CYPRESS BIOSCIENCE INC, 10-Q, 1996-05-15

CYPRESS BIOSCIENCE INC
10-Q, 1996-05-15
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1996, or

[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________
to _________________

COMMISSION FILE NUMBER 0-12943

CYPRESS BIOSCIENCE, INC.
(Exact Name of Registrant as specified in its charter)

DELAWARE 22-2389839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

401 QUEEN ANNE AVENUE NORTH, SEATTLE, WA 98109
(Address of principal executive offices) (zip code)

(206) 667-9242
(Registrant's telephone number including area code)

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

Indicate by check (X) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No
------- -------

AT APRIL 30, 1996, 28,715,252 SHARES OF COMMON STOCK OF THE REGISTRANT
WERE OUTSTANDING.

This filing, without exhibits, contains 15 pages.
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . 3

Consolidated Statements of Operations for the quarters
ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 4

Consolidated Statements of Cash Flows for the
quarters ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 5

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 6

Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 10

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 13

Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 14

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
CYPRESS BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---------------- ----------------
ASSETS (UNAUDITED) (NOTE)
<S> <C> <C>
Current assets:
Cash and cash equivalents $11,364,028 1,009,878
Accounts receivable:
Trade 31,614 23,850
Other 27,482 533,989
Inventories 1,279,369 1,148,506
Prepaid expenses 151,658 143,755
---------------- ----------------
Total current assets 12,854,151 2,859,978
---------------- ----------------
Property and equipment, net 1,459,521 1,425,020
Convertible debenture issuance costs, net 39,311 278,711
---------------- ----------------
Total asset $14,352,983 $4,563,709
================ ================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Accounts payable $814,559 $892,501
Accrued compensation 442,896 456,939
Accrued liabilities 630,849 672,488
Senior convertible debentures - 1,500,000
Current portion of capital lease obligation 26,821 26,281
---------------- ----------------
Total current liabilities 1,915,125 3,548,749
---------------- ----------------

Convertible debentures 400,000 1,345,000
Capital lease obligation, net of current portion 20,012 25,972
Accrued compensation 168,750 168,750
---------------- ----------------
588,762 5,088,471
---------------- ----------------

Commitments and contingencies (Note 5)
Stockholders' equity:
Common Stock, $.02 par value; authorized 35,000,000
shares; issued and outstanding, 28,715,252 and
18,693,595 shares at March 31, 1996 and December
31, 1995 574,305 373,872
Additional paid-in capital 59,120,035 43,143,000
Deferred compensation (1,602,519) -
Accumulated deficit (46,242,725) (44,041,634)
---------------- ----------------
Total stockholders' equity (deficit) 11,849,096 (524,762)
---------------- ----------------
Total liabilities and stockholders' equity (deficit) $14,352,983 $4,563,709
================ ================
</TABLE>

Note: The balance sheet at December 31, 1995, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles.

See accompanying notes.

3
<PAGE> 4
CYPRESS BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
QUARTERS ENDED MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
Revenue $ 17,676 $ 3,016,463
Interest income 120,294 27,081
----------- -----------
137,970 3,043,544
----------- -----------

Costs and expenses:
Production costs 248,903 446,603
Sales and marketing 52,043 589,077
Research and development 427,233 975,105
General and administrative 960,151 599,727
Interest expense 25,367 76,397
Restructuring expense (Note 7) 441,676 -
Debt conversion expense (Note 8) 183,688 -
----------- -----------
2,339,061 2,686,909
----------- -----------

Net (loss) income (Note 4) $(2,201,091) $ 365,635
=========== ===========

Net (loss) income per common share and common share
equivalents $ (.08) $ .02
=========== ===========

Weighted average number of common shares and
common share equivalents 26,001,036 17,015,031
=========== ===========

See accompanying notes.
</TABLE>

4
<PAGE> 5
CYPRESS BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1996 1995
---------------- ----------------
<S> <C> <C>
INCREASE IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts from customers $ 13,844 $ 3,383,839
Interest received 120,294 27,081
Payments to suppliers and employees (2,264,047) (2,410,055)
Interest paid (4,334) (3,042)
---------------- ----------------
Net cash (used) provided by operating activities (2,134,243) 997,823
---------------- ----------------

Cash flows from investing activities:
Purchase of equipment (49,113) (475,364)
Proceeds from sale of fixed assets 6,075 -
---------------- ----------------
Net cash used by investing activities (43,038) (475,364)
---------------- ----------------

Cash flows from financing activities:
Payment of capital lease obligation and notes payable (5,980) (20,425)
Net proceeds from issuance of Common Stock 12,109,340 -
Proceeds from issuance of convertible debentures 500,000 -
Debt issuance costs (71,929) -
---------------- ----------------
Net cash provided (used) by financing activities 12,531,431 (20,425)
---------------- ----------------

NET INCREASE IN CASH AND CASH EQUIVALENTS: 10,354,150 502,034
Cash and cash equivalents at:
Beginning of period 1,009,878 3,670,616
---------------- ----------------
End of period $ 11,364,028 $ 4,172,650
================ ================

RECONCILIATION OF NET (LOSS) INCOME TO NET CASH (USED) PROVIDED
BY OPERATING ACTIVITIES:
Net (loss) income $ (2,201,091) $ 356,635
Adjustments to reconcile net (loss) income to net cash (used)
provided by operating activities:
Depreciation and amortization 44,862 97,074
Common Stock issued for services and expenses - 85,945
Stock option compensation 111,686 -
Debt conversion expense 183,688 -
Changes in current assets and liabilities, net (273,388) 458,169
---------------- ----------------
Net cash (used) provided by operating activities $ (2,134,243) $ 997,823
================ ================
</TABLE>

See accompanying notes.

5
<PAGE> 6
CYPRESS BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared
by Cypress Bioscience, Inc. (formerly know as IMRE Corporation) (the "Company")
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the SEC. In the opinion of the Company's management,
all adjustments necessary for a fair presentation of the accompanying unaudited
financial statements are reflected herein. All such adjustments are normal and
recurring in nature. Interim results are not necessarily indicative of results
for the full year. For more complete financial information, these consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements included in the Company's 1995 Annual Report
on Form 10K/A filed with the SEC.

The Company is engaged in the business of researching, developing,
manufacturing and marketing medical devices for the treatment and diagnosis of
select immune-mediated diseases, transplantations and cancers.

The U. S. Food and Drug Administration ("FDA") approved the Company's
PROSORBA(R) column for commercial sale in December 1987, for the treatment of
patients with idiopathic thrombocytopenic purpura (ITP), an immune-mediated
bleeding disorder. The PROSORBA(R) column is approved for the removal of
immunoglobulin G (IgG) and circulating immune complexes containing IgG from
plasma of patients with ITP with platelet counts below 100,000/mm3. The Company
is currently planning to conduct a controlled clinical trial using the
PROSORBA(R) column for therapy in rheumatoid arthritis as a follow-on to a pilot
clinical trial completed in September 1995.

2. PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated.

3. INVENTORIES

Inventories are comprised of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------- ---------------
<S> <C> <C>
Raw materials and components $ 488,774 $ 513,883
Work in progress 773,714 557,222
Finished goods 56,881 77,401
------------- ---------------
$ 1,279,369 $ 1,148,506
============= ===============
</TABLE>

6
<PAGE> 7
4. PER SHARE INFORMATION

The computation of net loss or income per share is based on the
weighted average number of shares of Common Stock outstanding for each
period. Common Stock equivalents related to options, warrants and convertible
debentures have not been considered in the calculation of net loss or income
per share inasmuch as their effect would have been antidilutive.

5. COMMITMENTS AND CONTINGENCIES

Employment Agreements. The Company entered into employment agreements
(the "Agreements") as of December 28, 1995, with a new Chief Executive Officer
and a new President, Chief Operating Officer. The Agreements are each for five
year terms, ending on December 31, 2000, unless they are earlier terminated by
the parties. The Agreements provide for specified compensation that includes
base salary, signing bonuses, annual performance bonuses, stock options, and a
lump sum payment in the event of a termination of employment, without cause, as
defined in the Agreements. Signing bonuses of $100,000 were paid in December
1995 and charged to expense in 1995. In January 1996, an additional $100,000 in
signing bonuses were paid and were included in general and administrative
expenses in the accompanying 1996 Consolidated Statements of Operations. An
additional $170,000 of bonuses are payable upon certain events which may occur
in 1996.

The Agreements provide for the granting of options to purchase 8% and
3%, respectively, of the fully diluted shares of Common Stock then outstanding
(including the options to be issued under the Agreements), at an exercise price
equal to the fair market value of the Company's Common Stock upon the date of
grant. Options to purchase 3,025,327 and 1,134,497 shares of Common Stock at
$1.50 per share were granted in January 1996 and approved by the stockholders
of the Company on April 15, 1996. Options to purchase 25% of the total amount
granted vested on the date of grant with the remainder to vest ratably and
daily over a four year period. The vesting of such options will accelerate and
the options will become fully exercisable upon a merger of the Company or in
the event of a termination of employment without cause, as defined in the
Agreements.

Patent Contingency. In July 1993, the Company received a claim that
its PROSORBA(R) column infringes a patent issued on an invention of David S.
Terman, M.D., which had been assigned to DTER-ENT, Inc. The patent infringement
claim was settled in April 1996 whereby the Company was granted a non-exclusive
license to use the Terman invention. The settlement of the claim did not and
will not have a material impact on the Company's financial position or results
of operations.

6. DISTRIBUTION AGREEMENT

On February 15, 1994, the Company entered into a 10-year exclusive
distribution agreement with Baxter Healthcare Corporation ("Baxter") granting
distribution rights to its PROSORBA(R) column in the United States and Canada
for the treatment of thrombocytopenia and the first right to negotiate for new
PROSORBA(R) column indications. Baxter assumed its sales and distribution
responsibilities on April 2, 1994. The agreement provided for an annual "take or
pay" commitment, under certain circumstances, from Baxter to the Company for the
first two sales years.

7
<PAGE> 8
On March 18, 1996, the Company and Baxter entered into a termination
agreement terminating the exclusive distribution agreement. Under the
termination agreement, effective May 1, 1996, the Company may, among other
things, sell its PROSORBA(R) column directly to customers who had previously
purchased PROSORBA(R) columns through Baxter as well as to any other potential
customers who wish to purchase PROSORBA(R) columns.

7. RESTRUCTURING EXPENSE

In December 1995, the Company recorded a restructuring charge
aggregating $645,000 relating to the Company's plan to consolidate its
manufacturing facilities into one location in the state of Washington and to
move all other operations to San Diego, California. This charge included
approximately $350,000 related to write-downs of equipment and leasehold
improvements for the manufacturing facility expected to be vacated in 1996,
$200,000 related to abandonment of leases in Seattle and Princeton with the
remainder related to a severance commitment with its former Executive Vice
President who resigned on December 28, 1995. There were no changes in these
estimates as of March 31, 1996.

The Company believes that relocating its operations to San Diego,
recognized as the fourth largest biotechnology center in the United States,
will provide the Company with greater exposure within the industry and better
position the Company to market its products. In addition, in the event the
Company wishes to expand staffing, San Diego's highly skilled work force will
provide significant resources from which the Company may draw upon to fill any
future staffing needs. The restructuring is not yet completed and there can be
no assurance that such a restructuring will be completed.

The Company estimates it will incur approximately $300,000 in costs
associated with moving the administration, research and medical departments to
San Diego, with most costs being attributable to relocation costs of the few
members of management moving to San Diego. Such costs will be recorded as
general and administrative expenses as incurred in 1996. As of March 31, 1996,
approximately $20,000 had been incurred and charged to general and
administrative expense. In addition, the Company estimates it will incur
approximately $1,000,000 of capital expenditures to consolidate its two
Washington manufacturing facilities.

In January 1996, the Company notified approximately twenty employees,
which was slightly greater than half of its work force, that their positions
were being terminated immediately as part of the restructuring. Such positions
were from all departments of the Company. In March 1996, the Company's Chief
Scientific Officer and Chairman of the Board resigned as part of the
restructuring. Costs related to these terminations were approximately $440,000
and were recorded as a charge to operations as a restructuring expense in the
quarter ending March 31, 1996.

8. FINANCING

In December 1995, the company completed an offering of $1,500,000 of
Senior Convertible Debentures (the "Debentures") to certain accredited
investors (the "Debenture Offering"). In January 1996, the Company completed a
private placement of 8,540,702 shares of the Company's Common Stock (the
"Private Placement") with certain accredited investors at a per share sales
price of $1.50. Upon the closing of the Private Placement, the Debentures were
automatically converted into 1,000,000 shares of Common Stock of the Company
and $140,000 of debt issuance costs were charged to additional paid-in capital.

8
<PAGE> 9
In March 1996, the Company completed an exchange offering whereby the
Company offered to exchange one share of its Common Stock for each $2.25 of
outstanding principal amount of the Company's 7% convertible Debentures
(including interest accrued on the 7% Convertible Debentures up to, but not
including, the date such securities were accepted for exchange) (the "Exchange
Offering"). Of the $1,245,000 outstanding principal amount of the Company's 7%
Convertible Debentures, $845,000 in outstanding principal amount was tendered
for exchange, resulting in the issuance of 399,252 shares of Common Stock
(which amount includes 23,700 shares issued with respect to accrued interest on
the 7% Convertible Debentures). The Company recorded a non-cash expense of
approximately $184,000 recorded as Debt conversion expense in the quarter
ending March 31, 1996, representing the fair market value of the increased
number of shares of Common Stock issued under the terms of the Exchange
Offering compared to the original conversion terms of $2.875 per share.

The Company also charged $84,000 to additional paid-in capital for the
quarter ending March 31, 1996, for the unamortized deferred debt issuance costs
related to the 7% Convertible Debentures.

Allen & Company, the Company's largest stockholder, purchased $500,000
of the Debentures. Upon the closing of the Private Placement, the Debentures
purchased by Allen & Company automatically converted into 333,333 shares of
Common Stock of the Company.

Allen & Company acted as a non-exclusive placement agent of the
Company with respect to the Debenture Offering and the Private Placement,
receiving a placement fee of 6% of the gross proceeds attributable to
securities actually placed by Allen & Company. The Company paid Allen &
Company a placement fee in the form of 20,000 shares of Common Stock of the
Company in connection with the Debenture Offering and a cash fee of $225,000 in
connection with the Private Placement. The company did not employ a placement
agent to assist it in the Exchange Offering.

9. STOCK COMPENSATION EXPENSE

During the quarter ended March 31, 1996, the Company issued certain
options to purchase approximately 4.7 million shares of the Company's Common
Stock with exercise prices that were less than closing trading price on the
date of grant. Accordingly, the Company has recorded the difference as
additional paid-in capital of $1.7 million in stockholders' equity and will
recognize this amount as compensation expense over the vesting period of the
stock options. Approximately $112,000 was recorded as compensation expense for
the quarter ended March 31, 1996.

10. SUBSEQUENT EVENT

In April 1996, the Company entered into a sub-lease agreement for its
existing Seattle facility effective May 1, 1996. The Company has an existing
lease obligation for its Seattle facility through October 13, 1999, with a
current monthly rent expense, including operating expenses, of approximately
$26,500. The sub-lease agreement provides for the Company to receive monthly
rent, beginning May 1, 1996, in an amount equal to the Company's current lease
commitment, including operating expenses, through October 13, 1999. The
Company intends to remain an occupant in a small portion of its existing
Seattle facility through December 31, 1996, and will be obligated to pay
approximately $8,000 a month of the total monthly rent through December 31,
1996. The Company will continue to be liable for its existing lease obligation
through October 13, 1999.

9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This document contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act that
involve risks and uncertainties. The Company's actual results could differ
materially from those projected in the forward- looking statements. Factors
that could cause or contribute to such differences include, but are not
limited, to those discussed in this section, as well as those discussed
elsewhere in this document.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital as of March 31, 1996, was $10.9 million
compared to a working capital deficit of $689,000 at December 31, 1995. The
significant increase in working capital is principally attributable to the
January 1996 private placement. In January 1996, the Company raised a total of
$14 million of new equity investment, making it the largest financing in the
Company's history. In a Private Placement of Common Stock, the Company raised
nearly $12.5 million from a diverse group of investors, many of whom are new to
the Company. In connection with the Private Placement, the Company also
converted $1.5 million of Debentures into Common Stock.

The Company expects to incur further operating losses until the
Company can obtain marketing approval from the FDA for additional disease
indications for the PROSORBA(R) column or until sales for the PROSORBA(R)
column for its existing indication of idiopathic thrombocytopenic purpura
increase significantly. A clinical trial is planned using the PROSORBA(R)
column for rheumatoid arthritis therapy to obtain the necessary clinical data
to apply to the FDA to obtain marketing approval. A successful pivotal
clinical trial would be necessary to obtain marketing approval from the FDA.
The Company completed a pilot clinical study in September 1995.

In January 1996, the Company also began implementing a restructuring
plan which includes consolidating its manufacturing facilities to one location
in the state of Washington and moving all other operations of the Company to San
Diego, California. The Company estimates it will incur approximately $1.0
million of capital expenditures to consolidate its two Washington manufacturing
facilities. As part of the restructuring plan, the Company, in January 1996,
notified approximately twenty employees, which was slightly greater than half of
its work force, that their positions were being terminated immediately. In
March 1996, the Company's Chief Scientific Officer and Chairman of the Board
resigned as part of the restructuring. The annual salary savings from this
reduction in the work force is expected to be in excess of $1.0 million. In
April 1996, the Company entered into a sub-lease agreement for its existing
Seattle facility effective May 1, 1996. The Company has an existing lease
obligation for its Seattle facility through October 13, 1999, with a current
monthly rent expense, including operating expenses, of approximately $26,500.
The sub-lease agreement provides for the Company to receive monthly rent,
beginning May 1, 1996, in an amount equal to the Company's current lease
commitment, including operating expenses, through October 13, 1999. The
Company intends to remain an occupant in a small portion of its existing
Seattle facility through December 31, 1996, and will be obligated to pay
approximately $8,000 a month of the total monthly rent through December 31,
1996. The Company will continue to be liable for its existing lease obligation
through October 13, 1999.

10
<PAGE> 11
The Company believes that relocating its operations to San Diego,
recognized as the fourth largest biotechnology center in the United States,
will provide the Company with greater exposure within the industry and better
position the Company to market its products. In addition, in the event the
Company wishes to expand staffing, San Diego's highly skilled work force will
provide significant resources from which the Company may draw upon to fill any
future staffing needs. The restructuring is not yet completed and there can be
no assurance that such a restructuring will be completed. The Company believes
that the funds resulting from the Private Placement coupled with the Company's
restructuring will provide the resources necessary to fund operations,
including clinical trials, through the latter half of 1997.

The Company requires additional financing in order to fund the
completion of such clinical trials, initiate clinical trials using the
PROSORBA(R) column in other diseases and apply the Company's technology to
applications beyond the PROSORBA(R) column. The Company is seeking corporate
partners to fund additional trials in other immune disorders.

RESULTS OF OPERATIONS

Effective April 2, 1994, the Company entered into a 10-year exclusive
distribution agreement with Baxter granting distribution rights for the
treatment of thrombocytopenia and the first right to negotiate for new
PROSORBA(R) column indications. The agreement provided for an annual "take or
pay" commitment, under certain circumstances, from Baxter to the Company for
the first two sales years. These minimums were subject to the Company having
FDA product approval for immune thrombocytopenic purpura.

On March 18, 1996, the Company and Baxter entered into a termination
agreement terminating the exclusive distribution agreement. Under the
termination agreement, effective May 1, 1996, the Company may, among other
things, sell its PROSORBA(R) column directly to customers who had previously
purchased PROSORBA(R) columns through Baxter as well as to any other potential
customers who wish to purchase PROSORBA(R) columns.

First quarter revenue for 1996 primarily related to international sales
as there were no shipments to Baxter. For the same period in 1995, the Company
received a $3.0 million take-or-pay payment with no shipments to Baxter.
Effective May 1, 1996, the Company began to ship product directly to end users
and therefore the Company expects to increase its product revenue beginning in
the second quarter of 1996.

Total operating expenses for the quarter ended March 31, 1996
decreased 15% to $2.4 million from $2.7 million for the same period in 1995.
Production costs were $249,000 and $447,000 for the quarters ended March 31,
1996 and 1995, respectively. This 44% decrease was primarily a result of the
restructuring and increased utilization of production facilities. The Company
did not produce any product during the first quarter of 1995 and began to
manufacture product in the first quarter of 1996 in anticipation of the need to
ship product to customers as a result of the terminated Baxter agreement.

Sales and marketing expenses decreased to $52,000 for the quarter
ended March 31, 1996 from $590,000 for the same quarter of 1995, a 91%
decrease. This significant decrease is a result of the Company's March 1995
renegotiation of its distribution agreement with Baxter. During the first
quarter of 1995, the Company was still obligated to provide marketing and
promotional support to Baxter. In March 1995, the Company

11
<PAGE> 12
was released from that obligation and, thus, incurred significantly less
expense for the quarter ended March 31, 1996. As a result of the recent
termination of the Baxter agreement, however, the Company anticipates an
increase in sales and marketing expenses in future quarters.

Research and development expenses decreased 56% to $427,000 compared
to $975,000 for the quarters ended March 31, 1996 and 1995, respectively. The
decrease is primarily a result of a temporary decline in clinical trial
activity associated with the January 1996 restructuring and a reduction of
costs associated with the restructuring.

General and administrative expenses increased 38% to $960,000 for the
quarter ended March 31, 1996, compared to $600,000 for the same period in 1995.
The increase is principally a result of costs associated with the Company's new
Chief Executive Officer and President, Chief Operating Officer, both of which
were hired in December 1995 and the resignation of the Company's Chief
Scientific Officer in March 1996. During the same period in 1995, the Company's
former President resigned in early February resulting in only one month's salary
expense and the Chief Scientific Officer's salary expense was recorded as a
research and development expense. The new Chief Executive Officer has assumed
the Chief Scientific Officer's duties. In addition, approximately $90,000 was
recorded as compensation expense in 1996 for stock options granted at less than
the closing trading price on the date of grant.

