VIMRX PHARMACEUTICALS INC, DEFM14A, 1997-11-06

VIMRX PHARMACEUTICALS INC
DEFM14A, 1997-11-06
PHARMACEUTICAL PREPARATIONS

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SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]

Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

VIMRx PHARMACEUTICALS INC.
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(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[_]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[X] Fee paid previously with preliminary materials:
$18,000
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[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
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November 5, 1997

Dear Stockholder:

You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of VIMRx Pharmaceuticals Inc. (the "Company") to be held on
Tuesday, December 16, 1997 at 9:00 a.m., local time, at Brandywine Suites
Hotel, 707 N. King Street, Wilmington, Delaware.

At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve the acquisition by the Company of the intellectual property
and intangible assets, other than trademarks, of the Immunotherapy Division
(the "Division") of the Biotech Business Group of Baxter Healthcare Corporation
("Baxter"), a division engaged in developing instruments for ex vivo cell
therapies, in exchange for (i) 11,000,000 shares of the Company's Common Stock
and (ii) 40,000 shares of the Company's Class A Preferred Stock, each share
having a liquidation value of $1,000 per share and convertible into Common
Stock (the "Class A Preferred Shares") plus such additional number of Class A
Preferred Shares which, together with the 11,000,000 shares of Common Stock
being delivered, shall have an aggregate value of $50,000,000 (the Class A
Preferred Shares to be valued at $1,000 per share and the Common Stock to be
valued at the average of the per share closing prices for the 15 trading days
ending five days prior to the closing date as reported by The Nasdaq Stock
Market) and the transfer of such intangible assets to a newly organized company
(the "Subsidiary") in exchange for 80.5% of the Subsidiary's common stock.
Concurrently, (i) the Subsidiary will acquire the tangible assets, business,
trademarks and certain obligations of the Division in exchange for 19.5% of the
Subsidiary's common stock and a warrant to purchase an additional 6% of the
Subsidiary's common stock for $6,000,000 and (ii) Baxter and the Company will
purchase $30,000,000 and $10,000,000, respectively, of the Subsidiary's 6 1/2%
subordinated debentures.

You also will be asked to consider and approve an amendment to Article FOURTH
of the Company's Amended and Restated Certificate of Incorporation authorizing
150,000 Class A Preferred Shares to effectuate the transactions contemplated by
the proposed acquisition.

You are urged to read carefully the accompanying Proxy Statement, which
provides important information with respect to the proposals. Whether or not
you plan to attend the Special Meeting, please complete, date and sign your
proxy card and promptly return it in the enclosed envelope. If you attend the
Special Meeting, you may vote in person even though you have previously
returned a proxy.

Sincerely,

/s/ Richard L. Dunning

Richard L. Dunning
President and Chief Executive Officer

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VIMRX PHARMACEUTICALS INC.
2751 Centerville Road
Suite 210
Little Falls II
Wilmington, Delaware 19808

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 16, 1997

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To the Stockholders of
VIMRX PHARMACEUTICALS INC.

NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of VIMRx Pharmaceuticals Inc. (the "Company") will be held on
Tuesday, December 16, 1997, at 9:00 a.m., local time, at Brandywine Suites
Hotel, 707 N. King Street, Wilmington, Delaware for the following purposes:

1. To approve the acquisition (the "Proposed Acquisition") by the Company
of the intellectual property and intangible assets, other than trademarks,
of the Immunotherapy Division (the "Division") of the Biotech Business
Group of Baxter Healthcare Corporation ("Baxter"), a division engaged in
developing instruments for ex vivo cell therapies, in exchange for (i)
11,000,000 shares of the Company's Common Stock and (ii) 40,000 shares of
the Company's Class A Preferred Stock, each share having a liquidation
value of $1,000 per share and convertible into Common Stock (the "Class A
Preferred Shares") plus such additional number of Class A Preferred Shares
which, together with the 11,000,000 shares of Common Stock being delivered,
shall have an aggregate value of $50,000,000 (the Class A Preferred Shares
to be valued at $1,000 per share and the Common Stock to be valued at the
average of the per share closing prices for the 15 trading days ending five
days prior to the closing date as reported by The Nasdaq Stock Market) and
the transfer of such intangible assets to a newly organized company (the
"Subsidiary") in exchange for 80.5% of the Subsidiary's common stock.
Concurrently, (i) the Subsidiary will acquire the tangible assets,
business, trademarks and certain obligations of the Division in exchange
for 19.5% of the Subsidiary's common stock and a warrant to purchase an
additional 6% of the Subsidiary's common stock for $6,000,000 and (ii)
Baxter and the Company will purchase $30,000,000 and $10,000,000,
respectively, of the Subsidiary's 6 1/2% subordinated debentures.

2. To approve an amendment to Article FOURTH of the Company's Amended and
Restated Certificate of Incorporation authorizing 150,000 Class A Preferred
Shares to effectuate the transactions contemplated by the Proposed
Acquisition.

3. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.

Only holders of record of Common Stock at the close of business on October
28, 1997, the Record Date for the Special Meeting, are entitled to notice of
and to vote at the Special Meeting.

By Order of the Board of Directors,

/s/ Lowell S. Lifschultz

Lowell S. Lifschultz
Secretary
Wilmington, Delaware
November 5, 1997

STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING
ARE REQUESTED TO DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED
PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
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TABLE OF CONTENTS

<TABLE>
<S> <C>
PAGE
----
<CAPTION>
INTRODUCTION................................................................ 1
<S> <C>
General................................................................... 1
Matters to be Considered at the Special Meeting........................... 1
Voting at the Special Meeting............................................. 2
PROPOSAL I--APPROVAL OF PROPOSED ACQUISITION................................ 3
Background................................................................ 3
Terms of the Proposed Acquisition......................................... 4
Description of the Company................................................ 9
Description of the Division............................................... 10
Accounting Treatment...................................................... 10
Certain Federal Income Tax Consequences................................... 10
Required Vote............................................................. 10
Opinion of Financial Advisor.............................................. 10
Recommendation of the Board of Directors.................................. 10
PROPOSAL II--APPROVAL OF AMENDMENT TO AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION...................................... 11
Background................................................................ 11
Required Vote............................................................. 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 12
STOCKHOLDER PROPOSALS....................................................... 13
OTHER MATTERS............................................................... 13
THE DIVISION................................................................ 14
General................................................................... 14
Selected Financial Data................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
The Isolex(R) Cell Separator.............................................. 18
Products.................................................................. 18
Competition............................................................... 19
Intellectual Property..................................................... 19
Employees................................................................. 19
Properties................................................................ 19
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION................ 20
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........ 24
INDEX TO FINANCIAL STATEMENTS--IMMUNOTHERAPY
DIVISION OF BAXTER BIOTECH................................................. F-1
</TABLE>
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VIMRX PHARMACEUTICALS INC.
2751 Centerville Road
Suite 210
Little Falls II
Wilmington, Delaware 19808

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PROXY STATEMENT

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SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 16, 1997

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INTRODUCTION

GENERAL

This Proxy Statement is being furnished to holders of Common Stock, par
value $.001 per share ("Common Stock"), of VIMRx Pharmaceuticals Inc., a
Delaware corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the Special
Meeting of Stockholders (the "Special Meeting") to be held on Tuesday,
December 16, 1997, at 9:00 a.m., local time, at Brandywine Suites Hotel, 707
N. King Street, Wilmington, Delaware. The Company has retained D.F. King &
Co., Inc., at an estimated cost of $4,000, plus reimbursement of expenses, to
assist in its solicitation. This Proxy Statement and enclosed proxy card are
being mailed to the Company's stockholders on or about November 5, 1997.

MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING

At the Special Meeting, the stockholders will be asked to consider and vote
upon the following proposals (the "Proposals"):

2. To approve an amendment to Article FOURTH of the Company's Amended and
Restated Certificate of Incorporation (the "Amendment") authorizing 150,000
Class A Preferred Shares to effectuate the transactions contemplated by the
Proposed Acquisition.
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3.To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.

The foregoing matters are more fully described in this Proxy Statement.

VOTING AT THE SPECIAL MEETING

Only holders of record of Common Stock at the close of business on Tuesday,
October 28, 1997 (the "Record Date"), are entitled to notice of and to vote at
the Special Meeting, each such holder of record being entitled to one vote per
share on each matter to be considered at the Special Meeting. On the Record
Date, there were 55,498,676 shares of Common Stock issued and outstanding.

The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Special Meeting (27,749,339 shares of the 55,498,676 shares outstanding) is
necessary to constitute a quorum at the Special Meeting. All abstentions and
broker non-votes, if any, will be included as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
Special Meeting.

Approval of the Proposed Acquisition by the Company's stockholders is
required by the rules of the Nasdaq National Market as a result of the
Company's proposed issuance, to consummate the Proposed Acquisition, of Common
Stock and Class A Preferred Shares convertible into Common Stock which, giving
effect to the conversion, would constitute more than 20% of the shares of
Common Stock outstanding. The affirmative vote of a majority of the votes cast
in person or represented by proxy at the Special Meeting is required for
approval of the Proposed Acquisition and the affirmative vote of a majority of
the outstanding shares of Common Stock (27,749,339 shares of the 55,498,676
shares outstanding) is required to approve the Amendment.

In determining whether the proposals have received the requisite number of
affirmative votes, (i) abstentions will be included as votes cast and will
have the same effect as votes AGAINST the Proposed Acquisition and the
Amendment, and (ii) proxies for which a broker does not have discretionary
authority and has not received voting instructions from the beneficial owners
(so-called "broker non-votes"), if any, will not be counted and will have no
effect on the vote for the Proposed Acquisition, but will have the effect of a
vote AGAINST the Amendment.

If the enclosed proxy card is properly executed and returned to the Company
prior to voting at the Special Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon. In the absence of
instructions, the shares will be voted FOR the Proposals and at the discretion
of the holders of the proxies on any other matters that may properly come
before the Special Meeting. At any time prior to its exercise, a proxy may be
revoked by the holder of Common Stock granting it by delivering written notice
of revocation or a duly executed proxy bearing a later date to the Secretary
of the Company at the address of the Company set forth on the cover page of
this Proxy Statement or by attending the Special Meeting and voting in person.

The executive offices of the Company are located at 2751 Centerville Road,
Suite 210, Little Falls II, Wilmington, Delaware 19808, telephone number (302)
998-1734.

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PROPOSAL I--APPROVAL OF PROPOSED ACQUISITION

BACKGROUND

In October 1996, Mr. Richard L. Dunning, the Company's President and Chief
Executive Officer, learned that Baxter Healthcare Corporation ("Baxter") was
seeking a strategic alliance partner for the Division and called The Craves
Group whom, he had been advised, was one of Baxter's advisors with respect to
the search. In early November 1996, the Company received, signed and returned
to Baxter a Confidentiality Agreement and thereafter, in December 1996,
received a Confidential Memorandum describing the Division, its business and
its operations. On January 20, 1997, the Company presented a written proposal
to Baxter for a strategic alliance relating to the Division. Thereafter, in
February 1997, Mr. Dunning and David A. Jackson, Ph.D., the Company's
Executive Vice President and Chief Scientific Officer, accompanied by two
consultants and a representative of Lazard Freres & Co. LLC ("Lazard Freres"),
which had been retained by the Company as its financial advisor with respect
to the proposed alliance, went to Irvine, California to visit the Division,
review its operations and discuss the Company's proposal. During the ensuing
meetings, Mr. Dunning was advised that the Company's proposal was unacceptable
as submitted and that a revised proposal more favorable to Baxter would have
to be developed if the Company were interested in pursing a strategic
alliance.

During March 1997, the Company, with the assistance of Lazard Freres,
developed a revised proposal which was submitted to The Craves Group on or
about April 1, 1997. On or about April 30, 1997, Mr. Dunning and Mr. Donald G.
Drapkin, the Company's Chairman of the Board, met with Mr. Frederick Frank of
Lehman Brothers, an investment banking firm which also was acting as an
advisor to Baxter with respect to the search for an alliance partner, to
discuss the revised proposal. On or about May 1, 1997, Mr. Dunning was advised
that Baxter was interested in completing a transaction with the Company;
negotiations continued throughout May and a proposed form of letter of intent
was provided by the Company to Baxter on or about June 2, 1997. After further
negotiations, a letter of intent was executed by the Company and Baxter on
June 11, 1997 and a joint press release announcing the signing was made on
June 12, 1997.

On June 11, 1997, the day preceding the public announcement of the signing
of the letter of intent, the high and low sales prices of the Company's Common
Stock, as reported by The Nasdaq Stock Market, were $3.656 and $3.375,
respectively.

Following the signing of the letter of intent, the Company and Baxter
continued their respective due diligence and negotiations. On September 24,
1997, the Board of Directors of the Company, whose individual members had been
kept apprised of the negotiations, held a special meeting by telephone
conference call to discuss the Proposed Acquisition, the basic terms of which
had been negotiated with Baxter. During the discussion, a managing director of
Lazard Freres indicated he believed Lazard Freres, upon completion of its due
diligence and analysis, would be in a position to give its opinion that the
Proposed Acquisition was fair, from a financial point of view, to the
Company's stockholders. Following the discussion, Mr. Dunning was authorized
by the Board to complete the negotiations and to execute the related agreement
on behalf of the Company. The agreement was finalized and executed on October
10, 1997 and a joint press release announcing the signing was made on October
13, 1997.

On October 10, 1997, the trading day preceding the public announcement of
the signing of the agreement, the high and low sales prices of the Company's
Common Stock, as reported by The Nasdaq Stock Market, were $2.8125 and
$2.5625, respectively.

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TERMS OF THE PROPOSED ACQUISITION

GENERAL

Pursuant to an asset purchase agreement dated October 10, 1997, a copy of
which is attached as Annex A to this Proxy Statement (the "Asset Purchase
Agreement"), the Company has agreed to acquire from Baxter the intellectual
property and intangible assets, other than trademarks, of the Division in
exchange for (i) 11,000,000 shares of Common Stock and (ii) 40,000 Class A
Preferred Shares plus such additional number of Class A Preferred Shares
which, together with the 11,000,000 shares of Common Stock being delivered,
shall have an aggregate value of $50,000,000 (the Class A Preferred Shares to
be valued at $1,000 per share and the Common Stock to be valued at the average
of the per share closing prices for the 15 trading days ending five days prior
to the closing date as reported by The Nasdaq Stock Market), which intangible
assets the Company simultaneously will transfer to the Subsidiary in exchange
for 80.5% of the Subsidiary's common stock. Concurrently, pursuant to the
Asset Purchase Agreement, (i) Baxter will transfer to the Subsidiary the
tangible assets, business, trademarks and certain obligations of the Division
in exchange for 19.5% of the Subsidiary's common stock and a warrant to
purchase an additional 6% of the Subsidiary's common stock for $6,000,000
exercisable at any time prior to November 30, 2004 and (ii) Baxter and the
Company will purchase $30,000,000 and $10,000,000, respectively, of the
Subsidiary's 6 1/2% subordinated debentures due November 30, 2004, interest to
accrue and be payable initially on November 30, 2002, and convertible into the
Subsidiary's common stock, in the event of a public offering by, or the merger
or sale of, the Subsidiary, at a per share price equal to 95% of the public
offering or the merger or sale price.

The closing of the Proposed Acquisition (the "Closing") will take place
following the satisfaction or waiver of all conditions specified in the Asset
Purchase Agreement, including approval by the Company's stockholders of the
Proposed Acquisition and the Amendment, and the termination or expiration of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. Prior to the Closing, the Asset Purchase Agreement may be
terminated by mutual consent of Baxter, the Company and the Subsidiary, or by
either Baxter or the Company following the occurrence of certain conditions or
events, including inter alia, the conditions to Closing not being satisfied or
waived by December 31, 1997.

Following the Closing, Baxter is entitled to milestone payments from the
Subsidiary of up to $21,000,000 upon the Subsidiary obtaining certain
regulatory approvals and achieving other milestones. In addition, Baxter (i)
has the right to designate a nominee to the Company's Board of Directors as
long as Baxter owns at least 3% of the Company's outstanding capital stock and
(ii) has agreed to vote all of its shares of the Company's capital stock for
management's nominees for directors of the Company as long as Baxter has the
right to designate a nominee and such designee is elected a director of the
Company. Baxter has designated Mr. Victor W. Schmitt, the President of Venture
Management for the Biotech Business Group of Baxter, as its nominee to the
Company's Board of Directors.

Baxter and the Company have agreed to indemnify each other with respect to
losses incurred as a result of breaches of the Asset Purchase Agreement and
against other specific liabilities and claims up to a maximum of $18,000,000
over a $400,000 deductible threshold; for such purposes, the Company and the
Subsidiary are constituted one party. Any indemnifiable amount payable by
Baxter to the Company in excess of $5,000,000, or payable to the Subsidiary in
excess of $5,000,000, at Baxter's option, may be paid by delivery of Class A
Preferred Shares valued at $1,000 per share if payable to the Company, or by
delivery of the Subsidiary's 6 1/2% subordinated debentures valued at the
principal amount thereof if payable to the Subsidiary. The breach of certain
representations is not subject to the $400,000 deductible and the breach of
certain covenants is not subject to the $18,000,000 limit.

OTHER AGREEMENTS

At the Closing, Baxter will enter into agreements with the Subsidiary
pursuant to which Baxter will (i) perform manufacturing services, (ii) supply
certain products and components, (iii) have the exclusive rights to distribute
certain of the products and instruments which it transferred from the
Division, (iv) provide engineering and product development services and
certain transitional services for the Subsidiary and (v) sublicense certain

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technology to the Subsidiary. At the Closing, Baxter, the Company and the
Subsidiary will also enter into a Non-Competition and Confidentiality
Agreement.

The Hardware and Disposables Manufacturing Agreement

The Hardware and Disposables Manufacturing Agreement (the "Hardware
Manufacturing Agreement") generally provides that, for a five-year period,
Baxter will manufacture certain of the Subsidiary's products, and will
complete the manufacture and assembly of certain other products and
disposable sets using components to be manufactured or supplied by Baxter
or third parties. The Subsidiary will pay Baxter a price based upon agreed
upon percentages of Baxter's "Fully Loaded Cost" for the products so
manufactured, which generally will consist of Baxter's costs of
manufacturing, performing services and acquiring components, in accordance
with generally accepted accounting principles consistently applied,
including any related royalties payable by Baxter other than royalty
obligations paid or reimbursed by the Subsidiary pursuant to the
sublicenses described below. Under the Hardware Manufacturing Agreement,
Baxter has a right of first offer to obtain an exclusive, worldwide license
to make, have made, use and sell any product manufactured by Baxter
thereunder in the event the Subsidiary elects to abandon the product and
sell its right to make, have made, use and sell the product to a third
party. Baxter or the Subsidiary may terminate the Hardware Manufacturing
Agreement in the event the other party defaults or fails to comply with any
material covenant contained therein or in the Non-Competition Agreement, or
if the other party defaults in the performance of or fails to comply with
any covenant which results in termination of the Marketing Agreement.

The Antibody Manufacturing and Storage Agreement

The Antibody Manufacturing and Storage Agreement (the "Antibody
Agreement") generally provides that, for a five-year period, Baxter will
manufacture certain antibodies, reagents and reagent kits used as
components of or in conjunction with certain of the Subsidiary's products.
The Subsidiary will pay Baxter a price based upon agreed upon percentages
of Baxter's Fully Loaded Cost for the products so manufactured, determined
as described above. Under the Antibody Agreement, Baxter has a right of
first offer to obtain an exclusive, worldwide license to make, have made,
use and sell any product manufactured by Baxter thereunder in the event the
Subsidiary elects to abandon the product and sell its right to make, have
made, use and sell the product to a third party. Subject to certain
conditions and continuing obligations, commencing one year after the
Closing, Baxter may terminate its obligation to manufacture any particular
antibody by giving 24 months' notice to the Subsidiary. Baxter or the
Subsidiary may terminate the Antibody Agreement in the event the other
party defaults or fails to comply with any material covenant contained
therein or in the Non-Competition Agreement, or if the other party defaults
in the performance of or fails to comply with any covenant which results in
termination of the Marketing Agreement.

The Hardware and Disposables Supply Agreement

The Hardware and Disposables Supply Agreement (the "Supply Agreement")
generally provides that Baxter will supply certain products and components
used as part of and in conjunction with the Subsidiary's products,
including products made from certain proprietary Baxter plastics (such as
collection, culture and storage bags) and the so-called "Spinning Membrane"
component of certain of the Subsidiary's products, for an eleven-year
period and other such products, including the Harvester System, for a five-
year period. The Subsidiary will pay Baxter a price based upon agreed upon
percentages of Baxter's Fully Loaded Cost for the products so supplied,
determined as described above. Under the Supply Agreement, Baxter has a
right of first offer to obtain an exclusive, worldwide license to make,
have made, use and sell any product manufactured by Baxter thereunder in
the event the Subsidiary elects to abandon the product and sell its right
to make, have made, use and sell the product to a third party. Baxter or
the Subsidiary may terminate the Supply Agreement in the event the other
party defaults or fails to comply with any material covenant contained
therein or in the Non-Competition Agreement, or if the other party defaults
in the performance of or fails to comply with any covenant which results in
termination of the Marketing Agreement. At the expiration of the respective
supply term, Baxter generally either will continue to supply such products
on the current terms or will transfer to the Subsidiary (i) all
intellectual property owned or used by Baxter in

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connection with the manufacture of the products supplied, or (ii) a
worldwide exclusive royalty-free license to such intellectual property, and
certain rights relating to documentation of the products with the United
States Food and Drug Administration (the "FDA").

The Marketing, Sale and Distribution Agreement

The Marketing, Sale and Distribution Agreement (the "Marketing
Agreement") provides that, for an eleven-year period, Baxter will have the
exclusive worldwide marketing, sales and distribution rights for certain of
the Subsidiary's products and reagent kits used in the selection of cells
with one or more of the CD34, B Cell, T Cell or breast cancer antibodies or
CD34+ cells for the treatment, mitigation, prophylaxis or selection of
cancer, excluding, however, the genetic manipulation of such cells (the
"Field of Distribution"). Under the Marketing Agreement, Baxter will have a
right of first offer to acquire marketing, sales and distribution rights
for other Subsidiary products outside the Field of Distribution which
utilize the Subsidiary's immunomagnetic cell selection technology. Baxter
also will have a right of first offer to obtain an exclusive, worldwide
license to make, have made, use and sell certain products of the Subsidiary
within the Field of Distribution in the event the Subsidiary elects to
abandon such product and sell its right to make, have made, use and sell
such product within the Field of Distribution to a third party. Baxter will
have the unilateral right to establish the sales price for all products
sold by it under the Marketing Agreement and will pay the Subsidiary agreed
upon percentages of the suggested retail price therefor. After the
Subsidiary obtains United States regulatory approval for the Isolex(R)
300SA instrument, Baxter will be required to expend certain minimum amounts
for marketing and sales expenses (including reimbursement of certain co-
marketing expenses expected to be incurred by the Subsidiary) based upon
projected target sales levels. Baxter will also have the right to market
and sell service contracts for maintenance and repair of the Subsidiary's
products for its own account, retaining all revenues and bearing all costs,
including the manufacture and supply of spare parts, in connection
therewith. Baxter or the Subsidiary may terminate the Marketing Agreement
in the event the other party defaults or fails to comply with any material
covenant contained therein.

The Services Agreement

The Services Agreement currently is being negotiated and will provide
that, for a transitional period, Baxter will perform certain transitional
services for the Subsidiary and, for a transitional period expected to be
at least five years, Baxter will perform engineering and product
development services for the Subsidiary, including clinical inventory
management.

The Non-Competition and Confidentiality Agreement

The Non-Competition and Confidentiality Agreement ("the Non-Competition
Agreement") provides generally that neither Baxter nor any of its
affiliates, directly or indirectly, will engage in the production,
manufacture, marketing, sale or distribution of any product which directly
competes with any Subsidiary product for use in certain types of ex vivo
cell selection (as defined), except (i) as required under Baxter's
agreements with the Subsidiary and (iii) to satisfy certain existing Baxter
contractual commitments. Baxter's obligations under the Non-Competition
Agreement generally expire the later of (i) five years after the effective
date, (ii) one year after the date on which Baxter neither owns 10% or more
of the common stock of the Subsidiary on a fully diluted basis nor has a
designee on the Subsidiary's board of directors, or (iii) the date on which
the Marketing Agreement expires, but in no event later than fifteen years
after the effective date, other than with respect to products supplied by
Baxter under the Supply Agreement or marketed by Baxter under the Marketing
Agreement, in which case Baxter's non-competition obligations generally
expire on the date its supply or marketing obligations expire. Baxter also
will refrain from exercising its retained license rights under the terms of
its sublicenses to the Subsidiary, except in certain specified events.

The Non-Competition Agreement also provides generally that neither the
Company nor any of its affiliates (other than the Subsidiary or an entity
owned by Baxter and the Company in the same proportion

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as the Subsidiary is owned), directly or indirectly, will engage in the
production, manufacture, marketing, sale or distribution of any product
which competes with any product of the Subsidiary's business or any product
that is supplied by Baxter pursuant to the terms of the Supply Agreement
for the later of (i) a period of five years after the effective date or
(ii) one year after the date on which the Company neither has voting
control of the Subsidiary nor has a designee on the Subsidiary's board of
directors, but in no event later than fifteen years after the effective
date, other than with respect to products supplied by Baxter under the
Supply Agreement, in which case the Company's obligations expire when such
supply obligations of Baxter expire.

The Non-Competition Agreement further provides generally that neither the
Subsidiary nor any of its affiliates, directly or indirectly, will engage
in the production, manufacture, marketing, sale or distribution of any
product which directly competes with any product supplied by Baxter under
the Supply Agreement, except if such production, manufacture, marketing,
sale or distribution is conducted by the Subsidiary or an entity owned by
Baxter and the Company in substantially the same proportions as the
Subsidiary is owned, for use in "ex vivo cell processing", as defined. The
Subsidiary's obligations with respect to any such supplied products expire
on the later of (i) eleven years after the effective date of the Non-
Competition Agreement or (ii) the date on which Baxter's obligation to
supply such product expires or is terminated under the terms of the Supply
Agreement for a reason other than the Subsidiary's breach but in no event
later than fifteen years after the effective date, other than with respect
to products supplied by Baxter under the Supply Agreement, in which case
the Subsidiary's obligations expire when such supply obligations of Baxter
expire. In addition, neither the Subsidiary nor any of its affiliates,
directly or indirectly, will enable the Company, any of the Subsidiary's
other affiliates or any third party to engage in the marketing, sale or
distribution of any of the Subsidiary's products distributed or to be
distributed by Baxter in the "Field of Distribution," as defined above,
under the Marketing Agreement. The Subsidiary's obligations with respect to
the products distributed by Baxter expire on the date on which the
Marketing Agreement expires or is terminated for a reason other than the
Subsidiary's breach.

The Non-Competition Agreements also provides generally that neither the
Company nor the Subsidiary, nor any of their affiliates, directly or
indirectly, will engage in the marketing, sale or distribution of any
product which directly competes with any product of Baxter for the
separation of human blood into its constituents while a live donor or
patient is connected to the separation device for the later of (i) five
years after the effective date, (ii) one year after the date on which
Baxter neither owns 10% or more of the common stock of the Subsidiary on a
fully-diluted basis nor has a designee on the Subsidiary's board of
directors, or (iii) the date on which the Marketing Agreement expires.

The Non-Competition Agreement further provides for Baxter, the Company
and the Subsidiary to maintain the confidentiality of all confidential
information received from each other for a period of fifteen years and to
use such confidential information only in furtherance of the recipient's
rights and obligations under the Asset Purchase Agreement and the other
agreements to be delivered at the Closing.

The Sublicenses

The Sublicense Agreements provide for the grant to the Subsidiary of
substantially all of Baxter's rights under four license agreements and for
the assumption by the Subsidiary of Baxter's obligations as licensee
thereunder, including payment of all royalties, annual maintenance fees and
other required payments. Two of the sublicenses are under licenses to
Baxter from Becton Dickenson and relate, respectively, to (i) CD34+
technology for use in applications other than diagnostic applications and
(ii) certain antibodies which attach to CD20+ and CD10+ B cells. A third
sublicense is under a non-exclusive license from Cetus Oncology Corporation
d/b/a/ Chiron Therapeutics and relates to the manufacture, use and sale of
specific antibodies and cell lines for the ex vivo therapeutic treatment of
human cancer. The fourth sublicense is under a non-exclusive license from
Professor Bernd Dorken and relates to certain cell lines for the production
of antibodies to be used in the extracorporeal therapeutic treatment or
diagnosis of Non-Hodgkins lymphoma and other specified malignancies.

7
<PAGE>

CLASS A PREFERRED SHARES

The following is a summary of the terms of the Class A Preferred Shares to
be issued to Baxter in connection with the Proposed Acquisition as set forth
in the Certificate of Amendment (Annex D). See "Proposal II--Approval of
Amendment to Amended and Restated Certificate of Incorporation." Under the
Asset Purchase Agreement, Class A Preferred Shares may not be issued by the
Company to any person or entity other than Baxter.

Voting Rights

Except as otherwise required by law, the holders of Class A Preferred
Shares will not have the right to vote on any matter submitted to a vote of
the Company's stockholders. With respect to all questions as to which,
under law, stockholders are entitled to vote by classes, the holders of
Class A Preferred Shares will vote together as a single class separately
from the holders of Common Stock. Notwithstanding the foregoing, the
Company will not be permitted to amend its Certificate of Incorporation to
provide for the creation or issuance of any class or series of capital
stock which will rank pari passu or senior to the Class A Preferred Shares
in priority to receive the "Liquidation Preference", as defined below,
without the affirmative vote or written consent of the holders of a
majority of the then issued and outstanding Class A Preferred Shares.

Conversion

Each Class A Preferred Share will be convertible, without the payment of
any additional consideration by the holder thereof and at the option of the
holder thereof, at any time after 18 months after the date on which the
Class A Preferred Shares are initially issued (the "Original Issuance
Date") into that number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $1,000 by the "Conversion Price" in
effect at the time of conversion. The "Conversion Price" initially will be
the highest average of the closing bid prices per share of Common Stock for
any sixty consecutive trading day period commencing with the Original
Issuance Date and ending on the date which is 18 months from such date, but
in no event will the Conversion Price be less than $5.50 or greater than
$7.50, subject, however, to adjustment for dilutive events, including a
subdivision or combination of the outstanding shares of Common Stock, a
stock split, stock dividend, cash dividend or other distribution with
respect to the Company's outstanding securities, a reorganization,
reclassification, merger, consolidation or sale of substantially all of the
Company's assets, or the Company's sale of Common Stock at a price less
than $3.00 per share or in excess of $10,000,000 in the aggregate during
the 18-month period following the Original Issuance Date.

Each Class A Preferred Share automatically will be converted into shares
of Common Stock at the then effective Conversion Price (i) seven years
after the Original Issuance Date, (ii) immediately prior to the effective
time of any merger, sale of assets, reorganization or like event (if such
event occurs prior to 18 months from the Original Issuance Date, then the
Conversion Price will be equal to the fair value of the consideration to be
received by the holder of a share of Common Stock, as determined in good
faith by the Company's Board of Directors, but in no event greater than
$7.50), or (iii) upon the written election of the holders of not less than
a majority in voting power of the then outstanding Class A Preferred
Shares.

Liquidation Preference

In the event of any liquidation, dissolution or winding up of the affairs
of the Company, whether voluntary or involuntary, the holders of Class A
Preferred Shares will be entitled to be paid first out of the assets of the
Company available for distribution to holders of the Company's capital
stock of all classes, before payment or distribution of any of such assets
to the holders of any other class of the Company's capital stock, an amount
equal to $1,000 per Class A Preferred Share (the "Liquidation Preference"),
which amount will be subject to equitable adjustment whenever there is a
stock dividend, stock split, combination of shares, reclassification or
other similar event affecting such shares, and will include any accrued but

8
<PAGE>

unpaid dividends. After payment is made in full to the holders of Class A
Preferred Shares or funds necessary for such payment have been set aside by
the Company in trust for the account of the holders of Class A Preferred
Shares to be available for such payment, the remaining assets of the
Company will be distributed ratably to the holders of Common Stock to the
exclusion of the Class A Preferred Shares. If the assets of the Company are
insufficient to permit the payment in full to the holders of Class A
Preferred Shares of all amounts distributable to them, then the entire
assets of the Company available for such distribution will be distributed
ratably among the holders of Class A Preferred Shares in proportion to the
full preferential amount each such holder is otherwise entitled to receive.

A consolidation or merger of the Company with or into another
unaffiliated corporation or a sale of all or substantially all of the
assets of the Company will not be regarded as a liquidation, dissolution or
winding up of the affairs of the Company.

Dividends

The holders of the Class A Preferred Shares will be entitled to receive
dividends thereon at the rate of 6% of the Liquidation Preference per share
per annum (as adjusted for any combinations, consolidations, stock
distributions or stock dividends with respect to such shares) as and when
declared by the Board of Directors, before any dividend or distribution is
declared, set apart for, or paid upon the Common Stock, which dividend will
be payable in additional Class A Preferred Shares, each valued at their
Liquidation Preference. The dividends will be cumulative, so that if the
Company fails in any fiscal year to pay such dividends on all of the issued
and outstanding Class A Preferred Shares, such deficiency in the dividends
will be fully paid before any dividends or distributions will be paid on or
set apart for the Common Stock. All dividends and distributions on the
Class A Preferred Shares will be made pro rata per share to all holders of
Class A Preferred Shares; provided, however, that, notwithstanding the
foregoing, until all cumulative dividends on the Class A Preferred Shares
are fully paid, all dividends and distributions on the Class A Preferred
Shares will be made ratably to the holders thereof in proportion to the
respective amounts that would be payable on such shares if such dividend
arrearages were paid in full.

Miscellaneous

The Class A Preferred Shares are not subject to any mandatory redemption
or sinking fund provisions, nor are the holders thereof entitled to any
preemptive rights to subscribe for or to purchase any shares or securities
of any class that may at any time be issued, sold or offered for sale by
the Company.

DESCRIPTION OF THE COMPANY

A complete description of the Company is set forth in its Annual Report on
Form 10-K for the year ended December 31, 1996 (the "10-K Report"), a copy of
which is attached as Annex B to this Proxy Statement. Since the filing of the
Form 10-K, the Company has acquired an exclusive worldwide license with
respect to Blood Factor IXa protein from Columbia University, has employed
Richard E. Kouri, Ph.D., as Senior Vice President, Research and Chief
Executive Officer of VIMRx Genomics, Inc., the Company's subsidiary, and L.
William McIntosh, as Senior Vice President, Business Development and Finance,
and Chief Financial Officer, and Mr. Allan R. Goldberg has resigned as
Chairman of the Board and Chief Executive Officer of Innovir Laboratories,
Inc., a subsidiary of the Company. Additional information is set forth in the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1997 (the "10-Q Report"), a copy of which is attached as Annex C to this
Proxy Statement. Statements in the 10-K Report and 10-Q Report are modified or
superseded, for purposes hereof, to the extent that a statement contained in
this Proxy Statement modifies or supersedes such statements.

See also "Selected Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," Items 6 and 7,
respectively, of the 10-K Report, and the other information appearing therein,
and the information appearing in the 10-Q Report.

9
<PAGE>

DESCRIPTION OF THE DIVISION

A description of the Division, followed by pro forma financial information
of the Company and the Division, is set forth commencing on page 14 of this
Proxy Statement. The audited financial statements of the Division as of
December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996, together with unaudited financial statements of the
Division as of June 30, 1997 and for the six months ended June 30, 1996 and
1997, are included herein commencing on page F-1.

ACCOUNTING TREATMENT

For accounting purposes the transaction is being treated as a purchase.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Company will not realize any gain or loss, for Federal income tax
purpose, from the issuance of Common Stock and Class A Preferred Shares to
Baxter pursuant to the Asset Purchase Agreement.

The Proposed Acquisition will not have any Federal income tax consequences
to the Company's current stockholders.

REQUIRED VOTE

Approval of the Proposed Acquisition requires the affirmative vote by the
holders of a majority of the votes cast in person or represented by proxy at
the Special Meeting.

OPINION OF FINANCIAL ADVISOR

In December 1996, the Company retained Lazard Freres to act as its exclusive
financial advisor with respect to the Proposed Acquisition, to assist in the
negotiations with Baxter and in consummating the transaction, and to advise as
to the fairness of the Proposed Acquisition to the Company's stockholders,
from a financial point of view. In consideration of its services, the Company
has agreed to pay Lazard Freres a fee of $400,000 in cash and 404,120 shares
of the Company's Common Stock in the event the Proposed Acquisition is
consummated, and to reimburse Lazard Freres for its expenses. The Company has
also agreed to indemnify Lazard Freres against any action, claim, proceeding
or investigation arising out of its engagement by the Company, other than if a
court finds the liability resulted from the bad faith or gross negligence of
Lazard Freres and/or its employees or agents. On September 24, 1997, at a
special meeting of directors held by telephone conference call to discuss the
Proposed Acquisition, a managing director of Lazard Freres indicated he
believed Lazard Freres would be in a position to give its opinion that the
Proposed Acquisition was fair, from a financial point of view, to the
Company's stockholders. Thereafter, upon completion of its due diligence and
analysis, Lazard Freres gave its written opinion to such effect, a copy of
which is attached as Annex E.

RECOMMENDATION OF THE BOARD OF DIRECTORS

In determining whether to approve the Proposed Acquisition and recommend its
approval by the Company's stockholders, the Board of Directors considered a
number of factors, including the following:

. The advanced technology and intellectual property rights being acquired.

. The potential dramatic increase in revenues upon approval of the
Isolex(R) 300SA by the FDA.

. The strategic benefits from an alliance with Baxter.

. The view of Lazard Freres.

10
<PAGE>

The Company's Board of Directors also considered a variety of potentially
negative factors in its deliberations concerning the Proposed Acquisition,
including the following:

. The critical need for and the uncertainty of obtaining FDA approval for
the Isolex(R) 300SA on a timely basis, if at all.

. The unprofitability of the Division, the substantial monthly cash funding
required for its operations and the limited cash resources of the
Company.

IN VIEW OF THE FOREGOING AND SUCH OTHER MATTERS AS IT DEEMED RELEVANT, THE
BOARD APPROVED THE PROPOSED ACQUISITION AND THE ASSET PURCHASE AGREEMENT AS
BEING IN THE BEST INTEREST OF THE COMPANY'S STOCKHOLDERS.

The foregoing discussion of the information and factors considered and given
weight by the Company's Board of Directors is not intended to be exhaustive,
but is believed to include the material factors considered by the Board. In
addition, in reaching the determination to approve the Proposed Acquisition,
in view of the wide variety of factors considered in connection with its
evaluation, the Company's Board did not find it practical to, and did not,
quantify or otherwise attempt to assign any relative or specific weights to
the foregoing factors, and individual directors may have given differing
weights to different factors.

ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE PROPOSED ACQUISITION.

PROPOSAL II--APPROVAL OF AMENDMENT TO AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION

BACKGROUND

The Board of Directors has adopted, subject to stockholder approval, an
amendment to Article FOURTH of the Company's Amended and Restated Certificate
of Incorporation, authorizing 150,000 Class A Preferred Shares to effectuate
the transactions contemplated by the Proposed Acquisition. A copy of the form
of Amendment is attached as Annex D to this Proxy Statement.

The Company has agreed not to issue any class or series of capital stock
which will rank pari passu or senior to the Class A Preferred Shares without
the affirmative vote or written consent of the holders of a majority of the
then issued and outstanding Class A Preferred Shares. See "Proposal I--
Approval of Proposed Acquisition--Terms of the Proposed Acquisition--Class A
Preferred Shares."

REQUIRED VOTE

Approval of the Amendment requires the affirmative vote of a majority of the
outstanding shares of Common Stock.

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
AMENDMENT.

11
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table sets forth certain information as of the Record Date
with respect to the beneficial ownership of Common Stock by (i) each person
known to the Company to be the beneficial owner of five percent or more
thereof, (ii) each director of the Company, (iii) each of the individuals
named in the Summary Compensation Table under Part III, Item 11--Executive
Compensation of the 10-K Report (Messrs. Richard L. Dunning, Chief Executive
Officer, Alfonso J. Tobia, Ph.D., Executive Vice President, and Francis M.
O'Connell, Vice President, Finance, respectively, of the Company), and (iv)
all executive officers and directors as a group. All persons identified below
as holding options and/or Common Stock purchase warrants (the "Warrants") are
deemed to be beneficial owners of shares of Common Stock subject to such
options or purchasable upon exercise of such Warrants by reason of their right
to acquire such shares within sixty days after the Record Date through the
exercise of such options and/or the Warrants.

<TABLE>
<CAPTION>
SHARES PERCENT
NAME BENEFICIALLY OWNED OUTSTANDING
---- ------------------ -----------
<S> <C> <C>
Richard L. Dunning.......................... 303,595(1) *
Francis M. O'Connell........................ 50,740(2) *
Alfonso J. Tobia, Ph.D...................... 75,000(3) *
Donald G. Drapkin........................... 562,500(4)(5) 1.0%
Laurence D. Fink............................ 433,333(4)(6) *
Jerome Groopman, M.D........................ 50,000(4) *
Linda G. Robinson........................... 183,333(4) *
Eric A. Rose, M.D........................... 584,900(7) 1.0%
Lindsay A. Rosenwald, M.D................... 6,114,999(4)(8) 10.6%
787 Seventh Avenue
New York, New York 10019
Michael Weiner, M.D......................... 62,410(4) *
Paramount Capital Asset Management Inc...... 4,049,999(9) 7.3%
c/o Lindsay A. Rosenwald, M.D.
787 Seventh Avenue
New York, New York 10019
Mellon Bank Corporation..................... 2,865,000(10) 5.2%
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258.............
All directors and executive officers as a
group
(11 persons)............................... 8,583,310(11) 14.7%
</TABLE>

- --------

* Less than one percent.

(1) Consists of currently exercisable options to purchase 300,000 shares owned
by Mr. Dunning, 2,095 shares owned by a daughter of Mr. Dunning, and 500
shares owned by each of Mr. Dunning's spouse, son and another daughter,
respectively. Mr. Dunning disclaims beneficial ownership of the shares
held by his spouse, son and daughters.

12
<PAGE>

(2) Consists of currently exercisable options to purchase 50,000 shares owned
by Mr. O'Connell and 740 shares owned by Mr. O'Connell's spouse as
custodian for their son under the Uniform Gift to Minors Act. Mr.
O'Connell disclaims beneficial ownership of the shares held by his spouse
as custodian for their son.

(3) Consists of currently exercisable options.

(4) Includes 100,000 shares for Mr. Drapkin and 50,000 shares for each of Mr.
Fink, Dr. Groopman, Ms. Robinson, Dr. Rosenwald and Dr. Weiner of
restricted stock which commenced vesting at the rate of 25% per year on
June 20, 1997, each such vesting subject to the respective individual
continuing to serve as a director of the Company, and subject to a non-
lapsing right of first refusal by the Company.

(5) Includes currently exercisable options to purchase 362,500 shares.

(6) Includes 66,666 shares owned by a family trust for the benefit of Mr.
Fink's children. Mr. Fink disclaims beneficial ownership of the shares
held by the family trust.

(7) Includes currently exercisable options to purchase 262,500 shares.

(8) Includes currently exercisable options to purchase 2,015,000 shares owned
by Dr. Rosenwald, and the 4,049,999 shares beneficially owned by Paramount
Capital Asset Management, Inc. ("PCAM") (see note (9) below). Dr.
Rosenwald serves as President and is sole shareholder of PCAM. Dr.
Rosenwald disclaims beneficial ownership of the shares beneficially owned
by PCAM.

(9) Information is from a Schedule 13D dated December 23, 1996 filed by PCAM
which is the investment manager of The Aries Trust (the "Aries Trust") and
the general partner of Aries Domestic Fund, L.P. (the "Aries Limited
Partnership"), and reports shared voting and dispositive power of
1,324,999 shares and 2,750,000 shares, respectively, by the Aries Trust
and the Aries Limited Partnership.

(10) Information is from a Schedule 13G dated January 24, 1997, filed by
Mellon Bank Corporation, which reflects sole voting power with respect to
2,865,000 shares and sole dispositive power with respect to 2,750,000
shares.

(11) Includes currently exercisable options to purchase 125,000 shares owned
by an executive officer not named on the table. See also notes (1)-(8).

On the Record Date, the outstanding Common Stock was held by 675 registered
stockholders.

STOCKHOLDER PROPOSALS

Any stockholder proposal to be considered for inclusion in the Company's
proxy soliciting material for the 1998 Annual Meeting of Stockholders must be
received by the Company at its principal office by December 31, 1997.

OTHER MATTERS

Management does not know of any matter to be brought before the Special
Meeting other than as described above. In the event any other matter properly
comes before the Special Meeting, the persons named in the accompanying form
of proxy have discretionary authority to vote on such matters.

13
<PAGE>

THE DIVISION

GENERAL

The Division, which commenced operations on January 1, 1993, is engaged in
the development, manufacture, marketing and distribution of specialized
instruments used in ex vivo cell research and therapies. The Division's cell
processing instruments are used in combination with biological reagents and
other instruments to provide integrated systems for manipulation of cells
extracted from patients. These cell processing instruments are used in the
treatment of various diseases, including various forms of cancer.

The Division is global in nature with headquarters in Irvine, California, a
research facility in Round Lake, Illinois, and customer training, service and
limited manufacturing and research capabilities in Munich, Germany. The
Subsidiary is not acquiring the Division's facilities in Round Lake, Illinois
and Munich, Germany and, following the Closing of the Proposed Acquisition,
operations will be consolidated at the Irvine, California facility.

The Division currently markets the Isolex(R) Cell Separator, an automated,
sterile path instrument for the positive clinical separation of specific cell
populations from blood and bone marrow (positive cell selection). In positive
cell selection, a targeted cell population is captured and retained for
reinfusion or for further biological manipulation. The Division offers three
versions of the Isolex(R) Cell Separator instrument: the smaller scale
Isolex(R) 50 Cell Separator for research use; the clinical scale semi-
automated 300SA Cell Separator; and the fully automated 300i Cell Separator.
All three versions are currently marketed for therapeutic and/or research
purposes in Europe. As the Division has not yet received local regulatory
approval of the instruments for therapeutic purposes, sales in the United
States and Japan are limited to research laboratories and institutions on a
cost recovery basis.

In addition to the positive selection Isolex(R) Cell Separator, the Division
markets the MaxSep(R) System. The semi-automated MaxSep(R) System is a
negative selection system in which undesired cells are removed from a diverse
population of cells. The MaxSep(R) System is currently marketed for
therapeutic purposes in Europe.

The Division also markets various ancillary products which are utilized in
the cell manufacturing cycle. These products include the following:
Cryocyte(TM) containers used in the freezing of blood components; Lifecell(R)
tissue culture flasks which provide a closed system environment for culturing
cells; CFU stem cell kit used to measure stem cell colony formation in samples
of bone marrow, peripheral blood, cord blood, or selected CD34 cells; and
Harvester,(TM) a cell collection device used primarily to reduce large cell
volumes.

14
<PAGE>

SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
STATEMENT OF YEAR ENDED DECEMBER 31, JUNE 30,
OPERATIONS DATA: -------------------------------------- ------------------
1993(1) 1994 1995 1996 1996(1) 1997(1)
------- ---- ---- ---- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $ 13,616 $ 19,702 $ 22,564 $ 23,947 $ 11,915 $ 7,816
Cost of goods sold...... 7,550 9,943 11,608 11,638 5,456 5,506
Gross profit........... 6,066 9,759 10,956 12,309 6,459 2,310
Operating expenses:
Research and develop-
ment.................. 33,373 35,308 35,711 34,699 17,409 12,069
Sales, general and ad-
ministrative.......... 12,187 12,324 13,356 13,254 6,597 5,429
Total operating ex-
penses............... 45,560 47,632 49,067 47,953 24,006 17,498
Operating loss........ (39,494) (37,873) (38,111) (35,644) (17,547) (15,188)
Other income (expense):
Loss on sale of invest-
ment -- -- (1,388) -- -- --
Gain on sale of
Therasorb assets -- -- -- 651 651 --
Other.................. 56 6 (39) 1,753 19 287
Total other income
(expense)............ 56 6 (1,427) 2,404 670 287
Net loss............... $(39,438) $(37,867) $(39,538) $(33,240) $(16,877) $(14,901)
-------- -------- -------- -------- -------- --------
<CAPTION>
DECEMBER 31, JUNE 30,
BALANCE SHEET DATA: -------------------------------------- --------
1993(1) 1994(1) 1995 1996 1997(1)
------- ------- ---- ---- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total current assets.... $ 5,820 $ 9,566 $ 14,257 $ 17,025 $ 14,111
Total assets............ 16,739 22,713 27,705 32,438 33,757
Total liabilities....... 3,573 6,059 5,789 7,109 4,586
Business equity......... 13,166 16,654 21,916 25,329 29,171
</TABLE>

- --------
(1) Unaudited financial data.

15
<PAGE>

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

The following discussion and analysis should be read together with the
financial statements and notes thereto included elsewhere herein.

OVERVIEW

The Division is a division of Baxter, which is a subsidiary of Baxter
International, Inc. Historically, the Division had no separate legal status.
As a result, separate financial statements of the Division were not prepared.
Management's Discussion and Analysis of Financial Condition and Results of
Operations herein is based on financial statements which have been prepared
from the historical accounting records as if the Division had operated as a
separate entity during all periods presented.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996

Revenue for the six months ended June 30, 1997 decreased $4,099,000, or 34%,
to $7,816,000 from $11,915,000 when compared to the six months ended June 30,
1996 primarily due to the transfer of the "Collections" product line to
another Baxter division in January 1997. Revenue from this product line
approximated $6,397,000 for the six months ended June 30, 1996. The decrease
in revenue related to the "Collections" product line was partially offset by
increased demand for other Division products internationally.

Cost of goods sold of $5,506,000 increased for the six months ended June 30,
1997 by $50,000, or 1%, when compared to $5,456,000 for the six months ended
June 30, 1996. As a percentage of revenue, cost of goods sold increased to 70%
in 1997 from 46% in 1996, primarily due to the transfer of the "Collections"
product line, which had a higher profit margin than the other Division
products.

Research and development expenses were $12,069,000 for the six months ended
June 30, 1997 and decreased $5,340,000, or 31%, when compared to $17,409,000
for the six months ended June 30, 1996. The decrease resulted primarily from a
reduction in research and development personnel in October 1996 and decreased
expenditures resulting from the transfer of the "Collections" product line.

Sales, general and administrative expenses were $5,429,000 for the six
months ended June 30, 1997, a decrease of $1,168,000 or 18%, as compared to
$6,597,000 for the six months ended June 30, 1996. The decrease in these
expenses was primarily due to the transfer of the "Collections" product line
and the accompanying decrease in support related costs.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Revenue for the year ended December 31, 1996 increased $1,383,000, or 6%, to
$23,947,000 from $22,564,000 when compared to the year ended December 31,
1995. The increase in revenue is primarily attributable to increased sales of
the Isolex(R) 300i Cell Separator subsequent to its regulatory approval in
Europe.

Cost of goods sold of $11,638,000 increased during 1996 by $30,000 when
compared to $11,608,000 for the year ended December 31, 1995. As a percentage
of revenue, cost of goods sold decreased to 49% in 1996 from 51% in 1995
primarily due to the increased sales of the Isolex(R) 300i Cell Separator,
which has a slightly higher profit margin than the semi-automated instrument
it replaced.

Research and development expenses were $34,699,000 for 1996, a decrease of
$1,012,000 or 3%, as compared to $35,711,000 for the year ended December 31,
1995. The decrease in research and development expenses is primarily
attributable to a reduction in research and development personnel in October
1996.

16
<PAGE>

Sales, general and administrative expenses were $13,254,000 for 1996, a
decrease of $102,000 or 1%, as compared to $13,356,000 for the year ended
December 31, 1995. The decrease in these expenses was primarily due to reduced
business development spending.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Revenue for the year ended December 31, 1995 increased $2,862,000, or 13%,
to $22,564,000 from $19,702,000 when compared to the year ended December 31,
1994. The increase in revenue is primarily attributable to sales of the
Isolex(R) 300SA which received regulatory approval in Europe in 1995.

Cost of goods sold of $11,608,000 increased during 1995 by $1,665,000 when
compared to $9,943,000 for the year ended December 31, 1994. As a percentage
of revenue, cost of goods sold remained relatively unchanged at 51% in 1995
when compared to 50% in 1994. The increase in absolute dollars is attributable
to the increased level of sales.

Research and development expenses were $35,711,000 for 1995, an increase of
$403,000 or 1%, as compared to $35,308,000 for the year ended December 31,
1994. The increase in research and development expenses is primarily
attributable to a reduction in research and development expenses during 1994
as the Division focused more resources on the commercialization of certain
products.

Sales, general and administrative expenses were $13,356,000 for 1995, an
increase of $1,032,000 or 8%, as compared to $12,324,000 for the year ended
December 31, 1994. The increase in these expenses was primarily due to
increased personnel and marketing costs related to the introduction of the
Isolex(R) 300i Cell Separator in late 1994.

LIQUIDITY AND CAPITAL RESOURCES

The Division's liquidity has been derived principally from financing
provided by Baxter. During the six months ended June 30, 1997, net cash used
in operating activities was $12,805,000 as compared to net cash used in
operating activities of $15,128,000 during the six months ended June 30, 1996.
At June 30, 1997, total cash on hand amounted to $17,000 as compared to
$35,000 at December 31, 1996.

During the year ended December 31, 1996, net cash used in operating
activities was $32,488,000 as compared to net cash used in operating
activities of $39,410,000 during the year ended December 31, 1995. The
reduction in net cash used in operating activities in 1996 as compared to 1995
was primarily due to the reduction in the Division's 1996 net loss as compared
to 1995. At December 31, 1996, total cash on hand amounted to $35,000 as
compared to $13,000 at December 31, 1995.

Capital expenditures for the six months ended June 30, 1997 were $1,521,000
as compared to $882,000 for the six months ended June 30, 1996. The increase
was primarily due to increased production of equipment utilized by
laboratories performing research and clinical trials.

Capital expenditures for the year ended December 31, 1996 were $6,468,000,
an increase of $1,801,000 when compared to $4,667,000 for the year ended
December 31, 1995. The increase was primarily due to the placement of the
Isolex(R) 300SA and 300i instruments in various North American sites for
clinical trials and research.

International sales accounted for approximately 67%, 74% and 78% of the
Division's revenues in 1994, 1995 and 1996, respectively. Increases in the
exchange rate of the U.S. dollar against specific currencies could cause the
Division's products to become relatively more expensive to customers in an
affected country, leading to a reduction in sales or profitability in that
country.

17
<PAGE>

Management believes its continuing efforts to moderate research and
development expenditures relative to contributions from product sales and
Baxter's commitment to fund the ongoing operating shortfall will provide
sufficient liquidity to enable the Division to meet its current operating and
capital needs for at least the next 12 months.

