition described in this paragraph. To the extent
that the need for repair and maintenance is due to Tenant's or Tenant's agents,
employees, contractors, or invitees' negligence, misuse, or use of the Building
or the Base Building Systems in a manner which exceeds what is normal and
customary for office space, such repair and maintenance shall be at Tenant's
sold expense. After receipt of an invoice from Landlord, Tenant shall pay
Landlord, Landlord's actual costs incurred in connection with such repair sand
replacements plus a reasonable percentage of such costs, to be uniformly
established for the Building, sufficient to reimburse Landlord for all
reasonable overhead, general conditions, fees, and other reasonable costs and
expenses arising from Landlord's involvement with such repairs and replacements.
Landlord shall not be in default of its repair and maintenance obligations under
this paragraph if Landlord performs the repairs and maintenance within three (3)
days after written notice by Tenant to Landlord of the need for such repairs and
maintenance. Furthermore, if due to the nature of the particular repair or
maintenance obligation or to causes beyond Landlord's reasonable control, more
than three (3) days are reasonably required to complete it, Landlord shall not
be in default under this paragraph if Landlord begins its efforts to repair
within such three (3) day period and diligently prosecutes the required work to
completion. No abatement of Rent and, except as otherwise specifically provided
herein, no liability of Landlord shall result from any injury to or interference
with Tenant's business arising from the making of or failure to make any
repairs, replacements, alterations, or improvements in or to any portion of the
Premises, the Building, or the Project. As part of the consideration to
Landlord hereunder, Tenant waives and releases its rights, including its right
to make repairs at Landlord's expense, under California Civil Code Sections
1941-1942 or any similar law, statute, or ordinance now or hereafter in effect.
If, after written notification to Landlord by Tenant of the need for repairs and
maintenance, Landlord has not performed the repairs and maintenance within three
(3) days after written notice, or Landlord has failed to diligently prosecute
the required work if more than three (3) days are reasonably required to
complete it, Tenant may, upon twenty-four (24) hours telephonic notice, perform
the requested repairs and maintenance. After final adjudication in a court of
law of competent jurisdiction, if the court determines that such repairs and
maintenance were properly Landlord's responsibility, Landlord shall reimburse
Tenant for the reasonable third-party costs incurred by Tenant in undertaking
such repair or maintenance, to the extent the court has determined Landlord was
liable to perform the repairs and maintenance, and if Landlord fails to do so
within ten (10) days of such adjudication, Tenant may deduct such amount from
its Rent obligations hereunder.

Article 11
ALTERATIONS AND ADDITIONS

11.1 LANDLORD'S CONSENT TO ALTERATIONS. Tenant may not make any
improvements, alterations, additions, or changes to the Premises ("Alterations")
without obtaining Landlord's prior written consent. Tenant shall request such
consent by written notice to Landlord, which written notice must be accompanied
by detailed and complete plans and specifications for the proposed work. As a
condition of its consent to Alterations, Landlord may impose any reasonable
requirements that Landlord considers appropriate under the circumstances
including, without limitation, evidence of adequate financial capability and
provision of appropriate insurance. Landlord shall not unreasonably withhold or
delay its consent to any proposed Alternations. Landlord will be deemed to be
acting reasonably if it withholds consent for, among other Alterations, any
Alterations that would or could: (a) affect the structure of the Building or any
portion of the Building other than the interior of the Premises; (b) affect the
Base Building Systems; (c) result in the Landlord being required under any Laws
and Orders to perform any work that Landlord could otherwise avoid or defer
("Additional Required Work"); (d) result in an increase in the demand for
utilities or services that Landlord is required to provide; or (e) cause in
increase in the premiums for hazard or liability insurance carried by Landlord.
The term "Base Building Systems" means all systems an equipment (including,
without limitation, plumbing; heating, ventilation, and air condition;
electrical; fire/life safety; elevator; and security systems) that serve all or
part of the Building. Tenant shall reimburse Landlord for the reasonable fees
and costs of any architects, engineers, or other consultants reasonable retained
by Landlord to review the proposed Alterations. Tenant shall have the right,
without obtaining Landlord's prior written consent (but only following ten (10)

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days' prior written notice), to make alterations to the Premises that comply
with all of the following: (a) cost less than $10,000.00 in any calendar year;
(b) affect only the interior of the Premises, and (c) do not cause or
potentially cause any of the conditions set forth in (a) through (e) above.
This Section 11.1 shall not apply to the Tenant Improvements defined in Exhibit
C.

11.2. COMPLIANCE OF ALTERATIONS WITH LAWS AND INSURANCE REQUIREMENTS.
If Landlord approves any Alterations, Tenant shall cause all Alterations to
comply with the following: (a) applicable Laws and Orders; (b) applicable
requirements of a fire rating bureau; or (c) applicable requirements of
Landlord's hazard insurance carrier to the extent that Tenant is informed of
them. Tenant shall also comply with those requirements in the course of
constructing the Alterations. Before beginning construction of any Alteration,
Tenant shall obtain a valid building permit and any other permits required by
any government entity having jurisdiction over the Premises. Tenant shall
provide copies of those permits to Landlord before the work begins. Tenant
shall, at Tenant's sole expense, perform any Additional required Work, which
shall be subject to the same requirements as any Alteration. If any Additional
Required Work must be performed outside the Premises, Landlord may elect to
perform that work at Tenant's expense. No consent by Landlord to any proposed
Alterations shall constitute a waiver of Tenant's obligations under this
paragraph.

11.3. MANNER OF CONSTRUCTION. Tenant shall build all Alterations
entirely within the Premises and in conformance with Landlord's construction
rules and regulations, using only contractors and subcontractors approved in
writing by Landlord (which approval will not unreasonably be withheld). All
work relating to any Alterations shall be done in a good and workmanlike manner,
using new materials equivalent in quality to those used in the construction of
the initial improvements to the Premises. All work shall be diligently
prosecuted to completion. Tenant shall ensure that all work is performed in a
manner that does not obstruct access to or through the Building or its common
areas and that it does not interfere either with other tenants' use of their
premises or with any other work being undertaken in the Building. Tenant shall
take all measures necessary to ensure that labor peace is maintained at all
times. Within twenty (20) days after completion of any Alterations, Tenant
shall deliver to Landlord a reproducible copy of the drawings of the
Alterations, as built.

11.4. PAYMENT FOR IMPROVEMENTS. Tenant shall promptly pay all charges
and costs incurred in connection with any Alteration, as and when required by
the terms of any agreements with contractors, designers, or suppliers. On
completion of any Alteration, Tenant shall: (a) cause a timely notice of
completion to be recorded in the office of the San Diego County Recorder in
accordance with Civil Code Section 3093 or any successor statute; (b) deliver to
Landlord evidence of full payment and unconditional final waivers of all liens
for labor, services, or materials; and (c) pay Landlord any reasonable expenses
incurred by Landlord in connection with Tenant's work.

11.5. LANDLORD'S PROPERTY. All Alterations and fixtures that may be
installed or placed in or about the Premises from time to time shall be and
become the property of Landlord upon installation; except that Tenant may remove
any trade fixtures or freestanding office equipment and furniture unless
Landlord can substantiate that such items have been paid for with any Tenant
Improvement Allowance funds (if any) provided to Tenant by Landlord. Tenant
must repair any damage to the Premises and the Building caused by such removal.
In addition, by written notice to Tenant at the time consent to install any
Alteration(s) is given, Landlord may require Tenant, at Tenant's sole expense,
to remove any Alterations upon termination or expiration of this Lease, and
restore the Premises to their configuration and condition before the Alterations
were made. If Tenant fails to complete that restoration before expiration of
the Lease Term or, in the case of earlier termination, within fifteen (15) days
after written notice from Landlord requesting the restoration, Landlord may do
so and charge the cost of the restoration to Tenant. Notwithstanding the
foregoing, tenant shall not be required to remove (or pay Landlord to remove)
the tenant improvements made pursuant to attached Exhibit C.

11.6. INITIAL IMPROVEMENTS. The terms of the Tenant Improvement
Agreement, attached to this Lease as Exhibit C, and not the terms of this
Article shall govern the construction of the initial tenant improvements to the
Premises.

Article 12
COVENANT AGAINST LIENS

12.1. COVENANT AGAINST LIENS. Tenant shall not be the cause or object
of any liens or allow such liens to exist, attach to, be placed on, or encumber
Landlord's or Tenant's interest in the Premises, the Building, or the Project by
operation of law or otherwise. Tenant shall not suffer or permit any lien of
mechanics, material suppliers, or others to be placed against the Premises, the
Building, or the Project with respect to work or services performed or claimed
to have been performed for Tenant or materials furnished or claimed to have been
furnished to Tenant or the Premises (other than by Landlord). Landlord has the
right at all times to post and keep posted on the Premises any notice that it
considers necessary for protection from such liens. At least seven (7) days
before beginning construction of any Alteration or Tenant Improvements, Tenant
shall give Landlord written notice of the expected commencement date of that
construction to permit Landlord to post and record a notice of
non-responsibility in connection therewith. If any such lien attaches or Tenant
receives notice of any such lien, Tenant shall cause the lien to be immediately
released and removed of record or, if Tenant in good faith disputes such lien,
Tenant may post a bond acceptable to Landlord provided that Tenant then
diligently pursues the resolution of such matter and the removal of such lien.
Despite any other provision of this Lease, if the lien is not released and
removed or bonded around within ten (10) days after Landlord delivers notice of
the lien to Tenant, Landlord may immediately take all action necessary to
release and remove the lien, without any duty to investigate the validity of it.
All expenses (including reasonable attorney fees) incurred by Landlord in

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connection with the lien shall be considered Additional Rent under this Lease
and be immediately due and payable by Tenant.

Article 13
EXCULPATION, INDEMNIFICATION, AND INSURANCE

13.1. DEFINITION OF "TENANT PARTIES" AND "LANDLORD PARTIES". For
purposes of this Article, the term "Tenant Parties" refers singularly and
collectively to Tenant and Tenant's officers, members, partners, agents,
employees, and independent contractors as well as to all persons and entities
claiming through any of these persons or entities. The term "Landlord Parties"
refers singularly and collectively to Landlord and Landlord's officers,
directors, shareholders, members, parents, subsidiaries, and any other
affiliated entities, personal representatives, executors, heirs, assigns,
licensees, invitees, beneficiaries, agents, servants, employees, and independent
contractors of these persons or entities, but not including other tenants or
occupants of the Project.

13.2. EXCULPATION. To the fullest extent permitted by law, Tenant, on
its behalf and on behalf of all Tenant Parties, (i) waives all claims (in law,
equity, or otherwise) against Landlord Parties arising out of, (ii) knowingly
and voluntarily assumes the risk of, and (iii) agrees that Landlord Parties
shall not be liable to Tenant Parties for any of the following: (a) injury to or
death of any person; or (b) loss of, injury or damage to, or destruction of any
tangible or intangible property, including the resulting loss of use, economic
losses, and consequential or resulting damage of any kind from any cause. This
exculpation clause shall not apply, however, to claims against Landlord Parties
to the extent that a final judgment of a court of competent jurisdiction
establishes that the injury, loss, damage, or destruction was proximately caused
by the Landlord Parties' fraud, gross negligence, willful injury to person or
property, or breach by Landlord of any duty imposed by this Lease or by law.
The provisions of this paragraph will survive the expiration or earlier
termination of this Lease until all claims within the scope of this paragraph
are fully, finally, and absolutely barred by the applicable statutes of
limitations. Tenant acknowledges that this paragraph was part of the
consideration to Landlord under this Lease.

13.3. INDEMNIFICATION.

13.3.1. TENANT'S INDEMNIFICATION OF LANDLORD PARTIES. To the
fullest extent permitted by law, Tenant shall, at Tenant's sole expense and with
counsel reasonably acceptable to Landlord, indemnify, defend, and hold harmless
the Landlord Parties from and against all Claims (as defined below), from any
cause, to the extent arising out of or relating (directly or indirectly) to this
Lease, the tenancy created under this Lease, or the Premises, including: (a) the
use or occupancy, or manner of use or occupancy, of the Premises or Building by
the Tenant Parties; (b) any negligent or wrongful act, error, or omission of the
Tenant Parties or of any invitee, guest, or licensee of Tenant in, on, or about
the Project; (c) Tenant's conduct of its business; (d) any Alterations,
activities, work, or things done, omitted, permitted, allowed, or suffered by
Tenant Parties in, at, or about the Premises, the Building, or the Project,
including the violation of or failure to comply with any applicable Laws and
Orders (except as otherwise provided in Sections 1.1 and 7.2), or judgments
against Tenant Parties in existence on the Lease Commencement Date or enacted,
promulgated, or issued after the date of this Lease; and (c) any breach or
default in performance of any obligation on Tenant's part to be performed under
this Lease, whether before or during the Lease Term or after its expiration or
earlier termination. The indemnification in this paragraph shall not apply to
the extent that a final judgment of a court of competent jurisdiction
establishes that a Claim against one Landlord Party was proximately caused by
the gross negligence, willful misconduct or breach of this Lease or duty imposed
by law by that Landlord Party. In that event, however, this indemnification
shall remain valid for all other Landlord Parties. This indemnification extends
to and includes Claims for: (a) injury to any persons (including death at any
time resulting from that injury); (b) loss of, injury or damage to, or
destruction of property (including all loss of use resulting from that loss,
injury, damage, or destruction); and (c) all economic losses and consequential
or resulting damage of any kind.

13.3.2. DEFINITION OF CLAIMS. For purposes of this Lease, "Claims"
means any and all claims, losses, costs, damage, expenses, liabilities, liens,
actions, causes of action (whether in tort or contract, law or equity, or
otherwise), charges, assessments, fines, and penalties of any kind (including
reasonable consultant and expert expenses, court costs, and attorney fees
actually incurred).

13.3.3. INDEMNIFICATION INDEPENDENT OF INSURANCE OBLIGATIONS. The
indemnifications provided in this Article and Tenant's waiver of any claim for
damages contained anywhere in this Lease may not be construed or interpreted as
in any way restricting, limiting, or modifying Tenant's or Landlord's insurance
or other obligations under this Lease and is independent thereof. Compliance
with the insurance requirements and other obligations under this Lease shall not
in any way restrict limit, or modify Tenant's or Landlord's indemnification
obligations under this Lease. Notwithstanding the foregoing, the
indemnification provisions of this Article shall not apply to the extent that
the loss for which indemnification is sought is fully covered by insurance, as
long as such insurance is not invalidated by this provision.

13.3.4. ATTORNEY FEES. The prevailing party shall be entitled to
recover its actual attorney fees and court costs incurred in enforcing or
contesting the indemnification clauses set forth in this Article.

13.3.5. SURVIVAL OF INDEMNIFICATION. The indemnification clauses in
this Article shall survive the expiration or earlier termination of this Lease
until all claims involving any of the indemnified matters are fully, finally,
and absolutely barred by the applicable statutes of limitations.

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13.4. COMPLIANCE WITH INSURER REQUIREMENTS. Subject to Landlord's
obligations under Section 7.2, Tenant shall, at Tenant's sole expense, comply
with all requirements, guidelines, rules, orders, and similar mandates and
directives pertaining to the use of the Premises and the Building, whether
imposed by Tenant's insurers, Landlord's insurers, or both. If Tenant's
business operations, conduct, or use of the Premises or the Building cause any
increase in the premium for any insurance policies carried by Landlord, Tenant
shall, within ten (10) business days after receipt of written notice from
Landlord, reimburse Landlord for the increase. Tenant shall, at Tenant's sole
expense, comply with all rules, orders, regulations, or requirements of the
American Insurance Association (formerly the National Board of Fire
Underwriters) and of any similar body.

13.5. TENANT'S INSURANCE COVERAGE. Tenant shall, at Tenant's sole
expense, throughout the Lease Term maintain the following coverages:

13.5.1. PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE. Tenant
shall, at Tenant's sole expense, obtain and maintain public liability and
property damage insurance (i) with a single combined liability limit and
property damage limit of not less than $2,000,000.00, (ii) insuring (a) against
all liability of Tenant and Tenant's agents, employees, contractors, licensees,
and invitees arising out of or in connection with Tenant's use or occupancy of
the Premises, and (b) performance by Tenant of the indemnity provisions set
forth in this Lease, (iii) naming Landlord, its agent, and any lender having a
security interest against the Project ("Lender") as additional named insureds,
(iv) containing cross-liability endorsements, and (v) which includes products
liability insurance (if Tenant is to sell merchandise or other products derived
from the Premises). Not more frequently than once every year, if in the
reasonable opinion of Landlord the amount or scope of such insurance at that
time is not adequate, Tenant shall increase such insurance as reasonably
required by Landlord.

13.5.2. FIRE AND EXTENDED COVERAGE INSURANCE. Tenant shall, at
Tenant's sole expense, maintain on Tenant's Alterations and Tenant's personal
property and fixtures a policy of standard fire and extended coverage insurance,
with vandalism and malicious mischief endorsements, coverage with respect to
increased costs due to building ordinances, demolition coverage, boiler and
machinery insurance, and sprinkler leakage coverage, in each case to the extent
of at least 100 percent of full replacement value, issued in the names of
Landlord, Tenant, and Landlord's Lender, as their interests may appear. Such
"full replacement value" shall be determined by the company issuing such policy
at the time the policy is initially obtained. Not more frequently than once
every two years, either Landlord or Tenant may, at its election, notify the
other that it elects to have the replacement value redetermined by an insurance
company. Such redetermination shall be made promptly and in accordance with the
rules and practices of the Board of Fire Underwriters, or a like board
recognized and generally accepted by the insurance company, and Landlord and
Tenant shall be promptly notified of the results by the company. Such policy
shall be promptly adjusted according to such redetermination.

13.5.3. TENANT'S WORKERS' COMPENSATION AND EMPLOYER LIABILITY
COVERAGE. Tenant shall procure and maintain workers' compensation insurance as
required by law and employer's liability insurance with limits of no less than
the greater of (i) the statutorily required limits, or (ii) $1,000,000.00.

13.6. DELIVERY OF CERTIFICATE, POLICY, AND ENDORSEMENTS. Before the
Lease Commencement Date, Tenant shall deliver to Landlord the endorsements
referred to in this Article as well as a certified copy of Tenant's liability
policy or policies and an original certificate of insurance, executed by an
authorized agent of the insurer or insurers, evidencing compliance with the
liability insurance requirements. The certificate shall provide for no less
than thirty (30) days' advance written notice to Landlord from the insurer or
insurers of any cancellation, non-renewal, or material change in coverage or
available limits of liability and shall confirm compliance with the liability
insurance requirements in this Lease. The "endeavor to" and "failure to mail
such notice shall impose no obligation or liability of any kind upon the
Company" language and any similar language shall be stricken from the
certificate.

13.7. INSURANCE GENERALLY. If Tenant fails during the Lease Term to
maintain any insurance required to be maintained by Tenant under this Lease,
then Landlord may, at its election, arrange for any such insurance, and tenant
shall reimburse Landlord for any premiums for any such insurance within five
business days after Tenant receives a copy of the premium notice. If any such
premiums are allocable to a period, a portion of which occurs during the Lease
Term and the remainder of which occurs before or after the Lease Term, then such
premiums shall be apportioned between Landlord and Tenant based upon the number
of days during such period that occur during the Lease Term and the number of
days that occur before or after the Lease Term, such that tenant pays for the
premiums that are allocable to the period during the Lease Term. Insurance
required to be maintained by Tenant under this Lease (i) shall be issued as a
primary policy with respect to the Premises only by insurance companies
authorized to do business in the state in which the Premises are located with a
Best's Rating of at least "A-" and a Best's Financial Size Category rating of at
least "VIII," as set forth in the most current edition of "Best's Insurance
Reports" (unless otherwise approved by Landlord), or such higher rating as may
be required by Landlord's lender, (ii) shall name Landlord and Landlord's lender
as additional named insureds (the additional insured endorsement must be on ISO
form CG 20 11 11 85 or an equivalent acceptable to Landlord, with such
modifications as Landlord may require), (iii) shall consist of "occurrence"
based coverage, without provision for subsequent conversion to "claims" based
coverage, (iv) shall not be cancelable or subject to reduction of coverage or
other modification except after 30 days' prior written notice to Landlord and
Landlord's lender, (v) the coverage afforded to Landlord and any lender of
Landlord must be at least as broad as that afforded to Tenant and may not
contain any terms, conditions, exclusions, or limitations applicable to Landlord
or any lender of Landlord that do not apply to Tenant, and (vi) shall not
provide for a deductible or co-insurance provision in excess of $10,000.00.
Tenant shall, at least 30 days prior to the expiration of each such

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policy, furnish Landlord with a renewal of or "binder" extending such policy.
Tenant shall promptly upon request deliver to Landlord copies of such policy or
policies or certificates evidencing the existence and amounts of such insurance
together with evidence of payment of premiums.

13.8. WAIVER OF SUBROGATION. Landlord and Tenant each release the
other and their respective agents from any claims for damage that are caused by
risks covered by insurance under this Lease, and agree to cause the insurance
companies issuing their respective property (first party) insurance to waive any
subrogation rights that those companies may have against Tenant or Landlord,
respectively, as long as the insurance is not invalidated by the waiver. If the
waivers of subrogation are contained in their respective insurance policies,
Landlord and Tenant waive any right that either may have against the other on
account of any loss or damage to their respective property to the extent that
the loss or damage is insured under their respective insurance policies.

13.9. LANDLORD'S INSURANCE. Landlord shall at all times while this
Lease is in effect maintain (subject to recoupment as an Operating Expense) the
following types of insurance: (a) insurance against fire and such other perils
as may be included in a standard fire and extended coverage insurance policy on
the Building in an amount not less than 95% of its actual replacement cost
(exclusive of footings and foundations) with a commercially reasonable
deductible and (b) commercial general liability insurance on an occurrence basis
with limits of liability in an amount not less than $2,000,000.00 combined
single limit for each occurrence. Tenant understands and agrees that Landlord
will not be required to insure Tenant's property and that any insurance
maintained by Landlord may be maintained under a blanket or umbrella policy.
Landlord's liability insurance shall be primary with respect to Landlord
Parties' activities in, on or about the Project and the Premises.

Article 14
DAMAGE AND DESTRUCTION

14.1. REPAIR OF DAMAGE BY LANDLORD. Tenant agrees to notify Landlord
in writing promptly of any damage to the Premises resulting from fire,
earthquake, or any other identifiable event of a sudden, unexpected, or unusual
nature ("Casualty"). If the Premises are damaged by a Casualty or any common
areas of the Building providing access to the Premises are damaged to the extent
that Tenant does not have reasonable access to the Premises and if neither
Landlord nor Tenant has elected to terminate this Lease in the manner provided
below, Landlord shall promptly and diligently restore such damaged areas
(excluding Tenant's Alterations) to substantially the same condition as existed
before the Casualty, except for modifications required by building codes and
other laws and except for any other modifications to the common areas considered
desirable by Landlord. In making these modifications, Landlord shall not
materially impair Tenant's access to the Premises. Landlord's obligation to
restore is subject to reasonable delays for insurance adjustment and other
matters beyond Landlord's reasonable control and subject to the other clauses of
this Article. If Tenant requests that Landlord modify the original Landlord
constructed tenant improvements in connection with the rebuilding, Landlord may
condition its consent to those modifications on: (a) Tenant's payment to
Landlord before construction is begun of any sums in excess of the amount of
insurance proceeds received by Landlord that are needed to complete the tenant
improvements; and (b) Confirmation by Landlord's architect or contractor that
the modifications will not materially increase the scope of work or the time
necessary to complete the tenant improvements.

14.2. REPAIR PERIOD NOTICE. Landlord shall, within the earlier of (a)
fifteen (15) days after the date on which Landlord determines the full extent of
the damage caused by the Casualty, (b) twenty (20) days after Landlord has
determined the extent of the insurance proceeds available to effectuate repairs,
or (c) sixty (60) days after the occurrence of the Casualty provide written
notice to Tenant indicating the reasonably anticipated period for repairing the
Casualty (the "Repair Period Notice"). The Repair Period Notice shall also
state, if applicable, Landlord's election either to repair or to terminate the
Lease as provided below).

14.3. LANDLORD'S OPTION TO TERMINATE OR REPAIR. If: (a) the Repair
Period Notice estimates that the period for repairing the Casualty exceeds one
hundred and eighty (180) days from the date insurance proceeds become available
to Landlord, or would have been available to Landlord if the insurance required
under section 13.9 was in effect; (b) the estimated repair cost exceeds the
insurance proceeds, if any, available for such repair (not including the
deductible, if any, on Landlord's casualty insurance), plus any amount that
Tenant is obligated or elects to pay for such repair; (c) the estimated repair
cost of the Premises or the Building, even though covered by insurance, exceeds
fifty percent (50%) of the full replacement cost thereof; or (d) the Building
cannot be restored except in a substantially different structural or
architectural form than existed before the Casualty, Landlord may elect either
to (i) terminate this Lease provided Landlord terminates all other leases for
space adjacent to the Premises which may be terminated by Landlord, or (ii) to
effectuate repairs. Landlord's election shall be stated in the Repair Period
Notice.

14.4. TENANT'S OPTION TO TERMINATE. If the Repair Period Notice
provided by Landlord indicates that the anticipated period for repairing the
Casualty exceeds one hundred eighty (180) days, Tenant may elect to terminate
this Lease by providing written notice ("Tenant's Termination Notice") to
Landlord within ten (10) days after receiving the Repair Period Notice. If
Tenant does not elect to terminate within this ten (10) day period, Tenant shall
be considered to have waived the option to terminate.

14.5. RENT ABATEMENT DUE TO CASUALTY. Landlord and Tenant agree that,
if (a) the Casualty was not the result of the negligence or willful misconduct
of Tenant or Tenant's agents, employees, contractors, licensees, or invitees or
(b) the casualty was caused by the negligence of Tenant's agents, employees,
contractors,

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licensees, or invitees, and Landlord is maintaining, as an Operating Expense,
rental abatement insurance, then to the extent Landlord is entitled to proceeds
from such insurance Tenant shall be provided with a proportionate abatement of
Rent based on the Rentable Square Footage of the Premises rendered unusable and
not used by Tenant. That proportional abatement, if any, shall be provided
during the period beginning on the later of (a) the date of the Casualty or (b)
the date on which Tenant ceases to occupy the affected portion of the Premises
and ending on the date of Substantial Completion of Landlord's restoration
obligations as provided in this Article. Subject to Tenant's termination right
described above, the Rent abatement provided in this paragraph is Tenant's sole
remedy due to the occurrence of the Casualty. Landlord shall not be liable to
Tenant or any other person or entity for any direct, indirect, or consequential
damage (including but not limited to lost profits of Tenant or loss of or
interference with Tenant's business), whether or not caused by the negligence of
Landlord or Landlord's employees, contractors, licensees, or invitees, due to,
arising out of, or as a result of the Casualty (including but not limited to the
termination of the Lease in connection with the Casualty). If deemed
appropriate by Tenant, Tenant may maintain business interruption insurance to
provide coverage regarding such matters.

14.6. DAMAGE NEAR END OF TERM. Despite any other provision of this
Article, if the Premises or the Building is destroyed or damaged by a Casualty
during the last twelve (12) months of the Lease Term, Landlord and Tenant shall
each have the option to terminate this Lease by giving written notice to the
other of the exercise of that option within thirty (30) days after the
occurrence of the Casualty, unless Tenant has an Option to Extend the Lease term
and has timely exercised such option.

14.7. EFFECTIVE DATE OF TERMINATION; RENT APPORTIONMENT. If Landlord
or Tenant elects to terminate this Lease under this Article in connection with a
Casualty, such termination shall be effective thirty (30) days after delivery of
notice of such election. Tenant shall pay Rent, properly apportioned up to the
date of the Casualty. After the effective date of the termination, Landlord and
Tenant shall be discharged of all future obligations under this Lease, except
for those provisions that, by their terms, survive the expiration or earlier
termination of the Lease.

14.8. WAIVER OF STATUTORY PROVISIONS. The provisions of this Lease,
including those in this Article, constitute an express agreement between
Landlord and Tenant that applies in the event of any Casualty to the Premises,
the Building, or the Project. Tenant, therefore, fully waives the provisions of
any statute or regulation, including California Civil Code Sections 1932(2) and
1933(4), for any rights or obligations concerning a Casualty.

Article 15
CONDEMNATION

15.1. DEFINITION OF "CONDEMNATION". As used in this Lease, the term
"Condemnation" means a permanent taking through (a) the exercise of any
government power (by legal proceedings or otherwise) by any public or quasi
public authority or by any other party having the right of eminent domain
("Condemnor") or (b) a voluntary sale or transfer by Landlord to any Condemnor,
either under threat of exercise of eminent domain by a Condemnor or while legal
proceedings for condemnation are pending.

15.2. EFFECT ON RIGHTS AND OBLIGATIONS. If, during the Lease Term or
the period between the date of execution of this Lease and the date on which the
Lease Term begins, there is any Condemnation of all or part of the Premises,
Building, or Project on which the Premises and Building are constructed, the
rights and obligations of the parties shall be determined under this Article,
and Rent shall not be affected or abated except as expressly provided in this
Article. Landlord shall notify Tenant in writing of any Condemnation within
thirty (30) days after the later of (a) the filing of a complaint by Condemnor
or (b) the final agreement and determination by Landlord and Condemnor of the
extent of the taking ("Condemnation Notice").