Interest expense decreased to $25,000 from $76,000 for the quarters
ended March 31, 1996 and 1995, respectively because of the September 1995 and
March 1996 conversions of a portion of the 7% Convertible Debentures due March
31, 2001.

The Company recorded a non-cash expense of approximately $184,000
recorded as Debt conversion expense in the quarter ending March 31, 1996. Such
expense represents the fair market value of the increased number of shares
issued by the Company under the terms of an exchange offering to holders of the
Company's 7% Convertible Debentures to exchange one share of Common Stock for
each $2.25 of outstanding principal (including any accrued and unpaid interest
on such principal). $845,000 in outstanding principal was tendered for exchange,
leaving an outstanding principal balance of $400,000 as of March 31, 1996.

The decrease in revenues was only partially offset by a decrease in
total operating expenses thereby resulting in a net loss of $2.2 million for
the quarter ended March 31, 1996, compared to net income of $0.4 million
for the same period in 1995.

12
<PAGE> 13
PART II

Item 1 - Legal Proceedings

In November 1995, a complaint was filed with the United States
District Court, Northern District of California, claiming that the Company's
PROSORBA(R) column allegedly infringes a patent issued to David S. Terman,
M.D., which was assigned in July 1993 to DTER-ENT, Inc., a California
corporation ("DTER-ENT"). The Company first received notice of a claim of
infringement from DTER-ENT in July 1993. The Company has disclosed this
claim in its public filings for the past two years. The patent infringement
claim was settled in April 1996 whereby the Company was granted a
non-exclusive license to use the Terman invention. The settlement of the
claim did not and will not have a material impact on the Company's financial
position or results of operations.

Item 4 - Submission of Matters to a Vote of Security Holders

(a) The Annual Meeting of Stockholders (the "Annual Meeting") of the
Company was held on April 15, 1996.

(b) Dr. Debby Jo Blank and Philip J. O'Reilly were each elected as
directors to serve until the 1999 annual meeting, or until such
directors' earlier death, resignation or removal. The Company's
Board of Directors is comprised of those individuals elected this
year and the following directors completing the following terms:
Jay D. Kranzler, M.D., Ph.D., and Richard M. Crooks whose terms
expire in 1997; Jack H. Vaughn whose term expires in 1998.

(c) The following sets forth a brief description of each matter voted
upon at the Annual Meeting and the results of the voting on each
such matter:

1. For the election of the nominees as directors:

<TABLE>
<CAPTION>
Withheld Authority
For or Against
---------------------- -------------------------------
<S> <C> <C>
Dr. Debby Jo Blank 20,980,894 295,775
Philip J. O'Reilly 21,144,913 130,256
</TABLE>

2. To consider and approve the Company's 1996 Equity Incentive Plan
and to reserve 7,000,000 shares of the Company's Common Stock for
issuance under such plan:

<TABLE>
<CAPTION>
For Against Abstained Non-Votes
---------------- ------------------ ----------------- -----------------
<S> <C> <C> <C>
14,909,134 792,933 244,155 5,330,446
</TABLE>

13
<PAGE> 14
3. To approve an amendment to the Company's Certificate of
Incorporation to change the name of the Company from "IMRE
Corporation" to "Cypress Bioscience, Inc.":

<TABLE>
<CAPTION>
For Against Abstained Non-Votes
---------------- ------------------ ----------------- -----------------
<S> <C> <C> <C>
20,964,782 107,090 80,032 124,765
</TABLE>

4. To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
Common Stock from 35,000,000 shares to 60,000,000 shares:

<TABLE>
<CAPTION>
For Against Abstained Non-Votes
---------------- ------------------ ----------------- -----------------
<S> <C> <C> <C>
20,665,543 405,656 80,705 124,765
</TABLE>

5. To approve a modification to an amendment to the Company's
Certificate of Incorporation previously approved by the
stockholders of the Company to change the par value of the
Preferred Stock of the Company from no par to a nominal par value:

<TABLE>
<CAPTION>
For Against Abstained Non-Votes
---------------- ------------------ ----------------- -----------------
<S> <C> <C> <C>
15,545,741 170,763 104,964 5,455,201
</TABLE>

6. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for its fiscal year ending December 31, 1996:

<TABLE>
<CAPTION>
For Against Abstained Non-Votes
---------------- ------------------ ----------------- -----------------
<S> <C> <C> <C>
21,076,689 35,075 40,140 124,765
</TABLE>

Item 6 - Exhibits and Reports on Form 8-K

(a) Exhibits

3.1 Amended and Restated Certificate of Incorporation

99.1 Sub-Lease Agreement dated April 15, 1996 between the Company and
Bristol-Myers Squibb Company

99.2 1996 Equity Incentive Plan

99.3 1996 Equity Incentive Plan Form of Incentive Stock
Option Agreement

99.4 1996 Equity Incentive Plan Form of Non-Statutory
Stock Option Agreement

(b) Reports on Form 8-K

On March 6, 1996, the Company filed a Current Report on Form 8-K which
disclosed certain information under Item 5.

On April 1, 1996, the Company filed a Current Report on Form 8-K which
disclosed certain information under Item 5.

14
<PAGE> 15
SIGNATURES

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

Cypress Bioscience, Inc.

May 14, 1996 /s/ Jay D. Kranzler
------------------------------ -------------------------------
Date Jay D. Kranzler, M.D., Ph.D.
Chief Executive Officer
and Vice Chairman of the Board
(Principal Executive Officer)

May 14, 1996 /s/ Susan E. Feiner
------------------------------ -------------------------------
Date Susan E. Feiner
Director of Finance,
Controller
(Principal Accounting and
Financial Officer)

15
<PAGE> 16

Exhibit Index
-------------

Number Description
------ -----------

3.1 Amended and Restated Certificate of Incorporation

27 Financial Data Schedule

99.1 Sub-Lease Agreement dated April 15, 1996 between the
Company and Bristol-Myers Squibb Company

99.2 1996 Equity Incentive Plan

99.3 1996 Equity Incentive Plan Form of Incentive Stock
Option Agreement

99.4 1996 Equity Incentive Plan Form of Non-Statutory
Stock Option Agreement

<PAGE> 1
EXHIBIT 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
IMRE CORPORATION

IMRE CORPORATION, a corporation organized and existing under the General
Corporation Law of the State of Delaware, does hereby certify as follow:

FIRST: The name of the corporation is IMRE Corporation

SECOND: The corporation's original Certificate of Incorporation
was filed with the Secretary of State of the State of Delaware on October 21,
1981 under the name Immune Response Systems, Inc., and was subsequently
amended on October 14, 1982, March 1, 1983, May 10, 1983, May 9, 1986, January
9, 1987, November 9, 1990, June 10, 1991 and December 21, 1994 (collectively,
the "Amendments"), each time pursuant to a Certificate of Amendment filed with
the Secretary of State of the State of Delaware.

THIRD: The Amended and Restated Certificate of Incorporation of
this corporation, in the form attached hereto as Exhibit A, integrates into a
single instrument all of the provisions of the Amendments and further amends
the Certificate of Incorporation, which further amendments have been duly
adopted in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware by the Board of Directors and
stockholders of the corporation.

FOURTH: The Amended and Restated Certificate of Incorporation so
adopted reads in full as set forth in Exhibit A attached hereto and hereby
incorporated by reference.

IN WITNESS WHEREOF, IMRE Corporation has caused this Amendment and
Restated Certificate of Incorporation to be signed by its Chief Executive
Officer and attested by its Secretary this 18th day of April, 1996.

IMRE Corporation

/s/ Jay D. Kranzler
---------------------------
Jay D. Kranzler
Chief Executive Officer

ATTEST:

/s/ Susan E. Feiner
- - -----------------------
Susan E. Feiner
Corporate Secretary

[STATE OF DELAWARE STAMP]
<PAGE> 2
EXHIBIT A

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
CYPRESS BIOSCIENCE, INC.,
a Delaware Corporation

ARTICLE I

The name of the corporation is Cypress Bioscience, Inc.

ARTICLE II

The address, including street, number, city and county, of the registered
office of the corporation in the State of Delaware is 1013 Centre Road, City of
Wilmington, County of New Castle; and the name of the registered agent of the
corporation in the State of Delaware at such address is United States
Corporation Company.

ARTICLE III

The nature of the business and purposes to be conducted or promoted by the
corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.

ARTICLE IV

The total number of shares of all classes of stock which the corporation shall
have authority to issue is 75,000,000, 60,000,000 of which shall be shares of
one class of Common Stock, par value $.02 per share, and 15,000,000 of which
shall be shares of Preferred Stock, $.02 par value per share ("Preferred
Stock").

The shares of Preferred Stock may be issued from time to time in one or more
series of any number of shares, provided that the aggregate number of shares
issued and not canceled of any series shall not exceed the total number of
shares of Preferred Stock hereinabove authorized, and with distinctive serial
designations, all as shall hereafter be stated and expressed in the resolution
or resolutions providing for the issue of such shares of Preferred Stock from
time to time adopted by the Board of Directors pursuant to authority so to do
which is hereby vested in the Board of Directors. Each series of shares of
Preferred Stock shall have such designations and powers, preferences and
rights, and such qualifications, limitations or restrictions thereof, as shall
be stated in said resolution or resolutions providing for the issue of such
shares of Preferred Stock and which are permitted by law in respect of
Preferred Stock.

ARTICLE V

The name of the incorporator is Jack H. Halperin and his mailing address is 250
Park Avenue, New York, New York 10017.

1
<PAGE> 3
ARTICLE VI

The following provisions are inserted for the regulation and conduct of the
affairs of the corporation, and it is expressly provided that they are intended
to be in furtherance and not in limitation or exclusion of the powers elsewhere
conferred herein or in the By-laws of the corporation or conferred by law:

1. The original By-laws of the corporation shall be adopted by the
incorporator named in Article V. Thereafter, in furtherance and not in
limitation or the powers conferred under the General Corporation Law of the
State of Delaware, the Board of Directors of the corporation is expressly
authorized to make, alter or repeal By-laws not inconsistent with law or with
its Certificate of Incorporation.

2. Election of directors need not be by written ballot, unless the
By-laws of the corporation shall so provide.

ARTICLE VII

No director shall be personally liable to the corporation or its stockholders
for monetary damages for any breach of fiduciary duty by such director as a
director, except (i) for breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal benefit.
No amendment to or repeal of this Article VII shall apply to or have any effect
on the liability or alleged liability of any director of the corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,364
<SECURITIES> 0
<RECEIVABLES> 31
<ALLOWANCES> 0
<INVENTORY> 1,279
<CURRENT-ASSETS> 12,854
<PP&E> 2,055
<DEPRECIATION> 596
<TOTAL-ASSETS> 14,353
<CURRENT-LIABILITIES> 1,915
<BONDS> 420
0
0
<COMMON> 57,979
<OTHER-SE> 112
<TOTAL-LIABILITY-AND-EQUITY> 14,353
<SALES> 18
<TOTAL-REVENUES> 138
<CGS> 249
<TOTAL-COSTS> 1,439
<OTHER-EXPENSES> 625
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> (2,201)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,201)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> 0

</TABLE>

<PAGE> 1
EXHIBIT 99.1

SUBLEASE

This SUBLEASE ("Sublease") is made and entered into as of the 15th day
of April, 1996, by IMRE CORPORATION, a Delaware corporation ("Imre") and
BRISTOL-MYERS SQUIBB COMPANY, a Delaware corporation ("Bristol-Myers"). Martin
Selig ("Selig") and Oculon Corporation ("Oculon") execute this Sublease for the
purposes described below.

RECITALS

A. Imre is the sublessee under that certain sublease (the "Prior
Sublease") dated October 11, 1991 in which Oculon is the sublessor, with
respect to that certain building (the "Premises") commonly known as 401 Queen
Anne Avenue and situated on certain real property (the "Property") in the city
of Seattle, State of Washington more particularly described as follows:

Lots 4, 5 and 6, Block 22, D.T. Denny's North Seattle Addition, City
of Seattle, as recorded in Volume 1 of Plats, Page 41, in King County,
Washington.

A true and correct copy of the Prior Sublease is attached as EXHIBIT A to this
Sublease.

B. Oculon is the lessee of the Premises under that certain Office
Lease ("Master Lease") dated February 2, 1989 and amended by First Amendment to
Office Lease dated May 1, 1989, in which Selig is the lessor. A true and
correct copy of the Master Lease is attached as EXHIBIT B to this Sublease.

C. Imre desires to sublease the Premises to Bristol-Myers, and
Bristol-Myers desires to sublease the Premises from Imre, all subject to the
terms and conditions set forth in this Sublease. The Premises are shown on the
sketch attached as EXHIBIT C to this Sublease.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants set forth below
and other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, the parties agree as follows:
<PAGE> 2
1. DEMISE OF THE PREMISES

Imre subleases the Premises to Bristol-Myers, and Bristol-Myers
subleases the Premises from Imre, subject to the terms and conditions set forth
in this Sublease.

2. PRIOR SUBLEASE

2.1 DEFINITIONS

Capitalized terms that are not otherwise defined in this Sublease have
the meaning given to them in the Prior Sublease.

2.2 INCORPORATION OF CERTAIN PRIOR SUBLEASE PROVISIONS

This Sublease is subject to all of the terms and conditions of the Prior
Sublease, except as specifically modified in this Sublease. The terms,
covenants, provisions, and conditions set forth in Sections 2(b), 6 and 9 of
the Prior Sublease are incorporated into and made a part of this Sublease by
this reference as though fully set forth, except that references in the Prior
Sublease to "Sublessor" shall be interpreted as references to "Imre" and
references "Sublessee" shall be interpreted as references to "Bristol-Myers."
To the extent that there is any conflict between the express terms of this
Sublease and the terms of the Prior Sublease that are incorporated into this
Sublease, the express terms of this Sublease shall control.

3. TERM

The term of this Sublease (the "Sublease Term") shall commence on May 1,
1996 ("Sublease Commencement Date") and terminate at 11:59 P.M. on October 12,
1999 ("Sublease Termination Date").

4. RENT

For the period commencing on the Sublease Commencement Date and
terminating at 11:59 p.m. on the day prior to the Retained Premises Delivery
Date (as that term is defined below), Bristol-Myers shall pay to Imre rent in
the amount of Eighteen Thousand Seven and 68/100 Dollars ($18,007.68) per
month. Provided Imre delivers the Retained Premises to Bristol-Myers in good
condition on the Retained Premises Delivery Date (as those terms are defined
below), then, for the period commencing on the Retained Premises Delivery Date,
and terminating on the Sublease Termination Date, Bristol-Myers shall pay to
Imre rent in the amount of Twenty-Six Thousand One Hundred Ninety-Three and
no/100 Dollars ($26,193.00) per month ("Rent"). Rent shall be paid in advance
ten (10) days prior to the first day of each calendar month at such place as
Imre may designate, without prior demand.
<PAGE> 3
Rent for the month in which the Sublease Termination Date occurs shall be
prorated according to the actual number of days in that month.

Commencing May 1, 1996 Bristol-Myers agrees to pay to Imre its pro rata
share (based on its percentage of occupancy of the Premises) of increases in
costs of Operating Services and Real Property Taxes for the Premises as defined
in Section 17 of the Master Lease over the costs of Operating Services and Real
Property Taxes for the calendar year 1995, and thereafter to pay such increases
as they are imposed under the terms of the Master Lease subject, however to the
following:

1. Operating Costs shall not include the following, which
Bristol-Myers shall contract for directly and not through Selig: electricity,
HVAC maintenance, security system, garbage, janitorial (which shall be treated
as a credit against operating services costs at the rate of 90/100 Dollars
($.90) per square foot per year), and maintenance of the back-up generator; and

2. Imre shall pay one hundred percent (100%) of all charges for
water and sewer services to the Premises until possession of all of the
Premises, including Room 157 and the Retained Premises, and including exclusive
possession of the Common Area (as those terms are defined below), is
unconditionally delivered to Bristol-Myers.

Imre shall timely pay all amounts due to Oculon under the Prior
Sublease; Oculon shall timely pay all amounts due to Selig under the Master
Lease.

5. POSSESSION; CONDITION OF PREMISES

5.1 POSSESSION

Bristol-Myers shall have possession of the Premises on the Sublease
Commencement Date, except (1) possession of Room 157 as shown on EXHIBIT C
("Room 157") shall be delivered on December 1, 1996, (2) possession of the
remaining portion of the approximately 3,983 rentable square feet of the
Premises located in the northwest quadrant of the building shown on EXHIBIT C
as Retained Space ("Retained Space") shall be delivered on December 31, 1996,
and (3) Imre shall have non-exclusive use of the portion of the building shown
as Common Area on EXHIBIT C ("Common Area") in common with Bristol-Myers until
possession of the Retained Space is delivered to Bristol-Myers.

Possession of Room 157 shall be delivered unconditionally to Bristol-Myers on
December 1, 1996. Possession of the Retained Space and exclusive possession of
the Common Area shall be delivered unconditionally to Bristol-Myers on January
1, 1997, which shall be the Retained Space Delivery Date; provided, however,
that the
<PAGE> 4
Retained Space Delivery Date shall be such earlier date as may be designated by
Imre on thirty (30) days' prior written notice to Bristol-Myers.

If Imre fails to deliver Room 157 to Bristol-Myers on December 1, 1996,
or to deliver all of the Retained Space and exclusive possession of the Common
Area to Bristol-Myers in the condition required by this Sublease on the
Retained Space Delivery Date, then Imre shall be in material default of its
obligations under this Sublease, rent under this Sublease shall abate until
Room 157, the Retained Space and exclusive possession of the Common Area are
delivered to Bristol-Myers in the condition required by this Sublease, and
Bristol-Myers shall be relieved of any obligation to pay rent for the period
from the Retained Space Delivery Date until Room 157, the Retained Space and
exclusive possession of the Common Area are so delivered. Notwithstanding the
foregoing, Imre shall continue to timely pay all amounts due to Oculon under
the Prior Sublease and otherwise to maintain the Prior Sublease in good
standing. If Imre does not deliver Room 157 to Bristol-Myers in the condition
required by this Sublease prior to February 1, 1997, or does not deliver all of
the Retained Space and exclusive possession of the Common Area to Bristol-Myers
in the condition required by this Sublease prior to March 1, 1997, then
Bristol-Myers shall have the right to terminate this Lease upon notice to Imre.
Abatement of rent and the right to terminate this Sublease for failure to
timely deliver Room 157 or the Retained Space or exclusive possession of the
Common Area shall be in addition to, and not in lieu of, all other rights and
remedies that Bristol-Myers may have for breach of this Sublease.

5.2 CONDITION

Prior to the Retained Space Delivery Date Imre shall remove the cold
room from the Premises, repair any damage caused by the cold room removal or
the removal of any other fixtures and restore the floor and dropped ceiling.
To the best of Imre's knowledge, the Premises are in good condition and the
mechanical and electrical systems in the Premises are in good working order as
of the date of this Sublease. The Premises, and each part thereof, shall be in
as good condition as they are on the date of this Sublease, normal wear and
tear excepted, when possession thereof is delivered to Bristol-Myers. Subject
to the foregoing, and subject to Imre's obligation to restore and to repair
damage caused by removal of the cold room or any other fixtures, Bristol-Myers
accepts the Premises in an "AS IS" condition.

6. UTILITIES AND SERVICES

Utilities and services shall be provided to the Subleased Premises as
set forth in the Prior Sublease and the Master Lease. Imre shall use its
reasonable best efforts to
<PAGE> 5
cause Oculon to perform its obligations as provided in Section 12 of the Prior
Sublease.

7. REMOVAL OF FIXTURES

All additions, alterations or improvements which, under the terms of the
Prior Sublease, may be removed from the Premises shall be and become the
property of Bristol-Myers. Further, and without limiting the generality of the
foregoing, those items of personalty and fixtures listed on EXHIBIT D shall be
and become the sole property of Bristol-Myers upon expiration of the Sublease
Term.

8. INSURANCE

8.1 INSURANCE

Bristol-Myers shall maintain casualty insurance and liability insurance
in the amounts and otherwise in accordance with the requirements of the Prior
Sublease.

8.2 WAIVER OF SUBROGATION

Neither Selig, Oculon, Imre nor Bristol-Myers shall be liable to the
other(s) or to any insurance company or companies (by way of subrogation or
otherwise) insuring the other party or parties for any loss or damage to any
building, structure or tangible personal property of the other party or parties
or of any third party occurring in or about the Premises or Property, even
though such loss or damage might have been occasioned by the negligence of such
party, its agents or employees, if such loss or damage would fall within the
scope of a fire and extended coverage (all risk) policy of insurance, whether
or not the party or parties suffering the loss actually maintained such
insurance. Each party shall obtain from its respective insurer under each
insurance policy it maintains a waiver of all rights of subrogation which the
insurer of that party may have against the other parties, and Selig, Oculon,
Imre and Bristol-Myers shall indemnify the others against any loss or expense,
including reasonable attorneys' fees, resulting from the failure to obtain such
a waiver.

9. COPIES OF NOTICES FROM SELIG

Selig agrees (1) to furnish to Bristol-Myers a copy of each notice or
request given to Oculon or Imre at the time that notice is given to Oculon or
Imre, as the case may be, and (2) to give Bristol-Myers notice of any monetary
default(s) by Oculon under the Master Lease within five (5) days of the date of
such default(s).
<PAGE> 6
10. COPIES OF NOTICES FROM OCULON

Oculon agrees (1) to furnish to Bristol-Myers a copy of each notice OR
request given to Imre at the time that notice is given to Imre, and (2) to give
Bristol-Myers notice of any monetary default(s) by Imre under the Prior
Sublease within five (5) days of such default(s).