In the event the Proposed Acquisition is consummated, the Company's
management believes the funding provided to the Subsidiary (the successor to
the Division) as part of the Proposed Acquisition through the issuance of the
Subsidiary's 6 1/2% subordinated debentures will be adequate to meet the
Subsidiary's operating and capital needs for in excess of 12 months.

THE ISOLEX(R) CELL SEPARATOR

The Division has developed a technological expertise in the separation of
cells by immunoselection which has the potential of being used in many
cellular therapies. The foundation of this expertise is the Division's
proprietary immunomagnetic instrument and companion disposables for cell
separation called the Isolex(R) Cell Separator. The Isolex(R) Cell Separator
employs highly specific murine anti-human antibodies which target CD34+
hematopoietic stem cells. These antibody-marked cells are captured by
rosetting them with magnetic beads coated with sheep anti-murine antibodies
which recognize the antibodies targeting the desired cells. The rosetted cells
are then separated away from non-targeted cells when passed through a magnetic
field. After the non-target cells are removed, the specific release of
captured cells is accomplished by a peptide which competes for the antibody
targeting the captured cell. This proprietary instrument and selection process
allows for very pure preparations of cells whose surfaces are free of
biological reagents used in the capture process. This process also enables the
simultaneous or subsequent use of additional antibodies to subdivide or
further enrich the targeted cell population. This is particularly important in
treatments where any contaminating cells may have adverse effects or where
unique subsets of cells are desirable, such as in gene therapy applications.

The Division has developed and launched the Isolex(R) Cell Separator, an
automated, sterile path instrument for the clinical separation of specific
cell populations from blood or bone marrow. Three versions of this instrument
have been developed: the smaller scale Isolex(R) 50 Cell separator for
research use; the clinical scale semi-automated 300 SA Cell Separator; and the
fully automated 300i Cell Separator. To date, the Division's management team
has obtained approval of these products in Europe and is currently pursuing
approval in the United States from the FDA; its application for pre-marketing
approval for the 300SA is currently under review by the FDA.

Compared to other cell separation instruments, management believes the
automated Isolex(R) Cell Separator provides the following advantages:

. Minimizes required operator attention--Automated, sterile path
processing allows multiple procedures to be run simultaneously in busy
laboratories. The Isolex(R) 300i Cell Separator is intended to provide
reproducible purities and yields in approximately 2.5 hours.

. Facilitates regulatory compliance for the operator--Since an automated,
sterile path instrument generally provides consistent reproducible
quality processing, it may facilitate regulatory review and compliance
in a current good manufacturing practices environment.

. Reduces the need for additional equipment--Since the Isolex(R) 300i
Cell Separator incorporates proprietary cell washing technology
directly into the device, no external centrifugation is required in the
selection process.

PRODUCTS

The Division's products are sold outside the United States through Baxter
Biotech's sales force along with other cell handling instruments to provide
turn-key operations to cell processors. The Division has been recording

18
<PAGE>

substantive sales over the last several years outside of the United States.
This includes the sales of the Division's Isolex(R) 50 and Isolex(R) 300 Cell
Separator instruments as well as its other cell processing products used in
cell culture, cell enumeration, blood component cryopreservation and infusion.
The sales of the Division related to Isolex(R) products were $6.2 million for
the year ended December 31, 1995 and $9.8 million for the year ended December
31, 1996.

COMPETITION

In general, the Division may face competition from cellular device
companies. Like the Division, there are several product focused companies
attempting to develop turn-key devices for cell processing. CellPro, Inc. and
Amcel Corp. are the most direct competitors; however, management believes that
the greater automation of the Division's instruments provide it with a
competitive advantage. In addition, the Division's proprietary peptide release
system may provide additional purity by selectively releasing only targeted
cells to leave behind non-specifically bound contaminating cells.

INTELLECTUAL PROPERTY

The Division's intellectual property estate is arranged into four general
patent families:

1.Selection systems;
2Bioreactor and culture systems;
3.Reagents for use in selection; and
4.Culturing cell compositions.

The selection system encompasses the Isolex(R) Cell Separator and similar
instruments. This patent family includes patents and patent applications
directed to the basic selection device having two magnets for capturing the
paramagnetic beads and patents and applications directed to the specific
device configuration. The disposable set for the Isolex(R) 300i Cell Separator
incorporates a patented spinning membrane technology used for cell washing.

EMPLOYEES

The Division believes relations with employees to be good. Following the
Closing of the Proposed Acquisition, and assuming all employees of the
Division are employed by the Subsidiary, the Subsidiary will have 86
employees, all of whom will be located at the Subsidiary's headquarters in
Irvine, California.

PROPERTIES

Following the Closing of the Proposed Acquisition, the Subsidiary will
assume the Irvine, California lease. The lease is for a building consisting of
approximately 59,600 square feet, provides for a current monthly rental of
$40,500 plus real estate taxes and operating costs, expires November 30, 2004
and contains two five-year renewal options.

19
<PAGE>

VIMRX PHARMACEUTICALS INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION

The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1996 and the six month period ended June 30, 1997 set
forth in this Proxy Statement gives effect to the Proposed Acquisition as if
it had occurred on January 1, 1996. The unaudited pro forma condensed combined
balance sheet at June 30, 1997 gives effect to the Proposed Acquisition as if
it had occurred on June 30, 1997. The pro forma condensed combined statement
of operations excludes material non-recurring charges related to purchased in-
process research and development which totaled approximately $40.1 million.

For accounting purposes, the Proposed Acquisition was treated as a purchase.
Accordingly, for purpose of these unaudited pro forma condensed combined
statements of operations, the excess of the purchase price over the fair
market value of the acquired assets is amortized over 12 years.

The unaudited pro forma condensed combined financial statements have been
prepared by the Company's management based upon the financial statements of
the Division and the Company included elsewhere herein. Unaudited pro forma
financial data do not purport to be indicative of either the future results of
operations or the results of operations that would have occurred if the
Proposed Acquisition had been consummated on the indicated dates. The pro
forma adjustments are based on available information and certain assumptions
that the Company believes to be reasonable. The unaudited pro forma condensed
combined financial statements should be read in conjunction with the audited
financial statements contained elsewhere herein.

20
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1997

<TABLE>
<CAPTION>
HISTORICAL BAXTER
HISTORICAL IMMUNOTHERAPY PRO FORMA PRO FORMA
VIMRX DIVISION ADJUSTMENTS COMBINED
------------ ----------------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash
equivalents............ $ 2,445,000 $ 17,000 $ (17,000)(1) $ 32,445,000
30,000,000 (5)
Securities held for
sale................... 34,372,000 -- -- 34,372,000
Receivables............. -- 5,876,000 (5,876,000)(1) --
Inventory............... -- 7,717,000 (3,224,000)(1) 7,093,000
2,600,000 (4)
Prepaid expenses and
other.................. 246,000 501,000 (95,000)(1) 652,000
------------ ----------- ------------ ------------
Total current assets.. 37,063,000 14,111,000 23,388,000 74,562,000
Equipment, net.......... 3,096,000 15,272,000 (6,310,000)(1) 16,919,000
4,861,000 (4)
Marketable equity secu-
rities................. 286,000 -- -- 286,000
Intangible assets....... -- 4,273,000 (3,415,000)(1) 2,985,000
2,127,000 (4)
Goodwill................ 1,030,000 -- 25,597,000 (4) 26,627,000
Patents................. -- -- 2,737,000 (4) 2,737,000
Workforce............... -- -- 3,140,000 (4) 3,140,000
Other assets............ 292,000 101,000 (101,000)(1) 292,000
------------ ----------- ------------ ------------
Total assets......... 41,767,000 33,757,000 52,024,000 127,548,000
============ =========== ============ ============
<CAPTION>
LIABILITIES
<S> <C> <C> <C> <C>
Accounts payable and ac-
crued expenses......... $ 1,845,000 4,218,000 $ (4,218,000)(1) $ 3,545,000
1,700,000 (3)
Related party payables.. -- 368,000 (368,000)(1) --
Term note payable-
warrantholder.......... 36,000 -- -- 36,000
Capital leases-current
portion................ 472,000 -- -- 472,000
------------ ----------- ------------ ------------
Total current
liabilities.......... 2,353,000 4,586,000 (2,886,000) 4,053,000
Term note payable-
warrantholders......... 227,000 -- -- 227,000
Capital leases.......... 292,000 -- -- 292,000
Convertible debt........ -- -- 30,000,000 (5) 30,000,000
------------ ----------- ------------ ------------
Total liabilities.... 2,872,000 4,586,000 27,114,000 34,572,000
------------ ----------- ------------ ------------
Minority interest....... 1,035,000 -- 2,870,000 (4) 3,905,000
------------ ----------- ------------ ------------
<CAPTION>
SHAREHOLDERS EQUITY
<S> <C> <C> <C> <C>
Class A Convertible Pre-
ferred Stock........... -- -- 54,580,000 (3) 54,580,000
Common Stock............ 55,000 -- 11,000 (3) 66,000
Additional paid-in capi-
tal.................... 90,649,000 -- 36,709,000 (3) 127,358,000
Business equity......... -- 29,171,000 (14,452,000)(1) --
(14,719,000)(4)
Unearned compensation... (534,000) -- -- (534,000)
Unrealized gain on in-
vestment............... (167,000) -- -- (167,000)
Cumulative translation
adjustment............. (65,000) -- -- (65,000)
Deficit accumulated dur-
ing development stage.. (52,078,000) -- (40,089,000)(4) (92,167,000)
------------ ----------- ------------ ------------
Total shareholder's
equity............... 37,860,000 29,171,000 22,040,000 89,071,000
------------ ----------- ------------ ------------
$ 41,767,000 $33,757,000 $ 52,024,000 $127,548,000
============ =========== ============ ============
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.

21
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
HISTORICAL
BAXTER
HISTORICAL IMMUNOTHERAPY PRO FORMA PRO FORMA
VIMRX DIVISION ADJUSTMENTS COMBINED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue................. $ -- $ 23,947,000 $(17,527,000)(1)(2) $ 6,420,000
Cost of goods sold...... -- 11,638,000 (5,290,000)(1)(2) 8,948,000
2,600,000 (4)
------------ ------------ ------------ ------------
Gross profit (loss).. -- 12,309,000 (14,837,000) (2,528,000)
------------ ------------ ------------ ------------
Operating expenses:
Research and develop-
ment................... 2,950,000 34,699,000 (3,332,000)(1)(2) 34,803,000
486,000 (4)
Purchased research and
development............ 14,484,000 -- -- 14,484,000
Royalty expense......... 100,000 -- -- 100,000
Goodwill amortization... -- -- 2,622,000 (4) 2,622,000
General and administra-
tive................... 4,300,000 13,254,000 (10,643,000)(1)(2) 6,911,000
------------ ------------ ------------ ------------
Total operating ex-
penses.............. 21,834,000 47,953,000 (10,867,000) 58,920,000
------------ ------------ ------------ ------------
Operating (loss)........ (21,834,000) (35,644,000) (3,970,000) (61,448,000)
------------ ------------ ------------ ------------
Other (income) expenses:
Minority interest in net
loss of consolidated
subsidiary............. (116,000) -- (6,999,000)(4) (7,115,000)
Interest income......... (1,792,000) -- -- (1,792,000)
Interest expense........ 329,000 -- 1,950,000 (5) 2,279,000
Gain on sale of
Therasorb assets....... -- (651,000) 651,000 (1) --
Other, net.............. (395,000) (1,753,000) 1,788,000 (1) (360,000)
------------ ------------ ------------ ------------
Total other (income) ex-
penses................. (1,974,000) (2,404,000) (2,610,000) (6,988,000)
------------ ------------ ------------ ------------
Net (loss).............. (19,860,000) (33,240,000) (1,360,000) (54,460,000)
Preferred Stock divi-
dends.................. -- -- (4,657,000)(6) (4,657,000)
------------ ------------ ------------ ------------
Net loss applicable to
Common Stock........... $(19,860,000) $(33,240,000) $ (6,017,000) $(59,117,000)
============ ============ ============ ============
Pro forma weighted aver-
age number of shares
outstanding............ 39,398,644 11,400,000 (3) 50,798,644
============ ============ ============
Net loss per share...... $ (0.50) $ (1.16)
============ ============
</TABLE>

See notes to unaudited pro forma condensed combined financial statements.

22
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997

<TABLE>
<CAPTION>
HISTORICAL BAXTER
HISTORICAL IMMUNOTHERAPY PRO FORMA PRO FORMA
VIMRX DIVISION ADJUSTMENTS COMBINED
----------- ----------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue................. $ -- $ 7,816,000 $(2,759,000)(1)(2) $ 5,057,000
Cost of goods sold...... -- 5,506,000 349,000 (1)(2) 5,855,000
----------- ------------ ----------- ------------
Gross profit (loss)... -- 2,310,000 (3,108,000) (798,000)
----------- ------------ ----------- ------------
Operating expenses:
Research and develop-
ment................... 6,714,000 12,069,000 (225,000)(1)(2) 18,801,000
243,000 (4)
Purchased research and
development............ 1,800,000 -- -- 1,800,000
Royalty expense......... 100,000 -- -- 100,000
Goodwill amortization... -- -- 1,312,000 (4) 1,312,000
General and administra-
tive................... 4,128,000 5,429,000 (4,324,000)(1)(2) 5,233,000
----------- ------------ ----------- ------------
Total operating ex-
penses............... 12,742,000 17,498,000 (2,994,000) 27,246,000
----------- ------------ ----------- ------------
Operating (loss)........ (12,742,000) (15,188,000) (114,000) (28,044,000)
----------- ------------ ----------- ------------
Other (income) expenses:
Minority interest in net
loss of consolidated
subsidiary............. (1,876,000) -- (2,815,000)(4) (4,691,000)
Interest income......... (1,282,000) -- -- (1,282,000)
Interest expense 83,000 -- 975,000 (5) 1,058,000
Other, net.............. 40,000 (287,000) -- (247,000)
----------- ------------ ----------- ------------
Total other (income) ex-
penses................. (3,035,000) (287,000) (1,840,000) (5,162,000)
----------- ------------ ----------- ------------
Net (loss).............. (9,707,000) (14,901,000) 1,726,000 (22,882,000)
Preferred Stock divi-
dends.................. -- -- (2,329,000)(6) (2,329,000)
----------- ------------ ----------- ------------
Net loss applicable to
Common Stock........... $(9,707,000) $(14,901,000) $ (603,000) $(25,211,000)
=========== ============ =========== ============
Pro forma weighted aver-
age number of shares
outstanding............ 54,626,741 11,400,000 (3) 66,026,741
=========== =========== ============
Net loss per share...... $ (0.18) $ (0.38)
=========== ============
</TABLE>

See notes to unaudited pro forma condensed combined financial statements.

23
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

1. Certain assets, the existing liabilities and the operations of the
"Collections" and Therasorb product lines of the Division were not acquired
by the Subsidiary and have been eliminated.

2. Concurrent to the Proposed Acquisition, the Subsidiary will enter into
various agreements with Baxter under which Baxter will provide certain
manufacturing, supply, marketing and administrative services. The charges
from Baxter related to these agreements have been reflected as a reduction
in revenues, an increase in cost of sales and a reduction in general and
administrative expenses.

3. Pursuant to the asset purchase agreement, the Company will issue 11,000,000
shares of Common Stock, 40,000 shares of Class A Preferred Stock and
additional shares of Class A Preferred Stock valued at $1,000 per share to
total, together with the Common Stock, $50,000,000. Based on the June 30,
1997 closing sale price of $3.22 as reported on the Nasdaq National Market,
an additional 14,580 shares of Class A Preferred Stock would be issued. The
Company will also issue approximately 400,000 shares of Common Stock to
Lazard Freres as part of the consideration for their services.

4. The purchase price was allocated to inventory, the net tangible assets,
goodwill and purchased in-process research and development which has been
charged to operations. The purchased in-process research and development of
$40.1 million has been deemed to be non-recurring and directly attributable
to the acquisition and accordingly has been excluded from the pro forma
results of operations. The purchased in-process research and development
will be expensed in the period the transaction is consummated. The
Subsidiary's Common Stock is eliminated and minority interest is
established. Goodwill is being amortized on a straight line basis over a
period of expected benefit of approximately 12 years.

5. Baxter will purchase $30,000,000 of convertible debentures of the
Subsidiary's 6 1/2% subordinated debentures. The $10,000,000 convertible
debenture purchased by the Company will eliminate in consolidation and,
therefore, is not recorded.

6. To reflect preferred stock dividends which accumulate at a rate of 6%.

7. The Subsidiary also will issue a warrant to Baxter to purchase an
additional 6% of the Subsidiary's common stock for $6,000,000.

24
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
A DIVISION OF BAXTER HEALTHCARE CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL STATEMENTS:
Independent Auditor's Report............................................. F-2
Balance Sheets as of December 31, 1995 and 1996.......................... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and
1996.................................................................... F-4
Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996.................................................................... F-5
Notes to Financial Statements............................................ F-6
CONDENSED FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1996 (Audited) and June 30, 1997
(Unaudited)............................................................. F-13
Statements of Operations for the six months ended June 30, 1996 and 1997
(Unaudited)............................................................. F-14
Statements of Cash Flows for the six months ended June 30, 1996 and 1997
(Unaudited)............................................................. F-15
Notes to Condensed Financial Statements (Unaudited)...................... F-16
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders Baxter Healthcare Corporation:

We have audited the accompanying balance sheets of the Immunotherapy
Division of Baxter Biotech, a division of Baxter Healthcare Corporation, as of
December 31, 1995 and 1996 and the related statements of operations and cash
flows for each of the years in the three-year period ended December 31, 1996.
These financial statements are the responsibility of the Business' management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Immunotherapy Division
of Baxter Biotech as of December 31, 1995 and 1996 and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

Los Angeles, California
July 28, 1997

F-2
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

BALANCE SHEETS

DECEMBER 31, 1995 AND 1996

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 13,000 $ 35,000
Accounts receivable, less allowance for doubtful
accounts of $48,000 in 1995 and $71,000 in 1996..... 6,268,000 6,019,000
Due from related parties............................. 353,000 529,000
Other receivables.................................... 647,000 1,788,000
Inventories.......................................... 6,767,000 8,523,000
Prepaid expenses and other current assets............ 209,000 131,000
----------- -----------
Total current assets............................... 14,257,000 17,025,000
Property and equipment, net............................ 10,338,000 11,808,000
Other assets........................................... 3,110,000 3,605,000
----------- -----------
Total assets....................................... $27,705,000 $32,438,000
=========== ===========
LIABILITIES AND BUSINESS EQUITY
Current liabilities:
Accounts payable..................................... $ 2,190,000 $ 2,428,000
Due to related parties............................... 28,000 658,000
Accrued expenses and other current liabilities....... 3,571,000 4,023,000
----------- -----------
Total current liabilities.......................... 5,789,000 7,109,000
Commitments and contingencies (note 10)
Business equity (note 11).............................. 21,916,000 25,329,000
----------- -----------
Total liabilities and business equity.............. $27,705,000 $32,438,000
=========== ===========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue............................... $ 19,702,000 $ 22,564,000 $ 23,947,000
Cost of goods sold.................... 9,943,000 11,608,000 11,638,000
------------ ------------ ------------
Gross profit........................ 9,759,000 10,956,000 12,309,000
------------ ------------ ------------
Operating expenses:
Research and development............ 35,308,000 35,711,000 34,699,000
Sales, general and administrative... 12,324,000 13,356,000 13,254,000
------------ ------------ ------------
Total operating expenses............ 47,632,000 49,067,000 47,953,000
------------ ------------ ------------
Operating loss...................... (37,873,000) (38,111,000) (35,644,000)
------------ ------------ ------------
Other income (expense):
Loss on sale of investment.......... -- (1,388,000) --
Gain on sale of Therasorb assets.... -- -- 651,000
Other............................... 6,000 (39,000) 1,753,000
------------ ------------ ------------
Total other income (expense)........ 6,000 (1,427,000) 2,404,000
------------ ------------ ------------
Net loss............................ $(37,867,000) $(39,538,000) $(33,240,000)
============ ============ ============
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996

<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $(37,867,000) $(39,538,000) $(33,240,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization..... 2,296,000 3,693,000 4,383,000
Gain on sale of Therasorb assets.. -- -- (651,000)
Loss on sale of investment........ -- 1,388,000 --
Changes in assets and liabilities:
Accounts receivable.............. (1,480,000) (1,982,000) (689,000)
Due from related parties......... (88,000) (265,000) (176,000)
Other receivables................ (601,000) (46,000) (1,141,000)
Inventories...................... (3,307,000) (2,257,000) (3,435,000)
Prepaid expenses and other
assets.......................... 2,072,000 (133,000) 60,000
Accounts payable................. (200,000) (160,000) 925,000
Due to related parties........... (4,000) 28,000 630,000
Accrued expenses and other
current liabilities............. 2,353,000 (138,000) 846,000
------------ ------------ ------------
Net cash used in operating
activities...................... (36,826,000) (39,410,000) (32,488,000)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and
equipment......................... (4,226,000) (4,667,000) (6,468,000)
Purchases of other assets.......... (298,000) (2,100,000) (961,000)
Proceeds from sale of Therasorb
assets............................ -- -- 3,286,000
Proceeds from sale of investments.. -- 1,385,000 --
------------ ------------ ------------
Net cash used in investing
activities...................... (4,524,000) (5,382,000) (4,143,000)
------------ ------------ ------------
Cash flows from financing
activities--
financing from parent............... $ 41,355,000 $ 44,800,000 $ 36,653,000
------------ ------------ ------------
Net cash provided by financing
activities...................... 41,355,000 44,800,000 36,653,000
------------ ------------ ------------
Net increase in cash............. 5,000 8,000 22,000
Cash at beginning of year............ -- 5,000 13,000
------------ ------------ ------------
Cash at end of year.................. $ 5,000 $ 13,000 $ 35,000
============ ============ ============
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest......................... -- -- --
Income taxes..................... $ -- $ -- $ --
============ ============ ============
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1994, 1995 AND 1996

(1) BASIS OF PRESENTATION

General

The Immunotherapy Division of Baxter Biotech (the Business) is a division of
Baxter Healthcare Corporation (Baxter), which is a subsidiary of Baxter
International, Inc. The Business is engaged in the development, manufacture,
marketing and distribution of specialized instruments used in ex-vivo cell
research and therapies.

Historically, the Business had no separate legal status. The accompanying
financial statements have been prepared from the historical accounting records
as if the Business had operated as a separate entity during all periods
presented.

The financial statements include all of the direct operating expenses of the
Business and allocations of certain shared administrative services costs from
Baxter. Expenses are allocated on the basis of actual usage or other methods,
which approximate actual usage. Management believes that the allocation
methods are reasonable. However, these allocations are not necessarily
indicative of the costs and expenses that would have resulted if the Business
had been operated as a separate entity.

Operations outside the United States are included in the accompanying
financial statements on the basis of fiscal years ending November 30.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives which range from 3 to
11 years. Leasehold improvements are amortized using the straight-line method
over the estimated useful life or the lease term, whichever is shorter.

License Agreements

License agreements are recorded at cost and are amortized using the
straight-line method over the shorter of the estimated useful lives of the
license or the license term. These costs are included with other assets in the
accompanying balance sheets. Accumulated amortization at December 31, 1995 and
1996 was $1,174,000 and $1,640,000, respectively.

Financial Instruments

The carrying value of financial instruments such as cash, accounts
receivable, other current assets, accounts payable and other current
liabilities approximates their fair value due to the short-term nature of
these instruments.

Revenue Recognition

Revenue and related cost of goods sold are recognized upon shipment of
products.

F-6
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

Research and Development Costs

Research and development costs are charged to expense as incurred.

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Business adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amounts of the assets exceed
their fair values. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of this statement
did not have a material impact on the Business' financial position or results
of operations.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which defines a fair-value
method of accounting for stock-based awards. As permitted by SFAS No. 123, the
Business elected to continue to follow existing accounting requirements for
stock options and other stock-based awards contained in Accounting Principles
Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees."
Management of the Business has determined that the required pro forma
disclosures pursuant to SFAS No. 123 are not material to the accompanying
financial statements (see note 7).

Use of Estimates

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

(3) SALE OF INVESTMENT AND DISCONTINUED OPERATIONS

At December 31, 1994, the Business owned 117,748 shares of Applied Immune
Science, Inc. (AIS) common stock. Through its investment, the Business
obtained certain distribution and marketing rights to products developed
either exclusively by AIS or jointly by AIS and the Business. In November
1995, the Business sold its entire holding of AIS common stock for cash
proceeds of $1,385,000 which resulted in a loss of $1,388,000.

F-7
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

In February 1996, the Business sold the assets of its "Therasorb" product
line for $3,286,000 which resulted in a gain of $651,000. In addition, the
Business recorded income of approximately $1,764,000 during 1996 related to
the "earn-out" provisions related to the sale of the Therasorb assets. This
amount is included in "Other" income in the accompanying financial statements.

On January 1, 1997, the Business transferred the assets of its "Collections"
product line to another Baxter division. The operating results of the
"Therasorb" and "Collections" product lines included in the statements of
operations were revenues of $12,900,000, $16,400,000 and $13,700,000 in 1994,
1995 and 1996, respectively, and operating losses of $2,500,000 and $100,000
in 1994 and 1995 and operating profit of $1,200,000 in 1996.

(4) INVENTORIES

Inventories at December 31, 1995 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Raw materials.......................................... $ 558,000 $1,424,000
Work in process........................................ 1,003,000 668,000
Finished goods......................................... 5,206,000 6,431,000
---------- ----------
$6,767,000 $8,523,000
========== ==========
</TABLE>

(5) PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1995 and 1996 are summarized as
follows:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Land................................................ $ -- $ 25,000
Buildings and improvements.......................... 60,000 275,000
Equipment........................................... 18,258,000 23,470,000
Construction in progress............................ 475,000 410,000
----------- -----------
18,793,000 24,180,000
Less accumulated depreciation and amortization...... 8,455,000 12,372,000
----------- -----------
$10,338,000 $11,808,000
=========== ===========
</TABLE>

(6) INCOME TAXES

The Business has not recorded income tax expense or benefit for 1994, 1995
or 1996. On a separate return basis, the losses incurred during those years
would give rise to net operating loss carryforwards and related deferred tax
assets. The deferred tax assets before related valuation allowances at
December 31, 1995 and 1996 would amount to $27,013,000 and $37,168,000,
respectively. Due to the uncertainty of ultimate utilization of those
carryforwards on a separate-return basis, the Business has recorded valuation
allowances for the full amounts of those deferred tax assets. The tax effect
of other temporary differences that give rise to deferred tax liabilities at
December 31, 1995 and 1996 was not material.

The Business, on a stand-alone basis, would have a net operating loss
carryforward for Federal income tax purposes of approximately $104,405,000 at
December 31, 1996. However, since the Business has been included in the
consolidated tax filings of Baxter, its prior losses have been utilized in the
Baxter consolidated tax returns.

F-8
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

As such, should the Business actually file separate tax returns in the future,
no net operating losses would be available.

(7) STOCK-BASED COMPENSATION PLANS

Employees of the Business participate in certain Baxter stock-based
compensation plans, which are described below. The Business applies APB No. 25
and related interpretations in accounting for its employees' participation in
these plans. Accordingly, no compensation expense has been recognized by the
Business under the plans in which employees participate other than for
performance-based stock granted to employees.

Fixed Stock Option Plans

The two Baxter International, Inc. fixed stock option plans provide for the
grant of incentive stock options. Options are primarily granted at the fair
market value of the Baxter International, Inc. common stock at the date of
grant with an initial term of ten years. Vesting terms vary, with some options
vesting ratably over three years and others vesting 100% after five years,
with accelerated vesting upon the achievement of specific stock market value
levels.

The following summarizes the stock option transactions under the plans
during the periods presented:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
SHARES PRICE
------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1993........... 81,852 $24.39
Options granted.................................... 20,289 24.79
Options exercised.................................. (4,563) 13.29
Options canceled................................... -- --
------- ------
Options outstanding at December 31, 1994........... 97,578 24.99
Options granted.................................... 56,130 34.68
Options exercised.................................. (6,870) 16.39
Options canceled................................... (3,933) 30.39
------- ------
Options outstanding at December 31, 1995........... 142,905 29.06
Options granted.................................... 37,700 51.00
Options exercised.................................. (12,341) 19.55
Options canceled................................... (4,034) 34.56
------- ------
Options outstanding at December 31, 1996........... 164,230 $34.68
======= ======
</TABLE>

At December 31, 1996, the range of exercise prices and the weighted average
remaining contractual life of outstanding options was $20.51-$51.00 and 7
years, respectively.

At December 31, 1994, 1995 and 1996, the number of options exercisable was
58,842, 60,967 and 64,609, respectively, and the weighted average exercise
price of those options was $24.51, $25.86 and $26.68, respectively.

Employee Stock Purchase Plans

Business employees may participate in the Baxter International, Inc. stock
purchase plans through payroll deductions. The common stock purchase price is
the lower of 85% of the closing market price on the date of

F-9
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

subscription or 85% of the closing market price as defined by the plans. The
total subscription amount for each participant cannot exceed 25% of current
annual pay. Purchases by Business employees under the Baxter International,
Inc. stock purchase plans aggregated 13,175, 12,230, and 9,220 shares in 1994,
1995 and 1996, respectively.

Management of the Business has determined that the pro forma compensation
cost determined under the fair-value method prescribed under SFAS No. 123
would not be material to the accompanying financial statements.

Restricted Stock

Certain key employees of the Business have received grants of restricted
stock under the Baxter International, Inc. restricted stock plan. Under the
plan, annual grants are earned based on the achievement of net income and
average "operational cash flow" targets, adjusted up or down by Baxter
International, Inc.'s stock performance against the change in the Standard &
Poor's Medical Products and Supplies Index. These restricted shares vest one
year after they are earned.

At December 31, 1996, 9,218 shares were subject to restrictions which lapse
in 1997 and 17,182 shares were subject to restrictions that lapse upon
achievement of future performance objectives and related vesting periods.
During 1994, 1995 and 1996, 6,050, 6,776 and 9,218 shares, respectively, of
restricted stock were earned. The Business has recorded compensation expense
for the restricted stock of $85,000, $227,000 and $331,000 during 1994, 1995
and 1996, respectively.

(8) RETIREMENT AND OTHER POSTEMPLOYMENT BENEFIT PLANS

Retirement Plans

Substantially all U.S. employees of the Business are eligible to participate
in Baxter International, Inc.'s qualified 401(k) plan and Baxter
International, Inc.'s qualified and nonqualified non-contributory, defined
benefit pension plans. Under the defined benefit pension plans, benefits are
based on years of service and the employee's compensation during five of the
last ten years of employment as defined by the plans. Baxter International,
Inc.'s funding policy is to make contributions to the trusts of the qualified
plans which meet or exceed the minimum funding requirements. Assets held by
the trusts of the plans consist primarily of equity and fixed income
securities.

Baxter International, Inc. recorded pension costs of $43,000,000,
$35,000,000 and $47,000,000 during the years ended December 31, 1994, 1995 and
1996, respectively, and a net pension asset of $13,000,000 as of December 31,
1995 and 1996. The value of the projected benefit obligation at December 31,
1995 and 1996 assumed a 7.25% and an 8.0% discount rate, respectively, and a
4.5% rate of increase in future compensation levels. The expected long-term
rate of return on assets was 9.5% for 1995 and 1996. The Business' allocated
portion of pension costs was $371,000, $343,000 and $412,000 in 1994, 1995 and
1996, respectively. The Business has not recorded a pension related asset or
liability in the accompanying financial statements.

Under the 401(k) plan, participating Business employees may contribute up to
12% of their annual compensation to the plan and the Business matches
participants' contributions up to 3% of compensation. The Business' matching
contributions were $180,000, $182,000 and $196,000 in 1994, 1995 and 1996,
respectively.

F-10
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

Other Postemployment Benefit Plans

Baxter International, Inc. sponsors certain unfunded contributory health
care and life insurance benefits for substantially all domestic-retired
employees. Baxter International, Inc. recorded net postretirement benefits
costs of $16,000,000, $16,000,000 and $18,000,000 during the years ended
December 31, 1994, 1995 and 1996, respectively, and an accrued postretirement
benefit liability of $273,000,000 and $268,000,000 as of December 31, 1995 and
1996, respectively. The value of the accumulated postretirement benefit
obligation at December 31, 1995 and 1996 assumed a 7.25% and an 8.0% discount
rate, respectively. The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation was 10.0% in 1997, gradually
declining to 5.0% after five years. The effect of increasing the health care
cost trend rate by one percentage point in each year would increase the
accumulated postretirement benefit obligation by $28,000,000 at December 31,
1996 and the net periodic cost by $3,000,000 for the year. The Business'
allocated portion of net postretirement benefit costs was $149,000, $148,000
and $217,000 in 1994, 1995 and 1996, respectively. The Business has not
recorded a postretirement benefit liability in the accompanying financial
statements.

(9) DOMESTIC AND FOREIGN OPERATIONS

The Business is engaged in a single industry, the development, manufacture,
marketing and distribution of specialized instruments used in ex-vivo cell
research and therapies. The Business' customers are concentrated in the United
States and Europe and no single customer accounts for a significant amount of
the Business' sales.

Information related to domestic and foreign operations is as follows:

<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sales:
United States.................. $ 6,513,000 $ 5,800,000 $ 5,254,000
Europe......................... 9,541,000 12,762,000 13,114,000
Other.......................... 3,648,000 4,002,000 5,579,000
------------ ------------ ------------
Total.......................... $ 19,702,000 $ 22,564,000 $ 23,947,000
============ ============ ============
Operating income (loss):
United States.................. $(30,265,000) $(31,661,000) $(31,249,000)
Europe......................... (8,023,000) (6,654,000) (4,822,000)
Other.......................... 415,000 204,000 427,000
------------ ------------ ------------
Total.......................... $(37,873,000) $(38,111,000) $(35,644,000)
============ ============ ============
Identifiable assets at end of
year:
United States.................. $ 11,636,000 $ 12,335,000 $ 16,729,000
Europe......................... 10,353,000 14,004,000 11,380,000
Other.......................... 724,000 1,366,000 4,329,000
------------ ------------ ------------
Total.......................... $ 22,713,000 $ 27,705,000 $ 32,438,000
============ ============ ============
</TABLE>

F-11
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1994, 1995 AND 1996

(10) COMMITMENTS AND CONTINGENCIES

Litigation

The Company is involved in certain litigation arising in the ordinary course
of business. The potential outcome of the litigation cannot be predicted with
certainty. However, management believes that the loss, if any, resulting from
the litigation, would not be material to the financial statements of the
Business.

Operating Leases

The Business leases certain of its facilities and equipment under various
noncancelable operating leases expiring through November 2004.

Total rental expense for all operating leases, excluding allocations from
Baxter, was approximately $1,200,000, $1,008,000 and $1,021,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.

At December 31, 1996, the future minimum payments under noncancelable leases
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1997......................................................... $ 859,000
1998......................................................... 828,000
1999......................................................... 736,000
2000......................................................... 674,000
2001......................................................... 670,000
Thereafter................................................... 1,955,000
----------
$5,722,000
==========
</TABLE>

(11) BUSINESS EQUITY

Business equity represents Baxter's ownership interest in the recorded net
assets of the Business. All cash transactions and intercompany transactions
with Baxter are reflected in this amount. A summary of the activity is as
follows:

<TABLE>
<S> <C>
Balance at December 31, 1993................................ $ 13,166,000
Net loss.................................................... (37,867,000)
Net intercompany activity................................... 41,355,000
------------
Balance at December 31, 1994................................ 16,654,000
Net loss.................................................... (39,538,000)
Net intercompany activity................................... 44,800,000
------------
Balance at December 31, 1995................................ 21,916,000
Net loss.................................................... (33,240,000)
Net intercompany activity................................... 36,653,000
------------
Balance at December 31, 1996................................ $ 25,329,000
============
</TABLE>

F-12
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

CONDENSED BALANCE SHEETS

DECEMBER 31, 1996 AND JUNE 30, 1997

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1996 1997
----------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................... $ 35,000 $ 17,000
Accounts receivable, less allowance for
doubtful accounts of $71,000 at December 31,
1996 and $59,000 at June 30, 1997............. 6,019,000 4,354,000
Due from related parties....................... 529,000 400,000
Other receivables.............................. 1,788,000 1,122,000
Inventories.................................... 8,523,000 7,717,000
Prepaid expenses and other current assets...... 131,000 501,000
----------- -----------
Total current assets......................... 17,025,000 14,111,000
Property and equipment, net...................... 11,808,000 15,272,000
Other assets..................................... 3,605,000 4,374,000
----------- -----------
Total assets................................. $32,438,000 $33,757,000
=========== ===========
LIABILITIES AND BUSINESS EQUITY
Current liabilities:
Accounts payable............................... $ 2,428,000 $ 1,810,000
Due to related parties......................... 658,000 368,000
Accrued expenses and other current
liabilities................................... 4,023,000 2,408,000
----------- -----------
Total current liabilities.................... 7,109,000 4,586,000
Commitments and contingencies
Business equity.................................. 25,329,000 29,171,000
----------- -----------
Total liabilities and business equity........ $32,438,000 $33,757,000
=========== ===========
</TABLE>

See accompanying notes to unaudited financial statements.

F-13
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

SIX MONTHS ENDED JUNE 30, 1996, AND 1997

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Revenue............................................ $ 11,915,000 $ 7,816,000
Cost of goods sold................................. 5,456,000 5,506,000
------------ ------------
Gross profit..................................... 6,459,000 2,310,000
------------ ------------
Operating expenses:
Research and development......................... 17,409,000 12,069,000
Sales, general and administrative................ 6,597,000 5,429,000
------------ ------------
Total operating expenses......................... 24,006,000 17,498,000
------------ ------------
Operating loss................................... (17,547,000) (15,188,000)
------------ ------------
Other Income:
Gain on sale of Therasorb assets................. 651,000 --
Other, net....................................... 19,000 287,000
------------ ------------
Total other income............................... 670,000 287,000
------------ ------------
Net loss......................................... $(16,877,000) $(14,901,000)
============ ============
</TABLE>

See accompanying notes to unaudited financial statements.

F-14
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

SIX MONTHS ENDED JUNE 30, 1996 AND 1997

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(16,877,000) $(14,901,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 1,608,000 1,723,000
Gain on sale of Therasorb assets................. (651,000) --
Changes in assets and liabilities:
Accounts receivable.............................. 2,697,000 1,665,000
Due from related parties......................... (176,000) (129,000)
Other receivables................................ (3,171,000) 666,000
Inventories...................................... 1,949,000 806,000
Prepaid expenses and other assets................ (179,000) (370,000)
Accounts payable................................. (998,000) (618,000)
Due to related parties........................... 630,000 (290,000)
Accrued expenses and other current liabilities... 40,000 (1,615,000)
------------ ------------
Net cash used in operating activities............ (15,128,000) (12,805,000)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment............... (882,000) (1,521,000)
Purchases of other assets......................... (368,000) (861,000)
------------ ------------
Net cash used in investing activities............ (1,250,000) (5,956,000)
------------ ------------
Cash flows from financing activities--financing
from parent....................................... 16,399,000 15,169,000
------------ ------------
Net cash provided by financing activities........ 16,399,000 15,169,000
------------ ------------
Net increase in cash............................. 21,000 (18,000)
Cash at beginning of period........................ 13,000 35,000
------------ ------------
Cash at end of period.............................. $ 34,000 $ 17,000
============ ============
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest......................................... -- --
Income taxes..................................... $ -- $ --
============ ============
</TABLE>

Supplemental disclosure of noncash financing and investing activities:

In the second quarter of 1997, Baxter transferred leasehold improvements
and equipment with a net book value of $3,574,000 to the Business.

See accompanying notes to unaudited financial statements.

F-15
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

JUNE 30, 1996 AND 1997

The unaudited financial statements as of June 30, 1997 and for the six month
periods ended June 30, 1996 and 1997 included herein have been prepared by the
Business, and in the opinion of management, reflect all adjustments that are
necessary to fairly state the financial position of the Business and its cash
flows and the results of its operations. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
However, the Business believes that the disclosures are adequate to prevent
the information presented from being misleading. These financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Business' annual report for the year ended December
31, 1996.

(1) BASIS OF PRESENTATION

General

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).

Property and Equipment

License Agreements

F-16
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
JUNE 30, 1996 AND 1997

Financial Instruments

Revenue Recognition

Revenue and related cost of goods sold are recognized upon shipment of
products.

Research and Development Costs

Research and development costs are charged to expense as incurred.

Income Taxes

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

Stock-Based Compensation

Use of Estimates

F-17
<PAGE>

IMMUNOTHERAPY DIVISION OF BAXTER BIOTECH
(A DIVISION OF BAXTER HEALTHCARE CORPORATION)

NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
JUNE 30, 1996 AND 1997

disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

(3) DISCONTINUED OPERATIONS

In February 1996, the Business sold the assets of its "Therasorb" product
line and on January 1, 1997, the Business transferred the assets of its
"Collections" product line to another Baxter division.

(4) INCOME TAXES

The Business has not recorded income tax expense or benefit for the six
months ended June 30, 1996 and 1997. On a separate return basis, the losses
incurred during those periods would give rise to net operating loss
carryforwards and related deferred tax assets. Due to the uncertainty of
ultimate utilization of those carryforwards on a separate-return basis, the
Business has recorded valuation allowances for the full amounts of those
deferred tax assets. The tax effect of other temporary differences that give
rise to deferred tax liabilities are not material.

The Business, on a stand-alone basis, would have a net operating loss
carryforward for Federal income tax purposes. However, since the Business has
been included in the consolidated tax filings of Baxter, its prior losses have
been utilized in the Baxter consolidated tax returns. As such, should the
Business actually file separate tax returns in the future, no net operating
losses would be available.

(5) CONTINGENCIES

The Business is involved in certain litigation arising in the ordinary
course of business. The potential outcome of the litigation cannot be
predicted with certainty. However, management believes that the loss, if any,
resulting from the litigation, would not be material to the financial
statements of the Business.

(6) BUSINESS EQUITY

Business equity represents Baxter's ownership interest in the recorded net
assets of the Business. All cash transactions and intercompany transactions
with Baxter are reflected in this amount.

(7) ASSET PURCHASE AGREEMENT

On June 12, 1997, the Business signed a letter of intent with VIMRX
Pharmaceuticals Inc. (VIMRX) to form a new company.

Pursuant to the definitive asset purchase agreement dated October 10, 1997,
certain of the assets of the Business will be transferred to a new company,
yet to be named, in which VIMRX will hold a majority ownership (80.5%) and
Baxter will hold a minority ownership (19.5%). VIMRX will issue to Baxter 11
million shares of common stock and convertible preferred shares with a nominal
value of $40 million. To the extent the 11 million shares of common stock are
worth less than $50 million at the time of closing (based upon the average of
the per share closing prices for the 15 trading days ending five days prior to
the closing date), Baxter will receive additional convertible preferred
shares. The conversion price for the preferred shares will be determined
according to the closing prices of VIMRX's common stock within the 18 month
period following the closing of the transaction, subject to a floor of $5.50
per share and a ceiling of $7.50 per share. Baxter will purchase $30 million
and VIMRX will purchase $10 million of the new company's 6 1/2% subordinated
debentures to provide initial operating funds. The new company will pay Baxter
milestone payments, related to regulatory approvals, of up to $21 million over
several years. Baxter will retain its exclusive license to the CD34 antibody
used in selection technology and sublicense it to the new company. Baxter will
have one representative on the new company's board of directors and one
representative on VIMRX's board of directors. The closing is subject, among
other conditions, to regulatory approval and the approval by the stockholders
of VIMRX, which is anticipated to occur in the fourth quarter of 1997.

F-18
<PAGE>

ANNEXES

ANNEX A -ASSET PURCHASE AGREEMENT

ANNEX B - ANNUAL REPORT ON FORM 10-K OF VIMRx PHARMACEUTICALS INC. FOR THE
YEAR ENDED DECEMBER 31, 1996

ANNEX C - QUARTERLY REPORT ON FORM 10-Q OF VIMRx PHARMACEUTICALS INC. FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1997

ANNEX D - FORM OF CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF
VIMRx PHARMACEUTICALS INC. AUTHORIZING CLASS A PREFERRED SHARES

ANNEX E -OPINION BY LAZARD FRERES & CO. LLC

<PAGE>

ANNEX A

ASSET PURCHASE AGREEMENT

BY AND BETWEEN

VIMRX PHARMACEUTICALS INC.

BAXTER HEALTHCARE CORPORATION

AND

BIT ACQUISITION CORP.
<PAGE>

ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT, made this 10th day of October, 1997, by and among
BAXTER HEALTHCARE CORPORATION, a Delaware corporation with offices at 1627
Lake Cook Road, Deerfield, Illinois 60015 (the "Seller"), VIMRx
PHARMACEUTICALS INC., a Delaware corporation with offices at 2751 Centerville
Road, Suite 210, Wilmington, Delaware 19808 ("VIMRx") and BIT ACQUISITION
CORP., a Delaware corporation with offices at 2751 Centerville Road, Suite
210, Wilmington, Delaware 19808 (the "Buyer").

WHEREAS, the Seller currently operates a business segment known as the
Immunotherapy Division of its Biotech Business Group (the "Division");

WHEREAS, the business in which the Division is engaged is the ex vivo cell
therapy business described in Exhibit A attached hereto (such business being
hereinafter referred to as the "Business");

WHEREAS, the Seller and VIMRx desire to enter into a strategic alliance by
engaging in the Business through the Buyer, which is currently a wholly-owned
subsidiary of VIMRx;

WHEREAS, the strategic alliance will be created pursuant to the sale and
transfer or license of certain technology relating to the use of cells for the
treatment, mitigation or prophylaxis of diseases, including research into such
activities, together with certain other property related to the manufacture,
use and sale of the products of the Business;

WHEREAS, as a condition to the obligations of the parties under this
Agreement, the parties will enter into, among other things, manufacturing and
supply agreements for the manufacture and supply of the Isolex(R) and
Maxsep(R) Products (as hereinafter defined), certain antibodies and other
components of the Isolex(R) and Maxsep(R) Products and certain other products
of the Business; certain license agreements to grant the right to use certain
technology relating to the Business; the Distribution Agreement (as
hereinafter defined) providing for the marketing, sales and distribution of
the Isolex(R) and Maxsep(R) Products and certain other products of the
Business; and the Services Agreement (as hereinafter defined) relating to the
provision, by the Seller to the Buyer, of certain Business-related services
previously supplied by other divisions of the Seller to the Division;

WHEREAS, to that end, the Seller desires, among other things, to have the
Buyer acquire, and the Buyer desires to acquire, the Assets (as hereinafter
defined); and

WHEREAS, the parties wish to set forth their agreement with respect to the
purchase and the sale of such Assets and a mutual investment in the Buyer;

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

1.Definitions and Interpretation.

1.1 Definitions. Capitalized terms used herein shall have the following
meanings:

"Acquired Securities" shall mean the VIMRx Common Stock, VIMRx Preferred
Stock, Buyer Common Stock and the Warrant acquired by the Seller pursuant to
Section 2.2, together with the Buyer Convertible Debentures acquired by the
Seller pursuant to Section 8.3(B).

"Actions" shall mean claims, actions, suits, audits, proceedings or
investigations, whether at law, in equity or admiralty, and whether or not
before any Tribunal or any Authority.

"Affiliate" shall mean, with respect to any party, any entity (i) which
directly, or indirectly through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, the party or (ii) fifty
percent

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<PAGE>

(50%) or more of the voting capital stock (or in the case of an entity which
is not a corporation, fifty percent (50%) or more of the equity interest) of
which is beneficially owned or held by a party or any of such party's
Subsidiaries.

"Affiliated Transaction" shall mean, in respect of any Person, any
transaction, or series of similar transactions, or any currently proposed
transaction, to which such Person is a party, in which the amount involved
exceeds $60,000 and in which any Affiliate of such Person had, or will have, a
direct or indirect material interest (but excluding, in any event,
transactions, between divisions of the same Person and transactions between a
Person and any consolidated subsidiary of such Person).

"Aggregate Agreed Value" shall have the meaning assigned thereto in Section
2.2(C).

"Agreed Value" shall mean the average of the closing sale prices of VIMRx
Common Stock on the 15 trading days preceding, but not including, the date
falling five days prior to the Closing Date, as reported by Nasdaq.

"Antibody Manufacturing and Storage Agreement" shall mean the Antibody
Manufacturing and Storage Agreement substantially in the form annexed hereto
as Exhibit B.

"Assets" shall mean the assets set forth or described in Schedule 2.1.

"Assigned Contracts" shall have the meaning assigned thereto in Exhibit C.

"Assignment of Parker Lease" shall mean an assignment document assigning to
the Buyer the lease relating to the Parker Facility, the form and content of
which shall be reasonably satisfactory to the Buyer.

"Assumed Liabilities" shall have the meaning assigned thereto in Exhibit C.

"Authority" shall mean any Federal, state, municipal, foreign or other
government or governmental department, commission, board, bureau, agency or
instrumentality.

"BDG" shall mean Baxter Deutschland GmbH, an indirect subsidiary of an
Affiliate of the Seller.

"Business" shall have the meaning assigned thereto in the Preamble to this
Agreement.

"Business Day" shall mean any day other than (a) a Saturday or Sunday or (b)
a day on which commercial banks in Illinois, New York or Delaware are
authorized or required by law to close.

"Buyer" shall have the meaning assigned thereto in the Preamble to this
Agreement.

"Buyer Common Stock" shall mean the common stock of the Buyer, $.001 par
value per share.

"Buyer Convertible Debentures" shall mean each or all, as the context may
require, of (i) the convertible debenture issued by the Buyer to the Seller,
in the forms annexed hereto as Exhibits D and E, and/or (ii) the convertible
debenture issued by the Buyer to VIMRx, in the form annexed hereto as Exhibit
F.

"Buyer Liabilities" shall have the meaning assigned thereto in Section
2.5(C).

"Cambes" shall mean Cambes, Ltd., a Delaware corporation.

"Cash Position" shall mean, in respect of the Buyer and as of the date of
determination, (1) the total amount of cash, cash equivalents and short-term
investments owned by the Buyer minus (2) the then total outstanding principal
amount of the Buyer's indebtedness to the Seller for borrowed sums.

"CellPro" shall mean CellPro, Inc., a Delaware corporation.

2
<PAGE>

"CellPro Litigation" shall have the meaning assigned thereto in Section
16.1.

"Chiron Collaboration Agreement" shall mean that certain Collaboration
Agreement, dated as of December 27, 1996, between Chiron Corporation and the
Seller.

"Chiron Sublicense" shall mean that certain sublicense from the Seller to
the Buyer relating to breast cancer antibodies licensed from Cetus Oncology
Corporation, d/b/a/ Chiron Therapeutics, to the Seller, in substantially the
form annexed hereto as Exhibit G.

"Class A Assets" shall have the meaning assigned thereto in Schedule 2.1.

"Class B Assets" shall have the meaning assigned thereto in Schedule 2.1.

"Closing Date" shall have the meaning assigned thereto in Section 2.6.

"Closing" shall have the meaning assigned thereto in Section 2.6.

"Code" shall mean the Internal Revenue Code of 1986, as amended.

"Non-Competition and Confidentiality Agreement" shall mean the Non-
Competition and Confidentiality Agreement between the Seller and the Buyer
substantially in the form annexed hereto as Exhibit H.

"Contaminants" shall mean any material, pollutant, substance or waste which
is defined in, regulated by, or subject to any Environmental Law, including
asbestos and asbestos containing materials.

"Control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of an entity
(other than a natural person), whether through the ownership of voting capital
stock, by contract or otherwise.

"Controlled Subsidiary" shall mean, with respect to any Person, any other
Person in which such first Person owns, directly or indirectly, 50% or more of
the outstanding equity interest.

"Conversion Securities" shall mean any VIMRx Common Stock or Buyer Common
Stock issuable upon conversion or exercise of certain Acquired Securities.

"Copyrights" shall mean United States and foreign copyrights, whether
registered or unregistered.

"Customized Software" shall mean all Software owned by, licensed to or used
by the Seller in connection with the Division, other than Shrinkwrap Software.

"Data Room" shall mean Room 313 at the Parker Facility.

"Disclosure Period" shall mean the period commencing on the date hereof and
ending at 5:00 p.m. (Eastern time) on the date falling 14 days after (but not
including) the date hereof; provided, however, that in the event that such
14th day shall not be a Business Day, the Disclosure Period shall instead end
at 5:00 p.m. (Eastern time) on the next succeeding Business Day.

"Distribution Agreement" shall mean the Marketing, Sales and Distribution
Agreement substantially in the form annexed hereto as Exhibit I.

"Division" shall have the meaning assigned thereto in the Preamble to this
Agreement.

"Dorken Sublicense" shall mean that certain sublicense from BDG to the Buyer
relating to "B" cells licensed from Prof. Bernd Dorken to BDG in substantially
the form annexed hereto as Exhibit J.

3
<PAGE>

"Encumbrance" shall mean any lien, charge, security interest, encumbrance or
claim, whether legal or equitable.

"Environmental Laws" shall mean any and all laws, statutes, codes, rules,
regulations, ordinances, orders, writs, decrees and injunctions of any
Authority relating to the protection or pollution of the environment, or
community health and safety, including the Comprehensive Environmental
Response Compensation and Liability Act, as amended, the Federal Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act and the
Hazardous and Solid Waste Amendments, the Clean Air Act, the Clean Water Act,
the Toxic Substances Control Act, the Safe Drinking Water Act and any similar
or analogous statutes, regulations and decisional law of any Authority.

"Epstein Opinion" shall mean the opinion of Epstein Becker & Green, P.C.
with respect to this Agreement and the transactions contemplated hereby, the
form and content of which shall be negotiated after the execution and delivery
hereof.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.

"ERISA Benefit Plans" shall mean any (i) "employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA), (ii) "multiemployer plan" (as
such term is defined in Section 3(37) of ERISA), or (iii) "welfare benefit
plan" (as such term is defined in Section 3(1) of ERISA).

"Excepted Obligations" shall mean the obligations set forth or described in
subsection 2 of Exhibit C.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.

"Execution Schedule" shall mean that certain disclosure schedule (composed
of various sections) which is being delivered by the Seller to the Buyer in
connection herewith, but which is not an attachment to the Agreement. In all
other respects, references in this Agreement to "Schedules" shall be deemed
also to refer to the Execution Schedule.

"FDA" shall mean the U.S. Food and Drug Administration.

"First BD License" shall have the meaning assigned thereto in Section 16.1.

"First BD Sublicense" shall mean that certain sublicense, from the Seller to
the Buyer relating to CD34+ cell population and related antibody and method
patents licensed from Becton, Dickinson and Company to the Seller, in
substantially the form annexed hereto as Exhibit K.

"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, applied on a consistent basis.

"Hardware and Disposables Manufacturing Agreement" shall mean that certain
Hardware and Disposables Manufacturing Agreement between the Buyer and the
Seller substantially in the form annexed hereto as Exhibit L.

"Hardware and Disposables Supply Agreement" shall mean that certain Hardware
and Disposables Supply Agreement between the Buyer and the Seller
substantially in the form annexed hereto as Exhibit M.

"Hart-Scott" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.