15.3. TERMINATION OF LEASE.

15.3.1. DEFINITION OF "TERMINATION DATE". The "Termination Date"
shall be the earliest of: (a) the date on which Condemnor takes possession of
the property that is subject to the Condemnation; (b) the date on which title to
the property subject to the Condemnation is vested in Condemnor; (c) if Landlord
has elected to terminate, the date on which Landlord requires possession of the
property in connection with the Condemnation, as specified in a written notice
delivered to Tenant no less than thirty (30) days before that date; or (d) if
Tenant has elected to terminate, as provided below, thirty (30) days after
Landlord's receipt of written notice of termination from Tenant. If both
Landlord and Tenant have elected to terminate under this Article, the
Termination Date shall be the earliest of the dates described in (a) - (c)
above.

15.3.2. AUTOMATIC TERMINATION. If the Premises are totally taken by
Condemnation, this Lease shall terminate as of the Termination Date, and the
Condemnation Award shall be allocated between Landlord and Tenant as provided
below.

15.3.3. LANDLORD'S RIGHT TO TERMINATE. Landlord shall have the
option to terminate this Lease if: (a) ten percent (10%) or more of the Rentable
Square Feet of the Building or the Premises is taken through Condemnation; (b)
any portion of the Building or Project necessary for Landlord to operate the
Building efficiently is taken through Condemnation; or (c) any other areas
providing access to the Premises or Building are taken through Condemnation. To
elect to terminate the Lease under this paragraph, Landlord must provide written
notice of its election ("Landlord's Taking Termination Notice") to Tenant within
thirty (30) days after

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the later of (a) the filing of a complaint by Condemnor or (b) the final
agreement and determination by Landlord and Condemnor of the extent of the
taking. In that event, this Lease shall be terminated on the Termination Date,
and all Rent shall be prorated to that date. If Landlord does not elect to
terminate under this paragraph, Landlord shall be obligated to reasonably
restore (to the extent feasible) the Premises (excluding Tenant's Alterations)
or access to the Premises, subject to Landlord's obtaining all necessary
approvals, permits, and authorizations relating to such work.

15.3.4. TENANT'S RIGHT TO TERMINATE. Tenant shall have the option
to terminate this Lease by providing thirty (30) days' written notice to
Landlord if one or both of the following are taken through Condemnation: (a) ten
percent (10%) or more of the Usable Square Feet of the Premises; or (b) any
portion of the Building that provides Tenant with its access to the Premises and
that, if taken, would eliminate Tenant's access to the Premises. Tenant's
notice must be given within thirty (30) days after Tenant's receipt of the
Condemnation Notice.

15.3.5. TENANT'S WAIVER. Tenant agrees that its rights to terminate
this Lease due to partial Condemnation are governed by this Article. Tenant
waives all rights it may have under California Code of Civil Procedure Section
1265.130, or otherwise, to terminate this Lease based on a partial Condemnation.

15.3.6. PRORATION OF RENT. If this Lease is terminated under this
Article, the termination shall be effective on the Termination Date, and
Landlord shall prorate Rent to that date. Tenant shall be obligated to pay Rent
for the period up to, but not including, the Termination Date as prorated by
Landlord. Landlord shall return to Tenant any prepaid Rent allocable to any
period on or after the Termination Date.

15.4. EFFECT OF CONDEMNATION IF LEASE IS NOT TERMINATED. If any part
of the Premises is taken by Condemnation and this Lease is not terminated, Rent
shall be proportionately reduced based on the Rentable Square Footage of the
Premises taken. Landlord and Tenant agree to enter into an amendment to this
Lease within thirty (30) days after the partial taking, confirming the reduction
in Rentable Square Footage of the Premises and the reduction in Rent.

15.5. ALLOCATION OF AWARD.

15.5.1. LANDLORD'S RIGHT TO AWARD. Except as provided in the next
paragraph, in connection with a Condemnation: (a) Landlord shall be entitled to
receive all compensation and anything of value awarded, paid, or received in
settlement or otherwise (Award); and (b) Tenant irrevocably assigns and
transfers to Landlord all rights to and interests in the Award and fully
releases and relinquishes any claim to, right to make a claim on, or interest in
the Award, including any amount attributable to any excess of the market value
of the Premises for the remainder of the Lease Term over the present value as of
the Termination Date of the Rent payable for the remainder of the Term (commonly
referred to as the "bonus value" of the Lease).

15.5.2. TENANT'S RIGHT TO COMPENSATION. Notwithstanding the
foregoing, Tenant shall have the right to make a separate claim in the
Condemnation proceeding, as long as the Award payable to Landlord is not reduced
thereby, for: (a) the taking of the unamortized or under appreciated value of
any leasehold improvements owned by Tenant that Tenant has the right to remove
at the end of the Lease Term and that Tenant elects not to remove; (b)
reasonable removal and relocation costs for any leasehold improvements that
Tenant has the right to remove and elects to remove (if Condemnor approves of
the removal); and (c) relocation costs under Government Code Section 7262.

15.6. TEMPORARY TAKING. If a temporary taking of part of the Premises
occurs through (a) the exercise of any government power (by legal proceedings or
otherwise) by a Condemnor or (b) a voluntary sale or transfer by Landlord to any
Condemnor, either under threat of exercise of eminent domain by a Condemnor or
while legal proceedings for condemnation are pending, Rent shall abate during
the time of such taking in proportion to the portion of the Premises taken;
provided, however, that if the period of such temporary taking exceeds one
hundred twenty (120) days, Tenant shall have the option to terminate this Lease.
The entire Award relating to the temporary taking shall be and remain the
property of Landlord. Tenant irrevocably assigns and transfers to Landlord all
rights to and interest in the Award and fully releases and relinquishes any
claim to, right to make a claim on, and any other interest in the Award

Article 16
ASSIGNMENT AND SUBLEASING

16.1. RESTRICTED TRANSFERS.

16.1.1. CONSENT REQUIRED. Definition of "Transfer". Tenant shall
obtain Landlord's written consent before entering into or permitting any
Transfer. a "Transfer" consists of any of the following, whether voluntary or
involuntary and whether effected by death, operation of law, or otherwise: (a)
any assignment, mortgage, pledge, encumbrance, or other transfer of any interest
in this Lease; (b) any sublease or occupancy of any portion of the Premises by
any persons other than Tenant and its employees; and (c) any change of ownership
or reorganization included in the definition of Transfer as provided in Section
16.6.1 below. Any person to whom any Transfer is made or sought to be made is a
"Transferee".

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16.1.2. LANDLORD'S REMEDIES. If a Transfer fails to comply with
this Article, Landlord may, at its option, do either or both of the following:
(a) void the Transfer or (b) declare Tenant in material default hereunder.

16.2. TRANSFER PROCEDURE. Before entering into or permitting any
Transfer, Tenant shall provide to Landlord a written "Transfer Notice" at least
twenty (20) days before the proposed effective date of the Transfer. The
Transfer Notice shall include all of the following: (a) information regarding
the proposed Transferee, including the name, address, and ownership of
Transferee; the nature of Transferee's business; Transferee's character and
reputation; and Transferee's current financial statement (certified by an
officer, a partner, or an owner of Transferee); (b) all the terms of the
proposed Transfer, including the consideration payable by Transferee; the
portion of the Premises that is subject to the Transfer ("Subject Space"); a
general description of any planned alterations or improvements to the Subject
Space; the proposed use of the Subject Space; the effective date of the
Transfer; a calculation of the "Transfer Premium" (as defined below), payable in
connection with the Transfer; and a copy of all documentation concerning the
proposed Transfer; (c) any other information or documentation reasonably
requested by Landlord; and (d) an executed estoppel certificate from Tenant in
the form attached to this Lease as Exhibit F. As a condition to the
effectiveness of the Transfer Notice, Tenant shall, when providing a Transfer
Notice, pay an application fee of $300.00 toward Landlord's administrative and
other costs in reviewing and processing the Transfer Notice. If Landlord
consents to any Transfer, the following limits apply: (i) Landlord does not
agree to waive or modify the terms and conditions of this Lease; (ii) Landlord
does not consent to any further Transfer by either Tenant or Transferee; (iii)
Tenant shall remain liable under this Lease, and any guarantor of the Lease
shall remain liable under the guaranty; (iv) Tenant may enter into that Transfer
in accordance with this Article if: (1) the Transfer occurs within six (6)
months after Landlord's consent; (2) the Transfer is on substantially the same
terms as specified in the Transfer Notice; and (3) Tenant delivers to Landlord,
promptly after execution, an original, executed copy of all documentation
pertaining to the Transfer in a form reasonably acceptable to Landlord; (v) if
the Transfer does not occur within six (6) months of delivery of the Transfer
Notice, or the terms of the Transfer have materially changed from those in the
Transfer Notice, Tenant shall submit a new Transfer Notice, requesting
Landlord's consent. A material change is one the terms of which would have
entitled Landlord to refuse to consent to the Transfer initially or would cause
the proposed Transfer to be more favorable to Transferee than the terms in the
original Transfer Notice.

16.3. LANDLORD'S CONSENT.

16.3.1. REASONABLE CONSENT. Landlord may not unreasonably withhold,
delay or condition its consent to any proposed Transfer that complies with this
Article. Reasonable grounds for denying consent include (among other grounds)
any of the following: (a) Transferee's character, reputation, credit history, or
business is not consistent with the character or quality of the Building; (b)
Transferee would be a significantly less prestigious occupant of the Building
than Tenant; (c) Transferee is either a government agency or an instrumentality
of one; (d) Transferee's intended use of the Premises is inconsistent with the
Permitted Use or will materially and adversely effect Landlord's interest; (e)
Transferee's financial condition is or may be inadequate to support the Lease
obligations of Transferee under the Transfer documents; (f) the Transfer would
cause Landlord to violate another lease or agreement to which Landlord is a
party or would give a tenant of the Project the right to cancel or modify its
lease; or (g) if space comparable to the Subject Space is available in the
Building at the time of the proposed Transfer or will become available within
ninety (90) days of Landlord's receipt of the Transfer Notice, the rent charged
by Tenant to Transferee during the term of that Transfer, using a present value
analysis, is less than ninety percent (90%) of the rent then being quoted by
Landlord for comparable space in the Building for a comparable term ("Quoted
Rent"), using a present value analysis.

16.3.2. LANDLORD'S WRITTEN RESPONSE. Within five (5) business days
after receipt of a proper and complete Transfer Notice, Landlord shall approve
or disapprove the proposed Transfer in writing. Landlord's failure to respond
within such five (5) business day period shall be deemed Landlord's disapproval
of the proposed Transfer unless the Transfer Notice specifies, in bold capital
letters at the top of the Transfer Notice, "LANDLORD'S FAILURE TO RESPOND WITHIN
FIVE (5) BUSINESS DAYS AFTER RECEIPT SHALL BE DEEMED LANDLORD'S APPROVAL OF
TRANSFER", in which event Landlord's failure to respond within such five (5)
business day period shall be deemed Landlord's approval of Tenant's proposed
Transfer.

16.4. TRANSFER PREMIUM.

16.4.1. TRANSFER PREMIUM. As a reasonable condition to Landlord's
consent to any Transfer, Tenant shall pay to Landlord fifty percent (50%) of any
Transfer Premium (as defined below). "Transfer Premium" means all Base Rent,
additional rent, and other consideration payable by Transferee to Tenant
(including key money and bonus money and any payment in excess of fair market
value for services rendered by Tenant to Transferee or assets, fixtures,
inventory, equipment, or furniture transferred by Tenant to Transferee in
connection with the Transfer ("Transferee Rent")), after deducting reasonable
amounts payable by Tenant on account of the Transfer, such as the application
fee to be paid by Tenant pursuant to Section 16.2 above, reasonable Tenant's
legal fees and costs, leasing commissions, Tenant improvement costs and the Rent
payable by Tenant under this Lease (excluding the Transfer Premium) for the
Subject Space ("Tenant Rent"). Tenant shall pay the Transfer Premium on a
monthly basis, together with its payment of Base Rent. In calculating the
Transfer Premium, Tenant Rent, Transferee Rent, and Quoted Rent, the parties
shall first adjust the rent to the actual effective rent to be paid, taking into
consideration any and all leasehold concessions, including any rent credit and
tenant improvement allowance. For purposes of calculating the effective rent,
all those concessions shall be amortized on a straight-line basis over the
relevant term. On Landlord's request, Tenant shall furnish a

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complete statement, certified by an independent certified public accountant or
Tenant's chief financial officer, describing in detail the computation of any
Transfer Premium that Tenant has derived or will derive from the Transfer. If
Landlord's independent certified public accountant finds that the Transfer
Premium for any Transfer has been understated, Tenant shall, within thirty (30)
days after demand, pay the deficiency and, if such understatement exceeds three
(3) percent of the total Transfer Premium, Landlord's costs of that audit.

16.5. EFFECT OF TRANSFER. If, with Landlord's consent, this Lease is
assigned, Landlord may collect Rent directly from the Transferee. If all or
part of the Premises is subleased and Tenant defaults, Landlord may collect Rent
directly from the Transferee. Landlord may then apply the amount collected from
the Transferee to Tenant's monetary obligations under this Lease. Collecting
Rent from a Transferee or applying that Rent to Tenant's monetary obligations
does not waive any provisions of this Article.

16.6. TRANSFERS OF OWNERSHIP INTERESTS AND OTHER ORGANIZATIONAL
CHANGES.

16.6.1. CHANGE OF OWNERSHIP; REORGANIZATION. For purposes of this
Article, "Transfer" also includes: (a) if Tenant is a partnership or limited
liability company: (1) a change in ownership effected voluntarily,
involuntarily, or by operation of law within a twelve (12) month period, of
forty-nine percent (49%) or more of the partners or members or forty-nine
percent (49%) or more of the partnership or membership interests; or (2) the
dissolution of the partnership or limited liability company without its
immediate reconstitution; and (b) during such portion of the Lease Term that
Tenant is a closely held corporation (i.e., one whose stock is not publicly held
and not traded through an exchange or over the counter): (1) the sale or other
transfer, within a twelve (12) month period, of more than an aggregate of
forty-nine percent (49%) of the voting shares of Tenant (other than, pursuant to
an initial public offering, a long as management of Tenant remains substantially
the same to immediately family members or a family trust by reason of gift or
death); (2) the sale, mortgage, hypothecation, or pledge, within a twelve (12)
month period, of more than an aggregate of forty-nine percent (49%) of the value
of Tenant's unencumbered assets; or (3) the dissolution, merger, consolidation,
or other reorganization of Tenant.

16.6.2. TRANSFER TO AFFILIATE. Despite any other provision of the
Lease, Landlord's consent is not required for any Transfer to an Affiliate, as
defined below, as long as the following conditions are met: (a) at least ten
(10) business days before the Transfer, Landlord receives written notice of the
Transfer (as well as any documents or information reasonably requested by
Landlord regarding the Transfer or Transferee); (b) the Transfer is not a
subterfuge by Tenant to avoid its obligations under the Lease; (c) if the
Transfer is an assignment, Transferee assumes in writing all of Tenant's
obligations under this Lease relating to the Subject Space; and (d) Transferee
has a tangible net worth, as evidenced by financial statements delivered to
Landlord and certified by an independent certified public accountant in
accordance with generally accepted accounting principles that are consistently
applied ("Net Worth"), at least equal to Tenant's Net Worth either immediately
before the Transfer or as of the date of this Lease, whichever is greater.

16.6.3. DEFINITION OF "AFFILIATE". an "Affiliate" means any entity
that controls, is controlled by, or is under common control with Tenant or will
control, or be controlled by, or be under common control of Tenant after any
Transfer. "Control" means the direct or indirect power to direct or cause the
direction of the management, affairs and policies of anyone, whether through the
ownership of voting securities, by contract or otherwise, or ownership of more
than fifty percent (50%) of the voting securities of an entity or possession of
the right to vote more than fifty percent (50%) of the voting interest in the
ordinary direction of the entity's affairs.

Article 17
SURRENDER OF PREMISES

17.1. SURRENDER OF PREMISES. No act of Landlord or its authorized
representatives shall constitute Landlord's acceptance of a surrender of the
Premises by Tenant unless that intent is specifically acknowledged in a writing
signed by Landlord. At the option of Landlord, a surrender and termination of
this Lease shall operate as an assignment to Landlord of all subleases or
sub-tenancies. Landlord shall exercise this option by giving notice of that
assignment to all subtenants within ten (10) days after the effective date of
the surrender and termination.

17.2. REMOVAL OF TENANT PROPERTY BY TENANT. On the expiration or
earlier termination of the Lease Term, Tenant shall quit the Premises and
surrender possession to Landlord in accordance with this paragraph. Tenant
shall leave the Premises in as good order and condition as when Tenant took
possession of the Premises, except for reasonable wear and tear. On expiration
or termination, Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises: (a) all debris and rubbish; (b) any items of
furniture, equipment, freestanding cabinet work, and other articles of personal
property owned by Tenant or installed or placed by Tenant at its expense in the
Premises; (c) any similar articles of any other persons claiming under Tenant
that Landlord, in Landlord's sole discretion, requires to be removed; and (d)
any alterations and improvements that Tenant is required to remove in accordance
with the provisions of this Lease relating to Alterations. Tenant shall, at
Tenant's sole expense, repair all damage or injury that may occur to the
Premises or the Building caused by Tenant's removal of those items.

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Article 18
HOLDING OVER

18.1. HOLDOVER RENT. If Tenant remains in possession of the Premises
after expiration or earlier termination of this Lease with Landlord's express
written consent, Tenant's occupancy shall be a month to month tenancy at a rent
agreed on by Landlord and Tenant but in no event less than the Base Rent and
Additional Rent payable under this Lease during the last full month before the
date of expiration or earlier termination of this Lease. The month to month
tenancy shall be on the terms and conditions of this Lease except as provided in
(a) the preceding sentence and (b) the lease clauses (if any) concerning lease
term, expansion rights, purchase option, and extension rights. Landlord's
acceptance of rent after such holding over with Landlord's written consent shall
not result in any other tenancy or in a renewal of the original term of this
Lease. If Tenant remains in possession of the Premises after expiration or
earlier termination of this Lease without Landlord's express written consent,
Tenant's continued possession shall be on the basis of a tenancy at sufferance
and Tenant shall pay as rent during the holdover period an amount equal to one
hundred twenty percent (120%) of the Base Rent and Additional Rent payable under
this Lease for the last full month before the date of expiration or termination
on a per diem basis.

18.2. NO CONSENT OR WAIVER IMPLIED. Tenant shall construe nothing in
this Article as Landlord's implied consent to any holding over by Tenant.
Landlord expressly reserves the right to require Tenant to surrender possession
of the Premises to Landlord as provided in this Lease on expiration or other
termination of this Lease. The provisions of this Article shall not be
considered to limit or constitute a waiver of any other rights or remedies of
Landlord provided in this Lease or at law.

Article 19
ESTOPPEL CERTIFICATES

19.1. TENANT'S OBLIGATION TO PROVIDE ESTOPPEL CERTIFICATES. Within ten
(10) business days after a written request by Landlord, Tenant shall execute and
deliver to Landlord an estoppel certificate, substantially in the form of
Exhibit F (or such other form reasonably required by any existing or prospective
lender, mortgagee, or purchaser of all or part of the Project), indicating in
the certificate any exceptions to the statements in the certificate that may
exist at that time. The certificate shall also contain any other factual
information reasonably requested by Landlord or any existing or prospective
lender, mortgagee, or purchaser.

19.2. ADDITIONAL REQUESTED DOCUMENTS OR INSTRUMENTS. Within ten (10)
business days after a written request by Landlord (but only in connection with a
proposed sale or financing transaction related to the Building or the Project),
Tenant shall execute and deliver whatever other documents or instruments may be
reasonably required for sale or financing purposes, including (if requested by
Landlord) a current financial statement and financial statements for the year
preceding the current financial statement year. Those statements shall be
prepared in accordance with generally accepted accounting principles or tax
method accounting principles. All such financial statements shall be received
and held by Landlord and/or prospective purchaser(s) or lender(s) in confidence
and shall be used only for purposes contemplated by this Section 19.2.

19.3. FAILURE TO DELIVER. Tenant's failure to execute or deliver an
estoppel certificate in the required time period shall constitute an
acknowledgment by Tenant that the statements included in the estoppel
certificate are true and correct, without exception. Tenant's failure to
execute or deliver an estoppel certificate, financial statement, or other
document or instrument required under this Article in a timely manner shall
additionally be a material breach of this Lease.

Article 20
SUBORDINATION, NONDISTURBANCE, AND ATTORNMENT

20.1. AUTOMATIC SUBORDINATION. This Lease is subject and subordinate
to: (a) the lien of any mortgages, deeds of trust, or other encumbrances
("Encumbrances") of the Building and Project; (b) all present and future ground
or underlying leases ("Underlying Leases") of the Building and the Project now
or hereafter in force against the Building and the Project; (c) all renewals,
extensions, modifications, consolidations, and replacements of the items
described in clauses (a) and (b); and (d) All advances made or hereafter to be
made on the security of the Encumbrances; provided, however, that the holder of
any Encumbrance or Underlying Lease who succeeds to the interest of Landlord in
the Premises shall not disturb Tenant's use or occupancy in the Premises and
shall assume all of Landlord's duties under the Lease so long as Tenant is not
in default under the Lease beyond any applicable cure period for such default.
Despite any other provision of this Article, any Encumbrance holder or lessor
under an Underlying Lease may elect that this Lease shall be senior to and have
priority over that Encumbrance or Underlying Lease whether this Lease is dated
before or after the date of the Encumbrance or Underlying Lease.

20.2. SUBORDINATION AGREEMENT; AGENCY. The subordination provided for
in this Article is self-operative, and no further instrument of subordination is
required to make it effective. To confirm this subordination, however, Tenant
shall, within five (5) days after Landlord's request, execute any further
instruments or assurances in recordable form that Landlord reasonably considers
necessary or desirable to evidence or confirm the subordination or superiority
of this Lease to any such Encumbrances or Underlying Leases. Tenant's failure
to execute and deliver such instrument(s) shall constitute a default under this
Lease. Any such instrument of subordination shall include a provision
indicating that in the event of any foreclosure sale, deed in lieu of
foreclosure, or similar event by which the holder of an encumbrance or
Underlying Lease

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succeeds to the Landlord's interest in the Premises, Tenant's use, possession,
and enjoyment of the Premises shall not be disturbed and this Lease shall
continue in full force and effect as long as Tenant is not in default under the
terms hereof beyond any applicable cure period for such default.

20.3. ATTORNMENT. Subject to Tenant's non-disturbance rights set forth
in this Article, Tenant covenants and agrees to attorn to the transferee of
Landlord's interest in the Building and/or Project by foreclosure, deed in lieu
of foreclosure, exercise of any remedy provided in any Encumbrance or Underlying
Lease, or operation of law (without any deductions or setoffs), if requested to
do so by the transferee, and to recognize the transferee as the lessor under
this Lease. The transferee shall not be liable for: (a) any acts, omissions, or
defaults of Landlord that occurred before the sale or conveyance; or (b) the
return of any security deposit except for deposits actually paid to the
transferee.

20.4. NOTICE OF DEFAULT; RIGHT TO CURE. Tenant agrees to give written
notice of any default by Landlord to the holder of any prior Encumbrance or
Underlying Lease provided Tenant has received a written request giving the name
and address of such holder. Tenant agrees that, before it exercises any rights
or remedies under the Lease, the lien-holder or lessor shall have the right, but
not the obligation, to cure the default within the same time, if any, given to
Landlord to cure the default, plus an additional ten (10) days.

Article 21
DEFAULTS AND REMEDIES

21.1. TENANT'S DEFAULT. The occurrence of any of the following shall
constitute a default by Tenant under this Lease: (a) Tenant's failure to pay
when due any monetary obligation required to be paid under this Lease
(including, without limitation, Base Rent or Additional Rent) if the failure
continues for three (3) business days after written notice of the failure from
Landlord to Tenant; (b) Tenant's failure to provide any instrument or assurance
as required by this Lease (including, without limitation, estoppel certificates,
financial statements, and subordination agreements) if the failure continues for
ten (10) business days after written notice of the failure from Landlord to
Tenant; (c) Tenant's failure to perform any other obligation under this Lease if
the failure continues for fifteen (15) days after written notice of the failure
from Landlord to Tenant (provided, however, in the event such failure cannot be
cured within such 15-day period, despite Tenant's best efforts, then such 15-day
period, despite Tenant's best efforts, then such 15-day period shall be extended
to the extent necessary to allow such cure to be completed, but in no event
longer than 60 days); (d) to the extent permitted by law: (1) a general
assignment by Tenant or any guarantor of the Lease for the benefit of creditors;
(2) the filing by or against Tenant, or any guarantor, of any proceeding under
an insolvency or bankruptcy law, unless (in the case of an involuntary
proceeding) the proceeding is dismissed within sixty (60) days; (3) the
appointment of a trustee or receiver to take possession of all or substantially
all the assets of Tenant or any guarantor, unless possession is unconditionally
restored to Tenant or that guarantor within thirty (30) days and the trusteeship
or receivership is dissolved; (4) any execution or other judicially authorized
seizure of all or substantially all the assets of Tenant located on the
Premises, or of Tenant's interest in this Lease, unless that seizure is
discharged within thirty (30) days; (e) the committing of waste on the Premises
that are not subject to cure in accordance with Clause (c) of this paragraph; or
(f) Tenant's failure to occupy the Premises within thirty (30) business days
after the Premises are ready for occupancy.

21.2. REPLACEMENT OF STATUTORY NOTICE REQUIREMENTS. When this Lease
(including, specifically, the preceding paragraph) requires service of a notice,
that notice shall replace rather than supplement any equivalent or similar
statutory notice, including any notices required by Code of Civil Procedure
Section 1161 or any similar or successor statute. When a statute requires
service of a notice in a particular manner, service of that notice (or a similar
notice required by this Lease) in the manner in which notices are required to be
delivered by this Lease shall replace and satisfy the statutory service of
notice procedures, including those required by Code of Civil Procedure Section
1162 or any similar or successor statute.

21.3. LANDLORD'S REMEDIES ON TENANT'S DEFAULT. On the occurrence of a
default by Tenant, Landlord shall have the right to pursue any one or more of
the following remedies in addition to any other remedies now or later available
to Landlord at law or in equity. These remedies are not exclusive but
cumulative.

21.3.1. TERMINATION OF LEASE. Landlord may, by written notice,
terminate this Lease and recover possession of the Premises. Once Landlord has
terminated this Lease, Tenant shall immediately surrender the Premises to
Landlord. On termination of this Lease, Landlord may recover from Tenant all of
the following: (a) the worth at the time of the award of any unpaid Rent that
had been earned at the time of the termination, to be computed by allowing
interest at the Default Rate (as defined below); (b) the worth at the time of
the award of the amount by which the unpaid Rent that would have been earned
between the time of the termination and the time of the award exceeds the amount
of unpaid Rent that Tenant proves could reasonably have been avoided, to be
computed by allowing interest at the Default Rate; (c) the worth at the time of
the award of the amount by which the unpaid Rent for the balance of the lease
Term after the time of the award exceeds the amount of unpaid Rent that Tenant
proves could reasonably have been avoided, to be computed by discounting that
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of the award plus one percent (1%); (d) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's failure
to perform obligations under this Lease, or which in the ordinary course of
things would be likely to result therefrom; and (e) any other amounts, in
addition to or in lieu of those listed above, that may be permitted by
applicable law.

21.3.2. CONTINUATION OF LEASE IN EFFECT. Landlord may exercise the
remedy described in California Civil Code Section 1951.4, which provides that,
when a tenant has the right to sublet or assign

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(subject only to reasonable limitations), the landlord may continue the lease in
effect after the Tenant's breach and abandonment and recover Rent as it becomes
due. Accordingly, if Landlord does not elect to terminate this Lease on account
of any default by Tenant, Landlord may enforce all of Landlord's rights and
remedies under this Lease, including the right to recover all Rent as it becomes
due.

21.3.3. TENANT'S SUBLEASES. Whether or not Landlord elects to
terminate this Lease on account of any default by Tenant, Landlord may: (a)
terminate any sublease, license, concession, or other consensual arrangement for
possession entered into by Tenant and affecting the Premises, (b) choose to
succeed to Tenant's interest in such an arrangement. If Landlord elects to
succeed to Tenant's interest in such an arrangement, Tenant shall, as of the
date of notice by Landlord of that election, have no further right to, or
interest in, the Rent or other consideration receivable under that arrangement.

21.4. EFFORTS TO RELET. For purposes of this Article, Tenant's right
to possession shall not be considered to have been terminated by Landlord's
efforts to relet the Premises, by Landlord's acts of maintenance or preservation
with respect to the Premises, or by appointment of a receiver to protect
Landlord's interests under this Lease. This list is merely illustrative of acts
that may be performed by Landlord without terminating Tenant's right to
possession. No act other than a written notice of termination from Landlord
shall constitute an election by Landlord to terminate this Lease.

21.5. ACCEPTANCE OF RENT WITHOUT WAIVING RIGHTS. Landlord may accept
Tenant's payments without waiving any rights under this Lease, including rights
under a previously served notice of default, other than the right to pursue
Tenant for non-payment of the amount so accepted. If Landlord accepts payments
after serving a notice of default, Landlord may nevertheless commence and pursue
an action to enforce rights and remedies under the previously served notice of
default without giving Tenant any further notice or demand.

21.6. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS. In addition to
the foregoing rights, if Tenant's failure to perform a non-monetary obligation
under this Lease continues for five (5) days after Tenant has failed to cure a
default within the time permitted Tenant hereunder, Landlord may perform the
obligation on Tenant's behalf, without waiving Landlord's rights for Tenant's
failure to perform such obligation and without releasing Tenant from such
obligations. Within ten (10) days after receiving a statement from Landlord,
Tenant shall pay to Landlord the amount of expense reasonably incurred by
Landlord in performing Tenant's obligation, including a reasonable charge for
Landlord's overhead/supervision.