11. OPTION FOR DIRECT LEASE

Pursuant to the terms of the Prior Sublease, Selig granted to Imre a
right to enter into a direct lease of the Premises with Selig under certain
terms and conditions. Selig, Oculon and Imre agree that the right granted to
Imre is canceled and shall have no further force or effect, and that
Bristol-Myers shall have a right to enter into a direct lease with Selig as set
forth in this Section 11. If Bristol-Myers is not then in material default
under the terms of this Sublease, then it may elect at any time during the
Sublease Term to enter into a direct lease of the Premises with Selig by giving
notice of that election to Selig, Oculon and Imre. Selig and Bristol-Myers
shall thereupon execute a new lease of the Premises on the same terms and
conditions as are set forth in the Master Lease as modified by this Sublease.
If Bristol-Myers exercises its election prior to the Retained Space Delivery
Date it shall nonetheless recognize Imre's rights under Section 5.1 of this
Sublease. If a new lease is executed, then (i) the Master Lease, Prior
Sublease and this Sublease shall terminate automatically, (ii) Oculon shall be
released automatically from all liability under the Master Lease (including but
not limited to all liability under the Promissory Note delivered thereunder)
and the Prior Sublease, (iii) Imre shall be released automatically from all
liability under the Prior Sublease and this Sublease, and (iv) Bristol-Myers
shall assume and agree to pay the Promissory Note delivered under the Master
Lease, and Selig and Bristol-Myers shall promptly execute and deliver new
appropriate assumption documents. The rent under the new lease shall be as
provided in the Master Lease (including Base Rent increases, if any, in Base
Year Costs, and monthly payments in the amount of Six Thousand Seven Hundred
Seventy-Six and 53/100 Dollars ($6,776.53) on the Promissory Note delivered
under the Master Lease). The rent under the new lease shall be payable
directly to Selig.

12. EXERCISE OF RIGHTS UNDER PRIOR SUBLEASE

Upon request of Bristol-Myers, Imre agrees to exercise any rights it
may have under the Prior Sublease OTHER THAN the right to renew the term of the
Master Sublease under Section 12 of the Prior Sublease and Section 2(b) of the
Master Lease, the right to cancel the Master Lease under Section 12 of the
Prior Sublease and Section 37 of the Master Lease, and the right to expand
under Section 12 of the Prior Sublease and Section 38 of the Master Lease.
Imre covenants and agrees that it shall
<PAGE> 7
not exercise any of the foregoing rights to renew, cancel or expand under
Section 12 of the Prior Sublease. If Imre fails to exercise any other rights
it may have within twenty (20) days after receipt of a request to do so from
Bristol-Myers, then Bristol-Myers shall have the right to exercise such rights
in the place and stead of Imre, and Oculon agrees to recognize the validity of
Bristol-Myers' exercise of such rights.

Selig, Oculon and Imre agree that Bristol-Myers shall have the right to
renew the term of the Master Lease under Section 2(b) thereof, the right to
cancel the Master Lease under Section 37 thereof, and the right to expand under
Section 38 of the Master Lease, provided, however, that neither Oculon nor Imre
shall have any responsibility or liability to Bristol-Myers under those
provisions of the Master Lease and provided further that Bristol-Myers may
exercise those rights only after entering into a direct lease of the Premises
with Selig in accordance with Section 11 above entitled Option for Direct
Lease.

13. RIGHT OF OFFSET; RIGHT TO MAKE DIRECT PAYMENT

If Imre fails to make any payment(s) due to Oculon under the Prior
Sublease, and such failure continues for a period of more than ten (10) days
after notice of such failure is given by Oculon to Imre (unless a shorter cure
period is provided in the Prior Sublease, in which case the ten (10) day period
shall be shortened to equal such shorter cure period), then Bristol-Myers shall
have the right, at its election, and upon written notice to Oculon and Imre:
(1) to make such payment(s) on Imre's behalf and to elect in its discretion to
deduct from subsequent installments of rent due to Imre under this Sublease the
amount of any payment(s) so made by Bristol-Myers, and (2) for so long as
Bristol-Myers is not in material default under this Sublease, to thereafter pay
the rent due under this Sublease directly to Oculon. The parties acknowledge
that Imre has a similar right to pay Selig directly under the terms of the
Prior Sublease in the event of a default by Oculon. Without limiting the
generality of Imre's obligations under Section 12 above, Imre agrees that it
shall exercise such rights upon the request of Bristol-Myers.

14. ATTORNMENT AND NON-DISTURBANCE

If the Prior Sublease is terminated for any reason (other then due to a
casualty or condemnation as provided in Section 19), then (1) Oculon shall
recognize the validity of this Sublease and Bristol-Myers' rights under this
Sublease, which shall not merge, and Bristol-Myers shall be recognized as the
sublessee of the Premises, and (2) Bristol-Myers agrees to recognize Oculon as
sublessor and will attorn to, and render performance under this Sublease to,
Oculon as if Oculon were the original sublessor under this Sublease.
Notwithstanding any default by Imre under the Prior Sublease and any resulting
termination of the Prior Sublease, Bristol-Myers' rights of
<PAGE> 8
possession, occupancy and use under this Sublease shall not be disturbed by
Oculon so long as Bristol-Myers (a) agrees to recognize Oculon as its sublessor
pursuant to this Section 14, (b) pays the rent as provided in this Sublease
directly to Oculon, and (c) is not in material default of the terms of this
Sublease.

If both the Prior Sublease and the Master Lease are terminated for any
reason (other than due to casualty or condemnation as provided in Section 19),
then (1) Selig shall recognize the validity of this Sublease and Bristol-Myers'
rights under this Sublease, which shall not merge, and Bristol-Myers shall be
recognized as the lessee of the Premises, and (2) Bristol-Myers agrees to
recognize Selig as lessor, and will attorn to, and render performance under
this Sublease to, Selig as if Selig were the original sublessor under this
Sublease. Notwithstanding any default by Oculon and/or Imre and any resulting
termination of the Master Lease and Prior Sublease, BristolMyers' rights of
possession, occupancy and use under this Sublease shall not be disturbed by
Selig so long as Bristol-Myers (a) agrees to recognize Selig as its lessor
pursuant to this Section 14, (b) pays the rent as provided in this Sublease
directly to Selig, and (c) is not in material default of the terms of this
Sublease.

15. RIGHT TO CURE

Oculon shall accept a cure by Bristol-Myers of any default by Imre under
the Prior Sublease. Bristol-Myers shall have the same period of time to cure
any such default as is provided to Imre under the Prior Sublease, plus ten (10)
days.

16. BROKERS

Imre and Bristol-Myers each represent to the other that neither is
represented by any broker, agent or finder in connection with this transaction,
except Kidder, Matthew & Segner, Inc., which represents Bristol-Myers. The
commission of Kidder, Matthew & Segner, Inc. shall be paid by Imre pursuant to
a separate agreement. Each party agrees to indemnify and hold the other
harmless from and against any and all liability, costs, damages, causes of
action or other proceedings instituted by any other broker, agent or finder,
licensed or otherwise claiming through, under or by reason of the conduct of
the indemnifying party in the subleasing of the Premises or claiming by reason
of the conduct of the indemnifying party in any manner whatsoever in connection
with this transaction.

17. ATTORNEYS' FEES

If Imre or Bristol-Myers institutes any action or proceeding against the
other relating to the provisions of this Sublease or any default under its
terms, then the substantially prevailing party shall be entitled to recover
from the other its reasonable expenses of that action, including reasonable
attorneys' fees.
<PAGE> 9
18. SURRENDER OF SUBLEASED PREMISES

Bristol-Myers shall peaceably surrender the Premises to Imre on the
Sublease Expiration Date, and Imre shall peaceably surrender the Premises to
Oculon, broom-clean and in as good condition as on the Sublease Commencement
Date, and the commencement date of the Prior Sublease, respectively, except for
(i) reasonable wear and tear, (ii) loss by fire or other casualty, (iii) loss
by condemnation, (iv) those additions, alterations and improvements owned by
Bristol-Myers and that Bristol-Myers elects to remove, and (v) those items
listed on EXHIBIT D.

19. DAMAGE, DESTRUCTION OR CONDEMNATION

If any portion or all of the Premises is damaged by fire, earthquake,
act of God, the elements or other casualty, or if all or any portion of the
Premises or Property is lawfully taken by condemnation or in any other manner
for any public or quasi-public purpose, and if Selig or Oculon terminates the
Master Lease under the provisions thereof, or if Oculon properly terminates the
Prior Sublease pursuant to its terms as a result of such casualty or
condemnation, then this Sublease shall terminate concurrently with the
termination of the Master Lease or Prior Sublease, as the case may be. Imre
shall not cause the Prior Sublease to terminate as a result of such an event
without the prior written approval of Bristol-Myers. If after damage to or
condemnation of the Premises or Property the Master Lease and Prior Sublease
are not terminated, this Sublease shall continue in full force or effect,
provided that Rent for the Premises shall be abated in proportion to the
portion of the Premises damaged or taken.

20. MISCELLANEOUS PROVISIONS

20.1 NOTICES

Any notice or demand desired or required to be given hereunder shall be
in writing and deemed given when personally delivered, sent by facsimile or
deposited in the mail, postage prepaid, sent certified or registered, and
addressed to each party as set forth below, or to such other address as any
party shall have previously designated by such a notice. Any notice so
delivered personally shall be deemed to be received on the date of delivery,
any notice so sent by facsimile, on the date reception is confirmed and any
notice so mailed, three days after the date on which it was mailed.
<PAGE> 10
Addresses are AS follows:

IMRE CORPORATION: Imre Corporation
1487 NE 95th, Building B
Redmond, WA 98052
Attn: Duane Morris, VP Operations
Facsimile: (206) 881-8383

BRISTOL-MYERS: Bristol-Myers Squibb
3005 First Avenue
Seattle, WA 98121
Attn: Lou Fedele
Facsimile: (206) 727-3600

WITH A COPY TO: James M. Bogden, Associate Counsel
Bristol-Myers Squibb
3005 First Avenue
Seattle, WA 98121
Facsimile: (206) 727-3601

OCULON: c/o PHARMOS CORPORATION
2 Innovation Drive
Alachua, Florida 32615
Attn: CFO
Facsimile: (904) 462-5401

SELIG: Martin Selig Real Estate
1000 Second Avenue, Ste. 1800
Seattle, WA. 98104-1046
Attn: Mr. Martin Selig
Facsimile: (206) 386-5296

20.2 PARTIAL INVALIDITY

If any provision of this Sublease or the application thereof to any
person or circumstance shall to any extent be invalid, the remainder of this
Sublease or the application of such provision to persons or circumstances other
than those as to which it is held invalid shall not be affected thereby and
each provision of this Sublease shall be valid and enforced to the fullest
extent permitted by law.
<PAGE> 11
20.3 PROVISIONS BINDINGS

Except as otherwise provided, all provisions herein shall be binding
upon and shall inure to the benefit of the parties, their legal
representatives, heirs, successors, and assigns.

20.4 ENTIRE AGREEMENT

This Sublease and the exhibits constitute the entire agreement between
the parties with respect to the Premises. All exhibits mentioned in and
attached to this Sublease are incorporated herein by reference. Any prior
conversations or writings are merged herein and extinguished. No subsequent
amendment to this Sublease shall be binding upon Imre or Bristol-Myers or any
other party unless reduced to writing and signed. The captions and section
numbers appearing herein are inserted only as a matter of convenience and are
not intended to define, limit, construe, or describe the scope or intent of any
section or paragraph.

20.5 CHOICE OF LAW

This Sublease shall be governed by and construed in accordance with
the laws of the State of Washington.

20.6 NEGOTIATION AND CONSTRUCTION

This Sublease and each of the terms and provisions hereof are deemed
to have been explicitly negotiated between the parties, and the language in all
parts of this Sublease shall, in all cases, be construed according to its fair
meaning and not strictly for or against either party.

20.7 CONSENT AND DISCRETION

Whenever the consent of a party is required under this Sublease, such
consent shall not be unreasonably withheld or delayed. Whenever a party
exercises its discretion under the terms of this Sublease, that discretion
shall be exercised reasonably.

20.8 COUNTERPARTS

This Sublease may be signed in counterparts.
<PAGE> 12
20.9 CONDITION TO EFFECTIVENESS

The effectiveness of this Sublease is conditioned upon the execution
and acknowledgment by Selig and Oculon of the Consents and Agreements on page
15 below.

IN WITNESS WHEREOF, the parties have executed this Sublease under seal
on the day first set forth above.

IMRE CORPORATION,
a Delaware corporation

By Duane A. Morris
-------------------------------
Name: Duane A. Morris
--------------------------
Title: Vice President
-------------------------

BRISTOL-MYERS SQUIBB COMPANY,
a Delaware corporation

By Ingegerd Hellstrom
-------------------------------
Name: Ingegerd Hellstrom
--------------------------
Title: Vice President
-------------------------

<PAGE> 13
STATE OF WASHINGTON)
)ss
COUNTY OF KING )

On this 15 day of April, 1996, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Duane Morris, to me known to be the person who signed as
Vice President of Imre Corporation, the corporation that executed the within
and foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that he was duly elected, qualified and acting as
said officer of the corporation, that he was authorized to execute said
instrument and that the seal affixed, if any, is the corporate seal of said
corporation.

IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first above written.

/s/ WILLIAN C. NEIL
----------------------------------
(Signature of Notary)

WILLIAM C. NEIL
----------------------------------
(Print or stamp name of Notary)

NOTARY PUBLIC in and for the State of
Washington, residing at Bellevue, WA
My Appointment Expires: 1/18/97

STATE OF WASHINGTON)
) ss.
COUNTY OF King )

On this 15th day of April, 1996, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Ingegerd Hellstrom, to me known to be the person who signed
as Vice President of Bristol-Myers Squibb Company, the
<PAGE> 14
corporation that executed the within and foregoing instrument, and acknowledged
said instrument to be the free and voluntary act and deed of said corporation
for the uses and purposes therein mentioned, and on oath stated that she was
duly elected, qualified and acting as said officer of the corporation, that she
was authorized to execute said instrument and that the seal affixed, if any, is
the corporate seal of said corporation.

IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first above written.

/s/ CYNTHIA JUNE BECKER
-----------------------------------------
(Signature of Notary)

Cynthia June Becker
------------------------------------------
(Print or stamp name of Notary)

NOTARY PUBLIC in and for the State of
Washington, residing at Seattle
My Appointment Expires: 10/19/99
<PAGE> 15
CONSENTS AND AGREEMENTS

Selig and Oculon, Lessors under the Master Lease and the Prior
Sublease respectively, hereby consent and agree to the subletting of the
Premises on the terms and conditions set forth in this Sublease and agree that
this Sublease modifies the Master Lease and the Prior Sublease and contains
other and further agreements by which they are bound.

/s/ MARTIN SELIG
----------------------------------
Martin Selig

OCULON CORPORATION,
a Delaware corporation

By /s/ S. Colin Neill
-------------------------------
Name: S. Colin Neill
--------------------------
Title: Vice President
-------------------------

STATE OF WASHINGTON)
) ss.
COUNTY OF King )

On this 26th day of April, 1996, before me, a Notary Public in and for
the State of Washington, duly commissioned and sworn, personally appeared Martin
Selig, to me known to be the individual who executed the within and foregoing
instrument, and acknowledged that he signed the same as his free and voluntary
act and deed, for the uses and purposes therein mentioned.

GIVEN UNDER my hand and official seal hereto affixed the day and year
in this certificate first above written.

/s/ THERESA GROFF
----------------------------------
(Signature of Notary)
[SEAL]
----------------------------------
(Print or Stamp name)

NOTARY PUBLIC in and for the State
of Washington, residing at Bellevue.
My Appointment Expires: 9/1/98.
<PAGE> 16
STATE OF NEW YORK )
)ss
COUNTY OF NEW YORK)

On this 24th day of April, 1996, before me, the undersigned, a Notary
Public in and for the State of New York, duly commissioned and sworn,
personally appeared Colin Neill, to me known to be the person who signed as
Vice President of OCULON CORPORATION, the corporation that executed the within
and foregoing instrument, and acknowledged said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that he was duly elected, qualified and acting as
said officer of the corporation, that he was authorized to execute said
instrument and that the seal affixed, if any, is the corporate seal of said
corporation.

IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first above written.

/s/ JEFFREY D. ABBEY
----------------------------------
(Signature of Notary)
[STAMP]
----------------------------------
(Print or stamp name)

NOTARY PUBLIC in and for the State
of New York,
My Appointment Expires: May 22, 1997
<PAGE> 17
EXHIBIT A

SUBLEASE

1. Parties. This Sublease is entered into by and-between OCULON
CORPORATION ("Sublessor") and IMRE CORPORATION ("Sublessee") as a Sublease
under the Office Lease dated February 2, 1989, and amended May 1, 1989, entered
into by Martin Selig ("Lessor"), as lessor, and Sublessor, as lessee (the
"Lease"). A true copy of the Lease is attached hereto as Exhibit D. This
Sublease is entered into with the consent and agreement of Lessor and modifies
the Lease to the extent stated in this Sublease.

2. Provisions Constituting Sublease.

(a) This Sublease is subject to all of the terms and conditions of
the Lease, as modified by this Sublease, and Sublessee shall assume and
perform the obligations of Sublessor as lessee under the Lease, as modified by
this Sublease, to the extent said terms and conditions are applicable to the
Premises subleased pursuant to this Sublease. Sublessee shall not commit or
permit to be committed on the Premises any act or omission which shall violate
any term, or condition of the Lease, as modified by this Sublease.

(b) All of the terms and conditions of the Lease are incorporated
herein, except for Sections 1(b), 24, 33, 35 and 36 and except for any
provisions of the Lease relating to the Promissory Note delivered pursuant to
Section V of Exhibit B to the Lease (payment of which shall remain the sole
responsibility of Sublessor unless and until Sublessee exercises its option to
enter into a direct lease pursuant to Section 11), as terms and conditions of
this Sublease (with each reference therein to Lessor and Lessee to be deemed to
refer to Sublessor and Sublessee) and, along with all of the following Sections
set out in this Sublease, shall be the complete terms and conditions of this
Sublease.

3. Premises. Sublessor leases to Sublessee and Sublessee hires from
Sublessor that certain building consisting of 14,400 rentable square feet of
space (the "Premises") located at 401 Queen Anne Avenue North, City of Seattle,
County of King, State of Washington, legally described as:

Lots 4, 5 and 6, Block 22, D.T. Denny's North Seattle Addition, City
of Seattle, as recorded in Volume 1 of Plats, Page 41, in King County,
Washington.

4. Rental.

(a) Sublessee shall pay to Sublessor as rent for the Premises ten
(10) days prior to the first day of each month of the term, of this Sublease
without deduction, offset, prior notice

1
<PAGE> 18
or demand, in lawful money of the United States, the sums as follows:

<TABLE>
<CAPTION>
MONTH RENT
<S> <C>
01-04 $18,928.86*

05-35 $23,928.86

36-95.5 $25,128.86
</TABLE>

If the Sublease termination date is not the last day of the month, a
prorated monthly installment shall be paid at the then current rate for the
fractional money during which the Sublease terminates. Receipt of $18,928.86
is hereby acknowledged for rental for the first month.

*Reflects $5,000.00 monthly credit from Sublessor for space pocket.

(b) The monthly rent set forth in Section 4 (a) reflects the
amounts as stated in the Rent Adjustment notice dated September 5, 1991, from,
Martin Selig attached hereto as Exhibit A, less credits for direct payment of
electricity by Sublessee as illustrated on Exhibit B. Lessor agrees to allow
Sublessee to contract directly for electricity (provided Seattle City Light
will allow) and reduce the operating expenses accordingly. Additionally,
Lessor will continue to credit operating services at the rate of $0.90 per
square foot annually, as Sublessee will contract directly for janitorial
services. In addition to the monthly rent set forth in Section 4 (a),
Sublessee agrees to pay future increases in Base Year Costs as defined in the
Lease over the Base Year Costs for the Base Year (as defined in the Lease),
plus $2,286.87 (which is the amount of the accumulated increases in Base Year
Costs as of September 5, 1991), less the janitorial services credit and
electricity credit as set forth above.

5. Term

(a) The term of this Sublease shall be for a period of 95.5 months
commencing on November 1, 1991, and ending on October 13, 1999.

(b) In the event Sublessor is unable to deliver possession of the
Premises at the commencement of the term, Sublessor shall not be liable for any
damage caused thereby, nor shall this Sublease be void or voidable, but
Sublessee shall not be liable for rent until such time as Sublessor offers to
deliver possession of the Premises to Sublessee, but the term hereof shall not
be extended by such delay. If Sublessor is unable to deliver

2
<PAGE> 19
possession of the Premises by December 1, 1991, then Sublessee may elect to
cancel this Sublease by giving notice to such effect to Sublessor on or before
December 15, 1991. If Sublessee, with Sublessor's consent, takes possession
prior to the commencement of the term, Sublessee shall do so subject to all of
the covenants and conditions hereof, except for payment of rent.

6. Use. Sublessee shall use the Premises for the purposes set forth in
Section 4 of the Lease and for no other purpose without the prior written
consent of Lessor, which consent shall not be unreasonably withheld or delayed.
Sublessee's business shall be established and conducted through the term hereof
in a firstclass manner. Sublessee shall not do or suffer anything to be done
upon the Premises which will cause structural injury to the Premises or the
building of which the Premises form a part. The Premises shall not be
overloaded and no machinery, apparatus or other appliance shall be used or
operated in or upon the Premises which will in any manner injure, vibrate, or
shake the Premises or the building of which it is a part. No use shall be made
of the Premises which will in any way impair the efficient operation of the
sprinkler system (if any) within the building containing the Premises. If any
act on the part of Sublessee or use of the Premises by Sublessee shall cause,
directly or indirectly, any increase of Sublessor's insurance expense, said
additional expense shall be paid by Sublessee to Sublessor upon demand. No
such payment by Sublessee shall limit Sublessor in the exercise of any other
rights or remedies, or constitute a waiver of Sublessor's right to require
Sublessee to discontinue such act or use.

7. Notices. All notices or requests required or permitted to be given by
Lessor, Sublessor or Sublessee under the Lease or this Sublease shall be in
writing; shall be personally delivered or sent by United States mail, certified
or registered, return receipt requested, postage prepaid; shall be deemed given
when so delivered or three (3) business days after so mailed, and shall be
delivered or sent to the parties at the addresses for Lessor, Sublessor or
Sublessee, respectively, set forth after their signatures at the end of this
Sublease. All rent and other payments due under this Sublease or the Lease
shall be made by Sublessee to Sublessor at the same address. Any party may
change the address to which notices are to be given by giving notice as
provided above.