"HHS" shall mean the United States Department of Health and Human Services.

4
<PAGE>

"Improvements" shall mean all buildings, structures and improvements located
on the Real Estate.

"Included Agreements" shall have the meaning assigned thereto in Schedule
2.1.

"Indemnified Party" shall have the meaning assigned thereto in Section 9.2.

"Indemnifying Party" shall have the meaning assigned thereto in Section 9.2.

"Information" shall mean confidential ideas, trade secrets, technology,
know-how, inventions (whether or not patentable) and improvements thereto,
concepts, methods, processes, formulae, reports, data, customer lists, mailing
lists, business plans, or other proprietary information.

"Innovir" shall mean Innovir Laboratories, Inc., a Delaware corporation.

"Innovir Common Stock" shall mean the common stock of Innovir, $.013 par
value per share.

"VIMRx Holdings" shall mean Innovir Holdings, Ltd., a Delaware corporation.

"VIMRx Holdings Common Stock" shall mean the common stock of Innovir
Holdings, $.01 par value per share.

"Innovir UK" shall mean Innovir Limited, an English private limited company.

"Innovir UK Ordinary Shares" shall mean the common shares of Innovir UK, one
pound par value per share.

"Innovir Germany" shall mean Innovir Gesellschaft fur die Entwicklung und
Synthese von Oligomeren mbH, a Gesellschaft mit beschrankter Halftung
organized under the laws of the Federal Republic of Germany.

"Innovir Preferred Stock" shall mean the Preferred Stock of Innovir, par
value $.06 per share, including Class B Preferred Stock and Preferred Stock
undesignated as to class or series.

"Intellectual Property" shall mean Copyrights, Patents, Trademarks,
Information and Software.

"Intellectual Property Right" shall mean any right possessed by any person
or entity which arises as a result of his or its ownership, license or use of,
or of any application for, or application for registration of, any
Intellectual Property.

"Inventory Entity" shall have the meaning set forth in Section 3.21 hereto.

"Isolex(R) and Maxsep(R) Technology" shall have the meaning assigned thereto
in the Hardware and Disposables Manufacturing Agreement.

"Isolex(R) and Maxsep(R) Products" shall have the meaning assigned thereto
in the Hardware and Disposables Manufacturing Agreement.

"KPMG" shall mean KPMG Peat Marwick LLP.

"Licenses" shall mean licenses, authorizations, authorities, approvals,
permits and certificates.

"Losses" shall mean liabilities, claims, losses, costs, damages, and
expenses (including without limitation, reasonable attorneys' fees and
expenses), whether incurred in connection with a claim, controversy or dispute
between the parties hereto or between a party hereto and one or more third
parties.

"Manufactured Products" shall mean (i) all Isolex(R) and Maxsep(R) Products
listed on Schedule I attached to the Hardware and Disposables Manufacturing
Agreement and all components thereof, in each case as currently

5
<PAGE>

produced by the Seller utilizing the Isolex(R) and Maxsep(R) Technology;
provided, however, that Manufactured Products shall not include those products
or components to be manufactured or supplied by the Seller under the Hardware
and Disposables Supply Agreement; (ii) all "Antibodies" (as that term is
defined in the Antibody Manufacturing and Storage Agreement) specified in
Schedule I attached to the Antibody Manufacturing and Storage Agreement, in
each case as currently produced by the Seller; and (iii) the products
currently used in the research and development program of the Business.

"Material Adverse Effect", with respect to the Seller, the Buyer or VIMRx,
means a material adverse effect, or the occurrence or existence of facts or
circumstances that would reasonably be expected to result in a material
adverse effect, on the business, assets, liabilities, results of operations,
properties, financial or operating condition of (i) the Division, in the case
of the Seller, (ii) VIMRx and its subsidiaries (other than the Buyer) taken as
a whole, in the case of VIMRx, and (iii) the Buyer and its subsidiaries, if
any, taken as a whole, in the case of the Buyer, or on the ability of any such
Person (and to the extent applicable, its subsidiaries) to consummate the
transactions contemplated hereunder.

"Milestone" shall mean each of the regulatory approval milestones set forth
on Exhibit N to this Agreement.

"Milestone Payment" shall mean each and any of the payments to be made to
the Seller pursuant to Section 6.2(A) to this Agreement.

"Munich Facility" shall mean the facility, located at Edisonstrasse 3-4 D-
85716 Unterschlessein, Germany, in which BDG currently conducts certain
operations on behalf of the Division.

"Nasdaq" shall mean the Nasdaq Stock Market.

"Net Projected Expenses" shall mean, in respect of the Buyer as of any given
Occurrence Date, the excess, if any, of (i) the total cash operating expenses
(excluding depreciation, amortization and similar non-cash items) projected by
the Buyer to be incurred by the Buyer during the 12-month period immediately
succeeding such Occurrence Date minus (ii) the total amount of revenue and
income, from whatsoever source, projected by the Buyer to be earned by the
Buyer during such 12-month period.

"NIH" shall mean the National Institutes of Health.

"Non-Assumed Liabilities" shall have the meaning assigned thereto in Section
2.5(A).

"Non-ERISA Plans" shall mean, in respect of any Person, each and every (i)
employee collective bargaining agreement, employment agreement (other than
employment agreements terminable by such Person without premium or penalty on
notice of 30 days or less under which the only monetary obligation of such
person is to make current wage or salary payments and provide current fringe
benefits), consulting, advisory or service agreement (as to the latter three,
where such person is the recipient of the services); deferred compensation
agreement, confidentiality agreement or covenant not to compete (other than
confidentiality agreements and covenants not to compete contained in
agreements which are required to be disclosed by such Person hereunder), (ii)
contract or agreement with any officer, director or employee (other than
employment agreements disclosed in response to clause (i) or excluded from the
scope of clause (i)), agent, or attorney-in-fact of such Person; or (iii)
stock option, stock purchase, bonus or other incentive plan or agreement.

"Occurrence Date" shall mean, with respect to any given Milestone, the date
on which such Milestone shall occur, if at all.

"Orders" shall mean any order, writ, injunction or decree of any Tribunal or
Authority.

"Owned Software" shall mean all Software owned by the Seller and used in the
Business of the Division.

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<PAGE>

"Parker Facility" shall mean the facility, located at 9 Parker, Irvine,
California, in which the Division currently conducts certain of its
operations.

"Patents" shall mean United States and foreign patents, continuations,
continuations-in-part, divisions, reissues, reexaminations, extensions and
disclosures.

"Patent Rights" shall have the meaning assigned thereto in Section 16.1.

"Plan A Projections" shall mean the financial projections, relating to the
Buyer, which are included as Section 1 of the Execution Schedule.

"PBGC" shall mean the Pension Benefit Guaranty Corporation.

"Permitted Encumbrances" shall mean (a) liens for taxes and other
governmental charges and assessments which are not yet due and payable, (b)
liens of landlords and liens of carriers, warehousemen, mechanics and
materialmen and other like liens arising in the ordinary course of business
for sums not yet due and payable, (c) liens on deposits or pledges to secure
obligations under workmen's compensation, social security or similar laws and
(d) other liens, encumbrance(s) or imperfections on property which are not
material in amount or do not materially detract from the value of or
materially impair the existing use of the property affected by such lien,
encumbrance(s) or imperfection.

"Person" shall mean any individual, corporation, partnership, limited
partnership, limited liability partnership, joint venture, limited liability
company, association, joint-stock company, trust, unincorporated organization,
Authority or other entity.

"Primary Licenses" shall mean the following agreements: (i) the License
Agreement between the Seller and Becton, Dickenson and Company, dated August
24, 1990 as amended on November 10, 1993 and March 30, 1995 (relating to CD34+
cell population and related antibody and method patents); (ii) the License
Agreement between the Seller and Becton, Dickenson and Company, dated June 1,
1993 (relating to "B" cell antibodies); (iii) the Non-Exclusive License
Agreement between the Seller and Cetus Oncology Corporation d/b/a Chiron
Therapeutics, dated March 28, 1996 (relating to breast cancer antibodies); and
(iv) the Agreement between BDG and Professor Bernd Dorken, dated October 20,
1994 (relating to "B" cells).

"Proxy Statement" shall have the meaning assigned thereto in Section 5.16.

"PTO" shall mean the United States Patent and Trademark Office.

"Purchase Consideration" shall have the meaning assigned thereto in Section
2.2.

"Real Property" shall have the meaning assigned thereto in Section 3.7(B).

"Registration Rights Agreement" shall mean the registration rights agreement
substantially in the form annexed hereto as Exhibit O.

"Representatives" shall mean, with respect to any Person, such Person's
officer's, directors, employees, independent contractors, agents and
representatives.

"Ribonetics" shall mean Ribonetics Gesellschaft fur molekulare therapie
GmbH, a Gesellschaft mit beschrankter Halftung organized under the laws of the
Federal Republic of Germany.

"Round Lake Facility" shall mean the facility, located at WG 2-3S Route 120
& Wilson Road, Round Lake, Illinois, in which the Division currently conducts
certain of its operations.

"Royalty Assignment and Agreement" shall mean the royalty assignment and
agreement substantially in the form annexed hereto as Exhibit P.

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<PAGE>

"Saxholm Litigation" shall mean the certain litigation identified as Saxholm
AS v. Baxter Healthcare Corp., Civil Action No. 94 C 5408, which is pending in
the Northern District of Illinois, Eastern Division.

"SEC" shall mean the United States Securities and Exchange Commission.

"Second BD Sublicense" shall mean that certain sublicense, from the Seller
to the Buyer relating to "B" cell antibodies licensed from Becton, Dickenson
and Company to the Seller, in substantially the form annexed hereto as Exhibit
Q.

"SEC Reports" shall mean all forms, reports and documents required to be
filed with the SEC pursuant to the Securities Act or the Exchange Act.

"Section 14.2 Date" shall mean that date falling 21 days after (but not
including) the date hereof; provided, however, that in the event that such
21st day shall not be a Business Day, the Section 14.2 Date shall instead be
the next succeeding Business Day.

"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

"Seller" shall have the meaning assigned thereto in the Preamble to this
Agreement.

"Services Agreement" shall mean an agreement between the Buyer and the
Seller, to be negotiated after the execution and delivery hereof, relating to
manufacturing, regulatory and other support services (other than those covered
by (i) the Hardware and Disposables Manufacturing Agreement, (ii) the
Distribution Agreement and (iii) the other Transaction Documents) which shall
provide, among other terms to be mutually agreed by the parties, for the
Seller to provide to the Buyer, at its fully-loaded cost, certain services (of
the type which are now rendered by the Seller in respect of the Division).

"Seyfarth Opinion" shall mean the opinion of Seyfarth, Shaw, Fairweather &
Geraldson with respect to this Agreement and the transactions contemplated
hereby, the form and content of which shall be negotiated after the execution
and delivery hereof.

"Shrinkwrap Software" shall mean all Software that is available in consumer
retail stores and subject to form shrinkwrap license agreements.

"Software" shall mean computer software programs and software systems,
including, without limitation, all database applications, compilations, tool
sets, compilers, higher level or "proprietary" languages, related
documentation and materials, whether in source code, object code or human
readable form as well as all Copyrights, if any, appurtenant thereto.

"Stockholders' Agreement" shall mean the stockholders' agreement between
VIMRx and the Seller substantially in the form annexed hereto as Exhibit R.

"Sublicenses" shall mean, collectively, the Chiron Sublicense, the Dorken
Sublicense and the First and Second BD Sublicenses.

"Subsidiary" shall mean, as to any party, any corporation of which more than
50% of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by the party,
by one or more of its subsidiaries, or by the party and one or more of its
subsidiaries.

"Tax Return" shall mean, in respect of any Person, any report, statement,
return, declaration of estimated Tax or other information required to be
supplied by or on behalf of such Person to a Tax Authority in connection

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with Taxes, or with respect to grants of Tax exemption, including any
consolidated, combined, unitary, joint or other return filed by any person
that properly includes the income, deductions or other Tax information
concerning such Person.

"Taxes" shall mean all taxes, including all Federal, state, local, foreign
and other income, franchise, sales, use, property, payroll, stamp,
withholding, environmental, alternative or add-on minimum and other taxes,
assessments, charges, duties, fees, levies or other governmental charges of
any kind whatsoever, and all estimated taxes, deficiency assessments,
additions to tax, penalties and interest, and any contractual or other
obligation to indemnity or reimburse any person with respect to any such
assessment.

"Third Party Claim" shall mean, in respect of any party hereto, any claim,
or the commencement, or possible commencement, of any Action with respect to
which indemnification is or is reasonably likely to be claimed by such party
pursuant to Section 9.

"Trademarks" shall mean United States, state and foreign trademarks, service
marks, logos, trade dress and trade names, whether registered or unregistered.

"Transaction Documents" shall mean the following:

(i) the Distribution Agreement,

(ii) the Non-Competition and Confidentiality Agreement,

(iii) the Assignment of Parker Lease,

(iv) the Registration Rights Agreement,

(v) the First BD Sublicense,

(vi) the Second BD Sublicense,

(vii) the Dorken Sublicense,

(viii) the Chiron Sublicense,

(ix) the Stockholders' Agreement,

(x) the Services Agreement,

(xi) the Antibody Manufacturing and Storage Agreement,

(xii) the Royalty Assignment and Agreement,

(xiii) the Hardware and Disposables Manufacturing Agreement,

(xiv) the Hardware and Disposables Supply Agreement,

(xv) the Voting Agreement,

(xvi) and each of the other agreements, documents and instruments being, or
to be, executed in connection with the transactions contemplated
hereunder.

"Transactional Taxes" shall mean all sales, use, transfer, conveyance, bulk
transfer, business and occupation, value added or other such Taxes, duties,
excises or governmental charges imposed by any taxing jurisdiction.

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"Tribunal" shall mean any domestic or foreign court, arbitration board or
other tribunal.

"VGI" shall mean VIMRx Genomics, Inc., a Delaware corporation.

"VGI Common Stock" shall mean the common stock of VGI, $.01 par value per
share.

"VIMRx Common Stock" shall mean the common stock of VIMRx, $.001 par value
per share.

"VIMRx Preferred Stock" shall mean Series A Convertible Preferred Stock of
VIMRx, par value $.001, having rights, preferences and designations (including
a per share liquidation value of $1,000) as set forth on Exhibit S to this
Agreement.

"VIMRx" shall have the meaning assigned thereto in the Preamble to this
Agreement.

"Voting Agreement" shall mean that certain Voting Agreement, between the
Seller, VIMRx, Richard L. Dunning, Donald G. Drapkin, Laurence D. Fink,
Lindsay A. Rosenwald, M.D., Eric A. Rose, M.D. and Paramount Capital Asset
Management Inc. substantially in the form annexed hereto as Exhibit T.

"Warrant" shall mean a stock purchase warrant, substantially in the form
annexed hereto as Exhibit U, for the purchase of 6.383 additional shares of
the Buyer Common Stock (which number of shares, if issued at Closing, would
represent, immediately after issuance thereof, 6% of all issued and
outstanding Buyer Common Stock) at an aggregate exercise price of $6,000,000.

1.2 Interpretation.

(A)In respect of any of the Seller, the Buyer or VIMRx, the terms "to the
knowledge of" such Person and "awareness of" such party, and variations
thereof, shall be deemed to refer to the actual knowledge and/or awareness
(without any requirement of inquiry) of the Relevant Persons of such Party.
In respect of the Seller, the term "Relevant Persons" shall be deemed to
refer to (i) Victor W. Schmitt, John A. Osth, Michael J. Griffith, Dennis
E. Van Epps, Reiner Spaethe, Kristin Houser, Charles Nawrot, Kathy Carroll,
Donna Waldo, Michael Schiffer, Tim Anderson, Bruce Davis, Janice Guthrie,
Bradford Price, William C. Lake, Alan R. Hardwick, Debra Condino, Sarah
Bates, and (ii) any other person who, prior to the Closing Date, shall
succeed to the position or office now held by any of the foregoing persons
in (i). In respect of the Buyer, the term "Relevant Persons" shall be
deemed to refer to (i) Richard L. Dunning, L. William McIntosh, Francis M.
O'Connell, Lowell S. Lifschultz, Don M. Kerr and David A. Jackson, Ph.D.,
and (ii) any other person who, prior to the Closing Date, shall succeed to
the position or office now held by any of the foregoing persons in (i). In
respect of VIMRx, the term "Relevant Persons" shall be deemed to refer to
(i) Richard L. Dunning, L. William McIntosh, Francis M. O'Connell, Lowell
S. Lifschultz, Don M. Kerr, Richard E. Kouri, Ph.D., Thomas Sharpe, Ph.D.,
David Stern, M.D. and David A. Jackson, Ph.D., and (ii) any other person
who, prior to the Closing Date, shall succeed to the position or office now
held by any of the foregoing persons in (i).

(B)Whenever in this Agreement the phrase "in the ordinary course of
business" is used, it shall be construed as meaning "in the ordinary course
of business and substantially consistent with prior practice."

(C)Whenever in this Agreement the term "including" is used, it shall be
construed as meaning "including but not limited to."

(D)All accounting terms not specifically defined herein shall be
construed in accordance with GAAP in effect at the Closing.

(E)Whenever in this Agreement the term "agreement" is used, it shall be
deemed to refer to commitments, leases, licenses, contracts and agreements.

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(F)Whenever in this Agreement the term "party to" is used in regard to an
agreement, it shall be construed as meaning "party to or bound by".

(G)Notwithstanding anything to the contrary in this Agreement, in
connection with any representations or warranties relating to (i)
Manufactured Products to be acquired by the Buyer from third parties, and
(ii) products currently used in the research and development program of the
Business, and which form a part of the Manufactured Products, neither the
Seller nor any of its officers, directors, employees or representatives,
including without limitation those individuals set forth in Section 1.2(A)
hereof, shall have any obligation or requirement of any kind whatsoever to
conduct any inquiry to support such representations and warranties.

2.Purchase and Sale of the Assets; Closing.

2.1 Purchase and Sale.

(A)In reliance on the representations and warranties contained herein and
subject to all of the terms and conditions hereof, the Seller hereby agrees
to sell, assign, transfer and deliver (or cause to be sold, assigned,
transferred and delivered) to the Buyer and the Buyer agrees to purchase
from the Seller, on the Closing Date, all of the Seller's right, title and
interest in and to the Class A Assets, as set forth or described on
Schedule 2.1 hereto.

(B)In reliance on the representations and warranties contained herein and
subject to all of the terms and conditions hereof, the Seller hereby agrees
to sell, assign, transfer and deliver (or cause to be sold, assigned,
transferred and delivered) to VIMRx and VIMRx agrees to purchase from the
Seller, on the Closing Date, all of the Seller's right, title and interest
in and to the Class B Assets, as set forth or described on Schedule 2.1
hereto; provided, however, that notwithstanding the foregoing, VIMRx
hereby, effective as of the Closing Date (and for the consideration
described in Section 2.4 below), assigns to the Buyer all of VIMRx's rights
to receive all of the Seller's right, title and interest in and to the
Class B Assets, with the result that the Class B Assets shall be conveyed
directly to the Buyer.

2.2 Purchase Consideration. In consideration of the sale, assignment and
transfer of the Class A Assets and Class B Assets pursuant to Section 2.1
hereof, VIMRx or the Buyer, as the case may be, agrees to pay or issue to the
Seller the following consideration (the "Purchase Consideration"):

(A)eleven million (11,000,000) shares of VIMRx Common Stock;

(B)forty thousand (40,000) shares of VIMRx Preferred Stock;

(C)in the event that the aggregate Agreed Value of the eleven million
shares of VIMRx Common Stock issued pursuant to Section 2.2(A) hereof
(hereinafter, the "Aggregate Agreed Value") shall be less than $50,000,000,
such additional number of shares of VIMRx Preferred Stock as shall equal
the result obtained by dividing, by 1,000, the difference of $50,000,000
minus the Aggregate Agreed Value; provided, however, that in lieu of any
fractional share which might otherwise be due pursuant to such formula,
VIMRx shall pay to the Seller an equivalent amount in cash (based on a
liquidation value of $1,000);

(D)Nineteen and one-half (19.5) shares of Buyer Common Stock, which will
represent, immediately after the issuance thereof, 19.5% of all issued and
outstanding Buyer Common Stock; and

(E)the Warrant.

2.3 Payment. At the Closing provided for in Section 2.6 hereof, the Buyer
and VIMRx, as the case may be, shall deliver to the Seller certificates
representing the VIMRx Common Stock, VIMRx Preferred Stock and Buyer Common
Stock provided for in Section 2.2, together with the Warrant, against delivery
of the items designated to be delivered by the Seller at Closing pursuant to
Section 8.1.

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2.4 Issuance to VIMRx. In consideration for the agreement of VIMRx to assign
to the Buyer its rights to acquire the Class B Assets, as provided in Section
2.1(B), the Buyer shall, on the Closing Date, issue to VIMRx 80.5 shares of
Buyer Common Stock, which will represent, immediately after the issuance
thereof, 80.5% of all issued and outstanding Buyer Common Stock.

2.5 Liabilities.

(A)Liabilities Not Assumed. Except as specifically provided in Section
2.5(B), the Buyer and VIMRx neither assume nor shall be obligated to pay,
perform or discharge, and the Seller hereby agrees to pay, perform,
discharge or otherwise satisfy in due course and to hold the Buyer and
VIMRx harmless from, any and all debts, liabilities and obligations of the
Seller, whether known or unknown, fixed, contingent or otherwise, including
all Taxes arising from any Seller operations up to and including the
Closing Date (all such non-assumed liabilities being hereinafter
collectively referred to as the "Non-Assumed Liabilities").

(B)Assumed Liabilities. In addition to the consideration payable pursuant
to Section 2.2 hereof, and subject to the terms and conditions set forth in
this Agreement, effective as of the Closing Date, the Buyer hereby assumes
only those liabilities of the Seller specifically set forth on Exhibit C
(the "Assumed Liabilities").

(C)Buyer Liabilities. The Seller shall have no liability for any
obligations of the Buyer that are incurred or arise after the Closing Date
("Buyer Liabilities") except to the extent (i) otherwise provided in this
Agreement or any Transaction Document or (ii) that any such liability
arises from a wrongful act or omission on the part of the Seller, any
Affiliate of Seller or any Representative of any of the foregoing.

(D)No Assumption by VIMRx. In connection with the assignment, by VIMRx to
the Buyer, of the rights described in Section 2.1(B), VIMRx neither
assumes, nor shall be obligated to pay, perform or discharge, any debts,
obligations or liabilities of the Seller, whether known or unknown, fixed,
contingent or otherwise.

2.6 Closing. The closing of the purchase and sale of the Assets hereunder
(the "Closing") shall be held at the offices of the Seller located at the
Parker Facility, as promptly as reasonably practicable following the date on
which the last of the conditions set forth in Section 7 has been satisfied or
waived in accordance with the terms of this Agreement, or on such other date,
and at such other time and place, as the Seller and the Buyer shall mutually
agree in writing (the day of occurrence of the Closing being referred to
hereinafter as the "Closing Date").

3.Representations and Warranties of the Seller

The Seller represents and warrants to the Buyer and VIMRx as of the end of
the Disclosure Period, and as of the Closing Date, as follows:

3.1 Good Standing.

The Seller is a corporation organized, validly existing and in good standing
under the laws of the State of Delaware, and with respect to the Business of
the Division, has all necessary corporate power and authority to own, lease
and operate its properties and to carry on the Business as the same is now
being conducted. True, accurate and complete copies of the Certificate of
Incorporation and By-Laws of the Seller have been provided to the Buyer.

3.2 Authority.

The Seller possesses full right, corporate power and legal authority to
execute and deliver this Agreement and the Transaction Documents to which the
Seller is a party and to perform each of the agreements and make

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<PAGE>

each of the representations and warranties on its part to be performed and
made hereunder and thereunder. The execution and delivery of this Agreement
and the Transaction Documents to which the Seller is a party and the
consummation by it of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the part
of the Seller. This Agreement has been duly and validly executed by the Seller
and constitutes, and the Transaction Documents (upon and subject to their
execution and delivery by all parties thereto) shall constitute, the legal,
valid and binding obligation of the Seller enforceable against it in
accordance with their terms subject to the qualification that the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws, now or hereafter in
effect, affecting creditors' rights and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding for the enforcement
thereof may be brought. Except as set forth on Schedule 3.2, the execution and
delivery of this Agreement and the Transaction Documents to which the Seller
is a party and the performance by it of all of the transactions contemplated
herein and therein do not and shall not (with or without the giving of notice
or the passage of time or both) (A) violate or conflict with the Certificate
of Incorporation or By-laws of the Seller, or (B) (1) violate or conflict with
any law, rule, ruling, determination, ordinance or regulation of any Authority
or any condition or provision of, (2) result in the creation or imposition of
any Encumbrance upon any of the Assets of the Seller pursuant to, (3)
accelerate or create, or permit the acceleration or creation of, any liability
or obligation of the Seller under, or (4) cause a termination under or give
rise to a right of termination under, the terms of, any contract, mortgage,
lien, lease, agreement, indenture, trust, instrument, order, judgment or
decree to which the Seller is a party or which is binding upon the Seller (it
being agreed that this subsection (B) shall be deemed to refer only to the
Assets, liabilities, obligations, contracts, mortgages, liens, leases,
agreements, indentures, trusts, instruments, orders, judgments and decrees
which relate to or affect the Division and which are being transferred to,
assumed by or sublicensed to the Buyer, as the case may be); provided,
however, that the existence of any such violations, conflicts, encumbrances,
accelerations, creations, terminations or rights of termination shall not be
deemed to be a breach of this Section 3.2 unless, individually or in the
aggregate, they would have a Material Adverse Effect on the Division or
(subsequent to the Closing) on the Buyer.

3.3 Consents and Approvals.

Except at set forth on Schedule 3.3, no other action or consent, whether
corporate or otherwise, including action or consent by any Authority, is
necessary in connection with the execution, delivery, validity or
enforceability of this Agreement or the Transaction Documents with respect to
the Seller or the consummation by it of the transactions contemplated hereby
and thereby.

3.4 Financial Statements.

To the knowledge of the Seller, the representations contained in paragraph
numbers 1 through 14 of that certain Management Representation Letter, dated
July 28, 1997, to KPMG from the Seller (executed by Messrs. Osth and Schmitt
and Mrs. Waldo) are true and correct.

3.5 FDA and Related Regulatory Matters.

(A)Except as otherwise disclosed in Schedule 3.5(A), all current products
of the Business which shall constitute Manufactured Products, Supplied
Products, Antibodies, Reagents and Reagent Kits under the Hardware and
Disposables Manufacturing Agreement, the Hardware and Disposables Supply
Agreement, and/or the Antibody Manufacturing and Storage Agreement, and all
components thereof (all such products and components being collectively
referred to as the "Current Baxter Products") and which are manufactured by
the Seller or any Affiliate of the Seller, are in compliance, in all
material respects, with all applicable requirements of the FDA and any
analogous Authority in any country or other jurisdiction in which such
Current Baxter Products are manufactured, processed, packaged, labeled,
held or sold.

(B)Except as otherwise disclosed in Schedule 3.5(B), to the Seller's
knowledge, all Current Baxter Products which are manufactured, processed,
packaged, labeled or held by Persons other than the Seller or

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any Affiliate of the Seller are in compliance, in all material respects,
with all applicable requirements of the FDA and any analogous Authority in
any country or other jurisdiction in which such Current Baxter Products are
manufactured, processed, packaged, labeled, held or sold.

(C)Except as otherwise disclosed in Schedule 3.5(C), all facilities,
owned or operated by Seller or any Affiliate of Seller, at which any
Current Baxter Products are manufactured, processed, packaged, labeled or
held are in compliance, in all material respects, with all applicable
requirements of the FDA and any analogous Authority in any country or other
jurisdiction in which such Current Baxter Products are manufactured,
processed, packaged, labeled, held or sold.

(D)Except as otherwise disclosed in Schedule 3.5(D), to the Seller's
knowledge, all facilities, owned or operated by Persons other than Seller
or any Affiliate of Seller, in which any Current Baxter Products are
manufactured, processed, packaged, labeled, held or sold are in compliance,
in all material respects, with all applicable requirements of the FDA and
any analogous Authority in any country or other jurisdiction in which such
Current Baxter Products are manufactured, processed, packaged, labeled,
held or sold.

(E)The Seller and each relevant Affiliate of Seller has obtained all
required marketing and clinical authorizations, clearances or approvals in
each foreign country in which it distributes any Current Baxter Products
(including all approvals necessary for the Seller or such Affiliate to be
paid or reimbursed therefor). Schedule 3.5(E) sets forth a true and correct
list of such foreign marketing and clinical authorizations, clearances and
approvals.

(F)Schedule 3.5(F) sets forth a true and correct list of all PMA's,
510(k)'s, IDE's, IND's, MAF's, DMF's, ELA's, PLA's and other FDA related
submissions ("FDA Submissions") which (i) relate to Current Baxter Products
and (ii) are either (a) submitted and pending, or (b) cleared and/or
approved.

(G)Except as set forth in Schedule 3.5(G), non-clinical data supporting
the quality and integrity of the safety data in all FDA Submissions listed
on Schedule 3.5(F) were generated in compliance, in all material respects,
with all applicable requirements under Federal, state, local or foreign
law.

(H)Except as set forth in Schedule 3.5(H), the Seller and each Affiliate
of the Seller is in compliance, in all material respects, with all MDR
requirements as set forth in 21 C.F.R. Parts 803 and 804, as well as with
all analogous state, local and foreign laws, in connection with each
facility referred to in Section 3.5(C); provided, however, that this
representation shall apply only to the extent that such MDR (or analogous)
requirements relate to Current Baxter Products.

(I)Except as set forth in Schedule 3.5(I), to the Seller's knowledge, the
relevant responsible party is in compliance, in all material respects, with
all MDR requirements as set forth in 21 C.F.R. Parts 803 and 804, as well
as with all analogous state, local and foreign laws, in connection with
each facility referred to in Section 3.5(D); provided, however, that this
representation shall apply only to the extent that such MDR (or analogous)
requirements relate to Current Baxter Products.

(J)Except as set forth in Schedule 3.5(J), in regard to the Current
Baxter Products, the Seller and each Affiliate has complied in all material
respects with the applicable import and export provisions of federal, state
and local law as well as the applicable import and export laws of relevant
foreign countries. When exporting Current Baxter Products pursuant to 21
U.S.C. (S)382(b), the Seller and each relevant Affiliate has provided the
FDA with written notice as required by 21 U.S.C. (S)382(g). When required
for purposes of import of Current Baxter Products into foreign countries,
the Seller and/or any relevant Affiliate has obtained all required FDA
certifications for provision to the relevant foreign Authorities.

(K)All FDA Submissions listed on Schedule 3.5(F) were prepared in
compliance, in all material respects, with applicable FDA laws and relevant
agency guidance documents and contain all necessary data and information
required to be contained therein under applicable law and policy.

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<PAGE>

(L)In connection with the Current Baxter Products and the facilities
referred to in Section 3.5(C) (including the operations conducted therein)
neither Seller, nor any Affiliate of Seller nor any Representative of any
of the foregoing, has made an untrue statement of a material fact or a
fraudulent statement to the FDA or any other Authority, failed to disclose
a material fact required to be disclosed to the FDA or any such other
Authority, or committed any act that would reasonably be expected to
provide a basis for the FDA to invoke its policy respecting "Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities," as set
forth in 56 Fed. Reg. 46191 (September 10, 1991) or for any such other
Authority to invoke any analogous policy.

(M)None of the clinical data which was used in connection with any of the
FDA Submissions listed on Schedule 3.5(F), or any required marketing or
clinical authorizations, clearances and approvals described in Section
3.5(E) above, was collected or obtained from a clinical investigator who
was at the time disqualified by the FDA or any other Authority.

3.6 Taxes.

Except as set forth in Schedule 3.6:

(A)As a division of the Seller, the Division does not file Tax Returns;

(B)The Seller has, in respect of the Division and the Assets, withheld
proper and accurate amounts (including from persons now or previously
employed by the Division for income Taxes and Social Security and other
payroll Taxes) for all periods in compliance with all relevant Tax laws and
other withholding provisions of all applicable laws; and either paid such
amounts to the relevant Tax Authorities or set them aside in accounts for
such purpose; provided, however, that no failure to so withhold, pay or set
aside such Taxes shall constitute a breach of this Section 3.6(B) unless
such failure would have a Material Adverse Effect on the Division;

(C)the Seller has, since its incorporation, been a "C" corporation, as
defined in Section 1361(a) of the Code; and

(D)no transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code.

3.7 Title; Tangible Personal Property and Real Property.

(A)The net book value of the furniture, fixtures and equipment included
in the Assets shall, as of the Closing Date, be not less than $7.2 million.
Except as set forth in Schedule 3.7(A), each material item of tangible
personal property included in the Assets, as well as each material item of
personal property covered by a lease included in the Included Agreements,
is in reasonable working order. Each such item of owned or leased property
is located in the Parker Facility.

(B)The Seller leases the Parker Facility pursuant to a lease disclosed on
Schedule 3.0(A) (such facility, together with the land upon which it is
situated, shall collectively be referred to herein as the "Real
Property.").

(C)With respect only to the Real Property, to the knowledge of the Seller
(except for the representation relating to receipt of written notice in the
second clause of subsection (iii), which is not qualified by knowledge):

(i)the use being made thereof by the Seller is in conformity with
valid and subsisting certificates of occupancy issued therefor;

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<PAGE>

(ii)neither the whole nor any portion of the Real Property is in the
process of being condemned, requisitioned or otherwise taken by any
Authority, and no such condemnation, requisition or taking is
threatened;

(iii)the Real Property complies in all material respects with all
building, fire, zoning and other ordinances and regulations of all
Authorities applicable thereto; and the Seller has not received any
written notice (and is unaware of having received any verbal notice) of
any alleged violation of any of the foregoing;

(iv)the use, occupancy and operation of the Real Property as
currently used, occupied and operated by the Seller in connection with
the Business of the Division does not constitute a materially
nonconforming use under any applicable law, regulation or ordinance;

(v)the Seller has a valid leasehold interest in the Parker Facility
lease free and clear of Encumbrances, other than Permitted
Encumbrances; and

(vi)the Parker Facility, including the roof and structural elements
thereof and the systems and facilities included therein, are in
reasonable operating condition and repair.

(D)The Seller is the sole and exclusive owner of and has good and valid
title to all of the Assets free and clear of all Encumbrances, except for
Permitted Encumbrances and except as set forth in Schedule 3.7(D) hereto.

(E)The Assets, together with the performance by the Seller of its
obligations under the Transaction Documents, are sufficient to enable the
Buyer (i) to conduct the Business, in all material respects, as it was
conducted by the Division prior to the Closing (the parties recognizing
that changes in the conduct of the Business may result from differences in
personnel arising from, for example, the fact that certain employees of the
Seller may not become employees of the Buyer), subject to the Seller's
rights and obligations under the Chiron Collaboration Agreement, and (ii)
to achieve the levels of financial performance contemplated by the Plan A
Projections; provided, however, that nothing herein shall be construed to
constitute a guarantee of performance by the Seller of the financial
performance by the Buyer of the Plan A Projections. There are no rights or
assets retained by the Seller and/or its Affiliates that would prevent the
Buyer from conducting the Business, in all material respects, as it was
conducted prior to the Closing, subject to (i) any rights retained with
respect to the Seller's performance of its obligations under the Chiron
Collaboration Agreement, (ii) rights relating to the products or components
to be manufactured or supplied by the Seller under the Hardware and
Disposables Supply Agreement and (iii) the rights under the Primary
Licenses.

3.8 Intellectual Property.

(A)Schedule 3.8(A) contains a list and description of all Patents and
Trademarks currently owned by or licensed to the Seller in connection with
the Division (separately identifying those which are owned and those which
are licensed and, if not owned by the Seller, identifying the owner
thereof, if any).

(B)Schedule 3.8(B) contains a list and description of all material
Copyrights (registered or unregistered) licensed to the Seller in
connection with the Division (identifying the owner thereof and the related
work).

(C)Schedule 3.8(C) contains a list of (i) all applications for
registration of any Intellectual Property (other than Patents) owned by or
licensed to the Seller in connection with the Division (other than
applications relating to Supplied Products or products acquired by the
Buyer from third parties) as well as a list of all existing registrations
of any such Intellectual Property (in either case, identifying the
Intellectual Property, the application or registration number and the
jurisdiction thereof) and (ii) pending applications for any Patents
relating to Intellectual Property used in connection with the Division
(other than applications

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relating to Supplied Products or products acquired by the Buyer from third
parties) where the Seller is listed as the owner or is the licensee of any
of the underlying technology (identifying the subject matter of the
application, the relevant application number, the jurisdiction thereof and
the owner thereof). True and correct copies of all such applications and
registrations have been provided to the Buyer.

(D)Except as set forth on Schedule 3.8(D), such Schedule contains a list
of all material documents relating to product clearances for Patent
infringement performed by or on behalf of the Seller with respect to (i)
all Isolex(R) and Maxsep(R) Products and (ii) all other Manufactured
Products. The Seller has delivered to the Buyer true and correct copies of
all such documents.

(E)Schedule 3.8(E) contains a list and description (showing in each case
the parties thereto and, in the event the same has not been reduced to
writing, the material terms thereof) of all material agreements and
licenses to which the Seller is a party or by which it is bound which
entitle the Seller or a third party to use, or restrict the Seller's or a
third-party's use of, (i) any Copyrights, Patents, Trademarks or
Information owned by, licensed to, or used by, the Seller in connection
with the Division or (ii) any Customized Software.

(F)Schedule 3.8(F) contains a list and description, showing in each case
the owner or licensor, of all Customized Software.

(G)Except as disclosed in Schedule 3.8(G): (i) to the knowledge of the
Seller, all Patents, and all Copyright and Trademark registrations, owned
by the Seller in connection with Manufactured Products are valid and in
full force and effect, and (ii) the Seller has not received written notice
(and is unaware of having received any verbal notice) of any outstanding
challenges, by any third party, either to any such Patents or registrations
or to any of the applications described in Section 3.8(C).

(H)Except as disclosed in Schedule 3.8(H), the Seller is not aware that
there now exists any use, by a third party, of any Intellectual Property
which violates any material Intellectual Property Right of the Seller (in
connection with Manufactured Products).

(I)Except as set forth in Schedule 3.8(I), (i) to the Seller's knowledge,
no infringement of any material Intellectual Property Right of any other
person or entity has occurred or results in any way from the current
operations of the Division or the Business, and (ii) no claim of any
infringement by the Seller (in connection with the Division or the
Business) of any material Intellectual Property Right of any other person
or entity has been made, asserted or threatened in writing (and the Seller
is unaware of any verbal such claims) against and to the Seller.

(J)Except as set forth on Schedule 3.8(J), there is no existing material
breach, by the Seller, of any material agreement by which the Seller has
granted or received a license or sublicense of an Intellectual Property
Right, including, but not limited to, the Primary Licenses ("Material
Intellectual Property Agreements") by the Seller. To the Seller's
knowledge, and subject to the foregoing, each of the Material Intellectual
Property Agreements is valid, enforceable and in full force and effect,
except to the extent the enforceability thereof may be affected by
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws or general principles of equity. To the Sellers' knowledge,
except as set forth in Schedule 3.8(J), no material default, by any party
other than the Seller, exists under any of the Material Intellectual
Property Agreements and no event has occurred which, with the lapse of time
or the giving of notice or both is reasonably likely to constitute a
material breach of any such agreement by the Seller or give rise to a right
on the part of any of the other parties thereto to terminate such agreement
or to deprive the Seller of any material right, or accelerate any of its
material obligations, thereunder.

(K)Except as disclosed in Schedule 3.8(K): (i) the Owned Software is not
subject to any transfer, assignment, site, equipment, or other operational
limitations; (ii) the Owned Software is eligible for protection and
registration under applicable copyright law and, to the knowledge of the
Seller, has not been

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forfeited to the public domain; (iii) the Seller has copies of all releases
or separate versions of the Owned Software so that the same may be subject
to registration in the United States Copyright Office; (iv) the Seller has
all right, title and interest in and to the Owned Software; (v) the Seller
has developed the Owned Software through its own efforts and for its own
account without the aid or use of any consultants, agents, independent
contractors or persons or entities other than persons who are (or were at
the time) employees of the Seller; and (vi) any Owned Software includes the
source code, object code and system documentation, used for the
development, maintenance, implementation and use thereof.

(L)Except as disclosed in Schedule 3.8(L), all employees, agents,
consultants or contractors who have contributed to or participated in the
creation or development of any copyrightable, patentable or trade secret
material on behalf of the Seller or any predecessor in interest thereto
either: (x) is a party to a valid written agreement under which the Seller
is deemed to be the original owner/author of all property rights therein;
or (y) has executed, or is obligated pursuant to an existing agreement to
execute, a valid agreement assigning to the Seller (or such predecessor in
interest, as applicable) all right, title and interest in such material;
provided, however, that this Section 3.8(L) shall not apply to any
copyrightable, patentable or trade secret material which, whether
considered individually or in the aggregate, is not material to the
operation of the Business.

(M)Subject to Section 1.2(G) hereof, with respect to all representations
in this Section 3.8 which are made to the Seller's "knowledge" or which
involve the Seller's "awareness" of any facts or circumstances, the Seller
represents and warrants that it has performed a reasonable due diligence
review with respect to the subject matter thereof.

3.9 Environmental Matters.

(A)Schedule 3.9 lists all written notices (and all verbal notices of
which the Seller is aware) received by the Seller of violations of
Environmental Laws or environmental claims from environmental Authorities
since January 1, 1992 (in each case, only to the extent that they relate(d)
to the Parker Facility). The Seller has delivered to the Buyer true and
correct copies of all such notices, claims and reports, as well as all
reports of the Seller filed with such Authorities since such date which
relate to the Division.

(B)Except as set forth in Schedule 3.9, with respect only to the Parker
Facility, to the knowledge of the Seller, (i) there has been no release or
discharge by the Seller (or any other Person) of any Contaminant in or on
the Parker Facility (or the land upon which it is situated) and (ii) there
otherwise exist no Contaminants on or in any such real property, in any
material quantity, which, in either case, would (a) constitute or have
constituted a material violation of any Environmental Law, or (b) give rise
to an obligation on the part of the Seller, its assigns or successors in
interest to effect any environmental cleanup or remediation.

3.10 Contracts and Commitments.

(A)Except as set forth on Schedule 3.10(A), the Seller is not, solely in
connection with the Division, a party to any written or oral:

(i)cooperative research and development agreement, supply agreement,
research agreement, research funding agreement, clinical trial
agreement, cell processing laboratory agreement, investigator
agreement, development agreement, consulting agreement, incoming
material transfer agreement, or outgoing material transfer agreement;

(ii)lease of real property, or commitment, contract or agreement for
the purchase or sale of real property;

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(iii)royalty, distribution, agency or license agreement (license
agreements shall include, but not be limited to, any agreement pursuant
to which the Seller or any third party is licensed, or otherwise
afforded the right, to use, sell, reproduce or exploit any Intellectual
Property);

(iv)agreement of employment with any officer, employee, director,
professional person, or independent contractor (including consultants)
which is not terminable, at the discretion of the Seller, without
payment or other penalty, on 30 (or fewer) days' notice from the
Seller;

(v)agreement (including a collective bargaining agreement) with any
labor union or other representative of employees;

(vi)agreement guaranteeing the payment or performance of the
obligations of others;

(vii)lease of any personal property under which aggregate payments
exceed $15,000 per year;

(viii) agreement not made in the ordinary course of business
involving a sum in excess of $15,000;

(ix)agreement (except leases of personal property) for the purchase
or sale of products or other personal property, or the provision or
purchase of services, involving a sum in excess of $15,000;

(x)partnership or joint venture agreement;

(xi)security, pledge or escrow agreement or any other agreement
creating or providing for the creation of any Encumbrance;

(xii) agreement restricting in any way the ability of the Seller to
engage in any enterprise;

(xiii) agreement (other than agreements of employment with an
officer, employee, director, professional person or independent
contractor) restricting in any way the ability of a third party to
engage in any enterprise;

(xiv) agreement obligating the Seller to pay any commission, finder's
fee or other such contingent remuneration;

(xv)agreement under which the Seller is obligated to provide or
expend services, property or cash with a fair market value in excess of
$15,000; or

(xvi) agreement, not otherwise required to be disclosed on Schedule
3.10(A) pursuant to the above provisions of this Section 3.10(A), which
constitutes an Included Agreement.

(B)True and correct copies of those agreements which are required to be
disclosed on Schedule 3.10(A) and which have been reduced to writing have
been delivered to the Buyer, and Schedule 3.10(B) contains a true and
correct description of all material terms of those of such agreements which
have not been reduced to writing.

(C)Except as set forth on Schedule 3.10(C), there is no existing material
breach of any Included Agreement, or any Primary License, by the Seller. To
the Seller's knowledge, and subject to the foregoing, each of the Included
Agreements, and each Primary License, is valid, enforceable and in full
force and effect, except to the extent the enforceability thereof may be
affected by applicable bankruptcy, reorganization, insolvency, moratorium
or other similar laws or general principles of equity, and no event has
occurred which, with the lapse of time or the giving of notice or both is
reasonably likely to constitute a material breach of any such agreement by
the Seller or give rise to a right on the part of any of the other parties
thereto to terminate such agreement or to deprive the Seller of any
material right, or accelerate any of its material obligations, thereunder.

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(D)Except as set forth on Schedule 3.10(D), to the knowledge of the
Seller, there is no existing material breach of any Included Agreement, or
any Primary License, by any party (other than the Seller) thereto, and no
event has occurred which, with the lapse of time or the giving of notice or
both, is reasonably likely to constitute a material breach thereof by such
other party or give rise to a right on the part of the Seller to terminate
such agreement or to deprive the other party of any right, or accelerate
any obligation of such party, thereunder.

(E)Except as set forth on Schedule 3.10(E), to the knowledge of the
Seller, there are no circumstances which, if true, create a reasonable
probability that the Seller will not, or will be unable to, fulfill any of
its material obligations, under any material Included Agreement or any
Primary License.

(F)The Seller (or the relevant Affiliate, in the case of insurance held
by an Affiliate) has not, during the current term of any insurance policy
which provides coverage with respect to persons, properties or operations
of the Division, received any notice canceling or threatening to cancel or
refusing to renew, based (to the knowledge of the Seller) on reasons
relating directly to the Business or the Division, any such policy, and no
policy insuring any such persons, properties or operations has, based (to
the knowledge of the Seller) on reasons relating directly to the Business
or the Division, been canceled by the insurer within the last twelve
months.

3.11 Labor Relations.

The Seller employs 88 employees in the Division in the United States,
none of whom is subject to union or collective bargaining agreements by
which the Seller is bound or subject. The name of each such employee is
listed on Schedule 3.11. The Seller has not at any time during the last
five years, had, nor is there now to the knowledge of the Seller
threatened, a strike, picket, work stoppage, work slowdown, union
organizing activity or other labor trouble that has had or would be
reasonably likely to have a Material Adverse Effect on the Division. The
Seller is not aware of any pending or threatened union activity, strike,
picketing, work stoppage, work slowdown or other labor trouble with respect
to the employees of any of the providers of goods and services listed on
Schedule 3.15 which would be reasonably likely to have a Material Adverse
Effect on the Division.

3.12 Legal Proceedings.

(A)Except as set forth on Schedule 3.12(A) attached hereto, there are no
Actions pending, or to the knowledge of the Seller, threatened against or
affecting the Seller, which relate to the Division or to any Assets used in
connection with the Division; and the Seller is not in default with respect
to any Order which has been issued against the Seller in connection with
the operations of the Division. Except as set forth on Schedule 3.12(A),
there are no Orders issued against the Seller which relate to the
operations of the Division. True and correct copies of the pleadings (or,
if there are no pleadings, then all material documents (including
correspondence) setting forth the nature of the Action) relating to all
Actions required to be disclosed on Schedule 3.12(A) (other than workers
compensation claims and the CellPro and Saxholm Litigations) have been
delivered to the Buyer.

(B)Except as set forth on Schedule 3.12(B), there are no Actions in which
the Seller, in connection with the operations of the Division, is either a
plaintiff or, if not a formal proceeding, an aggrieved party or claimant.
True and correct copies of the pleadings (or, if there are no pleadings,
then all material documents (including correspondence) setting forth the
nature of the Action) relating to all such Actions have been delivered to
the Buyer.

3.13 Compliance with Law.

(A)Except as set forth in Schedule 3.13(A), in connection with the
operations of the Division, (i) the Seller has complied in all material
respects with, and (ii) the Seller, and all of its properties, are in

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compliance in all material respects with, all material laws, orders, rules,
and regulations of each Authority having jurisdiction over the Division or
its operations or properties.

(B)Schedule 3.13(B) attached hereto sets forth a true and complete list
and description of every License required of the Seller for the operations
of the Division conducted at the Parker Facility.

(C)Schedule 3.13(C) sets forth a true and correct list, with respect only
to the Parker Facility, for the period since January 1, 1992, of (i) all
investigations and inspections, performed by the Seller or by any third
party (including any Authority and any third party commissioned by or on
behalf of the Seller), designed to evaluate the conformity of any physical
plant occupied by the Seller in connection with the operations of the
Parker Facility or any personal property contained, or any process or
activities taking place, therein with any Federal, state or local law,
regulation or ordinance relating to the environment or human health or
safety (including OSHA), (ii) any written reports created, commissioned or
received by or on behalf of the Seller arising out of any such
investigation or inspection ("Health and Safety Reports"), and (iii) any
notices received by the Seller (but only in relation to property, plant or
equipment occupied or used by, or activities engaged in, by the Seller at
the Parker Facility) relating to alleged violations of any such laws,
regulations or ordinances (other than Environmental Laws) ("Violation
Notices"). The Seller has delivered to the Buyer true and correct copies of
all such Health and Safety Reports and Violation Notices.

3.14 Absence of Certain Changes since Balance Sheet Date.

Except as set forth on Schedule 3.14 hereto, since June 30, 1997, the
Seller has not suffered, done or agreed to do (orally or in writing) any of
the following in respect of or relating to the Division or the Business:

(A)mortgage, pledge or subject any of the Assets to any Encumbrance,
other than Permitted Encumbrances;

(B)sell, transfer or otherwise dispose of any assets or property included
in the Assets, except in connection with (i) the sale of inventory in the
ordinary course of business or (ii) the sale or other disposal of assets no
longer needed for the operation of the Division in the ordinary course of
business;

(C)waive, release or compromise any material claims or rights of the
Seller relating to the operation of the Division (other than claims or
rights relating to the CellPro and Saxholm Litigations);

(D)except in the ordinary course of business, increase the compensation
(including severance and termination pay) payable to any employees of the
Division; or enter into any agreement with any employee of the Division
providing for a salary in excess of $50,000 per year;

(E)enter into any material transaction or agreement other than in the
ordinary course of business;

(F)enter into or amend any contract or other agreement, which constitutes
or shall constitute part of the Included Agreements, pursuant to which it
agrees to indemnify any party or to refrain from competing with any party;

(G)suffer or incur any damage, construction delay or halt, breach of
contract, destruction or loss materially adversely affecting the assets,
properties, business, operations or financial condition of the Division;

(H)(i) materially change any of its business policies or practices
relating solely to the Division, including, without limitation, those
relating to advertising, marketing, pricing, purchasing, personnel, budget,
job acquisition or bidding, the collection of accounts receivable or the
payment of accounts payable, or (ii) make any material change in the types,
nature, composition or quality of the products of the Division.

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(I)(i) terminate or fail to renew or (ii) receive any statement
indicating that the other party was considering, was desirous of or
threatened to, terminate or fail to renew, any Included Agreement that is
or was material to the assets, properties, business operations or financial
condition of the Division; or

(J)suffer or have any adverse change in the business, results of
operations, assets or financial condition of the Division, other than those
changes that are in the ordinary course of business, none of which
(individually or in the aggregate) would have, or constitute, a Material
Adverse Effect on the Division.

3.15 Suppliers.

Schedule 3.15 attached hereto sets forth, as to the Division, the ten
largest suppliers (including other divisions of the Seller) of goods and/or
services to it, in each case with respect to each of the fiscal year ended
December 31, 1996 and the six months ended June 30, 1997. Except as set
forth on Schedule 3.15, no such supplier (excluding for these purposes
other divisions of the Seller) listed on Schedule 3.15 (i) has canceled or
otherwise terminated or provided written (or, to the knowledge of the
Seller, verbal) notice to the Seller indicating that it was considering,
was desirous of or was threatening to cancel or otherwise terminate, or to
decrease or limit, its relationship with, the Division, (ii) has, during
the last 12 months, decreased materially the sale of its services, supplies
or materials to the Division or, (iii) has provided written (or, to the
knowledge of the Seller, verbal) notice to the Seller that (a) he or it
will not, or is likely to not, do business with the Buyer, subsequent to
the Closing Date, on substantially the same terms as he or it has
traditionally done business with the Division or (b) he or it is
considering altering, in any material respect, or has decided to alter, in
any material respect, the terms under which he or it has traditionally done
business with the Division.

3.16 Compensation.

Section 2 of the Execution Schedule sets forth a true and correct list of
the (a) names, (b) positions and (c) compensation arrangements (including
annualized salary, bonus and commission arrangements), monetary or
otherwise, of all current employees of the Division who, during the year
ended December 31, 1996 or during the period from January 1, 1997 through
June 30, 1997, earned annual (or, in the case of the June 30 period,
annualized) compensation of at least $50,000. Except as set forth on
Schedule 3.16, no such employee has provided written (or, to the Seller's
knowledge, verbal) notice to the Seller with regard to either cancellation
or other termination of his or her relationship with the Seller.

3.17 Affiliated Transactions.

Schedule 3.17 sets forth a list of all Affiliated Transactions between or
among the Seller and any one or more of its Affiliates since January 1,
1996.

3.18 Books and Records.

The books and records of the Seller included in the Assets accurately
reflect all material Assets, and all material liabilities and transactions
of the Seller relating to the Division.

3.19 Brokers.

Other than The Craves Group and Lehman Brothers, no broker, finder or
other such Person or entity is entitled to receive a finder's or broker's
fee or commission with respect to the transactions contemplated hereby
based on arrangements made by or on behalf of the Seller.

3.20 Benefits Received.

The Seller has not:

(A)received any payment or other consideration for any products or
services that the Buyer will be obligated hereunder to deliver; or

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(B)received any payment or other benefit for or with respect to any other
obligation that the Buyer will be obligated hereunder to perform.

3.21 Inventory.

(A)All finished goods inventory relating to the Division is owned either
by the Seller or by one of the following entities: Allegiance Healthcare,
Inc., a Delaware corporation, Baxter Export corporation, a Nevada
corporation, Baxter, S.A., a Belgian corporation, BDG, Baxter Medical AB, a
Swedish corporation, Baxter Healthcare, S.A., a Panamanian corporation,
Baxter A/S, a Danish corporation, Baxter A.G., a Swiss corporation, Baxter
Oy, a Finnish corporation, Baxter GES, m.b.H., a German corporation, Baxter
S.p.A., an Italian corporation, Baxter Travenol N.V., a Belgian
corporation, Baxter Healthcare Ltd., a United Kingdom corporation, Baxter
B.V., a Netherlands corporation, Baxter S.A., a French corporation, Baxter
Limited, a Japanese corporation, Baxter Healthcare Pty, Ltd., an Australian
corporation and Baxter Healthcare Ltd., a Taiwanese corporation (each of
the foregoing entities being referred to as an "Inventory Entity").