Article 22
LATE PAYMENTS

22.1. LATE CHARGES. If any Base Rent or Additional Rent payment is not
received by Landlord or Landlord's designee within five (5) business days after
that payment is due, Tenant shall pay to Landlord a late charge equal to the
greater of $100.00, or ten percent (10%) of the overdue amount as liquidated
damages, in lieu of actual damages (other than interest under the next paragraph
and attorneys' fees and costs as provided below); provided that such late charge
shall not accrue upon the first instance of delinquent payment in any calendar
year if Tenant delivers such overdue amount within five (5) business days after
written notice from Landlord that such amount was not received when due. The
parties agree that this late charge represents a reasonable estimate of the
expenses that Landlord will incur because of any late payment of Rent (other
than interest and attorney fees and costs) and that such amount is fair and
reasonable under the facts and circumstances existing as of the date of this
Lease. Landlord's acceptance of any liquidated damages shall not constitute a
waiver of Tenant's default with respect to the overdue amount or prevent
Landlord from exercising any of the rights and remedies available to Landlord
under this Lease. Tenant shall pay the late charge as Additional Rent with the
next installment of Base Rent.

22.2. INTEREST. If any monetary obligation of Tenant is not received
by Landlord or Landlord's designee within thirty (30) days after the obligation
is due, Tenant shall pay to Landlord interest on the past due amount, from the
date due until paid, at the rate of four percent (4%) per annum above the then
applicable Wall Street Journal "prime rate", or an equivalent rate if there is
then no published prime rate (the "Default Rate"). Despite any other provision
of this Lease, the Default Rate shall not exceed the limits, if any, imposed in
such instance by the usury laws of the State of California. Any interest paid
in excess of those limits shall be refunded to Tenant by application of the
amount of excess interest paid against any sums outstanding in any order that
Landlord requires. If the amount of excess interest paid exceeds the sums
outstanding, Landlord shall refund the portion exceeding those sums in cash to
Tenant.

Article 23
NON-WAIVER

23.1. NON-WAIVER. No waiver of any provision of this Lease shall be
implied by any failure of either party to enforce any remedy for the violation
of that provision, even if that violation continues or is repeated. Any waiver
by either party of any provision of this Lease must be in writing. Such written
waiver shall affect only the provision specified and only for the time in the
manner stated in the writing.

23.2. ACCEPTANCE AND APPLICATION OF PAYMENT. NOT ACCORD AND
SATISFACTION. No receipt by Landlord of a lesser payment than the Rent required
under this Lease shall be considered to be other than on account of the earliest
amount due, and no endorsement or statement on any check or letter accompanying
a payment or check shall be considered an accord and satisfaction. Landlord may
accept checks or payments without prejudice to

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Landlord's right to recover all amounts due and pursue all other remedies
provided for in this Lease. Landlord's receipt of monies from Tenant after
giving notice to Tenant terminating this Lease shall in no way reinstate,
continue, or extend the Lease Term or affect the Termination Notice given by
Landlord before the receipt of those monies. After serving notice terminating
this Lease, filing an action, or obtaining final judgment for possession of the
Premises, Landlord may receive and collect any Rent due, and the payment of that
Rent shall not waive or affect such prior notice, action, or judgment.

Article 24
WAIVER OF RIGHT TO JURY TRIAL

24.1. WAIVER OF RIGHT TO JURY TRIAL. Landlord and Tenant waive their
respective rights to trial by jury of any contract or tort claim, counterclaim,
cross complaint, or cause of action in any action, proceeding, or hearing
brought by either party against the other on any matter arising out of or in any
way connected with this Lease, the relationship of Landlord and Tenant, or
Tenant's use or occupancy of the Premises, including any claim of injury or
damage or the enforcement of any remedy under any current or future law,
statute, regulation, code, or ordinance.

__________________________ _____________________________
Landlord's Initials Tenant's Initials

Article 25
ATTORNEY FEES AND COSTS

25.1. LEGAL COSTS. If either party incurs any costs or expenses in
connection with any action instituted by either party by reason of any dispute
pursuant to this Lease or for the recovery of any sum due under this Lease, or
because of the breach of any provisions of this Lease by either party, or for
any other relief pursuant to this Lease, or in the event of any other litigation
between the parties with respect to this Lease, then all costs and expenses,
including without limitation, its actual professional fees such as appraisers',
accountants, and attorneys' fees, incurred by the prevailing party therein shall
be paid by the other party, which obligation on the part of the other party
shall be deemed to have accrued on the date of the commencement of such action
or dispute and shall be enforceable whether or not the action is prosecuted to
judgment. The provisions contained in this paragraph shall survive the
expiration or earlier termination of this Lease, and in the event any action or
proceeding is instituted to recover possession of the Premises following the
expiration or earlier termination of this Lease, the provisions contained in
this paragraph shall be applicable.

Article 26
LANDLORD'S ACCESS TO PREMISES

26.1. LANDLORD'S ACCESS TO PREMISES. Landlord and its agents shall
have the right at all reasonable times and upon reasonable notice (except where
circumstances make giving of prior notice impractical or unreasonable, such as
in the case of an emergency, or where risk to personal property exists) to enter
the Premises to: (a) inspect the Premises; (b) show the Premises to prospective
purchasers, mortgagees, or tenants (during the last six (6) months of the Lease
Term) or to ground lessors or underlying lessors; (c) serve, post, and keep
posted notices required by law or that Landlord considers necessary for the
protection of Landlord or the Building; or (d) make repairs, replacements,
alterations, or improvements to the Premises or Building that Landlord considers
necessary or desirable. Despite any other provision of this Article, Landlord
may enter the Premises at any time to: (a) perform services required of
Landlord; (b) take possession due to any breach of this Lease; or (c) perform
any covenants of Tenant that Tenant fails to perform (subject to the limitation
set forth in Section 21.6 above). Any information obtained by Landlord or its
agents regarding Tenant's business pursuant to such entry shall be received and
held in confidence.

26.2. TENANT'S WAIVER. Landlord may enter the Premises without the
abatement of Rent and may take steps to accomplish the above-stated purposes.
Tenant waives any claims for damages caused by Landlord's entry, including
damage claims for: (a) injuries; (b) inconvenience to or interference with
Tenant's business; (c) lost profits; and (d) loss of occupancy or quiet
enjoyment of the Premises, other than claims resulting from Landlord's gross
negligence or intentional misconduct.

Article 27
SIGNS

27.1. BUILDING NAME; LANDLORD'S SIGNAGE RIGHTS. Subject to Tenant's
signage rights under this Article, Landlord may at any time change the name of
the Building and install, affix, and maintain all signs on the exterior and
interior of the Building as Landlord may, in Landlord's sole discretion, desire.
Tenant shall not have or acquire any property right or interest in the name of
the Building. Tenant may use the name of the Building or pictures or
illustrations of the Building in advertising or other publicity during the Lease
Term.

27.2. TENANT'S SIGNAGE RIGHTS WITHIN THE BUILDING.

27.2.1. SINGLE TENANT FLOOR. If the Premises comprise an entire
floor of the Building, Tenant may, at Tenant's sole expense but which cost may
be included as part of the Tenant Improvement Allowance, install identification
signs (including its logo) anywhere in the Premises, including the elevator
lobby of the

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Premises, subject to the following requirements: (a) Tenant must obtain
Landlord's prior written approval for such signs, which Landlord may, in
Landlord's sole, reasonable discretion, grant or deny; (b) all signs must be in
keeping with the quality, design, and style of the Building; and (c) no sign may
be visible from the exterior of the Building.

27.2.2. MULTI-TENANT FLOOR. If other tenants occupy space on the
floor on which the Premises are located, Landlord shall provide Tenant's
identifying signs at Tenant's expense. The signs shall be comparable to those
used by Landlord for other similar floors in the Building and shall comply with
Landlord's Building standard signage program. Notwithstanding anything to the
contrary contained in this Lease, Landlord, at its sole cost and expense, shall
provide Tenant with "Building Standard" directory and suite signage.

27.2.3. PROHIBITED SIGNS AND OTHER ITEMS. Tenant may not display
any signs on the exterior or roof of the Building or in the common areas of the
Building or the Project. Tenant may not install or display any signs, window
coverings, blinds (even if located behind the Landlord approved window coverings
for the Building), or other items visible from the exterior of the Premises
without Landlord's prior written approval, which Landlord may, in Landlord's
sole discretion, grant or withhold. Any signs, notices, logos, pictures, names,
or advertisements that are installed by or for Tenant without Landlord's
approval may be removed without notice by Landlord at Tenant's expense.

27.2.4. BUILDING SIGNAGE. In addition to the foregoing rights, the
Tenant will be entitled to non-exclusive signage on top of the Building facing
Interstate 5 in a location to be mutually agreed upon by Landlord and Tenant
(the "Building Sign"). The Building Sign is subject to Landlord's approval and
must satisfy Landlord's Project sign criteria and all applicable City signage
and zoning regulations. All costs and expenses associated with such Building
Sign including, without limitation, costs of purchase, installation,
maintenance, and eventual removal shall be borne by Tenant but may be included
in the Tenant Improvements subject to the Tenant Improvement Allowance. In
addition, Tenant shall be responsible for all costs of repairing any damage
resulting from the installation, maintenance, or removal of such signage,
including costs of restoring the Building such that there are no residual marks
on the Building following removal of the Building Sign.

Article 28
TENANT PARKING

28.1. NUMBER OF PARKING PASSES. Tenant shall be entitled to receive,
at no charge, parking passes from Landlord for the number of parking spaces for
Tenant's use as is set forth in the Summary of Basic Lease Information. Tenant
shall pay Landlord the standard charge for any parking passes which must be
replaced due to loss or destruction. Tenant shall have no right to use any
parking spaces in excess of the number of parking passes provided to Tenant
pursuant hereto and neither Tenant nor Tenant's employees may use any guest
parking spaces in the Project.

28.2. LOCATION OF PARKING. Landlord specifically reserves the right to
designate and to change the location, size, configuration, design, layout, and
all other aspects of the parking facilities, including the initiation or
discontinuance of a valet system. Landlord may at reasonable times, and in a
reasonable manner, so as to minimize interference with Tenant's parking rights,
close off or restrict access to the parking facilities from time to time to
facilitate construction, alteration, or improvements, without incurring any
liability to Tenant and without any abatement of Rent under this Lease, provided
Landlord shall use reasonable efforts to provide reasonable replacement parking
facilities during the period of any closure if such replacement parking
facilities are available.

28.3. PARKING RULES AND REGULATIONS. Tenant's continued right to use
the parking passes is conditioned upon Tenant abiding by all non-discriminatory
rules and regulations prescribed from time to time by Landlord for the orderly
operation and use of the parking facilities. Tenant shall use all reasonable
efforts to ensure that Tenant's employees and visitors also comply with such
rules and regulations.

28.4. NONTRANSFERABLE PASSES. The parking passes issued by Landlord to
Tenant under this Article are provided to Tenant solely for use by Tenant's
personnel and any subtenant or assignees and their respective personnel (not
including Tenant's invitees and guests). These passes may not be transferred,
assigned, subleased, or otherwise alienated by Tenant without Landlord's prior
approval, which approval Landlord may withhold in its sole discretion.

Article 29
SECURITY

29.1. SECURITY. Tenant acknowledges (i) that the Base Rent does not
include the cost of any security measures for any portion of the Project (ii)
that Landlord shall have no obligation to provide any such security measures,
(iii) that Landlord has made no representation to Tenant regarding the safety or
security of the Project, and (iv) that Tenant will be solely responsible for
providing any security it deems necessary to protect itself, its property, and
Tenant's employees, agents, contractors, and invitees in, on, or about the
project. If Landlord provides any security measures at any time, then the cost
thereof shall be included as part of the Direct Expenses, but Landlord will not
be obligated to continue providing such security measures for any period of
time, Landlord may discontinue such service without notice and without liability
to Tenant, and Landlord will not be obligated to provide such security measures
with any particular standard of care. Tenant assumes all responsibility for the
security and safety of Tenant, Tenant's property, and Tenant's employees,
agents,

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contractors, and invitees. Tenant releases Landlord from all claims for damage,
loss, or injury to Tenant, Tenant's employees, agents, contractors, and
invitees, and/or to the personal property of Tenant and/or of Tenant's
employees, agents, contractors, and invitees, even if such damage, loss, or
injury is caused by or results from the criminal or negligent acts of third
parties. Landlord shall have no duty to warn Tenant of any criminal acts or
dangerous conduct that has occurred in or near the Project, regardless of
Landlord's knowledge of such crimes or conduct, and Tenant is hereby instructed
to conduct its own investigation through local police agencies regarding any
criminal acts or dangerous conduct that has occurred in or near the Project.

Article 30
MISCELLANEOUS

30.1. CAPTIONS. The captions of articles and sections and the table of
contents of this Lease are for convenience only and have no effect on the
interpretation of the provisions of this Lease.

30.2. WORD USAGE. Unless the context clearly requires otherwise, the
plural and singular numbers shall each be considered to include the other; the
masculine, feminine, and neuter genders shall each be considered to include the
others; "Shall", "will", "must", "agrees", and "covenants" are each mandatory;
"May" is permissive; "Or" is not exclusive; and "Includes" and "including" are
not limiting.

30.3. COUNTING DAYS. Days shall be counted by excluding the first day
and including the last day. If the last day is a Saturday, Sunday, or legal
holiday as described in Government Code Sections 6700-6701, it shall be
excluded. Any act required by this Lease to be performed by a certain day shall
be timely performed if completed before 5 p.m. local time on that date. If the
day for performance of any obligation under this Lease is a Saturday, Sunday, or
legal holiday, the time for performance of that obligation shall be extended to
5 p.m. local time on the first following date that is not a Saturday, Sunday, or
legal holiday.

30.4. ENTIRE AGREEMENT; AMENDMENTS. This Lease and all exhibits,
addenda, schedules, and agreements referred to in this Lease constitute the
final, complete, and exclusive statement of the terms of the agreement between
Landlord and Tenant pertaining to Tenant's lease of space in the Building and
supersede all prior and contemporaneous understandings or agreements of the
parties. Neither party has been induced to enter into this Lease by, and
neither party is relying on, any representation or warranty outside those
expressly set forth in this Lease. This Lease may be amended only by an
agreement in writing signed by Landlord and Tenant.

30.5. EXHIBITS. The Exhibits and Addendum, if applicable, attached to
this Lease are a part of this Lease and incorporated into this Lease by
reference.

30.6. REASONABLENESS AND GOOD FAITH. Except as otherwise provided
elsewhere in this Lease, whenever this Lease requires Landlord or Tenant to give
its consent or approval to any action on the part of the other, such consent or
approval shall not be unreasonably withheld or delayed.

30.7. PARTIAL INVALIDITY. If a court or arbitrator of competent
jurisdiction holds any Lease clause to be invalid or unenforceable in whole or
in part for any reason, the validity and enforceability of the remaining
clauses, or portions of them, shall not be affected unless an essential purpose
of this Lease would be defeated by loss of the invalid or unenforceable
provision.

30.8. BINDING EFFECT. Subject to the limitations on Transfer contained
herein, this Lease shall bind and benefit the parties to this Lease and their
legal representatives and successors in interest.

30.9. INDEPENDENT COVENANTS. This Lease shall be construed as though
the covenants between Landlord and Tenant are independent and not dependent.
Tenant expressly waives the benefit of any statute to the contrary and agrees
that if Landlord fails to perform its obligations under this Lease except as
specifically provided herein, Tenant shall not be entitled: (a) to make any
repairs or perform any acts at Landlord's expense; or (b) to any setoff of the
Rent or other amounts owing under this Lease against Landlord. The foregoing,
however, shall in no way impair Tenant's right to bring a separate action
against Landlord for any violation by Landlord of the provisions of this Lease
if notice is first given to Landlord and any lender of whose address Tenant has
been notified, and an opportunity is granted to Landlord and that lender to
correct those violations as provided above.

30.10. GOVERNING LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of California.

30.11. NOTICES. All notices (including requests, demands, approvals, or
other communications) under this Lease shall be in writing. Notice shall be
sufficiently given for all purposes as follows: (a) when personally delivered
to the recipient, notice is effective on delivery, (b) when mailed first class
to the last address of the recipient known to the party giving notice, notice is
effective on delivery, (c) when mailed by certified mail with return receipt
requested, notice is effective on receipt if delivery is confirmed by a return
receipt, (d) when delivered by overnight delivery (FedEx/Airborne/United Parcel
Service/DHL WorldWide Express) with charges prepaid or charged to the sender's
account, notice is effective on delivery if delivery is confirmed by the
delivery service, (e) when sent by telex or fax to the last telex or fax number
of the recipient known to the party giving notice, notice is effective on
receipt as long as (1) the notice is delivered on a business day, and (2) a
duplicate copy of the notice is promptly given by first class or certified mail
or by overnight delivery or (3) the receiving party delivers a written
confirmation of receipt. Any notice given by telex or fax shall be considered
to

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have been received on the next business day if it is received after 5 p.m.
(recipient's time) or on a non-business day. Any correctly addressed notice
that is refused, unclaimed, or undeliverable because of an act or omission of
the party to be notified shall be considered to be effective as of the first
date that the notice was refused, unclaimed, or considered undeliverable by the
postal authorities, messenger, or overnight delivery service. Addresses for
purposes of giving notice are set forth in the Summary of Basic Lease
Information. Either party may change its address or telex or fax number by
giving the other party notice of the change in any manner permitted by this
paragraph. If Tenant is notified of the identity and address of Landlord's
lender or ground or underlying lessor, Tenant shall give to that lender or
ground or underlying lessor written notice of any default by Landlord under the
terms of this Lease.

30.12. FORCE MAJEURE. If performance by a party of any portion of this
Lease is made impossible by any prevention, delay, or stoppage caused by
strikes; lockouts; labor disputes; acts of God; inability to obtain services,
labor, or materials or reasonable substitutes for those items; government
actions; civil commotion; fire or other casualty; or other causes beyond the
reasonable control of the party obligated to perform, performance by that party
for a period equal to the period of that prevention, delay, or stoppage is
excused. Tenant's obligation to pay Rent, however, is not excused by this
paragraph.

30.13. TIME OF THE ESSENCE. Time is of the essence of this Lease and
each of its provisions.

30.14. MODIFICATIONS REQUIRED BY LANDLORD'S LENDER. If any lender of
Landlord or ground lessor of the Building and/or Project requires a modification
of this Lease that will not increase Tenant's cost or expense or materially or
adversely change Tenant's rights and obligations, this Lease shall be so
modified and Tenant shall execute whatever documents are required and deliver
them to Landlord within ten (10) business days after the request.

30.15. RECORDING. Neither this Lease nor any memorandum, affidavit, or
other writing relating to this Lease may be recorded by Tenant or anyone acting
through, under, or on behalf of Tenant. Recordation in violation of this
provision constitutes an act of default by Tenant.

30.16. LIABILITY OF LANDLORD. Except as otherwise provided in this
Lease or applicable law, for any breach of this Lease the liability of Landlord
(including all persons and entities that comprise Landlord, and any successor
landlord) and any recourse by Tenant against Landlord shall be limited to the
interest of Landlord and Landlord's successors in interest in and to the
Building and Project and the income and proceeds therefrom. On behalf of itself
and all persons claiming by, through, or under Tenant, Tenant expressly waives
and releases Landlord (and its officers, directors, and shareholders) from any
personal liability for breach of this Lease.

30.17. TRANSFER OF LANDLORD'S INTEREST. Landlord has the right to
transfer all or part of its interest in the Building and Project and in this
Lease. On such a transfer, Landlord shall automatically be released from all
liability thereafter accruing under this Lease, and Tenant shall look solely to
that transferee for the performance of Landlord's obligations under this Lease
after the date of transfer if (i) any security deposit has been transferred by
Landlord to Landlord's successor, and (ii) Landlord's successor agrees to be
bound by the terms of this Lease. Landlord may assign its interest in this
Lease to a mortgage lender as additional security. This assignment shall not
release Landlord from its obligations under this Lease, and Tenant shall
continue to look to Landlord for the performance of its obligations under this
Lease.

30.18. JOINT AND SEVERAL OBLIGATIONS OF TENANT. If more than one
individual or entity comprises Tenant, the obligations imposed on each
individual or entity that comprises Tenant under this Lease shall be joint and
several.

30.19. SUBMISSION OF LEASE. Submission of this document for examination
or signature by the parties does not constitute an option or offer to lease the
Premises on the terms in this document or a reservation of the Premises in favor
of Tenant. This document is not effective as a lease or otherwise until
executed and delivered by both Landlord and Tenant.

30.20. LEGAL AUTHORITY.

30.20.1. CORPORATE AUTHORITY. If Tenant is a corporation, each
individual executing this Lease on behalf of that corporation represents and
warrants that: (a) the individual is authorized to execute and deliver this
Lease on behalf of that corporation in accordance with a duly adopted resolution
of the corporation's board of directors and in accordance with that
corporation's articles of incorporation or charter and bylaws; (b) the
corporation is a duly organized and legally existing corporation in good
standing in the State of California; and (c) the execution and delivery of this
Lease by that corporation shall not result in any breach of or constitute a
default under any mortgage, deed of trust, lease loan, credit agreement,
partnership agreement, or other contract or instrument to which that corporation
is a party or by which that corporation may be bound.

30.20.2. PARTNERSHIP AUTHORITY. If Tenant is a partnership, each
individual executing this Lease on behalf of the partnership represents and
warrants that: (a) the individual is duly authorized to execute and deliver this
Lease on behalf of the partnership in accordance with the partnership agreement,
or an amendment to the partnership agreement, now in effect; (b) the partnership
is a duly organized and legally existing partnership and has filed all
certificates required by law; and (c) the execution and delivery of this Lease
shall not result in any breach of or constitute a default under any mortgage,
deed of trust, lease, loan, credit agreement,

25
<PAGE>

partnership agreement, or other contract or instrument to which the partnership
is a party or by which the partnership may be bound.

30.20.3. LIMITED LIABILITY COMPANY AUTHORITY. If Tenant is a limited
liability company, each individual executing this Lease on behalf of the company
represents and warrants that: (a) the individual(s) executing this Lease on
behalf of the company has/have full power and authority under the company's
governing documents to execute and deliver this Lease in the name of and on
behalf of the company and to cause the company to perform its obligations under
this Lease; (b) the company is a limited liability company duly organized and
validly existing under the laws of the State of California; and (c) the company
has the power and authority under applicable law and its governing documents to
execute and deliver this Lease and to perform its obligations under this Lease.

30.20.4. LANDLORD'S AUTHORITY. Each person executing this Lease on
behalf of Landlord represents and warrants that he or she is fully authorized
and empowered to do so and thereby bind Landlord hereunder.

30.21. RIGHT TO LEASE. Landlord reserves the absolute right to contract
with any other person or entity to be a tenant in the Building as Landlord, in
Landlord's sole business judgment, determines best to promote the interests of
the Building. Tenant does not rely on the expectation, and Landlord does not
represent, that any specific tenant or type or number of tenants will, during
the Lease Term, occupy any space in the Building.

30.22. NO AIR RIGHTS. No rights to any view from the Premises or to
exterior light or air to the Premises are created under this Lease.

30.23. BROKERS. Landlord and Tenant each represents to the other that
it has had no dealings with any real estate broker or agent in connection with
the negotiation of this Lease, except for the real estate brokers or agents
specified in the Summary of Basic Lease Information and that they know of no
other real estate broker or agent who is entitled to a commission or finder's
fee in connection with this Lease. Each party shall indemnify, protect, defend,
and hold harmless the other party against all claims, demands, losses,
liabilities, lawsuits, judgments, and costs and expenses (including reasonable
attorney fees) for any leasing commission, finder's fee, or equivalent
compensation alleged to be owing on account of the indemnifying party's dealings
with any real estate broker or agent other than the Brokers. The terms of this
Section shall survive the expiration or earlier termination of the Lease Term.

30.24. TRANSPORTATION MANAGEMENT. Tenant shall fully comply with all
current or future compulsory programs imposed by any public authority, intended
to manage parking, transportation, or traffic in and around the Building. In
connection with this compliance, Tenant shall take responsible action for the
transportation planning and management of all employees located at the Premises
by working directly with Landlord, any government transportation management
organization, or other transportation related committees or entities. This
provision includes programs such as the following: (a) restrictions on the
number of peak hour vehicle trips generated by Tenant; (b) encouragement of
increased vehicle occupancy through employer sponsored financial or in kind
incentives; (c) implementation of an in house or area wide ridesharing program
and appointment of an employee transportation coordinator; and (d) flexible work
shifts for employees.

30.25. QUIET ENJOYMENT. So long as Tenant timely and completely
performance all of its obligations hereunder, Landlord covenants that Tenant
shall have the quiet enjoyment of the Premises subject to all of the terms,
provisions, and conditions of this Lease.

30.26. DISCLAIMER. Nothing in this Lease shall constitute an offer to
lease, nor shall the terms of this Lease be binding until signed by both Tenant
and Landlord.

DATE: April 7, 1998

LANDLORD: TENANT:

Pacific Torrey Reserve Holdings, L.P., Collateral Therapeutics, Inc.
a California limited partnership a California corporation

By: American Assets, Inc.,
a California corporation
Agent for Owner By: /s/ Christopher J. Reinhard
------------------------------
By: /s/ John W. Chamberlain Name: Christopher J. Reinhard
---------------------------- ----------------------------
John W. Chamberlain Title: Chief Operating Officer
Chief Executive Officer ---------------------------
4/9/98

By: /s/ Jack W. Reich
------------------------------
Name: Jack W. Reich, Ph.D.
----------------------------
Title: President & C.E.O
---------------------------

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<PAGE>

EXHIBIT A
SITE PLAN OF PROJECT

This EXHIBIT A is intended to show the general configuration of the Project and
the Building as of the Commencement Date and is not a representation or warranty
by Landlord as to the size, nature or exact configuration of the Project or
Building.

[PICTURE]

<PAGE>

EXHIBIT B
DIAGRAM OF PREMISES

This EXHIBIT B is intended to show the general configuration of the Premises as
of the Commencement Date and is not a representation or warranty by Landlord as
to the size, nature or exact configuration of the Premises.

[PICTURE]

<PAGE>

EXHIBIT D
NOTICE OF BASIC LEASE INFORMATION

To:
------------------------
------------------------
------------------------

RE: Office Lease, dated ______________________

LANDLORD:_______________________________________________________________________

TENANT:_________________________________________________________________________

PREMISES:_______________________________________________________________________

BUILDING: The Building located at______________________________________________

RESPONSE DEADLINE:______________________________________________________________

Dear Sir or Madam:

In accordance with the office lease referred to above (Lease), we wish to
advise you and confirm the following:

1. Construction of the Tenant Improvements is substantially completed, and
the Lease Term shall commence as of _________________, for a term of
________________ months, ending on _______________.

2. The exact Rentable Area of the Premises is ___________________ Rentable
Square Feet.

3. In accordance with the Lease, Base Rent began to accrue on , in
the amount of

4. If the Lease Commencement Date is other than the first day of the
month, the first billing shall contain a pro rata adjustment based on the actual
number of days in the first calendar month. Each subsequent billing, with the
exception of the final billing, shall be for the full amount of the monthly
installment as provided for in the Lease; provided that any prepaid rent in
excess of the amount set forth in the first billing shall be credited against
Rent for the second calendar month of the Lease Term.

5. Base Rent and any estimated Operating Expense and Tax payments are due
and payable in advance on the first day of each month during the Lease Term.
Your rent checks should be made payable to _________________________________ at
____________________________________________________________

6. Tenant's Share, as of the Commencement Date, and as adjusted based on
the exact number of Rentable Square Feet in the Premises, is _________________.

LANDLORD: TENANT:

Pacific Torrey Reserve Holdings, L.P., Collateral Therapeutic, Inc.
a California limited partnership a California corporation

By: American Assets, Inc. By:_____________________________
a California corporation Name:___________________________
Agent for Owner Title:__________________________

By:__________________________ By:_____________________________
John W. Chamberlain Name:___________________________
Chief Executive Officer Title:__________________________

<PAGE>

EXHIBIT E
RULES AND REGULATIONS

Tenant shall comply with the following Rules and Regulations. Landlord
shall not be responsible to Tenant for the nonperformance of any of these Rules
and Regulations.

1. LOCKS; KEYS. Tenant shall not alter any lock or install any new or
additional locks or bolts on any doors or windows of the Premises without
obtaining Landlord's prior written consent. Tenant shall bear the cost of any
lock changes or repairs required by Tenant. Landlord for the Premises shall
furnish two keys, and any additional keys required by Tenant must be obtained
from Landlord at a reasonable cost to be established by Landlord.

2. DOORS OPENING TO PUBLIC CORRIDORS. All doors opening to public
corridors must be kept closed at all times except for normal ingress to and
egress from the Premises.

3. SECURING DOORS; ADMISSION TO BUILDING. Landlord reserves the right to
close and keep locked all entrance and exit doors of the Building during the
hours when Comparable Buildings are customarily closed and locked. When
departing after the Building's normal business hours, Tenant and Tenant's
employees and agents must be sure that the doors to the Building are securely
closed and locked. Any person, including Tenant and Tenant's employees and
agents, who enters or leaves the Building at any time when it is locked or at
any time considered to be after the Building's normal business hours, may be
required to sign the Building register. Access to the Building may be refused
unless the person seeking access has proper identification or has previously
arranged a pass for access to the Building. Landlord and its agents shall not
be liable for damages for any error concerning the admission to, or exclusion
from, the Building of any person. Landlord reserves the right, in the event of
invasion, mob, riot, public excitement, or other commotion, to prevent access to
the Building or Project during the continuance of that event by any means it
considers appropriate for the safety and protection of life and property.