8. Condition of Premises. To the best of Sublessor's knowledge, the
mechanical and electrical systems in the Premises are in good working
condition. Subject to the foregoing, Sublessee accepts the Premises in an "AS
IS" condition.

9. Lessor's Consent. Lessor hereby consents to Sublessee's proposed
alterations and improvements of the Premises substantially as shown on Exhibit
C hereto captioned "Alterations,

3
<PAGE> 20
Improvements and Equipment List". Sublessee shall have the right to remove all
of its personal property, equipment and trade fixtures at the end of the term
of the Lease or this Sublease, as the case may be, including without
limitation, the equipment set forth on Exhibit C under the caption "Equipment".

10. Copies of Notice to Sublessor. Lessor agrees to furnish Sublessee
with a copy of each notice or request given to Sublessor at the same time such
notice is given to Sublessor. Lessor agrees to give Sublessee notice of any
monetary default(s) by Sublessor under the Lease within five (5) days of the
date of such default(s).

11. Option For Direct Lease. If Sublessee is not then in default under
this Sublease, Sublesse may elect at any tire during the term of this Sublease
to enter into a direct lease of the Premises with Lessor by giving notice to
such effect to Lessor and Sublessor. Lessor and Sublessee shall thereupon
execute a new lease on the same terms and conditions contained in the Lease, as
modified by this Sublease. If a new lease is executed, then (i) the Lease and
this Sublease shall be automatically terminated, (ii) Sublessor shall be
automatically released from all liability under the Lease (including, but not
limited to, all liability under the Promissory Note delivered thereunder) and
this Sublease and Lessor, Sublessor and Sublessee shall promptly execute and
deliver appropriate termination and release documents, and (iii) Sublessee
shall assume and agree to pay the Promissory Note delivered under the Lease and
Lessor and Sublessee shall promptly execute and deliver appropriate assumption
documents. The rent under such new lease shall be as provided in the Lease
(including Base Rent, increases, if any, in Base Year Costs and monthly
payments in the amount of $6,776.53 on the Promissory Note delivered under the
Lease). The rent under the new lease shall be payable directly to Lessor.

12. Exercise of Rights under Lease. Upon request of Sublessee, Sublessor
agrees to exercise any rights it may have under the Lease, other than the right
to renew the term of the Lease under Section 2(b) of the Lease, the right to
cancel the Lease under Section 37 of the Lease, and the right to expand under
Section 38 of the Lease. If Sublessor fails to exercise any such rights within
twenty (20) days after receipt of a request to do so from, Sublessee, then
Sublessee shall have the right to exercise such rights in the place and stead
of Sublessor and Lessor agrees to recognize the validity of Sublessee's
exercise of such rights. Sublessee shall have the right to renew the term of
the Lease under Section 2 (b) of the Lease, the right to cancel the Lease under
Section 37 of the Lease, and the right to expand under Section 38 of the Lease,
provided, however, that Sublessor shall have no responsibility or liability to
Sublessee under such sections and Sublessee may exercise such rights only after

4
<PAGE> 21
entering into a direct lease of the Premises with Lessor in accordance with
Section 11 captioned "Option For Direct Lease".

13. Right of Offset; Right to Make Direct Payments. If Sublessor fails to
make any payment(s) due to Lessor under the Lease and such failure continues for
a period of more than twenty (20) days after notice of such failure is given by
Lessor to Sublessor (unless a shorter cure period is provided in the Lease, in
which event the twenty (20) day period shall be shortened to equal such shorter
cure period), then Sublessee shall, upon five (5) days' written notice to
Sublessor, have the right to make such payment to Lessor on Sublessor's behalf,
and to elect to deduct from subsequent installments of rent due to Sublessor
under this Sublease the amount of any payment(s) so made by Sublessee. If
Sublessor makes such a payment default (as described in the preceding sentence)
during the term of this Sublease, and provided that Sublessee is not then in
default under this Sublease (other than with respect to the payments not made
by Sublessor), then Sublessee shall have the right, at its option, upon five
(5) days' written notice to Sublessor and Lessor, to thereafter pay the rent
due to Sublessor under this Sublease directly to Lessor. Such option shall
remain in effect only so long as Sublessee is not in default under this
Sublease (other than with respect to the payments not made by Sublessor).

14. Attornment and Non-Disturbance. If the Lease is terminated for any
reason, then Sublessee will recognize Lessor as the landlord under the Lease,
will comply with the terms and conditions contained in the Lease, as modified
by this Sublease, and will attorn to, and render performance under this
Sublease to Lessor as if Lessor were the original sublessor under this
Sublease. If the Lease is terminated for any reason, then Lessor, will
recognize the validity of this Sublease and Sublessee's rights under this
Sublease. Notwithstanding any default by Sublessor under the Lease and any
resulting termination of the Lease, Sublessee's rights of possession, occupancy
and use under this Sublease shall not be disturbed by Lessor so long as
Sublessee (a) agrees to recognize Lessor as its landlord pursuant to this
Section and otherwise comply with this Section, (b) pays the rent as provided
in this Sublease directly to Lessor, and (c) is not in default under this
Sublease or the Lease, as modified by this Sublease.

15. Right to Cure. Lessor shall accept a cure by Sublessee of any default
by Sublessor under the Lease. Sublessee shall have the same period of time to
cure any such default as is provided to Sublessor under the Lease, plus ten
(10) days. If and only if Lessor has given Sublessee notice of any monetary
default(s) by Sublessor under the Lease within five (5) days of the date of
such default(s), then Sublessee shall pay any rent then in default under the
Lease directly to Lessor at the same time

5
<PAGE> 22
Sublessee exercises its rights under any of Sections 11, 12 or 14.

16. Brokers. Sublessor and Sublessee each represent to the other that
neither is represented by any broker, agent or finder in connection with this
transaction, except Kidder, Matthews & Segner, Inc., which represents
Sublessor, and Business Space Resources, which represents Sublessee. The
commission of Kidder, Matthews & Segner, Inc. shall be paid by Sublessor
pursuant to a separate agreement. Business Space Resources will participate in
the commission to be paid to Kidder, Matthews & Segner, Inc. Neither Sublessor
nor Sublessee will have any liability for payment of any commission to Business
Space Resources. Each party agrees to indemnify and hold the other party
harmless from and against any and all liability, costs, damages, causes of
action or other proceedings instituted by any other broker, agent or finder,
licensed or otherwise, claiming through, under or by reason of the conduct of
the indemnifying party in the subleasing of the Premises or in any manner
whatsoever in connection with this transaction.

17. Insolvency. If Sublessee becomes insolvent, or makes an assignment
for the benefit of creditors, or a receiver is appointed for the business or
property of Sublessee, or a petition is filed in a court of competent
jurisdiction to have Sublessee adjudged bankrupt (and such petition is not
discharged within ninety (90) days), then Sublessor may, at Sublessor's option,
terminate this Sublease. Said termination shall reserve unto Sublessor all of
the rights and remedies available under Paragraph 25 (Default) of the Lease,
and Sublessor may accept rents from such assignee or receiver without waiving
or forfeiting said right of termination. As an alternative to exercising his
right to terminate the Lease, Sublessor may require Sublessee to provide
adequate assurances, including the posting of a cash bond, of Sublessee's
ability to perform its obligations under this Sublease.

DATED the day of 1991.

ACKNOWLEDGED AND AGREED: ACKNOWLEDGED AND AGREED:
Dated October 11, 1991 Dated
---------------------------

SUBLESSOR: SUBLESSEE:
Oculon Corporation IMRE Corporation

By /s/ Alan R. Meyer By
-------------------------- -------------------------------
Its: Its:
------------------- ------------------------

6
<PAGE> 23

Address: Address:

Oculon Corporation Imre Corporation

26 Landsdowne Street Suite 470 130 5th Ave. N.

Cambridge, MA 02139 Seattle, WA 98109

Phone 617-621-3141 Phone (206) 448-1000

CONSENT AND AGREEMENT BY LESSOR

The undersigned, Lessor under the Lease Attached as Exhibit D, hereby consents
and agrees to the subletting of the Premises described herein on the terms and
conditions contained in this Sublease, agrees that this Sublease modifies the
Lease to the extent stated in this Sublease and agrees to continue to be bound
by the terms of the Lease, as modified by this Sublease. Such consent and
agreement shall apply only to this Sublease and shall not be deemed to be a
consent to any other Sublease.

Dated 10/14/91 ACKNOWLEDGED AND AGREED:

LESSOR:
Martin Selig

By /s/ MARTIN SELIG
------------------------------------

Address:
1000 2nd Ave.
Suite 1800
Seattle, WA 98104
Phone (206) 467-7600

[notary blocks attached]

7
<PAGE> 24
STATE OF WASHINGTON)
)ss.
COUNTY OF KING )

On this 11th day of October, 1991, before me, a Notary Public in and
for the State of Washington, duly commissioned and sworn, personally appeared
Alan R. Meyer to me known to be the person who signed as VP & CFO of OCULON
CORPORATION, the corporation that executed the within and foregoing instrument,
and acknowledged said instrument to be the free and voluntary act and deed of
said corporation for the uses and purposes therein mentioned, and on oath
stated that he/she was duly elected, qualified and acting as said officer of
the corporation, that he/she was authorized to execute said instrument and that
the seal affixed, if any, is the corporate seal of said corporation.

IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first written above.

/s/ JOANNE K. WALKER
NOTARY PUBLIC -----------------------------------
State of Washington
[SEAL] NOTARY PUBLIC in and for the State
of Washington, residing at Seattle
My appointment expires 4/10/95

STATE OF WASHINGTON)
)ss.
COUNTY OF KING )

On this 14th day of October, 1991, before me, a Notary Public in and
for the State of Washington, duly commissioned and sworn, personally appeared
Edward M. Yoshida, to me known to be the person who signed as Vice President of
IMRE CORPORATION, the corporation that executed the within and foregoing
instrument, and acknowledged said instrument to be the free and voluntary act
and deed of said corporation for the uses and purposes therein mentioned, and
on oath stated that he was duly elected, qualified and acting as said officer
of the corporation, that he was authorized to execute said instrument and that
the seal affixed, if any, is the corporate seal of said corporation.

IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first written above.

/s/ JILL H. BRANDT
-----------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at Seattle
My appointment expires 4/16/02

<PAGE> 25
STATE OF WASHINGTON)
)ss.
COUNTY OF KING )

On this 14th day of October, 1991, before me, a Notary Public in and for
the State of Washington, duly commissioned and sworn, personally appeared
MARTIN SELIG, to me known to be the individual who executed the within and
foregoing instrument, and acknowledged that he signed the same as his free and
voluntary act and deed for the uses and purposes therein mentioned.

IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first written above.

/s/ JILL H. BRANDT
-----------------------------------

NOTARY PUBLIC in and for the State
of Washington, residing at Seattle
My appointment expires 4-6-02

<PAGE> 26
EXHIBIT A

Date RA No.
--------------------------- ---------------------------

R E N T A D J U S T M E N T

<TABLE>
<S> <C> <C> <C>
TENANT: Oculon Corporation

LOCATION: 401 Queen Anne
PREVIOUS RENT: $25,420.14 RENT: $26,283.40
EFFECTIVE: October 16, 1991
</TABLE>
Reason for Change: Balance of space pockets expire. Monthly increase to
rent in the amount of $563.26. Also, parking rate
increase. Monthly increase to rent in the amount of
$300.00. Pro-rata increase for October only is
$454.10.

<TABLE>
<S> <C>
Rent due for the month of October: $25,420.14
Add pro-rata increase: 454.10

TOTAL RENT DUE October 1, 1991 $25,874.24

Rent Due November 1, 1991, and each month-thereafter: $26,283.40
</TABLE>

APPROVED
-------------------------------

<PAGE> 27
EXHIBIT B

OCULON CORPORATION Date
-----------------

<TABLE>
<CAPTION>
Description Sq. Ft. Rate Monthly
<S> <C>
Office Space 14,400 $13.75 $16,500.00
Janitorial Credit 14,400 (0.90) (1,080.00)
Parking 30 60.00 1,800.00
Promissory Note Payment 6,776.53
Operating Expenses 2,286.87

NEW MONTHLY RENT EFFECTIVE 10/15/91: $26,283.40

Less 1989 base year electricity (782.25)
Less adj. incr. for electrical (1,572.29)

NEW MONTHLY RENT DUE $23,928.86
</TABLE>

<PAGE> 28
EXHIBIT C

ALTERATIONS, IMPROVEMENTS AND EQUIPMENT LIST

The following pages comprise Exhibit C to the Sublease entered into
between Oculon Corporation and IMRE Corporation:

Exhibit C-1: layout of existing floor plan of Oculon facility;

Exhibit C-2: demolition plan of facility;

Exhibit C-3: layout of facility as built out by IMRE;

Exhibit C-4: list of personal property, equipment and trade fixtures
removable at termination of the Lease or Sublease, as
the case may be; and

Exhibit C-5: addition of skylight to facility roof.

<PAGE> 29
EXHIBIT C-1

[FLOOR PLAN]
<PAGE> 30
EXHIBIT C-2

[FLOOR PLAN]

<PAGE> 31
EXHIBIT C-3

[FLOOR PLAN]
<PAGE> 32
EXHIBIT C-4

EQUIPMENT

1. Personal property, equipment and trade fixtures brought onto or
installed on the premises by IMRE Corporation including, but not
limited to:

a. telephone system;
b. computer systems;
c. centrifuges;
d. freezers;
e. refrigerators;
f. modular walk-in refrigerator;
g. large capacity water purification systems;
h. dryers and/or drying equipment;
i. AMSCO autoclave (large) and electric boiler;
j. vertical and horizontal laminar flow benches;
k. HEPA air filters for cleanroom; and
l. air compressor.

2. Personal property, equipment and trade fixtures purchased from Oculon
Corporation including, but not limited to:

a. glass washer;
b. AMSCO autoclave;
c. boiler;
d. air compressor;
e. cage washer;
f. fume hoods;
g. casework;
h. auxiliary diesel generator;
i. small capacity water purification system; and
j. miscellaneous laboratory equipment.

<PAGE> 33
Exhibit C-5

Addition of Skylight to Facility Roof

A skylight will be added to the facility roof provided a structural
examination shows that the roof can accommodate such an addition.
<PAGE> 34
EXHIBIT B

401 QUEEN ANNE AVENUE NORTH

OFFICE LEASE

THIS LEASE is made the 2nd day of February, 1989 by and between MARTIN
SELIG, whose address is 6200 Columbia Center, 701 Fifth Avenue, Seattle,
Washington, 98104-7090, hereinafter referred to as "Lessor," and OCULON
CORPORATION, hereinafter referred to as "Lessee."

1. DESCRIPTION.

(a) PREMISES. Lessor, in consideration of the agreements
contained in this lease, does hereby lease to Lessee, upon the terms and
conditions hereinafter set forth, and subject to Paragraph 1(b) below, that
certain building consisting of approximately 14,400 rentable square feet (the
"Premises") located at 401 Queen Anne Avenue North, City of Seattle, State of
Washington, the legal description of which is:

Lots 4, 5 and 6, Block 22, D.T. Denny's North Seattle Addition, City of
Seattle as recorded in Volume 1 of Plats, page 41, in King County,
Washington.

Rentable square feet shall be calculated according to the Building Owners and
Managers Association International ("BOMA") Standards, namely, the "Standard
Method for Measuring Floor Area in Office Buildings American National
Standard," ANSI Z 65.1-1980 (Revisions of ANSI Z 65.1-1972) approved July 31,
1980, by the American National Standards Institute, Inc.

The floor plan and specifications for Lessee's occupancy are attached
hereto and made a part hereof and marked EXHIBIT A.

(b) SPACE POCKETS. Lessee will initially occupy 12,000
square feet of the Premises, with the remaining space being pocketed as
identified on the floor plan attached hereto as EXHIBIT A. One-half of the
pocketed space will be leased by Lessee commencing on the thirteenth (13th)
month of the lease term, and the remaining space will be leased by Lessee
commencing on the twenty-fifth (25th) month of the lease term. If Lessee
occupies the pocketed space prior to the above-specified dates, Lessee will
commence paying rent upon occupancy. Space pockets will be rent free until the
space is actually used for any purpose other than inactive storage; if the
space pockets are actually used for inactive storage, Lessee shall pay rent on
the area so used at Seven Dollars ($7.00) per rentable square foot. Once
occupied, the rent for the space pocket space shall be the same rent that
Lessee is paying for the other space under this lease.

2. TERM.

(a) The term of this lease shall be for a period of one
hundred twenty (120) months, commencing on the date (the "Commencement Date")
which is the earlier of (i) the first day of the month following issuance of a
permanent certificate of occupancy for the Premises and substantial completion
of the
<PAGE> 35
work to be done by Lessor under Paragraph 33 hereof or (ii) the date Lessee
takes occupancy and opens for business, and ending upon the day preceding the
tenth (10th) anniversary of the Commencement Date. Lessor shall give Lessee
fifteen (15) days' notice of issuance of such certificate of occupancy and
substantial completion of the work, and when the Commencement Date has been
determined, Lessor and Lessee shall execute a certificate setting forth such
Commencement Date. In the event Lessor and Lessee do not agree as to the date
of substantial completion of the work under clause (i) above, Lessee's
architect shall determine the date of substantial completion of the work and
this determination shall be final and binding on the parties.

In the event the Premises are not read for occupancy by May 1, 1989,
whether occasioned by Lessor or Lessee, the Commencement Date shall be extended
in such a manner as to reflect the delay occasioned by the failure of the
Premises to be ready for occupancy and the rent payable hereunder shall be
abated until Lessor gives Lessee written notice that the Premises are
substantially completed and ready for occupancy. Lessor shall, in any event,
use its best efforts to cause the Premises to be ready for occupancy in a
timely manner. If the Premises are not ready for occupancy by June 1, 1989,
Lessee may, at its sole option, terminate this lease by written notice and
Lessor and Lessee will not be liable for any damages as a result thereof,
except that Lessor shall reimburse Lessee for the Reimbursable Compensation (as
defined in paragraph II of the Work Letter, attached hereto and made a part
hereof and marked EXHIBIT B) within thirty (30) days of Lessee providing notice
of payment to Lessor.

(b) OPTION TO RENEW.

(i) Lessee shall have the right to renew the term of this
lease for a renewal term (the "Renewal Term") of five (5) years, such renewal
to be upon the covenants, terms and conditions as set forth in this lease,
except that rent for such renewal shall be established as described below. In
order to exercise its option to renew, Lessee shall give written notice to
Lessor not less than ninety (90) days prior to the end of the then-current
lease term.

(ii) The Base Rent (as defined in Paragraph 3 hereof) for
the Renewal Term shall be equal to the fair market rental value of the Premises
at the commencement of the Renewal Term (the "Fair Market Rental Value"), but
shall not include the value of the Finish Work (as defined in EXHIBIT B hereto)
or the value of any other improvements made to the Premises by Lessee. Lessor
and Lessee shall seek to agree as to the Fair Market Rental Value within thirty
(30) days after Lessee gives Lessor notice of its election to renew this lease.
If Lessor and Lessee shall not agree as to the Fair Market Rental Value within
such thirty (30) day period, the Fair Market Rental Value shall be determined
by appraisal as follows:

Within five (5) days after the expiration of the above-
mentioned thirty (30) day period, Lessor and Lessee shall each
give notice to the other stating the name and address of an
impartial person to act as appraiser hereunder. The appraiser
specified in each

-2-
<PAGE> 36
of such notices shall be either a licensed real estate broker
or an MAI appraiser doing business in Seattle, Washington
and having not less than 10 years active experience in
Seattle, Washington.

The named appraisers shall together determine the
Fair Market Rental Value within fifteen (15) days after their
appointment. In making such determination, the appraisers shall
consider the rentals at which leases are being concluded for
comparable space in the building in which the Premises are
located and for comparable space in comparable buildings in
Seattle, Washington. If the appraisers shall fail to agree upon
the Fair Market Rental Value within fifteen (15) days of their
appointment, the appraisers shall, within five (5) days after
the expiration of such fifteen (15) day period, appoint a
third appraiser, similarly impartial and qualified, to
determine the Fair Market Rental Value. Such third appraiser
shall determine the Fair Market Rental Value within fifteen
(15) days of his or her appointment, and the decision of such
third appraiser shall be binding upon Lessor and Lessee. Upon
the determination of the Base Rent for the Renewal Term,
Lessor and Lessee shall execute and deliver to each other an
agreement specifying the amount of the Base Rent for the
Renewal Term.

Lessor and Lessee shall each pay the fees of any
appraiser appointed by Lessor and Lessee, respectively, and
Lessor and Lessee shall each pay one-half (1/2) of the fees
of any third appraiser appointed pursuant to the provisions
of this paragraph.

If at the commencement of the Renewal Term, the
amount of the Base Rent payable during the Renewal Term
shall not have been determined, then pending such determination
Lessee shall pay to Lessor the Base Rent which was payable
during the initial term of the lease. Upon the determination
of the Base Rent for the Renewal Term, if the Base Rent
determined shall be greater than the Base Rent theretofore
paid, Lessee shall promptly pay to Lessor the deficiency, or,
if the Base Rent determined shall be less than the Base Rent
theretofore paid, Lessor shall promptly reimburse Lessee for
the excess.

3. RENT. Lessee covenants and agrees to pay Lessor rent each
month, in advance, on the first day of each calendar month ("Base Rent"). Base
Rent shall be computed at the annual base rental rate of Thirteen and 75/100
Dollars ($13.75) per rentable square foot for Lease Years 1-5, and Fourteen and
75/100 Dollars ($14.75) per rentable square foot for Lease Years 6-10. Rent for
any fractional calendar month, at the beginning or end of the term, shall be
the pro rated portion of the rent computed on an annual basis. For purposes of
this lease, "Lease Year" shall be the annual period commencing on the
Commencement Date.