(B)The finished goods inventory included in the Assets ("Included
Inventory") was acquired in the ordinary course of business, in customary
quantities.

(C)All items of Included Inventory have been manufactured in accordance
with the specifications, procedures, product drawings/blueprints and
regulatory requirements applicable thereto and are free from defects in
workmanship.

(D)Attached hereto as Schedule 3.21(D) is a true and correct list
showing, for each physical location where Included Inventory was held by
the Seller or any Inventory Entity as of August 31, 1997, (i) the street
address of such location and (ii) the aggregate book value of all Included
Inventory held at such location as of such date.

3.22 Experience.

The Seller is experienced in evaluating companies such as the Buyer and
VIMRx, is able to fend for itself in transactions such as the one
contemplated by this Agreement, has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits
and risks of its prospective investment in the Buyer and VIMRx, and has the
ability to bear the economic risks of the investment.

3.23 Investment.

The Seller is acquiring the Acquired Securities and will acquire any
Conversion Securities for investment for the Seller's own account and not
with the view to, or for resale in connection with, and distribution
thereof. The Seller understands that the Acquired Securities (and any
Conversion Securities) have not been and will not be registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things,
the bona fide nature of the investment intent as expressed herein. The
Seller further represents that it does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any third person with respect to any of the Acquired
Securities (or any Conversion Securities). The Seller understands and
acknowledges that the offering and issuance of the Acquired Securities
pursuant to this Agreement, and any issuance of Conversion Securities will
not be registered under the Securities Act on the ground that the sale
provided for in this Agreement and the issuance of securities hereunder is
exempt from the registration requirements of the Securities Act based on,
among other things, the bona fide nature of the investment intent as
expressed herein.

3.24 Rule 144.

The Seller acknowledges that the Acquired Securities (and any Conversion
Securities) must be held indefinitely unless subsequently registered under
the Securities Act or an exemption from such registration

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is available. The Seller is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of certain securities
purchased in a private placement subject to the satisfaction of certain
conditions. In connection therewith, the Seller acknowledges that the Buyer
and VIMRx will make a notation on their stock books regarding the
restrictions on transfers set forth in this Section 3.24 and will transfer
securities on their books only to the extent not inconsistent therewith and
with the Stockholders' Agreement. The Seller acknowledges that all shares
representing Acquired Securities (and any Conversion Securities) will bear
appropriate restrictive legends reflecting the transfer restrictions
reflected in this Section 3.24 as well as in the Stockholders' Agreement.

3.25 No Public Market.

The Seller understands that no public market now exists for the
securities of the Buyer or for the VIMRx Preferred Stock; that it is not
expected that a public market will ever exist for the VIMRx Preferred
Stock, and that it is uncertain whether a public market will ever exist for
the Buyer Common Stock.

3.26 Access to Data.

For purposes of satisfying the applicable requirements for the exemptions
from registration relating to the issuance of the Acquired Securities, the
Seller acknowledges that it has received and reviewed information about
VIMRx and the Buyer and has had an opportunity to discuss VIMRx's and the
Buyer's business, management and financial affairs with its management and
to review their facilities.

3.27 Full Disclosure.

Without limiting any of the foregoing, no representation or warranty by
the Seller herein and no other statement or certificate furnished by or on
behalf of the Seller to the Buyer or its Representatives pursuant to this
Agreement or in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to the Seller that has not
been disclosed in this Agreement which (i) has had, or would reasonably be
expected to have, a Material Adverse Effect on the Division or the Business
or (ii) which would reasonably be expected to materially and adversely
affect the ability of the Seller to perform its obligations under this
Agreement.

3.28 Proxy-Related Information.

None of the information provided in writing by the Seller or its
Representatives to VIMRx for inclusion in the Proxy Statement, pursuant to
Section 6.1(A)(x), shall contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained in
the Proxy Statement, in light of the circumstances under which they are
made, not misleading.

4.Representations and Warranties of the Buyer.

The Buyer represents and warrants to the Seller, as of the end of the
Disclosure Period and as of the Closing Date, as follows:

4.1 Good Standing.

The Buyer is a corporation organized, validly existing and in good
standing under the laws of the State of Delaware, with all necessary
corporate power and authority to own, lease and operate its properties and
to carry on its business as the same is now being conducted. True, accurate
and complete copies of the Certificate of Incorporation and By-Laws of the
Buyer have been provided to the Seller.

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4.2 Authority.

The Buyer possesses full right, corporate power and legal authority to
execute and deliver this Agreement and the Transaction Documents to which
the Buyer is a party and to perform each of the agreements and make each of
the representations and warranties on its part to be performed and made
hereunder and thereunder. The execution and delivery of this Agreement and
the Transaction Documents to which the Buyer is a party and the
consummation by it of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the
part of the Buyer. This Agreement has been duly and validly executed by the
Buyer and constitutes, and the Transaction Documents (upon and subject to
their execution and delivery by all parties thereto) shall constitute, the
legal, valid and binding obligation of the Buyer enforceable against it in
accordance with their terms subject to the qualification that the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws, now or hereafter
in effect, affecting creditors' rights and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding for the enforcement
thereof may be brought. Except as set forth on Schedule 4.2, the execution
and delivery of this Agreement and the Transaction Documents to which the
Buyer is a party and the performance by it of all of the transactions
contemplated herein and therein do not and shall not (with or without the
giving of notice or the passage of time or both) (A) violate or conflict
with the Certificate of Incorporation or By-laws of the Buyer, or (B) (1)
violate or conflict with any law, rule, ruling, determination, ordinance or
regulation of any Authority or any condition or provision of, (2) result in
the creation or imposition of any Encumbrance upon any of the property or
assets of the Buyer pursuant to, (3) accelerate or create, or permit the
acceleration or creation of, any liability or obligation of the Buyer
under, or (4) cause a termination under or give rise to a right of
termination under, the terms of any contract, mortgage, lien, lease,
agreement, indenture, trust, instrument, order, judgment or decree to which
the Buyer is a party or which is binding upon the Buyer; provided, however,
that the existence of any such violations, conflicts, encumbrances,
accelerations, creations, terminations or rights of termination shall not
be deemed to be a breach of this Section 4.2 unless, individually or in the
aggregate, they would have a Material Adverse Effect on the Buyer.

4.3 Consents and Approvals.

Except at set forth on Schedule 4.3, no other action or consent, whether
corporate or otherwise, including action or consent by any Authority, is
necessary in connection with the execution, delivery, validity or
enforceability of this Agreement or the Transaction Documents with respect
to the Buyer or the consummation by it of the transactions contemplated
hereby and thereby.

4.4 Capitalization.

The authorized capital stock of the Buyer consists, or will consist prior
to the Closing, of ten thousand (10,000) shares of Buyer Common Stock, of
which no shares are issued and outstanding on the date of this Agreement.
Upon issuance, all shares of Buyer Common Stock issued pursuant to this
Agreement will be duly authorized, validly issued, fully paid and
nonassessable. As of the Closing Date, (i) the Warrant shall be
outstanding, which shall permit the Seller to purchase an aggregate of
6.383 shares of Buyer Common Stock and (ii) the Buyer Convertible
Debentures shall be outstanding, under the terms of which the Seller and
VIMRx shall be permitted to convert such debt into shares of Buyer Common
Stock. Except as set forth in this Agreement or as a result of the exercise
of options to purchase shares reserved for issuance under the Buyer's
employee stock option plan described in Section 7.2(D) hereof, there are no
outstanding securities of the Buyer. As of the Closing Date, and excluding
any shares of Buyer Common Stock reserved for issuance under the Buyer's
employee stock option plan, or pursuant to the terms of the Warrant and the
Buyer Convertible Debentures, VIMRx will own 80.5% and the Seller will own
19.5% of the issued and outstanding shares of Buyer Common Stock. There are
no outstanding obligations of the Buyer to repurchase, redeem or otherwise
acquire any securities of the Buyer, other than the Buyer's obligation to
convert the Buyer Convertible Debentures into shares of Buyer Common Stock.

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4.5 Valid Issuance of Common Stock.

The Shares of Buyer Common Stock that are being acquired by the Seller
hereunder, when authorized, issued and delivered in accordance with the
terms of this Agreement for the consideration expressed herein, will be
duly and validly authorized and issued, fully paid, and nonassessable, and
will be free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Stockholders' Agreement and the other
Transaction Documents and under applicable state and Federal securities
laws. The Buyer Common Stock issuable upon exercise of the Warrant has been
duly authorized and validly reserved for issuance and, upon issuance upon
such exercise in accordance with the terms of the Warrant, will be duly and
validly authorized and issued, fully paid, and nonassessable and will be
free of restrictions on transfer other than restrictions on transfer under
this Agreement, the Stockholders' Agreement and the other Transaction
Documents and under applicable state and Federal securities laws.

4.6 Brokers.

Other than Lazard Freres & Co., L.L.C., no broker, finder or other such
Person or entity is entitled to receive a finder's or broker's fee or
commission with respect to, the transactions contemplated hereby based on
arrangements made by or on behalf of the Buyer.

4.7 No Prior Activities.

Since the date of its incorporation, the Buyer has not engaged in any
activities other than in connection with or as contemplated by this
Agreement.

4.8 Full Disclosure.

Without limiting any of the foregoing, no representation or warranty by
the Buyer herein and no other statement or certificate furnished by or on
behalf of the Buyer to the Seller or its Representatives pursuant to this
Agreement or in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to the Buyer that has not
been disclosed in this Agreement which (i) has had, or would reasonably be
expected to have, a Material Adverse Effect on the Buyer or (ii) which
would reasonably be expected to materially and adversely affect the ability
of the Buyer to perform its obligations under this Agreement.

5.Representations and Warranties of VIMRx.

VIMRx represents and warrants to the Seller, as of the end of the Disclosure
Period and as of the Closing Date, as follows:

5.1 Good Standing.

(A)VIMRx is a corporation organized, validly existing and in good
standing under the laws of the State of Delaware, with all necessary
corporate power and authority to own, lease and operate its properties and
to carry on its business as the same is now being conducted. True, accurate
and complete copies of the Certificate of Incorporation and By-Laws of
VIMRx have been provided to the Seller.

(B)Innovir is a corporation organized, validly existing and in good
standing under the laws of the State of Delaware, with all necessary
corporate power and authority to own, lease and operate its properties and
to carry on its business as the same is now being conducted. True, accurate
and complete copies of the Certificate of Incorporation and By-Laws of
Innovir have been provided to the Seller.

(C)VIMRx Holdings is a corporation organized, validly existing and in
good standing under the laws of the State of Delaware, with all necessary
corporate power and authority to own, lease and operate its

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properties and to carry on its business as the same is now being conducted.
True, accurate and complete copies of the Certificate of Incorporation and
By-Laws of VIMRx Holdings have been provided to the Seller.

(D)Innovir UK is a private limited company organized, validly existing
and in good standing under the laws of England, with all necessary
corporate power and authority to own, lease and operate its properties and
to carry on its business as the same is now being conducted. True, accurate
and complete copies of the Memorandum and Articles of Association of
Innovir UK have been provided to the Seller.

(E)VPI Germany is a Gesellschaft mit beschrankter Halftung organized,
validly existing and in good standing under the laws of the Federal
Republic of Germany, with all necessary corporate power and authority to
own, lease and operate its properties and to carry on its business as the
same is now being conducted. True, accurate and complete copies of the
initial Gesellschaftsvertrag, of VPI Germany have been provided to the
Seller.

(F)VGI is a corporation organized, validly existing and in good standing
under the laws of the State of Delaware, with all necessary corporate power
and authority to own, lease and operate its properties and to carry on its
business as the same is now being conducted. True, accurate and complete
copies of the Certificate of Incorporation and By-Laws of VGI have been
provided to the Seller.

(G)Ribonetics is a Gesellschaft mit beschrankter Halftung organized,
validly existing and in good standing under the laws of the Federal
Republic of Germany, with all necessary corporate power and authority to
own, lease and operate its properties and to carry on its business as the
same is now being conducted. True, accurate and complete copies of the
initial Gesellschaftsvertrag of Ribonetics have been provided to the
Seller.

5.2 Authority.

VIMRx possesses full right, corporate power and legal authority to
execute and deliver this Agreement and the Transaction Documents to which
VIMRx is a party and to perform each of the agreements and make each of the
representations and warranties on its part to be performed and made
hereunder and thereunder. The execution and delivery of this Agreement and
the Transaction Documents to which VIMRx is a party and the consummation by
it of the transactions contemplated hereby and thereby have been duly and
validly authorized by the Board of Directors of VIMRx. Upon and subject to
the approval and adoption of this Agreement and the transactions
contemplated hereby by the requisite vote of VIMRx's stockholders in
accordance with applicable Delaware General Corporation Laws, the execution
and delivery of this Agreement and the Transaction Documents and the
consummation by VIMRx of the transactions contemplated by this Agreement
and the Transaction Documents (including the issuance of VIMRx Common Stock
to the Seller as part of the consideration paid to the Seller pursuant to
this Agreement) shall have been approved by all necessary corporate action
on the part of VIMRx. This Agreement has been duly and validly executed by
VIMRx and constitutes, and the Transaction Documents (upon and subject to
their execution and delivery by all parties thereto) shall constitute, the
legal, valid and binding obligation of VIMRx enforceable against it in
accordance with their terms subject to the qualification that the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws, now or hereafter
in effect, affecting creditors' rights and except that the availability of
equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding for the enforcement
thereof may be brought. Except as set forth on Schedule 5.2, the execution
and delivery of this Agreement and the Transaction Documents to which VIMRx
is a party and the performance by it of all of the transactions
contemplated herein and therein do not and shall not (with or without the
giving of notice or the passage of time or both) (A) violate or conflict
with the Certificate of Incorporation or By-laws of VIMRx or any Controlled
Subsidiary, or (B) (1) violate or conflict with any law, rule, ruling,
determination, ordinance or regulation of any Authority or any condition or
provision of, (2) result in the creation or imposition of any Encumbrance
upon any of the property or assets

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<PAGE>

of VIMRx or any Controlled Subsidiary pursuant to, (3) accelerate or
create, or permit the acceleration or creation of, any liability or
obligation of VIMRx or any Controlled Subsidiary under, or (4) cause a
termination under or give rise to a right of termination under, the terms
of any contract, mortgage, lien, lease, agreement, indenture, trust,
instrument, order, judgment or decree to which VIMRx or any Controlled
Subsidiary is a party or which is binding upon VIMRx or any Controlled
Subsidiary; provided, however, that the existence of any such violations,
conflicts, encumbrances, accelerations, creations, terminations or rights
of termination shall not be deemed to be a breach of this Section 5.2
unless, individually or in the aggregate, they would have a Material
Adverse Effect on VIMRx.

5.3 Consents and Approvals.

Except at set forth on Schedule 5.3, no other action, consent, filing or
approval, whether corporate or otherwise, including action or consent by
any Authority, is necessary in connection with the execution, delivery,
validity or enforceability of this Agreement or the other Transaction
Documents with respect to VIMRx or the consummation by it of the
transactions contemplated hereby and thereby.

5.4 Capitalization.

(A)The authorized capital stock of VIMRx consists, or will consist on or
prior to the Closing, of:

(i)Common Stock. 120,000,000 shares of VIMRx Common Stock, of which
55,358,676 shares are issued and outstanding on the date of this
Agreement.

(ii)Preferred Stock. One Million (1,000,000) shares of blank check
preferred stock, $.001 par value (none of which are issued or
outstanding on the date hereof) of which 100,000 shares shall be VIMRx
Preferred Stock.

All issued and outstanding shares of VIMRx Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable. As of
the date hereof, options, calls and other rights to purchase an aggregate
10,396,506 shares of VIMRx Common Stock are outstanding and the weighted
average exercise price of such options, calls and commitments is $1.48 per
share of VIMRx Common Stock. Except as set forth in this Agreement or in
Schedule 5.4(A), and except as a result of the exercise of the options,
calls and commitments outstanding on this date, there are no outstanding
securities of VIMRx. There are no outstanding obligations of VIMRx or any
of its subsidiaries to repurchase, redeem or otherwise acquire any
securities of VIMRx, other than VIMRx's obligation to repurchase options
under, and in accordance with the express terms of, the employment
agreements set forth on Schedule 5.4(A) (accurate and complete copies of
which have previously been delivered to the Seller).

(B)The authorized capital stock of Innovir consists of:

(i)Common Stock. 70,000,000 shares of Innovir Common Stock, of which
29,750,529 shares are issued and outstanding on the date of this
Agreement.

(ii)Preferred Stock. 15,000,000 shares of Innovir Preferred Stock, of
which 280,000 shares of Class B Preferred Shares are issued and
outstanding on the date of this Agreement.

All issued and outstanding shares of Innovir Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable. As of
the date hereof, options, calls and other rights to purchase an aggregate
10,008,487 shares of Innovir Common Stock are outstanding and the weighted
average exercise price of such options, calls and commitments is $3.87 per
share of Innovir Common Stock. Except as set forth in this Agreement or in
Schedule 5.4(B), and except as a result of the exercise of the options,
calls and commitments outstanding on this date, there are no outstanding
securities of Innovir. Except as set forth on Schedule 5.4(B), there are no
outstanding obligations of Innovir to repurchase, redeem or otherwise
acquire any securities of Innovir.

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<PAGE>

(C)The authorized capital stock of VIMRx Holdings consists of:

(i)Common Stock. 120,000 shares of VIMRx Holdings Common Stock, of
which 12,000 shares are issued and outstanding on the date of this
Agreement.

All issued and outstanding shares of VIMRx Holdings Common Stock have
been duly authorized and validly issued and are fully paid and
nonassessable. As of the date hereof, there are no options, calls or other
rights to purchase any shares of VIMRx Holdings Common Stock. Except as set
forth in this Agreement or in Schedule 5.4(C), there are no outstanding
securities of VIMRx Holdings. Except as set forth on Schedule 5.4(C), there
are no outstanding obligations of VIMRx Holdings to repurchase, redeem or
otherwise acquire any securities of VIMRx Holdings.

(D)The authorized capital stock of Innovir UK consists of:

(i)Common Stock. 1,000 Ordinary Shares of which 1,000 shares are
issued and outstanding on the date of this Agreement.

All issued and outstanding Innovir UK Ordinary Shares have been duly
authorized and validly issued and are fully paid and nonassessable. Except
as set forth in this Agreement or in Schedule 5.4(D), there are no
outstanding securities of Innovir UK. Except as set forth on Schedule
5.4(D), there are no outstanding obligations of Innovir UK to repurchase,
redeem or otherwise acquire any securities of Innovir UK.

(E)Innovir Germany is authorized to issue an unlimited amount of share
capital. The issued share capital of Innovir Germany is DM 50,000 all of
which is issued to VIMRx Holdings. There are no other equity interests
authorized, issued or outstanding in Innovir Germany.

(F)The authorized capital stock of VGI consists of:

(i)Common Stock. 5,000 shares of VGI Common Stock, of which 1,000
shares are issued and outstanding on the date of this Agreement.

All issued and outstanding shares of VGI Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable. Except
as set forth in this Agreement or in Schedule 5.4(F), there are no
outstanding securities of VGI. Except as set forth on Schedule 5.4(F),
there are no outstanding obligations of VGI to repurchase, redeem or
otherwise acquire any securities of VGI.

(G)Ribonetics is authorized to issue an unlimited amount of share
capital. The issued share capital of Ribonetics is DM 50,000 all of which
is issued to VIMRx Holdings. There are no other equity interests
authorized, issued or outstanding in Ribonetics.

5.5 Valid Issuance of Preferred and Common Stock.

The shares of VIMRx Preferred Stock and VIMRx Common Stock that are being
acquired by the Seller hereunder, when authorized, issued and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly authorized and issued, fully paid and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the other Transaction
Documents and under applicable state and federal securities laws. The VIMRx
Common Stock issuable upon conversion of the VIMRx Preferred Stock acquired
under this Agreement has been duly authorized and validly reserved for
issuance and, upon issuance upon such conversion in accordance with the
terms of the Certificate of Incorporation of VIMRx, will be duly and
validly authorized and issued, fully paid, and nonassessable and will be
free of restrictions on transfer other than restrictions on transfer under
this Agreement and the other Transaction Documents and under applicable
state and Federal securities laws.

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<PAGE>

5.6 Brokers.

5.7 Financial Statements.

(A)Except as set forth on Schedule 5.7(A), VIMRx and Innovir have filed
all SEC Reports, if any, required to be filed by them with the SEC since
January 1, 1995 and December 23, 1996, respectively, each of which has
complied as to form in all material respects with applicable requirements
of the Securities Act and the Exchange Act. As of their respective dates,
none of such SEC Reports contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order the make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim
financial statements of VIMRx included in its SEC Reports have been
prepared in conformity with GAAP applied on a consistent basis (except as
may be indicated in the notes thereto), and present fairly, in all material
respects, the consolidated financial position of VIMRx as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject to normal year-end adjustments in the case of
any unaudited interim financial statements).

(B)Except (i) as disclosed or recorded in the unaudited consolidated
balance sheet of VIMRx at June 30, 1997 (including any notes or schedules
thereto), (ii) as set forth on the Schedules to this Agreement and (iii)
for liabilities incurred in the ordinary course of business, since June 30,
1997, which would not have a Material Adverse Effect on VIMRx or any
Controlled Subsidiary, VIMRx and the Controlled Subsidiaries have no
material liabilities of any nature (whether arising out of contract, tort,
statute or otherwise and whether direct or indirect, accrued, matured,
asserted or unasserted, absolute contingent or otherwise).

5.8 Absence of Certain Changes.

Since June 30, 1997, except as specifically disclosed in the SEC Reports
filed by VIMRx on or prior to the date of this Agreement or as set forth on
Schedule 5.8, and except for this Agreement and the Transaction Documents,
neither VIMRx nor Innovir has entered into any material transaction, or, in
any material respect, conducted its business or operations other than in
the ordinary course of business consistent with past practice. Since June
30, 1997, neither VIMRx nor Innovir has suffered or had any adverse change
in its business, results of operations, assets or financial condition,
other than those changes that are in the ordinary course of business, none
of which (individually or in the aggregate) would have, or constitute, a
Material Adverse Effect on VIMRx or Innovir.

5.9 Legal Proceedings.

(A)Except as set forth on Schedule 5.9 attached hereto, there are no
Actions pending, or to the knowledge of VIMRx, threatened against or
affecting VIMRx or any Controlled Subsidiary; and neither VIMRx nor any
Controlled Subsidiary is in default with respect to any Order which has
been issued against it. Except as set forth on Schedule 5.9, there are no
Orders issued against VIMRx or any Controlled Subsidiary. True and correct
copies of the pleadings (or, if there are no pleadings, then all material
documents (including correspondence) setting forth the nature of the
Action) relating to all Actions required to be disclosed on Schedule 5.9
(other than worker compensation claims) have been delivered to the Seller.

(B)Except as set forth on Schedule 5.9, there are no Actions in which
VIMRx or a Controlled Subsidiary is either a plaintiff or, if not a formal
proceeding, an aggrieved party or claimant. True and correct copies of the
pleadings (or, if there are no pleadings, then all material documents
(including correspondence) setting forth the nature of the Action) relating
to all such Actions have been delivered to the Seller.

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<PAGE>

5.10 Compliance with Law.

Except as set forth on Schedule 5.10, VIMRx and each Controlled
Subsidiary has complied in all material respects with, and each such entity
and all of its properties are in compliance in all material respects with,
all material laws, orders, rules, and regulations of each Authority having
jurisdiction over such entity or its operations or properties.

5.11 Contracts and Commitments.

(A)Except as set forth on Schedule 5.11(A), there is no existing material
breach of any contract or agreement to which VIMRx or any Controlled
Subsidiary is a party by VIMRx or the relevant Controlled Subsidiary; to
the knowledge of VIMRx, and subject to the foregoing, no event has occurred
which, with the lapse of time or the giving of notice or both, is
reasonably likely to constitute a material breach of any such agreement by
VIMRx or the relevant Controlled Subsidiary or give rise to a right on the
part of any of the other parties thereto to terminate such agreement or to
deprive VIMRx or the relevant Controlled Subsidiary of any material right,
or accelerate any of its material obligations, thereunder.

(B)Except as set forth on Schedule 5.11(B), to the knowledge of VIMRx,
there is no existing material breach of any contract or agreement to which
VIMRx or any Controlled Subsidiary is a party by any party (other than
VIMRx and the relevant Controlled Subsidiary) thereto and no event has
occurred which, with the lapse of time or the giving of notice or both, is
reasonably likely to constitute a material breach thereof by such other
party or give rise to a right on the part of VIMRx or the relevant
Controlled Subsidiary to terminate such agreement or to deprive the other
party of any right, or accelerate any obligation of such party, thereunder.

(C)Except as set forth on Schedule 5.11(C), to the knowledge of VIMRx,
there are no circumstances which, if true, create a reasonable probability
that VIMRx or any Controlled Subsidiary will not, or will be unable to,
fulfill any of its material obligations, under any material agreement to
which it is a party.

(D)VIMRx (or the relevant Controlled Subsidiary, in the case of insurance
held by a Controlled Subsidiary) has not, during the current term of any
insurance policy which provides coverage with respect to persons,
properties or operations of VIMRx or any Controlled Subsidiary, received
any notice canceling or threatening to cancel or refusing to renew, based
(to the knowledge of VIMRx) on reasons relating directly to the business if
VIMRx or any Controlled Subsidiary, any such policy, and no policy insuring
any such persons, properties or operations has, based (to the knowledge of
VIMRx) on reasons relating directly to the business if VIMRx or any
Controlled Subsidiary, been canceled by the insurer within the last twelve
months.

5.12 Intellectual Property.

(A)Schedule 5.12(A) contains a list and description of all Patents and
Trademarks currently owned by or licensed to VIMRx or any Controlled
Subsidiary (separately identifying those which are owned and those which
are licensed and, if not owned by such entity, identifying the owner
thereof, if any).

(B)Schedule 5.12(B) contains a list and description of all material
Copyrights (registered or unregistered) licensed to VIMRx or any Controlled
Subsidiary (identifying the owner thereof and the related work).

(C)Schedule 5.12(C) contains a list of (i) all applications for
registration of any Intellectual Property owned by or licensed to VIMRx or
any Controlled Subsidiary as well as a list of all existing registrations
of any such Intellectual Property (in either case, identifying the
Intellectual Property, the application or registration number and the
jurisdiction thereof) and (ii) pending applications for any Patents where
VIMRx or any Controlled Subsidiary is listed as the owner or is the
licensee of any of the underlying technology

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<PAGE>

(identifying the subject matter of the application, the relevant
application number, the jurisdiction thereof and the owner thereof). True
and correct copies of all such applications and registrations have been
provided to the Seller.

(D)Schedule 5.12(D) contains a list of all material documents relating to
product clearances relating to Patent infringement performed by or on
behalf of VIMRx or any Controlled Subsidiary. VIMRx has delivered to the
Seller true and correct copies of all such documents, if any.

(E)Schedule 5.12(E) contains a list and description (showing in each case
the parties thereto and, in the event the same has not been reduced to
writing, the material terms thereof) of all material agreements and
licenses to which VIMRx or any Controlled Subsidiary is a party or by which
it is bound which entitle VIMRx or any Controlled Subsidiary or a third
party to use, or restrict VIMRx's or any Controlled Subsidiary's or a
third-party's use of, (i) any Copyrights, Patents, Trademarks or
Information owned by, licensed to, or used by, VIMRx or any Controlled
Subsidiary.

(F)Except as disclosed in Schedule 5.12(F): (i) to the knowledge of
VIMRx, all Patents, and all Copyright and Trademark registrations, owned by
VIMRx or any Controlled Subsidiary are valid and in full force and effect,
and (ii) VIMRx has not received written notice (and is unaware of having
received any verbal notice) of any outstanding challenges, by any third
party, either to any such Patents or registrations or to any of the
applications described in Section 5.12(C).

(G)Except as disclosed in Schedule 5.12(G), VIMRx is not aware that there
now exists any use, by a third party, of any Intellectual Property which
violates any material Intellectual Property Right of VIMRx or any
Controlled Subsidiary.

(H)Except as set forth in Schedule 5.12(H), (i) to VIMRx's knowledge, no
infringement of any material Intellectual Property Right of any other
person or entity has occurred or results in any way from the current
operations of VIMRx or any Controlled Subsidiary, and (ii) no claim of any
infringement by VIMRx or any Controlled Subsidiary of any material
Intellectual Property Right of any other person or entity has been made,
asserted or threatened in writing (and VIMRx is unaware of any verbal such
claims) against and to VIMRx.

(I)With respect to all representations in this Section 5.12 which are
made to VIMRx's "knowledge" or which involve VIMRx's "awareness" of any
facts or circumstances, VIMRx represents and warrants that it has performed
a reasonable due diligence review with respect to the subject matter
thereof.

5.13 Environmental Matters.

(A)Schedule 5.13(A) lists all written notices (and all verbal notices of
which VIMRx is aware) received by VIMRx or any Controlled Subsidiary of
violations of Environmental Laws or environmental claims from environmental
Authorities since January 1, 1992 (in each case, only to the extent that
they relate(d) to a facility currently being occupied by VIMRx or such
Controlled Subsidiary). VIMRx has delivered to the Seller true and correct
copies of all such notices, claims and reports, as well as all reports of
VIMRx or any Controlled Subsidiary filed with such Authorities since such
date.

(B)Except as set forth in Schedule 5.13(B), with respect only to any
facility currently occupied by VIMRx or any Controlled Subsidiary, to the
knowledge of VIMRx, (i) there has been no release or discharge by VIMRx (or
any other Person) of any Contaminant in or on any such facility (or the
land upon which it is situated) and (ii) there otherwise exist no
Contaminants on or in any such real property, in any material quantity,
which, in either case, would (a) constitute or have constituted a material
violation of any Environmental Law, or (b) give rise to an obligation on
the part of VIMRx or any Controlled Subsidiary, its assigns or successors
in interest to effect an environmental cleanup or remediation.

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5.14 Labor Relations.

VIMRx, Innovir, Innovir Holdings, Innovir UK, Innovir Germany, VGI and
Ribonetics employ 12, 31, 0, 10, 12, 2 and 0 employees, respectively, none
of whom is subject to union or collective bargaining agreements by which
such entity is bound or subject. None of such entities has, at any time
during the last five years, had, nor is there now to the knowledge of VIMRx
threatened, a strike, picket, work stoppage, work slowdown, union
organizing activity or other labor trouble that has had or would be
reasonably likely to have a Material Adverse Effect on VIMRx.

5.15 Employee Benefit Plans.

(A)Except as set forth in Schedule 5.15(A), neither VIMRx nor any
Controlled Subsidiary is a party to or bound by any oral or written Non-
ERISA Plans.

(B)Except as set forth in Schedule 5.15(B), VIMRx and each Controlled
Subsidiary does not maintain, has never maintained, is not required to
contribute to, and has never been required to contribute to or pay any
amount with respect to, and has no liability with respect to any ERISA
Benefit Plans. Except as set forth in Schedule 5.15(B), and, to the best of
VIMRx's knowledge, each of the plans described in Schedule 5.15(B) that is
an ERISA Benefit Plan ("VIMRx Group ERISA Benefit Plan") complies in form
and is operated in all material respects in accordance with the
requirements of ERISA and, where applicable, the Code. VIMRx and, to the
knowledge of VIMRx, each Controlled Subsidiary, as applicable, has complied
with the health care continuation requirements of Section 601, et. seq., of
ERISA with respect to its employees and their spouses, former spouses and
dependents.

(C)Except as set forth on Schedule 5.15(C), VIMRx has delivered to the
Seller, with respect to each VIMRx Group ERISA Benefit Plan, correct and
complete copies of (i) all plan documents and amendments, trust agreements
and insurance contracts and policies, (ii) the current and, to the extent
available, the prior summary plan description, (iii) the most recent
financial statements, if any, and (iv) where applicable, a determination
letter of the Internal Revenue Service evidencing the plan's qualification
under the Code.

(D)Neither VIMRx nor any Controlled Subsidiary has any obligations under
any VIMRx Group ERISA Benefit Plan or otherwise to provide health benefits
to former employees of VIMRx or any Controlled Subsidiary, except as
specifically required by law. Neither VIMRx nor any Controlled Subsidiary
has any liability, potential or otherwise, under Section 4069 or Section
4212(c) of ERISA. Neither VIMRx nor any Controlled Subsidiary has ever made
a contribution to a voluntary employees' beneficiary association described
in Section 501(c)(9) of the Code.

(E)Neither VIMRx nor, to the knowledge of VIMRx, any Controlled
Subsidiary or any other "disqualified person" (within the meaning of
Section 4975 of the Code) or "party in interest" (within the meaning of
Section 3(14) of ERISA) has engaged in any "prohibited transaction" (within
the meaning of Section 4975 of the Code or Section 406 of ERISA) with
respect to any VIMRx Group ERISA Benefit Plan which could subject any such
Plan (or its related trust) or VIMRx or any Controlled Subsidiary or any
officer, director or employee of VIMRx or any Controlled Subsidiary to the
penalty or tax under Section 402(i) or Section 402(1) of ERISA or Section
4975 of the Code.

(F)There is no pending or, to the knowledge of VIMRx, threatened claim
which alleges any violation of ERISA or any other law (i) by or on behalf
of any VIMRx Group ERISA Benefit Plan or (ii) by any employee of VIMRx or
any Controlled Subsidiary or any plan participant or beneficiary against
any such plan.

(G)There does not now exist (and has not in the past existed) an
"employee pension benefit plan," as defined in Section 3(2) of ERISA,
maintained by VIMRx or any Controlled Subsidiary or to which VIMRx or any
Controlled Subsidiary contributes or is required to contribute (or
contributed or was required

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to contribute in the past), including any multiemployer employee pension
benefit plan, other than an individual account plan within the meaning of
Section 3(34) or ERISA.

(H)Except as set forth on Schedule 5.15(H), there has been no complete or
partial termination of any VIMRx Group ERISA Benefit Plan and no action
taken by VIMRx or its Affiliates at any time during the three years
preceding the Closing date which has or will result in termination of any
employee benefit plan in effect during such period; nor has there been any
"reportable event," as such term is defined in Section 4043(c) of ERISA and
the regulations promulgated thereunder, with respect to any VIMRx Group
ERISA Benefit Plan; and except by reason of discontinuance of any VIMRx
Group ERISA Benefit Plan as a result of or following the transactions
contemplated by this Agreement, no VIMRx Group ERISA Benefit Plan or other
employee plan, arrangement or agreement of VIMRx or any Controlled
Subsidiary provides for additional or accelerated payments or other
consideration to be made on account of the transactions contemplated by
this Agreement.

5.16 Proxy Statement.

The Proxy Statement on Schedule 14A to be prepared by VIMRx and delivered
to its stockholders in connection with the stockholders' meeting referenced
to in Section 6.1(B)(v) (the "Proxy Statement") shall not, at the time it
is delivered to stockholders, contain any untrue statement of material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided, that
this representation shall be deemed not to apply to any written information
provided by the Seller or its Representatives to VIMRx for inclusion in the
Proxy Statement. The Proxy Statement will comply as to form in all material
respects with the applicable provisions of the Exchange Act and the rules
and regulations thereunder.

5.17 Books and Records.

Except as set forth in Schedule 5.17, all of the books and records of
VIMRx and each Controlled Subsidiary (including all minute books and stock
records) are accurate and complete in all material respects, are kept in
the ordinary course of business and are maintained at the principal offices
of VIMRx or the relevant Controlled Subsidiary.

5.18 Financial Ability.

VIMRx has the financial ability and resources to purchase $10,000,000 in
principal amount of the Buyer Convertible Debentures to be issued to it by
the Buyer on the Closing Date.

5.19 Experience.

VIMRx is experienced in evaluating companies and businesses such as the
Business of the Division and is able to fend for itself in transactions
such as the one contemplated by this Agreement, has such knowledge,
sophistication, and experience in financial and business matters that it is
capable of evaluating the merits and risks of (i) the acquisition of the
Assets of the Division pursuant to the terms and conditions of this
Agreement and (ii) its prospective investment in the Buyer and the Seller,
and has the ability to bear the economic risks of the investment.

5.20 Controlled Subsidiaries.

Innovir, VIMRx Holdings, Innovir UK, Innovir Germany, Cambes, VGI and
Ribonetics are the only Controlled Subsidiaries of VIMRx; provided,
however, that references elsewhere in this Agreement to "Controlled
Subsidiary" shall be deemed not to refer to Cambes.

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5.21 Full Disclosure.

Without limiting any of the foregoing, no representation or warranty by
VIMRx herein and no other statement or certificate furnished by or on
behalf of VIMRx to the Seller or its Representatives pursuant to this
Agreement or in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to VIMRx that has not been
disclosed in this Agreement which (i) has had, or would reasonably be
expected to have, a Material Adverse Effect on VIMRx or (ii) which would
reasonably be expected to materially and adversely affect the ability of
VIMRx to perform its obligations under this Agreement.

6.Certain Covenants and Agreements.

6.1 Pre-Closing Covenants.

(A)Covenants of the Seller. From the date hereof (except as set forth in
Section 6.1(A) (viii) below) until the Closing Date, the Seller covenants
that it shall do the following (it being agreed by Buyer that it shall not
unreasonably withhold its consent, which shall not be valid unless in
writing, to any proposed departures, by the Seller, from the provisions of
Sections 6.1(A)(xi)-(xviii) below):

(i) preserve and maintain its corporate existence and good standing
in the jurisdiction of its incorporation;

(ii) continue to operate the Division, in all material respects, in
the ordinary course of business;

(iii) maintain, keep and preserve, in all material respects, all of
the material properties and assets used in the operation of the
Division;

(iv) keep reasonably adequate books and records with respect to the
Division;

(v) maintain the insurance policies in effect as of the date of this
Agreement which relate to the Assets, or operations, of the Division;

(vi) comply (with respect to the persons, assets and operations of
the Division), in all material respects, with all applicable laws,
rules, regulations and orders;

(vii) at any reasonable time and from time to time, (a) permit the
Buyer and VIMRx, or any agent or representative of either, to examine
and make copies and abstracts from any and all of the Seller's records
and books relating to the Division and visit and inspect any and all of
its assets and properties relating to the Division and (b) make
available its officers, employees and independent accountants to
discuss with the Buyer, VIMRx and their representatives the Division's
affairs, finances and accounts;

(viii) in the event and to the extent, that events or circumstances
occur or arise, or the Seller becomes aware of events or circumstances,
which render any of the representations and warranties set forth in
Section 3 hereof inaccurate, and without limiting in any way the
Buyer's rights under Section 7.1, promptly notify the Buyer and VIMRx
thereof by delivering to Buyer and VIMRx new, updated or amended (and
red-lined) Schedules relating to such events or circumstances (it being
agreed by the parties that, notwithstanding any other provision hereof,
this Section 6.1(A)(viii) shall apply (a) only during the period
beginning on the day following the end of the Disclosure Period and
ending on the Closing Date and (b) only in the event that this
Agreement shall not have been terminated in accordance with Section
14.2);

(ix)exercise commercially reasonable efforts to: (a) preserve intact,
in all material respects, the Division's business organization, (b)
keep available the services of its employees and (c) maintain

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satisfactory relationships with suppliers, contractors, customers,
creditors and others having business relationships with the Seller or
the Division;

(x) promptly provide to VIMRx, at its request and in writing, all
information, with respect to the Seller and its business, properties,
personnel and operations, required for inclusion in the Proxy Statement
and, to the extent that any information previously provided to VIMRx is
discovered to be false or misleading, provide to VIMRx, in writing,
such additional or different information as may be required to correct
such deficiency;

(xi) not mortgage, pledge or subject any of the Assets to any
Encumbrance, other than Permitted Encumbrances;

(xii) not sell, transfer or otherwise dispose of any assets or
property included in the Assets, except in connection with (i) the sale
of inventory in the ordinary course of business or (ii) the sale or
other disposal of assets no longer needed for the operation of the
Division in the ordinary course of business;

(xiii) not waive, release or compromise any material claims or rights
of the Seller relating to the operation of the Division (other than in
connection with the CellPro and Saxholm Litigations);

(xiv) not, except in the ordinary course of business, increase the
compensation (including severance and termination pay) payable to any
employees of the Division; or enter into any agreement with any
employee of the Division providing for a salary in excess of $50,000
per year;

(xv) not (a) enter into any material transaction or agreement with
respect to the Division or (b) amend or terminate any Included
Agreement or Primary License, other than in the ordinary course of
business;

(xvi) not enter into or amend any contract or other agreement, which
constitutes or shall constitute part of the Assumed Liabilities, in
connection with the Division pursuant to which it agrees to indemnify
any party or to refrain from competing with any party;

(xvii) not (i) materially change any of its business policies or
practices relating solely to the Division, including, without
limitation, those relating to advertising, marketing, pricing,
purchasing, personnel, budget, job acquisition or bidding, (ii) make
any material change in the types, nature, composition or quality of the
products of the Division; and

(xviii) not abandon or forfeit any Intellectual Property, or any
application for protection or registration (including patenting) of any
Intellectual Property included in the Assets.

(B)Covenants of VIMRx. From the date hereof (except as set forth in
Section 6.1(B)(vii) below) until the Closing Date, VIMRx covenants that it
shall, and shall (except with respect to items (iv), (v) and (vii) below)
cause the Buyer and each Controlled Subsidiary to:

(i)continue to operate, in all material respects, in the ordinary
course of business;

(ii) provide to the Seller copies of all management letters, audit
letters and reports, including, without limitation, all drafts or
preliminary versions of such letters and reports, in each case,
prepared by its outside auditors in connection with any audit of its
internal controls and procedures;

(iii)not issue, deliver or sell, or authorize or propose to issue,
deliver or sell (whether through the granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), any
shares of its capital stock of any class or series, or any other
securities other than options, warrants, commitments, subscriptions or
rights to purchase under arrangements existing as of the Closing Date
in amounts previously disclosed in writing to the Seller;

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(iv)promptly (but in any event on or prior to October 15, 1997)
prepare and file the Proxy Statement, and prior to filing the Proxy
Statement with the SEC, submit such material to the Seller and its
counsel and provide the Seller and its counsel a reasonable opportunity
to review and comment upon such materials;

(v)duly and promptly call, give notice of, convene and hold a
stockholders' meeting for the purpose of considering and taking action
upon this Agreement and the Transaction Documents and the transactions
contemplated hereunder, and, subject to the fiduciary duties of the
Board of Directors of VIMRx under applicable law, include in the Proxy
Statement the recommendation of the Board of Directors of VIMRx that
stockholders of VIMRx vote in favor of the approval and adoption of
this Agreement and the transactions contemplated hereby;

(vi)at any reasonable time and from time to time, (a) permit the
Seller, or any representative or agent of the Seller, to examine and
make copies and abstracts from any and all of its records and books and
visit and inspect any and all of its assets and properties and (b) make
available its officers, employees and independent accountants to
discuss with the Seller and its representatives its affairs, finances
and accounts; and

(vii)in the event and to the extent, that events or circumstances
occur or arise, or VIMRx becomes aware of events or circumstances,
which render any of the representations and warranties set forth in
Section 5 hereof inaccurate, and without limiting in any way the
Seller's rights under Section 7.2, promptly notify the Seller thereof
by delivering to the Seller new, updated or amended (and red-lined)
Schedules relating to such events or circumstances (it being agreed by
the parties that, notwithstanding any other provision hereof, this
Section 6.1(B)(vii) shall apply (a) only during the period beginning on
the day following the end of the Disclosure Period and ending on the
Closing Date and (b) only in the event that this Agreement shall not
have been terminated in accordance with Section 14.2);

(C)Filings. The Buyer and/or VIMRx, as appropriate, shall, and the Seller
shall (and shall cause its Affiliated entities, as appropriate, to) (i)
promptly file, and use their best efforts to respond as promptly as
practicable to all inquiries received from the Federal Trade Commission or
the Antitrust Division of the Department of Justice for additional
information or documentation with respect to, the Notification and Report
Forms required to be filed under Hart-Scott in connection with the
transactions contemplated hereby, (ii) promptly take all such action as may
be necessary under any laws applicable to or necessary for, and will file
and, if appropriate, use their reasonable best efforts to have declared
effective or approved all documents and notifications with all Authorities
which they deem necessary or appropriate for, the consummation of the
transactions contemplated hereby and, (iii) promptly give any other party
hereto information requested by such other party pertaining to it and its
subsidiaries and Affiliates which is reasonably necessary to enable such
other party to take such actions and file in a timely manner all reports
and documents required to be so filed by or under applicable laws.

(D)Negotiations with Others. From the date hereof until the Closing Date,
neither the Seller nor any of its Affiliates or Representatives, directly
or indirectly, will (i) solicit or initiate discussions or engage in
negotiations or discussions with any other person or entity (other than the
Buyer or any of its Affiliates or Representatives) involving (x) the
possible acquisition of a substantial portion of the Assets, or (y) any
form of extraordinary transaction that involves the Division or the
Business (a "Competing Transaction"); (ii) provide information to any
person or entity (other than the Buyer or its Affiliates or
Representatives) with respect to a possible Competing Transaction (except
that the Buyer acknowledges that the Seller provided such information to
third parties, subject to confidentiality agreements, prior to June 11,
1997) or (iii) enter into any Competing Transaction with any person or
entity other than the Buyer or any of its Affiliates. If the Seller
receives any offer or proposal to enter into any Competing Transaction or
to enter into any negotiation relating thereto, the Seller immediately will
notify the Buyer of the existence of such offer or proposal, which notice
shall include information as to the identity of the offeror or the party
making any such proposal and the specific terms of such offer or proposal.

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6.2 Post-Closing Covenants.

(A)Milestone Payments. The parties agree that subsequent to the Closing,
the Seller shall have the additional rights set forth below:

(i)Upon the occurrence of each Milestone, the Seller shall have the
right to receive from the Buyer, within 45 days after the applicable
Occurrence Date, the amount set forth opposite such Milestone on
Exhibit N.

(ii)The Buyer agrees that, in the event that, as of the Occurrence
Date relating to any Milestone, the Cash Position of the Buyer shall be
less than Net Projected Expenses, VIMRx shall, within 45 days of such
Occurrence Date, lend to the Buyer (for the purpose of enabling the
Buyer to pay the applicable Milestone Payment) a sum equal to such
Milestone Payment. In consideration of any such loan, the Buyer shall
execute and deliver to VIMRx a subordinated promissory note,
substantially in the form annexed hereto as Exhibit V.

(B)Assignability. To the extent that any lease, contract, license,
agreement, sales or purchase order, commitment, property interest or other
asset included in the Assets, or any claim, right or benefit arising
thereunder or resulting therefrom (each an "Interest") is not capable of
being sold, assigned, transferred or conveyed without the approval,
consent, novation or waiver of the issuer thereof or the other party or
parties thereto, or any other third person (including an Authority) (or
would be breached in the event of a sale, assignment, transfer, or
conveyance without such approval, consent or waiver), this Agreement shall
not, in the event any such issuer or third party shall object to such
assignment, constitute a sale, assignment, transfer or conveyance thereof,
or an attempted sale, assignment, transfer or conveyance thereof absent
such approval, consent or waiver. At the request of the Buyer, the Seller
shall use its commercially reasonable best efforts, both prior and
subsequent to the Closing Date, to obtain all necessary approvals, consents
or waivers necessary to convey to the Buyer each such Interest as soon as
reasonably practicable; provided, however, that the Seller shall not be
required to pay any additional consideration in order to obtain such
approvals, consents or waivers. To the extent any of the approvals,
consents or waivers referred to in this Section 6.2(B) have not been
obtained as of the Closing, the Seller shall, during the remaining term of
such Interest (and without limiting the Buyer's right to have the Seller
persist, post-Closing, in attempting to obtain any such approval, consent
or waiver), exercise commercially reasonable best efforts to cooperate with
the Buyer in any reasonable and lawful arrangements designed to provide the
benefits of such Interest to the Buyer.

(C)Facilitation of Possession. Subsequent to the Closing, the Seller, at
the request of the Buyer, shall write letters to, and otherwise communicate
with third parties, and do such other reasonable acts and things as may be
necessary or appropriate, to facilitate the gaining of possession, by the
Buyer of the Assets.

(D)Management Slate. The Seller agrees (so long as (i) it shall own 3% or
more of the issued and outstanding capital stock of VIMRx and (ii) its
representative (if it shall have chosen to designate one) shall retain a
seat on the VIMRx Board of Directors, per Section 6.2(E) below) to vote all
of its shares of stock in VIMRx (whether at meetings, pursuant to written
consents or otherwise) for the election to the Board of Directors of VIMRx
of all candidates who are recommended to be elected thereto by the then-
current Board of Directors.

(E)Board Seat. VIMRx agrees that until the date on which the Seller shall
cease to own at least 3% of the issued and outstanding capital stock of
VIMRx, VIMRx shall nominate and recommend to its stockholders, and to vote
all shares for which management receives a proxy (other than proxies to the
contrary) for the election of one Person selected by the Seller as its
representative to the Board of Directors of VIMRx.

(F)Internal Control Procedures. VIMRx agrees that it shall (i) cause its
outside auditors to perform an audit of the internal controls and
procedures of VIMRx, and (ii) adopt all recommendations regarding such
internal controls and procedures as its Board of Directors shall deem to be
appropriate for adoption.

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(G)Round Lake and Munich Employees. The Seller shall bear the expenses
and costs incurred in connection with the closing of the Round Lake
Facility and the expenses and costs of relocating employees of the Seller
employed at the Round Lake Facility to the Parker Facility; provided,
however, that such relocation shall be in accordance with standard
relocation policies of the Seller in effect as of the date of this
Agreement and the expenses and costs of relocating such employees (which
shall be borne by the Seller hereunder) shall not exceed those which would
be borne by the Seller under such standard relocation policies of the
Seller. The Seller shall bear the expenses and costs incurred in connection
with the closing of the Munich Facility; provided, however, that the Seller
shall not bear any expenses or costs incurred in connection with the
relocation of any employees of the Munich Facility to the Parker Facility
or any other facility operated by or on behalf of the Buyer.

(H)Intellectual Property. The Seller shall cooperate, and shall cause its
Representatives to cooperate, with the Buyer in (i) obtaining, maintaining,
enforcing, defending and confirming the Buyer's ownership of the
Intellectual Property included in the Assets (and the Buyer shall reimburse
the Seller's reasonable out of pocket costs, including, without limitation,
reasonable attorneys fees, incurred in connection therewith) and (ii)
enforcing and defending the Intellectual Property Rights arising from the
Primary Licenses.

(I)Chiron Obligations. (i) The Buyer hereby acknowledges that the Seller
has performance obligations under the Chiron Collaboration Agreement and
agrees, at the Seller's request, to allow the Seller to satisfy the
Seller's performance obligations under the Chiron Collaboration Agreement
including, without limitation (a) allowing the Seller to achieve a
Qualifying Acceptance by the Seller (as that term is defined in the Chiron
Collaboration Agreement), (b) after a Qualifying Acceptance has been
achieved, to permit the Seller to develop and/or manufacture to the
Seller's specifications, a Semi-Automated Baxter System (as that term is
defined in the Chiron Collaboration Agreement), and (c) allowing the Seller
to perform all other obligations of the Seller; provided, that the Semi-
Automated Baxter System will not involve Ex Vivo Cell Processing (as that
term is defined in the Hardware and Disposables Manufacturing Agreement).

Without limitation of the foregoing, and notwithstanding any terms of
this Agreement or the other Transaction Documents to the contrary, the
Buyer agrees, (i) at the request of Seller, to provide to Seller such
assistance and information (at Seller's cost) as may be reasonably required
for Seller to comply with its obligations under Sections 3.8 and 3.9 of the
Chiron Collaboration Agreement and (ii) to abide by the exclusivity
provisions of Section 3.1 of the Chiron Collaboration Agreement pursuant to
clause b(ii) of the third sentence of Section 3.5(a) of the Chiron
Collaboration Agreement in the same manner as such provisions apply to
Baxter. The Buyer further agrees that the Buyer will not, directly or
indirectly (in the event Buyer otherwise has the right to do so), and/or
shall not require Seller to, violate the terms of Section 8.4 of the Chiron
Collaboration Agreement.

(ii)The Semi-Automated Baxter System shall be distributed by the
Seller in compliance with the Non-Competition and Confidentiality
Agreement.

(iii)In return for the Buyer's agreeing to the above, the Seller will
use commercially reasonable efforts to obtain from Chiron Corporation,
a Delaware corporation, the right to grant a sublicense to the Buyer
and its Affiliates under (and on the same terms as) the license granted
to the Seller in Section 2.1(b) of the Chiron Collaboration Agreement.
In the event that the Seller shall obtain such right, the Seller will
grant such sublicense to the Buyer and its Affiliates.

(iv)The Seller shall indemnify and hold harmless the Buyer from and
against any claims of patent or other Intellectual Property
infringement, and any product liability claims, incurred by the Buyer
in connection with the Seller's performance of its obligations under
the Chiron Collaboration Agreement; provided, however, that this
indemnity shall not apply to any claims arising out of actions or
omissions of the Buyer or the performance of Buyer's obligations under
any sublicense, referred to in Section 6.2(I)(iii) above, which it may
enter into with Seller, with the consent of Chiron.

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(J)Potential Post-Closing Adjustment.

(i)Within 120 days after the Closing Date, the Buyer shall prepare
and deliver to the Seller, or cause to be prepared and delivered to the
Seller, a statement (the "FFE Statement") showing the Buyer's good
faith determination, based on a physical inventory, as to the aggregate
net book value of all furniture, fixtures and equipment included in the
Assets (hereinafter, the "Net Book Value"). The Seller shall reimburse
the Buyer for the out-of-pocket costs incurred by the Buyer in so
preparing, or causing to be prepared, the FFE Statement, but in no
event shall the Seller be obligated to reimburse the Buyer for an
aggregate amount of more than $20,000.

(ii)Within 45 days after the date on which the Buyer shall have
delivered the FFE Statement to the Seller (such 45th day being the
"Lapse Date"), the Seller shall notify the Buyer as to whether the
Seller disputes the FFE Statement (such notice being the "FFE Notice").
In the event that the Seller shall, prior to the Lapse Date, notify the
Buyer that it agrees with the FFE Statement, the FFE Statement shall be
deemed, on the date of giving of such notice, to have been finally
determined for purposes of Section 6.2(J)(iv). In the event that the
Seller fails to deliver an FFE Notice to the Buyer on or before such
45th day, the Seller shall be deemed to have agreed to the FFE
Statement and the FFE Statement shall be deemed likewise to have been
finally determined for purposes of Section 6.2(J)(iv).