4. FURNITURE, FREIGHT, AND EQUIPMENT; SERVICE DELIVERIES. No furniture,
freight, or equipment of any kind may be brought into the Building without prior
notice to Landlord. All moving activity into or out of the Building must be
scheduled with Landlord and done only at the time and in the manner designated
by Landlord. No service deliveries (other than messenger services) shall be
allowed between the hours of 4 p.m. and 6 p.m., Monday through Friday. Landlord
may at any time restrict the elevators and areas of the Building into which
messengers may enter and may require that Tenant leave deliveries at the lobby
security desk for pickup. Landlord may prescribe the weight, size, and position
of all safes and other heavy property brought into the Building and the times
and manner of moving those items within and out of the Building. Tenant shall
not overload the floor of the Premises. If considered necessary by Landlord,
safes and other heavy objects must stand on supports that are adequate to
distribute the weight properly. Landlord shall not be responsible for loss of
or damage to any safe or property. Any damage to any part of the Building or to
its contents, occupants or visitors caused by moving or maintaining any safe or
other property referred to in this clause shall be the sole responsibility and
expense of Tenant.

5. RECEIPT OF DELIVERIES; USE OF ELEVATORS. No furniture, packages,
supplies, equipment, or merchandise may be received in the Building or carried
up or down in the elevators, except between those hours and in that specific
elevator that Landlord shall designate.

6. NO DISTURBANCE OF OTHER OCCUPANTS. Tenant shall not disturb, solicit,
or canvass any occupant of the Project and shall cooperate with Landlord and
Landlord's agents to prevent those actions.

7. USE OF RESTROOMS; RESPONSIBILITY FOR DAMAGE. The restrooms, urinals,
wash bowls, and other apparatus shall not be used for any purpose other than
that for which they were constructed, and no foreign substance of any kind shall
be thrown into them. The expense of any breakage, stoppage, or damage resulting
from violation of this rule shall be borne by the tenant who caused, or whose
employees or agents caused, the breakage, stoppage, or damage.

8. HEATING AND AIR-CONDITIONING. Tenant shall not use any method of
heating or air-conditioning, other than that supplied by Landlord, without
Landlord's prior written consent.

9. FOUL OR NOXIOUS GASES OR SUBSTANCES; NONINTERFERENCE WITH OTHERS.
Tenant shall not use or keep, or allow to be used or kept, any foul or noxious
gas or substance in or on the Premises. Tenant shall not allow the Premises to
be occupied or used in a manner causing noise, odors, or vibrations that are
offensive or objectionable of Landlord or other occupants of the Project.

10. ANIMALS, BIRDS, AND VEHICLES. Tenant shall not bring into, or keep
within, the Premises or the Building any animals, birds, or vehicles (e.g.,
bicycles).

11. COOKING; NO USE OF PREMISES FOR IMPROPER PURPOSES. Unless included in
Tenant's Permitted Use, no cooking shall be done or permitted on the Premises,
except that Underwriters' Laboratory (UL)-approved equipment and microwave ovens
may be used in the Premises for heating food and brewing coffee, tea, hot
chocolate, and similar beverages for employees and visitors. This use must be
in accordance with all applicable federal, state, and city laws, codes,
ordinances, rules and regulation.

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<PAGE>

12. TELEPHONE AND OTHER WIRES. Tenant may not introduce telephone wires
or other wires into the Premises without first obtaining Landlord's approval of
the method and location of such introduction. No boring or cutting for
telephone wires or other wires shall be allowed without Landlord's consent. The
location of telephones, call boxes, and other office equipment affixed to the
Premises shall be subject to Landlord's prior approval.

13. EXCLUSION AND EXPULSION. Landlord reserves the right to exclude or
expel from the Project any person who, in Landlord's judgment, is under the
influence of alcohol or drugs or commits any act in violation of any of these
Rules and Regulations.

14. LOITERING PROHIBITED. Tenant and Tenant's employees and agents shall
not loiter in or on the entrances, corridors, sidewalks, lobbies, halls,
stairways, elevators, or common areas for the purpose of smoking tobacco
products or for any other purpose. Tenant and Tenant's employees and agents
shall not obstruct those areas but use them only as a means of ingress to and
egress from the Premises.

15. OPERATION OF ELECTRICITY, WATER, AND AIR-CONDITIONING. Tenant shall
not waste electricity, water, or air-conditioning and shall cooperate fully with
Landlord to ensure the most effective operation of the Building's heating and
air-conditioning system. Tenant shall not adjust any controls of that heating
and air-conditioning system.

16. DISPOSAL OF TRASH AND GARBAGE. Tenant shall store all trash and
garbage within the interior of the Premises. Tenant shall not place or have
placed in the trash boxes or receptacles any material that may not or cannot be
disposed of in the ordinary and customary manner of removing and disposing of
trash in the vicinity of the Building. In disposing of trash and garbage,
Tenant shall comply fully with any law or ordinance governing that disposal.
All trash, garbage, and refuse disposal shall be made only through entry-ways
and elevators provided for that purpose and shall be made only at times
designated by Landlord.

17. COMPLIANCE WITH SAFETY REGULATIONS. Tenant shall comply with all
safety, fire protection, and evacuation procedures and regulations established
by Landlord or by any government agency.

18. PROTECTION OF PREMISES. Tenant shall assume all responsibility,
including keeping doors locked and other means of entry to the Premises closed,
for protecting the Premises from theft, robbery, and pilferage.

19. AWNINGS, CURTAINS AND ELECTRICAL CEILING FIXTURES. No awnings or
other projection shall be attached to the outside walls of the Building without
Landlord's prior written consent. No curtains, blinds, shades, or screens shall
be attached to, hung in, or used in connection with any window or door of the
Premises without Landlord's prior written consent. All electrical ceiling
fixtures hung in offices or spaces along the perimeter of the Building must be
fluorescent or of a quality, type, design, and bulb color approved by Landlord.
Tenant shall abide by Landlord's regulations concerning the opening and closing
of window coverings attached to those windows, if any, in the Premises that have
a view of any interior portion of the Building or Building Common Areas.

20. NON-OBSTRUCTION OF LIGHT. Tenant shall not cover or obstruct the
sashes, sash doors, skylights, windows, and doors that reflect or admit light
and air into the halls, passageways, or other public places in the Building.
Tenant shall not place any bottles, parcels, or other articles on the
windowsills.

21. PROVISION OF INFORMATION TO TENANT'S EMPLOYEES. Tenant shall comply
with requests by Landlord that Tenant inform Tenant's employees of items of
importance to Landlord.

22. HAND TRUCKS AND SIMILAR EQUIPMENT. Without Landlord's prior consent,
Tenant shall not use, in any space or in the public halls of the Building, any
hand trucks unless they are equipped with rubber tires and side guards or
similar equipment. Tenant shall not bring any other vehicles of any kind into
the Building.

23. PARKING RULES AND REGULATIONS. Without Landlord's prior written
consent, no automobile detailing or washing shall be permitted in the parking
areas of the Building or Project.

24. RULES CHANGES; WAIVERS. Landlord reserves the right at any time to
change or rescind any one or more of these Rules and Regulations or to make any
additional reasonable Rules and Regulations that, in Landlord's judgement, may
be necessary for: (a) The management, safety, care, and cleanliness of the
Premises, Building, and Project; (b) The preservation of good order; and (c) The
convenience of other occupants and tenants in the Premises, the Building, and
the Project.

Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenants. No waiver by Landlord shall be construed as
a waiver of those Rules and Regulations in favor of any other tenant, and no
waiver shall prevent Landlord from enforcing those Rules or Regulations against
any other tenant of the Project. Tenant shall be considered to have read these
Rules and Regulations and to have agreed to abide by them as a condition of
Tenant's occupancy of the Premises.

2
<PAGE>

EXHIBIT F
ESTOPPEL CERTIFICATE

The undersigned certifies as follows:

1. The undersigned (Tenant) and _________________________, a
_____________________ (Landlord) entered into a written office lease dated
___________________, in which Landlord leased to Tenant and Tenant leased from
Landlord premises in the office building located at _____________________
(Building). The Building described in Lease Article 1 (Project, Building and
Premises). The Lease has been amended, modified, and supplemented as follows:
_________________________________________. The leased, as amended, modified,
and supplemented, is referred to in this Certificate as the "Lease."

2. Under the Lease, Tenant has leased approximately _____________
rentable square feet of space (Premises) in the Building and has paid to
Landlord a security deposit of ____________. The term of the Lease began on
_____________, and expires on _____________, subject to any options to extend
identified in Section 4 of this Exhibit. Tenant has paid Base Rent through
____________. The next payment of Base Rent in the amount of _____________ is
due on ___________________. Tenant is required to pay _____ percent of the
Direct Expenses (as defined in Lease Article 5) for the Building and Project, in
excess of Direct Expenses for the base year __________.

3. Tenant is entitled to _____________ unreserved parking spaces free of
charge.

4. The Lease provides for ____________ option(s) to extend the term of
the Lease for __________ years each. The rental rate for each extension term is
as follows: ________________________________

5. There are no oral or written amendments, modifications, or supplements
to the Lease except as stated in Section 1 of this Certificate. A true,
correct, and complete copy of the Lease, including all amendments,
modifications, and supplements, is attached to this Certificate. The Lease, as
amended, modified and supplemented is in full force and effect and represents
the entire agreement between Landlord and Tenant pertaining to the Premises, the
Building, and the Project.

6. All space and improvements leased by Tenant have been completed and
furnished in accordance with the provisions of the lease, and Tenant has
accepted and taken possession of the Premises. All contributions required to be
paid by Landlord to date for improvements to the Premises have been paid in
full.

7. To the best of Tenant's knowledge, Landlord is not in default in the
performance of any of the terms or provisions of the Lease. Tenant is not in
default in the performance of any of the terms or provisions of the Lease and
has not assigned, transferred, or hypothecated the Lease or any interest in the
Lease or subleased all or part of the Premises.

8. There are no setoffs or credits against Rent payable under the Lease.
No free periods or rental abatements, rebates, or concessions have been granted
to Tenant, except as follows: _____________________________________

9. Tenant has no actual knowledge of any processing, use, storage,
disposal, release, or treatment of any hazardous or toxic material or substance
on the Premises or the Project except as follows:
.

10. There are no pending actions, voluntary or involuntary, under any
bankruptcy or insolvency laws of the United States or any state against Tenant
or any guarantor of Tenant's obligations under the Lease.

This Certificate is given to ___________________ as [lender or purchaser]
with the understanding that he/she/it or his/her/its assignee shall rely on it
in connection with the [acquisition of the Building and/or Project/making a loan
secured by the Building, the land upon which the Building is located and the
Project]. Following that [acquisition/loan], Tenant agrees that the Lease shall
remain in full force and effect and shall bind and inure to the benefit of the
[purchaser/lender] and its successor in interest.

TENANT

___________________________
___________________________
___________________________

By:________________________
Name:___________________
Title:__________________

<PAGE>

EXHIBIT G
LETTER OF CREDIT

Irrevocable Standby Letter of Credit No.________________ Date: MMM.XX, 199X
- --------------------------------------------------------------------------------

- ------------------------------------ -------------------------------------
BENEFICIARY APPLICANT
PACIFIC TORREY RESERVE COLLATERAL THERAPEUTICS
HOLDINGS, L.P. (OR ITS ASSIGNEE)
C/O AMERICAN ASSETS, INC.
11455 EL CAMINO REAL, SUITE 200 9360 TOWNE CENTRE DRIVE
SAN DIEGO, CA 92130-2045 SAN DIEGO, CA 92121

EXPIRY DATE AND PLACE FOR AMOUNT
PRESENTATION USD $680,983.00
OF DOCUMENTS: U.S. DOLLAR CURRENCY SIX
DEC. 1, 1999 AT OUR COUNTERS: HUNDRED EIGHTY THOUSAND NINE
2015 MANHATTAN BEACH BLVD. HUNDRED AND EIGHTY THREE ONLY
2ND FLOOR
REDONDO BEACH, CA 90278
- ------------------------------------ -------------------------------------

WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT IN YOUR FAVOR
AVAILABLE BY PAYMENT OF YOUR DRAFT(S) DRAWN AT SIGHT ON IMPERIAL BANK,
INTERNATIONAL DIVISION, REDONDO BEACH, CALIFORNIA. DRAFT(S) MUST BE MARKED AS
DRAWN UNDER IMPERIAL BANK STANDBY LETTER OF CREDIT NO. _______________ AND
ACCOMPANIED BY THE FOLLOWING DOCUMENT(S):

1. THE ORIGINAL OF THIS STANDBY LETTER OF CREDIT AND AMENDMENT(S) IF ANY.

2. BENEFICIARY'S SWORN STATEMENT OR DECLARATION SIGNED BY TWO OFFICERS THAT
EITHER: (I) APPLICANT IS IN DEFAULT UNDER TERMS OF THE LEASE BETWEEN
BENEFICIARY, AS LANDLORD, AND APPLICANT AS TENANT, DATED APRIL 7, 1998
("LEASE") AND ANY CURE PERIODS PROVIDED IN SAID LEASE HAVE EXPIRED WITHOUT
SUCH DEFAULT HAVING BEEN REMEDIED OR CURED; OR (II) THIS LETTER OF CREDIT
HAS NOT BEEN RENEWED OR REPLACED WITHIN THIRTY (30) DAYS PRIOR TO ITS
EXPIRATION.

SPECIAL INSTRUCTIONS:

1. PARTIAL DRAWINGS ARE PERMITTED.

2. THE AMOUNT OF THIS STANDBY LETTER OF CREDIT MAY BE REDUCED ANNUALLY SO LONG
AS THE APPLICANT PROVIDES A SWORN STATEMENT OR DECLARATION SIGNED BY TWO
OFFICERS THAT SUCH REDUCTION IS IN ACCORDANCE WITH THE TERMS OF THE LEASE.

3. THIS STANDBY LETTER OF CREDIT TERMINATES WHEN COLLATERAL THERAPEUTICS, INC.
PROVIDES A SWORN STATEMENT OR DECLARATION

<PAGE>

EXHIBIT G
LETTER OF CREDIT

SIGNED BY TWO OFFICERS THAT THE APPLICANT HAS RAISED AT LEAST TWENTY
MILLION DOLLARS ($20,000,000) THROUGH AN INITIAL PUBLIC OFFERING AND
IS NOT IN DEFAULT UNDER PROVISIONS OF THE LEASE.

WE HEREBY ENGAGE WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS OF THIS CREDIT WILL BE DULY HONORED IF DRAWN AND PRESENTED FOR PAYMENT AT
THIS OFFICE ON OR BEFORE THE EXPIRATION DATE OF THIS CREDIT.

EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED, THIS CREDIT IS SUBJECT TO THE
"UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS" (1993 REVISION)
INTERNATIONAL CHAMBER OF COMMERCE (PUBLICATION NO. 500).

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

Collateral Therapeutics Inc.

- ----------------------------------
Authorized Signature
Christopher J. Reinhard
Chief Operating & Financial Officer

<PAGE>

TENANT IMPROVEMENT AGREEMENT

Landlord and Tenant are executing simultaneously with this Tenant
Improvement Agreement ("Agreement"), a written lease ("Lease") covering those
certain premises more particularly described in Exhibit A to the Lease
("Premises"), in the Building more particularly described in the Lease.
Landlord and Tenant agree that Landlord shall improve and prepare the Premises
on Tenant's behalf and for Tenant's occupancy, on the terms and conditions set
forth in this Agreement. To induce Landlord and Tenant to enter into the Lease
(which is hereby incorporated by reference to the extent that the provisions of
this Agreement may apply thereto) and in consideration of the mutual covenants
hereinafter contained, Landlord and Tenant mutually agree as follows:

1. DEFINITIONS AND REPRESENTATIVES. All terms used herein which are not
defined shall have the meanings ascribed to them in the Lease. Landlord
appoints Landlord's Representative to act for Landlord and Tenant appoints
Tenant's representative to act for Tenant in all matters covered by this
Agreement. All inquiries, requests, instructions, authorizations and other
communications with respect to the matters covered by this Agreement will be
made to Landlord's Representative or Tenant's Representative, as the case may
be. Tenant will not make any inquiries of or requests to, and will not give any
instructions or authorizations to, any other employee or agent of Landlord,
including Landlord's architect, engineers and contractors or any of their agents
or employees, with regard to matters covered by this Agreement. Either party
may change its Representative under this Agreement at any time with three
business (3) days' prior written notice to the other party.

Tenant's Representative:
---------------------------------------------------
Landlord's Representative: Rick McKee, Vice President,
c/o American Assets, Inc.
---------------------------------------------
Landlord's Space Planner ("Space Planner"): Facility Solutions
--------------------------------

Landlord's Contractor ("Contractor"): NINTEMAN CONSTRUCTION COMPANY, WITH
ALL MAJOR SUBCONTRACTORS TO BE COMPETITIVELY BID, SUBJECT TO TENANT'S
REASONABLE APPROVAL OF THE SUBCONTRACTORS SELECTED BY LANDLORD.

2. PLANS AND SPECIFICATIONS/TENANT IMPROVEMENTS. The Premises shall be
improved by Landlord with certain tenant improvements ("Tenant Improvements") in
accordance with plans and specifications prepared by Landlord's Space Planner,
dated TBD , ("Plans and Specifications"). The Plans and Specifications shall
be approved by Landlord and Tenant prior to the date of this Agreement. Subject
to Landlord's approval, up to fifty percent (50%) of the ceiling area loft may
be left open and unfinished. Landlord's approval of the Plans and
Specifications for the Tenant Improvements shall create no responsibility or
liability on the part of Landlord for their completeness, design sufficiency, or
compliance with all laws, rules, and regulations of governmental agencies or
authorities. The cost of the Tenant Improvements shall he allocated between
Landlord and Tenant as provided in Section 7 of this Agreement. Landlord, at
its option, shall either (i) assign to Tenant any warranty it receives from the
Contractor with regard to the Tenant Improvements, provided any such warranty
shall be for a period of at least ninety (90) days or (ii) warrant to Tenant for
a period of one (1) year following the Lease Commencement Date the workmanship
of the Tenant Improvements to the standards set forth in the Plans and
Specifications. Upon delivery of such possession, Tenant shall immediately
proceed with due diligence, at its own expense, to install in the Premises
Tenant's personal property (meaning all items of Tenant's furnishings, trade
fixtures and equipment) without interference with Landlord's construction of the
Tenant Improvements and in compliance with all reasonable rules which Landlord
may reasonably make. Tenant shall, upon final completion of its work, furnish
Landlord with all certificates and approvals relating to any work or
installations done by Tenant that may be required by any governmental or
insurance requirement. Tenant shall be responsible for all permits and plan
checks required by governmental agencies for its work. Landlord shall have no
responsibility for any loss of or damage to any of Tenant's personal property so
installed or left in the Premises during the construction of the Tenant
Improvements. Tenant's entry into the Premises prior to the Commencement Date
shall be subject to all the provisions of this Lease other than the payment of
Rent; and at all times after such, entry, Tenant shall maintain or cause to be
maintained in effect, insurance compliant with the provisions of this Lease, and
Tenant shall provide a certificate of insurance to Landlord which so complies
with the terms of this Lease prior to Tenant's entry onto the Premises relating
to such work or installations. During the construction of the Tenant
Improvements, Landlord's representative shall meet with Tenant as is reasonably
necessary to discuss the progress of construction and shall provide Tenant with
monthly reports on the cost of construction of the Tenant Improvements.

3. CHANGE ORDERS. Tenant may authorize changes in the work during
construction, only by written instructions from Tenant's Representative to
Landlord's Representative on a form approved by Landlord. All such changes
shall be subject to Landlord's prior written approval in accordance with Section
4 of this Agreement. Prior to commencing any change, Landlord shall prepare and
deliver to Tenant, for Tenant's approval, a change order (the "Change Order")
setting forth the additional time required to perform the change and the total
cost of such change, which will include associated architectural, engineering
and construction contractor's fees, delay costs, additional coordination costs,
and the cost of Landlord's overhead at the rate of ten percent (10%) of the
amount of the Change Order, not to exceed $l,000.00 per Change Order. If Tenant
fails to approve such Change Order within two (2) business days after delivery
by Landlord, Tenant shall be deemed to have withdrawn the proposed Change Order
and Landlord shall not proceed to perform the change. Upon

1
<PAGE>

Landlord's receipt of Tenant's approval, Contractor shall proceed to perform the
change and Tenant shall pay for such Change Order at the time Contractor starts
work on such Change Order.

4. LANDLORD'S APPROVAL. Landlord may withhold its approval of any
revisions to the Plans and Specifications requested by Tenant, or any Tenant
Change Orders which require work which: (i) exceeds or affects the structural
integrity of the Building or any part of the Utility Installations or HVAC
System; (ii) is not approved by the holder of any Mortgage encumbering the
Building at the time the work is proposed; (iii) violates any agreement which
affects the Building or which binds Landlord; (iv) Landlord reasonably believes
will increase the cost of operation or maintenance of any of the systems of the
Building; (v) Landlord reasonably believes will reduce the market value of the
Building at the end of the Term; (vi) does not conform to applicable building
codes or is not approved by any governmental authority with jurisdiction over
the Premises and/or the Building; (vii) does not conform to Landlord's "Building
Standard" tenant improvement specifications unless otherwise approved by
Landlord; or (vii) Landlord reasonably believes will result in a delay in the
completion of the Tenant Improvements, or result in an increase in the cost of
the Tenant Improvements (unless Tenant pays such excess in advance).

5. SUBSTANTIAL COMPLETION AND COMMENCEMENT DATE. The Commencement Date
under the Lease shall not occur until the earlier to occur of (i) Substantial
Completion of the Tenant Improvements and tender of possession of the Premises
to Tenant; or (ii) the date Tenant opens for business in the Premises; or (iii)
the date that Substantial Completion of the Tenant Improvements would have
occurred but for Tenant Delays (as defined below). If Substantial Completion of
the Tenant Improvements shall be delayed as a result of a Tenant Delay, the
Commencement Date shall be accelerated by the number of days of such Tenant
Delay; provided that, for those Tenant Delays included in clause (e) only,
Landlord shall provide Tenant written notice not less than ten business days
after Landlord discovers (or reasonably could have discovered) that such Tenant
Delay has commenced or occurred, but if Tenant cures such Tenant Delay within
one business day after receiving such notice from Landlord, the Commencement
Date will not be accelerated. Each of the following events shall be deemed a
"Tenant Delay": (a) delays resulting from any direction by Tenant that Landlord
suspend work or otherwise hold up construction of any portion of the Tenant
Improvements because of a possible Change Order by Tenant or for any other
reason directed by Tenant; (b) delays because portions of Tenant Improvements
cannot be performed until work to be performed by or on behalf of Tenant is
performed; (c) delays due to the failure of Tenant to pay when due any amount
payable pursuant to this Exhibit; (d) delays which result directly or indirectly
from Tenant's changes in the Plans and Specifications; or (e) any other action
or inaction of Tenant that directly or indirectly delays Landlord in completing
the Tenant Improvements. Tenant shall pay any actual and documented costs or
expenses incurred by Landlord as a result of any Tenant Delays, including
without limitation, any increases in costs or expenses for labor or materials.

As used in this Lease and this Agreement, the term "Substantial Completion
of the Tenant Improvements" shall mean that (i) all of the Base Building Systems
are operational to the extent necessary to service the Premises, (ii) Landlord
has procured an Authorization to Occupy/Certificate of Occupancy (or an
equivalent from the City for such work), either temporary or final, (iii)
Landlord has completed the Tenant Improvements substantially in accordance with
this Agreement except for finishing details of construction, decoration,
mechanical, and other adjustments and other items of the type commonly found on
an architectural "punch list", none of which materially interfere With Tenant's
use or occupancy of the Premises for normal business operations, and (iv) the
Premises have been professionally cleaned and free from debris.

6. TENANT'S PUNCH LIST. Upon Substantial Completion of the Tenant
Improvements, Landlord shall give Tenant three (3) business days prior
notification of a meeting for Tenant to inspect the Tenant Improvements.
Tenant's Representative shall completely examine the Premises and prepare with
Landlord's Representative and Contractor a list of all visible items to be
completed by Contractor to finish the Tenant Improvements. The list shall be
signed by both Landlord and Tenant and all items shall be completed as soon as
reasonably possible. Any items damaged during Tenant's move in or occupancy
shall be repaired or replaced by Contractor at Tenant's sole cost and expense
and not as part of the Tenant Improvement Allowance. Landlord agrees to proceed
with due diligence to complete all such punch list items within thirty (30) days
of its receipt of such list. Any additional punch list items discovered by
Tenant within thirty (30) days following the Commencement Date shall be
incorporated into the Punch List.

7. TENANT IMPROVEMENT ALLOWANCE. Landlord agrees to provide Tenant an
allowance (the "Tenant Improvement Allowance") in an amount not to exceed
$461,188.00 which amount represents $28.00 per Rentable Square Foot less the
square footage attributable to (i) the restrooms; (ii) janitor's closet; (iii)
telephone and electric rooms; and (iv) Tenant's share of the ground floor lobby.
Landlord also agrees to provide Tenant with an additional allowance toward the
cost of the Tenant Improvements of up to $8.00 per Rentable Square Foot of space
in the Premises, at Tenant's option ("Additional Tenant Improvement Allowance"),
provided that (a) Tenant gives Landlord written notice of its intention to
exercise its option to utilize the Additional Tenant Improvement Allowance
within thirty (30) days after the execution of this Lease, and (b) such
Additional Tenant Improvement Allowance shall be amortized over the Lease Term
and shall result in an increase of Monthly Base Rent of $.02 per Rentable Square
Foot of space in the Premises for each $l.00 per Rentable Square Feet of
Additional Tenant Improvement Allowance for which Tenant exercises its option.
The Tenant Improvement Allowance and Additional Tenant Improvement Allowance
shall be applied towards, without limitation, any and all costs of construction,
city permits, space planning, working drawings, engineering and the cost of
Landlord's overhead. Landlord agrees that the Contractor shall not be entitled
to general conditions as part of the costs to construct the Tenant Improvements,
as the Contractor is already on the Project site performing construction.
Landlord shall submit to Tenant, prior to commencement to construction of the

2
<PAGE>

Tenant Improvements, a detailed written estimate of the total cost to construct
the Tenant Improvements in accordance with the Plans and Specifications ("Work
Cost Estimate"). Tenant shall approve or disapprove of the Work Cost Estimate
within five (5) business days after receipt thereof from Landlord. The failure
of Tenant to timely deliver notice of disapproval shall be deemed to be Tenant's
approval of the Work Cost Estimate. If Tenant timely reasonably disapproves the
Work Cost Estimate, Tenant shall immediately notify Landlord of such disapproval
and the specific bases for such disapproval within such five (5) business day
period and the parties shall immediately meet in order to revise the Plans and
Specifications so that the Work Cost Estimate can he adjusted to an amount which
is acceptable to Tenant. The amount by which the costs to construct the Tenant
Improvements exceed the Tenant Improvement Allowance, or Tenant Improvement
Allowance plus Additional Tenant Improvement Allowance, if Tenant exercises its
option for same, shall be defined as the "Tenant Extra Cost" and shall be the
sole responsibility of Tenant. Tenant shall pay to Landlord, within five (5)
business days of Landlord's written request therefor, the total amount payable
by Tenant for the Tenant Extra Cost. Any savings achieved during the
construction of the Tenant Improvements shall be applied first to reduce the
Tenant Extra Cost, and any excess Tenant Extra Cost held by Landlord at
completion of the Tenant Improvements shall be refunded to Tenant. Neither the
Tenant Improvement Allowance nor the Additional Tenant Improvement Allowance
will be applied to Tenant's furniture, trade fixtures, and personal property,
moving costs, or Tenant's obligations under the Lease.

8. TENANT WORK. All finish work and other decor work desired by Tenant
and not included within the scope of the Tenant Improvements as set forth in the
approved Plans and Specifications, including, without limitation, computer
systems, telecommunication systems, tenant's security systems and installation
of Tenant's trade fixtures, furnishings and personal property (the "Tenant
Work") shall be furnished and installed by Tenant at Tenant's sole cost and
expense. Commencement of any Tenant Work by Tenant shall not constitute
acceptance by Tenant of any work by Landlord or its Contractor or a waiver of
any rights that Tenant may have against Landlord, its Contractor or others with
respect to the Tenant Improvements.

9. CONFLICTS. In the event of any conflict between the terms of this
Agreement and the Lease, the terms of this Agreement shall control.

DATE: APRIL 7, 1998

LANDLORD: TENANT:

Pacific Torrey Reserve Holdings, L.P., Collateral Therapeutic, Inc.
a California limited partnership a California corporation

By: American Assets, Inc., By: /s/ Christopher J. Reinhard
a California corporation --------------------------------
Agent for Owner Name: Christopher J. Reinhard
------------------------------
Title: Chief Operating Officer
-----------------------------

By: /s/ John W. Chamberlain By: /s/ Jack W. Reich, Ph.D.
-------------------------- --------------------------------
John W. Chamberlain Name: Jack W. Reich, Ph.D.
Chief Executive Officer ------------------------------
4/9/98 Title: President & CEO
-----------------------------

<PAGE>
EXHIBIT 10.27

SCIENTIFIC ADVISOR CONSULTING AGREEMENT
---------------------------------------

COLLATERAL THERAPEUTICS, INC., ____________, 19___
a California corporation
9360 Towne Center Drive, Suite 110
San Diego, CA 92121

Ladies and Gentlemen:

The following contains all the items of my scientific advisor consulting
agreement (the "Agreement") with COLLATERAL THERAPEUTICS, INC., a California
corporation, or any subsidiary or affiliate thereof (the "Company").