-3-
<PAGE> 37
4. USES. The Premises are to be used for the purposes of general
offices, pharmaceutical research, development and production (including,
without limitation, laboratory uses) and related purposes, and for no other
business or purpose without the prior written consent of Lessor, which shall
not be unreasonably withheld or delayed.

5. RULES AND REGULATIONS. Lessee and their agents, employees,
servants or those claiming under Lessee will at all times observe, perform and
abide by all of the reasonable Rules and Regulations printed on this
instrument, or which may be hereafter promulgated by Lessor upon thirty (30)
days' written notice to Lessee, all of which it is covenanted and agreed by the
parties hereto shall be and are hereby made a part of this lease.

6. CARE AND SURRENDER OF PREMISES. Lessee shall take reasonably
good care of the Premises and shall promptly make all necessary repairs except
those required herein to be made by Lessor. At the expiration or sooner
termination of the lease, Lessee, without notice, will immediately and
peacefully quit and surrender the Premises in as good order, condition and
repair as when received (damage by reasonable wear and tear, the elements or
fire excepted). The foregoing notwithstanding, Lessee shall not be required to
make any structural repairs in the Premises or the building unless necessitated
by the negligence or wilful misconduct of Lessee.

7. ALTERATIONS. Lessee shall not make any alterations or
improvements in or additions to said Premises (other than decorations) without
first obtaining the written consent of Lessor, which consent shall not be
unreasonably withheld or delayed. Lessor shall be deemed to have consented to
any such request by Lessee to which Lessor fails to object in writing within
five (5) days. Except as set forth in EXHIBIT B hereof, all such alterations,
additions and improvements shall be at the sole cost and expense of Lessee and
(except for Lessee's personal property and trade fixtures) shall become the
property of Lessor and shall remain in and be surrendered with the Premises as
a part thereof at the termination of this lease, without disturbance,
molestation or injury.

8. RESTRICTIONS. Lessee will not use or permit to be used in said
Premises anything that will materially increase the rate of insurance on said
building or any part thereof, nor anything that may be dangerous to life or
limb (unless used in compliance with all applicable laws); not in any manner
deface or injure said building or any part thereof; nor overload any floor or
part thereof; nor permit any objectional noise or odor to escape or to be
emitted from said Premises, or do anything or permit anything to be done upon
said Premises in any way tending to create a nuisance or to disturb any other
tenant or occupant of any part of said building. Lessee, at Lessee's expense,
will comply with all health, fire and police regulations respecting said
Premises, except that Lessee shall not be required to make structural repairs
or alterations to the Premises which may be required by such health, fire and
policy regulations and such structural repairs or alterations shall be made by
the Lessor at Lessor's expense. Lessor represents and warrants that the
Premises and all work to be

-4-
<PAGE> 38
done by Lessor on the Premises will so comply with all applicable health, fire
and policy regulations. The Premises shall not be used for lodging or sleeping.

9. WEIGHT RESTRICTIONS. No safe or other article of over 2,000
pounds shall be moved into said Premises without the consent of Lessor, and
Lessor shall have the right to locate the position of any article of weight in
said Premises if Lessor so desires.

10. SIGN RESTRICTION. No sign, picture, advertisement or notice
shall be displayed, inscribed, painted or affixed to any of the glass or
woodwork of the building without the prior approval of Lessor, which shall not
be unreasonably withheld or delayed. Lessor shall be deemed to have consented
to any such request by Lessee to which Lessor fails to object in writing within
ten (10) days.

11. LOCKS. No additional locks shall be placed upon any exterior
doors of the Premises without the prior approval of Lessor, which shall not be
unreasonably withheld or delayed. Lessor shall be deemed to have consented to
any such request by Lessee to which Lessor fails to object in writing within
ten (10) days. Keys will be furnished to each door lock. At the termination of
the lease, Lessee shall surrender all keys to the Premises, whether paid for or
not. Lessee shall have the right to install a card key or other security system
in the building.

12. KEY. Lessor, his janitor, engineer or other agents may retain
a passkey to said Premises to enable him to examine the Premises from time to
time with reference to any emergency or, after reasonable prior notice to
Lessee, to the general maintenance of said Premises.

13. TELEPHONE SERVICE. If Lessee desires telephonic or any other
electric connection, Lessor will direct the electricians as to where and how
the wires are to be introduced, and without such directions no boring or
cutting for wires in installation thereof will be permitted.

14. SERVICES. Lessor shall maintain the Premises, the structural
portions of the building and the public and common areas of the building, such
as lobbies, stairs, corridors, parking areas and restrooms, in reasonably good
order and condition except for damage occasioned by the negligence or wilful
misconduct of Lessee. Lessor shall provide Lessee with access to the Premises
twenty-four (24) hours a day, seven (7) days per week.

Lessor shall furnish the Premises with electricity for lighting and
operation of low power usage office machines (including, without limitation,
typewriters, word processors, copy machines and personal computers), heat and
normal office air-conditioning during the ordinary business hours of the
building (i.e., from 6 a.m. until 6 p.m. Monday through Saturday).
Air-conditioning units and electricity therefore for special air-conditioning
requirements, such as for laboratory and computer centers, shall be at Lessee's
expense. Lessor shall also provide, at Lessor's expense, lighting replacement

-5-
<PAGE> 39
for Lessor-furnished lighting, toilet room supplies, window washing with
reasonable frequency, and daily janitor service on weekdays.

Except as otherwise provided herein, Lessor shall not be liable to
Lessee for any loss or damage caused by or resulting from any variation,
interruption or any failure of said services due to any cause beyond reasonable
control of Lessor (it being agreed that failure to provide funds shall not be
deemed beyond reasonable control of Lessor). No temporary interruption or
failure of such services incident to the making of repairs, alterations, or
improvements, or due to accident or strike or conditions or events not under
Lessor's control shall be deemed as an eviction of Lessee or relieve Lessee
from any of Lessee's obligations hereunder, except that if such interruption or
failure persists for more than seven (7) days, the rent payable hereunder shall
be abated, as of the eighth (8th) day of such interruption or failure, until
such services are completely restored. If Lessor shall make any repairs,
alterations or improvements in the Premises or the building, Lessor shall seek
to minimize interference with Lessee's business operation and shall repair any
damage caused to the Premises.

In the event of any lack of attention on the part of Lessor and any
dissatisfaction with the service of the building, or any unreasonable annoyance
of any kind, Lessee is requested to make complaints at Lessor's building office
and not to Lessor's employees or agents seen within the building. Lessee is
further requested to remember that Lessor is as anxious as Lessee that a
high-grade service be maintained, and that the Premises be kept in a state to
enable Lessee to transact business with the greatest possible ease and
comfort. the rules and regulations are not made to unnecessarily restrict
Lessee, but to enable Lessor to operate the building to the best advantage of
both parties hereto. To this end Lessor shall have the right to waive from
time to time such part or parts of these rules and regulations as in his
judgment may not be necessary for the proper maintenance or operation of the
building or consistent with good service and may from time to time, upon thirty
(30) days' prior notice to Lessee, make such further reasonable rules and
regulations as in his judgment may be needed for the safety, care and
cleanliness of the Premises and for the preservation of order therein.

15. SOLICITORS. Lessor will make an effort to keep solicitors out
of the building, and Lessee will not oppose Lessor in his attempt to accomplish
this end.

16. ASSIGNMENT AND SUBLEASE. Lessee will not assign this lease, or
any interest hereunder, and this lease, or any interest hereunder, shall not be
assigned by operation of law, without Lessor's prior written consent, which
consent shall not be unreasonably withheld or delayed. Lessee will not sublet
said Premises or any part thereof and will not permit the use of said Premises
by others other than Lessee and the agents, employees and invitees of Lessee
without first obtaining the written consent of Lessor, which consent shall not
be unreasonably withheld or delayed. In the event such written consent shall
be given, no other or subsequent assignment or

-6-
<PAGE> 40
subletting shall be made without the prior written consent of Lessor, which
consent shall not be unreasonably withheld or delayed. Lessor shall be deemed
to have consented to any request for consent mentioned in this paragraph to
which Lessor fails to object in writing within ten (10) days. Notwithstanding
anything to the contrary contained in the foregoing or in any other provision
of this lease, Lessee shall have the right, without Lessor's consent, to assign
this lease or any part thereof to any corporation into which or with which
Lessee merges or consolidates or to any parent, subsidiary or affiliated
corporation; provided that any such assignee shall deliver to Lessor a
counterpart original of a document in form for recordation reasonably
satisfactory to Lessor whereby such assignee agrees to assume and perform all
of the terms and conditions of this lease on Lessee's part from and after the
effective date of such assignment.

17. OPERATING SERVICES AND REAL PROPERTY TAXES. The Base Rent set
forth in Paragraph 3 hereof includes Operating Services and Real Estate Taxes
for the Base Year (as defined below) ("Base Year Costs"). Only actual
increases and decreases from these Base Year Costs, if any, will be passed on
to Lessee on a proportionate basis, as set forth below.

(a) DEFINITIONS.

(i) BASE YEAR. The "Base Year" shall be the
calendar year 1989, and Base Year Costs shall be the actual cost of Operating
Services and Real Property Taxes incurred by the Lessor for the Base Year.
Adjustment or comparison years shall be the following calendar year(s).

(ii) OPERATING SERVICES. "Operating Services" shall
mean the charges paid by Lessor with respect to the operation and maintenance of
the building, including, without limitation: management fee (provided it does
not exceed prevailing market rates), building operation salaries (not above
building manager), employee benefits, insurance, electricity, janitorial,
supplies, telephone, HVAC, repair and maintenance, window washing, water and
sewer, security, landscaping, disposal, and elevator. Operating Services shall
also include the amortization cost of capital investment items and of the
installation thereof, which are primarily for the purpose of safety, saving
energy or reducing operating costs, or which may be required by governmental
authority (all such costs shall be amortized over the reasonable life of the
capital investment item, with the reasonable life and amortization schedule
being determined in accordance with generally accepted accounting practices).
The charges for Operating Services shall not include, or shall have deducted
therefrom, leasing commissions, management fees in excess of the rates then
customarily charged for building management for buildings of like class and
character, executive salaries above the grade of building manager, expenditures
for capital improvements which were completed before the Commencement Date and
for improvements other than those set forth above, amounts received by Lessor
through proceeds of insurance to the extent the proceeds are compensation for
expenses which were previously passed through to tenants of the building or
which were previously included in Operating Services hereunder, cost

-7-
<PAGE> 41
of repairs or replacements incurred by reason of fire or other casualty or
condemnation, legal advertising and promotional expenditures, legal fees in
connection with the negotiation and preparation of leases of space in the
building, the sale of the building or an interest therein, or litigation related
to the building, principal and interest on loans secured by the building or
building rents, rents payable in connection with any ground or underlying lease,
depreciation, and penalties due to any violation of law by Lessor.

(iii) REAL ESTATE TAXES. "Real Estate Taxes" for the
property shall mean all taxes and assessments levied or imposed by any
government authority against the building and the land underneath the
building. The term "Real Estate Taxes" shall not include any income tax,
franchise tax, real property excise tax, general corporation or unincorporated
business tax, estate, inheritance or succession tax, transfer tax or sales tax
levied against the Lessor or the building or any tax assessment, imposition or
charge in connection with the receipt of rents from the building.

(iv) PROPORTIONATE BASIS. Lessee's proportionate
basis shall be a fraction, the numerator of which shall be the average number
(on an annual basis) of rentable square feet actually rented by Lessee and the
denominator of which shall be 14,400 (which is the number of rentable square
feet in the building in which the leased Premises are located.)

(b) COMPUTATION OF ADJUSTMENTS. Any adjustment to Base Year
Costs will only commence to occur in Month 13 of the lease term with subsequent
adjustments being commenced in Months 25, 37, 49, etc., as appropriate under the
lease term. For purposes of calculating projected adjustments to Base Year
Costs, Lessor shall review historical data to predict if any estimated Base Year
Cost escalations or deescalations would be reasonably anticipated. If they are,
then commencing in Month 13 Lessor will assess a monthly charge to be paid
together with Base Rent, or will give Lessee a Credit against Base Rent, as the
case may be, provided that in no event shall any adjustment lower the Base Rent
below the annual base rental rates set forth in Paragraph 3 hereof. Once actual
cost data for Real Estate Taxes and Operating Services for the entire building
are formulated in accordance with generally accepted accounting practices (but
in no event later than one hundred eighty (180) days after the end of each Lease
Year), then Lessee's estimated pass through costs shall be promptly adjusted to
actual Base Year Costs based on Lessee's actual proportionate basis and Lessee
or Lessor, as appropriate, shall reimburse the other for the difference between
the estimated and actual costs in a lump sum payment.

(c) LID ASSESSMENTS. Should there be enacted during the term
of this lease or any extensions thereof an LID assessment that affects the
Premises, Lessee will reimburse Lessor for its proportionate share of such
assessments during the lease term as additional rent, PROVIDED that the Lessor
exercises its option, if any, to spread such assessment over the maximum number
of installments available.

-8-
<PAGE> 42
18. ADDITIONAL TAXES OR ASSESSMENTS. Should there presently be in
effect or should there be enacted during the term of this lease any law, statute
or ordinance levying any assessment or any tax upon rents or the income from
real estate or rental property (other than federal, state or local income
taxes), Lessee shall reimburse Lessor for Lessee's proportionate share of said
expenses at the same time as rental payments.

19. RISK. Except as otherwise provided in this lease, all personal
property of any kind or description whatsoever in the demised Premises shall be
at Lessee's sole risk except if damaged or destroyed due to the negligence or
willful misconduct of Lessor or Lessor's employees, agents, contracts or
invitees. Lessor shall not be liable for any damage done to or loss of such
personal property or damage or loss suffered by the business or occupation of
Lessee arising from any acts of neglect of co-tenants or other occupants of the
building, or of any other persons, or from bursting, overflowing or leaking of
water, sewer or steam pipes, or from the heating or plumbing or sprinkling
fixtures, or from electric wires, or from gas, or odors, or caused in any other
manner whatsoever except in the case of the negligence of willful misconduct of
Lessor or its agents, employees, contractors or invitees. Lessee shall keep in
force throughout the term of this lease such casualty, general liability and
business interruption insurance as a prudent tenant occupying and using the
Premises would keep in force.

20. INDEMNIFICATION. Lessee will defend, indemnify and hold
harmless Lessor from any claim, liability or suit, including reasonable
attorneys' fees, on behalf of any person, persons, corporation and/or firm for
any injuries or damages occurring on or about the Premises where said damages
or injury was caused by the negligence or intentional act of Lessee and/or by
Lessee's agents, employees, servants, customers or clients.

Lessor will defend, indemnify and hold harmless Lessee from any claim,
liability or suit, including reasonable attorneys' fees, on behalf of any
person, persons, corporation and/or firm for any injuries or damages occurring
on or about the Premises where said damages or injury was caused by the
negligence of intentional act of Lessor and/or by Lessor's agents, employees,
servants, customers or clients.

21. WAIVER OF SUBROGATION. Lessee and Lessor do hereby release and
relieve the other, and waive their entire claim of recovery for loss, damage,
injury and all liability of every kind and nature which may arise out of, or
be incident to, fire and other perils, in, on or about the Premises herein
described, whether due to negligence of either of said parties, their agents
or employees or otherwise, to the extent any such loss, damage, injury or
liability arises out of or is incident to the occurrence of any of the perils
which would be covered by the extended coverage insurance policy in common use
in Seattle, Washington for comparable properties. This waiver of subrogation
is subject to the agreement of both Lessor's and Lessee's insurers to honor
this subrogation clause, said

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<PAGE> 43
agreement of insurers to be in writing in the policies of insurance.

22. SUBORDINATION.

(a) Lessor represents and warrants that it is the fee owner of
the Premises, and that there are no mortgages, deeds of trust or other monetary
encumbrances on the Premises other than a deed of trust or mortgage held by
Cascade Savings & Loan Association and Barclays Bank PLC.

(b) This lease and all interest and estate of Lessee hereunder
is subject to and is hereby subordinated to all future mortgages and deeds of
trust affecting the Premises or the property of which said Premises are a part,
provided that any such future holder of a mortgage or deed of trust executes a
nondisturbance agreement (in recordable form) in favor of Lessee, in form and
substance reasonably satisfactory to Lessee, confirming that, as long as Lessee
is not in default hereunder, Lessee's occupancy will not be disturbed in the
event of any foreclosure or transfer in lieu thereof. Subject to the foregoing,
Lessee agrees to execute any instrument which may be deemed necessary or
desirable by the Lessor to further effect the subordination of this lease to any
such mortgage or deed of trust. In the event of a sale or assignment of
Lessor's interest in the Premises, or in the event of any proceedings brought
for the foreclosure of, or in the event of exercise of the power of sale under
any mortgage or deed of trust made by Lessor covering the Premises, Lessee
shall, subject to the foregoing, attorn to the purchaser and recognize such
purchaser as Lessor upon written notice from Lessor. Lessee agrees to execute,
at no expense to Lessor, any reasonable estoppel certificate deemed necessary or
desirable by Lessor to further effect the provisions of this paragraph.

23. CASUALTY. In the event the leased Premises or the said
building is destroyed or injured by fire, earthquake or other casualty to the
extent that the Premises are untenantable in whole or in part, then Lessor may,
at Lessor's option, proceed with reasonable diligence to rebuild and restore the
Premises or such part thereof as may be injured as aforesaid, provided that
within thirty (30) days after such destruction or injury Lessor will notify
Lessee of Lessor's intention to do so (or not to do so), and during the period
commencing on the date of the casualty and expiring on the date of completion of
such rebuilding and restoration the rent shall be abated on the portion of the
Premises that is unfit for occupancy. If necessary, Lessor will provide access
to any needed alternative space for Lessee at the fair market rate not to exceed
Lessee's rental rate hereunder. Notwithstanding the foregoing, if the damage or
destruction is total or substantially total, or if the Lessor elects to rebuild
and restore but does not substantially complete such rebuilding and restoration
within one hundred eighty (180) days of the date of the casualty, Lessee may
terminate this lease by written notice to Lessor, effective as of the date of
the casualty.

24. INSOLVENCY. If Lessee becomes insolvent, or makes an
assignment for the benefit of creditors, or a receiver is appointed for the
business or property of Lessee, or a petition

-10-
<PAGE> 44
is filed in a court of competent jurisdiction to have Lessee adjudged bankrupt
(and such petition is not discharged within ninety (90) days), then Lessor may,
at Lessor's option, terminate this lease. Said termination shall reserve unto
Lessor all of the rights and remedies available under Paragraph 25 (Default)
hereof, and Lessor may accept rents from such assignee or receiver without
waiving or forfeiting said right of termination. As an alternative to
exercising his right to terminate this lease, Lessor may require Lessee to
provide adequate assurances, including the posting of a cash bond, of Lessee's
ability to perform its obligations under this lease.

25. DEFAULT. If any rent is in arrears for a period of ten (10) days after
written notice from Lessor to Lessee, or if this lease is terminated in
accordance with any of the terms herein (with the exception of Paragraph 24),
or if Lessee shall fail at any time to keep or perform any of the covenants or
conditions of this lease other than the covenant for the payment of the monthly
rent within thirty (30) days after written notice from Lessor to Lessee, or if
such performance cannot reasonably be completed within thirty (30) days, if
Lessee fails within such thirty (30) day period to commence performance and
diligently prosecute it to completion, then, and in either or any of such
events, Lessor may, at Lessor's option, after seven (7) days' written notice to
Lessee, enter into and repossess said Premises and expel Lessee and all those
claiming under Lessee. In such event, Lessor may eject and remove from said
Premises all goods and effects (forcibly if necessary) without being deemed
guilty of trespass and/or without prejudicing any remedy or remedies which
might otherwise be used by Lessor for arrearages or preceding breach of
covenant or condition of this lease. Upon entry as aforesaid, this lease, if
not otherwise terminated, immediately cease and terminate. The termination of
this lease pursuant to this paragraph shall not relieve Lessee of its
obligations to make the payments required herein. In the event this lease is
terminated pursuant to this paragraph, or if Lessor enters the Premises without
terminating this lease and Lessor relets all or a portion of the Premises,
Lessee shall be liable to Lessor for all the reasonable costs of reletting,
such costs t renovation or alternation of the Premises. Lessee shall be further
liable to make payment in full of the ten outstanding principal balance of any
promissory note delivered pursuant to Section V or EXHIBIT B. Lessee shall
also be further liable for the remainder of the term of this lease for any
deficiency between the amounts payable to Lessor for rent following reletting
and the amount of rent reserved hereunder. Lessor shall have the duty to
mitigate the amount of any such deficiency.

26. BINDING EFFECT. The parties hereto further agree with each
other that each of the provisions of this lease shall extend to and shall, as
the case may require, bind and inure to the benefit, not only of Lessor and
Lessee, but also of their respective heirs, legal representatives, successors
and assigns, subject, however, to the provisions of Paragraph 16 hereof.

-11-
<PAGE> 45
It is also understood and agreed that the terms "Lessor" and "Lessee"
and verbs and pronouns in the singular number are uniformly used throughout
this lease regardless of gender, number or fact of incorporation of the parties
hereto. The typewritten riders or supplemental provisions, if any, attached or
added hereto are made a part of this lease by reference. It is further
mutually agreed that no waiver by Lessor of a breach by Lessee of any covenant
or condition of this lease shall be construed to be a waiver of any subsequent
breach of the same or any other covenant or condition.

27. HOLDING OVER. If Lessee holds possession of the Premises after
the term of this lease without Lessor's consent, Lessee shall be deemed to be a
month-to-month tenant upon the same terms and conditions as contained herein,
except rent which shall be one and one-half (1-1/2) times the rate then payable.

28. ATTORNEYS' FEES. In the event suit is brought for the recovery
of rent due under the provisions of this lease, or for Lessee's breach of any
other conditions or covenants contained herein, Lessee shall pay to Lessor
reasonable attorneys' fees actually incurred by Lessor. However, should Lessee
prevail in an action at law or in equity, then, in that event, Lessee shall be
entitled to reasonable attorneys' fees.