(iii)In the event that the Seller timely delivers an FFE Notice which
indicates that it disputes the FFE Statement, the Seller and the Buyer
shall, during the 30-day period after the date on which the FFE Notice
shall have been given to the Buyer, negotiate in good faith to resolve
any disagreements with respect to the FFE Statement. If at the end of
such 30-day period, no such resolution is reached, such disagreements
shall, under the principles set forth in this Section 6.2(J), be
resolved by a "Big Six" firm of independent accountants (other than
KPMG and Price Waterhouse) upon which the Seller and the Buyer shall
agree (the "Jointly Selected Firm"), and such firm shall review the FFE
Statement and determine whether any revisions thereto are appropriate.
If the parties are unable, within five days after the expiration of
such 30 day period, to agree upon the Jointly Selected Firm, the Seller
and the Buyer shall cause an independent mutually acceptable third
party to write the names of each of such other four "Big Six" firms on
four pieces of paper and then draw one of such names blindly, and
randomly, from a container (the firm so chosen being referred to as the
"Appointed Firm"). The parties shall retain the Appointed Firm to
review and, if appropriate, revise the FFE Statement. The Jointly
Selected Firm or the Appointed Firm, as the case may be, shall be
instructed promptly to discharge its task and to deliver written notice
of its decision (and, if appropriate, a revised FFE Statement)
simultaneously to the Buyer and the Seller. The date as of which the
Buyer and the Seller shall have received such notice shall be the date
on which the FFE Statement shall be deemed to have been finally
determined for purposes of Section 6.2(J)(iv). The determination made
by the Jointly Selected Firm or the Appointed Firm shall be conclusive
and binding on the parties hereto, absent manifest error. The fees and
disbursements of the Jointly Selected Firm or the Appointed Firm, as
the case may be, shall be divided equally between the Seller, on the
one hand, and the Buyer, on the other hand.

(iv)Within 10 days after the date on which the FFE Statement shall
have been finally determined pursuant to the above provisions, the
parties shall comply with either subsection (a) or (b) below, as
applicable:

(a)if the Net Book Value shown on the final FFE Statement shall
equal or exceed $7,200,000, no adjustment shall be in order and no
additional sum shall be payable by Seller to Buyer;

(b)if the Net Book Value shall be less than $7,200,000, the Seller
shall pay to the Buyer the excess of (1) $7,200,000 over (2) the Net
Book Value.

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(K)Preferred Stock. VIMRx shall not issue or sell any shares of VIMRx
Preferred Stock to any person other than the Seller or an Affiliate of the
Seller, so long as the Seller or any Affiliate of the Seller remains the
beneficial owner of any shares of VIMRx Preferred Stock.

7.Conditions to Obligations of the Buyer, VIMRx and the Seller

7.1 The Buyer's and VIMRx's Conditions.

The obligations of the Buyer and VIMRx to consummate the transactions
contemplated hereunder are conditioned upon the following, any or all of
which may be waived by the Buyer and VIMRx in their sole and absolute
discretion:

(A)All representations and warranties of the Seller contained in this
Agreement that are qualified as to materiality shall be true and correct on
and as of the Closing Date with the same force and effect as though such
representations and warranties had been made on and as of the Closing Date,
and all representations and warranties of the Seller contained in this
Agreement which are not so qualified shall, in all material respects, be
true and correct on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on and
as of the Closing Date.

(B)The Seller shall, in all material respects, have performed and
complied with all of the covenants and agreements (including the agreement
to make the deliveries set forth in Section 8.1) required by or pursuant to
this Agreement, or any Exhibit or instrument delivered pursuant to this
Agreement, to be performed or complied with by it on or prior to the
Closing Date.

(C)The Buyer shall have received an executed consent from The Irvine
Company, in form reasonably satisfactory to the Buyer, consenting to the
assignment and delegation to the Seller of the lease relating to the Parker
Facility.

(D)The Buyer shall have received an executed estoppel certificate, in
form and substance reasonably satisfactory to the Buyer, from The Irvine
Company relating to the aforesaid lease.

(E)The Seller shall have obtained and delivered to the Buyer consents, in
form reasonably satisfactory to the Buyer, executed by (i) every party
(other than the Seller) to each agreement set forth on Exhibit W,
consenting to the assignment and delegation to the Buyer of such agreement
and (ii) every party (other than the Seller) to every material Included
Agreement to which the Seller becomes a party after the date hereof whose
consent to the assignment and delegation of such agreement to the Buyer is
required in order to avoid a violation of such agreement.

(F)The Seller and the Buyer shall, simultaneously with the Closing, have
executed and delivered the Services Agreement.

(G)At least 75% of all of the Division's United States employees to whom
the Buyer shall have sent an offer letter (to be drafted by the Buyer and
containing a statement requesting the recipient to countersign it if such
recipient is interested in becoming an employee of the Buyer) shall have
countersigned such letter and delivered it to the Buyer; provided, however,
that this condition shall be waived and shall be deemed to have been
satisfied unless (i) the Buyer shall have mailed such offer letter to said
employees on or prior to November 12, 1997 and (ii) such offer letter shall
contain a statement from the Buyer requesting a response from each employee
recipient on or prior to November 26, 1997.

(H)The Seller shall have obtained and delivered to the Buyer consents, in
form reasonably satisfactory to the Buyer, from Becton, Dickenson and
Company, Cetus Oncology Corporation and Bernd Dorken relating to the
permission of such parties to execute and deliver the First BD Sublicense,
the Second BD Sublicense, the Dorken Sublicense and the Chiron Sublicense,
as the case may be.

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(I)The Seyfarth Opinion shall, simultaneously with the Closing, have been
delivered to the Buyer and VIMRx.

7.2 The Seller's Conditions.

The obligations of the Seller to consummate the transactions contemplated
hereunder are conditioned upon the following, any or all of which may be
waived by the Seller in its sole and absolute discretion:

(A)All warranties and representations of the Buyer and VIMRx contained in
this Agreement that are qualified as to materiality shall be true and
correct on and as of the Closing Date with the same force and effect as
though such representations and warranties had been made on and as of the
Closing Date, and all representations and warranties of the Buyer and VIMRx
which are not so qualified shall, in all material respects, be true and
correct on and as of the Closing Date with the same force and effect as
though such representations and warranties had been made on and as of the
Closing Date.

(B)The Buyer and VIMRx shall, in all material respects, have performed
and complied with all of the covenants and agreements (including the
agreements to make the deliveries set forth in Sections 8.2 and 8.3)
required by or pursuant to this Agreement, or any Exhibit, Section or
instrument delivered pursuant to this Agreement, to be performed or
complied with by them on or prior to the Closing Date.

(C)The Epstein Opinion shall, simultaneously with the Closing, have been
delivered to the Seller.

(D)The Buyer shall have adopted an employee stock option plan.

7.3 Mutual Conditions.

The respective obligations of each party hereto to consummate the
transactions contemplated hereunder are conditioned upon the following:

(A)This Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of VIMRx's stockholders in
accordance with applicable Delaware General Corporation Laws and the rules
and regulations of Nasdaq.

(B)No order of any court or Authority shall be in effect which restrains
or prohibits the transactions contemplated hereby or which would materially
limit or materially and adversely affect the ability of the Buyer to
conduct the Business of the Division as now conducted by it, and no suit,
action or proceeding by any Authority or other person shall be pending or
threatened which seeks to restrain the consummation, or challenges the
validity or legality, of the transactions contemplated by this Agreement or
which would, if successful, materially limit or materially and adversely
affect the ability of the Buyer to conduct the business of the Division.

(C)Any waiting period applicable under Hart-Scott and relating to the
transactions contemplated hereby shall have terminated or expired.

(D)All other consents, approvals or orders of any Authority, the granting
of which is required for the lawful consummation of the transactions
contemplated hereby, shall have been obtained; and all other waiting and
notification periods specified under applicable law the termination or
expiration of which is necessary for such consummation shall have been
terminated or shall have expired.

(E)VIMRx shall have mailed the Proxy Statement to the VIMRx stockholders
and such Proxy Statement shall have included the recommendation of the
VIMRx Board of Directors that the stockholders of VIMRx vote in favor of
the approval and adoption of the actions to authorize and issue the VIMRx
Preferred Stock and issue the VIMRx Common Stock to the Seller pursuant to
this Agreement.

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8.Deliveries of the Parties.

8.1 The Seller's Deliveries.

(A)To the Buyer. At the Closing, the Seller shall deliver, or cause to be
delivered, to the Buyer the following:

(i)a Bill of Sale from the Seller, and a Bill of Sale from each
Inventory Entity (and from each other entity, if any, which shall then
own any Included Inventory or other assets constituting Assets), each
to be in a form reasonably satisfactory to the Buyer;

(ii)a good standing certificate, dated as of a date not more than
five days prior to the Closing Date, as to the corporate existence and
good standing of the Seller, certified by the Secretary of State of
Delaware;

(iii)[intentionally omitted];

(iv)such individual or general contract assignments as Buyer shall
reasonably request;

(v)all governmental or other approvals, consents, grants, and
licenses, if any, required to be procured by the Seller in connection
with the transactions contemplated hereby;

(vi)[INTENTIONALLY OMITTED];

(vii)a certificate of the Secretary of the Seller certifying and
including the resolutions of the Board of Directors authorizing the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby and attesting to the incumbency and
signatures of all officers executing any documents in connection with
the transactions contemplated by this Agreement;

(viii) an executed copy of each of the Transaction Documents to which
the Seller is a party;

(ix)the sum of $10 million, representing the purchase price for the
Buyer Convertible Debenture described in Section 8.3(B)(i), such sum to
be paid by wire transfer of immediately available Federal funds to an
account of the Buyer designated by the Buyer;

(x)the additional sum of $20 million, representing the price for the
purchase of the additional Buyer Convertible Debenture described in
Section 8.3(B)(ii), such sum to be paid in the same manner provided for
in clause (ix) above;

(xi)such other executed assignments, bills of sale, endorsements,
notices, consents, novations, assurances and such other instruments of
conveyance and transfer as counsel for the Buyer shall reasonably
request and as shall be effective to vest in the Buyer the Seller's
rights, title and interest in the Assets;

(xii)a separate letter to the FDA (on the Seller's letterhead),
executed by an authorized officer of the Seller and complying with
relevant FDA laws and policy, in respect of each of the categories of
FDA Submissions listed in Schedule 3.5(F) assigning to the Buyer all of
the Seller's right, title and interest in and to each FDA Submission
listed on Schedule 3.5.

(xiii) an executed and notarized assignment of the United States
registration for each trademark included in the Assets which is
registered with the PTO, the form of which assignment shall be
reasonably satisfactory to the Buyer;

(xiv) an executed and notarized assignment of the United States
trademark application for each trademark included in the Assets which
is the subject of an application for registration filed with the PTO,
the form of which assignment shall be reasonably satisfactory to the
Buyer;

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(xv)an executed and notarized assignment of United States
patents/patent applications for each United States patent or patent
application included in the Assets, the form of which assignment shall
be reasonably satisfactory to the Buyer.

(xvi) a true and correct certificate (the precise form of which shall
be reasonably satisfactory to KPMG) showing, for each physical location
where Included Inventory was held by the Seller or any Inventory Entity
as of last day of the month immediately preceding the month in which
the Closing shall occur, (i) the street address of each location, (ii)
the number of units of each kind of Included Inventory at such location
as of such date and (iii) for each such kind of Included Inventory
thereat, the aggregate book value of all units of such kind of Included
Inventory at such location.

(B)To VIMRx. At the Closing, the Seller shall deliver to VIMRx the
following:

(i)an executed copy of each of the Transaction Documents to which the
Seller is a party; and

(ii)[intentionally omitted].

8.2 Deliveries of VIMRx.

(A)To the Seller. At the Closing, VIMRx shall deliver to the Seller the
following:

(i)the Purchase Consideration due at Closing to the Seller pursuant
to Sections 2.2 (A), (B) and (C) hereof;

(ii)an executed copy of each of the Transaction Documents to which
each of VIMRx and the Seller is a party; and

(iii)[intentionally omitted].

(B)To the Buyer. At the Closing, VIMRx shall deliver to the Buyer the
following:

(i)the sum of $10 million, representing the purchase price for the
Buyer Convertible Debenture described in Section 8.3(A)(i), such sum to
be paid by wire transfer of immediately available federal funds to an
account of the Buyer designated by the Buyer; and

(ii)an executed copy of each of the Transaction Documents to which
each of the Buyer and VIMRx is a party.

8.3 Deliveries of the Buyer.

(A)To VIMRx. At the Closing, the Buyer shall deliver to VIMRx the
following:

(i)an executed Buyer Convertible Debenture, substantially in the form
annexed hereto as Exhibit F in respect, and in the principal amount, of
the $10 million paid by VIMRx pursuant to Section 8.2(B)(i); and

(ii)an executed copy of each of the Transaction Documents to which
each of VIMRx and the Buyer is a party; and

(iii)80.5 shares of Buyer Common Stock.

(B)To the Seller. At the Closing, the Buyer shall deliver to the Seller
the following:

(i)an executed Buyer Convertible Debenture, substantially in the form
annexed hereto as Exhibit D in respect, and in the principal amount, of
the $10 million paid by the Seller pursuant to Section 8.1(A)(ix);

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(ii)an executed Buyer Convertible Debenture, substantially in the
form annexed hereto as Exhibit E in respect, and in the principal
amount, of the $20 million paid by the Seller pursuant to Section
8.1(A)(x);

(iii)an executed Warrant; and

(iv)an executed copy of each of the Transaction Documents to which
the Buyer is a party.

9.Survival of Representations: Indemnities.

9.1 Survival.

All representations and warranties contained in, or in any certificate
delivered pursuant to or in connection with, this Agreement (the Agreement,
together with such other certificates, being collectively referred to as
"Documents") shall survive the Closing of the transactions contemplated
under this Agreement until March 31, 1999; provided, however, that the
representations and warranties set forth in Sections 3.7(D), 3.8, 3.12,
4.4, 5.4, 5.9 and 5.12 shall survive the Closing for a period of five
years. All covenants and agreements contained in any Document shall survive
in accordance with their terms; provided, however, that for the removal of
doubt, none of the covenants set forth in Section 6.1 or 6.2 shall survive
the termination of this Agreement in accordance with Section 14.

9.2 Indemnity.

(A)The Seller agrees to indemnify, and hold the Buyer and VIMRx harmless
from and against (i) any and all Losses which the Buyer or VIMRx shall
sustain by reason of or in connection with the breach or inaccuracy of, or
failure to comply with, any of the representations, warranties, covenants
or undertakings, contained in any Document, made by the Seller, (ii) the
Non-Assumed Liabilities, (iii) any broker's or finder's fee or commission
due to Lehman Brothers or The Craves Group with respect to the transactions
contemplated hereby, (iv) any and all Losses which the Buyer or VIMRx shall
sustain in connection with (a) claims by third parties arising in
connection with the Non-Assumed Liabilities, or (b) claims by third parties
(including but not limited to Lehman Brothers and The Craves Group) that
they are due a broker's or finder's fee or similar compensation with
respect to the transactions contemplated hereby, which claims arise out of
actions of the Seller or any Representative of the Seller and (v) any and
all Losses which the Buyer or VIMRx shall sustain by reason of or in
connection with (a) any violation of Environmental Law, committed by the
Seller or any of its Representatives, in respect of the Parker Facility or
the land upon which it is situated, during the Seller's occupancy thereof,
(b) subject to Section 10 hereof, any Taxes arising out of the operations
of the Seller up to and including the Closing Date, (c) any violation of
ERISA committed by the Seller or any of its Representatives, (d) the
Saxholm Litigation and any litigation which may be brought against Buyer
and/or VIMRx alleging infringement of one or more of Saxholm U.S. patents
4,324,859, 4,657,868 and 4,992,377 and foreign equivalents due to
manufacture, use, importation or sale of Isolex(R) and/or Maxsep(R)
Products (except to the extent that any such Losses arise out of
infringement resulting from changes made by the Buyer in design or
operation of the accused device) and (e) the antitrust-related counterclaim
against the Seller in the CellPro Litigation. Notwithstanding the
foregoing, the Buyer and VIMRx shall not be entitled to any indemnification
under this Section 9.2 (A) with respect to any Losses incurred by the Buyer
or VIMRx as a result of the breach of any representation or warranty
contained in Section 3 hereof, other than Losses pursuant to breaches of
Sections 3.7(D), 3.12 or 3.19, unless and until the aggregate amount of all
Losses arising from breaches of representations and warranties contained in
Section 3 shall exceed $400,000 and then only to the extent that such
aggregate amount shall exceed $400,000; provided, further, that the
immediately preceding proviso shall not apply in the case of any fraudulent
breach.

(B)VIMRx agrees to indemnify and hold the Seller harmless from and
against (i) any and all Losses which the Seller shall sustain by reason of
or in connection with the breach or inaccuracy of any of the

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representations or warranties, contained in any Document, made by the Buyer
and/or VIMRx, (ii) any broker's or finder's fee or commission due to
Lazard, Freres with respect to the transactions contemplated hereby, and
(iii) any and all Losses which the Seller shall sustain in connection with
claims by third parties that they are due a finder's or broker's fee or
similar compensation with respect to the transactions contemplated hereby,
which claims arise out of actions of the Buyer or VIMRx or any
Representatives of either; provided, however, that the Seller shall not be
entitled to any indemnification under this Section 9.2(B) with respect to
any Losses incurred by the Seller as a result of the breach of any
representation or warranty contained in Section 4 or 5 hereof, other than
Losses pursuant to breaches of Sections 4.5, 4.6, 5.5, 5.6 or 5.9, unless
and until the aggregate amount of all Losses arising from breaches of
representations and warranties contained in Section 4 or 5 shall exceed, in
the aggregate, $400,000 and then only to the extent that such aggregate
amount shall exceed $400,000; provided, further, however, that the
immediately preceding proviso shall not apply in the case of any fraudulent
breach.

(C)The Buyer agrees to indemnify and hold the Seller harmless from and
against (i) any and all Losses which the Seller shall sustain by reason of
or in connection with the breach of, or failure to comply with, any of the
covenants or undertakings, contained in any Document, made by the Buyer,
(ii) the Buyer's Liabilities (except to the extent that such liabilities
are to be borne by the Seller pursuant to this Agreement or any Transaction
Document and except to the extent that the same arise from a wrongful act
or omission on the part of the Seller, any Affiliate of Seller or any
Representative of any of the foregoing), and (iii) any and all Losses which
the Seller shall sustain in connection with claims by third parties arising
in connection with the Buyer's Liabilities (except as stated in the above
parenthetical); provided, however, that subsection (i) of this Section
9.2(C) shall be deemed to refer to breaches and failures of the Buyer only
to the extent that the same exist and/or persist subsequent to the Closing
Date.

(D) VIMRx agrees to indemnify and hold the Seller harmless from and
against (i) any and all Losses which the Seller shall sustain by reason of
or in connection with the breach of, or failure to comply with, any of the
covenants or undertakings, contained in any Document, made by VIMRx and
(ii) any and all Losses which the Seller shall sustain by reason of or in
connection with the breach of, or failure to comply with, any of the
covenants or undertakings, contained in any Document, made by the Buyer;
provided, however, that subsection (ii) of this Section 9.2(D) shall be
deemed to refer to breaches and failures of the Buyer only to the extent
that the same exist and/or persist during the period beginning on the date
hereof and ending on the Closing Date.

(E)(i) Notwithstanding anything to the contrary contained herein, but
subject in any event to the rest of this Section 9.2(E), the maximum
indemnity which the Seller could become obligated to provide to the Buyer
and/or VIMRx, in the aggregate, under Section 9.2(A) for breaches of
representations, warranties, covenants and/or undertakings is $18,000,000
(in cash or securities, as more specifically provided below); provided,
however, that notwithstanding the foregoing, any indemnity or payment to
which the Buyer or VIMRx may be or become entitled under Sections 2.5(A),
6.2(G), 6.2(I)(iv), 6.2(J)(i) (last sentence only), 6.2(J)(iii) (last
sentence only), 6.2(J)(iv), 9.2(A)(ii)-(v) (other than Section 9.2(A)(v)(a)
thereof), 10, 13, 16.1(C), 16.1(G) (proviso only), 16.1(H) (second sentence
only) and 16.4(A) shall be paid by the Seller notwithstanding such
$18,000,000 cap.

(ii)In the event that the Seller becomes liable to indemnify VIMRx
for Losses under Section 9.2(A) for breaches of representations,
warranties, covenants and/or undertakings, the first $5,000,000 of such
indemnified Losses shall be payable only in cash. Any indemnified
Losses in excess of $5,000,000 shall be payable, at the option of the
Seller, either in cash or by way of the Seller's surrender (i.e.,
transfer of ownership) to VIMRx of shares of VIMRx Preferred Stock. For
the purposes of this Section 9.2, each share of VIMRx Preferred Stock
shall be valued at its $1,000 liquidation value. Therefore, for
example, in the event that the Seller became obligated to VIMRx for
$1,000,000 (over and above the first $5,000,000, which would be payable
in cash), the Seller would have the right to satisfy such liability by
the surrender of 1,000 shares of VIMRx Preferred Stock. Notwithstanding

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anything herein to the contrary, VIMRx acknowledges and agrees that,
although it may become entitled to indemnification from Seller under
Section 9.2 based upon Losses directly incurred by Buyer (and not
directly by VIMRx), to the extent that Buyer has been made whole for
any such Loss which has been directly incurred by it, VIMRx shall (to
avoid "double recovery" for the same Loss) lose its right to be
indemnified with respect to such Loss.

(iii)In the event that the Seller becomes liable to indemnify the
Buyer for Losses under Section 9.2(A) for breaches of representations,
warranties, covenants and/or undertakings, the first $5,000,000 of such
indemnified Losses shall be payable to the Buyer only in cash. Any
indemnified Losses in excess of $5,000,000 shall be payable, at the
option of the Seller, either in cash or by the surrender (i.e.,
cancellation) of indebtedness otherwise owed to the Seller under the
Buyer Convertible Debentures, such surrender/cancellation to be made on
a dollar-for-dollar basis in accordance with the amount of Losses to be
indemnified.

(F)Notwithstanding anything to the contrary contained herein, the maximum
aggregate indemnity which the Buyer and/or VIMRx could, in the aggregate,
become obligated to provide to the Seller under Section 9.2(B) for breaches
of representations, warranties, covenants and/or undertakings is
$18,000,000; provided, however, that notwithstanding the foregoing, any
indemnity or payment to which the Seller may be or become entitled under
Sections 2.5(B), 6.2(A)(i), 6.2(H) (parenthetical contained in subsection
(i) only), 6.2(J)(iii) (last sentence only), 9.2(B)(ii) and (iii),
9.2(C)(ii) and (iii), 10, 13 and 16.4(C) shall be paid by the Buyer or
VIMRx, as the case may be, notwithstanding such $18,000,000 cap.

(G)Within a reasonable period of time after receipt by any party hereto
of notification of the assertion by a third party, of any Third Party Claim
(such recipient being referred to hereinafter as an "Indemnified Party"),
such Indemnified Party shall give written notice of such Third Party Claim
to each party which has, or would reasonably be expected to have, an
obligation to indemnify such Indemnified Party under this Section 9 (an
"Indemnifying Party"); provided, however, that the failure to so notify the
Indemnifying Party shall not relieve him or it of any indemnity obligations
hereunder unless, and to the extent, the Indemnifying Party's rights have
been adversely affected by any such failure or delay. The Indemnifying
Party shall (upon its delivery to the Indemnified Party of a written
acknowledgment and agreement that, if such Third Party Claim shall be
adversely determined, the Indemnifying Party shall be fully responsible
hereunder to indemnify the Indemnified Party with respect to such Third
Party Claim) have the option, upon notice to the Indemnified Party, to
assume control of the defense of the Third Party Claim and the Indemnified
Party may participate at its own expense in (but not control) the Third
Party Claim (with counsel selected by it in its discretion) if it notifies
the Indemnified Party in writing of its intention so to participate;
provided, however, that the Indemnifying Party shall not consent to the
entry of any judgment or enter into any settlement, except with the written
consent of the Indemnified Party, which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
Indemnified Party and its Affiliates and Representatives of a release from
all liability in respect of such Action or which imposes any injunctive
relief upon the Indemnified Party or any of its Affiliates or
Representatives. In the event of such assumption, the Indemnified Party
shall cooperate fully in the defense of the Third Party Claim as and to the
extent reasonably requested by the Indemnifying Party (such cooperation
shall include the retention and, upon the request of the Indemnifying
Party, the provision to such party of records and information which are
reasonably relevant to such claim or demand and making employees available
on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder). In the absence of any such
assumption of the defense, the Indemnifying Party shall be obligated to
cooperate in accordance with the preceding sentence.

(H)The provisions of this Section 9 are the exclusive remedy of any party
to this Agreement against any other party to this Agreement for any claim
for breach of any covenant, agreement, representation, warranty or other
provision of this Agreement (other than a claim for specific performance or
injunctive relief or a claim based upon fraud) with the intent that all
such claims shall be subject to the limitations and other provisions
contained in this Section 9.

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(I)In no event shall any party hereto be entitled to or recover exemplary
or punitive damages in any action under this Agreement or relating to the
subject matter hereof.

10.Transactional and Other Taxes.

(A)Transactional Taxes. The Buyer and the Seller shall each bear one-half
of any applicable Transactional Taxes with respect to the sale, transfer,
or assignment of the Assets or otherwise on account of this Agreement or
the transactions contemplated herein.

(B)Personal Property Taxes. All personal property taxes relating to any
and all personal property conveyed pursuant to this Agreement shall be pro-
rated between the Buyer and the Seller in accordance with the relationship
of the Closing Date to the entire relevant tax year. Any payment owed in
respect of such pro-ration shall be made at Closing.

(C)Utilities. All utility accounts relating to the Parker Facility will
be read as of the commencement of business on the Closing Date. The Seller
shall be responsible for all utility charges accruing up to said time and
the Buyer shall be responsible for all utility charges accruing thereafter.

11.Further Assurances and Cooperation.

Following the date hereof, and subject to the terms and conditions hereof,
each of the Seller, VIMRx and the Buyer severally agrees to execute and
deliver such documents and take such other action as shall be reasonably
requested by the other party to carry out and effectuate the transactions
contemplated by this Agreement. On and subsequent to the Closing Date, each
party severally covenants and warrants that it shall, whenever and as often as
it shall be reasonably requested to do so by another party to this Agreement,
execute, acknowledge and deliver or cause to be executed, acknowledged and
delivered, any and all such further documents and instruments as may be
reasonably necessary, expedient or proper in order to complete any and all of
the conveyances, transfers, sales and assignments herein provided for. Without
limiting the foregoing, this Section 11 shall apply in particular to any items
of the type described in Section 8.1(A)(xi) which are not delivered on the
Closing Date (e.g., foreign registrations of the trademark ISOLEX(R)).

12.Notices.

All notices, requests, demands, and other communications permitted or
required under this Agreement shall be in writing and shall be either
personally delivered (including couriers such as FedEx) or sent by pre-paid
certified mail, return receipt requested or facsimile transmission, with a
confirmation copy personally delivered or sent by pre-paid certified mail,
addressed or transmitted to the address or number stated below of the party to
which notice is given, or to such other address or number as such party may
have fixed by notice given in accordance with the terms hereof:

To the Buyer:

BIT Acquisition Corp.
c/o VIMRx Pharmaceuticals Inc.
2751 Centerville Road
Suite 210
Wilmington, Delaware 19808
Attention:Chief Executive Officer
Facsimile:(302) 998-3794

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With a copy to:

Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Attention:Lowell S. Lifschultz, Esq.
or David C. Denowitz, Esq.
Facsimile:(212) 661-0989

To VIMRx:

VIMRx Pharmaceuticals Inc.
2751 Centerville Road
Suite 210
Wilmington, Delaware 19808
Attention:Chief Executive Officer
Facsimile:(302) 998-3794

With a copy to:

Epstein Becker Green, P.C.
250 Park Avenue
New York, New York 10177
Attention:Lowell S. Lifschultz, Esq.
or David C. Denowitz, Esq.
Facsimile:(212) 661-0989

To the Seller:

Baxter Healthcare Corporation
1627 Lake Cook Road
Deerfield, Illinois 60015
Attention:President--Biotech Business Group
President--Venture Management
General Counsel--Biotech Business Group
Facsimile:

With a copy to:

Seyfarth, Shaw, Fairweather & Geraldson
55 East Monroe Street
Chicago, Illinois 60603-5803
Attention:Christopher A. Lause, Esq.
Facsimile:(312) 269-8869

Any notice, sent as provided above, shall be deemed given, if sent by
certified mail, upon delivery at the address provided for above (or, in the
event delivery is refused, the first date on which delivery was tendered) or,
if sent by facsimile transmission, upon receipt by the sender of confirmation
of delivery.

13.Expenses.

Subject to the terms of Section 9 hereof, each party hereto shall bear its
own expenses (including all attorneys' and accountants' fees) incurred in
connection with the negotiation, preparation, consummation and

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performance of this Agreement and the other Documents and the transactions
contemplated hereby and thereby. The Buyer and the Seller shall each bear one-
half of any filing fees or similar payments to any Authority incurred in
connection with any filings or other actions required to be taken hereunder in
respect of Hart-Scott. Notwithstanding anything to the contrary contained in
this Section 13, the parties agree that the Seller shall bear the first
$100,000 of expenses and costs relating to the audit services referred to in
that certain KPMG Engagement Letter, dated July 24, 1997, relating to the
Division, with all expenses and costs relating thereto which are in excess of
$100,000 to be borne solely by the Buyer.

14.Termination.

14.1 Conditions.

This Agreement may be terminated at any time on or prior to the Closing
Date:

(A)by mutual consent of the Seller, the Buyer and VIMRx;

(B)by the Buyer and VIMRx, if (i) there has been a material
misrepresentation or breach on the part of the Seller with respect to any
representation or warranty of the Seller set forth herein, or (ii) there
has been any material failure on the part of the Seller to comply with any
of its obligations or to perform any of its covenants hereunder, which
failure, if capable of remedy, has not been remedied within 15 days of
receipt by the Seller of notice thereof, or (iii) any of the conditions set
forth in Section 7.1 or 7.3 shall not have been fulfilled by December 31,
1997 (other than by virtue of a breach of this Agreement by the Buyer or
VIMRx) and the fulfillment thereof shall not have been waived by the Buyer
and VIMRx; or

(C)by the Seller, if (i) there has been a material misrepresentation or
breach on the part of the Buyer or VIMRx in any of its representations or
warranties set forth herein, or (ii) there has been any material failure on
the part of the Buyer or VIMRx to comply with any of its obligations or to
perform any of its covenants hereunder, which failure, if capable of
remedy, has not been remedied within 15 days of receipt by the Buyer or
VIMRx, as appropriate, of notice thereof, or (iii) any of the conditions
set forth in Section 7.2 or 7.3 shall not have been fulfilled by December
31, 1997 (other than by virtue of a breach of the Agreement by the Seller)
and the fulfillment thereof shall not have been waived by the Seller.

14.2 Special Termination Right.

(A)In addition to the rights of termination provided for in Section 14.1,
and in recognition of the fact that (i) notwithstanding the execution and
delivery hereof, each of the Buyer, the Seller and VIMRx is continuing to
perform its own ongoing due diligence in connection with the transactions
contemplated hereby, (ii) each of the parties hereto may not have fully
completed either the Schedules relating to its representations and
warranties or its own analysis of the Schedules heretofore submitted by the
other parties hereto and (iii) the parties have not fully completed or
agreed upon Schedule 2.1, the Seller, on the one hand, and the Buyer and
VIMRx jointly, on the other hand, shall have the right, which may be
exercised in their sole and absolute discretion, to terminate this
Agreement at any time on, or prior to, the Section 14.2 Date.

(B)During the Disclosure Period, the Seller, the Buyer and VIMRx shall
have the right (but not the obligation) both to supply Schedules (relating
to Sections 3, 4 and 5, respectively) to the party or parties to whom the
related representation and warranty is being made (the "Receiving Party")
and to modify, in any respect, any such Schedule which shall theretofore
have been provided by it to the Receiving Party. In the event that neither
the Buyer and VIMRx, on the one hand, nor the Seller, on the other hand,
shall have validly terminated this Agreement pursuant to Section 14.2(A) on
or prior to the Section 14.2 Date, references in this Agreement to any
Schedule delivered or attached pursuant to Section 3, 4 or 5, as the case
may be, shall be deemed to refer to the last version of such Schedule which
was provided to the Receiving Party prior to the end of the Disclosure
Period, regardless whether such version purported to be

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"final"or "draft" (it being the intent of the parties to give to each such
"last version" the same status as a Schedule attached to a purchase
agreement at the time of execution and delivery). In that connection, in
the event that Section 3, 4 or 5 provides for a Schedule but no Schedule
(whether "draft", "final" or other) shall have been provided, prior to the
end of the Disclosure Period, by the party making the related
representation and warranty, such party shall be deemed, for all purposes
of this Agreement, to have provided such Schedule immediately prior to the
end of the Disclosure Period in completely blank form (i.e., with no
information or writing on it). Any information which is first provided on a
version of a Schedule which version is not received by the Receiving Party
until after the Disclosure Period shall not be deemed to have been received
by the Receiving Party until after the Section 14.2 Date. No information
shall be deemed to have been included on a Schedule unless such information
shall have been delivered to the Receiving Party in a writing at the top of
each page of which writing appears the words "Baxter/VIMRx" and the number
of the related Schedule (e.g., "Schedule 3.5").

(C)During the Disclosure Period, the Seller shall have the right (but not
the obligation) to supply Schedule 2.1 to the Buyer and VIMRx and to
modify, in any respect, any version of such Schedule which shall
theretofore have been provided by it to the Buyer and VIMRx. In the event
that neither the Buyer and VIMRx, on the one hand, nor the Seller, on the
other hand, shall have validly terminated this Agreement pursuant to
Section 14.2(A) on or prior to the Section 14.2 Date, references in this
Agreement to Schedule 2.1 shall be deemed to refer to the last version of
such Schedule which was provided to the Buyer and VIMRx prior to the end of
the Disclosure Period, regardless whether such version purported to be
"final"or "draft" (it being the intent of the parties to give to such "last
version" the same status as a Schedule attached to a purchase agreement at
the time of execution and delivery). No modification to Schedule 2.1 shall
be deemed to have been made by the Seller prior to the end of the
Disclosure Period unless such modification shall have been delivered to the
Buyer and VIMRx in a writing at the top of each page of which writing
appears the words "Baxter/VIMRx" and "Schedule 2.1." After the end of the
Disclosure Period, no modification to Schedule 2.1 shall be effective
unless agreed to in writing by each party hereto.

(D)Each party hereto acknowledges that, for purposes of determining
whether the conditions stated in Sections 7.1(A) and 7.2(A) have been
satisfied, the representations and warranties in Sections 3, 4 and 5, as
provided in such Sections, are being deemed to have been made immediately
prior to the end of the Disclosure Period rather than on the date of
execution and delivery hereof.

(E)Notwithstanding anything to the contrary herein, the valid termination
of this Agreement in accordance with Section 14.2 shall not give rise to
any liability of any party hereto.

14.3 Effective Date.

A termination pursuant to Section 14.1(B) or (C) or Section 14.2(A) shall
be effective immediately upon delivery of a notice of termination by the
party or parties having the right to terminate to the other party or
parties.

14.4 No Liability.

In the event of a termination of this Agreement, as provided above, this
Agreement shall forthwith terminate and there shall be no liability on the
part of VIMRx, the Buyer or the Seller, except for liability arising from a
breach of this Agreement.

15.Employment.

The Buyer shall make offers of employment to at least 75% of the persons who
are employed by the Division, in the United States, immediately prior to the
Closing.

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16.Certain Additional Covenants and Acknowledgments.

16.1 CellPro Litigation.

The parties understand and agree that matters pertaining to the potential
infringement by CellPro of the patents and technology licensed to the
Seller pursuant to that certain License Agreement between Becton, Dickenson
and Company and the Seller, dated August 24, 1990, as amended on November
10, 1993 and further amended on March 30, 1995 (the "First BD License"),
including the conduct of the CellPro Litigation, will remain the
responsibility of the Seller, as set forth below:

(A)The Seller will vigorously pursue in good faith and for the benefit of
the Buyer in the pending litigation entitled Johns Hopkins University v.
CellPro, No. 94-105-RRM (D. Del.) (the "CellPro Litigation") its legal
remedies against CellPro for infringement of certain of the patent rights
embodied in the First BD License, which patent rights are to be sublicensed
to the Buyer (the "Patent Rights");

(B)The Seller will vigorously defend the Patent Rights in any actions or
proceedings with respect to CellPro that have been or may in the future be
brought in any court of law or before the HHS or NIH, including proceedings
seeking a compulsory license to CellPro of technology included in the
Patent Rights;

(C)The Seller will bear the full cost and expense of the CellPro
Litigation and any other such litigation or other protective defense action
or proceeding, including without limitation, attorneys' fees and expenses,
and fees and expenses of public relations advisors, accountants, experts,
and other advisors or consultants, that are incurred in connection
therewith;

(D)The Seller will retain any award of damages or other recovery
attributable to the infringing use of such Patent Rights by CellPro;

(E)The Seller will consult with the Buyer concerning the conduct of any
litigation or action described above;

(F)The Seller will obtain the Buyer's consent to all material decisions,
including settlement and other strategic decisions, relating to the CellPro
Litigation and any other litigation or action described above or related
thereto, which consent shall not be unreasonably withheld or delayed;
provided, however, that in the event that the Seller shall seek to grant a
license to CellPro, then the Buyer shall have the right to withhold its
approval thereto in its sole and absolute discretion without being subject
to the aforementioned "unreasonably withheld" standard.

(G)The Buyer will abide by and comply with any settlement or commitment
with or to HHS or NIH, made by the Seller with regard to CellPro, after
approval thereof by the Buyer (which approval shall not be unreasonably
withheld or delayed unless, in the Buyer's good faith opinion, such
decision will materially adversely affect the Buyer's ability to achieve
the Plan A Projections) including but not limited to the commitments made
by the Seller to HHS, as set forth below, provided that the Seller will
bear the full cost and expense of such compliance to the extent such cost
and expense exceeds the projected cost and expense thereof included in the
Plan A Projections. Notwithstanding anything to the contrary contained
herein, the commitments made by the Seller to HHS, with which the Buyer
will consent, and agree to cooperate with the Seller in assuring complete
satisfaction of, include the following:

(i)The Seller will use its best efforts to ensure in the CellPro
Litigation that any injunctive relief against CellPro entered by the
federal court will permit CellPro's continued sale of its Ceprate(R) SC
products and its continued provision of those products to clinicians
involved in clinical trials, pending FDA approval of a medically
equivalent or superior alternative;

(ii)If CellPro reduces support of any clinical site that does not
already have the Seller's Isolex(R) 300 System available as an
alternative, the Seller will install its device at the CellPro site
free of charge

52
<PAGE>

and will make its best efforts to provide that site with support
comparable to that which CellPro was providing on comparable contract
terms. The Seller will also provide all necessary clinical, regulatory
and technical support to put the Isolex(R) 300 system into operation as
quickly as possible;

(iii)If CellPro reduces support for any clinical site, the Seller
will take steps to assure that there will be no gap in patient access
to the technology; and

(iv)The Seller will retain the responsibility and the ability to
support the clinical and research needs for stem cells for transplant
through retaining a non-exclusive license to the Patent Rights,
continuing to manufacture the Isolex(R) devices under the
Manufacturing, Supply and Distribution Agreements, and continuing as
the exclusive worldwide distributor for the Isolex(R) 300 System in
support of stem cell selection for the treatment of cancer.

(H)The Buyer shall take all actions the Seller reasonably deems necessary
or appropriate to assist the Seller in pursuing the CellPro Litigation,
and/or other matters related to CellPro. The Seller will reimburse the
Buyer for all reasonable out-of-pocket expenses associated with providing
such cooperation or otherwise incurred by the Buyer in connection with the
CellPro Litigation, including but not limited to attorneys' and other
professionals' fees and expenses, that may be incurred in the event the
Buyer is made a party to the CellPro Litigation.

16.2 Employee Covenants.

The parties agree that the following shall apply in respect of the
employees of the Division:

(A)The Buyer shall have the right to designate to the Seller those
employees of the Division (other than Safa Karandish, Heather Kinder,
Virginia Mansour, Marta Schilling and Trish Swinney) whose services (as
newly-hired employees) the Buyer is interested in retaining subsequent to
the Closing (such people as may be so designated by the Buyer from time to
time prior to Closing being referred to as the "Designated Employees"). The
Seller shall encourage each Designated Employee to accept employment with
the Buyer.

(B)The Buyer shall also have the right to designate one or more, at its
discretion, of the Designated Employees as "key" employees (such people as
may be so designated by the Buyer from time to time prior to Closing being
referred to as "Key Employees"). In the event that any Key Employee
declines to accept employment with the Buyer, the Seller shall exercise
commercially reasonable best efforts to continue to employ each and every
such person, for a period of at least one year following the Closing, in
such capacity as will enable such person to devote substantially all his or
her business time to working on those aspects of the post-Closing
Buyer/Seller relationship with which such person has familiarity; provided,
however, that (i) except to the extent provided in the Services Agreement,
in no event shall the Seller be required to increase the direct or indirect
compensation payable to such Key Employee in order to retain such
employee's services and (ii) to the extent and under the circumstances
provided in the Services Agreement, the Buyer shall reimburse the Seller
for the fully-loaded costs of such Key Employee. If the Buyer should
request from time to time that any particular such Key Employee be focused
on any particular project or area of competence, the Seller shall not
unreasonably withhold its consent to such request.

16.3 Disclaimer.

The Seller shall not be deemed to have made to the Buyer any
representation or warranty other than as expressly made by the Seller in
Article 3 hereof. Without limiting the generality of the foregoing, and
notwithstanding any otherwise express representations and warranties made
by the Seller in Article 3 hereof, the Seller makes no representation or
warranty to the Buyer with respect to:

(A)any projections, estimates or budgets heretofore delivered to or made
available to the Buyer of future revenues, expenses or expenditures or
future results of operations; or

53
<PAGE>

(B)except as covered by a representation and warranty contained in
Article 3 hereof, any other information or documents (financial or
otherwise) made available to the Buyer or its counsel, accountants or
advisers with respect to the Seller.

16.4 Delayed FDA Approval.

(A)In the event (i) the Buyer has not received notification before
January 1, 1998, that an application for premarket approval for commercial
marketing of an Isolex 300SA or 300i System in the United States is
approved by the FDA ("FDA Approval"), or (ii) such FDA Approval is received
but the Seller is unable to manufacture Isolex 300SA or 300i Systems, as
the case may be, in compliance with the Federal Food, Drug and Cosmetic
Act, the Public Health Service Act and FDA implementing regulations, the
Seller shall remit to the Buyer all CellPro Profit Margin Payments (as
hereinafter defined) received by the Seller in respect of the period
commencing January 1, 1998 and ending on the first date the Seller has
received FDA Approval and is able to deliver to the Buyer Isolex 300SA or
300i Systems, as the case may be, which comply with said Acts and
regulations conforming to such FDA Approval.

(B)"CellPro Profit Margin Payments" shall mean any and all payments (i)
made pursuant to any court order affecting CellPro, or any agreement
between CellPro and the Seller, regarding CellPro's infringement of
Intellectual Property Rights of the Seller embodied in the Isolex Products,
and (ii) which are received by the Seller as compensation for, or damages
in respect of, sales by or on behalf of CellPro on or after the Closing
Date, of any product infringing any Intellectual Property Rights of the
Seller embodied in the Isolex Products. The term "CellPro Profit Margin
Payments" specifically excludes (a) damages or compensation payable to
Johns Hopkins University and/or Becton, Dickenson and Company in respect of
such infringement, (b) royalty payments made to Johns Hopkins University
and/or Becton, Dickenson and Company in respect of any such damages or
other compensation paid to the Seller, and (c) any reimbursement for
attorney's fees received by Seller from Johns Hopkins University.

(C)In the event the Seller becomes obligated to repay or refund any
CellPro Profit Margin Payment received by the Buyer, to CellPro, its
bankruptcy estate, its trustee in bankruptcy or its creditors, by reason of
such payment being held to constitute a preference under any bankruptcy or
insolvency law, the Buyer shall pay to the Seller the amount of such
payment promptly after receipt of notice from the Seller of such
obligation.

16.5 Allocation of Consideration.

The parties shall exercise their good faith efforts to agree upon how the
consideration paid or given for the Class A Assets and Class B Assets
(including but not limited to the Purchase Consideration and the Milestone
Payments) shall be allocated. In the event that any such agreement is
executed and delivered by the parties, such consideration shall be deemed,
for all purposes (including those relating to Taxes of any kind
whatsoever), to be allocated to the Class A Assets and Class B Assets in
accordance therewith and, without limiting the foregoing, any IRS Forms
8594 shall be prepared consistent therewith.

17.Miscellaneous.

17.1 Entire Agreement: No Modification.

This Agreement, including the Exhibits, Schedules and instruments
delivered pursuant hereto, sets forth the entire agreement and
understanding between the parties hereto as to the specific subject matter
hereof and thereof, and merges and supersedes all prior discussions,
agreements and understandings of every kind and nature between them with
respect to the specific subject matter hereof and thereof, and no party
hereto shall be bound by any condition, definition, warranty or
representation other than as expressly provided for in this Agreement,
provided, however, that the parties hereto acknowledge and agree that the
Primary Licenses are not being made a part of this Agreement and shall not
be integrated into this Agreement. This

54
<PAGE>

Agreement shall not be changed or amended except by a writing signed by the
Buyer, VIMRx and the Seller.

17.2 Waiver of Breach.

The waiver by a party of a breach or violation by any other party of any
provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach or violation by any party of the same or any other
provision of this Agreement. No such waiver shall be effective unless in
writing signed by the party claimed to have made the waiver.

17.3 Benefit of Parties; Assignment.

This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, legal
representatives, successors and permitted assigns. No party shall have the
right to assign or delegate any of its rights or obligations arising
hereunder, except with the prior written consent of each other party
hereto; provided, however, that any party may assign any or all of its
rights, and delegate any or all of its obligations, hereunder to any person
or entity who shall, by merger, consolidation, transfer of assets or
otherwise, have acquired all or substantially all of the assets (not
counting cash and cash equivalents) of such party; provided, further, that
no such delegation shall relieve the delegating party of the obligation to
satisfy and discharge the obligation(s) so delegated. Notwithstanding the
foregoing, the Seller shall have the right to assign this Agreement, and
any rights and obligations arising hereunder, to an Affiliate of the Seller
without the prior written consent of any other party hereto; provided, that
no such assignment shall relieve the Seller of any of its obligations
hereunder. Any purported assignment or delegation in violation of this
Section 17.3 shall be null and void ab initio.

17.4 Headings.

The headings of the sections and paragraphs of this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.

17.5 Governing Law; Jurisdiction

This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without giving effect to principles of
conflict of laws. Each party to this Agreement expressly and irrevocably
(A) consents that any legal action or proceeding against it under, arising
out of or in any manner relating to, this Agreement, or any other Document
delivered in connection herewith, may be brought in any court of the State
of Delaware located within the District of Delaware or in the United States
District Court for the District of Delaware, (B) consents and submits to
the personal jurisdiction of any of such courts in any such action or
proceeding, (C) consents to the service of any complaint, summons, notice
or other process relating to any such action or proceeding by delivery
thereof to him, her or it by hand or by any other manner provided for in
Section 12, (D) waives any claim or defense in any such action or
proceeding based on any alleged lack of personal jurisdiction, improper
venue or forum non conveniens or any similar basis, and (E) waives all
rights, if any, to trial by jury with respect to any such action or
proceeding. Nothing in this Section shall affect or impair in any manner or
to any extent the right of any party to commence legal proceedings or
otherwise proceed against any other party in any jurisdiction or to serve
process in any manner permitted by law.

17.6 Multiple Counterparts; Execution by Fax.

This Agreement may be signed in any number of counterparts which taken
together shall constitute one and the same instrument. This Agreement may
be executed and delivered by exchange of facsimile copies showing the
signatures of the parties hereto, and those signatures need not be affixed
to the same copy. The facsimile copies showing the signatures of the
parties will constitute originally signed copies of the same agreement
requiring no further execution.

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<PAGE>

17.7 Exhibits, Schedules.

All Exhibits and Schedules referred to in this Agreement are attached
hereto and are incorporated herein by reference as if fully set forth
herein.

17.8 Construction.

The language in all parts of this Agreement shall in all cases be
construed as a whole according to its fair meaning, strictly neither for
nor against any party hereto, and without implying a presumption that the
terms thereof shall be more strictly construed against one party by reason
of the rule of construction that a document is to be construed more
strictly against the person who himself or through his agent prepared the
same, it being agreed that representatives of both parties have
participated in the preparation hereof.

17.9 Publicity.

No party to this Agreement shall issue or cause the publication of any
press release or other public announcement with respect to this Agreement
or the transactions contemplated hereby without first providing a draft of
such press release or announcement to the other parties and obtaining the
consent of the other parties hereto; provided, however, that nothing herein
shall prevent any party from making any disclosure required by law.

17.10 Number and Gender.

Whenever in this Agreement the singular is used, it shall include the
plural if the context so requires, and whenever the masculine gender is
used in this Agreement, it shall be construed as if the masculine, feminine
or neuter gender, respectively, has been used where the context so
dictates, with the rest of the sentence being construed as if the
grammatical and terminological changes thereby rendered necessary have been
made.

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<PAGE>

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

VIMRx:

VIMRx PHARMACEUTICALS INC.

By: /s/ Richard L. Dunning
----------------------------------

Title: Chief Executive Officer
---------------------------------

SELLER:

BAXTER HEALTH CARE CORPORATION

By: /s/ Victor W. Schmitt
----------------------------------

Title: President--Venture Management
(Biotech)
---------------------------------

BUYER:

BIT ACQUISITION CORP.

By: /s/ Richard L. Dunning
----------------------------------

Title: President
---------------------------------
<PAGE>

ANNEX B

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-19153

----------------
VIMRX PHARMACEUTICALS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 06-1192468
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

2751 CENTERVILLE ROAD, 19808
WILMINGTON,DELAWARE (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)

Registrant's telephone number, including area code:
(302) 998-1734

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE

Indicate by check mark 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 [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

The aggregate market value of the voting stock (Common Stock, $.001 par
value) held by non-affiliates of the Registrant was approximately $143,019,702
on March 17, 1997 based on the closing sale price of the Common Stock on such
date.

The aggregate number of outstanding shares of Common Stock, $.001 par value,
of Registrant was 54,429,937 on March 17, 1997.

Documents incorporated by reference:
NONE

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART I

ITEM 1. BUSINESS.

GENERAL

VIMRx Pharmaceuticals Inc. ("VIMRx" or the "Company") is a development stage
company focused on identifying, evaluating, acquiring and commercializing
scientific technologies to be developed by the Company in partnership with
others. The Company is engaged in developing therapeutic and related products
from synthetic hypericin principally for the treatment of viral and retroviral
diseases. The Company also owns approximately 68% of the capital stock of
Innovir Laboratories, Inc. (Nasdaq: INVR) ("Innovir") which, together with its
subsidiaries, is engaged in the research and development of Oligozymes, a new
class of biopharmaceutical agents for the treatment of a wide array of human
diseases. In order to diversify its potential product line and complement the
Company's recent acquisition of a controlling interest in Innovir, the Company
has entered into a research agreement with Columbia University, and continues
to seek emerging innovative technologies to diversify its portfolio of
potential products.

HYPERICIN

General

The Company's principal product, VIMRxyn(R), is comprised of chemically
synthesized hypericin and, in laboratory tests, has inhibited the infection of
normal cells by targeted viruses. Hypericin is an aromatic polycyclic dione
found in the stem and petals of the common Saint John's wort, a plant which
has been used as a folk remedy since the Middle Ages. Hypericin plant extracts
continue to be used as lay treatments for various disorders. The Company is
investigating utilizing VIMRxyn as a treatment for viral and retroviral
diseases, including the human immune deficiency virus ("HIV"), which is the
retrovirus responsible for Acquired Immune Deficiency Syndrome ("AIDS"), and
also is investigating utilizing VIMRxyn as a treatment for hepatitis C, as a
therapeutic for brain cancer (glioma), and as a means of inactivating HIV and
other lipid-enveloped viruses in blood collected for transfusions. The Company
has a worldwide exclusive license to commercialize and exploit synthetic
hypericin compounds for enumerated purposes acquired from New York University
and Yeda Research and Development Co., Ltd., an Israeli corporation engaged in
the commercial exploitation of scientific developments by scientists at a
Weizmann Institute of Science in Israel (New York University and YEDA,
collectively, the "Hypericin Licensors").

HIV/AIDS Research

The Company has not established the efficacy of VIMRxyn in human clinical
trials for the treatment of AIDS. In 1994, the Company completed data analysis
of Phase I/Phase II human clinical trials sponsored by the National Institutes
of Health to determine the maximum tolerated dose and any side effects of
VIMRxyn as a treatment for AIDS. From the data collected, the results showed a
favorable pharmacological profile with no major organ or hematological
toxicity, and with skin photosensitivity as the primary dose-limiting side
effect. All of the patients enrolled in the trials experienced varying levels
of skin photosensitivity and several experienced non-life threatening acute
skin photosensitivity which required medical treatment.

Between January and September 1996, human clinical trials were conducted in
Thailand by a Dutch company retained by the Company under a protocol submitted
to the U.S. Food and Drug Administration (the "FDA") under the Company's
existing investigational new drug application to identify a potentially
efficacious lower dose of VIMRxyn, having minimal skin photosensitivity, as a
treatment for AIDS. The dosage administered was well-tolerated by the patients
and did not result in untoward toxicity or skin photosensitivity and, based on
the measurement criteria used, produced evidence of anti-HIV activity. The
Company is currently conducting in vitro interaction studies to determine how
VIMRxyn may be used in combination with other anti-retroviral agents.

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<PAGE>

HIV Inactivation Blood Studies

In 1996, VIMRx continued to explore the anti-viral properties of VIMRxyn
with respect to whole red blood cells in blood collected for transfusions. The
Company's studies are being conducted under the direction of Alfred M. Prince,
M.D., of the New York Blood Center. Studies conducted by Dr. Prince in 1996
have indicated that VIMRxyn combined with fluorescent light can inactivate the
HIV virus in packed red blood cells. The Company is developing protocols for
additional studies to determine the safety, cellular integrity and efficacy of
HIV virus in activation in treated whole red blood cells.

Hepatitis C Virus

The hepatitis C virus ("HCV") is a blood-borne pathogen infecting
approximately 200,000 people in the United States each year, with
approximately seventy to ninety percent of such infected persons (140,000 to
180,000 persons) becoming chronic carriers of the virus. Chronic carriers of
HCV are at high risk of developing cirrhosis and liver cancer later in life.
The Center for Disease Control estimates that two and one-half to five million
Americans are chronic carriers, and there are an estimated 400 million persons
worldwide who are chronic carriers, most of whom are located in the Far East.
Despite recent advances in blood screening techniques, it is estimated that
one in 3,000 transfusions in the United States transmits HCV.