The amount of time I will spend as an Advisor to the Company and the
nature of the services provided and my compensation are set forth in Exhibit
A hereto. In rendering such services to the Company, I shall act as an
independent contractor and not as an employee of the Company. The Company or
I may terminate this agreement at any time, with or without cause.

I understand that the Company possesses and will possess information
that has been created, discovered or developed by, or has otherwise become
known to, the Company (including without limitation, information created,
discovered, developed or made known by or to me arising specifically out of
my retention as an Advisor by the Company), and/or in which property rights
have been assigned or otherwise conveyed or disclosed to the Company, which
information has commercial value in the business in which the Company is
engaged or intends to engage. All of the aforementioned information is
hereinafter called "Proprietary Information." By way of illustration, but
not limitation, Proprietary Information includes trade secrets, research
results, processes, formulae, data and know-how, improvements, inventions,
techniques, marketing plans, strategies, forecasts and customer lists.

In consideration of my retention as an Advisor and the compensation to
be received by me from the Company from time to time, I hereby agree as
follows:

1. All Proprietary Information shall be the sole property of the
Company and its assigns, and the Company and its assigns shall be the sole
owner of all patents and other rights in connection therewith. I hereby
assign to the Company any rights I may have or acquire in all Proprietary
Information. At all times during my retention as an Advisor by the Company
and at all times after termination of such retention as an Advisor, I will
keep in confidence and trust all Proprietary Information, and I will not
disclose, sell, use, lecture upon or publish any Proprietary Information
without the written consent of the Company, except as may be necessary in the
ordinary course of performing my duties as an Advisor of the Company.

<PAGE>

2. I agree that during the period that I am retained as an Advisor to
the Company I will not, without the Company's express written consent, except
as permitted by this Section 2, engage in any employment or activity (whether
as a consultant, advisor or otherwise) in any business competitive with the
Company in the area of cardiovascular gene therapy. The Company recognizes
that I currently may have certain agreements and perform consulting services
for others. During the 20 days following the execution of this Agreement,
the Company and I will review such agreements and services to determine
whether they constitute activities which would be in conflict with the
Agreement. If the Board of Directors of the Company determines that any such
activity conflicts with this Agreement, and I do not immediately terminate
the conflicting activity and/or agreement, the Company shall have the right
to immediately terminate this Agreement with no obligation to me. In
addition, prior to entering into any additional activity and/or agreement
which could conflict with my obligations to the Company, I shall disclose the
contemplated activity and submit such additional agreement to the Company
which will, within 30 days of such submission, advise me whether the Company
has concluded that entering into such activity and/or additional agreement
would conflict with this Agreement. If the Company has so concluded, I will
notify the Company within ten (10) days that I will not enter into the
additional agreement.

3. All documents, data, records, apparatus, equipment, chemicals,
molecules, organisms and other physical property, whether or not pertaining
to Proprietary Information, furnished to me by the Company, a third party or
produced by myself or others in connection with my retention as an Advisor
shall be and remain the sole property of the Company and shall be returned
promptly to the Company as and when requested by the Company. Should the
Company not so request, I shall return and deliver all such property upon
termination of my retention as an Advisor by me or by the Company for any
reason and I will not take with me any such property or any reproduction of
such property upon such termination.

4. I agree that for a period of two (2) years following termination of
my retention as an Advisor with the Company, I will not solicit or in any
manner encourage employees of the Company to leave its employ.

5. I will promptly disclose to the Company, or any persons designated
by it, all improvements, inventions, formulae, processes, techniques,
know-how and data, whether or not patentable, made or conceived or reduced to
practice or learned by me, either alone or jointly with others, during the
period of my retention as an Advisor which (a) arise from services provided
by me under this Agreement and related to or useful in the business of the
Company, or (b) result from tasks assigned me by the Company, or (c) were
funded by the Company, or (d) result from use of premises owned, leased or
contracted for by the Company (all said improvements, inventions, formulae,
processes, techniques, know-how and data shall be collectively hereinafter
called "Inventions"). Such disclosure shall continue for one (1) year after
termination of this Agreement with respect to anything that would be an
Invention if made, conceived, reduced to practice or learned during the term
hereof.

2
<PAGE>

6. I agree that all Inventions shall be the sole property of the
Company and its assigns, and the Company and its assigns shall be the sole
owner of all patents and other rights in connection therewith. I hereby
assign to the Company any rights I may have or acquire in all Inventions. I
further agree as to all Inventions to assist the Company at any time, and not
just during the term of this Agreement, in any and all countries, which
assistance shall include the execution of documents and any assignments to
the Company or persons designated by it. In the event that the Company is
unable for any reason whatsoever to secure my signature to any lawful and
necessary document required to apply for or execute any patent application
with respect to an invention(s) (including reissues, renewals, extensions,
continuations, divisions or continuations in part thereof), I hereby
irrevocably designate and appoint the Company and its duly authorized
officers and agents, as my agents and attorneys-in-fact to act for and in my
behalf and instead of me, to execute and file any such application and to do
all other lawful acts to further the prosecution and issuance of patents
thereon with the same legal force and effect as if executed by me.

7. As a matter of record I have attached hereto as Exhibit B a
complete list of all inventions or improvements relevant to the subject
matter of my retention as an Advisor by the Company which have been made or
conceived or first reduced to practice by me alone or jointly with others
prior to my engagement by the Company which I desire to remove from the
operation of this Agreement; and I represent and agree that such list is
complete.

8. I understand as part of the consideration for the offer of
retention as an Advisor or continued retention as an Advisor by the Company,
that I have not brought and will not bring with me to the Company or use in
the performance of my responsibilities at the Company any equipment,
supplies, facility or trade secret information of any current or former
employer which are not generally available to the public, unless I have
obtained written authorization for the possession and use.

9. I also understand that, in my retention as an Advisor with the
Company, I am not to breach any obligation of confidentiality that I have to
others, and I agree that I shall fulfill all such obligations during my
retention as an Advisor with the Company.

10. I agree that in addition to any other rights and remedies available
to the Company for any breach by me of obligations hereunder, the Company
shall be entitled to enforcement of my obligations hereunder by court
injunction.

11. If any provision of this Agreement shall be declared invalid,
illegal or unenforceable, such provision shall be severed and all remaining
provisions shall continue in full force and effect.

12. This Agreement shall be binding upon me, my heirs, executors,
assigns and administrators and shall inure to the benefit of the Company, its
successors and assigns.

3
<PAGE>

13. This Agreement shall be governed by and construed in accordance
with the laws of the State of California without reference to principles of
conflicts of laws. If an action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements, in
addition to any other relief to which the party may be entitled.

14. I agree that this Agreement may be terminated by either the Company
or the Advisor at any time, for any reason, with or without cause, by giving
written notice to the other party; termination to be effective upon the other
party's receipt of notice.

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

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

ACCEPTED AND AGREED TO:

COLLATERAL THERAPEUTICS, INC.

By:
------------------------------

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

4
<PAGE>

EXHIBIT A

<PAGE>

EXHIBIT B

COLLATERAL THERAPEUTICS, INC.
9360 Towne Centre Drive, Suite 110
San Diego, CA 92121

Gentlemen:

The following is a complete list of all inventions or improvements or
works of authorship relevant to the subject matter of my advisory services
for the Company that have been made or conceived or first reduced to practice
by me alone or jointly with others prior to my advisory services for the
company. I desire to remove those inventions and improvements listed, if
any, from the operation of the Scientific Advisor Consulting Agreement
between the Company and me which are noted by an * and my initials next to
such invention or improvement:

______ No inventions or improvements

______ See below:

______ Additional sheets attached.

By:
-----------------------------

Date:
---------------------------

<PAGE>

SCHEDULE OF

SCIENTIFIC ADVISORY CONSULTING AGREEMENT

Peter Bohlen, Ph.D., dated February 14, 1997
Bob Engler, dated October 1, 1995
Meihua Gao, Ph.D., dated July 26, 1996
H. Kirk Hammond, dated October 1, 1995
Mitchell Goldfarb, Ph.D., dated September 4, 1996
Paul Insel, M.D., dated September 30, 1996
Tamsin Kelly, M.D., dated June 19, 1997

<PAGE>

EXHIBIT 10.28

SCIENTIFIC ADVISORY BOARD AGREEMENT
-----------------------------------

THIS SCIENTIFIC ADVISORY BOARD AGREEMENT ("Agreement") is entered into as
of ___________, 199__ ("Effective Date"), by and between ___________________
("Advisor") and Collateral Therapeutics, Inc., a California corporation (the
"Company"). In consideration of the retention of Advisor as scientific advisor
to the Company, and of the compensation received by Advisor from the Company,
the Company and Advisor hereby agree as follows:

1. DESCRIPTION OF SERVICES.

(a) SCIENTIFIC ADVISORY BOARD. The Company hereby retains Advisor
and Advisor hereby agrees to serve as a member of the Company's Scientific
Advisory Board for the term of this Agreement. Advisor will advise the Company
as an independent contractor in the area of angiogenesis.

(b) EXCLUSIVITY. Advisor will work exclusively with the Company in
the area of angiogenesis. Advisor represents that all of his/her current
consulting or advisory obligations, and all restrictions or policies of his/her
employer limiting or restricting Advisor's advisory or consulting activities or
limiting rights to inventions resulting from such activities, are listed on
EXHIBIT A. Advisor agrees that he/she has not entered into, and will not enter
into, any written or oral agreement with any entity, company or person which is
or may be (or has the potential to be) a competitor of the Company relating to
his/her advisory services unless specifically noted on EXHIBIT A or unless the
Company is notified of such agreement in advance. Advisor understands that
while he/she is an advisor to the Company, he/she is not to breach any
obligation of confidentiality that he/she has to others.

2. TIME COMMITMENT.

The time commitment of Advisor will include a minimum of _______
formal, [full] day Scientific Advisory Board meetings per year, at the Company's
request, unless the Company and Advisor otherwise mutually agree to extend the
length or number of such meetings. Advisor also will from time to time provide
scientific counsel on a reasonable basis to personnel working on projects on
behalf of the Company; such counsel, which will consist primarily of advice on
interpreting scientific or clinical data and planning experiments or trials,
will be at Advisor's convenience and will be limited to matters that are
compatible with Advisor's faculty or other employment responsibilities and other
oral and written agreements disclosed to the Company to which Advisor is a
party.

<PAGE>

3. COMPENSATION.

(a) CASH COMPENSATION. For all services rendered hereunder, Advisor
will be compensated as set forth on attached Exhibit B.

(b) OTHER COMPENSATION. The Company will recommend to its Board of
Directors that the Company grant Advisor such additional compensation as set
forth on attached EXHIBIT B.

(c) TRAVEL EXPENSES AND OTHER DIRECT EXPENSES. Advisor will be
reimbursed for reasonable travel expenses incurred in performing his/her
advisory obligations, as authorized by the Company's expense reimbursement
policy. However, if a Company meeting is scheduled in connection with a meeting
which Advisor would have attended anyway had there been no scheduled Company
meeting, only incremental travel expenses will be paid by the Company. The
Company will reimburse Advisor for all other reasonable direct expenses actually
incurred which are incidental to the services performed hereunder and which have
been approved in writing in advance by the Company. Advisor will provide the
Company with invoices detailing the expenses and reimbursements which Advisor
believes are due under this Agreement. Invoices should specify the period for
which reimbursement is claimed. Travel costs and other expenses claimed must be
itemized. All invoices must be substantiated by receipts for transportation and
lodging and all other items for expenses amounting to more than $25.00 where
receipts are normally issued. The Company agrees to pay approved invoices
within forty-five (45) days of receipt.

(d) SOLE COMPENSATION. The foregoing fees, other compensation and
reimbursement of expenses are Advisor's sole compensation for rendering services
to the Company.

4. INDEPENDENT CONTRACTOR. Advisor's relationship with the Company will
be that of an independent contractor and nothing in this Agreement will be
construed to create an employer-employee relationship between the Company and
Advisor. Advisor has no authority to act on behalf of or to enter into any
contract, incur any liability or make any representation on behalf of the
Company. The Company agrees that during the term of this Agreement, or any
extension or renewal thereof, Advisor may be employed by other persons, firms or
corporations; PROVIDED, HOWEVER, that the provisions of this Agreement will be
strictly observed by Advisor with respect to such other persons, firms or
corporations. Since Advisor will not be an employee of the Company, it is
understood that Advisor will not be entitled to any of the benefits under the
Company's retirement or group insurance plans or any other employee benefits.
Advisor is solely responsible for all taxes, withholdings and other similar U.
S. or international statutory obligations, including, without limitation,
Workers Compensation Insurance, Social Security, federal, state or any other
employee payroll taxes; and Advisor agrees to defend, indemnify and hold the
Company harmless from any and all claims made by any entity on account of an
alleged

-2-
<PAGE>

failure by Advisor to satisfy any such tax or withholding obligations. In the
performance of all services hereunder, Advisor will comply with all applicable
laws and regulations.

5. NO CONFLICT WITH EXISTING AGREEMENTS. The Company hereby acknowledges
that it does not desire to acquire from Advisor any secret or confidential
know-how or information which Advisor may have acquired from others.
Accordingly, Advisor represents and warrants that Advisor is free to divulge to
the Company, without any obligation to, or violation of any right of others, any
and all information, practice or techniques which Advisor will describe,
demonstrate, divulge or in any other manner make known to the Company during
Advisor's performance of services hereunder.

6. ADVISOR INVENTIONS. Advisor will promptly disclose and assign to the
Company, or any persons designated by it, all improvements, inventions,
formulae, processes, techniques, know-how and data, whether or not patentable,
made or conceived or reduced to practice or learned by Advisor, either alone or
jointly with others, during the period of his/her retention as an Advisor which
(a) arise from services provided by Advisor under this Agreement and related to
or useful in the business of the Company, or (b) result from tasks assigned
Advisor by the Company, or (c) funded by the Company, or (d) result from use of
premises owned, leased or contracted for by the Company (all said improvements,
inventions, formulae, processes, techniques, know-how and data shall be
collectively hereinafter called "Inventions"). Such disclosure shall continue
for one year after termination of this Agreement with respect to anything that
would be an Invention if made, conceived, reduced to practice or learned during
the term hereof.

Advisor further agrees as to all Inventions to assist the Company at
any time, and not just during the term of this Agreement, in any and all
countries, which assistance shall include the execution of documents and any
assignments to the Company or persons designated by it. In the event that the
Company is unable for any reason whatsoever to secure Advisor's signature to any
lawful and necessary document required to apply for or execute any patent
application with respect to an invention(s) (including reissues, renewals,
extensions, continuations, divisions or continuations in part thereof), Advisor
hereby irrevocably designates and appoints the Company and its duly authorized
officers and agents, as Advisor's agents and attorneys-in-fact to act for and in
Advisor's behalf and instead of Advisor, to execute and file any such
application and to do all other lawful acts to further the prosecution and
issuance of patents thereon with the same legal force and effect as if executed
by Advisor.

7. NON-DISCLOSURE AND NON-USE. The parties hereto acknowledge that the
Company possesses and will possess information that has been created, discovered
or developed by, or has otherwise become known to, the Company (including
without limitation, information created, discovered, developed or made known by
or to Advisor arising specifically out of his/her retention as an Advisor by the
Company), and/or in which property rights have been assigned or otherwise
conveyed or disclosed to the Company, which information has commercial value in
the

-3-
<PAGE>

business in which the Company is engaged or intends to engage. All of the
aforementioned information is hereinafter called "Proprietary Information." By
way of illustration, but not limitation, Proprietary Information includes trade
secrets, research results, processes, formulae, data and know-how, improvements,
inventions, techniques, marketing plans, strategies, forecasts and customer
lists. Proprietary Information also includes any information which the Company
has received from a third party which the Company is obligated to treat as
confidential or proprietary.

All Proprietary Information shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole owner of all
patents and other rights in connection therewith. Advisor hereby assigns to the
Company any rights Advisor may have or acquire in all Proprietary Information.
At all times during his/her retention as an Advisor by the Company and at all
times after termination of such retention as an Advisor, Advisor will keep in
confidence and trust all Proprietary Information and will not disclose, sell,
use, lecture upon or publish any Proprietary Information without the written
consent of the Company, except as may be necessary in the ordinary course of
performing his/her duties as an Advisor of the Company.

8. COMPANY MATERIALS. All documents, data, records, apparatus,
equipment, chemicals, molecules, organisms and other physical property, whether
or not pertaining to Proprietary Information, furnished to Advisor by the
Company or a third party or produced by Advisor or others in connection with
Advisor's retention as an Advisor shall be and remain the sole property of the
Company and shall be returned promptly to the Company as and when requested by
the Company. Should the Company not so request, Advisor shall return and
deliver all such property upon termination of his/her retention as an Advisor by
Advisor or by the Company for any reason and Advisor will not take with him/her
any such property or any reproduction of such property upon such termination.

9. COMPANY PROPERTY. All Proprietary Information and all title, patents,
patent rights, copyrights, mask work rights, trade secret rights, and other
intellectual property and rights anywhere in the world (collectively "Rights")
in connection therewith will be the sole property of the Company. Advisor
hereby assigns to the Company any Rights Advisor may have or acquire in such
Proprietary Information. At all times, both during the term of this Agreement
and after its termination, Advisor will keep in confidence and trust and will
not use or disclose any Proprietary Information without the prior written
consent of an officer of the Company appropriate in the ordinary course of
performing the services under this Agreement.

10. TERM AND TERMINATION. The initial term of this Agreement will be for
a one (1) year period following the Effective Date; and thereafter will renew
automatically for additional one (1)-year periods unless terminated by either
party at least 90 days prior to an anniversary date. At the Company's option,
this Agreement will also terminate upon notice to Advisor in the event of
Advisor's inability for any reason to perform Advisor's services. Upon
termination of this Agreement, the Company's obligation to pay any compensation,
except for services or expenses already accrued or incurred under Section 2,
will immediately cease and terminate.

-4-
<PAGE>

Termination of this Agreement for any reason will not affect Advisor's
obligations under Sections 4, 6, 7, 8, 9 and 10.

11. RESPONSIBILITY OF ADVISOR. The Company agrees not to hold Advisor
responsible for any inaccuracies, errors or omissions in the information or
advice given as a member of the Company's Scientific Advisory Board, or for loss
or damage resulting for the use of such information or advice given.

12. REMEDIES. Advisor acknowledges and agrees that a breach of this
Agreement will result in immediate, irreparable and continuing damage to the
Company for which there will be no adequate remedy at law; and agrees that in
the event of any such breach or violation or any threatened or intended breach
or violation of this Agreement, the Company and its successors and assigns will
be entitled to temporary, preliminary and permanent injunctive relief and/or
restraining orders enjoining and restraining such breach or violation or such
threatened or intended breach or violation and/or other equitable relief
(without needing to post any bond or other security) in addition to such other
and further relief as may be proper.

13. AMENDMENTS AND WAIVERS. This Agreement may be modified, amended or
supplemented only by a written instrument duly executed by Advisor and the
President of the Company. No term or condition or the breach thereof will be
deemed waived, unless it is waived in writing and signed by the party against
whom the waiver is claimed. Any waiver or breach of any term or condition will
not be deemed to be a waiver of any preceding or succeeding breach of the same
or any other term or condition. The failure of any party to insist upon strict
performance of any term or condition hereunder will not constitute a waiver of
such party's right to demand strict compliance therewith in the future.

14. NOTICES. All payments, notices, requests, demands and other
communications required or permitted hereunder will be in writing and will be
delivered personally (which will include delivery by courier or overnight
delivery service) or sent by first class mail, postage prepaid, or sent by
telecopier or other similar facsimile transmission to the parties at their
respective address set forth below or at such other address as will be given in
writing by a party to the other parties. Items delivered personally or by
telecopier or facsimile will be deemed delivered on the date of actual delivery;
items sent by first class mail will be deemed delivered three (3) days after
mailing.

-5-
<PAGE>

If to the Company: Collateral Therapeutics, Inc.
9360 Towne Centre Drive, Suite 110
San Diego, CA 92121
Attn: President

If to Advisor, the address set forth below his/her signature.

15. GOVERNING LAW; JURISDICTION AND VENUE. This Agreement will be
governed by and construed in accordance with the laws of the State of
California, without regard to principles of conflicts of law. The parties agree
that any dispute regarding the interpretation or validity of this Agreement will
be subject to the exclusive jurisdiction of the state and federal courts in and
for the County of San Diego, California, and each party hereby agrees to submit
to the personal and exclusive jurisdiction and venue of such courts.

16. ASSIGNMENT. This Agreement will be binding upon Advisor, and inure to
the benefit of, the parties hereto and their respective heirs, successors,
assigns, and personal representatives; provided, however, that it will not be
assignable by Advisor.

17. COUNTERPARTS. This Agreement may be executed in multiple copies, each
of which will be deemed an original and all of which will constitute a single
agreement binding on all parties.

18. ENTIRE AGREEMENT. This Agreement (together with documents and
agreements entered into herewith) constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements have been made by any party, or any one acting on behalf of any
party, that are not embodied in this Agreement with respect to the subject
matter hereof.

19. REPRESENTATION. By executing this Agreement, Advisor acknowledges
that he/she understands and agrees that he/she has been encouraged, and had the
opportunity to, consult with his/her own personal attorney in connection with
this Agreement.

[Remainder of This Page Intentionally Left Blank]

-6-
<PAGE>

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

ADVISOR THE COMPANY

- ----------------------------- COLLATERAL THERAPEUTICS,
(Signature) INC., a California corporation

- ----------------------------- By:
(Printed Name) -----------------------------
(Signature)

--------------------------------
(Printed Name and Title)

Address:
_________________________________ Dated: ___________________, 199_

_________________________________

Dated: ________________, 199_

[SIGNATURE PAGE TO SCIENTIFIC ADVISORY BOARD AGREEMENT

<PAGE>

EXHIBIT A

A. LIST OF OTHER CONSULTING OR ADVISORY POSITIONS HELD

1. _____________________________

2. _____________________________

3. _____________________________

4. _____________________________

5. _____________________________

B. RESTRICTIONS OR POLICIES ON ADVISOR'S ADVISORY OR CONSULTING ACTIVITIES OR
LIMITING RIGHTS RESULTING FROM SUCH ACTIVITIES

___________________________________________________________________________

_________________________________________________________________________.

A-1
<PAGE>

EXHIBIT B

CASH CONSIDERATION: $____________ per [meeting], payable
________________.

STOCK CONSIDERATION: At the next Board meeting of the Company
following Advisor's execution of this
Agreement, management will recommend
that Advisor be granted non-qualified
options to purchase _____ shares of the
Company's Common Stock at an exercise
price of $________ per share. The
options will be vested [monthly] over a
period of _____ years and will be
subject to the terms of a separate
formal Stock Option Agreement between
Advisor and the Company.

B-1
<PAGE>

SCHEDULE OF SCIENTIFIC ADVISORY BOARD AGREEMENTS

Andrew Baird, Ph.D., dated December 2, 1996
Claudio Basilico M.D., dated April 23, 1997
Peter Bohlen, Ph.D, dated April 29, 1997
Eric N. Olson, Ph.D., dated May 1, 1997

B-2

<PAGE>
EXHIBIT 10.29

CONSULTING AGREEMENT
--------------------

COLLATERAL THERAPEUTICS, INC., ___________, 199_
a California corporation
9360 Towne Centre Drive, Suite 110
San Diego, CA 92121

Gentlemen:

The following contains all the items of my consulting agreement (the
"Agreement") with COLLATERAL THERAPEUTICS, INC., a California corporation, (the
"Company").

The amount of time I will spend as an Advisor to the Company and the nature
of the services provided and my compensation are set forth in EXHIBIT A hereto.
In rendering such services to the Company, I shall act as an independent
contractor and not as an employee of the Company. The Company or I may
terminate this agreement at any time, with or without cause.

I understand that the Company possesses and will possess information that
has been created, discovered or developed by, or has otherwise become known to,
the Company (including without limitation, information created, discovered,
developed or made known by or to me arising specifically out of my retention as
an Advisor by the Company), and/or in which property rights have been assigned
or otherwise conveyed or disclosed to the Company, which information has
commercial value in the business in which the Company is engaged or intends to
engage. All of the aforementioned information is hereinafter called
"Proprietary Information." By way of illustration, but not limitation,
Proprietary Information includes trade secrets, research results, processes,
formulae, data and know-how, improvements, inventions, techniques, marketing
plans, strategies, forecasts and customer lists.

In consideration of my retention as an Advisor and the compensation to be
received by me from the Company from time to time, I hereby agree as follows:

1. All Proprietary Information shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole owner of all
patents and other rights in connection therewith. I hereby assign to the
Company any rights I may have or acquire in all Proprietary Information. At all
times during my retention as an Advisor by the Company and at all times after
termination of such retention as an Advisor, I will keep in confidence and trust
all Proprietary Information, and I will not disclose, sell, use, lecture upon or
publish any Proprietary Information without the written consent of the Company,
except as may be necessary in the ordinary course of performing my duties as an
Advisor of the Company.

<PAGE>

2. I agree that during the period that I am retained as an Advisor to the
Company I will not, without the Company's express written consent, except as
permitted by this Section 2, engage in any employment or activity (whether as a
consultant, advisor or otherwise) in any business competitive with the Company
in the area of _____________________. The Company recognizes that I currently
may have certain agreements and perform consulting services for others. During
the 20 days following the execution of this Agreement, the Company and I will
review such agreements and services to determine whether they constitute
activities which would be in conflict with the Agreement. If the Board of
Directors of the Company determines that any such activity conflicts with this
Agreement, and I do not immediately terminate the conflicting activity and/or
agreement, the Company shall have the right to immediately terminate this
Agreement with no obligation to me. In addition, prior to entering into any
additional activity and/or agreement which could conflict with my obligations to
the Company, I shall disclose the contemplated activity and submit such
additional agreement to the Company which will, within 30 days of such
submission, advise me whether the Company has concluded that entering into such
activity and/or additional agreement would conflict with this Agreement. If the
Company has so concluded, I will notify the Company within ten (10) days that I
will not enter into the additional agreement.

3. All documents, data, records, apparatus, equipment, chemicals,
molecules, organisms and other physical property, whether or not pertaining to
Proprietary Information, furnished to me by the Company, a third party or
produced by myself or others in connection with my retention as an Advisor shall
be and remain the sole property of the Company and shall be returned promptly to
the Company as and when requested by the Company. Should the Company not so
request, I shall return and deliver all such property upon termination of my
retention as an Advisor by me or by the Company for any reason and I will not
take with me any such property or any reproduction of such property upon such
termination.

4. I agree that for a period of two (2) years following termination of my
retention as an Advisor with the Company, I will not solicit or in any manner
encourage employees of the Company to leave its employ.

5. I will promptly disclose to the Company, or any persons designated by
it, all improvements, inventions, formulae, processes, techniques, know-how and
data, whether or not patentable, made or conceived or reduced to practice or
learned by me, either alone or jointly with others, during the period of my
retention as an Advisor which (a) arise from services provided by me under this
Agreement and related to or useful in the business of the Company, or (b) result
from tasks assigned me by the Company, or (c) funded by the Company, or (d)
result from use of premises owned, leased or contracted for by the Company (all
said improvements, inventions, formulae, processes, techniques, know-how and
data shall be collectively hereinafter called "Inventions"). Such disclosure
shall continue for one year after termination of this Agreement with respect to
anything that would be an Invention if made, conceived, reduced to practice or
learned during the term hereof.

2
<PAGE>

6. I agree that all Inventions shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole owner of all
patents and other rights in connection therewith. I hereby assign to the
Company any rights I may have or acquire in all Inventions. I further agree as
to all Inventions to assist the Company at any time, and not just during the
term of this Agreement, in any and all countries, which assistance shall include
the execution of documents and any assignments to the Company or persons
designated by it. In the event that the Company is unable for any reason
whatsoever to secure my signature to any lawful and necessary document required
to apply for or execute any patent application with respect to an invention(s)
(including reissues, renewals, extensions, continuations, divisions or
continuations in part thereof), I hereby irrevocably designate and appoint the
Company and its duly authorized officers and agents, as my agents and
attorneys-in-fact to act for and in my behalf and instead of me, to execute and
file any such application and to do all other lawful acts to further the
prosecution and issuance of patents thereon with the same legal force and effect
as if executed by me.

7. As a matter of record I have attached hereto as Exhibit B a complete
list of all inventions or improvements relevant to the subject matter of my
retention as an Advisor by the Company which have been made or conceived or
first reduced to practice by me alone or jointly with others prior to my
engagement by the Company which I desire to remove from the operation of this
Agreement; and I represent and agree that such list is complete.

8. I understand as part of the consideration for the offer of retention
as an Advisor or continued retention as an Advisor by the Company, that I have
not brought and will not bring with me to the Company or use in the performance
of my responsibilities at the Company any equipment, supplies, facility or trade
secret information of any current or former employer which are not generally
available to the public, unless I have obtained written authorization for the
possession and use.

10. I agree that in addition to any other rights and remedies available to
the Company for any breach by me of obligations hereunder, the Company shall be
entitled to enforcement of my obligations hereunder by court injunction.