29. REPRESENTATIONS AND WARRANTIES. Lessor warrants suitability of
the Premises for Lessee's intended use, including, without limitation, adequacy
and good and safe condition of the structure and services at the Premises, and
Lessor warrants that Lessee's intended use of the Premises will comply with the
current zoning in effect with respect to the Premises. Otherwise, Lessor has
made no representations or promises except as contained herein or in some
future writings signed by Lessor.

30. QUIET ENJOYMENT. So long as Lessee pays the rent and perform
the covenants contained in this lease, Lessee shall hold and enjoy the Premises
peaceably and quietly, subject to the provisions of this lease.

31. RECORDATION. Lessee shall not record this lease without the
prior written consent of Lessor. However, at the request of Lessor or Lessee,
both parties shall execute a memorandum of "short form" of this lease for the
purpose of recordation in a form customarily used for such purpose. Said
memorandum or short form of this lease shall describe the parties, the Premises
and the lease term, and shall incorporate this lease by reference.

32. GOVERNING LAW. This lease shall be governed by and construed
and enforced in accordance with the laws of the State of Washington.

33. FINISH WORK. The initial improvements for Lessee's occupancy
will be completed by Lessor, at Lessor's expense, in accordance with the Work
Letter attached hereto and made a part hereof and market EXHIBIT B.

-12-
<PAGE> 46
34. PARKING. Lessee shall be provided the exclusive use of the
parking lot consisting of thirty (30) parking stalls adjacent to the building,
at a rental rate of $50.00 per stall (plus sales tax) for the first two (2)
Lease Years; thereafter the rental rate for said parking stalls shall be at
fair market value. If Lessor and Lessee cannot agree to the fair market value
of the parking stalls, the provisions of Paragraph 2(b)(ii) hereof shall apply
to determine the fair market value of the parking stalls.

35. MOVING ALLOWANCE. Lessor agrees to Pay Lessee a moving
allowance of Fourteen Thousand Four Hundred Dollars ($14,400), payable upon the
Commencement Date.

36. LEASE ASSUMPTION. Lessee is currently the tenant under a lease,
dated June 3, 1988 ("Existing Lease"), with Bechtel Investments Realty, as
landlord ("Bechtel") for space at 130 Nickerson, Suite 311, Seattle, Washington.
Lessor has received and read the Existing Lease. Effective as of the
Commencement Date, Lessor shall assume all of the financial obligations of
Lessee under the Existing Lease. Lessee's monthly base rent obligation
thereunder is Two Thousand Eight Hundred Sixty-Two and 50/100
Dollars ($2,862.50). Further, Lessor shall assume Lessee's Five Thousand
Dollar ($5,000) residual obligations under the Existing Lease regarding
carpeting. In the event that Lessor should fair to make payments under the
Existing Lease within the times called for under the Existing Lease, then
Lessee shall have the right to make those payments and reduce and offset
Lessee's payments to Lessor for Base Rent under this lease by that amount.

37. LEASE CANCELLATION. Lessee shall have the right to cancel this
lease with respect to any period commencing after the seventh (7th) Lease
Year. Lessee shall provide Lessor with twelve (12) months' prior written
notice of its intent to cancel. In such event, Lessee shall, at the time of
Lessee's last lease payment, pay Lessor the then outstanding principal balance
of any promissory note delivered pursuant to Section V of EXHIBIT B plus any
unamortized portion of the initial $40 per square foot allowance together with
the unamortized portion of the office tenant up to current costs (all such
amortization to be based on a 10 year lease term and computed on a straight line
basis in accordance with GAAP).

38. EXPANSION. After three (3) Lease Years have elapsed, Lessee
may require additional space for its business operations, and Lessee may
request that Lessor locate new space for Lessee so that Lessee can occupy at
least 18,400 rentable square feet in one location. Upon six (6) months' prior
notice by Lessee to such effect (the "Expansion Notice"), Lessor, at its
expense, will relocate Lessee into space that is mutually acceptable and cancel
this lease. Rent for the new space shall be at a rental rate to be agreed upon
by Lessor and Lessee. If, within six (6) months after the Expansion Notice is
delivered, mutually acceptable space cannot be located and a lease therefore
executed by Lessor and Lessee, Lessee, at its option, may cancel this lease
upon thirty (30) days' written notice delivered at any time after the end of
the fifth (5th) Lease Year; provided that Lessee shall at the time Lessee makes
its last lease payment, pay Lessor the then outstanding principal balance of
any promissory note delivered pursuant to Section V of EXHIBIT B.

39. INTENTIONALLY OMITTED.

-13-
<PAGE> 47
40. LESSOR'S CONSENT TO ASSIGNABILITY FOR LESSEE'S SECURED DEBT
FINANCING. Lessor agrees to execute consents to a lender or other entity
("Lender") making a loan to Lessee, on forms reasonably satisfactory to Lessor
and such Lender to allow personal property to be affixed to the Premises and to
allow for the mortgaging or other encumbrancing of the leasehold interest in
connection with the securing of debt financing by Lessee. Lessor further
agrees to execute amendments to this lease as any such Lender may reasonably
require, provided that such amendments do not affect Lessor's financial rights
or obligations under this lease or materially affect Lessor's other rights or
obligations under this lease.

41. LESSEE'S RIGHT TO CONTEST TAXES. Lessee shall have the right,
in its or Lessor's name, and at Lessee's expense, to contest the validity of any
tax or assessment which Lessee is required to bear, pay and discharge
hereunder, by appropriate legal proceeding, provided that Lessee, before
instituting any such contest, gives Lessor written notice of its intention so
to do. Lessor agrees to cooperate fully with Lessee in good faith during the
course of such contest. Lessee shall diligently prosecute any such contest, at
all times effectually stay or prevent any official or judicial sale therefor,
under execution or otherwise, and pay any final judgment enforcing the tax or
assessment so contested and thereafter promptly procure record satisfaction
thereof.

42. CONDEMNATION. If the whole of the Premises, or if such portion
of the facilities and building improvements comprising part of the Premises as
may be required for the reasonable use of the Premises, shall be taken by
virtue of any condemnation or eminent domain proceeding, this lease, at the
option of Lessee, shall automatically terminate as of the date of any final
judgment entered under such condemnation, or as of the date possession is taken
by the condemning authority, whichever is earlier.

43. NOTICES. All notices required hereunder shall be in writing
and shall be personally delivered or mailed by certified or registered mail,
addressed to the respective parties, and all notices, demands or other writing
to be made, given or sent hereunder, or which may be so given or made or sent
by any party to the other shall be deemed to have been fully given or made when
personally delivered or if mailed, three (3) business days following the
deposit thereof in the United States mail, registered or certified, postage
prepaid, and addressed to the respective parties as follows:

Lessor: Martin Selig
6200 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7090

Lessee: Oculon Corporation
401 Queen Anne Avenue North
Seattle, Washington 98109
Attention: Operations Manager

-14-
<PAGE> 48

with a copy to: William L. Green, Esq.
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099

Any party may change the address to which notices are to given by giving
notice as above provided.

44. NONMODIFICATION. It is mutually agreed that the covenants and
conditions herein contained are the full and complete terms of this lease and
that no alterations, amendments or modifications of the same shall be binding
unless first reduced to writing and signed by both parties hereto.

45. BROKERAGE. Lessor and Lessee covenant, warrant and represent to
each other that there was no broker or finder except Coldwell Banker Commercial
Real Estate Services and Dale Behar Company (the "Broker") instrumental in
consummating this lease and that no conversations or negotiations were had
with any broker or finder except the Broker concerning the renting of the
Premises. Lessee agrees to indemnify and hold Lessor harmless, and Lessor
agrees to indemnify and hold Lessee harmless, against any claims for a
brokerage commission arising out of any conversations or negotiations had by
the indemnifying party with any broker or finder except the Broker, or arising
as a result of any inaccuracy of the foregoing representation. Lessor shall
pay all brokerage commissions to the Broker pursuant to a separate agreement.

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

Lessor:
------

MARTIN SELIG
------------------------------------
Martin Selig

Lessee:
------

OCULON CORPORATION

By KAREN AUDITORE-HARGREAVES
---------------------------------
Its Vice President
--------------

- 15 -
<PAGE> 49
EXHIBIT A

[MAP]
<PAGE> 50
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )

On this 2nd day of February, 1989, before me, a Notary Public in and
for the State of Washington, duly commissioned and sworn, personally appeared
MARTIN SELIG, to me known to be the individual who executed the within and
foregoing instrument, and acknowledged that he signed the same as his free and
voluntary act and deed, for the uses and purposes therein mentioned.

GIVEN UNDER my hand and official seal the day and year in this
certificate above written.

----------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at Bellevue
My Appointment Expires June 1990

STATE OF WASHINGTON )
) ss.
COUNTY OF KING )

On this 13th day of January, 1989, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Karen Auditore-Hargreaves, to me known to be the person who
signed as Vice President of OCULON CORPORATION, the corporation that executed
the within and foregoing instrument, and acknowledged said instrument to be the
free and voluntary act and deed of said corporation for the uses and purposes
therein mentioned, and on oath stated that she was duly elected, qualified and
acting as said officer of the corporation, that she was authorized to execute
said instrument and that the seal affixed, if any, is the corporate seal of
said corporation.

IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first above written.

----------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at Seattle
My Appointment Expires 09/01/92

- 16 -
<PAGE> 51
EXHIBIT A

[MAP]
<PAGE> 52
EXHIBIT B

WORK LETTER

I. Lessor's Finish Work

Lessor has agreed to provide to Lessee tenant improvements for Lessee's
occupancy (the "Finish Work" as hereinafter defined), which will be completed
by Lessor, at Lessor's expense, in the manner hereinafter provided for.

II. Design Services.

Lessor shall pay all costs up to Two and 50/100 Dollars ($2.50) per
rentable square foot for space planning and architectural design, in addition
to the Finish Work. Lessor shall promptly reimburse Lessee for all compensation
paid or to be paid to Lessee's architect/space planner for space planning and
design services up to the amount set forth above (the "Reimbursable
Compensation"). Lessor agrees that Lessee may offset and deduct from the next
rental payments due under this lease the amount of Reimbursable Compensation
paid by Lessee which is not reimbursed by Lessor within thirty (30) days of
Lessee providing notice of payment to Lessor.

III. Drawings.

Lessee shall prepare and submit to Lessor for Lessor's approval (which
approval Lessor agrees shall not be unreasonably withheld or delayed) plans and
specifications for the Finish Work. Lessor shall approve or disapprove, in
writing delivered to Lessee, any plans and specifications submitted to Lessor
by Lessee, within ten (10) days after such submission, and failure to
disapprove within such time shall be deemed approval. Any disapproval shall
specify in detail the items disapproved, and the reasons for such disapproval.
Lessor shall cause all of the plans and specifications relating to Finish Work
submitted by Lessee and approved by Lessor (the "Finish Work Plans") to be
filed with the appropriate governmental agencies. The Finish Work Plans shall
comply with all rules and regulations and other requirements of the City of
Seattle. Lessor shall obtain all necessary governmental permits and
authorizations for the Finish Work. Notwithstanding Lessor's obligation to pay
the Reimbursable Compensation to Lessee, all plans and drawings done or to be
done by Lessee's architect/space planner are and shall remain the property of
Lessee.

IV. Construction and Cost Basis Pricing of Office Finish Work.

Lessor agrees, at Lessor's cost, to construct all Office Finish Work,
as hereinafter defined, in a good and workmanlike manner, free of defects, in
accordance with the Finish Work Plans and Lessor's standard Tenant Finish
Specifications

<PAGE> 53
attached hereto as EXHIBIT 1, on a "turn-key" basis. The Office Finish Work
will be performed by Lessor, as contractor, at Lessor's own cost, with no
markup for profit although Lessor is entitled to mark up his actual costs 12%
to cover all costs of overhead.

Notwithstanding any of the provisions of this EXHIBIT B to the
contrary, Lessor shall not be responsible for the installation and payment of
any of Lessee's built-in furniture, fixtures, cabinet work or other
"custom-made" improvements to the office space which are not listed in the
Tenant Finish Specifications attached hereto as EXHIBIT 1.

V. Construction and Pricing of Laboratory Finish Work.

The construction of Lessee's laboratory space (the "Laboratory Finish
Work," as hereinafter defined) will be performed by Lessor, as contractor, at
Lessor's cost with no markup for profit although Lessor is entitled to mark up
his actual costs twelve percent (12%) on the Laboratory Finish Work to cover
all costs of overhead.

Lessee shall have the right to approve the subcontractors for the
Laboratory Finish Work for all aspects of such work, with the exception of
drywall, painting, flooring and ceilings, which may be performed by Lessor's
tenant improvement crews or Lessor's choice of subcontractor.

Immediately following Lessor's approval of the Finish Work Plans,
Lessor will obtain bids for the Laboratory Finish Work from qualified
subcontractors approved by Lessee and such bids, together with Lessor's
estimate for that portion of the Laboratory Finish Work which Lessor will not
subcontract, will form the basis for the pricing of the Laboratory Finish Work.

If Lessee disagrees with Lessor's pricing of the Laboratory Finish Work
as detailed in the preceding paragraph, Lessee shall have the option, at
Lessee's expense, to produce at least one (1) and not more than three (3)
separate bids from qualified contractors, for the Laboratory Finish Work, and
the mutually agreed-upon pricing of the Laboratory Finish Work shall be the
pricing. The agreed-upon pricing of the Laboratory Finish Work may be adjusted
by revisions to the Laboratory Finish Work pursuant to Section X of this
EXHIBIT B.

Lessor shall pay the first $40.00 per rentable square foot of the
agreed-upon pricing of the Laboratory Finish Work. The balance of the
agreed-upon pricing of the Laboratory Finish Work up to $100.00 per rentable
square foot will be financed by Lessor, if desired by Lessee, and amortized at
eleven percent (11%) over the ten (10) year lease term, and in such event the
parties shall execute a promissory note in the form attached hereto and made a
part hereof and marked EXHIBIT 2 to reflect the actual amount of such financing
and the form of payments by Lessee to Lessor. The balance of any Laboratory
Finish Work over $100.00 per rentable square foot shall be billed to and paid
by Lessee upon lease commencement date or within 30 days of invoice, whichever
is later.

-2-
<PAGE> 54

VI. Access to Premises During Construction.

Lessee and Lessee's officers, architects and consultants
shall have access at all times to the premises during the
construction of the Finish Work for the purpose of inspecting
the quality and timing of the construction and for the purpose
of making revisions to the Finish Work Plans. Lessor shall
provide copies of the construction schedule, and all revisions
or amendments thereto, to Lessee and Lessee's architect, and
shall keep Lessee and Lessee's architect informed at all times
regarding delays of any nature whatsoever in the construction
schedule.

VII. Lessee's Authority to Reject Non-Conforming Work.

Lessee and Lessee's architect may reject any of the
Finish Work which fails to conform to the requirements of the
Finish Work Plans and the Tenant Finish Specifications such
rejection to be by written notice to Lessor in the form of a
punch list. Lessor warrants that it shall perform all work to
deliver Premises to Lesser in accordance with this lease
(including, c/o limitation this Exhibit B and the
specifications on Exhibit 1 hereto) and Lessor shall bear costs
of correcting such rejected Finish Work, which shall not
increase the pricing of the Finish Work.

If the Lessor fails to correct non-conforming Finish
Work within a reasonable time, Lessee may correct it in
accordance with Paragraph VIII of this EXHIBIT B. If the
Lessee prefers to accept Finish Work which is not in
conformance with the requirements of the Finish Work Plans or
the Tenant Finish Specifications, Lessee may do so instead of
requiring its correction, in which case the pricing of the
Office Finish Work or the Laboratory Finish Work, as the case
may be, will be reduced as appropriate and equitable.

VIII. Lessee's Right to Carry Out the Work.

If the Lessor defaults or neglects to carry out the
Finish Work in accordance with the Finish Work Plans and the
Tenant Finish Specifications and fails within a seven (7) day
period after receipt of written notice from Lessee to commence
and continue correction of such default or neglect with
diligence and promptness, Lessee may, without prejudice to
other remedies the Lessee may have, correct such defaults
and/or carry out the only Finish Work. In such case, Lessor
shall be liable to Lessee for the actual costs of correcting
such defaults and carrying out the Finish Work, including
compensation for the Lessee's architect's additional services
and expenses made necessary by such default, neglect or
failure. In the event that Lessor should fail to reimburse
Lessee for such costs within thirty (30) days of receipt of
Lessee's invoice for such costs, then Lessee shall have the
right to reduce and offset Lessee's payments for Base Rent
under this Lease by that amount. The pricing for the Finish
Work shall not be increased by the amount of any costs or
expenses which would not have been necessary had the Lessor not
defaulted or neglected to carry out the Finish Work.

<PAGE> 55
IX. Definitions.

For purposes of this Exhibit B and the lease, the
following terms shall have the following meanings:

(a) "Finish Work" shall mean the improvements
necessary for Lessee to commence occupancy with respect to the
entire leased Premises and is inclusive of the terms "Office
finish Work" and "Laboratory Finish Work."

(b) "Office Finish Work" shall mean the
improvements necessary for Lessee to commence occupancy of the
office space in the demised Premises, such work to be performed
in a good and workmanlike manner, free of defects, in
accordance with Lessor's standard Tenant Finish Specifications,
attached hereto as EXHIBIT 1, on a "turn-key" basis. The
"turn-key" basis will include the following:

All partitioning, all glass relites, complete
carpeting and air conditioning, ceiling tiles in place,
lighting in place, Levelor blinds on all outside glass,
sink and counter in place, all doors and jambs, all
locks and hardware, all electrical wiring and outlets,
all phone outlets, and complete painting throughout.

(c) "Laboratory Finish Work" shall mean the
improvements necessary for Lessee to commence occupancy of its
laboratory space within the demised Premises, to be constructed
in a good and workmanlike manner, free of defects.

X. Revisions.

Lessee shall have the right to make changes from time to
time to the Finish Work Plans by submitting to Lessor revised
plans and specifications ("Revisions"). Within five (5)
business days after submission of such Revisions, Lessor shall
notify Lessee of the additional time that would be required and
additional costs that will be incurred, if any, to complete the
Finish Work because of the Revisions and Lessee may, if Lessee
so desires, withdraw the Revisions by notice of such withdrawal
given to Lessor within five (5) days after Lessor so notifies
Lessee. If not withdrawn, the Revisions shall be subject to
the same terms and provisions as set forth above with respect
to Lessor's approval of Lessee's plans and specifications for
the Premises, and the amount of the pricing for the Finish Work
shall be increased or reduced, as the case may be, by the
amount of the increase or reduction in cost of such work caused
by the Revisions.

XI. Personal Property Removable by Lessee at End of Lease
Term.

Lessor agrees that the items of property set
forth on the schedule attached hereto and made a part hereof
and marked EXHIBIT 3, shall at all times be the personal
property of Lessee and removable, at Lessee's option, at the
end of the lease term or its earlier cancellation pursuant to
the lease.

<PAGE> 56
XII. Lessor's Representative.

Lessor hereby constitutes and appoints John
Knickerbocker its representative to deal with Lessee in
connection with Lessor's construction of the Finish Work. Any
notices and/or approvals given to or by said representative
shall be binding upon Lessor. Lessor may change such
designation by notice in writing to Lessee, pursuant to
paragraph 43 of the lease.

XIII. Finish Work Plans Part of the Lease

The Finish Work Plans, as completed, shall be a part of
this lease.

XIV. Recarpeting and Painting.

Lessor agrees, at Lessor's expense, to recarpet and
repaint the Premises after every fifth Lease Year, if and when
needed, as reasonably determined by Lessee.

-5-
<PAGE> 57

EXHIBIT 1

[Tenant Finish Specifications]

-6-
<PAGE> 58

EXHIBIT 2

[Promissory Note]

-7-
<PAGE> 59
PROMISSORY NOTE

$________ Seattle, Washington
___________, 19__

This note shall be paid as follows:

The sum of _____________________________________ Dollars
($_____), or more, per month, including interest, with the first
payment due on or before the _____ day of ____________, 1989, and each
succeeding payment due on or before the same day of each and every
month thereafter, interest to first be deducted from each payment and
balance applied to principal; provided, the entire unpaid principal
balance and accrued interest shall be due and payable in full on or
before the _____ day of ____________, 1999.

If such default be made in the payment of any installment when due and
such default remains uncured for a period of seven (7) days after the holder
provides written notice thereof to the maker, then, at the option of the holder
of this note, the entire indebtedness hereby represented shall become
immediately due and payable. As long as this note is in default, this note
shall bear interest at the rate of fifteen percent (15%) per annum.

If suit is brought on this note after any default in any payment, the
undersigned promises and agrees to pay reasonable attorneys' fees incurred
thereby.

This note shall be construed according to the laws of the State of
Washington.

OCULON CORPORATION

By
-----------------------------
Tax I.D. No.
-------------------

<PAGE> 60
EXHIBIT 3

[Personal Property Removable
by Lessee at End of Lease Term]

-8-
<PAGE> 61
PERSONAL PROPERTY
OCULON CORPORATION
401 QUEEN ANNE AVE.

<TABLE>
<CAPTION>
ITEM VALUE
<S> <C>
CHEMICAL FUME HOODS $50,000

RADIOISOTOPE HOOD $12,000

LAMINAR FLOW HOOD $7,000

LABORATORY BENCHES, $175,000
CABINETS, AND
SHELVING

GLASS WASHER $20,000

GLASS DRYER $7,500

STERILIZER $32,000

[MISSING TEXT] $10,000

CAGE WASHER $10,000

WATER PURIFICATION $10,000
EQUIPMENT

TOTAL $343,000

</TABLE>
<PAGE> 62
FIRST AMENDMENT TO OFFICE LEASE

This First Amendment to Office Lease is made as of May 1, 1989, by and
between Martin Selig ("Lessor") and Oculon Corporation ("Lessee").

RECITALS

A. Lessor and Lessee have entered into an Office Lease, dated
February 2, 1989, ("Lease"), for the leasing of a building consisting of
approximately 14,400 rentable square feet, located at 401 Queen Anne Avenue
North, Seattle, Washington, the legal description of which is:

Lots 4, 5 and 6, Block 22, D.T. Denny's North Seattle Addition,
City of Seattle, as recorded in Volume 1 of Plats, page 41, in
King County, Washington.