Studies funded by the Company in the laboratories of Dr. Alfred M. Prince at
the New York Blood Center and Dr. Edward Dubovi at the Diagnostic Laboratory
of the New York State College of Veterinary Medicine at Cornell University in
Ithaca, New York have indicated that VIMRxyn may be effective in inactivating
HCV. The studies were conducted on bovine viral diarrhea virus ("BVDV") as a
surrogate for HCV, as BVDV can be quantified in cell cultures while HCV can
only be assayed in animal studies using chimpanzees. In their studies, Dr.
Prince and Dr. Dubovi subjected BVDV, in the presence of packed human red
blood cells, to varying concentrations of VIMRxyn and different periods of
exposure to light, and found that VIMRxyn inactivated BVDV in doses of only
1g/ml during ten minutes of exposure to light. Such results indicate that
VIMRxyn may be effective in inactivating HCV.

In January 1997, the Company commenced a Phase I/Phase II clinical trial to
determine the antiviral effectiveness of VIMRxyn in reducing the amount of HCV
in the blood of patients suffering from infectious chronic hepatitis C. The
trial is being conducted at the Bronx VA Hospital in New York under the
direction of Dr. Jeffrey Jacobson, Associate Professor of Infectious Diseases
at Mt. Sinai School of Medicine.

Cancer/Malignant Brain Gliomas

Research groups worldwide are studying hypericin for a variety of medical
uses. One such effort, that of William T. Couldwell, M.D., Ph.D. in the
Division of Neurological Surgery at the University of North Dakota, School of
Medicine, demonstrated that hypericin effectively inhibits the growth of human
brain cancer cells (malignant gliomas). The data suggest that in the presence
of hypericin, glioma cell death is due to apoptosis, a process by which normal
cells die, but which is missing in cancer cells. Hypericin appears to limit
the uninhibited growth of cancer cells by restoring the natural mechanism of
cell death.

In October 1996, the Company commenced a Phase I/Phase II clinical trial at
the North Dakota School of Medicine, under the direction of Dr. Couldwell, to
determine whether VIMRxyn has antiglioma properties in patients with malignant
brain gliomas.

The Company also has initiated pre-clinical laboratories studies to evaluate
the effectiveness of VIMRxyn against a variety of human cancer cell lines,
including non-Hodgkins B-cell lymphoma, endometrial carcinoma and cutaneous T-
cell lymphoma. In some of these studies, the Company is examining the
potential use of VIMRxyn as a light-activated topically applied treatment for
dermatological diseases caused by viruses and cancers.

Relationship with Hypericin Licensors

Pursuant to an agreement dated June 1, 1988, as amended (the "License
Agreement"), between the Company and the Hypericin Licensors, the Hypericin
Licensors granted the Company a worldwide exclusive

B-3
<PAGE>

license to commercialize and exploit natural hypericin and synthetic hypericin
compounds to inactivate viruses and retroviruses, as a therapeutic or
preventative for viral or retroviral diseases, and for anti-glioma (brain
tumor) indications.

Pursuant to the License Agreement, the Company is required to make royalty
and related payments to the Hypericin Licensors as follows: (i) 7% of net
sales of licensed products by VIMRx and/or its affiliates, (ii) 4.4% of net
sales of licensed products by sublicensees of VIMRx, (iii) 40% of down
payments and research and development payments received by VIMRx from
sublicensees with respect to the licensed products, and (iv) 12% of all
consideration received by VIMRx as an investment, loan or capital contribution
from an entity selling licensed products (to be offset against 50% of any
royalties payable under (i) and (ii) above); 50% of the cumulative patent
expenses incurred by VIMRx will offset up to 50% of the foregoing royalty
payments. Minimum annual royalty payments of $100,000 are required to be made
by the Company to the Hypericin Licensors under the License Agreement.

The Hypericin Licensors have made no representation or warranty, express or
implied, with respect to the research results or the efficacy or possible
commercial success of synthetic hypericin compounds.

The Company is required to indemnify the Hypericin Licensors for all
liability resulting from commercialization of the licensed products to be
secured, prior to the marketing of any licensed product, by $5,000,000 of
product liability insurance coverage with the Hypericin Licensors named as
additional insureds, or by an indemnity from an entity satisfactory to the
Hypericin Licensors. Under the Agreement, any improvements, new inventions,
developments or discoveries by VIMRx, its employees, affiliates or consultants
with respect to the technology covered by the license is the property of the
Hypericin Licensors. The exclusive license is subject to cancellation in the
event VIMRx fails to comply with its terms and conditions, including payment
of the royalties and other amounts due thereunder.

OLIGOZYMES; AFFILIATION WITH INNOVIR

General

In December 1996, the Company acquired an approximate 68% ownership interest
in Innovir, a biotechnology company engaged in the research and development of
a new class of biopharmaceutical therapeutic agents, collectively termed
"Oligozymes" by Innovir, for the treatment of a wide array of human diseases.
An Oligozyme is a chemically modified oligomer, not composed of RNA, that
participates in an essential manner in the sequence-specific, catalytic
cleavage of a targeted RNA molecule. The management of the Company and Innovir
believe that therapeutic agents based upon Innovir's proprietary core
technologies have the potential to be cost-effective and highly specific
therapeutics for designated disease targets and that these technologies can
also be used to fill a growing need in the pharmaceutical industry for better
methods to identify and validate targets for drug discovery. VIMRx's
management also believes that its collaboration with Columbia University may
provide synergistic opportunities for the Oligozyme technology owned by
Innovir. See "Research Agreement with Columbia University."

EGS Oligozymes

One of Innovir's two core technologies, its External Guide Sequence ("EGS")
Oligozyme technology, directs a naturally occurring cellular ribozyme (RNase
P) to disease-causing RNA so that the RNase P will cleave the disease-causing
RNA and render it inactive. An EGS Oligozyme is a small, chemically-modified
oligonucleotide segment that binds to a disease-causing RNA to create a
structure resembling a type of RNA which is cleaved by RNase P, which thereby
destroys the disease-causing RNA molecules before they create disease-causing
proteins. Innovir's EGS Oligozyme technology is based upon Nobel Prize-winning
research by Sidney Altman, Ph.D., Sterling Professor of Biology at Yale
University, a consultant to and member of the Science Advisory Board of
Innovir, and Innovir has an exclusive worldwide license from Yale University
for the commercial application of such technology. Innovir is investigating
the use of EGS Oligozymes as a therapeutic to combat target viral and other
diseases, and currently is focussing on hepatitis B, hepatitis C, cancer,
psoriasis and bacterial infections caused by drug-resistant microorganisms.

B-4
<PAGE>

RILON Oligozymes

Innovir's second core technology is its RILON(TM) Oligozyme technology,
which was acquired by Innovir as a result of its acquisition of VIMRx
Holdings, Ltd. ("Holdings") from the Company in December 1996. See "Item 13--
Certain Relationships and Related Transactions." RILON Oligozymes are composed
of certain types of chemically modified oligoribonucleotides, and are
proprietary to Innovir through Holdings" worldwide exclusive license from the
European Molecular Biology Laboratory and certain patents held by Innovir.
RILON Oligozymes consist of two classes: Type 1 RILON Oligozymes cut specific
targeted RNA molecules in a manner intrinsic to the RILON Oligozyme. Type 2
RILON Oligozymes, which are shorter in length than Type 1 RILON Oligozymes and
are patented by Innovir's subsidiary, VIMRx Holdings, Ltd., participate with
the substrate of the targeted RNA molecule to form a structure that results in
the sequence-specific catalytic cleavage of the target RNA molecule. Innovir
is evaluating the potential use of RILON Oligozymes to combat viral and other
diseases, including cancer, central nervous system diseases and psoriasis.

Drug Target Identification and Validation

Innovir also is investigating the use of its Oligozyme technologies to
identify and validate disease targets for new drugs. Oligozymes can be used in
drug target identification and validation as substitutes for the difficult-to-
find selective inhibitors which otherwise are required in the drug target
identification and validation process. Such substitution is possible because
Oligozymes mimic the effect of select inhibitors at an earlier stage of the
disease-causing process than inhibitors. While inhibitors inhibit the
production of disease-causing proteins, Oligozymes inhibit the production of
the disease-causing messenger RNA molecules that produce such disease-causing
proteins and, in both cases, the pharmacological effect is the same.

Management of the Company and Innovir do not anticipate that any of
Innovir's proposed products will be available for commercial sale for several
years, if at all. Innovir's current capital is insufficient to enable Innovir
to complete the development of any of its products.

RESEARCH AGREEMENT WITH COLUMBIA UNIVERSITY

In March 1997, VIMRx entered into a research agreement relating to the
discovery, mapping, sequencing and validation of disease-related genes with
Columbia University ("Columbia"), whereby VIMRx, through a newly established
subsidiary, VIMRx Genomics, Inc., ("Genomics"), 90%-owned by the Company and
10%-owned by Columbia, will provide $30 million in funding to the Columbia
Genome Center established by Columbia, with $4.7 million to be paid during the
first year in quarterly installments. In exchange, Genomics will receive an
exclusive license to develop, manufacture, use, sell or market products
resulting from any invention research information and biological materials
developed by the Columbia Genome Center and funded under the agreement.
Following an initial five-year term, the agreement automatically will renew
for successive two-year terms and, in the absence of an agreement to the
contrary, the amount of funding will be increased at a rate of 9% for every
additional year. The agreement is terminable by either Columbia or Genomics
during the initial five-year term upon six months notice, but in no event
earlier than September 7, 1999. Under the agreement, VIMRx agreed to issue
200,000 shares of Common Stock to Columbia, and granted Columbia "piggyback"
registration rights with respect thereto during the period April 1, 1997 to
April 1, 1999.

The Columbia Genome Center (the "Center") is devoted to mapping, sequencing,
gene discovery and technology development on the genomes of human and selected
model organisms. The Center evolved from the work of a group at Columbia under
the joint direction of Drs. I.S. Edelman and A. Efstratiadis over the last
five years. This group has advanced the technology used in fine mapping of
human chromosomes, generated a detailed cosmid-based map of human chromosome
13, fabricated highly representative normalized human cDNA libraries and
contributed significantly to gene discovery, e.g., the Cu-transport protein of
Wilson's Disease. The Center is building on this base to develop a
comprehensive genome center operating at the forefront of this field.
Integrated genomic mapping and sequencing is used to facilitate gene discovery
and gene therapy strategies in collaboration with laboratories throughout the
University.

B-5
<PAGE>

Investigators at the Center have been involved in localizing and identifying
novel human genes associated with genetically based diseases, including
cancer, late-onset Alzheimer's Disease, epilepsy, manic-depressive disorder
and glaucoma. VIMRx's management believes the collaboration with Columbia may
also provide synergistic opportunities for the Oligozyme technology owned by
Innovir. As the Center provides access to proprietary gene sequences
implicated in disease processes, the Oligozyme technology may aid in
understanding the function of such genes and potentially lead to the
development of new diagnostic and therapeutic compounds. See "--Oligozymes--
General."

To enhance the commercial potential of the collaboration, VIMRx intends to
seek technology partnerships with pharmaceutical and/or diagnostic companies
and to solicit equity investments in Genomics from potential technology
partners and other investors.

Eric A. Rose, M.D. and Michael Weiner, M.D., directors of the Company, have
affiliations with Columbia. See "Item 13--Certain Relationships and Related
Transactions."

PATENTS AND LICENSES

The Company has been granted an exclusive license for the worldwide rights
to synthetic hypericin compounds for viral, retroviral and other applications
by the Hypericin Licensors which have been issued five U.S. patents for anti-
viral and anti-retroviral applications and manufacturing processes and have
filed patent applications for U.S. and foreign patents relating to the
synthesis and therapeutic uses of synthetic hypericin compounds. In addition,
the Company has acquired a worldwide exclusive license for rights to
commercialize and exploit synthetic catalytic oligonucleotide compounds for
pharmaceutical and diagnostic products. There can be no assurance that such
patents, or pending patents if issued, will provide adequate protection to the
Company. Infringement claims may be asserted against the Company and/or the
respective licensors (with respect to which the Company has agreed to
indemnify the Hypericin Licensors) which, if affirmed, might require the
Company to acquire licenses from others.

The Company also has an exclusive license to develop, manufacture, use, sell
or market products resulting from any invention or research product developed
by the Columbia Genome Center under its research agreement. See "Item 1--
Business--Research Agreement with Columbia University."

Innovir has an exclusive license from Yale University for the worldwide
rights to 22 U.S. patents and patent applications for therapeutic uses of
Oligozymes, oligonucleotide delivery, and diagnostic applications of
ribozymes. Corresponding foreign applications are pending or issued.

The Company is aware of patents in the United States and Europe held by an
unaffiliated third party relating to catalytic ribonucleic compounds which may
be infringed by certain synthetic catalytic oligonucleotide compounds licensed
to VIMRx Holdings, Ltd., in which event a license from such third party would
be required. There can be no assurance that VIMRx Holdings, Ltd. would be able
to attain such license on reasonable terms, or at all.

MANUFACTURING

VIMRx has no manufacturing capability and has contracted with outside
suppliers to develop, produce, and package therapeutic formulations of a
synthesized form of hypericin for the human clinical trials. The synthesis
process has been developed at The Weizmann Institute of Science in Israel,
using a natural product available from a limited number of specialty chemical
suppliers as the precursor. Only limited quantities of synthetic hypericin
have been manufactured and the production process must be further developed
and refined for commercial quantities to be produced, as to the success of
which there can be no assurance.

Innovir manufactures EGS Oligozymes and RILON Oligozymes for use in its test
tube, cell culture, animal testing and target validation programs, and is
exploring other sources of supply.

B-6
<PAGE>

GOVERNMENT REGULATION

The manufacture and marketing of therapeutic products is subject to
extensive regulation by the FDA, as well as by state and foreign authorities.
Prior to the release of VIMRxyn for marketing as a therapeutic product or
agent, its tolerance, safety and efficacy as a treatment must be established
in human clinical trials and approval of a new drug application ("NDA")
obtained. Although the Company-sponsored Thailand trials did not result in
untoward toxicity or skin photosensitivity and, based on the measurement
criteria used, produced evidence of anti-HIV activity in 10 out of 12
patients, there can be no assurance that the FDA will accept the clinical
results therefrom. Among other additional regulatory requirements, it is
possible that additional toxicology studies will need to be performed in the
United States, and Phase III clinical trials, which are both costly and time-
consuming, will need to be undertaken to obtain an NDA. Prior to its
commercialization as a means of inactivating HIV and other lipid-enveloped
viruses in blood collected for transfusions, a product license application
("PLA") or an NDA must be obtained. These are long-term and costly processes
as to the successful completion of which there can be no assurance.

In addition to regulations enforced by the FDA, the Company's proposed
products also may be subject to regulation under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control
Act, the Resource Conservation and Recovery Act and other present and
potential future, state or local regulations. Outside the United States, the
Company also is subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The requirements governing
the conduct of clinical trials, product licensing, pricing and reimbursement
vary widely from country to country.

Innovir's development, manufacture and sale of therapeutics similarly is
subject to regulation by a variety of governmental authorities.

COMPETITION

The biomedical industry is highly competitive. Competition in the field in
which the Company is engaged is intense and expected to increase as knowledge
and interest in the technology and products being developed by the Company
increase. The Company faces competition from biotechnology companies, large
pharmaceutical companies, academic institutions, government agencies and
public and private research organizations, many of which have extensive
resources and experience in research and development, clinical testing,
manufacturing, regulatory affairs, distribution and marketing. Some of these
entities have significant research and development activities in areas upon
which the Company's programs focus. Many of the Company's competitors possess
substantially greater research and development, financial, technical,
marketing and human resources than the Company and may be in a better position
to develop, manufacture and market products. Current and future treatments for
AIDS, and the use of combination therapy in connection therewith, may render
the Company's synthetic hypericia program for treating AIDS obsolete or non-
competitive. In addition, forms of hypericin extracted from plants are being
used as lay treatments for a variety of disorders, including AIDS. The Company
is similarly subject to substantial competition from pharmaceutical, chemical
and biotechnology firms in the attempt to develop a means of inactivating
blood and other lipid-enveloped viruses in blood collected for transfusions,
and in seeking to develop treatments for hepatitis C and therapeutics for
brain cancer (glioma).

Innovir is likewise subject to substantial competition in the development
and marketing of its Oligozyme technologies.

EMPLOYEES

At March 1, 1997, the Company had nine full-time employees in the United
States consisting of its five executive officers, one financial analyst and
three administrative assistants. At December 31, 1996, the Company believes
that its relations with its employees is satisfactory.

Innovir has 27 full-time U.S. employees and 23 full-time non-U.S. employees.

B-7
<PAGE>

CONSULTANTS

The Company is dependent on third parties for significant aspects of its
research and development operations. Research with respect to potential
therapeutic applications for hypericin and certain analogues thereof is being
performed by New York University Medical Center and the Weizmann Institute of
Science in Israel (the "Research Institutions") under the supervision of four
principal researchers who, together with other scientists at the Research
Institutions, are also consultants to the Company. Consultants have also been
retained to assist in supervising the IND regulatory process, monitoring the
human clinical trials and establishing the toxicology tests for hypericin. The
Company also retains financial consultants. The Company's Medical Director,
responsible for developing clinical protocols and monitoring the performance
of these protocols, was also a consultant to the Company through February 28,
1995.

The Company's consultants are employed by and/or have consulting agreements
with entities other than the Company, some of which may conflict or compete
with the Company, and are expected to devote only a minor portion of their
time to the affairs of the Company. Regulations or policies now in effect or
adopted in the future by their respective employers may limit the ability of
such persons to consult with the Company. The loss of the services of certain
of such persons may adversely affect the Company.

In August 1995, the Company entered into a financial consulting arrangement
with Lindsay A. Rosenwald, M.D. (who was elected a director of the Company in
June 1996) in consideration for the grant of an option to purchase 2,000,000
shares of Common Stock at approximately $.53 per share commencing August 7,
1996 (one year from the date of grant) and expiring August 7, 1998, and in
November 1995, entered into consulting arrangements with Donald G. Drapkin and
Eric A. Rose, M.D., directors of the Company, pursuant to which each was
granted options to purchase 650,000 shares of Common Stock at approximately
$.94 per share, exercisable cumulatively at the rate of 25% of the number of
underlying shares per year commencing one year from the date of grant. See
"Item 13--Certain Relationships and Related Transactions."

ITEM 2. PROPERTIES.

The Company occupies 5,266 square feet of office space at 2751 Centerville
Road, Suite 210, Wilmington, Delaware under a lease at a monthly rent of
$9,009. The lease expires on August 31, 1999, with an option to renew for five
years.

Innovir sublets approximately 8,500 square feet of space in New York City
for its laboratory and executive offices, approximately 5,000 square feet of
space in Cambridge, England, approximately 2,500 square feet of space in
Gottingen, Germany and approximately 4,000 square feet of space in Rosdorf,
Germany.

ITEM 3. LEGAL PROCEEDINGS.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

B-8
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS.

The Company's Common Stock is traded in the over-the-counter market on The
Nasdaq Stock Market's National Market System under the symbol VMRX. The
following table sets forth for the Company's Common Stock the high and low
closing sales prices for each calendar quarter from January 1, 1995 through
March 17, 1997. Prior to December 31, 1996, the Company's Common Stock traded
on The Nasdaq Stock Market's Small-Cap Market.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter........................................... 25/32 3/8
Second Quarter.......................................... 5/8 13/32
Third Quarter........................................... 1 15/16 7/16
Fourth Quarter.......................................... 1 3/16 25/32
1996
First Quarter........................................... 3 1/32 1 1/8
Second Quarter.......................................... 6 1/4 2 25/32
Third Quarter........................................... 4 15/16 3
Fourth Quarter.......................................... 3 13/16 2 9/32
1997
First Quarter (through March 17, 1997).................. 3 1/2 2 15/32
</TABLE>

On March 17, 1997, there were approximately 14,000 holders of the Company's
Common Stock, including beneficial owners of shares registered in nominee or
street name.

The Company is in the development stage, has not paid a cash dividend and
does not anticipate the payment of cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

On May 23, 1996, the Company issued to Dr. Herbert Stadler warrants to
purchase 365,000 shares of the Company's Common Stock at an exercise price of
$.01 per share, as part of the consideration paid by VPI Holdings, Ltd. (then
a subsidiary of the Company but subsequently sold to Innovir Laboratories,
Inc.) to Dr. Stadler for acquiring all of the issued and outstanding capital
stock of Ribonetics GmbH. Dr. Stadler was also paid $1,500,000 in cash in such
transaction.

On June 21, 1996, the Company completed a private placement pursuant to a
subscription agreement dated March 21, 1996, to a group of investors, of
2,799,991 shares of Common Stock and 1,399,993 Common Stock Subscription
Warrants, for an aggregate purchase price of $4,199,987. Each Common Stock
Subscription Warrant is exercisable through June 20, 2006 to purchase one
share of Common Stock at an exercise price of $1.50 per share. Pursuant to the
subscription agreement, the private placement investors agreed not to transfer
their shares of Common Stock or warrants prior to June 21, 1997, and the
Company agreed to register the shares of Common Stock and warrants for public
sale under the Securities Act of 1933 subsequest thereto. Concurrently with
the closing of the private placement, 1,000,000 warrants issued in conjunction
with the Company's December 1995 bridge loan financing automatically were
converted into 1,000,000 Common Stock Subscription Warrants.

On December 23, 1996, the Company issued an aggregate of 3,000,000 shares of
Common Stock to The Aries Fund, a Cayman Island trust (the "Aries Trust"), and
The Aries Domestic Fund, L.P., a Delaware limited partnership ("The Aries
Limited Partnership" and, together with the Aries Trust, the "Aries Funds"),
as part of the consideration for 9.5 million shares of the Common Stock of
Innovir Laboratories, Inc. See "Item 13--Certain Relationships and Related
Transactions."

B-9
<PAGE>

The foregoing transactions of the Company were exempt from registration
under the Securities Act of 1933, as amended, under Sections 4(2), 2(3) and
3(a)(9) thereunder, and all stock and warrant certificates issued in
connection therewith were legended to reflect their restricted status.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data have been derived from the Company's
audited financial statements. The Statements of Operations Data relating to
the fiscal years 1994, 1995 and 1996 and for the period from inception through
December 31, 1996 and the Balance Sheets Data at December 31, 1995 and 1996
should be read in conjunction with the Company's audited financial statements
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations," included elsewhere in this Annual Report on Form 10-K.

STATEMENTS OF OPERATIONS DATA:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, DECEMBER 30, 1986
----------------------------------- (INCEPTION) TO
1996 1995 1994 DECEMBER 31, 1996
----------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and
development.......... $ 2,950,000 $2,840,000 $1,463,000 $15,939,000
Purchased research and
development.......... 14,484,000 -- -- 14,484,000
General and
administrative....... 4,300,000 2,272,000 1,646,000 13,782,000
----------- ---------- ---------- -----------
21,734,000 5,112,000 3,109,000 44,205,000
----------- ---------- ---------- -----------
Other (income) expense:
Royalty payments...... 100,000 100,000 100,000 300,000
Interest (income)..... (1,792,000) (160,000) (189,000) (2,951,000)
Interest expense...... 329,000 2,000 413,000
Provision for losses
(recovery) on notes
receivable........... -- -- -- 135,000
Minority interest in
consolidated
subsidiary........... (116,000) -- -- (116,000)
Investment in and
advances to research
and development
entities charged to
expense.............. -- 185,000 515,000 700,000
Other--net............ (395,000) 1,000 74,000 (315,000)
----------- ---------- ---------- -----------
(1,874,000) 128,000 500,000 (1,834,000)
----------- ---------- ---------- -----------
Net loss................ $19,860,000 $5,240,000 $3,609,000 $42,371,000
=========== ========== ========== ===========
Net loss per share...... $ .50 $ .27 $ .19
=========== ========== ==========
Weighted average
number of shares of
Common Stock
outstanding.......... 39,398,644 19,747,595 19,066,754
=========== ========== ==========
</TABLE>

BALANCE SHEETS DATA:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Working capital..................... $ 44,848,000 $ 391,000 $ 4,742,000
Total assets........................ 51,692,000 2,958,000 5,249,000
Total liabilities................... 3,101,000 2,698,000 116,000
Minority interest in subsidiary..... 2,381,000
Deficit accumulated during
development stage.................. (42,371,000) (22,511,000) (17,271,000)
Stockholders' equity................ 46,210,000 260,000 5,134,000
</TABLE>

B-10
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

Years Ended December 31, 1996 and 1995

Total operating expenses increased by 325% ($16,622,000) due principally to
a $14,484,000 purchased research and development charge, an 89% ($2,028,000)
increase in general and administrative expenses and an 4% ($110,000) increase
in research and development expenses.

The $14,484,000 purchased research and development charge consists of $3.5
million from the acquisition of Ribonetics GmbH in May 1996 and $10.9 million
net of a gain of $2,889,000 on the sale of VIMRx Holdings, Ltd. ("VHL") from
the acquisition of an approximate 68% interest in Innovir in December 1996, in
connection with the acquisition of a controlling interest in Innovir. These
charges to the statement of operations reflect the value placed on the on-
going research and development of the Oligozyme technologies. Approximately
$13.5 million of this expense is non-cash incurred through the issuance of
3,000,000 shares of Common Stock and warrants to purchase 365,000 shares of
Common Stock.

General and administrative expenses increased 89% ($2,028,000) principally
due to approximately $1 million non-recurring costs principally related to
employees, recruiting, and bridge loan finance costs and approximately $1
million increases in recurring expenses for public and stockholder relations,
consulting fees and costs related to VHL's European operations and Innovir.

Research and development expenses increased 4% ($110,000) principally due to
an increase in salaries and expenses related to VHL's European operations and
$350,000 write-down on Epoch Investment, offset by a $464,000 termination of
agreement credit resulted from the termination of the Company's research and
development with Ribonetics in 1996.

Interest income increased $1.6 million in 1996 as compared to 1995 due to an
increase in funds available for investments (see Liquidity and Capital
Resources) and a higher effective interest rate. Interest expense of $327,000
related principally to the December 1995 bridge loan which was repaid in June
1996.

Other income increased $396,000 due to capital gains on short-term
investments.

The foregoing resulted in a 279% ($14,620,000) increase in the net loss for
the year ending December 31, 1996.

Years Ended December 31, 1995 and 1994

Total operating expenses increased by 64% ($2,003,000) due to a 94% increase
in research and development expenses, and a 38% increase in general and
administrative expenses.

Research and development expenses increased 94% ($1,377,000) due to (1)
$1,053,000 paid to Ribonetics in 1995 under the Ribonetics research and
development agreement, (2) a $464,000 expense for the accrual of common stock
due to Ribonetics under the Ribonetics research and development agreement
(this accrual was reversed in the first quarter of 1996 when the agreement was
terminated), (3) a $317,000 increase in research and development
administrative salaries, (4) a $76,000 increase in consulting and other
expenses related to research in the United Kingdom, partially offset by (5)
$125,000, $213,000 and $126,000 decreases in expenses related to CambES Ltd.,
drug production support and drug production development, respectively, and (6)
a $69,000 decrease in miscellaneous research and development expenses.

General and administrative expenses increased 38% ($626,000) due to (1) a
$449,000 increase in legal fees for the acquisition of intellectual property
from Ribonetics, (2) a $37,000 increase in rent expense as a result of the
Company's lease in the third quarter of 1994 of new space for its executive
offices and new space for the newly formed U.K. subsidiary company and (3) a
$90,000 increase in legal fees for patents, partially offset by (4) $24,000
net decreases in recruiting, relocating, consulting and other expenses.

Other (income) expense decreased by $372,000 principally due to a decrease
in investments in and advances for research and development entities charged
to expense.

B-11
<PAGE>

The foregoing resulted in a 45% ($1,631,000) increase in the net loss for
the year ended December 31, 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company is in the development stage, has realized no operating revenues
and has financed its operations through the sale of its securities.

The Company had $46,911,000 in cash, cash equivalents and marketable
securities held for sale at December 31, 1996, as compared to $2,219,000 at
December 31, 1995 and working capital of $44,848,000 at December 31, 1996, as
compared to $391,000 at December 31, 1995. The increase in cash and working
capital position results from the net proceeds upon exercise of the Company's
Redeemable Class A and Class B Warrants and a private placement financing
offset, in part, by funds used in the operations of the Company.

On April 9, 1996, the Company exercised its right to redeem all outstanding
Redeemable Class Warrants (the "Class A Warrants") on May 10, 1996 (the
"Redemption Date"). Between January 1, 1996 and the Redemption Date,
approximately 13,900,000 Class A Warrants were exercised resulting in the
issue of one share of Common Stock and one Redeemable Class B Warrant (the
"Class B Warrant") resulting in net proceeds of approximately $20.1 million.

On April 25, 1996, the Company exercised its rights to redeem all
outstanding Redeemable Class B Warrants on June 13, 1996, (the "B Class
Redemption Date"). Between January 1, 1996 and the B Class Redemption Date,
approximately 14,200,000 Class B Warrants were exercised, resulting in the
issuance of one share of Common Stock for $2.25. The exercise of Class B
Warrants yielded net proceeds of approximately $30.7 million.

On June 21, 1996, the Company completed a private placement pursuant to a
subscription agreement dated March 21, 1996, to a group of investors, of
2,799,991 shares of Common Stock and 1,399,993 Common Stock Subscription
Warrants, for an aggregate purchase price of approximately $4,199,987. Each
Common Stock Subscription Warrant is exercisable through June 20, 2006 to
purchase one share of Common Stock at an exercise price of $1.50 per share.
Pursuant to the subscription agreement, the private placement investors agreed
not to transfer their shares of Common Stock or warrants prior to June 21,
1997, and the Company agreed to register the shares of Common Stock and
warrants for public sale under the Securities Act of 1933 subsequent thereto.
Concurrently with the closing of the private placement, 1,000,000 warrants
issued in conjunction with the Company's December 1995 bridge loan financing
automatically were converted into 1,000,000 Common Stock Subscription
Warrants.

The Company expects to incur substantial expenditures in the foreseeable
future for the research and development and commercialization of its proposed
products. Based on current projections, which are subject to change, the
Company's management believes that the present balance of cash, cash
equivalents and marketable securities held for sale, is sufficient to fund its
operations for over two years, assuming no capital infusions or revenues are
received (it is management's belief, however, that such capital infusions and
revenues will occur). Thereafter, the Company will require additional funds,
which it may seek to raise through public or private equity or debt
financings, collaborative or other arrangements with corporate sources, or
through other sources of financing.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See Index to Financial Statements on page F-1.

No financial statement schedules are required because they are not
applicable or the information is disclosed in the financial statements or
related notes.

Item 302--Supplementary Financial Information of Regulation S-K is not
applicable.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

B-12
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The directors and executive officers of VIMRx are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard L. Dunning...... 51 President and Chief Executive Officer
Francis M. O'Connell.... 51 Vice President, Finance and Chief Financial Officer
David A. Jackson, 54 Executive Vice President and Chief Scientific Officer
Ph.D...................
Alfonso J. Tobia, 54 Vice President, Research and Development
Ph.D...................
Donald G. Drapkin....... 48 Director (1)
Laurence D. Fink........ 48 Director (2)
Jerome Groopman, M.D.... 44 Director
Linda G. Robinson....... 43 Director (2)
Eric A. Rose, M.D....... 45 Director (1)
Lindsay A. Rosenwald, 41 Director (1)
M.D....................
Michael Weiner, M.D..... 50 Director (2)
</TABLE>
- --------
(1) Member of Compensation Committee.

(2) Member of Audit Committee.

RICHARD L. DUNNING has been President and Chief Executive Officer of the
Company since April 1996. Prior to joining the Company, Mr. Dunning served as
Executive Vice President and Chief Financial Officer of the DuPont Merck
Pharmaceutical Company since 1991.

FRANCIS M. O'CONNELL, CPA, has served as Chief Financial Officer of the
Company since February 1995. Prior to joining the Company, Mr. O'Connell was
Director of Litigation Support in the New York office of J.H. Cohn & Company,
a C.P.A. firm, from June 1994 to February 1995, and was Vice-President of
Hickok Associates Inc., a financial consulting company, from March 1992 to
June 1994, and for 17 years prior thereto, was a partner with KPMG Peat
Marwick (formerly KMG Main Hurdman).

DAVID A. JACKSON, Ph.D., has served as Executive Vice President and Chief
Scientific Officer of VIMRx Pharmaceuticals Inc. since September 1996. Prior
to joining VIMRx, Dr. Jackson was with DuPont Merck Pharmaceutical Company
since 1991, most recently serving as Senior Director, Cancer, Virology and
Molecular Biology Research.

ALFONSO J. TOBIA, Ph.D. was elected an executive officer of the Company in
March 1995, having joined the Company as Vice President, Research and
Development in June 1994. Prior to joining VIMRx, Dr. Tobia served as Vice
President of Scientific Affairs at Great Valley Pharmaceuticals, a
biopharmaceutical company, from April 1993 to June 1994. From 1990 to 1991,
Dr. Tobia served as Senior Director of R.W. Johnson Pharmaceutical Research
Institute; from 1985 to 1990, as Director of Pharmacology at Johnson &
Johnson's Ortho Pharmaceutical Corporation; and from 1974 to 1977 as Senior
Scientist at SmithKline Laboratories.

DONALD G. DRAPKIN was elected a director of the Company on November 17,
1995. Since March 1987, Mr. Drapkin has served as Vice Chairman and a director
of MacAndrews & Forbes Holdings Inc., and was a partner in the law firm of
Skadden, Arps, Slate, Meagher & Flom in New York City for more than five years
prior thereto. Mr. Drapkin also serves as a director of the following
corporations which file reports pursuant to the Securities Exchange Act of
1934: The Coleman Company, Inc., Coleman Holdings Inc., Coleman Worldwide
Corporation, Marvel Entertainment Group, Inc., Marvel Holdings Inc., Marvel
(Parent) Holdings Inc., Marvel III Holdings Inc., Revlon Consumer Products
Corporation, Revlon Worldwide Corporation and Toy Biz, Inc.

B-13
<PAGE>

LAURENCE D. FINK was elected a director of the Company in June 1996. Mr.
Fink has been Chairman and Chief Executive Officer and Director of BlackRock
Financial Management (investment advisor) since 1988. Mr. Fink is a director
of the closed end funds for which BlackRock serves as investment advisor.

JEROME GROOPMAN, M.D. was elected a director of the Company in June 1996.
Dr. Groopman has been a professor of Medicine at Harvard Medical School since
1993. Dr. Groopman has been an attending physician and member of the executive
committee of New England Deaconess Hospital since 1989. Dr. Groopman is
director of the following corporations which file reports pursuant to the
Exchange Act: Advance Tissues Sciences.

LINDA G. ROBINSON was elected a director of the Company in June 1996. Ms.
Robinson has been Chairman, Chief Executive Officer and Partner of Robinson
Lerer Sawyer Miller (strategic communications) for more than the past five
years. Ms. Robinson is a director of the following corporation which files
reports pursuant to the Exchange Act: Laboratory Corporation of America
Holdings.

ERIC A. ROSE, M.D. was elected a director of the Company in November 1995.
Dr. Rose is Surgeon-In-Chief at Columbia Presbyterian Medical Center in New
York, a position he has held since August 1994, has served as Chairman of the
Department of Surgery at the College of Physicians and Surgeons of Columbia
University since 1994 and as Director of the Division of Cardiothoracic
Surgery of the Department since 1990. Dr. Rose is a past president of the
International Society for Heart and Lung Transplantation.

LINDSAY A. ROSENWALD, M.D. was elected a director of the Company in June
1996. Dr. Rosenwald has been the Chairman and Chief Executive Officer of
Paramount Capital, Incorporated (investment bank) since 1992. Dr. Rosenwald is
also chairman of Paramount Capital Investments, LLC, Paramount Capital Asset
Mgt., and The Castle Group. Dr. Rosenwald serves as a director of the
following corporations which file reports pursuant to the Exchange Act: Ansan,
Inc., Avigen, Inc., Atlantic Pharmaceuticals, Inc., BioCryst Pharmaceuticals,
Inc., Interneuron Pharmaceuticals, Inc., Neose Technologies, Inc., Sparta
Pharmaceuticals, Inc., Titan Pharmaceuticals, Inc. and Xenometrix, Inc.

MICHAEL WEINER, M.D. was elected a director of the Company in June 1996. Dr.
Weiner has been the Hellinger Professor of Clinical Pediatrics at Columbia
University College of Physicians and Surgeons since January 1996 and has been
an attending pediatrician at Columbia Presbyterian Medical Center since
January 1996. Dr. Weiner has served as Associate Director of Pediatrics
Hematology/Oncology and Associate Attending Physician of Hackensack Medical
Center and an Associate Attending Pediatrician UMDNJ Division of Pediatric
Hematology/Oncology, since 1987.

All directors hold office until the next annual meeting of shareholders and
until their successors are elected and qualified. Officers are elected
annually and serve at the pleasure of the Board of Directors, subject to
rights, if any, under contracts of employment.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16 of the Securities Exchange Act of 1934, as amended, requires that
officers, directors and holders of more than 10% of the Common Stock
(collectively, "Reporting Persons") file reports of their trading in Company
equity securities with the Securities and Exchange Commission. Based on a
review of Section 16 forms filed by the Reporting Persons during the last
fiscal year, Eric Rose, M.D., a director of the Company, filed his Form 5
reporting the exercise of warrants approximately one month late; the Company
believes that the Reporting Persons otherwise timely complied with all
applicable Section 16 filing requirements.

B-14
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation

The following table sets forth a summary of the compensation for the year
ended December 31, 1996 earned by the Company's Principal Executive Officer
and be each other executive officer whose compensation exceeded $100,000
during 1996:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- AWARDS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Richard L. Dunning....... 1996 $ 133,833 $ 40,000 800,000(1) $ 4,500(2)
President and Chief 1995 -- -- -- --
Executive Officer 1994 -- -- -- --
Francis M. O'Connell..... 1996 $123,800 $ 35,000 -- --
Vice President, Finance
and 1995 $ 96,125 -- 100,000(3) --
Chief Financial Officer 1994 -- -- -- --
Alfonso J. Tobia, Ph.D... 1996 $ 147,272 $ 50,000 -- --
Senior Vice President 1995 $ 130,000 $ 12,500 -- --
1994 $ 59,696 -- 150,000(4) $25,000(5)
</TABLE>
- --------
(1) Number of shares of Common Stock purchasable. See Option Grant Table below
for exercise price and vesting terms.

(2) Reimbursement of personal medical and health care insurance.

(3) Number of shares of Common Stock purchasable at $.44 per share.

(4) Number of shares of Common Stock purchasable at $.69 per share.

(5) Consists of a one-time relocation fee.

Option Grant Table

The following table sets forth certain information concerning options
granted in 1996 to the individuals named in the Summary Compensation Table:

INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES IN FISCAL PRICE PER EXPIRATION
NAME GRANTED YEAR SHARE DATE
---- -------------------- ------------------- --------- ----------
<S> <C> <C> <C> <C>
Richard L. Dunning...... 800,000(1) 54.4 $2.56 4/2/01
</TABLE>
- --------
(1) Granted pursuant to Mr. Dunning's agreement. See "Employment Arrangements"
below.

B-15
<PAGE>

Option Exercises and Value Table

The following table sets forth certain information concerning options
exercised during 1996, and the number of unexercised options as at December
31, 1996 held, by the individuals named in the Summary Compensation Table:

OPTION EXERCISE AND VALUES AT DECEMBER 31, 1996

<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED
SHARES OPTIONS AT VALUE OF UNEXERCISED
ACQUIRED DECEMBER 31, 1996 IN-THE-MONEY OPTIONS
ON VALUE EXERCISABLE (E)/ AT
NAME EXERCISE REALIZED UNEXERCISABLE (U) DECEMBER 31, 1996(1)
---- -------- -------- ----------------- --------------------
<S> <C> <C> <C> <C>
Richard L. Dunning...... 800,000(U) $650,000
Francis M. O'Connell.... 25,000(E) $ 73,438
75,000(U) $220,313
Alfonso J. Tobia,
Ph.D................... 75,000(E) $201,375
75,000(U) $201,375
</TABLE>
- --------
(1) Based upon the $3 7/16 closing sale price of the Common Stock on The
Nasdaq Stock Market on December 31, 1996.

Employment Arrangements

In October 1996, the Company entered into a restated employment agreement
with Richard L. Dunning, effective March 27, 1996, pursuant to which Mr.
Dunning serves as President and Chief Executive Officer of the Company. The
agreement provides for a base annual salary of $200,000, which may be
increased at the discretion of the Board of Directors or the Compensation
Committee, and an annual cash bonus based on performance criteria, with an
initial cash bonus targeted to be at least 33% of Mr. Dunning's base
compensation. Mr. Dunning is entitled to four weeks' vacation and to
participate in the Company's medical, dental, life and long-term disability
insurance and other benefit programs. Pursuant to the agreement, Mr. Dunning
was granted stock options to purchase an aggregate of 800,000 shares of Common
Stock at an exercise price of $2.56 per share, exercisable cumulatively at the
rate of 25% per annum commencing March 28, 1997 (one year from the date of
grant). Mr. Dunning's employment may be terminated by the Company for cause,
or without cause upon 60 days' notice by either the Company or Mr. Dunning. In
the event Mr. Dunning's employment is terminated by the Company without cause,
or in the event Mr. Dunning terminates his employment following certain
actions by the Company (including a material reduction in Mr. Dunning's duties
or a relocation of the Company's principal executive offices), Mr. Dunning is
entitled to a severance payment equal to six months' of his base salary,
payable in monthly installments. The agreement contains certain non-
competition and confidentiality provisions, and provides that the Company may
obtain "key man" life insurance on the life of Mr. Dunning for the Company's
benefit. Mr. Dunning received a $40,000 signing bonus upon execution of the
agreement.

In August 1996, the Company entered into an employment agreement with David
A. Jackson, Ph.D., pursuant to which Dr. Jackson serves as Vice President--
Research and Development and Chief Scientific Officer of the Company. The
agreement provides for a base annual salary of $175,000, which may be
increased at the discretion of the Board of Directors or the Compensation
Committee, and an annual cash bonus based on performance criteria, with an
initial cash bonus targeted to be at least 33% of Dr. Jackson's base
compensation. Dr. Jackson is entitled to four weeks' vacation and to
participate in the Company's medical, dental, life and long-term disability
insurance and other benefit programs. Pursuant to the agreement, Dr. Jackson
was granted stock options to purchase an aggregate of 500,000 shares of Common
Stock at an exercise price of $3.3125 per share, exercisable cumulatively at
the rate of 25% per annum commencing August 26, 1997 (one year from the date
of grant). Dr. Jackson's employment may be terminated by the Company for
cause, or without cause upon 60 days' notice by either the Company or Dr.
Jackson. In the event Dr. Jackson's employment is terminated by the

B-16
<PAGE>

Company without cause, or in the event Dr. Jackson terminates his employment
following certain actions by the Company (including a material reduction in
Dr. Jackson's duties or a relocation of the Company's principal executive
offices), Dr. Jackson is entitled to a severance payment equal to twelve
months' of his base salary, payable in monthly installments. The agreement
contains certain non-competition and confidentiality provisions, and provides
that the Company may obtain "key man" life insurance on the life of Dr.
Jackson for the Company's benefit. Dr. Jackson received a $40,000 signing
bonus upon execution of the agreement.

In June 1994, the Company entered into an employment agreement with Alfonso
J. Tobia, Senior Vice President of the Company, effective July 1, 1994,
providing for a base annual salary of $125,000, to be increased to $150,000
upon the redemption by the Company of its outstanding Class A Warrants, and
eligibility for a discretionary bonus up to $25,000. The agreement provides
that Dr. Tobia is eligible to receive options to purchase 150,000 shares of
Common Stock (which were granted on August 24, 1994), and is eligible to
participate in the Company's benefit programs, which currently include a
medical program, dental/vision insurance and group life insurance.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth as of January 31, 1997 information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than five percent of such
Common Stock, (ii) each director of the Company, (iii) each executive officer
named in the Summary Compensation Table in "Item 11. Executive Compensation,"
and (iv) all directors and executive officers as a group, together with their
respective percentage ownership of such shares:

<TABLE>
<CAPTION>
SHARES PERCENT
NAME BENEFICIALLY OWNED OUTSTANDING
---- ------------------ -----------
<S> <C> <C>
Richard L. Dunning....................... 203,595(1) *
Francis M. O'Connell..................... 50,000(2) *
Alfonso, J. Tobia, Ph.D.................. 75,000(2) *
Donald G. Drapkin........................ 462,500(3)(4) *
Laurence D. Fink......................... 450,000(3)(5) *
Jerome Groopman, M.D..................... 50,000(3) *
Linda G. Robinson........................ 183,333(3) *
Eric A. Rose, M.D........................ 584,900(6) *
Lindsay A. Rosenwald, M.D................ 6,014,999(3)(7) 10.7%
Michael Weiner, M.D...................... 62,410(3) *
Paramount Capital Asset Management,
Inc..................................... 4,049,999(8) 7.4%
787 Seventh Avenue
New York, New York 10019
Mellon Bank Corporation.................. 2,865,000(9)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
All directors and executive officers as a
group (11) persons)..................... 8,136,737(10) 14.3%
</TABLE>
- --------
* Less than one percent.

(1) Consists of currently exercisable options to purchase 200,000 shares
owned by Mr. Dunning, 2,095 shares owned by a daughter of Mr. Dunning,
and 500 shares owned by each of Mr. Dunning's spouse, son and another
daughter, respectively. Mr. Dunning disclaims beneficial ownership of the
shares held by his spouse, son and daughters.

(2) Consists of currently exercisable options.

B-17
<PAGE>

(3) Includes 100,000 shares for Mr. Drapkin and 50,000 shares for each of Mr.
Fink, Dr. Groopman, Ms. Robinson, Dr. Rosenwald and Dr. Weiner of
restricted stock which vests at the rate of 25% per year commencing June
20, 1997, provided the respective individual continues to serve as a
director of the Company, and subject to a non-lapsing right of first
refusal by the Company.

(4) Includes currently exercisable options to purchase 262,500 shares.

(5) Includes 66,666 shares owned by a family trust for the benefit of Mr.
Fink's children. Mr. Fink disclaims beneficial ownership of the shares
held by the family trust.

(6) Includes currently exercisable options to purchase 262,500 shares.

(7) Includes currently exercisable options to purchase 1,915,000 shares owned
by Dr. Rosenwald, and the 4,049,999 shares beneficially owned by
Paramount Capital Asset Management, Inc. ("PCAM") (see note (8) below).
Dr. Rosenwald serves as President and is sole shareholder of PCAM. Dr.
Rosenwald disclaims beneficial ownership of the shares beneficially owned
by PCAM except to the extent of his pecuniary interest, if any.

(8) Information is from a Schedule 13D dated December 23, 1996 filed by PCAM
which is the investment manager of The Aries Fund, a Cayman Islands
Trust, (the "Aries Trust") and the general partner of Aries Domestic
Fund, L.P. (the "Aries Limited Partnership"), and reports shared voting
and dispositive power of 5,964,999 shares and 2,750,000 shares,
respectively, by the Aries Trust and the Aries Limited Partnership.

(9) Information is from a Schedule 13G dated January 24, 1997, filed by
Mellon Bank Corporation, which reflects sole voting power with respect to
2,865,000 shares and sole dispositive power with respect to 2,750,000
shares.

(10) See notes (1)-(7).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In August 1995, the Company entered into a consulting agreement with Lindsay
A. Rosenwald, M.D., who was elected a director of the Company in June 1996,
pursuant to which Dr. Rosenwald has agreed to act as a financial consultant to
the Company pursuant to the terms thereof and the Company granted Dr.
Rosenwald an option to purchase 2,000,000 shares of Common Stock at $.53125
per share (the closing bid price of the Common Stock on The Nasdaq Stock
Market on the date preceding the date of grant), exercisable through August 6,
1998. In June 1996, Dr. Rosenwald transferred 85,000 of the underlying option
shares to other persons.

In November 1995, the Company entered into an arrangement with Donald G.
Drapkin, a director of the Company, pursuant to which Mr. Drapkin agreed to
make available to the Company his business and financial acumen for a five-
year period, and the Company granted Mr. Drapkin an option to purchase 650,000
shares at $.9375 per share (the closing bid price of the Common Stock on The
Nasdaq Small Cap Market on the date preceding the date of grant), exercisable
at the rate of 25% of the aggregate number of underlying shares per annum
commencing one year from the date of grant. Concurrently, the Company entered
into a five-year consulting arrangement with Eric A. Rose, M.D., a director of
the Company, pursuant to which Dr. Rose agreed to provide scientific
consulting services to the Company, and the Company granted Dr. Rose an option
to purchase 650,000 shares at $.9375 per share, exercisable at the rate of 25%
of the aggregate number of underlying shares per annum commencing one year
from the date of grant.

On June 21, 1996, the Company completed a private placement pursuant to a
subscription agreement dated March 21, 1996 to a group of investors (see "Item
5.--Market for Registrant's Securities and Related Stockholder Matters--Recent
Sales of Unregistered Securities"), including the following directors or
persons or entities affiliated with such directors: (i) Laurence D. Fink, a
director of the Company, purchased 266,667 shares of Common Stock and 133,333
Common Stock Purchase Warrants for $400,000, and a family trust of Mr. Fink
purchased 66,666 shares of Common Stock and 33,333 Common Stock Purchase
Warrants for $100,000; (ii) Linda G. Robinson, a director of the Company,
purchased 133,333 shares of Common Stock and 66,666 Common Stock Subscription
Warrants for $200,000; and (iii) The Aries Trust Fund, a Cayman Island trust
(the

B-18
<PAGE>

"Aries Trust"), and The Aries Domestic Fund, L.P., a Delaware limited
partnership ("The Aries Limited Partnership" and, together with the Aries
Trust, the "Aries Funds"), in the manner described below, purchased an
aggregate of 666,666 shares of Common Stock and 333,333 Common Stock
Subscription Warrants for an aggregate of $1,000,000. Lindsay A. Rosenwald,
M.D., a director of the Company, serves as President and is the sole
shareholder of the investment manager of the Aries Trust, and serves as
President and is the sole shareholder of the general partner of the Aries
Limited Partnership. Jerome Groopman, M.D., a director of the Company, is a
member of the Scientific Advisory Board of the Aries Funds.

On December 23, 1996, the Company acquired an approximate 68% ownership
interest in Innovir pursuant to an agreement dated November 21, 1996, as
amended, among the Company and the Aries Funds and an agreement dated November
21, 1996 between the Company and Innovir. Pursuant to the agreements, as
amended (i) the Aries Funds, which owned 4 million shares of Innovir's common
stock prior to the transaction, exercised warrants and unit purchase options
to purchase an additional 6 million shares, thereby providing $3 million in
cash to Innovir and resulting in the Aries Funds owning 10 million shares of
Innovir's common stock; (ii) the Company acquired 9.5 million shares of
Innovir's common stock from the Aries Funds for $3,000,000 in cash and
3,000,000 newly issued shares of the Company's Common Stock, and (iii) the
Company exchanged all of the capital stock of its wholly-owned subsidiary,
VIMRx Holdings Ltd., a Delaware corporation ("VHL") (to which, prior to
closing, the Company had made a capital contribution of $4,000,000), for 8.7
million shares of Innovir's convertible preferred stock (convertible into 8.7
million shares of Innovir's common stock), plus five-year warrants to purchase
an additional 2 million shares of Innovir's common stock (1 million shares at
an exercise price of $1.00 per share and 1 million shares at an exercise price
of $2.00 per share). The Company has agreed to file a registration statement
(the "Registration Statement") with the Securities and Exchange Commission
(the "Commission") for the public resale of the 3,000,000 shares of Common
Stock issued to the Aries Funds, to use its best efforts to cause the
Registration Statement to be declared effective by the Commission under the
Securities Act as soon as practicable and to use its best efforts to keep the
Registration Statement effective until the earlier of the date such shares
shall have been disposed of or the date on which all of such shares are
eligible for sale pursuant to Rule 144 under the Securities Act. The
acquisition of the 9.5 million shares of Innovir stock from the Aries Funds
was negotiated at arms' length with the Aries Funds and an opinion was issued
by an independent investment banking firm that the transaction was fair from a
financial point of view to the Company and its public shareholders. Drs.
Rosenwald and Groupman did not participate in the meeting of the Board of
Directors in which the acquisition was approved.

On March 7, 1997, the Company entered into a research agreement with
Columbia University ("Columbia") whereby the Company, through a newly
established subsidiary, VIMRx Genomics, Inc. ("Genomics"), 90%-owned by the
Company and 10%-owned by Columbia University, will provide $30 million in
funding to the Columbia Genome Center established by Columbia, with $4.7
million to be paid during the first year in quarterly installments. In
exchange, Genomics will receive an exclusive license to develop, manufacture,
use, sell or market products resulting from any invention or research product
developed by the Columbia Genome Center and funded under the agreement.
Following an initial five-year term, the agreement automatically will renew
for successive two-year terms and, in the absence of an agreement to the
contrary, the amount of funding will be increased at a rate of 9% for every
additional year. Under the agreement, the Company agreed to issue Columbia a
one-time payment of 200,000 shares of Common Stock, and granted Columbia
"piggyback" registration rights with respect to such shares during the period
April 1, 1997 to April 1, 1999. See "Item 1--Business--Research Agreement with
Columbia University." Eric A. Rose, M.D., a director of the Company, is a
Surgeon-In-Chief at Columbia Presbyterian Medical Center in New York, an
affiliate of Columbia, and has served as Chairman of the Department of Surgery
at the College of Physicians and Surgeons of Columbia since 1994 and as a
Director of the Division of Cardiothoracic Surgery of the Department since
1990. Michael Weiner, M.D., a director of the Company, is the Hellinger
Professor of Clinical Pediatrics at Columbia's College of Physicians and
Surgeons, Director of Pediatric Oncology, and is an attending physician at
Columbia Presbyterian Medical Center.

The Company believes that the consulting arrangements with Dr. Rosenwald,
Mr. Drapkin and Dr. Rose are on terms no less favorable than could have been
negotiated with unrelated third parties of similar expertise, and the research
agreement with Columbia was negotiated on an arm's length basis.

B-19
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) Lists.