11. If any provision of this Agreement shall be declared invalid, illegal
or unenforceable, such provision shall be severed and all remaining provisions
shall continue in full force and effect.

12. This Agreement shall be binding upon me, my heirs, executors, assigns
and administrators and shall inure to the benefit of the Company, its successors
and assigns.

13. This Agreement shall be governed by and construed in accordance with
the laws of the State of California without reference to principles of conflicts
of laws. If any action at law or

3
<PAGE>

in equity is necessary to enforce or interpret the terms of the Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements, in addition to any other relief to which the party may
be entitled.

14. I agree that this Agreement will terminate on ________, 19__ or may be
terminated by either the Company or the Advisor at any time, for any reason,
with or without cause, by giving written notice to the other party; termination
to be effective upon the other party's receipt of notice.

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

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

ACCEPTED AND AGREED TO:

COLLATERAL THERAPEUTICS, INC.

By:
----------------------------

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

<PAGE>

EXHIBIT A

Amount Advisor shall devote approximately ______ hours per
month to providing services under this Agreement.

Nature of Services Advisor shall consult for Company, on an exclusive
basis, in the field of _____________________.

Compensation Advisor shall be compensated at the
rate of $________ per month payable promptly
after the end of each calendar month during which this
Agreement is in effect. Subject to the other terms of
the Agreement, this Agreement will be formally renewed
by the Company's Board of Directors on an annual basis.

<PAGE>

EXHIBIT B

COLLATERAL THERAPEUTICS, INC.
9360 Towne Centre Drive, Suite 110
San Diego, CA 92121

Ladies and Gentlemen:

The following is a complete list of all inventions or improvements or works
of authorship relevant to the subject matter of my advisory services for the
Company that have been made or conceived or first reduced to practice by me
alone or jointly with others prior to my advisory services for the company. I
desire to remove those inventions and improvements listed, if any, from the
operation of the Consulting Agreement between the Company and me which are noted
by an * and my initials next to such invention or improvement:

_____ No inventions or improvements

_____ See below:

_____ Additional sheets attached.

By:
------------------------

Date:
----------------------

<PAGE>

SCHEDULE OF CONSULTING AGREEMENTS

Matthew Spellman, dated January 1, 1997, as amended effective January 1, 1998
Gera Neufeld, PhD., dated February 18, 1997, as amended effective April 1, 1998
Richard S. Pavelec Consultant Service, dated March 19, 1997
Glen Nemerow, Ph.D., dated April 9, 1997
Charles E. Murry, M.D., Ph.D., dated May 5, 1997
Nancy Dalton, dated May 6, 1997, as amended January 1, 1998
Toshihisa Anzai, M.D., dated May 28, 1997
Loren J. Field, Ph.D., dated June 24, 1997
April L. Estes, dated June 30, 1997
Ronald Terjung, Ph.D., dated September 10, 1997
Dr. Steve H. T. Yang, dated September 18, 1997
Pete Sader, dated December 9, 1997
Lewis K. Waldman, Ph.D., dated January 23, 1998
Dan McKirnan, Ph.D., dated February 24, 1998

<PAGE>

EXHIBIT 10.30

AS AMENDED MAY 16, 1997

COLLATERAL THERAPEUTICS, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN

ARTICLE I
GENERAL PROVISIONS

1. PURPOSE

This 1995 Stock Option/Stock Issuance Plan ("Plan") is intended to
promote the interests of Collateral Therapeutics, Inc., a California corporation
(the "Corporation"), by providing individuals who render valuable services to
the Corporation (or any Parent or Subsidiary) with the opportunity to acquire
ownership interests in the Corporation so as to encourage them to continue to
render services to the Corporation (or any Parent or Subsidiary).

2. STRUCTURE OF THE PLAN; TERMINOLOGY

This Plan has two separate components: the Option Grant Program set
forth in Article II and the Stock Issuance Program set forth in Article III.
For the purposes of this Plan, any capitalized term shall have the meaning
assigned under Article IV, Section 8 hereof.

3. ADMINISTRATION OF THE PLAN

A. This Plan shall be administered by either the Board or a
committee of two (2) or more Board members appointed by the Board to which the
Board has delegated administrative functions under the Plan (the "Plan
Administrator"). Members of any committee to which the Board has delegated any
administrative functions shall serve for such terms as the Board shall determine
and subject to the Board's right of removal. All delegations of authority to
any committee shall be and remain revocable by the Board.

B. The Plan Administrator shall have full power and authority to
implement, interpret and administer the Plan, to establish all such rules and
regulations as it deems appropriate, and to make such determinations under the
Plan and any outstanding option grants or share issuances as it deems necessary
or advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan or any outstanding option or share
issuance.

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4. SELECTION OF OPTIONEES AND PARTICIPANTS

A. The persons eligible to receive share issuances under the Stock
Issuance Program and/or option grants pursuant to the Option Grant Program are
limited to Employees; non-employee members of the Board of the Corporation (or
of any Parent or Subsidiary); and consultants and other independent contractors
who provide valuable services to the Corporation (or to any Parent or
Subsidiary).

B. The Plan Administrator shall have the absolute discretion and
authority to determine, subject to the provisions of this Plan, the terms of any
option grant or share issuance. In addition to any other matters over which the
Plan Administrator has discretion hereunder, the Plan Administrator shall
determine which, if any, eligible individuals will be granted options in
accordance with Article II of the Plan and which will be issued shares in
accordance with Article III of the Plan. With respect to option grants made
under the Plan, the Plan Administrator will determine the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option is to become exercisable, the vesting schedule (if any)
applicable to shares issued pursuant to the granted options, and the maximum
term for which the option may remain outstanding. With respect to share
issuances under the Stock Issuance Program, in addition to other matters over
which the Plan Administrator has discretion hereunder, the Plan Administrator
will determine the number of shares to be issued to each issuee, the vesting
schedule (if any) applicable to the issued shares, and the consideration to be
paid by the individual for such shares.

C. Common Stock issuable under the Plan, whether under the Option
Grant Program or the Stock Issuance Program, may be subject to such restrictions
on transfer, repurchase rights or other restrictions as may be imposed by the
Plan Administrator and set forth in the documents governing such option or
issuance.

5. STOCK SUBJECT TO THE PLAN

A. Common Stock of the Corporation ("Common Stock") will be issued
under the Plan. The maximum number of shares of Common Stock which may be
issued over the term of the Plan shall not exceed 562,359 shares, subject to
adjustment from time to time in accordance with the provisions of this Section 5
of Article I.

B. Shares reserved for issuance under granted options but not in
fact issued pursuant to options granted under the Plan due to the expiration or
termination of the option or the cancellation of the option in accordance with
Section 3 of Article II, will again become available for issuance under the
Plan. Shares actually issued under the Plan, whether pursuant to the exercise
of an option under the Option Grant Program or a stock issuance pursuant to the
Stock Issuance Program, which are subsequently repurchased by the Corporation
will not become available for future issuance.

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C. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock dividend, stock split, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the aggregate number and/or class of shares issuable under
the Plan and (ii) the aggregate number and/or class of shares and the option
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive.

6. AMENDMENT OF THE PLAN AND AWARDS

A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects whatsoever. However, no such
amendment or modification shall adversely affect the rights and obligations of
an optionee with respect to options at the time outstanding under the Plan, nor
adversely affect the rights of any issuee with respect to Common Stock issued
under the Plan prior to such action unless such optionee or issuee consents to
such amendment. In addition, the Board shall not, without the approval of the
Corporation's shareholders, amend the Plan so as to (i) increase the maximum
number of shares issuable under the Plan (except for adjustments required under
Article I, subsection 5. C.), (ii) materially increase the benefits accruing to
individuals who participate in the Plan, or (iii) materially modify the
eligibility requirements for participation in the Plan.

B. Options to purchase shares of Common Stock may be granted under
the Option Grant Program and shares of Common Stock may be issued under the
Stock Issuance Program, which are in excess of the number of shares then
available for issuance under the Plan, PROVIDED any excess shares actually
issued under the Option Grant Program or the Stock Issuance Program are held in
escrow until shareholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
date the initial excess issuances are made, then (i) any unexercised options
representing such excess shall terminate and cease to be exercisable and
(ii) the Corporation shall promptly refund to the optionees and issuees the
option or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable short term federal
rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.

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7. EFFECTIVE DATE AND TERM OF PLAN

A. The Plan shall become effective when adopted by the Board.
Options to purchase shares of Common Stock may be granted under the Option Grant
Program and shares of Common Stock may be issued under the Stock Issuance
Program from and after the effective date, PROVIDED any shares actually issued
under the Plan are held in escrow until shareholder approval of the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
effective date, then (i) all options shall terminate and cease to be
exercisable, (ii) the Corporation shall promptly refund to the optionees and
issuees the option or purchase price paid for any shares issued under the Plan,
together with interest (at the applicable short term federal rate) for the
period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding, and (iii) this Plan shall
terminate in its entirety.

B. Unless sooner terminated by reason of subsection 7. A. of this
Article I, the Plan shall terminate upon the EARLIER of (i) November 14, 2005,
or (ii) the date on which all shares available for issuance under the Plan have
been issued pursuant to the exercise of options granted under Article II or the
issuance of shares under Article III. The termination of the Plan shall have no
effect on any outstanding options under or shares issued and outstanding under
the Plan, and such securities shall thereafter continue to have force and effect
in accordance with the provisions of the agreements evidencing such options and
issuances.

8. NO EMPLOYMENT OR SERVICE RIGHTS

Nothing in the Plan shall confer upon any person any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary)
or of the optionee or the issuee, which rights are hereby expressly reserved by
each, to terminate Service of the optionee or issuee at any time for any reason
whatsoever, with or without cause or to engage in any Corporate Transaction.

ARTICLE II
OPTION GRANT PROGRAM

1. TERMS AND CONDITIONS OF OPTIONS

Options granted pursuant to the Plan shall be authorized by action of
the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or Non-Statutory Options except that individuals who
are not Employees may only be granted Non-Statutory Options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; PROVIDED, however, that each such instrument shall comply
with the terms and conditions of Sections 1 and 3 of this Article II and each

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instrument evidencing an Incentive Option shall, in addition, comply with the
provisions of Section 2 of this Article II.

A. OPTION PRICE.

(i) The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than eighty-five percent (85%) of the Fair Market Value of a share of Common
Stock on the date of the option grant.

(ii) The option price per share shall become immediately due upon
exercise of the option and shall, subject to the provisions of Article IV,
Section 1 and the agreement evidencing such grant, be payable in cash or check
drawn to the Corporation's order. Notwithstanding the above, should the
Corporation's outstanding Common Stock be registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), at the time the
option is exercised, then the option price may also be paid as follows:

- in shares of Common Stock held by the optionee for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value; or

- through a special sale and remittance procedure pursuant
to which the optionee provides irrevocable written instructions (a) to a
designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds available on
the settlement date, an amount sufficient to cover the aggregate option
price payable for the purchased shares plus all applicable Federal and
State income and employment taxes required to be withheld by the
Corporation by reason of such purchase and (b) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to effect the sale transaction.

Except to the extent such sale and remittance procedure is utilized, payment of
the option price must occur at the time the option is exercised.

B. TERM AND EXERCISE OF OPTIONS. Each option granted under the Plan
shall be exercisable at such time or times, during such period, and for such
number of shares as shall be determined by the Plan Administrator and set forth
in the stock option agreement evidencing such option. However, no option
granted under the Plan shall have a term in excess of ten (10) years from the
grant date.

C. NO ASSIGNMENT. During the lifetime of the optionee, the option
shall be exercisable only by the optionee and shall not be assignable or
transferable by the optionee otherwise than by will or by the laws of descent
and distribution following the optionee's

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death.

D. TERMINATION OF SERVICE. The following provisions shall govern
the exercise period applicable to any options held by the optionee at the time
of cessation of Service or death:

(i) Should the optionee cease to remain in Service for any
reason other than death or Permanent Disability, then the period during which
each outstanding option held by such optionee is to remain exercisable shall be
limited to the three (3)-month period following the date of such cessation of
Service.

(ii) Should such Service terminate by reason of Permanent
Disability or should the optionee die while holding one or more outstanding
options, then the period during which each such option is to remain exercisable
shall be limited to the twelve (12)-month period following the date of the
optionee's cessation of Service or death. During the limited exercise period
following the optionee's death, the option may be exercised by the personal
representative of the optionee's estate or by the person or persons to whom the
option is transferred pursuant to the optionee's will or in accordance with the
laws of descent and distribution.

(iii) The Plan Administrator shall have full power and
authority to extend (either at the time the option is granted or at any time
while the option remains outstanding) the period of time for which the option is
to remain exercisable following the optionee's cessation of Service, from the
limited period otherwise applicable under subsection 1. C. of this Article II,
to such greater period of time as the Plan Administrator may deem appropriate
under the circumstances.

(iv) Notwithstanding the above, no option shall be exercisable
after the specified expiration date of the option term.

(v) Each such option shall, during the applicable limited
exercise period, be exercisable only with respect to the shares for which the
option was exercisable on the date of the optionee's cessation of Service.

E. SHAREHOLDER RIGHTS. An optionee shall not have rights as a
shareholder with respect to any shares subject to an option until such optionee
shall have exercised the option and paid the option price.

2. INCENTIVE OPTIONS

All provisions of the Plan shall be applicable to Incentive Options
granted hereunder and, in addition, the terms and conditions specified in this
Section 2 shall be applicable to Incentive Options granted under the Plan.
Options which are specifically

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designated as Non-Statutory Options when issued under the Plan shall not be
subject to such terms and conditions set forth herein.

A. OPTION PRICE.

(i) The option price per share of the Common Stock subject to
an Incentive Option shall in no event be less than one hundred percent (100%) of
the Fair Market Value of a share of Common Stock on the grant date.

(ii) If the individual to whom the option is granted is a 10%
Shareholder, then the option price per share shall not be less than one hundred
ten percent (110%) of the Fair Market Value of the Common Stock on the date of
the option grant.

B. DOLLAR LIMITATION. The aggregate Fair Market Value (determined
as of the date or dates of grant) of Common Stock which first becomes
exercisable during any one calendar year under Incentive Options granted to any
Employee under any option plan of the Corporation (or any parent or subsidiary
corporation) shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds options which become exercisable
in the same calendar year, the foregoing limitation on such options shall be
applied on the basis of the order in which such options are granted. Any
options in excess of such limitation shall automatically be treated as
Non-Statutory Options.

C. TERM OF OPTION FOR 10% SHAREHOLDERS. No option granted to a 10%
Shareholder shall have a term in excess of five (5) years from the grant date.

3. CANCELLATION AND NEW GRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or a
different number of shares of Common Stock but having an option price per share
established at the time of such cancellation and regrant in accordance with the
provisions of this Plan.

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ARTICLE III
STOCK ISSUANCE PROGRAM

1. STOCK ISSUANCES

Shares of Common Stock shall be issuable under the Stock Issuance
Program through direct and immediate issuances without any intervening stock
option grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") in a form acceptable to the Plan Administrator,
which form shall be in compliance with the provisions of the Plan.

2. ISSUE PRICE

The purchase price per share shall be fixed by the Plan Administrator,
but in no event shall it be less than eighty-five percent (85%) of the Fair
Market Value of a share of Common Stock at the time of issuance.

3. PAYMENT OF ISSUE PRICE

Except as provided in Article IV, Section 1, shares shall be issued
only in exchange for cash, a check payable to the Corporation, for services
previously rendered to the Corporation (or any Parent or Subsidiary) or such
other lawful consideration as may be acceptable to the Plan Administrator.

ARTICLE IV
MISCELLANEOUS

1. LOANS

A. The Plan Administrator may assist any optionee or issuee (other
than a non-employee director) in the exercise of one or more options granted to
such optionee under the Option Grant Program or the purchase of one or more
shares to be issued to such issuee under the Stock Issuance Program, including
the satisfaction of any Federal and State income and employment tax obligations
arising therefrom, by (i) authorizing the extension of a loan from the
Corporation to such optionee or issuee, or (ii) permitting the optionee or
issuee to pay the option price or purchase price for the purchased Common Stock
in installments over a period of years.

B. The terms of any loan or installment method of payment (including
the interest rate and terms of repayment) shall be established by the Plan
Administrator in its sole discretion. Loans or installment payments may be
authorized with or without security or collateral. However, any loan made to a
consultant or other non-employee advisor must be secured by property other than
the purchased shares of Common Stock. In all events

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the maximum credit available to each optionee or issuee may not exceed the sum
of (i) the aggregate option price or purchase price payable for the purchased
shares plus (ii) any Federal and State income and employment tax liability
incurred by the optionee or issuee in connection with such exercise or purchase.

C. The Plan Administrator may, in its absolute discretion, determine
that one or more loans extended under the financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Board in its discretion deems appropriate.

2. VESTING OF SHARES AND REPURCHASE RIGHTS

A. The Plan Administrator, in its absolute discretion, may issue
fully and immediately vested shares of Common Stock, or the Plan Administrator
may impose such vesting requirements as it deems appropriate with the
Corporation retaining a right to repurchase any unvested shares. The terms of
the vesting schedule and of the Corporation's repurchase rights shall be as
determined by the Plan Administrator and set forth in the agreement governing
such issuance.

B. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
holder of unvested Common Stock may have the right to receive by reason of a
stock dividend, stock split, reclassification or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration shall be issued subject to (i) the same vesting and repurchase
limitations applicable to the unvested Common Stock with respect to which it was
paid or arose, and (ii) such escrow arrangements as the Plan Administrator shall
deem appropriate.

C. No person to whom shares of Common Stock have been issued
pursuant to the Plan may transfer any such shares which have not vested.
Notwithstanding the above, the issuee shall have the right to make a gift of
unvested shares acquired under the Plan to his spouse, parents or issue or to a
trust established for such spouse, parents or issue, provided the transferee of
such shares delivers to the Corporation a written agreement to be bound by all
the provisions of the Plan and the Issuance Agreement or Stock Purchase
Agreement executed by the issuee at the time of his acquisition of the gifted
shares.

3. MARKET STAND-OFF AGREEMENTS

The Plan Administrator may require each person to whom any shares are
issued under this Plan to enter into an agreement which restricts or prohibits
the sale of any stock of the Corporation by such person for a reasonable period
of time following a public offering of any shares of stock by the Corporation.

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4. RIGHT OF FIRST REFUSAL

Until such time as the Corporation's outstanding shares of Common
Stock are first registered under Section 12(g) of the 1934 Act, the Plan
Administrator may subject any shares issued pursuant to the Plan to a right of
first refusal with respect to any proposed disposition of such shares other than
a transfer permitted by Section 2. C. of this Article IV. Such right of first
refusal shall be exercisable by the Corporation (or its assignees) in accordance
with the terms and conditions specified in the instrument governing the issuance
of such shares.

5. SECURITIES LAWS; LEGENDS

A. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until the Corporation shall have determined
that there has been full and adequate compliance with all applicable
requirements of the Federal and state securities laws and all other applicable
legal and regulatory requirements.

B. Shares issued under the Plan shall bear such legends as the Plan
Administrator deems necessary or appropriate, including such restrictive legends
as the Plan Administrator shall require to reflect the terms of any agreement
between the issuee and the Corporation.

6. SHAREHOLDER RIGHTS

Subject to the rights of the Corporation set forth herein or in any
other agreement entered into between the Corporation and an issuee of shares
under the Plan, each person to whom shares of Common Stock have been issued
under the Plan shall have all the rights of a shareholder with respect to those
shares whether or not his interest in such shares is vested. Accordingly, the
issuee shall have the right to vote such shares and to receive any cash
dividends or other distributions paid or made with respect to such shares.

7. ACCELERATION

The Plan Administrator may, in its discretion, provide for the
automatic acceleration upon a change of control and/or Corporate Transaction of
the time at which any option will become exercisable or for the lapse of any
repurchase right tied to vesting by including a provision to such effect in the
documents evidencing the rights of the optionee or issuee.

8. DEFINITIONS

The following definitions shall be in effect under this Plan:

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A. BOARD shall mean the Board of Directors of the Corporation.

B. COMMON STOCK shall mean the common stock of the Corporation.

C. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:

(i) any transaction or series of related transactions
(including, without limitation, any reorganization, merger or
consolidation) in which more than fifty percent (50%) of the
Corporation's outstanding voting stock is transferred to a person or
persons different from those who held the stock immediately prior to
such transaction, or

(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.

D. EMPLOYEE shall mean an individual who is in the employ of the
Corporation or any Parent or Subsidiary, subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.

E. FAIR MARKET VALUE per share of Common Stock on any relevant date
under the Plan shall be the value determined in accordance with the following
provisions:

(i) If the Common Stock is not at the time listed or
admitted to trading on any Stock Exchange but is traded on the Nasdaq
National Market, the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as the price
is reported by the National Association of Securities Dealers through
the Nasdaq National Market or any successor system. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.

(ii) If the Common Stock is at the time listed or
admitted to trading on any Stock Exchange, then the Fair Market Value
shall be the closing selling price per share of Common Stock on the
date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.

(iii) If the Common Stock is at the time neither listed
nor

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admitted to trading on any Stock Exchange nor traded on the Nasdaq National
Market, then such Fair Market Value shall be determined by the Plan
Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.

F. INCENTIVE OPTION shall mean a stock option which satisfies the
requirements of the Internal Revenue Code of 1986, as amended (the "Code")
Section 422.

G. NON-STATUTORY OPTION shall mean a stock option not intended to
meet the requirements of Code Section 422.

H. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

I. PERMANENT DISABILITY shall have the meaning assigned to such term
in Code Section 22(e)(3).

J. SERVICE shall mean the provision of services to the Corporation
or any Parent or Subsidiary by an individual in the capacity of an Employee, a
non-employee member of the Board or a consultant or independent contractor.

K. SUBSIDIARY shall mean each corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each such corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

L. 10% SHAREHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing ten percent (10%) or more of the total
combined voting power of all classes of stock of the Corporation.

9. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the issuance of
shares of Common Stock under the Plan shall be used for general corporate
purposes.

10. WITHHOLDING

The Corporation's obligation to deliver shares upon the exercise of
any options granted under Article II or the purchase of any shares issued under
Article III shall be subject

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to the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.

11. REGULATORY APPROVALS

The implementation of the Plan, the granting of any options under the
Option Grant Program, the issuance of any shares under the Stock Issuance
Program, and the issuance of Common Stock upon the exercise of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.

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<PAGE>

EXHIBIT 10.31
IMMEDIATELY EXERCISABLE

COLLATERAL THERAPEUTICS, INC.
NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following stock option grant (the
"Option") pursuant to the 1995 STOCK OPTION/STOCK ISSUANCE PLAN (the "Plan") to
purchase shares of the Common Stock of Collateral Therapeutics, Inc. (the
"Corporation"):

OPTIONEE:______________________________________________

GRANT DATE:____________________________________________

GRANT NUMBER: ________ OPTION PRICE: $_____ per share

VESTING COMMENCEMENT DATE:_____________________________

NUMBER OF OPTION SHARES: _______________ shares

EXPIRATION DATE:_______________________________________

TYPE OF OPTION: _________ Incentive Stock Option

_________ Non-Statutory Stock Option

DATE EXERCISABLE:

The Option shall be immediately exercisable for all vested and
unvested shares.

VESTING SCHEDULE

The Option Shares shall vest in accordance with the following vesting
schedule:

(i) No Option Shares shall vest unless and until the Optionee has
completed twelve (12) months of Service (as defined in the Plan) measured from
the Vesting Commencement Date.

(ii) Upon the completion of the twelve (12) month service period
specified in subparagraph (i) above, 25% of the Option Shares shall become
vested.

(iii) The Remaining Option Shares shall vest in a series of successive
equal monthly installments over each of the next thirty-six (36)

<PAGE>

months of Service completed by the Optionee after the initial twelve (12)
month service period specified in subparagraph (i) above.

Optionee understands that the Option is granted pursuant to the
Corporation's Plan. By signing below, optionee agrees to be bound by the terms
and conditions of the Plan and the terms and conditions of the Option as set
forth in the Stock Option Agreement attached hereto as EXHIBIT A. Optionee
understands that any Option Shares purchased under the Option will be subject to
the terms and conditions set forth in the Stock Purchase Agreement attached
hereto as EXHIBIT B.

Optionee hereby acknowledges receipt of a copy of the Plan in the form
attached hereto as EXHIBIT C.

REPURCHASE RIGHTS. THE OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO REPURCHASE RIGHTS
AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS UPON
ANY PROPOSED SALE, ASSIGNMENT, TRANSFER, ENCUMBRANCE OR OTHER DISPOSITION OF THE
CORPORATION'S SHARES. THE TERMS AND CONDITIONS OF SUCH RIGHTS ARE SPECIFIED IN
THE STOCK PURCHASE AGREEMENT.

NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or in
the Plan shall confer upon the Optionee any right to continue in the Service of
the Corporation for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation or the Optionee,
which rights are hereby expressly reserved by each, to terminate Optionee's
Service at any time for any reason whatsoever, with or without cause.

_________________, 199__ Collateral Therapeutics, Inc.
Date

By:
---------------------------------

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

------------------------------------
Optionee

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

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

<PAGE>

EXHIBIT A

STOCK OPTION AGREEMENT

<PAGE>

COLLATERAL THERAPEUTICS, INC.
STOCK OPTION AGREEMENT

RECITALS

A. The Board of Directors of the Corporation has adopted the
Collateral Therapeutics, Inc. 1995 Stock Option/Stock Issuance Plan (the "Plan")
for the purpose of attracting and retaining the services of persons who
contribute to the growth and financial success of the Corporation.

B. Optionee is a person who the Plan Administrator believes has and
will contribute to the growth and financial success of the Corporation and this
Agreement is executed pursuant to and is intended to carry out the purposes of
the Plan.

AGREEMENT

NOW, THEREFORE, it is hereby agreed as follows:

1. GRANT OF OPTION. Subject to and upon the terms and conditions set
forth in this Agreement, the Corporation hereby grants to Optionee, as of the
grant date (the "Grant Date") specified in the accompanying Notice of Grant of
Stock Option (the "Grant Notice"), a stock option to purchase up to that number
of shares of the Corporation's Common Stock (the "Option Shares") as is
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term at the option price per share (the "Option
Price") specified in the Grant Notice.

2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall expire at the close of business on
the expiration date (the "Expiration Date") specified in the Grant Notice,
unless sooner terminated in accordance with Paragraph 5, 6 or 17.

3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee.

4. DATES OF EXERCISE. This option may not be exercised in whole or
in part at any time prior to the time the Plan is approved by the Corporation's
shareholders in accordance with Paragraph 17. Provided such shareholder
approval is obtained, this option shall thereupon become exercisable for the
Option Shares in one or more installments as is specified in the Grant Notice.
As the option becomes exercisable in one or more installments, the installments
shall accumulate and the option shall remain exercisable for such installments

<PAGE>

until the Expiration Date or the sooner termination of the option term under
Paragraph 5 or Paragraph 6 of this Agreement.

5. ACCELERATED TERMINATION OF OPTION TERM. The option term specified
in Paragraph 2 shall terminate (and this option shall cease to be exercisable)
prior to the Expiration Date should any of the following provisions become
applicable:

(i) Except as otherwise provided in subparagraph (ii) or (iii) below,
should Optionee cease to remain in Service while this option is outstanding,
then the period for exercising this option shall be reduced to a three (3)-month
period commencing with the date of such cessation of Service, but in no event
shall this option be exercisable at any time after the Expiration Date. Upon
the expiration of such three (3)-month period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be outstanding.

(ii) Should Optionee die while this option is outstanding, then the
personal representative of the Optionee's estate or the person or persons to
whom the option is transferred pursuant to the Optionee's will or in accordance
with the law of descent and distribution shall have the right to exercise this
option. Such right shall lapse and this option shall cease to be exercisable
upon the EARLIER of (A) the expiration of the twelve (12) month period measured
from the date of Optionee's death or (B) the Expiration Date. Upon the
expiration of such twelve (12) month period or (if earlier) upon the Expiration
Date, this option shall terminate and cease to be outstanding.

(iii) Should Optionee become permanently disabled and cease by reason
thereof to remain in Service while this option is outstanding, then the Optionee
shall have a period of twelve (12) months (commencing with the date of such
cessation of Service) during which to exercise this option, but in no event
shall this option be exercisable at any time after the Expiration Date.
Optionee shall be deemed to be permanently disabled if Optionee is unable to
engage in any substantial gainful activity for the Corporation or the parent or
subsidiary corporation retaining his/her services by reason of any medically
determinable physical or mental impairment, which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. Upon the expiration of such limited period of
exercisability or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.

(iv) During the limited period of exercisability applicable under
subparagraph (i), (ii) or (iii) above, this option may be exercised for any or
all of the Option Shares for which this option is, at the time of the Optionee's
cessation of Service, exercisable in accordance with the exercise

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<PAGE>

schedule specified in the Grant Notice and the provisions of Paragraph 6 of this
Agreement.

(v) For purposes of this Paragraph 5 and for all other purposes under
this Agreement:

A. The Optionee shall be deemed to remain in SERVICE for so
long as the Optionee continues to render periodic services to the
Corporation or any parent or subsidiary corporation, whether as an
Employee, a non-employee member of the board of directors, or an
independent contractor or consultant.

B. The Optionee shall be deemed to be an EMPLOYEE of the
Corporation and to continue in the Corporation's employ for so long as the
Optionee remains in the employ of the Corporation or one or more of its
parent or subsidiary corporations, subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.