B. Lessor and Lessee have agreed to make certain modifications to
the Lease upon the terms and conditions hereinafter set forth.

AGREEMENT

Now, therefore, in consideration of the mutual covenants and conditions
contained herein, and other good and valuable consideration, Lessor and Lessee
hereby agree as follows:

1. Defined Terms. All capitalized terms which are not otherwise
defined herein shall have the respective meanings ascribed to them in the Lease.

2. In Paragraph 2 of the Lease, delete "June 1, 1989" in the third
sentence and insert in lieu thereof "November 1, 1989."

3. Paragraph IV of the Work Letter attached as EXHIBIT B to the
Lease is deleted in its entirety and the following is substituted in lieu
thereof:

"Lessor agrees to construct all Office Finish Work, as
hereinafter defined, in a good and workmanlike manner, free of
defects, in accordance with the Finish Work
<PAGE> 63
Plans and Lessor's standard Tenant Finish Specifications
attached hereto as EXHIBIT 1, on a "turn-key" basis. Lessor
shall pay the first $15.80 per rentable square foot of the
Office Finish Work. The balance of the Office Finish Work shall
be billed to and paid by Lessee upon the Commencement Date or
within thirty (30) days of Lessor's invoice, whichever is
earlier; provided that Lessee shall not be required to pay such
balance until Lessor shall have paid in full or Lessor's share
of the Office Finish Work and shall have delivered proof of such
payment to Lessee. The Office Finish Work will be performed by
Lessor, as contractor, with no markup for profit, although
Lessor is entitled to markup his actual costs seven percent (7%)
to cover all costs of overhead."

4. In the first paragraph of Paragraph V of the Work Letter
attached to the Lease as EXHIBIT B, delete "twelve percent (12%)" and insert in
lieu thereof "seven percent (7%)."

5. In the fifth paragraph of Paragraph V of the Work Letter
attached to the Lease as EXHIBIT B, delete the reference to "eleven percent
(11%)" and insert in lieu thereof "one percent (1%) over the prime interest rate
of Seafirst National Bank, adjusted quarterly (but not to exceed 13% per
annum)." In the same paragraph, delete "later" in the last sentence and insert
in lieu thereof "earlier; provided that Lessee shall not be required to pay such
balance until Lessor shall have paid in full for Lessor's share of the
Laboratory Finish Work (i.e., $100.00 per rentable square foot) and shall have
delivered proof of such payment to Lessee."

6. The form of Promissory Note attached to the Work Letter as
EXHIBIT 2 is hereby deleted in its entirety and the form of Note attached
hereto as EXHIBIT A is substituted in lieu thereof.

7. A new paragraph XV is hereby added to the Work Letter attached
to the Lease as EXHIBIT B as follows:

"XV. Lessor and Lessee agree that for purposes of this Lease, the office
portion of the Premises is 5,664 rentable square feet, the rest rooms
consist of 500 rentable square feet (for which no improvements are being
performed) and the laboratory portion of the premises consist of 8,236
rentable square feet."

8. A new Paragraph XVI is hereby added to the Work Letter attached
to the Lease as EXHIBIT B as follows:

-2-
<PAGE> 64
"XVI. Lessor shall consult with and obtain the prior approval of Lessee
regarding the construction contract by and between Lessor and Barry J.
Lamb, Inc. (the "Construction Contract") and regarding any and all
modifications or amendments thereto. In addition, Lessor shall, without
delay, deliver all written requests for change orders to the
Construction Contract to Lessee, which Lessor may at any time make or
receive from any party, and shall not enter into any change orders or
other modifications to the Construction Contract without Lessee's prior
written consent. Lessor agrees that Lessee's obligation to pay for any
part of the Finish Work pursuant to this Work Letter or the Lease is
conditioned upon Lessor's strict compliance with the obligations imposed
by this Paragraph XVI."

9. Except as modified hereby, the Lease shall remain unmodified and
in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to Office Lease the day and year first above written.

LESSOR:

/s/ MARTIN SELIG
--------------------------------
Martin Selig

LESSEE:

OCULON CORPORATION

By /s/ Karen Auditore-Hargreaves
-----------------------------
Its Vice President
--------------

STATE OF WASHINGTON)
) SS.
COUNTY OF KING )

On this 28th day of April, 1989, before me, a Notary Public in and for
the State of Washington, duly

-3-
<PAGE> 65
commissioned and sworn, personally appeared MARTIN SELIG, to me known to be the
individual who executed the within and foregoing instrument, and acknowledged
that he signed the same as his free and voluntary act and deed, for the uses and
purposes therein mentioned.

GIVEN UNDER my hand and official seal the day and year in this
certificate above written.

/s/ Jill M. Grend
--------------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at Bellevue
My appointment Expires June 1, 1990

STATE OF WASHINGTON)
) ss.
COUNTY OF KING )

On this 28th day of April, 1989, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared Karin Auditore-Hargreaves, to me know to be the person who
signed as Vice President of OCULON CORPORATION, the corporation that executed
the within and foregoing instrument, and acknowledged said instrument to be the
free and voluntary act and deed of said corporation for the uses and purposes
therein mentioned, and on oath stated that she was duly elected, qualified and
acting as said officer of the corporation, that she was authorized to execute
said instrument and that the seal affixed, if any, is the corporate seal of
said corporation.

IN WITNESS WHEREOF I have hereunto set my hand and official seal the
day and year first above written.

/s/ Shelley D. Lincoln
--------------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at Seattle.
My appointment Expires September 1, 1992
<PAGE> 66
EXHIBIT A
---------

PROMISSORY NOTE
---------------

$_____________ Seattle, Washington

____________, 19___

FOR VALUE RECEIVED, the undersigned promises to pay in lawful money of
the United States to the order of MARTIN SELIG, at 6200 Columbia Center, 701
Fifth Avenue, Seattle, Washington or at such other place as the holder hereof
from time to time may designate in writing, the principal sum of ______________
_________________ Dollars ($________________) with interest on the diminishing
principal balance at the rate of Seattle-First National Bank's Prime Rate (as
hereinafter defined) plus one percent (1%) per annum from the date hereof. The
interest rate shall be adjusted on the first banking day following the
effective date of any change in the Prime Rate, provided that the interest rate
shall not be adjusted more frequently than quarterly and provided, further,
that in no event shall the interest rate of this note be adjusted to a rate
which exceeds thirteen percent (13%) per annum.

As used herein, "Prime Rate" shall mean the large business prime rate
of interest per annum charged from time to time by Seattle-First National Bank
(or its successors) to its most financially responsible large corporate
borrowers on short-term unsecured borrowings.

This note shall be paid as follows:

The sum of _______________________________________________ Dollars
($________________), or more, per month, including interest, with the
first payment due on or before the ____ day of ___________________,
1989, and each succeeding payment due on or before the same day of each
and every month thereafter, interest to first be deducted from each
payment and balance applied to principal; provided, the entire unpaid
principal balance and accrued interest shall be due and payable in full
on or before the ____ day of _____________, 1999.

If default be made in the payment of any installment when due and such
default remains uncured for a period of seven (7) days after the holder
provides written notice thereof to the
<PAGE> 67
maker, then, at the option of the holder of this note, the entire indebtedness
hereby represented shall become immediately due and payable. As long as
this note is in default, this note shall bear interest at the rate of fifteen
percent (15%) per annum.

If suit is brought on this note after any default in any payment, the
undersigned promises and agrees to pay reasonable attorneys' fees incurred
thereby.

This note shall be construed according to the laws of the State of
Washington.

OCULON CORPORATION

By
---------------------------------

Tax I.D. No.
-----------------------

<PAGE> 68
EXHIBIT C

The Premises

Total Floor Area = 13,733 sq. ft.

IMRE Corporation Building
401 Queen Anne Avenue North
<PAGE> 69
EXHIBIT D

Fume Hoods -- Classic Modular System:
1. Classic O#S02749
2. Classic Cert #D3466
3. Classic Cert #D3467
4. Classic O#S02737
5. Classic O#S02735
Laboratory Benches, Cabinets, Shelving and other Casework excluding, however,
current pilot plant
Autoclave -- AMSCO 3021
Glass Washer -- Miele G7736
Cage Washer -- Basil CW 3500 -- room 147
Water Purification System -- Continental (1 gal. per min.), including square
holding tank and ultrafilter
Nitrogen Manifold System -- Chemetron #2500
Vacuum Pump -- Chemetron #2V244C4-C

<PAGE> 1
EXHIBIT 99.2

IMRE CORPORATION

1996 EQUITY INCENTIVE PLAN

ADOPTED JANUARY 18, 1996

1. PURPOSES

(a) The purpose of the Plan is to provide a means by which
selected Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to benefit from increases in value of
the stock of the Company through the granting of (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase
restricted stock, and (v) stock appreciation rights, all as defined below.

(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or Consultants to the
Company or its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.

(c) The Company intends that the Stock Awards issued under the
Plan shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, (ii) stock
bonuses or rights to purchase restricted stock granted pursuant to Section 7
hereof, or (iii) stock appreciation rights granted pursuant to Section 8
hereof. All Options shall be separately designated Incentive Stock Options or
Nonstatutory Stock Options at the time of grant, and in such form as issued
pursuant to Section 6, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.

2. DEFINITIONS

(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.

(e) "COMPANY" means IMRE Corporation, a Delaware corporation.

1.
<PAGE> 2
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT"
means a right granted pursuant to subsection 8(b)(2) of the Plan.

(g) "CONSULTANT" means any person, including an advisor, engaged
by the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.

(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT"
means that the service of an individual to the Company, whether as an Employee,
Director or Consultant, is not interrupted or terminated. The Board, in its
sole discretion, may determine whether Continuous Status as an Employee,
Director or Consultant shall be considered interrupted in the case of: (i) any
leave of absence approved by the Board, including sick leave, military leave,
or any other personal leave; or (ii) transfers between the Company, Affiliates
or their successors.

(i) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.

(j) "DIRECTOR" means a member of the Board.

(k) "DISINTERESTED PERSON" means a Director: who either (i) was
not during the one year prior to service as an administrator of the Plan
granted or awarded equity securities pursuant to the Plan or any other plan of
the Company or any affiliate entitling the participants therein to acquire
equity securities of the Company or any affiliate except as permitted by Rule
16b-3(c)(2)(i); or (ii) is otherwise considered to be a "disinterested person"
in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.

(l) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(n) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined as follows and in each case in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations:

(1) If the common stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair Market Value of a share of
common stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with

2.
<PAGE> 3
the greatest volume of trading in common stock) on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Board deems reliable;

(2) If the common stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;

(3) In the absence of an established market for the
common stock, the Fair Market Value shall be determined in good faith by the
Board.

(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

(p) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT"
means a right granted pursuant to subsection 8(b)(3) of the Plan.

(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

(r) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

(s) "OPTION" means a stock option granted pursuant to the Plan.

(t) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.

(u) "OPTIONEE" means a person who holds an outstanding Option.

(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.

(w) "PLAN" means this 1996 Equity Incentive Plan.

3.
<PAGE> 4
(x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

(y) "STOCK APPRECIATION RIGHT" means any of the various types of
rights which may be granted under Section 8 of the Plan.

(z) "STOCK AWARD" means any right granted under the Plan,
including any Option, any stock bonus, any right to purchase restricted stock,
and any Stock Appreciation Right.

(aa) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.

(bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a
right granted pursuant to subsection 8(b)(1) of the Plan.

3. ADMINISTRATION

(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).

(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:

(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; whether a Stock Award will be an Incentive Stock
Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase
restricted stock, a Stock Appreciation Right, or a combination of the
foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; whether a person shall be permitted to
receive stock upon exercise of an Independent Stock Appreciation Right; and the
number of shares with respect to which a Stock Award shall be granted to each
such person.

(2) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

(3) To amend the Plan or a Stock Award as provided in
Section 14.

(4) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.

4.
<PAGE> 5
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee shall be Disinterested Persons and may also be,
in the discretion of the Board, Outside Directors. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Notwithstanding anything in this Section 3 to the contrary, at any
time the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons
who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are
either (i) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Stock Award,
or (ii) not persons with respect to whom the Company wishes to avoid the
application of Section 162(m) of the Code.

(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply if the Board or the Committee expressly
declares that such requirement shall not apply. Any Disinterested Person shall
otherwise comply with the requirements of Rule 16b-3.

4. SHARES SUBJECT TO THE PLAN

(a) Subject to the provisions of Section 13 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate seven million (7,000,000) shares
of the Company's common stock. If any Stock Award shall for any reason expire
or otherwise terminate, in whole or in part, without having been exercised in
full, the stock not acquired under such Stock Award shall revert to and again
become available for issuance under the Plan. Shares subject to Stock
Appreciation Rights exercised in accordance with Section 8 of the Plan shall
not be available for subsequent issuance under the Plan.

(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.

5. ELIGIBILITY

(a) Incentive Stock Options and Stock Appreciation Rights
appurtenant thereto may be granted only to Employees. Stock Awards other than
Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may
be granted only to Employees, Directors or Consultants.

(b) A Director shall in no event be eligible for the benefits of
the Plan unless at the time discretion is exercised in the selection of the
Director as a person to whom Stock Awards may be granted, or in the
determination of the number of shares which may be covered by Stock Awards
granted to the Director: (i) the Board has delegated its discretionary
authority over the Plan to a Committee which consists solely of Disinterested
Persons; or (ii) the Plan otherwise complies with

5.
<PAGE> 6
the requirements of Rule 16b-3. The Board shall otherwise comply with the
requirements of Rule 16b-3. This subsection 5(b) shall not apply if the Board
or Committee expressly declares that it shall not apply.

(c) No person shall be eligible for the grant of an Option or an
award to purchase restricted stock if, at the time of grant, such person owns
(or is deemed to own pursuant to Section 424(d) of the Code) stock possessing
more than ten percent (10%) of the total combined voting power of all classes
of stock of the Company or of any of its Affiliates unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair Market
Value of such stock at the date of grant and the Option is not exercisable
after the expiration of five (5) years from the date of grant, or in the case
of a restricted stock purchase award, the purchase price is at least one
hundred percent (100%) of the Fair Market Value of such stock at the date of
grant.

(d) Subject to the provisions of Section 13 relating to
adjustments upon changes in stock, no person shall be eligible to be granted
Options and Stock Appreciation Rights covering more than three million fifty
thousand (3,050,000) shares of the Company's common stock in any one calendar
year period.

6. OPTION PROVISIONS

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.

(b) PRICE. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the Fair Market Value of
the stock subject to the Option on the date the Option is granted; the exercise
price of each Nonstatutory Stock Option shall be not less than eighty-five
percent (85%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted. Notwithstanding the foregoing, an Option
(whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution
for another option in a manner satisfying the provisions of Section 424(a) of
the Code.

(c) CONSIDERATION. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company,
(B) according to a deferred payment arrangement, except that payment of the
common stock's "par value" (as defined in the Delaware General Corporation Law)
shall not be made by deferred payment, or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the Option is

6.
<PAGE> 7
granted or to whom the Option is transferred pursuant to subsection 6(d), or
(C) in any other form of legal consideration that may be acceptable to the
Board.

In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions
of the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.

(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order satisfying the requirements
of Rule 16b-3 and any administrative interpretations or pronouncements
thereunder (a "QDRO"), and shall be exercisable during the lifetime of the
person to whom the Option is granted only by such person or any transferee
pursuant to a QDRO. Notwithstanding the foregoing, the person to whom the
Option is granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.

(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. The Option may be subject to such other terms and conditions
on the time or times when it may be exercised (which may be based on
performance or other criteria) as the Board may deem appropriate. The vesting
provisions of individual Options may vary but in each case will provide for
vesting of at least twenty percent (20%) per year of the total number of shares
subject to the Option. The provisions of this subsection 6(e) are subject to
any Option provisions governing the minimum number of shares as to which an
Option may be exercised.

(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that
the Optionee was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant (or such longer or shorter period, which in no
event shall be less than thirty (30) days, specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.

7.
<PAGE> 8
An Optionee's Option Agreement may also provide that if the exercise
of the Option following the termination of the Optionee's Continuous Status as
an Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the
term of the Option set forth in the Option Agreement, or (ii) the tenth (10th)
day after the last date on which such exercise would result in such liability
under Section 16(b) of the Exchange Act. Finally, an Optionee's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (other than upon the Optionee's death or disability) would be
prohibited at any time solely because the issuance of shares would violate the
registration requirements under the Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in the first
paragraph of this subsection 6(f), or (ii) the expiration of a period of three
(3) months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant during which the exercise of the Option would
not be in violation of such registration requirements.

(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months, specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.

(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option Agreement after the
termination of, the Optionee's Continuous Status as an Employee, Director or
Consultant, the Option may be exercised (to the extent the Optionee was
entitled to exercise the Option as of the date of death) by the Optionee's
estate, by a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period ending
on the earlier of (i) the date eighteen (18) months following the date of death
(or such longer or shorter period, which in no event shall be less than six (6)
months, specified in the Option Agreement), or (ii) the expiration of the term
of such Option as set forth in the Option Agreement. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become available
for issuance under the Plan.

(i) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option

8.
<PAGE> 9
as to any part or all of the shares subject to the Option prior to the full
vesting of the Option. Any unvested shares so purchased shall be subject to a
repurchase right in favor of the Company, with the repurchase price to be equal
to the original purchase price of the stock, or to any other restriction the
Board determines to be appropriate; provided, however, that (i) the right to
repurchase at the original purchase price shall lapse at a minimum rate of
twenty percent (20%) per year over five (5) years from the date the Option was
granted, and (ii) such right shall be exercisable only within (A) the ninety
(90) day period following the termination of employment or the relationship as
a Director or Consultant, or (B) such longer period as may be agreed to by the
Company and the Optionee (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code (regarding "qualified small
business stock")), and (iii) such right shall be exercisable only for cash or
cancellation of purchase money indebtedness for the shares. Should the right
of repurchase be assigned by the Company, the assignee shall pay the Company
cash equal to the difference between the original purchase price and the
stock's Fair Market Value if the original purchase price is less than the
stock's Fair Market Value.

(j) RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board or Committee to make or not to make grants of Options hereunder, the
Board or Committee shall have the authority (but not an obligation) to include
as part of any Option Agreement a provision entitling the Optionee to a further
Option (a "Re-Load Option") in the event the Optionee exercises the Option
evidenced by the Option agreement, in whole or in part, by surrendering other
shares of Common Stock in accordance with this Plan and the terms and
conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a
number of shares equal to the number of shares surrendered as part or all of
the exercise price of such Option; (ii) shall have an expiration date which is
the same as the expiration date of the Option the exercise of which gave rise
to such Re-Load Option; and (iii) shall have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option which is granted to a 10%
stockholder (as described in subsection 5(c)), shall have an exercise price
which is equal to one hundred ten percent (110%) of the Fair Market Value of
the stock subject to the Re-Load Option on the date of exercise of the original
Option and shall have a term which is no longer than five (5) years.

Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(e) of the Plan and in
Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load
Option. Any such Re-Load Option shall be subject to the availability of
sufficient shares under subsection 4(a) and shall be subject to such other
terms and conditions as the Board or Committee may determine which are not
inconsistent with the express provisions of the Plan regarding the terms of
Options.

9.
<PAGE> 10
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK

Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate agreements need not be identical, but each
stock bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:

(a) PURCHASE PRICE. The purchase price under each restricted
stock purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value
on the date such award is made. Notwithstanding the foregoing, the Board or
the Committee may determine that eligible participants in the Plan may be
awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.

(b) TRANSFERABILITY. No rights under a stock bonus or restricted
stock purchase agreement shall be transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order
satisfying the requirements of Rule 16b-3 and any administrative
interpretations or pronouncements thereunder, so long as stock awarded under
such agreement remains subject to the terms of the agreement.

(c) CONSIDERATION. The purchase price of stock acquired pursuant
to a stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is
sold; or (iii) in any other form of legal consideration that may be acceptable
to the Board or the Committee in its discretion. Notwithstanding the
foregoing, the Board or the Committee to which administration of the Plan has
been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.

(d) VESTING. Shares of stock sold or awarded under the Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee; provided, however, that (i) the right to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
over five (5) years from the date the Stock Award was granted, and (ii) such
right shall be exercisable only (A) within the ninety (90) day period following
the termination of employment or the relationship as a Director or Consultant,
or (B) such longer period as may be agreed to by the Company and the holder of
the Stock Award (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code (regarding "qualified small business stock")),
and (iii) such right shall be exercisable only for cash or cancellation of
purchase money indebtedness for the shares. Should the right of repurchase be
assigned by the Company, the assignee shall pay the Company cash equal

10.
<PAGE> 11
to the difference between the original purchase price and the stock's Fair
Market Value if the original purchase price is less than the stock's Fair
Market Value.

(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.

8. STOCK APPRECIATION RIGHTS

(a) The Board or Committee shall have full power and authority,
exercisable in its sole discretion, to grant Stock Appreciation Rights under
the Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time subject to
Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the Stock Award
Agreement of grant shall incorporate all the terms and conditions at the time
necessary to assure that the subsequent exercise of such right shall qualify
for the safe-harbor exemption from short-swing profit liability provided by
Rule 16b-3 promulgated under the Exchange Act (or any successor rule or
regulation). Except as provided in subsection 5(d), no limitation shall exist
on the aggregate amount of cash payments the Company may make under the Plan in
connection with the exercise of a Stock Appreciation Rights.

(b) Three types of Stock Appreciation Rights shall be authorized
for issuance under the Plan:

(1) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock
Appreciation Rights will be granted appurtenant to an Option, and shall, except
as specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in
cash (or, if so provided, in an equivalent number of shares of stock based on
Fair Market Value on the date of the Option surrender) in an amount up to the
excess of (A) the Fair Market Value (on the date of the Option surrender) of
the number of shares of stock covered by that portion of the surrendered Option
in which the Optionee is vested over (B) the aggregate exercise price payable
for such vested shares.