<TABLE>
<C> <S>
1. See Index to Financial Statements on page F-1.
2. See Item 8 regarding financial statement schedules.
3. Exhibits.
</TABLE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.2a Copy of Agreement dated November 21, 1996 (the "Aries Agreement") by
and among the Company and The Aries Domestic Fund, L.P. (1)
2.2b Copy of Amendment to the Aries Agreement dated December 23, 1996 by
and among the Company and the Aries Fund and The Aries Domestic Fund,
L.P. (1)
2.3 Copy of Agreement dated November 21, 1996 by and between the
Registrant and Innovir Laboratories, Inc. (1)
4.4 Copy of Warrant Agreement dated June 17, 1996 between the Company and
American Stock Transfer & Trust Company.
10.3 Copy of the Company's Amended and Restated 1990 Incentive and Non-
Incentive Stock Option Plan, as amended through February 22, 1997.*
10.9 Copy of Employment letter agreement dated June 21, 1994 between the
Company and Alfonso J. Tobia.* (2)
10.11 Copy of the Company's 1995 Outside Directors Stock Option Plan.* (3)
10.12 Copy of letter agreement dated August 7, 1995 between the Company and
Lindsay A. Rosenwald, M.D. (3)
10.13 Copy of Stock Option Agreement dated August 7, 1995 between Registrant
and Lindsay A. Rosenwald, M.D. (3)
10.14 Copy of Consulting and Stock Option Agreement dated November 17, 1995
between the Company and Eric A. Rose, M.D. (3)
10.15 Copy of Stock Option Agreement dated November 17, 1995 between the
Company and Donald G. Drapkin. (3)
10.16 Copy of the Company's 1996 Non-Employee Director Restricted Stock
Award Plan.* (3)
10.17 Copy of Registration Rights Agreement dated December 23, 1996, between
Registrant and The Aries Fund and The Aries Domestic Fund, L.P. (1)
10.18 Copy of Research Agreement dated as of March 7, 1997 among the
Company, The Trustees of Columbia University in the City of New York
and VIMRx Genomics, Inc. (4)
10.19 Copy of the Company's 1997 Incentive and Non-Incentive Stock Option
Plan, together with forms of stock option agreements.*
10.20 Copy of Employment Agreement dated October 30, 1996 between the
Company and Richard L. Dunning.*
10.21 Copy of Employment Agreement dated August 26, 1996 between the Company
and David A. Jackson, Ph.D.*
21 List of Subsidiaries.
23 Consent of Richard A. Eisner & Company, LLP.
</TABLE>

B-20
<PAGE>

- --------
* Denotes management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Annual Report on Form 10-K.

(1) Filed as the same numbered Exhibit to the Company's Current Report on Form
8-K (Commission File No. 0-19153) filed January 3, 1997 and incorporated
herein by reference thereto.

(2) Filed as the same numbered Exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1994 (Commission File No. 0-19153) and
incorporated herein by reference.

(3) Filed as the same numbered Exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (Commission File No. 0-19153) and
incorporated herein by reference thereto.

(4) Filed as the same numbered Exhibit to the Company's Current Report on Form
8-K (Commission File No. 0-19153) filed March 21, 1997 and incorporated
herein by reference thereto.

(b) Reports on Form 8-K.

None.

B-21
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT ON
FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF WILMINGTON, STATE OF DELAWARE, ON THE 31TH DAY OF
MARCH, 1997.

VIMRx PHARMACEUTICALS INC.

/s/ Richard L. Dunning
By: _________________________________
Richard L. Dunning President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.

SIGNATURE TITLE DATE

/s/ Richard L. Dunning President and Chief March 31, 1997
- ----------------------------- Executive Officer and
RICHARD L. DUNNING Director (Principal
Executive Officer)

/s/ Donald G. Drapkin Chairman of the Board March 31, 1997
- ----------------------------- and Director
DONALD G. DRAPKIN

/s/ Francis M. O'Connell Chief Financial Officer March 31, 1997
- ----------------------------- (Principal Financial and
FRANCIS M. O'CONNELL Accounting Officer)

/s/ Laurence D. Fink Director March 31, 1997
- -----------------------------
LAURENCE D. FINK

/s/ Jerome Groopman, M.D. Director March 31, 1997
- -----------------------------
JEROME GROOPMAN, M.D.

/s/ Linda G. Robinson Director March 31, 1997
- -----------------------------
LINDA G. ROBINSON

/s/ Lindsay A. Rosenwald, Director March 31, 1997
M.D.
- -----------------------------
LINDSAY A. ROSENWALD, M.D.

/s/ Eric Rose, M.D. Director March 31, 1997
- -----------------------------
ERIC A. ROSE, M.D.

/s/ Michael Weiner, M.D. Director March 31, 1997
- -----------------------------
MICHAEL WEINER, M.D.

B-22
<PAGE>

INDEX TO EXHIBITS

EXHIBIT INDEX

PAGE

2.2a
--Copy of Agreement dated November 21, 1996 (the "Aries Agreement")
by and among the Registrant and The Aries Domestic Fund, L.P........ (1)

2.2b
--Copy of Amendment to the Aries Agreement dated December 23, 1996
by and among the Registrant and the Aries Fund and The Aries (1)
Domestic Fund, L.P..................................................

2.3--Copy of Agreement dated November 21, 1996 by and between the
Registrant and Innovir Laboratories, Inc............................ (1)

4.4--Copy of Warrant Agreement dated June 17, 1996 between the
Registrant and American Stock Transfer & Trust Company..............

10.3--Copy of Registrant's Amended and Restated 1990 Incentive and Non-
Incentive Stock Option Plan, as amended through February 22, 1997...

10.9--Copy of Employment letter agreement dated June 21, 1994 between
Registrant and Alfonso J. Tobia..................................... (2)

10.11
--Copy of Registrant's 1995 Outside Directors Stock Option Plan...... (3)

10.12
--Copy of letter agreement dated August 7, 1995 between Registrant
and Lindsay A. Rosenwald, M.D....................................... (3)

10.13
--Copy of Stock Option Agreement dated August 7, 1995 between
Registrant and Lindsay A. Rosenwald, M.D............................ (3)

10.14
--Copy of Consulting and Stock Option Agreement dated November 17,
1995 between Registrant and Eric A. Rose, M.D....................... (3)

10.15
--Copy of Stock Option Agreement dated November 17, 1995 between
Registrant and Donald G. Drapkin.................................... (3)

10.16
--Copy of Registrant's 1996 Non-Employee Director Restricted Stock (3)
Award Plan..........................................................

10.17
--Copy of Registration Rights Agreement dated December 23, 1996,
between Registrant and The Aries Fund and The Aries Domestic Fund, (1)
L.P.................................................................

10.18
--Copy of Research Agreement dated as of March 7, 1997 among
Registrant, The Trustees of Columbia University in the City of New (4)
York and VIMRx Genomics, Inc........................................

10.19
--Copy of Registrant's 1997 Incentive and Non-Incentive Stock Option
Plan................................................................

10.20
--Copy of Employment Agreement dated October 30, 1996 between the
Registrant and Richard L. Dunning ..................................

10.21
--Copy of the Employment Agreement dated August 26, 1996 between the
Registrant and David A. Jackson, Ph.D. .............................

21 --List of Subsidiaries...............................................

23 --Consent of Richard A. Eisner & Company, LLP........................
- --------
(1) Filed as the same numbered Exhibit to Registrant's Current Report on Form
8-K (Commission File No. 0-19153) filed January 3, 1997 and incorporated
herein by reference thereto.

(2) Filed as the same numbered Exhibit to Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 (Commission File No. 0-19153)
and incorporated herein by reference.

(3) Filed as the same numbered Exhibit to Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 (Commission File No. 0-19153)
and incorporated herein by reference thereto.

(4) Filed as the same numbered Exhibit to Registrant's Current Report on Form
8-K (Commission File No. 0-19153) filed March 21, 1997 and incorporated
herein by reference thereto.

B-23
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Auditors......................................... F-2
Consolidated Balance Sheets as at December 31, 1996 and December 31,
1995.................................................................. F-3
Consolidated Statements of Operations for each of the Years in the
Three-Year Period Ended December 31, 1996 and for the Period from
December 30, 1986 (Inception) to December 31, 1996.................... F-4
Consolidated Statements of Changes in Shareholders' Equity for each of
the Years in the Ten-Year Period from December 30, 1986 (Inception) to
December 31, 1996..................................................... F-5
Consolidated Statements of Cash Flows for each of the Years in the
Three-Year Period Ended December 31, 1996 and for the Period from
December 30, 1986 (Inception) to December 31, 1996.................... F-8
Notes to Financial Statements.......................................... F-9
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
VIMRx Pharmaceuticals Inc.
Wilmington, Delaware

We have audited the accompanying consolidated balance sheets of VIMRx
Pharmaceuticals Inc. and subsidiaries (a development stage enterprise) as at
December 31, 1996 and December 31, 1995, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996 and the
amounts for such years included in the period December 30, 1986 (inception) to
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

In our opinion, the financial statements enumerated above present fairly, in
all material respects, the consolidated financial position of VIMRx
Pharmaceuticals Inc. and subsidiaries at December 31, 1996 and December 31,
1995, and the consolidated results of their operations and their consolidated
cash flows for each of the years in the three-year period ended December 31,
1996 in conformity with generally accepted accounting principles.

Richard A. Eisner & Company, LLP

New York, New York
March 14, 1997

F-2
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 8,611,000 $ 2,219,000
Short-term investments........................... 38,300,000
Deferred finance costs........................... 310,000
Other current assets............................. 348,000 96,000
------------ ------------
Total current assets........................... 47,259,000 2,625,000
Equipment--net..................................... 2,650,000 108,000
Notes receivable................................... 225,000
Marketable equity securities....................... 286,000
Other assets....................................... 261,000
Goodwill........................................... 1,236,000
------------ ------------
Total.......................................... $ 51,692,000 $ 2,958,000
============ ============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses............ $ 1,903,000 $ 432,000
Innovir note payable--warrantholder; current
portion includes accrued interest of $5,000..... 36,000
Notes payable.................................... 1,802,000
Capital lease--current portion................... 472,000
------------ ------------
Total current liabilities...................... 2,411,000 2,234,000
Innovir note payable--warrantholder, includes
accrued interest of $39,000....................... 227,000
Capital leases..................................... 463,000
Other liabilities.................................. 464,000
------------ ------------
Total liabilities.............................. 3,101,000 2,698,000
------------ ------------
Minority interest in subsidiary.................... 2,381,000
------------
Contingencies, commitments and other matters (Notes
4, 10, 11, 13, 14 and 16)
SHAREHOLDERS' EQUITY
Common stock; $0.001 par value, 120,000,000 shares
authorized, 54,429, 887 and 19,894,576 shares
issued and outstanding at December 31, 1996 and
December 31, 1995, respectively................... 54,000 20,000
Additional paid-in capital......................... 89,478,000 23,244,000
Unearned compensation.............................. (800,000) (493,000)
Unrealized (loss) on investment.................... (143,000)
Cumulative translation adjustment.................. (8,000)
Deficit accumulated during the development stage... (42,371,000) (22,511,000)
------------ ------------
Total shareholders' equity..................... 46,210,000 260,000
------------ ------------
Total.......................................... $ 51,692,000 $ 2,958,000
============ ============
</TABLE>

The accompanying notes to financial statements are an integral part hereof.

F-3
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
DECEMBER
30, 1986
YEAR ENDED DECEMBER 31, (INCEPTION)
------------------------------------- TO DECEMBER
1996 1995 1994 31, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating expenses:
Research and
development............. $ 2,950,000 $ 2,840,000 $ 1,463,000 $15,939,000
Purchased research and
development (net of gain
on sale of subsidiary of
$2,889,000)............. 14,484,000 14,484,000
General and
administrative.......... 4,300,000 2,272,000 1,646,000 13,782,000
----------- ----------- ----------- -----------
21,734,000 5,112,000 3,109,000 44,205,000
----------- ----------- ----------- -----------
Other (income) expenses:
Royalty payments......... 100,000 100,000 100,000 300,000
Interest (income)........ (1,792,000) (160,000) (189,000) (2,951,000)
Interest expense......... 329,000 2,000 413,000
Provision for losses on
notes receivable........ 135,000
Investment in and
advances to research and
development entities
charged to expense...... 185,000 515,000 700,000
Minority interest in net
loss of consolidated
subsidiary.............. (116,000) (116,000)
Other--net............... (395,000) 1,000 74,000 (315,000)
----------- ----------- ----------- -----------
(1,874,000) 128,000 500,000 (1,834,000)
----------- ----------- ----------- -----------
NET LOSS................... $19,860,000 $ 5,240,000 $ 3,609,000 $42,371,000
=========== =========== =========== ===========
NET LOSS PER SHARE......... $ 0.50 $ 0.27 $ 0.19
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING............... 39,398,644 19,747,595 19,066,754
=========== =========== ===========
</TABLE>

The accompanying notes to financial statements are an integral part hereof.

F-4
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE PERIOD FROM DECEMBER 30, 1986 (INCEPTION) TO DECEMBER 31, 1996

<TABLE>
<CAPTION>
PREFERRED STOCK TREASURY STOCK
-------------------------------------- -----------------
SERIES A SERIES B COMMON STOCK ADDITIONAL
----------------- ------------------- COMMON ------------------- PAID-IN UNEARNED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
-------- ------- ---------- ------- -------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--
December 30,
1986
Issuance of
common stock
($.02 a share).. 1,066,158 $ 1,000 $ 17,000
Net (loss) for
year............
---------- ------- ----------
Balance--
December 31,
1987............ 1,066,158 1,000 17,000
Reverse stock
split of one for
ten shares...... (959,543) (1,000) 1,000
Return of
capital to
adjust purchase
price for effect
of reverse stock
split........... (14,000)
Issuance of
common stock
($.03 a share).. 876,295 1,000 28,000
Purchase of
treasury stock
($.03 a share).. (1,797)
Sale of treasury
stock ($.03 a
share).......... 1,797
Issuance of
Series A
preferred stock
($1.07 a
share).......... 600,000 $ 6,000 637,000
Issuance of
Series B
preferred stock
($2.58495 a
share) and
related
warrants........ 773,709 $ 8,000 1,992,000
Net (loss) for
year............
-------- ------- ---------- ------- -------- ------- ---------- ------- ----------
Balance--
December 31,
1988............ 600,000 6,000 773,709 8,000 - 0 - $ - 0 - 982,910 1,000 2,661,000
Purchase of
treasury stock
($.03 a share).. (242,611) (8,000)
Issuance of
common stock
($.50 a share).. 6,888 3,000
Issuance of
common stock
(.03 share)..... 55,928 2,000
Issuance of
Series B
preferred stock
($2.58495 a
share) and
related
warrants........ 604,461 6,000 1,557,000
Net (loss) for
year............
-------- ------- ---------- ------- -------- ------- ---------- ------- ----------
Balance--
December 31,
1989............ 600,000 6,000 1,378,170 14,000 (242,611) (8,000) 1,045,726 1,000 4,223,000
Purchase of
treasury stock
($.03 a share).. (7,188)
Conversion of
bridge loan plus
accrued interest
in common
stock........... 2,117,782 2,000 928,000
Issuance of
common stock
(average price
of $.05 a
share).......... 161,063 7,000
Recapitalization.. (600,000) (6,000) (1,378,170) (14,000) 249,799 8,000 1,435,858 2,000 10,000
Initial public
offering--net
($5.00 a unit)
($1.00 per
share).......... 5,750,000 6,000 4,540,000
Issuance of
common stock
($.50 a share)..... 18,010 9,000
Net (loss) for
year............
-------- ------- ---------- ------- -------- ------- ---------- ------- ----------
Balance--
December 31,
1990 (carried
forward)........ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 10,528,439 11,000 9,717,000
<CAPTION>
DEFICIT
ACCUMULATED
UNREALIZED CUMULATIVE DURING
(LOSS) ON TRANSLATION DEVELOPMENT
INVESTMENTS ADJUSTMENT STAGE
----------- ----------- ------------
<S> <C> <C> <C>
Balance--
December 30,
1986
Issuance of
common stock
($.02 a share)..
Net (loss) for
year............ $ (106,000)
------------
Balance--
December 31,
1987............ (106,000)
Reverse stock
split of one for
ten shares......
Return of
capital to
adjust purchase
price for effect
of reverse stock
split...........
Issuance of
common stock
($.03 a share)..
Purchase of
treasury stock
($.03 a share)..
Sale of treasury
stock ($.03 a
share)..........
Issuance of
Series A
preferred stock
($1.07 a
share)..........
Issuance of
Series B
preferred stock
($2.58495 a
share) and
related
warrants........
Net (loss) for
year............ (1,046,000)
------------
Balance--
December 31,
1988............ (1,152,000)
Purchase of
treasury stock
($.03 a share)..
Issuance of
common stock
($.50 a share)..
Issuance of
common stock
(.03 share).....
Issuance of
Series B
preferred stock
($2.58495 a
share) and
related
warrants........
Net (loss) for
year............ (2,531,000)
------------
Balance--
December 31,
1989............ (3,683,000)
Purchase of
treasury stock
($.03 a share)..
Conversion of
bridge loan plus
accrued interest
in common
stock...........
Issuance of
common stock
(average price
of $.05 a
share)..........
Recapitalization..
Initial public
offering--net
($5.00 a unit)
($1.00 per
share)..........
Issuance of
common stock
($.50 a share).....
Net (loss) for
year............ (2,988,000)
------------
Balance--
December 31,
1990 (carried
forward)........ (6,671,000)
</TABLE>

(continued)

F-5
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE PERIOD FROM DECEMBER 30, 1986 (INCEPTION) TO DECEMBER 31, 1996--
(CONTINUED)

<TABLE>
<CAPTION>
PREFERRED STOCK TREASURY STOCK
----------------------------- --------------
SERIES A SERIES B COMMON STOCK ADDITIONAL UNREALIZED CUMULATIVE
-------------- -------------- COMMON ------------------ PAID-IN UNEARNED (LOSS) ON TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INVESTMENTS ADJUSTMENT
------ ------- ------ ------- ------ ------- ---------- ------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--
December 31,
1990 (brought
forward)........ - 0 - $ - 0 - - 0 - $ - 0 - - 0 - $ - 0 - 10,528,439 $11,000 $ 9,717,000
Exercise of
options ($.30 a
share).......... 500
Net (loss) for
year............
----- ------- ----- ------- ----- ------- ---------- ------- -----------
Balance--
December 31,
1991............ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 10,528,939 11,000 9,717,000
Issuance of
common stock in
public
offering--net
($5,000 a unit)
($2.20 per
share).......... 3,139,500 4,000 5,706,000
Exercise of
options and
warrants--net
($.30-$.50 per
share).......... 412,754 489,000
Net (loss) for
year............
----- ------- ----- ------- ----- ------- ---------- ------- -----------
Balance--
December 31,
1992............ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 14,081,193 15,000 15,912,000
Exercise of
options and
warrants--net
($.30-$.50 per
share).......... 27,683 17,000
Net (loss) for
year............
----- ------- ----- ------- ----- ------- ---------- ------- -----------
Balance--
December 31,
1993............ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 14,108,876 15,000 15,929,000
Issuance of
common stock in
public
offering--net
($5,000 a unit)
($2.20 per
share).......... 5,393,200 5,000 6,380,000
Exercise of
warrants--net
($1.50 per
share).......... 500
Issuance of
common stock for
services
($0.3125 per
share).......... 240,000 75,000
Net (loss) for
year............
----- ------- ----- ------- ----- ------- ---------- ------- -----------
Balance--
December 31,
1994............ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 19,742,576 20,000 22,384,000
Exercise of
warrants--net
($1.50 per
share).......... 2,000 3,000
Exercise of
options ($0.4375
per share)...... 150,000 65,000
Value of options
issued to
consultants..... 591,000 $(493,000)
Value assigned
to warrants
issued in
private
placement of
debt
securities...... 200,000
Net (loss) for
year............
----- ------- ----- ------- ----- ------- ---------- ------- ----------- ---------
Balance--
December 31,
1995 (carried
forward)........ - 0 - - 0 - - 0 - - 0 - - 0 - - 0 - 19,894,576 20,000 23,243,000 (493,000)
<CAPTION>
DEFICIT
ACCUMULATED
DURING
DEVELOPMENT
STAGE
-------------
<S> <C>
Balance--
December 31,
1990 (brought
forward)........ $ (6,671,000)
Exercise of
options ($.30 a
share)..........
Net (loss) for
year............ (2,016,000)
-------------
Balance--
December 31,
1991............ (8,687,000)
Issuance of
common stock in
public
offering--net
($5,000 a unit)
($2.20 per
share)..........
Exercise of
options and
warrants--net
($.30-$.50 per
share)..........
Net (loss) for
year............ (2,451,000)
-------------
Balance--
December 31,
1992............ (11,138,000)
Exercise of
options and
warrants--net
($.30-$.50 per
share)..........
Net (loss) for
year............ (2,524,000)
-------------
Balance--
December 31,
1993............ (13,662,000)
Issuance of
common stock in
public
offering--net
($5,000 a unit)
($2.20 per
share)..........
Exercise of
warrants--net
($1.50 per
share)..........
Issuance of
common stock for
services
($0.3125 per
share)..........
Net (loss) for
year............ (3,609,000)
-------------
Balance--
December 31,
1994............ (17,271,000)
Exercise of
warrants--net
($1.50 per
share)..........
Exercise of
options ($0.4375
per share)......
Value of options
issued to
consultants.....
Value assigned
to warrants
issued in
private
placement of
debt
securities......
Net (loss) for
year............ (5,240,000)
-------------
Balance--
December 31,
1995 (carried
forward)........ (22,511,000)
</TABLE>

(continued)

F-6
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE PERIOD FROM DECEMBER 30, 1986 (INCEPTION) TO DECEMBER 31, 1996--
(CONTINUED)

The accompanying notes to financial statements are an integral part hereof.

F-7
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
DECEMBER 30,
1986
YEAR ENDED DECEMBER 31, (INCEPTION) TO
-------------------------------------- DECEMBER 31,
1996 1995 1994 1996
------------ ----------- ----------- --------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net (loss)............ $(19,860,000) $(5,240,000) $(3,609,000) $(42,371,000)
Adjustments to
reconcile net (loss)
to net cash (used in)
operating activities:
Depreciation and
amortization......... 155,000 24,000 10,000 254,000
Amortization of debt
discount............. 198,000 2,000 200,000
Interest expense
settled through
issuance of stock.... 72,000
Consulting fees
settled through
issuance of stock.... 75,000 75,000
Research and
development expenses
to be settled through
the issuance of
stock................ (464,000) 464,000
Provision for losses
on notes receivable.. 135,000
Investment in and
advances to research
and development
entities charged to
expense.............. 185,000 515,000 700,000
(Gain) on sale of
subsidiaries......... (2,889,000) (2,889,000)
Noncash compensation.. 481,000 98,000 579,000
Purchased in process
research and
development.......... 17,374,000 17,374,000
Loss from disposal of
equipment............ 12,000 20,000
Deferred financing
cost................. 310,000 310,000
Minority interest in
net loss............. (116,000) (116,000)
Changes in operating
assets and
liabilities:
Decrease in
prepayments under
research contracts.. 47,000 8,000
(Increase) in
organization costs.. (3,000)
(Increase) decrease
in other current
assets and other
assets.............. (103,000) 69,000 (110,000) (199,000)
Increase (decrease)
in accounts payable
and accrued
expenses............ (265,000) 266,000 1,000 116,000
------------ ----------- ----------- ------------
Net cash (used in)
operating
activities......... (5,167,000) (4,085,000) (3,110,000) (25,743,000)
------------ ----------- ----------- ------------
Cash flows from
investing activities:
Net (purchases) sales
of short-term
investments.......... (38,279,000) 2,590,000 (588,000) (38,279,000)
Payment for
acquisition, net of
cash acquired........ (2,011,000) (2,011,000)
Purchase of marketable
securities........... (450,000) (450,000)
Purchases of
equipment............ (802,000) (50,000) (71,000) (1,040,000)
Proceeds from sale of
equipment............ 12,000 39,000
Loans to DNA
Pharmaceuticals,
Inc.................. (296,000)
Repayment of DNA
Pharmaceuticals, Inc.
loans................ 161,000
Loans to Ribonetics
GmbH................. (600,000) (600,000)
Investment in and loan
to CambES, Ltd....... (100,000) (225,000) (325,000)
------------ ----------- ----------- ------------
Net cash provided by
(used in) investing
activities......... (41,530,000) 2,440,000 (1,484,000) (42,801,000)
------------ ----------- ----------- ------------
Cash flows from
financing activities:
Proceeds from sales of
preferred and common
stock, net........... 4,058,000 6,450,000 24,836,000
Proceeds from issuance
of common stock in
connection with the
exercise of
warrants/options..... 51,042,000 69,000 1,000 51,111,000
Purchase of treasury
stock................ (8,000)
Proceeds from bridge
loans................ 1,740,000 3,141,000
Repayment of bridge
loans................ (2,000,000) (2,500,000)
Issuance of
convertible demand
notes payable........ 600,000
Return of capital..... (14,000)
------------ ----------- ----------- ------------
Net cash provided by
financing
activities......... 53,100,000 1,809,000 6,451,000 77,166,000
------------ ----------- ----------- ------------
Effect of exchange rate
changes on cash....... (11,000) (11,000)
------------ ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS.. 6,392,000 164,000 1,857,000 8,611,000
Cash and cash
equivalents at
beginning of period... 2,219,000 2,055,000 198,000
------------ ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................ $ 8,611,000 $ 2,219,000 $ 2,055,000 $ 8,611,000
============ =========== =========== ============
Supplemental disclosure
of cash flow
information:
Cash paid for
interest............. $ 124,000 $ 124,000
For noncash
transactions see
Notes 2, 7 and 11.
</TABLE>

The accompanying notes to financial statements are an integral part hereof.

F-8
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

NOTE 1--THE BUSINESS:

VIMRx Pharmaceuticals Inc. ("VIMRx") is a development stage company focused
on identifying, evaluating, acquiring and commercializing scientific
technologies to be developed by the Company in partnership with others. The
Company is engaged in developing therapeutic and related products form
synthetic hypericin principally for the treatment of viral and retroviral
diseases. The Company also owns approximately 68% of the capital stock of
Innovir Laboratories, Inc. ("Innovir") (see below) which, together with its
subsidiaries, is engaged in the research and development of oligozymes, a new
class of biopharmaceutical agents for the treatment of a wide array of human
diseases.

In January 1995, to complement and diversify its potential hypericin-based
product line, VIMRx, through its subsidiary, VIMRx Holdings, Ltd. ("VHL"),
acquired a worldwide exclusive license from Ribonetics GmbH ("Ribonetics"), a
German company. The worldwide exclusive license gives VHL the right to
commercialize and exploit oligozymes for pharmaceutical and diagnostic
products. On May 23, 1996, VHL acquired 100% of the outstanding capital stock
of Ribonetics (see Note 2[b]).

On December 23, 1996, VIMRx and Innovir and certain shareholders of Innovir
entered into a series of agreements (the "Transaction") whereby VIMRx
effectively acquired 68% of Innovir and Innovir acquired all of the issued and
outstanding shares of VHL, a wholly owned subsidiary of VIMRx. As discussed
further in Note 2, for financial reporting purposes, the Transaction has been
accounted for as a partial sale of VHL to Innovir and a partial acquisition of
Innovir. In connection therewith, the purchase price has been allocated to net
tangible assets, purchased in-process research and development and goodwill.
The purchased in-process research and development was charged to operations.
The accompanying consolidated financial statements include the accounts of
VIMRx, Innovir and all subsidiaries which are wholly owned (collectively, the
"Company").

The Company is subject to those risks associated with development stage
companies. All of the Company's efforts to date have been devoted to acquiring
technology, research and development, setting up laboratories and raising
capital. The Company does not yet generate any revenues from product sales.
The Company has research laboratories in the United States, the United Kingdom
and Germany. In addition, research and development and clinical trials are
contracted to independent institutions in the United States and elsewhere.

NOTE 2--ACQUISITIONS:

(a) Transactions to acquire 68% of Innovir Laboratories, Inc.:

As discussed in Note 1, VIMRx, Innovir and certain stockholders of Innovir
(the "Aries Funds") entered into the Transaction whereby VIMRx acquired 68% of
Innovir and Innovir acquired 100% of the outstanding capital stock of VHL. In
consideration of the acquisition of VHL, Innovir, on December 23, 1996, issued
8,666,666 shares of a newly designated series of preferred stock, Class D
convertible preferred stock and warrants to purchase two million shares of the
Innovir's common stock. The warrants expire after five years. The exercise
price for one million warrants is $1.00 per share; the remaining one million
warrants have an exercise price of $2.00 per share.

Simultaneously with Innovir's acquisition of VHL, VIMRx, in exchange for $3
million and three million shares of VIMRx's common stock, acquired 9.5 million
shares of Innovir's common stock from the Aries Funds. In addition, VIMRx and
the Aries Funds entered into an agreement whereby VIMRx obtained the right to
vote 500,000 shares of Innovir's common stock held by the Aries Funds, thereby
effectively giving VIMRx voting control of an aggregate of 18,666,666 shares
of Innovir's stock.

F-9
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

VIMRx's partial acquisition of Innovir and Innovir's acquisition of VHL,
have been accounted for as a purchase in accordance with APB Opinion No. 16,
"Business Combinations" ("APB No. 16") and Emerging Issues Task Force Issue
No. 90-13, "Accounting for Simultaneous Common Control Mergers" ("EITF No. 90-
13"). The application of APB No. 16 and EITF No. 90-13 requires that the
Transaction be accounted for as a partial sale of VHL to the minority
shareholders of Innovir and a partial acquisition of Innovir. VIMRx's purchase
price of its 68% of Innovir totaled approximately $17 million. Of the total
purchase price, approximately $3.7 million was allocated to tangible assets,
$1.8 million to liabilities, $13.8 million to purchased in-process research
and development and the balance to goodwill. Technological feasibility of the
purchased in-process research and development has not yet been established and
the technology has no alternative future use. In connection with the partial
sale of VHL, the Company recorded a gain on $2.8 million which has been
included with purchased research and development expense. The accompanying
statement of operations include the operations of Innovir from December 23,
1996 to December 31, 1996.

(b) Acquisition of Ribonetics:

During 1996, VHL acquired 100% of the outstanding capital stock of
Ribonetics in consideration for approximately $1.6 million of cash and a
warrant to purchase 365,000 shares of VIMRx's common stock at an exercise
price of $.01 per share (the "Acquisition"). The Company valued the warrants
at approximately $1,562,000. The Acquisition has been accounted for as a
purchase and the operating results of the Company include those of Ribonetics
for the seven months ended December 31, 1996. The total purchase price
aggregated approximately $3.7 million and has been allocated to tangible
assets, liabilities and purchased in-process research and development of
$475,000, $289,000 and $3,528,000, respectively. It was determined at the date
of acquisition that the purchased in-process research and development had not
reached technological feasibility and that the technology had no alternative
future use.

The following pro forma unaudited results of operations have been prepared
as if the Transaction and the Acquisition discussed above had occurred at the
beginning of the respective periods ended December 31.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues............................................. $ 2,089,000 $ 470,000
Expenses............................................. 17,367,000 12,021,000
----------- -----------
Net loss............................................. $15,278,000 $11,551,000
=========== ===========
Net loss per share................................... $ 0.36 $ 0.51
=========== ===========
</TABLE>

The pro forma results of operations above include adjustments for the
amortization of intangibles and exclude nonrecurring charges related to
purchased in-process research and development arising from the Transaction and
the Acquisition.

The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the Transaction and the
Acquisition been consummated at the beginning of the respective periods, nor
are they necessarily indicative of future operating results.

F-10
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(a) Consolidation:

The accompanying consolidated financial statements include the accounts of
VIMRx, Innovir and all subsidiaries which are wholly owned. All significant
inter-company balances and transactions have been eliminated.

(b) Research and development:

Research and development costs are charged to expense as incurred.

Financial statements of foreign subsidiaries are translated into U.S.
dollars at the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses and gains and losses. Where the local currency is the functional
currency, translation adjustments are recorded as a separate component of
shareholders' equity (deficit). Where the U.S. dollar is the functional
currency, translation adjustments are included in operating results. Foreign
exchange gains and losses included in operations were not material. As of
December 31, 1996, approximately 2% and approximately 3% of the Company's
total assets are located in the United Kingdom and Germany, respectively.

(d) Amortization of goodwill:

Goodwill represents the excess of the purchase price paid by the Company
over 68% of the fair value of the net assets and purchased in-process research
and development of Innovir. Such amount is being amortized on a straight-line
basis over the period of expected benefit of three years. Total amortization
of goodwill for the year ended December 31, 1996 was not material. The
carrying value of goodwill will be reviewed periodically based on the
advancement of Innovir's technology and the continued employment of Innovir's
workforce and consultants. Should this review indicate that goodwill will not
be realized, the Company's carrying value of the goodwill will be reduced.

(e) Fixed assets:

Fixed assets consist of office and laboratory equipment and leasehold
improvements stated at cost. Equipment is depreciated on a straight-line basis
over its estimated useful life of five years. Leasehold improvements are
amortized over the life of the lease or of the improvement, whichever is
shorter. Expenditures for maintenance and repairs which do not materially
extend the useful lives of the assets are charged to operations as incurred.
The cost and related accumulated depreciation or amortization of assets
retired or sold are removed from the respective accounts and any gain or loss
is recognized in operations.

(f) Deferred financing costs:

Direct costs associated with obtaining debt financing have been capitalized
and are being amortized on a basis which approximates the interest method,
over the terms of the respective loans.

(g) Cash and cash equivalents:

The Company considers all highly liquid debt instruments which have
maturities of three months or less when acquired to be cash equivalents. The
carrying amount reported in the balance sheet for cash and cash

F-11
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

equivalents approximates its fair value. Cash and cash equivalents subject the
Company to concentrations of credit risk. At December 31, 1996, the Company
had invested approximately $6.6 million in money market funds with two
investment companies and held approximately $1.7 million of commercial paper
issued by four entities, with maturities not in excess of three months. The
Company holds no collateral for these financial instruments.

(h) Investments:

The Company classifies certain investments as "available-for-sale".
Investments in securities that are classified as available-for-sale and have
readily determinable fair values are measured at fair market value in the
balance sheet, and unrealized holding gains and losses for these investments
are reported as a separate component of shareholders' equity until realized.

(i) Net loss per share:

Net loss per share is computed on the basis of the net loss for the period
divided by the weighted average number of shares of common stock outstanding
during the period. The net loss per share for all periods excludes the number
of shares issuable upon exercise of the outstanding options and warrants since
such inclusion would be anti-dilutive.

(j) Government grants:

Proceeds from government grants are recognized as income as the related
research is performed. For the year ended December 31, 1996, approximately
$90,000 was recognized as income and is included in other income.

(k) Use of estimates:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

(l) Income taxes:

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined on the basis of the difference between
tax bases of assets and liabilities and their respective financial-reporting
amounts ("temporary differences") at enacted tax rates in effect for the year
in which the temporary differences are expected to reverse (see Note 12).

(m) Stock based employee compensation:

The accompanying financial position and results of operations of the Company
have been prepared in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). Under APB No. 25, generally, no
compensation expense is recognized in the accompanying financial statements in
connection with the awarding of stock option grants to employees provided
that, as of the grant date, all terms associated with the award are fixed and
the quoted market price of the Company's stock, as of the grant date, is not
greater than the amount an employee must pay to acquire the stock as defined;
however, to the extent that

F-12
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

stock options are granted to nonemployees for goods or services, the fair
value of these options are included in operating results as an expense.

Disclosures required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), including pro
forma operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation, have been included in Note 11(b).

(n) Fair value of financial instruments:

Financial instruments include notes receivable and accounts payable. The
carrying amount of these instruments approximate fair value due either to
their short-term nature or because the Company believes the instrument could
be exchanged in a current transaction for that carrying amount (also see Note
10).

(o) Reclassifications:

Certain reclassifications have been made to the financial statements for
1995 in order to conform with current year's presentation.

NOTE 4--RESEARCH CONTRACTS:

(a) Pursuant to an agreement with New York University ("NYU") and Yeda
Research and Development Co., Ltd. ("Yeda"), located in Israel, (NYU and Yeda,
collectively, the "Licensors"), the Licensors granted VIMRx a worldwide
exclusive license to commercialize and exploit natural hypericin and synthetic
hypericin compounds to inactivate viruses and retro-viruses as a therapeutic
or preventive treatment for viral or retroviral diseases, and for anti-glioma
(brain tumor) indications. Between 1988 and May 1995, VIMRx paid the Licensors
an aggregate of approximately $4,928,000 for research and development with
respect to hypericin, and approximately $434,000 for reimbursement of patent
expenses and approximately $300,000 in minimum royalty payments since June 1,
1993. The agreement requires VIMRx to protect the Licensors and their related
parties (consultants and scientists) from damages arising out of the conduct
of the research project and the use or practice of the research technology,
products or processes by VIMRx or its related parties. VIMRx must also
maintain employer's liability insurance for all its employees engaged in work
involving the research project.

In addition, the Company is required to make royalty and related payments to
licensors under the agreement consisting of: (1) royalties of 7% on net sales
of products licensed; (2) royalties of 4.4% on net sales of products
sublicensed; (3) 40% of payments from third parties to Fund research and
development and (4) 12% of consideration received from an entity selling
licensed products.

Commencing June 1, 1993, minimum annual royalty payments of $100,000 are due
until the later of the expiration of the Licensors' patents or 15 years from
the first commercial sale of products under the agreement. During 1996, 1995
and 1994, such payments were made.

(b) On March 7, 1995, VHL entered into a one year research and development
agreement with Ribonetics with respect to rights and the related technology
acquired from Ribonetics. During 1995, approximately $1,050,000 of such
funding was made. The agreement provides for the issuance by the Company of
500,000 shares of its common stock at the anniversary date of the research and
development agreement. However, should the agreement be terminated prior to
any anniversary date the unissued shares shall not be payable. At December 31,
1995 a liability of $464,000 reflecting this agreement has been recorded based
on the pro rata shares earned at the current market price, and research and
development expense had been charged.

F-13
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

In 1996, VHL terminated its research and development agreement with
Ribonetics resulting in a reversal of the accrual for payments of common stock
under that agreement.

(c) Innovir (as licensee) has entered into an exclusive worldwide licensing
agreement with a university whereby Innovir has the exclusive right to use
certain technology owned by the university. According to the terms of the
agreement, as amended, Innovir is required to pay royalties which commence one
year after the first sale of a product developed from the licensed technology.
Such royalties are based upon the greater of annual minimum royalties, as
defined, or a percentage of net sales of licensed products and a portion of
sublicensing income, as defined. Annual minimum royalties are not material.
The licensing agreement expires on a country by country basis as underlying
patents expire in such country. In addition, the license may be terminated in
the event that Innovir fails to implement a plan directed at development and
commercialization of products based on the licensed technology or if Innovir
fails to satisfy certain other contractual obligations. In the event of
termination, all licensing rights under the agreement would revert to the
university. The termination of the license would have a material adverse
effect on the business of Innovir. Although Innovir intends to use its best
efforts to comply with the terms of the license, there can be no assurance
that the licensing agreement will not be terminated. Innovir believes, based
on the opinion of counsel, that the use of this licensed technology does not
infringe on a patent held by a third party. Nevertheless, there can be no
assurance that infringement proceedings will not be brought against Innovir.

In April 1994, Innovir (as licensee) entered into another non-exclusive
licensing agreement with a university whereby Innovir has the non-exclusive,
non-transferable right to use certain technology owned by the university.
According to the terms of this agreement, Innovir is required to remit
royalties on a quarterly basis, at various rates, as defined, beginning after
the first commercial sale of a licensed product, as defined. In addition,
Innovir is required to pay a minimum annual advance on earned royalties
("Advance") of $10,000, which is nonrefundable, but may be credited, as
defined, against future royalties due the university. Advances paid to date
have not been material. Royalties shall continue to be payable, irrespective
of the termination of this license agreement, until such time as all sales of
licensed products shall have ceased.

During 1996, VHL entered into a research collaboration and licensing
agreement with a pharmaceutical company ("Pharmaceutical Company"). Under the
terms of the agreement, the Pharmaceutical Company and VHL will jointly
develop certain technology and the Pharmaceutical Company obtained certain
rights to the technology or received a defined royalty in the event VHL
licenses the technology to a third party. The agreement also provides for the
Pharmaceutical Company to make defined payments to VHL upon the occurrence of
certain events related to the technology's development and the achievement of
defined milestones. The agreement is for one year unless extended by the
parties. During the year ended December 31, 1996, VHL received $40,000 from
the Pharmaceutical Company in accordance with the agreement. Such amount has
been included in other income.

NOTE 5--INVESTMENTS:

Securities available for sale at December 31, 1996 are summarized as
follows:

<TABLE>
<CAPTION>
ESTIMATED UNREALIZED
COST FAIR VALUE GAIN (LOSS)
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury and agencies............... $ 4,867,000 $ 4,845,000 $(22,000)
Mortgage-backed securities............... 17,548,000 17,583,000 35,000
Asset-backed securities.................. 11,181,000 11,182,000 1,000
Corporate debt securities................ 4,683,000 4,690,000 7,000
----------- ----------- --------
$38,279,000 $38,300,000 $ 21,000
=========== =========== ========
</TABLE>

F-14
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

During the year ended December 31, 1996 and December 31, 1994, the Company
realized a gain (loss) of approximately $272,000 and ($74,000), respectively,
on the sale of available-for-sale investments, included in other income.

The cost and estimated fair value of available for sale securities by
contractual maturity at December 31, 1996 is as follows:

<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due after one year through five years............... $14,098,000 $14,083,000
Due after five years through ten years.............. 5,721,000 5,719,000
Due after ten years................................. 912,000 915,000
Mortgage-backed securities.......................... 17,548,000 17,583,000
----------- -----------
$38,279,000 $38,300,000
=========== ===========
</TABLE>

Expected maturities may differ from contractual maturities because the
issuers of the securities may have the right to repay obligations without
repayment penalties.

During 1996, the Company purchased for $800,000 an aggregate of 457,143
shares of the common stock of Epoch Pharmaceuticals, Inc. ("Epoch"), warrants
to purchase 450,000 shares of Epoch's common stock at $2.00 per share and
warrants to purchase an additional 450,000 common shares at $3.00 per share,
which warrants expire on October 1, 1997 and October 1, 1998, respectively. In
connection therewith, Epoch released the Company and its affiliates from any
claims Epoch might have with respect to the Innovir's subsidiary, Ribonetics.
During 1996, the Company recorded a charge to operations of $350,000
representing the excess over the fair value of securities at the date of
purchase. On December 31, 1996, the Company recorded an unrealized loss of
$164,000 on this investment which has been included as a reduction of
shareholders' equity.

NOTE 6--EQUIPMENT:

Equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
---------- --------
<S> <C> <C>
Office and laboratory equipment......................... $2,042,000 $ 91,000
Computers............................................... 114,000 57,000
Leasehold improvements.................................. 689,000
---------- --------
2,845,000 148,000
Less accumulated depreciation and amortization.......... 195,000 40,000
---------- --------
Net equipment........................................... $2,650,000 $108,000
========== ========
</TABLE>

NOTE 7--NOTES RECEIVABLE:

Notes receivable, at December 31, 1995, consist of two notes of $250,000,
each bearing interest at 12.5%, due on December 7, 1994 and January 21, 1995,
respectively, and a $250,000 unsecured demand note bearing interest at 10%
from Ribonetics. The notes were collateralized by laboratory equipment and a
license for certain patent rights. At December 31, 1995 and December 31, 1994,
$85,000 and $290,000, respectively, of the notes were charged to expense. On
January 16, 1995, the Company assigned its rights to the notes and related

F-15
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

agreements to VHL. On January 18, 1995, VHL took possession of the license in
return for $150,000 of the notes which have been included in research and
development expense as of December 31, 1994. No interest income was recognized
for these notes for 1996, 1995 and 1994. The carrying value of these notes was
included in the purchase price when the Company acquired Ribonetics as
discussed in Note 2.

NOTE 8--ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
---------- --------
<S> <C> <C>
Accounts payable........................................ $ 859,000 $136,000
Accrued expenses........................................ 435,000
Accrued payroll and related costs....................... 42,000
Professional fees....................................... 567,000 296,000
---------- --------
$1,903,000 $432,000
========== ========
</TABLE>

NOTE 9--NOTES PAYABLE:

In December 1995, the Company issued $2,000,000 of unsecured promissory
notes due at the earlier of one year or five days following a sale of equity
securities of the Company, grossing proceeds of at least $2,000,000. The notes
were issued in connection with a private placement of units, each unit
consisting of a $50,000 unsecured promissory note bearing interest at a rate
of 12% per annum (effective interest rate 24%) and 25,000 warrants ("bridge
warrants") of the Company. The Company valued the warrants issued at $200,000
which has been accounted for as debt discount. The warrants contained
provisions that in the event the Company consummates a public or private
placement of its equity securities prior to December 26, 1998 which includes
warrants ("new warrants"), then the bridge warrants would convert into new
warrants. Effective with the private placement in 1996 (see Note 11), the
bridge warrants were converted into new warrants. On June 28, 1996, the
Company repaid the notes and accrued interest. The debt discount was recorded
as interest expense.

NOTE 10--INNOVIR NOTE PAYABLE--WARRANTHOLDER:

The term note provides for interest, payable quarterly at a rate of 8% per
annum. The noteholder holds a lein on all the assets of Innovir. In connection
with the issuance of the term note, Innovir issued a warrant which provides
the holder with the right to acquire an aggregate of 40,000 shares of
Innovir's common stock at $6.25 per share. Any accrued and unpaid interest
($44,000 as of December 31, 1996) related to the term note may also be used to
acquire additional shares of common stock at a price of $6.25 per share. The
warrant expires on February 10, 1998 and contains anti-dilution provisions and
other defined adjustments in the event of a merger or reorganization, as
defined. As of December 31, 1996, the warrant was exercisable and outstanding.
The estimated fair value of the term note at December 31, 1996 was
approximately $200,000. The fair value was estimated on the basis of the
current rate of debt with similar characteristics.

In addition, during November 1996, the payment terms of the term note were
amended. (the "Amended Note") and related accrued and unpaid interest as of
that date was deferred. In consideration for such amendment, Innovir issued a
second warrant, which expires on November 21, 2001, to the noteholder to
purchase 20,000 shares of the Company's common stock at $1.50 per share. The
fair value of the warrant totaled approximately $16,000. Such amount is being
accounted for as deferred financing cost and amortized over the

F-16
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

remaining life of the Amended Note. Pursuant to the Amended Note, future
payments of principal and deferred interest are as follows:

<TABLE>
<CAPTION>
YEAR ENDING FUTURE
DECEMBER 31, PAYMENTS
------------ --------
<S> <C>
1997............................................................. $ 36,000
1998............................................................. 130,000
1999............................................................. 97,000
--------
$263,000
========
</TABLE>

Interest expense with regard to the Amended Note was not material for all
periods presented.

NOTE 11--SHAREHOLDERS' EQUITY:

(a) Public offerings:

On July 25, 1990, the Company effected an initial public offering of its
securities. A total of 1,150,000 units, each comprised of five shares of
common stock and five redeemable Class A warrants, were sold for $5.00 a unit,
yielding net proceeds of approximately $4,546,000 after underwriting
commissions and expenses.

Prior to the initial public offering, the Company was recapitalized, whereby
all outstanding preferred stock was converted into common stock, the treasury
stock was retired, the par value of the common stock was changed from $0.01 to
$0.001 a share, and the Company effected a .599-for-1 reverse stock split.

On January 23, 1992, the Company effected a second public offering of its
securities. A total of 1,380 units, each comprised of 2,275 shares of common
stock and 2,275 redeemable Class A warrants, were sold for $5,000 a unit
during January and February of 1992. This offering yielded net proceeds of
approximately $5,710,000 after underwriting commissions and expenses.

On January 27, 1994, the Company effected a third public offering of its
securities. A total of 1,552 units, each comprised of 3,475 shares of common
stock and 3,475 redeemable Class A warrants, were sold for $5,000 a unit,
yielding net proceeds of approximately $6,385,000 after underwriting
commissions and expenses.

On April 9, 1996, the Company exercised its right to redeem all outstanding
redeemable Class A warrants (the "Class A warrants") on May 10, 1996 (the
"Redemption Date"). Between January 1, 1996 and the Redemption Date,
approximately 13,900,000 Class A warrants were exercised resulting in the
issue of one share of common stock and one redeemable Class B warrant (the
"Class B warrant") for $1.50. On April 25, 1996, the Company exercised its
right to redeem all outstanding Class B warrants on June 13, 1996 (the "B
Class Redemption Date"). Between January 1, 1996 and the B Class Redemption
Date, approximately 14,200,000 Class B warrants were exercised, resulting in
the issuance of one share of common stock for $2.25. The exercise of Class A
and B warrants yielded net proceeds of approximately $50,847,000 after
commissions of $1,949,000 to an investment firm.

On March 21, 1996, VIMRx entered into a Subscription and Registration Rights
Agreement (the "Agreement") with a group of individuals, under which the
Company agreed to issue 2,799,991 units, at a price of $1.50 per unit,
consisting of one share of common stock and one-half of a warrant. Each
warrant entitles the holder to purchase one share of common stock at an
exercise price of $1.50 per share subject to adjustment, and exercisable
through June 20, 2006. The net proceeds to the Company were approximately
$4,058,000.

F-17
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

On June 21, 1996, the authorized capital stock of the Company was increased
from 60,000,000 to 120,000,000 shares of common stock.

(b) Stock option plans:

The Company has established two employee stock option plans (the "1989 Plan"
and the "1990 Plan"). No further options may be granted under the 1989 Plan.
On June 20, 1996, the 1990 Plan was amended increasing the number of shares of
common stock issuable upon exercise of options granted under the Plan from
1,200,000 to 2,400,000 shares. The shares of common stock are reserved for
issuance upon exercise of either incentive or nonincentive options, which may
be granted from time to time by a committee of the Board of Directors to
employees and others. The terms of each incentive option and nonincentive
option are for five years and ten years, respectively, from date of grant. The
grant prices must be no less than 50% and 100% of the fair market value for
nonincentive and incentive options, respectively. At December 31, 1996,
options for 411,900 shares were available for future grant. Generally, options
vest 25% per annum on the anniversary date of grant.

Stock options outstanding under these plans are as follows:

<TABLE>
<CAPTION>
1989 PLAN 1990 PLAN
------------------ ---------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993...... 15,594 520,808
Granted............................. 1,545,146 $0.87
Expired............................. (1,755,954) 0.80
------- ----------
Outstanding at December 31, 1994...... 15,594 310,000
Granted............................. 250,000 0.44
Expired............................. (15,594) $0.50 (135,500) 1.59
Exercised........................... (150,000) 0.44
------- ----------
Outstanding at December 31, 1995...... -0- 274,500
Granted............................. 1,475,000 2.71
Exercised........................... (12,000) 1.16
------- ---------- -----
Outstanding at December 31, 1996...... -0- 1,737,500 $2.34
======= ========== =====
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1996 under the 1990 Plan:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------- ---------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL AVERAGE AVERAGE
NUMBER LIFE EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- ----------------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
.44-- .69........... 250,000 2.88 $ .59 100,000 $0.63
1.38--1.66........... 187,500 3.95 1.64 12,500 1.38
2.56--3.31........... 1,300,000 4.41 2.85
--------- ---- ----- ------- -----
1,737,500 4.14 $2.34 112,500 $1.46
========= ==== ===== ======= =====
</TABLE>

F-18
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

In August 1995, the Company adopted a Directors Stock Option Plan (the
"Directors Plan") authorizing the issuance of five year options to purchase an
aggregate of 920,000 shares at an exercise price equal to the fair market
value of the common stock at date of grant. All the options were granted under
the Directors Plan and no further options are available for grant.

Additional information with respect to the Directors Plan option activity is
summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
-------- ---------
<S> <C> <C>
Granted.................................................. 920,000 $0.86
--------
Outstanding at December 31, 1995......................... 920,000 0.86
Exercised................................................ (200,000) 0.89
-------- -----
Outstanding at December 31, 1996......................... 720,000 $0.85
======== =====
</TABLE>

At December 31, 1996, all the options under the Directors Plan are
exercisable.

The following table summarizes information about stock options outstanding
at December 31, 1996 under the Directors Plan:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
EXERCISE NUMBER LIFE
PRICE OUTSTANDING (IN YEARS)
-------- ----------- -----------
<S> <C> <C>
$.75................................................. 350,000 3.67
.9375............................................... 370,000 3.88
------- ----
720,000 3.80
======= ====
</TABLE>

The Company applies APB 25 in accounting for its stock option incentive plan
and, accordingly, recognizes compensation expense for the difference between
the fair value of the underlying common stock and the grant price of the
option at the date of grant. The effect of applying SFAS No. 123 on 1995 and
1996 pro forma net loss as stated above is not necessarily representative of
the effects on reported net loss for future years due to, among other things,
(1) the vesting period of the stock options and the (2) fair value of
additional stock options in future years. Had compensation cost for the
Company's stock option plans been determined based upon the fair value at the
grant date for awards under the plans consistent with the methodology
prescribed under SFAS No. 123, the Company's net loss in 1996 and 1995 would
have been approximately $20.948 million and $5.28 million, or $.53 per share
and $.27 per share, respectively. The fair value of the options granted during
1996 and 1995 are estimated at $2.20 per share and $.61 per share,
respectively, on the date of grant using the Black-Scholes option-pricing
model with the following assumptions: dividend yield of 0%, volatility of
1.10%, risk-free interest rate of 6.10%-6.73% for 1996 and 5.77%-7.08% for
1995, and expected life of 5 years.

On June 21, 1996, the Company adopted the 1996 Nonemployee Director
Restricted Stock Award Plan (the "Award Plan") under which an aggregate of
900,000 shares of common stock are reserved for issuance as restricted shares
of common stock to nonemployer directors. Restricted shares shall be forfeited
by the

F-19
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

nonemployee director in the event the director ceases to serve as director of
the Company, except that such forfeiture provision will lapse at a rate of 25%
of the number of restricted shares per annum commencing one year from the date
of issuance.

The Company has the right of first refusal to purchase any vested restricted
shares proposed to be transferred by a nonemployee director for a period of 30
days after receipt of written notice at a per share price equal to the
difference between the fair market value at the date of proposed transfer
minus the difference between the fair market value at the date of grant less
$1.00. During the year ended December 31, 1996, the Company granted 400,000
restricted shares under the Award Plan, none of which have vested. The Company
valued these shares at $400,000, which is being amortized over the vesting
period.

(d) Warrants to acquire common stock:

As of December 31, 1996, the Company had warrants to purchase 2,400,000
shares of common stock at an exercise price of $1.50 per share, exercisable
through June 20, 2006 (see Notes 9 and 11).

In addition, at December 31, 1996 the Company has warrants to purchase
365,000 shares of common stock at an exercise price of $.01 per share,
exercisable through May 21, 2006 (see Note 2[b]).

As of December 31, 1996 there were 2,765,000 warrants exercisable at a
weighted-average exercise price of $1.30.

(e) Other options:

In connection with its public offerings, the Company sold to the
underwriter, at a nominal amount, the following options for the purchase of
units:

<TABLE>
<CAPTION>
NUMBER EXERCISE NUMBER OF
OF PRICE SHARES
UNITS PER UNIT RESERVED EXPIRATION DATE
------ -------- --------- ----------------
<S> <C> <C> <C> <C>
1992 offering..................... 120 $8,000 819,000 July 24, 1997
1994 offering..................... 135 7,000 1,407,374 January 20, 1999
</TABLE>

The units are identical to the units sold in the respective offerings except
that the warrants included therein, which expire on July 24, 1997, are not
subject to redemption by the Company. The units are subject to adjustment for
dilution (as defined). Each Class A warrant entitles the holder to purchase a
unit consisting of one share of common stock and one redeemable Class B
detachable warrant. Each Class B warrant entitles the holder to purchase one
share of common stock.