C. A corporation shall be considered to be a SUBSIDIARY
corporation of the Corporation if it is a member of an unbroken chain of
corporations beginning with the Corporation, provided each such corporation
in the chain (other than the last corporation) owns, at the time of
determination, stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.

D. A corporation shall be considered to be a PARENT corporation
of the Corporation if it is a member of an unbroken chain ending with the
Corporation, provided each such corporation in the chain (other than the
Corporation) owns, at the time of determination, stock possessing 50% or
more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.

6. SPECIAL TERMINATION OF OPTION.

A. This Option, to the extent not previously exercised, shall
terminate and cease to be exercisable upon the consummation of one or more of
the following shareholder-approved transactions (a "Corporate Transaction")
unless this Option is expressly assumed by the successor corporation or parent
thereof:

(i) a merger or consolidation in which the Corporation is not
the surviving entity,

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<PAGE>

(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or

(iii) any transaction (other than an issuance of shares by the
Corporation for cash) in or by means of which one or more persons acting in
concert acquire, in the aggregate, more than 50% of the outstanding shares
of the stock of the Corporation.

B. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.

7. ADJUSTMENT IN OPTION SHARES.

A. In the event any change is made to the Corporation's outstanding
Common Stock by reason of any stock split, stock dividend, combination of
shares, exchange of shares, or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the total number of Option Shares subject to this option,
(ii) the number of Option Shares for which this option is to be exercisable from
and after each installment date specified in the Grant Notice and (iii) the
Option Price payable per share in order to reflect such change and thereby
preclude a dilution or enlargement of benefits hereunder.

B. If this option is to be assumed in connection with a Corporate
Transaction described in Paragraph 6 or is otherwise to remain outstanding, then
this option shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply and pertain to the number and class of securities which
would have been issuable to the Optionee in the consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Option Price
payable per share, PROVIDED the aggregate Option Price payable hereunder shall
remain the same.

8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall
not have any of the rights of a shareholder with respect to the Option Shares
until such individual shall have exercised the option and paid the Option Price.

9. MANNER OF EXERCISING OPTION.

A. In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable, Optionee
(or in the case of exercise after Optionee's death, the Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions:

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<PAGE>

(i) Execute and deliver to the Secretary of the Corporation a
stock purchase agreement (the "Purchase Agreement") in substantially the
form of EXHIBIT B to the Grant Notice.

(ii) Pay the aggregate Option Price for the purchased shares in
one or more forms approved under the Plan.

(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option, if other than Optionee, have
the right to exercise this option.

B. Should the Corporation's outstanding Common Stock be registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"1934 Act") at the time the option is exercised, then the Option Price may also
be paid as follows:

(i) in shares of Common Stock held by the Optionee for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at fair market value on the
Exercise Date; or

(ii) through a special sale and remittance procedure pursuant to
which the Optionee is to provide irrevocable written instructions (a) to a
designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds available on
the settlement date, sufficient funds to cover the aggregate Option Price
payable for the purchased shares plus all applicable Federal and State
income and employment taxes required to be withheld by the Corporation by
reason of such purchase and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm in
order to effect the sale transaction.

C. For purposes of this Agreement, the Exercise Date shall be the
date on which the executed Purchase Agreement shall have been delivered to the
Corporation, and the fair market value of a share of Common Stock on any
relevant date shall be determined in accordance with subparagraphs (i) through
(iii) below:

(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the Nasdaq National Market,
the fair market value shall be the closing selling price of one share of
Common Stock on the date in question, as such price is reported by the
National Association of Securities Dealers through its Nasdaq system or any
successor system. If there is no closing selling price for the Common
Stock on the date in question, then the closing selling price on the last
preceding date for which such quotation exists shall be determinative of
fair market value.

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<PAGE>

(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall be the
closing selling price per share of Common Stock on the date in question on
the stock exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no reported
sale of Common Stock on such exchange on the date in question, then the
fair market value shall be the closing selling price on the exchange on the
last preceding date for which such quotation exists.

(iii) If the Common Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the
over-the-counter market, or if the Plan Administrator determines that the
value determined pursuant to subparagraphs (i) and (ii) above does not
accurately reflect the fair market value of the Common Stock, then such
fair market value shall be determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate.

D. As soon after the Exercise Date as practical, the Corporation
shall mail or deliver to Optionee or to the other person or persons exercising
this option a certificate or certificates representing the shares so purchased
and paid for, with the appropriate legends affixed thereto.

E. In no event may this option be exercised for any fractional
shares.

10. COMPLIANCE WITH LAWS AND REGULATIONS.

A. The exercise of this option and the issuance of Option Shares
upon such exercise shall be subject to compliance by the Corporation and the
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange on which shares of the
Corporation's Common Stock may be listed at the time of such exercise and
issuance.

B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.

11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.

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<PAGE>

12. LIABILITY OF CORPORATION.

A. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares, unless shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of Article I, Section 6, of the Plan.

B. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.

The Corporation, however, shall use its best efforts to obtain all such
approvals.

13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee's
signature line on the Grant Notice. All notices shall be deemed to have been
given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.

14. LOANS. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, assist the Optionee in the exercise of this
option by (i) authorizing the extension of a loan to the Optionee from the
Corporation or (ii) permitting the Optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
such loan or installment method of payment (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.

15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under the Plan
or this Agreement shall be conclusive and binding on all persons having an
interest in this option.

16. GOVERNING LAW. The interpretation, performance, and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict of laws rules.

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<PAGE>

17. SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Corporation's shareholders within twelve (12) months
after the adoption of the Plan by the Board of Directors. NOTWITHSTANDING ANY
PROVISION OF THIS AGREEMENT TO THE CONTRARY, THIS OPTION MAY NOT BE EXERCISED IN
WHOLE OR IN PART UNTIL SUCH SHAREHOLDER APPROVAL IS OBTAINED. In the event that
such shareholder approval is not obtained, then this option shall thereupon
terminate in its entirety and the Optionee shall have no further rights to
acquire any Option Shares hereunder.

18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In the
event this option is designated an incentive stock option in the Grant Notice,
the following terms and conditions shall also apply to the grant:

A. This option shall cease to qualify for favorable tax treatment as
an incentive stock option under the Federal tax laws if (and to the extent) this
option is exercised for one or more Option Shares: (i) more than three (3)
months after the date the Optionee ceases to be an Employee for any reason other
than death or permanent disability (as defined in Paragraph 5) or (ii) more than
one (1) year after the date the Optionee ceases to be an Employee by reason of
permanent disability.

B. Should this option be designated as immediately exercisable in
the Grant Notice, then this option shall not become exercisable in the calendar
year in which granted if (and to the extent) the aggregate fair market value
(determined at the Grant Date) of the Corporation's Common Stock for which this
option would otherwise first become exercisable in such calendar year would,
when added to the aggregate fair market value (determined as of the respective
date or dates of grant) of the Corporation's Common Stock for which this option
or one or more other incentive stock options granted to the Optionee prior to
the Grant Date (whether under the Plan or any other option plan of the
Corporation or its parent or subsidiary corporations) first become exercisable
during the same calendar year, exceed One Hundred Thousand Dollars ($100,000) in
the aggregate. To the extent the exercisability of this option is deferred by
reason of the foregoing limitation, the deferred portion will first become
exercisable in the first calendar year or years thereafter in which the One
Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18.B would not
be contravened.

C. Should this option be designated as exercisable in installments
in the Grant Notice, then no installment under this option (whether annual or
monthly) shall qualify for favorable tax treatment as an incentive stock option
under the Federal tax laws if (and to the extent) the aggregate fair market
value (determined at the Grant Date) of the Corporation's Common Stock for which
such installment first becomes exercisable hereunder will, when added to the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Corporation's Common Stock for which one or more other incentive
stock options granted to the Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any parent or subsidiary
corporation) first become

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<PAGE>

exercisable during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate.

19. WITHHOLDING. Optionee hereby agrees to make appropriate
arrangements with the Corporation or parent or subsidiary corporation employing
Optionee for the satisfaction of all Federal, State or local income tax
withholding requirements and Federal social security employee tax requirements
applicable to the exercise of this option.

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<PAGE>

EXHIBIT B

STOCK PURCHASE AGREEMENT

<PAGE>

IMMEDIATELY EXERCISABLE
REPURCHASE RIGHT
RIGHT OF FIRST REFUSAL

COLLATERAL THERAPEUTICS, INC.
STOCK PURCHASE AGREEMENT

AGREEMENT made as of this ____ day of_________, 19__, by and among
Collateral Therapeutics, Inc., a California corporation (the "Corporation"),
_____________________, the holder of a stock option (the "Optionee") under the
Corporation's 1995 Stock Option/Stock Issuance Plan and __________________, the
Optionee's spouse.

I. EXERCISE OF OPTION

1.1 EXERCISE. Optionee hereby purchases __________________ shares
("Purchased Shares") of the Corporation's common stock ("Common Stock") pursuant
to that certain option ("Option") granted Optionee on _____________, 19___
("Grant Date") to purchase up to ____________ shares of the Common Stock ("Total
Purchasable Shares") under the Corporation's 1995 Stock Option/Stock Issuance
Plan (the "Plan") at an option price of $__________ per share ("Option Price").

1.2 PAYMENT. Concurrently with the delivery of this Agreement to the
Corporate Secretary of the Corporation, Optionee shall pay the Option Price for
the Purchased Shares in accordance with the provisions of the agreement between
the Corporation and Optionee evidencing the Option (the "Option Agreement") and
shall deliver whatever additional documents may be required by the Option
Agreement as a condition for exercise, together with a duly-executed blank
Assignment Separate from Certificate (in the form attached hereto as EXHIBIT A)
with respect to the Purchased Shares.

1.3 DELIVERY OF CERTIFICATES. The certificates representing the
Purchased Shares hereunder shall be held in escrow by the Corporate Secretary of
the Corporation in accordance with the provisions of Article VII.

1.4 SHAREHOLDER RIGHTS. Until such time as the Corporation actually
exercises its repurchase right, rights of first refusal or special purchase
right under this Agreement, Optionee (or any successor in interest) shall have
all the rights of a shareholder (including voting and dividend rights) with
respect to the Purchased Shares, including the Purchased Shares held in escrow
under Article VII, subject, however, to the transfer restrictions of Article IV.

<PAGE>

II. SECURITIES LAW COMPLIANCE

2.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
Optionee in reliance upon Optionee's representation to the Corporation, which by
Optionee's execution of this Agreement Optionee hereby confirms, that the Shares
are being acquired for investment for Optionee'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 Optionee has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, Optionee further represents that Optionee 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
Shares. Optionee represents that he has full power and authority to enter into
this Agreement.

2.2 EXEMPTION FROM REGISTRATION. The Purchased Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
are accordingly being issued to Optionee in reliance upon the exemption from
such registration provided by Rule 701 of the Securities and Exchange Commission
for stock issuances under compensatory benefit plans such as the Plan. Optionee
hereby acknowledges previous receipt of a copy of the documentation for such
Plan in the form of EXHIBIT C to the Notice of Grant of Stock Option (the "Grant
Notice") accompanying the Option Agreement.

2.3 RESTRICTED SECURITIES.

A. Optionee hereby confirms that Optionee has been informed that the
Purchased Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless the Purchased Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Optionee hereby acknowledges that Optionee is prepared
to hold the Purchased Shares for an indefinite period and that Optionee is aware
that Rule 144 of the Securities and Exchange Commission issued under the 1933
Act is not presently available to exempt the sale of the Purchased Shares from
the registration requirements of the 1933 Act.

B. Upon the expiration of the ninety (90)-day period immediately
following the date on which the Corporation first becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Purchased Shares, to the extent vested under Article V, may
be sold (without registration) pursuant to the applicable requirements of Rule
144. If Optionee is at the time of such sale an affiliate of the Corporation
for purposes of Rule 144 or was such an affiliate during the preceding three (3)
months, then the sale must comply with all the requirements of Rule 144
(including the volume limitation on the number of shares sold, the
broker/market-maker sale requirement and the requisite notice to the Securities
and Exchange Commission); however, the two (2)-year holding period requirement
of the Rule will not be applicable. If Optionee is not at the time of the sale
an affiliate of the Corporation nor was such an affiliate during the preceding
three

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<PAGE>

(3) months, then none of the requirements of Rule 144 (other than the
broker/market-maker sale requirement for Purchased Shares held for less than
three (3) years following payment in cash of the Option Price therefor) will be
applicable to the sale.

C. Should the Corporation not become subject to the reporting
requirements of the Exchange Act, then Optionee may, provided he/she is not at
the time an affiliate of the Corporation (nor was such an affiliate during the
preceding three (3) months), sell the Purchased Shares (without registration)
pursuant to paragraph (k) of Rule 144 after the Purchased Shares have been held
for a period of three (3) years following the payment in cash of the Option
Price for such shares.

2.4 DISPOSITION OF SHARES. Optionee hereby agrees that Optionee
shall make no disposition of the Purchased Shares (other than a permitted
transfer under paragraph 4.1) unless and until there is compliance with all of
the following requirements:

(a) Optionee shall have notified the Corporation of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition.

(b) Optionee shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares.

(c) Optionee shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that (i) the
proposed disposition does not require registration of the Purchased Shares under
the 1933 Act or (ii) all appropriate action necessary for compliance with the
registration requirements of the 1933 Act or of any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.

(d) Optionee shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that the
proposed disposition will not result in the contravention of any transfer
restrictions applicable to the Purchased Shares pursuant to the provisions of
the Commissioner Rules identified in paragraph 2.5.

The Corporation shall NOT be required (i) to transfer on its books any
Purchased Shares which have been sold or transferred in violation of the
provisions of this Article II NOR (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee to
whom the Purchased Shares have been transferred in contravention of this
Agreement.

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<PAGE>

2.5 RESTRICTIVE LEGENDS. In order to reflect the restrictions on
disposition of the Purchased Shares, the stock certificates for the Purchased
Shares will be endorsed with restrictive legends, including one or more of the
following legends:

(a) "The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold or
offered for sale in the absence of (i) an effective registration statement for
the shares under such Act, (ii) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer, or (iii) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."

(b) "The shares represented by this certificate are unvested and
accordingly may not be sold, assigned, transferred, encumbered, or in any manner
disposed of except in conformity with the terms of a written agreement dated
____________, 19 between the Corporation and the registered holder of the
shares (or the predecessor in interest to the shares). Such agreement grants
certain repurchase rights and rights of first refusal to the Corporation (or its
assignees) upon the sale, assignment, transfer, encumbrance or other disposition
of the Corporation's shares or upon termination of service with the Corporation.
The Corporation will upon written request furnish a copy of such agreement to
the holder hereof without charge."

III. SPECIAL TAX ELECTION

3.1 SECTION 83(B) ELECTION APPLICABLE TO THE EXERCISE OF A
NON-STATUTORY STOCK OPTION. If the Purchased Shares are acquired hereunder
pursuant to the exercise of a NON-STATUTORY STOCK OPTION, as specified in the
Grant Notice, then the Optionee understands that under Section 83 of the
Internal Revenue Code of 1986, as amended (the "Code"), the excess of the fair
market value of the Purchased Shares on the date any forfeiture restrictions
applicable to such shares lapse over the Option Price paid for such shares will
be reportable as ordinary income on such lapse date. For this purpose, the term
"forfeiture restrictions" includes the right of the Corporation to repurchase
the Purchased Shares pursuant to the Repurchase Right provided under Article V
of this Agreement. Optionee understands that he/she may elect under Section
83(b) of the Code to be taxed at the time the Purchased Shares are acquired
hereunder, rather than when and as such Purchased Shares cease to be subject to
such forfeiture restrictions. Such election must be filed with the Internal
Revenue Service within thirty (30) days after the date of this Agreement. Even
if the fair market value of the Purchased Shares at the date of this Agreement
equals the Option Price paid (and thus no tax is payable), the election must be
made to avoid adverse tax consequences in the future. THE FORM FOR MAKING THIS
ELECTION IS ATTACHED AS EXHIBIT B HERETO. OPTIONEE UNDERSTANDS THAT FAILURE TO
MAKE THIS FILING WITHIN THE THIRTY (30)-DAY PERIOD WILL RESULT IN THE
RECOGNITION OF ORDINARY INCOME BY THE OPTIONEE AS THE FORFEITURE RESTRICTIONS
LAPSE.

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<PAGE>

3.2 CONDITIONAL SECTION 83(B) ELECTION APPLICABLE TO THE EXERCISE OF
AN INCENTIVE STOCK OPTION. If the Purchased Shares are acquired hereunder
pursuant to the exercise of an INCENTIVE STOCK OPTION under the Federal tax
laws, as specified in the Grant Notice, then the following tax principles shall
be applicable to the Purchased Shares:

A. For regular tax purposes, no taxable income will be recognized at
the time the Option is exercised.

B. The excess of (i) the fair market value of the Purchased Shares
on the date the Option is exercised or (if later) on the date any forfeiture
restrictions applicable to the Purchased Shares lapse over (ii) the Option Price
paid for the Purchased Shares will be includible in the Optionee's taxable
income for alternative minimum tax purposes.

C. If the Optionee makes a disqualifying disposition of the
Purchased Shares, then the Optionee will recognize ordinary income in the year
of such disposition equal in amount to the excess of (i) the fair market value
of the Purchased Shares on the date the Option is exercised or (if later) on the
date any forfeiture restrictions applicable to the Purchased Shares lapse over
(ii) the Option Price paid for the Purchased Shares. Any additional gain
recognized upon the disqualifying disposition will be either short-term or
long-term capital gain depending upon the period for which the Purchased Shares
are held prior to the disposition.

D. For purposes of the foregoing, the term "forfeiture restrictions"
will include the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right provided under Article V of this Agreement.
The term "disqualifying disposition" means any sale or other disposition(1) of
the Purchased Shares within two (2) years after the Grant Date or within one (1)
year after the execution date of this Agreement.

E. In the absence of final Treasury Regulations relating
to incentive stock options, it is not certain whether the Optionee
may, in connection with the exercise of the Option for any Purchased
Shares at the time subject to forfeiture restrictions, file a
protective election under Section 83(b) of the Code which would limit
(I) the Optionee's alternative minimum taxable income upon exercise
and (II) the Optionee's ordinary income upon a disqualifying
disposition, to the excess of (i) the fair market value of the
Purchased Shares on the date the Option is exercised over (ii) the
Option Price

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(1) Generally, a disposition of shares purchased under an incentive stock
option includes any transfer of legal title, including a ransfer by sale,
exchange or gift, but does not include a transfer to the Otionee's spouse, a
transfer into joint ownership with right of survivorship if Optionee remains one
of the joint owners, a pledge, a transfer by bequest or inheritance or certain
tax free exchanges permitted under the Code.

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paid for the Purchased Shares. THE APPROPRIATE FORM FOR MAKING SUCH A
PROTECTIVE ELECTION IS ATTACHED AS EXHIBIT B TO THIS AGREEMENT AND MUST BE
FILED WITH THE INTERNAL REVENUE SERVICE WITHIN THIRTY (30) DAYS AFTER THE
DATE OF THIS AGREEMENT. HOWEVER, SUCH ELECTION IF PROPERLY FILED WILL ONLY
BE ALLOWED TO THE EXTENT THE FINAL TREASURY REGULATIONS PERMIT SUCH A
PROTECTIVE ELECTION.

3.3 OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY,
AND NOT THE CORPORATION'S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b), EVEN
IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING
ON HIS/HER BEHALF. This filing should be made by registered or certified mail,
return receipt requested, and Optionee must retain two (2) copies of the
completed form for filing with his or her State and Federal tax returns for the
current tax year and an additional copy for his or her records.

IV. TRANSFER RESTRICTIONS

4.1 RESTRICTION ON TRANSFER. Optionee shall not transfer, assign,
encumber or otherwise dispose of any of the Purchased Shares which are subject
to the Corporation's Repurchase Right under Article V. In addition, Purchased
Shares which are released from the Repurchase Right shall not be transferred,
assigned, encumbered or otherwise made the subject of disposition in
contravention of the Corporation's First Refusal Right under Article VI. Such
restrictions on transfer, however, shall NOT be applicable to (i) a gratuitous
transfer of the Purchased Shares made to the Optionee's spouse or issue,
including adopted children, or to a trust for the exclusive benefit of the
Optionee or the Optionee's spouse or issue, PROVIDED AND ONLY IF the Optionee
obtains the Corporation's prior written consent to such transfer, (ii) a
transfer of title to the Purchased Shares effected pursuant to the Optionee's
will or the laws of intestate succession or (iii) a transfer to the Corporation
in pledge as security for any purchase-money indebtedness incurred by the
Optionee in connection with the acquisition of the Purchased Shares.

4.2 TRANSFEREE OBLIGATIONS. Each person (other than the Corporation)
to whom the Purchased Shares are transferred by means of one of the permitted
transfers specified in paragraph 4.1 must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Corporation that such
person is bound by the provisions of this Agreement and that the transferred
shares are subject to (i) both the Corporation's Repurchase Right and the
Corporation's First Refusal Right granted hereunder and (ii) the market
stand-off provisions of paragraph 4.4, to the same extent such shares would be
so subject if retained by the Optionee.

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4.3 DEFINITION OF OWNER. For purposes of Articles IV, V, VI and VII
of this Agreement, the term "Owner" shall include the Optionee and all
subsequent holders of the Purchased Shares who derive their chain of ownership
through a permitted transfer from the Optionee in accordance with paragraph 4.1.

4.4 MARKET STAND-OFF PROVISIONS.

A. In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Owner shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to, any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such limitations shall be in effect for such
period of time from and after the effective date of such registration statement
as may be requested by the Corporation or such underwriters; PROVIDED, however,
that in no event shall such period exceed one hundred-eighty (180) days. The
limitations of this paragraph 4.4 shall remain in effect for the two-year period
immediately following the effective date of the Corporation's initial public
offering and shall thereafter terminate and cease to have any force or effect.

B. Owner shall be subject to the market stand-off provisions of this
paragraph 4.4 PROVIDED AND ONLY IF the officers and directors of the Corporation
are also subject to similar arrangements.

C. In the event of any stock dividend, stock split, recapitalization
or other change affecting the Corporation's outstanding Common Stock effected as
a class without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Purchased Shares shall be
immediately subject to the provisions of this paragraph 4.4, to the same extent
the Purchased Shares are at such time covered by such provisions.

D. In order to enforce the limitations of this paragraph 4.4, the
Corporation may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable market stand-off period.

V. REPURCHASE RIGHT

5.1 GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date the Optionee ceases for any reason to remain in Service or
(if later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Option Price all or (at the discretion of the
Corporation and with the consent of the Optionee) any portion of the Purchased
Shares in which the Optionee has not acquired a vested interest in accordance
with

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the vesting provisions of paragraph 5.3 (such shares to be hereinafter called
the "Unvested Shares"). For purposes of this Agreement, the Optionee shall be
deemed to remain in Service for so long as the Optionee continues to render
periodic services to the Corporation or any parent or subsidiary corporation,
whether as an employee, a non-employee member of the board of directors, or an
independent contractor or consultant.

5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one
or more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with paragraph 7.3 or from Owner as herein
provided), pay to Owner in cash or cash equivalents (including the cancellation
of any purchase-money indebtedness), an amount equal to the Option Price
previously paid for the Unvested Shares which are to be repurchased.

5.3 TERMINATION OF THE REPURCHASE RIGHT.

A. The Repurchase Right shall terminate with respect to any Unvested
Shares for which it is not timely exercised under paragraph 5.2.

B. The Repurchase Right shall terminate, and cease to be
exercisable, with respect to any and all Purchased Shares in which the Optionee
vests in accordance with the vesting schedule specified in the Grant Notice.

C. The Repurchase Right shall terminate upon the consummation of one
of the following transactions unless expressly assigned by the Corporation to
its successor upon the occurrence of any one or more of the following
transactions:

(i) a merger or consolidation in which the Corporation is
not the surviving entity,

(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or

(iii) any transaction (including a merger) through or by
means of which a majority of the Corporation's outstanding voting
securities are transferred

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to a person or persons other than those who held such securities
immediately prior to the merger.

For purposes of this Section, the Corporation shall be treated as a new
corporation following a transaction described in subparagraph (iii) above and
the Repurchase Right hereunder shall terminate absent an express assignment of
such right.

All Purchased Shares as to which the Repurchase Right lapses shall,
however, continue to be subject to (i) the First Refusal Right of the
Corporation and its assignees under Article VI, (ii) the market stand-off
provisions of paragraph 4.4 and (iii) the Special Purchase Right under Article
VIII.

5.4 AGGREGATE VESTING LIMITATION. If the Option is exercised in more
than one increment so that the Optionee is a party to one or more other Stock
Purchase Agreements ("Prior Purchase Agreements") which are executed prior to
the date of this Agreement, then the total number of Purchased Shares as to
which the Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which the Optionee would otherwise at the time
be vested, in accordance with the vesting provisions of paragraph 5.3, had all
the Purchased Shares been acquired exclusively under this Agreement.

5.5 FRACTIONAL SHARES. No fractional shares shall be repurchased by
the Corporation. Accordingly, should the Repurchase Right extend to a
fractional share (in accordance with the vesting provisions of paragraph 5.3) at
the time the Optionee ceases Service, then such fractional share shall be added
to any fractional share in which the Optionee is at such time vested in order to
make one whole vested share no longer subject to the Repurchase Right.

5.6 ADDITIONAL SHARES OR SUBSTITUTED SECURITIES. In the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, then any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which is
by reason of any such transaction distributed with respect to the Purchased
Shares shall be immediately subject to the Repurchase Right, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number of Purchased Shares and Total Purchasable Shares hereunder
and to the price per share to be paid upon the exercise of the Repurchase Right
in order to reflect the effect of any such transaction upon the Corporation's
capital structure; PROVIDED, however, that the aggregate purchase price shall
remain the same.

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<PAGE>

VI. RIGHT OF FIRST REFUSAL

6.1 GRANT. The Corporation is hereby granted rights of first refusal
(the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which the Optionee has vested in accordance
with the vesting provisions of Article V. For purposes of this Article VI, the
term "transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition for value of the Purchased Shares intended to be made by the Owner,
but shall not include any of the permitted transfers under paragraph 4.1.

6.2 NOTICE OF INTENDED DISPOSITION. In the event the Owner desires
to accept a bona fide third-party offer for the transfer of any or all of the
Purchased Shares (the shares subject to such offer to be hereinafter called the
"Target Shares"), Owner shall promptly (i) deliver to the Corporate Secretary of
the Corporation written notice (the "Disposition Notice") of the terms and
conditions of the offer, including the purchase price and the identity of the
third-party offeror, and (ii) provide satisfactory proof that the disposition of
the Target Shares to such third-party offeror would not be in contravention of
the provisions set forth in Articles II and IV of this Agreement.

6.3 EXERCISE OF RIGHT. The Corporation shall, for a period of
forty-five (45) days following receipt of the Disposition Notice, have the right
to repurchase any or all of the Target Shares specified in the Disposition
Notice upon the same terms and conditions specified therein or upon terms and
conditions which do not materially vary from those specified therein. Such
right shall be exercisable by delivery of written notice (the "Exercise Notice")
to Owner prior to the expiration of the forty-five (45)-day exercise period. If
such right is exercised with respect to all the Target Shares specified in the
Disposition Notice, then the Corporation (or its assignees) shall effect the
repurchase of the Target Shares, including payment of the purchase price, not
more than ten (10) business days after delivery of the Exercise Notice; and at
such time Owner shall deliver to the Corporation the certificates representing
the Target Shares to be repurchased, each certificate to be properly endorsed
for transfer. To the extent any of the Target Shares are at the time held in
escrow under Article VII, the certificates for such shares shall automatically
be released from escrow and delivered to the Corporation for purchase. Should
the purchase price specified in the Disposition Notice be payable in property
other than cash or evidences of indebtedness, the Corporation (or its assignees)
shall have the right to pay the purchase price in the form of cash equal in
amount to the value of such property. If the Owner and the Corporation (or its
assignees) cannot agree on such cash value within ten (10) days after the
Corporation's receipt of the Disposition Notice, the valuation shall be made by
an appraiser of recognized standing selected by the Owner and the Corporation
(or its assignees) or, if they cannot agree on an appraiser within twenty (20)
days after the Corporation's receipt of the Disposition Notice, each shall
select an appraiser of recognized standing and the two appraisers shall
designate a third appraiser of recognized standing, whose appraisal shall be
determinative of such value. The cost of such appraisal shall be shared equally
by the Owner and the Corporation. The

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<PAGE>

closing shall then be held on the LATER of (i) the tenth business day following
delivery of the Exercise Notice or (ii) the tenth business day after such cash
valuation shall have been made.

6.4 NON-EXERCISE OF RIGHT. In the event the Exercise Notice is not
given to Owner within forty-five (45) days following the date of the
Corporation's receipt of the Disposition Notice, Owner shall have a period of
thirty (30) days thereafter in which to sell or otherwise dispose of the Target
Shares to the third-party offeror identified in the Disposition Notice upon
terms and conditions (including the purchase price) no more favorable to such
third-party offeror than those specified in the Disposition Notice; PROVIDED,
however, that any such sale or disposition must not be effected in contravention
of the provisions of Article II of this Agreement. To the extent any of the
Target Shares are at the time held in escrow under Article VII, the certificates
for such shares shall automatically be released from escrow and surrendered to
the Owner. The third-party offeror shall acquire the Target Shares free and
clear of the Corporation's Repurchase Right under Article V and the
Corporation's First Refusal Right hereunder, but the acquired shares shall
remain subject to (i) the securities law restrictions of subparagraph 2.3 A. and
(ii) the market stand-off provisions of paragraph 4.4. In the event Owner does
not effect such sale or disposition of the Target Shares within the specified
thirty (30)-day period, the Corporation's First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses in accordance with paragraph 6.7.