(2) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent
Rights will be granted appurtenant to an Option and may apply to all or any
portion of the shares of stock subject to the underlying Option and shall,
except as specifically set forth in this Section 8, be subject to the same
terms and conditions applicable to the particular Option grant to which it
pertains. A Concurrent Right shall be exercised automatically at the same time
the underlying Option is

11.
<PAGE> 12
exercised with respect to the particular shares of stock to which the
Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board or the Committee at the time of the grant of
the excess of (A) the aggregate Fair Market Value (on the date of the exercise
of the Concurrent Right) of the vested shares of stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.

(3) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent
Rights will be granted independently of any Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to Nonstatutory Stock Options as set forth in Section 6.
They shall be denominated in share equivalents. The appreciation distribution
payable on the exercised Independent Right shall be not greater than an amount
equal to the excess of (A) the aggregate Fair Market Value (on the date of the
exercise of the Independent Right) of a number of shares of Company stock equal
to the number of share equivalents in which the holder is vested under such
Independent Right, and with respect to which the holder is exercising the
Independent Right on such date, over (B) the aggregate Fair Market Value (on
the date of the grant of the Independent Right) of such number of shares of
Company stock. The appreciation distribution payable on the exercised
Independent Right shall be in cash or, if so provided, in an equivalent number
of shares of stock based on Fair Market Value on the date of the exercise of
the Independent Right.

9. CANCELLATION AND RE GRANT OF OPTIONS

(a) The Board or the Committee shall have the authority to effect,
at any time and from time to time, (i) the repricing of any outstanding
Options and/or any Stock Appreciation Rights under the Plan and/or (ii) with
the consent of the affected holders of Options and/or Stock Appreciation
Rights, the cancellation of any outstanding Options and/or any Stock
Appreciation Rights under the Plan and the grant in substitution therefor of
new Options and/or Stock Appreciation Rights under the Plan covering the same
or different numbers of shares of stock, but having an exercise price per share
not less than eighty-five percent (85%) of the Fair Market Value (one hundred
percent (100%) of the Fair Market Value in the case of an Incentive Stock
Option) or, in the case of a 10% stockholder (as described in subsection 5(c)),
not less than one hundred ten percent (110%) of the Fair Market Value) per
share of stock on the new grant date. Notwithstanding the foregoing, the Board
or the Committee may grant an Option and/or Stock Appreciation Right with an
exercise price lower than that set forth above if such Option and/or Stock
Appreciation Right is granted as part of a transaction to which section 424(a)
of the Code applies.

(b) Shares subject to an Option or Stock Appreciation Right
canceled under this Section 9 shall continue to be counted against the maximum
award of Options and Stock Appreciation Rights permitted to be granted pursuant
to subsection 5(d) of the Plan. The repricing of an Option and/or Stock
Appreciation Right under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Right and the

12.
<PAGE> 13
grant of a substitute Option and/or Stock Appreciation Right; in the event of
such repricing, both the original and the substituted Options and Stock
Appreciation Rights shall be counted against the maximum awards of Options and
Stock Appreciation Rights permitted to be granted pursuant to subsection 5(d)
of the Plan. The provisions of this subsection 9(b) shall be applicable only
to the extent required by Section 162(m) of the Code.

10. COVENANTS OF THE COMPANY

(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.

(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the Stock Award;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act of 1933, as amended (the "Securities Act")
either the Plan, any Stock Award or any stock issued or issuable pursuant to
any such Stock Award. If, after reasonable efforts, the Company is unable to
obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Stock Awards unless and
until such authority is obtained.

11. USE OF PROCEEDS FROM STOCK

Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.

12. MISCELLANEOUS

(a) Neither an Employee, Director or Consultant nor any person to
whom a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares subject to such Stock Award unless and until such person
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

(b) Throughout the term of any Stock Award, the Company shall
deliver to the holder of such Stock Award, not later than one hundred twenty
(120) days after the close of each of the Company's fiscal years during the
term of such Stock Award, a balance sheet and an income statement. This
section shall not apply when issuance is limited to key employees whose duties
in connection with the Company assure them access to equivalent information.

(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant) or
shall affect the right of the Company or any Affiliate to terminate the
employment of any Employee with or without cause, to remove any Director as
provided in the Company's By-

13.
<PAGE> 14
Laws and the provisions of the General Corporation Law of the State of
Delaware, or to terminate the relationship of any Consultant in accordance with
the terms of that Consultant's agreement with the Company or Affiliate to which
such Consultant is providing services.

(d) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
under all plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.

(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock
under any Stock Award, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with
the purchaser representative, the merits and risks of exercising the Stock
Award; and (2) to give written assurances satisfactory to the Company stating
that such person is acquiring the stock subject to the Stock Award for such
person's own account and not with any present intention of selling or otherwise
distributing the stock. The foregoing requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise or acquisition of stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act, or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may
require the holder of the Stock Award to provide such other representations,
written assurances or information which the Company shall determine is
necessary, desirable or appropriate to comply with applicable securities and
other laws as a condition of granting a Stock Award to such person or
permitting the holder of the Stock Award to exercise the Stock Award. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.

(f) To the extent provided by the terms of a Stock Award
Agreement, the person to whom a Stock Award is granted may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under a Stock Award by any of the following means or by a
combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the exercise or acquisition of stock
under the Stock Award; or (3) delivering to the Company owned and unencumbered
shares of the common stock of the Company.

13. ADJUSTMENTS UPON CHANGES IN STOCK

(a) If any change is made in the stock subject to the Plan, or
subject to any Stock Award, without the receipt of consideration by the Company
(through merger, consolidation,

14.
<PAGE> 15
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other transaction
not involving the receipt of consideration by the Company), the Plan will be
appropriately adjusted in the class(es) and maximum number of shares subject to
the Plan pursuant to subsection 4(a) and the maximum number of shares subject
to award to any person during any calendar year period pursuant to subsection
5(d), and the outstanding Stock Awards will be appropriately adjusted in the
class(es) and number of shares and price per share of stock subject to such
outstanding Stock Awards. Such adjustments shall be made by the Board or the
Committee, the determination of which shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a "transaction not involving the receipt of consideration by the
Company".)

(b) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then to the extent not prohibited by applicable law: (i) any
surviving corporation or an Affiliate of such surviving corporation shall
assume any Stock Awards outstanding under the Plan or shall substitute similar
Stock Awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 10(b)) for those
outstanding under the Plan, or (ii) such Stock Awards shall continue in full
force and effect. In the event any surviving corporation and its Affiliates
refuse to assume such Stock Awards, or to substitute similar Stock Awards for
those outstanding under the Plan, then such Stock Awards shall be terminated if
not exercised prior to such event. In the event of a dissolution or
liquidation of the Company, any Stock Awards outstanding under the Plan shall
terminate if not exercised prior to such event.

14. AMENDMENT OF THE PLAN AND STOCK AWARDS

(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 13 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:

15.
<PAGE> 16
(1) Increase the number of shares reserved for Stock
Awards under the Plan;

(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of
the Code); or

(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.

(b) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the exclusion
of performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.

(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.

(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.

(e) The Board at any time, and from time to time, may amend the
terms of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.

15. TERMINATION OR SUSPENSION OF THE PLAN

(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on January 17, 2006, which
shall be within ten (10) years from the date the Plan is adopted by the Board
or approved by the stockholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it is
terminated.

(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the written consent of the person to whom the Stock Award was
granted.

16.
<PAGE> 17
16. EFFECTIVE DATE OF THE PLAN

The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the
Plan has been approved by the stockholders of the Company, which approval shall
be within twelve (12) months before or after the date the Plan is adopted by
the Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.

17.

<PAGE> 1
EXHIBIT 99.3

IT IS UNLAWFUL TO CONSUMMATE A
SALE OR TRANSFER OF THIS SECURITY,
OR ANY INTEREST THEREIN, OR TO
RECEIVE ANY CONSIDERATION
THERE-FOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.

INCENTIVE STOCK OPTION

_______________________, Optionee:

IMRE Corporation (the "Company"), pursuant to its 1996 Equity
Incentive Plan (the "Plan"), has granted to you, the optionee named above, an
option to purchase shares of the common stock of the Company ("Common Stock").
This option is intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").

The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's
employees (including officers), directors or consultants and is intended to
comply with the provisions of Rule 701 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act").
The grant of this option and the issuance of shares upon the exercise of this
option are also intended to be exempt from the securities qualification
requirements of the California Corporations Code pursuant to Section 25102(f)
of that code. Defined terms not explicitly defined in this agreement but
defined in the Plan shall have the same definitions as in the Plan.

The details of your option are as follows:

1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total
number of shares of Common Stock subject to this option is ____________________
(__________).

2. VESTING. Subject to the limitations contained herein,
twenty-five percent (25%) of the shares granted hereunder will vest (become
exercisable) on the date that is one year from the date hereof, with the
remaining shares to vest ratably on a daily basis over a period of forty-eight
(48) months until either (i) you cease to provide services to the Company for
any reason, or (ii) this option becomes fully vested.

1.
<PAGE> 2
3. EXERCISE PRICE AND METHOD OF PAYMENT.

(a) EXERCISE PRICE. The exercise price of this option is
___________________________ ($___________) per share, being not less than the
fair market value of the Common Stock on the date of grant of this option.

(b) METHOD OF PAYMENT. Payment of the exercise price per
share is due in full upon exercise of all or any part of each installment which
has accrued to you. You may elect, to the extent permitted by applicable
statutes and regulations, to make payment of the exercise price under one of
the following alternatives:

(i) Payment of the exercise price per share in
cash (including check) at the time of exercise;

(ii) Payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which, prior to the
issuance of Common Stock, results in either the receipt of cash (or check) by
the Company or the receipt of irrevocable instructions to pay the aggregate
exercise price to the Company from the sales proceeds;

(iii) Provided that at the time of exercise the
Company's Common Stock is publicly traded and quoted regularly in the Wall
Street Journal, payment by delivery of already-owned shares of Common Stock,
held for the period required to avoid a charge to the Company's reported
earnings, and owned free and clear of any liens, claims, encumbrances or
security interests, which Common Stock shall be valued at its fair market value
on the date of exercise; or

(iv) Payment by a combination of the methods of
payment permitted by subparagraph 3(b)(i) through 3(b)(iii) above.

4. WHOLE SHARES. This option may not be exercised for any number
of shares which would require the issuance of anything other than whole shares.

5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, this option may not be exercised unless the shares
issuable upon exercise of this option are then registered under the Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Act.

6. TERM. The term of this option commences on __________, 19__,
the date of grant, and expires on ________________________ (the "Expiration
Date," which date shall be no more than ten (10) years from the date this
option is granted), unless this option expires sooner as set forth below or in
the Plan. In no event may this option be exercised on

2.
<PAGE> 3
or after the Expiration Date. This option shall terminate prior to the
Expiration Date as follows: three (3) months after the termination of your
Continuous Status as an Employee, Director or Consultant with the Company or an
Affiliate of the Company unless one of the following circumstances exists:

(a) Your termination of Continuous Status as an Employee,
Director or Consultant is due to your disability. This option will then expire
on the earlier of the Expiration Date set forth above or twelve (12) months
following such termination of Continuous Status as an Employee, Director or
Consultant. You should be aware that if your disability is not considered a
permanent and total disability within the meaning of Section 422(c)(6) of the
Code, and you exercise this option more than three (3) months following the
date of your termination of employment, your exercise will be treated for tax
purposes as the exercise of a "nonstatutory stock option" instead of an
"incentive stock option."

(b) Your termination of Continuous Status as an Employee,
Director or Consultant is due to your death or your death occurs within three
(3) months following your termination of Continuous Status as an Employee,
Director or Consultant for any other reason. This option will then expire on
the earlier of the Expiration Date set forth above or eighteen (18) months
after your death.

(c) If during any part of such three (3) month period you
may not exercise your option solely because of the condition set forth in
paragraph 5 above, then your option will not expire until the earlier of the
Expiration Date set forth above or until this option shall have been
exercisable for an aggregate period of three (3) months after your termination
of Continuous Status as an Employee, Director or Consultant.

(d) If your exercise of the option within three (3)
months after termination of your Continuous Status as an Employee, Director or
Consultant with the Company or with an Affiliate of the Company would result in
liability under section 16(b) of the Securities Exchange Act of 1934, then your
option will expire on the earlier of (i) the Expiration Date set forth above,
(ii) the tenth (10th) day after the last date upon which exercise would result
in such liability or (iii) six (6) months and ten (10) days after the
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or an Affiliate of the Company.

However, this option may be exercised following termination of
Continuous Status as an Employee, Director or Consultant only as to that number
of shares as to which it was exercisable on the date of termination of
Continuous Status as an Employee, Director or Consultant under the provisions
of paragraph 2 of this option.

3.
<PAGE> 4
In order to obtain the federal income tax advantages associated with
an "incentive stock option," the Code requires that at all times beginning on
the date of grant of the option and ending on the day three (3) months before
the date of the option's exercise, you must be an employee of the Company or an
Affiliate of the Company, except in the event of your death or permanent and
total disability. The Company has provided for continued vesting or extended
exercisability of your option under certain circumstances for your benefit, but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you provide services to the Company or an Affiliate of the
Company as a consultant or exercise your option more than three (3) months
after the date your employment with the Company and all Affiliates of the
Company terminates.

7. REPRESENTATIONS. By executing this option agreement, you
hereby warrant and represent that you are acquiring this option for your own
account and that you have no intention of distributing, transferring or selling
all or any part of this option except in accordance with the terms of this
option agreement and Section 25102(f) of the California Corporations Code. You
also hereby warrant and represent that you have either (i) preexisting personal
or business relationships with the Company or any of its officers, directors or
controlling persons, or (ii) the capacity to protect your own interests in
connection with the grant of this option by virtue of the business or financial
expertise of any of your professional advisors who are unaffiliated with and
who are not compensated by the Company or any of its affiliates, directly or
indirectly.

8. EXERCISE.

(a) This option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require
pursuant to subsections 6(f) and 12(f) of the Plan.

(b) By exercising this option you agree that:

(i) as a precondition to the completion of any
exercise of this option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise; and

(ii) you will notify the Company in writing within
fifteen (15) days after the date of any disposition of any of the shares of the
Common Stock issued upon exercise of this option that occurs within two (2)
years after the date of this option grant or

4.
<PAGE> 5
within one (1) year after such shares of Common Stock are transferred upon
exercise of this option.

9. TRANSFERABILITY. This option is not transferable, except by
will or by the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written notice
to the Company, in a form satisfactory to the Company, you may designate a
third party who, in the event of your death, shall thereafter be entitled to
exercise this option.

10. OPTION NOT A SERVICE CONTRACT. This option is not an
employment contract and nothing in this option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company. In
addition, nothing in this option shall obligate the Company or any Affiliate of
the Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.

11. NOTICES. Any notices provided for in this option or the Plan
shall be given in writing and shall be deemed effectively given upon receipt
or, in the case of notices delivered by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the
address specified below or at such other address as you hereafter designate by
written notice to the Company.

12. GOVERNING PLAN DOCUMENT. This option is subject to all the
provisions of the Plan, a copy of which is attached hereto and its provisions
are hereby made a part of this option, including without limitation the
provisions of Section 6 of the Plan relating to option provisions, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.

Dated the ____ day of _________, 19__.

Very truly yours,

By
-----------------------------------
Duly authorized on behalf
of the Board of Directors

Attachments:
IMRE Corporation 1996 Equity Incentive Plan
Notice of Exercise

5.
<PAGE> 6
The undersigned:

(a) Acknowledges receipt of the foregoing option and the
attachments referenced therein and understands that all rights and liabilities
with respect to this option are set forth in the option and the Plan; and

(b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of stock in the Company
and supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the
undersigned under stock option plans of the Company, and (ii) the following
agreements only:

NONE
--------------------------
(Initial)
OTHER
--------------------------

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

------------------------------------
Optionee

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

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

<PAGE> 1
EXHIBIT 99.4

IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO
RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE
COM-MISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA,
EXCEPT AS PER-MITTED IN THE
COMMISSIONER'S RULES.

NONSTATUTORY STOCK OPTION

_____________________, Optionee:

IMRE Corporation (the "Company"), pursuant to its 1996 Equity
Incentive Plan (the "Plan"), has granted to you, the optionee named above, an
option to purchase shares of the common stock of the Company ("Common Stock").
This option is not intended to qualify and will not be treated as an "incentive
stock option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").

The details of your option are as follows:

1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of
shares of Common Stock subject to this option is _____________________
(_________).

2. VESTING. Subject to the limitations contained herein, twenty-five
percent (25%) of the shares granted hereunder will vest (become exercisable) on
the date that is one year from the date hereof, with the remaining shares to
vest ratably on a daily basis over a period of forty-eight (48) months until
either (i) you cease to provide services to the Company for any reason, or (ii)
this option becomes fully vested.

<PAGE> 2
3. EXERCISE PRICE AND METHOD OF PAYMENT.

(a) EXERCISE PRICE. The exercise price of this option is
_____________ ($_____) per share, being not less than 85% of the fair market
value of the Common Stock on the date of grant of this option.

(i) Payment of the exercise price per share in cash
(including check) at the time of exercise;

(ii) Payment pursuant to a program developed under Regulation
T as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company
or the receipt of irrevocable instructions to pay the aggregate exercise price
to the Company from the sales proceeds;

(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of already-owned shares of Common Stock, held for
the period required to avoid a charge to the Company's reported earnings, and
owned free and clear of any liens, claims, encumbrances or security interests,
which Common Stock shall be valued at its fair market value on the date of
exercise; or

(iv) Payment by a combination of the methods of payment
permitted by subparagraph 3(b)(i) through 3(b)(iii) above.

4. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.

6. TERM. The term of this option commences on _________, 19__, the
date of grant and expires on _____________________ (the "Expiration Date,"
which date shall be no more than ten (10) years from the date this option is
granted), unless this option expires sooner as set forth below or in the Plan.
In no event may this option be exercised

2.
<PAGE> 3
on or after the Expiration Date. This option shall terminate prior to the
Expiration Date as follows: three (3) months after the termination of your
Continuous Status as an Employee, Director or Consultant with the Company or an
Affiliate of the Company for any reason or for no reason unless:

(a) such termination of Continuous Status as an Employee,
Director or Consultant is due to your disability, in which event the option
shall expire on the earlier of the Expiration Date set forth above or twelve
(12) months following such termination of Continuous Status as an Employee,
Director or Consultant; or

(b) such termination of Continuous Status as an Employee,
Director or Consultant is due to your death or your death occurs within three
(3) months following your termination for any other reason, in which event the
option shall expire on the earlier of the Expiration Date set forth above or
eighteen (18) months after your death; or

(c) during any part of such three (3) month period the option
is not exercisable solely because of the condition set forth in paragraph 5
above, in which event the option shall not expire until the earlier of the
Expiration Date set forth above or until it shall have been exercisable for an
aggregate period of three (3) months after the termination of Continuous Status
as an Employee, Director or Consultant; or

(d) exercise of the option within three (3) months after
termination of your Continuous Status as an Employee, Director or Consultant
with the Company or with an Affiliate of the Company would result in liability
under section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act),
in which case the option will expire on the earlier of (i) the Expiration Date
set forth above, (ii) the tenth (10th) day after the last date upon which
exercise would result in such liability or (iii) six (6) months and ten (10)
days after the termination of your Continuous Status as an Employee, Director
or Consultant with the Company or an Affiliate of the Company.

7. REPRESENTATIONS. By executing this option agreement, you hereby
warrant and represent that you are acquiring this option for your own account
and that you have no intention of distributing, transferring or selling all or
any part of this option except in accordance with the terms of this option
agreement and Section 25102(f) of the California Corporations Code. You also
hereby warrant and represent that you have either (i) preexisting personal or
business relationships with the Company or any of its officers, directors or
controlling persons, or (ii) the capacity to protect your own interests in

3.
<PAGE> 4
connection with the grant of this option by virtue of the business or financial
expertise of any of your professional advisors who are unaffiliated with and
who are not compensated by the Company or any of its affiliates, directly or
indirectly.

8. EXERCISE.

(a) This option may be exercised, to the extent
specified above, by delivering a notice of exercise (in a form designated by
the Company) together with the exercise price to the Secretary of the Company,
or to such other person as the Company may designate, during regular business
hours, together with such additional documents as the Company may then require
pursuant to subsections 6(f) and 12(f) of the Plan.

(b) By exercising this option you agree that as a
precondition to the completion of any exercise of this option, the Company may
require you to enter an arrangement providing for the cash payment by you to
the Company of any tax withholding obligation of the Company arising by reason
of: (1) the exercise of this option; (2) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise; or (3) the
disposition of shares acquired upon such exercise. You also agree that any
exercise of this option has not been completed and that the Company is under no
obligation to issue any Common Stock to you until such an arrangement is
established or the Company's tax withholding obligations are satisfied, as
determined by the Company.

9. TRANSFERABILITY. This option is not transferable, except by will
or by the laws of descent and distribution, or pursuant to a qualified domestic
relations order as satisfying the requirements of Rule 16b-3 of the Exchange
Act (a "QDRO"), and is exercisable during your life only by you or a transferee
pursuant to a QDRO. Notwithstanding the foregoing, by delivering written
notice to the Company, in a form satisfactory to the Company, you may designate
a third party who, in the event of your death, shall thereafter be entitled to
exercise this option.

10. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the
Company, or of the Company to continue your employment with the Company. In
addition, nothing in this option shall obligate the Company or any Affiliate of
the Company, or their respective shareholders, Board of Directors, officers, or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.

4.
<PAGE> 5
postage prepaid, addressed to you at the address specified below or at such
other address as you hereafter designate by written notice to the Company.

Dated the ____ day of _________ 19__.

Very truly yours,

______________________________________

By____________________________________
Duly authorized on behalf
of the Board of Directors

ATTACHMENTS:

IMRE Corporation 1996 Equity Incentive Plan
Notice of Exercise

5.
<PAGE> 6
The undersigned:

(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and

(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the
undersigned under stock option plans of the Company, and (ii) the following
agreements only:

NONE
----------
(Initial)

OTHER
--------------------------------

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

-------------------------
OPTIONEE

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

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