The Company has granted stock options to certain consultants, who are also
directors, of the Company as follows:

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE TERM EXPIRATION DATE
--------- -------- -------- --------------------
<S> <C> <C> <C>
1,300,000............................. $0.94 5 years November 17, 2000(1)
2,000,000............................. 0.53 3 years August 6, 1998(1)
100,000............................. 1.47 10 years March 11, 2006(2)
100,000............................. 1.47 10 years March 11, 2006(2)
</TABLE>
- --------
(1) During 1995 the Company valued these options at an aggregate of $591,000
which are being amortized over the vesting period.
(2) Options granted in connection with the March 1996 agreement (see Note 11
[a]) whereby certain directors agreed to provide operating funds if needed
through September 1996.

F-20
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

NOTE 12--INCOME TAXES:

There is no provision (benefit) for federal, state or local income taxes for
all periods presented, since the Company has incurred operating losses since
inception and has established a valuation allowance equal to the total
deferred tax asset.

The federal tax effect of net operating loss carryforwards, temporary
differences and research and development tax credit carryforwards is as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Deferred tax assets and valuation allowance:
Net operating loss carryforwards.............. $ 15,947,000 $ 6,698,000
Deferred liabilities.......................... 40,000
Deferred costs................................ 285,000
Research and experimental tax credit
carryforwards................................ 570,000
Valuation allowance........................... (16,842,000) (6,698,000)
------------ -----------
$ -0- $ -0-
============ ===========
</TABLE>

As of December 31, 1996, the Company has available for tax purposes the
following net operating loss carryforwards:

<TABLE>
<S> <C>
United States (expires through 2011) (including approximately
$25,000,000 relating to Innovir)............................. $47,000,000
United Kingdom (no expiration date)........................... 970,000
Germany (no expiration date).................................. 1,700,000
</TABLE>

The Company's research and development tax credit carryforward of
approximately $570,000 expires in various years from 2005 through 2012 and is
subject to limitation due to a change in ownership pursuant to Section 382 of
the Internal Revenue Code.

At December 31, 1996 the Company had available net operating loss
carryforwards to reduce future taxable income of approximately $47,000,000.
The net operating loss carryforwards expire in various amounts through 2011.
The Company's ability to utilize $25,000,000 of its $47,000,000 net operating
loss carryforwards is subject to a cumulating, annual limitation of
approximately $1,200,000 pursuant to Section 382 of the Internal Revenue Code.
The $22,000,000 balance would become subject to limitation (the amount of
which would be based on the then value of the Company's outstanding shares) if
and when an "ownership change" (as defined in Section 382 of the Internal
Revenue Code) were to occur.

NOTE 13--RELATED PARTY TRANSACTIONS:

(a) Employment agreements:

On April 1, 1996 Innovir entered into an employment agreement with an
officer/stockholder ("officer") of Innovir expiring March 31, 1998, whereby
the officer has agreed to devote his full business time to Innovir to further
develop certain Company technology. The terms of the agreement provide for a
base salary of $200,000 per annum, adjusted annually, plus a key performance
bonus, as determined by Innovir's Board of Directors (the "Board"). In
addition, the agreement provides for the officer to supply certain equipment
to Innovir to be used during his term of employment. At the conclusion of
employment, the equipment will be returned to the officer.

F-21
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(b) Consulting agreements:

Innovir has several agreements with consultants, two of whom are
stockholders ("stockholders/ consultants") of Innovir. The consultants perform
services for Innovir in consideration for certain fees. The consultants have
also agreed to assign to Innovir any inventions, ideas, patents and copyrights
conceived if related to Innovir's business and provide other services as
defined in agreements. To date, fees paid to the stockholders/consultants have
not been material. Future minimum quarterly payments to the
stockholders/consultants are approximately $46,000 through March 31, 1998 and
$24,000 thereafter through March 31, 2000. Under certain conditions, Innovir
may have to pay additional amounts ("patent award"), as defined, in the event
the research performed by one of the consultants leads to the issuance of a
patent. Patent awards paid to date have not been material.

In April 1994, the Company retained MKS Enterprises Inc. ("MKS"), an entity
50% owned by one of the then Company's directors, to perform financial and
consulting services. In consideration, therefore, the Company paid $62,500 and
$112,500, respectively, in 1995 and 1994 and issued 240,000 shares of common
stock in December 1994 valued at $75,000. MKS was dissolved in 1995.

In 1994, the Company completed its purchase of 60,060 shares of preferred
stock of CambES, Ltd. ("CambES), a U.S. company, for $200,000 and provided
$50,000 of additional funding.

In April 1995, VIMRx acquired the debt and equity interest in CambES held by
Venkol Ventures, Ltd. and Venkol Ventures, L.P. (collectively, the "Venkol
Entities") for $100,000. The then Chairman of the Company is a general partner
of Venkol Ventures General Partners, L.P., which is the general partner of
Venkol Ventures, L.P. and a shareholder and advisor to Venkol Ventures, Ltd.

CambES has no material assets or liabilities at December 31, 1996, December
31, 1995 and December 31, 1994 and no material operations in 1996, 1995 and
1994.

NOTE 14--COMMITMENTS AND OTHER MATTERS:

(a) Research agreements:

The Company has entered into research fellowships and other agreements with
universities and institutions (the "Institutions"). Future payments aggregate
approximately $600,000 payable at various dates through June 1998. Under
certain conditions, the Company or the Institutions may terminate the
respective agreements with 30 or 60 days notice.

(b) Lease commitments:

Operating leases:

The Company leases various office and laboratory spaces under noncancelable
operating leases and subleases (the "Leases") expiring at periods between May
31, 1999 and June 30, 2001. In addition, the Company leases certain laboratory
space on a month-to-month basis. The Leases provide for escalations of the
minimum rent during the lease terms.

The Company also leases automobiles and office equipment under noncancelable
operating leases. The Leases expire at various times through June 2001.

F-22
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Future minimum rental payments under all operating leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDING MINIMUM
DECEMBER 31, ANNUAL RENTAL
------------ -------------
<S> <C>
1997....................................................... $ 534,000
1998....................................................... 553,000
1999....................................................... 312,000
2000....................................................... 80,000
2001....................................................... 39,000
----------
$1,518,000
==========
</TABLE>

Rent expense approximated $250,000, $107,000 and $31,000 for the years ended
December 31, 1996, December 31, 1995 and December 31, 1994, respectively.

Innovir was required by the terms of one of the leases to obtain the
required approval for the lessor prior to the consummation of the Transaction
discussed in Note 2 to the financial statements. Accordingly, the Company may
be considered to be in violation of the terms of the amended sublease, which
would also trigger certain cross default provisions contained in capital
leases obligations. The present value of long-term portion of the capital
lease obligations, which may be considered to be in default, totals
approximately $40,000. The accompanying financial statements reflect such
amount as a current liability.

Capital leases:

Innovir leases certain equipment under various noncancelable capital lease
agreements. Lease terms range from three to five years, after which Innovir
has the option to purchase the equipment at amounts defined by the respective
lease agreements. In lieu of purchasing the equipment, certain leases may be
extended for specified periods, at defined monthly payments. Upon expiration
of the extended lease terms, Innovir may purchase the equipment for one dollar
or must return the equipment to the lessor.

Certain capital leases, as amended (the "Amended Leases") contain various
covenants which include maintaining a minimum cash level, as defined, of
$250,000 during the term of the leases. This covenant indirectly restricts
Innovir's ability to pay dividends.

At December 31, 1996, minimum rental payments under all capital leases,
including payments to acquire leased equipment, are as follows:

<TABLE>
<CAPTION>
YEAR ENDING MINIMUM
DECEMBER 31, ANNUAL RENTAL
------------ -------------
<S> <C>
1997....................................................... $ 536,000
1998....................................................... 357,000
1999....................................................... 165,000
2000....................................................... 46,000
2001....................................................... 36,000
----------
1,140,000
Less amount representing interest.......................... 205,000
----------
Present value of net minimum capital lease payments........ $ 935,000
==========
</TABLE>

F-23
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Leased equipment included as a component of fixed assets was approximately
$1,387,000 at December 31, 1996; related accumulated depreciation was
approximately $405,000 for the same period. There was no leased equipment at
December 31, 1995.

NOTE 15--RETIREMENT PLANS:

Innovir adopted the provisions of two defined contribution retirement plans
(the "Plans"). The terms of the Plans, among other things, allow certain
eligible employees who have met certain age and service requirements to
participate in the Plans. Innovir has agreed to contribute defined amounts
("Contributions") to the plans. In addition, based upon Innovir's
profitability, Innovir may also make discretionary contributions to the Plans.
Contributions to date have not been material.

NOTE 16--CONTINGENCIES:

During February 1996, Innovir was named as a defendant in an action filed by
an investor alleging that Innovir refused to honor the investor's request to
convert certain shares of Innovir's common stock. During February 1997, the
investor and Innovir settled the action at no material cost to Innovir or to
the Company.

The Company is aware of patents in the United States and Europe held by an
unaffiliated third party relating to certain technology which may be infringed
by certain of VHL's oligozymes, in which event a license from such third party
would be required.

NOTE 17--FOREIGN OPERATIONS:

A summary of financial data of foreign subsidiaries included in the
consolidated financial statements as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Assets................................................. $ 853,000 $ 117,000
Liabilities............................................ 336,000 19,000
Net Loss............................................... 1,535,000 1,311,000
</TABLE>

NOTE 18--SUBSEQUENT EVENT:

On March 7, 1997 the Company entered into a research agreement with the
trustees of Columbia University in the City of New York ("Columbia") to fund
the Columbia Genome Center ("CGC"). In connection therewith VIMRx Genomics,
Inc. was formed (owned 90% by the Company and 10% by Columbia) to provide
$30,000,000 ($4.7 million to be paid during the first year in quarterly
installments) of funding for CGC related projects over five years. In
addition, the Company granted Columbia 200,000 shares of common stock.

F-24
<PAGE>

ANNEX C

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-19153

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

VIMRX PHARMACEUTICALS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 06-1192468
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

2751 CENTERVILLE ROAD, SUITE 210, 19808
WILMINGTON, DELAWARE (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)

Registrant's telephone number, including area code: (302) 998-1734

The aggregate number of Registrant's shares outstanding on August 11, 1997
was 55,358,676 shares of Common Stock, $.001 par value.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

VIMRX PHARMACEUTICALS INC.

INDEX

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 (unaudited) and
December 31, 1996............................................... C-3
Consolidated Statements of Operations (unaudited) for the Three
and Six Months Ended
June 30, 1997 and 1996, and for the Period from Inception
through June 30, 1997........................................... C-4
Consolidated Statements of Cash Flows (unaudited) for the Six
Months Ended June 30, 1997 and 1996, and for the Period from
Inception through June 30, 1997................................. C-5
Notes to Financial Statements (unaudited)........................ C-6
Management's Discussion and Analysis of Financial Condition and
Item 2. Results of Operations........................................... C-8
PART II--OTHER INFORMATION
Item 1. Legal Proceedings................................................ C-10
Item 2. Changes in Securities............................................ C-10
Item 3. Defaults upon Senior Securities.................................. C-10
Item 4. Submission of Matters to a Vote of Security Holders.............. C-10
Item 5. Other Information................................................ C-10
Item 6. Exhibits and Reports on Form 8-K................................. C-11
SIGNATURES................................................................ C-12
</TABLE>

C-2
<PAGE>

PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- ------------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 2,445 $ 8,611
Shortterm investments............................... 34,372 38,300
Other current assets................................ 246 348
-------- --------
Total current assets................................ 37,063 47,259
Equipment--net...................................... 3,096 2,650
Marketable equity securities........................ 286 286
Other assets........................................ 292 261
Goodwill............................................ 1,030 1,236
-------- --------
Total............................................. $ 41,767 $ 51,692
======== ========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses............... $ 1,845 $ 1,903
Term note payable--warrantholder.................... 36 36
Capital leases...................................... 472 472
-------- --------
Total current liabilities......................... 2,353 2,411
Term note payable--warrantholder...................... 227 227
Capital leases........................................ 292 463
-------- --------
Total liabilities................................. 2,872 3,101
-------- --------
Minority interest in subsidiary....................... 1,035 2,381
-------- --------
SHAREHOLDERS' EQUITY
Common stock; $0.001 par value, 120,000,000 shares
authorized, 55,187,387 and 54,429,887 shares issued
and outstanding at June 30, 1997 and December 31,
1996, respectively................................... 55 54
Additional paid-in capital............................ 90,649 89,478
Unearned compensation................................. (534) (800)
Unrealized (loss) on investment (167) (143)
Cumulative translation adjustment..................... (65) (8)
Deficit accumulated during the development stage...... (52,078) (42,371)
-------- --------
Total shareholders' equity........................ 37,860 46,210
-------- --------
Total............................................. $ 41,767 $ 51,692
======== ========
</TABLE>

C-3
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, DECEMBER 30, 1986
---------------------- ---------------------- (INCEPTION) TO
1997 1996 1997 1996 JUNE 30, 1997
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and
development.......... $ 3,497 $ 606 $ 6,714 $ 976 $22,653
Purchased research and
development.......... 600 2,942 1,800 2,942 16,284
Termination of
Agreement............ -- -- -- (464) --
General and
administrative....... 2,528 1,156 4,128 2,124 17,910
---------- ---------- ---------- ---------- -------
6,525 4,704 12,642 5,578 56,847
---------- ---------- ---------- ---------- -------
Other (income) expenses:
Royalty payments...... 50 -- 100 100 400
Interest (income)..... (601) (77) (1,282) (95) (4,233)
Interest expense...... 46 213 83 319 496
Provision for losses
on notes receivable.. -- -- -- -- 135
Investment in and
advances to research
and development
entities charged to
expense.............. -- -- -- -- 700
Minority interest in
net loss of
consolidated
subsidiary........... (929) -- (1,876) -- (1,992)
Other--net............ (64) -- 40 -- (275)
---------- ---------- ---------- ---------- -------
(1,498) 136 (2,935) 324 (4,769)
---------- ---------- ---------- ---------- -------
NET LOSS................ $ 5,027 $4,840 $ 9,707 $5,902 $52,078
========== ========== ========== ========== =======
NET LOSS PER SHARE...... $ .09 $ .11 $ .18 $ .18
---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER
OF SHARES OF COMMON
STOCK OUTSTANDING...... 54,770,848 43,157,768 54,626,741 32,336,359
========== ========== ========== ==========
</TABLE>

C-4
<PAGE>

VIMRX PHARMACEUTICALS INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS DECEMBER 30,
ENDED JUNE 30, 1986
---------------- (INCEPTION) TO
1997 1996 JUNE 30, 1997
------- ------- --------------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(9,707) $(5,902) $(52,078)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization................ 514 10 768
Amortization of debt discount................ 198 200
Interest expense settled through issuance of
stock....................................... 72
Consulting fees settled through issuance of
stock....................................... 41 75
Research and development expenses to be
settled through the issuance of stock....... (464)
Provision for losses on notes receivable..... 135
Investment in and advances to research and
development entities charged to expense..... 700
(Gain) on sale of subsidiaries............... (2,889)
Noncash compensation......................... 266 845
Purchased in process research and
development................................. 1,200 1,787 18,574
Loss from disposal of equipment.............. 20
Deferred financing cost...................... 310 310
Minority interest in net loss................ (1,846) (1,962)
Changes in operating assets and liabilities:
Decrease in prepayments under research
contracts (Increase) in organization
costs...................................... (3)
(Increase) decrease in other current assets
and other assets........................... 70 42 (129)
Increase (decrease) in accounts payable and
accrued expenses........................... (58) 74 58
------- ------- --------
Net cash (used in) operating activities.... (9,561) (3,904) (35,304)
------- ------- --------
Cash flows from investing activities:
Net (purchases) sales of short-term
investments................................. 3,904 (34,375)
Payment for acquisition, net of cash
acquired.................................... (2,011)
Purchase of marketable securities............ (450)
Purchases of equipment....................... (754) (385) (1,794)
Proceeds from sale of equipment.............. 39
Loans to DNA Pharmaceuticals, Inc............ (296)
Repayment of DNA Pharmaceuticals, Inc.
loans....................................... 161
Loans to Ribonetics GmbH..................... (600)
Investment in and loan to CambES, Ltd........ (325)
------- ------- --------
Net cash provided by (used in) investing
activities................................ 3,150 (385) (39,651)
------- ------- --------
Cash flows from financing activities:
Proceeds from sales of preferred and common
stock, net.................................. 4,200 24,836
Proceeds from issuance of common stock in
connection with the exercise of
warrants/options............................ 472 51,873 51,583
Purchase of treasury stock................... (8)
Proceeds from bridge loans................... 3,141
Repayment of bridge loans.................... (2,000) (2,500)
Repayment of leased obligations.............. (171) (171)
Issuance of convertible demand notes
payable..................................... 600
Return of capital............................ (14)
------- ------- --------
Net cash provided by financing activities.. 301 54,073 77,467
------- ------- --------
Effect of exchange rate used in changes on
cash......................................... (56) (67)
------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. (6,166) 49,784 2,445
Cash and cash equivalents at beginning of
period....................................... 8,611 2,219
------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 2,445 $52,003 $ 2,445
======= ======= ========
</TABLE>

C-5
<PAGE>

VIMRX PHARMACEUTICALS INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 1997 (UNAUDITED)

(1) FINANCIAL STATEMENT PRESENTATION

The unaudited financial statements of VIMRx Pharmaceuticals Inc. and
subsidiaries (the "Company") herein have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC) and, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the results of operations for
the interim periods presented. 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 such rules and regulations. However, management believes that the
disclosures are adequate to make the information presented not misleading.
These financial statements and the notes thereto should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996. The
results for the interim periods are not necessarily indicative of the results
for the full fiscal year.

(2) PRINCIPLE OF CONSOLIDATION

Consolidated Financial Statements include the accounts of VIMRx
Pharmaceuticals Inc., Innovir Laboratories, Inc., and all subsidiaries which
are at least majority owned. All significant inter-company transactions and
balances have been eliminated.

(3) CASH FLOWS AND SUPPLEMENTAL CASH FLOW DISCLOSURES

For purposes of the statements of cash flows, the Company considers
investments with original maturities of up to 90 days to be cash equivalents.

(4) ROYALTY PAYMENTS

Royalty payments represents the annual $100,000 minimum royalty payment
under the Company's license agreement with New York University Medical Center
and the Weizmann Institute of Science in Israel.

(5) RESEARCH AGREEMENTS

On March 7, 1997, the Company entered into a research agreement with
Columbia University whereby the Company, through a newly established
subsidiary, VIMRx Genomics, Inc., will provide $30 million in funding to
Columbia over the next five years at approximately $6 million per year in
exchange for the right to exclusively license technology developed by
Columbia. Columbia has a 10% interest in VIMRx Genomics, Inc. (valued at
$500,000), and has received 200,000 common shares of the Company (valued at
$700,000), which collectively ($1.2 million) have been allocated to purchased
research and development.

On March 28, 1997, the Company entered into a research agreement with
Columbia University whereby the Company will provide $2.7 million in funding
over 3 years to research and develop Blood Factor IXai.

During the second quarter of 1997, the Company acquired the rights to two
compounds, Blood Factor IXai (VM201) and a wound healing compounds (VM301) for
cash payments aggregating $400,000. These payments and fees paid in relation
to the agreement between Columbia and VGI ($200,000) were allocated to
purchased research and development ($600,000).

(6) LETTER OF INTENT

On June 12, 1997, the Company signed a letter of intent with Baxter
Healthcare Corporation to form a new company to acquire the assets and
licenses of Baxter's Immunotherapy Division.

C-6
<PAGE>

VIMRX PHARMACEUTICALS INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1997 (UNAUDITED)

Pursuant to the letter of intent, the Company and Baxter will form a new
company, yet to be named, into which the assets of Baxter's Immunotherapy
Division will be transferred. VIMRx will hold a majority ownership (80%)
position in the new company and Baxter will hold a minority ownership (20%)
position. VIMRx will issue to Baxter 11 million shares of common stock and
convertible preferred shares with a nominal value of $40 million. To the
extent the 11 million shares of common stock are worth less than $50 million
at the time of closing, Baxter will receive additional convertible preferred
shares. The conversion price for the preferred shares will be determined
according to the closing prices of VIMRx's common stock within an 18 month
period following the closing of the transaction, subject to a floor of $5.50
per share and a ceiling of $7.50 per share. Baxter will provide $20 million
and VIMRx will provide $10 million to the new company as initial operating
funds. The new company will pay Baxter milestone payments, related to
regulatory approvals, of up to $21 million over several years. Baxter will
retain its exclusive license to the CD34 antibody used in selection technology
and sublicense it to the new company. Baxter will have one representative on
the new company's board of directors and one representative on VIMRx's board
of directors. The terms included in the letter of intent are subject to the
signing of a definitive agreement between VIMRx and Baxter and the approval by
the boards of directors of VIMRx and Baxter and the stockholders of VIMRx,
which is anticipated to occur in the third quarter of 1997.

(7) NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." This Statement establishes standards for
computing and presenting earnings per share (EPS) and applies to entities with
publicly held common stock or potential common stock. This Statement
simplifies the standards for computing earnings per share previously found in
APB Opinion No. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. This Statement is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods; earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. The adoption of this
Statement will not have any impact on the Company's EPS disclosure, as the
Company's stock options and warrants are anti-dilutive and will be excluded
from the denominator of earnings per share; thus, earnings per common share is
equal to basic earnings per share as computed under SFAS No. 128.

C-7
<PAGE>

VIMRX PHARMACEUTICALS INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Quarterly
Report on Form 10-Q and with the Company's Annual Report on Form 10K for the
fiscal year ended December 31, 1996. The Company is in the development stage
and has had no operating revenues since its organization in December 1986.

Three Months Ended June 30, 1997 and 1996

Total operating expenses increased by $1,821,000, or 39%, due to a
$2,891,000 increase in research and development expenses, a $2,342,000
decrease in purchased research and development, a $1,169,000 increase in
general and administrative expenses and $103,000 amortization of goodwill.

Research and development expenses increased $2,891,000 due to the inclusion
of the New York operations of Innovir Laboratories, Inc. ("Innovir"), a
majority interest of which was acquired by the Company on December 23, 1996
($1,050,000), increased operations in Europe ($447,000), funding paid under
the collaboration agreement with Columbia University by VIMRX Genomics Inc.
($1,175,000) and increases in expenses related to clinical trials and other
expenses.

The purchased research and development incurred for the three months ended
June 30, 1997 ($600,000) relates to payments made to acquire rights to two
compounds and fees paid in relation to ongoing research and development made
available to VIMRX Genomics, Inc. by Columbia University. In 1996, the
purchased research and development expense related to the acquisition of
Ribonetics GmbH ($2,942,000).

General and administrative expenses increased $1,169,000 (101%) principally
due to the inclusion of Innovir's operations ($609,000) and increased
compensation expenses net of decreases in director's consulting fees and legal
fees ($560,000).

Goodwill, which was recorded in the acquisition of Innovir, will be
amortized over three years.

Interest income increased $524,000 (680%), due to an increase in funds
available for investment (see "Liquidity and Capital Resources") and a higher
effective interest rate. Interest expense decreased $167,000 (78%) due
principally to the repayment of a bridge loan in June 1996.

The minority interest in the net loss of consolidated subsidiaries
($929,000) results from the interest of minority stockholders in Innovir and
VIMRX Genomics, Inc., two of the Company's subsidiaries.

Other income expenses increased $64,000 due to capital losses on short-term
investments.

The foregoing resulted in a $187,000 (4%) increase in the net loss for the
three month period ended June 30, 1997.

Six Months Ended June 30, 1997 and 1996

Operating expenses for the six months ended June 30, 1997 increased
$7,064,000 (127%) from the same period in 1996, due principally to
acquisitions of companies and technologies made at various times during 1996
and 1997. During that period, research and development expenses increased
$5,738,000 (588%), general and administrative expenses increased $1,798,000
(85%) and amortization of goodwill was recorded at $206,000. These increases
were offset by a $1,142,000 (39%) decrease in purchased research and
development. In addition, the 1996 period experienced a one-time $464,000
credit for termination of agreement.

The $5,738,000 increase in research and development expense resulted from
the acquisition of Innovir Laboratories, Inc. which was included in the
financial statements from the date of acquisition, December 23, 1996
($2,096,000), increased operations in Europe ($952,000), funding paid under
the collaboration agreement

C-8
<PAGE>

with Columbia University by VIMRX Genomics, Inc. ($2,350,000) and increases in
expenses related to clinical trials and other expenses.

General and administrative expenses increased $1,798,000 principally due to
the inclusion of Innovir's operations ($1,327,000) and increased compensation
expense, net of decreased legal, financing and other costs.

Goodwill, which was recorded in the acquisition of Innovir, is being
amortized over three years.

The purchased research and development expense recorded for the six months
ended June 30, 1997 ($1,800,000) relates to the issuance of common stock of
the Company to Columbia University, the purchase of compound VM 201 from
Columbia University and the purchase of compound VM 301. The purchased
research and development expense recorded for the six months ended June 30,
1996 relates to the acquisition of Ribonetics GmbH ($2,942,000).

Interest income increased $1,187,000, due to an increase in funds available
for investment and a higher effective interest rate. Interest expenses
decreased $236,000 (74%) due to the bridge loan that was repaid in June 1996.

The minority interest in the net loss of consolidated subsidiaries
($1,876,000) results from the interest of minority stockholders in Innovir and
VIMRX Genomics, two of the Company's subsidiaries.

Other expenses of $40,000 is due to capital losses on short-term
investments.

The foregoing resulted in a $3,805,000 increase in the net loss for the six
months ended June 30, 1997.

Liquidity and Capital Resources

The Company is in the development stage, has realized no operating revenues
and has financed its operations through the sale of its securities.

The Company had $36,817,000 in cash, cash equivalents and marketable
securities held for sale at June 30, 1997, as compared to $46,911,000 at
December 31, 1996 and working capital of $34,710,000 at June 30, 1997, as
compared to $44,848,000 at December 31, 1996. The decrease in cash and working
capital position results from the funds expended in operations and the
expansion and upgrade of Innovir's laboratory facilities.

The Company expects to incur substantial expenditures in the foreseeable
future for the research and development and commercialization of its proposed
products. Based on current projections, which are subject to change, the
Company's management believes that the present balance of cash, cash
equivalents and marketable securities held for sale is sufficient to fund its
operations for about two years, assuming no capital infusions or revenues are
received (it is management's belief, however, that such capital infusions and
revenues will occur). Thereafter, the Company will require additional funds,
which it may seek to raise through public or private equity or debt
financings, collaborative or other arrangements with corporate sources, or
through other sources of financing.

C-9
<PAGE>

PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Not Applicable.

ITEM 2. CHANGES IN SECURITIES.

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On June 24, 1997, the stockholders of VIMRx Pharmaceuticals Inc. ("VIMRx" or
the "Company") held their Annual Meeting in New York City. The holders of
45,298,248 shares of Common Stock were present or represented by proxy, out of
54,642,437 shares of Common Stock issued and outstanding on May 9, 1997, the
record date for the Annual Meeting and, accordingly, a quorum was present and
matters were voted on as follows:

a. By plurality vote, the following persons were elected directors of the
Company:

<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Donald G. Drapkin...................................... 45,069,625 228,623
Richard L. Dunning..................................... 45,083,765 214,488
Eric A. Rose, M.D. .................................... 45,083,765 214,488
Laurence D. Fink....................................... 45,083,765 214,488
Jerome Groopman, M.D. ................................. 45,083,765 214,488
Linda G. Robinson...................................... 45,083,765 214,488
Lindsay A. Rosenwald, M.D. ............................ 45,082,765 215,483
Michael Weiner, M.D. .................................. 45,083,765 214,488
</TABLE>

b. Certain amendments to the Company's 1990 Incentive and Non-Incentive
Stock Option Plan to conform the plan to certain statutory and
regulatory developments and to provide the Board of Directors and the
Compensation Committee with greater flexibility in determining the terms
and conditions of options, were approved. Votes totaling 34,081,376 were
in favor of the amendments, 4,084,847 were against them, 458,824
abstained, and there were no broker non-votes.

c. Approval of the Company's 1997 Stock Option Plan was approved. Votes
totaling 44,922,919 were in favor of the plan, 190,179 were against it,
185,150 abstained, and there were no broker non-votes.

d. Ratification of the appointment of KPMG Peat Marwick, LLP as independent
auditors for the year ending December 31, 1997 also passed. Votes
totaling 44,922,919 were in favor of the ratification, 190,179 were
against it, 185,150 abstained, and there were no broker non-votes.

ITEM 5. OTHER INFORMATION.

In June 1997, the Company entered into a letter of intent with Baxter
Healthcare Corporation ("Baxter"), the principal U.S. operating subsidiary of
Baxter International Inc. (NYSE: BAX) to form a new cell therapy company to
develop innovative treatments for cancer and other life-threatening diseases.
The proposed alliance would combine Baxter's ex vivo cellular selection and
storage business with the Company's access to genomics technology to create a
leading comprehensive ex vivo and gene therapy enterprise.

C-10
<PAGE>

In July 1997, the Company's 2,399,993 outstanding Common Stock Purchase
Warrants (the "Warrants") commenced trading on The Nasdaq National Market.
Each Warrant entitles the registered holder to purchase one shares of Common
Stock at an exercise price of $1.50 per share at any time through January 20,
2006.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

None.

(b) Reports on Form 8-K:

Pursuant to a Report on Form 8-K filed on May 21, 1997, the Company reported
that Richard A. Eisner & Company LLP, who previously served as the independent
auditors of the Company, were dismissed upon recommendation of the Audit
Committee effective May 16, 1997, and replaced by KPMG Peat Marwick, LLP. The
Company reported that at no time did any report on the financial statements of
the Company by Richard A. Eisner & Company, LLP contain an adverse opinion or
a disclaimer of opinion, or a qualification or modification as to uncertainty,
audit scope or accounting principles. The decision to change accountants was
occasioned by the developments of the past year, and not by any disagreement
or advice given on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. In particular, in light
of the acquisition by the Company of a controlling interest in Innovir
Laboratories, Inc. the Audit Committee concluded that it would be most
efficient and in the best interests of both Innovir and the Company for the
same auditors to audit both companies. The Company solicited proposals from
four auditing firms, including Richard A. Eisner & Company, LLP. KPMG Peat
Marwick LLP was chosen as a result of this process, and was engaged by the
Company as its principal auditors on May 16, 1997.

C-11
<PAGE>

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.

Dated: August 13, 1997

VIMRx Pharmaceuticals Inc.
a Delaware Corporation
(Registrant)

/s/ Richard L. Dunning
By: _________________________________
Richard L. Dunning
President and Chief Executive
Officer

/s/ Francis M. O'Connell
By: _________________________________
Francis M. O'Connell
Chief Accounting Officer

C-12
<PAGE>

ANNEX D

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VIMRX PHARMACEUTICALS INC.

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

PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE

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

VIMRx Pharmaceuticals Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:

1. The name of the Corporation is VIMRx Pharmaceuticals Inc. and the name
under which the Corporation originally was incorporated was "Cellular
Immunology Corporation."

2. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on December 13, 1986.

3. The Amended and Restated Certificate of Incorporation of the Corporation,
as heretofore amended or supplemented (the "Certificate of Incorporation"), is
hereby further amended by striking out "Article IV" and substituting in lieu
thereof a new "Article IV" changing the authorized capital stock of the
Corporation to read as follows:

"FOURTH:

A. The authorized capital stock of the Corporation shall consist of one
hundred twenty million one hundred fifty thousand (120,150,000) shares,
consisting of one hundred twenty million (120,000,000) shares of Common
Stock, each having a par value of $.001 (the "Common Stock"), and one
hundred fifty thousand (150,000) shares of Preferred Stock, each having a
par value of $.001 (the "Preferred Stock").

B. The Board of Directors hereby creates and establishes and authorizes
the issuance of a first series of preferred stock, such series to consist
of 150,000 shares of this Corporation's authorized and unissued Preferred
Stock, each share having a par value of $.001, and the Board of Directors
hereby fixes the designation of such series as "Series A Cumulative
Convertible Preferred Stock" (hereinafter referred to as the "Preferred
Stock") and fixes the number of shares constituting such series at 150,000,
and hereby determines the powers, preferences, rights, qualifications,
limitations and restrictions of such series as follows:

SECTION 1.
DIVIDENDS.

(a)The holders of the Preferred Stock shall be entitled to receive dividends
thereon at the rate of 6% of the Liquidation Preference (as defined in Section
2) per share per annum, (as adjusted for any combinations, consolidations,
stock distributions or stock dividends with respect to such shares) as and
when declared by the Board of Directors, before any dividend or distribution
shall be declared, set apart for, or paid upon the Common Stock of the
Corporation, which dividend shall be payable in additional shares of Preferred
Stock, each valued at

D-1
<PAGE>

their Liquidation Preference. The dividends on the Preferred Stock shall be
cumulative, so that if the Corporation fails in any fiscal year to pay such
dividends on all of the issued and outstanding Preferred Stock, such
deficiency in the dividends shall be fully paid before any dividends or
distributions shall be paid on or set apart for the Common Stock. All
dividends and distributions on the Preferred Stock shall be made pro rata per
share to all holders of Preferred Stock; provided, however, that,
notwithstanding the foregoing, until all cumulative dividends on the Preferred
Stock shall have been fully paid, all dividends and distributions on the
Preferred Stock shall be made ratably to the holders thereof in proportion to
the respective amounts that would be payable on such shares if such dividend
arrearages were paid in full. Such dividends shall accrue annually on the
anniversary of the Original Issuance Date (as defined in Section 3(d)).

(b)For purposes of this Section 1, unless the context requires otherwise,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common
Stock held by employees or directors of, or consultants to, the Corporation
upon termination of their employment or services pursuant to agreements
providing for such repurchase and other than redemptions in liquidation or
dissolution of the Corporation) for cash or property, including any such
transfer, purchase or redemption by a subsidiary of the Corporation.

SECTION 2.
LIQUIDATION RIGHTS.

(a) Treatment at Liquidation, Dissolution or Winding Up.

(i)Except as otherwise provided in Section 2(b) below, in the event of
any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of Preferred
Stock shall be entitled to be paid first out of the assets of the
Corporation available for distribution to holders of the Corporation's
capital stock of all classes, before payment or distribution of any of such
assets to the holders of any other class of the corporation's capital
stock, an amount equal to $1,000 per share of Preferred Stock (the
"Liquidation Preference,") which amount shall be subject to equitable
adjustment whenever there shall occur a stock dividend, stock split,
combination of shares, reclassification or other similar event affecting
such shares), and shall include any accrued but unpaid dividends.

(ii) After payment shall have been made in full to the holders of
Preferred Stock pursuant to Section 2(a)(i) hereof or funds necessary for
such payment shall have been set aside by the Corporation in trust for the
account of the holders of Preferred Stock to be available for such payment,
the remaining assets of the Corporation shall be distributed ratably to the
holders of Common Stock to the exclusion of the Preferred Stock.

(iii)If the assets of the Corporation shall be insufficient to permit the
payment in full to the holders of Preferred Stock of all amounts
distributable to them under Section 2(a)(i) hereof, then the entire assets
of the Corporation available for such distribution shall be distributed
ratably among the holders of Preferred Stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive.

(b)Treatment of Reorganizations, Consolidations, Mergers and Sales of
Assets. A consolidation or merger of the Corporation with or into another
unaffiliated corporation or a sale of all or substantially all of the assets
of the Corporation, shall not be regarded as a liquidation, dissolution or
winding up of the affairs of the Corporation for purposes of this Section 2,
but shall result in conversion of the Preferred Stock into Common Stock as set
forth in Section 3(c).

(c)Distributions Other Than Cash. The value of any distribution provided for
in this Section 2, or portion thereof, payable in property other than cash
shall be the fair value (as determined by the Board of Directors in good
faith) of such property at the time of such distribution.

D-2
<PAGE>

SECTION 3.
CONVERSION.

The holders of Preferred Stock shall have conversion rights (the "Conversion
Rights") and the Preferred Stock shall be subject to conversion, as follows:

(a)Right to Convert; Conversion Price. Each share of Preferred Stock shall
be convertible, without the payment of any additional consideration by the
holder thereof and at the option of the holder thereof, at any time after
eighteen (18) months after the Original Issuance Date (as defined in Section
3(d) below), at the office of the Corporation or any transfer agent for the
Preferred Stock, into such whole number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $1,000 by the Conversion Price,
determined as hereinafter provided, in effect at the time of conversion. The
Conversion Price at which shares of Common Stock shall be deliverable upon
conversion without the payment of any additional consideration by the holder
of Preferred Stock (the "Conversion Price") shall initially be the highest
average of closing bid prices per share of Common Stock on the principal
market on which such Common Stock trades for any sixty (60) consecutive
trading day period commencing with the Original Issuance Date and ending on
the date which is eighteen (18) months from such date, but in no event shall
such Conversion Price be less than $5.50 or greater than $7.50. Such initial
Conversion Price shall be subject to adjustment, in order to adjust the number
of shares of Common Stock into which Preferred Stock is convertible, as
hereinafter provided. The right of conversion with respect to any shares of
Preferred Stock which the Corporation redeems pursuant to Section 5(a) hereof
shall terminate at the close of business on the Redemption Date (as defined in
Section 5 of this Certificate of Designations), unless the Corporation shall
default in the payment of the redemption price for such shares of Preferred
Stock, in which case such termination shall occur upon payment of the
redemption price of such shares.

(b)Mechanics of Conversion; Dividends; Fractional Shares. Before any holder
of Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
the Preferred Stock, and shall give written notice to the Corporation at such
office that such holder elects to convert the same. At the time of each
conversion of shares of Preferred Stock, the Corporation shall also issue
shares of Common Stock in an amount equal to all dividends declared and unpaid
on the shares of Preferred Stock surrendered for conversion to the date upon
which such conversion is deemed to occur, valued at the Conversion Price. In
lieu of any fractional shares of Common Stock to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the then effective Conversion Price. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such
holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid,
together with cash in lieu of any fraction of a share. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.

(c)Automatic Conversion.

(i)Each share of Preferred Stock shall automatically be converted into
shares of Common Stock at the then effective Conversion Price:

(1)on the date which is seven (7) years after the Original Issuance
Date; or

(2)immediately prior to the effective time of any merger, sale of
assets, reorganization or like event in which the Corporation is not
the surviving entity (if such event occurs prior to eighteen months
from the Original Issuance Date, then the Conversion Price shall be
equal to the fair value of the consideration to be received by the
holder of a share of Common Stock, as determined in good faith by the
Corporation's Board of Directors, but in no event greater than $7.50),
or

D-3
<PAGE>

(3)upon the written election of the holders of not less than a
majority in voting power of the then outstanding shares of Preferred
Stock to require such mandatory conversion.

(ii)Upon the occurrence of an event specified in Section 3(c)(i) hereof,
all shares of Preferred Stock shall be converted automatically without any
further action by any holder of such shares and whether or not the
certificate(s) representing such shares are surrendered to the Corporation
or the transfer agent for the Preferred Stock; provided, however, that the
Corporation shall not be obligated to issue a certificate or certificates
evidencing the shares of Common Stock issuable upon such conversion unless
the certificate(s) evidencing such shares of Preferred Stock being
converted are either delivered to the Corporation or the transfer agent for
the Preferred Stock, or the holder notifies the Corporation or such
transfer agent that such certificate or certificates have been lost,
stolen, or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith ("Indemnity Agreement"), except that such holder shall
not be required to provide any indemnity bond. Upon the automatic
conversion of Preferred Stock, each holder of Preferred Stock shall
surrender the certificate(s) representing such holder's shares of Preferred
Stock or the aforesaid Indemnity Agreement at the office of the Corporation
or of the transfer agent for the Preferred Stock. Thereupon, there shall be
issued and delivered to such holder, promptly at such office and in such
holder's name as shown on such surrendered certificate(s), a certificate or
certificates for the number of shares of Common Stock into which the shares
of Preferred Stock surrendered were convertible on the date on which such
automatic conversion occurred. No fractional shares of Common Stock shall
be issued upon the automatic conversion of Preferred Stock. In lieu of any
fractional shares of Common Stock to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied
by the then effective Conversion Price.

(d)Adjustment for Stock Splits and Combinations. If the Corporation shall at
any time or from time to time after the date on which shares of the Preferred
Stock are first issued (the "Original Issuance Date") effect a subdivision of
the outstanding Common Stock, the Conversion Price in effect immediately
before that subdivision shall be proportionately decreased. If the Corporation
shall at any time or from time to time after the Original Issuance Date
combine the outstanding shares of Common Stock, the Conversion Price in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.

(e)Adjustment for Certain Dividends and Distributions.

(1)In the event the Corporation at any time or from time to time after
the Original Issuance Date shall make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock, then
and in each such event the Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record
date shall have been fixed, as of the close of business on such record
date, by multiplying the Conversion Price then in effect by a fraction:

(A)the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and

(B)the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;

provided, however, if such record date shall have been fixed and such
dividend is not fully paid or such distribution is not fully made on the
date fixed therefor, the Conversion Price shall be recomputed accordingly
as of the close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this paragraph as of the
time of actual payment of such dividends or distributions.

D-4
<PAGE>

(2)For the purposes of Section 3(e)(1) hereof, the total number of shares
of Common Stock deemed to be issued and outstanding shall include (i) all
shares of Common Stock issuable on conversion of all shares of Preferred
Stock outstanding and (ii) all shares of Common Stock issued and
outstanding and entitled to receive such dividend.

(f)Adjustments for Other Dividends and Distributions. In the event the
Corporation at any time or from time to time after the Original Issuance Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, including a
cash dividend, then and in each such event provision shall be made so that the
holders of Preferred Stock shall receive upon conversion thereof in addition
to the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation and/or cash that they would have received had
their Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event
to and including the conversion date, retained such securities receivable by
them as aforesaid during such period, giving application to all adjustments
called for herein during such period.

(g)Adjustment for Reclassification, Exchange or Substitution. If the Common
Stock issuable upon the conversion of the Preferred Stock shall be changed
into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for in Section 3(c), then and in each such event the holder of each
such share of Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other
change, by holders of the number of shares of Common Stock into which such
shares of Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.

(h)[INTENTIONALLY OMITTED]

(i)Adjustment of Conversion Price Upon Issuance of Additional Shares of
Common Stock.

(1)Subject always to Section 3(i)(5), in the event that at any time or
from time to time after the Original Issuance Date, through and including
the date which ends eighteen (18) months after the Original Issuance Date,
but not thereafter, the corporation shall issue any shares of Common Stock
or securities convertible into or exercisable to purchase shares of Common
Stock ("Additional Shares of Common Stock") excluding shares issued upon a
stock split or combination as provided in Section 3(d) or as a dividend or
distribution as provided in Sections 3(e) or (f)), without consideration or
for a consideration per share less than the Conversion Price in effect on
the date of, and immediately prior to, the issuance or deemed issuance of
such Additional Shares of Common Stock, (which shall include the assumed
conversion of all convertible securities and the assumed exercise of all
convertible securities or rights to purchase shares of Common Stock in
accordance with the terms of such convertible securities or rights to
purchase Common Stock), then and in such event, the applicable Conversion
Price then in effect shall be reduced, concurrently with such issue, to a
price (calculated to the nearest cent) determined by multiplying such
Conversion Price by a fraction:

(A)the numerator of which shall be (x) the number of shares of Common
Stock outstanding immediately prior to such issue plus (y) the number
of shares of Common Stock which the aggregate consideration received or
deemed to have been received by the corporation for the total number of
Additional Shares of Common Stock so issued would purchase at the
Conversion Price in effect on the date of, and immediately prior to,
the issuance or deemed issuance of such Additional Shares of Common
Stock, and

D-5
<PAGE>

(B)the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of
such Additional Shares of Common Stock so issued or deemed to be
issued.

(2)For the purposes of Section 3(i) (1) hereof, all shares of Common
Stock issuable upon conversion of shares of Preferred Stock outstanding
immediately prior to any issue of Additional Shares of Common Stock, or any
event with respect to which Additional Shares of Common Stock shall be
deemed to be issued, shall be deemed to be outstanding; and immediately
after any Additional Shares of Common Stock are deemed issued pursuant to
Section 3(i)(l) such Additional Shares of Common Stock shall be deemed to
be outstanding.

(3)Notwithstanding anything to the contrary contained herein, the
applicable Conversion Price in effect at the time Additional Shares of
Common Stock are issued or deemed to be issued shall not be reduced
pursuant to Section 3(i)(1) hereof at such time if the amount of such
reduction would be an amount less than $. 01, but any such amount shall be
carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and
any other amount or amounts so carried forward, shall aggregate $.01 or
more.

(4)Determination of Consideration. For purposes of this Section 3(i) ,
the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:

(i)Cash and Property: Such consideration shall:

(A)insofar as it consists of cash, be computed at the aggregate
amounts of cash received by the Corporation, excluding amounts paid
or payable for accrued interest or accrued dividends;

(B)insofar as it consists of property other than cash, be computed
at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors; and

(C)in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion
of such consideration so received, computed as provided in clauses
(A) and (B) above, as determined in good faith by the Board of
Directors.

(ii)Options and Convertible Securities. The consideration per share
received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 3(i)(1) , relating to
options, warrants or rights to purchase Common Stock, and convertible
securities, shall be determined by dividing (W) the total amount, if
any, received or receivable by the Corporation as consideration for the
issue of such options or convertible securities, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such options or the conversion or
exchange of such convertible securities, or in the case of options for
convertible securities, the exercise of such options for convertible
securities and the conversion or exchange of such convertible
securities, by (X) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such options or the conversion or
exchange of such convertible securities.

(5)Notwithstanding any other provision of this Section 3(i), there shall
be no deemed issuance of Additional Shares of Common Stock upon (A)
issuance of any shares of Preferred Stock as a dividend on the Preferred
Stock, (B) conversion of any Preferred Stock, (C) exercise of any options
or warrants issued and outstanding on the Original Issuance Date, (D) grant
or exercise of any options to purchase Common Stock pursuant to the
Corporation's Stock Option Plan as in effect on the Original Issuance Date
or any

D-6
<PAGE>

subsequent amendment thereof which is approved by the Corporation's
stockholders pursuant to Securities and Exchange Commission regulations, or
(E) the sale for cash of no more than 3,333,334 shares of Common Stock for
aggregate gross proceeds of no more than $10,000,000, at a gross per-share
price of no less than $3.00. In the event that the gross per-share sale
price of a share of Common Stock under Section 3(i)(5)(E) shall be less
than $3.00, then the difference between $3.00 and the actual gross per-
share sale price shall be subtracted from the Conversion Price utilized in
the calculation set forth in Section 3(i)(1)(A)(y).

(j)Certificate as to Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 3, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each affected
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any affected holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of each share of
Preferred Stock.

(k)Notices of Record Date. In the event of any taking by the Corporation of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the Corporation shall mail to each
holder of Preferred Stock at least ten (10) days prior to such record date a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.

(l)Common Stock Reserved. The Corporation shall reserve and keep available
out of its authorized but unissued Common Stock such number of shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all Preferred Stock.

(m)Certain Taxes. The Corporation shall pay any issue or transfer taxes
payable in connection with the conversion of any shares of Preferred Stock;
provided, however, that the Corporation shall not be required to pay any tax
that may be payable in respect of any transfer to a name other than that of
the holder of such Preferred Stock.

SECTION 4.
VOTING RIGHTS.

Except as otherwise required by law or by Section 7, the holders of
Preferred Stock shall not have the right to vote on any matter submitted to a
vote of the stockholders of the Corporation. With respect to all questions as
to which, under law, stockholders are entitled to vote by classes, the holders
of Preferred Stock shall vote together as a single class separately from the
holders of Common Stock.

SECTION 5.
NO REISSUANCE PREFERRED STOCK.

No share or shares of Preferred Stock acquired by the Corporation by reason
of redemption, purchase, conversion or otherwise shall be reissued, and all
such shares shall be canceled, retired and eliminated from the shares which
the Corporation shall be authorized to issue.

D-7
<PAGE>

SECTION 6.
PROTECTIVE COVENANT.

The Corporation shall not, without the affirmative vote or written consent
of the holders of a majority of the then issued and outstanding shares of
Preferred Stock, amend its Certificate of Incorporation to provide for the
creation or issuance of any class or series of capital stock which shall rank
pari passu or senior to the Preferred Stock in priority to receive the
liquidation preference on the Preferred Stock."

4. The amendment to the Certificate of Incorporation herein certified has
been duly adopted in the manner and by the vote presecribed by Section 242 of
the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed
by Richard L. Dunning, its President, and attested by Lowell S. Lifschultz,
its Secretary, as of this day of December, 1997.

VIMRx PHARMACEUTICALS INC.

By:
-----------------------------------
Name: Richard L. Dunning
Title:President and Chief Executive
Officer

ATTEST:

- -------------------------------------
Name: Lowell S. Lifschultz
Title:Secretary

D-8
<PAGE>

ANNEX E

LAZARD FRERES & CO. LLC
30 ROCKEFELLER PLAZA
NEW YORK, N.Y. 10020
-------
TELEPHONE (212) 632-6000 NEW YORK
FAXSIMILE (212) 632-6060

October 17, 1997

The Board of Directors
VIMRx Pharmaceuticals Inc.
2751 Centerville Road, Suite 210
Wilmington, DE 19808

Dear Members of the Board:

We understand that VIMRx Pharmaceuticals Inc. ("VIMRx" or the "Company") and
Baxter Healthcare Corporation ("Baxter" or the "Parent") have entered into an
agreement dated as of October 10, 1997 (the "Agreement"), pursuant to which
Baxter will transfer the assets of its Immunotherapy Division ("Immunotherapy"
or the "Subject Company") to the Company and to a yet-to-be named company that
will be a subsidiary of the Company (the "Acquisition"). In exchange therefor,
Baxter will receive (i) 11 million VIMRx common shares, and convertible
preferred shares with a nominal value of $40 million; (ii) to the extent the
11 million common shares are worth less than $50 million, Baxter will receive
additional convertible preferred shares (determined at the times and according
to the methodology set forth in the Agreement); and (iii) a 19.5% interest in
the new company (to which the Company will transfer the Immunotherapy assets
it acquired) as well as warrants to purchase an additional 6% stake for $6
million (all such consideration, the "Consideration").

You have requested our opinion as to the fairness, from a financial point of
view, to the Company's stockholders of the Consideration. In connection with
this opinion, we have:

(i) Reviewed the financial terms and conditions of the Agreement;

(ii) Analyzed certain historical business and financial information
relating to the Company and the Subject Company;

(iii) Reviewed various financial forecasts and other data provided to us
by the Company and Baxter relating to the business of the Subject Company
and by the Company with respect to its business;

(iv) Held discussions with members of the senior managements of the
Company and Baxter and the Subject Company with respect to the businesses
and prospects of the Company and the Subject Company, respectively, the
strategic objectives of each, and possible benefits which might be realized
following the Acquisition;

(v) Reviewed public information with respect to certain other companies
in lines of businesses we believe to be generally comparable to the
business of the Subject Company;

(vi) Reviewed the historical stock prices of the Company's common stock;
and

(vii) Conducted such other financial studies, analyses and investigations
as we deemed appropriate.

E-1
<PAGE>

We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company or the Subject Company. With
respect to financial forecasts,
we have assumed that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of management of the
Company as to the future financial performance of the Company, and of the
Company, Baxter and the Subject Company as to the future financial performance
of the Subject Company, including the technology-related assumptions on which
they are based. Specifically, we have relied upon the assumption of the
Company with regards to the timing of FDA regulatory approval for the Subject
Company's products. We have also assumed that Baxter will, by the closing
date, enter into agreements with the Company or the Subject Company on
customary terms to i) perform manufacturing services, ii) supply components to
the Subject Company, iii) have exclusive rights to distribute certain of the
Subject Company's products and instruments, iv) provide engineering and
product development services to the Subject Company and v) sublicense certain
technology to the Subject Company. We assume no responsibility for and express
no view as to such forecasts or the assumptions on which they are based.

Further, our opinion is necessarily based on economic, monetary, market
(including, without limitation, the stock price of the Company's common stock)
and other conditions as in effect on, and the information made available to us
as of, the date hereof.

In rendering our opinion, we have assumed that the Acquisition will be
consummated on the terms described in the Agreement, without any waiver of any
material terms or conditions by the Company and that obtaining the necessary
regulatory approvals for the Acquisition will not have an adverse effect on
the Company or the Subject Company.

Lazard Freres & Co. LLC is acting as financial advisor to the Company in
connection with the Acquisition and will receive a fee for our services.
Certain of our managing directors, including the undersigned, have a position
in the Company's common stock.

Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors, and our opinion is rendered to the Company's
Board of Directors in connection with its consideration of the Acquisition.
This opinion is not intended to be, and does not constitute, a recommendation
to any stockholder of the Company as to whether to vote for the Acquisition.
It is understood that this letter may not be disclosed or otherwise referred
to without our prior consent, except as may otherwise be required by law or by
a court of competent jurisdiction; provided, however, that this opinion may be
reproduced in full in the Company's proxy statement to be filed with the
Securities and Exchange Commission relating to the Acquisition.

Based on and subject to the foregoing, we are of the opinion that the
Consideration is fair to the Company's stockholders from a financial point of
view.

Very truly yours,

Lazard Freres & Co. LLC

/s/ Kenneth M. Jacobs
By: _________________________________
Managing Director

E-2
<PAGE>

PROXY
VIMRX PHARMACEUTICALS INC.

THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints DONALD G. DRAPKIN and RICHARD L. DUNNING and
each of them, proxies, each with the power of substitution, to vote the shares
of the undersigned at the Special Meeting of Stockholders of VIMRx
Pharmaceuticals Inc. (the "Company") on December 16, 1997, and any adjournments
and postponements thereof, upon all matters as may properly come before the
Special Meeting. Without otherwise limiting the foregoing general
authorization, the proxies are instructed to vote as indicated herein.

PLEASE COMPLETE, DATE AND SIGN ON THE REVERSE SIDE AND MAIL IN THE ENCLOSED
ENVELOPE.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MATTERS (1) and (2) LISTED BELOW,
---
TO COME BEFORE THE SPECIAL MEETING:

(1) To approve the acquisition by a newly-organized Company subsidiary of the
assets, business and certain obligations of the Immunotherapy Division of
the Biotech Business Group of Baxter Healthcare Corporation, as described in
the accompanying Proxy Statement.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

(2) To approve the amendment to Article FOURTH of the Company's Amended and
Restated Certificate of Incorporation authorizing 150,000 Class A Preferred
Shares to effectuate the transactions contemplated by the proposed
acquisition as described in the accompanying Proxy Statement.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

(3) Upon any and all other business that may come before the Special Meeting.

Check here if you plan to attend the Special Meeting of Stockholders. [ ]

THIS PROXY, WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL BE
VOTED FOR THE MATTERS DESCRIBED IN PARAGRAPHS (1) AND (2) UNLESS THE STOCKHOLDER
SPECIFIES OTHERWISE, IN WHICH CASE IT WILL BE VOTED AS SPECIFIED.

SIGNATURE(S):___________________________________________________________________
_____________ DATE______________________________________ 1997
Note: Executors, Administrators, Trustees, etc. should give full title.