(a) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full compliance
with the requirements of paragraph 6.4, as if the Corporation did not exercise
the First Refusal Right hereunder; or

(b) sale to the Corporation (or its assignees) of the portion of the
Target Shares which the Corporation (or its assignees) has elected to purchase,
such sale to be effected in substantial conformity with the provisions of
paragraph 6.3.

Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (a) above.

6.6 RECAPITALIZATION/MERGER.

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<PAGE>

A. In the event of any stock dividend, stock split, recapitalization
or other transaction affecting the Corporation's outstanding Common Stock as a
class effected without receipt of consideration, then any new, substituted or
additional securities or other property which is by reason of such transaction
distributed with respect to the Purchased Shares shall be immediately subject to
the Corporation's First Refusal Right hereunder, but only to the extent the
Purchased Shares are at the time covered by such right.

B. In the event of any of the following transactions:

(i) a merger or consolidation in which the Corporation is not
the surviving entity,

(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,

(iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to person or persons other than those who held
such securities immediately prior to the merger, or

(iv) any transaction effected primarily to change the State in
which the Corporation is incorporated, or to create a holding company structure,

the Corporation's First Refusal Right shall remain in full force and effect and
shall apply to the new capital stock or other property received in exchange for
the Purchased Shares in consummation of the transaction but only to the extent
the Purchased Shares are at the time covered by such right.

6.6 LAPSE. The First Refusal Right under this Article VI shall lapse
and cease to have effect upon the EARLIEST to occur of (i) the first date on
which shares of the Corporation's Common Stock are held of record by more than
five hundred (500) persons, (ii) a determination is made by the Corporation's
Board of Directors that a public market exists for the outstanding shares of the
Corporation's Common Stock, or (iii) a firm commitment underwritten public
offering pursuant to an effective registration statement under the 1933 Act,
covering the offer and sale of the Corporation's Common Stock in the aggregate
amount of at least $5,000,000. However, the market stand-off provisions of
paragraph 4.4 shall continue to remain in full force and effect following the
lapse of the First Refusal Right hereunder.

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VII. ESCROW

7.1 DEPOSIT. Upon issuance, the certificates for any Unvested Shares
purchased hereunder shall be deposited in escrow with the Corporate Secretary of
the Corporation to be held in accordance with the provisions of this Article
VII. Each deposited certificate shall be accompanied by a duly-executed
Assignment Separate from Certificate in the form of EXHIBIT A. The deposited
certificates, together with any other assets or securities from time to time
deposited with the Corporate Secretary pursuant to the requirements of this
Agreement, shall remain in escrow until such time or times as the certificates
(or other assets and securities) are to be released or otherwise surrendered for
cancellation in accordance with paragraph 7.3. Upon delivery of the
certificates (or other assets and securities) to the Corporate Secretary of the
Corporation, the Owner shall be issued an instrument of deposit acknowledging
the number of Unvested Shares (or other assets and securities) delivered in
escrow.

7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Unvested Shares shall be immediately
delivered to the Corporate Secretary to be held in escrow under this Article
VII, but only to the extent the Unvested Shares are at the time subject to the
escrow requirements of paragraph 7.1.

(a) Should the Corporation (or its assignees) elect to exercise the
Repurchase Right under Article V with respect to any Unvested Shares, then the
escrowed certificates for such Unvested Shares (together with any other assets
or securities issued with respect thereto) shall be delivered to the Corporation
concurrently with payment to the Owner, in cash or cash equivalent (including
the cancellation of any purchase-money indebtedness), of an amount equal to the
aggregate Option Price for such Unvested Shares, and the Owner shall cease to
have any further rights or claims with respect to such Unvested Shares (or other
assets or securities attributable to such Unvested Shares).

(b) Should the Corporation (or its assignees) elect to exercise its
First Refusal Right under Article VI with respect to any vested Target

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Shares held at the time in escrow hereunder, then the escrowed certificates for
such Target Shares (together with any other assets or securities attributable
thereto) shall, concurrently with the payment of the paragraph 6.3 purchase
price for such Target Shares to the Owner, be surrendered to the Corporation,
and the Owner shall cease to have any further rights or claims with respect to
such Target Shares (or other assets or securities).

(c) Should the Corporation (or its assignees) elect NOT to exercise
its First Refusal Right under Article VI with respect to any Target Shares held
at the time in escrow hereunder, then the escrowed certificates for such Target
Shares (together with any other assets or securities attributable thereto) shall
be surrendered to the Owner for disposition in accordance with provisions of
paragraph 6.4.

(d) As the interest of the Optionee in the Unvested Shares (or any
other assets or securities attributable thereto) vests in accordance with the
provisions of Article V, the certificates for such vested shares (as well as all
other vested assets and securities) shall be released from escrow and delivered
to the Owner in accordance with the following schedule:

(i) The initial release of vested shares (or other vested
assets and securities) from escrow shall be effected within thirty
(30) days following the expiration of the initial twelve (12)-month
period measured from the Grant Date.

(ii) Subsequent releases of vested shares (or other vested
assets and securities) from escrow shall be effected at semi-annual
intervals thereafter, with the first such semi-annual release to occur
eighteen (18) months after the Grant Date.

(iii) Upon the Optionee's cessation of Service, any escrowed
Purchased Shares (or other assets or securities) in which the Optionee
is at the time vested shall be promptly released from escrow.

(iv) Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of
Article V, any Purchased Shares (or other assets or securities) at the
time held in escrow hereunder shall promptly be released to the Owner
as fully-vested shares or other property.

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<PAGE>

(e) All Purchased Shares (or other assets or securities) released
from escrow in accordance with the provisions of subparagraph (d) above shall
nevertheless remain subject to (I) the Corporation's First Refusal Right under
Article VI until such right lapses pursuant to paragraph 6.7, (II) the market
stand-off provisions of paragraph 4.4 until such provisions terminate in
accordance therewith and (III) the Special Purchase Right under Article VIII.

VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION

8.1 GRANT. In connection with the dissolution of the Optionee's
marriage or the legal separation of the Optionee and the Optionee's spouse, the
Corporation shall have the right (the "Special Purchase Right"), exercisable at
any time during the thirty (30)-day period following the Corporation's receipt
of the required Dissolution Notice under paragraph 8.2, to purchase from the
Optionee's spouse, in accordance with the provisions of paragraph 8.3, all or
any portion of the Purchased Shares which would otherwise be awarded to such
spouse in settlement of any community property or other marital property rights
such spouse may have in such shares.

8.2 NOTICE OF DECREE OR AGREEMENT. The Optionee shall promptly
provide the Secretary of the Corporation with written notice (the "Dissolution
Notice") of (i) the entry of any judicial decree or order resolving the property
rights of the Optionee and the Optionee's spouse in connection with their
marital dissolution or legal separation or (ii) the execution of any contract or
agreement relating to the distribution or division of such property rights. The
Dissolution Notice shall be accompanied by a copy of the actual decree of
dissolution or settlement agreement between the Optionee and the Optionee's
spouse which provides for the award to the spouse of one or more Purchased
Shares in settlement of any community property or other marital property rights
such spouse may have in such shares.

8.3 EXERCISE OF SPECIAL PURCHASE RIGHT. The Special Purchase Right
shall be exercisable by delivery of written notice (the "Purchase Notice") to
the Optionee and the Optionee's spouse within thirty (30) days after the
Corporation's receipt of the Dissolution Notice. The Purchase Notice shall
indicate the number of shares to be purchased by the Corporation, the date such
purchase is to be effected (such date to be not less than five (5) business
days, nor more than ten (10) business days, after the date of the Purchase
Notice), and the fair market value to be paid for such Purchased Shares. The
Optionee (or the Optionee's spouse, to the extent such spouse has physical
possession of the Purchased Shares) shall, prior to the close of business on the
date specified for the purchase, deliver to the Corporate Secretary of the
Corporation the certificates representing the shares to be purchased, each
certificate to be properly endorsed for transfer. To the extent any of the
shares to be purchased by the Corporation are at the time held in escrow under
Article VII, the certificates for such shares shall be promptly delivered out of
escrow to the Corporation. The Corporation shall, concurrently with the receipt
of the stock certificates, pay to the Optionee's spouse

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(in cash or cash equivalents) an amount equal to the fair market value specified
for such shares in the Purchase Notice.

If the Optionee's spouse does not agree with the fair market value
specified for the shares in the Purchase Notice, then the spouse shall promptly
notify the Corporation in writing of such disagreement and the fair market value
of such shares shall thereupon be determined by an appraiser of recognized
standing selected by the Corporation and the spouse. If they cannot agree on an
appraiser within twenty (20) days after the date of the Purchase Notice, each
shall select an appraiser of recognized standing, and the two appraisers shall
designate a third appraiser of recognized standing whose appraisal shall be
determinative of such value. The cost of the appraisal shall be shared equally
by the Corporation and the Optionee's spouse. The closing shall then be held on
the fifth business day following the completion of such appraisal; PROVIDED,
however, that if the appraised value is more than fifteen percent (15%) greater
than the fair market value specified for the shares in the Purchase Notice, the
Corporation shall have the right, exercisable prior to the expiration of such
five (5)-business-day period, to rescind the exercise of the Special Purchase
Right and thereby revoke its election to purchase the shares awarded to the
spouse.

8.4 LAPSE. The Special Purchase Right under this Article VIII shall
lapse and cease to have effect upon the EARLIER to occur of (i) the first date
on which the First Refusal Right under Article VI lapses or (ii) the expiration
of the thirty (30)-day exercise period specified in paragraph 8.3, to the extent
the Special Purchase Right is not timely exercised in accordance with such
paragraph.

IX. GENERAL PROVISIONS

9.1 ASSIGNMENT. The Corporation may assign its Repurchase Right
under Article V, its First Refusal Right under Article VI and/or its Special
Purchase Right under Article VIII to any person or entity selected by the
Corporation's Board of Directors, including (without limitation) one or more
shareholders of the Corporation.

If the assignee of the Repurchase Right is other than a one hundred
percent (100%) owned subsidiary corporation of the Corporation or the parent
corporation owning one hundred percent (100%) of the Corporation, then such
assignee must make a cash payment to the Corporation, upon the assignment of the
Repurchase Right, in an amount equal to the excess (if any) of (i) the fair
market value of the Unvested Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Unvested Shares thereunder.

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9.2 DEFINITIONS.

(a) Except as otherwise provided herein, capitalized terms
shall have the meanings assigned to them in the Plan.

(b) For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and
subsidiary corporations of the Corporation:

(i) Any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation shall be
considered to be a parent corporation of the Corporation, provided
each such corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

(ii) Each corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation shall be
considered to be a subsidiary of the Corporation, provided each such
corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

9.3 NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon the Optionee any right to continue in the Service
of the Corporation (or any parent or subsidiary corporation of the Corporation
employing or retaining Optionee) for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any parent or subsidiary corporation of the Corporation employing or
retaining Optionee) or the Optionee, which rights are hereby expressly reserved
by each, to terminate the Optionee's Service at any time for any reason
whatsoever, with or without cause.

9.4 NOTICES. Any notice required in connection with (i) the
Repurchase Right, the Special Purchase Right or the First Refusal Right or (ii)
the disposition of any Purchased Shares covered thereby shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit in
the United States mail, registered or certified, postage prepaid and addressed
to the party entitled to such notice at the address indicated below such party's
signature line on this Agreement or at such other address as such party

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may designate by ten (10) days advance written notice under this paragraph 9.4
to all other parties to this Agreement.

9.5 NO WAIVER. The failure of the Corporation (or its assignees) in
any instance to exercise the Repurchase Right granted under Article V, or the
failure of the Corporation (or its assignees) in any instance to exercise the
First Refusal Right granted under Article VI, or the failure of the Corporation
(or its assignees) in any instance to exercise the Special Purchase Right
granted under Article VIII shall not constitute a waiver of any other repurchase
rights and/or rights of first refusal that may subsequently arise under the
provisions of this Agreement or any other agreement between the Corporation and
the Optionee or the Optionee's spouse. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.

9.6 CANCELLATION OF SHARES. If the Corporation (or its assignees)
shall make available, at the time and place and in the amount and form provided
in this Agreement, the consideration for the Purchased Shares to be repurchased
in accordance with the provisions of this Agreement, then from and after such
time, the person from whom such shares are to be repurchased shall no longer
have any rights as a holder of such shares (other than the right to receive
payment of such consideration in accordance with this Agreement), and such
shares shall be deemed purchased in accordance with the applicable provisions
hereof and the Corporation (or its assignees) shall be deemed the owner and
holder of such shares, whether or not the certificates therefor have been
delivered as required by this Agreement.

X. MISCELLANEOUS PROVISIONS

10.1 OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
in its judgment deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Optionee or the
Purchased Shares pursuant to the express provisions of this Agreement.

10.2 AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the express terms and provisions
of the Plan.

10.3 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State without resort
to that State's conflict of laws rules.

-18-
<PAGE>

10.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Optionee and the Optionee's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.

10.6 POWER OF ATTORNEY. Optionee's spouse hereby appoints Optionee
his or her true and lawful attorney in fact, for him or her and in his or her
name, place and stead, and for his or her use and benefit, to agree to any
amendment or modification of this Agreement and to execute such further
instruments and take such further actions as may reasonably be necessary to
carry out the intent of this Agreement. Optionee's spouse further gives and
grants unto Optionee as his or her attorney in fact full power and authority to
do and perform every act necessary and proper to be done in the exercise of any
of the foregoing powers as fully as he or she might or could do if personally
present, with full power of substitution and revocation, hereby ratifying and
confirming all that Optionee shall lawfully do and cause to be done by virtue of
this power of attorney.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

-19-
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.

Collateral Therapeutics, Inc.

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

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

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

----------------------------------
Optionee*

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

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

The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting the Optionee the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms and provisions of such Agreement, including
(specifically) the right of the Corporation (or its assignees) to purchase any
and all interest or right the undersigned may otherwise have in such shares
pursuant to community property laws or other marital property rights.

----------------------------------
Optionee's Spouse

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

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

- ----------------
* have executed the Section 83(b) election that was attached hereto as an
Exhibit. As set forth in Article III, I understand that I, and NOT the
Corporation, will be resposible for completing the form and filing the election
with the appropriate office of the Federal and State tax authorities and that if
such filing is not completed within thirty (30) days after the date of this
Agreement, I will not be entitled to the tax benefits provided by Section 83(b).

<PAGE>
EXHIBIT A

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED __________________ hereby sell(s), assign(s) and
transfer(s) unto Collateral Therapeutics, Inc. (the "Corporation"),
___________________(_______________) shares of the Common Stock of the
Corporation standing in his/her name on the books of the Corporation represented
by Certificate No. ___________________ and does hereby irrevocably constitute
and appoint ___________________________ as attorney to transfer the said stock
on the books of the Corporation with full power of substitution in the premises.

Dated:
-------------------------

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

INSTRUCTION: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Corporation to exercise its
Repurchase Right set forth in the Agreement without requiring additional
signatures on the part of the Optionee.

A-1
<PAGE>

REPURCHASE RIGHTS
EXHIBIT B

SECTION 83(B) TAX ELECTION

This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.

(1) The taxpayer who performed the services is:

Name:
Address:
Taxpayer Ident. No.:

(2) The property with respect to which the election is being made is
shares of the common stock of Collateral Therapeutics, Inc.

(3) The property was issued on _______________, 19__.

(4) The taxable year in which the election is being made is the calendar year
19__.

(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of annual and monthly
installments over a four year period ending on ___________, 19__.

(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $_____________ per share.

(7) The amount paid for such property is $____________ per share.

(8) A copy of this statement was furnished to Collateral Therapeutics, Inc. for
whom taxpayer rendered the services underlying the transfer of property.

(9) This statement is executed as of:______________________.

- ----------------------------------- ------------------------------
Spouse (if any) Taxpayer

This form must be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.

B-1
<PAGE>

SPECIAL PROTECTIVE ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL
REVENUE CODE WITH RESPECT TO PROPERTY ACQUIRED UPON EXERCISE OF AN
INCENTIVE STOCK OPTION

The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Code. Accordingly, it is the intent of the
Taxpayer to utilize this election to achieve the following tax results:

1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to the
Taxpayer exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares. The election is to be effective to the
full extent permitted under the Internal Revenue Code (the "Code").

2. Section 421(a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.

This form should be filed with the Internal Revenue Service Center with which
taxpayer files his/her Federal income tax returns. The filing must be made
within 30 days after the execution date of the Stock Purchase Agreement.

NOTE: PAGE 2 SHOULD BE ATTACHED ONLY IF YOU ARE EXERCISING AN
INCENTIVE STOCK OPTION.

B-2

<PAGE>

EXHIBIT C

1995 STOCK OPTION/STOCK ISSUANCE PLAN

<PAGE>

AS AMENDED MAY 16, 1997

COLLATERAL THERAPEUTICS, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN

ARTICLE I
GENERAL PROVISIONS

1. PURPOSE

2. STRUCTURE OF THE PLAN; TERMINOLOGY

3. ADMINISTRATION OF THE PLAN

<PAGE>

4. SELECTION OF OPTIONEES AND PARTICIPANTS

5. STOCK SUBJECT TO THE PLAN

-2-
<PAGE>

6. AMENDMENT OF THE PLAN AND AWARDS

-3-
<PAGE>

7. EFFECTIVE DATE AND TERM OF PLAN

8. NO EMPLOYMENT OR SERVICE RIGHTS

ARTICLE II
OPTION GRANT PROGRAM

1. TERMS AND CONDITIONS OF OPTIONS

-4-
<PAGE>

instrument evidencing an Incentive Option shall, in addition, comply with the
provisions of Section 2 of this Article II.

A. OPTION PRICE.

Except to the extent such sale and remittance procedure is utilized, payment of
the option price must occur at the time the option is exercised.

-5-
<PAGE>

death.

D. TERMINATION OF SERVICE. The following provisions shall govern
the exercise period applicable to any options held by the optionee at the time
of cessation of Service or death:

(iv) Notwithstanding the above, no option shall be exercisable
after the specified expiration date of the option term.

2. INCENTIVE OPTIONS

-6-
<PAGE>

designated as Non-Statutory Options when issued under the Plan shall not be
subject to such terms and conditions set forth herein.

A. OPTION PRICE.

C. TERM OF OPTION FOR 10% SHAREHOLDERS. No option granted to a 10%
Shareholder shall have a term in excess of five (5) years from the grant date.

3. CANCELLATION AND NEW GRANT OF OPTIONS

-7-
<PAGE>

ARTICLE III
STOCK ISSUANCE PROGRAM

1. STOCK ISSUANCES

2. ISSUE PRICE

3. PAYMENT OF ISSUE PRICE

ARTICLE IV
MISCELLANEOUS

1. LOANS

-8-
<PAGE>

2. VESTING OF SHARES AND REPURCHASE RIGHTS

3. MARKET STAND-OFF AGREEMENTS

-9-
<PAGE>

4. RIGHT OF FIRST REFUSAL

5. SECURITIES LAWS; LEGENDS

6. SHAREHOLDER RIGHTS

7. ACCELERATION

8. DEFINITIONS

The following definitions shall be in effect under this Plan:

-10-
<PAGE>

A. BOARD shall mean the Board of Directors of the Corporation.

B. COMMON STOCK shall mean the common stock of the Corporation.

C. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:

(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.

E. FAIR MARKET VALUE per share of Common Stock on any relevant date
under the Plan shall be the value determined in accordance with the following
provisions:

(iii) If the Common Stock is at the time neither listed
nor

-11-
<PAGE>

F. INCENTIVE OPTION shall mean a stock option which satisfies the
requirements of the Internal Revenue Code of 1986, as amended (the "Code")
Section 422.

G. NON-STATUTORY OPTION shall mean a stock option not intended to
meet the requirements of Code Section 422.

I. PERMANENT DISABILITY shall have the meaning assigned to such term
in Code Section 22(e)(3).

9. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the issuance of
shares of Common Stock under the Plan shall be used for general corporate
purposes.

10. WITHHOLDING

The Corporation's obligation to deliver shares upon the exercise of
any options granted under Article II or the purchase of any shares issued under
Article III shall be subject

-12-
<PAGE>

to the satisfaction of all applicable Federal, state and local income and
employment tax withholding requirements.

11. REGULATORY APPROVALS

-13-

<PAGE>
EXHIBIT 10.32

COLLATERAL THERAPEUTICS, INC.
STOCK OPTION AGREEMENT

RECITALS

AGREEMENT

NOW, THEREFORE, it is hereby agreed as follows:

<PAGE>

until the Expiration Date or the sooner termination of the option term under
Paragraph 5 or Paragraph 6 of this Agreement.

-2-
<PAGE>

schedule specified in the Grant Notice and the provisions of Paragraph 6 of this
Agreement.

(v) For purposes of this Paragraph 5 and for all other purposes under
this Agreement:

6. SPECIAL TERMINATION OF OPTION.

(i) a merger or consolidation in which the Corporation is not
the surviving entity,

-3-
<PAGE>

(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or

7. ADJUSTMENT IN OPTION SHARES.

9. MANNER OF EXERCISING OPTION.

-4-
<PAGE>

(i) Execute and deliver to the Secretary of the Corporation a
stock purchase agreement (the "Purchase Agreement") in substantially the
form of EXHIBIT B to the Grant Notice.

(ii) Pay the aggregate Option Price for the purchased shares in
one or more forms approved under the Plan.

(iii) Furnish to the Corporation appropriate documentation that
the person or persons exercising the option, if other than Optionee, have
the right to exercise this option.

-5-
<PAGE>

E. In no event may this option be exercised for any fractional
shares.

10. COMPLIANCE WITH LAWS AND REGULATIONS.

-6-
<PAGE>

12. LIABILITY OF CORPORATION.

The Corporation, however, shall use its best efforts to obtain all such
approvals.

16. GOVERNING LAW. The interpretation, performance, and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict of laws rules.

-7-
<PAGE>

-8-
<PAGE>

exercisable during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate.

-9-

<PAGE>

EXHIBIT 10.33

IMMEDIATELY EXERCISABLE
REPURCHASE RIGHT
RIGHT OF FIRST REFUSAL

COLLATERAL THERAPEUTICS, INC.
STOCK PURCHASE AGREEMENT

I. EXERCISE OF OPTION

<PAGE>

II. SECURITIES LAW COMPLIANCE

2.3 RESTRICTED SECURITIES.

-2-
<PAGE>

(a) Optionee shall have notified the Corporation of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition.

(b) Optionee shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares.

-3-
<PAGE>

III. SPECIAL TAX ELECTION

-4-
<PAGE>

A. For regular tax purposes, no taxable income will be recognized at
the time the Option is exercised.

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

-5-
<PAGE>

IV. TRANSFER RESTRICTIONS

-6-
<PAGE>

4.4 MARKET STAND-OFF PROVISIONS.

B. Owner shall be subject to the market stand-off provisions of this
paragraph 4.4 PROVIDED AND ONLY IF the officers and directors of the Corporation
are also subject to similar arrangements.

V. REPURCHASE RIGHT

-7-
<PAGE>

5.2 EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to the Owner of the Unvested Shares
prior to the expiration of the applicable sixty (60)-day period specified in
paragraph 5.1. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such date to
be not more than thirty (30) days after the date of notice. To the extent one
or more certificates representing Unvested Shares may have been previously
delivered out of escrow to the Owner, then Owner shall, prior to the close of
business on the date specified for the repurchase, deliver to the Secretary of
the Corporation the certificates representing the Unvested Shares to be
repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with paragraph 7.3 or from Owner as herein
provided), pay to Owner in cash or cash equivalents (including the cancellation
of any purchase-money indebtedness), an amount equal to the Option Price
previously paid for the Unvested Shares which are to be repurchased.

5.3 TERMINATION OF THE REPURCHASE RIGHT.

A. The Repurchase Right shall terminate with respect to any Unvested
Shares for which it is not timely exercised under paragraph 5.2.

(i) a merger or consolidation in which the Corporation is
not the surviving entity,

(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets, or

(iii) any transaction (including a merger) through or by
means of which a majority of the Corporation's outstanding voting
securities are transferred

-8-
<PAGE>

to a person or persons other than those who held such securities
immediately prior to the merger.

-9-
<PAGE>

VI. RIGHT OF FIRST REFUSAL

-10-
<PAGE>

closing shall then be held on the LATER of (i) the tenth business day following
delivery of the Exercise Notice or (ii) the tenth business day after such cash
valuation shall have been made.

Failure of Owner to deliver timely notification to the Corporation
under this paragraph 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (a) above.

6.6 RECAPITALIZATION/MERGER.

-11-
<PAGE>

B. In the event of any of the following transactions:

(i) a merger or consolidation in which the Corporation is not
the surviving entity,

(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,

(iv) any transaction effected primarily to change the State in
which the Corporation is incorporated, or to create a holding company structure,

-12-
<PAGE>

VII. ESCROW

7.2 RECAPITALIZATION. All regular cash dividends on the Unvested
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Unvested Shares shall be immediately
delivered to the Corporate Secretary to be held in escrow under this Article
VII, but only to the extent the Unvested Shares are at the time subject to the
escrow requirements of paragraph 7.1.

(b) Should the Corporation (or its assignees) elect to exercise its
First Refusal Right under Article VI with respect to any vested Target

-13-
<PAGE>

(iii) Upon the Optionee's cessation of Service, any escrowed
Purchased Shares (or other assets or securities) in which the Optionee
is at the time vested shall be promptly released from escrow.

-14-
<PAGE>

VIII. MARITAL DISSOLUTION OR LEGAL SEPARATION

-15-
<PAGE>

(in cash or cash equivalents) an amount equal to the fair market value specified
for such shares in the Purchase Notice.

IX. GENERAL PROVISIONS

-16-
<PAGE>

9.2 DEFINITIONS.

(a) Except as otherwise provided herein, capitalized terms
shall have the meanings assigned to them in the Plan.

(b) For purposes of this Agreement, the following
provisions shall be applicable in determining the parent and
subsidiary corporations of the Corporation:

-17-
<PAGE>

may designate by ten (10) days advance written notice under this paragraph 9.4
to all other parties to this Agreement.

X. MISCELLANEOUS PROVISIONS

-18-
<PAGE>

10.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

-19-
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.

Collateral Therapeutics, Inc.

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

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

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

----------------------------------
Optionee*

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

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

----------------------------------
Optionee's Spouse

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

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

<PAGE>
EXHIBIT A

ASSIGNMENT SEPARATE FROM CERTIFICATE

Dated:
-------------------------

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

A-1
<PAGE>

REPURCHASE RIGHTS
EXHIBIT B

SECTION 83(B) TAX ELECTION

This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.

(1) The taxpayer who performed the services is:

Name:
Address:
Taxpayer Ident. No.:

(2) The property with respect to which the election is being made is
shares of the common stock of Collateral Therapeutics, Inc.

(3) The property was issued on _______________, 19__.

(4) The taxable year in which the election is being made is the calendar year
19__.

(5) The property is subject to a repurchase right pursuant to which the issuer
has the right to acquire the property at the original purchase price if for
any reason taxpayer's employment with the issuer is terminated. The
issuer's repurchase right lapses in a series of annual and monthly
installments over a four year period ending on ___________, 19__.

(6) The fair market value at the time of transfer (determined without regard to
any restriction other than a restriction which by its terms will never
lapse) is $_____________ per share.

(7) The amount paid for such property is $____________ per share.

(8) A copy of this statement was furnished to Collateral Therapeutics, Inc. for
whom taxpayer rendered the services underlying the transfer of property.

(9) This statement is executed as of:______________________.

- ----------------------------------- ------------------------------
Spouse (if any) Taxpayer

B-1
<PAGE>

SPECIAL PROTECTIVE ELECTION PURSUANT TO SECTION 83(b) OF THE INTERNAL
REVENUE CODE WITH RESPECT TO PROPERTY ACQUIRED UPON EXERCISE OF AN
INCENTIVE STOCK OPTION

NOTE: PAGE 2 SHOULD BE ATTACHED ONLY IF YOU ARE EXERCISING AN
INCENTIVE STOCK OPTION.

B-2

<PAGE>

EXHIBIT 23.2

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated January 15, 1998,
except for Note 9, as to which the date is April 20, 1998, in the Registration
Statement (Form S-1) and related Prospectus of Collateral Therapeutics, Inc.
for the registration of 3,829,500 shares of its common stock.

Ernst & Young LLP

San Diego, California
April __, 1998

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

The foregoing consent is in the form that will be signed upon completion of
certain events as described in Note 9 to the financial statements.

San Diego, California
April 24, 1998

/s/ Ernst & Young LLP

<PAGE>
<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 5,605,361 5,676,330
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,776,312 6,725,419
<PP&E> 453,296 751,881
<DEPRECIATION> 159,849 192,037
<TOTAL-ASSETS> 8,069,759 7,357,863
<CURRENT-LIABILITIES> 838,055 937,200
<BONDS> 0 0
0 0
1,222 1,222
<COMMON> 5,972 5,972
<OTHER-SE> 6,724,510 5,913,469
<TOTAL-LIABILITY-AND-EQUITY> 8,069,759 7,357,863
<SALES> 0 0
<TOTAL-REVENUES> 5,647,189 989,378
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 6,791,241 2,046,662
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (977,223) (976,160)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (977,223) (976,160)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (977,223) (976,160)
<EPS-PRIMARY> (0.16) (0.13)
<EPS-DILUTED> (0.16) (0.13)

</TABLE>